The following discussion of our financial condition and results of operations
should be read in conjunction with our unaudited interim consolidated financial
statements, the notes to those financial statements and other financial
information appearing elsewhere in this document. In addition to historical
information, the following discussion and other parts of this document contain
forward-looking statements that reflect plans, estimates, intentions,
expectations and beliefs. Actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those set forth
in the "Risk Factors" in Part II, Item 1A of this Quarterly Report.
The discussion provided in this Quarterly Report should be read in conjunction
with our Annual Report on Form 10-K for the year ended May 31, 2019, filed with
the United States Securities and Exchange Commission (the "SEC") on September 6,
2019.
Overview
We were incorporated as Plandel Resources, Inc. under the laws of the State of
Nevada on March 19, 2010. On March 24, 2014, we changed our name to Sports
Asylum, Inc. and on September 30, 2014, we changed our name to Cell MedX Corp.
to reflect our current business direction.
On November 25, 2014, we completed the acquisition of a proprietary method for
the application of bioelectric signaling to treat diabetes and related ailments
(the "eBalance® Technology"). With our acquisition of the eBalance® Technology,
we have shifted our business direction to the discovery, development and
commercialization of therapeutic and non-therapeutic products that promote
general wellness and alleviate complications associated with medical conditions
including, but not limited to, diabetes, Parkinson's disease, and high blood
pressure.
On April 26, 2016, we formed a subsidiary, Cell MedX (Canada) Corp., (the
"Subsidiary") under the laws of the Province of British Columbia, in
anticipation of increased business activity in Canada. As of the day of this
Quarterly Report on Form 10-Q the Subsidiary is engaged in manufacturing,
distribution, and further development of eBalance® Technology.
Recent Corporate Developments
The following corporate developments occurred during the quarter ended November
30, 2019, and up to the date of the filing of this report:
Exercise of Warrants
On August 28, 2019, Mr. Jeffs, the Company's major shareholder, exercised a
total of 7,482,960 warrants to acquire 7,482,960 shares the Company granted to
Mr. Jeffs in consideration for the Line of Credit and in recognition of $124,128
previously advanced to the Company by Mr. Jeffs in series of separate loan
agreements. To exercise the warrants, Mr. Jeffs chose to apply $374,148, the
Company owed under the $250,000 Credit Line and the notes payable against the
purchase price of the shares. The shares were issued on September 9, 2019.
Convertible Loan Agreements
During the quarter ended November 30, 2019, in order to support our daily
operations and to secure required working capital, we entered into several
short-term convertible loan agreements with two lenders for a total of $197,650
in exchange for unsecured notes payable due on demand and accumulating 6% annual
interest compounded monthly. Subsequent to November 30, 2019, we advanced
further $20,000 from the same lenders under substantially the same terms.
Pursuant to the loan agreements, the lenders may convert any portion of
principal and/or interest accrued thereon into restricted units of our common
stock on the terms and at a conversion price of the then-current private
placement offering.
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eBalance® Trademark
On October 17, 2019, we announced that European Union had approved our eBalance®
trademark application, and issued certificate of registration number 017997155
registering the trademark eBalance® in our name. The eBalance® trademark was
also registered in the U.K., bearing the registration number UK00003345540.
The eBalance® trademark applications we filed with the Canadian Intellectual
Property Office on November 14, 2017, and with the United States Patent and
Trademark Office on December 11, 2017, continue to be under review.
The standard registered trademark symbol in Europe is ®. We are planning to use
the designation eBalance® in our marketing efforts and for any print material
until such time that Canadian and/or US trademark applications are approved.
Update on eBalance? Research and Development Progress
During the first quarter of the fiscal 2020, our Board of Directors approved
commencement of a follow up study of our eBalance® device. The follow up study
is being organized as a Family Practice (BC) - Observational Study (the
"Study"). In order to commence the Study, which we are planning to conduct in a
family practice medical clinic, we recruited Dr. Peter Eppinga, a family
practice physician (MD, CCFP) licensed in the province of British Columbia,
Canada, as the lead investigator in the Study.
The primary objective of the follow up Study is to further confirm safety of our
eBalance® device with a secondary objective looking at baseline chronic care and
complex care biometrics in a clinical family practice setting. Data from this
Study will be shared with Health Canada and used to further support our
application to the US FDA Premarket Notification 510(k) program to clear
eBalance® for sale in the USA.
Results of Operations for the Three and Six Months ended November 30, 2019 and
2018
Our operating results for the three- and six-month periods ended November 30,
2019 and 2018, and the changes in the operating results between those periods
are summarized in the table below.
Three Months Ended Six Months Ended
Percentage Percentage
November 30, November Increase/ November November Increase/
2019 30, 2018 (Decrease) 30, 2019 30, 2018 (Decrease)
Sales $ 757 $ - n/a $ 12,100 $ - n/a
Distribution n/a n/a
rights 9,480 - 18,438 -
Cost of goods (522) - n/a (5,897) - n/a
Gross margin 9,715 - n/a 24,641 - n/a
Operating
expenses
Amortization 545 110 395.5% 813 110 639.1%
Consulting fees 61,728 66,678 (7.4)% 150,999 130,638 15.6%
Distribution
expenses 19,173 - n/a 35,620 - n/a
General and
administrative
expenses 132,080 24,448 440.2% 218,642 52,077 319.8%
Research and
development costs 95,894 33,633 185.1% 156,607 183,367 (14.6)%
Total operating
expenses 309,420 124,869 147.8% 562,681 366,192 53.7%
Interest 3,783 2,648 42.9% 10,735 4,790 124.1%
Net loss $ 303,488 $ 127,517 138.0% $ 548,775 $ 370,982 47.9%
Revenues
During the three-month period ended November 30, 2019, we recognized $757
(CAD$1,000) in revenue, which consisted of sales of our eBalance® wellness
devices to end-users. The cost attributed to this revenue was $522 and included
$88 in royalties we accrued on the sales.
During the six-month period ended November 30, 2019, we recognized $12,100
(CAD$16,000) in revenue, which consisted of sales of our eBalance® wellness
devices to end-users. The cost attributed to this revenue was $5,897 and
included $3,713 in manufacturing costs of eBalance® devices, and $1,412 in
royalties we accrued on the sales.
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On June 6, 2019, we entered into a letter of intent for the wholesale
distribution rights to all Mainland China, not including Hong Kong (the "LOI").
As part of the LOI the potential distributor (the "Distributor") paid a
non-refundable fee of $25,000, of which $18,438 we recorded as revenue from
distribution rights for the six-month period ended November 30, 2019 ($9,480 for
the three-month period ended November 30, 2019).
We did not generate any revenue during the three- and six-month periods ended
November 30, 2018.
As of the date of this report on Form 10-Q, we continue research and further
development of our eBalance® Technology and devices based on this technology, we
are also working towards certifying our device with Health Canada as Class II
medical device, and compiling required documentation for a 510(K) premarket
submission with FDA, which allows to demonstrate that the eBalance® device is at
least as safe and effective as a legally marketed device available on the
market, which, if the submission is approved, will allow us to start our
commercial activity in the USA. Until we receive Health Canada and FDA
approvals, we will only be able to sell our devices as wellness devices in
Canada, which will limit our potential revenue in a foreseeable future due to a
smaller market share.
Operating Expenses
During the three-month period ended November 30, 2019, our operating expenses
increased by 147.8% from $124,869 incurred during the three months ended
November 30, 2018, to $309,420 we incurred during the three months ended
November 30, 2019. The most significant expenses during this period included
$83,181 in corporate communication fees (November 30, 2018 - $1,292), $95,894 we
incurred in research and development fees (November 30, 2018 - $33,633),
$61,728 in consulting fees (November 30, 2018 - $66,678), $15,925 in accounting
and audit fees (November 30, 2018 - recovery of $2,230), and $19,173 we
incurred in distribution expenses we paid or accrued to our sales
representatives.
On a year-to-date basis, the most significant changes were as follows:
·During the six-month period ended November 30, 2019, our consulting fees
increased by $20,361, from $130,638 we incurred during the three-month period
ended November 30, 2018, to $150,999 we incurred during the six months ended
November 30, 2019. Larger consulting fees during the three-month period ended
November 30, 2019, were associated with $25,000 we paid for consultation on
setting up our distribution channels in China.
·Our research and development fees for the six-month period ended November 30,
2019, decreased by $26,760, from $183,367 we incurred during the six-month
period ended November 30, 2018, to $156,607 we incurred during the six months
ended November 30, 2019. The higher research and development fees during the
six-month period ended November 30, 2018, resulted mainly from $140,460
(CAD$185,000) we incurred to Western Robotics Ltd., whom we engaged to assist us
with enhancement and re-designing of our eBalance® Pro wellness devices. During
the six months ended November 30, 2019, our improvements were mainly associated
with integration of automated billing module and smaller updates and upgrades to
the eBalance® device.
·During the six-month period ended November 30, 2019, we incurred $35,620 in
distribution expenses we paid or accrued to our sales representatives, who began
working on distribution of our eBalance® devices in British Columbia, Canada
(November 30, 2018 - $Nil). Based on our agreements with the sales
representatives, we agreed to pay CAD$350 as commission for each eBalance®
device they sell. In order to allow our sales representatives to establish their
customer base, we agreed to a monthly fee of CAD$5,000 payable to each sales
representative for an initial term of three months, which we have a right to
extend on a month-to-month basis.
·Our general and administrative fees for the six-month period ended November 30,
2019, increased by $166,565, or 319.8%, from $52,077 we incurred during the
six-month period ended November 30, 2018, to $218,642 we incurred during the six
months ended November 30, 2019. The largest factor that contributed to this
change was associated with our expenditures on corporate communications per our
services agreement with Think Ink Marketing, which resulted in $139,519 we
recorded during the six-month period ended November 30, 2019, as compared to
$1,778 we incurred during the six-month period ended November 30, 2018. Other
factors that affected our general and administrative fees were associated with a
$22,155 increase to our accounting and audit fees, which increased from $770
during the six-month period ended November 30, 2018, to $22,925 during the
six-month period ended November 30, 2019, marketing
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and advertising fees, which increased by $5,785 as opposed to not having any
expenses of this type during the comparative period ended November 30, 2018, and
a $3,423 increase in office expenses from $2,809 we incurred during the six
months ended November 30, 2018, to $6,232 we incurred during the six months
ended November 30, 2019. These increases were offset by $1,531 decrease in
travel and entertainment fees, which amounted to $1,987 during the six months
ended November 30, 2019, and $1,797 decrease in foreign exchange, which resulted
in $540 gain for the six-month period ended November 30, 2019, as opposed to
$1,257 loss for the six months ended November 30, 2018.
Other Items
During the three-month period ended November 30, 2019, we accrued $3,783
(November 30, 2018 - $2,648) in interest associated with the outstanding notes
payable. On a year-to-date basis, we accrued $10,738 in interest on the
outstanding notes payable (November 30, 2018 - $4,790). Of this interest, during
the six-month period ended November 30, 2019, we accrued $2,422 (November 30,
2018 - $4,294) on the notes payable we issued to Mr. Jeffs, our major
shareholder, and $4,673 (November 30, 2018 - $Nil) we accrued on the Credit Line
with Mr. Jeffs.
Liquidity and Capital Resources
Working Capital
As at
As at May 31, Percentage
November 30, 2019 2019 Change
Current assets $ 400,037 $ 189,260 111.4%
Current liabilities 1,870,668 1,963,100 (4.7)%
Working capital deficit $ (1,470,631) $ (1,773,840) (17.1)%
As of November 30, 2019, we had a cash balance of $274,991, a working capital
deficit of $1,470,631 and cash flows used in operations of $479,370 for the
period then ended. During the six-month period ended November 30, 2019, we
funded our operations with $486,000 received from our private placement
financing, $15,000 we borrowed under short-term non-interest bearing advances,
and $197,650 we received under convertible loan agreements accumulating interest
at 6% per annum, compounded monthly, and due on demand.
We did not generate sufficient cash flows from our operating activities to
satisfy our cash requirements for the period ended November 30, 2019. The amount
of cash we have generated from our operations to date is significantly less than
our current debt obligations. There is no assurance that we will be able to
generate sufficient cash from our operations to repay the amounts owing under
the outstanding notes and advances payable, or to service our other debt
obligations. If we are unable to generate sufficient cash flow from our
operations to repay the amounts owing when due, we may be required to raise
additional financing from other sources. The outcome of these matters cannot be
predicted with any certainty at this time and raises substantial doubt that we
will be able to continue as a going concern.
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CELL MEDX CORP. 
