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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, 2012
 
[  ] 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: (646) 403-3581

 

 

Securities registered under Section 12(b) of the Exchange Act

 

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. $6,195,345

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 99,994,965 as of January 14, 2013.

 

               

 

TABLE OF CONTENTS

 

Page

PART I

 

Item 1. Business 3
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 8
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Mine Safety Disclosures

9

 

PART II

 

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities 9

 

Item 6. Selected Financial Data 12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 15
Item 9A. Controls and Procedures 15
Item 9B. Other Information 16

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance 16
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 22
Item 13. Certain Relationships and Related Transactions, and Director Independence 23
Item 14. Principal Accountant Fees and Services 23
 
PART IV
 
Item 15. Exhibits, Financial Statement Schedules 24

  

2

 

PART I

Item 1. Business

 

Overview

 

We intend 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 certain clinical diagnoses. To this end, we have entered into an agreement to purchase stock of Cutanogen Corporation (“Cutanogen”) from Lonza Walkersville, Inc. (“Lonza”) and for the 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 several products. This agreement is known as the Know-How License and Stock Purchase Agreement (the “Agreement”). These products are aimed at the treatment of burns, chronic wounds and a variety of plastic and reconstructive surgical procedures. In the United States market alone, the company estimates the potential markets for severe burns and chronic skin wounds is in excess of $7 billion.

 

The first product, PermaDerm®, is the only tissue-engineered skin prepared from autologous (patient’s own) skin cells. It is a combination of cultured epithelium with a collagen-fibroblast implant that produces a skin substitute that contains both epidermal and dermal components. This model has been shown in preclinical studies to generate a functional skin barrier and in clinical studies to promote closure and healing of burns. Clinically, we believe self-to-self skin grafts for permanent skin tissue are not rejected by the immune system of the patient, unlike with porcine or cadaver grafts in which immune system rejection is an important possibility. PermaDerm® was initially designated as an Orphan Device by the FDA for treatment of burns. We have applied to the FDA late last year for an Orphan designation as a biologic/drug for PermaDerm®. In June of 2012, the FDA granted Orphan Status for the PermaDerm® product. Such a designation has certain benefits to the recipient, but these do not include the immediate commercialization of the product. We will still need to work with the FDA for the development of the product, now with the advantages of the Orphan designation. We hope to initiate clinical trials in the first half of 2013 with submission to the FDA for Orphan Product approval for PermaDerm® anticipated by the end of 2013. We intend to apply for Biological License Approval in 2014. The major difference between commercialization as an Orphan Product and a full Biological License Approval is the Orphan Product has additional FDA reporting requirements and additional procedural administration steps in order to use the product on specific patients such as IRB approval for each patient.

 

The second product is anticipated to be TempaDerm®. TempaDerm® uses cells obtained from human donors to allow the development of banks of cryopreserved (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 in the early development stage and does not have FDA approval.

 

We believe the technology has many different uses beyond the burn indication. The other uses include chronic wounds, reconstructive surgery and the individual components of the PermaDerm® technology such as tendon wraps made of collagen or temporary coverings to protect the patients from infections while waiting for PermaDerm®. The collagen technology used for PermaDerm® is a wide-open field in wound healing and uses such as stem cell grafting substrates. It is important to know that all of these above are products by themselves regardless of whether PermaDerm® is approved for burns. We could pursue any or all of them independently if financing permitted. Even if PermaDerm® was not approved for burn treatments, it could be approved for chronic wounds or reconstruction.

 

On May 17, 2012, we received a letter from Lonza alleging that we are delinquent in payments in the amount of $783,588 under the Agreement. After extensive discussions and correspondence with Lonza, we responded to the letter on July 20, 2012, explaining that such payments are not due and detailing the various instances of breach committed by Lonza under the Agreement. We in turn received a response from Lonza on July 26, 2012 alleging that the Agreement has been terminated. We have since ceased communications on the project with Lonza’s staff while we are working on coming up with a solution to the dispute.

 

There is an ongoing dispute with Lonza about the performance and payment obligations under the Agreement. The $783,588 claimed due by Lonza is a material exposure given our current financial condition. We may be required to seek another manufacturer in the event that this dispute is not resolved or Lonza is unable or unwilling to manufacture the products as a result of this dispute.

3

The Agreement with Lonza

 

The Agreement contemplates that, upon receipt of the full FDA approval, in the second stage of the transaction, we will execute a Stock Purchase Agreement pursuant to which we will purchase all of the outstanding stock of Cutanogen from Lonza for an additional purchase price of $2 million. Cutanogen holds certain patents (“Cutanogen Patents”) and exclusive licenses (the “Cutanogen Licenses”) to patent rights (“Patent Rights”) owned by The Regents of the University of California, the University of Cincinnati, and Shriners Hospital for Children related to the commercialization of PermaDerm®. Upon our acquisition of Cutanogen, we will obtain beneficial use of the Cutanogen Licenses. The beneficial use will extend globally.

 

Included in the initial payment made under the Know-How License Agreement is assistance from Lonza to seek approval from the FDA to enable the commercial sale of PermaDerm® in the U.S., and later for approval in foreign jurisdictions for commercial sale of PermaDerm® throughout the world. Depending on how the dispute with Lonza is resolved, we intend to create and implement a strategy to conduct human clinical trials and to assemble and present the relevant information and data in order to obtain the necessary BLA approvals for PermaDerm® and possible related products.

 

When Lonza acquired Cutanogen, it inherited milestone payment obligations to the former Cutanogen shareholders in the total amount of up to $4.8 million. These payments are owed as PermaDerm® is moved through the FDA approval process. As a result, our deal with Lonza will ultimately include paying those milestones plus the $2 million to Lonza.

 

The table below sets forth the milestone payments that may be required to expend to acquire the Cutanogen Licenses for commercialization.

 

Milestone Regenicin to pay to Lonza Lonza to pay Cutanogen Service provided or rights transfer
Initial Payment July 2010 paid $3, 000,000 NA Contract for know-how license and exclusive ability to purchase  Cutanogen Corporation
Submission Orphan application (pediatric) $650,000 $650,000 Milestone payment to Cutanogen
Orphan approval (pediatric)  $650,000 $650,000 Milestone payment to Cutanogen
First commercial sale $1,000,000 $1,000,000 Milestone payment to Cutanogen
Submission of BLA application (Adult) $1,000,000 $1,000,000 Milestone payment to Cutanogen
Approval of BLA: New Biologic Approval (NBA) (Adult); $1,500,000 $1,500,000 Milestone payment to Cutanogen
Full approval (NBA) $2,000,000   Transfer of global licenses, know-how and patent rights to Regenicin.

 

4

Obligations under the Agreement

 

Lonza’s obligations under the agreement include the following: provide Know-How (information in support of a clinical trial for PermaDerm®, including, without limitation, information relating to product specifications, manufacturing, testing, facilities, etc); and monitor prosecution and maintenance of patent rights and maintain the licenses under agreement relating to PermaDerm®.

 

Our obligations under the agreement include the following: reimburse Lonza for transferring Know-How; conduct pre-clinical and clinical trials; apply for and obtain approval from the FDA for commercial sales of PermaDerm®; and reimburse Lonza for monitoring prosecution of patent rights and for maintaining the licenses under agreement relating to PermaDerm®.

 

We are also obligated to pay Lonza 33% of the grant monies related to the clinical trial and commercialization of PermaDerm®.

 

DOD Grant

 

The U.S. Department of Defense has awarded to Lonza more than $16.9 million in funding for the development and commercialization of PermaDerm® for the treatment of severe burns among U.S. troops and civilians. PermaDerm® has already been used to treat more than 150 pediatric catastrophic burn victims through an Investigation Device Exemption (IDE) issued by the FDA. Submission for approval will take place in the near future when we are able to supply clinical data. The DOD supported clinical trial will include 10 adult males between the ages of 18 and 40 with full thickness burns over 50% of their Total Body Surface Area. The trial is expected commence in the first half of 2013. The objective of the trial is to obtain both Orphan Product and Biological License Application (BLA) approval for adults and children.

 

The government grant received by Lonza Walkersville reduces our cost to get the product approved through the FDA. The contract awarded to Lonza covers two-thirds of the fees that we would typically be expected to pay for product development and clinical supplies. However, the DOD contract for $16.9 million is not only for PermaDerm® development and clinical supplies; there are additional items in the contract for which Regenicin is not involved. These additional items include capital improvements, additional clinical sites, travel and administrative expenses, among others.

 

The DOD contract with Lonza was not renewed beyond the initial 2 year contract period. There are still additional funds from The Armed Forces Institute for Regenerative Medicine (AFIRM) available for the clinical trials. In addition, as explained below, the FDA has granted Orphan designation which should greatly reduce the time and cost of the clinical trials.

 

As we explained above, there has been a dispute between us and Lonza, among other things, about the amount of payments due as a result of the DOD grants. We are currently working with Lonza to come to a mutually beneficial agreement.

 

Manufacturing & Distribution

 

In the second stage of the Lonza Transaction, it is anticipated that we will implement a Manufacturing Agreement with Lonza for PermaDerm® and Lonza will be compensated for manufacturing PermaDerm®. It is anticipated that manufacturing will take place in the United States (Maryland) for those products being used in the US. Lonza also has facilities in Belgium and Singapore that could be qualified to also manufacture product. Products will be normally shipped directly by Lonza to treating physicians.

 

We may be required to seek another manufacturer in the event that the dispute with Lonza is not resolved or Lonza is unable or unwilling to manufacture the products.

5

 

FDA Approval Process

 

Biological License Application

 

As for the Orphan Biological License Application (BLA) approval in adults and pediatrics, the DOD grant is designed to cover the majority of the expenses related to the approval process. We expect that Lonza will receive payments during the next year from AFIRM to pay for a portion of the clinical trials and to cover the cost of fabricating the cultured skin product. Our burden of that expense, 33%, was paid to Lonza in August 2010.

 

We believe there is antidotal data from the previous child studies showing the product is safe. The clinical trials that we want to pursue now are designed to demonstrate statistical significance efficacy and safety. So we believe 10 patients will be adequate to demonstrate PermaDerm® is safe and efficacious for burns. The BLA approval process is as follows.

 

  1. Pre Investigational New Drug (IND) Meeting. This meeting is used to answer any questions the FDA has at the outset and to get agreement from the FDA on what needs to be supplied for product approved. Lonza and the Department of Defense held the pre-IND meeting and received answers from the FDA. As a result of the meeting, we had a better understanding as to what the FDA will be looking for in the application and approval process.
  2. IND application. The IND is asking the FDA for permission to treat patients with our candidate product PermaDerm® to treat full thickness burns covering greater than 50% Total Body Surface Area. The FDA has requested additional information and clarification of the Application filed in July 2012. A response is being prepared to answer the questions from the FDA.
  3. Clinical trial. If the FDA says that the applicant may proceed with the clinical trial, patients are treated and data is collected about safety and efficacy as you described in your protocol as submitted with your t-IND. The trial currently designed will use 10 patients. Although these patients will be observed for up to 1 year following treatment we will be able to report the safety and grafting results necessary for approval without the one year follow up data. The main part of the data to be looked at for approval along with the treatment period is, in our case, three months. After three months the balance of the time is an observation period. We do not expect to see anything significant during the observation period that would affect the outcome of the trial.
  4. At the end of the clinical trial we will submit a Biological License Application. The FDA will typically review and respond within 180 days when there is a minimum amount of data. This data is considered minimum in our case compared to some drugs which have patient data of thousands of people. Our study is very straight forward either the graft is positive on the patient or it is required to be grafted again. We have observed very positive results when treating children so we are quite optimistic that it will be able to demonstrate efficacy with a minimum number of patients. So it is possible to have Orphan Product approval in 2013 followed with a BLA approval in 2014. Efficacy of PermaDerm® defined as the graft adhered to and closed the patient wound and remained viable similar to a split thickness Allograft.

Orphan Designation

 

In June of 2012, the FDA granted Orphan Status as a biologic/Drug for the PermaDerm® product. Such a designation has certain benefits to the recipient, but these do not include the immediate commercialization of the product. We will still need to work with the FDA for the development of the product, now with the advantages of the Orphan designation.

Incentives to orphan drugs providers in terms of R&D, intellectual property and marketing

Granting orphan drug status may enable the sponsor to obtain the following advantages for the development of the product:

-a 50% tax credit on the cost of clinical trials undertaken in the USA ;
-a seven year period of marketing exclusivity following the marketing approval ;
-some written recommendations provided by the FDA concerning clinical and preclinical studies to be completed in order to register the new drug ;
-a fast-track procedure for the FDA to evaluate registration files ;

6

The availability of orphan drugs to patients before being granted a marketing approval is possible. In some cases of compassionate use, a Treatment Investigational New Drug (t-IND) may be obtained under specific conditions:

-The drug must be intended for the treatment of a serious or life-threatening disease ;
-No alternative drug or treatment must be available ;
-The product must be in the process of clinical trials and in an active phase of marketing approval.

 

For this latter reason, t-INDs are granted for a limited period of time.

 

United States Chronic Wounds Market

 

A potential market of over $7 billion annually exists for treatment of chronic wounds (leg ulcers, bed sores, and diabetic ulcers). According to the National Pressure Ulcer Council (NOUP), chronic wounds have an incidence of 9% of the hospitalized population of those over 70 years old. At present there is currently only cadaver or porcine skin that is approved for treatment of venous stasis and diabetic ulcers. However, venous stasis and diabetic ulcers do not represent the entire market for chronic wounds, and it remains under-served. Therefore, we believe that the majority of the chronic wound market remains under-served, and that substantial opportunity exists to capture a large segment of the total chronic wound market.

 

We intend to focus our resources on gaining regulatory approval for the use of our products in the treatment of chronic wounds, and to develop the widespread adoption of these technologies into the marketplace. Upon successful transfer of intellectual property and adequate funding, we will initiate clinical studies for TempaDerm® with product introduction expected in 2015.

 

Potential Future Markets

 

The platform technologies may also be applied to research and diagnostic products. An additional major market for cultured skin substitutes is safety testing of consumer products to replace the use of animal testing. Prospective international licensees for this technology have been identified and a Letter of Intent is expected from both of these companies (one is the largest consumer products suppliers in the world).

 

Skin Research

 

Our products are sufficiently advanced to begin immediate marketing to research laboratories in government, industry and academics. These markets are considered smaller than the toxicology or surgery markets, but are sufficiently large to generate revenues to partially support initial operations.

  

Competition

 

Several companies have developed products that propose to approach the markets described above. Among those companies are:

 

·         Smith & Nephew Wound Management

·         Curative Health Services

·         Genzyme Biosurgery

·         Integra Life Sciences Corporation

·         LifeCell Corporation (Schier)

·         Organogenesis Inc.

·         Ortec International, Inc.

·         Hy-Gene

 

Each of these companies has a proprietary approach to these markets, but none has yet penetrated the markets fully and only 2 companies, (Integra and Life Cell) 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 PermaDerm® include simultaneous delivery of Autologus epidermal keratinocytes and fibroblasts on a prefabricated collagen implant. The FDA has stated that PermaDerm® is the only permanent closing skin product. Cutanogen material has been utilized in pre-pivotal (Phase II level) studies that have been submitted to the FDA for review. We plan to initiate and conclude a pivotal multi-center study for data collection in order to assist us to obtain full market approval.

7

 

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. The Orphan designation also requires that there be no comparable product in the market place. If we submit a Full BLA application for the product, the Orphan designation, and related market exclusivity, could be terminated early.

 

Unrestricted sales of PermaDerm® will require full approval after data for safety and efficacy are collected from a multi-center study. The IND that has been submitted contained a clinical protocol describing enrollment and treatment of 10 patients, and follow-up for one year. Enrollment and treatment are expected to require one year, the final 9 months of which are only a monitoring period which we believe from previous clinical subjects treated with PermaDerm® will continue to support previous data. After collection of data and submission to the 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, the review time can be reduced significantly. Therefore, we plan that performance of the multi-center study and a decision from FDA less than 6 months after pre approval inspection of the manufacturing facility by FDA.

 

Intellectual Property

 

In August 2010, we paid $7,500 and obtained the rights to the trademarks PermaDerm® and TempaDerm® from KJR-10 Corp.

 

Employees

 

As of December 31, 2012, we had 5 employees.

 

Item 1A. Risk Factors.

 

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.

 

Item 2. Properties

 

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 Arviba 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.

8

 

Item 3. Legal Proceedings

 

On April 18, 2012, a settlement was reached in the case involving litigation between our Chief Executive Officer, Mr. Randall McCoy, and the former President, Mr. Joseph Connell in the United States District Court for the Southern District of New York.

 

As previously reported, on March 11, 2011, Mr. Connell filed a complaint in the Supreme Court of the State of New York (which was later removed to federal court) against Mr. Randall McCoy, us, and the members of our board of directors. We and members of the board were dismissed earlier from the proceedings and the chronology of the case is set forth in our previous filings.

As a final resolution, a Confidential Settlement Agreement and General Release (the “Settlement Agreement”) was signed by and among Mr. McCoy, Mr. Connell, us, and the board of directors. An amendment (the “Amendment”) to the Settlement Agreement was signed on April 24, 2012. Pursuant to the Settlement Agreement and Amendment, in exchange for dismissal of the pending lawsuit with prejudice and a mutual release of all claims involving all parties concerned, Mr. McCoy agreed to issue to Mr. Connell 12,500,000 shares of his common stock in our company. On April 19, 2012, 10,000,000 of the shares were transferred to Mr. Connell, with the remaining shares were assigned to his counsel in the case.

Item 4. Mine Safety Disclosures

 

N/A

 

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, 2012
Quarter Ended High $ Low $
September 30, 2012 0.175       0.06
June 30, 2012 0.269       0.061
March 31, 2012 0.195       0.07
December 31, 2011 0.136       0.051

 

Fiscal Year Ending September 30, 2011
Quarter Ended High $ Low $
September 30, 2011 0.232 0.11
June 30, 2011 0.32 0.1151
March 31, 2011 0.83 0.2101
December 31, 2010 1.50 0.42

 

9

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.

 

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 14, 2013, we had 99,994,965 shares of our common stock issued and outstanding, held by one hundred and fifteen (115) 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.

10

Recent Sales of Unregistered Securities

 

In January and February 2012, 460,000 shares of Series A Preferred were converted into 4,600,000 shares of common stock.

Effective June 21, 2012, the Company issued the holder of Note 2 one million shares of common stock as additional consideration.

On December 18, 2012, the Company issued 9,786,000 shares of its common stock for the conversion of notes payable and accrued interest. 

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, 2012.

 

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
6,291,855 $ 0.53 0
Total 6,291,855 $ 0.53 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.

 

In addition, 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.

 

We also have the following warrants outstanding at September 30, 2012:

 

   Exercise  Expiration
Warrants  Price  Date
 672,500   $0.15    2018 
 10,000   $0.75    2016 
 66,667   $1.50    2016 
             
 749,167           
11

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.

 

Results of Operations for the Years Ended September 30, 2012 and 2011

 

We generated no revenues from September 6, 2007 (date of inception) to September 30, 2012. We do not expect to generate revenues until we are able to obtain FDA approval of PermaDerm® , and thereafter acquire the license rights to sell products associated with that technology.

 

We incurred operating expenses of $2,358,939 for the year ended September 30, 2012, compared with operating expenses of $4,039,618 for the year ended September 30, 2011. Our operating expenses decreased in 2012 from 2011, and are compared as follows:

 

Operating Expenses September 30, 2012  September 30, 2011
Legal and Accounting $477,195   $580,553 
Public Relations and Marketing Support $—     $329,412 
Salaries, Wages and Payroll Taxes $684,075   $821,336 
Consulting and Computer Support $33,600   $1,300,313 
Office Expenses and Miscellaneous $31,264   $31,203 
Travel $29,901   $88,444 
Insurance $87,335   $72,177 
Website Expenses $647   $5,704 
Research and Development $964,817   $518,902 
Registration Penalty $—     $250,203 
Employee Benefits $50,105   $41,371 

 

We incurred stock based compensation of $-0- and $1,248,637 for the years ended September 30, 2012 and 2011 from the issuance of common stock, warrants and options to our directors, officers and third-party consultants. Such amounts are included above under consulting.

12

 

We incurred other expenses of $787,719 for the year ended September 30, 2012, as compared to $6,875 for the year ended September 30, 2011. Our other expenses for both periods consisted of interest expense. Interest expense for 2012 and 2011 included $673,569 and $0, respectively, to reflect the amortization of debt discounts and beneficial conversion features of the various notes payable issued.

 

We incurred a net loss of $3,146,658 for the year ended September 30, 2012, as compared with a net loss of $4,046,493 for the prior year.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had cash of $34,074 and $4,396 as of September 30, 2011.

 

Operating activities used $1,058,929 in cash for the year ended September 30, 2012. The decrease in cash was primarily attributable to funding the loss for the year.

 

Financing activities provided $1,088,607 for the year ended September 30, 2012 and consisted of $1,105,690 in proceeds from notes payable and $61,200 in advances from related parties, offset by the repayment of the insurance premium financings of $65,083 and the repayment of $13,200 of other loans and related party loans.

 

We have issued various promissory notes in the past year to meet our short term demands. In the past year, we have raised approximately $1,250,000 in proceeds from the sale of these notes, the terms of which are provided in the notes to the financial statements accompanying this Annual Report. While this source of bridge 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, acquire the technology and implement our business plan. Our long term financial needs are estimated at $8 to $10 million. This should provide us with adequate funding to support clinical trials of PermaDerm®, acquisition of Cutanagen stock, operating business expenses and current debt.

 

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

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 of $8.2 million for the period September 6, 2007 (inception date) through September 30, 2012, 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. 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.

13

 

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.

 

Development Stage Activities and Operations:

 

The Company is in the development stage and has had no revenues. A development stage company is defined as one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

 

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.

 

We review our 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, we must make assumptions regarding estimated future cash flows and discount factors. If these estimates or related assumptions change in the future, we may be required to record impairment charges.

 

Recently Issued Accounting Pronouncements

 

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.

 

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:

 

Audited Financial Statements:
 
F-1 Report of Independent Registered Public Accounting Firm
F-2 Balance Sheets as of September 30, 2012  and 2011
F-3 Statements of Operations for the years ended September 30, 2012 and September 30, 2011, and the period from inception to September 30, 2012
F-4 Statement of Stockholders’ (Deficiency) Equity for period from inception to September 30, 2012
F-5 Statements of Cash Flows for the years ended September 30, 2012 and September 30, 2011, and the period from inception to September 30, 2012
F-6 Notes to Financial Statements

 

14

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Regenicin, Inc.

 

We have audited the accompanying balance sheets of Regenicin, Inc. (a development stage company) (the “Company”) as of September 30, 2012 and 2011 and the related statements of operations, changes in stockholders’ (deficiency) equity and cash flows for the years then ended and for the period from September 6, 2007 (inception date) through September 30, 2012.  The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.    The statements of operations, changes in stockholders’ (deficiency) equity and cash flows of the Company for the period from September 6, 2007 (inception date) through September 30, 2009 were audited by other auditors whose report dated January 6, 2010 on those statements included an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern

 

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 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 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2012 and 2011 and the results of their operations and cash flows for the years then ended and for the period from September 6, 2007 (inception date) through September 30, 2012 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the 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 A. The 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 15, 2013

F-1

REGENICIN, INC.

(A Development Stage company)

BALANCE SHEETS

 

  September 30, 2012  September 30, 2011
      
ASSETS         
CURRENT ASSETS         
Cash $34,074   $4,396 
Prepaid expenses and other current assets  54,339    73,630 
          
Total current assets  88,413    78,026 
          
Intangible  assets  3,007,500    3,007,500 
          
Total assets $3,095,913   $3,085,526 
          
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) E QUITY         
CURRENT LIABILITIES         
Accounts payable $1,655,052   $739,327 
Accrued expenses  1,132,840    658,251 
Note payable - insurance financing  42,160    60,243 
Bridge financing (net of discount of $133,057 and -0-)  652,343    —   
Loan payable  10,000    10,000 
Loans payable - related parties  58,000    —   
          
Total current liabilities  3,550,395    1,467,821 
          
Total  liabilities  3,550,395    1,467,821 
          
COMMITMENTS AND CONTINGENCIES         
          
STOCKHOLDERS' (DEFICIENCY) EQUITY         
Series A 10% Convertible Preferred stock, $0.001 par value,5,500,000 shares authorized;
885,000 issued and outstanding
 885    1,345 
Common stock, $0.001 par value; 200,000,000 shares authorized;
93,836,324 and 88,236,324 issued, respectively; 89,407,964 and 83,807,964 outstanding, respectively
 93,837    88,237 
Common stock to be issued;  7,363,281 and -0- shares  368,326    —   
Additional paid-in capital  7,274,799    6,573,794 
Deficit accumulated during development stage  (8,187,901)   (5,041,243)
Less: treasury stock; 4,428,360 shares at par  (4,428)   (4,428)
          
Total stockholders' (deficiency) equity  (454,482)   1,617,705 
          
Total liabilities and stockholders' (deficiency) equity $3,095,913   $3,085,526 

 

See Notes to Financial Statements. 

F-2

REGENICIN, INC.

(A Development Stage company)

STATEMENTS OF OPERATIONS

 

  Year Ended
September 30,
2012
  Year Ended
September 30,
2011
 

September 6, 2007

(Inception Date) Through
September 30,
2012

         
               
Revenues $—     $—     $—   
               
Operating expenses              
Research and development  964,817    518,902    1,483,717 
General and administrative  1,394,122    2,272,079    4,404,845 
Stock based compensation - general and administrative  —      1,248,637    1,248,637 
               
Total operating expenses  2,358,939    4,039,618    7,137,199 
               
Loss from operations  (2,358,939)   (4,039,618)   (7,137,199)
               
Other expenses              
Interest expense, including amortization of beneficial conversion feature  (787,719)   (6,875)   (1,050,700)
               
Total Other Expenses  (787,719)   (6,875)   (1,050,700)
               
Net loss  (3,146,658)   (4,046,493)   (8,187,899)
               
Preferred stock dividends  (108,134)   (1,371,110)   (1,262,976)
               
Net loss attibutable to common stockholders $(3,254,792)  $(5,417,603)  $(9,450,875)
               
Basic and diluted loss per share: $(0.04)  $(0.06)     
               
Weighted average number of shares outstanding: Basic and diluted  88,963,643    84,716,738      

  

See Notes to Financial Statements. 

F-3

REGENICIN, INC.

(A Development Stage company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIENCY) EQUITY

 

  Convertible Preferred Stock  Common Stock  Common Stock To  Discount on
Common
  Additional Paid-in  Deficit Accumulated During The Development  Treasury   
  Shares  Amount  Shares  Amount  Be Issued  Stock  Capital  Stage  Stock  Total
                              
Balances at September 6, 2007 (Inception Date)  —     $—      —     $—     $—     $—     $—     $—     $—     $—   
                                                  
Issuance of common stock for cash  —      —      73,100,000    73,100    —      (30,100)   —      —      —      43,000 
Net loss  —      —      —      —      —           —      (4,000)   —      (4,000)
                                                  
Balances at September 30, 2007  —      —      73,100,000    73,100    —      (30,100)   —      (4,000)   —      39,000 
                                                  
Net loss  —      —      —      —      —      —      —      (44,500)   —      (44,500)
                                                  
Balances at September 30, 2008  —      —      73,100,000    73,100    —      (30,100)   —      (48,500)   —      (5,500)
                                                  
Net loss  —      —      —      —      —      —      —      (11,000)   —      (11,000)
                                                  
Balances at September 30, 2009  —      —      73,100,000    73,100    —      (30,100)   —      (59,500)   —      (16,500)
                                                  
Shares issued for conversion of debt owed to stockholder  —      —      7,650,000    7,650    —      (5,400)   —      —      —      2,250 
Shares issued under Security Purchase Agreement  —      —      4,035,524    4,036    —      35,500    2,093,356    —      —      2,132,892 
Shares issued for conversion of Bridge Notes Payable  —      —      1,612,903    1,613    —      —      748,387    —      —      750,000 
Shares issued for conversion of interest on Bridge Notes Payable  —      —      7,830    8    —      —      3,634    —      —      3,642 
Beneficial conversion feature on Bridge Notes Payable  —      —      —      —      —      —      251,214    —      —      251,214 
Forgiveness of officers' loans related to sale of prior business  —      —      —      —      —      —      20,250    —      —      20,250 
Net loss  —      —      —      —      —      —      —      (935,250)   —      (935,250)
Balances at September 30, 2010  —      —      86,406,257    86,407    —      —      3,116,841    (994,750)   —      2,208,498 
                                                  
Issuance of common stock for cash, net  —      —      623,400    623    —      —      391,150    —      —      391,773 
                                                  
Issuance of common stock for services  —      —      540,000    540    —      —      359,935    —      —      360,475 
                                                  
Issuance of Series A convertible preferred stock  1,345,000    1,345    —      —                2,679,055    —      —      2,680,400 
                                                  
Shares issued for conversion of amounts owed to a related party  —      —      666,667    667    —      —      505,333    —      —      506,000 
                                                  
Common stock returned to treasury  —      —           —      —      —      4,428    —      (4,428)   —   
                                                  
Amortization of stock based compensation  —      —      —      —      —      —      888,162    —      —      888,162 
                                                  
Preferred stock dividends  —      —      —      —      —      —      (1,371,110)   —      —      (1,371,110)
                                                  
Net loss  —      —      —      —      —      —      —      (4,046,493)   —      (4,046,493)
Balances at September 30, 2011  1,345,000    1,345    88,236,324    88,237    —      —      6,573,794    (5,041,243)   (4,428)   1,617,705 
                                                  
Preferred stock dividends  —      —      —      —      —      —      (108,134)   —      —      (108,134)
                                                  
Shares to be issued in connection with conversion of debt and accrued interest  —      —      —           368,326    —      —      —      —      368,326 
                                                  
Shares to be issued as additional consideration for note payable            1,000,000    1,000    —           55,250              56,250 
                                                  
Conversion of preferred stock to common stock  (460,000)   (460)   4,600,000    4,600              (4,140)             —   
                                                  
Warrants to be issued in connection with conversion of debt  —      —      —      —      —      —      7,653    —      —      7,653 
                                                  
Beneficial conversion features on bridge financing  —      —      —      —      —      —      750,376    —      —      750,376 
                                                  
Net loss  —      —      —      —      —      —      —      (3,146,658)   —      (3,146,658)
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)

 

See Notes to Financial Statements.

F-4

REGENICIN, INC.

(A Development Stage company)

STATEMENTS OF CASH FLOWS

 

  Year Ended
September 30, 2012
  Year Ended
September 30, 2011
 

September 6, 2007
(Inception Date)
Through
September 30, 2012

         
CASH FLOWS FROM OPERATING ACTIVITIES              
Net loss $(3,146,658)  $(4,046,493)  $(8,187,899)
Adjustments to reconcile net loss to net cash used in operating activities:              
Amortization of debt discount  63,903    —      63,903 
Accrued interest on notes and loans payable  104,350    —      104,350 
Amortization of beneficial conversion features  617,319    —      868,533 
Stock based compensation  —      1,248,637    1,248,637 
Changes in operating assets and liabilities              
Prepaid expenses and other current assets  66,291    12,583    52,902 
Accounts payable  915,725    517,565    1,655,052 
Accrued expenses  320,141    493,156    955,924 
               
Net cash used in operating activities  (1,058,929)   (1,774,552)   (3,238,598)
               
CASH FLOWS FROM INVESTING ACTIVITIES              
Acquisition of intangible assets  —      —      (3,007,500)
               
Net cash used in investing activities  —      —      (3,007,500)
               
CASH FLOWS FROM FINANCING ACTIVITIES              
Proceeds from the issuance of notes payable  1,105,690    115,000    2,120,690 
Repayments of notes payable  (10,000)   (235,000)   (245,000)
Proceeds from loans from related parties  61,200    187,211    567,200 
Repayments of loans from related party  (3,200)        (3,200)
Repayments of notes payable - insurance financing  (65,083)   —      (65,083)
Proceeds from the sale of common stock  —      467,550    3,012,575 
Proceeds from the sale of Series A convertible preferred stock  —      1,180,000    1,180,000 
Payments of expenses relating to the sale of common stock  —      (75,777)   (444,910)
Payment of expenses relating to the sale of convertible preferred stock  —      (9,600)   (9,600)
Proceeds from loans payable  —      145,000    145,000 
Proceeds from advances from officer  —      —      22,500 
               
Net cash provided by financing activities  1,088,607    1,774,384    6,280,172 
               
NET INCREASE (DECREASE) IN CASH  29,678    (168)   34,074 
               
CASH - BEGINNING OF PERIOD  4,396    4,564    —   
               
CASH - END OF PERIOD  34,074   $4,396   $34,074 
               
Supplemental disclosures of cash flow information:              
Cash paid for interest $2,019   $6,875      
               
Non-cash activities:              
               
Preferred stock dividends $108,134   $1,371,110      
               
Shares to be issued in connection with conversion of debt and accrued interest $368,326   $—        
               
Conversion of preferred stock to common stock $460   $—        
               
Insurance premium financed $47,000   $60,243      
               
Issuance of common stock for the conversion of amounts owed to related party $—     $506,000      
               
Conversion of notes payable into Series A convertible preferred stock $—     $165,000      
               
Treasury stock $—     $4,428      

 

See Notes to Financial Statements. 

F-5

REGENICIN, INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE A - THE COMPANY

 

Windstar, Inc. (the “Company”) was incorporated in the state of Nevada on September 6, 2007 and is in the development stage. On July 19, 2010, the Company amended its Articles of Incorporation to change the name of the Company to Regenicin, Inc.

 

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  has adopted a new business plan and intends to help 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. To this end, the Company has entered into an agreement with Lonza Walkersville, Inc. (“Lonza”) for the 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 several products.

 

The first product, PermaDerm®, is the only tissue-engineered skin prepared from autologous (patient’s own) skin cells. It is a combination of cultured epithelium with a collagen-fibroblast implant that produces a skin substitute that contains both epidermal and dermal components. This model has been shown in preclinical studies to generate a functional skin barrier and in clinical studies to promote closure and healing of burns. Clinically, the Company believes self-to-self skin grafts for permanent skin tissue are not rejected by the immune system of the patient, unlike with porcine or cadaver grafts in which immune system rejection is an important possibility. PermaDerm® was initially designated as an Orphan Device by the FDA for treatment of burns. The Company has applied to the FDA late last year for an Orphan designation as a biologic/drug for PermaDerm®. In June of 2012, the FDA granted Orphan Status for the PermaDerm® product. Such a designation has certain benefits to the recipient, but these do not include the immediate commercialization of the product. The Company will still need to work with the FDA for the development of the product, now with the advantages of the Orphan designation. The Company hopes to initiate clinical trials in the first half of 2013 with submission to the FDA for Orphan Product approval for PermaDerm® anticipated by the end of 2013. The Company intends to apply for Biological License Approval in 2014. The major difference between commercialization as an Orphan Product and a full Biological License Approval is the Orphan Product has additional FDA reporting requirements and additional procedural administration steps in order to use the product on specific patients such as IRB approval for each patient.

 

The second product is anticipated to be TempaDerm®. TempaDerm® uses cells obtained from human donors to allow the development of banks of cryopreserved (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 in the early development stage and does not have FDA approval.

 

The Company’s management believes the technology has many different uses beyond the burn indication. The other uses include chronic wounds, reconstructive surgery and the individual components of the PermaDerm® technology such as tendon wraps made of collagen or temporary coverings to protect the patients from infections while waiting for PermaDerm®. The collagen technology used for PermaDerm® is a wide-open field in wound healing and uses such as stem cell  grafting substrates. It is important to know that all of the technologies mentioned above are products by themselves regardless of whether PermaDerm® is approved for burns. The Company could pursue any or all of them independently if financing permitted. Even if PermaDerm® was not approved for burn treatments, it could be approved for chronic wounds or reconstruction.

F-6

The Company’s 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 $8.2 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. However, no assurance can be given at this time as to whether the Company 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 the Company be unable to continue as a going concern.

 

On July 19, 2010, the Company declared a stock split of thirty-four (34) to one (1) in which each stockholder was issued thirty-four common shares in exchange for each one common share of their currently issued common stock (the “Split”), which was declared effective by FINRA on August 2, 2010.   All share figures and results are reflected on a post-split basis.

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Development Stage Activities and Operations:

 

The Company is in the development stage and has had no revenues.  A development stage company is defined as one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

 

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.

 

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 did not record any impairment charges in the years ended September 30, 2012 and 2011

 

Research and development: 

Research and development costs are charged to expense as incurred.

 

Loss per share:

 

Basic loss per share is computed by dividing the net 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 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,
2012 2011
Options 5,542,688 5,542,688
Warrants 1,269,842 2,927,567
Convertible preferred stock 19,354,000 13,450,000
Convertible debentures 7,746,274 -0-


  

F-7

Fair Value of Financial Instruments:

 

Substantially all of the Company’s financial instruments, consisting primarily of accounts payable, accrued expenses, bridge financing and loans payable are carried at, or approximate, fair value because of their short-term nature or because they carry market rates of interest.

 

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.

Recently Issued Accounting Pronouncements:

 

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-8

 

NOTE C - INTANGIBLE ASSETS

 

In July 2010, the Company entered into an agreement with Lonza for the exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA for the commercial sale of various products described above.

 

The Company paid Lonza $3,000,000 for the exclusive know-how license and assistance to seek approval from the FDA for the commercial sale of PermaDerm® in the U.S., and later for approval in foreign jurisdictions for commercial sale of PermaDerm® throughout the world. In conjunction with Lonza, the Company’s management intends to create and implement a strategy to conduct human clinical trials and to assemble and present the relevant information and data in order to obtain the necessary approvals for PermaDerm® and possible related products.

 

See Note J below.

 

In August 2010, the Company paid $7,500 and obtained the rights to the trademarks PermaDerm® and TempaDerm® from KJR-10 Corp.

 

NOTE D - ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

September 30,
2012 2011
Registration penalty $ 250,203 $ 250,203
Salaries and payroll taxes 569,412 286,488
Professional fees 130,450 95,450
Accrued dividends 134,244 26,110
Interest 46,312  -  
Other 2,219   -  
$ 1,132,840 $ 658,251

 

 

NOTE E - LOANS PAYABLE

 

Loan Payable:

 

In February 2011, certain investors advanced a total of $85,000. These loans do not bear interest and are due on demand. In June 2011, the Company repaid $75,000 of the advances from the proceeds of the Preferred Stock Offering (see Note I). At both September 30, 2012 and 2011, loan payable totaled $10,000.

 

Loans Payable – Related Parties:

 

In October 2011, Craig Eagle, a director of the Company, advanced the Company $35,000. The loan does not bear interest and is due on demand. At September 30, 2012, the loan balance was $35,000.

 

In February 2012, John Weber, the Company’s Chief Financial Officer, advanced the Company $13,000 and another $10,000 in April 2012. The loan does not bear interest and is due on demand. At September 30, 2012, the loan balance was $23,000

 

NOTE F - NOTES PAYABLE

 

Note Payable - Insurance Financing:

 

In August 2011, the Company financed certain insurance premiums totaling $60,243. The note was payable over a nine-month term. At September 30, 2012, the note balance was repaid in full in accordance with the original terms. At September 30, 2011, the note balance was $60,243.

 

In August 2012, the Company renewed its policy and financed premiums totaling $47,000. The new note is payable over a nine-month term. At September 30, 2012, the balance owed under the new note was $42,160.

F-9

Bridge Financing:

 

On October 12, 2011, the Company issued a $10,000 secured promissory note (“Note 1”) to NPNC Management LLC, a company whose principals also represent the Company as securities counsel. Note 1 bore interest at the rate of 5% per annum and was due on June 14, 2012. Note 1 was secured by the Company’s assets. At September 30, 2012, the Note 1 balance including interest was repaid in full.

 

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. At maturity, the Company was supposed to issue one million shares of common stock as additional consideration. The shares have been issued. For financial reporting purposes, the Company recorded a discount of $56,250 to reflect the value of these shares. The discount was amortized over the term of Note 2. Note 2 was not paid at the maturity date. At September 30, 2012, 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 was 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. For financial reporting purposes, the Company recorded a discount of $6,686 to reflect the beneficial conversion feature. The discount was amortized over the term of Note 3. 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 bears interest at the rate of 8% per annum and the principal and accrued interest thereon are convertible into shares of common stock at a rate of $0.05 per share. In addition, at the date of conversion, the Company will issue two-year warrants to purchase an additional 500,000 shares of common stock at $0.10 per share. At September 30, 2012, the Note 3 balance was $165,400.

 

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 was 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 two-year warrants to purchase an additional 500,000 shares of common stock at $0.10 per share. 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. The Company did not issue the common stock and as such, the shares have been classified as common stock to be issued. In addition, the warrants to purchase 500,000 shares were not issued. For financial reporting purposes, the Company recorded a discount of $7,653 to reflect the value of the warrants and a discount of $149,290 to reflect the value of the beneficial conversion feature

 

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 convert on the maturity dates unless paid sooner by the Company. For financial reporting purposes, the Company recorded discounts of $186,000 to reflect the beneficial conversion features. The discounts were amortized over the terms of Notes 5-9. At maturity, the principal and interest automatically converted and the Company was supposed to issue 4,335,598 shares of common stock. As of September 30, 2012, the shares have not been issued. As such, the shares have been classified as common stock to be issued. In December 2012, the Company issued 4,079,000 shares to the note holders.

 

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 bear interest at the rate of 33% per annum and are due in October through November 2012. Notes 10-18 and accrued interest thereon are convertible into shares of common stock at the rate of $0.05 per share and automatically convert on the maturity dates unless paid sooner by the Company. For financial reporting purposes, the Company recorded discounts of $215,900 to reflect the beneficial conversion features. The discounts are being amortized over the terms of Notes 10-18. At September 30, 2012, Notes 10-18 balances were $179,884, net of debt discounts of $40,116. In December 2012, the Company issued 5,124,000 shares of its common stock for the conversion of principal and accrued interest through the various maturity dates of the notes.

F-10

 

In April 2012, the Company issued a convertible promissory notes (“Note 19”) totaling $25,000 to an individual for services previously rendered. Note 19 bears interest at the rate of 33% per annum and is due in October 2012. Note 19 and accrued interest thereon is convertible into shares of common stock at the rate of $0.05 per share and automatically converts on the maturity dates unless paid sooner by the Company. For financial reporting purposes, the Company recorded a discount of 24,837 to reflect the beneficial conversion feature. The discount is being amortized over the term of Note 19. At September 30, 2012, the Note 19 balance was $24,369, net of a debt discount of $631. 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.

 

In July 2012, the Company issued a series of convertible promissory notes (“Notes 20-22”) totaling $100,000 to three individuals. Notes 20-22 bear interest at the rate of 10% per annum and are due in January 2013. Notes 20-22 and accrued interest thereon are convertible into shares of common stock at the rate of $0.10 per share and automatically convert 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 are being amortized over the terms of Notes 20-22. At September 30, 2012, Notes 20-22 balances were $65,842, net of debt discounts of $34,158.

 

 In July 2012, the Company issued a convertible promissory note (“Note 23”) totaling $100,000 to an individual. Note 23 bears interest at the rate of 8% per annum and is due in January 2013. Note 23 and accrued interest thereon are convertible into shares of common stock at the rate of $0.05 per share and automatically convert on the maturity date, unless paid sooner by the Company. In addition, at the date of conversion, the Company is to issue a two-year warrant to purchase an additional 500,000 shares of common stock at $0.10 per share For financial reporting purposes, the Company recorded a discount of $100,000 to reflect the beneficial conversion feature. The discount is being amortized over the term of the Note. At September 30, 2012, the Note 23 balance was $41,848, net of a debt discount of $58,152.

 

In December 2012, the Company issued a convertible promissory note (“Note 24”) totaling $100,000 to an individual. Note 24 bears interest at the rate of 10% per annum and is due in June 2013. Note 24 and accrued interest thereon is convertible into shares of common stock at the rate of $0.05 per share and automatically convert on the maturity dates unless paid sooner by the Company.

 

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%. Material terms of the note include the following:

 

1.The Company shall receive a $50,000 loan upon the signing of the note. The Company received such funds in October 2012.
2.The Lender may make additional loans in such amounts and at such dates at its sole discretion.
3.The maturity date of each loan is one year after such loan is received.
4.The original interest discount is prorated to each loan received.
5.Principal and accrued interest is convertible into shares of the Company’s common stock as described in the promissory note. 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.

 

F-11

 

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.

 

The Broadsmoore Group, LLC (“TBG”):

 

TBG is a stockholder of the Company.  On August 30, 2010, the Company had entered into a finance representation agreement with TBG.  TBG was to provide advice to the Company and evaluate relevant transactions the Company may consider. 

 

In addition, TBG advanced monies to the Company.  The advances were due on demand and were non-interest bearing.  In addition, the Company was utilizing the office space and employees of TBG at no cost.

 

For the years ended September 30, 2012 and 2011, the Company did not incur any fees to TBG.

 

In fiscal 2011, the Company borrowed additional funds from TBG.  Effective December 30, 2010, the Company and TBG signed a settlement agreement by which TBG accepted 666,667 shares of common stock in exchange for all monies owed TBG to date (approximately $506,000). These shares were previously issued as part of the October 28, 2010 offering. In addition, the Company orally agreed to pay a $200,000 success fee to TBG if the Company raises the remaining $3.5 million being offered in its current offering that commenced on October 28, 2010 (see Note I).

 

NOTE H - INCOME TAXES

 

At September 30, 2012, the Company had available approximately $5.9 million of net operating loss carry forwards which expire in the years 2028 through 2031. 

 

Significant components of the Company’s deferred tax assets at September 30, 2012 and 2011 are as follows:

 

  2012  2011
Net operating loss carry forwards $2,348,856   $1,446,010 
Stock based compensation  355,265    355,265 
Accrued expenses  199,980    114,595 
          
Total deferred tax assets  2,904,101    1,915,870 
Valuation allowance  (2,904,101)   (1,915,870)
          
Net deferred tax assets $—     $—   

 

F-12

Due to the uncertainty of their realization, no income tax benefit has been recorded by the Company for these deferred tax assets as valuation allowances have been established for any such benefits. The increase in the valuation allowance was the result of increases in the above stated items.

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, 2012 and 2011: 

2012 2011
Federal tax rate (34%) (34%)
Effect of state taxes (6%) (6%) 
Permanent differences 9%              --
Net operating loss carry forward 31% 40% 
Total 0%   0%  

 

At September 30, 2012 and 2011, 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, 2012 and 2011, 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 2008 through 2011 tax years generally remain subject to examination by federal and state 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. 

 

NOTE I - STOCKHOLDERS’ (DEFICIENCY) EQUITY

 

Authorized Shares:

 

On October 27, 2010, the Company increased the number of authorized shares of common stock from 90,000,000 shares to 200,000,000 by amending the Articles of Incorporation.

 

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 $0.05 per share for the conversion of debt, the conversion rate for the Series A Preferred is now 20 to 1.

In June and July 2011, the Company issued 1,345,000 shares of Series A Preferred and 672,000 warrants in a private placement. The Company has accounted for the value of the warrants in accordance with ASC Topic 470, whereby the Company separately measured the fair value of the Series A Preferred and the warrants and allocated the total proceeds in accordance with their relative fair value at the time of issuance. The Company valued the warrants at $50,621 and such value of the warrants was recorded as a deemed dividend.

 

In addition, in accordance with the provisions of ASC Topic 470, the Company allocated a portion of the proceeds received to the beneficial conversion feature, based on the difference between the effective conversion price of the proceeds allocated to the Series A Preferred and the fair value of the underlying common stock on the date the convertible preferred stock was issued. The discount resulting from the beneficial conversion feature was recorded as a deemed dividend in the amount of $1,294,379.

 

The dividends are cumulative commencing on the issue date whether or not declared. Dividends amounted to $108,134 and $26,110 for the years ended September 30, 2012 and 2011, respectively. At September 30, 2012 and 2011, dividends payable totaled $134,244 and $26,110, respectively, and are included in accrued expenses.

 

For the years ended September 30, 2012 and 2011, dividends and deemed dividends totaled $108,134 and $1,371,110, respectively.

 

In January and February 2012, 460,000 shares of Series A Preferred were converted into 4,600,000 shares of common stock.

 

At September 30, 2012 and 2011, 885,000 and 1,345,000 shares of Series A Preferred were outstanding, respectively.

F-13

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, 2012, no shares of Series B Preferred are outstanding.

 

Common Stock Issuances:

 

On October 28, 2010, the Company offered under a Private Placement Memorandum up to 6,000,000 shares of its common stock at an offering price of $0.75 per share.  Offering expenses were estimated to be equal to 10% of the offering price.  For the period October 28, 2010 through January 12, 2011, the Company sold 623,400 shares of common stock and received gross proceeds of $467,550.

 

Effective November 22, 2010, the Company issued 150,000 shares for consulting services rendered. The shares were valued at $112,500.

 

Effective December 30, 2010, TBG accepted 666,667 shares of common stock in exchange for all monies owed TBG to date (approximately $506,000).

 

In February and March 2011, the Company issued 390,000 shares for consulting services rendered.  The shares were valued at $247,975.

 

Stock compensation expense related to the shares totaled $360,475 for the year ended September 30, 2011.

 

In January and February 2012, 460,000 shares of Series A Preferred were converted into 4,600,000 shares of common stock.

 

Effective June 21, 2012, the Company issued the holder of Note 2 1,000,000 shares of common stock as additional consideration.

 

On December 18, 2012, the Company issued 9,786,000 shares of its common stock for the conversion of notes payable and accrued interest.

 

Treasury Stock:

 

On July 19, 2010, Mr. McCoy agreed to deliver to the Company 4,428,360 shares of common stock beneficially owned by him with instructions that such shares be cancelled and returned to treasury.  Such shares were to be returned to offset the potential dilution caused by an equity incentive plan for directors involving the same number of shares that was adopted. Mr. McCoy delivered the shares on January 5, 2011.

 

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.

F-14

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 vest over a three-year period and expire on December 22, 2015. The Company valued the options utilizing a Black-Scholes option pricing model with the following assumptions:  share price: $0.64; exercise price: $0.62; expected volatility: 26.36%; risk-free rate: 1.11%; expected term: 3.5 years.   On May 11, 2011, the terms of the options were amended to allow for immediate vesting.

 

In addition, the Company 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. The Company valued the options utilizing a Black-Scholes option pricing model with the following assumptions:  share price: $0.57; exercise price: $0.46; expected volatility: 27.77%; risk-free rate: 0.72%; expected term: 3 years.

 

The expected life is the number of years that the Company estimates, based upon history, that options 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.

 

Option activity for 2012 and 2011 is summarized as follows:

 

  Options  Weighted
 Average
 Exercise Price
 Options outstanding, October 1, 2010   —     $—   
            
 Granted   5,542,688    0.56 
 Forfeited   —      —   
            
 Options outstanding, September 30, 2011 and 2012   5,542,688   $0.56 
            
 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, 2012:

 

      Weighted Average
 Remaining
  Options Exercisable
 Weighted Average
Ranges of prices  Number
 Outstanding
  Contractual
 Life
  Exercise
 Price
  Number
 Exercisable
  Exercise
 Price
$0.46    2,000,000    4.00   $0.46    2,000,000   $0.46 
$0.62    3,542,688    4.00    0.62    3,542,688    0.62 
                            
 $0.46-$0.62    5,542,688    4.00   $0.56    5,542,688   $0.56 

 

There were no option grants in 2012.

 

The Company recognized stock compensation expense of $-0- and $843,872 for the years ended September 30, 2012 and 2011, respectively. As of September 30, 2012, there was no unrecognized compensation cost related to non-vested options granted.

F-15

Warrants:

 

In January and March 2011, the Company issued 1,676,667 warrants to various consultants at exercise prices ranging from $0.10 to $1.50 per share. The warrants vested immediately and expire at various times in 2012 and 2016. The Company valued the warrants utilizing a Black-Scholes option pricing model with the following assumptions:  share price: $0.39 - $0.64; exercise price: $0.10 - $1.50; expected volatility: 13.35% - 27.56%; risk-free rate: 0.16% - 2.30%; expected term: .5 years - 3 years.  

 

Stock compensation expense related to the warrants totaled $-0- and $44,290 for the years ended September 30, 2012 and 2011, respectively.

 

In March 2011, the Company issued 623,400 warrants to various investors at an exercise price of $0.50 for registration penalties relating to the October 2010 Securities Purchase Agreement (see below). The warrants vested immediately and expired in March 2012. These warrants were deemed to have minimal value utilizing a Black-Scholes option pricing model with the following assumptions:  share price: $0.36; exercise price: $0.50; expected volatility: 13.43%; risk-free rate: 0.13%; expected term: .5 years.

 

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.

 

In June and July 2011, in connection with the Private Placement of Series A Preferred, the Company issued 672,000 seven-year warrants exercisable at $0.15 per share.

 

A summary of the warrants outstanding at September 30, 2012 is as follows:

 

   Exercise  Expiration
Warrants  Price  Date
 672,500   $0.15    2018 
 10,000   $0.75    2016 
 66,667   $1.50    2016 
             
 749,167           

  

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.

F-16

On October 28, 2010, the Company began offering under a Private Placement Memorandum up to 6,000,000 shares of its common stock at an offering price of $0.75 per share. Purchasers in this Offering were granted registration rights under the Securities Act with respect to the shares of common stock under the terms of a registration rights agreement (the “Registration Rights Agreement”) executed in connection with the closing of the Offering. Pursuant to the Registration Rights Agreements, the Company will file a Registration Statement with the SEC registering for resale all of such shares within 30 days of the closing of the Offering. The Company further agreed to use its reasonable best efforts to have the Registration Statement declared effective within 120 days of its initial filing date.

 

In the event the Company was unable to file a Registration Statement covering the Registrable Securities within 30 days following the closing of the Offering, or if the Company was unable to have the Registration Statement declared effective within 120 days of its initial filing date, then as liquidated damages, the Company would grant each stockholder a warrant to purchase the aggregate number of shares purchased in the private offering at a strike price of $0.50 per share. The Offering closed on February 10, 2011. The Company had not filed a registration statement as required and issued 623,400 warrants to the investors in March 2011.

 

NOTE J - COMMITMENTS AND CONTINGENCIES

 

Lonza Transaction:   

 

The agreement with Lonza contemplates that, upon receipt of the full FDA approval, in the second stage of the transaction, the Company will execute a Stock Purchase Agreement pursuant to which it will purchase all of the outstanding stock of Cutanogen Corporation (“Cutanogen”) from Lonza for an additional purchase price of $2 million. Cutanogen holds certain patents and exclusive licenses to patent rights owned by The Regents of the University of California, University of Cincinnati, and Shriners Hospital for Children related to the commercialization of PermaDerm®. Upon the Company’s acquisition of Cutanogen, it will obtain beneficial use of the Cutanogen licenses. The beneficial use will extend globally.

 

When Lonza acquired Cutanogen, it inherited milestone payment obligations to the former Cutanogen shareholders in the total amount of up to $4.8 million. These payments are owed as PermaDerm® is moved through the FDA approval process. As a result, the deal with Lonza will ultimately include paying those milestones plus the $2 million to Lonza. 

 

On May 17, 2012, the Company received a letter from Lonza America Inc., alleging that the Company has been delinquent in payments in the amount of $783,588 under the Know-How License and Stock Purchase Agreement (the “Agreement”) with Lonza Walkersville, Inc. (“Lonza Walkersville”). Collectively Lonza America and Lonza Walkerville are referred to herein as “Lonza”. After extensive discussions and correspondence with Lonza Walkersville, the Company responded to the letter by Lonza America on July 20, 2012, explaining that such payments are not due and detailing the various instances of breach committed by Lonza Walkersville under the Agreement. In turn, a response was received from Lonza America on July 26, 2012 alleging that the Agreement has been terminated.

 

There is an ongoing dispute with Lonza about the performance and payment obligations under the Agreement. Management believes that Lonza’s position, as set forth in the above mentioned letters, is untenable in that, among other things: (1) Lonza’s billings call for the payment of amounts not currently owing, (2) Lonza has failed to submit to an audit of its charges; and (3) Lonza has refused to provide an appropriate plan for the processing of the biotechnology through the FDA as required by the Agreement. Additionally, management believes that Lonza’s response is designed to allow it to retain the Company’s over $3.5 million in payments along with the biotechnology that the Company was expected to purchase as part of the Agreement.

 

Management acknowledges the Company’s obligations to make payments that are called for under the Agreement. However, management believes that meritorious defenses and claims to Lonza’s claim of breach under the Agreement exist, and the Company intends to pursue these claims and causes of action using all legal means necessary should the issues raised in the above mentioned letters not be resolved consensually.

 

Management cannot predict the likelihood of prevailing in the dispute with Lonza. The Company may be required to seek another manufacturer in the event that this dispute is not resolved between them or Lonza is unable or unwilling to manufacture the Company's products as a result of this dispute.

 

Employment Agreement:

 

On October 4, 2010, the Company 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 the 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 the Company’s board of directors;

Mr. Hadsall will be eligible for an annual bonus as determined by the Company’s board of directors; and

Mr. Hadsall will be entitled to participate in any employee benefit plans, as established by the Company’s board of directors.

 

Mr. Hadsall signed an agreement to keep certain information confidential and not compete with or solicit from the Company for a period of time.

F-17

NOTE K - LEGAL PROCEEDING

 

On April 18, 2012, a settlement was reached in the case involving litigation between the Company’s Chief Executive Officer, Mr. Randall McCoy, and the former President, Mr. Joseph Connell in the United States District Court for the Southern District of New York.

 

As previously reported, on March 11, 2011, Mr. Connell filed a complaint in the Supreme Court of the State of New York (which was later removed to federal court) against Mr. Randall McCoy, the Company, and the members of the Company’s board of directors. The Company and members of the board were dismissed earlier from the proceedings and the chronology of the case is set forth in previous filings.

 

As a final resolution, a Confidential Settlement Agreement and General Release (the “Settlement Agreement”) was signed by and among Mr. McCoy, Mr. Connell, the Company, and the board of directors. An amendment (the “Amendment”) to the Settlement Agreement was signed on April 24, 2012. Pursuant to the Settlement Agreement and Amendment, in exchange for dismissal of the pending lawsuit with prejudice and a mutual release of all claims involving all parties concerned, Mr. McCoy agreed to issue to Mr. Connell 12,500,000 shares of his common stock in the Company. On April 19, 2012, 10,000,000 of the shares were transferred to Mr. Connell, with the remaining shares assigned to his counsel in the case.

 

As a result of the Settlement Agreement and Amendment and the transfer of these shares, Mr. Connell is now a greater than 10% stockholder of the Company.

 

NOTE L - SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through the date of this filing.

 

F-18

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, 2012.

 

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, 2012. 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, 2012 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, 2012, 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, 2013: (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.

15

 

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. We are currently in the process of hiring an outsourced controller to improve the controls for accounting and financial reporting.

 

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.

 

Item 9B. Other Information

 

On January 1, 2012, we appointed Dr. J. Roy Nelson to act as our Chief Science Officer. Other than described in this Annual Report, Mr. Nelson has not been a participant in, or is to be a participant in, any related-person transaction or proposed related-person transaction required to be disclosed by Item 404(a) of Regulation S-K under the Securities Exchange Act of 1934. In addition, there are no family relationships between Mr. Nelson and any of our directors or executive officers.

 

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 63 Chief Executive Officer and Director
John J. Weber 63 Interim Chief Financial Officer and Director
Chris Hadsall 38 Chief Operating Officer
Joseph Rubinfeld 80 Director
Craig Eagle 45 Director
Dr. J. Roy Nelson 65 Chief Science Officer

 

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.

16

 

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.

 

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 decrees 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.

17

 

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.

18

 

Item 11. Executive Compensation

 

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, 2012 and 2011.

 

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

($)

Siew Mee Fam

Former President, Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director 

2012

2011

 

n/a

0

 

n/a

0

 

n/a

0

 

n/a

0

 

n/a

0

 

n/a

0

 

n/a

0

 

n/a

0

 

Randall McCoy

Chief Executive Officer, Principal Executive Officer and Director

2012

2011

$125,000(1)

$125,000(2)

0

0

0

0

0

$31,743(3)

 0

0

0

0

0

0

$156,743

$125,000

Joseph Connell

Former President

2012

2011

n/a

$41,830

n/a

0

n/a

0

n/a

0

n/a

0

n/a

0

0

0

n/a

$41,830

John J. Weber

Interim Chief Financial Officer, and Director

2012

2011

0

0

0

0

0

0

0

$31,743(3)

0

0

0

0

0

0

0

$31,743

Chris Hadsall

Chief Operating Officer

2012

2011

$70,000(4)

$120,000(5)

0

0

0

0

0

0

0

0

0

0

0

0

$70,000

$120,000

Dr. J. Roy Nelson

2012

2011

$150,000(6)

n/a

0

n/a

0

n/a

0

n/a

0

n/a

0

n/a

0

n/a

$150,000

n/a

(1)Of the $125,000 in salary to Mr. McCoy, $51,058 remains unpaid as accrued compensation.
(2)Of the $125,000 in salary to Mr. McCoy, $60,000 remains unpaid as accrued compensation.
   
 (3)Reflects the aggregate grant date fair value computed in accordance with FASB ASC 718.
   
 (4)Of the $70,000 in salary to Mr. Hadsall, $20,000 remains unpaid as accrued compensation.
   
 (5)Of the $120,000 in salary to Mr. Hadsall, $55,000 remains unpaid as accrued compensation.
   
 (6)Of the $150,000 in salary to Mr. Hadsall, $65,625 remains unpaid as accrued compensation

 

Narrative Disclosure to Summary Compensation Table 

 

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.

19

 

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.

 

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.

20

 

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, 2012.

 

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 ($)

 

 

 

 

 

 

 

 

 

 

 

 

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 - - - -

 

Director Compensation

 

The table below summarizes all compensation of our directors as of September 30, 2012.

 

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 - - - - - - -

 

21

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth, as of January 14, 2013, 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) 21.02%
John J. Weber 935,672(4) *
Chris Hadsall 0 *
Joseph Rubinfeld 1,935,672(5) 1.92%
Craig Eagle 935,672(6) *
Officers and Directors collectively 25,014,329 24.80%
   
5 Percent Shareholders    
PDA Associates LLC
560 Lexington Ave., 16th Fl.
New York, NY 10022
15,331,290 (7) 13.31%

 

 

* 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 99,994,964 shares of the Company’s common stock and convertible securities, 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.

(7) Includes 161,290 shares of common stock held and 740,000 shares of Series A Convertible Preferred Stock convertible into 14,800,000 shares of common stock and warrants to purchase 370,000 shares of common stock.

22

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, 2011 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.

 

In October 2011, Craig Eagle, a director of the Company, advanced the Company $35,000. The loan does not bear interest and is due on demand. At September 30, 2012, the loan balance was $35,000.

 

In February 2012, John Weber, the Company’s Chief Financial Officer, advanced the Company $13,000 and another $10,000 in April 2012. The loan does not bear interest and is due on demand. At September 30, 2012, the loan balance is $23,000.

 

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, 2012 and 2011 are set forth below:

 

Year Ended September 30 Audit Services Audit Related Fees Tax Fees Other Fees Total
2011 $63,427 $1,002 $0 $0 $64,429
2012 $72,566 $2,932 $0 $0 $75,798

 

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.  The fees in 2012 and 2011 related to the Company’s responses to comment letters received from the SEC.

 

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.

23


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.