Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Regenicin, Inc. | Financial_Report.xls |
| EX-31.1 - EX31_1 - Regenicin, Inc. | ex31_1.htm |
| EX-31.2 - EX31_2 - Regenicin, Inc. | ex31_2.htm |
| EX-32.1 - EX32_1 - Regenicin, Inc. | ex32_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended September 30, 2014 | |
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
| For the transition period from _________ to ________ | |
| Commission file number: 333-146834 |
| Regenicin, Inc. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 27-3083341 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 10 High Court, Little Falls, NJ | 07424 |
| (Address of principal executive offices) | (Zip Code) |
|
Registrant’s telephone number: (973) 557-8914 |
|
| |
| Title of each class | Name of each exchange on which registered |
| None | not applicable |
|
Securities registered under Section 12(g) of the Exchange Act:
| |
| Title of each class | |
| None | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [ ]
Indicate by checkmark 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 [ ] No [X]
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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 [ ] 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]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $1,829,193 as of March 31, 2014
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 143,090,083 as of January 8, 2015.
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PART I
The Company
Windstar, Inc. was incorporated in the state of Nevada on September 6, 2007. On July 19, 2010, the Company amended its Articles of Incorporation to change the name of the Company to Regenicin, Inc. (“Regenicin”). In September 2013, Regenicin formed a new wholly-owned subsidiary for the sole purpose of conducting research in the State of Georgia (together, the “Company”). The subsidiary has no activity since its formation due to the lack of funding.
The Company’s original business was the development of a purification device. Such business was assigned to the Company’s former management in July 2010.
The Company adopted a new business plan and intended to develop and commercialize a potentially lifesaving technology by the introduction of tissue-engineered skin substitutes to restore the qualities of healthy human skin for use in the treatment of burns, chronic wounds and a variety of plastic surgery procedures.
The Lawsuit with Lonza
On September 30, 2013, we filed a lawsuit against Lonza Walkersville, Inc. (“Lonza Walkersville”), Lonza Group Ltd. (“Lonza Group”) and Lonza America, Inc. (“Lonza America”) (collectively, the “Defendant”) in Fulton County Superior Court in the State of Georgia.
We continued to negotiate for almost six months after Lonza paid the previous shareholders of Cutanogen Corporation (“Cutanogen”) to settle their lawsuit. We attempted to acquire the Cutanogen technology from Lonza in lieu of a license, but to no avail. We retained the national law firm of Gordon and Rees, LLP (“Gordon & Rees”) to represent us in this case.
In our complaint, we allege that we entered into a Know-How License and Stock Purchase Agreement (“Know-How SPA”) with Lonza Walkersville, on July 21, 2010. Pursuant to the terms of the Know-How SPA, we paid Lonza Walkersville $3,000,000 and, in exchange, we were to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the U.S. Food and Drug Administration (“FDA”) for the commercial sale of the Cutanogen technology. Additionally, pursuant to the terms of the Know-How SPA, we were entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Once we secured FDA approval for the commercial sale of technology, the Know-How SPA provided that we were to pay Lonza Walkersville an additional $2,000,000 to buy its subsidiary, Cutanogen.
However, as we allege in the complaint, we believe the Defendant determined that it would make more money on the Cutanogen technology if it was not approved by the FDA and, unbeknownst to us, we believe Lonza Walkersville never intended to fulfill its obligations under the Know-How SPA. In this regard, we allege in the complaint that Lonza Walkersville used certain proprietary know-how and information for at least thirteen (13) other companies. We allege in the complaint that this is the same certain proprietary know-how and information we had purchased for $3 million under the exclusive Know-How SPA.
Further, as we allege in the complaint, the Defendant utilized threats and coercion against us throughout the contract term, including false claims of breach and securities violations, in order to attempt to terminate the Know-How SPA unilaterally. As a result, we received neither the exclusive license the Defendant had promised, nor the benefit of the exclusive proprietary know-how. Therefore, we allege in the complaint that, because of the Defendant’s breaches and tortious conduct, we lost the fees paid to the Defendant, which the Defendant did not earn, and suffered consequential damages and lost opportunities. In addition, we did not receive compensation from Lonza Walkersville for the time spent working on the Armed Forces Institute of Regenitive Medicine (AFIRM) grant, nor the time spent working on the Department of Defense (DOD) contract, which we were contractually supposed to be paid. We also will not receive the expected financial benefit from the DOD contract to help offset the cost of the clinical trials going forward. Lonza’s failure to secure a renewal of the DOD contract will have a significant financial impact on us. It should also be noted that the $3 million initially paid to Lonza, which was recorded as an intangible asset, was fully written off in the accompanying financial statements as of September 30, 2013.
On November 7, 2014, we entered into an Asset Purchase Agreement (“the Agreement”) with Amarantus Bioscience Holdings, Inc. (“Amarantus”), Clark Corporate Law Group, LLP (“CCLG”) and Gordon & Rees. Under the Agreement, we have agreed to sell to Amarantus: (i) all of our Cutanogen intellectual property rights, including all intellectual property rights related to PermaDerm® and any other engineered skin technology for the treatment of severe burns in humans, including any related trademarks, and (ii) all of our rights and claims in our litigation against the Defendant (the “Lonza Litigation”).
In exchange, Amarantus has agreed to pay: (i) $3,500,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. A portion of the cash purchase price has been allocated to CCLG, who is our sole senior secured creditor.
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The payments to CCLG, when completed, will satisfy in full our obligations owed to CCLG under its secured promissory note. The $3,000,000 in Amarantus common stock was satisfied by the issuance of 37,500,000 shares of Amarantus common stock to us. In addition to the purchase price, Amarantus paid Gordon & Rees $450,000 at closing. The payment to Gordon & Rees satisfied in full all obligations for litigation fees and costs owed by us to Gordon & Rees in connection with the Lonza Litigation.
On December 23, 2014, Senior District Judge J. Irenas responded to Lonza’s request for a dismissal and has requested Regenicin to show cause why the case should not be dismissed. Regenicin’s response was due January 8, 2015 with a hearing scheduled for January 13, 2015. Regenicin requested and was granted a new hearing date of March 3, 2015 with the opposition due February 23, 2015.
Our Business Moving Forward
We intend to continue to develop and seek FDA approval of cell therapy and biotechnology products.
We intend to use some of the proceeds from our recent sale of assets to Amarantus to develop and commercialize our own new technology for cultured skin substitutes. We have been developing our own unique cultured skin substitute since we received Lonza’s termination notice.
We are continuing to work with a couple of FDA compliant manufacturers to secure reliable sources for our intended proprietary collagen components. This propriety collagen scaffold, which is the starting structure for our product, is designed to promote cellular growth, adhesion and assembly of multiple types of human cells. As developed, we will initially work to gain FDA commercialization approval for our new proprietary cultured skin product utilizing autologous (patient’s own) cells to produce a multilayered living skin. We expect our cultured skin substitute for the treatment of burns will be available in sufficient quantity for a surgeon to do an initial graft about 4 weeks after we receive the first viable health skin tissue from the patient. Realizing that the patient may not be able to be scheduled for an exact grafting day a month in advance, we are making efforts to ensure the cultured skin substitute will have an adequate shelf life to meet the variable needs of the patient.
We are currently in the process of validating our proprietary collagen scaffold to demonstrate safety and ensure a consistent fully FDA cGMP compliant starting material. While qualifying our initial collagen manufacturer, we are working to establish an additional cGMP compliant manufacturer of collagen components as a second source. Our first collagen manufacturer’s capacity is adequate to meet our estimated US demand for patients burned over 30% of their total body surface area. Additional manufacturing capacity will be necessary as we gain approval for chronic wounds, plus other indications, and expand internationally.
We are also currently working to qualify a cell therapy manufacturer of our cultured skin substitute. It is necessary to establish a long-term commitment with a manufacturer while going through the FDA approval process. It is mandatory to ensure continuous support from the biologic manufacturer during the approval process, clinical trials and ultimately, supply of commercial product after FDA approval. It is important, while going through the approval process of the FDA, to use the same manufacturer to produce clinical trial material and the commercialized product.
We expect our first cultured skin substitute product to be a multi-layered tissue-engineered skin prepared by utilizing autologous (patient’s own) skin cells. It is a graftable collagen based cultured epithelium implant that produces a skin substitute containing both epidermal and dermal components with a collagen base. Clinically, we expect our Cultured Skin substitute self-to-self skin graft product will behave the same as allograft tissue. Our Autologous cultured skin substitute should not be rejected by the immune system of the patient, unlike with porcine or cadaver grafts. Immune system rejection is a serious concern in Xeno-transplant procedures. The use of our cultured skin substitute does not require any specialized physician training because it is applied the same as a standard allograft procedure.
Clinically speaking, a product designed to treat a life threatening condition must be available for the patient when needed. Our Culture skin substitute is being developed to be ready to apply to the patient when the patient is ready for grafting. Regenicin’s Cultured Skin Substitute is being designed to be available within the first month of the patient being admitted. Patients with these serious burn injuries may not be in a condition to be grafted on a predefined schedule made more than a month in advance. Therefore, in order to accommodate the patient’s needs, we are striving to ensure that our cultured skin substitute will be designed with a shelf life and manufacturing schedule to ensure it is available whether the patient needs it the first month, or any day after, until the patient’s wound is completely covered and closed.
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We intend to work with the FDA for the development of a cultured skin product. We are preparing documentation for Orphan Designation for the USA and European Union using our internal expertise. We will submit the request when we have qualified our cell therapy manufacturer. In order to obtain Orphan designation we will work with the Office of Orphan products to demonstrate that our Cultured Skin Substitute is safe and the probable benefit of using our Cultured Skin Substitute for burns outweighs the risks. There are less than 200,000 patients affected per year in the US with full thickness burns affecting greater than 30 percent of the Total Body Surface Area. TBSA. We hope to obtain Orphan Designation for burns in 2015.
Having our Cultured Skin Substitute approved as an Orphan Product would have significant benefits, including 7 years exclusivity with the FDA, 11 years exclusivity with the European Union generating revenue from sales of product used during the clinical trials and being able to utilize the data from patients from many different hospitals to gain Commercialization Approval. Orphan approval allows the product to be used to treat people a lot earlier than waiting for extensive clinical trials to gain Biological License Approval. The major difference between Orphan Product Approval and a full Biological License Approval is that the Orphan Product has additional FDA reporting requirements and additional procedural administration steps. Orphan Product patient’s data must be reported to the FDA annually. There is a difference between Orphan Designation and Orphan Product Approval. Orphan Designation qualifies your product to get special assistance from the FDA such as grants, and additional guidance in designing your trials and what the FDA expects you to do to gain Orphan Approval. Orphan Approval is granted when you have demonstrated that your product is safe and has a probable benefit to a patient affected with the specific indication. Orphan Approval means you can begin selling the product.
We are assembling our Investigative New Drug (IND) Biologic application for our cultured skin substitute utilizing our internal expertise. This will allow us to move the product through the FDA pipeline with minimal expense. As we approach the clinical trials, we may need to obtain additional outside funding. We hope to receive the approval from the FDA to initiate clinical trials in 2015. We intend to apply for Biological License Approval in 2016.
Our second product is anticipated to be TempaDerm®. TempaDerm® uses cells obtained from human donors to develop banks of cryo-preserved (frozen) cells and cultured skin substitute to provide a continuous supply of non-allogenic skin substitutes to treat much smaller wound areas on patients, such as ulcers. This product has applications in the treatment of chronic skin wounds such as diabetic ulcers, decubitus ulcers and venous stasis ulcers. This product is similar to our burn indication product except for the indications and TempaDerm® does not depend totally on autologous cells. In fact, it could be possible to use the excess cultured skin that was originally produced for use on the patient that donated the cells used to grow the skin. TempaDerm® could take this original cultured skin and use it on someone other than the original donor. TempaDerm® has the possibility of using banked cells, or even frozen cultured skin substitutes, to carry inventory to satisfy unknown needs or large volumes to meet the demands created in large scale disasters.
We believe this technology has many different uses beyond the burn indication. The other uses include chronic wounds, reconstructive surgery, other complex organs and tissues. Some of the individual components of our cultured skin substitute technology will be developed for devices, such as tendon wraps made of collagen or collagen temporary coverings of large area wounds to protect the patients from infections while waiting for the permanent skin substitute. The collagen technology used for cultured skin substitutes can be used for many different applications in wound healing and stem cell technology and even drug delivery systems.
We could pursue any or all of the indications simultaneously if financing permitted, but for now we will seek approval for burns first as an Orphan Biologic Product to establish significant safety data and then Biological License Approval.
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Competition
Several companies have developed products that propose to approach the markets described above. Among those companies are:
| - | Smith & Nephew Wound Management |
| - | Genzyme Biosurgery |
| - | Integra Life Sciences Corporation |
| - | LifeCell Corporation/Kinetic Concepts |
| - | Organogenesis Inc |
| - | Intercytex |
| - | Genzyme |
| - | Advanced Biohealing/ Shire |
| - | Cy Ttera/ NovoCell/ViaCyte |
| - | Biomimetic Therapeutics Inc. |
| - | RTI Biologics |
Each of these companies has a proprietary approach to these markets, but none has yet penetrated the cell therapy markets fully and 4 companies, (Smith and Nephew, Genzyme. Organogenesis, Integra and Advanced Biohealing) have products that are FDA approved for use in burn patients. Conversely, our products are believed to be superior in design and function and, thus, provide significant advantages over the above competitors. The advantages of our cultured skin substitute include simultaneous delivery of Autologus epidermal keratinocytes and fibroblasts on a collagen base. Clinical skin replacements and grafts are in high demand for the treatment of skin injuries: they represent approximately 50% of tissue engineering and regenerative medicine market revenues. In 2009, the potential United States market for tissue-engineered skin replacements and substitutes totaled approximately $18.9 billion, based on a target patient population of approximately 5.0 million. By the year 2019, the total potential target population for the use of tissue-engineered skin replacements and substitutes is expected to increase to 6.4 million, resulting in a potential US market of approximately $24.3 billion. Tissue Engineering and Cell Transplantation: US Markets for Skin Replacements and Substitutes; Report #A426; Medtech Insight: Bridgeport, PA, USA, August 2010.
Government Regulation
The Pediatric Medical Device Safety and Improvement Act of 2007 (Public Law 110-85) provides that Orphan Product applications for pediatric use only, or for use in both pediatric and adult patients, that are approved on or after September 27, 2007, are assigned an annual distribution number (ADN) and may be sold for profit (subject to the upper limit of the ADN). In addition, once a product receives an Orphan BLA, the developer of the product receives up to seven years market exclusivity for a specific indication following the product’s approval by the FDA.
Unrestricted sales of our cultured skin substitute will require full approval after data for safety and efficacy are collected from a multi-center study. Once the IND is submitted, we expect enrollment and treatment are expected to require one year evaluation on each patient. The final 9 months of the evaluation is expected to be only a monitoring period. After collection of data from the clinical trial and submission to FDA, six months is typically planned for FDA’s review and decision. Having an Orphan designation of which the indication is life threatening and there is an unmet need for catastrophic burns, the review time may be reduced significantly. Therefore, we believe Biological approval can be obtained in 2016. A positive performance of the clinical study and a review from FDA in less than 6 months after pre approval inspection of the manufacturing facility by FDA would support a 2016 date for commercial sales.
Intellectual Property
In August 2010, we paid $7,500 and obtained the rights to the trademarks PermaDerm® and TempaDerm® from KJR-10 Corp. In November of 2014, we sold the PermaDerm® trademark to Amarantus as part of the Agreement whereby they purchase all our rights to the Lonza Litigation.
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Employees
As of September 30, 2014, we had 3 employees.
Subsidiaries
On September 11, 2013 we completed formation documents with respect to the formation of a new wholly-owned subsidiary created with the sole purpose of conducting research in the State of Georgia.
The new subsidiary was given the name, Regenicin Research of Georgia, LLC, and was accepted by the Georgia Secretary of State on September 25, 2013, with an official certificate of formation being issued on September 26, 2013.
A smaller reporting company is not required to provide the information required by this Item.
Item 1B. Unresolved Staff Comments.
A smaller reporting company is not required to provide the information required by this Item.
Our principal executive offices are located at 10 High Court, Little Falls, NJ 07424. Our headquarters is located in the offices of McCoy Enterprises LLC, an entity controlled by Randall McCoy, our Chief Executive Officer. The office is attached to his residence but has its own entrances, restroom and kitchen facilities. No rent is charged.
We also maintain an office at 3 Arvida Drive, Pennington NJ 08534, which is an FDA registered, cGMP compliant FDA audited facility. This office is owned by Materials Testing Laboratory, and the principal is an employee of our company. No rent is charged.
On September 30, 2013, we filed a lawsuit against the Defendant in Fulton County Superior Court in the State of Georgia.
In our complaint, we allege that we entered into the Know-How SPA with Lonza Walkersville, on July 21, 2010. Pursuant to the terms of the Know-How SPA, we paid Lonza Walkersville $3,000,000 and, in exchange, we were to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA for the commercial sale of the Cutanogen technology. Additionally, pursuant to the terms of the Know-How SPA, we were entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Once we secured FDA approval for the commercial sale of the technology, the Know-How SPA provided that we were to pay Lonza Walkersville an additional $2,000,000 to buy its subsidiary, Cutanogen.
However, as we allege in the complaint, we believe the Defendant determined that it would make more money on the technology if it was not approved by the FDA and, unbeknownst to us, Lonza Walkersville never intended to fulfill its obligations under the Know-How SPA. In this regard, we allege in the complaint that Lonza Walkersville used certain proprietary know-how and information for at least thirteen (13) other companies. Further, as we allege in the complaint, the Defendant utilized threats and coercion against us throughout the contract term, including false claims of breach and securities violations, in order to attempt to terminate the Know-How SPA unilaterally. As a result, we received neither the exclusive license the Defendant had promised, nor the benefit of the exclusive Know-How SPA. Therefore, we allege in the complaint that, because of the Defendant’s breaches and tortious conduct, that we lost the fees paid to the Defendant, which the Defendant did not earn, and suffered consequential damages and lost opportunities.
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On December 23, 2014, Senior District Judge J. Irenas responded to Lonza’s request for a dismissal and has requested Regenicin to show cause why the case should not be dismissed. Regenicin’s response was due January 8, 2015 with a hearing scheduled for January 13, 2015. Regenicin requested and was granted a new hearing date of March 3, 2015 with the opposition due February 23, 2015.
On November 7, 2014, we entered into the Agreement with Amarantus, CCLG and Gordon & Rees. Under the Agreement, we have agreed to sell to Amarantus all of our rights and claims in the “Lonza Litigation.” These include all of our Cutanagen intellectual property rights and any Lonza manufacturing know-how technology. In addition, we have agreed to sell our PermaDerm® trademark and related intellectual property rights associated with it. The purchase price to be paid by Amarantus will consist of: (i) $3,500,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. A portion of the cash purchase price has been allocated to CCLG, who is our sole senior secured creditor.
The cash portion of the purchase price will be paid as follows:
At Closing:
$300,000 to Regenicin, Inc.
$200,000 to CCLG
On or before December 31, 2014:
$150,000 to Regenicin, Inc.
$100,000 to CCLG - this payment has not been received as of the filing of this report.
On January 31, 2015:
$2,550,000 to Regenicin, Inc.
$200,000 to CCLG
We intend to use the net proceeds of the transaction to fund development of cultured cell technology and to pursue approval of the products through the U.S. Food and Drug Administration.
The payments to CCLG, when completed, will satisfy in full our obligations owed to CCLG under its secured promissory note. The $3,000,000 in Amarantus common stock was satisfied by the issuance of 37,500,000 shares of Amarantus common stock from Amarantus to the Company. In addition to the purchase price, Amarantus will pay Gordon & Rees $450,000 at closing. The payment to Gordon & Rees will satisfy in full all obligations for litigation fees and costs owed to Gordon & Rees in connection with the Lonza Litigation.
In addition, we granted to Amarantus an exclusive five (5) year option to license any engineered skin designed for the treatment of patients designated as severely burned by the FDA developed by Regenicin. Amrantus can exercise this option at a cost of $10,000,000 plus a royalty of 5% on gross revenues in excess of $150 million.
Item 4. Mine Safety Disclosures
N/A
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PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is quoted under the symbol “RGIN” on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the OTCQB operated by OTC Markets Group, Inc. Few market makers continue to participate in the OTCBB system because of high fees charged by FINRA. Consequently, market makers that once quoted our shares on the OTCBB system may no longer be posting a quotation for our shares. As of the date of this report, however, our shares are quoted by several market makers on the OTCQB. The criteria for listing on either the OTCBB or OTCQB are similar and include that we remain current in our SEC reporting.
Only a limited market exists for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company.
The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
| Fiscal Year Ending September 30, 2013 | ||||||||||
| Quarter Ended | High $ | Low $ | ||||||||
| September 30, 2014 | 0.0176 | 0.0024 | ||||||||
| June 30, 2014 | 0.0300 | 0.0084 | ||||||||
| March 31, 2014 | 0.0309 | 0.0171 | ||||||||
| December 31, 2013 | 0.0360 | 0.0150 | ||||||||
|
Fiscal Year Ending September 30, 2013 | ||||||||||
| Quarter Ended | High $ | Low $ | ||||||||
| September 30, 2013 | 0.048 | 0.0136 | ||||||||
| June 30, 2013 | 0.0725 | 0.0211 | ||||||||
| March 31, 2013 | 0.125 | 0.0512 | ||||||||
| December 31, 2012 | 0.10 | 0.0688 | ||||||||
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Holders of Our Common Stock
As of January 8, 2015, we had 143,090,083 shares of our common stock issued and outstanding, held by one hundred nine (109) shareholders of record, with others holding shares in street name.
Dividends
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1. We would not be able to pay our debts as they become due in the usual course of business, or;
2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
Recent Sales of Unregistered Securities
On December 18, 2012, we issued 801,000 shares of our common stock as a finder's fee to an entity for introducing investors and/or lenders who provided funding to us. The shares were valued at $89,370.
For the year ended September 30, 2013, we issued 16,671,685 shares of our common stock for the conversion of notes payable issued under bridge financing and accrued interest.
For the year ended September 30, 2013, we issued 8,850,000 shares of common stock for the conversion of principal and accrued interest owed to the lender.
For the year ended September 30, 2014, we issued 2,600,000 shares of its common stock for the conversion of notes payable and accrued interest.
For the year ended September 30, 2014, we issued 14,840,392 shares of common stock for the conversion of principal and accreted interest owed.
For the year ended September 30, 2014, we issued 960,000 shares of common stock for the exercise of a warrant.
On December 24, 2013, we issued 1,038,751 shares of our common stock as a finder’s fee to an entity for introducing investors and/or lenders who provided funding to us in fiscal 2013. The shares were valued at $35,851.
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Shares and Warrants to be issued:
Various convertible promissory notes automatically converted at their respective maturity dates in fiscal years 2014 and 2013 into 10,367,094 shares of our common stock. As of September 30, 2014, the shares were not issued and were classified as common stock to be issued.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about our compensation plans under which shares of common stock may be issued upon the exercise of options as of September 30, 2014.
| Plan Category | Number of securities to be issued upon exercise of outstanding option, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuances under equity compensation plans | |||||||||
| Equity compensation plans approved by security holders | 0 | 0 | 0 | |||||||||
| Equity compensation plans not approved by security holders | 5,542,688 | $ | 0.19 | 0 | ||||||||
| Total | 5,542,688 | $ | 0.19 | 0 | ||||||||
On December 15, 2010, the board of directors approved the Regenicin, Inc. 2010 Incentive Plan (the “Plan”). The Plan provides for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares and performance units to our employees, officers, directors and consultants, including incentive stock options, non-qualified stock options, restricted stock, and other benefits. The Plan provides for the issuance of up to 4,428,360 shares of our common stock.
On January 6, 2011, we approved the issuance of 885,672 options to each of the four members of the board of directors at an exercise price is $0.62 per share. The options vest over a three-year period and expire on December 22, 2015. On May 11, 2011, the terms of the options were amended to allow for immediate vesting. On December 10, 2013, we approved the amendment to those options to change the exercise price to $0.035 per share.
In addition, in November of 2010, we approved the issuance of 2,000,000 options to a consultant at an exercise price of $0.46 per share. The options vested immediately and expire in November 2015.
There were no option grants in 2013 or 2014.
| 11 |
Warrants Issued and Outstanding
In fiscal 2013, in connection with the issuance of convertible notes, we issued warrants to purchase 2,365,000 shares of common stock at a per share exercise prices ranging from $0.001 to $0.50.
In fiscal 2014, in connection with the issuance of convertible notes, we issued warrants to purchase 1,407,500 shares of common stock at a per share exercise prices ranging from $0.001 to $0.50.
A summary of the warrants outstanding at September 30, 2014 is as follows:
| Exercise | Expiration | |||||||||
| Warrants | Price | Date | ||||||||
| 50,000 | Various | 2018 | ||||||||
| 1,500,000 | $ | 0.10 | 2015 | |||||||
| 672,500 | $ | 0.15 | 2018 | |||||||
| 937,500 | $ | 0.25 | 2016 | |||||||
| 325,000 | $ | 0.50 | 2015 | |||||||
| 10,000 | $ | 0.75 | 2016 | |||||||
| 49,500 | $ | 1.00 | 2015 | |||||||
| 66,667 | $ | 1.50 | 2016 | |||||||
| 3,611,667 | ||||||||||
Item 6. Selected Financial Data
A smaller reporting company is not required to provide the information required by this Item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
| 12 |
Results of Operations for the Years Ended September 30, 2014 and 2013
We generated no revenues from September 6, 2007 (date of inception) to September 30, 2014. We do not expect to generate revenues until we are able to obtain FDA approval of cell therapy and biotechnology products and thereafter successfully market and sell those products.
We incurred operating expenses of $725,895 for the year ended September 30, 2014, compared with operating expenses of $3,997,763 for the year ended September 30, 2013. Our operating expenses decreased in 2014 from 2013, and are compared as follows:
| Operating Expenses | September 30, 2013 | September 30, 2014 | |||||
| Impairment of intangible asset | $ | 3,000,000 | $ | 0 | |||
| Legal and Accounting | $ | 352,773 | $ | 157,135 | |||
| Public Relations and Marketing Support | $ | 7,600 | $ | 1,695 | |||
| Salaries, Wages and Payroll Taxes | $ | 423,576 | $ | 390,244 | |||
| Consulting and Computer Support | $ | 3,600 | $ | 2,100 | |||
| Office Expenses and Miscellaneous | $ | (36,324) | $ | 8,190 | |||
| Travel | $ | 38,620 | $ | 18,927 | |||
| Insurance | $ | 68,378 | $ | 77,578 | |||
| Website Expenses | $ | 1,693 | $ | 1,775 | |||
| Research and Development | $ | 80,000 | $ | 0 | |||
| Employee Benefits | $ | 57,847 | $ | 40,695 | |||
| Stock Based Compensation | $ | 0 | $ | 27,556 | |||
We incurred net other income of $37,017 for the year ended September 30, 2014, as compared to other expenses of $907,049 for the year ended September 30, 2013. Our other income and expenses for 2014 consisted of interest expenses of $232,379 and a gain on derivative liabilities of $269,396. Our other expenses for 2013 consisted of interest expenses of $766,680 and a loss on derivative liabilities of $140,369.
We incurred a loss before income tax of $688,878 for the year ended September 30, 2014, as compared with a net loss of $4,904,812 for the prior year. The primary reasons for our reduced net loss before taxes in fiscal 2014 compared to fiscal 2013 were as follows: (1) for the year ended September 30, 2013, we took a one-time impairment charge on intangible assets of $3,000,000 (representing a total impairment of our license payment to Lonza), which was not repeated this year; (2) our interest expenses, which include amortization of debt discounts, were substantially smaller this year, and (3) we experienced a gain on derivative liabilities, rather than a loss as taken last year.
For the year ended September 30, 2014, we recorded a provision for income tax benefits in the amount of $2,829,000. There was no provision for the year ended September 30, 2013. Footnote H to our financial statements should be reviewed for further information. Finally, we accrued preferred stock dividends of $70,800 during the year ended September 30, 2014, compared to $46,198 for the year ended September 30, 2013.
Our net income for the year ended September 30, 2014 was $2,069,322, compared to a net loss of $4,951,010 last year.
| 13 |
Liquidity and Capital Resources
As of September 30, 2014, we had cash of $492, prepaid expenses and other current assets of $49,462, and deferred income taxes of $2,829,000, for total current assets of $2,878,954. Our total current liabilities as of September 30, 2014 were $4,400,882. We had a working capital deficit of $1,524,194 as of September 30, 2014.
Operating activities used a net $211,845 in cash for the year ended September 30, 2014. Financing activities provided $189,837 for the year ended September 30, 2014 and consisted of $100,000 in proceeds from notes payable, $143,507 in advances from related parties, and $640 in proceeds from sale of common stock. These were offset by the repayment of the insurance premium financings of $52,220 and repayments of loans from related party in the amount of $2,090.
We have issued various promissory notes over the course of the last three fiscal years in order to continue funding our operations. The terms of these promissory notes are detailed in Note F to the financial statements accompanying this Annual Report. While this financing has been helpful in the short term to meet our financial obligations, we will need additional financing to fund our operations, continue with the FDA approval process, and implement our business plan over the long term.
For the near future, we believe that the net $3.5 million in cash to be received under the Asset Purchase Agreement with Amarantus, the potential of additional funding of up to $3 million to be received from sales of the Amarantus common stock granted to us under the Agreement (depending on the market value of the Amarantus stock), and the anticipated reversal of our $978,000 liability to Lonza, should enable us to fund our operations up to at least the initiation of the clinical trials on our Cultured Skin Substitute. We anticipate using the funding from the Asset Purchase Agreement to retire all our liabilities, including accrued payroll, officer’s loans and promissory notes. After the retirement of these liabilities, we anticipate that we will have approximately $1 million in working capital, which we estimate will be more than adequate to gets thru securing FDA Orphan Status.
Going Concern
Our financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred cumulative losses to date, expect to incur further losses in the development of our business, and have been dependent on funding operations through the issuance of convertible debt and private sale of equity securities. These conditions raise substantial doubt about our ability to continue as a going concern. Management’s plans include continuing to finance operations through the private or public placement of debt and/or equity securities and the reduction of expenditures. In addition, the Company intends on using the proceeds from the Asset Sale to fund operations. However, no assurance can be given at this time as to whether we will be able to achieve these objectives. The financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
| 14 |
Stock-Based Compensation:
The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation - Stock Compensation.” Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option pricing model.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 505, “Equity.” Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505.
Recently Issued Accounting Pronouncements
Effective January 1, 2014, the Company adopted ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update should be applied prospectively for annual and interim periods beginning after December 15, 2013. The adoption of ASU 2013-11 did not have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance, and creates an ASC 606, “Revenue from Contracts with Customers.” The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company’s has not yet determined the effect to the current consolidated financial statements by the adoption of ASU 2014-09.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for public and nonpublic entities for annual periods ending after December 15, 2016 and early adoption is permitted.
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
| 15 |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
| 16 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Regenicin, Inc.
We have audited the accompanying consolidated balance sheets of Regenicin, Inc. and Subsidiary (the “Company”) as of September 30, 2014 and 2013 and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the years then ended. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2014 and 2013 and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, the Company has incurred losses, expects to incur further losses in the development of its business and has been dependent on funding operations through the issuance of convertible debt and private sale of equity securities. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note B. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
ROTENBERG MERIL SOLOMON BERTIGER & GUTTILLA, P.C.
Saddle Brook, New Jersey
January 13, 2015
| F-1 |
REGENICIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| September 30, 2014 | September 30, 2013 | ||||||
| ASSETS | |||||||
| CURRENT ASSETS | |||||||
| Cash | $ | 492 | $ | 22,500 | |||
| Prepaid expenses and other current assets | 49,462 | 66,335 | |||||
| Deferred income taxes | 2,829,000 | — | |||||
| Total current assets | 2,878,954 | 88,835 | |||||
| Intangible assets | 7,500 | 7,500 | |||||
| Total assets | $ | 2,886,454 | $ | 96,335 | |||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | |||||||
| CURRENT LIABILITIES | |||||||
| Accounts payable | $ | 1,393,605 | $ | 1,392,481 | |||
| Accrued expenses | 1,991,332 | 1,475,002 | |||||
| Note payable - insurance financing | 51,613 | 52,220 | |||||
| Bridge financing (net of discount of $-0- and $1,226) | 450,000 | 538,774 | |||||
| Convertible promissory notes (net of discount of $20,645 and $136,452) | 295,617 | 264,417 | |||||
| Loan payable | 10,000 | 10,000 | |||||
| Loans payable - related parties | 205,817 | 64,400 | |||||
| Derivative liabilities | 5,164 | 438,779 | |||||
| Total current liabilities | 4,403,148 | 4,236,073 | |||||
| Total liabilities | 4,403,148 | 4,236,073 | |||||
| CONTINGENCY | |||||||
| STOCKHOLDERS' DEFICIENCY | |||||||
| Series A 10% Convertible Preferred stock, $0.001 par value, 5,500,000 shares authorized; 885,000 issued and outstanding | 885 | 885 | |||||
| Common stock, $0.001 par value; 200,000,000 shares authorized; 139,598,152 and 120,159,009 issued, respectively; 135,169,792 and 115,730,649 outstanding, respectively | 139,601 | 120,160 | |||||
| Common stock to be issued; 10,367,094 and 6,701,018 shares | 402,040 | 334,968 | |||||
| Additional paid-in capital | 8,897,799 | 8,501,390 | |||||
| Accumulated deficit | (10,952,591 | ) | (13,092,713 | ) | |||
| Less: treasury stock; 4,428,360 shares at par | (4,428 | ) | (4,428 | ) | |||
| Total stockholders' deficiency | (1,516,694 | ) | (4,139,738 | ) | |||
| Total liabilities and stockholders' deficiency | $ | 2,886,454 | $ | 96,335 |
See Notes to Consolidated Financial Statements.
| F-2 |
REGENICIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended September 30, 2014 | Year Ended September 30, 2013 | ||||||
| Revenues | $ | — | $ | — | |||
| Operating expenses | |||||||
| Research and development | — | 80,000 | |||||
| General and administrative | 698,339 | 917,763 | |||||
| Impairment of intangible asset | — | 3,000,000 | |||||
| Stock based compensation - general and administrative | 27,556 | — | |||||
| Total operating expenses | 725,895 | 3,997,763 | |||||
| Loss from operations | (725,895 | ) | (3,997,763 | ) | |||
| Other income (expenses) | |||||||
| Interest expense, including amortization of debt discounts and beneficial conversion features | (232,379 | ) | (766,680 | ) | |||
| Gain (loss) on derivative liabilities | 269,396 | (140,369 | ) | ||||
| Total other income (expenses) | 37,017 | (907,049 | ) | ||||
| Loss before income tax benefit | (688,878 | ) | (4,904,812 | ) | |||
| Income tax benefit | 2,829,000 | — | |||||
| Net income (loss) | 2,140,122 | (4,904,812 | ) | ||||
| Preferred stock dividends | (70,800 | ) | (46,198 | ) | |||
| Net income (loss) attributable to common stockholders | $ | 2,069,322 | $ | (4,951,010 | ) | ||
| Income (loss) per share: | |||||||
| Basic | $ | 0.02 | $ | (0.05 | ) | ||
| Diluted | $ | 0.01 | $ | (0.05 | ) | ||
| Weighted average number of shares outstanding | |||||||
| Basic | 132,966,528 | 109,139,729 | |||||
| Diluted | 191,425,784 | 109,139,729 | |||||
See Notes to Consolidated Financial Statements.
| F-3 |
REGENICIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
| Convertible Preferred Stock | Common Stock | Common Stock To | Additional Paid-in | Accumulated | Treasury | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Be Issued | Capital | Deficit | Stock | Total | |||||||||||||||||||||||||||
| Balances at September 30, 2012 | 885,000 | $ | 885 | 93,836,324 | $ | 93,837 | $ | 368,326 | $ | 7,274,799 | $ | (8,187,901 | ) | $ | (4,428 | ) | $ | (454,482 | ) | ||||||||||||||||
| Preferred stock dividends | — | — | — | — | — | (46,198 | ) | — | — | (46,198 | ) | ||||||||||||||||||||||||
| Shares issued in connection with conversion of debt and accrued interest | — | — | 25,521,685 | 25,522 | (453,827 | ) | 944,406 | — | — | 516,101 | |||||||||||||||||||||||||
| Shares to be issued in connection with conversion of debt and accrued interest | 420,469 | — | — | 420,469 | |||||||||||||||||||||||||||||||
| Shares issued for consulting agreement | — | — | 801,000 | 801 | — | 88,569 | — | — | 89,370 | ||||||||||||||||||||||||||
| Reversal of derivative liabilities to equity | — | — | — | — | — | 78,862 | — | — | 78,862 | ||||||||||||||||||||||||||
| Beneficial conversion features and warrant value on bridge financing | — | — | — | — | — | 160,952 | — | — | 160,952 | ||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (4,904,812 | ) | — | (4,904,812 | ) | ||||||||||||||||||||||||
| Balances at September 30, 2013 | 885,000 | 885 | 120,159,009 | 120,160 | 334,968 | 8,501,390 | (13,092,713 | ) | (4,428 | ) | (4,139,738 | ) | |||||||||||||||||||||||
| Preferred stock dividends | — | — | — | — | — | (70,800 | ) | — | — | (70,800 | ) | ||||||||||||||||||||||||
| Shares issued in connection with conversion of debt and accrued interest | — | — | 11,440,392 | 17,441 | (41,613 | ) | 240,975 | — | — | 216,803 | |||||||||||||||||||||||||
| Shares issued for consulting expenses accrued in prior period | — | — | 1,038,751 | 1,040 | — | 34,811 | — | — | 35,851 | ||||||||||||||||||||||||||
| Shares issued for exercise of warrant | — | — | 960,000 | 960 | — | (320 | ) | — | — | 640 | |||||||||||||||||||||||||
| Shares to be issued in connection with conversion of debt and accrued interest | — | — | — | — | 108,685 | — | — | — | 108,685 | ||||||||||||||||||||||||||
| Reversal of derivative liabilities to equity | — | — | — | — | — | 84,070 | — | — | 84,070 | ||||||||||||||||||||||||||
| Beneficial conversion features and warrant value on bridge financing | — | — | — | — | — | 75,000 | — | — | 75,000 | ||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | 27,556 | — | — | 27,556 | ||||||||||||||||||||||||||
| Issuance of warrant to Cristoforo for Note #31A | — | — | — | — | — | 5,117 | — | — | 5,117 | ||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 2,140,122 | — | 2,140,122 | ||||||||||||||||||||||||||
| Balances at September 30, 2014 | 885,000 | $ | 885 | 133,598,152 | $ | 139,601 | $ | 402,040 | $ | 8,897,799 | $ | (10,952,591 | ) | $ | (4,428 | ) | $ | (1,516,694 | ) | ||||||||||||||||
See Notes to Consolidated Financial Statements.
| F-4 |
REGENICIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended September 30, 2014 | Year Ended September 30, 2013 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
| Net income (loss) | $ | 2,140,122 | $ | (4,904,812 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
| Deferred income taxes | (2,829,000 | ) | — | ||||
| Impairment of intangible | — | 3,000,000 | |||||
| Amortization of debt discounts | 155,576 | 170,053 | |||||
| Accrued interest on notes and loans payable | 77,301 | 77,419 | |||||
| Amortization of beneficial conversion features | 54,545 | 276,049 | |||||
| Original interest discount on convertible note payable | 4,782 | 95,905 | |||||
| Stock based compensation - G&A | 27,556 | — | |||||
| Stock based compensation - Interest expense | — | 89,370 | |||||
| (Gain) loss on derivative liabilities | (269,393 | ) | 140,368 | ||||
| Other gain related to derivative liabilities | (63,095 | ) | — | ||||
| Changes in operating assets and liabilities | |||||||
| Prepaid expenses and other current assets | 68,486 | 45,896 | |||||
| Accounts payable | 1,124 | 31,129 | |||||
| Accrued expenses | 420,151 | 293,481 | |||||
| Net cash used in operating activities | (211,845 | ) | (685,142 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
| Proceeds from the issuance of notes payable | 100,000 | 715,000 | |||||
| Proceeds from loans from related parties | 143,507 | 6,400 | |||||
| Repayments of loans from related party | (2,090 | ) | — | ||||
| Repayments of notes payable - insurance financing | (52,220 | ) | (47,832 | ) | |||
| Proceeds from the sale of common stock | 640 | — | |||||
| Net cash provided by financing activities | 189,837 | 673,568 | |||||
| NET DECREASE IN CASH | (22,008 | ) | (11,574 | ) | |||
| CASH - BEGINNING OF YEAR | 22,500 | 34,074 | |||||
| CASH - END OF YEAR | $ | 492 | $ | 22,500 | |||
| Supplemental disclosures of cash flow information: | |||||||
| Cash paid for interest | $ | 4,453 | $ | 1,664 | |||
| Non-cash activities: | |||||||
| Preferred stock dividends | $ | 70,800 | $ | 46,198 | |||
| Shares issued/to be issued in connection with conversion of debt and accrued interest | $ | 304,874 | $ | 936,570 | |||
| Beneficial conversion feature and warrant value on bridge financing | $ | 75,000 | $ | 160,952 | |||
| Derivative liabilities reclassified to additional paid-in capital | $ | 104,684 | $ | 57,892 | |||
| Common stock issued for accrued expenses | $ | 35,851 | $ | 78,862 | |||
See Notes to Consolidated Financial Statements.
| F-5 |
REGENICIN, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - THE COMPANY
Windstar, Inc. was incorporated in the state of Nevada on September 6, 2007. On July 19, 2010, the Company amended its Articles of Incorporation to change the name of the Company to Regenicin, Inc. (“Regenicin”). In September 2013, Regenicin formed a new wholly-owned subsidiary for the sole purpose of conducting research in the State of Georgia (together, the “Company”). The subsidiary has no activity since its formation due to the lack of funding.
The Company’s original business was the development of a purification device. Such business was assigned to the Company’s former management in July 2010.
The Company adopted a new business plan and intended to develop and commercialize a potentially lifesaving technology by the introduction of tissue-engineered skin substitutes to restore the qualities of healthy human skin for use in the treatment of burns, chronic wounds and a variety of plastic surgery procedures.
The Company entered into a Know-How License and Stock Purchase Agreement (the “Know-How SPA”) with Lonza Walkersville, Inc. (“Lonza Walkersville”) on July 21, 2010. Pursuant to the terms of the Know-How SPA, the Company paid Lonza Walkersville $3,000,000 and, in exchange, the Company was to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the U.S. Food and Drug Administration (“FDA”) for the commercial sale of technology held by the Cutanogen Corporation (“Cutanogen”), a subsidiary of Lonza Walkersville. Additionally, pursuant to the terms of the Know-How SPA, the Company was entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Under the Know-How SPA, once FDA approval was secured for the commercial sale of the technology, the Company would be entitled to acquire Cutanogen, Lonza Walkersville’s subsidiary, for $2,000,000 in cash.
Unfortunately, after prolonged attempts to negotiate disputes with Lonza Walkersville failed, on September 30, 2013, the Company filed a lawsuit against Lonza Walkersville, Lonza Group Ltd. (“Lonza Group”) and Lonza America, Inc. (“Lonza America”) (collectively, the “Defendant”) in Fulton County Superior Court in the State of Georgia.
The Company alleged in the complaint that, because of the Defendant’s breaches and tortious conduct, that the Company lost fees paid to the Defendant, which the Defendant did not earn, and suffered consequential damages and lost opportunities. It should also be noted that the $3,000,000 initially paid to Lonza Walkersville, which was recorded as an intangible asset, was fully written off in the accompanying consolidated financial statements as of September 30, 2013. See Notes C and J.
On November 7, 2014, the Company entered into an Asset Sale Agreement (the “Sale Agreement”) with Amarantus Bioscience Holdings, Inc., (“Amarantus”). Under the Sale Agreement, the Company agreed to sell to Amarantus all of its rights and claims in the litigation currently pending in the United States District Court for the District of New Jersey against Lonza Walkersville and Lonza America, Inc. (the “Lonza Litigation”). This includes all of the Cutanagen intellectual property rights and any Lonza manufacturing know-how technology. In addition, the Company has agreed to sell the PermaDerm® trademark and related intellectual property rights associated with it. The purchase price to be paid by Amarantus will consist of: (i) $3,500,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. See Note K for a further discussion.
The Company intends to use the net proceeds of the transaction to fund development of cultured cell technology and to pursue approval of the products through the U.S. Food and Drug Administration. We intend to use some of the proceeds from our recent sale of assets to Amarantus to develop and commercialize our own new technology for cultured skin substitutes. We have been developing our own unique cultured skin substitute since we received Lonza’s termination notice.
| F-6 |
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of Regenicin and its wholly-owned subsidiary. All significant inter-company balances and transactions have been eliminated.
Going Concern:
The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred cumulative losses of approximately $11 million from inception, expects to incur further losses in the development of its business and has been dependent on funding operations through the issuance of convertible debt and private sale of equity securities. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans include continuing to finance operations through the private or public placement of debt and/or equity securities and the reduction of expenditures. In addition, the Company intends on using the proceeds from the Asset Sale to fund operations. However, no assurance can be given at this time as to whether the Company will be able to achieve these objectives. The consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Development Stage Activities and Operations:
In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (“ASU 2014-10”). ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders’ deficiency. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however, early adoption is permitted. The Company evaluated and adopted ASU 2014-10 for the reporting period ended June 30, 2014. The Company’s consolidated financial statements will be impacted by the adoption of ASU 2014-10 primarily by the removal of inception-to-date information in the Company’s consolidated statements of operations, cash flows, and stockholders’ deficiency.
Intangible assets:
Intangible assets, which include purchased licenses, patents and patent rights, are stated at cost and will be amortized using the straight-line method over their useful lives based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater (see Note C). Such amortization will begin once the Company has a saleable product. As discussed below in Note L, the Company sold its intangible assets on November 7, 2014.
The Company reviews intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. If such assets are considered impaired, the impairment to be recognized is equal to the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. In assessing recoverability, the Company must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, the Company may be required to record impairment charges. The Company recorded an impairment charge of $-0- and $3,000,000 in the years ended September 30, 2014 and 2013 (see Note C).
Research and development:
Research and development costs are charged to expense as incurred.
Income (loss) per share:
Basic income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted loss per share give effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period, only in periods in which such effect is dilutive. The following table summarizes the components of the income (loss) per common share calculation:
| Year Ended September 30, | |||||||
| 2014 | 2013 | ||||||
| Income (Loss) Per Common Share – Basic: | |||||||
| Net income (loss) available to common stockholders | $ | 2,069,322 | $ | (4,951,010 | ) | ||
| Weighted-average common shares outstanding | 132,966,528 | 109,139,729 | |||||
| Basic income (loss) per share | $ | 0.02 | $ | (0.05 | ) | ||
| Income (Loss) Per Common Share – Diluted: | |||||||
| Net income (loss) | $ | 2,069,322 | $ | (4,951,010 | ) | ||
| Weighted-average common shares outstanding | 132,966,528 | 109,139,729 | |||||
| Convertible preferred stock | 44,250,000 | — | |||||
| Convertible debentures | 14,209,256 | — | |||||
| Weighted-average common shares outstanding and common share equivalents | 191,425,784 | 109,139,729 | |||||
| Diluted income (loss) per share | $ | 0.01 | $ | (0.05 | ) | ||
| F-7 |
The following securities have been excluded from the calculation of net loss per share, as their effect would be anti-dilutive:
| Shares of Common Stock | |||||||
| Issuable upon Conversion/Exercise | |||||||
| as of September 30, | |||||||
| 2014 | 2013 | ||||||
| Options | 5,542,688 | 5,542,688 | |||||
| Warrants | 3,611,167 | 3,663,667 | |||||
| Convertible preferred stock | — | 17,700,000 | |||||
| Convertible debentures | — | 31,828,330 | |||||
Financial Instruments and Fair Value Measurement:
The carrying value of cash, prepaid expenses and other current assets, accounts payable, accrued expenses and all loans and notes payable in the Company’s consolidated balance sheets approximated their values as of September 30, 2014 and 2013 due to their short-term nature.
The Company issued notes payable that contained conversion features which were accounted for separately as derivative liabilities and measured at fair value on a recurring basis. Changes in fair value are charged to other income (expenses) as appropriate. The fair value of the derivate liabilities was determined based on Level 2 inputs utilizing observable quoted prices for similar instruments in active markets and observable quoted prices for identical or similar instruments in markets that are not very active. Derivative liabilities totaled $5,164 and $438,779 as of September 30, 2014 and 2013, respectively.
See Note F – Notes Payable – Convertible Promissory Notes for additional information.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimation includes the selection of assumptions underlying the calculation of the fair value of options. Actual results could differ from those estimates.
Stock-Based Compensation:
The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation - Stock Compensation.” Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option pricing model.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 505, “Equity.” Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505.
Income Taxes:
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The Company has adopted the provisions of FASB ASC 740-10-05 "Accounting for Uncertainty in Income Taxes." The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
| F-8 |
Recently Issued Accounting Pronouncements:
Effective January 1, 2014, the Company adopted ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update should be applied prospectively for annual and interim periods beginning after December 15, 2013. The adoption of ASU 2013-11 did not have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The amendments in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC 605, “Revenue Recognition,” and most industry-specific guidance, and creates an ASC 606, “Revenue from Contracts with Customers.” The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company’s has not yet determined the effect to the current consolidated financial statements by the adoption of ASU 2014-09.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for public and nonpublic entities for annual periods ending after December 15, 2016 and early adoption is permitted.
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
| F-9 |
NOTE C - INTANGIBLE ASSETS
In July 2010, the Company entered into an agreement with Lonza to purchase an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA for the commercial sale of PermaDerm®.
The Company made an initial payment of $3,000,000 to Lonza to purchase this exclusive know-how license and assistance in gaining FDA approval. In conjunction with Lonza, the Company's management intended to create and implement a strategy to conduct clinical trials and assemble and present relevant information and data in order to obtain the necessary approvals. The $3,000,000 payment was recorded as an intangible asset.
After prolonged negotiations, the Company has been unable to resolve contractual and other disputes with Lonza. As a result, on September 30, 2013, the Company filed a lawsuit against Lonza and related entities. The complaint alleges that Lonza determined it would make more money on PermaDerm® if it was not approved by the FDA and that Lonza used certain proprietary information, which the Company had purchased, for at least 13 other companies. The allegations also included that Lonza utilized threats and coercion, including false claims of breach of contract and securities violations, in order to terminate the exclusive know-how license. As a result, the Company received neither the exclusive know-how license that Lonza had promised nor the benefits of the exclusive know-how license.
For the year ended September 30, 2013, due to ongoing disputes and pending any settlement of the lawsuit, the Company determined that the value of the intangible asset and related intellectual property had been fully impaired. As a result, the Company wrote down the value of the intangible asset to $0.
In August 2010, the Company paid $7,500 and obtained the rights to the trademarks PermaDerm® and TempaDerm® from KJR-10 Corp.
At both September 30, 2014 and 2013, intangible assets totaled $7,500.
As discussed below in Note K, the Company sold its intangible assets on November 7, 2014.
NOTE D - ACCRUED EXPENSES
Accrued expenses consisted of the following:
| September 30, | |||||||
| 2014 | 2013 | ||||||
| Registration penalty | $ | 250,203 | $ | 250,203 | |||
| Salaries and payroll taxes | 1,163,389 | 792,907 | |||||
| Professional fees | 216,472 | 166,802 | |||||
| Accrued dividends | 251,242 | 180,442 | |||||
| Interest | 110,026 | 84,648 | |||||
| $ | 1,991,332 | $ | 1,475,002 | ||||
| F-10 |
NOTE E - LOANS PAYABLE
Loan Payable:
In February 2011, an investor advanced $10,000. The loan does not bear interest and is due on demand. At both September 30, 2014 and 2013, the loan payable totaled $10,000.
Loans Payable - Related Parties:
In October 2011 and again in May 2014, Craig Eagle, a director of the Company, advanced a total of $38,221 to the Company. The loans do not bear interest and are due on demand. At September 30, 2014 and 2013, the loan balance was $38,221 and $35,000, respectively.
During the year ended September 30, 2014, Randall McCoy, the Company’s Chief Executive Officer, made advances to the Company. The loans do not bear interest and are due on demand. At September 30, 2014 and 2013, the loan balance was $8,500 and $0, respectively.
John Weber, the Company’s Chief Financial Officer, has made advances to the Company. The loans do not bear interest and are due on demand. At September 30, 2014 and 2013, the loan balance was $122,100 and $28,100, respectively.
In March through September 2014 the Company received other advances totaling $35,696. The loans do not bear interest and are due on demand. At September 30, 2014 and 2013, the loan balances were $36,996 and $1,300, respectively.
At September 30, 2014 and 2013, loans payable - related parties totaled $205,817 and $64,400, respectively.
NOTE F - NOTES PAYABLE
Note Payable - Insurance Financing:
In August 2013, the Company renewed its policy and financed premiums totaling $57,892. The new note was payable over a nine-month term. At September 30, 2013, the balance owed under the note was $52,220. At September 30, 2014, the note was paid in full in accordance with the original terms
In September 2014, the Company financed certain insurance premiums totaling $51,613. The note requires an initial down payment of $10,322 and is payable over a nine-month term. At September 30, 2014, the balance owed under the note was $51,613.
Bridge Financing:
On December 21, 2011, the Company issued a $150,000 promissory note (“Note 2”) to an individual. Note 2 bore interest so that the Company would repay $175,000 on the maturity date of June 21, 2012, which correlated to an effective rate of 31.23%. Additional interest of 10% will be charged on any late payments. Note 2 was not paid at the maturity date and the Company is incurring additional interest described above. At both September 30, 2014 and 2013, the Note 2 balance was $175,000.
On January 18, 2012, the Company issued a $165,400 convertible promissory note (“Note 3”) to an individual. Note 3 bore interest at the rate of 5% per annum and was due on June 18, 2012. Note 3 and accrued interest thereon were convertible into units at a conversion price of $2.00 per unit. A unit consisted of one share of Series A Convertible Preferred Stock (“Series A Preferred”) and a warrant to purchase one-fourth (1/4), or 25% of one share of common stock. Upon maturity, Note 3 was not automatically converted and the Units were not issued. Instead, in October 2012, a new note was issued with a six month term. The new note bore interest at the rate of 8% per annum and the principal and accrued interest thereon were convertible into shares of common stock at a rate of $0.05 per share. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 500,000 shares of common stock at $0.10 per share. The warrant has not been issued. At maturity, the principal and interest automatically converted and the Company was supposed to issue 3,522,440 shares of common stock. As of September 30, 2014, the shares were not issued and were classified as common stock to be issued. At both September 30, 2014 and September 30, 2013, the Note 3 balance was $0.
On January 27, 2012, the Company issued a $149,290 convertible promissory note (“Note 4”) to an individual. Note 4 bore interest at the rate of 8% per annum and was due on March 31, 2012. Note 4 and accrued interest thereon were convertible into shares of common stock at a rate of $0.05 per share. In addition, the Company issued a warrant to purchase an additional 500,000 shares of common stock at $0.10 per share that expires on January 27, 2014. On March 31, 2012, Note 4 and the accrued interest became due and the Company was supposed to issue 3,027,683 shares of common stock. In May 2013, the Company issued the shares. At both September 30, 2014 and 2013, the Note 4 balance was $0.
In March 2012, the Company issued a series of convertible promissory notes (“Notes 5-9”) totaling $186,000 to four individuals. Notes 5-9 bore interest at the rate of 33% per annum and were due in August and September 2012. Notes 5-9 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. At maturity, the principal and interest automatically converted and the Company was supposed to issue 4,335,598 shares of common stock. In December 2012, the Company issued 4,079,000 shares to the note holders of Notes 5, 6, 7 and 9. The unissued 256,598 shares for Note 8 are classified as common stock to be issued at September 30, 2014. At both September 30, 2014 and 2013, the Note 5-9 balances were $0.
| F-11 |
In April 2012 through June 2012, the Company issued a series of convertible promissory notes (“Notes 10-18”) totaling $220,000 to nine individuals. Notes 10-18 bore interest at the rate of 33% per annum and were due in October through November 2012. Notes 10-18 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. In December 2012, the Company issued 5,124,500 shares of its common stock for the conversion of principal and accrued interest through the various maturity dates of the notes. At both September 30, 2014 and 2013, the Note 10-18 balances were $0.
In April 2012, the Company issued a convertible promissory note (“Note 19”) totaling $25,000 to an individual for services previously rendered. Note 19 bore interest at the rate of 33% per annum and was due in October 2012. Note 19 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In December 2012, the Company issued 582,500 shares of its common stock for the conversion of principal and accrued interest through the maturity date. At both September 30, 2014 and 2013, the Note 19 balance was $0.
In July 2012, the Company issued a series of convertible promissory notes (“Notes 20-22”) totaling $100,000 to three individuals. Notes 20-22 bore interest at the rate of 10% per annum and were due in December 2012 and January 2013. Notes 20-22 and accrued interest thereon were convertible into shares of common stock at the rate of $0.10 per share and automatically converted on the maturity dates unless paid sooner by the Company. For financial reporting purposes, the Company recorded discounts of $67,500 to reflect the beneficial conversion features. The discounts were amortized over the terms of Notes 20-22. In February 2013, the Company issued 1,050,000 shares of common stock for the conversion of Notes 20-22 and accrued interest thereon. At both September 30, 2014 and 2013, the Note 20-22 balances were $0.
In July 2012, the Company issued a convertible promissory note (“Note 23”) totaling $100,000 to an individual. Note 23 bore interest at the rate of 8% per annum and was due in January 2013. Note 23 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date, unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 500,000 shares of common stock at $0.10 per share. The warrant has not been issued. For financial reporting purposes, the Company recorded a discount of $100,000 to reflect the beneficial conversion feature. The discount was amortized over the term of the Note. In January 2013, the Company issued 2,080,000 shares of common stock for the conversion of Note 23 and accrued interest thereon. At both September 30, 2014 and 2013, the Note 23 balance was $0.
In December 2012, the Company issued a convertible promissory note (“Note 24”) totaling $100,000 to an individual. Note 24 bore interest at the rate of 8% per annum and was due in June 2013. Note 24 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date, unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 500,000 shares of common stock at $0.10 per share. The warrant has not been issued. For financial reporting purposes, the Company recorded a discount of $100,000 to reflect the beneficial conversion feature. The discount was amortized over the term of Note 24. At maturity, the principal and interest automatically converted and the Company was supposed to issue 2,089,880 shares of common stock. As of September 30, 2014, the shares were not issued and were classified as common stock to be issued. The warrant has not been issued as of the date of the issuance of the consolidated financial statements. At both September 30, 2014 and 2013, the Note 24 balance was $0.
In January 2013, the Company issued a convertible promissory note (“Note 25”) totaling $35,000 to an individual. Note 25 bore interest at the rate of 8% per annum and was due in July 2013. Note 25 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 175,000 shares of common stock at $0.50 per share. The warrant has not been issued. For financial reporting purposes, the Company recorded a discount of $21,000 to reflect the value of the beneficial conversion feature. The value of the warrant was not recorded as the value was deemed to be immaterial. The discount was amortized over the term of Note 25. On August 1, 2013, the Company issued 728,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. The warrant has not been issued as of the issuance of the consolidated financial statements. At both September 30, 2014 and 2013, the Note 25 balance was $0.
In March 2013, the Company issued a convertible promissory note (“Note 26”) totaling $25,000 to an individual. Note 26 bore interest at the rate of 8% per annum and was due in September 2013. Note 26 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a one-year warrant to purchase an additional 640,000 shares of common stock at $0.001 per share. For financial reporting purposes, the Company recorded a discount of $14,507 to reflect the value of the warrant and a discount of $10,493 to reflect the value of the beneficial conversion feature. The discounts were amortized over the term of Note 26. On February 28, 2014, the Company issued 520,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. The warrant was issued in December 2013 and was exercised on December 24, 2013. At both September 30, 2014 and 2013, the Note 26 balance was $0.
| F-12 |
In April 2013, the Company issued a convertible promissory note (“Note 27”) totaling $15,000 to an individual. Note 27 bore interest at the rate of 8% per annum and was due in September 2013. Note 27 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. For financial reporting purposes, the Company recorded a discount of $1,500 to reflect the beneficial conversion feature. The discount was amortized over the term of Note 27. On February 28, 2014, the Company issued 312,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. At both September 30, 2014 and 2013, the Note 27 balance was $0.
In April 2013, the Company issued a convertible promissory note (“Note 28”) totaling $25,000 to an individual. Note 28 bears interest at the rate of 8% per annum and was due in October 2013. Note 28 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. For financial reporting purposes, the Company recorded a discount of $10,000 to reflect the beneficial conversion feature. The discount was amortized over the term of Note 28. On February 28, 2014, the Company issued 520,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. At both September 30, 2014 and 2013, the Note 28 balance was $0 and $25,000, respectively.
In May 2013, the Company issued a convertible promissory note (“Note 29”) totaling $25,000 to an individual. Note 29 bore interest at the rate of 8% per annum and was due in November 2013. Note 29 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. The Company did not record a discount for the conversion feature as the conversion price was greater than the price of the common stock on the issuance date. At maturity, the principal and interest were scheduled to convert to 520,055 shares of common stock but the individual waived the conversion of the principal and accrued interest. At both September 30, 2014 and 2013, the Note 29 balance was $25,000.
In June 2013, the Company issued convertible promissory notes (“Notes 30-31”) totaling $30,000 to two individuals. The notes bore interest at the rate of 8% per annum and were due in December 2013. The principal and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue two-year warrants to purchase an additional 150,000 shares of common stock at $0.50 per share. The warrants have not been issued. For financial reporting purposes, the Company recorded discounts of $3,451 to reflect the value of the warrants but did not record discounts for the conversion features as the conversion prices were greater than the stock prices at the issuance dates. The discounts are being amortized over the terms of Notes 30-31. At maturity, the principal and interest automatically converted and the Company was supposed to issue 624,066 shares of common stock. As of September 30, 2014, the shares were not issued and were classified as common stock to be issued. At September 30, 2014, the Note 30-31 balances were $0. At September 30, 2013, the Notes 30-31 balances were $28,774, net of debt discounts of $1,226.
In June 2013, the Company issued a convertible promissory note (“Note 31A”) totaling $25,000 to an individual. The note bore interest at the rate of 8% per annum and was due in December 2013. The principal and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a one-year warrant to purchase an additional 320,000 shares of common stock at $0.001 per share. For financial reporting purposes, the Company recorded a discount of $5,116 to reflect the value of the warrants but did not record a discount for the conversion feature as the conversion price was greater than the stock price at the issuance date. The discount was amortized over the term of Note 31A. On February 7, 2014, the Company issued 520,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. The warrant was exercised on February 7, 2014. At September 30, 2014 and 2013, the Note 31A balance was $0 and $25,000, respectively.
In July 2013, the Company issued convertible promissory notes (“Note 32-34”) totaling $35,000 to three individuals. The notes bore interest at the rate of 8% per annum and were due in January 2014. The principal and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. The Company did not record discounts for the conversion features as the conversion prices were greater than the prices of the common stock on the issuance dates. In February and March 2014, the Company issued 728,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. At September 30, 2014 and 2013, the Notes 32-34 balances were $0 and $35,000, respectively.
In August 2013, the Company issued convertible promissory notes (“Note 35-36”) totaling $250,000 to two individuals. The notes bear interest at the rate of 8% per annum and are due in August 2014. The principal and accrued interest thereon are convertible into shares of common stock at the rate of $0.03 per share and automatically convert on the maturity dates unless paid sooner by the Company. The Company did not record discounts for the conversion features as the conversion prices were greater than the prices of the common stock on the issuance dates. At maturity, the principal and interest were scheduled to automatically convert into 4,500,000 shares of common stock but the individuals waived the conversion of the principal and accrued interest. At both September 30, 2014 and 2013, the Notes 35-36 balances were $250,000.
On December 31, 2013, the Company issued a convertible promissory note (“Note 37”) totaling $75,000 to an individual. The note bore interest at the rate of 8% per annum and was due in May 2014. The principal and accrued interest thereon were convertible into shares of common stock at the rate of $0.02 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 937,500 shares of common stock at $0.25 per share. The warrant has not been issued. For financial reporting purposes, the Company recorded discounts of $20,455 to reflect the value of the warrant and a discount of $54,545 to reflect the value of the beneficial conversion feature. The discount was amortized over the term of Note 37. At maturity, the principal and interest automatically converted and the Company was supposed to issue 3,874,110 shares of common stock. As of September 30, 2014, the shares were not issued and were classified as common stock to be issued. At September 30, 2014, the Note 37 balance was $0.
| F-13 |
Convertible Promissory Note:
In October 2012, the Company issued a promissory note to a financial institution (the “Lender”) to borrow up to a maximum of $225,000. The note bears interest so that the Company would repay a maximum of $250,000 at maturity, which correlated to an effective rate of 10.59%. In October 2012, the Company received $50,000 upon the signing of the note and then in January through September 2013, the Company received additional proceeds totaling $100,000. In February 2014 the Company received an additional $25,000. Material terms of the note include the following:
1. The Lender may make additional loans in such amounts and at such dates at its sole discretion.
2. The maturity date of each loan is one year after such loan is received.
3. The original interest discount is prorated to each loan received.
4. Principal and accrued interest is convertible into shares of the Company’s common stock at the lesser of $0.069 or 65%-70% (as defined) of the lowest trading price in the 25 trading days previous to the conversion.
5. Unless otherwise agreed to in writing by both parties, at no time can the Lender convert any amount of the principal and/or accrued interest owed into common stock that would result in the Lender owning more than 4.99% of the common stock outstanding.
6. There is a one-time interest payment of 10% of amounts borrowed that is due at the maturity date of each loan.
7. At all times during which the note is convertible, the Company shall reserve from its authorized and unissued common stock to provide for the issuance of common stock under the full conversion of the promissory note. The Company will at all times reserve at least 13,000,000 shares of its common stock for conversion.
8. The Company agreed to include on its next registration statement it files, all shares issuable upon conversion of balances due under the promissory note. Failure to do so would result in liquidating damages of 25% of the outstanding principal balance of the promissory note but not less than $25,000.
The Company is accreting the original issue discount (“OID”) on the initial loan over the life of the loan using the effective interest method. For the year ended September 30, 2014 and 2013, the accretion amounted to $5,450 and $8,405, respectively.
The conversion feature contained in the promissory note is considered to be an embedded derivative. The Company bifurcated the conversion feature and recorded a derivative liability on the consolidated balance sheet. The Company recorded the derivative liability equal to its estimated fair value. Such amount was also recorded as a discount to the convertible promissory note and is being amortized to interest expense using the effective interest method. For the year ended September 30, 2014 and 2013, amortization of the debt discount amounted to $64,675 and $64,125, respectively. At September 30, 2014 and 2013, the unamortized discount is $7,675 and $72,348, respectively.
The Company is required to mark-to-market the derivative liability at the end of each reporting period. For the year ended September 30, 2014 and 2013, the Company recorded a loss on the change in fair value of the conversion option of $76,149 and $60,559, respectively and as of September 30, 2014 and 2013, the fair value of the conversion option was $5,163 and $213,858, respectively.
In May 2013, the Company issued a convertible promissory note totaling $293,700 to Clark Corporate Law Group LLP (“CCLG”) in lieu of amounts payable. The note bears interest at the rate of 12% per annum and was originally due November 21, 2013. The maturity date of the note was extended to February 21, 2014 and extended again to August 31, 2014. The note is secured by all of the assets of the Company. The note and accrued interest are convertible into shares of common stock at a conversion rate of the lower of $0.04 per share or 80% of the average of the lowest three trading prices in the 20 trading days previous to the conversion but the number of shares that can be issued is limited as defined in the note agreement. In addition, the Company issued a five-year warrant to purchase an additional 50,000 shares of common stock at a per share exercise price of the lower of $0.04 per share or 80% of the average of the lowest three trading prices in the 20 trading days previous to the conversion. The note was not paid at the maturity date but no action was taken by CCLG. For the period from October 1, 2014 through January 13, 2015, the Company paid $200,000 of principal and accrued interest. See Note K.
The conversion features contained in the promissory note and the warrant are considered to be embedded derivatives. The Company bifurcated the conversion features and recorded derivative liabilities on the consolidated balance sheet. The Company recorded the derivative liabilities equal to their estimated fair value of $153,300. Such amount was also recorded as a discount to the convertible promissory note and was amortized to interest expense using the effective interest method. For the year ended September 30, 2014 and 2013, amortization of the debt discount amounted to $64,104 and $89,195, respectively. At September 30, 2014 and 2013, the unamortized discount is $-0- and $64,104, respectively
The Company is required to mark-to-market the derivative liabilities at the end of each reporting period. For the year ended September 30, 2014 and 2013, the Company recorded a gain (loss) on the change in fair value of the conversion option of $193,247 and $(60,559), respectively, and as of September 30, 2014 and 2013, the fair value of the conversion option was $-0- and $213,858, respectively.
At September 30, 2014 and 2013, the balance of the convertible note was $293,700 and $229,596 net of the debt discount of $-0- and $64,105, respectively.
| F-14 |
NOTE G - RELATED PARTY TRANSACTIONS
Officers:
The Company’s principal executive offices are located in Little Falls, New Jersey. The headquarters is located in the offices of McCoy Enterprises LLC, an entity controlled by Mr. McCoy. The office is attached to his residence but has its own entrances, restroom and kitchen facilities.
The Company also maintains an office in Pennington, New Jersey, which is the materials and testing laboratory. This office is owned by Materials Testing Laboratory, and the principal is an employee of the Company.
No rent is charged for either premise.
NOTE H - INCOME TAXES
The Company did not incur current tax expense for both the years ended September 30, 2014 and 2013.
At September 30, 2014, the Company had available approximately $7.1 million of net operating loss carry forwards which expire in the years 2028 through 2033.
The provision for income tax benefits of $2,440,000 for the year ended September 30, 2014 represents deferred taxes. There was no provision for the year ended September 30, 2013.
Significant components of the Company’s deferred tax assets at September 30, 2014 and 2013 are as follows:
| 2014 | 2013 | ||||||
| Net operating loss carry forwards | $ | 2,850,535 | $ | 2,698,087 | |||
| Intangible assets | 1,200,000 | 1,200,000 | |||||
| Stock based compensation | 355,265 | 355,265 | |||||
| Accrued expenses | 539,912 | 396,232 | |||||
| Total deferred tax assets | 4,945,712 | 4,649,584 | |||||
| Valuation allowance | (2,116,712 | ) | (4,649,584 | ) | |||
| Net deferred tax assets | $ | 2,829,000 | $ | — | |||
Due to the uncertainty of their realization, a valuation allowance has been established for a portion of the income tax benefit for these deferred tax assets. The decrease in the valuation allowance was the result of the estimated tax benefits that will result from the Sale Agreement (see Note K).
The following is a reconciliation of the Company’s income tax rate using the federal statutory rate to the actual income tax rate as of September 30, 2014 and 2013:
| 2014 | 2013 | ||||||
| Federal tax rate | (34 | )% | (34 | )% | |||
| Effect of state taxes | (6 | )% | (6 | )% | |||
| Reversal of valuation allowance | 412 | % | 0 | % | |||
| Permanent differences | 3 | % | 5 | % | |||
| Net operating loss carry forward | 37 | % | 35 | % | |||
| Total | 412 | % | 0 | % | |||
At September 30, 2014 and 2013, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of September 30, 2014 and 2013, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.
The Company files its federal income tax returns under a statute of limitations. The 2011 through 2014 tax years generally remain subject to examination by federal tax authorities. The Company has not filed any of its state income tax returns since inception. Due to recurring losses, management believes that once such returns are filed, the Company would incur state minimum tax liabilities that were not deemed material to accrue.
| F-15 |
NOTE I - STOCKHOLDERS’ DEFICIENCY
Preferred Stock:
Series A
Series A Preferred pays a dividend of 8% per annum on the stated value and has a liquidation preference equal to the stated value of the shares. Each share of Preferred Stock has an initial stated value of $1 and was convertible into shares of the Company’s common stock at the rate of 10 for 1. Series A Preferred contains a full ratchet anti-dilution feature on the shares of common stock underlying the Series A Preferred for three years on any stock issued below $0.10 per share with the exception of shares issued in a merger or acquisition. As the Company issued common stock at $0.02 per share for the conversion of debt in May 2014, the conversion rate for the Series A Preferred is now 50 to 1.
The dividends are cumulative commencing on the issue date whether or not declared. Dividends amounted to $70,800 and $46,198 for the years ended September 30, 2014 and 2013, respectively. At September 30, 2014 and 2013, dividends payable totaled $251,242 and $180,442, respectively, and are included in accrued expenses.
At both September 30, 2014 and 2013, 885,000 shares of Series A Preferred were outstanding.
Series B
On January 23, 2012, the Company designated a new class of preferred stock called Series B Convertible Preferred Stock (“Series B Preferred”). Four million shares have been authorized with a liquidation preference of $2.00 per share. Each share of Series B Preferred is convertible into ten shares of common stock. Holders of Series B Convertible Preferred Stock have a right to a dividend (pro-rata to each holder) based on a percentage of the gross revenue earned by the Company in the United States, if any, and the number of outstanding shares of Series B Convertible Preferred Stock, as follows: Year 1 - Total Dividend to all Series B holders = .03 x Gross Revenue in the U.S. Year 2 - Total Dividend to all Series B holders = .02 x Gross Revenue in the U.S. Year 3 - Total Dividend to all Series B holders = .01 x Gross Revenue in the U.S. At September 30, 2014, no shares of Series B Preferred are outstanding.
Common Stock Issuances:
2013 Transactions
1. On December 18, 2012, we issued 801,000 shares of our common stock as a finder's fee to an entity for introducing investors and/or lenders who provided funding to us. The shares were valued at $89,370.
2. The Company issued 16,671,685 shares of its common stock for the conversion of notes payable issued under the Bridge Financing and accrued interest.
3. The Company issued 8,850,000 shares of common stock for the conversion of principal and accreted interest owed to the Lender.
2014 Transactions
1. The Company issued 2,600,000 shares of its common stock for the conversion of notes payable issued under the Bridge Financing and accrued interest.
2. The Company issued 14,840,392 shares of common stock for the conversion of principal and accreted interest owed to the Lender.
3. For the year ended September 30, 2014 the Company issued 960,000 shares of common stock for the exercise of a warrant.
4. On December 24, 2013, the Company issued 1,038,751 shares of its common stock as a finder’s fee to an entity for introducing investors and/or lenders who provided funding to the Company in fiscal 2013. The shares were valued at $35,851.
2010 Incentive Plan:
On December 15, 2010, the board of directors approved the Regenicin, Inc. 2010 Incentive Plan (the “Plan”). The Plan provides for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares and performance units to the Company’s employees, officers, directors and consultants, including incentive stock options, non-qualified stock options, restricted stock, and other benefits. The Plan provides for the issuance of up to 4,428,360 shares of the Company’s common stock.
On January 6, 2011, the Company approved the issuance of 885,672 options to each of the four members of the board of directors at an exercise price of $0.62 per share. The options originally vested over a three-year period and expire on December 22, 2015. On May 11, 2011, the terms of the options were amended to allow for immediate vesting. On December 10, 2013, the exercise price of the options was changed to $0.035 per share. As a result, the Company revalued the options as required under generally accepted accounting principles and recognized an expense of $27,556. The options were revalued utilizing the Black-Scholes option pricing model with the following assumptions: exercise price: $0.035 - $0.62; expected volatility: 20.71%; risk-free rate: 0.13% - 0.14%; expected term: 1 year.
| F-16 |
The expected life is the number of years that the Company estimates, based upon history, that warrants will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. The stock volatility factor is based on the Nasdaq Biotechnology Index. The Company did not use the volatility rate for Company’s common stock as the Company’s common stock had not been trading for the sufficient length of time to accurately compute its volatility when these options were issued.
On December 18, 2012, the Company issued 801,000 shares of its common stock as a finder’s fee to an entity for introducing investors and/or lenders who provided funding to the Company. The shares were valued at $89,370.
Stock based compensation amounted to $27,556 for the year ended September 30, 2014 and is included in general and administrative expenses. Stock based compensation amounted to $89,370 for the year ended September 30, 2013 and is included in interest expense.
In addition, in November 2010, the Company issued 2,000,000 options to a consultant at an exercise price of $0.46 per share. The options vested immediately and expire in November 2015.
Option activity for 2013 and 2014 is summarized as follows:
| Options | Weighted Average Exercise Price | |||||||||
| Options outstanding, October 1, 2012 | 5,542,688 | $ | 0.19 | |||||||
| Granted | — | — | ||||||||
| Forfeited | — | — | ||||||||
| Options outstanding, September 30, 2013 and 2014 | 5,542,688 | $ | 0.19 | |||||||
| Aggregate intrinsic value | $ | — | ||||||||
The aggregate intrinsic value was calculated based on the positive difference between the closing market price of the Company’s Common Stock and the exercise price of the underlying options.
The following table summarizes information regarding stock options outstanding at September 30, 2014:
| Weighted Average Remaining | Options Exercisable Weighted Average | |||||||||||||||||||||
| Ranges of prices | Number Outstanding | Contractual Life | Exercise Price | Number Exercisable | Exercise Price | |||||||||||||||||
| $ | 0.035 | 3,542,688 | 1.27 | $ | 0.035 | 3,542,688 | $ | 0.035 | ||||||||||||||
| $ | 0.460 | 2,000,000 | 1.14 | 0.460 | 2,000,000 | 0.460 | ||||||||||||||||
| $0.035-$0.46 | 5,542,688 | 1.22 | $ | 0.190 | 5,542,688 | $ | 0.190 | |||||||||||||||
There were no option grants in 2013 or 2014.
As of September 30, 2014, there was no unrecognized compensation cost related to non-vested options granted.
| F-17 |
Warrants:
In fiscal 2013 in connection with the issuance of convertible notes the Company issued warrants to purchase 2,365,000 shares of common stock at a per share exercise prices ranging from $0.001 to $0.50.
These warrants were valued utilizing a Black-Scholes option pricing model with the following assumptions: exercise price: $0.001 - $0.50; expected volatility: 13.43%; risk-free rate: 0.14%; expected term: 1 - 5 years.
In fiscal 2014 in connection with the issuance of convertible notes the Company issued warrants to purchase 1,407,500 shares of common stock at a per share exercise prices ranging from $0.001 to $0.50.
These warrants were valued utilizing a Black-Scholes option pricing model with the following assumptions: exercise price: $0.001 - $0.50; expected volatility: 20.88%; risk-free rate: 0.11% - 0.13%; expected term: .5 year - 1year.
The expected life is the number of years that the Company estimates, based upon history, that warrants will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. The stock volatility factor is based on the Nasdaq Biotechnology Index. The Company did not use the volatility rate for Company’s common stock as the Company’s common stock had not been trading for the sufficient length of time to accurately compute its volatility when these options were issued.
A summary of the warrants outstanding at September 30, 2014 is as follows:
| Exercise | Expiration | |||||||||
| Warrants | Price | Date | ||||||||
| 50,000 | Various | 2018 | ||||||||
| 1,500,000 | $ | 0.10 | 2015 | |||||||
| 672,500 | $ | 0.15 | 2018 | |||||||
| 937,500 | $ | 0.25 | 2016 | |||||||
| 325,000 | $ | 0.50 | 2015 | |||||||
| 10,000 | $ | 0.75 | 2016 | |||||||
| 49,500 | $ | 1.00 | 2015 | |||||||
| 66,667 | $ | 1.50 | 2016 | |||||||
| 3,611,667 | ||||||||||
Registration Penalties:
On August 16, 2010, the Company sold 4,035,524 shares of common stock as part of a Securities Purchase Agreement with certain accredited investors (the “Purchasers”) pursuant to the closing of the Private Placement Offering (the “Offering”).
Pursuant to a Registration Rights Agreement that accompanied the Securities Purchase Agreement, the Company agreed to file an initial registration statement covering the resale of the common stock no later than 45 days from the closing of the Offering and to have such registration statement declared effective no later than 180 days from filing of the registration statement. If the Company did not timely file the registration statement, cause it to be declared effective by the required date, or maintain the filing, then each Purchaser in the offering was entitled to liquidated damages equal to 1% of the aggregate purchase price paid by such Purchaser for the securities, and an additional 1% for each month that the Company did not file the registration statement, cause it to be declared effective, or fail to maintain the filing (subject to a maximum penalty of 10% of the aggregate purchase price). The Offering closed on August 16, 2010. The Company did not file an initial registration statement and accrued liquidating damages from October 1, 2010. Registration penalties totaled $250,203 for the year ended September 30, 2011. The registration penalties have not been paid and are included in accrued expenses in the consolidated balance sheets as of September 30, 2014 and 2013. No actions have been taken by the investors to collect the penalty.
| F-18 |
NOTE J - CONTINGENCY
Lonza Transaction:
The Company entered into the Know-How SPA with Lonza Walkersville on July 21, 2010. Pursuant to the terms of the Know-How SPA, the Company paid Lonza Walkersville $3,000,000 and, in exchange, the Company was to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA for the commercial sale of the Cutanogen technology. Additionally, pursuant to the terms of the Know-How SPA, the Company was entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Under the Know-How SPA, once FDA approval was secured for the commercial sale of the technology, the Company would be entitled to acquire Cutanogen, Lonza Walkersville’s subsidiary, for $2,000,000 in cash.
On September 30, 2013, the Company filed a lawsuit against the Defendant in Fulton County Superior Court in the State of Georgia.
The Company continued to negotiate for almost six months after Lonza paid the previous shareholders of Cutanogen to settle their lawsuit. The Company attempted to acquire the Cutanogen technology from Lonza in lieu of a license but to no avail. The Company has retained a national law firm to represent its interests in this case.
In the complaint, the Company alleged that it entered into a Know-How SPA with Lonza Walkersville, on July 21, 2010. Pursuant to the terms of the Know-How SPA, the Company paid Lonza Walkersville $3,000,000 and, in exchange, the Company was to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA. Under the Know-How SPA, once FDA approval was secured for the commercial sale of the technology, the Company would be entitled to acquire Cutanogen, Lonza Walkersville’s subsidiary, for $2,000,000 in cash.
However, as the Company alleged in the complaint, the Company believes the Defendant determined that it would make more money on the Cutanogen technology if it was not approved by the FDA and, unbeknownst to the Company, the Company believes Lonza Walkersville never intended to fulfill its obligations under the Know-How SPA. In this regard, the Company alleges in the complaint that Lonza Walkersville used certain proprietary know-how and information for at least thirteen (13) other companies. The Company alleges in the complaint that this is the same certain proprietary know-how and information the Company had purchased for $3 million under the exclusive Know-How SPA.
Further, as the Company alleges in the complaint, the Defendant utilized threats and coercion against the Company throughout the contract term, including false claims of breach and securities violations, in order to attempt to terminate the Know-How SPA unilaterally. As a result, the Company received neither the exclusive license the Defendant had promised, nor the benefit of the exclusive proprietary know-how. Therefore, the Company alleges in the complaint that, because of the Defendant’s breaches and tortious conduct, the Company lost the fees paid to the Defendant, which the Defendant did not earn, and suffered consequential damages and lost opportunities. In addition, the Company did not receive compensation from Lonza Walkersville for the time spent working on the Armed Forces Institute of Regenitive Medicine (AFIRM) grant, nor the time spent working on the Department of Defense (DOD) contract, which the Company was contractually supposed to be paid. The Company also will not receive the expected financial benefit from the DOD contract to help offset the cost of the clinical trials going forward. Lonza’s failure to secure a renewal of the DOD contract will have a significant financial impact on the Company. It should also be noted that the $3 million initially paid to Lonza, which was recorded as an intangible asset, has been fully written off in the accompanying consolidated financial statements as of September 30, 2013.
The case has been removed to the United States District Court for the Northern District of Georgia by the Defendant. In conjunction with its removal of the litigation, the Defendant filed a motion asking the Federal Court to either dismiss the complaint or to require the Company to file additional details providing more specific information about the Company’s claims. The Company has opposed that motion and filed its own motion asking the Federal Court to remand the case back to the Fulton County Superior Court.
The case was then transferred from Georgia to New Jersey for the convenience of the majority of the witnesses in the case and because the Court found that New Jersey had more significant and stronger ties to the parties than Georgia. In 2013, the Defendant filed a Motion to Dismiss. In February 2014, the Company successfully defeated the Defendant’s Motion to Dismiss. In the February 2014 Order, the Court noted that “[a]fter a single reading of the complaint the Court was able to understand Regenicin’s general averments.” The Court further stated, “[c]onsidering their relationship and Regenicin’s numerous allegations, a lengthy pleading is probably unavoidable.” The Court then ordered the Company to amend the Complaint and noted, “[t]here are three Defendants in this action, and Regenicin must be more specific in ascribing its allegations among them Regenicin must replead its complaint to attribute its allegations to specific Defendants.” In accordance with the February 2014 Order, the Company amended its Complaint to add additional details regarding the various misrepresentations that each Lonza entity allegedly made to Regenicin. A month later, the Defendant filed a Second Motion to Dismiss. The Company responded in opposition to the Defendant’s Second Motion to Dismiss and is awaiting the New Jersey District Court’s ruling on the Motion. The Company files notices of appearance and pro hac admissions of New Jersey counsel.
On November 7, 2014, the Company sold all of its rights and claims in this lawsuit to Amarantus (see Note K).
| F-19 |
NOTE K - SUBSEQUENT EVENTS
On November 7, 2014, the Company entered into a Sale Agreement with Amarantus, CCLG and Gordon & Rees, LLP (“Gordon & Rees”). Under the Sale Agreement, the Company agreed to sell to Amarantus: all of its rights and claims in the litigation currently pending in the United States District Court for the District of New Jersey against Lonza Walkersville and Lonza America, Inc. These include all of the Cutanagen intellectual property rights and any Lonza manufacturing know-how technology. In addition, they have agreed to sell their PermaDerm® trademark and related intellectual property rights associated with it. The purchase price to be paid by Amarantus will consist of: (i) $3,500,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. A portion of the cash purchase price has been allocated to repay debt.
The cash portion of the sale price will be paid as follows:
| 1. | $300,000 to the Company and $200,000 to CCLG at closing. Both amounts were received. |
| 2. | $150,000 to the Company and $100,000 to CCLG on or before December 31, 2014. The Company received the $150,000. |
| 3. | $2,550,000 to the Company and $200,000 to CCLG on January 31, 2015. |
The payments to CCLG, when completed, will satisfy in full the obligations owed to CCLG under its secured promissory note. The $3,000,000 in Amarantus common stock was satisfied by the issuance of 37,500,000 shares of Amarantus common stock from Amarantus to the Company. In addition to the sale price, Amarantus will pay Gordon & Rees $450,000 at closing. The payment to Gordon & Rees will satisfy in full all obligations for litigation fees and costs owed to Gordon & Rees in connection with the Lonza Litigation.
In addition, the Company granted to Amarantus an exclusive five (5) year option to license any engineered skin designed for the treatment of patients designated as severely burned by the FDA developed by the Company. Amrantus can exercise this option at a cost of $10,000,000 plus a royalty of 5% on gross revenues in excess of $150 million.
| F-20 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
No events occurred requiring disclosure under Item 304 of Regulation S-K during the fiscal year ending September 30, 2014.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being September 30, 2014. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2014 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of September 30, 2014, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending September 30, 2014: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
| 17 |
Remediation of Material Weakness
We are unable to remedy our controls related to the inadequate segregation of duties and ineffective risk management until we receive financing to hire additional employees.
Limitations on the Effectiveness of Internal Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements, due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risk.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table contains information with respect to our current executive officers and directors:
| Name | Age | Principal Positions With Us | ||||
| Randall McCoy | 65 | Chief Executive Officer and Director | ||||
| John J. Weber | 65 | Chief Financial Officer and Director | ||||
| Chris Hadsall | 40 | Chief Operating Officer | ||||
| Dr. J. Roy Nelson | 67 | Chief Science Officer | ||||
| Joseph Rubinfeld | 82 | Director | ||||
| Craig Eagle | 47 | Director | ||||
Randall McCoy has served as our Chief Executive Officer and director since July 2010. Prior to joining the Company, Mr. McCoy served as President of McCoy Enterprises LLC since its founding in May 2002. Mr. McCoy has more than 37 years of experience in the healthcare industry and has assisted both small and major pharmaceutical/device companies address FDA issues. He served as Laboratory Manager and Instructor at both George Washington University and Temple Medical School, and served as Program Manager at the Stanford Research Institute, Healthcare Division, of the David Sarnoff Research Center. Mr. McCoy has also helped over 225 foreign and domestic companies introduce their FDA regulated drug and medical device products into the US and world market. He currently holds over 30 US and international patents.
John J. Weber has served as our Interim Chief Financial Officer and Director since September 13, 2010. Mr. Weber served as the Executive Vice President of Fujifilm Medical Systems, USA from 2006 until 2009. While at Fujifilm he was responsible for overseeing all corporate activity with the exception of R&D. In previous positions at Fujifilm he served as Senior Vice President of Operations as well as Chief Financial Officer.
Mr. Weber brings 20 years of medical-related corporate, operational and financial management experience to the Company.
Chris Hadsall has served as our Chief Operating Officer since October 4, 2010. Prior to joining the Company, Mr. Hadsall served as an Intelligence Officer for the United States Marine Corps from 1997 to 2006. After serving in the Marine Corps, Mr. Hadsall worked as a Regional Manager for Professional Staffing ABTS from 2006 until 2009. While at Professional Staffing ABTS he guided the day-to-day operations, business development and customer relations for the west coast expansion. From 2007 to the present he maintains his role as the Executive Director of the VET Foundation where he designed, developed and implemented a holistic reintegration program that teaches wounded, ill and injured veterans a life altering transition methodology.
Dr. Joseph Rubinfeld began his career as a research scientist with several pharmaceutical and consumer product companies including Schering Plough and Colgate Palmolive. He served for 12 years at Bristol Myers, where in addition to developing Amoxicillin and Chephadroxil, he was instrumental in licensing their original anti-cancer line of products, including Mitomycin, Etoposide, and Bleomycin. After co-founding Amgen in 1980 and serving as its chief of operations, Dr. Rubinfeld has served as an advisor or Board member to a number of companies including AVI BioPharma and Quark Pharmaceuticals. In 1991 he co-founded Supergen, a drug development company based in Dublin, California, where he served as President and CEO until 2003 and as a member of the Board of Directors until 2005. During that time he oversaw the company’s initial public offering and its rise to a multi-billion dollar market capitalization. Management believes his wealth of experience in biotech and big pharma will be instrumental for Regenicin as it transitions to commercialization.
Dr. Craig Eagle was appointed to our board of directors on September 7, 2010. He currently serves as Vice President of Strategic Alliances and Partnerships for the Oncology business unit at Pfizer Inc. Dr. Eagle joined Pfizer Australia in 2001 as part of the medical group and has held various positions and over the years including his appointment in 2003 as the worldwide leader for development of Celecoxib in oncology to oversee the global research program. In 2007, he became head of the oncology therapeutic area medical group for Pfizer, including the United States oncology business.
We acknowledge Dr. Eagle’s wealth of experience in pharmaceutical product development as well as his extensive experience in forming strategic alliances and partnerships and believe he will provide us with critical guidance as we seek to maximize the commercialization potential of our products.
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Dr. J. Roy Nelson Chief Science Officer owns and operates a FDA registered cGMP audited laboratory. The Material Testing Laboratory holds a Schedule I-V DEA drug license and with an electronic FDA submission portal. His laboratory provides material science supports for new medical devices and drug support for major pharmaceutical as well as smaller companies. In addition to numerous medical device and drug developmental projects, he has been on two FDA consent decree remediations writing SOPs and other FDA compliance documents. He has eight years experience working with various collagen products, such as sponges. Prior to 1988 Dr. Nelson was a senior material scientist at RCA/SRI in Princeton, NJ. He has more than twenty US patents. Dr. Nelson and Mr. McCoy have worked on numerous projects together since 1979 and share co-inventor positions on various patents.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Committees of the Board
Our company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our company have a written nominating, compensation or audit committee charter. Our directors believe that it is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed by the board of directors.
Our company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.
A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our CEO and director, Randall McCoy, at the address appearing on the first page of this annual report.
Code of Ethics
We have adopted a Code of Ethics that applies our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethics is attached to our Annual Report on Form 10-K for the year ended September 30, 2011 as Exhibit 14.1.
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Item 11. Executive Compensation
Compensation Discussion and Analysis
Employment Agreement with Randall McCoy
On July 16, 2010, we entered into an employment agreement with Mr. Randall McCoy. The employment agreement has a three-year term that automatically extends in three-year increments unless notice of non-renewal is given by either party at least ninety (90) days prior to the expiration of the then current term.
The July 16, 2010, employment agreement provided for an initial annual base salary of $250,000. Under an addendum to the employment agreement, however, dated August 2, 2010, Mr. McCoy will earn an annual base salary of $125,000 until such time as we achieve a positive net income for the preceding calendar quarter as determined in accordance with GAAP and reported in our financial statements filed with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended. Immediately upon our attaining such positive net income, Mr. McCoy’s annual base salary will be increased to $250,000 as stated in the July 16, 2010 employment agreement.
The annual base salary will be reviewed each year by our board of directors (or compensation committee, if we then have one), but cannot be decreased from the amount in effect in the previous year. Pursuant to the employment agreement, Mr. McCoy is eligible for an annual bonus determined by our board of directors (or compensation committee, if any). The employment agreement also provides that Mr. McCoy is eligible to participate in our equity incentive plans and other employee benefit programs.
Mr. McCoy’s employment agreement imposes on him post-termination non-competition, non-solicitation and confidentiality obligations. Under the agreement, he agrees not to compete with our business in the United States, subject to certain limited exceptions, for a period of one year after termination of his employment. Mr. McCoy further agrees, for a period of one year after termination of his employment, to refrain from (i) soliciting, inducing, encouraging or attempting to induce or encourage any employee, contractor or consultant of the Company to terminate his or her employment or relationship with Company, or to breach any other obligation to Company; and (ii) soliciting, interfering with, disrupting, altering or attempting to disrupt or alter the relationship, contractual or otherwise, between the Company and any other person including, without limitation, any consultant, contractor, customer, potential customer, or supplier of the Company. He also agrees to maintain the confidentiality of all confidential or proprietary information of our company, and assign to us any inventions which pertain to or relate to our business or any of the work or businesses carried on by us that are discovered, conceived, reduced to practice, developed, made or produced by him during and as a result of his employment.
The employment agreement provides for payments and benefits upon termination of employment in addition to those previously accrued. If Mr. McCoy is terminated due to death, the salary payable to Mr. McCoy thereunder (in addition to items previously accrued, but excluding medical plan and other benefits) shall continue to be paid at the then current rate for three (3) months after the termination of employment in accordance with normal Company payroll practices. In addition, any bonuses actually earned prior to the termination (including, as reasonably determined by the Board of Directors or its Compensation Committee, a pro-rated amount of any annual bonus for the portion of the fiscal year during which termination takes place) shall be paid to Mr. McCoy.
In the event of the termination of Mr. McCoy’s employment due to disability, the salary payable thereunder (inclusive of paid medical plan then in effect and available, if any) shall continue to be paid at the then current rate for three (3) months after the termination of employment in accordance with normal Company payroll practices; provided, however, that the Company may deduct from such payments the amount of any and all disability insurance benefits paid during such three-month period with respect to Mr. McCoy that were paid for by the Company during any period for which payment was made by the Company during the term of the and prior to the termination. In addition, any bonuses actually earned prior to the termination (including, as reasonably determined by the Board of Directors or its Compensation Committee, a pro-rated amount of any annual bonus for the portion of the fiscal year during which termination takes place) which shall be paid to Mr. McCoy.
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Other Employees
On October 4, 2010, we entered into a written employment agreement with Chris Hadsall. Pursuant to the terms and conditions of the employment agreement:
- Mr. Hadsall will serve as Chief Operating Officer of our company for a period of three years;
- Mr. Hadsall will earn a base salary of $120,000 for the first 12 months, and will be entitled to increases thereafter as determined by our board of directors;
- Mr. Hadsall will be eligible for an annual bonus as determined by our board of directors; and
- Mr. Hadsall will be entitled to participate in any employee benefit plans, as established by our board of directors.
The agreement with Mr. Hadsall terminated on October 4, 2013. Mr. Hadsall is still an officer of the Company but is not actively participating in management at the present time and is not taking a salary at due to lack of funds. If we are able to raise money, we hope to reinstate his employment agreement. We can provide no assurance that we will be able to do so.
The table below summarizes all compensation awarded to, earned by, or paid to our officers for all services rendered in all capacities to us for our fiscal years ended September 30, 2014 and 2013.
| SUMMARY COMPENSATION TABLE | |||||||||
| Name and principal position | Year | Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
|
Randall McCoy Chief Executive Officer, Principal Executive Officer and Director |
2013 2014 |
$125,000(1) $125,000(2) |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
$125,000 $125,000 |
|
John J. Weber Interim Chief Financial Officer, and Director |
2013 2014 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
| Chris Hadsall Chief Operating Officer |
2013 2014 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
| Dr. J. Roy Nelson Chief Science Officer |
2013 2014 |
$150,000(3) $125,000(4) |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
$150,000 $125,000 |
| (1) | Of the $125,000 in salary to Mr. McCoy, $48,349 remains unpaid as accrued compensation. | |
| (2) | Of the $125,000 in salary to Mr. McCoy, $125,000 remains unpaid as accrued compensation. | |
| (3) | Of the $150,000 in salary to Mr. Nelson, $76,250 remains unpaid as accrued compensation. | |
| (4) | Of the $150,000 in salary to Mr. Nelson, $150,000 remains unpaid as accrued compensation. |
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Outstanding Equity Awards at Fiscal Year-End
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of September 30, 2014.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | ||||||||||||||||||||||||||||||||||||||
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||||||||
| Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) (1) | Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#) |
Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) | |||||||||||||||||||||||||||||
| Randall McCoy | 885,672 | — | — | $ | 0.62 | 12/22/15 | — | — | — | — | ||||||||||||||||||||||||||||
| John J. Weber | 885,672 | — | — | $ | 0.62 | 12/22/15 | — | — | — | — | ||||||||||||||||||||||||||||
(1) On December 10, 2013 the Board amended the option price to $0.035.
Director Compensation
The table below summarizes all compensation of our directors during the fiscal year ended September 30, 2014.
| DIRECTOR COMPENSATION | ||||||||||||||||||||||||||||
| Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Non-Qualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||||||
| Dr. Joseph Rubinfeld | — | — | — | — | — | — | — | |||||||||||||||||||||
| Dr. Craig Eagle | — | — | — | — | — | — | — | |||||||||||||||||||||
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of January 8, 2015, certain information as to shares of our common stock owned by (i) each person known by us to beneficially own more than 5% of our outstanding common stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group.
Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of Common Stock, except to the extent authority is shared by spouses under applicable law. Unless otherwise indicated below, each entity or person listed below maintains an address of 10 High Court, Little Falls, NJ 07424.
The number of shares beneficially owned by each stockholder is determined under rules promulgated by the SEC. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner.
| Beneficial owner | Number of shares beneficially owned (1) | Percentage Owned(2) | ||||||
| Officers and Directors | ||||||||
| Randall McCoy | 21,207,313 | (3) | 14.73 | % | ||||
| John J. Weber | 935,672 | (4) | * | |||||
| Chris Hadsall | 0 | * | ||||||
| Joseph Rubinfeld | 1,935,672 | (5) | 1.34 | % | ||||
| Craig Eagle | 935,672 | (6) | * | |||||
| Officers and Directors collectively | 25,014,329 | 17.37 | % | |||||
| 5 Percent Shareholders | ||||||||
| Joseph Connell 2801 Bloomfield Ln. Willington, NC 29412 |
10,000,000 | 6.99 | % | |||||
* Less than 1%
(1) Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of common stock listed as owned by that person or entity.
(2) A total of 8,850,000 shares of the Company’s common stock and Series A Convertible Preferred Stock, on an as converted basis, are considered to be outstanding pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of 1934.
(3) Includes 20,321,641 shares of common stock held in his name and options to purchase 885,672 shares of common stock.
(4) Includes 50,000 shares of common stock held in his name and options to purchase 885,672 shares of common stock.
(5) Includes 1,050,000 shares of common stock held in his name and options to purchase 885,672 shares of common stock.
(6) Includes 50,000 shares of common stock held in his name and options to purchase 885,672 shares of common stock.
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Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than the transactions described below and under the heading “Executive Compensation” (or with respect to which such information is omitted in accordance with SEC regulations), since October 1, 2012 there have not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a participant in which the amount involved exceeded or will exceed $120,000, and in which any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest:
| 1. | Our principal executive offices are located in Little Falls, New Jersey. The headquarters is located in the offices of McCoy Enterprises LLC, an entity controlled by Mr. McCoy. The office is attached to his residence but has its own entrances, restroom and kitchen facilities. |
| 2. | We also maintain an office in Pennington, New Jersey, which is the materials and testing laboratory. This office is owned by Materials Testing Laboratory, and the principal is an employee. |
| 3. | We have an employment agreement with our CEO, Randall McCoy, as discussed above. |
4. In October 2011 and again in May 2014, Craig Eagle, one of our directors, advanced a total of $38,221 to us. The loans do not bear interest and are due on demand. At September 30, 2014 and 2013, the loan balance was $38,221 and $35,000, respectively.
5. During the year ended September 30, 2014, Randall McCoy, our Chief Executive Officer, made advances to us. The loans do not bear interest and are due on demand. At September 30, 2014 and 2013, the loan balance was $8,500 and $0, respectively.
6. John Weber, our Chief Financial Officer, has made advances to us. The loans do not bear interest and are due on demand. At September 30, 2014 and 2013, the loan balance was $122,100 and $28,100, respectively.
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we believe that Joseph Rubinfeld and Craig Eagle are independent directors.
Item 14. Principal Accounting Fees and Services
We do not have an audit committee. Our Board of Directors pre-approves all services, including both audit and non-audit services, provided by our independent accountants. For audit services, each year the independent auditor provides our Board of Directors with an engagement letter outlining the scope of the audit services proposed to be performed during the year, which must be formally accepted by the Board of Directors before the audit commences. The independent auditor also submits an audit services fee proposal, which also must be approved by the Board of Directors before the audit commences.
Aggregate fees for professional services rendered for the Company by Rotenberg Meril Solomon Bertiger & Guttilla, P.C., our independent registered public accounting firm, for the years ended September 30, 2014 and 2013 are set forth below:
| Financial Statements for the Year Ended September 30 | Audit Services | Audit Related Fees | Tax Fees | Other Fees | ||||||||||||||
| 2014 | $ | 91,000 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
| 2013 | $ | 94,000 | $ | 0 | $ | 0 | $ | 0 |
Audit Fees were for professional services rendered for the audits of our financial statements, quarterly review of the financial statements included in Quarterly Reports on Form 10-Q, consents, and other assistance required to complete the year-end audit of the financial statements.
Audit-Related Fees were for assurance and related services reasonably related to the performance of the audit or review of financial statements and not reported under the caption Audit Fees.
Tax Fees were for professional services related to tax compliance, tax authority audit support and tax planning.
All Other Fees include any other fees charged that are not otherwise specified.
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PART IV
Item 15. Exhibits, Financial Statements Schedules
| (a) | Financial Statements and Schedules |
The following financial statements and schedules listed below are included in this Form 10-K.
Financial Statements (See Item 8)
| (b) | Exhibits |
| Exhibit Number | Description |
| 3.1 | Articles of Incorporation, as amended (1) |
| 3.2 | Bylaws, as amended (1) |
| 10.4 | Know-How License and Stock Purchase Agreement (2) |
| 10.5 | Form of Stock Option Agreement(3) |
| 10.6 | Employment Agreement for Chris Hadsall(4) |
| 10.7 | Employment Agreement for Randall McCoy(5) |
| 10.8 | Asset Purchase Agreement(7) |
| 14.1 | Code of Ethics (6) |
| 31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(1) Incorporated by reference to the Registration Statement on Form SB-2 filed on October 25, 2006; also incorporated by reference to the Current Report on Form 8-K filed on October 29, 2010.
(2) Incorporated by reference to the Current Report on Form 8-K/A filed on April 27, 2011.
(3) Incorporated by reference to the Annual Report on Form 10-K filed on January 13, 2011.
(4) Incorporated by reference to the Current Report on Form 8-K filed on October 5, 2010.
(5) Incorporated by reference to the Current Report on Form 8-K filed on July 22, 2010.
(6) Incorporated by reference to the Current Report on Form 8-K filed on May 17, 2011.
(7) Incorporated by reference to the Current Report on Form 8-K filed November 17, 2014.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Regenicin, Inc.
| By: | /s/ Randall McCoy |
|
Randall McCoy President, Chief Executive Officer, Principal Executive Officer, and Director
| |
| January 13, 2015 |
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| By: | /s/ Randall McCoy |
|
Randall McCoy President, Chief Executive Officer, Principal Executive Officer, and Director
| |
| January 13, 2015 |
| By: | /s/ John J. Weber |
|
John J. Weber Interim Chief Financial Officer, Principal Financial and Accounting Officer, and Director
| |
| January 13, 2015 |
| By: | /s/ Dr. Joseph Rubinfeld |
|
Dr. Joseph Rubinfeld Director
| |
| January 13, 2015 |
| By: | /s/ Craig Eagle |
|
Craig Eagle Director
| |
| January 13, 2015 |
| 27 |