Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Nature of Business & Organization
BioNeutral Group, Inc. (the “Company”) is a specialty chemical corporation 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 currently operates its business through its subsidiary, BioNeutral Laboratories Corporation USA (“BioNeutral Laboratories” or “BioLabs”), a corporation organized in Delaware in 2003. The Company was incorporated in the State of Nevada on April 10, 2007 under the name “Moonshine Creations, Inc.,” and changed its name to “BioNeutral Group, Inc.” on December 22, 2008.
On January 30, 2009, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with BioNeutral Laboratories pursuant to which it agreed to issue to the shareholders of BioNeutral Laboratories 45,000,000 shares of our common stock. Upon completion of this transaction, the former shareholders of BioNeutral Laboratories became the majority stockholders of the Company. Accordingly, the transaction was accounted for as a reverse merger and recapitalization of BioNeutral Group, Inc.
Note 2 – Liquidity and Financial Condition
The Company's unaudited condensed consolidated 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. 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 unaudited condensed consolidated 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 April 30, 2014, the Company had negative working capital of $4,397,076. For the six months ended April 30, 2014 the Company incurred a net loss of $1,650,793 and since inception has an accumulated deficit of $59,400,539. For the same period in 2013, the Company’s net loss was $1,425,933. The Company anticipates it will experience a net loss in fiscal 2014 as it continues to pursue markets for the sale and distribution of its products and development of access to global markets.
The Company had $3,286 of cash at April 30, 2014. Cash used by operations for the six months ended April 30, 2014 was $459,342. The principal uses of funds were for consulting services supporting the development of its business plan, legal and accounting fees in connection with being a public company and daily operations of the business, including rent, travel and laboratory costs.
During the six months ended April 30, 2014, the Company raised $527,250 of cash from the issuance of convertible debentures to fund operations.
On December 12, 2012 the Company issued a convertible promissory note to JMJ financial in the amount of $250,000 of which it received payments through the date of this report of $220,000. It expects to receive additional payments from JMJ under the note at various intervals during the fiscal year 2014.
While the Company has been able to use proceeds from the issuance of convertible promissory notes to fund a substantial balance of its operating costs, it does not expect that its funds will be sufficient to meet its anticipated needs through May 1, 2015 and it will need to raise additional capital during fiscal 2014 to fund the full costs associated with its growth and development.
The Company believes that it will be able to generate significant sales by the fourth quarter of fiscal 2014 providing for sufficient cash flows to supplement its equity financing based on its current plans. If it’s able to execute its plan, the Company can begin to accumulate cash reserves. There is no assurance however that its funds will be sufficient to meet its anticipated needs through its fiscal year 2014, and it may need to raise additional capital during fiscal 2014 to fund the full costs associated with its growth and development. The Company believes that it will require approximately $2,000,000 in additional capital to achieve its goals. There can be no assurances that it 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.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Accordingly, the accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all the information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to make the financial position of the Company as of April 30, 2014 and the results of its operations for the three and six months ended April 30, 2014 and 2013 and cash flows for the six months ended April 30, 2014 and 2013 not misleading. The unaudited condensed consolidated financial statements for the quarterly periods ended April 30, 2014, and 2013 are not necessarily indicative of the operating results for the full year and it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the audited financial statements for the years ended October 31, 2013 and 2012 as contained in the Form 10-K filed on February 13, 2014.
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 which was not material at both April 30, 2014 and October 31 2013.
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 April 30, 2014, the Company did not exceed the federally insured limits. Management believed that the financial institution that holds its deposits are financially sound and therefore pose minimal credit risk. At April 30, 2014 and October 31 2013, 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 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 unaudited condensed consolidated financial statements.
Use of Estimates
The preparation of the financial statements in conformity with GAAP 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, deferred taxes and related valuation allowances and estimating the fair value of long-lived assets to assess whether impairment charges may be necessary. 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 record adjustments when necessary.
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:
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Fair value measurements at April 30, 2014
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Quoted prices in
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active markets for
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Significant
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Significant
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observable
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other
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unobservable
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identical assets
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inputs
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inputs
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Total
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(Level 1)
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(Level 2)
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(Level 3)
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Derivative liability
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$
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446,215
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$
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446,215
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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:
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April 30,
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October 31,
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2014
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2013
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(unaudited)
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Beginning Balance
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$
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129,425
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$
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-
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Aggregate fair value of derivative issued
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1,004,090
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508,610
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Change in fair value of derivative included in results of operations
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(687,300
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)
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(379,185
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)
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Ending Balance
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$
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446,215
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$
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129,425
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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.
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 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.
Net income (loss) per share
The Company utilizes FASB ASC 260,
Earnings per Share
,
to calculate gain or loss per share. Basic gain or loss per share is computed by dividing the gain or loss available to common stockholders (as the numerator) by the weighted-average number of shares of common stock outstanding (as the denominator). Diluted gain or loss per share is computed similar to basic gain 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 loss for the three and six months ended April 30, 2014 and 2013 therefore, common stock equivalents have been excluded from the calculation of diluted loss per share.
The following table outlines the common stock equivalents outstanding as of April 30, 2014 and 2013
.
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4/30/2014
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4/30/2013
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Convertible Series A Preferred Stock – Non Controlling Interest
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594,930
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594,930
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Convertible Series B Preferred Stock
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6,686,375
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6,686,375
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Convertible Series C Preferred Stock
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7,010,125
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|
|
|
7,010,125
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Convertible Series D Preferred Stock
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16,031,375
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17,006,375
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Escrow shares
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14,285,000
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-
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Stock Options
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-
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6,142,809
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Convertible Loans
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5,650,389,127
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116,967,680
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5,694,996,932
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154,408,294
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|
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.
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. The adoption of this standard is not expected to have a material impact on the Company’s results of operations, cash flows or financial position.
Note 4 – Escrow Shares
On April 28, 2014, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC (“Adar Bays”), a Florida Limited Liability Company for the sale and issuance of an 8% convertible promissory note in the principal amount of $77,500 due April 28, 2015 (the “AB Note”). In addition to the AB Note, the Company and Adar Bays entered into a back end funding arrangement with respect to a second 8% convertible promissory note due April 28, 2015 for $77,500 in consideration for a note receivable issued by Adar Bays to the Company in the amount of $77,500 (the “Back End Notes”). In connection with the Back End Notes, the Company and Adar Bays entered into a Breakup Fee Agreement which grants a right to the Company to cancel the Back End Notes, prior to November 1, 2014, for a fee of $10,000. To secure the payment of the $10,000 breakup fee, the Company issued 14,285,000 shares of its common stock to an attorney escrow. Should the Company decide to perform on the Back End Notes the shares of stock will be returned to the Company from the attorney escrow. The 14,285,000 shares issued to attorney escrow were issued at $.0007 per share commensurate with the trading price of the Company’s common stock when the Back End Notes were issued.
Note 5 – Intellectual Property
The Company has several patent applications pending regarding proprietary chemical formulations that the Company believes are capable of neutralizing noxious chemicals and eliminating harmful microbes. The Company capitalized the costs of acquired technology, know-how and trade secrets and identifiable costs incurred to develop, file and defend the Company’s Intellectual Property and new patent or provisional patent applications (collectively “Intellectual Property”) in accordance with FASB ASC 350. Periodic gross carrying amounts and related accumulated amortization were as follows:
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4/30/2014
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10/31/2013
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Gross Carrying Amount
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$
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15,256,688
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$
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15,256,688
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Accumulated Amortization
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(6,361,552
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)
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(6,007,190
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)
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Net Carrying Amount
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$
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8,895,136
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$
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9,249,498
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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 three months ended April 30, 2014 and 2013 was $177,181 and $177,181,
respectively. Amortization expense for the six months ended April 30, 2014 and 2013 was $354,362 and $354,362,
respectively.
Estimated amortization expense is as follows
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10/31/2014 (Remaining)
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354,362
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10/31/2015
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708,723
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10/31/2016
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708,723
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10/31/2017
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708,723
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10/31/2018
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708,723
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The Intellectual Property is evaluated annually for recoverability pursuant to FASB ASC 350-30-35-14 and related guidance in ASC 360-10-35-17 thru 35-35. An impairment loss is recognized if the asset is determined not to be recoverable and its carrying amount exceeds its fair value. During its annual impairment testing, the Company did not identify an impairment loss.
Note 6 - Related Party Payables
During the three months ended April 30, 2014 and 2013, the Company recorded interest of $518 and $518, respectively, and during the six months ended April 30, 2014 and 2013, the Company recorded interest of $1,036 and $1,036, respectively, on promissory notes entered into with former members of the Board of Directors who resigned their positions with the Company on January 29, 2009.
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 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 April 11, 2014 the Company canceled 787,500 shares of its restricted common stock which had been issued to an employee for compensation of $78,750 incurred in fiscal 2013. Upon return of the shares, the Company credited $78,750 to Accrued Compensation.
On December 11, 2013 the Company canceled 1,705,152 shares of its S-8 registered common stock which had been issued to an employee for compensation and out of pocket expenses incurred in fiscal 2013 of $72,263. Upon return of the shares, the Company credited $72,263 to Accrued Compensation.
Note 8 - Stockholder’s Equity (and Non-Controlling Interest)
Common Stock
On April 21, 2014, 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 four billion (4,000,000,000) to eight billion (8,000,000,000) shares with the Secretary of State of Nevada. At a meeting held on April 2, 2014, and in conjunction with a unanimous consent of the Board on April 17, 2014,the Board authorized management to increase the number of shares authorized to eight billion shares (8,000,000,000). The additional four billion (4,000,000,000) 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. The Company mailed the Notice of Stockholder Action by Written Consent to the Stockholders on May 5, 2014. The authorized share increase will become effective on the date that the Company files 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. The Company filed the Amendment with the Secretary of State of the State of Nevada on May 6, 2014. On May 6, 2014, the Company filed with the SEC a definitive Schedule 14C Information Statement thereby confirming the effectiveness of the preliminary Schedule 14C Information Statement filed on April 21, 2014.
On March 6, 2014, the Company issued 25,000,000 shares of its common stock to reduce certain outstanding accounts payable in the amount of $15,875. The shares were valued at $.0008 representing the approximate trading price of the Company’s common stock at the time of the issuance. The total transaction value was $20,000. The financing cost of the transaction was $4,125.
On March 18, 2014, the Company issued 25,000,000 shares of its common stock to reduce certain outstanding accounts payable in the amount of $15,875. The shares were valued at $.0009 representing the approximate trading price of the Company’s common stock at the time of the issuance. The total transaction value was $22,500. The financing cost of the transaction was $6,625.
On December 19, 2013, the Company issued 11,000,000 shares of its restricted common stock to a consulting firm for marketing fees of $10,000. The shares were valued and issued at a negotiated per share price of $.0009, a share price which approximated the prevailing per share closing prices at the time the parties reached an agreement of terms.
On November 21, 2013, the Company issued 1,000,000 shares of its common stock to Randy McNeil pursuant to a stock purchase agreement with Mr. McNeil on September 12, 2013 for $5,000. The purchase price per share of the common stock of $.005 represents a negotiated per share price which approximated the prevailing per share closing prices at the time the parties reached an agreement of terms.
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 was 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 entered into 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 common shares to reduce certain outstanding accounts payable in the amount of $10,500. The Company incurred finance charges of $20,700 in connection with the issuance of the shares. The shares were valued at $.0013 representing the approximate trading price of the Company’s common stock at the time of the issuance.
During the six months ended April 30, 2014, the Company issued 61,755,953 shares of its common stock to Southridge Partners II for payment of $27,500 of fees related to an Equity Purchase Agreement entered into with Southridge Partners II in December 2012. The shares were issued at prevailing market prices of the Company’s common stock at the time of issuance.
On April 29, 2014 the Company issued 14,285,000 shares of its common stock to an attorney escrow in connection with a Breakup Fee Agreement and a corresponding fee of $10,000 with Adar Bays which grants a right to the Company to cancel the certain promissory notes with Adar Bays, prior to November 1, 2014. The shares were issued at $.0007 commensurate with prevailing market prices of the Company’s common stock at the time of issuance.
During the six months ended April 30, 2014, the Company issued 314,246,822 shares of its common stock to JMJ Financial for conversion of principal and unpaid interest of $111,959.
During the six months ended April 30, 2014, the Company issued 198,072,984 shares of common stock to Asher Enterprises to convert short-term convertible promissory notes in the aggregate amount of $65,450.
During the six months ended April 30, 2014, the Company issued 653,088,617 shares of common stock to GEL Properties, LLC (“GEL”) to convert short-term convertible promissory notes in the aggregate of $279,619.
During the six months ended April 30, 2014, the Company issued 153,271,319 shares of common stock to Magna Group to convert short-term convertible promissory notes in the aggregate of $78,164.
Non-Controlling Interest
In connection with the reverse acquisition disclosed in Note 1, initially approximately 14% of BioLabs’ common shareholders did not participate in the exchange of their shares of BioLabs’ common stock for shares of common stock of the Company. Those shareholders are recognized as a non-controlling interest in the Company’s condensed consolidated financial statements in accordance with FASB ACS 805-40-25-2. The assets, liabilities and operations underlying the shares of BioLabs’ and the Company are identical. However, the shares representing ownership of the Company reflect the combined entity after the Share Exchange transaction, while BioLabs’ shares included in the non-controlling interest held by the non-controlling interest represent ownership of that legal entity.
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Non-Controlling Interest at October 31, 2010
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$
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570,301
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Non-Controlling Interest Converted
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|
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(25
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)
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Non-Controlling interest Share of Net Loss for the Year ended October 31, 2011
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|
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(241,693
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)
|
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Non-Controlling Interest at October 31, 2011
|
|
|
328,583
|
|
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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 Year ended October 31, 2013
|
|
|
(269,303
|
)
|
|
Non-Controlling Interest at October 31, 2013
|
|
|
(160,701
|
)
|
|
Non-Controlling interest Share of Net Loss for the six months ended April 30, 2014
|
|
|
(139,327
|
)
|
|
Non-Controlling Interest at April 30, 2014
|
|
$
|
(300,028
|
)
|
The Series A Preferred Stock is not recognized in the Non-Controlling Interest. If the 59,493 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 April 30, 2014 and October 31, 2013.
Note 9 – Convertible Notes Payable
|
|
|
April 30,
2014
(Unaudited)
|
|
|
October 31,
2013
|
|
|
Adar Bays, LLC
|
|
$
|
38,775
|
|
|
$
|
-
|
|
|
Asher Enterprises, Inc.
|
|
|
-
|
|
|
|
108,090
|
|
|
Ben Hanafin
|
|
|
2,500
|
|
|
|
-
|
|
|
GEL Properties LLC
|
|
|
372,824
|
|
|
|
-
|
|
|
Hanover Holdings LLC
|
|
|
37,244
|
|
|
|
-
|
|
|
James Casserly
|
|
|
28,649
|
|
|
|
26,236
|
|
|
JMJ Financial
|
|
|
67,223
|
|
|
|
111,960
|
|
|
John Sikora
|
|
|
115,374
|
|
|
|
-
|
|
|
KBM Worldwide Inc.
|
|
|
53,407
|
|
|
|
-
|
|
|
LG Capital Funding LLC
|
|
|
35,222
|
|
|
|
-
|
|
|
Randy McNeil
|
|
|
16,944
|
|
|
|
15,518
|
|
|
Ray Dunning
|
|
|
171,148
|
|
|
|
97,079
|
|
|
Robert Machinist
|
|
|
25,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes Payable
|
|
|
964,310
|
|
|
|
358,883
|
|
|
Debt Discount
|
|
|
(490,712
|
)
|
|
|
(91,167
|
)
|
|
Convertible Notes Payable Net of Debt Discount
|
|
$
|
473,598
|
|
|
$
|
267,716
|
|
Adar Bays, LLC
On April 28, 2014, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC, a Florida Limited Liability Company for the sale and issuance of an 8% convertible promissory note in the principal amount of $77,500 (the “Note”). The Company received payments in the amounts of $38,750 on April 29, 2014 and $38,750 on May 8, 2014. 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 at any time after the requisite Rule 144 period. The conversion price of the Note shall be equal to 55% multiplied by the market price (as defined in the Note). The Note matures on April 28, 2015. Interest on the Note accrues at a rate of 8% per annum. The loan balance including accrued interest was $38,775 at April 30, 2014.
Asher Enterprises, Inc.
As of October 31, 2013, the Company had two convertible notes outstanding with Asher Enterprises, Inc., a Delaware Corporation (the “Holder”) with aggregate principal and accrued interest of $108,090. The principal balance of the Notes are 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 Notes. The conversion price of the Notes shall be equal to 51% multiplied by the market price (as defined in the Notes). The Notes matures on February 6, 2014 and July 17, 2014 respectively. 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 Notes accrues at a rate of 8% per annum. The Notes contain customary default provisions, including provisions for potential acceleration of the Notes, a default premium, and default interest of 22%.
During the six months ended April 30, 2014, the Company received several notices of conversion from Asher, and pursuant to those notices issued 198,072,984 shares of common stock in partial settlement of $65,540 of the outstanding convertible loan balance .
On April 10, 2014, the Company made a cash payment to Asher Enterprises, Inc. in the amount of $65,324 to satisfy in full, the remaining 8% convertible promissory note issued by the Company to Asher Enterprises, Inc.
Ben Hanafin
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 $2,500. 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. The loan balance was $2,500 at April 30, 2014.
GEL Properties LLC
During the six months ended April 30, 2014, the Company issued five convertible promissory notes to GEL Properties, LLC (“GEL”) in the aggregate amount of $135,000, due on various dates through March 19, 2015, all of which bear 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 these Notes 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 55% (1 note) and 65% (4 notes) of the lowest closing bid price of the Common Stock for any of the five trading days, including the day upon which the upon which the notice of conversion is received by the Company.
During the six months ended April 30, 2014, the Company issued an additional ten (10) convertible promissory notes to GEL in the aggregate amount of $515,074, due on various dates through April 29, 2015, eight (8) of which bear interest at 6% and two (2) at 8% 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 these Notes 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% (8 notes) and 55% (2 notes) of the lowest closing bid price of the Common Stock. These Notes were issued in connection the direct settlement by GEL with certain convertible notes holders of the Company.
During the six months ended April 30, 2014 the Company received several notices of conversion from GEL, and pursuant to those notices issued an aggregate amount of 653,088,617 shares of common stock to settle loan proceeds in the amount of $279,610.
The balance outstanding including accrued interest at April 30, 2014 was $372,824.
Hanover Holdings LLC
On February 11, 2014, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Hanover Holdings I, LLC, (the “Holder”) for the sale and issuance of a 12% convertible promissory note in the principal amount of $36,500.00 (the “Note”). The principal balance of the Note is convertible into common stock, $0.00001 par value, of the Company, at the election of the Holder, at any time during the period beginning on February 11, 2014 and ending on the maturity date of February 11, 2015. The conversion price of the Note shall be equal to 45% from the lowest trading price in the five days prior to the day that the Company receives requests for conversion. The Note matures on February 11, 2015. Interest on the Note accrues at a rate of 12% per annum. The loan balance including accrued interest was $37,244 at April 30, 2014.
James Casserly
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 including accrued interest at April 30, 2014 was $28,649.
JMJ Financial
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 $215,000 has been received through the date of this report including $55,000 received during the six months ended April 30, 2014. 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 six months ended April 30, 2014 the Company received eleven notices of conversion from JMJ, and pursuant to those notices issued 314,246,822 shares of common stock to settle loan proceeds in the collective amount of $111,959. At April 30, 2014 the JMJ aggregate loan balance was $67,223 including accrued interest of $12,223.
John Sikora
During the three months ended April 30, 2014, the Company issued convertible promissory notes in consideration for outstanding consulting fees payable to John Sikora in the amount of $111,000, due on August 1, 2014 and September 20, 2014 (the “Maturity Date”), which bear interest at 18% per annum. Mr. Sikora is entitled, at his option, on the Maturity Date, 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 50% of the average closing bid price of the Common Stock for the 10 preceding days of the Maturity Date. The balance outstanding including accrued interest was $$115,374 at April 30, 2014.
KBM Worldwide Inc
On March 26, 2014, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with KBM Worldwide, Inc., a Delaware Corporation (the “Holder”) 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 April 8, 2014 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 50% multiplied by the market price (as defined in the Note). The Note matures on January 2, 2015. 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 balance outstanding including accrued interest was $53,407 at April 30, 2014.
LG Capital Funding LLC
On April 2, 2014, the Company issued a convertible promissory note to LG Capital Funding, LLC (“LG”) in the amount of $35,000, due on April 2, 2015, which bears interest at 8% per annum. LG is entitled, at its option, at any time after 180 days, 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 50% of the lowest closing bid price of the Common Stock for the prior fifteen days, including the date of receipt of the notice of conversion. The balance outstanding including accrued interest was $35,222 at April 30, 2014.
Randy McNeil
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. The balance outstanding including accrued interest at April 30, 2014 was $16,944
Ray Dunning
At October 31, 2013, the aggregate Ray Dunning Convertible Loan balance was $97,079 including accrued interest of $2,679. These loans bear 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.
During the six months ended April 30, 2014, Mr. Dunning agreed to transfer the carrying value of his convertible notes including accrued interest to GEL in consideration for $97,919.
On January 15, 2014 and February 1, 2014, the Company issued a convertible promissory notes in consideration of outstanding consulting fees payable to Ray Dunning in the amount of $114,725 , due on January 1, 2015 (the “Maturity Date”) and $51,500, due on February 1, 2015 (the “Maturity Date”), which bears interest at 8% per annum. Mr. Dunning is entitled, at his option, on the Maturity Date, 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 50% of the average closing bid price of the Common Stock for the 10 preceding days of the Maturity Date. The balance outstanding including accrued interest at April 30, 2014 was $171,148.
Robert Machinist
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.
Note 10 – Convertible Loans from Stockholders
|
|
|
April 30,
2014
(Unaudited)
|
|
|
October 31,
2013
|
|
|
Michael Francis
|
|
$
|
488,344
|
|
|
$
|
610,851
|
|
|
Capara Investments
|
|
|
885,663
|
|
|
|
851,440
|
|
|
Herb Kozlov
|
|
|
-
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes Payable
|
|
|
1,374,007
|
|
|
|
1,537,291
|
|
|
Less: Current Portion
|
|
|
(886,341
|
)
|
|
|
(75,000
|
)
|
|
Convertible Notes Payable Net of Current Portion
|
|
$
|
481,666
|
|
|
$
|
1,462,291
|
|
Michael D. Francis
On July 1, 2013, the Company entered into a promissory note modification agreement (the “Francis Modification”) with Michael D. Francis, a shareholder of the Company in the amount of $560,918. At October 31, 2013, the Francis Modification balance was $610,858 including accrued interest of $59,851. These Francis Modification bears interest at 18% per annum, and Mr. Francis has the right to convert the principal and interest into the Company’s common stock at a conversion price equal 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 July 1, 2013.
On April 11, 2014, Mr. Francis entered into a Debt Purchase Agreement with GEL (the “Francis GEL Purchase”) in the amount of $560,918 representing the principal portion of the Francis Modification. The Francis GEL Purchase provides for four installment closings, and during the six months ended April 30, 2014, Mr. Francis closed on two installments by assigning principal including accrued interest to GEL in consideration for $289,275.
On April 2, 2014, the Company issued a convertible promissory note in the amount of $97,010 due on April 1, 2015 (the “Maturity Date”) representing accrued and unpaid interest on the Francis Modification through April 2, 2014. The convertible promissory note bears interest at 18% per annum. Mr. Francis is entitled, at his option, on the Maturity Date, 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 50% of the average closing bid price of the Common Stock for the 10 preceding days of the Maturity Date.
After consideration of the GEL Purchase closings in the amount of $289,275, and the convertible promissory note issued by the Company on April 2, 2014 in the amount of 97,010, the balance principal and accrued and unpaid interest of the Francis Modification at April 30, 2014 was $293, 567.
On April 17, 2014, the Company issued a convertible promissory note to Michael Francis in the amount of $70,000, due on April 16, 2015 (the “Maturity Date”), which bears interest at 18% per annum. Mr. Francis is entitled, at his option, on the Maturity Date, 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 50% of the average closing bid price of the Common Stock for the 10 preceding days of the Maturity Date.
On November 4, 2013, the Company issued a convertible promissory note to Michael Francis in the amount of $25,000 in consideration for a cash payment. The convertible promissory note is due on November 3, 2014 (the “Maturity Date”), and bears interest at 18% per annum. Mr. Francis is entitled, at his option, on the Maturity Date, 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 50% of the average closing bid price of the Common Stock for the 10 preceding days of the Maturity Date.
The balance outstanding including accrued interest at April 30, 2014 was $488,344.
Capara Investments
The Company issued seven unsecured promissory notes to Capara Investments, (“Capara”) from November 13, 2009 to October 24, 2011 in the aggregate of principal amount of $655,000 (the “Capara Notes”). Each of the Capara Notes bears an 8% annual interest rate, is due and payable in cash on the fifth anniversary of the date of issuance, and upon consummation of a “Qualified Financing” (as defined in each of the Capara Notes), will automatically be exchanged for, solely at our election, either (i) securities on the same terms and conditions as those received by investors in such Qualified Financing based on an assumed exchange rate reflecting the pricing used in such financing or (ii) shares of our common stock equal to the quotient obtained by dividing (x) the then outstanding principal amount of the Capara Note by (y) the lower of (i) $0.69 and (ii) the Fair Market Value (as defined in the Capara Notes) of one share of our common stock as of the date of such exchange of one share of our common stock as of the date of such exchange). On each three (3) month anniversary of the issuance of each Capara Note, all accrued and unpaid interest shall be added to the unpaid principal amount of such note. Each of the Capara Notes defines “Qualified Financing” as an investment in securities of the Company (including any financing that includes convertible indebtedness and/or warrants) occurring after the date of issuance of the Capara Note by an investor that is not an affiliate of our company in which we receive net proceeds greater than $500,000 (including any additional investment by the holder of the Capara Note or by the holder of any other 8% exchangeable promissory note) in the Qualified Financing. The sole member of Capara Investments, Raj Pamani, is a former member of our Board and a shareholder of the Company. On April 30, 2014 the aggregate balance of principal and accrued and unpaid interest on the Capara Notes is $885,463. The aggregate current portion of principal and accrued and unpaid interest for maturities occurring in fiscal 2014 and 2015 on the Capara Notes is $691,563. The aggregate long-term portion of principal and accrued interest for maturities occurring after August 30, 2014 is $194,100.
Herb Kozlov
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 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 February 28, 2014 Mr. Kozlov assigned his note to Magna Group, LLC.
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. Specifically, because the exercise price of the conversion option is not fixed at any time during the term of the note. 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. The gross proceeds of Convertible notes issued during the six months ended April 30, 2014 were recorded net of a discount of $1,004,090 related to the derivative liability. The debt discount will be charged to amortization of debt discount ratably over the term of the Convertible notes. The Company recorded an amortization of the debt discount in the amount of $152,968 and $193,382 for the three and six months ended April 30, 2014 and 2013 and $102,719 and $212,361 for three and six months ended April 2013, respectively.
Note 11 – Commitments & Contingencies
Litigation
On September 13, 2013, the Company received a claim for arbitration from James Crane, a former Chief Financial Officer of the Company in 2009. Mr. Crane asserts claims against the Company for breach of contract, fraud, negligence, negligent misrepresentation, unjust enrichment and deceptive business practices related to unpaid fees and damages in the amount of $371,804 pursuant consulting agreement between Mr. Crane and the Company. The Company has retained counsel and is defending the matter.
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. On March 21, 2014 the Superior Court of New Jersey Essex County: Chancery Division entered an order for final judgment in favor of BioNeutral. The final judgment demands the reimbursement to be made by the Defendant to BioNeutral of an aggregate amount of $412,900 payments caused by the Defendant Entities. Also contained within the final judgment with respect to the 13 million shares of its common stock in consideration for fraudulently induced consultant contracts, the Defendant Entities must return to BioNeutral any unsold stock certificates, and also, the Pamani Defendants must reimburse BioNeutral for any stock sold to innocent third parties in an amount to be determined by a further submission to the Court by BioNeutral.
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 expects to continue to incur, significant costs 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.
Other Contingencies
Approximately 6 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 91% 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 9% 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 but failed to deliver the stock certificates representing their shares of common stock and Series A Preferred Stock of BioLabs 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.
Note 12 - Subsequent Events
Subsequent events have been evaluated through the date the financial statements were issued. All appropriate subsequent event disclosure, if any, have been made in the notes to the condensed consolidated financial statements.
On June 19, 2014, 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 eight billion (8,000,000,000) to seventeen billion (17,000,000,000) shares with the Secretary of State of Nevada. Pursuant to a resolution of unanimous consent of the Board of Directors on June 17, 2014, the Board authorized management to increase the number of shares authorized to seventeen billion shares (17,000,000,000). The additional nine billion (9,000,000,000) 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. The Company will mail the Notice of Stockholder Action by Written Consent to the Stockholders on or about July 1, 2014. The authorized share increase will become effective on the date that the Company files 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.
On May 21, 2014, the Company entered into a securities purchase agreement with Typenex Co-Investment, LLC, (“Typenex”) for the sale and issuance of a secured convertible promissory note in the principal amount of $335,000 and any interest, fees, charges. (the “Typenex Note”). The Typenex Note carries an Original Issue Discount (“OID”) of $30,000. In addition, the Company agreed to pay $5,000 to Typenex to cover Typenex’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the Typenex Note. Interest is payable on the Typenex Note at 10% per annum. The Typenex Note is exercisable in eleven (11) tranches (each, a “Tranche”), consisting of (i) an initial Tranche in an amount equal to $49,000 and any interest, costs, fees or charges accrued thereon or added thereto under the terms of the Typenex Note and the other transaction documents (“Tranche #1”), which was funded to the Company on May 28, 2014, and (ii) ten (10) additional Tranches, the first nine (9) of which are in the amount of $27,500, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of the Typenex Note and the other transaction documents, and the last of which is in the amount of $38,500, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of the Typenex Note. The conversion price for each Tranche conversion into shares of the Company’s common stock shall be the lesser of (i) the Lender Conversion Price of $.0015, and (ii) 65% of the average of the three (3) lowest VWAPs (volume weighed average price) in the twenty (20) trading days immediately preceding the applicable conversion, provided that if at any time the average of the three (3) lowest VWAPs in the twenty (20) trading days immediately preceding any date of measurement is below $0.0005, then in such event the then-current conversion factor shall be reduced by 5% for all future conversions (e.g., 65% to 60%). The Tranches are payable thirteen months after payment to the Company. The Company granted a security agreement to Typenex in connection with the Securities Purchase Agreement which provides Typenex with a security interest in those certain Tranches or “Investor Notes” comprised of Tranche #1, Tranche #2, Tranche #3, Tranche #4, Tranche #5, Tranche #6, Tranche #7, Tranche #8, and Tranche #9) issued by Secured Party in favor of Debtor on May 21, 2014, in the initial principal amounts of $25,000 each, that certain Tranche #10 issued by Secured Party in favor of Debtor on May 21, 2014, in the initial principal amount of $35,000, and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. The Company did not grant a security interest in the general assets of the Company to Typenex. Under and concurrently with the securities purchase agreement with Typenex, we also issued to Typenex a warrant to purchase the number of shares equal to $167,500 divided by the
higher of: (i) the closing price of the common stock on the issue date; and (ii) the VWAP (as defined below) of the common stock for the trading day that is two (2) trading days prior to the exercise date. The Typenex warrant may also be exercised by cashless exercise.
On May 12, 2014, the Company issued a promissory note to Reed Smith LLP in the amount of $152,414, which bears interest at 6% per annum. The Company is obligated to make payments under this note in full in two installments. The first installment shall be in the amount of $50,000 of principal plus all accrued interest, and shall be due on December 31, 2014, without any requirement of demand or notice from Reed Smith LLP. The second installment shall be in the amount of $152,414 of principal plus all accrued interest (less any payments of principal previously made by the Company), and shall be due on June 1, 2015. The promissory note securitizes $152,414 of legal expenses incurred from 2007 through 2011, of which $136,848 had previously been recorded and classified on the Company’s balance sheet in “Accounts Payable and Accrued Expense” and $15,566 represents a reconciliation of outstanding legal invoices payable to Reed Smith LLP which were not previously recorded by the Company.
On May 7, 2014, the Company issued a convertible promissory note to Michael Francis, a shareholder of the Company, in the amount of $63,000, due on May 6, 2015 (the “Maturity Date”), which bears interest at 18% per annum. Mr. Francis is entitled, at his option, on the Maturity Date, 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 50% of the average closing bid price of the Common Stock for the 10 preceding days of the Maturity Date.
On May 6, 2014, the Company filed with the SEC a definitive Schedule 14C Information Statement thereby confirming the effectiveness of the preliminary Schedule 14C Information Statement filed on April 21, 2014 described below.
On May 6, 2014, the Company issued 34,722,222 shares of its common stock to Southridge Partners II for payment of $12,500 of fees related to an Equity Purchase Agreement entered into with Southridge Partners II in December 2012. The shares were issued at $.00036 per share which represented the approximate prevailing market prices of the Company’s common stock at the time of issuance.
On May 22, 2014, the Company issued 10,000,000 shares of its restricted common stock to a consulting firm for marketing fees of $5,000. The shares were valued and issued at a share price of $.0005 which approximated the prevailing per share closing prices at the time the parties reached an agreement of terms.
On June 2, 2014, the Company issued 125,000,000 shares of its restricted common stock to a consulting firm for marketing fees of $55,000. The shares were valued and issued at share prices which approximated the prevailing per share closing prices at the time the parties reached an agreement of terms.
Subsequent to April 30, 2014 the Company received notices of conversion from GEL, and pursuant to those notices issued 1,144,999,999 shares of common stock to settle loan proceeds in the aggregate amount of $189,225.