Form 10-Q for PLANDAI BIOTECHNOLOGY, INC.
20-May-2015
Quarterly Report
BUSINESS
Planda� 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 principle 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, Planda� 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 Planda� 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 Planda� Biotechnology, Inc.
Planda� and its subsidiaries focus on the production of proprietary botanical extracts for the nutriceutical and pharmaceutical industries. The company grows much of the live plant material used in its products on a 3,000 hectare estate it operates under a 49-year notarial lease in the Mpumalanga region of South Africa. Planda� uses a proprietary extraction process that is designed to yield highly bioavailable products of pharmaceutical-grade purity. The first product to be brought to market is Phytofare� Catechin Complex, a green-tea derived extract that has multiple potential wellness applications. The company’s principle 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. Notwithstanding this, production for the first three months of operations has been limited due to various technical issues incidental to opening a new facility that is the first of its kind. Accordingly, there were no sales during the first quarter of operations and most of the production was used for clinical trials, batch testing, and customer samples. Sales are expected to commence May 2015 and continue uninterrupted thereafter.
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 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.
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 previous nine months, we have borrowed $5,550,000 from an unaffiliated third party under a twelve month promissory note due and payable December 31, 2015 and earning interest at 6% per annum.
PRODUCTS AND SERVICES
Planda� 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 antioxidant and anti-carcinogenic substances. The Company leases 3,000 hectares of agriculture land in Mpumalanga, South Africa, under a 49-year notarial lease, which includes over a thousand acres of cultivated green tea. In addition, the Company has recently completed a 30,000 sq. ft. state-of-the-art extraction facility on site which came online in December 2014. Planda� 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 benefit, 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 anti-oxidant, 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 hascommercialized 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 anticipated to commence 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 July 2016.
On August 30, 2013, Planda� 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 product 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 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.
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, Planda� Biotechnology- Uruguay, SA (fka- RiverSoul, 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 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, Planda� 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 projects 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.
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 nutriceutical 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. Planda� 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
Planda� markets its products through distribution companies who the sell to various nutriceutical and supplement companies that require high-quality bio-available extracts for their products. In certain countries where it is economically feasible, Planda� sells direct to nutriceutical and supplement companies. The company presently has distribution agreements with representation in Europe, North America, India and Asia and sells direct to customers in South Africa.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015 AND
2014
SALES
For the three months ended March 31, 2015, revenues were $21,744 compared to revenues of $12,554 for the quarter ended March 31, 2014. Sales for both quarters consisted of timber from the company’s tea estate in South Africa. Sales of Phytofare� extracts are not expected to commence until Q2 of 2015.
For the nine months ended March 31, 2015, revenues were $64,024 compared to revenues of $250,859 for the nine months ended December 31, 2014. Sales for both periods consisted of timber from the company’s tea estate in South Africa. Sales of Phytofare� extracts are not expected to commence until Q2 of 2015.
Cost of sales for the quarter ended March 31, 2015 was $181,214 compared with $141,046 in the prior year, which was an increase of $40,168. The increase in cost of sales relates to expenses incurred with running the factory in 2015 in addition to managing and operating the Senteeko Tea Estate.
Cost of sales for the nine months ended March 31, 2015 was $583,506 compared with $483,675 in the prior year, which was an increase of $99,831. The increase in cost of sales relates to expenses incurred with running the factory in 2015 in addition to managing and operating the Senteeko Tea Estate.
EXPENSES
Our total expenses for the three months ended March 31, 2015 were $5,829,787 compared to $2,775,627 for the same period of the prior year which was an increase of $3,054,160. The primary increase resulted from Salaries & Wages, which went from $1,133,741 to $5,079,803 owning to the compensation expense attributed to common stock issuable under employment contracts which varies due to fluctuation in stock price, and from a one-time bonus of 20 million shares paid in February for services rendered by our Chief Executive Officer. This increase was offset by decreases in Consulting Expenses which decreased from $800,000 to $382,048, and finance costs of $459,000 incurred in the prior year associated with shares issued to secure an equity line of credit.
Our total expenses for the nine months ended March 31, 2015 were $7,850,926 compared to $4,402,706 for the same period of the prior year which was an increase of $3,448,220. The primary increase resulted from Salaries & Wages, which went from $2,204,284 to $6,128,980 owning to the compensation expense attributed to common stock issuable under employment contracts which varies due to fluctuation in stock price, and from a one-time bonus of 20 million shares paid in February for services rendered by our Chief Executive Officer, and from an increase in Professional Fees, which went from $108,643 to $455,161 owning to increased legal expenses. The increase was offset by decreases in Consulting Expenses which decreased from $800,000 to $402,154, and finance costs of $459,000 incurred in the prior year associated with shares issued to secure an equity line of credit.
OTHER INCOME & EXPENSES
Other Income and Expenses for the three and nine months ended March 31, 2015 were ($283,527) and $225,380, respectively, compared to ($150,758) and ($2,461,090) for the three and nine months ended March 31, 2014, respectively. During the nine months ended March 31, 2015, Other Income included $777,724 received as settlement proceeds, while in 2014, Other Expense included $2,086,436 in Derivative Interest recorded from the conversion potential of debentures issued and outstanding. Derivative Interest is recorded on debt instruments that can be converted into common stock and is determined based on the value of the potential number of shares that could be issued on conversion assuming historical price fluctuations. The balance of Other Income and Expense in all periods presented related to Interest Expense, which was $552,344 and $374,654 for the nine months ended March 31, 2015 and 2014 respectively. The increase in Interest Expense resulted from increased debt.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 2015, the Company used cash in operating activities totaling $1,551,597, which was primarily attributable to a loss from operations of $8,145,028 offset by the value of stock issued for services of $5,971,536 and a decrease in related party receivables of $426,444. Cash used in investing activities was $752,083, which consisted of the purchase of fixed assets to be used in production activities. Cash provided by financing activities was $2,275,096 generated by third party loans of $1,988,396 and the sale of common stock of $286,700. As of March 31, 2015, the Company had current assets of $273,445 compared to current liabilities of $8,364,245.
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 final loan documents on a 100 million Rand (approx. $8.3 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 has 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 with sales commencing in May 2015.
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 farm goods, raw materials and the 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.
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.
Goodwill is accounted for in accordance with ASC Topic 350, “Intangibles – Goodwill and Other”. We assess the impairment of long-lived assets, including goodwill and intangibles 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. We have determined that there was no impairment of goodwill during 2013 or 2012. The share exchange did not result in the recording of goodwill and there is not currently any goodwill recorded.
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
Planda� 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 Planda�, 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 significant 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, Planda� 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 are in South Africa, as the dollar strengthens in comparison to the Rand, it reduces the carrying value of our assets.
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