PINX:RGIN Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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, 2012
 
[  ] 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)

 

(646) 403 3581
(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 Accelerated filer [ ] Non-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: 87,835,647 shares as of August 20, 2012.

        

 

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 7
Item 4: Controls and Procedures 7
 
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 10
Item 4: Mine Safety Disclosures 10
Item 5: Other Information 10
Item 6: Exhibits 10
2

PART I - FINANCIAL INFORMATION

 

Item 1.      Financial Statements

 

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

 

F-1 Balance Sheet as of June 30, 2012 (unaudited) and September 30, 2011 (audited);
F-2 Statements of Operations for the nine and  three  months ended June 30, 2012 and 2011 and period from September 6, 2007 (Inception) to June 30, 2012 (unaudited);
F-3 Statements of Cash Flows for the nine months ended June 30, 2012 and 2011 and period from September 6, 2007 (Inception) to June 30, 2012 (unaudited); and
F-4 Notes to Financial Statements.

 

These 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, 2012 are not necessarily indicative of the results that can be expected for the full year.

3

REGENICIN, INC.

(A Development Stage company)

BALANCE SHEETS

 

   June 30,  September 30,
   2012  2011
   (unaudited)   
ASSETS          
CURRENT ASSETS          
Cash  $28,924   $4,396 
Prepaid expenses and other current assets   13,387    73,630 
           
Total current assets   42,311    78,026 
           
Intangible  assets   3,007,500    3,007,500 
           
Total assets  $3,049,811   $3,085,526 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
CURRENT LIABILITIES          
Accounts payable  $1,688,241   $739,327 
Accrued expenses   1,037,006    658,251 
Note payable - insurance financing   —      60,243 
Bridge financing (net of discount of $231,430 and -0-)   539,970    —   
Loan payable   68,000    10,000 
           
Total current liabilities   3,333,217    1,467,821 
           
Total  liabilities   3,333,217    1,467,821 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' EQUITY          
Series A 10% Convertible Preferred stock, $0.001 par value, 5,500,000 shares authorized; 1,345,000 issued and outstanding   1,345    1,345 
Common stock, $0.001 par value; 200,000,000 shares authorized; 92,264,007 and 88,236,324 issued, respectively; 83,807,964 and 83,807,964 outstanding, respectively   88,237    88,237 
Common stock to be issued; 4,027,683 and -0- shares   207,634    —   
Additional paid-in capital   7,085,809    6,573,794 
Deficit accumulated during development stage   (7,662,003)   (5,041,243)
Less: treasury stock; 4,428,360 shares at par   (4,428)   (4,428)
           
Total stockholders' equity   (283,406)   1,617,705 
           
Total liabilities and stockholders' equity  $3,049,811   $3,085,526 

 

See Notes to Financial Statements.

F-1

REGENICIN, INC.

(A Development Stage company)

STATEMENTS OF OPERATIONS

 

         September 6, 2007      
   Nine Months  Nine Months  (Inception Date)  Three Months  Three Months
   Ended  Ended  Through  Ended  Ended
   June 30,  June 30,  June 30,  June 30,  June 30,
   2012  2011  2012  2012  2011
   (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
                
Revenues  $—     $—     $—     $—     $—   
                          
Operating expenses                         
Research and development   964,817    —      1,483,717    94,958    —   
General and administrative   1,172,239    2,235,061    4,182,962    411,254    731,206 
Stock based compensation - general and administrative   —      899,314    1,248,637    —      43,323 
                          
Total operating expenses   2,137,056    3,134,375    6,915,316    506,212    774,529 
                          
Loss from operations   (2,137,056)   (3,134,375)   (6,915,316)   (506,212)   (774,529)
                          
Other expense                         
Interest expense, including amortization of beneficial conversion feature   (483,706)   (32,875)   (746,687)   (243,766)   (28,822)
                          
Total Other Expenses   (483,706)   (32,875)   (746,687)   (243,766)   (28,822)
                          
Net loss   (2,620,762)   (3,167,250)   (7,662,003)   (749,978)   (803,351)
                          
Preferred stock dividends   (81,013)   (1,332,444)   (1,452,123)   (26,826)   (1,332,444)
                          
Net loss attibutable to common stockholders  $(2,701,775)  $(4,499,694)  $(9,114,126)  $(776,804)  $(2,135,795)
                          
Basic and diluted loss per share:  $(0.03)  $(0.05)       $(0.01)  $(0.03)
                          
Weighted average number of shares outstanding:                         
Basic and diluted   84,846,355    85,022,991         86,934,548    83,807,964 

 

See Notes to Financial Statements.

F-2

REGENICIN, INC.

(A Development Stage company)

STATEMENTS OF CASH FLOWS

 

         September 6, 2007
   Nine Months  Nine Months  (Inception Date)
   Ended  Ended  Through
   June 30,  June 30,  June 30,
   2012  2011  2012
   (Unaudited)  (Unaudited)  (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES               
Net loss  $(2,620,762)  $(3,167,250)  $(7,662,003)
Adjustments to reconcile net loss to net cash used in operating activities:               
Amortization of debt discount   56,250    —      56,250 
Accrued interest on notes and loans payable   61,778    —      61,778 
Amortization of beneficial conversion feature   353,946    —      605,160 
Warrants issued as part of debt conversion   7,653    —      7,653 
Stock based compensation   —      899,314    1,248,637 
Changes in operating assets and liabilities               
Accounts receivable   —           —   
Prepaid expenses and other current assets   60,243    (93,018)   46,854 
Accounts payable   948,914    433,446    1,688,241 
Accrued expenses   263,059    212,648    898,842 
                
Net cash used in operating activities   (868,919)   (1,714,860)   (3,048,588)
                
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 sale of common stock   —      467,550    3,012,575 
Proceeds from the sale of Series A convertible preferred stock   —      1,165,000    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)
Repayments of notes payable - insurance financing   (60,243)   —      (60,243)
Proceeds from the issuance of notes payable   905,690    115,000    1,920,690 
Repayments of notes payable   (10,000)   (235,000)   (245,000)
Proceeds from advances from related party   58,000    189,211    564,000 
Proceeds from loans payable   —      145,000    145,000 
Proceeds from advances from officer   —      —      22,500 
                
Net cash provided by financing activities   893,447    1,761,384    6,085,012 
                
INCREASE IN CASH   24,528    46,524    28,924 
                
CASH - BEGINNING OF PERIOD   4,396    4,564    —   
                
CASH - END OF PERIOD  $28,924   $51,088   $28,924 
                
Supplemental disclosures of cash flow information:               
Cash paid for interest  $2,019   $6,875      
                
Non-cash activities:               
                
Preferred stock dividends  $81,013   $1,332,444      
                
Shares issued upon conversion of debt and accrued interest  $207,634   $—        
                
Issuance of warrants upon conversion of debt  $7,653   $—        
                
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-3

REGENICIN, INC.

NOTES TO THE FINANCIAL STATEMENTS

(A Development Stage Company)

  (UNAUDITED)

 

NOTE 1 - 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 a product known as PermaDerm.

 

PermaDerm is a tissue-engineered skin substitute 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 that self-to-self skin grafts for permanent skin tissue will not be rejected by the immune system of the patient, unlike with porcine or cadaver grafts in which rejection is an important possibility.

 

NOTE 2 - BASIS OF PRESENTATION

 

The accompanying unaudited 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 footnotes 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 and three months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending September 30, 2012. These unaudited financial statements should be read in conjunction with the audited financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2011, as filed with the Securities and Exchange Commission.

 

Going Concern:

 

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 $7.7 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.

F-4

 

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.

 

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 financial statements.

 

Certain expenses were reclassified in 2011 to conform to the 2012 presentation. There was no effect to the net loss for the nine and three months ended June 30, 2011.

  

NOTE 3 - 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 June 30,
   2012  2011
Options   5,542,688    5,542,688 
Warrants   1,269,842    2,300,067 
Convertible preferred stock   28,554,000    13,300,000 
Convertible debentures   12,660,273    -0- 

 

NOTE 4 - 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 U.S. Food and Drug Administration (FDA”) for the commercial sale of a product known as PermaDerm.

 

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 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.

 

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

 

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.

 

F-5

 

Management 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, management 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 nine months ended June 30, 2012 and 2011.

 

NOTE 5 - NOTES PAYABLE

 

Insurance Financing Note:

 

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

 

Promissory Notes:

 

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 June 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. As of June 30, 2012, the shares have not been issued. As such, the shares have been classified as common stock to be 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 June 30, 2012, the Note 2 balance is $175,000.

 

On January 18, 2012, the Company issued a $165,400 convertible promissory note (“Note 3”) to an individual. Note 3 bears interest at the rate of 5% per annum and is due on June 18, 2012. Note 3 and accrued interest thereon is convertible into units at a conversion price of $2.00 per unit. A unit consists 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 is being amortized over the term of Note 3. At June 30, 2012, the Note 3 balance was $164,739 net of a debt discount of $661.

 

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. As such, the shares have been classified as common stock to be issued. In addition, at March 31, 2012, warrants to purchase 500,000 shares were 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.

F-6

 

In March 2012, the Company issued a series of convertible promissory notes (“Notes 5-9”) totaling $186,000 to four individuals. Notes 5-9 bear interest at the rate of 33% per annum and are due in August and September 2012. Notes 5-9 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 $186,000 to reflect the beneficial conversion features. The discounts are being amortized over the terms of Notes 5-9. At June 30, 2012, the Note 5-9 balances were $118,563, net of debt discounts of $67,437.

 

In April 2012 through June 30, 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 June 30, 2012, the Note 10-18 balances were $67,096, net of debt discounts of $148,804.

 

In April 2012, the Company issued a convertible promissory notes (“Note 19”) totaling $25,000 to an individual for services previous rendered. Note 19 bears interest at the rate of 33% per annum and is due in October 2012. Note 13 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.

 

In July 2012, the Company issued a series of convertible promissory notes (“Notes 20-22”) totaling $75,000 to two 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.

 

NOTE 6 - LOANS PAYABLE

 

Loan Payable:

 

In February 2011, an investor advanced the Company $10,000. The loan does not bear interest and is due on demand. At June 30, 2012, the loan balance is $10,000.

 

Loan Payable - Related Party:

 

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 June 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 June 30, 2012, the loan balance is $23,000.

 

NOTE 7 - STOCKHOLDERS’ EQUITY

 

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. 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.

F-7

In June 2011, the Company issued 1,330,000 shares of Series A Preferred and 665,000 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 Warrant and allocated the total proceeds in accordance with their relative fair value at the time of issuance. The Company valued the warrant at $50,078 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 $1,279,922.

 

The dividends are cumulative commencing on the issue date whether or not declared. Dividends amounted to $81,013 and $26,826 for the nine and three months ended June 30, 2012, respectively. Dividends amounted to $2,444 for both the nine and three months ended June 30, 2011. At June 30, 2012 and September 30, 2011, dividends payable total $107,123 and $26,110, respectively, and are included in accrued expenses.

 

For the nine and three months ended June 30, 2012, dividends and deemed dividends totaled $81,013 and $26,826, respectively. For both the nine and three months ended June 30, 2011, dividends and deemed dividends totaled $1,332,444.

 

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 June 30, 2012 and September 30, 2011, no shares of Series B Preferred are outstanding.

F-8

 

NOTE 8 - LEGAL PROCEEDINGS

 

·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 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, 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 were 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.

 

·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.

 

F-9

 

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 further believes that this action is designed to benefit Lonza in its current lawsuit with other parties related to the original sale of the underlying biotechnology.

 

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. However, if it is ultimately determined that the defenses and claims lack merit and the dispute is resolved in favor of Lonza, there is a significant risk that the Agreement will be terminated. If that happens, the Company would lose its ability to pursue the license and commercialize the technology that forms the basis of the business plan. If Lonza were to prevail, the Company would also face an award or judgment for all past due payments under the Agreement, plus interest, legal fees and court costs.

 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

The Company’s principal executive offices are located in Little Falls, New Jersey. Headquarters are 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. No rent is charged.   

 

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. The principal of Materials Testing Laboratory is also an employee of the Company.

 

No rent is charged for either premise.

 

NOTE 10 - SUBSEQUENT EVENTS

 

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

F-10

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

 

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® The FDA has recently 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 early 2012 with final submission to the FDA for approval for PermaDerm® anticipated by 2013.

 

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. This product has applications in the treatment of chronic skin wounds such as diabetic ulcers, decubitus ulcers and venous stasis ulcers. The U.S. markets are estimated to total more than $7 billion annually. This product is in the early development stage and does not have FDA approval.

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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 $783,587.71 under the Agreement. After extensive discussions and correspondence with Lonza, we responded to the letter 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. We believe that Lonza’s position, as set forth in the above 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, we believe that Lonza’s response is designed to allow it to retain our over $3.5 million in payments along with the biotechnology we expected to purchase as part of the Agreement. We further believe that this action is designed to benefit Lonza in its current lawsuit with other parties related to the original sale of the underlying biotechnology.

 

We acknowledge our obligations to make payments that are called for under the Agreement. However, we believe that we have meritorious defenses and claims to Lonza’s claim of breach under the Agreement, and we intend to pursue these claims and causes of action using all legal means necessary should the issues raised in the above letters not be resolved consensually.

 

We cannot predict the likelihood of prevailing in our dispute with Lonza. However, if it is ultimately determined that our defenses and claims lack merit and the dispute is resolved in favor of Lonza, there is a significant risk that the Agreement will be terminated. If that happens, we would lose our ability to pursue the license and commercialize the technology that forms the basis of our business plan. If Lonza were to prevail, we would also face an award or judgment for all past due payments under the Agreement, plus interest, legal fees and court costs.

 

Results of Operations for the Three and Nine Months Ended June 30, 2012 and 2011

 

We have generated no revenues since the inception of the Company. 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 $506,212 for the three months ended June 30, 2012, compared with operating expenses of $774,529 for the three months ended June 30, 2011. We incurred operating expenses of $2,137,056 for the nine months ended June 30, 2012, compared with operating expenses of $3,134,375 for the nine months ended June 30, 2011. Our operating expenses in 2012 were reduced from 2011 as a result of decreases in expenses related to public relations and marketing support, salaries, wages and payroll taxes, consulting and computer support, and registration penalties and consisted mainly of the following in comparison to our expenses in 2011:

5

 


Operating Expense  
    Three Months
Ended
June 30, 2012 
      Three Months
Ended
June 30, 2011 
      Nine Months
Ended
June 30, 2012 
      Nine Months
Ended
June 30, 2011  
 
Legal and Accounting $ 184,707 $ 120,057 $ 420,702 $ 508,495
Public Relations and Marketing Support (14,760) 116,470 (14,760) 319,412
Salaries, Wages and Payroll Taxes 182,817 270,742 578,162 647,417
Consulting and Computer Support 10,800 70,096 32,600 969,990
Office Expenses and Misc. 8,648 3,287 25,825 25,562
Travel 3,867 10,485 22,653 78,714
Insurance 22,454 15,420 69,008 64,911
Website Expenses 17 4,615 647 4,615
Research and Development 94,958 76,657 964,817 260,344
Employee Benefits 12,704 11,639 37,402 29,732
Registration Penalties - 75,061 - 225,183

 

We incurred stock based compensation of $0 and $43,323 for the three months ended June 30, 2012 and 2011, respectively, from the issuance of common stock, warrants and options to our directors and third party consultants. We incurred stock based compensation of $0 and $899,314 for the nine months ended June 30, 2012 and 2011, respectively, from the issuance of common stock, warrants and options to our directors and third party consultants. Such amounts are included above under consulting.  

 

We incurred other expenses of $243,766 for the three months ended June 30, 2012, as compared to $28,222 for the three months ended June 30, 2011. We incurred other expenses of $483,706 for the nine months ended June 30, 2012, as compared to $32,875 for the nine months ended June 30, 2011. Our other expenses for both periods consisted of interest expenses. Interest expense included $201,108 and $410,196 for the three and nine months ended June 30, 2012, respectively, and $26,000 for both the three and nine months ended June 30, 2011, to reflect the amortization of debt discounts and beneficial conversion features of the various notes payable issued.  

 

We incurred a net loss of $749,978 for the three months ended June 30, 2012, as compared with a net loss of $803,351 for the three months ended June 30, 2011. We incurred a net loss of $2,620,762 for the nine months ended June 30, 2012, as compared with a net loss of $3,167,250 for the nine months ended June 30, 2011. We incurred a net loss of $7,662,003 for the period from inception to June 30, 2012.

 

Liquidity and Capital Resources

 

As of June 30, 2012, we had cash of $28,924 and $4,396 as of September 30, 2011.

 

Operating activities used $868,919 in cash for the nine months ended June 30, 2012. The decrease in cash was primarily attributable to funding the loss for the period.

 

Financing activities provided $893,447 for the nine months ended June 30, 2012 and consisted of $905,690 in proceeds from notes payable and $58,000 in loans from a related party, offset by the repayment of the insurance premium financing of $60,243 and the repayment of other loans of $10,000.

 

During the current reporting period and thereafter, we received funds under the following notes and loans:

 

  1. In April 2012 through June 30, 2012, we issued a series of convertible promissory notes totaling $220,000 to nine individuals. The notes bear interest at the rate of 33% per annum and are due in October through November 2012. The notes 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 us.
6

 

  1. In April 2012, we issued a convertible promissory note totaling $25,000 to an individual for services previous rendered. This note bears interest at the rate of 33% per annum and is due in October 2012. The note and accrued interest thereon is convertible into shares of common stock at the rate of $.05 per share and automatically converts on the maturity dates unless paid sooner us..

  1. In July 2012, we issued convertible promissory notes totaling $75,000 to two individuals. These notes bear interest at the rate of 10% per annum and are due in January 2013. These notes 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 us.

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.

 

Off Balance Sheet Arrangements

 

As of June 30, 2012, there were no off balance sheet arrangements.

 

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 $7.7 million for the period September 6, 2007 (inception date) through June 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.

 

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, 2012. 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, 2012, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

7

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, 2012, 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, 2012: (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.  In January 2011, we hired an outsourced controller to improve the controls for accounting and financial reporting.

 

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, 2012 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

8

PART II – OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

Aside from what follows, 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.

 

On February 28, 2011, our board of directors, Mr. Randall McCoy, and our company (collectively the “Plaintiffs”) filed an amended complaint in the Eighth Judicial District Court of Nevada (Case No. A-11-634976-C) against Joseph Connell, our former President. The Plaintiffs in the amended complaint are requesting declaratory relief from certain allegations Mr. Connell has made in relation to partnership claims with Mr. McCoy, board membership, and stock ownership in our company. Mr. Connell has requested that the case be removed to federal court in Nevada and has requested that our complaint be dismissed for lack of jurisdiction.

 

On March 11, 2011, Mr. Connell filed a complaint in the Supreme Court of the State of New York (Index No. 103007/11) against Mr. McCoy, Regenicin, Inc., Joseph Rubinfeld, John Weber and Craig Eagle. The complaint alleges, among other things, that Mr. Connell is entitled to 50% of Mr. McCoy’s stock in our company. The complaint requests an accounting from us and requests that we be enjoined from transferring title to Mr. McCoy’s shares.

 

On June 8, 2011, an agreement was reached (the “Agreement”) to dismiss the members of the Company’s board of directors (excluding Mr. McCoy) and the Company from the case currently pending in the United States District Court for the Southern District of New York. As part of this Agreement, the Company also agreed to dismiss its action originally brought against Mr. Connell in the United States District Court for the District of Nevada. Since then, the dispute continued involving only Mr. Connell and Mr. McCoy as parties in the action pending in the United States District Court for the Southern District of New York. As part of the Agreement, Mr. McCoy has agreed to lock-up 25,000,000 of his personal shares pending the outcome of the case.

 

On November 17, 2011, there was a formal settlement conference before a Magistrate Judge. On April 18, 2012, a settlement was reached. As a final resolution, a Confidential Settlement Agreement and General Release (the “Settlement Agreement”) was signed by and among Mr. McCoy, Mr. Connell, our company, and our 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 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% shareholder of our company.

 

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.

 

During the current reporting period, certain convertible noteholders converted a total of $151,384 in principal and accrued interest into 3,027,683 shares of our common stock.  

9

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
10

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 20, 2012
   
By: /s/ Randall McCoy
  Randall McCoy
Title: Chief Executive Officer and Director

 

11

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