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.
Results of Operations
Fiscal year ended October 31, 2024 as compared to fiscal year ended October 31, 2023
Revenues . Our revenues for the year ended October 31, 2024 were $4,620,000, as compared to revenues of $4,558,000 for the year ended October 31, 2023. The increase in revenues for the year ended October 31, 2024 of $62,000 or 1.4%, was primarily the result of an increase of approximately $474,000 of revenues associated with our recently launched PPX™ service platform during the year ended October 31, 2024, compared with the year ended October 31, 2023 and an increase of approximately 7.9% (approximately $293,000) in the overall unit sales of our high concentration biologic products during the year ended October 31, 2024, compared with the year ended October 31, 2023, partially offset by a decrease of approximately 16.0% (approximately $705,000) in the average sales prices for the high concentration biologic products sold during the year ended October 31, 2024, compared with the year ended October 31, 2023.
The increase in the overall unit sales of our high concentration biologic products and revenues associated with its recently launched PPX™ service platform during the year ended October 31, 2024, as compared to the year ended October 31, 2023 was primarily due the Company’s expanded sales and marketing efforts which included engaging additional sales representatives, participation in industry related conferences and sponsoring of educational webinars.
The decrease in the average sales prices for the high concentration biologic products sold during the year ended October 31, 2024, compared to the year ended October 31, 2023 was due to increases in unit sales of lower priced products comprising the Company’s higher priced medical grade biologic product offerings and an increase in the Company’s lower priced aesthetic biologics product offerings. The percentage of overall unit sales of the Company’s high concentration medical grade biologic product offerings decreased to 42.4% from 54.8% and increased to 57.6% from 45.2% for the Company’s high concentration aesthetic biologics product offerings, respectively, for the year ended October 31, 2024, as compared to the year ended October 31, 2023.
Cost of Revenues . Our cost of revenues for the year ended October 31, 2024 were $844,000, as compared to cost of revenues of $508,000 for the year ended October 31, 2023. The increase in the cost of revenues for the year ended October 31, 2024 of $336,000 or 66.1%, from the year ended October 31, 2023, was due to an increase of approximately $187,000 of cost of revenues associated with its recently launched PPX™ service platform during the year ended October 31, 2024, as compared to the year ended October 31, 2023, the increase of approximately 25.9% (approximately $108,000) in the average cost of revenues for the high concentration biologic products during the year ended October 31, 2024, as compared to the year ended October 31, 2023 and the increase of approximately 7.9% (approximately $41,000) in the overall unit sales of its high concentration biologic products, during the year ended October 31, 2024, as compared to the year ended October 31, 2023.
Gross Profit . Our gross profit for the year ended October 31, 2024 was $3,776,000 (81.7% of revenues), compared to gross profit of $4,050,000 (88.9% of revenues) for the year ended October 31, 2023. The minor change in gross profit during the year ended October 31, 2024 compared to the year ended October 31, 2023 was the result of increases in the amount of high concentration biologic products sold and increases in the sales of its recently launched PPX™ service platform, offset from the increase in costs of revenues associated with those product sales during the year ended October 31, 2024, compared to the year ended October 31, 2023.
The percentage of the Company’s revenues associated with its recently launched PPX™ service platform, which has a lower gross margin percentage as compared to the Company’s high concentration biologic product offerings, increased to 13.3% of revenues for the year ended October 31, 2024, as compared to 3.1% of revenues for the year ended October 31, 2023.
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General and Administrative Expenses . General and administrative expenses for the year ended October 31, 2024 were $9,095,000, as compared to $10,818,000 for the year ended October 31, 2023, a decrease of $1,723,000 or 15.9%. The decrease in the general and administrative expenses for the year ended October 31, 2024, from the year ended October 31, 2023, was primarily the result of decreased research and development costs of approximately $759,000, decreased laboratory related costs of approximately $567,000, decreased commissions and travel costs of approximately $490,000, decreased marketing related costs of approximately $110,000, decreased administrative and office related costs of $177,000, reduced corporate insurance costs of $143,000 and decreased professional fees of approximately $701,000, which were partially offset by increased stock-based compensation costs to advisors, consultants and administrative staff totaling approximately $644,000 and increased payroll and consulting fees of approximately $579,000 during the year ended October 31, 2024, as compared to the year ended October 31, 2023.
The decrease in research and development costs during the year ended October 31, 2024, from the year ended October 31, 2023 was principally the result of the Company’s completion of its Phase 1 trials during the year ended October 31, 2023, and there being no other significant ongoing clinical trial costs incurred since that time. The decrease in laboratory related costs was principally the result of the Company’s sale of the Basalt laboratory facility in August 2023 and as a result, there were no associated costs associated with operating that facility during the year ended October 31, 2024, as compared to the year ended October 31, 2023. The decrease in commissions and travel costs during the year ended October 31, 2024, as compared to the year ended October 31, 2023 was principally the result of a larger percentage of sales that were generated from lower priced products and sales through house accounts with much lower commission costs than paid to distributors and/or independent sales representatives. The decrease in professional fees was principally the result of reduced audit fees, tax preparation fees and legal fees during the year ended October 31, 2024, as compared to the year ended October 31, 2023.
The increase in stock-based compensation costs during the year ended October 31, 2024, as compared to the year ended October 31, 2023 was principally the result of increased amortization of costs from shares and options issued to executives and advisors and options issued to employees and outside directors.
The increase in payroll and consulting fees during the year ended October 31, 2024, as compared to the year ended October 31, 2023 was principally the result of payroll costs related to the Company’s hiring of a new executives during June 2023 and July 2023 which were paid for a shorter period during the year ended October 31, 2023, as compared to the year ended October 31, 2024 and the hiring of additional consultants during the year ended October 31, 2024 as compared to October 31, 2023.
Other income. Other income for the year ended October 31, 2024 was $751,000, as compared to other income of $331,000 for the year ended October 31, 2023. The increase in other income of $420,000 was due to the write-off of advances payable to an affiliate of a former executive of $221,000 resulting from the inability of the affiliate to enforce a claim to collect the advances as the period of statute of limitations had run, the settlement of the Amended Skincare Agreement of $168,000, the abatement of IRS penalties of $93,000, the settlement of insurance claims of $89,000, the increases in commissions received from sales of Exotropin products of $87,000, the increases in income from the settlement of liabilities of approximately $93,000 and increases in other income of $10,000 during the year ended October 31, 2024 compared to the year ended October 31, 2023, partially offset from the decrease in the gain from the sale of the Basalt Lab of approximately $341,000 which occurred in the year ended October 31, 2023.
Other expense for the year ended October 31, 2024 was $137,000, as compared to other expense of $550,000 for the year ended October 31, 2023. The decrease in other expense of $413,000 during the year ended October 31, 2024, compared to the year ended October 31, 2023, was principally the result of reduced amortization of loan discounts of approximately $326,000, reduced IRS interest and penalties of approximately $13,000, reduced reserves against the carrying value of the Company’s investments in equity securities of $55,000 and reduced costs associated with changes in the fair value of a commitment fee of $19,000 related to a January 2022 $600,000 debt financing, during the year ended October 31, 2024 as compared to the year ended October 31, 2023.
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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,
2024
2023
Cash, beginning of year
$
1,756,000
$
3,753,000
Net cash used in operating activities
(1,450,000
)
(2,197,000
)
Net cash provided by (used in) investing activities
(45,000
)
615,000
Net cash (used in) provided by financing activities
396,000
(415,000
)
Cash, end of year
$
657,000
$
1,756,000
During the year ended October 31, 2024, the Company used cash in operating activities of $1,450,000, compared to $2,197,000 for the year ended October 31, 2023, a decrease in cash used of $747,000. The decrease in cash used was primarily the result of a reduction in general and administrative expenses and other income (expense) after adjusting for non-cash related activities of $2,353,000 for the year ended October 31, 2024 compared to the year ended October 31, 2023, partially offset by reductions in gross profit of $274,000 and reductions in cash provided from changes in operating assets and liabilities of $1,315,000 for the year ended October 31, 2024 compared to the year ended October 31, 2023.
The decrease in cash provided from changes in operating assets and liabilities was due to decreases in accounts payable and accrued expenses and accrued liabilities and deferred revenues and increases in accounts receivable partially offset from decreases in inventories during the year ended October 31, 2024 as compared to the year ended October 31, 2023. The reduction in general and administrative expenses and other income (expense) after adjusting for non-cash related activities was the result of reduced operating expenses associated with professional fees, payroll, consulting costs, research and laboratory related expenses during the year ended October 31, 2024 as compared to the year ended October 31, 2023. The decrease in gross profit during the year ended October 31, 2024 as compared to the year ended October 31, 2023 was primarily the result of a greater mix of sales of lower priced units and increases in the sales of units that had a higher cost of goods sold per unit.
During the year ended October 31, 2024, the Company had cash used in investing activities of $45,000 compared to cash provided by investing activities of $615,000 for the year ended October 31, 2023, a decrease in cash provided by investing activities of $660,000. The decrease in cash provided by investing activities was due primarily due to reductions in proceeds received from the sale of the Company’s Basalt, Colorado lab facility of $741,000, partially offset from the decrease in cash used in investments in non-marketable securities of $55,000 and payments made in connection with the Company’s purchase of laboratory equipment of $26,000 during the year ended October 31, 2024 as compared to the year ended October 31, 2023.
During the year ended October 31, 2024, the Company had cash provided by financing activities of $396,000 compared to cash used in financing activities of $415,000 for the year ended October 31, 2023. The decrease in cash used in financing activities of $811,000 was due to the reduction in the shares repurchased in connection with litigation of $420,000, the reduction of payments on notes payable of $1,130,000 and reduction of payments on finance leases of approximately $91,000 during the year ended October 31, 2024 as compared to the year ended October 31, 2023. The decrease in cash provided by financing activities was due to decreases in proceeds from the issuance of promissory notes of $1,230,000, partially offset from increases in proceeds from the private sale of equity securities of $400,000 during the year ended October 31, 2024 as compared to the year ended October 31, 2023.
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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, 2024 and through the date of this Annual Report, the Company completed the following private sales of its securities:
On July 8, 2024, the Company raised $500,000 in the July 2024 Financing. In the July 2024 Financing, the Company sold and issued to the Investor 250,000 shares of common stock and warrants to purchase an additional 83,333 shares in a private transaction. In connection with the July 2024 Financing, the Company agreed to provide the Investor certain piggy-back registration rights under the Securities Act with respect to the shares purchased and the shares underlying the warrants purchased. The proceeds from the July 2024 Financing were used for working capital purposes.
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 $4,705,000 for the year ended October 31, 2024 and used $1,450,000 of cash from operating activities during that period. In addition, the Company had an accumulated deficit and a stockholders’ deficit of $62,213,000 and $1,653,000, respectively, at October 31, 2024. The Company had a working capital deficit of $2,123,000 at October 31, 2024.
United States Food and Drug Administration (“ FDA ”) regulations which were announced in November 2017 and which became effective in May 2021 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.
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; and/or (b) 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 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; (c) obligations to the Company’s creditors are not accelerated; (d) the Company’s operating expenses remain at current levels and/or the Company is successful in restructuring and/or deferring ongoing obligations; (e) 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 (f) the Company obtains additional working capital to meet its contractual commitments and maintain the current level of Company operations through debt or equity sources.
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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.
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, 2024, 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, 2024 and through the date of this report, we had no such arrangements.
Recently Issued Financial Accounting Standards
See Note 2 to our audited consolidated financial statements included in
this report for a discussion of recent accounting pronouncements.
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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