You should read the following discussion together with our consolidated
financial statements and the related notes included elsewhere in this report.
This discussion contains forward-looking statements, which involve risks and
uncertainties. Our actual results may differ materially from those we currently
anticipate as a result of many factors, including the factors we describe under
Item 1A. Risk Factors and elsewhere in this report.
COVID-19 Impact on Economy and Business Environment
The adverse public health developments and economic effects of the ongoing
COVID-19 outbreak in the United States have adversely affected the demand for
our products and services by our customers and from patients of our customers as
a result of quarantines, facility closures and social distancing measures put
into effect. These restrictions have adversely affected the Company's sales,
results of operations and financial condition. In response to the COVID-19
outbreak, the Company (a) has accelerated its research and development
activities; (b) has secured and is continuing to seek additional debt and/or
equity financing to support working capital requirements; and (c) continues to
take steps to stabilize and increase revenues from the sale of its products.
There is no assurance as to when the adverse impact to the United States and
worldwide economies resulting from the COVID-19 outbreak will be eliminated, if
at all, and whether any new or recurring pandemic outbreaks will occur again in
the future causing a similar or worse devastating impact to the United States
and worldwide economies or our business.
49
Results of Operations
Fiscal year ended October 31, 2022 as compared to fiscal year ended October 31,
2021
Revenues. Our revenues for the year ended October 31, 2022 were $6,491,008,
compared to revenues of $5,597,487 for the year ended October 31, 2021. The
increase in revenues during the year ended October 31, 2022 of $893,521 or 16.0%
was primarily the result of the Company being able to realize an increase of
approximately 14.7% (approximately $793,000) in the average sales prices for the
products sold during the year ended October 31, 2022 compared with the average
sales prices realized on products sold during the year ended October 31, 2021,
partially offset by a decrease of approximately 0.4% (approximately $27,000) in
the overall unit sales of its products during the year ended October 31, 2022
compared with the year ended October 31, 2021, and the Company's ability to
generate approximately $100,400 of increased revenues associated with units
processed in connection with its recently launched PPX™ service platform during
the year ended October 31, 2022 compared to the year ended October 31, 2021. The
increase in the average sales prices realized on products sold during the year
ended October 31, 2022 compared with the year ended October 31, 2021 was due to
increases in sales of higher priced medical grade product and the reduction in
volume pricing discounts granted to distributors for large orders of the
Company's medical grade product offerings and the reduction in the sales of the
Company's aesthetic product offerings, which are sold at lower prices than the
Company's medical grade product offerings.
Cost of Revenues. Our cost of revenues for the year ended October 31, 2022 were
$753,534 compared with cost of revenues of $547,881 for the year ended
October 31, 2021. The increase in the cost of revenues during the year ended
October 31, 2022 of $205,653 or 37.5% compared with the year ended October 31,
2021 was due to an increase in the cost of units sold of 24.2% (approximately
($132,600) during the year ended October 31, 2022, compared to costs of units
sold during the year ended October 31, 2021 and the Company's increase in costs
associated with units processed in connection with the recently launched PPX™
service platform of approximately $76,000 during the year ended October 31, 2022
compared to the year ended October 31, 2021. The increase in the cost of units
sold was primarily the result of the Company's sales of higher cost medical
grade product offerings, and the reduction of lower cost aesthetic product
offerings.
Gross Profit. Our gross profit for the year ended October 31, 2022 was
$5,737,474 (88.4% of revenues), compared with gross profit of $5,049,606 (90.2%
of revenues) for the year ended October 31, 2021. The increase in gross profit
during the year ended October 31, 2022 of $687,868 was the result of the Company
being able to realize an increases in the average sales prices for the products
sold during the year ended October 31, 2022 and the new revenues associated with
its recently launched PPX™ service platform during the year ended October 31,
2022, partially offset from increases in costs of units sold during the year
ended October 31, 2022 compared to the year ended October 31, 2021.
General and Administrative Expenses. General and administrative expenses for the
year ended October 31, 2022 were $14,580,434, compared with $17,793,709 for the
year ended October 31, 2021, a decrease of $3,213,275 or 18.1%. The decrease in
the general and administrative expenses for the year ended October 31, 2022
compared with the year ended October 31, 2021, was primarily the result of a
decrease in stock-based compensation costs to advisors, consultants and
administrative staff totaling approximately $4,735,719, reduced research and
development costs of approximately $329,000, partially offset by increases in
payroll and consulting fees of approximately $332,700, increases in commissions
due from sales of the Company's products of approximately $430,000, increased
professional fees of approximately $561,400 and increased laboratory and office
related expenses of approximately $559,000. The decrease in stock-based
compensation costs was the result of a reduction in the amount of shares issued
as stock-based compensation during the year ended October 31, 2022 compared with
the year ended October 31, 2021, partially offset from increases in the average
costs attributable to the shares issued as stock-based compensation based on the
Company's share price at the time that the stock-based compensation was granted
(average cost of shares granted during the year ended October 31, 2022 was
$0.074 versus average cost of shares granted during the year ended October 31,
2021 of $0.062).
Other Income (Expense). Other (expense), net, for the year ended October 31,
2022 was $53,598, compared with other (expense), net, of $12,457 for the year
ended October 31, 2021. The increase in other (expense), net, of $41,141 during
the year ended October 31, 2022 compared to the year ended October 31, 2021 was
principally the result of increased costs of approximately $323,100 from the
amortization of discounts in connection with the with the Note issued and sold
by the Company to AJB in January 2022, the increase of $37,200 of interest costs
principally the result of $52,000 in interest costs associated with the Note
during the year ended October 31, 2022 offset by a reduction of interest costs
from other interest bearing obligations totally approximately $14,000, and the
increase in the Commitment Fee Shortfall Obligation of approximately $30,700
under our SPA during the year ended October 31, 2022 compared with the year
ended 2021, partially offset from increases of approximately $224,000 from gains
from settlements and write-offs on outstanding payables and the gain from the
write-off of liabilities attributable to discontinued operations that had
exceeded the "statute of limitations" of $125,851during the year ended
October 31, 2022 compared with the year ended October 31, 2021.
50
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
Fiscal Year Ended
October 31,
2022 2021
Cash, beginning of year $ 108,570 $ 590,797
Net cash used in operating activities (3,165,840 ) (2,680,354 )
Net cash used in investing activities
(824,743 ) (424,742 )
Net cash provided by financing activities 7,635,110 2,622,869
Cash, end of year
$ 3,753,097 $ 108,570
During the year ended October 31, 2022, the Company used cash in operating
activities of $3,165,840, compared to $2,680,354 for the year ended October 31,
2021, an increase in cash used of $485,486. The increase in cash used in
operating activities was due to the increase in cash to pay increasing operating
expenses on a current basis associated with professional fees, payroll,
consulting costs and laboratory related expenses in connection with the
Company's expansion of its research and development activities as well as
increases in payments of past due accounts payable and accrued expenses during
the year ended October 31, 2022 as compared to the year ended October 31, 2021,
partially offset from the increase in revenues and gross profit during the year
ended October 31, 2022 as compared to the year ended October 31, 2021.
During the year ended October 31, 2022, the Company had cash used in investing
activities of $824,743, compared to cash used in investing activities of
$424,742 for the year ended October 31, 2021 an increase in cash used of
$400,001. The increase in cash used in investing activities was due primarily
due to $690,704 of payments made in connection with the Company's leasehold
improvements associated with the new lab facility in Basalt, CO during the year
ended October 31, 2022 as compared to the year ended October 31, 2021 and an
decrease of $290,703 in laboratory equipment purchased for the Company's Basalt,
CO laboratory facilities during the year ended October 31, 2022 as compared to
the year ended October 31, 2021.
During the year ended October 31, 2022, the Company had cash provided by
financing activities of $7,635,110 compared to cash provided by financing
activities of $2,622,869 for the year ended October 31, 2021. The increase in
cash provided by financing activities of $5,012,241 was due to increases in
proceeds of $540,000 from the issuance of the Note to AJB, increases in capital
contributed by executive of $250,000 and increases in proceeds from the sale of
equity securities in connection with the Restructuring of $4,000,0000 and the
sale of equity securities in other transactions of $562,730, partially offset
from increases in repayments of outstanding debt obligations of approximately
$331,400 and increase in payments on capital leases of approximately $9,000
during the year ended October 31, 2022 as compared to the year ended October 31,
2021.
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. During
the fiscal year ended October 31, 2022 and through the date of this Annual
Report, the Company completed the following private sales of its securities:
1. During November 2020, the Company sold 800,000 shares of common stock to an
"accredited investor", at $0.05 per share, for an aggregate purchase price of
$40,000. The proceeds were used for working capital.
2. During February 2021, the Company sold an aggregate of 12,340,910 shares of
common stock to five "accredited investors" at prices ranging from $0.05 per
share to $0.06 per share for an aggregate purchase price of $665,000. The
proceeds were used for working capital.
51
3. On February 22, 2021, the Company sold 1,818,181 shares of common stock to
Republic Asset Holdings LLC., a Company controlled by Michael Carbonara, a
director of the Company, at $0.055 per share for an aggregate purchase price
of $100,000. The proceeds were used for working capital.
4. During April 2021, the Company sold an aggregate of 13,677,821 shares of
common stock to seven "accredited investors" at prices ranging from $0.03 per
share to $0.25 per share for an aggregate purchase price of $535,000. The
proceeds were used for working capital.
5. During May 2021, the Company sold an aggregate of 2,087,822 shares of common
stock to eight "accredited investors" at prices ranging from $0.13 per share
to $0.15 per share for an aggregate purchase price of $286,250. The proceeds
were used for working capital.
6. During the period June 2021 through July 2021, the Company sold an aggregate
of 11,541,500 shares of common stock to four "accredited investors" at prices
ranging from $0.05 per share to $0.13 per share for an aggregate purchase
price of $631,020. The proceeds were used for working capital.
7. During August 2021, the Company sold an aggregate of 3,000,000 shares of
common stock to one "accredited investor" at $0.05 per share for an aggregate
purchase price of $150,000. The proceeds were used for working capital.
8. During October 2021, the Company sold an aggregate of 7,500,000 shares of
common stock to four "accredited investors" at $0.04 per share for an
aggregate purchase price of $300,000. The proceeds were used for working
capital.
9. In November 2021, the Company sold an aggregate of 8,000,000 shares of common
stock to one "accredited investor" at $0.05 per share for an aggregate
purchase price of $400,000. The proceeds were used for working capital.
10. On January 11, 2022, the Company entered into a Securities Purchase Agreement
with AJB Capital Investments, LLC (the "Purchaser") pursuant to which we sold
a Promissory Note in the principal amount of $600,000 to the Purchaser in a
private transaction to for a purchase price of $540,000 (giving effect to
original issue discount of $60,000). See "Item 1. Business - Recent
Development" for further details regarding this transaction.
11. In February 2022, the Company sold an aggregate of 8,333,333 shares of common
stock to one "accredited investor" at $0.03 per share for an aggregate
purchase price of $250,000. The proceeds were used for working capital.
12. During August 2022, the Company sold an aggregate of 200,000,000 shares of
common stock to four "accredited investors" at $0.02 per share for an
aggregate purchase price of $4,000,000. The proceeds are being used for
working capital.
13. During August 2022 and September 2022, the Company sold an aggregate of
65,500,000 shares of common stock to four "accredited investors" at $0.04 per
share for an aggregate purchase price of $2,620,000. The proceeds are being
used for working capital.
The Company issued the foregoing securities pursuant to the exemption from the
registration requirements of the Securities Act afforded by Section 4(a)(2) of
the Securities Act and/or Regulation D promulgated thereunder.
Put Request
Pursuant to the Purchase Agreement entered into with Tysadco Partners LLC, on
December 2, 2022, the Company submitted a put request to Tysadco to purchase
4,456,326 registered shares at a purchase price (as calculated pursuant to the
Purchase Agreement) of $0.02244, for a total of $100,000 ("Put Request"). On
December 5, 2022, Tysadco funded the Put Request and the Company issued
4,456,326 shares to Tysadco. The proceeds from the share sale are being used for
working capital and general corporate purposes.
52
Going Concern Consideration
The 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 $8,896,557 for
the year ended October 31, 2022. In addition, the Company had an accumulated
deficit of $50,521,306 at October 31, 2022. The Company had a working capital
position of $303,085 at October 31, 2022.
New United States Food and Drug Administration ("FDA") regulations which were
announced in November 2017 and which became effective beginning in May 2021
(postponed from November 2020 due to the COVID-19 pandemic) 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.
In addition to the above, the adverse public health developments associated with
the ongoing COVID-19 pandemic combined with the downturn in the overall United
States and global economies have adversely affected the demand for our products
and services by our customers and from patients of our customers and which
currently still continue to have a negative impact to our business and the
economy.
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; (b) the United States economy returns to
pre-COVID-19 conditions; and/or (c) 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 United States economy returns to
pre-COVID-19 market conditions; (c) 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;
(d) obligations to the Company's creditors are not accelerated; (e) the
Company's operating expenses remain at current levels and/or the Company is
successful in restructuring and/or deferring ongoing obligations; (f) 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 (g) 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.
53
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. As of October 31, 2022, 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 October 31, 2022 and through the date of this report, we had no such
arrangements.
Recently Issued Financial Accounting Standards
There were no recently issued financial accounting standards that would have an
impact on the Company's financial statements.
Critical Accounting Policies
Our audited 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 this report, "Summary of Significant Accounting
Policies".
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