UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2015
[  ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
	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)	(IRS Employer Identification No.)

 

10 High Court, Little Falls, NJ

(Address of principal executive offices)

 

(973) 557-8914

(Registrant’s telephone number)

_______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days

[ ] Yes [X] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

[ ] Large accelerated filer [ ] Non-accelerated filer

[ ] Accelerated filer [X] Smaller reporting company

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 153,483,050 as of July 15, 2015.

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	8
Item 4:	Controls and Procedures	8
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	9
Item 1A:	Risk Factors	9
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3:	Defaults Upon Senior Securities	9
Item 4:	Mine Safety Disclosures	9
Item 5:	Other Information	9
Item 6:	Exhibits	9

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our consolidated financial statements included in this Form 10-Q are as follows:

 

F-1	Consolidated Balance Sheets as of June 30, 2015 and September 30, 2014 (unaudited);
F-2	Consolidated Statements of Operations for the nine and three months ended June 30, 2015 and 2014 (unaudited);
F-3	Consolidated Statements of Comprehensive Income (Loss) for the nine and three months ended June 30, 2015 and 2014 (unaudited);
F-4	Consolidated Statements of Cash Flows for the nine months ended June 30, 2015 and 2014 (unaudited); and
F-5	Notes to Consolidated Financial Statements (unaudited).

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2015 are not necessarily indicative of the results that can be expected for the full year.

 

REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

	June 30, 2015				September 30, 2014
	(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash	$	1,431,251			$	492
Prepaid expenses and other current assets		86,208				49,462
Common stock of Amrantus Corporation		1,562,500				—
Deferred income taxes		—				2,829,000
Total current assets		3,079,959				2,878,954
Intangible  assets		—				7,500
Total assets	$	3,079,959			$	2,886,454
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable	$	379,420			$	1,393,605
Accrued expenses		1,295,556				1,740,090
Dividends payable		304,197				251,242
Note payable - insurance financing		—				51,613
Bridge financing		175,000				450,000
Convertible promissory notes (net of discount of $-0- and $20,645)		—				295,617
Loan payable		10,000				10,000
Loans payable - related parties		95,000				205,817
Derivative liabilities		—				5,164
Total current and total liabilities		2,259,173				4,403,148
CONTINGENCY
STOCKHOLDERS' EQUITY (DEFICIENCY)
Series A 10% Convertible Preferred stock, $0.001 par value, 5,500,000 shares authorized;885,000 issued and outstanding		885				885
Common stock, $0.001 par value; 200,000,000 shares authorized; 157,911,410 and 139,598,152 issued, respectively; 153,483,050 and 135,169,792 outstanding, respectively		157,914				139,601
Common stock to be issued; 0 and 10,367,094 shares		—				402,040
Additional paid-in capital		9,805,423				8,897,799
Accumulated deficit		(7,701,508	)			(10,952,591	)
Accumulated other comprehensive loss		(1,437,500	)			—
Less: treasury stock; 4,428,360 shares at par		(4,428	)			(4,428	)
Total stockholders' equity (deficiency)		820,786				(1,516,694	)
Total liabilities and stockholders' equity (deficiency)	$	3,079,959			$	2,886,454

 

See Notes to Consolidated Financial Statements.

REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

 

	Nine Months Ended June 30, 2015				Nine Months Ended June 30, 2014				Three Months Ended June 30, 2015				Three Months Ended June 30, 2014
	(UNAUDITED)				(UNAUDITED)				(UNAUDITED)				(UNAUDITED)
Revenues	$	—			$	—			$	—			$	—
Operating expenses
Research and development		33,400				—				—				—
General and administrative		845,319				548,491				438,502				88,547
Stock based compensation - general and administrative		32,365				27,556				—				—
Reversal of accounts payable - Lonza		(973,374	)			—				—				—
Total operating expenses		(62,290	)			576,047				438,502				88,547
Income (loss) from operations		62,290				(576,047	)			(438,502	)			(88,547	)
Other income (expenses)
Interest expense, including amortization of debt discounts and beneficial conversion features		(58,408	)			(206,535	)			(18,407	)			(76,554	)
Gain on sale of assets		6,604,431				—				—				—
Gain (loss) on derivative liabilities		(528,230	)			82,961				—				(143,763	)
Total other income (expenses)		6,017,793				(123,574	)			(18,407	)			(220,317	)
Income (loss) before income taxes		6,080,083				(699,621	)			(456,909	)			(308,864	)
Income tax expense		2,829,000				—				—				—
Net income (loss)		3,251,083				(699,621	)			(456,909	)			(308,864	)
Preferred stock dividends		(52,955	)			(52,955	)			(17,652	)			(17,652	)
Net income (loss) attributable to common stockholders	$	3,198,128			$	(752,576	)		$	(474,561	)		$	(326,516	)
Income (loss) per share Basic	$	0.02			$	(0.01	)		$	(0.00	)		$	(0.00	)
Income (loss) per share Diluted	$	0.02			$	(0.01	)		$	(0.00	)		$	(0.00	)
Weighted average number of shares outstanding Basic		153,188,645				130,739,786				153,483,049				136,432,523
Weighted average number of shares outstanding Diluted		162,038,645				130,739,786				153,483,049				136,432,523

 

See Notes to Consolidated Financial Statements.

REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

	Nine Months Ended June 30, 2015				Nine Months Ended June 30, 2014				Three Months Ended June 30, 2015				Three Months Ended June 30, 2014
	(UNAUDITED)				(UNAUDITED)				(UNAUDITED)				(UNAUDITED)
Net income (loss)	$	3,251,083			$	(699,621	)		$	(456,909	)		$	(308,864	)
Other comprehensive income:
Change in unrealized loss on available-for-sale securities, net of income taxes		(1,437,500	)			—				62,500				—
Comprehensive income (loss)	$	1,813,583			$	(699,621	)		$	(394,409	)		$	(308,864	)

 

See Notes to Consolidated Financial Statements.

 REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

	Nine Months Ended June 30, 2015				Nine Months Ended June 30, 2014
	(UNAUDITED)				(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	3,251,083			$	(699,621	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Deferred income taxes		2,829,000				—
Amortization of debt discounts		7,675				148,667
Accrued interest on notes and loans payable		(7,114	)			59,289
Amortization of beneficial conversion features		—				54,545
Original interest discount on convertible note payable		—				4,156
Stock based compensation - G&A		32,365				27,556
(Gain) loss on derivative liabilities		528,230				(82,961	)
Gain on sale of assets		(6,604,431	)			—
Reversal of accounts payable		(973,374	)			—
Other gain related to derivative liabilities		—				(63,095	)
Expenses paid directly by officer		95,000				—
Changes in operating assets and liabilities
Prepaid expenses and other current assets		(36,746	)			54,274
Accounts payable		(361,059	)			5,516
Accrued expenses		(387,440	)			323,172
Net cash used in operating activities		(1,626,811	)			(168,502	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets		3,600,000				—
Purchase of intangible asset		(10,000	)			—
Net cash provided by financing activities		3,590,000				—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of notes payable		—				100,000
Repayments of notes payable		(275,000	)			—
Proceeds from loans from related parties		23,330				98,442
Repayments of loans from related party		(229,147	)			(500	)
Repayments of notes payable - insurance financing		(51,613	)			(52,220	)
Proceeds from the sale of common stock		—				640
Net cash (used in) provided by financing activities		(532,430	)			146,362
NET INCREASE (DECREASE) IN CASH		1,430,759				(22,140	)
CASH - BEGINNING OF PERIOD		492				22,500
CASH - END OF PERIOD	$	1,431,251			$	360
Supplemental disclosures of cash flow information:
Cash paid for interest	$	13,447			$	3,894
Cash paid for income taxes	$	—			$	—
Non-cash activities:
Sale of assets	$	6,600,000			$	—
Common Stock of Amarantus received		(3,000,000	)			—
Cash received	$	3,600,000			$	—
Preferred stock dividends	$	52,955			$	52,955
Shares issued/to be issued in connection with conversion of debt and accrued interest	$	11,091			$	313,720
Beneficial conversion feature and warrant value on bridge financing	$	—			$	75,000
Derivative liabilities reclassified to additional paid-in capital	$	533,394			$	84,070
Common stock issued for accrued expenses	$	—			$	35,851

 

See Notes to Consolidated Financial Statements. 

REGENICIN, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - THE COMPANY  

 

The Company’s business plan is to develop and commercialize a potentially lifesaving technology by the introduction of tissue-engineered skin substitutes to restore the qualities of healthy human skin for use in the treatment of burns, chronic wounds and a variety of plastic surgery procedures.

 

The Company entered into a Know-How License and Stock Purchase Agreement (the “Know-How SPA”) with Lonza Walkersville, Inc. (“Lonza Walkersville”) on July 21, 2010. Pursuant to the terms of the Know-How SPA, the Company paid Lonza Walkersville $3,000,000 and, in exchange, the Company was to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the U.S. Food and Drug Administration (“FDA”) for the commercial sale of technology held by the Cutanogen Corporation (“Cutanogen”), a subsidiary of Lonza Walkersville. Additionally, pursuant to the terms of the Know-How SPA, the Company was entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Under the Know-How SPA, once FDA approval was secured for the commercial sale of the technology, the Company would be entitled to acquire Cutanogen, Lonza Walkersville’s subsidiary, for $2,000,000 in cash.  

 

After prolonged attempts to negotiate disputes with Lonza Walkersville failed, on September 30, 2013, the Company filed a lawsuit against Lonza Walkersville, Lonza Group Ltd. and Lonza America, Inc. (“Lonza America”) in Fulton County Superior Court in the State of Georgia.

 

On November 7, 2014, the Company entered into an Asset Sale Agreement (the “Sale Agreement”) with Amarantus Bioscience Holdings, Inc., (“Amarantus”). Under the Sale Agreement, the Company agreed to sell to Amarantus all of its rights and claims in the litigation currently pending in the United States District Court for the District of New Jersey against Lonza Walkersville and Lonza America, Inc. (the “Lonza Litigation”). This includes all of the Cutanogen intellectual property rights and any Lonza manufacturing know-how technology. In addition, the Company agreed to sell the PermaDerm® trademark and related intellectual property rights associated with it. The purchase price paid by Amarantus was: (i) $3,600,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. See Note 4 for a further discussion.

 

The Company intends to use the net proceeds of the transaction to fund development of cultured cell technology and to pursue approval of the products through the U.S. Food and Drug Administration. We have been developing our own unique cultured skin substitute since we received Lonza’s termination notice. 

 

NOTE 2 - BASIS OF PRESENTATION

 

Interim Financial Statements:

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending September 30, 2015. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2014, as filed with the Securities and Exchange Commission.

 

Going Concern:

 

The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Although the Company has received cash flows from the Sale Agreement, it does not have a source of revenue and is incurring routine expenses. The Company 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. However, no assurance can be given at this time as to whether the Company will be able to achieve these objectives. The consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 

 

Financial Instruments and Fair Value Measurement:

 

The Company measures fair value of its financial assets on a three-tier value hierarchy, which prioritizes the inputs, used in the valuation methodologies in measuring fair value:

 

•	Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•	Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical  or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable or inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•	Level 3 - Unobservable inputs which are supported by little or no market activity.

 

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The carrying value of cash, prepaid expenses and other current assets, accounts payable, accrued expenses and all loans and notes payable in the Company’s consolidated balance sheets approximated their values as of June 30, 2015 and September 30, 2014 due to their short-term nature.

 

Common stock of Amarantus represents equity investments in common stock that the Company classifies as available for sale. Such investments are carried at fair value in the accompanying consolidated balance sheets. Fair value is determined under the guidelines of GAAP which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Realized gains and losses, determined using the first-in, first-out (FIFO) method, are included in net income. Unrealized gains and losses are reported as other comprehensive income and are included in equity.

 

The common stock of Amarantus is valued at the closing price reported on the active market on which the security is traded. This valuation methodology is considered to be using Level 1 inputs. The total value of Amarantus common stock at June 30, 2015 is $1,562,500. The unrealized loss for the nine months ended June 30, 2015 was $1,437,500 net of income taxes, and was reported as a component of comprehensive income.

 

The Company issued notes payable that contained conversion features which were accounted for separately as derivative liabilities and measured at fair value on a recurring basis. Changes in fair value are charged to other income (expenses) as appropriate. The fair value of the derivative liabilities was determined based on Level 2 inputs utilizing observable quoted prices for similar instruments in active markets and observable quoted prices for identical or similar instruments in markets that are not very active. Derivative liabilities totaled $-0- and $5,164 as of June 30, 2015 and September 30, 2014, respectively. See Note 7 - Notes Payable - Convertible Promissory Notes for additional information.

 

Recent Pronouncements:

 

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

 

NOTE 3 - INCOME (LOSS) PER SHARE

 

Basic income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted loss per share gives effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period; only in periods in which such effect is dilutive. The following table summarizes the components of the income (loss) per common share calculation:

 

	Nine Months Ended								Three Months Ended
	June 30,								June 30,
	2015				2014				2015				2014
Income (Loss) Per Common Share - Basic:
Net income (loss) available to common stockholders	$	3,198,128			$	(752,576	)		$	(474,561	)		$	(326,516	)
Weighted-average common shares outstanding		153,188,645				130,739,786				153,483,049				136,432,523
Basic income (loss) per share	$	0.02			$	(0.01	)		$	(0.00	)		$	(0.00	)
Income (Loss) Per Common Share - Diluted:
Net income (loss) available to common shareholders	$	3,198,128			$	(752,576	)		$	(474,561	)		$	(326,516	)
Dividends on convertible preferred stock		52,955				—				—				—
Adjusted net income (loss) available to common shareholders	$	3,251,083			$	(752,576	)		$	(474,561	)		$	(326,516	)
Weighted-average common shares outstanding		153,188,645				130,739,786				153,483,049				136,432,523
Convertible preferred stock		8,850,000				—				—				—
Weighted-average common shares outstanding and common share equivalents		162,038,645				130,739,786				153,483,049				136,432,523
Diluted income (loss) per share	$	0.02			$	(0.01	)		$	(0.00	)		$	(0.00	)

 

The following securities have been excluded from the diluted per share calculation for the nine ended June 30, 2015 because the exercise price was greater than the average market price of the common shares:   

 

Options	15,542,688
Warrants	3,061,667

 

The following securities have been excluded from the calculation of net loss per share for the three months ended June 30, 2015 and the nine and three months ended June 30, 2014, as their effect would be anti-dilutive:

 

		Three Months Ended June 30, 2015				Three and Nine Months June 30, 2014
Options		15,542,688				5,542,688
Warrants		3,061,667				3,611,167
Convertible preferred stock		885,000				17,700,000
Convertible debentures		—				26,198,825

 

 

NOTE 4 - SALE OF ASSET

 

On November 7, 2014, the Company entered into a Sale Agreement with Amarantus, Clark Corporate Law Group LLP ("CCLG") and Gordon & Rees, LLP (“Gordon & Rees”). Under the Sale Agreement, the Company agreed to sell to Amarantus all of its rights and claims in the Lonza Litigation. These include all of the Cutanogen intellectual property rights and any Lonza manufacturing know-how technology. In addition, the Company has agreed to sell its PermaDerm® trademark and related intellectual property rights associated with it. The purchase price to be paid by Amarantus was of: (i) $3,500,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. A portion of the cash purchase price is allocated to repay debt. On January 30, 2015, the agreement was amended whereby the cash portion of the purchase price was increased by $100,000 to $3,600,000 and the final payment was extended to February 20, 2015. The final payment of $2,500,000 was made on February 24, 2015. 

  

The payments to CCLG, satisfied in full the obligations owed to CCLG under its secured promissory note. The $3,000,000 in Amarantus common stock was satisfied by the issuance of 37,500,000 shares of Amarantus common stock from Amarantus to the Company. In addition to the sale price, Amarantus paid Gordon & Rees $450,000 at closing. The payment to Gordon & Rees was to satisfy in full all contingent litigation fees and costs owed to Gordon & Rees in connection with the Lonza Litigation.

 

During the nine months ended June 30, 2015, the Company recorded a gain on sale of assets in the amount of $6,604,431. In addition, as a result of the Sale Agreement, the Company determined that it is no longer liable for accounts payable to Lonza in the amount of $973,374. The liability has been reversed and is included in operating expenses as an item of income.

 

The Company also granted to Amarantus an exclusive five (5) year option to license any engineered skin designed for the treatment of patients designated as severely burned by the FDA developed by the Company. Amarantus can exercise this option at a cost of $10,000,000 plus a royalty of 5% on gross revenues in excess of $150 million.  

 

NOTE 5 - INTANGIBLE ASSETS

 

As discussed in Note 1, the Company paid $3,000.000 to Lonza in 2010 to purchase an exclusive know-how license and assistance in gaining FDA approval. The $3,000,000 payment was recorded as an intangible asset. Due to ongoing disputes and pending any settlement of the lawsuit, the Company subsequently determined that the value of the intangible asset and related intellectual property had been fully impaired. As a result, the Company wrote down the value of the intangible asset to $0 during the year ended September 30, 2013.

 

The Company paid $7,500 in August 2010 and $10,000 in November 2014 to obtain the rights to the trademark PermaDerm® from KJR-10 Corp.

 

As discussed in Note 4, the Company sold all its intangible assets on November 7, 2014. At September 30, 2014, intangible assets totaled $7,500. 

 

NOTE 6 - LOANS - RELATED PARTIES

  

Loan Payable:

 

In February 2011, an investor advanced $10,000. The loan does not bear interest and is due on demand. At both March 31, 2015 and September 30, 2014, the loan payable totaled $10,000.

 

Loans Payable - Related Parties:

 

In October 2011, Craig Eagle, a director of the Company, made advances to the Company. The loan bears interest at 5% and is due on demand. At September 30, 2014, the loan balance was $38,221 and was repaid in April 2015.

 

John Weber, the Company’s Chief Financial Officer, has made advances to the Company. The loan bears interest at 5% and is due on demand. At September 30, 2014, the loan balance was $122,100 and was repaid in April 2015.

 

Randall McCoy, the Company’s Chief Executive Officer, has made advances to the Company. The loan bears interest at 5% and is due on demand. During the quarter ended June 30, 2015, $95,000 of Company expenses paid directly by McCoy were submitted for reimbursement. These expenses had not been reimbursed to McCoy by a former underwriter. At June 30, 2015 and September 30, 2014, the loan balance was $95,000 and $8,500.

 

In March through September 2014, the Company received other advances from related parties totaling $35,696. The loan bears interest at 5% and is due on demand. At September 30, 2014 the loan balances were $36,996 and were repaid in April 2015. 

 

At June 30, 2015 and September 30, 2014, loans payable - related parties totaled $95,000 and $205,817, respectively. 

 

NOTE 7 - NOTES PAYABLE

 

Insurance Financing Note: 

 

In September 2014, the Company financed certain insurance premiums totaling $51,613. The note requires an initial down payment of $10,322 and is payable over a nine-month term with interest at 6.45%. At September 30, 2014, the balance owed under the note was $51,613 and was paid in full in June 2015.

 

Bridge Financing:

 

On December 21, 2011, the Company issued a $150,000 promissory note (“Note 2”) to an individual. Note 2 bears interest so that the Company would repay $175,000 on the maturity date of June 21, 2012, which correlated to an effective rate of 31.23%. Additional interest of 10% will be charged on any late payments. Note 2 was not paid at the maturity date and the Company is incurring additional interest described above. At both June 30, 2015 and September 30, 2014, the Note 2 balance was $175,000.

 

In May 2013, the Company issued a convertible promissory note (“Note 29”) totaling $25,000 to an individual. Note 29 bore interest at the rate of 8% per annum and was due in November 2013. Note 29 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. The Company did not record a discount for the conversion feature as the conversion price was greater than the price of the common stock on the issuance date. At maturity, the principal and interest were scheduled to convert to 520,055 shares of common stock but the individual waived the conversion of the principal and accrued interest. At September 30, 2014 the Note 29 balance was $25,000. In February 2015 the loan was repaid full.

 

In August 2013, the Company issued convertible promissory notes (“Note 35-36”) totaling $250,000 to two individuals. The notes bore interest at the rate of 8% per annum and were due in August 2014. The principal and accrued interest thereon were convertible into shares of common stock at the rate of $0.03 per share and automatically convert on the maturity dates unless paid sooner by the Company. The Company did not record discounts for the conversion features as the conversion prices were greater than the prices of the common stock on the issuance dates. At maturity, the principal and interest were scheduled to automatically convert into 4,500,000 shares of common stock but the individuals waived the conversion of the principal and accrued interest. At September 30, 2014, the balance of Notes 35-36 was $250,000. In November 2014 the Company repaid $25,000 of principal on each note and in February 2015 the remaining $225,000 of principal was repaid.

 

Convertible Promissory Note:

 

In October 2012, the Company issued a promissory note to a financial institution (the “Lender”) to borrow up to a maximum of $225,000. The note bears interest so that the Company would repay a maximum of $250,000 at maturity, which correlated to an effective rate of 10.59%. From inception until February 2014, the Company received $175,000. Material terms of the note include the following:

 

1. The Lender may make additional loans in such amounts and at such dates at its sole discretion.

2. The maturity date of each loan is one year after such loan is received.

3. The original interest discount is prorated to each loan received.

4. Principal and accrued interest is convertible into shares of the Company’s common stock at the lesser of $0.069 or 65%-70% (as defined) of the lowest trading price in the 25 trading days previous to the conversion.

5. Unless otherwise agreed to in writing by both parties, at no time can the Lender convert any amount of the principal and/or accrued interest owed into common stock that would result in the Lender owning more than 4.99% of the common stock outstanding.

6. There is a one-time interest payment of 10% of amounts borrowed that is due at the maturity date of each loan.

7. At all times during which the note is convertible, the Company shall reserve from its authorized and unissued common stock to provide for the issuance of common stock under the full conversion of the promissory note. The Company will at all times reserve at least 13,000,000 shares of its common stock for conversion.

8. The Company agreed to include on its next registration statement it files, all shares issuable upon conversion of balances due under the promissory note. Failure to do so would result in liquidating damages of 25% of the outstanding principal balance of the promissory note but not less than $25,000.

               

In October 2014, the remaining balance due on these notes of $9,592 plus accrued interest of $1,499 was converted into 7,920,291 shares of the Company’s common stock.

 

The conversion feature contained in the promissory note is considered to be an embedded derivative. The Company bifurcated the conversion feature and recorded a derivative liability on the consolidated balance sheet. The Company recorded the derivative liability equal to its estimated fair value. Such amount was also recorded as a discount to the convertible promissory note and is being amortized to interest expense using the effective interest method. For the nine and three months ended June 30, 2015, amortization of the debt discount amounted to $7,675 and $0, respectively. For the nine and three months ended June 30, 2014, amortization of the debt discount amounted to $57,766 and $23,017, respectively. At June 30, 2015 and September 30, 2014, the unamortized discount was $0 and $7,675, respectively.

 

The Company is required to mark-to-market the derivative liability at the end of each reporting period. For the nine and three months ended June 30, 2015, the Company recorded a gain on the change in fair value of the conversion option of $5,163 and $-0-, respectively. For the nine and three months ended June 30, 2014, the Company recorded a gain on the change in fair value of the conversion option of $75,174 and $248,240, respectively. As of June 30, 2015 and September 30, 2014 the fair value of the conversion option was $0 and $5,163, respectively.

 

In May 2013, the Company issued a convertible promissory note totaling $293,700 to CCLG in lieu of amounts payable. The note bears interest at the rate of 12% per annum and was originally due November 21, 2013. The maturity date of the note was extended to August 31, 2014. The note is secured by all of the assets of the Company. The note and accrued interest are convertible into shares of common stock at a conversion rate of the lower of $0.04 per share or 80% of the average of the lowest three trading prices in the 20 trading days previous to the conversion but the number of shares that can be issued is limited as defined in the note agreement. In addition, the Company issued a five-year warrant to purchase an additional 50,000 shares of common stock at a per share exercise price of the lower of $0.04 per share or 80% of the average of the lowest three trading prices in the 20 trading days previous to the conversion. The note was not paid at the maturity date but no action was taken by CCLG. During the period from October 1, 2014 through February 25, 2015, the Company repaid the total amount outstanding.

 

The conversion features contained in the promissory note and the warrant were considered to be embedded derivatives. The Company bifurcated the conversion features and recorded derivative liabilities on the consolidated balance sheet. The Company recorded the derivative liabilities equal to their estimated fair value. Such amount was also recorded as a discount to the convertible promissory note and was amortized to interest expense using the effective interest method. For the nine months ended June 30, 2014, amortization of the debt discount amounted to $64,104. The debt discount was fully amortized as of September 30, 2014.

 

The Company is required to mark-to-market the derivative liabilities at the end of each reporting period. For the nine and three months ended June 30, 2015, the Company recorded a gain (loss) on the change in fair value of the conversion option of $(533,393) and $-0-, respectively. For the nine and three months ended June 30, 2014, the Company recorded a gain (loss) on the change in fair value of the conversion option of $28,661 and $(122,889), respectively. As of both June 30, 2015 and September 30, 2014, the fair value of the conversion option was $-0-.

 

At June 30, 2015 and September 30, 2014, the balance of the convertible note was $-0- and $295,617, respectively.

 

NOTE 8 - INCOME TAXES

 

The Company did not incur current tax expense for the nine months ended June 30, 2015 and 2014. The provision for income taxes of $2,829,000 for the nine months ended June 30, 2015 represents deferred taxes. There was no provision for the nine months ended June 30, 2014.

 

At June 30, 2015, the Company had available approximately $3.5 million of net operating loss carry forwards which expire in the years 2028 through 2033. 

 

Significant components of the Company’s deferred tax assets at June 30, 2015 and September 30, 2014 are as follows:

 

	June 30, 2015				September 30, 2014
Net operating loss carry forwards	$	1,412,233			$	2,850,535
Intangible assets		—				1,200,000
Stock based compensation		355,265				355,265
Accrued expenses		446,781				539,912
Total deferred tax assets		2,214,279				4,945,712
Valuation allowance		(2,214,279	)			(2,116,712	)
Net deferred tax assets	$	—			$	2,829,000

 

Due to the uncertainty of their realization, a valuation allowance has been established for all of the income tax benefit for these deferred tax assets as of June 30, 2015.

  

At both June 30, 2015 and September 30, 2014, 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. During the nine months ended June 30, 2015 and 2014, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

 

The Company files its federal income tax returns under a statute of limitations. The 2011 through 2014 tax years generally remain subject to examination by federal tax authorities. The Company has not filed any of its state income tax returns since inception. Due to recurring losses, management believes that once such returns are filed, the Company would incur state minimum tax liabilities that were not deemed material to accrue.  

 

NOTE 9 - STOCKHOLDERS’ DEFICIENCY

 

Preferred Stock:

 

Series A

 

Series A Preferred pays a dividend of 8% per annum on the stated value and have 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.

 

The dividends are cumulative commencing on the issue date whether or not declared. Dividends amounted to $52,955 for both the nine months and $17,652 for both the three months ended June 30, 2015, and 2014. At June 30, 2015 and September 30, 2014, dividends payable total $304,197 and $251,242, respectively, and are included in accrued expenses.

 

At both June 30, 2015 and September 30, 2014, 885,000 shares of Series A Preferred were outstanding.

 

Series B

 

On January 23, 2012, the Company designated a new class of preferred stock called Series B Convertible Preferred Stock (“Series B Preferred”). Four million shares have been authorized with a liquidation preference of $2.00 per share. Each share of Series B Preferred is convertible into ten shares of common stock. Holders of Series B Convertible Preferred Stock have a right to a dividend (pro-rata to each holder) based on a percentage of the gross revenue earned by the Company in the United States, if any, and the number of outstanding shares of Series B Convertible Preferred Stock, as follows: Year 1 - Total Dividend to all Series B holders = .03 x Gross Revenue in the U.S. Year 2 - Total Dividend to all Series B holders = .02 x Gross Revenue in the U.S. Year 3 - Total Dividend to all Series B holders = .01 x Gross Revenue in the U.S. At March 31, 2015, no shares of Series B Preferred are outstanding.

 

Common Stock Issuances:

 

In October 2014, the Company issued 7,920,291 shares of its common stock for the conversion of principal and accreted interest owed to the Lender. $7,920 was credited to common stock and $3,171 to additional paid in capital.

 

On March 31, 2015, the Company issued 9,486,430 shares of its common stock that had previously been classified as common stock to be issued upon conversion of principal and accrued interest owed to a lender. $9,512 was credited to common stock and $348,586 was credited to additional paid in capital.

 

In June 2015, the Company issued 880,664 shares of its common stock that had previously been classified as common stock to be issued upon conversion of principal and accrued interest owed to lenders. $881 was credited to common stock and $43,061 was credited to additional paid in capital.

 

Stock-Based Compensation:

 

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 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.

 

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 that expire on December 22, 2015. On December 10, 2013, the exercise price of the options was changed to $0.035 per share. As a result, the Company revalued the options as required under generally accepted accounting principles and recognized an expense of $27,556. The options were revalued utilizing the Black-Scholes option pricing model with the following assumptions: exercise price: $0.035 - $0.62; expected volatility: 20.71%; risk-free rate: 0.13% - 0.14%; expected term: 1 year.

 

On January 15, 2015, the Company entered into a stock option agreement with an officer of the Company. The agreement grants the Officer an option to purchase 10 million shares of common stock at $0.02 per share. The agreement expires on January 15, 2019. The options were valued utilizing the Black-Scholes option pricing model with the following assumptions: exercise price: $0.02; expected volatility: 22.16%; risk-free rate: .75%; expected term: 3 years. The grant date fair value was $0.02 and the options vest immediately.

 

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.

 

Stock based compensation amounted to $32,365 and $0 for the nine and three months ended June 30, 2015, respectively and $27,556 and $0 for the nine and three months ended June 30, 2014, respectively. Stock based compensation is included in general and administrative expenses.

 

NOTE 10 - RELATED PARTY TRANSACTIONS

 

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 Company also maintains an office in Pennington, New Jersey, which is the materials and testing laboratory. An employee of the Company is an owner of Materials Testing Laboratory.

 

No rent is charged for either premise.

 

NOTE 11 - SUBSEQUENT EVENTS

 

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

 

 

Item 2. 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.

 

Overview 

 

In February 2015, the Asset Purchase Agreement with Amarantus was completed. We valued the agreement at $8.023 million, comprised of cash, Amarantus restricted stock, payment of notes and liabilities and forgiveness of debt. Management believes that this transaction will provide us with adequate funding to continue product development under our current business plan. The proceeds of this agreement greatly enhanced the financial condition of the Company and provides adequate funding to prepare for FDA clinical trials for our new regenerative cell therapy product, NovaDerm™.

 

Our Business Moving Forward

 

We intend to continue to develop and seek FDA approval of cell therapy and biotechnology products.

 

We intend to use some of the proceeds from the Asset Purchase Agreement with Amarantus to develop and commercialize a new cultured skin substitute, NovaDerm™. We began developing this unique cultured skin substitute in 2013 and expect it to be valuable as a biologic in the treatment of burn victims.

 

We are continuing to work with various manufacturers to secure reliable sources for our closed herd proprietary collagen components. This propriety collagen scaffold, which is the starting structure for our product, is designed to promote cellular growth, adhesion and assembly of multiple types of human cells. As developed, we will initially work to gain FDA commercialization approval for our NovaDerm™ cultured skin product utilizing autologous (patient’s own) cells to produce a multilayered living skin. We expect our cultured skin substitute for the treatment of burns will be available in sufficient quantity for a surgeon to do an initial graft about 4 weeks after we receive the first viable healthy skin tissue from the patient. Realizing that the patient may not be able to be scheduled for an exact grafting day a month in advance, we are making efforts to ensure the cultured skin substitute will have an adequate shelf life to meet the variable needs of the patient.

 

We are currently in the process of validating our proprietary collagen scaffold to demonstrate safety and ensure a consistent fully FDA cGMP compliant starting material. FDA regulations now require that any animal component being used for medical applications must have traceability and be obtained from closed herd animals. The FDA has stated that “You should derive source animals only from closed herds with documented health screening programs.” You need to supply this information to FDA as part of the application to FDA (e.g., IND). Therefore, it is essential while qualifying our collagen manufacturer that we only accept fully compliant material in the production of NovaDerm™. As a result of our inability to find a cGMP compliant manufacturer of closed herd collagen, we have begun negotiations with a group who represent a cattle farmer who has agreed to set up a Closed Heard in strict compliance with the policies and procedures set forth by the FDA for registration. This group has already hired a specialist identified by us to review the farm's operations, establish the necessary structure to register the farm and increase the number of cattle for harvesting in 2016. Following negotiations we, and possibly members of our management, may enter into a deal to become a part owners of this vertical business. We expect to have fully compliant “Closed Herd” collagen to be available for our FDA registered cGMP scaffold manufacturer the first quarter 2016.

 

We are also currently working to qualify our cell therapy manufacturer of NovaDerm™ our cultured skin substitute. It is necessary to establish a long-term commitment with a manufacturer while going through the FDA approval process. It is mandatory to ensure continuous support from the biologic manufacturer during the approval process, clinical trials and ultimately, supply of commercial product after FDA approval. It is important, while going through the approval process of the FDA, to use the same manufacturer to produce clinical trial material and the commercialized product.

 

We expect our first cultured skin substitute product to be a multi-layered tissue-engineered skin prepared by utilizing autologous (patient’s own) skin cells. It is a graftable collagen based cultured epithelium implant that produces a skin substitute containing both epidermal and dermal components with a collagen base. Clinically, we expect our Cultured Skin substitute self-to-self skin graft product will behave the same as allograft tissue. Our Autologous cultured skin substitute should not be rejected by the immune system of the patient, unlike with porcine or cadaver grafts. Immune system rejection is a serious concern in Xeno-transplant procedures. The use of our cultured skin substitute does not require any specialized physician training because it is applied the same as a standard allograft procedure.

 

Clinically speaking, a product designed to treat a life threatening condition must be available for the patient when needed. Our Culture skin substitute is being developed to be ready to apply to the patient when the patient is ready for grafting. Regenicin’s NovaDerm™ Cultured Skin Substitute is being designed to be available within the first month of the patient being admitted. Patients with these serious burn injuries may not be in a condition to be grafted on a predefined schedule made more than a month in advance. Therefore, in order to accommodate the patient’s needs, we are striving to ensure that NovaDerm™ will be designed with a shelf life and manufacturing schedule to ensure it is available whether the patient needs it the first month, or any day after, until the patient’s wound is completely covered and closed.

 

We intend to work with the FDA for the development of a cultured skin product. We submitted a RFD (Request for Designation) to the FDA to determine which part(s) of the agency (Biologics, Devices, Drugs or a combination) will be evaluating NovaDerm for product approval. The FDA responded almost immediately to inform us that NovaDerm is designated as a Biologic. Management is quite happy that NovaDerm has received this designation because it will allow us to pursue our Orphan designation for the treatment of Burns covering greater than 30% total body surface area. There are between 40 and 50 thousand patients a year admitted to hospitals with full thickness burns covering greater than 30% of their body. A person with burns greater than 30% is by protocol supposed to be treated in one of the approximately 150 burn centers within the US. We are preparing the documentation to apply for Orphan Designation for the USA and European Union using our internal expertise. We will submit the request when we have qualified our cell therapy manufacturer. In order to obtain Orphan approval to be able to sell NovaDerm we will work with the Office of Orphan products to demonstrate that our NovaDerm is safe and the probable benefit of using NovaDerm for burns outweighs the risks. We hope to obtain Orphan Designation of NovaDerm for burns in 2015.

 

Having NovaDerm™ approved as an Orphan Product would have significant benefits, including 7 years exclusivity with the FDA, 11 years exclusivity after NovaDerm™ is approved as an Orphan product with the European Union generating revenue from sales of product used during the clinical trials and being able to utilize the data from patients from many different hospitals to gain Commercialization Approval. Orphan approval allows the product to be used to treat people a lot earlier than waiting for extensive clinical trials to gain Biological License Approval. The major difference between Orphan Product Approval and a full Biological License Approval is that the Orphan Product has additional FDA reporting requirements and additional procedural administration steps. Orphan Product patient’s data must be reported to the FDA annually. There is a difference between Orphan Designation and Orphan Product Approval. Orphan Designation qualifies your product to get special assistance from the FDA such as grants, and additional guidance in designing your trials and what the FDA expects you to do to gain Orphan Approval. Orphan designation does not give you the ability to sell the product. Orphan Approval is granted when you have demonstrated that your product is safe and has a probable benefit to a patient affected with the specific indication. Orphan Approval means you can begin selling the product.

 

We are also assembling our Investigative New Drug (IND) Biologic application for NovaDerm™ utilizing our internal expertise. This will allow us to move the product through the FDA pipeline with minimal expense. As we approach the clinical trials, we may need to obtain additional outside funding. We hope to receive the approval from the FDA to initiate clinical trials in 2016. We intend to apply for Biological License Approval in 2016.  

 

We have worked very closely with the US patent and trademark office to ensure all necessary documentation has been completed to have NovaDerm registered as Regenicin’s trademark. We expect to have the registration approved in 2016.

 

Our second product is anticipated to be TempaDerm®. TempaDerm® uses cells obtained from human donors to develop banks of cryo-preserved (frozen) cells and cultured skin substitute to provide a continuous supply of non-allogenic skin substitutes to treat much smaller wound areas on patients, such as ulcers. This product has applications in the treatment of chronic skin wounds such as diabetic ulcers, decubitus ulcers and venous stasis ulcers. This product is similar to our burn indication product except for the indications and TempaDerm® does not depend totally on autologous cells. In fact, it could be possible to use the excess cultured skin that was originally produced for use on the patient that donated the cells used to grow the skin. TempaDerm® could take this original cultured skin and use it on a patient other than the original donor. TempaDerm® has the possibility of using banked cells, or even frozen cultured skin substitutes, to carry inventory to satisfy unknown needs or large volumes to meet the demands created in large scale disasters.  

 

We believe this technology has many different uses beyond the burn indication. The other uses include chronic wounds, reconstructive surgery, other complex organs and tissues. Some of the individual components of our cultured skin substitute technology will be developed for devices, such as tendon wraps made of collagen or collagen temporary coverings of large area wounds to protect the patients from infections while waiting for the permanent skin substitute. The collagen technology used for cultured skin substitutes can be used for many different applications in wound healing and stem cell technology and even drug delivery systems.

 

We could pursue any or all of the indications simultaneously if financing permitted, but for now we will seek approval for burns first as an Orphan Biologic Product to establish significant safety data and then Biological License Approval.

 

Results of Operations for the Three and Nine Months Ended June 30, 2015 and 2014

 

We generated no revenues from September 6, 2007 (date of inception) to June 30, 2015. We do not expect to generate revenues until we are able to obtain FDA approval of cell therapy and biotechnology products and thereafter successfully market and sell those products.

 

We incurred operating expenses of $438,502 for the three months ended June 30, 2015, compared with operating expenses of $88,547 for the three months ended June 30, 2014. General and administrative expenses accounted for all of our operating expenses for the three months ended June 30, 2015 and all of our operating expenses for the three months ended June 30, 2014.

 

We incurred a net loss of $456,909 for the three months ended June 30, 2015, as compared to net loss of $308,864 for the three months ended June 30, 2014. Other income and expenses for the three months ended June 30, 2015 consisted of an interest expenses of $18,407. Other income and expenses for the same period ended 2014 consisted of interest expenses of $76,554 and a loss on derivative liabilities of $143,763.

 

Our operating expenses for the nine months ended June 30, 2015 consisted of general and administrative expenses $845,319, research and development of $33,400, and stock based compensation of $32,365. In addition, due to the settlement of the Lonza Litigation, we reversed accounts payable to Lonza in the amount of $973,374. As a result, we experienced income from operations of $62,240. We experienced other expenses in the amount of $58,408 for interest expense and a $528,230 loss on derivative liabilities. In addition, we booked other income in the amount of $6,604,431 representing gain on our sale of assets to Amarantus. We also recorded a $2,829,000 provision for income taxes and $52,955 for preferred stock dividends. For the nine months ended June 30, 2015, our net income attributable to common shareholders was $3,198,128.

 

By comparison, during the nine months ended June 30, 2014, we incurred expenses and a net loss from operations of $576,047, with expenses consisting of general and administrative expenses of $548,491 and stock based compensation of $27,556. We experienced other expenses in the amount of $206,335 for interest expense and a gain on derivative liabilities of $82,961. We also recorded preferred stock dividends of $52,955. Our net loss attributable to common shareholders for the nine months ended June 30, 2014 was $752,576.

 

Liquidity and Capital Resources

 

As of June 30, 2015, we had cash of $1,431,251 and total current assets of $3,079,959. As of June 30, 2015, we had current liabilities of $2,259,173.

 

Operating activities used $1,626,811 of cash for the nine months ended June 30, 2015. This decrease in cash was thus primarily attributable to funding the loss for the period.

 

Investing activities for the nine months ended June 30, 2015 provided a net $3,590,000 primarily from the sale of assets to Amarantus. Financing activities used $523,430 during the same period, primarily as a result of repayments of certain loans and notes.

 

We have issued various promissory notes to meet our short term demands, the terms of which are provided in the notes to the consolidated financial statements accompanying this 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, and implement our business plan. Our long term financial needs are estimated at $8 to $10 million.

 

Based upon our current financial condition, we have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund future 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 as necessary. 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 may be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

Off Balance Sheet Arrangements

 

As of June 30, 2015, there were no off balance sheet arrangements.

 

Going Concern

 

Our consolidated 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 operating losses from inception, 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 consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2015. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2015, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of June 30, 2015, our disclosure controls and procedures were not effective: (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.

 

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending September 30, 2014: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out 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.

 

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. 

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended June 30, 2015 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings 

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us. 

 

Item 1A. Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item.

 

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

 

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

 

For the three months ended June 30, 2015, we issued 880,664 shares of common stock for the conversion of certain notes along with 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.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 formatted in Extensible Business Reporting Language (XBRL).
**Provided herewith

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Regenicin, Inc.
Date:	August 14, 2015
By:	/s/ Randall McCoy
	Randall McCoy
Title:	Chief Executive Officer and Director