ZEOX 10-Q
Zeo ScientifiX, Inc. (ZEOX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For the quarterly period ended
OR
For the transition period from _______________ to _______________
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
|
|
||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of March 14, 2025, there were shares of common stock, $0.001 par value per share, issued and outstanding.
ZEO SCIENTIFIX, INC.
TABLE OF CONTENTS
i
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.
ii
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
Zeo ScientifiX, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts rounded to the nearest thousand except share amounts)
| January 31, 2025 |
October 31, 2024 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for bad debts | ||||||||
| Other receivables | ||||||||
| Prepaid expenses | ||||||||
| Inventories | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Finance lease obligations | ||||||||
| Convertible promissory note, net of debt discount of $ |
||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Long term finance lease obligations | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shares Subject To Possible Redemption | ||||||||
| Series C Preferred Stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Stockholders’ Deficit | ||||||||
| Common stock, $par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Deficit | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES, SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Zeo ScientifiX, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts rounded to the nearest thousand except share amounts)
(Unaudited)
| Three Months Ended January 31, |
||||||||
| 2025 | 2024 | |||||||
| Revenues (includes sales to related parties of approximately $ |
$ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| General and administrative expenses | ||||||||
| Loss from operations | ( |
) | ( |
) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Other income | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Zeo ScientifiX, Inc.
CONDENSED CONSOLIDATED CHANGES TO STOCKHOLDERS’ EQUITY (DEFICIT)
For the Three Months Ended January 31, 2025 and 2024
(Amounts rounded to the nearest thousand except share amounts)
(Unaudited)
| Additional | Total Stockholders’ |
|||||||||||||||||||
| Common Stock | Paid In | Accumulated | Equity | |||||||||||||||||
| Shares | Par Value | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance October 31, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Reverse split round-up adjustment | ||||||||||||||||||||
| Cancellation of shares in connection with litigation | ( |
) | ( |
) | ||||||||||||||||
| Fair value of equity instruments issued for compensation: | ||||||||||||||||||||
| Fair value of vested options issued | ||||||||||||||||||||
| Fair value of vested warrants issued | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance January 31, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Balance October 31, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Fair value of equity instruments issued for compensation: | ||||||||||||||||||||
| Fair value of vested shares issued | - | |||||||||||||||||||
| Fair value of vested options issued | - | |||||||||||||||||||
| Fair value of vested warrants issued | - | |||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance January 31, 2025 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Zeo ScientifiX, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts rounded to the nearest thousand except share amounts)
(Unaudited)
| Three Months Ended January 31, |
||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of OID and commitment fee discount – Promissory notes | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net of allowance for bad debts | ( |
) | ||||||
| Other receivable | ||||||||
| Prepaid expenses | ( |
) | ( |
) | ||||
| Inventories | ( |
) | ( |
) | ||||
| Accounts payable and accrued expenses | ( |
) | ||||||
| Deferred revenue | ||||||||
| Net cash provided by (used in) operating activities | ( |
) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments on finance leases | ( |
) | ( |
) | ||||
| Net cash used in financing activities | ( |
) | ( |
) | ||||
| Increase (decrease) in cash | ( |
) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING TRANSACTIONS: | ||||||||
| Reduction in accounts payable for equipment returned to vendor | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Zeo ScientifiX, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED JANUARY 31, 2025 AND 2024 (UNAUDITED)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Zeo ScientifiX, Inc. (“ZEO” or the “Company”) (f/k/a Organicell Regenerative Medicine, Inc.) was incorporated on August 9, 2011 in the State of Nevada under the name Bespoke Tricycles Inc. (changed to Biotech Products Services and Research, Inc. during September 2015 and to Organicell Regenerative Medicine, Inc., effective June 20, 2018). Effective February 20, 2024, we further amended our Articles of Incorporation to assume our current name, Zeo ScientifiX, Inc.
The Company is 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, including Zofin™, are derived from perinatal sources and manufactured to retain the naturally occurring extracellular vesicles, proteins and cell secreted nanoparticles and Patient Pure X™ (“PPX™”), an autologous biologic containing a nanoparticle fraction that is precipitated 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”).
The Company has recently developed and begun to distribute additional products that incorporate its proprietary ingredients for products to be used in topical aesthetic applications and is actively exploring further development of additional products to be used in other topical aesthetic applications. During November 2024, the Company announced that it was launching the first planned collaborative topical product with its affiliate Exotropin LLC; “ZEO HAIR GROW™ Powered By Exotropin™”.
For the three months ended January 31, 2025 and 2024, 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.
Effective November 28, 2023, we implemented a one-for-200 reverse stock split (the “Reverse Split”). 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 as of the earliest period presented.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and include the accounts of the Company and its wholly-owned subsidiaries. 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, 2025, the results of its operations for the three months ended January 31, 2025 and 2024 and the cash flows for the three months ended January 31, 2025 and 2024. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
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. These unaudited consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended October 31, 2024 filed with the Securities and Exchange Commission.
All amounts presented have been rounded to the nearest thousand except share amounts, share prices and earnings per share.
5
Concentrations of Risk
Credit Risk
The balance sheet items that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable. Balances in accounts are insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $
Major Customer
During the three months ended January 31, 2025, the Company sold products and services totaling approximately $
During the three months ended January 31, 2024, the Company sold products and services totaling approximately $
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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Management bases its estimates on historical experience and on other assumptions considered to be reasonable under the circumstances. However, actual results may differ from the estimates.
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 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.
Revenue Recognition
The Company follows the guidance of the Financial Accounting Standards Board (“FASB’) Accounting Standards Update (“ASU”) Topic 606 “Revenue from Contracts with Customers” which requires the Company to recognize revenue in amounts that reflect the prorata completion of the performance obligations of the Company required under the contracts.
The Company recognizes revenue only when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to receive in exchange for the good or service. Our performance obligations are satisfied and control is transferred at a point-in-time, which is typically when the transfer and title to the product sold has taken place and there is evidence of our customer’s satisfactory acceptance of the product shipment or delivery except in those instances when the customer has made prior arrangements with the Company to store the product purchased by the customer at the Company’s facilities that is to be delivered at a later date to be designated by the customer. Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the Company’s consolidated balance sheet.
6
Basic income (loss) per common share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of fully vested common shares outstanding during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of fully vested shares outstanding during the year. 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, 2025, the Company had common shares issuable upon the exercise of options and warrants (vested and unvested), unvested restricted stock and $ of convertible debt securities 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, 2025.
At January 31, 2024, the Company had common shares issuable upon the exercise of options and warrants (vested and unvested) and $ of convertible debt securities 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.
All stock-based payments are recognized in the financial statements based on their fair values.
The Company periodically issues stock options and stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.
Research and Development Costs
Research and development costs consist of direct and indirect costs associated with the development of the Company’s technologies. These costs are expensed as incurred. Our research and development expenses were approximately $
7
Fair Value of Financial Instruments
The Company includes fair value information in the notes to financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made.
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s financial instruments consist of cash and cash equivalents, accounts payable, accrued liabilities and convertible debt. The estimated fair value of cash, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.
The Company follows the provisions of ASC 820 with respect to its financial instruments. As required by ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
Level one — Quoted market prices in active markets for identical assets or liabilities;
Level two — Inputs other than level one inputs that are either directly or indirectly observable such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
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.
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.
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of convertible notes approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.
Segment Information
Under ASC 280, Segment Reporting, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company has one component. Therefore, the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment for the manufacture and distribution of its products.
Subsequent Events
The Company has evaluated subsequent events that occurred after January 31, 2025 through the financial statement issuance date for subsequent event disclosure consideration.
Recently Issued Accounting Pronouncements
In January 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, in November 2024, and ASU 2025-01, Clarifying the Effective Date. These 6 updates require entities to provide disaggregated disclosure of income statement expenses. The ASUs do not affect the expense captions presented on the face of the income statement but instead require the disaggregation of certain expense captions into specified categories within the footnotes to the financial statements. The ASUs will become effective for the Company beginning December 1, 2027, and is not expected to have a material impact on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses. This ASU requires public companies with a single reportable segment to provide all disclosures required under ASC 280. In addition, this ASU requires public companies to include in interim reports all disclosures related to a reportable segment’s profit or loss and assets that are currently required in annual reports. While the ASU implements further segment disclosure requirements, it does not change how an entity identifies its operating or reportable segments and it will have no impact on the Company’s consolidated financial condition, results of operations or cash flows. This ASU is applicable to the Company’s Annual Report on Form 10-K for the fiscal year ending October 31, 2025, and subsequent interim periods. Early adoption is permitted and the amendments must be applied retrospectively to all prior periods presented.
Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statements, including their presentation and related disclosures.
8
NOTE 3 – GOING CONCERN
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 $
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.
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.
The independent auditor’s report dated January 29, 2025 included in our Annual Report on Form 10-K for the year ended October 31, 2024 included an explanatory paragraph as to the Company’s ability to continue as a going concern. As of January 31, 2025, 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.
9
NOTE 4 – INVENTORIES
| January 31, 2025 |
October 31, 2024 |
|||||||
| Raw materials and supplies | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
NOTE 5 – PROPERTY AND EQUIPMENT
| January 31, 2025 |
October 31, 2024 |
|||||||
| Finance lease equipment | $ | $ | ||||||
| Manufacturing equipment | ||||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense totaled $
NOTE 6 – EQUITY IN NON-MARKETABLE SECURITIES OF AFFILIATED ENTITY
| January 31, 2025 |
October 31, 2024 |
|||||||
| Equity in non-marketable securities | $ | |||||||
| Reserve on carrying value of investment in non-marketable securities | $ | ( |
) | ( |
) | |||
| Equity in non-marketable securities | $ | |||||||
As of January 31, 2025 and October 31, 2024, the Company invested $
During November 2024, the Company received a capital call notice from Exotropin, in which the Company’s pro-rata share was $126,000 (“November Capital Call”). The Company has yet committed to participating in the November Capital Call. If the Company does not elect to participate, its interest in Exotropin would be reduced to approximately 5.6% based on all other members fully participating in the November Capital Call.
Sales Representative Agreement
During November 2023, the Company and Exotropin entered into a Sales Representative Agreement (“Sales Agreement”) in connection with the Company’s efforts to expand the use of its proprietary products for a variety of topical use applications. In connection with the Sales Agreement, the Company will receive commissions on the net sales value of Exotropin products that are sold to pre-approved retailers, wholesale distributors, private label customers and direct to consumer customers which were introduced to Exotropin by the Company of 10%, 5%, 10% and 15%, respectively.
10
In addition, under the terms of the Sales Agreement, the Company and Exotropin have co-developed a new product offering for the treatment of hair loss to be sold through physicians. This first collaborative topical product “ZEO HAIR GROW™ Powered By Exotropin™” was launched in November 2024 (“Collaboration”). Under the terms of the Collaboration, the Company will be responsible for the sales and marketing of the products and the parties will share equally in the net profits from the sales of the products after reimbursement of all direct cash costs incurred by either party in connection with the development, supply and sale of the products.
For the three months ended January 31, 2025 and 2024, $
NOTE 7 – RELATED PARTY TRANSACTIONS
For the three months ended January 31, 2025 and 2024, the Company sold a total of approximately $
During November 2024, the Company received a capital call notice from Exotropin, in which the Company’s pro-rata share was $126,000 (“November Capital Call”). The Company has yet committed to participating in the November Capital Call. If the Company does not elect to participate, its interest in Exotropin would be reduced to approximately 5.6% based on all other members fully participating in the November Capital Call (see Note 7).
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| January 31, 2025 |
October 31, 2024 |
|||||||
| Accrued payroll related liabilities | $ | $ | ||||||
| Lab equipment and supplies payables | ||||||||
| Clinical trial and research payables | ||||||||
| Legal fees payable | ||||||||
| Other professional fees payable | ||||||||
| Accrued commissions payable | ||||||||
| Construction payables | ||||||||
| Other payables and accrued expenses | ||||||||
| Total Accounts Payable and Accrued Expenses | $ | $ | ||||||
NOTE 9 – NOTES PAYABLE
| January 31, 2025 |
October 31, 2024 |
|||||||
| Convertible Promissory Notes | $ | $ | ||||||
| Unamortized discount | ( |
) | ( |
) | ||||
| Total Notes Payable | $ | $ | ||||||
Convertible Promissory Notes
The Convertible Promissory Notes are due
11
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 (
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 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 $
In addition, the Convertible Promissory Notes and accrued but unpaid interest thereon will automatically convert into Shares in the event that prior to the Maturity Date, the Company consummates a “Qualified Financing” or a “Qualified Sale” (as defined in the Convertible Promissory Note) at a conversion price equal to 80% of the offering price of Shares sold in the Qualified Financing or 80% of the purchase price per Share to be received by stockholders following consummation of a Qualified Sale.
In connection with the issuance of the Convertible Promissory Notes, the Company recorded a discount in the amount of $
NOTE 10 – CAPITAL STOCK
Series C Preferred Shares
During December 2024, Skycrest requested that it be allowed to transfer the shares of Series C Preferred Shares of the Company it holds to Ian T. Bothwell, the Company’s Interim Chief Executive Officer and Chief Financial Officer (“Transfer”). In December 2024, the Board of Directors of the Company approved the Transfer and the Transfer was completed.
Common Stock
On November 7, 2023, the Company filed a certificate of amendment to its Articles of Incorporation to affect a reverse split of our issued and outstanding common stock on a one-for-two-hundred basis. The reverse stock split was effective with FINRA on November 28, 2023 (the “Reverse Split”). The par value of the Company’s common stock was unchanged at $ per share after the Reverse Split. All share and per share amounts have been retroactively adjusted to reflect the split as if it occurred at the earliest period presented.
2021 Plan
In September 2021, the Company adopted the 2021 Equity Incentive Plan (“2021 Plan”). The 2021 Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, and Performance Shares (an “Award”) to any person who is an employee or director of, or consultant to the Company. The maximum aggregate number of shares that may be issued pursuant to all Awards was shares. On June 6, 2023, the Company’s board of directors and stockholders holding a majority of the Company’s voting power, approved an increase in the number of shares of the Company’s common stock reserved for issuance under the Company’s 2021 Plan from shares to shares.
12
The 2021 Plan is administered by (a) the board of the directors of the Company; or (b) a committee designated by the board, which Committee shall be constituted in such a manner as to satisfy the applicable laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such committee shall continue to serve in its designated capacity until otherwise directed by the board. The board of directors may at any time amend, suspend, or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s shareholders to the extent such approval is required by applicable laws.
As of January 31, 2025, a total of Awards (net of Awards redeposited for future issuance) that have been awarded under the 2021 Plan remain issued and outstanding.
A summary of unvested restricted stock activity for the three months ended January 31, 2025 are presented below:
| Number of Non-vested Shares |
Fair Value | Weighted- Average Grant Date Value |
||||||||||
| Non-vested Shares at October 31, 2024 | $ | $ | ||||||||||
| Non-vested Shares Granted | $ | $ | ||||||||||
| Vested | $ | ( |
) | $ | ||||||||
| Expired/Forfeited | $ | $ | ||||||||||
| Non-vested Shares at January 31, 2025 | $ | $ | ||||||||||
The Company recorded a total of $ of stock-based compensation expense based on the grant date fair value of these shares during the three months ended January 31, 2025, respectively.
There was approximately $
NOTE 11 – STOCK OPTIONS AND WARRANTS
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.
Options:
A summary of the Company’s option activity for the years ended October 31, 2024 and 2023 are presented below:
| Number of Shares |
Weighted- average Exercise Price |
Remaining Contractual Term (years) |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding at October 31, 2024 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | $ | - | $ | |||||||||||||
| Expired/Forfeited | ( |
) | $ | $ | ||||||||||||
| Outstanding at January 31, 2025 | $ | $ | ||||||||||||||
| Exercisable at January 31, 2025 | $ | $ | ||||||||||||||
13
During the three months ended January 31, 2025, under its Incentive Plan, the Board approved the granting of options to certain employees to purchase shares of its common stock. The
| Exercise prices | $ | |||
| Expected dividends | ||||
| Expected volatility | % | |||
| Risk free interest rate | % | |||
| Expected term of options | years |
Options totaling that were previously issued to certain employees that were no longer employed by the Company as of January 31, 2025, were forfeited.
During the three months ended January 31, 2025 and 2024, the Company amortized $ and $, respectively, of stock compensation costs associated with options vesting during the period.
There was approximately $ of unamortized compensation associated with options outstanding as of January 31, 2025 that will be amortized over their respective remaining service periods.
Warrants:
A summary of the Company’s warrant activity for the years ended October 31, 2024 and 2023 are presented below:
| Number of Shares |
Weighted- average Exercise Price |
Remaining Contractual Term (years) |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding at October 31, 2024 | $ | $ | ||||||||||||||
| Granted | $ | - | $ | |||||||||||||
| Exercised | $ | - | $ | |||||||||||||
| Expired/Forfeited | $ | - | $ | |||||||||||||
| Outstanding at January 31, 2025 | $ | $ | ||||||||||||||
| Exercisable at January 31, 2025 | $ | $ | ||||||||||||||
During the three months ended January 31, 2025 and 2024, the Company amortized $ and $, respectively, of stock compensation costs associated with warrants vesting during the period.
There was approximately $ of unamortized compensation associated with warrants outstanding as of January 31, 2025 that will be amortized over their respective remaining service periods.
All stock compensation expense is classified under general and administrative expenses in the consolidated statements of operations.
14
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Deferred Revenue
Amounts received by the Company for products that have yet to be delivered to the customers as of October 31, 2024 and October 31, 2023 are reflected in the Company’s balance sheet as deferred revenues and were comprised of the following:
| January 31, 2025 |
October 31, 2024 |
|||||||
| Advances On Future Purchases Of Inventory | $ | $ | ||||||
| Sales To Customers Not Yet Delivered | ||||||||
| Total Deferred Revenue | $ | $ | ||||||
Employment Agreement
Effective February 7, 2025, Dr. Peter A. M. Everts, Ph.D. (“Dr. Everts”) was appointed the Company’s Chief Scientific and Technology Officer. Dr. Everts’ employment agreement provides for a base salary of $
Dr. Everts may also be paid a performance bonus to the extent earned, based on criteria established by the Company’s Board of Directors, and may be eligible to participate in the employee benefit plans maintained by the Company and generally applicable to other senior executives of the Company.
Dr. Everts’ employment with the Company is “At Will” meaning that his employment with the Company and his employment agreement may be terminated by the Company at any time, for any reason or for no reason at all and with or without “Cause” (as defined in the Agreement). Notwithstanding the foregoing, if at any time after the first ninety (90) days of the term, the Company terminates Dr. Everts’ employment without Cause or Dr. Everts terminates his employment with the Company for “Good Reason” (as defined in the Agreement), Dr. Everts will be entitled to receive an amount equal to one quarter (1/4) month’s salary for each successive three (3) months of employment completed as severance.
Legal Matters
Dr. Golub
On November 19, 2024, Howard Golub, M.D., the Company’s former Chief Science Officer (“Plaintiff”), filed a complaint in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida against the Company, alleging a breach of contract as a result of the Company’s failure to pay Plaintiff severance in the amount of $150,000 in connection with the non-renewal of the Plaintiff’s employment agreement with the Company. Plaintiff is demanding judgment in the amount of $
Other
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.
15
NOTE 13 – OTHER INCOME
| Three Months Ended January 31, |
||||||||
| 2025 | 2024 | |||||||
| Other income (expense) | ||||||||
| Resolution and settlement of long outstanding payables | ||||||||
| Commissions on sales of Exotropin products | ||||||||
| Proceeds from insurance claim | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
NOTE 14 – SUBSEQUENT EVENTS
Joint Venture with BioXtek, LLC
On February 4, 2025, the Company entered into a Binding Memorandum of Understanding (“Binding MOU”) with BioXtek, LLC, a Florida limited liability company (“BioXtek”) setting forth the terms of a joint development, manufacturing, marketing and funding arrangement to be entered into by the Company and BioXtek in various phases (“Joint Venture”).
The Joint Venture contemplates, among other matters:
| ● | The Company relocating its current operations located at Nova Southeastern University in Davie, Florida, to sublet space at the BioXtek Facility in Pompano Beach, Florida expected to be completed by May 31. 2025, which will include administrative, laboratory (research and development) and clean room (tissue processing) space, as well as shared common area space; |
| ● | The Company and BioXtek establishing a jointly-owned (50/50) special purpose entity (the “SPE”), to pursue the development and commercialization of agreed upon products including membrane patches that are used primarily in the wound care and surgical markets (“Membrane Products”), and conduct and complete required clinical trials and/or studies for mutually agreed upon indications and products with the goal of the SPE obtaining FDA approval in the form of a BLA license or other designated license required by the FDA to permit the SPE to commercialize the product(s) (the “SPE Business”). The Company and BioXtek have agreed to use their respective commercially reasonable efforts to secure funding for the SPE Business. In addition, under the terms of the Joint Venture, the SPE will become the exclusive distributor (subject to certain agreed upon exceptions for current customers of BioXtek) of the Membrane Products; |
| ● | In addition, as a result of the Joint Venture, the parties intend to seek operating efficiencies as a result of overlap in their respective operations, including administrative, laboratory and research personnel and research and manufacturing assets used in connection with the SPE Business and their respective individual businesses; |
The Company and BioXtek have agreed to work in good faith towards the preparation, authorization, execution and delivery of a series of definitive agreements documenting the Joint Venture on the terms set forth in the Binding MOU and including other terms and conditions typical and customary for agreements of this type and nature. However, in the event the Parties fail to agree upon and execute such definitive agreements, then the Binding MOU shall govern the terms of the Joint Venture.
Grant of Unvested Restricted Common Stock
Effective February 1, 2025, in connection with an agreement with an independent sales representative (“Representative”), the Company agreed to grant the Representative
16
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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, including Zofin™, are derived from perinatal sources and manufactured to retain the naturally occurring extracellular vesicles, proteins and cell secreted nanoparticles and Patient Pure X™ (“PPX™”), an autologous biologic containing a nanoparticle fraction that is precipitated 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”).
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.
The Company has recently developed and begun to distribute additional products that incorporate its proprietary ingredients for products to be used in topical aesthetic applications and is actively exploring further development of additional products to be used in other topical aesthetic applications. During November 2024, the Company announced that it was launching the first planned collaborative topical product with its affiliate Exotropin LLC; “ZEO HAIR GROW™ Powered By Exotropin™”.
To date, the Company has obtained certain Investigational New Drug (“IND”), 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.
All share and per share amounts referenced herein give effect as of the earliest period presented to a 200 for one reverse stock split implemented effective November 28, 2023.
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. Financial Statements” of Part I of this Report.
17
Results of Operations
Three months ended January 31, 2025 as compared to three months ended January 31, 2024
Revenues. Our revenues for the three months ended January 31, 2025 were $1,090,000, compared to revenues of $1,154,000 for the three months ended January 31, 2024. The decrease in revenues during the three months ended January 31, 2025 of $64,000 or 5.5% from the three months ended January 31, 2024, was primarily the result of a decrease of approximately 22.2% (approximately $245,000) in the units sold of the Company’s biologic products sold during the three months ended January 31, 2025, compared with the three months ended January 31, 2024, partially offset by an increase of approximately 1.0% (approximately $8,000) in the average sales prices for the high concentration biologic products sold during the three months ended January 31, 2025, compared with the three months ended January 31, 2024 and an increase of approximately 285.8% (approximately $173,000) of revenues associated with its PPX™ service platform during the three months ended January 31, 2025, compared with the three months ended January 31, 2024.
The increase in the overall unit sales associated with its PPX™ service platform was primarily due the Company’s continued sales and marketing efforts which included engaging additional sales representatives, participation in industry related conferences, sponsoring of educational webinars and from sales of PPX™ to the Company’s existing customers.
The percentage of overall unit sales of the Company’s higher concentration biologic product offerings decreased to 35.2% from 62.4% and increased to 64.8% from 37.6% for the Company’s lower concentration aesthetic biologic product offerings, respectively, for the three months ended January 31, 2025, as compared to the three months ended January 31, 2024.
Although the total number of unit sales of its higher concentration biologic products decreased during the three months ended January 31, 2025, compared to the three months ended January 31, 2024, the average price of the Company’s high concentration biologic product offerings increased 51% (approximately $183,000) and the average price of the Company’s lower concentration aesthetic biologics product offerings decreased by 18% (approximately $59,000).
The Company partially attributes the decrease in the units sold of the Company’s biologic products sold during the three months ended January 31, 2025, compared to the three months ended January 31, 2024 due to additional product competition in the marketplace and ongoing uncertainties surrounding the United States economy.
Cost of Revenues. Our cost of revenues for the three months ended January 31, 2025 was $191,000, as compared to cost of revenues of $159,000 for the three months ended January 31, 2024. The increase in the cost of revenues for the three months ended January 31, 2025 of $32,000 or 19.9%, from the three months ended January 31, 2024, was due to the increase of approximately $46,000 of cost of revenues associated with its PPX™ service platform during the three months ended January 31, 2025, compared with the three months ended January 31, 2024 and an increase of approximately 11.6% (approximately $13,000) in the average cost of revenues for the high concentration biologic products for the three months ended January 31, 2025, as compared to the three months ended January 31, 2024, partially offset from the decrease of approximately 22.2% (approximately $28,000) in the overall unit sales of its high concentration biologic products for the three months ended January 31, 2025, as compared to the three months ended January 31, 2024.
Gross Profit. Our gross profit for the three months ended January 31, 2025 was $899,000 (82.5% of revenues), as compared to gross profit of $995,000 (86.2% of revenues) for the three months ended January 31, 2024. The decrease in gross profit during the three months ended January 31, 2025 of $96,000 (9.6%) was the result of decreases in the sales of high concentration biologic products sold, partially offset from the increases in the sales of its PPX™ service platform during the three months ended January 31, 2025, compared to the three months ended January 31, 2024. In addition, the percentage of the Company’s revenues associated with its PPX™ service platform, which has a lower gross margin percentage as compared to the Company’s high concentration biologic product offerings, increased to 21.4% of revenues for the three months ended January 31, 2025, as compared with 5.2% of revenues for the three months ended January 31, 2024.
18
General and Administrative Expenses. General and administrative expenses for the three months ended January 31, 2025 were $2,152,000, as compared with $2,157,000 for the three months ended January 31, 2024, a decrease of $5,000 or 0.2%. The decrease in the general and administrative expenses for the three months ended January 31, 2025, from the three months ended January 31, 2024, was primarily the result of decreased payroll and consulting fees of approximately $114,000, decreased commissions and travel costs of approximately $150,000, decreased marketing related expenses of $16,000, decreased research and development costs of approximately $9,000 and decreased office and insurance related expenses of approximately $45,000 during the three months ended January 31, 2025, as compared to the three months ended January 31, 2024, which were partially offset by increased stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $318,000 and increased laboratory related costs of approximately $11,000 during the three months ended January 31, 2025, as compared to the three months ended January 31, 2024.
The decrease in commissions and travel costs during the three months ended January 31, 2025, as compared to the three months ended January 31, 2024 was principally the result of reduced sales and a larger percentage of sales that were generated from house accounts with much lower commission costs than paid to distributors and/or independent sales representatives. The decrease in payroll related expenses during the three months ended January 31, 2025, from the three months ended January 31, 2024 was principally the result of the non-renewal of certain executive employment contracts in May 2024
Other income. Other income for the three months ended January 31, 2025 was $32,000, as compared to other income of $149,000 for the three months ended January 31, 2024. The decrease in other income was principally due to non-recurring income in connection with an insurance claim of $89,000 and from the settlement of liabilities of approximately $24,000 which occurred during the three months ended January 31, 2024. The Company received other income of $32,000 and $34,000 during the three months ended January 31, 2025 and 2024, respectively, in connection with commissions received from sales of Exotropin products.
Other expense for the three months ended January 31, 2025 was $22,000, as compared to other expense of $27,000 for the three months ended January 31, 2024. The decrease in other expense of $5,000 during the three months ended January 31, 2025, as compared to the three months ended January 31, 2024, was principally the result of reduced IRS interest and penalties.
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, |
||||||||
| 2025 | 2024 | |||||||
| Cash, beginning of period | $ | 657,000 | $ | 1,756,000 | ||||
| Net cash provided by (used in) operating activities | 65,000 | (575,000 | ) | |||||
| Net cash (used in) financing activities | (2,000 | ) | (9,000 | ) | ||||
| Cash, end of period | $ | 720,000 | $ | 1,172,000 | ||||
During the three months ended January 31, 2025, the Company had cash provided by operating activities of $65,000, as compared to cash used operating activities of $575,000 for the three months ended January 31, 2024, a decrease in cash used of $640,000. 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 $210,000 and increases in cash provided from changes in operating assets and liabilities of $526,000 for the three months ended January 31, 2025, as compared to the three months ended January 31, 2024, partially offset by decreases in gross profit of $96,000 for the three months ended January 31, 2025, as compared to the three months ended January 31, 2024.
19
The increase in cash provided from changes in operating assets and liabilities was due to increases in accounts payable and accrued expenses and decreases in accounts receivable and prepaid expenses, partially offset from decreases in deferred revenues during the three months ended January 31, 2025, as compared to the three months ended January 31, 2024. The reduction in general and administrative expenses and other income (expense) after adjusting for non-cash related activities was the result of reduced operating expenses associated with payroll, consulting costs and commission expenses during the three months ended January 31, 2025, as compared to the three months ended January 31, 2024.
During the nine months ended January 31, 2025, the Company had cash used in financing activities of $2,000, as compared to cash used in financing activities of $9,000 for the three months ended January 31, 2024. The decrease in cash used in financing activities of $7,000 was due to the decreases in payments on finance leases.
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 $1,243,000 for the three months ended January 31, 2025 and had cash of $65,000 provided from operating activities during that period. In addition, the Company had a stockholders’ deficit of $1,805,000 at January 31, 2025. The Company had a working capital deficit of $2,259,000 at January 31, 2025.
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.
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.
20
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.
The independent auditor’s report dated January 29, 2025 included in our Annual Report on Form 10-K for the year ended October 31, 2024 included an explanatory paragraph as to the Company’s ability to continue as a going concern. As of January 31, 2025, 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, 2025 and through the date of this report, we had no such arrangements.
Recently Issued Financial Accounting Standards
See Note 2 to our unaudited condensed consolidated financial statements included in this report for a discussion of recent accounting pronouncements.
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, 2024, “Summary of Significant Accounting Policies”.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
21
| Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported in accordance with the rules of the Securities and Exchange Commission (“SEC”). Disclosure controls are also designed with the objective of ensuring that such information is accumulated appropriately and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosures.
Our Interim Chief Executive Officer and Chief Financial Officer (our principal executive, financial and accounting officer) evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of January 31, 2025, the end of the period covered by this report. Based on that evaluation, our Interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. See the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2024, for a description of the Company’s material weaknesses in internal control over financial reporting.
Changes in Internal Controls over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended January 31, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
22
Part II – OTHER INFORMATION
| Item 1. | Legal Proceedings. |
In addition to matters which have been resolved as reported in previous periodic Exchange Act filings, 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.
| Item 1A. | Risk Factors. |
As a “smaller reporting company” we are not required to disclose information under this Item.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information. |
| Item 6. | Exhibits. |
| Exhibit No: | Description: | |
| 31.1* | Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer and Chief Financial Officer (filed herewith) | |
| 32.1* | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (filed herewith) | |
| 101.INS ** | XBRL Instance Document | |
| 101.SCH** | XBRL Taxonomy Extension Schema Document | |
| 101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB** | XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Filed herewith. | |
| ** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections. |
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ZEO SCIENTIFIX, INC. | ||
| By: | /s/ Ian T. Bothwell | |
| Ian T. Bothwell | ||
| Interim Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive, Financial and Accounting Officer) | ||
| March 17, 2025 | ||
24