Notes to the Consolidated Financial Statements
Note 1 - Nature of Business and Organization
BioNeutral Group, Inc (the “Company”) is a specialty chemical company seeking to develop and commercialize a novel combinational chemistry-based technology which it believes in certain circumstances may neutralize harmful environmental contaminants, toxins and dangerous micro-organisms, including bacteria, viruses and spores. The Company’s business operations are conducted through BioNeutral Laboratories Corporation USA, a corporation organized in Delaware in 2003 (“BioLabs”).
On January 30, 2009, the Company, formerly called Moonshine Creations Inc. (“Moonshine”), entered into a share exchange agreement (the “Share Exchange Agreement”) with BioLabs pursuant to which the Company agreed to issue to the shareholders of BioLabs 44,861,023 shares of its common stock (the “Share Exchange”).
Since the owners and management of BioLabs possessed voting and operating control of the combined company after the Share Exchange, the transaction constituted a reverse acquisition for accounting purposes, as contemplated by FASB ASC 805-40 and corresponding ASC 805-10-55-10, 12 and 13. Under this accounting, the entity that issues shares (Moonshine – the legal acquirer) is identified as the acquiree for accounting purposes. The entity whose shares are acquired (BioLabs) is the accounting acquirer.
In addition, Moonshine was characterized as a non-operating public shell company, pursuant to SEC reporting rules. The SEC staff considers a reverse-acquisition with a public shell to be a capital transaction, in substance, rather than a business combination. The transaction is effectively a reverse recapitalization, equivalent to the issuance of stock by the private company (BioLabs) for the net monetary assets of the shell corporation (Moonshine) accompanied by a recapitalization. The accounting is similar to that resulting from a reverse acquisition, except that the transaction was consummated at book value and no goodwill or intangible assets were recognized.
For SEC reporting purposes, BioLabs is treated as the continuing reporting entity that acquired the Company (the historic shell registrant). All reports filed after the transaction have been prepared as if BioLabs (accounting acquirer) were the legal successor to Moonshine’s reporting obligation as of the date of the acquisition. Therefore, these financial statements and all such statements filed subsequent to the transaction reflect the historical financial condition, results of operations and cash flows of BioLabs, for all periods presented.
Moonshine changed its name to BioNeutral Group, Inc. in the month prior to the exchange, to facilitate the Share Exchange. References to “Moonshine” in this description of the accounting treatment is included to add clarity to the separation of the independent entities involved in the Share Exchange, prior to such exchange.
Approximately 8% of BioLabs shareholders at October 31, 2013 and 2012, have not participated in the exchange of their shares of common stock of BioLabs for shares of common stock of Moonshine, which was originally 14% of BioLabs shareholders. Those shareholders are recognized as a Non-Controlling interest in the Company’s consolidated financial statements in accordance with FASB ACS 805-40-25-2. However, the shares representing ownership of the Company reflect the combined entity after the Share Exchange transaction, while BioLabs shares represent ownership of only that legal entity.
In connection with the reverse acquisition and recapitalization, all share and per share amounts of BioLabs were retroactively adjusted to reflect the legal capital structure of Moonshine pursuant to FASB ASC 805-40-45-1.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The accompanying financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. All significant intercompany transactions and balances were eliminated.
Revenue recognition
The revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities and includes shipping and handling costs, which generally are included in the list price to the customer. Our policy is to recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104 based on when (i) persuasive evidence of an arrangement exists, (ii) delivery or performance has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured, which is normally the date the product is shipped.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount the Company expects to collect. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of $0 and $44,672 at October 31, 2013, and 2012, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. For financial statement purposes, investments in money market funds are considered a cash equivalent and are included in cash and cash equivalents. The Company maintains it cash and cash equivalents at high credit quality institutions, with balances, at times, in excess of federally insured limits. As of October 31, 2012, the Company did not exceed the federally insured limits. Management believes that the financial institution that holds our deposits is financially sound and therefore poses minimal credit risk. At October 31, 2013 and 2012, the Company did not hold any cash equivalents.
Inventory
Inventories are stated at the lower of cost or market determined by the first-in, first-out method. In the normal course of business, when a customer places an order, the Company will place an order for manufacturing with its contract manufacturer. Inventory consists of finished goods and raw materials, both of which are immaterial and warehoused at our contract manufacturer.
Non-Controlling Interest
A Non-Controlling Interest (“non-controlling interest”) was created as a result of the Company’s reorganization and recapitalization with a public shell corporation. The non-controlling interest arose because the Company’s records indicated that initially 14% of the shareholders of the accounting acquirer in the transaction, BioLabs, did not participate in the exchange of their shares of common stock of BioLabs for shares of common stock of the Company. In all material respects, the shares of the Company and the shares of the common stock of BioLabs included in the non-controlling interest represent different legal instruments conveying mirror ownership claims to the same underlying net assets and operations, as reflected in these consolidated financial statements.
Long-Lived Assets
Long-lived assets, such as property and equipment and definite-life intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with FASB ASC 360-10-35-17 thru 35-35 “Measurement of an Impairment Loss.” The Company assesses the impairment of the assets based on the undiscounted future cash flow the assets are expected to generate compared to the carrying value of the assets. If the carrying amount of the assets is determined not to be recoverable, a write-down to fair value is recorded. Management estimates future cash flows using assumptions about expected future operating performance. Management’s estimates of future cash flows may differ from actual cash flow due to, among other things, technological changes, economic conditions or changes to the Company’s business operations.
Intangible Assets
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Intellectual Property is generally amortized over their respective legal or contractual lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted. The Company continually evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the Consolidated Balance Sheets. During its annual impairment testing of its intellectual property, the Company did not identify an impairment loss.
Property and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. The Company generally uses the following depreciable lives for its major classifications of property and equipment:
Description
|
|
Useful Lives
|
Furniture and Fixture
|
|
7 years
|
Computer hardware
|
|
3 years
|
Ordinary maintenance and repair expenses are charged to operations when incurred.
Use of Estimates
The preparation of the financial statements in conformity with Accounting Principles generally accepted in The United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities, share based payment arrangements, imbedded conversion feature, deferred taxes and related valuation allowances and assumptions used in impairment analysis. Certain of our estimates, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.
Advertising expenses
The Company expenses all advertising costs as incurred. Advertising expense was immaterial for the years ended October 31, 2013 and 2012, respectively.
Research and Development
In accordance with ASC Topic 730 research and development costs are expensed as incurred. Research and development expenses consist of purchased technology (including but not limited to intellectual property), purchased research and development rights and outside services for research and development activities associated with product development. Research and Development expense were $213,423 and $237,031 for the years ended October 31, 2013 and 2012, respectively.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will classify as income tax expense any interest and penalties. The tax years ending 2007, 2008, 2009, 2010, 2011, 2012 and 2013 are still open for review by the various tax jurisdictions since none of the tax returns have been filed. The state jurisdiction the Company is required to file in is New Jersey, and the tax years ending 2007, 2008, 2009, 2010, 2011, 2012 and 2013 are still open for review. The Company has no material uncertain tax positions for any of the reporting periods presented.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our long-term credit obligations approximate fair value because the effective yields on these obligations, are comparable to rates of returns for instruments of similar credit risk.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Financial liabilities measured at fair value on a recurring basis are summarized below:
|
|
Fair value measurements at October 31, 2013
|
|
|
|
|
|
Quoted prices in
|
|
|
|
|
|
|
|
|
|
active markets for
|
|
Significant
|
|
Significant
|
|
|
|
|
|
unobservable
|
|
other
|
|
observable
|
|
|
|
|
|
identical assets
|
|
inputs
|
|
inputs
|
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Derivative liability
|
|
$
|
129,425
|
|
|
|
|
|
$
|
129,425
|
|
The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock, and are classified within Level 3 of the valuation hierarchy.
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
--
|
|
|
$
|
--
|
|
Aggregate fair value of derivative issued
|
|
|
337,221
|
|
|
|
--
|
|
Issuance date charge for difference between fair value and note proceeds
|
|
|
171,389
|
|
|
|
--
|
|
Change in fair value of derivative included in results of operations
|
|
|
(379,185
|
)
|
|
|
--
|
|
Ending Balance
|
|
$
|
129,425
|
|
|
$
|
--
|
|
Stock-Based Compensation
The Company recognizes compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, the Company calculates the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of its common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, the Company calculates the fair value of the award on the date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time as the nonemployee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities.”
Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
Net income (loss) per share
The Company utilizes FASB ASC 260,
Earnings per Share
,
to calculate net income or loss per share. Basic income or loss per share is computed by dividing the income or loss available to common stockholders (as the numerator) by the weighted-average number of shares of common stock outstanding (as the denominator). Diluted income or loss per share is computed similar to basic income or loss per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all potential common stock (including common stock equivalents) had all been issued, and if such additional shares of common stock were dilutive. Under FASB ASC 260, if the additional shares of common stock are not dilutive, they are not added to the denominator in the calculation. Where there is a loss, the inclusion of additional shares of common stock is anti-dilutive (since the increased number of shares reduces the per share loss available to common stock holders). The Company incurred a net loss for the years ended October 31, 2013 and 2012 therefore, common stock equivalents have been excluded from the calculation of diluted loss per share, since they would be aniti-dilutive.
The following table outlines the common stock equivalents outstanding as of October 31, 2013 and October 31, 2012
.
|
|
10/31/2013
|
|
|
10/31/2012
|
|
Convertible Series A Preferred Stock – Non Controlling Interest
|
|
|
594,930
|
|
|
|
594,930
|
|
Convertible Series B Preferred Stock
|
|
|
6,686,375
|
|
|
|
6,686,375
|
|
Convertible Series C Preferred Stock
|
|
|
7,010,125
|
|
|
|
7,010,125
|
|
Convertible Series D Preferred Stock
|
|
|
16,031,375
|
|
|
|
17,006,375
|
|
Stock Options
|
|
|
170,399,844
|
|
|
|
6,142,809
|
|
Convertible Loans
|
|
|
1,574,942,304
|
|
|
|
13,347,354
|
|
|
|
|
1,775,664,953
|
|
|
|
50,787,968
|
|
The Convertible Series A Preferred shares are currently held by the Non-Controlling interests until such time as they are converted into the Company’s common shares. At October 31, 2013 the Company did not possess an adequate amount of authorized common stock to supply common stock for all of the convertible instruments.
Segment Information
Accounting Standards Codification subtopic 280-10, Segment Reporting (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed therein materially represents all of the financial information related the Company’s principal operating segments.
The Company with its limited resources is currently operating in one segment and reporting unit. As it matures it will look to organize the Company into various reporting units as it starts to develop and ascertain its markets and avenues of distribution and product offerings. Therefore, it anticipates in the future it may be operating in multiple reporting units.
Recent Accounting Pronouncements
The FASB has issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). U.S. GAAP does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.
In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
Note 3 – Going Concern
The Company's financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has had no significant revenues and has generated losses from operations. In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources and to develop a consistent source of revenues. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its strategic plan and/or recognize revenue from its intangible assets and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. There can be no assurance the Company will be able to continue as a going concern.
At October 31, 2013, the Company had negative working capital of $2,571,270. For the year ended October 31, 2013 the Company incurred an operating loss of $3,190,789 and since inception has an accumulated a deficit of $57,889,075.
The Company had $702 of cash at October 31, 2013. Cash used by operations for fiscal 2013 was $711,473. The principal uses of funds were for consulting services supporting the development of our business plan, legal, and accounting fees in connection with being a public company and daily operations of the business, including rent and travel and laboratory costs.
In fiscal 2013, the Company raised $25,000 of cash from the issuance of our capital stock to fund operations and received $686,500 from the issuance of convertible debentures.
The Company is not currently generating significant revenues and relies on raising new capital to fund our ongoing operations and development of our strategic business objectives. We have been able to use proceeds from the sale of our shares of common stock to fund a substantial balance of our operating costs. On December 12, 2012 we issued a convertible promissory note to JMJ financial in the amount of $250,000 of which we received draw payments of $160,000, and we made repayments of $90,000. We expect to receive similar draw payments from JMJ under the note at various intervals during the calendar year 2014. Recently we have issued promissory notes in the favor of GEL for $167,920.
Management believes that it will be able to generate significant sales by the fourth quarter of 2014 providing for sufficient cash flows to supplement our equity and debt financings. If we are able to execute our plan, the Company can begin to accumulate cash reserves. There is no assurance based on current plans, however that funds will be sufficient to meet anticipated needs through fiscal year 2014, and we may need to raise additional capital during fiscal 2014 to fund the full costs associated with growth and development. There can be no assurances that will be successful in raising additional capital on favorable terms if at all. If the Company is unable to secure additional capital, it may be required to curtail its business development initiatives, impair its intellectual property and take additional measures to reduce cost in order to conserve cash.
Note 4 - Property & Equipment
Property and equipment consisted of the following:
|
|
10/31/2013
|
|
|
10/31/2012
|
|
Computer Hardware
|
|
$
|
4,233
|
|
|
$
|
4,233
|
|
Furniture and Fixtures
|
|
|
1,494
|
|
|
|
1,494
|
|
|
|
|
5,727
|
|
|
|
5,727
|
|
Less: Accumulated depreciation & amortization
|
|
|
(5,370
|
)
|
|
|
(5,158
|
)
|
|
|
$
|
357
|
|
|
$
|
569
|
|
Depreciation expense incurred during the years ended October 31, 2013 and 2012 amounted to $212 and $212, respectively.
Note 5 – Intellectual Property
The Company has several patent applications pending regarding proprietary chemical formulations that the Company believes are capable of neutralizing noxious chemicals and eliminating harmful microbes. The Company capitalized the costs of acquired technology, know-how and trade secrets and identifiable costs incurred to develop, file and defend the Company’s Intellectual Property and new patent or provisional patent applications (collectively “Intellectual Property”) in accordance with FASB ASC 350. Periodic gross carrying amounts and related accumulated amortization were as follows:
|
|
10/31/2013
|
|
|
10/31/2012
|
|
Gross Carrying Amount
|
|
$
|
15,256,688
|
|
|
$
|
15,289,188
|
|
Accumulated Amortization
|
|
|
(6,007,190
|
)
|
|
|
(5,298,466
|
)
|
Net Carrying Amount
|
|
$
|
9,249,498
|
|
|
$
|
9,958,222
|
|
The Company follows FASB ASC 350-30-35 and amortizes the costs of its Intellectual Property over the shorter of its specific useful life, or 20 years. The Company is amortizing its Intellectual Property over 20 years,
with no anticipated residual value. Amortization expense for the years ended October 31, 2013 and 2012 was $708,724 and $708,724,
respectively.
Estimated amortization expense is as follows
10/31/2014
|
|
$
|
708,724
|
|
10/31/2015
|
|
$
|
708,724
|
|
10/31/2016
|
|
$
|
708,724
|
|
10/31/2017
|
|
$
|
708,724
|
|
10/31/2018
|
|
$
|
708,724
|
|
On February 28, 2011, the Company received approval and registration from the
Environmental Protection Agency (“EPA”) in response to the Company's regulatory application for its Ygiene
®
206 formulation. T
he Company has secured 32 state approvals to market and distribute Ygiene®
206. These approvals are primarily in states east of the Mississippi River. The Company is pursuing approvals in the remaining 18 states as needed.
Note 6 - Related Party Payables
The Company recorded interest on promissory notes entered into with former members of the Board of Directors who resigned their positions with the Company on January 29, 2009. For the years ended October 31, 2013 and 2012, the Company recorded interest of $2,072 and $2,072, respectively related to these notes.
Note 7 - Stock Based Compensation
The Company issues shares of its common stock to employees and non-employees as compensation for services provided. Stock based compensation related to employees is accounted for in accordance with FASB ASC 718-10 and ASC 505-50 for non-employees. All shares, except those listed below, issued during fiscal years 2013 and 2012 were fully vested upon grant of the shares or no later than the respective year end dates.
Employees and Board Members
Measurement of compensation cost related to shares of common stock issued to employees is based on the grant date fair value of the shares. Fair value was determined through the use of quoted prices in the trading market for the Company’s shares (OTCBB) or arms-length exchanges of shares for cash in private transactions, in periods that quoted market prices were not available.
On October 18, 2012, the Board of Directors of the Company approved a stock compensation plan for professionals and consultants. Pursuant the approval of the plan, on November 7, 2012, the Company filed with the Securities and Exchange Commission a registration statement for issuance of up to ten (10) million shares pursuant to the stock compensation plan.
During the year ended October, 31, 2013, the Company issued 3,539,971 of its S-8 registered common stock to employees for compensation and out of pocket expenses of $215,342 for the year ended October 31, 2013. The shares were valued and issued based on the preceding ten (10) day average of the prevailing quotation prices for the Company's stock.
On February 27, 2013, the Company issued an aggregate of 1,075,375 shares of its restricted common stock to members of its Board of Directors as compensation for their participation the Board, and recorded $78,500 of expenses of board of directors’ fees. The shares were valued and issued at $.07 per share based on the preceding ten (10) day average of the prevailing quotation prices for the Company's stock.
The Company issued 500,000 shares each, respectively, to Frank Battafarano and Ronald Del Mauro on November 21, 2011 pursuant to their agreements to participate as members of the Company’s board of directors. The shares for services were valued at $.08 per share reflective of the value for the Company’s common stock established by the Vinfluence transactions for an initial total cost to the Company of $80,000. Subsequently, Mr.Battafarano and Mr. Del Mauro resigned prior to the end of their terms, and on April 8, 2013, the Company canceled the original certificates and reissued the shares in amounts of 160,000 and 200,000, respectively, which resulted in a reduction of the total cost of these agreements of $47,200 for the year ended October 31, 2012.
On April 8, 2013, the Company issued 160,000 and 250,000 shares of its restricted common stock to Frank Battafarano and Ronald Del Mauro, respectively. In connection with the shares referenced above, the Company recorded board of director fee expenses of $32,800. Mr. Battafarano and Mr. Del Mauro were former members of the Board. The shares issued as referenced above were issued to compensate Mr. Battafarano and Mr. Del Mauro for partial completion of their agreed upon terms as members of the Board, and replace share certificates previously issued, and which have been subsequently returned to the Company and cancelled, in the amount of 500,000 shares each to both Mr. Battafarano and Mr. Del Mauro, which were originally issued to them at the inception of their terms as members of the Board. The shares were valued and issued at $.08 based on the original service agreements with each.
Note 8 - Stockholders’ Equity (and Non-Controlling Interest)
Common Stock
On August 23, 2013, the Company filed a Schedule 14C Information Statement with the SEC to notify the stockholders of the Company of Management’s plan to increase the number of authorized shares of common stock from two hundred million (200,000,000) to one billion (1,000,000,000) shares with the Secretary of State of Nevada. At a meeting held on July 10, 2013, the Board authorized management to increase the number of shares authorized to one billion shares. The additional eight hundred million (800,000,000) shares of Common Stock so authorized will be available for issuance by the Board for stock splits or stock dividends, acquisitions, raising additional capital, stock options or other corporate purposes. The additional shares of Common Stock could be used for potential strategic transactions, including, among other things, acquisitions, strategic partnerships, joint ventures, restructurings, business combinations and investments, although there are no immediate plans to do so. Assurances cannot be provided that any such transactions will be consummated on favorable terms or at all, that they will enhance stockholder value or that they will not adversely affect the Company's business or the trading price of the Common Stock. The purposes for increasing the authorized shares include providing available shares for (i) the exercise of all outstanding options; (ii) the conversion of outstanding convertible promissory notes and deferred compensation agreements; (iii) the conversion of the Series A, B, C and D Convertible Preferred Stock; (iv) future issuances of stock options pursuant to employees; and (v) issuances to satisfy conversions of future convertible debt or convertible preferred stock. We mailed the Notice of Stockholder Action by Written Consent to the Stockholders on or about September 4, 2013. We filed the Certificate of Amendment to the Amended Certificate of Incorporation of the Company (the "
Amendment
") with the Secretary of State of the State of Nevada which became effective on September 30, 2013.
As of October 31, 2013, the Company has 447,200,000 shares of its authorized common stock on reserve to satisfy outstanding convertible promissory notes to Asher Enterprises and JMJ Financial.
On May 13, 2013, the Company issued 260,000 shares of its restricted common stock to a law firm, for settlement of legal fees of $7,800. The shares were valued and issued at $.03 per share based on the prevailing quotation prices for the Company's stock.
During the year ended October 31, 2013, the Company issued 5,338,728 shares of its S-8 registered common stock to sales consultants for their fees of $268,603 for the year ended October 31, 2013. The shares were valued and issued based on the preceding ten (10) day average of the prevailing quotation prices for the Company's stock.
During the year ended October 31, 2013, the Company issued 181,818 shares of its S-8 registered common stock to a consultant for accounting services fees of $8,040. The shares were valued and issued based on the preceding ten (10) day average of the prevailing quotation prices for the Company's stock.
During the year ended October 31, 2013, the Company issued 68,180,042 shares of common stock to Asher for settlement of the gross proceeds of $261,490 which includes accrued interest of $13,280 at an annual interest rate of 8% and $$21,250 of penalty interest for late filing of the Company’s Form 10-Q for the Three Months Ended April 30, 2013.
On October 14, 2013, the Company issued 7,692,308 shares of its common stock to Southridge Partners II LLP for the settlement of $10,000 of fees associated with the Equity Purchase Agreement. The shares were valued at $.0013 per share representing the approximate trading price of the Company’s common stock at the time of issuance.
On September 12, 2013, the Company entered into a stock purchase agreement with Randy McNeil (the “McNeil SPA”). Pursuant to the McNeil SPA, the Company received $5,000 in proceeds in exchange for 1,000,000 shares to be issued of the Company’s restricted common stock. The purchase price per share of the common stock is $.005 which is equal to the closing trading price of the Company’s common stock on September 10, 2013. The 1,000,000 shares of restricted stock were issued on November 21, 2013.
On August 16, 2013, the Company entered into a stock purchase agreement with Bernie Casamento (the “Casamento SPA”). Pursuant to the Casamento SPA, the Company received $10,000 in proceeds in exchange for 1,466,276 shares to be issued of the Company’s restricted common stock. The purchase price per share of the common stock is $.0068 which is equal to the average closing trading price of the Company’s common stock for the five (5) preceding days of the closing on August 16, 2013. The 1,466,276 shares of restricted stock were issued on November 21, 2013.
On August 16, 2013, the Company entered into a stock purchase agreement with Bob Rutherford (the “Rutherford SPA”). Pursuant to the Rutherford SPA, the Company received $10,000 in proceeds in exchange for 1,466,276 shares to be issued of the Company’s restricted common stock. The purchase price per share of the common stock is $.0068 which is equal to the average closing trading price of the Company’s common stock for the five (5) preceding days of the closing on August 16, 2013. The 1,466,276 shares of restricted stock were issued on November 21, 2013.
During the year ended October 31, 2013, the Company issued 41,000,000 shares of its common stock to JMJ Financial for conversion of principal and unpaid interest of $53,041.
Preferred Stock
On August 15, 2013 the Company entered into a Series F preferred stock agreement (the “Agreement”) with the Company’s President and Chief Executive Officer, Mark Lowenthal (the “Series F Holder”), pursuant to which the Series F Holder was issued all of the fifty one (51) authorized shares of Series F Preferred Stock, with a stated value of $0.001 per share (the “Series F Preferred Stock”). The Series F Holder was issued fifty-one (51) shares of Series F Preferred Stock as partial consideration for past and future services rendered. The Series F Preferred Stock has the rights, privileges, preferences and restrictions set for in the Certificate of Designation filed by the Corporation with the Nevada Department of State on August 19, 2013. The Series F Preferred Stock has no rights to dividends, no liquidation rights and is not convertible into common stock of the Company. Each one (1) share of the Series F Preferred shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding shares of Common Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator. The Series F Preferred Stock effectively gives Mr. Lowenthal the ability to control the outcome of any matters submitted to the Company’s shareholders.
On October 31, 2011, the Board of Directors of the Company approved the designation of the following Series of Preferred Stock:
|
1
|
Two hundred thirteen thousand five hundred (213,500) shares of Series B Preferred Stock. Each share of Series B Preferred Stock is convertible into 125 shares of the Company's common stock. The basis for the shares is $.08 per share based on the conversion formula of 125 shares of common stock per share of Series B Preferred Stock with a stated value of $10.00 per share.
|
|
2
|
One hundred thousand (100,000) shares of Series C Preferred Stock. Each share of Series C Preferred Stock is convertible into 125 shares of the Company's common stock. The basis for the shares is $.08 per share based on the conversion formula of 125 shares of common stock per share of Series B Preferred Stock with a stated value of $10.00 per share.
|
|
3
|
Two hundred thirty one thousand one hundred (231,100) shares of Series D Preferred Stock. Each share of Series D Preferred Stock is convertible into 125 shares of the Company's common stock. The basis for the shares is $.08 per share based on the conversion formula of 125 shares of common stock per share of Series B Preferred Stock with a stated value of $10.00 per share.
|
|
4
|
One hundred forty thousand (140,000) shares of Series E Preferred Stock. Each share of Series E Preferred Stock is convertible into the Company's common stock at a conversion price equal to seventy five percent (75%) of the average closing bid price of the Company's common stock, based on the prior 10-day closing price, subject to a floor of $0.08 per share.
|
In November 2011, the Company initiated a plan to restructure most aspects of management and operations. Pursuant to the plan, the Company retained new management and board of director’s representatives with experience in acute care hospitals, long-term health care and consumer oriented hygiene products. In addition, on November 2, 2011 the Company entered into definitive financing and strategic distribution agreements with Vinfluence Pty Ltd ("Vinfluence"), New South Wales, Australia. The agreements provide for the assumption of, and indemnification for, $2,374,932 of accounts payable and accrued compensation and the assumption of, and indemnification for, $2,070,271 of convertible loans and $2,400,000 of equity capital. In exchange for cash and future royalties, the Company has also signed a 10-year licensing and distribution agreement with Vinfluence for exclusive manufacturing and distribution in Asia and non-exclusive manufacturing and distribution rights in Europe and sales to the US Military.
In connection with the Vinfluence Agreements, on November 7, 2011, the Company issued 213,491 shares of Series B Preferred Stock to Vinfluence in exchange for their purchase and assumption of $2,134,914 of accounts payable and certain convertible notes payable. In addition, on November 7, 2011, the Company issued 231,029 shares of Series D Preferred Stock to Vinfluence in exchange for their purchase and assumption of $2,310,289 of certain accounts payable, accrued compensation and convertible notes payable. At October 31, 2012, the Company has received confirmed settlements and releases from debt holders of debt associated with Series B Preferred Stock and Series D Preferred Stock of $1,384,876 and $1,533,654, respectively.
During the year ended October 31, 2012, the Company received conversion notices from Vinfluence in aggregate for 298,897 shares of Series B Preferred Stock and Series D Preferred Stock which are convertible into 125 shares of common stock for each share of the Preferred Stock. In satisfaction of the conversion notices, the Company issued 37,362,125 shares of common stock to Vinfluence.
During the year ended October 31, 2012, the Company issued 100,000 shares of the Company’s Series C Preferred Stock for gross proceeds of $1,000,000 to Vinfluence.
On April 12, 2013, the Company entered into a Settlement Agreement, Global Release Cancellation of Preferred Stock Purchase Agreement, Preferred Stock Drawdown Agreement, The Agreement to Assign and Settle Notes and Agreement to License Invention by and between the Company and Vinfluence Pty Ltd (the "Global Agreement"). The Global Agreement settles the claims of each of the Company and Vinfluence which had been the subject of litigation. The Agreement also terminates the Preferred Stock Purchase Agreement, the Preferred Stock Drawdown Agreement, the Agreement to Assign and Settle Debt, the Agreement to Assign and Settle Notes Agreement and the Vinfluence License Agreement (collectively, the "Vinfluence Agreements"). As a result of the Global Agreement, the Company will cancel an aggregate of 178,042 shares of Series B and Series D Preferred Stock that had been issued to Vinfluence. The only Series B and Series D Preferred Stock that remains outstanding (an aggregate of 67,581 shares) represents debt or notes that were actually settled by Vinfluence. Each share of Preferred Stock cancelled was convertible into 125 shares of the Company's common stock thus the cancellation of the Vinfluence Agreements results in significantly less dilution than if the Preferred Stock had been converted. As part of the Global Agreement, the Company will issue Vinfluence an aggregate of 2,000,000 shares of Common Stock. Further, pursuant the Global Agreement, $136,848 of debt remains to be settled and released associated with the Series D Preferred Stock. As of October 31, 2013 the preferred shares have not been cancelled or common shares issued.
Included in stockholder’s equity is Series A Preferred Stock that is convertible into common stock of BioLabs at a rate of 10 shares of common stock for each share of preferred stock.
BioLabs is authorized to issue 5,000,000 shares of preferred stock, $0.001 par value, of which 800,000 shares are designated as Convertible Series A Preferred Stock. The BioLabs’ Certificate of Incorporation authorizes the Board of Directors to determine the preferences, limitations and relative rights of any class or series of preferred stock prior to issuance. Each such class or series must be given distinguishable designated rights prior to issuance. As of October 31, 2013 and 2012, 59,484 shares of the Company’s Series A Preferred Stock were issued and outstanding, respectively.
Through the date of this report, the rights and preferences of the outstanding preferred stock are identified below:
Convertible Series A Preferred Stock:
|
1.
|
800,000 Authorized shares.
|
|
2.
|
Holders of shares of Series A Preferred Stock have the right to vote and shall be entitled to the number of votes equal to the largest number of full shares of Common Stock into which such shares of Series A Preferred could be converted.
|
|
3.
|
Each share of Convertible Series A Preferred Stock is convertible into 10 shares of common stock of BioNeutral Laboratories Corp, which can be exchanged on a 1 for 1 basis with BioNeutral Group, Inc.’s common stock.
|
|
4.
|
Liquidation preference equal to 250% of the stated value of $7.21 of the shares.
|
|
5.
|
No dividends are issuable to any shareholders who rank junior to the preferred shares.
|
|
6.
|
Upon an initial public offering or if a significant trading market develops and other parameters occur in relation to the Company's common stock, each preferred share shall be mandatorily converted into 10 shares of common stock.
|
|
7.
|
Par value of $0.001.
|
Convertible Series B,C,D Preferred Stock:
|
1.
|
Authorized shares of 213,491, 100,000 and 231,029 of Series B, C and D, respectively.
|
|
2.
|
Non voting.
|
|
3.
|
Each share of Convertible Series B, C, D Preferred Stock is convertible into 125 shares of common stock of BioNeutral Group, Inc.
|
|
4.
|
Liquidation preference equal to 250% of the stated value of $10.00 of the shares.
|
|
5.
|
No dividends are issuable.
|
|
7.
|
Par value of $0.001.
|
During fiscal year ended October 31, 2010 the Company exchanged shares with several of the BioLabs preferred and common stockholders, all of whom exchanged their shares at a ratio of 1 share of preferred stock for 10 shares of common stock and 1 to 1 common exchange, except for four preferred stockholders and common stockholders of BioLabs who were issued an aggregate of 3,598,800 shares of common stock. These four shareholders exchanged their shares at a ratio of 200 shares of common stock for 1 share of preferred stock and a 1 to 1 common share exchange. Although all of the exchanged shares are reflected in the financial statements as issued and outstanding, the issuance of shares to the four holders who exchanged at the higher exchange ratio is subject to dispute. As a result of the above transaction, the Company is disputing the issuance of 2,634,730 shares of common stock. A resolution of this dispute is currently being pursued by the Company. However the exact nature and effect of such a resolution on the financial statements of the Company is not currently known. In this regard, a prospective resolution could ultimately produce various financial statement effects including, but not limited to a reduction in the Company’s issued and outstanding common stock and an increase to earnings per share or no effect at all.
During the years ended October 31, 2013 and 2012, no holders of our preferred shares exchanged Series A Preferred shares into shares of common stock.
Non-Controlling Interest
In connection with the reverse acquisition disclosed in Note 1, initially approximately 14% of BioLabs’ common shareholders did not participate in the exchange of their shares of BioLabs common stock for shares of common stock of the Company. Those shareholders are recognized as a non-controlling interest in the Company’s consolidated financial statements in accordance with FASB ACS 805-40-25-2. The assets, liabilities and operations underlying the shares of BioLabs and the Company are identical. However, the shares representing ownership of the Company reflect the combined entity after the Share Exchange transaction, while BioLabs shares included in the non-controlling interest held by the non-controlling interest represent ownership of that legal entity.
Non-Controlling Interest at October 31, 2010
|
|
$
|
570,301
|
|
Non-Controlling Interest Converted
|
|
|
(25
|
)
|
Non-Controlling interest Share of Net Loss for the Year ended October 31, 2011
|
|
|
(241,693
|
)
|
Non-Controlling Interest at October 31, 2011
|
|
|
328,583
|
|
Non-Controlling interest Share of Net Loss for the Year ended October 31, 2012
|
|
|
(219,981
|
)
|
Non-Controlling Interest at October 31, 2012
|
|
|
108,602
|
|
Non-Controlling interest Share of Net Loss for the nine months ended October 31, 2013
|
|
|
(269,303
|
)
|
Non-Controlling Interest at October 31, 2013
|
|
$
|
(160,701
|
)
|
The Series A Preferred Stock is recognized in the Non-Controlling Interest. If the 59,484 shares of preferred stock were fully converted into shares of BioLabs common stock and Preferred Shareholders did not elect to exchange those shares for Company common stock, the Non-Controlling interest would be 8.44% as of October 31, 2013 and 2012.
Note 9 - Taxes
The Company did not file federal tax returns for the fiscal years ended December 31, 2007, the ten months ended October 31, 2008 and the fiscal years ended October 31, 2009, 2010, 2011, 2012 and 2013. These returns are not expected to report any tax due. The Company has its primary operations in the State of New Jersey and is required to file New Jersey corporate income tax returns. The Company has not filed any New Jersey State tax returns. Since the Company would have incurred tax losses for each of the years for which returns have not been filed, it anticipates that only minimal taxes could be due, including any interest and penalties that might be assessed.
The Company is not in discussions with any tax authorities whereby any settlements over past due taxes are in progress.
The income tax provision (benefit) consists of the following:
|
|
October 31, 2013
|
|
|
October 31, 2012
|
|
Federal
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(2,431,832
|
)
|
|
|
1,961,982
|
|
State and Local
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(424,855
|
)
|
|
|
342,770
|
|
Change in valuation allowance
|
|
|
2,856,688
|
|
|
|
(2,304,752
|
)
|
Income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
The following is a reconciliation of the expected tax expense (benefit) on the U.S. federal statutory rate to the actual tax expense (benefit) reflected in the statement of operations:
|
|
Years Ended
|
|
|
|
October 31, 2013
|
|
|
October 31, 2012
|
|
U.S. federal statutory rate
|
|
|
(34
|
%)
|
|
|
(34
|
%)
|
State income tax, net of federal benefit
|
|
|
(5.9
|
)
|
|
|
(5.9
|
)
|
Change in valuation allowance
|
|
|
89.5
|
|
|
|
(88.4
|
)
|
Intellectual property deferred tax adjustment
|
|
|
(57.8
|
)
|
|
|
128.2
|
|
Stock-based compensation deferred tax adjustment
|
|
|
6.3
|
|
|
|
-
|
|
Discount on convertible debt
|
|
|
5.2
|
|
|
|
-
|
|
Other permanent items
|
|
|
(3.3
|
)
|
|
|
.1
|
|
Income Tax provision (benefit)
|
|
|
0
|
%
|
|
|
0
|
%
|
As of October 31, 2013 and 2012, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:
|
|
Years Ended
|
|
|
|
October 31, 2013
|
|
|
October 31, 2012
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
Net operating loss carryovers
|
|
$
|
16,652,999
|
|
|
$
|
15,756,864
|
|
Intangible asset amortization
|
|
|
2,454,372
|
|
|
|
705,402
|
|
Allowance for doubtful accounts
|
|
|
-
|
|
|
|
17,842
|
|
Accrued compensation
|
|
|
390,954
|
|
|
|
68,564
|
|
Interest on convertible debt
|
|
|
211,004
|
|
|
|
125,470
|
|
Stock-based compensation
|
|
|
22,120
|
|
|
|
200,619
|
|
Change in fair value of derivative liability
|
|
|
15,280
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
19,746,729
|
|
|
|
16,874,761
|
|
Valuation allowance
|
|
|
(19,731,449
|
)
|
|
|
(16,874,761
|
)
|
Deferred tax assets, net of valuation allowance
|
|
$
|
15,280
|
|
|
$
|
-
|
|
|
|
Years Ended
|
|
Deferred Tax Liabilities
|
|
October 31, 2013
|
|
|
October 31, 2012
|
|
Discount on convertible debt
|
|
$
|
(15,280
|
)
|
|
$
|
-
|
|
Total deferred tax liabilities
|
|
|
15,280
|
|
|
|
-
|
|
Net deferred tax asset (liability)
|
|
$
|
-
|
|
|
$
|
-
|
|
For the years ended October 31, 2013 and October 31, 2012, the Company had approximately $41.7 million and $39.5 million in U.S. federal and state net operating loss carryovers (“NOLs”), respectively, which begin to expire 20 years from the original due date the tax returns are filed. The NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than fifty percent change in ownership as determined under the regulations. The Company has performed a preliminary review and has determined that the NOLs are not currently subject to limitation. The Company has not filed any of its federal or state tax returns and the net operating loss carryovers will not be available to offset future taxable income, if any, until the tax returns are filed.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on this assessment, management has established a full valuation allowance against all of the deferred tax assets for each period because it is more likely than not that all of the deferred tax assets will not be realized. The change in valuation allowance for the years ended October 31, 2013 and 2012 is $2,856,688 and $2,304,752, respectively.
Note 10 - Related Party Transactions
Related Party Events for Fiscal Year Ended October 31, 2013
On April 12, 2013, the Company entered into a Settlement Agreement, Global Release Cancellation of Preferred Stock Purchase Agreement, Preferred Stock Drawdown Agreement, The Agreement to Assign and Settle Notes and Agreement to License Invention by and between the Company and Vinfluence Pty Ltd (the "Global Agreement"). The Global Agreement settles the claims of each of the Company and Vinfluence which had been the subject of litigation. The Agreement also terminates the Preferred Stock Purchase Agreement, the Preferred Stock Drawdown Agreement, the Agreement to Assign and Settle Debt, the Agreement to Assign and Settle Notes Agreement and the Vinfluence License Agreement (collectively, the "Vinfluence Agreements"). As a result of the Global Agreement, the Company will cancel an aggregate of 178,042 shares of Series B and Series D Preferred Stock that had been issued to Vinfluence. The only Series B and Series D Preferred Stock that remains outstanding (an aggregate of 67,581 shares) represents debt or notes that were actually settled by Vinfluence. Each share of Preferred Stock cancelled was convertible into 125 shares of the Company's common stock thus the cancellation of the Vinfluence Agreements results in significantly less dilution than if the Preferred Stock had been converted. As part of the Global Agreement, the Company will issue Vinfluence an aggregate of 2,000,000 shares of Common Stock.
During the year ended October 31, 2012, the Company received conversion notices from Vinfluence in aggregate for 298,897 shares of Series B Preferred Stock and Series D Preferred Stock which are convertible into 125 shares of common stock for each share of the Preferred Stock. In satisfaction of the conversion notices, the Company issued 37,362,125 shares of common stock to Vinfluence.
On December 6, 2012, the Company entered issued a new promissory note (the “Francis Note”) to Michael D. Francis (“Francis”), the Company’s principal stockholder in the amount of $409,252. The Francis Note includes all amounts previously owed and due to Mr. Francis. The Francis Note also includes $185,000 of new funding provided by Mr. Francis. The Francis Note is due on May 6, 2014. The Francis Note bears interest at 18% per annum. Mr. Francis has the right to convert the principal and interest into the Company’s common stock at $.055 per share which is equal to 75% of the closing price of the Company’s common stock or the 10 preceding days prior to December 6, 2012.
During the years ended October 31, 2013 and 2012, $56,090 and $4,499 of accrued interest was added to the principal amount of the Francis Note.
Note 11 – Notes Payable
On October 15, 2013, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Asher Enterprises, Inc., a Delaware Corporation (the “Holder”) for the sale and issuance of an 8% convertible promissory note in the principal amount of $42,500 (the “Note”). The Purchase Agreement became effective on October 23, 2013 when the transaction closed. The principal balance of the Note is convertible into common stock, $0.00001 par value, of the Company, at the election of the Holder, beginning 180 days after the issuance of the Note. The conversion price of the Note shall be equal to 51% multiplied by the market price (as defined in the Note). The Note matures on July 17, 2014. The Company has the right to prepay the principal and interest at a premium depending on the date that it is prepaid. Interest on the Note accrues at a rate of 8% per annum. The Note contains customary default provisions, including provisions for potential acceleration of the Note, a default premium, and default interest of 22%.
On May 2, 2013, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Asher Enterprises, Inc., a Delaware Corporation (the “Holder”) for the sale and issuance of an 8% convertible promissory note in the principal amount of $42,500 (the “Note”). The Purchase Agreement became effective on May 13, 2013 when the transaction closed. The principal balance of the Note is convertible into common stock, $0.00001 par value, of the Company, at the election of the Holder, beginning 180 days after the issuance of the Note. The conversion price of the Note shall be equal to 51% multiplied by the market price (as defined in the Note). The Note matures on February 6, 2014. The Company has the right to prepay the principal and interest at a premium depending on the date that it is prepaid. Interest on the Note accrues at a rate of 8% per annum. The Note contains customary default provisions, including provisions for potential acceleration of the Note, a default premium, and default interest of 22%. Subsequent to October 31, 2013, the note was converted into 194,566,197 shares of the Company’s common stock.
On February 25, 2013, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Asher Enterprises, Inc., a Delaware Corporation (the “Holder”) for the sale and issuance of an 8% convertible promissory note in the principal amount of $42,500 (the “Note”). The Purchase Agreement became effective on March 18, 2013 when the transaction closed. The principal balance of the Note is convertible into common stock, $0.00001 par value, of the Company, at the election of the Holder, beginning 180 days after the issuance of the Note. The conversion price of the Note shall be equal to 58% multiplied by the market price (as defined in the Note). The Note matures on November 27, 2013. The Company has the right to prepay the principal and interest at a premium depending on the date that it is prepaid. Interest on the Note accrues at a rate of 8% per annum. The Note contains customary default provisions, including provisions for potential acceleration of the Note, a default premium, and default interest of 22%. The note was converted into 50,725,355 shares of the Company’s common stock in tranche’s during 2013.
On October 31, 2012, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Asher for the sale and issuance of an 8% convertible promissory note in the principal amount of $53,000 (the “Note”). The Purchase Agreement became effective on November 2, 2012 when the transaction closed. The principal balance of the Note is convertible into common stock, $0.00001 par value, of the Company, at the election of the Holder, beginning 180 days after the issuance of the Note. The conversion price of the Note shall be equal to 58% multiplied by the market price (as defined in the Note). The Note matures on August 2, 2013. The Company has the right to prepay the principal and interest at a premium depending on the date that it is prepaid. Interest on the Note accrues at a rate of 8% per annum. The Note contains customary default provisions, including provisions for potential acceleration of the Note, a default premium, and default interest of 22%. The note was converted to 11,832,072 shares of the Company’s common stock in tranche’s during 2013.
The Company issued an unsecured promissory note to Asher Enterprises, Inc. (“Asher”, the “Holder”) on September 20, 2012 which resulted in gross proceeds to the Company of $53,000. The note bears an 8% annual interest rate, is due and payable with unpaid interest in cash on June 24, 2013, and is reported in the Company’s balance sheet as Notes Payable – Short Term. The Holder may convert from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the Issue Dates and ending on the Maturity Dates the unpaid principal amount and interest into shares of the Company’s common stock equal to the Conversion Price which is the product obtained by multiplying 65% by the Market Price (as defined in the notes) and then dividing the then outstanding principal amount of the note by the Conversion Price as of the date of such conversion. The note was converted into 2,667,895 shares of the Company’s common stock in tranche’s during 2013.
The Company issued a convertible promissory note to Asher on July 11, 2012 which issuance resulted in gross proceeds to the Company of $83,500. The note bears an 8% annual interest rate, is due and payable with unpaid interest in cash in April 13, 2013, and is reported in the Company’s balance sheet as Current Portion of Notes Payable. The Holder may convert from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the issue date and ending on the maturity date the unpaid principal amount and interest into shares of the Company’s common stock equal to the Conversion Price which is the product obtained by multiplying 65% by the Market Price (as defined in the notes) and then dividing the then outstanding principal amount of the note by the Conversion Price as of the date of such conversion. The note was converted into 2,954,720 shares of the Company’s common stock in tranche’s during 2013.
On December 12, 2012, BioNeutral Group, Inc. (the “Company”) issued a promissory note (the “JMJ Note”) in the principal amount of $250,000 to JMJ Financial (“JMJ”), of which $135,000 has been received through the date of this report. The maturity date is one year from the date of each payment. JMJ Note is interest free if repaid within 90 days and if not paid within 90 days it bears interest at 10%. The principal and any accrued interest are convertible into the Company’s common stock at the lower of $.09 per share of 70% of the lowest trade price in the 25 days prior to conversion. JMJ has piggyback registration rights with respect to the shares into which the JMJ Note is convertible. During the year ended October 31, 2013 the Company received six notices of conversion from JMJ, and pursuant to those notices issued 41,000,000 shares of common stock to settle loan proceeds in the collective amount of $53,041. At October 31, 2013 the JMJ aggregate loan balance was $111,959 including accrued interest of $30,000.
On June 1, 2013, the Company entered into a Note Satisfaction and Exchange Agreement with Herb Kozlov, a shareholder of the Company, for the satisfaction of a promissory note issued by the Company on December 6, 2010 in exchange for cash proceeds of $50,000. Pursuant to the Note Satisfaction and Exchange Agreement, the Company planned to issue 2,500,000 shares of its restricted common stock to Mr. Kozlov as satisfaction of the principal amount of the note of $50,000 plus accrued and unpaid interest of $10,750 for a total of $60,750. Subsequently the Company was unable to issue the shares of restricted common stock due to Mr. Kozlov due to the fact that the Company no longer possessed enough shares authorized with the State of Nevada with which to issue Mr. Kozlov’s shares. On August 23, 2013, Mr. Kozlov terminated the Note Satisfaction and Exchange Agreement for lack of performance on the part of the Company for failure to issue the shares within the time period prescribed under the Note Statisfaction and Exchange Agreement. Mr. Kozlov and the Company agreed to have the note remain as currently payable on the books of the Company with interest to be accrued to date, and also agreed to restructure the Note Satisfaction and Exchange Agreement when the Company possesses the requisite number of shares authorized with the State of Nevada with which to issue the shares due to Mr. Kozlov. Subsequently on November 11, 2013, the Company issued a Promissory Note to Herb Kozlov(the “Kozlov Note”), for the satisfaction of a promissory note issued by the Company on December 6, 2010. Pursuant to the Kozlov Note, the Company promises to pay $75,000.00 plus any accrued and unpaid interest on June 1, 2014. In addition, due to the failure by the Company to issue the shares pursuant to the Note Satisfaction and Exchange Agreement, the Company added liquidated damages to the Kozlov note in the amount of 25% of the outstanding accrued principal and interest balance of the December 6, 2010 promissory note, calculated as of May 31, 2013. Interest will accrue at the rate of fourteen (14%) per annum. Mr. Kozlov will have the right to receive payment of the Kozlov Note in shares of common stock of the Company at the lower of $.03 per share, or the closing price of such shares on the day proceeding the date when the notice of full or partial conversion is tendered.
On December 6, 2012, the Company entered issued a new promissory note (the “Francis Note”) to Michael D. Francis, the Company’s principal stockholder in the amount of $409,252. The Francis Note includes all amounts previously owed and due to Mr. Francis. The Francis Note also includes $185,000 of new funding provided by Mr. Francis. The Francis Note is due on May 6, 2014. The Francis Note bears interest at 18% per annum. Mr. Francis has the right to convert the principal and interest into the Company’s common stock at $.055 per share which is equal to 75% of the closing price of the Company’s common stock or the 10 preceding days prior to December 6, 2012.
On July 1, 2013 (the “Inception Date”), the Company entered into a promissory note modification agreement (the “Francis Modification”) with Michael D. Francis. The Francis Modification includes all amounts previously owed and due to Mr. Francis pursuant to the promissory note dated December 6, 2012 issued by the Company to Mr. Francis (the “December Note”) plus accrued and unpaid interest of $17,367 through June 30, 2013 for a total due and outstanding under the December Note of $426,619 (the “December 2012 Note Balance”). Since the execution of the December Note, Mr. Francis has made several additional cash advances to the Company during the calendar year 2013 up through and including July 31, 2013 totaling $131,000 (the “2013 Advances”). The Company has agreed to accrue unpaid interest at the rate of eighteen percent (18%) per annum on through June 30, 2013 on the 2013 Advances (the “Interest On 2013 Advances”). The sum of the 2013 Advances and Interest On 2013 Advances is $134,298 (the “2013 Advances Balance Due”). The sum of the December 2012 Note Balance and the 2013 Advances balance due is $560,918. In consideration for reduction of the interest rate to be accrued on the unpaid principal balance from eighteen (18%) to eight percent (8%) and the extension of the promissory note maturity date to July 1, 2015, the Company agreed to revise the conversion price from $.055 per share of the Company’s common stock to $.005 per share which is equal to the average closing trading price of the Company’s common stock for the 5 preceding days of the Inception Date, and to grant Mr. Francis a security interest in the Company’s assets. At October 31, 2013 the aggregate loan balance was $610,851 including accrued interest of $58,651.
On July 16, 2013, the Company issued a convertible promissory note (the “Casserly Note”) to James Casserly in the amount of $25,000. The Casserly Note is due on July 15, 2014, and bears interest at 18% per annum. Mr. Casserly has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to 50% of the average closing price of the Company’s common stock for the 10 preceding days of the Maturity Date of July 15, 2014. The balance outstanding at October 31, 2013 was $26,238 including accrued interest of $1,238.
On January 31, 2013, the Company issued a convertible promissory note to Ray Dunning in the amount of $23,600, due on February 28, 2013 bearing interest at 8% per annum. Mr. Dunning has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to $.08 the average closing price of the Company’s common stock for the 10 preceding days of January 31, 2013. As of October 31, 2013 the promissory note was in default which was waived by Mr. Dunning, and subsequently on January 14, 2014, Mr. Dunning assigned his promissory note to GEL Properties, LLC (“GEL”).
On February 28, 2013, the Company issued a convertible promissory note to Ray Dunning in the amount of $23,600, due on March 31, 2013 bearing interest at 8% per annum. Mr. Dunning has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to $.0001, a price agreed to between the Company and Mr. Dunning. As of October 31, 2013 the promissory note was in default which was waived by Mr. Dunning, and subsequently on January 14, 2014, Mr. Dunning assigned his promissory note to GEL.
On March 29, 2013, the Company issued a convertible promissory note to Ray Dunning in the amount of $23,600, due on April 30, 2013 bearing interest at 8% per annum. Mr. Dunning has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to $.0001, a price agreed to between the Company and Mr. Dunning. As of October 31, 2013 the promissory note was in default which was waived by Mr. Dunning, and subsequently on December 18, 2013, Mr. Dunning assigned his promissory note to GEL.
On April 30, 2013, the Company issued a convertible promissory note to Ray Dunning in the amount of $23,600, due on May 31, 2013 bearing interest at 8% per annum. Mr. Dunning has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to $.03, a price agreed to between the Company and Mr. Dunning. As of October 31, 2013 the promissory note was in default which was waived by Mr. Dunning, and subsequently on January 8, 2014, Mr. Dunning assigned his promissory note to GEL.
At October 31, 2013, the aggregate Ray Dunning Loan balance was $97,079 including accrued interest of $2,679.
On August 19, 2013, the Company entered into and issued a convertible promissory note (the “McNeil Note”) to Randy McNeil in the amount of $15,000. The McNeil Note is due on August 18, 2014, and bears interest at 18% per annum. Mr. McNeil has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to 50% of the average closing price of the Company’s common stock for the 10 preceding days of the Maturity Date of August 18, 2014.
During fiscal years ended October 31, 2010 and 2011 the Company entered into several convertible note agreements with Capara Investments (“Capara”). These notes mature 5 years from the date of issuance and bear interest at 8% per annum. Upon consummation of a qualified financing, the convertible notes shall automatically be exchanged for, at the sole discretion of the issuer, into securities on the same terms and conditions on those received by investors in such qualified financing of exchanged for a number of shares at an exchange price which equals the lower of $0.69 and the fair market value of the stock on the exchange date.
D
erivative
F
inancial
I
nstrument
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815,
Derivatives and Hedging
which requires issuers of financial statements to make a determination as to whether (1) an embedded conversion meets the definition of a derivative in its entirety and (2) the derivative would qualify for a scope exception to derivative accounting, which includes evaluating whether the embedded derivative would be considered indexed to the issuer’s own stock.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as separate derivatives in the event such derivatives would not be classified in stockholders’ equity if they were free standing. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other applicable US GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides for an exception to this rule if a debt host instrument is deemed to be a conventional debt instrument.
The Company evaluated the conversion option embedded in its Convertible notes in accordance with the provisions of ASC 815 and determined that on the conversion date, the conversion option will have all of the characteristics of a derivative in its entirety and does not qualify for an exception to the derivative accounting rules. Accordingly, the embedded conversion option in the Convertible notes are classified as derivative liabilities at the conversion dates and are marked to market through earnings at the end of each reporting period. The fair value of the conversion option was determined using the intrinsic value method which the Company believes approximate the results obtained using the Binomial Lattice model. The gross proceeds from the issuance of the Convertible notes were recorded net of a discount of $337,221 related to the derivative liability. The debt discount will be charged to amortization of debt discount ratably over the term of the Convertible notes utilizing the interest method. Additionally, the Company recorded a discount in the amount of $206,248 in connection with the initial valuation of the beneficial conversion feature of a Convertible note to be amortized utilizing the interest method of accretion over the expected term of the note. The Company recorded an aggregate amortization of the debt discount in the amount of $481,290 for the year ended October 31, 2013. The remaining unamortized discount was $91,167 at October 31, 2013. The change in derivative liability was $379,185 during the year ended October 31, 2013 and is recorded in the statement of operations.
Note 13 – Commitments & Contingencies
Operating Leases
The Company renewed its annual lease agreement for its office and laboratory space in Newark, New Jersey. The lease term was for the twelve months September 1, 2013 to August 31, 2014. The monthly rent is $3,019 per month. On December 1, 2013, the Company terminated the lease of the office space by mutual consent. The new lease agreement is for the laboratory space at a monthly rental of $1,851 through August 31, 2014.
On November 1, 2011, the Company rented executive office space in Morristown, New Jersey for a period of one year. The monthly rent was $4,998 per month. Effective September 1, 2012 the Company reduced the size of the rental space to $2,651 per month. The Company arranged for a three month extension of the rental agreement which expired on January 31, 2013, and has since vacated the space.
The following table summarizes the Company’s future minimum lease payments under operating leases agreements for the one year subsequent to October 31, 2013:
Year Ended:
|
|
|
|
|
October 31, 2014
|
|
$
|
|
|
Rent expense for fiscal years ended October 31, 2013 and 2012 was $47,264 and $79,374, respectively.
Litigation
On November 26, 2012, the Company filed a complaint against Raj Pamani, a shareholder and former director of the Company in the Superior Court of New Jersey Essex County: Chancery Division (“the Complaint”). Included also as defendants were several entities to which in 2009 the Company awarded approximately 13 million shares of its common stock in consideration for consulting contracts which the Company has concluded were fraudulently induced and were later deemed to be worthless (the “Defendant Entities”). By causing the Company to enter into the contracts to its detriment in favor of Mr. Pamani’s and the Defendant Entities self-enrichment, the Company seeks to recover damages incurred from the actions of Mr. Pamani and the Defendant Entities as a result of self-dealing, breach of fiduciary duty, breach of loyalty and fraud. As this matter unfolds, the Company may pursue and recover damages incurred from other parties that come to its attention for their participation.
On October 1, 2009, the SEC issued a formal order of investigation to the Company regarding possible securities laws violations by us and other persons. The investigation concerns the process by which the Company became a publicly traded entity, trading in the Company’s shares, and disclosure and promotion of developments in the Company’s business. The SEC has requested that the Company deliver certain documents to the SEC. The Company has, and will continue to fully cooperate with the SEC with respect to its investigation.
The Company has incurred, and may continue to incur costs that may be significant in responding to such investigation. Any adverse findings by the SEC in connection with such investigation could have a material adverse impact on the Company's business, including the Company's ability to continue to operate as a publicly traded company.
In April 2005, the Company filed in the US Patent and Trademark Office (the “USPTO”) an application for the registration of the trademarks BioNeutral™, Ogiene
®
and Ygiene
®
, based on its intent to use each of these marks in commerce. In April 2006, the USPTO issued notices of allowance signifying that each of these trademarks was entitled to registration after timely submission of statements of use, including evidence that such trademarks have been properly used in commerce. From June through November of 2008, however, the Company’s applications for each of these trademarks were declared abandoned by the USPTO, since the Company inadvertently failed to timely file the appropriate statements of use with respect to each trademark within the six-month period from the date the USPTO issued the respective notices of allowance. In July 2009, the Company again submitted applications for each of these trademarks as well as the Company’s tagline
SCIENCE TO SAVE LIVES & PROTECT THE ENVIRONMENT
®
; however, the Company learned that PURE Bioscience, a company focused on the development and commercialization of bioscience products, had filed application for the registration of the trademarks BioNeutral™ and Ygiene
®
prior to the Company’s resubmission of its applications. Subsequently in 2011, the Company received trademark registration from the USPTO for Ygiene
®
, Ogiene
®
and the Company’s tagline
SCIENCE TO SAVE LIVES & PROTECT THE ENVIRONMENT
®
. The Company intends to pursue with the Trademark Trial and Appeal Board an opposition to PURE Bioscience's application with respect to BioNeutral™. The Company cannot assure you that it will be successful with such opposition on a timely basis, if at all. In May 2011, the Company received notice that PURE Bioscience filed a petition with the USPTO for cancellation of the Company’s Ygiene
®
registration. On November 14, 2013 the USPTO issued an order for dismissal of PURE Bioscience’s petition to for cancellation of the Company’s Ygiene
®
registration.
Other than the foregoing, the Company is not a party to, and none of the Company’s property is the subject of, any pending legal proceedings other than routine litigation that is incidental to the Company’s business.
Employment Agreements
On July 9, 2012, the Company announced that, effective July 2, 2012, Mr. Mark Lowenthal, a member of the Company’s Board of Directors, has agreed to serve as the Company's President and Chief Executive Officer. The term of Mr. Lowenthal's employment shall be indefinite. Mr. Lowenthal's compensation shall consist of a $300,000 per annum base salary, except that Mr. Lowenthal shall receive a base salary of $150,000 per annum, with the remainder being deferred until such time as the Company has at least $4,000,000 in gross revenues or raises at least $3,000,000 in financing. Mr. Lowenthal shall also be entitled to a bonus in an amount not to exceed 25% of his base salary in the event that the Company reaches certain performance goals. Mr. Lowenthal shall also be granted options to purchase 5% of the outstanding capital stock of the Company at a price of $0.10 per share, which options shall vest at an annualized rate of 25% per year. At October 31, 2013, the options have not been granted. Mr. Lowenthal shall also be entitled to a one-time success fee in the amount of $5,000,000 if the Company is sold or merged during the term of his employment, provided that the Company is valued at $100,000,000 or more in connection with such sale or merger (if the value is between $75,000,000 and $99,999,999.99 then the success fee will be pro-rated).
Distribution Agreement
On April 12, 2013 and in connection with the Global Agreement, the Company also entered into distribution agreement (the "New Distribution Agreement") with White Charger Limited, a New Zealand company whereby White Charger has the right to distribute the Company's products in Australia, New Zealand, Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Burma, New Caledonia, Kiribati, the Marshal Islands, Micronesia, Nauru, Palau, Papua New Guinea, Solomon Islands, Tuvalu, Pitcairn, Henderson, Mauritius and Ocneo. This is a much narrower territory than the original licensing agreement and does not include China, Taiwan, Hong Kong or Japan. It also does not include any option for Europe. No intellectual property of the Company is transferred to White Charger. The New Distribution Agreement requires White Charger to purchase at least $500,000 of the Company's products during the first 24 months of which $175,000 must be purchased during the first 12 months of the New Distribution Agreement. To date there have been no purchases of the Company’s products. The Initial Term of the New Distribution Agreement is for five (5) years and can be extended for an additional five years if White Charger purchases at least $3,000,000 of product during the Initial Term. The New Distribution Agreement also contains a non-competition agreement on behalf of White Charger.
Other Contingencies
Approximately 4.8 million shares issued in the Share Exchange were issued by the then transfer agent to stockholders of BioLabs for whom the Company does not have records as having consented to the Share Exchange. The Company currently holds approximately 92% of the outstanding interests in its subsidiary, BioLabs. The Company did not receive consents to the Share Exchange from all common and preferred shareholders of BioLabs, and the Company has accounted for those shareholders who did not sign consents as holders of the remaining 8% outstanding interests in BioLabs. The Share Exchange consents did not specify the number of shares of BioLabs common stock to be exchanged by the consenting shareholder and did not affirmatively make the representation and warranties to be made by our stockholders as set forth in the Share Exchange. In light of such omissions, there can be no assurances that a shareholder will not challenge the validity of its consent and request a rescission offer in respect of shares of common stock issued to such person. There can also be no assurances that in light of the content of such Shareholder consent, the Company had a basis for a valid private placement of its common stock issued in the Share Exchange, which if such were the case, may negatively affect our status as a publicly traded company.
In addition, the Company believes that the shareholders who consented to the Share Exchange and were issued shares of Company common stock failed to deliver the stock certificates representing their shares of common stock and Series A Preferred Stock of BioLabs and may claim they also have an ownership interest in BioLabs. Although the Company would challenge any such claims, it cannot assure investors that it would prevail, in which case the Company’s percentage ownership interest in BioLabs would decrease.
Searchhelp, Inc. Royalty Rights
On February 3, 2004, the Company’s subsidiary, Environmental Commercial Technology, Corp. (“ECT”), entered into an agreement with Searchhelp, Inc. (“Searchhelp”). Searchhelp paid cash and issued shares of its common stock and stock warrants to ECT in order to acquire a royalty equal to 5% of the gross sales of a product ECT was developing (the “U.S. Product”). The U.S. Product, which has not been commercially released and has not been approved by the U.S. Environmental Protection Agency ("EPA"), was intended to prevent the growth of mold and fungus. The Company has determined that for reasons based on the underlying science, the U.S. Product cannot be approved by the EPA. As a result, the U.S. Product is not commercially viable for the production of revenue. The agreement with Searchhelp was for a 5 ½ year term, commencing on the first quarter in which the royalty payments to Searchhelp have aggregated to $50,000. The U.S. Product has not produced revenue and therefore the Company is under no obligation to make royalty payments. With respect to the consideration paid in the form of cash and issued shares by Searchhelp to ECT, repayment is contingent to the extent that the Company has materially modified the underlying license agreements. The Company has not modified the underlying license agreements, and as such, is under no obligation to return the consideration of cash and shares. Accordingly, no liability has been recorded. The Company reached these conclusions based on recent internal review of the underlying agreements and products related thereto.
Note 14 - Subsequent Events:
Subsequent events have been evaluated through the date the financial statements were issued. All appropriate subsequent event disclosures, if any, have been made in the notes to the consolidated financial statements.
Subsequent to October 31, 2013 the Company received notices of conversion from JMJ, Asher and GEL, and pursuant to those notices issued 497,916,493 shares of common stock to settle loan proceeds in the aggregate amount of $188,927.
On February 10, 2014, the Company issued a convertible promissory note to GEL in the amount of $44,071.23, due on February 10, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock. In connection with the issuance of the convertible promissory note to GEL, GEL purchased a promissory note issued to Ray Dunning June 30, 2013from the Company in the amount of $42,000 plus accrued and unpaid interest.
On February 10, 2014, the Company issued a convertible promissory note to GEL in the amount of $25,000, due on February 10, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock.
On February 10, 2014, the Company issued a convertible promissory note to GEL in the amount of $25,000, due on February 10, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock.
On February 10, 2014, the GEL Properties, LLC issued a convertible promissory note to the Company in the amount of $25,000, due no later than November 10, 2014, unless the Lender does not meet the “current information requirements” required under Rule 144 of the Securities Act of 1933, as amended, in which case the Company may declare the offsetting note issued by the Lender on the same date herewith to be in Default (as defined in that note) and cross cancel its payment obligations under this Note as well as the Lenders payment obligations under the offsetting note. This Note shall bear simple interest at the rate of 6% per annum based on a 365 day year. The Note shall be secured by the pledge of the $25,000 6% convertible promissory note issued to the GEL Properties by the Company on February 10, 2014. GEL Properties may exchange this collateral for other collateral with an appraised value of at least $25,000.00.
On January 14, 2014, the Company issued a convertible promissory note to GEL in the amount of $25,444, due on January 14, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock. In connection with the issuance of the convertible promissory note to GEL, GEL purchased a promissory note issued to Ray Dunning January 31, 2013 in the amount of $23,600 plus accrued and unpaid interest.
On January 14, 2014, the Company issued a convertible promissory note to GEL in the amount of $25,276, due on January 14, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock. In connection with the issuance of the convertible promissory note to GEL, GEL purchased a promissory note issued to Ray Dunning February 28, 2013 in the amount of $23,600 plus accrued and unpaid interest.
On January 14, 2014, the Company issued a convertible promissory note to GEL in the amount of $30,000, due on January 14, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock.
On January 8, 2014, the Company issued a convertible promissory note to GEL in the amount of $23,600, due on January 8, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock. In connection with the issuance of the convertible promissory note to GEL, GEL purchased a promissory note issued to Ray Dunning April 30, 2013 in the amount of $23,600.
On January 8, 2014, the Company issued a convertible promissory note to GEL in the amount of $20,000, due on January 8, 2015, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock.
On January 2, 2014, the Company issued a convertible promissory note (the “Hanafin Note”) to Ben Hanafin, a member of the Company’s Board of Directors, in the amount of $5,000. The Hanafin Note is due on January 2, 2015, and bears interest at 18% per annum. Mr. Hanafin has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to 50% of the average closing price of the Company’s common stock for the 10 preceding days of the Maturity Date of January 2, 2015.
On December 19, 2013, the Company issued 11,000,000 to a consulting firm. The Company recorded consulting fee expense of $10,000. The shares were valued at $.0009 representing the approximate trading price of the Company’s common stock at the time of the issuance.
On December 18, 2013, the Company issued a convertible promissory note to GEL in the amount of $23,600, due on December18, 2014, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock. In connection with the issuance of the convertible promissory note to GEL, GEL purchased a promissory note issued to Ray Dunning on March 29, 2013 in the amount of $23,600. Up through and including the date of this report the Company has received conversion notices from GEL representing $18,000 of principal and interest due to GEL.
On December 18, 2013, the Company issued a convertible promissory note to GEL in the amount of $20,000, due on December18, 2014, which bears interest at 6% per annum. GEL is entitled, at its option, at any time after the requisite rule 144 holding period, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock without restrictive legend of any nature, at a conversion price for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock.
On December 18, 2013, the Company filed a Schedule 14C Information Statement with the SEC to notify the stockholders of the Company of Management’s plan to increase the number of authorized shares of common stock from one billion (1,000,000,000) to four billion (4,000,000,000) shares with the Secretary of State of Nevada. At a meeting held on November 26, 2013, and in conjunction with a unanimous consent of the Board on December 11, 2013, the Board authorized management to increase the number of shares authorized to four billion shares. The additional three billion (3,000,000,000) shares of Common Stock so authorized will be available for issuance by the Board for stock splits or stock dividends, acquisitions, raising additional capital, stock options or other corporate purposes. The additional shares of Common Stock could be used for potential strategic transactions, including, among other things, acquisitions, strategic partnerships, joint ventures, restructurings, business combinations and investments, although there are no immediate plans to do so. Assurances cannot be provided that any such transactions will be consummated on favorable terms or at all, that they will enhance stockholder value or that they will not adversely affect the Company's business or the trading price of the Common Stock. The purposes for increasing the authorized shares include providing available shares for (i) the exercise of all outstanding options; (ii) the conversion of outstanding convertible promissory notes and deferred compensation agreements; (iii) the conversion of the Series A, B, C and D Convertible Preferred Stock; (iv) future issuances of stock options pursuant to employees; and (v) issuances to satisfy conversions of future convertible debt or convertible preferred stock. We mailed the Notice of Stockholder Action by Written Consent to the Stockholders on December 31, 2013. The authorized share increase will become effective on the date that we file the Certificate of Amendment to the Amended Certificate of Incorporation of the Company (the "
Amendment
") with the Secretary of State of the State of Nevada. We filed the Amendment with the Secretary of State of the State of Nevada on January 2, 2014.
On December 11, 2013, the Company cancelled 1,705,152 shares of its common stock issued to an employee. The Company reduced compensation expense in the amount of $56,270.
On November 21, 2013, the Company issued 11,000,000 to a consulting firm. The Company recorded consulting fee expense of $10,000. The shares were valued at $.0009 representing the approximate trading price of the Company’s common stock at the time of the issuance.
On November 21, 2013, the Company issued 1,000,000 shares of its common stock to Randy McNeil pursuant a stock purchase agreement with Mr. McNeil on September 12, 2013 for $5,000. The purchase price per share of the common stock is $.005 which was equal to the closing trading price of the Company’s common stock on September 10, 2013.
On November 21, 2013, the Company issued 1,466,276 shares of its common stock to Bernie Casamento pursuant to a stock purchase agreement with Mr. Casamento on August 16, 2013 for $10,000. The purchase price per share of the common stock was $.0068 which is equal to the average closing trading price of the Company’s common stock for the five (5) preceding days of the closing on August 16, 2013.
On November 21, 2013, the Company issued 1,466,276 shares of its common stock to Bob Rutherford pursuant to a stock purchase agreement with Mr. Rutherford on August 16, 2013 for $10,000. The purchase price per share of the common stock was $.0068 which is equal to the average closing trading price of the Company’s common stock for the five (5) preceding days of the closing on August 16, 2013.
On November 13, 2013, the Company issued 24,000,000 to reduce certain outstanding accounts payable. The shares were valued at $.0013 representing the approximate trading price of the Company’s common stock at the time of the issuance.
On November 11, 2013, the Company issued a Promissory Note to Herb Kozlov, a shareholder of the Company (the “Kozlov Note”), for the satisfaction of a promissory note issued by the Company to Mr. Kozlov on December 6, 2010. Pursuant to the Kozlov Note, the Company promises to pay $75,000.00 plus any accrued and unpaid interest on June 1, 2014. Interest will accrue at the rate of fourteen (14%) per annum. Mr. Kozlov will have the right to receive payment of the Kozlov Note in shares of common stock of the Company at the lower of $.03 per share, or the closing price of such shares on the day proceeding the date when the notice of full or partial conversion is tendered.
On November 5, 2013, the Company issued a convertible promissory note (the “Machinist Note”) to Robert Machinist, a member of the Company’s Board of Directors, in the amount of $25,000. The Machinist Note is due on November 4, 2014, and bears interest at 18% per annum. Mr. Machinist has the right to convert the principal and interest into the Company’s common stock at a conversion price equal to 50% of the average closing price of the Company’s common stock for the 10 preceding days of the Maturity Date of November 4, 2014.
On November 4, 2013 the Company received loan proceeds from Michael Francis in the amount of $25,000. Mr. Francis and the Company agreed to include the additional $25,000 of proceeds to the Francis Modification.