The following discussion of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated interim
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, 2020, filed with
the United States Securities and Exchange Commission (the "SEC") on September
15, 2020.
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 new business direction. On April 26, 2016, we formed a
subsidiary, Cell MedX (Canada) Corp., (the "Subsidiary") under the laws of the
Province of British Columbia.
We are a biotech company focused on the discovery, development and
commercialization of therapeutic and non-therapeutic products that promote
general health, pain relief, wellness and alleviate complications associated
with medical conditions including, but not limited to: diabetes, Parkinson's
disease, high blood pressure, neuropathy and kidney function. Our Subsidiary is
engaged in development and manufacturing of therapeutic devices based on our
proprietary eBalance® Technology, which harnesses power of microcurrents and
their effects on human body.
Current uncertainty with respect to rapid expansion of the COVID-19 pandemic
We are cognizant of the rapid expansion of the COVID-19 pandemic and the
resulting global implications. To date, we have experienced minor disruptions to
our day-to-day operations associated with delayed services resulting from
various COVID-19 restrictions and shortage of man power experienced by some of
our service providers. We caution that there continues to be a possibility for
increase of the restrictions currently in place, or addition of new restrictions
currently not known to us. The impact of these restrictions on our operations,
if implemented, is currently unknown but could be significant.
Update on eBalance® Research and Development Activities
At the end of February 2020, we completed an audit required for certification of
our quality management systems ("QMS") under Stage 2 Medical Device Single Audit
Program ("MDSAP") and under ISO 13485:2016 standard. The audit was carried out
by BSI Group Canada Inc. ("BSI") and included the following:
-The effectiveness of our QMS incorporating the applicable regulatory
requirements outlined by ISO13485:2016 standard and as required under MDSAP;
-Product/process-related technologies;
-Adequate technical documentation for our eBalance® device in relation to
ISO13485:2016 standard and MDSAP; and
-Our ability to comply with these requirements.
The assessment report was finalized in mid-March 2020, and on March 31, 2020, we
received Certificate No. FM 716345, certifying that the Company operates a
Quality Management System which complies with the requirements of ISO 13485:2016
for design, development and manufacture of microcurrent therapeutic devices for
wellness and pain relief, and on June 2, 2020, received a certificate #MDSAP
716274.
Following the receipt of ISO and MDSAP certificates, we filed two separate
applications for Class II Medical Device Licenses for the eBalance® Pro System
and the eBalance® Home System with Health Canada. On July 17, 2020, Health
Canada issued a Class II Medical Device License #104925 for our eBalance® Home
System, and on August 18, 2020, issued a Class II Medical Device License #105044
for our eBalance® Pro System.
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Prior to selling our eBalance® Home and Pro Systems for the treatment in the
United States, we will be required to apply for an approval from the FDA. As of
the date of this Quarterly Report on Form 10-Q we are in the process of
completing the necessary documentation and testing required for the 510(K)
submission to the FDA.
Extension of Investor Outreach Program with Think Ink Marketing
On September 23, 2020, we signed an extension agreement with Think Ink Marketing
Data & Email Services, Inc. ("Think Ink") to continue providing public relations
services in an effort to increase public awareness of the Company and our
products, services and securities. The agreement is for twelve months with
either party having the right to terminate upon thirty-day notice.
Think Ink is a California-based marketing firm established in 1991 that provides
its customers with a complete range of marketing services that span both digital
and direct mail venues. The Company has budgeted up to $25,000 per month for the
services of Think Ink including banner and native ads.
Results of Operations for the Three and Six Months ended November 30, 2020 and
2019
Our operating results for the three- and six-month periods ended November 30,
2020 and 2019, 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/
2020 30, 2019 (Decrease) 30, 2020 30, 2019 (Decrease)
Sales $ 1,871 $ 757 147.2% $ 3,338 $ 12,100 (72.4)%
Distribution (100.0)% (100.0)%
rights - 9,480 - 18,438
Cost of goods (988) (522) 89.3% (1,357) (5,897) (77.0)%
Gross margin 883 9,715 (90.9)% 1,981 24,641 (92.0)%
Operating
expenses
Amortization 632 545 16.0% 1,368 813 68.3%
Consulting fees 62,447 61,728 1.2% 139,387 150,999 (7.7)%
Distribution
expenses - 19,173 (100.0)% 261 35,620 (99.3)%
General and
administrative
expenses 80,723 132,080 (38.9)% 113,503 218,642 (48.1)%
Research and
development costs 38,538 95,894 (59.8)% 123,675 156,607 (21.0)%
Total operating
expenses 182,340 309,420 (41.1)% 378,194 562,681 (32.8)%
Interest 7,879 3,783 108.3% 14,325 10,735 33.4%
Net loss $ 189,336 $ 303,488 (37.6)% $ 390,538 $ 548,775 (28.8)%
Revenues
During the three-month period ended November 30, 2020, we recognized $1,871 in
revenue, which consisted of monthly recurring revenue associated with the
eBalance® treatment packages. The cost attributed to this revenue was $988.
During the three-month period ended November 30, 2019, we recognized $757 in
revenue, which consisted of sales of our eBalance® wellness devices to
end-users. The cost attributed to this revenue was $522.
During the six-month period ended November 30, 2020, we recognized $3,338 in
revenue, which consisted of monthly recurring revenue associated with the
eBalance® treatment packages. The cost attributed to this revenue was $1,357.
During the six-month period ended November 30, 2019, we recognized $12,100 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.
On June 6, 2019, we entered into a letter of intent for the wholesale
distribution rights to all Mainlined 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). During the three- and six-month
periods ended November 30, 2020, we did not generate any revenue from
distribution rights.
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As of the date of this Quarterly Report on Form 10-Q, we continue research and
further development of our eBalance® Technology and devices based on this
technology. During the summer of 2020, Health Canada granted our eBalance® Home
and Pro Systems Class II medical device licenses, which allow us to market our
eBalance® devices for wellness and pain management. Our certification with FDA
continues to be ongoing; at the time of this Quarterly Report on Form 10-Q we
are compiling required documentation for a 510(K) premarket submission, which
allows us to demonstrate that the eBalance® device is at least as safe and
effective as a legally marketed device available on the market. Once this
submission is approved, it will allow us to start our commercial activity in the
USA.
Operating Expenses
During the three-month period ended November 30, 2020, our operating expenses
decreased by 41.1% from $309,420 we incurred during the three months ended
November 30, 2019, to $182,340 we incurred during the three months ended
November 30, 2020. The most significant expenses during this period included
$51,319 in corporate communication fees (November 30, 2019 - $83,181), $38,538
we incurred in research and development fees (November 30, 2019 - $95,894),
$62,447 in consulting fees (November 30, 2019 - $61,728), $5,012 in accounting
and audit fees (November 30, 2019 - $15,925), and $10,500 in management fees
(November 30, 2019 - $13,800). During the comparative three-month period ended
November 30, 2019 we incurred $19,173 in distribution expenses paid or accrued
to our sales representatives, expense that we did not incur in the current
period.
On a year-to-date basis, the most significant changes were as follows:
·During the six-month period ended November 30, 2020, our consulting fees
decreased by $11,612, or 7.7%, from $150,999 we incurred during the six-month
period ended November 30, 2019, to $139,387 we incurred during the six-month
period ended November 30, 2020. Larger consulting fees during the comparative
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,
2020, decreased by $32,932, or 21%, from $156,607 we incurred during the
six-month period ended November 30, 2019, to $123,675 we incurred during the
six-month period ended November 30, 2020. The lower research and development
fees during the six-month period ended November 30, 2020, were associated with
the conclusion of the work associated with Health Canada certifications, and
reduced work load associated with our 510(K) submission to the FDA. In addition,
we continued minor developments of the eBalance® systems.
·Our general and administrative fees for the six-month period ended November 30,
2020, decreased by $105,139, or 48.1%, from $218,642 we incurred during the
six-month period ended November 30, 2019, to $113,503 we incurred during the
six-month period ended November 30, 2020. The largest factor that contributed to
this change was associated with fluctuation in foreign exchange rates, which,
during the six-month period ended November 30, 2020, resulted in $47,167 gain,
as compared to $540 gain during the comparative period; our expenditures on
corporate communications decreased by $45,937 to $93,582 we recorded during the
six-month period ended November 30, 2020, as compared to $139,519 we incurred
during the six-month period ended November 30, 2019. Other factors that affected
our general and administrative fees were associated with a $12,902 decrease to
our accounting and audit fees, which decreased from $22,925 we incurred during
the six-month period ended November 30, 2019, to $10,023 for the six-month
period ended November 30, 2020. Our management fees decreased by $8,100 from
$27,600 we incurred during the six-month period ended November 30, 2019 to
$19,500 we incurred during the six-month period ended November 30, 2020, the
decrease resulted from renegotiation of monthly management fees with the
Company's CEO and the CFO. In addition, during the current period, we incurred
$1,227 in marketing and advertising fees as opposed to $5,785 we incurred during
the six-month period ended November 30, 2019. These decreases were in part
offset by $14,471 in professional fees which we incurred during the six-month
period ended November 30, 2020, the expense we did not incur in the comparative
period.
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·During the six-month period ended November 30, 2020, we incurred $261 in
distribution expenses we paid or accrued to our sales representatives (November
30, 2019 - $35,620). 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,
during the six-month period ended November 30, 2019, we were paying a monthly
fee of CAD$5,000 to each sales representative. Due to a delay in securing Health
Canada Class II device licenses, we suspended our agreements with sales
representatives in January 2020. As of the date of this Quarterly Report on Form
10-Q we have suspended discussions on re-engagement of the sales
representatives.
Other Items
During the three-month period ended November 30, 2020, we accrued $7,879
(November 30, 2019 - $3,783) in interest associated with the outstanding notes
payable. On a year-to-date basis, we accrued $14,325 (November 30, 2019 -
$10,735) in interest associated with the outstanding notes payable. Of this
interest, $1,354 (November 30, 2019 - $7,095) represented interest we accrued on
the notes payable we issued to Mr. Jeffs, our major shareholder.
Liquidity and Capital Resources
Working Capital
As at As at
November 30, May 31, Percentage
2020 2020 Change
Current assets $ 95,583 $ 157,343 (39.3)%
Current liabilities 1,781,469 1,679,523 6.1%
Working capital deficit $ (1,685,886) $ (1,522,180) 10.8%
As of November 30, 2020, we had a cash balance of $21,784, a working capital
deficit of $1,685,886 and cash flows used in operations of $313,773 for the
period then ended. During the six-month period ended November 30, 2020, we
funded our operations with $167,000 received from our private placement
financing, and $125,773 we borrowed under 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, 2020. 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. 
