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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

        EXCHANGE ACT OF 1934


For the Quarterly Period ended March 31, 2013


  [   ]

TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______.


Commission File Number:  000-52864


[ergo10q_033113apg001.jpg]


Entia Biosciences, Inc.

 (Exact name of Registrant as specified in its charter)


Nevada

26-0561199

(State or other jurisdiction

(IRS Employer

of incorporation or organization)

Identification No.)

 

13565 SW Tualatin-Sherwood Rd #800, Sherwood, OR 97140

 (Address of principal executive offices)


(503) 334-3575

 (Registrant’s telephone number)


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 Website, if any, every Interactive DataFile 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 [X]   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. (Check one):


Large accelerated filer [  ]

Accelerated filer [  ] 

Non-accelerated filer [  ] 

Smaller reporting company [X]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]   No [X]


On May 10, 2013, 7,444,591 shares of the registrant's common stock, par value $0.001 per share, were outstanding.






TABLE OF CONTENTS

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

3

Item 1.

Financial Statements

 

 

 

 

3

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

20

Item 4.

Controls and Procedures

 

 

 

 

20

PART II - OTHER INFORMATION

 

 

 

 

21

Item 1.

Legal Proceedings

 

 

 

 

21

Item 1A.

Risk Factors

 

 

 

 

21

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

21

Item 3.

Defaults upon Senior Securities

 

 

 

 

21

Item 4.

Mine Safety Disclosures

 

 

 

 

21

Item 5.

Other Information

 

 

 

 

21

Item 6.

Exhibits

 

 

 

 

22

SIGNATURES

 

 

 

 

 



2



Part 1: FINANCIAL INFORMATION

Item 1. Financial Statements

ENTIA BIOSCIENCES, INC.

 

 CONSOLIDATED BALANCE SHEETS

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

2013

 

 

December 31,

2012

 Assets

 

 

 

 

 

 

 

 Current Assets:

 

 

 

 

 

 

 

 Cash

 

 

$

33,409 

 

 $

13,081 

 

 Accounts receivable, net

 

 

75,657 

 

 

62,397 

 

 Inventory, net

 

 

118,700 

 

 

132,133 

 

 Interest income receivable

 

 

6,533 

 

 

4,083 

 

 Prepaid expenses

 

 

29,629 

 

 

32,542 

 

 

 Total Current Assets

 

 

263,928 

 

 

244,236 

 Property and Equipment, net

 

 

60,495 

 

 

35,627 

 Patents and license, net

 

 

193,126 

 

 

183,106 

 Total Assets

 

$

517,549 

 

 $

462,969 

 

 

 

 

 

 

 

 

 

 

 Liabilities and Stockholders' Equity (Deficit)

 

 

 

 

 

 

 Current Liabilities:

 

 

 

 

 

 

 

 Accounts payable and accrued expenses

 

$

816,901 

 

 $

654,919 

 

 Short-term convertible notes payable, net of discount related-party

 

66,517 

 

 

63,493 

 

 Short-term convertible notes payable, net of discount  

 

370,458 

 

 

365,416 

 

 Capital lease payable

 

 

2,106 

 

 

2,808 

 

 Notes payable

 

 

17,573 

 

 

22,521 

 

 

 Total Current Liabilities

 

 

1,273,555 

 

 

1,109,157 

 Long Term Liabilities:

 

 

 

 

 

 

 

 Capital lease payable

 

 

2,105 

 

 

2,105 

 

 

 Total Long Term Liabilities

 

 

2,105 

 

 

2,105 

 Total Liabilities

 

 

1,275,660 

 

 

1,111,262 

 

 

 

 

 

 

 

 

 

 

 Stockholders' Equity (Deficit):

 

 

 

 

 

 

 

 Preferred stock, $0.001 par value, 5,000,000 shares authorized,

 

 

 

 

 

 

 

 Series A preferred stock, 350,000 shares designated,

 

 

 

 

 

 

 

 150,462 and 109,900 shares issued and outstanding,

 

 

 

 

 

 

 

 respectively, aggregate liquidation value of $752,310

 

 

 

 

 

 

 

 and $549,500, respectively

 

 

150 

 

 

110 

 

 Common stock, $0.001 par value, 150,000,000 shares authorized,

 

 

 

 

 

 

 

 7,444,591 shares issued and outstanding

 

 

7,444 

 

 

7,444 

 

 Stock subscription receivable

 

 

(49,000)

 

 

(49,000)

 

 Additional paid-in capital

 

 

5,397,170 

 

 

5,115,587 

 

 Deferred compensation

 

 

(332,479)

 

 

(394,510)

 

 Accumulated deficit  

 

 

(5,781,396)

 

 

(5,327,924)

 

 

 

 

 

 

 

 

 

 

 

 

 Total Stockholders' Equity (Deficit)

 

 

(758,111)

 

 

(648,293)

 

 

 

 

 

 

 

 

 

 

 Total Liabilities and Stockholders' Equity (Deficit)

 

$

517,549 

 

 $

462,969 

 

 

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.



3




ENTIA BIOSCIENCES, INC.

 

 

 

 

 

 

 

 

 CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

Three Months

 

 

 

 

 

Ended

 

Ended

 

 

 

 

 

March 31, 2013

 

March 31, 2012

 

 

 

 

 

 

 

 

 

 REVENUES

 

$

96,256 

 

$

66,630 

 

 

 

 

 

 

 

 

 

 COST OF GOODS SOLD  

 

28,579 

 

6,453 

 

 

 

 

 

 

 

 

 

 GROSS PROFIT

 

67,677 

 

60,177 

 

 

 

 

 

 

 

 

 

 OPERATING EXPENSES

 

 

 

 

 

 

 Advertising and promotion

 

46,396 

 

6,281 

 

 

 Professional fees

 

46,937 

 

88,199 

 

 

 Consulting fees  

 

87,338 

 

10,552 

 

 

 General and administrative

 

313,117 

 

204,430 

 

 

 

 

 

 

 

 

 

 

 

 Total Operating Expenses

 

493,788 

 

309,462 

 

 

 

 

 

 

 

 

 

 LOSS FROM OPERATIONS

 

(426,111)

 

(249,285)

 

 

 

 

 

 

 

 

 

 OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 Interest income

 

2,450 

 

 

 

 Interest expense

 

(29,811)

 

(72,476)

 

 

 

 

 

 

 

 

 

 NET LOSS

 

$                          (453,472)

 

$                         (321,761)

 

 

 

 

 

 

 

 

 

 NET LOSS PER COMMON SHARE

 

 

 

 

 

 

  - BASIC AND DILUTED:

 

$

(0.06)

 

$

(0.04)

 

 

 

 

 

 

 

 

 

 

 Weighted common shares outstanding

 

 

 

 

 

 

 

  - basic and diluted

 

7,444,591 

 

7,171,255 

 

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.



4






ENTIA BIOSCIENCES, INC.

 

 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

 FOR THE PERIOD ENDED DECEMBER 31, 2012 and

 FOR THE INTERIM PERIOD ENDED MARCH 31, 2013

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Total Stockholders'

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Paid

 

Deferred

 

Stock

 

Accumulated

 

Equity

 

 

 

 

 

Shares

 

Amount

 

Shares

 

 

Amount

 

In Capital

 

Compensation

 

Subscriptions

 

Deficit

 

 (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance -December 31, 2011

 

 

43,500

 

$

44

 

7,171,175

 

 

$

7,171

 

$

4,272,792

 

$

(497,383)

 

 

$

(4,042,376)

 

$

(259,752)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of preferred stock for cash

 

57,400

 

57

 

-

 

 

-

 

286,942

 

 

 

 

286,999 

 Issuance of preferred stock for  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 cancellation of debt

 

 

2,000

 

2

 

-

 

 

-

 

9,998

 

 

 

 

10,000 

 Issuance of preferred stock for services

 

7,000

 

7

 

-

 

 

-

 

34,993

 

 

 

 

35,000 

 Deemed dividend related to beneficial conversion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 feature of convertible preferred stock

 

-

 

-

 

-

 

 

-

 

21,400

 

 

 

(21,400)

 

 Issuance of warrants in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 convertible notes payable

 

 

-

 

-

 

-

 

 

-

 

27,704

 

 

 

 

27,704 

 Issuance of common stock for license agreement

 

-

 

-

 

50,000

 

 

50

 

25,451

 

 

 

 

25,501 

Issuance of common stock and warrants for cash

-

 

-

 

100,000

 

 

100

 

39,900

 

 

 

 

40,000 

 Issuance of common stock for note receivable

 

-

 

-

 

122,500

 

 

122

 

48,878

 

 

(49,000)

 

 

 Stock compensation

 

 

-

 

-

 

916

 

 

1

 

170,456

 

 

 

 

170,456 

 Issuance of warrants for services

 

 

-

 

-

 

-

 

 

-

 

128,540

 

(128,540)

 

 

 

 Issuance of warrants for extension on debt

 

-

 

-

 

-

 

 

-

 

48,533

 

 

 

 

48,533 

 Amortization of deferred compensation

 

-

 

-

 

-

 

 

-

 

-

 

231,413 

 

 

 

231,413 

 Net loss

 

 

-

 

-

 

-

 

 

-

 

-

 

 

 

(1,264,148)

 

(1,264,148)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance - December 31, 2012

 

 

109,900

 

110

 

7,444,591

 

 

7,444

 

5,115,587

 

(394,510)

 

(49,000)

 

(5,327,924)

 

(648,293)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Issuance of preferred stock for cash

 

37,400

 

37

 

-

 

 

-

 

186,963

 

 

 

 

187,000 

 Issuance of preferred stock for  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 cancellation of debt

 

 

3,162

 

3

 

-

 

 

-

 

15,747

 

 

 

 

15,750 

 Stock compensation

 

 

-

 

-

 

-

 

 

-

 

69,791

 

 

 

 

69,791 

 Issuance of warrants for services

 

 

-

 

-

 

-

 

 

-

 

9,082

 

(9,082)

 

 

 

 Amortization of deferred compensation

 

-

 

-

 

-

 

 

-

 

-

 

71,113 

 

 

 

71,113 

 Net loss

 

 

-

 

-

 

-

 

 

-

 

-

 

 

 

(453,472)

 

(453,472)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Balance - March 31, 2013

 

 

150,462

 

$

150

 

7,444,591

 

 

$

7,444

 

$

5,397,170

 

$

(332,479)

 

$

(49,000)

 

$

(5,781,396)

 

$

(758,111)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.



5




ENTIA BIOSCIENCES, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months

 

 

Three Months

 

 

 

 

 

 

 

 

 

 

 

 

 

Ended

 

 

Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

 

March 31, 2012

 

 CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 Net loss

 

 

 

 

 

 

 

 

$

(453,472)

 

$

(321,761)

 

 Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Depreciation/amortization

 

 

 

 

 

 

 

 

 

6,035 

 

 

4,921 

 

 

 Amortization of discount on convertible notes

 

 

 

23,066 

 

 

66,422 

 

 

 Stock-based compensation

 

 

 

 

 

 

 

 

 

140,904 

 

 

69,723 

 

 

 Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accounts receivable

 

 

 

 

 

 

 

 

 

(13,260)

 

 

27,900 

 

 

 

 Inventory

 

 

 

 

 

 

 

 

 

13,433 

 

 

(7,150)

 

 

 

 Prepaid expenses

 

 

 

 

 

 

 

 

 

2,913 

 

 

9,314 

 

 

 

 Other current assets

 

 

 

 

 

 

 

 

 

(2,450)

 

 

 

 

 

 Accounts payable and accrued expenses

 

 

 

162,732 

 

 

91,277 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CASH USED IN OPERATING ACTIVITIES

 

 

 

(120,099)

 

 

(59,354)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 Purchase of property and equipment

 

 

 

 

 

 

 

 

 

(30,815)

 

 

(1,747)

 

 

 Acquisition of patents and patents pending  (net)

 

 

 

(10,810)

 

 

(33,122)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CASH USED IN INVESTING ACTIVITIES

 

 

 

(41,625)

 

 

(34,869)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 Proceeds from issuance of common stock, preferred stock and warrants

187,000 

 

 

95,000 

 

 

 Net change in notes payable

 

 

 

 

 

 

 

 

 

(4,948)

 

 

(9,368)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

 

182,052 

 

 

85,632 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 NET CHANGE IN CASH

 

 

 

 

 

 

 

 

 

20,328 

 

 

(8,591)

 

 Cash at beginning of period

 

 

 

 

 

 

 

 

 

13,081 

 

 

16,639 

 

 Cash at end of period

 

 

 

 

 

 

 

 

$

33,409 

 

$

8,048 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

 

 

 

 

 

 

 Interest paid

 

 

 

 

 

 

 

 

$

581 

 

$

274 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 SUPPLEMENTAL DISCLOSURE OF NONCASH FLOWS FINANCING

 

 

 

 

 

 

 AND INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Conversion of notes payable and accrued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interest to preferred stock

 

 

 

 

 

 

 

 

$

15,750 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 See accompanying notes to the consolidated financial statements.





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND OPERATIONS

Generic Marketing Services, Inc. was incorporated on July 19, 2007 under the laws of the State of Nevada as a subsidiary of Basic Services, Inc., also a Nevada corporation.  On December 31, 2007, Basic Services, Inc. spun off Generic Marketing Services and on October 8, 2008, Generic Marketing Services changed its name to Total Nutraceutical Solutions, Inc.  


On January 9, 2012, the Nevada Secretary of State accepted an amendment to our Articles of Incorporation to change the name again to Entia Biosciences, Inc. (Entia, the Company, us, we or our) and to form a wholly owned subsidiary named Total Nutraceutical Solutions, Inc. (TNS).  Entia is an emerging biotechnology company engaged in the discovery, formulation and marketing of natural compounds and whole foods that can be used in branded medical foods, nutraceuticals, cosmetics and other products sold by us, our TNS subsidiary and by third parties.


On May 15, 2012, Entia moved to its current location in order to increase its in-house research and manufacturing capability, increase its warehouse storage capacity, and accommodate anticipated increases in order fulfillment and staffing.  By moving to the larger facility, Entia was able to vertically integrate its Vitamin D enhancement technology and the milling, blending, encapsulating, bottling, labeling, packaging and fulfillment of its products. This move resulted in a significant improvement in production efficiencies and the cost of its final products.  Production of cosmetic products and certain nutraceuticals are still being outsourced.


We have a history of incurring net losses and net operating cash flow deficits.  We are continually researching and developing new technologies related to our organic nutraceutical products, including the production of medical foods for clinical studies in diabetes, anemia and Parkinson’s disease.  At March 31, 2013, we had cash and cash equivalents of $33,409.  These conditions raise substantial doubt about our ability to continue as a going concern.  As a result, we anticipate that our cash and cash equivalent balances, anticipated cash flows from operations and anticipated operating cash flows will be sufficient to meet our cash requirements through June 30, 2013.


In order for us to continue as a going concern beyond this point and ultimately to achieve profitability, we may be required to obtain capital from external sources, increase revenues and reduce operating costs.  The issuance of equity securities will also cause dilution to our shareholders.  If external financing sources of financing are not available or are inadequate to fund our operations, we will be required to reduce operating costs including personnel costs, which could jeopardize our future strategic initiatives and business plans.  The accompanying consolidated financial statements have been prepared assuming that the company continues as a going concern.  


The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of presentation and principles of consolidation


The accompanying consolidated unaudited interim financial statements and related notes have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information, and with the rules and regulations of the United states Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Unaudited interim results are not necessarily indicative of the results for the full year.  These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2012 and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC.  


All intercompany accounts have been eliminated for the purpose of the consolidated financial statement presentation.

 



7



Use of estimates


The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.


Cash


We consider all highly liquid, short-term investments with original maturities of three months or less when purchased to be cash equivalents.


Accounts receivable


Accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts.  The allowance for doubtful accounts is our best estimate of the amount of probable credit losses based on specific identification of accounts in our existing accounts receivable.  Outstanding account balances are reviewed individually for collectibility.  We determine the allowance based on historical write-off experience, customer specific facts and economic conditions.  Bad debt expense is included in general and administrative expenses, if any.  We consider all accounts greater than 30 days old to be past due.  Account balances are charged off against allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  The allowance for doubtful accounts was $2,526 at both March 31, 2013 and December 31, 2012.


Inventory


Inventory, which consists primarily of raw materials to be used in the production of our dietary supplement products, is stated at the lower of cost or market using the first-in, first-out method. We regularly review our inventory on hand and, when necessary, record a provision for excess or obsolete inventory.   


Property and equipment


Property and equipment are recorded at cost. Additions and improvements that increase the value or extend the life of an asset are capitalized. Maintenance and repairs are expensed as incurred.  Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statement of operations.  Depreciation is computed on a straight-line basis over the following estimated useful lives of the assets:


Office equipment

 

3 years

Production equipment

 

5 to 7 years

Equipment under capital lease

 

5 to 7 years

Leasehold improvements

 

Lesser of lease term or useful life of improvement



Patents


Patents, once issued or purchased, are amortized using the straight-line method over their economic remaining useful lives. All internally developed process costs incurred to the point when a patent application is to be filed are expensed as incurred and classified as research and development costs.  Patent application costs, generally legal costs, are capitalized pending disposition of the individual patent application, and are subsequently either amortized based on the initial patent life granted, generally 15 to 20 years for domestic patents and 5 to 20 years for foreign patents, or expensed if the patent application is rejected.  The costs of defending and maintaining patents are expensed as incurred.  Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.


Impairment of long-lived assets


Our long-lived assets, which include property and equipment, patents and licenses of patents, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.



8




We assess the recoverability of our long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.  

 

Discount on convertible notes payable


We allocate the proceeds received from convertible notes between convertible notes payable and warrants, if applicable. The resulting discount for warrants is amortized using the effective interest method over the life of the debt instrument. After allocating a portion of the proceeds to the warrants, the effective conversion price of the convertible note payable can be determined. If the effective conversion price is lower than the market price at the date of issuance, a beneficial conversion feature is recorded as an additional discount to the convertible note payable. The beneficial conversion feature discount is amortized using the effective interest method over the life of the debt instrument.  The amortization is recorded as interest expense on the consolidated statements of operations.


Fair value of financial instruments


The carrying amounts of our financial assets and liabilities, such as cash, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments.  Due to conversion features and other terms, it is not practical to estimate the fair value of notes payable and convertible notes.


Fair value measurements


We measure fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level 1

 

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

 

 

Level 2

 

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

 

 

Level 3

 

Unobservable inputs where there is little or no market data, which require the reporting entity to develop its own assumptions.


We do not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis. Consequently, we did not have any fair value adjustments for assets and liabilities measured at fair value at March 31, 2013 or December 31, 2012, nor any gains or losses reported in the consolidated statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the periods ended March 31, 2013 and December 31, 2012.


Revenue recognition


We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been performed, (iii) amounts are fixed or determinable and (iv) collectibility of amounts is reasonably assured.


Revenues from the sale of products, including shipping and handling fees but excluding statutory taxes collected from customers, as applicable, are recognized when shipment has occurred. We sell our products directly to customers. Persuasive evidence of an arrangement is demonstrated via order and invoice, product delivery is evidenced by a bill of lading from the third party carrier and title transfers upon shipment, the sales price to the customer is fixed upon acceptance of the order and there is no separate sales rebate, discount, or volume incentive.




9



Shipping and handling costs


Amounts charged to customers for shipping products are included in revenues and the related costs are classified in cost of goods sold as incurred.  


Advertising and promotion costs


Costs associated with the advertising and promotion of our products are expensed as incurred.


Equity instruments issued to parties other than employees for acquiring goods or services


We account for all transactions in which goods or services are the consideration received for the issuance of equity instruments based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  Currently such transactions are primarily awards of warrants to purchase common stock.


The fair value of each warrant award is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  


The assumptions used to determine the fair value of our warrants are as follows:


-

The expected life of warrants issued represents the period of time the warrants are expected to be outstanding.

 

 

-

The expected volatility is generally based on the historical volatility of comparable companies’ stock over the contractual life of the warrant.

 

 

-

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the warrant.

 

 

-

The expected dividend yield is based on our current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the warrant.


Income taxes


We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in our consolidated statements of income in the period that includes the enactment date.


We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in our consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.  Should they occur, our policy is to classify interest and penalties related to tax positions as income tax expense.


Net loss per common share


Basic and diluted net loss per share has been computed by dividing our net loss by the weighted average number of common shares issued and outstanding. Convertible preferred stock, options and warrants to purchase our common stock as well as debt which are convertible into common stock are anti-dilutive and therefore are not



10



included in the determination of the diluted net loss per share for three months ended March 31, 2013 and 2012.  The following table presents a reconciliation of basic loss per share and excluded dilutive securities:



 

 

 

For the Three Months Ended March 31,

 

 

 

2013

 

2012

 Numerator:

 

 

 

 

 Net loss  

 

$

(453,472)

 

$

(321,761)

 

 

 

 

 

 

 Denominator:

 

 

 

 

 Weighted-average common shares outstanding

7,444,591 

 

7,171,255 

 

 

 

 

 

 

 Basic and diluted net loss per share

$

(0.06)

 

$

(0.04)

 

 

 

 

 

 

 Common stock warrants

2,536,726 

 

2,127,535 

 Series A convertible preferred stock

1,504,620 

 

625,000 

 Stock options

 

1,001,363 

 

498,602 

 Convertible debt including interest

938,512 

 

854,326 

 Excluded dilutive securities

5,981,221 

 

4,105,463 



Reclassifications


Certain reclassifications have been made to prior period financial statements and footnotes in order to conform to the current period's presentation.


Segments


We have determined that we operate in one segment for financial reporting purposes.


Recently issued accounting pronouncements


Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.


NOTE 3 – INVENTORY


Inventory consists of the following:


 

 

 

March 31,

2013

 

December 31,

2012

 Raw materials

 

$

257,426 

 

$

271,312 

 Finished goods

 

12,338 

 

11,885 

 

 

 

269,764 

 

283,197 

 Less:  reserve for excess and obsolete inventory

(151,064)

 

(151,064)

 

 

 

$

118,700 

 

$

132,133 





11




NOTE 4 – PROPERTY AND EQUIPMENT


Property and equipment, stated at cost, consists of the following:


 

 

 

March 31,

2013

 

December 31,

2012

 Office equipment

 

$

24,585 

 

$

24,584 

 Production equipment

69,903 

 

39,791 

 Leasehold improvements

13,946 

 

13,946 

 

 

 

108,434 

 

78,321 

 Less:  accumulated depreciation

(47,939)

 

(42,694)

 

 

 

$

60,495 

 

$

35,627 



NOTE 5 - PATENTS AND LICENSES, NET


Our identifiable long-lived intangible assets are patents and prepaid licenses.  Patent and license amortization is $790 for both the three months ended March 31, 2013 and 2012.  


The licenses are being amortized over an economic useful life of 17 years. The gross carrying amounts and accumulated amortization related to these intangible assets consist of the following at:



 

 

 

March 31,

2013

 

December 31,

2012

 Gross carrying amounts-patents and licenses

$

199,380 

 

$

188,570 

 Accumulated amortization

(6,254)

 

(5,464)

 Patents and Licenses, net

$

193,126 

 

$

183,106 



NOTE 6 – ACCRUED EXPENSES


Accrued expenses consists of the following at:



 

March 31,

2013

 

December 31,

2012

Executive compensation

$

304,813

 

$

192,552

Royalties

-

 

4,760

Other accruals

47,964

 

18,309

 

$

352,777

 

$

215,621





12



NOTE 7 – NOTES PAYABLE


Notes payable consists of the following:


 

March 31,

2013

 

March 31,

2012

Notes payable - current

 

 

 

7.85% unsecured, $772 due monthly

$

4,322

 

$

1,426

4.15% unsecured, $2,678 due monthly

13,251

 

21,095

 

 

 

$

17,573

 

$

22,521

 

 

 

 

 

 

Convertible notes payable, net

 

 

 

5% unsecured due June 2013, convertible into preferred stock at $5.00 per share

$

15,000

 

$

15,000

5%, unsecured due June 2013  (net of discount related to beneficial conversion feature of $17,904 in 2013 and $35,807 in 2012), convertible into common stock at $0.45 per share

294,596

 

276,693

6% unsecured due June 2013 (net of discount related to beneficial conversion feature of $2,139 in 2013 and $4,277 in 2012), convertible into preferred stock at $5.00 per share

10,862

 

8,723

5% unsecured due June 2013, convertible into preferred stock at $5.00  per share

-

 

15,000

6% unsecured, convertible into common stock at $2.00 per share, due on demand

50,000

 

50,000

 

 

 

370,458

 

365,416

 

 

 

 

 

 

Convertible notes payable related party, net

 

 

 

6% unsecured due December 2013 (net of discount related to beneficial conversion feature of $3,024 in 2013 and $11,507 in 2012), convertible into common stock at $2.00 per share

$

66,517

 

$

63,493


Entia has debt in the principal amount of $415,500 in the form of convertible notes payable of which, $340,500 is due on June 30, 2013 and $75,000 matures on December 31, 2013.  Entia also has $50,000 of debt that is due on demand, and as such, all is classified as short-term on the balance sheet.  


NOTE 8 – RELATED PARTY TRANSACTIONS


Debt agreements from board member


Entia entered into a promissory note with a board member on May 17, 2012, for a 6% note for $25,000 maturing on December 31, 2013.  An additional $50,000 note from two board members is maturing on December 31, 2013.  These notes are reflected on the balance sheet, net of discount in the short-term liabilities.


Preferred stock purchase from board member


During the first quarter 2013, a board member purchased 1,000 shares of Series A preferred stock for $5,000 cash.



13




NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT)


Preferred Stock


On May 26, 2011, our board of directors designated 350,000 shares of preferred stock as Series A preferred stock, $0.001 par value.  The Series A preferred stock is entitled to a liquidation preference in the amount of $5 per share, votes on an as converted basis with the common stock on all matters as to which holders of common stock shall be entitled to vote, and is currently convertible into common stock on a one-for-ten basis.  


During the first quarter 2013, we issued 36,400 shares of Series A Preferred stock for $182,000 cash and a note holder converted their $15,000 note along with $750 of accrued interest for 3,162 shares of Series A Preferred stock.  The note was unsecured, accruing interest at 5% per annum and was due to mature on June 30, 2013.


Common stock


There were no transactions related to common stock during the first quarter 2013 and 666 shares of common stock were issued during the same period in 2012.  This stock had a fair market value of $400.  


Stock incentive plan


On September 17, 2010, our Board of Directors adopted the 2010 Stock Incentive Plan (“Plan”). The Plan provides for the grant of options to purchase shares of our common stock, and stock awards consisting of shares of our common stock, to eligible participants, including directors, executive officers, employees and consultants of the Company.  We have reserved 1,600,000 shares of common stock for issuance under the Plan with an annual increase in shares of 50,000 as of January 1 of each year; commencing January 1, 2012.  Stock options are granted at or below the closing price of our stock on the date of grant for terms ranging from four to fifteen years and generally vest over a five year period.  The fair value of option grants were calculated at the date of the grants using the Black-Scholes option pricing model with the following assumptions:



 

 

March 31,

2013

 

December 31,

2012

 Expected dividend yield

 

-

 

-

 Expected stock price volatility

 

236.55%

 

183.17% - 187.30%

 Risk-free interest rate

 

1.08%

 

1.27% - 2.80%

 Expected term (in years)

 

5 years

 

4 - 10 years

 Weighted-average granted date fair value

 

$0.38

 

$0.51



A summary of option activity under the stock option plan as of March 31, 2013 and changes during the quarter then ended is presented below:



14





 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

Weighted

 

Remaining

 

Aggregate

 

 

Number of

 

Exercise Price

 

Average Exercise  

 

Contractual Term

 

Intrinsic

 

 

Shares

 

Range

 

Price

 

(Years)

 

Value

 

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2011

 

659,242

 

$

0.47-$1.00

 

$

0.62

 

10

 

-

 

 

 

 

 

 

 

 

 

 

 

Granted

 

542,857

 

$

0.40-$0.50

 

$

0.45

 

9

 

-

Exercised

 

-

 

-

 

-

 

-

 

-

Expired

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Outstanding, December 31, 2012

 

1,202,099

 

$

0.40-$1.00

 

$

0.56

 

7.74

 

-

 

 

 

 

 

 

 

 

 

 

 

Exercisable, December 31, 2012

 

830,504

 

$

0.40-$1.00

 

$

0.57

 

8.19

 

-

 

 

 

 

 

 

 

 

 

 

 

Granted

 

55,000

 

$

0.38

 

$

0.38

 

5

 

-

Exercised

 

-

 

-

 

$

-

 

-

 

-

Expired

 

-

 

-

 

$

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2013

 

1,257,099

 

$

0.38-$1.00

 

$

0.55

 

7.62

 

-

 

 

 

 

 

 

 

 

 

 

 

Exercisable, March 31, 2013

 

1,001,361

 

$

0.38-$1.00

 

$

0.57

 

8.09

 

-



The range of exercise prices for options outstanding under the 2010 Stock Incentive Plan at March 31, 2013 are as follows:


Number of

 

Exercise

shares

 

Price

55,000

 

$

0.38

15,000

 

$

0.40

20,000

 

$

0.44

180,000

 

$

0.45

247,242

 

$

0.47

247,857

 

$

0.49

254,000

 

$

0.50

200,000

 

$

0.85

38,000

 

$

1.00

1,257,099

 

 



At March 31, 2013, the Company had 342,901 unissued shares available under the Plan.  Also, at March 31, 2013, the Company had $125,361 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 7 years.


Warrants – Consulting Agreements


Outstanding warrants to purchase common stock are as follows:





15






Date of Issue

March 31, 2013

 

Exercise Price

 

Expiration

March-13

88

 

$0.70

 

03/2017

February-13

35

 

$5.00

 

02/2019

January-13

20,201

 

$0.49 - $5.00

 

06/2017 - 01/2020

As of December 2012

2,516,402

 

$0.36 - $10.00

 

04/2013 - 10/2021

Total

2,536,726

 

 

 

 


We use the Black-Scholes option-pricing model to determine the fair value of warrants on the date of grant.  In determining the fair value of warrants, we employed the following key assumptions:


 

 

March 31, 2013

 

March 31, 2012

Risk-Free interest rate

 

0.84% - 1.09%

 

1.08%

Expected dividend yield

 

0%

 

0%

Volatility

 

236.81% - 248.63%

 

202.65%

Expected life

 

5 - 7 years

 

7 years



At March 31, 2013 and 2012, the weighted-average Black-Scholes value of warrants granted was $0.56 and $0.89, respectively.


NOTE 10 - COMMITMENTS AND CONTINGENCIES


Leases


On April 4, 2012, Entia Biosciences, Inc. entered into a Commercial Lease agreement with Lanz Properties, LLC for 13,081 square feet of office and warehouse space located at 13565 S.W. Tualatin-Sherwood Road, Suite 800, Sherwood, Oregon 97140.  The new lease commenced May 15, 2012 and will terminate on July 31, 2015.  No rent was payable until October 2012.  The base monthly rental rate started at $3,160, increasing to $3,260 in October 2013, and then $3,343 in June 2014.  


Management believes that the new facility offers a better location and configuration for its biotechnology activities and provides significantly more space for manufacturing, fulfillment, and administration over the next three years.


Entia calculated the deferred rent amount related to the long-term lease agreement and recorded additional rent expense of $3,489 and deferred rent accrual of $3,489 and $8,499 at March 31, 2013 and December 31, 2012, respectively.


NOTE 11 – CONCENTRATIONS AND CREDIT RISK


Customers and Credit Concentrations


During the first quarter 2013, 21.71% of our net sales were to two customers compared to 32.5% during first quarter 2012.  As of March 31, 2013, accounts receivable for these customers accounted for 87.37% of total accounts receivable as compared to 50% during first quarter 2012.


Vendor Concentrations


During the first quarter 2013, 33.4% of our purchases were from one vendor as compared to 68% during first quarter 2012.


NOTE 12 – SUBSEQUENT EVENTS


There have been no subsequent events as of the date of this filing.



16



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Entia Biosciences, Inc. (also referred to as “Entia” or "the Company") is an emerging biotechnology company that has acquired the exclusive world-wide rights to the genetic transporter for Ergothioneine (Ergo), a powerful amino acid that Entia believes is essential to life.  Ergo cannot be synthesized by mammals but is acquired exclusively from the diet and carried by this unique and specific transporter (human gene symbol SLC22A4) to cells throughout the body.  Research studies started during 2011 by Entia have confirmed significant transporter activity in diabetes, arthritis and other serious non-communicable chronic conditions, suggesting an important physiologic roll for Ergo in diseases afflicting millions of people world-wide.


Initially discovered in the early 1900’s, Ergo is a little known antioxidant that is found in naturally high concentrations almost exclusively in mushrooms and other fungi.   Ergo is transferred directly from these sources into the soil where it is taken up by plants and grazing mammals.  For thousands of years, our hunter/gatherer genetics have relied on this process to help maintain adequate levels of Ergo in our blood to fight oxidative stress, DNA damaging free radical reactions, and the onset and progression of disease.   Entia theorizes that during the past century the introduction of modern agricultural practices (chemical fertilizers/insecticides and over tilling of the soil) have been gradually eradicating mushrooms from our farmland and depleting Ergo from the food supply.   During this same period, our dietary habits have been changing (chemical additives and heavily process foods) which Entia believes is further accelerating Ergo deficiency in the general population around the world and may explain the dramatic increase we are now seeing in diabetes, arthritis, neurodegenerative, and other debilitating diseases.  


Ergocalciferol (Vitamin D2) is another genetically-required nutrient found in naturally high concentrations in mushrooms.  Considered essential to life, Vitamin D is a powerful antioxidant that can be ingested from vegetation (D2) and/or synthesized by skin exposure to sunshine (D3) to maintain a healthy immune system and regulate cell differentiation and growth.   Recognized as a common factor in obesity, which affects more than 25% of the US population and 10% of total US medical spending, Vitamin D deficiency is now being linked with a growing number of serious conditions including diabetes, cancer, heart and bowel disease, mental illness, osteoporosis, and Multiple Sclerosis.  Health Canada estimated in 2010 that Vitamin D deficiency affects >85% of all Canadians and normalization could lower the death rate by 16.1% and economic burden by $14 billion/year.  Entia acquired the exclusive rights to technology in 2009 that dramatically increases Vitamin D2 levels in four common varieties of mushrooms using pulsed ultraviolet light, naturally boosting IUs/gram by more than 1000% within seconds.   


Entia’s commercialization strategy for this technology is to develop and scientifically validate the benefits of proprietary medical food products, functional ingredients, nutritional supplements and other products containing Ergo and/or Vitamin D2.   Unlike Vitamin D, there are currently no commercially available diagnostic tests that can measure Ergo levels.  Entia believes that its commercialization strategy will be significantly enhanced if it can help to accelerate introduction of a cost effective method of baseline testing to determine deficiency levels in the general population and confirm the need for supplementation with the company’s medical food products.


The non-therapeutic market for consumer “wellness” (vitamins and nutritional supplements) is booming and expected to continue its healthy growth.  Nearly three-quarters of American adults report using dietary supplements, and the market is currently worth nearly $30 billion in the U.S.   Entia believes that the emerging therapeutic market for supplementation (medical foods and functional ingredients) could be much larger in the next decade as the benefits of the technology become more broadly understood and accepted.  The U.S. nutraceutical market is expected to be worth more than $4 billion by 2015, with compound annual growth of 8% from 2011 to 2015.  Additionally, the functional food and drink market is outpacing conventional food and drinks globally by about 4% per year.


Results of Operations for the Three Months ended March 31, 2013.


Revenues and Cost of Goods Sold:



17




 

 

For the Three Months Ended March 31,

 

Change

 

 

2013

 

2012

 

$

 

%

Revenues

$

96,256

 

$

66,630

 

$

29,626

 

44.5%

Cost of Goods Sold

28,579

 

6,453

 

22,126

 

342.9%



Revenues.  Revenues are generated primarily from the sale of our mushroom-based nutraceutical dietary supplement products.  The 44.5% increase in revenues for the three months ending March 31, 2013 from 2012 was due to increased product sales and increase in exclusive license fee income.


Cost of Goods Sold.  Cost of goods sold includes raw materials such as nutraceutical mushrooms, as well as production costs for manufacturing our supplement products.  Cost of goods sold for the three months ended March 31, 2013 increased from 2012 due to a more accurate costing system implemented for our product during 2012 and a $11,000 credit to inventory taken during first quarter 2012.


The following is a summary of certain consolidated statement of operations data for the periods:


Operating Expenses:


 

 

 

 

 

For the Three Months Ended March 31,

 

Change

 

 

 

 

 

2013

 

2012

 

$

 

%

Advertising & promotion expenses

 

$

46,396

 

$

6,281

 

$

40,115 

 

638.7%

Consulting fees

 

 

87,338

 

10,552

 

76,786 

 

727.7%

Professional fees

 

 

46,937

 

88,199

 

(41,262)

 

-46.8%

General and Administrative expenses

 

313,117

 

204,430

 

108,687 

 

53.2%



Advertising and promotional expenses.  These costs include costs for promotional products, production fees for marketing materials, costs associated with fulfillment, fees for advertising programs such as ad placement fees, and postage fees for mailing marketing materials.  The increase from 2012 is caused by a major re-branding and marketing campaign.


Consulting fees.  These expenses are comprised of fees incurred by third-party consultants for the provision of administrative, information technology and marketing management services.  The increase in these expenses from 2012 is due to the amortization of warrants that were granted to consultants for their services during first quarter 2013.  


Professional fees.  These expenses primarily include accounting/auditing fees, legal fees and stock transfer fees.  The decrease in professional fees from 2012 is due primarily to decreased legal and auditing fees in first quarter 2013.


General and administrative expenses.  These expenses primarily include compensation, costs related to travel, rent and utilities, insurance, depreciation, product development, payroll and bad debt.  The increase from 2012 is attributable to an increase in stock based compensation and the increase in officer compensation for the CEO and COO.


Inflation


Inflation has not had a significant impact in the current or prior periods.



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Significant changes in the number of employees


As of March 31, 2013, we have seven employees, Marvin S. Hausman, M.D., our Chief Executive Officer, Devin Andres our Chief Operating Officer, three other full and part-time employees and two paid interns.  As our operations expand we anticipate the need to hire additional employees, and contract with additional consultants; however, the exact number is not quantifiable at this time.


Liquidity and Capital Resources


At March 31, 2013, cash totaled $33,409, compared to $13,081 at December 31, 2012.  The primary reasons for the net increase in 2013 are described below.  Working capital was $(1,009,627) at March 31, 2013, compared to $(864,921) at December 31, 2012.  The change in working capital was due primarily to the accrual of the increase in compensation not yet paid to our executive officers.  The net change in cash and cash equivalents for the periods presented was comprised of the following:


 

 

 

For the Three Months Ended March 31,

 

Change

 

 

 

2013

 

2012

 

$

 

%

Net cash provided by (used in)

 

 

 

 

 

 

 

 

Operating activities

$

(120)

 

$

(59)

 

$

(61)

 

103.4%

 

Investing activities

(42)

 

(35)

 

(7)

 

20.0%

 

Financing activities

182 

 

86 

 

96 

 

111.6%



Operating Activities.  The increase in net cash flows used from operating activities was due primarily to a larger net loss from operating activities and an increase in accounts receivable during the three months ended March 31, 2013.


Investing Activities.  The increase in net cash flows used from investing activities was due primarily to acquisitions of patents and patents pending and the purchase of fixed assets.


Financing Activities.  The increase in net cash flows from financing activities was due primarily to proceeds from the issuance of Series A Preferred Stock.  


Future Liquidity.  We have a history of incurring net losses and negative operating cash flows.  We are also deploying new technologies and continue to develop commercial products and services.  Based on our cash on hand, income from operations and the degree to which our burn rate can be reduced while continuing operations, management believes it has sufficient funds to remain operational through June 2013..


We expect our revenues to increase in the second quarter of 2013.  Notwithstanding that expected increase in revenues, we anticipate that we will continue to generate losses in 2013 and therefore we may be unable to continue operations in the future.   In order for us to continue as a going concern and ultimately to achieve profitability, we may be required to obtain capital from external sources, increase revenues or reduce operating costs or take all of these actions.  We will require additional capital of at least approximately $340,500 to repay debt maturing on June 30, 2013 and we intend to raise the monies by undertaking one or more equity private placements.  We may also pursue re-negotiation and re-structuring of the debt.  However, there can be no assurances that our operations will become profitable or that external sources of financing, including the issuance of debt and/or equity securities, will be available at times and at terms acceptable to us, or at all.  The issuance of additional equity or convertible debt securities will also cause dilution to our shareholders.  If external financing sources are not available or are inadequate to fund our operations, we will be required to reduce our operating costs, which could jeopardize our future strategic initiatives and business plans.  For example, a reduction in operating costs could jeopardize our ability to launch, market, and sell new nutraceutical supplement products necessary to grow and sustain our operations.  




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Subsequent Events


There have been no subsequent events as of the date of this filing.


Going Concern


We have a history of incurring net losses and net operating cash flow deficits.  We are also developing new technologies related to our organic nutraceutical products.  At March 31, 2013, we had cash and cash equivalents of $33,409.  These conditions raise substantial doubt about our ability to continue as a going concern.  As a result, we anticipate that our cash and cash equivalent balances, anticipated cash flows from operations and anticipated operating cash flows will be sufficient to meet our cash requirements through June 30, 2013.


In order for us to continue as a going concern beyond this point and ultimately to achieve profitability, we may be required to obtain capital from external sources, increase revenues and reduce operating costs.  The issuance of equity securities will also cause dilution to our shareholders.  If external financing sources of financing are not available or are inadequate to fund our operations, we will be required to reduce operating costs including personnel costs, which could jeopardize our future strategic initiatives and business plans.


Off-Balance Sheet Arrangements


We have no off-balance sheet arrangements.


Critical Accounting Policies and Estimates


Revenue Recognition:  We recognize revenue from product sales once all of the following criteria for revenue recognition have been met: pervasive evidence that an agreement exists; the services have been rendered; the fee is fixed and determinable and not subject to refund or adjustment; and collection of the amount due is reasonable assured.


Item 3. Quantitative and Qualitative Disclosures about Market Risk.


Not applicable.


Item 4.  Controls and Procedures


Evaluation of Disclosure Controls and Procedures


In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer who is also our principal financial and accounting officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2012.  Based on that evaluation, our principal executive officer and principal financial officer concluded that the material weaknesses identified in our management report on internal controls and procedures contained in our Form 10-K for the fiscal year ended December 31, 2012, Item 9A filed on March 30, 2012 still exist, and therefore our disclosure controls and procedures were not effective as of March 31, 2013.


Changes in Internal Control Over Financial Reporting


As of March 31, 2013, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended March 31, 2013, that materially affected, or are reasonably likely to materially affect, our company’s internal control over financial reporting.




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Part II. OTHER INFORMATION


Item 1.  Legal Proceedings


From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.


We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.


Item 1A.  Risk Factors


See Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and the discussion above in Part I, Item 2, under " Liquidity and Capital Resources.”


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 


We have undertaken a private placement of convertible preferred stock for up to $1.5 million.  During the first quarter 2013, 36,400 shares of Series A Preferred stock were issued for $182,000 in cash while 3,162 shares were issued for conversion of notes payable and interest accrued.  On January 17, 2013, an additional 1,000 shares were purchased by Marvin S Hausman, M.D., our CEO, President, Acting CFO and Chairman of the board for $5,000 cash.  Each preferred share is currently convertible into 10 shares of common stock.  The issuance of the preferred shares was exempt from registration based on Regulation D, Rule 506 and Section 4(2) and under the Securities Act.


Item 3.  Defaults Upon Senior Securities


None.


Item 4.  Mine Safety Disclosures


Not Applicable.


Item 5.  Other Information


None.



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Item 6.  Exhibits 


Exhibit Number

Description of Exhibit

Filed Herewith

Form

Exhibit

Filing Date

 

 

 

 

 

 

3.1

Amended and Restated Articles of Incorporation of Registrant

 

8-K

3.1

10/29/2010

3.2

Amended and Restated Bylaws of Registrant

 

8-K

3.2

09/22/2010

3.3

Amended Articles of Merger Incorporation as currently in effect

 

8-K

3.3

10/13/2008

10.1

Exclusive Option Agreement dated May 1, 2006, between The Penn State Research Foundation and Northwest Medical Research Inc.

 

8-K

10.1

09/04/2008

10.2

Assignment Agreement to the Option Agreement, dated July 31, 2008, among The Penn State Research Foundation, Northwest Medical Research Inc. and Generic Marketing Services, Inc.

 

8-K

10.2

09/04/2008

10.3

Assignment and Assumption Agreement, dated July 31, 2008, between Northwest Medical Research Inc. and Generic Marketing Services, Inc.

 

8-K

10.3

09/04/2008

10.4

Form of Common Stock and Warrant Purchase Agreement

 

8-K

10.1

06/12/2009

10.5

Form of Securities Purchase Agreement

 

8-K

10.1

09/21/2009

10.6

$50,000 Promissory Note between TNS and Marvin S. Hausman, M.D. and Philip Sobol dated December 30, 2009

 

8-K

10.1

12/31/2010

10.7

$100,000 Promissory Note between TNS and Larry A. Johnson dated January 12, 2010

 

8-K

10.1

2/24/2010

10.8

$100,000 Promissory Note between TNS and Mark C. Wolf dated February 18, 2010

 

8-K

10.2

2/24/2010

10.9

$50,000 Promissory Note between TNS and Mark C. Wolf dated February 18, 2010

 

10-K

10.9

4/15/2010

10.10

Profit Sharing Agreement between TNS, American Charter & Marketing LLC, and Delta Group Investments, Limited dated March 26, 2010

 

10-K

10.10

4/15/2010

10.11

Form of Common Stock and Warrant Agreement 2010

 

8-K

10.1

12/20/2010

10.12

$312,500 Promissory Note between TNS and Delta Group Investments Limited dated January 26, 2011

 

8-K

10.2

2/22/2010

10.13

Termination of Profit Sharing Agreement dated February 21, 2011

 

8-K

10.1

2/22/2011

10.14

Lease Agreement between TNS and Sherwood Venture LLC dated March 15, 2011

 

8-K

10.1

4/6/2011

10.15

Form of Warrant A Agreement 2010

 

8-K

10.2

12/22/2010

10.16

Form of Warrant B Agreement 2010

 

8-K

10.3

12/22/2010

10.15

Form of Warrant A Agreement 2010

 

8-K

10.2

12/22/2010

10.16

Form of Warrant B Agreement 2010

 

8-K

10.3

12/22/2010

10.17

Asset Purchase Agreement between TNS, FunGuys, LLC and Mark C. Wolf dated May 27, 2011

 

8-K

10.1

3/3/2011



22






10.18

Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock of Total Nutraceutical Solutions, Inc. dated May 26, 2011.

 

8-K

10.3

3/3/2011

10.19

Employment Agreement between Marvin S. Hausman, M.D. and Total Nutraceutical Solutions, Inc. dated October 28, 2011.

 

8-K

10.1

11/2/2011

10.20

Employment Agreement between Devin Andres and Total Nutraceutical Solutions, Inc. dated October 28, 2011.

 

8-K

10.2

11/2/2011

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

X

 

 

 

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

X

 

 

 




23



SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

Entia Biosciences, Inc.

 

 

May 10, 2013

By:  

/s/ Marvin Hausman, M.D. 

 

Marvin Hausman, M.D.

Chief Executive Officer

(Principal Executive Officer and Acting Principal Financial and Accounting Officer)




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