This statement includes projections of future results and "forward looking
statements" as that term is defined in Section 27A of the Securities Act of 1933
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934 as amended (the "Exchange Act"). All statements that are included in
this Quarterly Report, other than statements of historical fact, are forward
looking statements. Although management believes that the expectations reflected
in these forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct.
BUSINESS
Plandaí Biotechnology, Inc., (the "Company") through its acquisition of Global
Energy Solutions, Ltd., and its subsidiaries, focuses on the farming of whole
fruits, vegetables and live plant material and the production of proprietary
functional foods and botanical extracts for the health and wellness industry.
Its principal holdings consist of land, farms, and infrastructure in South
Africa.
The Company was incorporated, as Jerry's Inc., in the State of Florida on
November 30, 1942. The Company catered airline flights and operated coffee
shops, lounges and gift shops at airports and other facilities located in
Florida, Alabama, and Georgia. The Company's airline catering services included
the preparation of meals in kitchens located at, or adjacent to, airports and
the distribution of meals and beverages for service on commercial airline
flights. The Company also provided certain ancillary services, including, among
others, the preparation of beverage service carts, the unloading and cleaning of
plates, utensils and other accessories arriving on incoming aircraft, and the
inventory management and storage of airline-owned dining service equipment. In
March of 2004 we moved our domicile to Nevada and changed our name to Diamond
Ranch Foods, Ltd. Diamond Ranch Foods, Ltd. was engaged in the meat processing
and distribution industry. Operations consisted of packing, processing, custom
meat cutting, portion-controlled meats, private labeling, and distribution of
our products to a diversified customer base, including, but not limited to;
in-home food service businesses, retailers, hotels, restaurants and
institutions, deli and catering operators, and industry suppliers. On
November 17, 2011, the Company, through its wholly owned subsidiary, Plandaí
Biotechnologies, Inc. consummated a share exchange with Global Energy Solutions
Corporation Limited, an Irish corporation. Under the terms of the Share
Exchange, GES received 76,000,000 shares of Diamond Ranch that had been
previously issued to Plandaí Biotechnologies, Inc. in exchange for 100% of the
issued and outstanding capital of GES. On November 21, 2011, the Company filed
an amendment to the articles of incorporation to change the name of the Company
to Plandaí Biotechnology, Inc.
Plandaí and its subsidiaries focus on the development and production of
proprietary botanical extracts for the nutraceutical and pharmaceutical
industries. The Company grows much of the live plant material used in its
products on a 3,237-hectare (approx. 8,000 acre) estate it operates under a
notarial lease in the Mpumalanga region of South Africa. Plandaí uses a
proprietary extraction process that is designed to yield highly bioavailable
products of pharmaceutical-grade purity. The first product brought to market was
Phytofare™ Catechin Complex, a green-tea derived extract that has multiple
potential wellness applications. Additional extracts utilizing citrus,
artemisia, and cannabis are in various stages of development and testing. The
Company's principal holdings consist of land, farms, and infrastructure in South
Africa.
The Company's production facility in South Africa received its certificate of
occupancy and operations on December 31, 2014. During the fourth quarter of
fiscal 2015, the Company began shipping product to customers and recording
sales. However, a hailstorm during the quarter destroyed a large percentage of
the tea crop and there was insufficient time remaining in the growing season to
yield another harvest. As a result, sales for the final quarter through
December 31, 2014, were limited. Production recommenced in October 2015 with the
commencement of harvest season.
The Company is actively pursuing additional financing and has had discussions
with various third parties, although no firm commitments have been obtained.
Management believes these efforts, combined with projected sales for fiscal
2016, will generate sufficient cash flows from future operations to pay the
Company's obligations and realize positive cash flow. There is no assurance any
of these transactions will occur.
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We will continue to seek to raise additional capital through the sale of common
stock to fund the expansion of our Company. There can be no assurance that we
will be successful in raising the capital required and without additional funds
we would be unable to expand our plant, acquire other companies, or further
implement our business plan. In April 2012, through our subsidiary companies, we
secured a 100 million Rand (approximately $8.3 million at current rate of
exchange) financing with the Land and Agriculture Bank of South Africa which
will be used to build infrastructure and further operations. During the nine
months ended March 31, 2016, we borrowed $400,000 from an unaffiliated third
party under a promissory note due and payable July 1, 2016, and earning interest
at 6% per annum. We also sold 8,514,600 shares of our restricted common stock
for net proceeds of $293,660 and issued $290,000 in convertible debentures.
PRODUCTS AND SERVICES
Plandaí has a proprietary technology that extracts a high level of bio-available
compounds and phytonutrients from organic matter, including green tea leaves,
citrus and many other plants. Various tests have been conducted over the past
ten years using this technology to generate functional chemical compounds
possessing nutritive properties that act effectively as preventive agents in the
healthcare field. Polyphenols from green tea are an excellent source of
antioxidant and anti-carcinogenic substances. The Company leases 3,237 hectares
(approx. 8,000 acres) of agriculture land in Mpumalanga, South Africa, under a
notarial lease, which includes over a thousand acres of cultivated green tea. In
addition, the Company has recently completed a 100,000 sq. ft. state-of-the-art
extraction facility on site which came online in December 2014. Plandaí intends
to use its plantation leases to focus on the farming of whole fruits, vegetables
and live plant material and the production of proprietary botanical extracts for
the health and wellness industry using its proprietary extraction technology and
the extraction facility.
Many botanical extracts have demonstrated varying degrees of health benefits,
and many pharmaceutical drugs are either derived directly from plant extracts or
are synthetic analogs of phytonutrient molecules. Green tea leaf, for example,
has shown promising in-vitro and animal model results as an antioxidant, with
hundreds of different published studies demonstrating its potential usefulness
in weight loss, anti-viral, anti-cancer, and anti-parasitic applications,
amongst others.
The Company has commercialized the Phytofare ® catechin complex and is currently
developing the Phytofare ® limonoid glycoside complex. The catechin complex is
derived from green tea harvested locally on the Senteeko Tea Estate in
Mpumalanga, South Africa, and then processed on a state-of-the-art extraction
facility constructed onsite using funds obtained from the Land and Agriculture
Bank of South Africa. The facility became operational in December 2014, with
initial sales commencing in May 2015. The limonoid glycoside product is
extracted from lemons which are sourced from local orchards in South Africa and
then produced in the same factory that makes the green tea product. The
Phytofare® Limonoid Glycoside Complex is scheduled be introduced to the market
in late 2016.
On August 30, 2013, Plandaí entered into a license agreement with North-West
University in Potchefstroom, South Africa, which granted the Company the
exclusive right to use the University's Pheroid ® technology to produce
nano-entrapped botanical extracts for human and animal use. The Company believes
that this technology will enable it to develop products with much higher
absorption coefficients in both topical use and oral consumption.
During the previous year, the Company completed two separate human studies
designed to test both the efficacy and bioavailability of its Phytofare ®
catechin complex. The first study was a topical trial designed to evaluate the
effectiveness of the extract on treating skin conditions associated with aging.
Specifically, the study evaluated changes in skin elasticity, skin roughness and
scaliness, and skin hydration and found that Phytofare ® demonstrated
statistically significant benefits over placebo in all areas except skin
elasticity, for which the length of the study was determined to be too short to
render statistically reliable data.
The second clinical study, completed by North-West University, Potchefstroom,
South Africa, tested the oral bioavailability of Phytofare ® catechin complex in
human subjects. The test results indicated that five times more Phytofare®
extract was present in the blood with all eight catechins detected compared with
just two catechins from the generic green tea extract. In addition, after 24
hours, the blood levels of catechins from the Phytofare ® extract were still
higher than the highest level attained by the generic, which, after six hours,
had disappeared from the blood. This study confirmed that Phytofare ® catechin
complex delivers more catechins to the blood than generic extract and that those
catechins remain present and viable at least four times longer.
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The Company is actively pursuing research on additional botanical extracts that
have known or suspected pharmaceutical properties. This research includes
developing a non-psychoactive cannabinoid extract through the Company's wholly
owned subsidiary, Plandaí Biotechnology- Uruguay, SA. This company has concluded
its initial investigative research with live cannabis flower and leaf and
intends to engineer a pilot scale system for processing and recovering the
cannabinoid complex in a highly bioavailable format without psychoactive
effects. The company was granted approval by the Uruguay Minister of Health in
September 2014 to legally conduct cannabis research and development. In
February 2015, a new decree imposed the further requirement of an additional
license from the Institute for Regulation and Control of Cannabis (IRCCA). In
May 2015, Plandaí received the license from IRCCA granting the necessary
approvals under the new laws and now permitting the research to move forward.
The Phytofare ® cannabinoid complex will be subjected to chemical profiling, as
well as particle sizing and dosage. Independent in vitro and animal modelling
will support the project's prime objective by scientifically investigating in
animals efficient free-radical scavenging, demonstrating improvements to a
variety of human physiological processes including appetite, pain-sensation,
mood, and memory. Despite the government approvals, there are still obstacles
preventing the continuation of the Company's research; namely, the inability to
import the seeds and other research materials necessary. The Company is working
with the Uruguay government to resolve these issues and research will recommence
once resolved.
COMPETITION
The Company faces competition from a variety of sources. There are several large
producers of farm products including green tea and there are numerous companies
that develop and market nutraceutical products that include bio-available
compounds including those from green tea and citrus extracts. Many of these
competitors benefit from established distribution, market-ready products, and
greater levels of financing. Plandaí intends to compete by producing higher
quality and higher concentration extracts, producing at lower costs, and
controlling a vertically integrated market that includes all stages from farming
through production and marketing. The Company's unique patent-pending
technology, combined with the patented Pheroid ® technology, should provide
several unique market advantages in the form of higher absorption, increased
bioavailability, and lower dosage requirements.
CUSTOMERS
Plandaí markets its products through distribution companies who the sell to
various nutraceutical and supplement companies that require high-quality
bio-available extracts for their products. In certain countries where it is
economically feasible, Plandaí sells direct to nutraceutical and supplement
manufacturers. The Company presently has distribution agreements with
representation worldwide and also sells direct to customers in South Africa.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016, AND
SEPTEMBER 30, 2015.
SALES
For the three months ended September 30, 2016, revenues were $80,820 compared to
revenues of $40,831 for the quarter ended September 30, 2015. Sales for the 2016
quarter included sales of Phytofare, ® timber from the Company's tea estate in
South Africa, and revenues from the on-site store. Sales in 2015 included timber
from the Company's tea estate in South Africa and revenues from the on-site
store.
EXPENSES
Our total expenses for the three months ended September 30, 2016, were $800,015
as compared to $919,996 for the three months ended September 30, 2015. The
decrease was due to a decrease in professional services of $99,082, a decrease
in production costs of $35,710, and a decrease in payroll of $60,795.
OTHER INCOME & EXPENSES
Other Income and Expenses for the three months ended September 30, 2016,
included a $70,995 change in derivative liability and an interest expense of
($481,939), as compared to an interest expense of (309,880) for the same period
in 2015. The increase resulted from the Company having substantially greater
interest-bearing debt in 2016 versus 2015.
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LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 2016, the Company used cash in
operating activities totaling (159,275), which was primarily attributable to a
loss from operations of (1,110,452) offset against several non-cash expense
items such as depreciation of 133,054, stock issued for services of $282,401,
capitalized lease obligation of $84,557, and interest expense of $481,939 which
was added to the loan balance. Additionally, the loss was offset by changes in
assets and liabilities accounts. Cash used in investing activities was
($51,209), which consisted of the purchase of fixed assets. Cash provided by
financing activities was $163,000 generated by third party loans, the issuance
of convertible debt, the sale of common stock.
As of September 30, 2016, the Company had current assets of $159,880 compared to
current liabilities of $17,504,103. Current liabilities include accounts payable
and accrued liabilities of $697,188, and accrued interest of $855,746. Included
in current liabilities is $14,946,641 of long-term debt that has been
reclassified as current due to the Company being out of compliance with certain
loan covenants.
PLAN OF OPERATION
The Company's long-term existence is dependent upon our ability to execute our
operating plan and to obtain additional debt or equity financing to fund payment
of obligations and provide working capital for operations. In April 2012, the
Company through majority-owned subsidiaries of Dunn Roman Holdings Africa (Pty)
Limited, executed a loan for 100 million Rand (approx. $6.5 million at current
rate of exchange) financing with the Land and Agriculture Bank of South Africa
and began rehabilitating the Senteeko Tea Estate so that it can begin producing
up to 20 metric tons of tea leaf per day commencing with the September 2015
growing season. The Company also completed construction of the factory and
associated equipment necessary to begin the extraction process on live botanical
matter, including green tea and citrus, with the factory becoming operational in
December 2014. The facility commenced processing green tea material for its
Phytofare™ Catechin Complex in January 2015 and sales commenced in May 2015. In
addition, the Company borrowed $6,900,000 from an unrelated third party and sold
shares of restricted common stock to raise operating capital. Management
anticipates that, over the coming several months, the Company will continue to
need additional investment in the form of either debt or proceeds from the sale
of stock until such time as it can generate sufficient cash flow from the sale
of its products.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and judgments that affect our reported assets, liabilities, revenues, and
expenses, and the disclosure of contingent assets and liabilities. We base our
estimates and judgments on historical experience and on various other
assumptions we believe to be reasonable under the circumstances. Future events,
however, may differ markedly from our current expectations and assumptions.
While there are a number of significant accounting policies affecting our
financial statements, we believe the following critical accounting policies
involve the most complex, difficult, and subjective estimates and judgments.
Revenue recognition
The Company derives its revenue from the production and sale of bioavailable
extracts in both raw material and finished product form. Revenues are recognized
when product is ordered and delivered. Product shipped on consignment is not
counted in revenue until sold. The Company also generates revenues from the
sales of timber and produce generated on its estate in South Africa. Such
revenues are recorded when the timber is transferred to the customer, which
generally coincides with the receipt of payment. Finally, the Company receives
income from a general store operated for the convenience of workers who live
on-site.
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Intangible and Long-Lived Assets
We follow Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") Topic 360, "Property Plant and Equipment", which
establishes a "primary asset" approach to determine the cash flow estimation
period for a group of assets and liabilities that represents the unit of
accounting for a long-lived asset to be held and used. Long-lived assets to be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell. The
Company evaluates its long-lived assets on an annual basis to determine if there
is an impairment on useful life or the ability of the Company to realize
sufficient economic value over the course of the remaining useful life. The
Company most recently evaluated its long-lived assets in connection with the
preparation of its annual financial statements for the year ended June 30, 2015,
and determined that there was no impairment.
Intangible assets are accounted for in accordance with ASC Topic 350,
"Intangibles - Goodwill and Other". We assess the impairment of long-lived
assets on an annual basis or whenever events or changes in circumstances
indicate that the fair value is less than its carrying value. Factors that we
consider important which could trigger an impairment review include poor
economic performance relative to historical or projected future operating
results, significant negative industry, economic or company specific trends,
changes in the manner of our use of the assets or the plans for our business,
market price of our common stock, and loss of key personnel. The share exchange
did not result in the recording of goodwill and there is not currently any
goodwill recorded. In February 2014, the Company purchased a license from Diego
Pellicer in exchange for warrants to purchase shares of the Company's common
stock. The value of such warrants was capitalized as a License; however, since
the Company has thus far not produced and sold a product that would benefit from
the license, a reserve of 100% was recorded against the license.
Potential Derivative Instruments
We periodically assess our financial and equity instruments to determine if they
require derivative accounting. Instruments which may potentially require
derivative accounting are conversion features of debt and common stock
equivalents in excess of available authorized common shares.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Non-Controlling Interest
Plandaí owns 100% of Dunn Roman Holdings-Africa, which in turn owns 74% of
Breakwood Trading 22 (Pty, Ltd. and 84% Green Gold Biotechnologies (Pty), Ltd.,
in order to be compliant with the Black Economic Empowerment rules imposed by
the South African Land Bank. While the Company, under the Equity Method of
Accounting, is required to consolidate 100% of the operations of its
majority-owned subsidiaries, that portion of subsidiary net equity attributable
to the minority ownership, together with an allocated portion of net income or
net loss incurred by the subsidiaries, must be reflected on the consolidated
financial statements. On the balance sheet, minority interest has been shown in
the Equity Section, separated from the equity of Plandaí, while on the income
statement, the non-controlling shareholder allocation of net loss has been shown
in the Consolidated Statement of Operations.
Currency Translation Adjustment
The Company maintains all of its operations in South Africa, where the currency
is the Rand. The subsidiary financial statements are therefore converted into US
dollars prior to consolidation with the parent entity, Plandaí Biotechnology,
Inc. US GAAP requires that the weighted average exchange rate be applied to the
foreign income statements and that the closing exchange rate as of the period
end date be applied to the balance sheet. The cumulative foreign currency
adjustment is included in the equity section of the balance sheet. Since most of
our assets and operations are in South Africa, as the dollar strengthens in
comparison to the Rand, it reduces both the carrying value of our assets and the
amount of our liabilities.
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PLANDAÍ BIOTECHNOLOGY, INC. 
