Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
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) is seeking to raise 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.
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Results of Operations
Fiscal year ended
October 31, 2021 as compared to fiscal year ended October 31, 2020
Revenues .
Our revenues for the year ended October 31, 2021 were $5,597,487, compared to revenues of $3,055,776 for the year ended October 31, 2020.
The increase in revenues during the year ended October 31, 2021 of $2,541,711 (83.2%) was primarily the result of the Company being able
to realize an increase of approximately 103.7% (approximately $2,849,000) in unit sales of its products during the year ended October
31, 2021 compared with the year ended October 31, 2020, partially offset from a decrease of approximately 10.0% (approximately $308,000)
in the average sales prices for the products sold during the year ended October 31, 2021 compared with the average sales prices realized
on products sold during the year ended October 31, 2020. The increase in the units sold was partly attributable to favorable responses
to the Company’s sales and marketing efforts establishing greater market awareness, the introduction of new and more advanced product
offerings and increased research and development efforts which provided customers with greater comfort in the Company’s products
and ability to better address potential market uncertainty regarding anticipated FDA regulations. The decrease in the average sales prices
realized on products sold during the year ended October 31, 2021 compared with the year ended October 31, 2020 was due to volume pricing
discounts for large orders of the Company’s medical grade product offerings and the increase 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, 2021 were $547,881, compared with cost of revenues of $398,606 for the year ended
October 31, 2020. The increase in the cost of revenues during the year ended October 31, 2021 of $149,275 (37.4%) compared with the year
ended October 31, 2020 was due to an increase in the amount of units sold of 103.7% (approximately $278,886) during the year ended October
31, 2021 compared with the year ended October 31, 2020, partially offset from the reduction in the cost of units sold of 32.5% (approximately
($129,611) during the year ended October 31, 2021 compared to costs of units sold during the year ended October 31, 2020, which as described
above was primarily the result of the Company’s increase in the sales of the Company’s aesthetic product offerings during
the year ended October 31, 2021 compared to the year ended October 31, 2020 which have a lower cost of revenue than the Company’s
medical grade product offerings.
Gross Profit .
Our gross profit for the year ended October 31, 2021 was $5,049,606 (90.1% of revenues), compared with gross profit of $2,657,170 (87.0%
of revenues) for the year ended October 31, 2020. The increase in gross profit during the year ended October 31, 2021 was the result of
higher amount of units sold and lower cost of units sold during the year ended October 31, 2021 compared to the year ended October 31,
2020. The increase in the units sold was partly attributable to favorable responses to the Company’s sales and marketing efforts
establishing greater market awareness and the introduction of new and more advanced product offerings. The lower cost of units sold was
due to the Company’s increase in the sales of the Company’s aesthetic product offerings during the year ended October 31,
2021 compared to the year ended October 31, 2020 which have a lower cost of revenue than the Company’s medical grade product offerings.
General and Administrative Expenses .
General and administrative expenses for the year ended October 31, 2021 were $17,793,709, compared with $15,095,111 for the year ended
October 31, 2020, an increase of $2,698,598 (17.9%). The increase in the general and administrative expenses for the year ended October
31, 2021 compared with the year ended October 31, 2020 was primarily the result of increased research and development costs of approximately
$886,000, increased commissions due from sales of the Company’s products of approximately $915,000, increased payroll and consulting
costs of approximately $1,400,000, increased professional fees of approximately $384,000, increased office related costs of approximately
$141,000 and approximately $209,000 of increased laboratory related expenses, partially offset by a decrease in stock-based compensation
costs to advisors, consultants and administrative staff totaling approximately $1,262,000. The increase in research and development costs,
payroll and consulting costs, professional fees and laboratory related expenses was the result of the Company’s expansion of its
research and development activities primarily relating to the filing and approval of IND applications and the performance of clinical
trials and public company compliance related costs during the year ended October 31, 2021 compared with the year ended 2020. The increase
in commissions was the result in the increase in revenues sales during the year ended October 31, 2021 compared with the year ended 2020.
The decrease in stock-based compensation costs was the result of a reduction in the amount of shares issued as stock compensation during
the year ended October 31, 2021 compared with the year ended 2020, partially offset from the increase in the costs attributable to the
shares issued as stock compensation based on increases in the Company’s share price during periods that the stock compensation was
granted (average cost of shares granted during the year ended October 31, 2021 was $0.062 versus average cost of shares granted during
the year ended October 31, 2020 of $0.029).
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Other Income (Expense) Other
expense, net, for the year ended October 31, 2021 was $12,457, compared with other expense, net, of $145,027 for the year ended October
31, 2020. The decrease in other expense, net, of $132,570 was principally the result of reduced interest costs during the year ended October
31, 2021 of approximately $118,350 in connection with the amount of the discount to the fair value of common stock associated with the
conversion of a funding facility into equity and the reduction in interest expense of approximately $25,000 associated with such funding
facility. These costs occurred during the year ended October 31, 2020 and did not occur during the year ended October 31, 2021.
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,
2021
2020
Cash, beginning of year
$ 590,797
$ 132,557
Net cash used in operating activities
(2,609,085 )
(1,812,499 )
Net cash used in investing activities
(496,011 )
(138,694 )
Net cash provided by financing activities
2,622,869
2,409,433
Cash, end of year
$ 108,570
$ 590,797
During the year ended October 31, 2021, the Company
used cash in operating activities of $2,609,085, compared to $1,812,499 for the year ended October 31, 2020, an increase in cash used
of $796,586. The increase in cash used in operating activities was due to the increase in the general and administrative expenses during
the year ended October 31, 2021 after adjusting for non-cash charges (mostly related to stock-based compensation), resulting from increased
payroll and consulting costs and laboratory related expenses in connection with the Company’s expansion of its research and development
activities during the year ended October 31, 2021, partially offset from the increase in revenues and gross profit during the year ended
October 31, 2021.
During the year ended October 31, 2021, the Company
had cash used in investing activities of $496,011, compared to cash used in investing activities of $138,694 for the year ended October
31, 2020. The increase in cash used in investing activities of $357,317 was due primarily due the Company’s leasehold improvements
associated with the new lab facility in Basalt, CO of $406,709, partially offset from lower capital expenditures for the acquisition of
additional fixed assets required in connection with the Company’s laboratory operations during the year ended October 31, 2021 as
compared to the year ended October 31, 2020.
During the year ended October 31, 2021, the Company
had cash provided by financing activities of $2,622,869 compared to cash provided by financing activities of $2,409,433 for the year ended
October 31, 2020. The increase in cash provided by financing activities of $213,436 was due to increases in proceeds from the sale of
equity securities and convertible notes of approximately $512,000, decreases in repayments of outstanding debt obligations of approximately
$96,900, and reduced payments on finance leases of approximately $9,000, partially offset from reduced proceeds received from the issuance
of notes payable of $400,000 during the year ended October 31, 2021 as compared to the year ended October 31, 2020.
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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, 2021 and through the date of this 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.
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.
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.
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 operating losses of $12,744,103 for the year ended
October 31, 2021. In addition, the Company had an accumulated deficit of $41,624,749 at October 31, 2021. The Company had a negative working
capital position of $3,609,174 at October 31, 2021.
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.
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In addition to the above, the adverse public health
developments and economic effects of the ongoing COVID-19 pandemic 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 in connection with the COVID-19 outbreak 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 resumes 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 (1) 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, (2) the effects of the COVID-19 crisis resume to pre-COVID-19 market conditions, (3) 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, (4) obligations to the Company’s creditors are not accelerated, (5) the Company’s operating expenses
remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations, (6) 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 (7) 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 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 similar or worse devastating impact to the United States and worldwide
economies and our business. In addition, 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. As described above, the COVID-19 crisis has significantly impaired the Company and the overall
Unites States and World economies.
If revenues do not increase and stabilize, if
the COVID-19 crisis is not satisfactorily managed and/or resolved, 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, 2021, 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.
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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, 2021 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 ”.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk
As a “smaller reporting company,”
as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item of Form 10-K.
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