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EX-31.1 - INERGETICS INC | v225865_ex31-1.htm |
EX-32.1 - INERGETICS INC | v225865_ex32-1.htm |
EX-32.2 - INERGETICS INC | v225865_ex32-2.htm |
EX-31.2 - INERGETICS INC | v225865_ex31-2.htm |
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2011
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission file number 0-3338
INERGETICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
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22-1558317
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(State or other Jurisdiction of
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(IRS Employer
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Incorporation or Organization)
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Identification No.)
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205 Robin Road, Suite 222, Paramus, NJ 07652
(Address of Principal Executive Office) (Zip Code)
(908) 604-2500
(Registrant’s telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
As of June 10, 2011, 23,756,132 shares of Common Stock, $0.001 par value.
INERGETICS, INC. AND SUBSIDIARY
INDEX
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Page
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Number
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PART 1 - FINANCIAL INFORMATION
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Item 1
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Financial Statements (unaudited):
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Condensed Consolidated Balance Sheets - March 31, 2011 and December 31, 2010
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3
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Condensed Consolidated Statements of Operations - Three months ended March 31, 2011 and 2010
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4
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Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2011 and 2010
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5
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Notes to Condensed Consolidated Financial Statements
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6 – 10
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Item 2
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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11
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Item 3
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Quantitative and Qualitative Disclosures about Market Risk
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13
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Item 4
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Controls and Procedures
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13
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PART II - OTHER INFORMATION
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15
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Item 1
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Legal Proceedings
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15
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Item 1A.
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Risk Factors
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15
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Item 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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15
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Item 3
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Defaults Upon Senior Securities
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15
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Item 4
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Removed and Reserved
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15
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Item 5
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Other Information
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15
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Item 6
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Exhibits
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16
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SIGNATURES
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17
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2
PART I - Item 1
INERGETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
March 31,
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December 31,
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2011
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2010
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Assets
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Current Assets:
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Cash
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$ | 733 | $ | 1,089 | ||||
Accounts receivable, net
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2,175 | 1,245 | ||||||
Inventories, net
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107,794 | 126,721 | ||||||
Prepaid expenses
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170,252 | 254,234 | ||||||
Total Current Assets
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280,954 | 383,289 | ||||||
Patents, net
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5,950 | 6,094 | ||||||
Deposits
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23,651 | 23,651 | ||||||
Total Assets
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$ | 310,555 | $ | 413,034 | ||||
Liabilities and Stockholders’ Deficit
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Current Liabilities:
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Accounts payable and accrued expenses
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$ | 3,510,017 | $ | 3,424,211 | ||||
Obligations to be settled in stock
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248,000 | 248,000 | ||||||
Customer Prepayments
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24,625 | 17,798 | ||||||
Short-term debt, net of unamortized debt discount
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6,028,429 | 5,337,712 | ||||||
Total Current Liabilities
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9,811,071 | 9,027,721 | ||||||
Commitment and Contingencies
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- | - | ||||||
Stockholders’ Deficit
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||||||||
Preferred stock, par value $1:
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Convertible Series B, 65,141 shares issued and outstanding
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130,282 | 130,282 | ||||||
Cumulative Series C, 64,763 shares issued and outstanding
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64,763 | 64,763 | ||||||
Convertible Series D, 0 shares issued and outstanding
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- | - | ||||||
Convertible Series E, 0 shares issued and outstanding
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- | - | ||||||
Convertible Series F, 0 shares issued and outstanding
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- | - | ||||||
Common stock, par value $0.001; authorized 2,000,000,000 shares; issued and outstanding 23,756,132
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23,757 | 23,757 | ||||||
Additional paid-in capital
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61,968,508 | 61,968,508 | ||||||
Accumulated Deficit
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(71,687,826 | ) | (70,801,997 | ) | ||||
Total Stockholders’ Deficit
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(9,500,516 | ) | (8,614,687 | ) | ||||
Total Liabilities and Stockholders’ Deficit
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$ | 310,555 | $ | 413,034 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
INERGETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
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2011
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2010
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Total Revenues
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$ 14,074
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$
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108,632
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Cost of Goods Sold
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8,463
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67,995
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5,611
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40,637
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Research and development cost
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13,750
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13,611
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Selling, general and administrative expense
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579,451
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699,201
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Total operating expenses
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593,201
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712,812
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Loss from Operations
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(587,590)
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(672,175)
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Other Income (Expense)
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Miscellaneous income (expense)
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-
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66,740
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Amortization of debt discount
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(70,717)
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(93,203)
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Interest and financing cost, net
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(227,522)
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(330,056)
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Total Other Income (Expense)
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(298,239)
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(356,519)
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Loss before Provision for Income taxes
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(885,829)
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(1,028,694)
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Provision for Income Taxes
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-
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-
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Net Loss
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$ (885,829)
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$
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(1,028,694)
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Net Loss per Common Share - Basic and Diluted
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$ (0.04)
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$
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(0.21)
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Weighted Average Number of common shares outstanding - Basic and Diluted
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23,756,132
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4,999,110
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
INERGETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
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2011
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2010
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Cash Flows from Operating Activities
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Net Loss
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$ | (885,829 | ) | $ | (1,028,694 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash used in Operations
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Depreciation and amortization
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144 | 514 | ||||||
Adjustment to inventory reserve
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- | (48,385 | ) | |||||
Amortization of debt discount
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70,717 | 93,203 | ||||||
Changes in Assets and Liabilities
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Accounts receivable
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(930 | ) | 37,686 | |||||
Inventories
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18,927 | 16,389 | ||||||
Prepaid expenses
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83,982 | 14,986 | ||||||
Customer prepayments
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6,827 | - | ||||||
Accounts payable and accrued expenses
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85,806 | 378,688 | ||||||
Net Cash Used in Operating Activities
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(620,356 | ) | (535,613 | ) | ||||
Net Cash Used in Investing Activities
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- | - | ||||||
Cash Flows from Financing Activities
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Proceeds from loans and notes payable
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650,000 | 585,000 | ||||||
Repayment of loans and notes payable
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(30,000 | ) | (50,000 | ) | ||||
Net Cash Provided by Financing Activities
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620,000 | 535,000 | ||||||
Net Decrease in Cash
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(356 | ) | (613 | ) | ||||
Cash at beginning of period
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1,089 | 2,370 | ||||||
Cash at end of period
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$ | 733 | $ | 1,757 | ||||
Supplemental Disclosure of Cash Flow information:
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Cash paid during the period for:
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Interest Expense
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$ | 6,100 | $ | 2,250 | ||||
Income Taxes
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$ | - | $ | - | ||||
Schedule of non-cash investing and financing activities:
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Stock issued in conjunction with Notes Payable
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“Debt Discount”
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$ | - | $ | 319,091 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On March 15, 2010 the Company changed its name to Inergetics, Inc. Inergetics, Inc. (the Company or "Inergetics"), formerly Millennium Biotechnologies Group, Inc., is a holding company for its subsidiary Millennium Biotechnologies, Inc. ("Millennium").
Millennium was incorporated in the State of Delaware on November 9, 2000 and is located in New Jersey. Millennium is a research based bio-nutraceutical corporation involved in the field of nutritional science. Millennium’s principal source of revenue is from sales of its nutraceutical supplements, Resurgex Select® and Resurgex Essential™ and Resurgex Essential Plus™ which serve as a nutritional support for immuno-compromised individuals undergoing medical treatment for chronic debilitating diseases.
The accompanying unaudited condensed consolidated financial statements include the accounts of Inergetics, Inc. and its subsidiary. These condensed consolidated financial statements have been prepared in accordance with accounting principals generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principals for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. It is suggested that these condensed consolidated financial statements be read in conjunction with the December 31, 2010 audited financial statements and the accompanying notes thereto filed with the Securities and Exchange Commission on Form 10-K.
In January 2011 The Board of Directors approved a reverse split of 1 for 80. The financial statements have retroactively restated common shares to the earliest presentation reported along with the earnings per share calculation.
6
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Principles of Consolidation
The Company’s operations presently consist almost exclusively of the operations of Millennium. The condensed consolidated financial statements include the accounts of the Company and its subsidiary. All significant inter-company transactions and balances have been eliminated.
In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of March 31, 2011, the results of operations for the three months ended March 31, 2011 and 2010, and the cash flows for the three months ended March 31, 2011 and 2010, have been included.
Use of Estimates
The preparation of the financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Patents
Patents are capitalized and amortized over 240 months. Amortization expense was $144 for the three months ended March 31, 2011 and 2010, respectively.
Revenue Recognition
Revenue is recognized net of discounts, rebates, promotional adjustments, price adjustments and estimated returns and upon transfer of title and risk to the customer which occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations and collection is reasonably assured as the majority of sales are paid for prior to shipping.
7
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Awards
Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). Compensation expense is recognized based on the estimated grant date fair value method using the Black-Scholes valuation model. The Company did not issue any stock options during the year ended December 31, 2010 and the period ended March 31, 2011.
Income Taxes
The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company’s income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the three months ended March 31, 2011, and 2010..
Loss Per Common Share
Net loss per share, in accordance with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. Common Stock equivalents have not been included in this computation since the effect would be anti-dilutive. During a loss period, the effect of the potential exercise of stock options, warrants, convertible preferred stock and convertible debt are not considered in the diluted income (loss) per share calculation since the effect would be anti-dilutive. The results of operations were a net loss for the three months ended March 31, 2011 and 2010, therefore the basic and diluted weighted average common shares outstanding were the same.
Fair Value of Financial Instruments
For financial instruments including cash, accounts receivable and prepaid expenses, short-term debt, accounts payable and accrued expenses, it was assumed that the carrying values approximated fair value because of their short-term maturities.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Reclassification
Certain reclassifications have been made to the prior year balances to conform to the current year’s presentation.
2.
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GOING CONCERN
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The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating company which is cash flow positive.
However, the Company has working capital deficits, significant debt outstanding, incurred substantial net losses for the three months ended March 31, 2011 and 2010 and has accumulated a deficit of approximately $72 million at March 31, 2011. The Company has not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.
8
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
The Company maintains cash balances in several financial institutions which are insured by the Federal Deposit Insurance Corporation up to certain federal limitations.
The Company provides credit in the normal course of business to customers located throughout the U. S. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.
4. INVENTORIES
Inventories consist of work-in-process and finished goods for the Company’s SURGEX®, RESURGEX ESSENTIAL® and RESURGEX ESSENTIAL PLUS® product lines. Cost-of-goods sold are calculated using the average costing method. Inventories consist of the following:
March 31,
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December 31,
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2011
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2010
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Finished Goods
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$ | 70,833 | $ | 89,759 | ||||
Work in Process
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10,542 | - | ||||||
Raw Materials
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19,415 | 19,415 | ||||||
Packaging
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14,084 | 24,627 | ||||||
114,874 | 133,801 | |||||||
Less: Reserve for losses
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(7,080 | ) | (7,080 | ) | ||||
Total
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$ | 107,794 | $ | 126,721 |
9
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
March 31,
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December 31,
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2011
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2010
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Accounts payable
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$ | 1,230,165 | $ | 1,397,161 | ||||
Accrued interest
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1,321,466 | 1,100,044 | ||||||
Accrued rent expense
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135,875 | 138,711 | ||||||
Accrued salaries, bonuses and payroll taxes
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601,507 | 528,314 | ||||||
Owed to officer
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165,882 | 165,882 | ||||||
Accrued professional fees
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55,122 | 94,099 | ||||||
$ | 3,510,017 | $ | 3,424,211 |
6. SHORT-TERM DEBT, NET OF UNAMORTIZED DEBT DISCOUNT
In 2011, the Company raised $650,000 through the issuance of a 30 month Secured Promissory Note to the investors which will bear interest at 10% per annum and will have the right to convert into common stock. The note holders have the right to convert principal and any accrued but unpaid interest into shares of Common Stock at the volume weighted average price of the Company’s Common Stock for the ten trading day period commencing on the fifth trading day (at that point the conversion rate becomes a fixed price) after the date of the public announcement of the transactions in a Current Report on Form 8-K. This fifteen day period represents a potential derivative liability which management has deemed immaterial. The conversion price shall not be greater than $0.20 or less than $0.08.
7. SUBSEQUENT EVENTS
On May 4, 2011 the Company signed a Summary of Debt Reorganization and Financing and obtained a commitment from Seahorse Enterprises, LLC (a related party) to fund up to $2,000,000. The investment is subject to the Company getting the holders of at least 80% of the unsecured debt, excluding trade payables to convert to common stock. The Company must also get 90% of the holders of the secured debt to exchange it for Series G preferred stock, which is junior to all debt. Seahorse Enterprises, LLC. has provided $575,000 of the funding commitment as of June 10, 2011 in which $200,000 was funded in the quarter ended March 31, 2011. The funding commitment shall be issued a 30 month Secured Promissory Note until such conversion has occurred. Once the debt has been converted, the 30 months Secured Promissory Note shall convert into Series G preferred stock which will pay a dividend quarterly, for an annual yield of 10%..
10
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Pursuant To "Safe Harbor" Provisions
Of Section 21e Of The Securities Exchange Act Of 1934
Except for historical information, the Company's reports to the Securities and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases, as well as other public documents and statements, contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements. These risks and uncertainties include general economic and business conditions, development and market acceptance of the Company's products, current dependence on the willingness of investors to continue to fund operations of the Company and other risks and uncertainties identified in the risk factors discussed below and in the Company's other reports to the Securities and Exchange Commission, periodic press releases, or other public documents or statements.
Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.
Results of Operations for the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010:
Total revenues generated from the sales of Resurgex Essential™, Resurgex Essential Plus™, Resurgex Select® and Surgex™ for the quarter ended March 31, 2011 totaled $14,074, a decrease of 87% from the quarter ended March 31, 2010 which totaled $108,632. The primary reason for the significant decrease was due to lack of sales to our Canadian distributor for the quarter ended March 31, 2011.
At this stage in the Company’s development, revenues are not yet sufficient to cover ongoing operating expenses.
Gross profits for the quarter ended March 31, 2011 amounted to $5,611 for a 40% gross margin. Gross profits decreased $35,026 or 86% for the quarter ended March 31, 2011 compared to $40,637 for the quarter ended March 31, 2010. The decrease in gross profits is a result of lower revenue due to no orders from our Canadian distributor, Ferring, Inc.
After deducting research and development costs of $13,750 and selling, general and administrative expenses of $579,451, the Company realized an operating loss of $587,590 for the quarter ended March 31, 2011. Operating losses of $587,590 decreased $84,585 or 13% as compared to the first quarter of 2010 operating loss of $672,175. Non-operating expenses totaled $298,239 for the quarter ended March 31, 2011 a decrease of 16% or $58,280 as compared to $356,519 for the quarter ended March 31, 2010. The decrease in non-operating expenses of $58,280 was primarily due to an decrease of $66,740 of miscellaneous income the majority being the reverse of an inventory reserve and a reduction in interest expense of $102,534 due to less debt outstanding.
The net result for the quarter ended March 31, 2011 was a loss of $885,829 or $0.04 per share, compared to a loss of $1,028,694 or $0.21 per share for the first quarter of 2010. The net loss for the first quarter of 2011 decreased by $142,865 or 14% as compared to the first quarter of 2010, primarily due to reduction in selling, general and administrative expenses. Management will continue to make an effort to lower operating expenses and increase revenue. The Company will continue to invest in further expanding its operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting the name and products of the Company. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects them to significantly decrease as a percentage of revenues as revenues increase.
11
Disclosure About Off-Balance Sheet Arrangements
We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.
Critical Accounting Policies
Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this report.
Liquidity and Capital Resources
The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating, cash flow positive company. The Company has been operating with negative cash flows for the past 10 years.
The Company incurred substantial net losses for the three months ended March 31, 2011 and the year ended December 31, 2010 and has accumulated a deficit of $71,687,826 at March 31, 2011. The Company has not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company has never reported Net Income.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.
The Company’s business operations generally have been financed by debt investments through promissory notes with accredited investors. During the three months of 2011, the Company obtained new debt from the issuance of promissory notes that supplied the majority of the funds that were needed to finance operations during the reporting period. The new issuance of debt requires conversion of existing debt which may not be able to convert on favorable terms. Such new borrowings resulted in the receipt by the Company of $650,000 in the quarter ended March 31, 2011, and $375,000 subsequent to the quarter ended March 31, 2011. While these funds sufficed to compensate for the negative cash flow from operations they were not sufficient to build up a liquidity reserve. As a result, the Company’s financial position at the end of the reporting period showed a working capital deficit of $9,530,117. During the first three months of 2011 the Company obtained new financing sufficient to fund ongoing working capital requirements. We need to continue to raise funds to cover working capital requirements until we are able to raise revenues to a point of positive cash flow.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 4. Control and Procedures
Evaluation of disclosure controls and procedures
Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weakness and significant deficiencies in our internal control over financial reporting described below, our disclosure controls and procedures were not effective, as of the March 31, 2011, to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that the information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, our management concluded that, as of March 31, 2011, our internal control over financial reporting was not effective.
A significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Management identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2010 and March 31, 2011:
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·
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Material weakness: The Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with the Company’s financial reporting requirements.
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·
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Significant deficiencies:
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o
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Inadequate segregation of duties
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o
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Untimely account reconciliations
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Nevertheless, based on a number of factors, including the performance of additional procedures performed by management designed to ensure the reliability of our financial reporting, our Chief Executive Officer and Chief Financial Officer believe that the consolidated financial statements included with this periodic report fairly present, in all material respects, our financial position, results of operations, and cash flows as of the dates, and for the periods, presented, in conformity with United States Generally Accepted Accounting Principals.
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Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q. There was no change in the Company's internal control over financial reporting identified in that evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting, other than what has been reported above.
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PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Creative Healthcare Solutions, LLC vs. Millennium Biotechnologies Inc, Ct. of Common Pleas of Delaware County Ohio, Case No. 07 CV H 11 1420) Millennium was not satisfied with the service rendered by Creative Healthcare Solutions, LLC in 2005 which were associated with the development of Resurgex Select collateral materials developed in December of 2005. Millennium subsequently was forced to destroy and dispose of over 80% of the materials provided by Creative Healthcare Solutions due to the poor quality of the materials. Millennium has been unsuccessful in resolving the dispute and subsequently Creative Healthcare Solutions, LLC has filed legal action for demand of payment in the amount of $63,718 for services rendered. Millennium continues to negotiate a settlement through counsel with regards to this legal proceeding.
Ronald Burgert vs. Millennium Biotechnologies, Inc., et al. filed on the 9th day of October 2008 in District Court of Dallas County, Dallas, Texas. Mr. Burgert has filed a claim in the amount of $25,000 based on a note dated May 18, 2006. As of March 26, 2008 the balance due on the note, including unpaid principal and interest, was $31,635. On December 1, 2008, the 14th Judicial District, Dallas County, Dallas, Texas issued a default judgment against Millennium Biotechnologies, Inc. in the amount of $31,636 plus interest and unpaid attorney’s fees.
Robert Half International vs. Millennium Biotechnologies, Inc. filed on September 30, 2009 in the Superior Court of New Jersey, Law Division, Middlesex County. Robert Half International claims a total of $18,507 plus costs and fees based upon the Millennium Biotechnologies, Inc.’s failure to pay the plaintiff the fees associated with the full time hiring of an employee.
Growthink Inc. vs. Millennium Biotechnologies, Inc. filed on June 15, 2009 in the Superior Court of New Jersey, Law Division, Somerset-Special Civil Part, Case #DC-004225-09. Growthink Inc. claims a total of $7,941.04 plus cost and attorney fees based upon Millennium Biotechnologies, Inc. failure to pay the plaintiff for the reasonable value of goods sold and delivered and/or services rendered by the plaintiff to the defendant. On October 6, 2010 there was a levy on the Company’s bank and the settlement has been resolved.
First Insurance Fund vs. Millennium Biotechnologies filed on November 18, 2010 in the Superior Court of New Jersey, Civil Division, Somerset/Hunterdon-Special Civil Part, Case# SOM-DC007284-10. First Insurance Fund claims a total of $13,489.99 including costs and fees based upon Millennium Biotechnologies failure to pay the plaintiff for Insurance invoices. On February 28, 2011, there was a levy on Millennium’s bank account in the amount of $1,644.
Item 1A Risk Factors
Not Applicable
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
- None
Item 3 Defaults Upon Senior Securities
See Note 6 to the Consolidated Financial Statements in Part I above.
Item 4 Removed and Reserved
Item 5 Other Information
- None
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Item 6 a) Exhibits
31.1
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Certification of Mark C. Mirken, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Michael C. James, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Mark C. Mirken, Chief Executive Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
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32.2
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Certification of Michael C. James, Chief Financial Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INERGETICS, INC.
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Date: June 14, 2011
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By:
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/s/ Michael C. James
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Michael C. James
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Chief Financial Officer
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Chief Accounting Officer
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