AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON SEPTEMBER 11, 2014
REGISTRATION
NO. 333-197784
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.
1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
INERGETICS, INC.
(Exact name of registrant as specified in
its charter)
Delaware |
5122 |
22-1558317 |
(State or jurisdiction of
incorporation or organization) |
(Primary Standard Industrial Classification
Code Number) |
(I.R.S. Employer
Identification No.) |
550 Broad Street, Suite 1212
Newark, N.J. 07102
908) 604-2500
(Address and telephone number of principal
executive offices)
Michael James
Chief Executive Officer
550 Broad Street, Suite 1212
Newark, N.J. 07102
908) 604-2500
(Name, address and telephone number of agent
for service)
Copies to:
Richard Feiner, Esq
Silverman Shin Byrne & Gilchrest PLLC
381 Park Avenue South, 16th
Floor
New York, NY 10016
212-779-8600
917-720-0863 (fax)
|
Approximate date of commencement of
proposed sale to the public: From time to time after the effective date of this registration statement.
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. x
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. ¨
(COVER CONTINUES ON FOLLOWING PAGE)
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “non-accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
¨
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
x
Smaller reporting company
The registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The information in this prospectus
is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer
to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS, SUBJECT TO
COMPLETION, DATED SEPTEMBER 11, 2014
PROSPECTUS
INERGETICS, INC.
24,656,000 Shares of
common stock
This prospectus relates to the offer and
sale of up to 24,656,000 shares of common stock, par value $0.001, of Inergetics, Inc., a Delaware corporation, by 31 Group LLC
(the “Selling Stockholder”).
The shares of common stock being offered
by the Selling Stockholder have been or may be issued pursuant to conversion of a Subordinated Secured Convertible Promissory Note
dated July 14, 2014 (the “Note”) and exercise of a Common Stock Purchase Warrant dated July 14, 2014 (the “Warrant”).
See “The 31 Group Transaction” in “Selling Stockholder” for a description of these securities and “Selling
Stockholder” for additional information regarding the Selling Stockholder.
There are no underwriting arrangements to
sell the shares of common stock that are being offered by the Selling Stockholder hereunder. The prices at which the Selling Stockholder
may sell shares will be determined by the prevailing market price for the shares or in privately negotiated transactions. See “Plan
of Distribution” for more information about how the Selling Stockholder may sell the shares being registered pursuant to
this prospectus.
We are not selling any securities under
this prospectus and will not receive any of the proceeds from the sale of shares by the Selling Stockholder. However, we may receive
proceeds from the exercise of the Warrant.
We will pay the expenses incurred in registering
the shares, including legal and accounting fees. See “Plan of Distribution”.
Our common stock is currently quoted
on the Over-the-Counter Bulletin Board, or the OTCBB, under the symbol “NRTI”. On September 5, 2014, the last reported
sale price of our common stock on the OTCBB was $0.04.
Investment in the common stock involves
a high degree of risk. You should consider carefully the risk factors beginning on page 2 of this prospectus as well as in any
prospectus supplement related to these specific offerings before purchasing any of the shares offered by this prospectus.
We may amend or supplement this prospectus
from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or
supplements carefully before you make your investment decision.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is September
, 2014.
INERGETICS, INC.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
You should rely only on the information
contained in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. This offer is not being made to sell these securities
in any jurisdiction where offer or sale is not permitted. You should assume that the information appearing in this prospectus is
accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
For investors outside the United States,
we have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction
where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to
observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.
This prospectus includes estimates, statistics
and other industry and market data that we obtained from industry publications, research, surveys and studies conducted by third
parties and publicly available information. Such data involves a number of assumptions and limitations and contains projections
and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty.
This prospectus also includes data based on our own internal estimates. We caution you not to give undue weight to such projections,
assumptions and estimates.
PROSPECTUS SUMMARY
This prospectus summary highlights certain
information about our company and other information contained elsewhere in this prospectus. This summary does not contain all of
the information that you should consider before making an investment decision. You should carefully read the entire prospectus
and any prospectus supplement, including the section entitled “Risk Factors”, before making an investment decision.
About Us
Inergetics, Inc., a Delaware corporation
(the “Company”, “we”, “us” or “our”), operates through its wholly-owned subsidiary,
Millennium Biotechnologies, Inc. (the “Subsidiary” or “Millennium”). Millennium was incorporated in the
State of Delaware in November 2000 and engages in the research, development, and marketing of specialized nutritional supplements
as an adjunct to medical treatments for select medical conditions, as well as for athletes seeking improved recovery and advanced
performance. We currently markets products which are targeted toward individuals. Millennium’s currently manufactures and
markets four proprietary product lines and 36 SKU’s to 7 separate target markets. These product lines include Surgex™,
Bikini Ready™, SlimTrim, Martha Stewart™ Essentials, Om Essentials, Muscle Maker Grill and Intrinsix .
Our products are unique in that they deliver
healthy, whole food calories and do not contain high-fructose corn syrup or corn oil, which are not healthy or suitable forms of
calories for Millennium’s targeted markets. These ingredients have also shown to correlate with an increase in obesity, a
promotion of insulin resistance, and are implicated in inflammation and cancer. Additionally, the use of high levels of Omega-6
fats (corn oil) has been shown to promote tumor growth in animal models.
Millennium developed Surgex™ sports
nutritional formula ( www.surgexsports.com ) in late 2007. Surgex™ was tested in two single-blind placebo controlled clinical
trials conducted on the Division 1A Football and Soccer players at Rutgers University. Base on the results of these trials we believe
that Surgex™ addresses the nutritional concerns of both professional and amateur elite athletes. These athletes often experience
similar symptoms post-workout to those battling immuno-compromised conditions, such as fatigue, loss of lean muscle, oxidative
stress, and reduced immune function.
Millennium acquired Bikini Ready™
and SlimTrim in January 2013. Both Bikini Ready and SlimTrim are sold in the diet category in retail stores. In addition, SlimTrim
is also sold direct to consumer on its web site and Bikini Ready is sold direct to consumer on its web site www.bikinireadylifestyle.com.
In May 2013, Millennium acquired the license
for Martha Stewart™ Essentials. Condition specific supplements were developed for women. The product is sold in retailers
and on the web site www.marthastewartessentials.com.
Our principal executive offices are located
at 550 Broad Street, Suite 1212, Newark, N.J. 07102, and our telephone number is (908) 604-2500. We maintain a website at http://www.inergetics.com.
Information contained on our website and any other related websites referred to herein are not considered to be a part of, nor
incorporated by reference in, this Prospectus.
About This Offering
Common stock to be offered by the Selling Stockholder |
|
24,656,000 shares of common stock, $0.001 par value, issued or issuable pursuant to conversion of a Subordinated Secured Convertible Promissory Note dated July 14, 2014 (the “Note”) and exercise of a Common Stock Purchase Warrant dated July 14, 2014 (the “Warrant”). |
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Common stock outstanding prior to this offering |
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87,354,739 shares |
|
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Common stock to be outstanding after giving effect to the issuance of the 24,656,000 shares registered in this prospectus. |
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112,010,739 shares(1) |
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Use of Proceeds |
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We will receive no proceeds from the sale of shares of common stock by the Selling Stockholder in this offering. However, we may receive proceeds from the exercise of the Warrant. See “Use of Proceeds.” |
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Risk factors |
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This investment involves a high degree of risk. See “Risk
Factors” for a discussion of factors you should consider carefully before making an investment decision.
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Symbol on OTCBB |
|
NRTI |
(1) Based on 24,656,000 shares
registered herein. If , we are required to issue more than the 24,656,000 shares offered under this prospectus, we must first register
for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders.
The number of shares ultimately offered for resale by the Selling Stockholder is dependent upon the conversion price of the Note
and the exercise price of the Warrant at the time of their conversion and exercise.
RISK FACTORS
An investment in our company involves a
high degree of risk. In addition to the other information included in this prospectus, you should carefully consider the following
risk factors described in this prospectus and the risk factors that may be described in any applicable prospectus supplement. You
should consider these matters in conjunction with the other information included in this prospectus. The risks and uncertainties
described in this prospectus and any applicable prospectus supplement are not the only ones facing us. Additional risks and uncertainties
that we do not presently know about or that we currently believe are not material may also adversely affect our business. Our business,
results of operations or financial condition could be seriously harmed, and the trading price of our common stock may decline due
to any of these or other risks.
This prospectus contains statements that
constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements
appear in a number of places in this prospectus and include statements regarding the intent, belief or current expectations of
our management, directors or officers primarily with respect to our future operating performance. Prospective purchasers of our
securities are cautioned that these forward-looking statements are not guarantees of future performance and involve risks and uncertainties.
Actual results may differ materially from those in the forward-looking statements due to various factors. The accompanying information
contained in this prospectus, including the information set forth below, identifies important factors that could cause these differences.
See “Forward-Looking Statements” below.
RISKS RELATED TO OUR BUSINESS
We have operated at a loss and cannot assure that we will
be able to attain profitable operations.
Although we are generating revenues,
we continue to operate at a loss. During the year ended December 31, 2013 and the six months ended June 30, 2014, we generated
revenues of $847,834 and $1,003,417, respectively, from sales of our products. However, during these periods we realized net losses
of $4,187,892 and $5,769,748, of which, respectively, $1,761,810 and $2,435,688 were non-cash items. The non-cash items are primarily
related to issuance of shares and warrants for compensation in the amounts of $712,209 and $1,332,883, respectively, services
in the amount of $202,270 and $199,609, respectively, and interest in the amount of $406,508 and $279,783, respectively, during
these periods. Other non-cash items were, respectively, loss on derivatives mark to market of $91,000 and $472,000, amortization
of debt discount of $444,450 and $169,003, amortization expense of $1,551 and $788 and change in inventory and accounts receivable
reserve in the amount of $49,200 and $0. There was a gain on the conversion of debt in the amount of $46,978 and $18,378, respectively.
We expect to continue incurring operating losses until we are able to derive meaningful revenues from marketing our four product
lines and other products we intend to bring to market. We cannot assure that we will be able to attain profitable operations.
We require additional funding to maintain our operations
and to further develop our business. Our inability to obtain additional financing would have an adverse effect on our business.
Our success depends on our ability to
develop a market for our products and other nutraceutical supplements we intend to bring to market. This means having an adequate
advertising and marketing budget and adequate funds to continue to promote our products, including making minimum royalty payments
to Martha Stewart Living Omnimedia, Inc. (please see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations’ Liquidity and Capital Resources”). Although our revenues have increased, our operating
expenses are significantly greater than our revenues. During 2013 and the first half of 2014, we obtained new capital in the form
of debt resulting in the receipt by us of $4,826,718. These funds in conjunction with ongoing operating revenues provided adequate
capital for our operating needs for these periods. We need to continue to raise funds to cover working capital and for other financial
requirements until we are able to raise revenues to a point of positive cash flow. In this regard, we note that we were not able
to make the payment that was due July 1, 2014 to Martha Stewart Living Omnimedia pursuant to our license agreement. While we are
in discussions to work out terms of payment, we most likely will need to raise additional funds to meet our obligations under
the license agreement. We plan to raise additional funds, as before, through additional equity or debt financings. We may not
be able to raise such funds on terms acceptable to us or at all. Financings may be on terms that are dilutive or potentially dilutive
to our stockholders. If sources of financing are insufficient or unavailable, we will be required to modify our operating plans
to the extent of available funding or curtail or suspend operations.
The Note and other debt instruments to which we are a party
contain certain restrictions on the incurrence of indebtedness, the raising funds through the sale of securities or engaging in
certain major transactions without the consent of the holders of these instruments. These restrictions could have a material adverse
effect on our business.
The Note and other debt instruments to which
we are a party place restrictions on our ability to incur indebtedness, raise funds through the sale of securities or engage in
certain major transactions without the consent of the holders of such instruments. Our inability to raise needed funds from borrowings
or the sale of securities, or our inability to effect certain major business transactions could have a material adverse effect
on our business.
Our year end audited financial statements contain a “going
concern” explanatory paragraph. Our inability to continue as a going concern would require a restatement of assets and liabilities
on a liquidation basis, which would differ materially and adversely from the going concern basis on which our financial statements
included in this report have been prepared.
Our consolidated financial statements for the year ended December
31, 2013 included herein have been prepared on the basis of accounting principles applicable to a going concern. Our auditors’
report on the consolidated financial statements contained herein includes an additional explanatory paragraph following the opinion
paragraph on our ability to continue as a going concern. A note to these consolidated financial statements describes the reasons
why there is substantial doubt about our ability to continue as a going concern and our plans to address this issue. Our December
31, 2013 and 2012 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our inability to continue as a going concern would require a restatement of assets and liabilities on a liquidation basis, which
would differ materially and adversely from the going concern basis on which our consolidated financial statements have been prepared.
We are subject to significant government regulation.
The packaging, labeling, advertising, promotion,
distribution and sale of Surgex™, Bikini Ready™, SlimTrim and Martha Stewart™ Essentials and other products we
plan to produce and market are subject to regulation by numerous governmental agencies, the most active of which is the U.S. Food
and Drug Administration, which regulates our products under the Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder. Our products are also subject to regulation by, among other regulatory entities, the Consumer Product Safety Commission,
the U.S. Department of Agriculture and the Environmental Protection Agency. Advertising and other forms of promotion and methods
of marketing of our products are subject to regulation by the U.S. Federal Trade Commission, which regulates these activities under
the Federal Trade Commission Act. The manufacture, labeling and advertising of our products are also regulated by various state
and local agencies. Failure to comply with applicable regulatory requirements may result in, among other things, injunctions, product
withdrawals, recalls, product seizures, and fines. In addition, we are unable to predict the nature of any future laws, regulations,
interpretations, or applications, nor can we predict what effect additional governmental regulations or administrative orders,
when and if promulgated, would have on our business in the future. They could, however, require the reformulation of
certain products not possible to be reformulated, imposition of additional record keeping requirements, and expanded documentation
of the properties of certain products, expanded or different labeling and scientific substantiation regarding product ingredients,
safety or usefulness. Our inability to comply with any or all such current or future requirements could have a material adverse
effect on our results of operations and financial condition. Please see “Business; Government Regulation”.
We have been dependent on a few major customers. If we are
unable to develop more customers our business most likely will be adversely affected
For the year ended December 31, 2013, three
significant customers (defined as contributing at least 10%) accounted for 55% (31%, 13%, and 11%) of net sales. For the year ended
December 31, 2012, one significant customer accounted for 57% of net sales. The loss of any of these customers could have a material
adverse effect on our business.
Our involvement in defending product liability claims could
have a detrimental effect on our operations.
Like other retailers and distributors of
products designed for human consumption, we face an inherent risk of exposure to product liability claims in the event that the
use of our products results in injury. We may be subjected to various product liability claims, including, among others, that our
products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with
other substances. We carry $25,000,000 of product liability insurance. Thus, any product liabilities exceeding our coverage relating
to our products could have a material adverse effect on our business, financial condition and results of operations.
We face significant competition.
The biotechnology and nutraceutical supplement
industries are highly competitive and subject to significant and rapid technological change. Developments by our competitors may
render our products obsolete or noncompetitive. Numerous companies compete in our market, many of which have greater size and financial,
personnel, distribution and other resources greater than ours. Our principal competition in the distribution channels where we
are marketing our current products and where we intend to market other products comes from a limited number of large nationally
known manufacturers and many smaller manufacturers of nutraceutical supplements. In addition, large pharmaceutical companies compete
with us on a limited basis in the nutraceutical supplement market. Increased competition from such companies could have a material
adverse effect on us because such companies have greater financial and other resources available to them and possess distribution
and marketing capabilities far greater than ours. We also face competition in mass market distribution channels from private label
nutraceutical supplements offered by health and natural food store chains and drugstore chains. We cannot assure that we will be
able to compete.
If we are unable to protect our intellectual property or
we infringe on intellectual property of others, our business and financial condition may be materially and adversely affected.
We own all rights to the formulation of
Resurgex®, Resurgex Plus®, Resurgex Select®, Surgex™, Bikini Ready™ and SlimTrim and have a use and compositional
patent with respect to Resurgex® (which covers Resurgex Plus®), and Resurgex Select®. Surgex™ is patent pending.
We also have registered trademarks for the names "Resurgex", “Resurgex Plus” and “Resurgex Select”.
“Surgex” has preliminary Trade mark reservation status. We have filed patent applications internationally with regards
to all patents and patents pending. No assurance can be given that patents will be issued from pending applications or that there
right, if issued and the rights from our existing patents and registered name will afford us adequate protections. In addition,
we rely on trade secrets and unpatented proprietary technology. There is no assurance that others may not independently develop
the same or similar technology or produce products which provide the same benefits as the current product lines.
Although we will seek to ensure that our
products do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert
intellectual property infringement claims against us. Any infringement claims by third parties against us may have a material adverse
effect on our business, financial condition and results of operations.
RISKS RELATED TO OUR COMMON STOCK
Because our Board can issue common stock and convertible
preferred without stockholder approval and because certain of our convertible securities have conversion prices that could drop
due to anti-dilution provisions, you could experience substantial dilution.
Our Board of Directors has the authority
to issue up to 2,000,000,000 shares of common stock, shares of preferred stock that can be converted into common stock at high
ratios and options and warrants to purchase shares of our common stock without stockholder approval. In addition, we have issued
convertible securities, including the Note, that contain anti-dilution provisions that could result in lower conversion prices.
As of September 5, 2014, there were 341,762,145 shares issued and outstanding or reserved for issuance on a fully-diluted basis.
Future issuance of additional shares of common stock could be at values substantially below the current market price of our common
stock and, therefore, could represent substantial dilution to investors in this offering. In addition, our Board could issue large
blocks of our common stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval.
Anti-takeover provisions of the Delaware General Corporation
Law and our ability to issue preferred stock could discourage a merger or other type of corporate reorganization or a change in
control even if they could be favorable to the interests of our stockholders.
The Delaware General Corporation Law contains
provisions which may enable our management to retain control and resist a takeover of us. These provisions generally prevent us
from engaging in a broad range of business combinations with an owner of 15% or more of our outstanding voting stock for a period
of three years from the date that this person acquires his stock. In addition, our Certificate of Incorporation allows us to issue
shares of preferred stock without any vote or further action by our stockholders. Our Board of Directors has the authority to fix
and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred
stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred
stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before
dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium,
prior to the redemption of our common stock. Accordingly, these provisions could discourage or make more difficult a change in
control or a merger or other type of corporate reorganization even if they could be favorable to the interests of our stockholders.
We do not intend to pay cash dividends in the foreseeable
future.
We have not declared or paid cash dividends
on our capital stock in many decades. We currently intend to retain all of our earnings, if any, for use in its business and do
not anticipate paying any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion
of our Board of Directors and will depend upon a number of factors, including future earnings, the success of our business activities,
our general financial condition and future prospects, general business conditions and such other factors as the Board of Directors
may deem relevant. In addition, no cash dividends may be declared or paid on our common stock if, and as long as, the Series B
Preferred Stock is outstanding or there are unpaid dividends on outstanding shares of Series C Preferred Stock. No dividends may
be declared on the Series C Preferred Stock if, and as long as, the Series B Preferred Stock is outstanding. Accordingly, it is
unlikely that we will declare any cash dividends in the foreseeable future. The Series G Preferred Stock does not pay a cash dividend,
but does pay a quarterly payment in kind dividend.
The rights of the holders of our common stock will be subordinate
to our creditors and to the holders of our preferred stock in a liquidation. No assurance can be given as to the amount of assets,
if any, that would be available for common stockholders in the event of a liquidation.
In liquidation, the rights of equity
security holders like our common stockholders are subordinate to holders of our debt obligations. As of September 5, 2014, we
owe approximately $12,037,848 to our creditors. In addition, the holders of our Series G Preferred Stock have a preference in
liquidation over the holders of our common stock. Accordingly, in the event of liquidation, no assurance can be given as to the
amount of remaining assets, if any, available for payment to common stockholder.
We cannot assure that there will be
a sustained public market for our common stock.
At present, our common stock is quoted on
the OTC Bulletin Board and tradable in the over-the-counter market. Our common stock is not traded on a sustained basis or with
significant volume. In addition, we currently do not meet the requirements for listing our common stock on NASDAQ or a national
securities exchange and we cannot assure if or when our common stock will be listed on such an exchange. For the foregoing reasons,
we cannot assure that there will be a significant and sustained public market for the sale of our common stock. Accordingly, if
you purchase our common stock, you may be unable to resell it. In the absence of any readily available secondary market for our
common stock, you may experience great difficulty in selling your shares at or near the price that you originally paid.
The market price of our common stock
may be volatile.
The market price of our common stock may
fluctuate and be affected by a number of factors, including, without limitation:
| · | Fluctuations in our operating results; |
| · | our announcements of significant contracts, milestones, acquisitions; |
| · | Announcements of innovations, new products or new patents by us or
by our competitors; |
| · | Governmental regulation; |
| · | additions or departures of key personnel; |
| · | significant sales of common stock or common stock equivalents or termination
of stock transfer restrictions; |
| · | changes in financial estimates by securities analysts; |
| · | fluctuations in stock market price and volume; |
| · | Patent or proprietary rights developments; and |
| · | Proxy contests or litigation. |
Our stock price may be adversely
affected if a significant amount of shares are sold in the public market.
As of September 5, 2014, approximately
31,688,195 shares of our common stock constituted "restricted securities" as defined in Rule 144 under the Securities
Act. Generally, pursuant to Rule 144, stockholders who are not affiliates of our company can resell their restricted securities
after they have held them for at least six months. In addition, as of September 5, 2014, approximately 33,800,000 shares of common
stock are issuable upon conversion of the Note and exercise of the Warrant, most of which shares are registered in this prospectus
for public sale, and approximately 40,419,355 shares of common stock are issuable upon conversion of other debt and of preferred
stock, which debt and preferred stock has been held for at least six months. Consequently, most of our restricted securities and
securities issuable upon conversion of convertible debt and convertible preferred stock are or soon will be eligible for public
sale. As of September 5, 2014, in addition to the Warrant, we had warrants outstanding for the purchase of an aggregate of 21,292,144
shares of our common stock. To the extent the exercise price of these warrants is less than the market price of the common stock,
the holders of the warrants are likely to exercise them and, eventually, sell the underlying shares of common stock and to the
extent that the exercise price of the warrants are adjusted pursuant to anti-dilution protection, the warrants could be exercisable
or convertible for even more shares of common stock. Moreover, we most likely will issue additional shares of common stock and/or
instruments convertible into or exercisable for common stock to raise funding or compensate employees, consultants and/or directors.
We are unable to estimate the amount, timing or nature of future sales of outstanding common stock. Sales of substantial amounts
of our common stock in the public market could cause the market price for our common stock to decrease. Furthermore, a decline
in the price of our common stock would likely impede our ability to raise capital through the issuance of additional shares of
common stock or other equity securities.
Our common stock is considered a “penny stock”.
The application of the “penny stock” rules to our common stock could limit the trading and liquidity of our common
stock, adversely affect the market price of our common stock and increase the transaction costs to sell shares of our common stock.
Our common stock is a “low-priced”
security or “penny stock” under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance
with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document
which describes the risks associated with such stocks, the broker-dealers duties in selling the stock, the customer’s rights
and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving
the customer for low- priced stock transactions based on the customer’s financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer,
and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of
broker-dealers to make a market in our common stock, will decrease liquidity of our common stock and will increase transaction
costs for sales and purchases of our common stock as compared to other securities.
If we fail to establish and maintain an effective system
of internal control, we may not be able to report our financial results accurately and timely or to prevent fraud. In this regard,
primarily due to our small size, our management has reported certain material weaknesses and significant deficiencies. Any inability
to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price
of our common stock.
Effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed. In our recent periodic reports, our management identified the following material weakness
and significant deficiency in its assessment of the effectiveness of internal control over financial reporting: Material weakness:
we did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement
of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial
reporting requirements. Significant deficiency: Given our limited personnel, inadequate segregation of duties. Our small size and
any future internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.
We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may
in the future discover areas of our internal control that need improvement.
Because the risk factors referred to
above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by
us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors
emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking
statements”. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-looking statements. When used in this prospectus, statements
that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing,
the words “plan”, “intend”, “may,” “will,” “expect,” “believe”,
“could,” “anticipate,” “estimate,” or “continue” or similar expressions or other
variations or comparable terminology are intended to identify such forward-looking statements. All statements other than statements
of historical fact included in this prospectus regarding our financial position, business strategy and plans or objectives for
future operations are forward-looking statements. Without limiting the broader description of forward-looking statements above,
we specifically note, without limitation, that statements regarding foreclosure of debt, loss of customers and loss of license
that involve known and unknown risks, delays, uncertainties and other factors not under our control, in the future are all forward-looking
in nature. These risks and other factors are identified under “Risk Factors” and from time to time in our other filings
with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Except as required by law, we undertake no obligation to update any forward-looking statements,
whether as a result of new information, future events or otherwise.
USE OF PROCEEDS
This prospectus relates to shares of our
common stock that may be offered and sold from time to time by the Selling Stockholder. We will receive no proceeds from the sale
of shares of common stock by the Selling Stockholder in this offering. However, we may receive proceeds from the exercise of the
Warrant.
DETERMINATION OF OFFERING PRICE
The Selling Stockholder may offer and sell
the shares of common stock covered by this prospectus at prevailing market prices or privately negotiated prices. See “Plan
of Distribution.”
SELLING STOCKHOLDER
This prospectus relates to the possible
resale by 31 Group LLC (the “Selling Stockholder”) of shares of common stock that have been or may be issued to the
Selling Stockholder pursuant to conversion of the Note and exercise of the Warrant. We refer to the such shares as the “Conversion
Shares”. We have filed the registration statement of which this prospectus forms a part pursuant to the provisions of the
Securities Purchase Agreement, which we entered into with the Selling Stockholder on July 14, 2014 concurrently with our execution
of the Note and Warrant, in which we agreed to provide certain registration rights with respect to sales by the Selling Stockholder
of the Conversion Shares.
The Selling Stockholder may, from time to
time, offer and sell pursuant to this prospectus any or all of the Conversion Shares. The Selling Stockholder may sell some, all
or none of these shares. We do not know how long the Selling Stockholder will hold the shares before selling them, and we currently
have no agreements, arrangements or understandings with the Selling Stockholder regarding the sale of any of the shares.
The following table presents information
regarding the Selling Stockholder and the shares that it may offer and sell from time to time under this prospectus. The table
is prepared based on information supplied to us by the Selling Stockholder, and reflects its holdings as of September 5, 2014.
Neither the Selling Stockholder nor any of its affiliates has held a position or office, or had any other material relationship,
with us or any of our predecessors or affiliates other than as described
in the footnotes to the table below or as a result of acquisition of our shares or other securities. To the best of our knowledge,
the Selling Stockholder is not a broker dealer or an affiliate of a broker dealer. As used in this prospectus, the term “Selling
Stockholder” includes the Selling Stockholder and any donees, pledgees, transferees or other successors in interest selling
shares received after the date of this prospectus from the Selling Stockholder as a gift, pledge or other non-sale related transfer.
Name and Address of
Selling Stockholder | |
Shares of common stock
Beneficially Owned Before this Offering | | |
No. of Shares of
common stock Offered Pursuant to this Prospectus | | |
No. of Shares of
common stock Beneficially Owned After this Offering | | |
Percentage of
Outstanding Shares of common stock Beneficially Owned After this Offering | |
31 Group, LLC 5 Hanover Square New York, NY 10004 (1) | |
| 10,775,808(2)(3) | | |
| 24,656,000(4) | | |
| 0(3) | | |
| *(5) | |
* Less than 1%
| (1) | Mr. Joshua Sason is a member and the controlling person of 31 Group, with sole voting control and investment discretion over
securities held by 31 Group, and may be deemed to share beneficial ownership of any securities beneficially owned by 31 Group.
Mr. Sason disclaims beneficial ownership of these securities. We have been advised that neither 31 Group nor Mr. Sason
is a member of the Financial Industry Regulatory Authority, or FINRA, or an independent broker-dealer. However, one of the
other members of 31 Group is affiliated with Aegis Capital Corp. and one or more registered broker-dealers, none of whom are currently
expected to participate in the sale of the securities offered hereby. The securities being registered hereunder are issuable (or
were issued) upon conversion or exercise, as applicable, of notes and warrants purchased by 31 Group in the ordinary course of
business, and at the time of purchase neither 31 Group nor any of its members or affiliates had any agreements or understandings,
directly or indirectly, with any other person to distribute such notes or warrants or any of the securities being registered hereunder. |
| (2) | Includes: (i) 1,612,904 shares of our common stock; (ii) shares
of our common stock issuable upon conversion of $1,003,129 principal amount of convertible
Debentures (the “Debentures”) beneficially owned by 31 Group; (iii) shares
of our common stock issuable upon conversion of $50,000 principal amount of Debentures
beneficially owned by Magna Management, LLC (which is solely owned and controlled by
Joshua Sason); and (iv) shares of our common stock issuable upon conversion of the Note
and upon the exercise of the Warrants. |
| (3) | We note that the number of
shares “beneficially owned” in the table is less than the number of shares that the Selling Stockholder can sell pursuant
to this Prospectus. This is because “beneficial ownership” is determined in accordance with Rule 13d-3(d) promulgated
by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Pursuant to that rule, a person or group of persons is deemed to have “beneficial ownership” of any shares
of common stock which such person has the right to acquire within 60 days. The percentage of shares beneficially owned prior to
the offering is based on 98,681,956 shares of our common stock actually outstanding as of September 5, 2014. Under the terms of
the Note, the Debentures and the Warrant, the Selling Stockholder may not convert the Note or the Debentures, or exercise the
Warrant, to the extent that such conversion or exercise would cause the Selling Stockholder, together with its affiliates, to
beneficially own more than 9.99% of the shares of our then outstanding common stock following such conversion or exercise. We
refer to this limitation the “9.99% Blocker”. Accordingly, shares of common stock issuable upon conversion of the
Note or the Debentures which have not been converted, and upon exercise of the Warrant to the extent it has not been exercised,
as a result of the 9.99% Blocker are excluded from beneficial ownership. Absent the 9.99% Blocker, the Selling Stockholder would
beneficially own approximately 70,342,887 shares of our common stock.
|
| (4) | Represents shares of common stock issuable upon conversion of the Note and exercise of the Warrant. |
| (5) | Based on 98,681,956 outstanding shares
of our common stock as of September 5, 2014.
|
The 31 Group Transaction
General
On July 14, 2014, we executed a Securities
Purchase Agreement (the “Agreement”) with 31 Group, LLC (the “Selling Stockholder”) pursuant to which we
received $1,000,000 net proceeds and issued a 12% secured subordinated convertible promissory note to the Selling Stockholder in
the principal amount of $1,500,000 (the “Note”) and a Common Stock Purchase Warrant (the “Warrant”) to
purchase 2,500,000 shares of our common stock.
Description of the Note
Principal and interest (at the rate
of 12% per annum) is due and payable under the Note on July 14, 2015. If we file a registration statement with the SEC covering
the resale of the shares of common stock issuable upon conversion of the Note and exercise of the Warrant on or before 45 days
after July 14, 2014, the principal amount of the Note shall be reduced by $200,000, and if the registration statement is declared
effective by the SEC within 120 days of July 14, 2014, the principal amount of the Notes shall be further reduced by $300,000.
We met both deadlines and, accordingly, the principal amount of the Note was reduced by $500,000 [To be revised if not effective
within requisite time period].
Principal and accrued but unpaid interest
is convertible into shares of our common stock at a price (the “Conversion Price”) equal the lesser (i) $0.35 per share,
or (ii) 62% of the lowest trading price of the common stock as quoted by Bloomberg L.P. for the ten trading days immediately preceding
the date of conversion (subject to adjustments as provided in the Note). However, in no event shall the Conversion Price be less
than $0.031 per share (the “Floor Price”). The Conversion Price is subject to downward adjustment upon the occurrence
of a number of events as set forth in the Note, including the sale (or announcement of the sale) of shares of common stock or instruments
exercisable or convertible into common stock other than “Exempt Issuances” (as defined in the Note) at an effective
price per share that is lower than the then Conversion Price (a “Dilution Event”). Upon the occurrence of a Dilutive
Event, the Conversion Price shall be reduced to equal the lowest price per share under the Dilution Event. We are subject to liquidated
damages (as computed in the Note) if shares are not delivered in the manner and timeframe required by the Note.
Repayment of the Note is guaranteed by Millennium
Biotechnologies, Inc., our operating subsidiary, and secured by all of our assets (subject to the senior security interest of certain
senior lenders).
As long as more than $100,000 principal
amount of the Note remains outstanding, absent the approval of the holders of 67%% of the principal amount of the outstanding Note,
we are subject to certain negative covenants, including but not limited to such things as incurring certain additional indebtedness,
creating certain liens, selling or otherwise disposing of all or substantially all of our assets or prepaying outstanding indebtedness.
Upon the occurrence of an “Event
of Default” as defined in the Note, all unpaid principal and accrued interest shall become due and payable and, depending
on the type of Event of Default, we are required to pay to the Selling Stockholder in full satisfaction of the Note the “Default
Sum”, two times the Default Sum or the “Parity Value” of the Default Sum. The “Default Sum” is (i)
an amount equal to 150% times the sum of (w) the then outstanding principal amount of the Note plus (x) accrued and unpaid interest
on the unpaid principal amount of the Note to the date of payment, (y) Default Interest (as defined in the Note) and (z) any liquidated
damages. “Parity Value” means (a) the highest number of shares of common stock issuable upon conversion of or otherwise
pursuant to such Default Sum, treating the trading day immediately preceding the Mandatory Prepayment Date as the “Conversion
Date” for purposes of determining the lowest applicable Conversion Price, unless the Event of Default arises as a result
of such breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date, multiplied
by (b) the highest Closing Price for the common stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”). Capitalized terms above
are as defined in the Note. If we fail to pay the Default Sum within five business days of written notice that such amount is
due and payable, then the Selling Stockholder shall have the right at any time, so long as we remain in default, to require us
to immediately issue, in lieu of the Default Sum, the number of shares of common stock equal to the Default Sum divided by the
Conversion Price then in effect.
The Note provides that the Selling Stockholder
shall not have the right to convert any portion of the Note, to the extent that after giving effect to such conversion, it would
beneficially own in excess of 9.99% of the number of shares of the common stock outstanding immediately after giving effect to
such conversion. This provision may be waived by the Selling Stockholder upon not less than 61 days’ prior notice to us.
Through November 10, 2014, we cannot offer
or sell securities other than to the Selling Stockholder and, for a period of two years from July 14, 2014, the Selling Stockholder
has a right of first refusal with regard to future financings.
Description of the Warrant
Pursuant to the terms of the Warrant, the
Warrant is exercisable for a five year period commencing on July 14, 2014 at an initial exercise price of $0.20 per share (subject
to adjustment upon the occurrence of anti-dilutive events similar to those in the Note). In the event that a registration statement
covering the shares issuable upon exercise of the Warrant is not in effect, the holder has the right to exercise the Warrant on
a “cashless” basis (as defined in the Warrant).
If we fail to timely issue to the holder
of the Warrant a certificate for the number of shares of common stock to which such holder is entitled upon the exercise of the
Warrant, and if on or after the date such certificate should have been delivered such holder purchases shares of common stock to
deliver in satisfaction of a sale by such holder of shares of common stock issuable upon such exercise that such holder anticipated
receiving from us (a “Buy-In”), then, so long as the holder has paid the exercise price, we are required to either
(i) pay cash to such holder in an amount equal to the holder's total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased (the “Buy-In Price”), at which point our obligation to deliver such certificate
for the number of shares of common stock to which the holder is entitled upon such exercise (and to issue such shares of common
stock) shall terminate, or (ii) promptly honor its obligation to deliver to the holder a certificate representing such shares of
common stock to which the holder is entitled and pay cash to the holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of common stock, times (B) the Closing Bid Price (as defined in the Warrant)
on the date of exercise.
On the earliest to occur of (x) the public
disclosure of any “Fundamental Transaction” (generally, a sale of all or substantially all of our assets, or a merger
or change in majority ownership, as defined in greater detail in the Warrant), (y) the consummation of any Fundamental Transaction
and (z) the holder first becoming aware of any Fundamental Transaction through the date that is90 days after the public disclosure
of the consummation of such Fundamental Transaction, we or our successor, at the election of the holder, shall purchase the Warrant
by paying cash in an amount equal to the Black Scholes Value – FT (as defined in the Warrant).
We issued the Note and the Warrant pursuant
to an exemption from registration pursuant to Rule 506(b) promulgated under the Securities Act of 1933 (the “Securities Act”)
and Section 4(2) of such Act.
PLAN OF DISTRIBUTION
The Selling Stockholder and any of its pledgees,
assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin
Board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These
sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling
shares:
| · | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; |
| · | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately negotiated transactions; |
| · | broker-dealers may agree with the Selling Stockholder to sell a specified number of such shares at a stipulated price per share; |
| · | a combination of any such methods of sale; or |
| · | any other method permitted pursuant to applicable law. |
The Selling Stockholder may also sell shares
under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholder
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with FINRA IM-2440.
The information contained herein may not
be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages
or losses arising from any use of this information, except to the extent such damages or losses cannot be limited or excluded by
applicable law. Past financial performance is no guarantee of future results. The Selling Stockholder may also enter into option
or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities
which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares
such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The Selling Stockholder and any broker-dealers
or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The
Selling Stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly,
with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which,
in the aggregate, would exceed eight percent (8%).
Because the Selling Stockholder may be deemed
to be an “underwriter” within the meaning of the Securities Act it will be subject to the prospectus delivery requirements
of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholder
has informed us that no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by
the Selling Stockholder.
Under applicable rules and regulations under
the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities
with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of
the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules
and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock
by the Selling Stockholder or any other person. We will make copies of this prospectus available to the Selling Stockholder and
have informed it of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including
by compliance with Rule 172 under the Securities Act).
BUSINESS
SUMMARY
Inergetics, Inc. (the “Company,”
“Inergetics,” “we” or “us”), formerly Millennium Biotechnologies Group, Inc., is a holding
company for its sole operating subsidiary, Millennium Biotechnologies, Inc. (“Millennium”).
Millennium was incorporated in the State
of Delaware on November 9, 2000, and is located in New Jersey. Millennium is a research based bio-nutraceutical corporation
involved in the field of nutritional science. Millennium's principal source of revenue is from sales of its nutraceutical
supplements.
On March 15, 2010 we changed our name to
Inergetics, Inc.
Inergetics, through its subsidiary Millennium,
engages in the research, development, and marketing of specialized nutritional supplements as an adjunct to medical treatments
for select medical conditions, as well as for athletes seeking improved recovery and advanced performance. We currently market
products which are targeted toward individuals. Millennium’s currently manufactures and markets the following four proprietary
product lines and 36 SKU’s to 7 separate target markets:
| · | Martha Stewart™ Essentials; |
We believe that our products are unique
in that they deliver healthy, whole food calories and do not contain high-fructose corn syrup or corn oil, which are not healthy
or suitable forms of calories for Millennium’s targeted markets. These ingredients have also shown to correlate with an increase
in obesity, a promotion of insulin resistance, and are implicated in inflammation and cancer. Additionally, the use of high levels
of Omega-6 fats (corn oil) has been shown to promote tumor growth in animal models.
Millennium developed Surgex™ ( www.surgexsports.com
) sports nutritional formula in late 2007. Surgex™ was tested in two single-blind placebo controlled clinical trials conducted
on the Division 1A Football and Soccer players at Rutgers University. Base on the results of these trials we believe that Surgex™
addresses the nutritional concerns of both professional and amateur elite athletes. These athletes often experience similar symptoms
post-workout to those battling immuno-compromised conditions, such as fatigue, loss of lean muscle, oxidative stress, and reduced
immune function.
Millennium acquired Bikini Ready™
and SlimTrim in January 2013. Both Bikini Ready and SlimTrim are sold into the diet category in retail stores. In addition, SlimTrim
is also sold direct to consumer on its web site www.slimtrim1.com and Bikini Ready is sold direct to consumer on its web
site www.bikinireadylifestyle.com.
In May 2013, Millennium acquired the license
for Martha Stewart™ Essentials. Condition specific supplements were developed for women. The product is sold in retailers
and on the web site www.marthastewartessentials.com.
We are headquartered in Newark, New Jersey,
and our common stock currently trades on the Over-the-Counter (OTC) market under the symbol “NRTI.”
Distribution
Channels
Retail Distribution
We make our branded products available to
consumers in more than 15,000 retail stores. Our products are currently available in the United States and internationally through
PriceSmart membership warehouse clubs in Central America and the Caribbean. We continue to expand our marketing presence in an
effort to increase our distribution in developed and emerging markets to our consumers throughout the world.
Direct-To Consumer Distribution
In the direct to consumer channel, customers
order Surgex™ through our website SurgexSports.com or by contacting us directly. Currently, SlimTrim is sold direct to consumer
on its web site www.slimtrim1.com. Bikini Ready is sold direct to consumer on its web site www.bikinireadylifestyle.com.
Martha Stewart™ Essentials is sold direct to consumer on the web site www.marthastewartessentials.com. Generally,
the products are shipped directly to the customer’s home within one business day and arrive within 2 to 5 business days depending
on the customers’ geographic location.
PRODUCTS
Surgex™
Surgex™, is a nutritional support
formula that aims to address the concerns of many elite athletes who suffer from symptoms such as (fatigue, lean muscle loss, lactic
acid buildup, oxidative stress, and stressed immune systems). This formula is designed to improve recovery parameters in efforts
to enhance the performance of professional and collegiate athletes.
The National Collegiate Athletic Association
(NCAA) has specific rules about the use of certain amino acids, or anabolic agents. In fact, colleges and universities are prohibited
from purchasing any product that contains amino acids or anabolic agents for athletes. This led to the development of the Surgex™
nutritional support formula.
Millennium has tested its sports nutrition
formula products at Rutgers University in New Jersey, among both the Men’s Division I Soccer Team and the Men’s Division
I Football Team in two separate single-blind placebo-controlled studies. Both studies illustrated the product’s beneficial
effects as a post-workout recovery aid, assisting the athlete in maximizing training responses and optimal recovery and improving
performance.
Surgex Meal is a Meal Replacement Shake
from powder. Surgex Fix is a pre-work and recovery powder shake. Both the Meal Replacement and Fix are NCAA compliant. Surgex also
has Surgex Pump and pre workout powder drink. Surgex Thermo is a thermogenic pill.
Bikini Ready™
Bikini Ready Yummy Shake from powder is
a low calorie meal substitute. Bikini Ready Weight Loss Catalyst is a thermogenic supplement containing fat burning ingredients.
Bikini Ready Cleanse is a multi-component formula to address weight loss and detox at the same time using a natural healthy gentle
laxative effect. Bikini Ready Fashion Multi is a comprehensive multiple vitamin containing ingredients to block carbohydrates,
stimulate metabolism and protect cells which blocks carbohydrates from being absorbed. Bikini Ready Gummies stimulate the body’s
metabolism.
SlimTrim
SlimTrim is an inclusive weight loss formula
at an affordable price.
Martha Stewart™ Essentials
Martha Stewart™ Essentials
is a complete line of whole-food based supplements created specifically for women. The line consists of six SKU’s which are
condition specific. The line is comprised of a Women’s Multivitamin, Hair, Skin & Nails, Digestive Health, Graceful Aging,
Menopause Support, Bone Support and Women’s Multivitamin Gummies.
Product Functionality Overview
Several health concerns must be addressed
when it comes to effectively providing nutrition. While other “single magic bullet” products on the market largely
only focus on one area while potentially neglecting others, Millennium’s products have been developed to address the major
dietary concerns that may be influenced by nutritional support, when incorporated as an adjunct to a individual’s care.
We have focused on condition specific products
with scientifically advanced formulas. Many of the products are whole food based and gluten free.
MARKETS
Size of the Nutritional supplement Market
The nutritional supplement market is expected
to increase in excess of $32 billion by 2014 according to Nutritional Business Journal. This growth is likely to be attributed
to several factors, including industry efforts to promote supplements as more essential than ever in weak economic times since
they can help to avert the need for much costlier prescription drugs and medical treatments, bolstered product credibility as a
result of the newly implemented federal GMP (Good Manufacturing Practices) and AER (adverse event report) requirements, increased
industry self-regulation, and a steady stream of innovative new products targeting an ever broader range of increasingly specific
conditions—especially the many age-related issues of aging Boomers and seniors.
Sports Nutrition Market
Based on historical acceptance by 10 NBA
teams, PGA golfers, and NFL players with little or no marketing budget, management expects to significantly improve results with
proper marketing and distribution strategies which cater to the mass market of sports nutrition consumers.
Products such as those listed below, as
well as many other “high protein” drinks, are marketed as sports nutrition supplements and may be considered competitive
products to our Surgex™ sports nutrition formula. It is important to note that as the high-protein drink market is expansive,
these competitive products are not an exhaustive list of competitors. Rather, these products are representative of some of the
high-protein drink products on the market today that may compete with Surgex™ sports nutrition formula. Surgex™ sports
nutrition formula will likely provide athletes with the important calories they need while being competitively priced with other
products.
| · | BSN Syntha-6™ Extended Release Protein Blend by BSN Inc. |
| · | Muscle Milk ® by CytoSport Inc. |
| · | FRS, an antioxidant health drink, by New Sun Nutrition, Inc. |
| · | Gatorade ® Performance Series |
Target Markets
Millennium re-launched Surgex™ in
the first quarter of 2013. Greater details on these markets are provided below.
Sports Recovery
Competitive athletes often suffer from similar
symptoms to those battling cancer or immuno-compromised diseases, such as fatigue, oxidative stress, muscle wasting, and possibly
lack of immune support due to the demands they put on their bodies daily. In order to compete effectively, these athletes need
a solution to address some of the key concerns they face, described below.
| · | Fatigue and Mitochondrial Dysfunction. Damage done to the mitochondria is typically attributed to the buildup of free radicals
and other noxious byproducts, such as lactic acid that accumulates during and after strenuous activity. |
| · | Oxidative Stress. Oxygen consumption greatly increases during exercise, which leads to increased free radical production. Also,
free radical formation within the muscle during exercise can easily damage muscle tissue and inhibit performance by the induction
of fatigue. |
| · | Muscle Wasting. A common problem during strenuous activity is lean muscle loss or wasting as muscle tends to breakdown after
vigorous activity. This problem can have a serious impact on performance and recovery. |
| · | Immune Support. Exercise has also been shown to have a positive effect on the immune system if one does not over train. Signs
and signals of overtraining are a constant feeling of fatigue, loss of strength or endurance, and although still exercising, a
feeling of burnout. Additionally, excessive exercise or periods of very heavy conditioning could lead to suppression of immunity
for several hours to a week or longer, creating a brief period of vulnerability when the risk of upper respiratory tract infections
is increased. |
Effect of Banned Nutritionals
In recent years, professional athletes have
come under considerable scrutiny for taking different substances or performance enhancers. Whether it is the Olympics, Tour de
France, baseball, or other professional sports, organizations constantly test athletes for chemicals within their body that would
indicate they have taken an illegal substance to boost their performance. Millennium’s Surgex™ sports nutritional formula
product is devoid of any banned substances.
Rutgers Studies: Demonstrating the Effect
of Surgex™ Sports Nutrition Formula vs. Placebo
Millennium has conducted two clinical trials
at Rutgers University among the Men’s Division I Soccer and Football teams, comparing the effect of the Surgex™ sports
nutrition formula versus a placebo. We believe that both studies showed the product’s beneficial effects as post-workout
recovery aid, assisting the athlete in maximizing training responses and aiding in optimal recovery. Surgex was formerly called
Resurgex.
Division I Men’s Soccer Team-Results
of the Trial-Published in The Journal for Strength and Conditioning Research
Millennium conducted its first clinical
trial among the Rutgers University Men’s Division I Soccer team during their preseason training regimen. The clinical trial
was accepted for publication in The Journal for Strength and Conditioning Research (“JSCR”). The JCSR is the official
research journal of the National Strength and Conditioning Association. This journal is recognized as the preeminent publication
for strength and conditioning coaches worldwide. These thought leaders rely on this journal for the future of leading edge science
as applied to their profession.
Preseason training often places a high demand
on athletes, and requires them to engage in frequent, high-intensity workouts with limited time devoted to recovery. Soccer players
spend a considerable portion of a match at an intensity close to 75% of VO2 max (the maximum amount of oxygen in milliliters that
one can use in one minute per kilogram of body weight) and rely on anaerobic metabolism and power during brief bursts of sprinting,
kicking, and jumping. These players must be able to perform near maximal capacity for extended periods, which may result in increased
oxidative stress. With outside supplementation of protective nutraceuticals, it may be possible to reduce acute and chronic oxidative
stress, as well as capitalize on gains from intense preseason training.
The purpose of this study was to examine
changes in performance and oxidative stress in collegiate soccer players over the course of preseason preparation, and to determine
the impact of a supplemental proprietary nutraceutical blend proposed to reduce oxidative stress and enhance recovery.
Results
A summary of the findings of the soccer
trial is provided in Table 8.
Table 8 |
Inergetics, Inc. |
NUTRITIONAL SUPPLEMENTATION (RESURGEX ® ) IN MALE COLLEGE SOCCER PLAYERS: |
EFFECTS ON PERFORMANCE AND OXIDATIVE STRESS |
|
Improved Performance |
There were significant changes in performance capacity as reduced oxidative stress in the Resurgex ® group versus the control group (leading high-protein nutritional formula). |
|
|
Improved Lactic Acid Response |
The Resurgex ® group had improved lactic acid responses to exercise and time to exhaustion versus the control group. |
|
|
Reduced Oxidative Stress |
The Resurgex ® group had significantly lower oxidative stress markers (isoprostanes and LPOs) versus the control group. |
|
|
Source: Inergetics, Inc. |
|
This single-blind, placebo-controlled trial
found that our Surgex™ sports nutrition formula enhanced performance parameters and reduced oxidative stress levels (free
radical damage caused by exercise) in players. Oxidative stress in the body is caused by imbalance or overload of oxidants (free
radicals from air, food, metabolism, medications, stress, disease, etc.). Sustained oxidative stress disrupts the cells’
defenses, resulting in damage that contributes to the development of many diseases.
Results indicated a beneficial effect of
the Surgex™ sports nutrition formula, including improvements in performance capacity, time to exhaustion, lactic acid response,
and reduced oxidative stress. This data suggests an important role for Resurgex® in the sports fitness field in addition to
its proven benefits for cancer and immuno-compromised medical patients. We believe that the fact that this trial is approved for
publication in the JSCR confirms the results of this clinical trial have been reviewed and approved by an independent and accredited
third party.
Rutgers’ Division I Football Team-Results
of the Trial Published in the Journal of Comparative Exercise Physiology.
We also conducted a second clinical trial
on the Rutgers University Division I Football team versus a placebo group. The study tested the recovery time, strength, and body
composition of the players versus a placebo (a leading competitor sports formula). We believe that the results concluded that the
Surgex™ sports nutrition formula significantly enhanced recovery parameters, strength, and body composition in the football
players.
Results
Those receiving the Surgex™ sports
nutrition formula showed significant increases in their peak power, as measured by Wingate testing (assessment for peak anaerobic
power, anaerobic fatigue, and total anaerobic capacity through a combination of running, vertical jumping, and resistance training),
better muscle to fat weight gains, and an improved testosterone:cortisol ratio, as well as reduction of interleukin 6 (IL6), creatine
kinase, and isoprostanes versus the control group.
Testosterone and cortisol are the two hormones
affected by training. The cortisol levels typically elevate and break down lean muscle. Testosterone, in contrast, which is the
supporter of lean muscle, decreases, therefore causing lean muscle breakdown in the body after strenuous exercise. In this study,
the Resurgex® group had significantly improved testosterone to cortisol ratios versus the control group. A summary of the findings
of this study is provided in Table 9.
Table 9 |
Inergetics, Inc. |
NUTRITIONAL SUPPLEMENTATION (RESURGEX ® ) IN MALE COLLEGE FOOTBALL PLAYERS: |
EFFECTS ON STRENGTH, BODY COMPOSITION, AND OXIDATIVE STRESS |
|
|
Improved Body Composition |
While both groups gained weight, the Resurgex ® group gained muscle and lost a slight amount of body fat while a leading competitor sports formula (control) group gained ½ of their body weight as fat. |
|
|
Improved Power and Strength |
Using Wingate testing, peak power was measured for each test and standardized by body weight. The increase in peak power in the Resurgex ® group was approximately 86% greater than the increase in the leading competitor sports formula group. |
|
|
Improved Recovery Parameters |
The Resurgex ® group had a significant improvement in their testosterone:cortisol ratio, while a leading competitor sports formula group had a decrease in this ratio. |
|
|
Source: Inergetics, Inc. |
|
The practical application emerging from
the study demonstrates the beneficial application of the Surgex™ sports nutrition formula as a post-workout recovery aid,
assisting the athlete in maximizing training responses by helping to buffer the acute and chronic biochemical challenges to optimal
recovery. The product also has the ability to reduce inflammatory and oxidative stress markers, as well as compounds that can break
down muscle. Millennium believes that these findings can help us position the Surgex™ sports nutrition formula as an aid
to help athletes increase their performance by improving recovery, strength, and energy parameters.
Millennium launched Bikini Ready™
in the first quarter of 2013. The Bikini Ready products are directed towards active women that want to live the healthy life style.
The products are sold in the drug and grocery channels.
Millennium acquired SlimTrim in January
2013. The products are sold as affordable weight loss formulas. The products are sold in the drug and grocery channels.
Millennium entered into a licensing agreement
with Martha Stewart Living Omnimedia, Inc. in May 2013 for the Martha Stewart™ Essentials line. The products were launched
September 2013. The line of supplements is condition specific, whole food based directed towards women. The line of supplements
is all sold into the drug and grocery channels along with direct to consumer sales over the internet. Over the term of the agreement
which expires in December 2018, we have a minimum licensing fee due in a total amount of $13,800,000.
Intellectual Property
Millennium owns all rights to the formulations
of Resurgex Select ®, Resurgex®, Resurgex Plus®, Resurgex Essential™, Resurgex Essential Plus™,
Surgex™, Bikini Ready and SlimTrim and has filed compositional patent applications with respect to these formulations. Resurgex®,
Resurgex Plus®, Resurgex Select ®, and Surgex™ are registered trademarks filed with the U.S. Patent and
Trademark Office (USPTO). Additionally, we have patents pending for all product lines in 57 countries worldwide.
Millennium owns the Bikini Ready trademark.
On January 7, 2003, Resurgex® was issued
a use and composition patent (U.S. Patent 6,503,506, Nutrient therapy for immuno-compromised patients). Millennium was granted
a composition patent for Resurgex Select® in December of 2006. In addition, the Surgex™ line of products is patent pending
in the United States and 57 countries worldwide. We rely on trade secrets and unpatented proprietary technology in addition to
our patented technologies.
On March 20, 2006, Millennium received the
Healthcare Common Procedure Coding System (HCPCS) code for Resurgex Select ® . HCPCS is one of the formats in which
nutritional formulas may be coded for Medicare reimbursement and is specifically required for Medicaid reimbursement in many states.
Growth Strategy and Distribution
Millennium has implemented a strategy that
is intended to penetrate the Food Drug Mass (FDM) channels of distribution with its nutritional products. Our products are currently
distributed in approximately 10,000 retail stores. We intend on growing distribution with more retailers through our internal sales
force and utilization of our broker network. The FDM has in excess of 300,000 stores in the United States. We have numerous web
sites where the products can be purchased directly by the consumer. Our products can also be purchased at various E-retailers.
RESEARCH AND DEVELOPMENT
During the first quarter of 2014 and during
2013 and 2012, we spent $4,408, $44,090 and $45,578, respectively, on research and development of our products. The research and
development expenses incurred in the first quarter of 2014 and 2013 are directly related to the development of the Bikini Ready
and Martha Stewart Essentials product line. The research and development expenses incurred in 2012 are directly related to the
development of the Surgex product line.
COMPETITION
Our products target
the nutritional supplement market. The products that most directly compete with our products in the adult nutrition market are
produced by mainstream manufacturers, as well as generic (store branded) products that are marketed head-to-head against these
products. We believe that our products can compete because:
| · | Many of the mass-market competitors manufacture their products using the least expensive ingredients, which ensures low retail
price and high profitability. This means diminished bioavailability and low biological value, as well as less benefit to the end
user. |
| · | Millennium’s products were developed with the ingredients necessary in order to deliver optimal performance. |
| · | Millennium’s products deliver therapeutic levels of active ingredients based on the scientific research. |
| · | Millennium has a use and composition patent for the existing formulas. Ensure ® and Boost ® are composed of mostly
corn syrup and provide “empty calories,” which could do more harm than good, especially in glucose-sensitive individuals. |
Notwithstanding the foregoing, the biotechnology
and nutraceutical supplement industries are highly competitive and subject to significant and rapid technological change. Developments
by our competitors may render our products obsolete or noncompetitive. Numerous companies compete in our market, many of which
have greater size and financial, personnel, distribution and other resources greater than ours. Our principal competition in the
distribution channels where we are marketing our current products and where we intend to market other products comes from a limited
number of large nationally known manufacturers and many smaller manufacturers of nutraceutical supplements. In addition, large
pharmaceutical companies compete with us on a limited basis in the nutraceutical supplement market. Increased competition from
such companies could have a material adverse effect on us because such companies have greater financial and other resources available
to them and possess distribution and marketing capabilities far greater than ours. We also face competition in mass market distribution
channels from private label nutraceutical supplements offered by health and natural food store chains and drugstore chains. We
cannot assure that we will be able to compete.
MANUFACTURING
Command Nutritionals, LLC is our outsourced
manufacturer and co-packager for the powder products at their facility in Fairfield, New Jersey.
Dr. Vita is our outsourced manufacturer
and co-packager for the tablet products at their facility in Las Vegas, Nevada.
GOVERNMENT REGULATION
The manufacturing, processing, formulation,
packaging, labeling and advertising of all of Millennium’s product lines are subject to regulation by federal agencies, including
the Food and Drug Administration (the "FDA"), the Federal Trade Commission, the Consumer Product Safety Commission,
the United States Department of Agriculture, the United States Postal Service and the United States Environmental Protection Agency.
These activities are also subject to regulation by various agencies of the states and localities in which we sell and plan to sell
our products.
The Dietary Supplement Health and Education
Act of 1994 (the "Dietary Supplement Law") broadly regulates nutritional labeling, claims and manufacturing requirements
for dietary supplements. The Dietary Supplement Law provides for regulation of Statements of Nutritional Support ("Statements").
These Statements may be made if they are truthful and not misleading and if "adequate" substantiation for the claims
is available. Statements can describe claims of enhanced well-being from use of the dietary supplement or product statements that
relate to affecting a structure or function of the body. However, statements cannot claim to diagnose, treat, cure, or prevent
any disease, regardless of the possible existence of scientific reports substantiating such claims.
Statements appearing in dietary supplement
labeling must be accompanied by disclaimer stating that the FDA has not evaluated the Statements. Notification to the FDA of these
Statements is not considered approval of the Statements. If the FDA determines in possible future proceedings that dietary supplement
Statements fail to meet the requirements of the Dietary Supplement Law, a product may be subject to regulation as a drug. The FDA
retains all enforcement means available to it (i.e. seizure, civil or criminal penalties, etc.), when investigating or enforcing
labeling claims.
The Federal Trade Commission ("FTC")
regulates advertising of dietary supplements which includes all of Millennium’s products. The Federal Trade Commission Act
prohibits unfair or deceptive trade practices and false or misleading advertising. The FTC has recently been very active in its
enforcement of advertising against manufacturers and distributors of nutritional dietary supplements having instituted several
enforcement actions resulting in signed agreements and payment of large fines. Although we have not been the target of a
FTC investigation, there can be no assurance that the FTC will not investigate our advertising in the future.
We are unable to predict the nature of any
future laws, regulations, interpretations, or applications, nor can we predict what effect additional governmental regulations
or administrative orders, when and if promulgated, would have on our business in the future. They could, however, require
the reformulation of certain products not possible to be reformulated, imposition of additional record keeping requirements, and
expanded documentation of the properties of certain products, expanded or different labeling and scientific substantiation regarding
product ingredients, safety or usefulness. Any or all such requirements could have a material adverse effect on our results
of operations and financial condition.
PRODUCT LIABILITY AND INSURANCE
The Company, like other producers and distributors
of ingested products, faces an inherent risk of exposure to product liability claims in the event that, among other things, the
use of its products results in injury. We maintain insurance against product liability claims with respect to the products we manufactures.
With respect to the retail and direct marketing distribution of products produced by others, our principal form of insurance consists
of arrangements with each of our suppliers of those products to name us as beneficiary on each of such vendor’s product liability
insurance policies. We do not buy products from suppliers who do not maintain such coverage.
SIGNIFICANT CUSTOMERS
For the year ended December 31, 2013, three
significant customers (defined as contributing at least 10%) accounted for 55% (31%, 13%, and 11%) of net sales. For the year ended
December 31, 2012, one significant customer accounted for 57% of net sales. The loss of any of these customers could have a material
adverse effect on our business.
EMPLOYEES
As of September 5, 2014, we employed
10 full time persons, of whom one is primarily engaged in research and development and product support activities. Two are primarily
engaged in overall managerial functions associated with operations and raising capital. Seven are engaged in distribution partnerships
and sales and marketing. One is primarily engaged in day to day managerial operations. We have no collective bargaining agreements
with its employees.
INFORMATION SYSTEMS INFRASTRUCTURE
Our website, which is based on internally
developed software and other third party software, is hosted in New York at Futurological Strategies, Inc. Our servers and our
network are monitored 24 hours a day, seven days a week.
We use a variety of techniques to protect
our confidential customer data. When our customers place an order or access their account information, we use a secure server (SSL)
to transfer information. Our secure server software encrypts all information entered before it is sent to our server. All customer
data is protected against unauthorized access. We use Thawte software to secure our credit card transactions.
PROPERTY
We do not own any real estate or other physical properties material
to our operations. We operate from leased space. Our executive offices are located at 550 Broad Street, Suite 1212, Newark, N.J.
07102 which contains approximately 2,800 square feet of floor space.
We warehouse and distribute our products
from two, third party facilities. They are located at 889 Waverly Avenue, Holtsville, NY 11742 and 2427 Bond Street, University
Park, IL 60484.
LEGAL PROCEEDINGS
Creative Healthcare Solutions, LLC vs. Millennium
Biotechnologies Inc, Ct. of Common Pleas of Delaware County Ohio, Case No. 07 CV H 11 1420). Millennium was not satisfied with
the service rendered by Creative Healthcare Solutions, LLC in 2005 which were associated with the development of Resurgex Select
collateral materials developed in December of 2005. Millennium subsequently was forced to destroy and dispose of over 80% of the
materials provided by Creative Healthcare Solutions due to the poor quality of the materials. Millennium has been unsuccessful
in resolving the dispute and subsequently Creative Healthcare Solutions, LLC filed legal action for demand of payment in the amount
of $63,718 for services rendered.
Robert Half International vs. Millennium
Biotechnologies, Inc. filed on September 30, 2009 in the Superior Court of New Jersey, Law Division, Middlesex County. Robert Half
International claims a total of $18,507 plus costs and fees based upon the Millennium’s failure to pay the plaintiff the
fees associated with the full time hiring of an employee.
MARKET PRICE OF AND DIVIDENDS ON REGISTRANT’S
COMMON EQUITY
Market Information
Our common stock is quoted on the Over-the-Counter
Bulletin Board (OTCBB) under the ticker symbol “NRTI”. The following table shows, for the periods indicated,
the high and low bid prices per share of our common stock as by OTC Bulletin Board. Over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The
market for the common stock has been sporadic and there have been long periods during which there were few, if any, transactions
in the common stock and no reported quotations. Accordingly, reliance should not be placed on the quotes listed below, as the trades
and depth of the market may be limited, and therefore, such quotes may not be a true indication of the current market value of
our common stock.
| |
High/Bid | | |
Low/Bid | |
2012 | |
| | | |
| | |
First Quarter | |
$ | 0.56 | | |
$ | 0.11 | |
Second Quarter | |
| 0.25 | | |
| 0.10 | |
Third Quarter | |
| 0.12 | | |
| 0.05 | |
Fourth Quarter | |
| 0.12 | | |
| 0.04 | |
| |
| | | |
| | |
2013 | |
| | | |
| | |
First Quarter | |
$ | 0.16 | | |
$ | 0.04 | |
Second Quarter | |
| 0.21 | | |
| 0.07 | |
Third Quarter | |
| 0.15 | | |
| 0.09 | |
Fourth Quarter | |
| 0.14 | | |
| 0.08 | |
2014 | |
| | | |
| | |
First Quarter | |
$ | 0.34 | | |
$ | 0.08 | |
Second Quarter | |
$ | 0.25 | | |
$ | 0.07 | |
As of September 5, 2014, the last reported
sale price of our common stock, as reported by the OTCBB, was $0.04.
Holders
As of September 5, 2014, there were
approximately 577 stockholders of record for our common stock. The number of record holders does not include stockholders whose
securities are held in street names. In addition, there were approximately 10 holders of record of our Series B Convertible Preferred
Stock, 67 holders of record of our Series C Preferred Stock and 31 holders of record of our Series G Convertible Preferred Stock.
Dividends
We have not declared or paid, nor have we
any present intention to pay, cash dividends on our common stock. No cash dividends may be declared or paid on our common stock
if, and as long as, the Series B Preferred Stock is outstanding or there are unpaid dividends on outstanding shares of Series C
Preferred Stock. No dividends may be declared on the Series C Preferred Stock if, and as long as, the Series B Preferred Stock
is outstanding. Accordingly, it is unlikely we will declare any cash dividends in the foreseeable future.
Securities authorized for issuance under equity compensation
plans
Plan category | |
Number of securities to be issued upon exercise of outstanding options, warrants and rights | | |
Weighted-average exercise price of outstanding options, warrants and rights | | |
Number of securities remaining available for future issuance under equity compensation plans | |
Equity compensation plans approved by security holders | |
| - | | |
| - | | |
| - | |
Equity compensation plans not approved by security holders | |
| - | | |
| - | | |
| 500,000 | |
Total | |
| - | | |
| - | | |
| 500,000 | |
Information about common stock that may be issued upon the exercise
of options and warrants is contained in the Notes to Consolidated Financial Statements attached hereto.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should
be read with the financial statements and accompanying notes included elsewhere in this Prospectus and the information described
under the captions “Business”, “Risk Factors ” and “Forward-Looking Statements
” above. The following discussion is intended to assist the reader in understanding and evaluating our financial position.
Results of Operations
for the six months ended June 30, 2014 compared to the six months ended June 30, 2013:
Total revenues generated from the sales
of Surgex, Bikini Ready®, SlimTrim and Martha Stewart Essentials for the six months ended June 30, 2014 totaled $1,003,417
an increase of 1,266% from the six months ended June 30, 2013 which totaled $73,442. The primary reason for the increase was due
to our distribution of Martha Stewart Essentials and the newly formulated Surgex brand along with the introduction of Bikini Ready
and SlimTrim to the retailers during the six months ended June 30, 2014. The introduction of these brands continues to show growth
into the third quarter of 2014.
At this stage in our development, revenues
are not yet sufficient to cover ongoing operating expenses.
Gross profit for the six months ended June 30, 2014 amounted to $330,377 for a
33% gross margin. Gross profit increased $312,180 or 1,716% for the six months ended June 30, 2014 compared to $18,197 for the
six months ended June 30, 2013. The increase in gross profit is a result of higher sales in the six months ended June 30, 2014.
After research and development cost
and selling, general and administrative expenses of $4,709,160, we realized an operating loss of $4,378,783 for the six months
ended June 30, 2014. Operating losses of $4,378,783 increased $2,240,486 or 95% as compared to the first six months of 2013 operating
loss of $2,240,486. The majority of the increase was due to the increase in promotion and royalty for the launch of the various
products into the retail in the amount of $1,358,041. Additional employees were hired to support the infrastructure of the business
in addition to stock awards in the amount of $1,050,387. There was a reduction in other professional fees in the amount of $45,409.
Non-operating expenses totaled $1,390,965
for the six months ended June 30, 2014 an increase of 414% or $1,120,502 as compared to $270,463 for the six months ended June
30, 2013. The increase in non-operating expenses of $1,120,502 was due to the increase in accretion of debt discount in the amount
of $86,871 and an increase in loss associated with the fair value of the derivative instruments issued with the convertible debt
in the amount of $436,000. There was an increase in interest expense of $569,031 due to more debt outstanding. There was a decrease
in the gain on extinguishment of debt in the amount of $28,600 compared to the six months ended June 30, 2013.
The net result for the six months ended June 30, 2014 was a loss of $6,349,711
or $0.09 per share which included a preferred dividend on the Series G stock in the amount of $579,963, compared to a loss of
$3,258,848 or $0.06 per share for the six months of 2013. The net loss for the six months of 2014 increased by $3,090,863 or 95%
as compared to the six months of 2013, primarily due to an increase in selling, general and administrative expenses and accretion
of debt discount, increase loss of derivatives and increased interest expense due to additional debt outstanding. Management will
continue to make an effort to lower operating expenses and increase revenue. We will continue to invest in further expanding our
operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting
our name and products. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects
them to significantly decrease as a percentage of revenues as revenues increase.
Results of Operations for the year ended
December 31, 2013 compared to the year ended December 31, 2012:
Total revenues generated from the sales
of Surgex™, Bikini Ready™, SlimTrim and Martha Stewart™ Essentials for the year ended December 31, 2013 totaled
$847,834, an increase of 823% from the year ended December 31, 2012 which totaled $91,873.
At this stage in our development, revenues
are not yet sufficient to cover ongoing operating expenses.
Gross profits for the year ended December
31, 2013 amounted to $244,828 for a 29% gross margin. Gross profits increased $239,282 or 4,314% for the year ended December 31,
2013 compared to $5,546 for the year ended December 31, 2012 with a 6% gross profit margin in 2012. The increase in gross profits
and gross margin is a result of higher revenue from more brands with more retail distribution.
After deducting research and development
costs of $44,090 and selling, general and administrative expenses of $6,491,671, which included $914,479 in non-cash outlays in
the form of restricted stock and warrants issued for professional fees and compensation, we realized an operating loss of $6,290,933.
Operating losses for 2013 of $6,290,933 were up $660,034 or 12% as compared to the 2012 operating loss of $5,630,899. The overall
increase was offset by approximately $2,401,000 decrease due to lower outside consulting fees for pro athletes and other experts
in mass market distribution. Commissions increased approximately $62,000 due to more sales through brokers. Trade show expense
increased approximately $68,000 along with travel of approximately $67,000 for promotion of the brands. The license expense increased
approximately $710,000 since 2013 was the first year of a license agreement with minimum royalty payments. Promotion and marketing
expense for the brands increased approximately $1,242,000 due to increase awareness. Software expense increased approximately $85,000,
due to implementation of new systems. Recruiting expense increased approximately $83,000 due to hiring of new employees and salaries
and benefits increased approximately $603,000 due to increased headcount. Warrant expense decreased approximately $251,800. Product
liability insurance increased approximately $71,000 due to increased coverage for more brands. Investor relations increased approximately
$31,000. Director fees increased approximately $49,000.
Other income and expense, net totaled $1,248,604
for the year ended December 31, 2013 an increase of 46% or $393,526 as compared to $855,078 for the year ended December 31, 2012.
A net gain of $46,978 was realized in connection with debt restructuring which occurred in 2013 versus zero in 2012. In 2013 there
was a loss on the fair market valuation of the derivatives in the amount of $91,000 versus a gain of $870,000 in 2012. These income
items are offset by losses and expenses in regards to the amortization of debt discount which is $444,450 in 2013 an increase of
$188,867 from $255,583 in 2012 due to the additional debt issued in 2013 with associated origination fees. There was a loss from
warrants and derivatives issued with debt greater than the carrying value in the amount of $736,000 in 2012 versus zero in 2013.
Interest and financing expense was $760,132 in 2013 increased by $26,637 from $733,495 in 2012 due to the addition debt issued
in 2013.
We sold the net operating loss carry forward
for the State of New Jersey in the Technology Business Tax Certificate Transfer Program. We were approved to sell $3,357,144 for
the year ended December 31, 2013. The proceeds were collected in January 2014 net of fees. We were approved to sell $2,209,715
for the year ended December 31, 2012. The proceeds were collected in January 2013 net of fees.
Preferred dividends of $1,560,200 for the
year ended December 31, 2013 increased 33% or $384,850 as compared to $1,175,350 for the year ended December 31, 2012. The increase
was due to more preferred shares outstanding.
The net result for the year ended December
31, 2013 was a loss of $5,748,092 or $0.10 per share, compared to a loss of $5,451,612 or $0.15 per share for the prior year. Management
will continue to make an effort to lower operating expenses and increase revenue. We will continue to invest in further expanding
our operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting
our name and products. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects
them to significantly decrease as a percentage of revenues as revenues increase.
Disclosure About Off-Balance Sheet Arrangements
We do not have any transactions, agreements
or other contractual arrangements that constitute off-balance sheet arrangements.
Critical Accounting Estimates
Our Management's Discussion and Analysis
of Financial Condition and Results of Operations section discusses our consolidated condensed financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing
operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation
of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are
not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis
and in the notes to the consolidated financial statements included in this prospectus.
Liquidity and Capital Resources
Our future success is dependent upon
our ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management
believes, but cannot assure, that they can raise the appropriate funds needed to support our business plan and develop an operating,
cash flow positive company. We have been operating with negative cash flows for the past 13 years.
We incurred substantial net losses for the six months ended June 30, 2014 and
the year ended December 31, 2014 and have accumulated a deficit of $90,506,748 at June 30, 2014. We have not been able to generate
sufficient cash from operating activities to fund our ongoing operations. There is no guarantee that we will be able to generate
enough revenue and/or raise capital to support our operations. These factors raise substantial doubt about our ability
to continue as a going concern. We have never reported Net Income.
The condensed consolidated financial
statements included herein do not include any adjustments relating to the recoverability or classification of recorded assets
and liabilities that might result should we be unable to continue as a going concern.
Our business operations generally have
been financed by debt investments through promissory notes with accredited investors. During the first six months of
2014, we obtained new debt from the issuance of promissory notes that supplied the funds that were needed to finance operations
during the reporting period. The new issuance of debt requires conversion of existing debt which may not be able to convert on
favorable terms. Such new borrowings resulted in the receipt by us of $1,495,030. While these funds sufficed to compensate
for the negative cash flow from operations they were not sufficient to build up a liquidity reserve. As a result, our
financial position at June 30, 2014 showed a working capital deficit of $9,899,294. During the first six months of
2014 we obtained new financing sufficient to fund ongoing working capital requirements. We need to continue to raise
funds to cover working capital requirements until we are able to raise revenues to a point of positive cash flow. For the period
July 1, 2014 through September 5, 2014, we obtained new debt from the issuance of promissory notes that supplied the funds that
were needed to finance operations during the that period. The recent issuance of the Debentures to 31 Group requires conversion
of existing debt which may not be able to convert on favorable terms. Such new borrowings resulted in the receipt by us of approximately
$1,000,000. We received $1,000,000 from 31 Group pursuant to the Note.
We entered into a license agreement
with Martha Stewart Living Omnimedia (“MSLO”) with minimum royalty payments totaling $1,800,000, $2,100,000, $2,700,000,
$3,200,000 and $3,800,000 for each of the years ended 2014, 2015, 2016, 2017 and 2018, respectively. $1,350,000 was paid as of
June 30, 2014. Total royalties due through June 30, 2014 of $1,350,000 are to be paid quarterly on the first day of the quarter
commencing April 1, 2014. We were not able to make the payment that was due July 1, 2014 to the MSLO license agreement and, accordingly,
are in default under that agreement. While we are in discussions to work out terms of payment, we most likely will need to raise
additional funds to meet our obligations under the license agreement.
Effects of Inflation
We are subject to price
risks arising from price fluctuations in the market prices of the products that we sell. Management does not believe that inflation
risk is material to our business or our consolidated financial position, results of operations, or cash flows.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
MANAGEMENT
Information about all of our directors
and executive officers are as follows:
Name and age |
|
Position |
|
Term(s) of Office |
|
|
|
|
|
Michael C. James, 55 |
|
Chief Financial Officer |
|
July 1, 2010 until present |
|
|
Chief Executive Officer |
|
June 11, 2012 until present |
|
|
Chairman of the Board |
|
June 11, 2012 until present |
|
|
Director |
|
September 24, 2009 until present |
|
|
|
|
|
Carl Germano, 60 |
|
Executive Vice President, Research and Product Development |
|
May 15, 2001 until present |
|
|
Director |
|
May 29, 2012 until present |
|
|
|
|
|
James E. Kras, 45 |
|
President |
|
March 18, 2014 until present |
|
|
|
|
|
James DeLucia, 47 |
|
Director |
|
December 26, 2012 until present |
|
|
|
|
|
Frank Guarino, 39 |
|
Chief Operating Officer |
|
July 1, 2010 until May 2012 |
|
|
Chief Financial Officer |
|
October15, 2001 until June 30,2010 |
|
|
|
|
|
Mark Mirken, 69 |
|
President, Chief Operating Officer |
|
September 2007 until August 4, 2008 |
|
|
Chief Executive Officer |
|
August 4, 2008 until June 11, 2012 |
|
|
Chairman of the Board |
|
August 4, 2008 until June 11, 2012 |
|
|
|
|
|
Benjamin Custodio, 70 |
|
Director |
|
October 28, 2008 until January 2, 2012 |
|
|
|
|
|
Kenneth Sadowsky, 50 |
|
Director |
|
September 17, 2008 until June 25, 2009 and then, since March 8, 2010 until May 17, 2012 |
There are no family relationships among
our officers and directors. All directors hold office until the next annual meeting of stockholders and the election and qualification
of their successors. Vacancies on the Board of Directors may be filled by the remaining directors until the next annual stockholders'
meeting. Officers serve at the discretion of the Board.
A summary of the business experience for
each of our present officers and directors is as follows:
Michael C. James
Mr. James has been our Chief Financial Officer
since July 1, 2010 and Chief Executive Officer since June 11, 2012. For the past thirteen years, Mr. James has been the Managing
Partner of Kuekenhof Capital Management, LLC, a private investment management company, where he holds the position of Managing
Director of Kuekenhof Equity Fund, L.P. and Kuekenhof Partners, L.P. Currently, Mr. James is a director of Guided Therapeutics,
Inc. where he is Chairman of the Board and serves as Chairman on the Audit Committee. He was a board member of Nestor,
Inc. from 2006 until June 2009 and CEO of that company from January 2009 through September 11, 2009. While acting as
CEO, Mr. James turned that company profitable and headed a complete financial restructuring. The business was sold on September
8, 2009 from the Receiver's Estate in Superior Court of the State of Rhode Island. From 1995 to 1999, Mr. James was
a Partner at Moore Capital Management, Inc., a private investment management company. Prior to his position at Moore Capital, from
1991 to 1994, he was employed by Buffalo Partners, L.P., a private investment management company, where he held the position of
Chief Financial and Administrative Officer. From 1986 to 1991, he was employed by National Discount Brokers and held the positions
of Treasurer and Chief Financial Officer. He began his career in 1980 as a staff accountant with Eisner, LLP. Mr. James received
a Bachelor of Science in Accounting from Fairleigh Dickenson University.
Carl Germano
Mr. Germano serves as our executive vice
president of research and product development. He is a registered, certified, and licensed nutritionist. Mr. Germano holds a Master’s
degree in clinical nutrition from New York University and has over 27 years of experience using innovative, complementary nutritional
therapies in private practice. For the past 20 years, he has dedicated his efforts to research and product development for the
dietary supplement and medical foods industries, where he has been instrumental in bringing unique nutritional substances and formulations
to the health/dietary supplement industry. From April 1999 to July 2001, Mr. Germano was senior vice president of research and
product development with Nutratech, Inc., a nutraceutical raw materials supplier. From 1992 to 1999, he was vice president of product
development and research with Solgar Vitamin and Herb (noting that in 2005 NBTY Inc. [NTY-NYSE] purchased the Solgar Vitamin and
Herb Co. from Wyeth Consumer Healthcare [WYE-NYSE]).
James E. Kras
Mr. Kras has been our Chief Marketing Officer
since July 1, 2012 and President since March 18, 2014. Prior to joining Inergetics, Mr. Kras was the Managing Member of Whole Products
LLC, a nutritional supplement company from February, 2009 through June 2012. He was Director of Marketing at Ajinomoto USA, a pharmaceutical
company from 2007 until 2009. Mr. Kras worked for Aegis/Carat as Account Director securing and managing Wyndham Hotel’s digital
business as well as spearheading the Revlon account. From 2006 to 2007, while at search marketing pioneer, iCrossing, he drove
national account growth with clients such as Chrysler and Vitamin Shoppe, helping to position iCrossing for acquisition. Mr. Kras’
nutrition marketing success includes working at NBTY (Nature’s Bounty) from 2001 through 2005, where his brand management
team nearly doubled division sales in three years to more than $200 million.
James DeLucia
Mr. DeLucia is the Founder, President and
CEO of AR James Media, Inc., an award winning outdoor advertising and marketing firm that owns and operates over 1,000 billboards
across the New York/New Jersey metro area. AR James Media specializes in the outdoor advertising business including transit shelters,
junior billboards and various other “out-of-home” mediums including large format and digital. Mr. DeLucia oversees
AR James Media’s state and municipal programs including public biding and relationship management with various government
officials. Mr. DeLucia started his career on the floor of the New York Mercantile Exchange in 1989. Mr. DeLucia became a member
of two divisions of the Chicago Board of Trade, COMEX in 1992 and NYMEX in 1999. After experiencing success as a futures and options
broker, Mr. DeLucia formed ALX Energy, Inc. ALX Energy, Inc. was the premier futures and options brokerage company for banks, hedge
funds, utility companies and other large institutions. Mr. DeLucia’s expert skills and knowledge led ALX to obtain the record
for the most volume ever executed in the Natural Gas prop month close in the history of the contract.
Independent Director
Our Board of Directors has determined that
James DeLucia is an independent director as (i) defined in Rule 10A-3(b)(1)(ii) under the Exchange Act and (ii) under Sections
803A(2) and 803B(2)(a) of the NYSE MKT LLC Company Guide (although our securities are not listed on the NYSE MKT LLCE or any other
national exchange).
EXECUTIVE COMPENSATION
The following table sets forth
certain compensation information for: (i) the person who served as our Chief Executive Officer during the year ended December 31,
2013, regardless of the compensation level, and (ii) each of our other executive officers, serving as an executive officer at any
time during 2013, as well as the most highly compensated employees who did not serve as executive officers during 2013. Compensation
information is shown for the fiscal years ended December 31, 2013, 2012, and 2011:
Name and Principal Position | |
|
Year | | |
Salary ($) (1) | | |
Directors Fee ($) | | |
Other Annual Compensation($) (2) | | |
Restricted Stock Awards ($) (3) | | |
Securities Underlying Options ($) | | |
All Other Compensation($) | |
Michael C. James | |
| 2013 | | |
| 150,000 | | |
| - | | |
| - | | |
| 150,200 | | |
| - | | |
| | |
Chief Executive Officer | |
| 2012 | | |
| 150,000 | | |
| - | | |
| - | | |
| 270,000 | | |
| - | | |
| - | |
Chief Financial Officer and Director | |
| 2011 | | |
| 153,846 | | |
| - | | |
| - | | |
| 25,000 | | |
| - | | |
| | |
Carl Germano | |
| 2013 | | |
| 150,000 | | |
| - | | |
| - | | |
| 150,200 | | |
| - | | |
| - | |
Executive Vice President | |
| 2012 | | |
| 150,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
and Director | |
| 2011 | | |
| 151,923 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Frank Guarino | |
| 2012 | | |
| 100,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Chief Financial Officer | |
| 2011 | | |
| 94,231 | | |
| - | | |
| - | | |
| — | | |
| - | | |
| - | |
Mark C. Mirken (4) | |
| 2012 | | |
| 41,115 | | |
| - | | |
| 11,932 | | |
| - | | |
| - | | |
| - | |
President and CEO, Director | |
| 2011 | | |
| 161,538 | | |
| - | | |
| 24,000 | | |
| - | | |
| - | | |
| - | |
|
(1) |
The value of other non-cash compensation, except for the items listed under (2), (3) and (4), that was extended to or paid for individuals named above did not exceed 10% of the aggregate cash compensation paid to such individual, or to all executive officers as a group. |
|
(2) |
Consists of automobile expenses allowances. |
|
(3) |
We recognize expenses for options and warrants granted to employees on the basis of fair value calculated using the Black-Scholes formula. |
|
(4) |
Mark C. Mirken resigned from all of his positions with us and our subsidiary on June 11, 2012. |
Stock Options /Stock Purchase Warrants:
There were no options
granted during 2014, 2013 and 2012. In 2012, there was a management stock warrant grant.
Compensation of our Directors
During 2013 and 2012
none of our Directors received cash compensation. In 2012 James DeLucia received 500,000 restricted shares of common stock. In
2011 Benjamin Custodio and Kenneth Sadowsky each received 125,000 restricted shares of common stock.
Employment Agreements
Michael James
Pursuant to an employment agreement, Michael
C. James is employed as the Chief Financial Officer of the Company and Millennium. The Agreement terminates on May 31, 2015; provided,
Mr. James has the right to extend the term of employment for two additional years. Pursuant to a debt reorganization and financing
in 2011, Mr. James’ salary was amended to reduce his salary to $150,000 per annum until we reach three consecutive fiscal
quarters of positive “Net Income” at which point his annual salary will increase to $200,000. The gross-up provisions
with regards to any issuances under the Management Warrant Grant Program have been eliminated. Mr. James will receive a bonus of
$25,000 upon receiving three consecutive fiscal quarters of positive Net Income. In June 2012, the Board of Directors appointed
Mr. James the Chief Executive Officer.
The Agreement terminates upon Mr. James’
death and may be terminated at our option as a result of Mr. James’ disability or for “cause” as defined in the
Agreement. Mr. James has the right to terminate the Agreement for “good reason” as defined in the Agreement. In the
event that the Agreement is terminated due to Mr. James’ death or disability, he is entitled to receive his annual salary
for a period equal to the lessor of (i) three months from the date of death or disability or (ii) the balance of the Term; and
all other accrued but unpaid compensation and benefits. If the Agreement is terminated by us for “cause”, Mr. James
is not entitled to receive any compensation other than accrued but unpaid compensation and benefits. In the event Mr. James terminates
the Agreement for “good reason”, we shall pay him his annual salary through the date of the end of the contract term;
bonuses that have accrued and are unpaid as of the date of termination; and any Options which have been granted to Mr. James as
of the date of the termination. The Agreement also provides for Mr. James is subject to confidentiality, non-solicitation and non-compete
covenants for a period of one year following his termination, provided such termination is not by us without “cause”
or by Mr. James for “good reason”.
Carl Germano
Pursuant to an amended and restated employment
agreement, Carl Germano is employed as the Chief Science Officer of Millennium. The Agreement terminates on November 1, 2014; provided,
Mr. Germano has the right to extend the term of employment for two additional years. Pursuant to the Agreement, Mr.
Germano currently receives a base annual salary of $150,000 per year which increases to $200,000 per year in the event (a) our
annual revenues exceed $15,000,000; (b) we enter into a licensing agreement with an unrelated third party where the minimum upfront
licensing fee is no less than $3,000,000; or (c) we achieve two quarters of positive cash flow. In addition, during
the term of the Agreement, Mr. Germano is entitled to receive an annual bonus at our discretion Mr. Germano also receives standard
benefits available to other executive officers.
The Agreement terminates upon Mr. Germano’s
death and may be terminated at our option as a result of Mr. Germano’s disability or for “cause” as defined in
the Agreement. Mr. Germano has the right to terminate the Agreement for “good reason” as defined in the
Agreement. In the event that the Agreement is terminated due to Mr. Germano’s death or disability, he is entitled
to receive his annual salary for a period equal to the lessor of (i) three months from the date of death or disability or (ii)
the balance of the Term; and all other accrued but unpaid compensation and benefits. If the Agreement is terminated
by us for “cause”, Mr. Germano is not entitled to receive any compensation other than accrued but unpaid compensation
and benefits. In the event Mr. Germano terminates the Agreement for “good reason”, we shall pay to Mr. Germano
his annual salary through the date of the end of the contract term; bonuses that have accrued and are unpaid as of the date of
termination; and any Options which have been granted to Mr. Germano as of the date of the termination. The Agreement
also provides for Mr. Germano is subject to confidentiality, non-solicitation and non-compete covenants for a period of one year
following his termination, provided such termination is not by us without “cause” or by Mr. Germano for “good
reason”.
James E. Kras
Pursuant to an employment agreement,
James E. Kras is employed as the Chief Marketing Officer of the Company and Millennium. The Agreement terminates on September
30, 2017; provided, Mr. Kras has the right to extend the term of employment for two additional years. Mr. Kras’ salary
is $150,000 per annum. In March 2014, the Board of Directors appointed Mr. Kras the President.
The Agreement terminates upon Mr. Kras’
death and may be terminated at our option as a result of Mr. Kras’ disability or for “cause” as defined in the
Agreement. Mr. Kras has the right to terminate the Agreement for “good reason” as defined in the Agreement. In the
event that the Agreement is terminated due to Mr. Kras’ death or disability, he is entitled to receive his annual salary
for a period equal to the lessor of (i) three months from the date of death or disability or (ii) the balance of the Term; and
all other accrued but unpaid compensation and benefits. If the Agreement is terminated by us for “cause”, Mr. Kras
is not entitled to receive any compensation other than accrued but unpaid compensation and benefits. In the event Mr. Kras terminates
the Agreement for “good reason”, we shall pay him his annual salary through the date of the end of the contract term;
bonuses that have accrued and are unpaid as of the date of termination; and any Options which have been granted to Mr. Kras as
of the date of the termination. The Agreement also provides for Mr. Kras is subject to confidentiality, non-solicitation and non-compete
covenants for a period of one year following his termination, provided such termination is not by us without “cause”
or by Mr. Kras for “good reason”.
Change of Control Compensation
Per their respective employment agreements,
upon the occurrence of a “change in control”(as defined in their employment agreements), Messrs, James, Germano and
Kras are entitled to the same benefits they would receive had they terminated their employment agreements for “good reason”.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of
September 5, 2014, the beneficial ownership of our common stock by each executive officer and director, all executive officers
and directors as a group, and each person known to us to own beneficially, or of record, five percent or more of our outstanding
shares of common stock:
Title |
|
Name and Address of |
|
Amount and Nature of |
|
|
Percent |
|
of Class |
|
Beneficial Owner |
|
Beneficial
Ownership (1) |
|
|
of Class |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Michael C. James |
|
|
11,332,021 |
(2) |
|
|
10.81 |
% |
|
|
Carl Germano |
|
|
4,791,045 |
(3) |
|
|
4.78
|
% |
|
|
James E. Kras |
|
|
8,820,000 |
(4) |
|
|
8.57 |
%(2) |
|
|
James DeLucia |
|
|
1,025,000 |
|
|
|
1.04 |
% |
|
|
as a Group (4 persons) |
|
|
25,968,066 |
(2)-(4) |
|
|
23.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
Address of all persons above: c/o the Company. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leon Frenkel |
|
|
10,713,899 |
(5) |
|
|
9.99 |
%(7) |
|
|
1600 Flat Rock Road, Penn Valley, PA 19072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seahorse Enterprises |
|
|
10,406,696 |
(6) |
|
|
9.99 |
%(7) |
|
|
1 Powderhill Way, Westborough, MA 01581 |
|
|
|
|
|
|
|
|
(1) |
For purposes of this table, a person or group of persons is deemed
to have “beneficial ownership” of any shares of common stock which such person has the right to acquire within
60 days of September 5, 2014. For purposes of computing the percentage of outstanding shares of common stock held by each
person or group of persons named above, any security which such person or persons has or have the right to acquire within
such date is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership
of any other person. Except as indicated in the footnote to this table and pursuant to applicable community property laws,
we believe based on information supplied by such persons, that the persons named in this table have sole voting and investment
power with respect to all shares of common stock which they beneficially own. |
|
|
(2) |
Includes 642,500 shares of Common Stock issuable upon conversion of Series G Preferred
Stock and 5,493,750 shares of Common Stock issuable upon exercise of warrants. Certain of the Series G Preferred
Stock and Warrants are owned by Kuekenhof Equity Fund, L.P. Mr. James is the General Partner of this Fund. |
|
|
(3) |
Includes 1,625,000 shares of Common Stock issuable upon exercise of warrants. |
|
|
(4) |
Includes 2,820,000 shares of Common Stock issuable upon conversion of Series G Preferred
Stock and 2,000,000 shares of Common Stock issuable upon exercise of warrants. |
|
|
(5) |
Includes 8,510,774 shares of Common Stock issuable upon conversion of Series G Preferred
Stock and convertible notes. Excludes certain shares of Common Stock issuable upon conversion of Series G Preferred Stock
and convertible notes as explained in Footnote 7 Below. Certain of the Series G Preferred Stock is owned by Periscope
Partners L.P.. Mr. Frenkel is the General Partner of Periscope Partners L.P. |
|
|
(6) |
Includes 5,442,000 shares of Common Stock issuable upon conversion of Series G Preferred
Stock and convertible notes. Excludes certain shares of Common Stock issuable upon conversion of Series G Preferred Stock
and convertible notes as explained in Footnote 7 Below. Certain of the Series G Preferred Stock is owned by John
Israelian. Mr. Israelian is the Managing Member of Seahorse Enterprises. |
|
|
(7) |
Pursuant to the terms of convertible notes and preferred stock owned by these
stockholders, such securities are not convertible to the extent that such conversion would result in beneficial
ownership (determined in accordance with Section 13(d) of the Exchange Act) by such stockholder and its affiliates
of more than 9.99% of the outstanding shares of common stock. We refer to this limitation the “9.99%
Blocker”. Accordingly, the number of shares listed as beneficially owned by each of these stockholders
excludes any shares to which such stockholder would be entitled to but for this 9.99% Blocker. As of September 5, 2014,
there were 98,681,956 shares of our Common Stock issued and outstanding 13,386,816 of which were owned by affiliates. Assuming all
shares of Common Stock issuable upon conversion or exercise of convertible securities were issued and
outstanding and excluding the application of any 9.99% blockers, there would be 341,762,145 shares of our
Common Stock issued and outstanding, 25,968,066 of which would be owned by management, 45,785,899 of which
would be owned by Leon Frenkel and 75,741,776 of which would be owned by Seahorse
Enterprises. |
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTION
Please see “Employment Agreements”
in “Executive Compensation” above.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Federal securities laws require us to file
information with the Commission concerning our business and operations. Accordingly, we file annual, quarterly, and special reports,
and other information with the Commission. You can inspect and copy this information at the public reference facility maintained
by the Commission at 100 F Street, NE, Washington, D.C. 20549.
You can get additional information about
the operation of the Commission's public reference facilities by calling the Commission at 1-800-SEC-0330. The Commission also
maintains a web site (http://www.sec.gov) at which you can read or download our reports and other information.
We have filed with the Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the common stock being offered hereby. As permitted by the
rules and regulations of the Commission, this prospectus does not contain all the information set forth in the registration statement
and the exhibits and schedules thereto. For further information with respect to Inergetics, Inc. and the common stock offered hereby,
reference is made to the registration statement, and such exhibits and schedules. A copy of the registration statement, and the
exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission
at the addresses set forth above, and copies of all or any part of the registration statement may be obtained from such offices
upon payment of the fees prescribed by the Commission. In addition, the registration statement may be accessed at the Commission’s
web site.
LEGAL MATTERS
The validity of the common stock offered
in this Prospectus has been passed upon for us by Silverman Shin Byrne & Gilchrest PLLC, 381 Park Avenue South, Suite 1601,
New York, New York 10016.
EXPERTS
The consolidated balance sheets of Inergetics,
Inc. as of December 31, 2013 and 2012 and the related consolidated statements of operations, stockholder's deficit, and cash flows
for each of the two years in the period ended December 31, 2013, included in this registration statement on Form S-1, have been
audited by Friedman LLP, an independent registered public accounting firm, as stated in their report appearing with the financial
statements. These financial statements are included in reliance upon the report of Friedman LLP given upon their authority as experts
in accounting and auditing.
INERGETICS, INC. AND SUBSIDY
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
Inergetics, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets
of Inergetics, Inc. and Subsidiary (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements
of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2013. Inergetics,
Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Inergetics, Inc. as of December 31, 2013, and 2012, and the results
of its operations and its cash flows for each of the two years in the period ended December 31, 2013 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements for December
31, 2013 have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2 to the
consolidated financial statements, the Company has incurred substantial accumulated deficits and operating losses and has a working
capital deficiency of $6,123,338. These conditions raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regards to these matters are also discussed in Note 2. The consolidated financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that might result from the outcome of this uncertainty.
/s/ FRIEDMAN LLP |
|
East Hanover, New Jersey |
|
March 31, 2014 |
Inergetics, Inc. and Subsidiary
Consolidated Balance Sheets
| |
December 31, 2013 | | |
December 31, 2012 | |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 106,773 | | |
$ | 8,846 | |
Accounts receivable | |
| 472,297 | | |
| - | |
Receivable from the Technology Business Tax Certificate Transfer Program | |
| 3,357,144 | | |
| 2,209,715 | |
Deferred cost of goods sold | |
| 569,036 | | |
| - | |
Inventories, net | |
| 420,186 | | |
| 4,176 | |
Prepaid expenses | |
| 447,355 | | |
| 522,041 | |
Total current assets | |
| 5,372,791 | | |
| 2,744,778 | |
| |
| | | |
| | |
Patents and intangible assets, net | |
| 149,391 | | |
| 4,942 | |
Goodwill | |
| 135,000 | | |
| - | |
Deposits | |
| 421,191 | | |
| 2,299 | |
Total assets | |
$ | 6,078,373 | | |
$ | 2,752,019 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Deficit | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 5,089,488 | | |
$ | 2,846,181 | |
Deferred revenue | |
| 1,269,470 | | |
| - | |
Obligations to be settled in stock | |
| 699,085 | | |
| 564,500 | |
Customer prepayments | |
| - | | |
| 39,970 | |
Derivative liability | |
| 318,000 | | |
| 227,000 | |
Short-term debt, net of unamortized debt discount | |
| 1,276,358 | | |
| 1,144,375 | |
Short-term debt to affiliates, net of unamortized debt discount | |
| 2,843,728 | | |
| 2,441,622 | |
Total current liabilities | |
| 11,496,129 | | |
| 7,263,648 | |
Long-term debt | |
| 103,912 | | |
| 39,584 | |
Long-term debt to affiliates | |
| 1,425,522 | | |
| - | |
Total liabilities | |
| 13,025,563 | | |
| 7,303,232 | |
Commitments and contingencies | |
| | | |
| | |
Preferred stock, Convertible Series G , authorized 200,000, par value $1, stated value $50: issued and outstanding 198,074 and 150,938 shares, respectively | |
| 8,743,284 | | |
| 7,147,465 | |
Stockholders’ deficit | |
| | | |
| | |
Preferred stock, par value $1: | |
| | | |
| | |
Convertible Series B, par value $2; 65,141 shares issued and outstanding | |
| 130,282 | | |
| 130,282 | |
Cumulative Series C, par value $1; 64,763 shares issued and outstanding | |
| 64,763 | | |
| 64,763 | |
Convertible Series D, par value $1; 0 shares issued and outstanding | |
| - | | |
| - | |
Convertible Series E, par value $1; 0 shares issued and outstanding | |
| - | | |
| - | |
Convertible Series F, par value $1; 0 shares and issued and outstanding , | |
| - | | |
| - | |
Common stock, par value $0.001; authorized 2,000,000,000 shares; issued and
outstanding 62,461,448 and 48,707,103 shares, respectively | |
| 62,462 | | |
| 48,708 | |
Additional paid-in capital | |
| 68,789,021 | | |
| 68,606,679 | |
Accumulated deficit | |
| (84,737,002 | ) | |
| (80,549,110 | ) |
Total stockholders’ deficit | |
| (15,690,474 | ) | |
| (11,698,678 | ) |
Total liabilities and stockholders’ deficit | |
$ | 6,078,373 | | |
$ | 2,752,019 | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statements of Operations
| |
For the Years Ended December 31, | |
| |
2013 | | |
2012 | |
Net sales | |
$ | 847,834 | | |
$ | 91,873 | |
Cost of sales | |
| 603,006 | | |
| 86,327 | |
Gross profit | |
| 244,828 | | |
| 5,546 | |
Research and development costs | |
| 44,090 | | |
| 45,578 | |
Selling, general and administrative expenses (including share based compensation of $914,479 and $611,500, respectively) | |
| 6,491,671 | | |
| 5,590,867 | |
| |
| | | |
| | |
Loss from operations | |
| (6,290,933 | ) | |
| (5,630,899 | ) |
Other income (expense) | |
| | | |
| | |
Gain incurred in connection with troubled debt restructuring, net | |
| 46,978 | | |
| - | |
Amortization of debt discount | |
| (444,450 | ) | |
| (255,583 | ) |
Loss from warrants/derivatives issued with debt greater than debt carrying value | |
| - | | |
| (736,000 | ) |
(Loss) gain on fair market valuation of derivatives | |
| (91,000 | ) | |
| 870,000 | |
Interest and financing expense, net | |
| (760,132 | ) | |
| (733,495 | ) |
Other income (expense), net | |
| (1,248,604 | ) | |
| (855,078 | ) |
| |
| (7,539,537 | ) | |
| (6,485,977 | ) |
Benefit from sale of state net operating loss credits | |
| 3,351,645 | | |
| 2,209,715 | |
Net loss | |
| (4,187,892 | ) | |
| (4,276,262 | ) |
Preferred dividend | |
| 1,560,200 | | |
| 1,175,350 | |
Net loss applicable to common shareholders | |
$ | (5,748,092 | ) | |
$ | (5,451,612 | ) |
| |
| | | |
| | |
Net loss per share attributable to common shareholders – basic and diluted | |
$ | (0.10 | ) | |
$ | (0.15 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding – basic and diluted | |
| 55,307,453 | | |
| 37,314,265 | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statement of Stockholders'
Deficit
| |
Preferred
Stock | | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
| | |
| | |
Additional | | |
Common Stock | | |
| | |
| |
| |
Series B | | |
Series B | | |
Series C | | |
Series C | | |
Series D | | |
Series D | | |
Series E | | |
Series E | | |
Series F | | |
Series F | | |
Series G | | |
Series G | | |
Common Stock | | |
Paid in | | |
Subscribed | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Shares | | |
Amount | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance January 1, 2012 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 120,827 | | |
$ | 5,621,665 | | |
| 27,780,205 | | |
$ | 27,781 | | |
$ | 65,281,614 | | |
$ | 2,240,200 | | |
$ | 360,000 | | |
$ | (76,272,848 | ) | |
$ | (4,786,743 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for services | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 20,500 | | |
| 1,045,250 | | |
| 11,395,000 | | |
| 11,395 | | |
| 2,227,605 | | |
| | | |
| | | |
| | | |
| 3,284,250 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 4,420 | | |
| 221,000 | | |
| 895,184 | | |
| 895 | | |
| 117,846 | | |
| | | |
| | | |
| | | |
| 339,741 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,142,514 | | |
| 1,143 | | |
| 264,158 | | |
| | | |
| | | |
| | | |
| 265,301 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrants issued for compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 487,500 | | |
| | | |
| | | |
| | | |
| 487,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock subscribed | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,240,200 | | |
| 2,240 | | |
| 357,760 | | |
| (2,240,200 | ) | |
| (360,000 | ) | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred stock converted into common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (21,016 | ) | |
| (1,050,800 | ) | |
| 5,254,000 | | |
| 5,254 | | |
| 1,045,546 | | |
| | | |
| | | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sale of Preferred stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,700 | | |
| 135,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 135,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred stock dividend | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 23,507 | | |
| 1,175,350 | | |
| | | |
| | | |
| (1,175,350 | ) | |
| | | |
| | | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (4,276,262 | ) | |
| (4,276,262 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance December 31, 2012 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 150,938 | | |
$ | 7,147,465 | | |
| 48,707,103 | | |
$ | 48,708 | | |
$ | 68,606,679 | | |
| - | | |
$ | - | | |
$ | (80,549,110 | ) | |
$ | (4,551,213 | ) |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statement of Stockholders'
Deficit
| |
Preferred Stock | | |
| | |
| | |
| | |
| | |
| |
| |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
| | |
| | |
Additional | | |
| | |
| |
| |
Series B | | |
Series B | | |
Series C | | |
Series C | | |
Series D | | |
Series D | | |
Series E | | |
Series E | | |
Series F | | |
Series F | | |
Series G | | |
Series G | | |
Common Stock | | |
Paid in | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance January 1, 2013 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 150,938 | | |
$ | 7,147,465 | | |
| 48,707,103 | | |
$ | 48,708 | | |
$ | 68,606,679 | | |
$ | (80,549,110 | ) | |
$ | (4,551,213 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for services | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 4,000 | | |
| 122,000 | | |
| 1,637,500 | | |
| 1,637 | | |
| 200,633 | | |
| | | |
| 324,270 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 4,307 | | |
| 153,740 | | |
| 2,851,711 | | |
| 2,852 | | |
| 403,656 | | |
| | | |
| 560,248 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock for compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 6,390,625 | | |
| 6,391 | | |
| 499,118 | | |
| | | |
| 505,509 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrants issued for compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 206,700 | | |
| | | |
| 206,700 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred stock converted into common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (15,739 | ) | |
| (741,950 | ) | |
| 3,934,750 | | |
| 3,934 | | |
| 738,016 | | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Debt converted into equity | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,044 | | |
| 55,188 | | |
| | | |
| | | |
| | | |
| | | |
| 55,188 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of preferred stock for business acquisition | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 8,000 | | |
| 140,000 | | |
| | | |
| | | |
| | | |
| | | |
| 140,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss on extinguishment of debt | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 14,360 | | |
| 358,641 | | |
| | | |
| | | |
| (358,641 | ) | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred stock dividend | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 31,204 | | |
| 1,560,200 | | |
| | | |
| | | |
| (1,560,200 | ) | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock retired | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (1,040 | ) | |
| (52,000 | ) | |
| (1,060,241 | ) | |
| (1,060 | ) | |
| 53,060 | | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (4,187,892 | ) | |
| (4,187,892 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance December 31, 2013 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| - | | |
$ | - | | |
| 198,074 | | |
$ | 8,743,284 | | |
| 62,461,448 | | |
$ | 62,462 | | |
$ | 68,789,021 | | |
$ | (84,737,002 | ) | |
$ | (6,947,190 | ) |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statements of Cash Flows
| |
For the Years Ended December 31, | |
| |
2013 | | |
2012 | |
Cash Flows from Operating Activities: | |
| | | |
| | |
Net loss | |
$ | (4,187,892 | ) | |
$ | (4,276,262 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Gain on extinguishment of debt | |
| (46,978 | ) | |
| - | |
Loss (gain) on derivatives | |
| 91,000 | | |
| (870,000 | ) |
Amortization of intangible assets | |
| 1,551 | | |
| 576 | |
Amortization of debt discount | |
| 444,450 | | |
| 255,583 | |
Amortization of prepaid expenses paid for in stock | |
| - | | |
| 2,577,470 | |
Stock issued for services | |
| 202,270 | | |
| 136,700 | |
Stock issued for compensation | |
| 505,509 | | |
| 17,300 | |
Stock issued for interest expense and financing expenses | |
| 406,508 | | |
| 339,741 | |
Warrant grants issued for compensation and services | |
| 206,700 | | |
| 457,500 | |
Equity instruments issued with debt greater than debt carrying amount | |
| - | | |
| 736,000 | |
Inventory reserve | |
| (49,200 | ) | |
| 2,179 | |
Change in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (472,297 | ) | |
| 1,216 | |
Receivable from the Technology Business Tax Certificate Transfer Program | |
| (1,147,429 | ) | |
| (2,209,715 | ) |
Deferred cost of goods sold | |
| (569,036 | ) | |
| - | |
Inventories | |
| (366,810 | ) | |
| 130,418 | |
Prepaid expenses | |
| 3,044 | | |
| 448,919 | |
Deposits | |
| (418,892 | ) | |
| - | |
Accounts payable and accrued expenses | |
| 2,326,763 | | |
| 807,182 | |
Deferred revenue | |
| 1,269,470 | | |
| - | |
Customer prepayments | |
| (39,970 | ) | |
| - | |
Net cash used in operating activities | |
| (1,841,239 | ) | |
| (1,445,193 | ) |
Cash Flows from Investing Activities: | |
| | | |
| | |
Business acquisition | |
| (100,000 | ) | |
| - | |
Purchase of intangible assets | |
| (41,000 | ) | |
| - | |
Net cash used in investing activities | |
| (141,000 | ) | |
| - | |
| |
| | | |
| | |
Cash Flows from Financing Activities: | |
| | | |
| | |
Proceeds from debt | |
| 3,331,688 | | |
| 1,487,522 | |
Proceeds from the sale of preferred stock | |
| - | | |
| 135,000 | |
Repayment of debt | |
| (1,251,522 | ) | |
| (171,000 | ) |
Net cash provided by financing activities | |
| 2,080,166 | | |
| 1,451,522 | |
Net increase in cash | |
| 97,927 | | |
| 6,329 | |
Cash at beginning of year | |
| 8,846 | | |
| 2,517 | |
Cash at end of year | |
$ | 106,773 | | |
$ | 8,846 | |
| |
| | | |
| | |
Supplemental disclosure of cash and non-cash investing and financing transactions: | |
| | | |
| | |
| |
| | | |
| | |
Interest paid | |
$ | 86,169 | | |
$ | 4,861 | |
Income taxes paid | |
$ | 5,500 | | |
$ | - | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statements of Cash Flows
| |
For the Years Ended December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Debt converted to Convertible Preferred Stock Series G shares | |
$ | 55,188 | | |
$ | - | |
| |
| | | |
| | |
Convertible Preferred Stock Series G shares issued for financing | |
$ | 153,740 | | |
$ | 221,000 | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and business
On March 15, 2010 the Company
changed its name to Inergetics, Inc. Inergetics, Inc. (the “Company” or "Inergetics"), formerly Millennium
Biotechnologies Group, Inc., which is the holding company for its subsidiary Millennium Biotechnologies, Inc. (the “Subsidiary”
or "Millennium").
Millennium was incorporated in the State of Delaware
on November 9, 2000 and is located in New Jersey. Millennium is a research based bio-nutraceutical corporation involved in the
field of nutritional science. Millennium’s principal source of revenue is from sales of its nutraceutical supplements.
Reclassifications
Certain reclassifications have been made to the
2012 financial statements to conform to the consolidated 2013 financial statement presentation. These reclassifications had no
effect on net losses or cash flows as previously reported.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on our experience and
on various assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions.
Cash and Cash Equivalents
Cash and all highly liquid investments with a maturity
of three months or less from the date of purchase, including money market mutual funds, short-term time deposits, and government
agency and corporate obligations, are classified as cash and cash equivalents.
Accounts Receivable
The Company continuously monitors collections and payments
from our customers and regularly adjusts credit limits of customers based upon payment history and a customer’s current credit
worthiness, as judged by us. There was no allowance for doubtful accounts as of December 31, 2013 and 2012.
Receivable from
Technology Business Tax Certificate Transfer Program
The receivable is from the Company selling the New
Jersey State net operating loss carry forwards. The Company was able to transfer $3,357,144 of total available tax benefits of
$3,357,144 for the year ended December 31, 2013. The receivable was collected on January 23, 2014. The Company was able to transfer
$2,209,715 of total available tax benefits of $5,187,471 for the year ended December 31, 2012. The receivable was collected on
January 14, 2013. The Company paid a fee of $302,143 and $198,875 for the years ended December 31, 2013 and 2012, respectively,
in connection with the approval of the Tax Certificate Transfer Program.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Goodwill
Goodwill and other acquired intangible assets with
indefinite lives are not amortized, but are tested for impairment annually and when an event occurs or circumstances change such
that it is more likely than not that an impairment may exist. Our annual testing date is December 31. We test goodwill for impairment
by first comparing the carrying value of net assets to the fair value of the related operations. If the fair value is determined
to be less than carrying value, a second step is performed to compute the amount of the impairment. In this process, a fair value
for goodwill is estimated, based in part on the fair value of the operations, and is compared to its carrying value. The shortfall
of the fair value below carrying value represents the amount of goodwill impairment. Intangibles consist of brand and trade names
acquired in business combinations. We test these intangibles for impairment by comparing their carrying value to current projections
of discounted cash flows attributable to the brand and trade names. Any excess carrying value over the amount of discounted cash
flows represents the amount of the impairment. At the conclusion of our test the Company has realized that there has not been any
impairment.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation, which includes amortization of assets under capital leases, is calculated using the straight-line method
over the estimated useful lives of the assets: 3-8 years for machinery and equipment, leasehold improvements are amortized over
the shorter of the estimated useful lives or the underlying lease term. Repairs and maintenance expenditures which do not extend
the useful lives of related assets are expensed as incurred. As of December 31 2012 and 2013, all property and equipment has been
fully depreciated.
Patents
Patents are capitalized and amortized over 240 months.
Amortization expense was $1,551 and $576 for 2013 and 2012, respectively.
Evaluation of Long-Lived Assets
Long-lived assets are assessed for recoverability
on an ongoing basis as impairment indicators arise. In evaluating the fair value and future benefits of long-lived assets, their
carrying value would be reduced by the excess, if any, of the long-lived asset over management’s estimate of the anticipated
undiscounted future net cash flows of the related long-lived asset.
Revenue Recognition
Revenue is recognized net of discounts, rebates,
promotional adjustments, price adjustments and estimated returns and upon transfer of title and risk to the customer which generally
occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations and collection is reasonably
assured as the majority of sales are paid for prior to shipping.
Discounts are reductions to invoiced amounts offered
to customers for payment within a specified period and are estimated upon sale utilizing historic customer payment experience.
Consistent with industry practice, the Company maintains
a return policy that allows customers to return product within a specified period prior and subsequent to the expiration date.
The Company’s estimate of the provision for returns is generally based upon historic experience with actual returns.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Price adjustments, which include shelf stock adjustments,
are credits issued to reflect decreases in the selling prices of products. Shelf stock adjustments are based upon the amount of
product which the customer has remaining in its inventory at the time of the price reduction. Decreases in selling prices are discretionary
decisions made by the Company to reflect market conditions. Amounts recorded for estimated price adjustments are based upon specified
terms with direct customers, estimated launch dates of competing products, estimated declines in market price and, in the case
of shelf stock adjustments, estimates of inventory held by the customer.
Certain retailers require guaranteed
sales. Revenue is recognized as sales are made to the retail consumer.
Advertising costs
Advertising costs are charged to operations when
incurred. Advertising expense was $8,157 and $261 for the years ended December 31, 2013 and 2012, respectively.
Shipping and Handling Costs
Shipping costs of $43,299 and $8,065 are included
in cost of sales for the years ended December 31, 2013 and 2012, respectively. Handling costs of $44,467 and $37,358 are included
in general and administrative expenses for the years ended December 31, 2013 and 2012, respectively.
Stock and Warrant Based Compensation
Stock and warrant based compensation is measured
at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee
service period (generally the vesting period of the grant). Compensation expense is recognized based on the estimated grant date
fair value method using the Black-Scholes valuation model. The Company account for the issuance of stock and warrants for services
based on the estimated fair value of options and warrants using the Black-Scholes pricing model. This model’s calculations
include the exercise price, the market price of shares on grant date, weighted average assumptions for risk-free interest rates,
expected life of the warrant, expected volatility of our stock and expected dividend yield. The amounts recorded in the financial
statements for share-based expense could vary significantly based on the subjective assumptions used in the pricing model.
We account for the issuance of stock and warrants
for services from non-employees based on an estimate of the fair value of warrants issued using the Black-Scholes pricing model.
This model’s calculations include the exercise price, the market price of shares on grant date, weighted average assumptions
for risk-free interest rates, expected life of the warrant, expected volatility of our stock and expected dividend yield. The amounts
recorded in the financial statements for share-based expense could vary significantly if we were to use different assumptions.
The Company issued 1,140,000 warrants, that vest
over four years, during the year ended December 31, 2013 for an expense of $206,700 and 7,500,000 warrants, that vested over three
years, for an expense of $457,500 during the year ended December 31, 2012. The Company did not issue any stock options during the
year ended December 31, 2013 and 2012, respectively.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Income Taxes
The Company provides for income taxes based on enacted
tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company’s income
tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial
reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are
available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes.
Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance
against the related federal and state deferred tax assets for the years ended December 31, 2013 and 2012.
Loss Per Common Share
Basic and diluted loss per common share is computed
by dividing net loss by the weighted average number of common shares outstanding during the periods. Potential common shares used
in computing diluted earnings per share related to stock options, warrants, convertible preferred stock and convertible debt which,
if exercised, would have an anti- dilutive effect on earnings per share, and there for have not been included Anti-dilutive securities
not included in net loss per share calculations for the years presented include:
| |
December 31, | |
Potentially dilutive securities: | |
2013 | | |
2012 | |
Convertible debt and accrued interest | |
| 10,751,345 | | |
| 10,775,363 | |
Liability of shares to be issued | |
| 3,330,000 | | |
| 2,300,000 | |
Convertible Preferred stock | |
| 49,713,545 | | |
| 37,929,545 | |
Outstanding time-based warrants | |
| 19,323,406 | | |
| 18,190,906 | |
Fair Value of Financial Instruments
The Company measures and discloses the estimated
fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting
principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy
requires the use of observable market data when available. The levels are defined as follows:
Level 1 – quoted prices
for identical instruments in active markets;
Level 2 – quoted prices for similar instruments
in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations
in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from
valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
For financial instruments including cash, prepaid
expenses and other current assets, short-term debt, accounts payable and accrued expenses, it was assumed that the carrying values
approximated fair value because of their short-term maturities.
Fair value estimates are made at a specific point
in time, based on relevant market information and information about the financial statement. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
Research and Development
Research and development
costs are expensed as incurred.
2. GOING CONCERN
The Company’s future success is dependent upon
its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management
believes they can raise the appropriate funds needed to support their business plan and develop an operating, cash flow positive
company.
However the Company has incurred substantial net
losses for the years ended December 31, 2013 and 2012 and has accumulated a deficit of approximately $85 million at December 31,
2013 and $81 million at December 31, 2012. The Company has not been able to generate sufficient cash from operating activities
to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital
to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a
going concern.
The consolidated financial statements do not include
any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the
Company be unable to continue as a going concern.
3. BUSINESS ACQUISITION
On January 9, 2013 (the “Acquisition date”),
the Company entered into a definitive agreement pursuant to which it acquired, through its Millennium Biotechnologies, Inc. wholly-owned
subsidiary, the trademark of Bikini Ready® and the brand SlimTrim™. Under the agreement the Company acquired the URL’s,
formula and customer list. Under the terms of this agreement the Company paid $100,000 cash and 8,000 shares of Series G preferred
stock valued at $140,000.
The transaction was accounted for as a purchase business
combination. We account for business combinations in accordance with the acquisition method. The acquisition method of accounting
requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. The
excess of the purchase price over the fair value of assets acquired is recognized as goodwill. Certain adjustments to the assessed
fair values of the assets and liabilities made subsequent to the acquisition date, but with the measurement period, which is up
to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income.
Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.
The results from operations for the period from acquisition date to December 31, 2013 have been included in the Company’s
consolidated statement of operations. Pro forma information with respect to the acquisition are not included in these financial
statements as the information is not material.
In accordance with generally accepted accounting
principles, intangible assets are recorded at fair values as of the date of the transaction. The Company’s allocation to
identifiable intangible assets and liabilities according to their respective fair values, is as follows:
Intangible assets, trademarks | |
$ | 100,000 | |
Intangible assets, customer list | |
| 5,000 | |
Goodwill | |
| 135,000 | |
Purchase Price | |
$ | 240,000 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Intangible assets with estimated
useful lives are amortized over a 5 year period. The goodwill is not amortized for financial statement purposes in accordance with
generally accepted accounting principles.
4. CONCENTRATIONS OF BUSINESS AND CREDIT
RISK
The Company maintains cash balances in several financial
institutions which currently are insured by the Federal Deposit Insurance Corporation. Balances in these accounts may, at times,
exceed the federally insured limits.
The Company provides credit in the normal course
of business to customers and performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts
based on factors surrounding the credit risk of specific customers, historical trends, and other information.
For the year ended December 31, 2013, three significant
customers (defined as contributing at least 10%) accounted for 55% (31%, 13%, and 11%) of net sales. For the year ended December
31, 2012, one significant customer accounted for 57% of net sales. The loss of any of these customers could have a material adverse
effect on our business.
5. INVENTORIES
Inventories are stated at the lower of cost or market
and consist of finished goods and packaging for the Company’s Surgex™, Bikini Ready™, SlimTrim and Martha Stewart™
Essentials product lines. Cost-of-goods sold are calculated using the weighted average costing method. Inventories consisted of
the following:
| |
December 31, | |
| |
2013 | | |
2012 | |
Finished Goods | |
$ | 378,472 | | |
$ | 2,344 | |
Work-in-process | |
| - | | |
| 49,200 | |
Packaging | |
| 41,714 | | |
| 1,832 | |
| |
| 420,186 | | |
| 53,376 | |
Less: Reserve for obsolescence | |
| - | | |
| (49,200 | ) |
Total | |
$ | 420,186 | | |
$ | 4,176 | |
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of
the following:
| |
December 31, | |
| |
2013 | | |
2012 | |
Accounts payable | |
$ | 2,866,017 | | |
$ | 1,224,313 | |
Accrued interest | |
| 1,016,584 | | |
| 669,035 | |
Accrued rent expense | |
| 135,874 | | |
| 135,874 | |
Accrued salaries, bonuses and payroll taxes | |
| 824,492 | | |
| 612,712 | |
Accrued professional fees | |
| 230,433 | | |
| 204,247 | |
Owed to officers | |
| 16,088 | | |
| - | |
| |
$ | 5,089,488 | | |
$ | 2,846,181 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
7. FAIR VALUE MEASUREMENTS
The following table represents the fair value hierarchy
for those financial assets measured at fair value on a recurring basis:
December 31, 2013 | |
Level I | | |
Level II | | |
Level III | | |
Total | |
| |
| | |
| | |
| | |
| |
Derivative liability | |
| | | |
| | | |
| 318,000 | | |
| 318,000 | |
Total liabilities | |
$ | - | | |
$ | - | | |
$ | 318,000 | | |
$ | 318,000 | |
December 31, 2012 | |
Level I | | |
Level II | | |
Level III | | |
Total | |
| |
| | |
| | |
| | |
| |
Derivative liability | |
| | | |
| | | |
| 227,000 | | |
| 227,000 | |
Total liabilities | |
$ | - | | |
$ | - | | |
$ | 227,000 | | |
$ | 227,000 | |
Liabilities measured at fair value
on a recurring basis using significant unobservable inputs (Level3):
| |
Derivative Liabilities | |
January 1, 2013 | |
$ | (227,000 | ) |
Loss on fair market valuation of derivatives | |
| (91,000 | ) |
December 31, 2013 | |
$ | (318,000 | ) |
8. DEBT
Debt is as follows:
| |
December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Promissory note dated December 17, 2002, issued to an accredited investor, maturing September 28, 2003, bearing interest at the rate of 10% per annum. The note is now due on demand. The holder of the note is entitled to convert all or a portion of the principal and interest at any time after the maturity date into shares of common stock of the Company at a price equal to $8.00/share of the principal. The note was paid off in September 2013. | |
$ | - | | |
$ | 25,000 | |
| |
| | | |
| | |
Convertible Promissory Note to an accredited investor dated May 20, 2003, maturing May 20, 2004, now due on demand, bearing interest at a rate 8% per annum payable in restricted shares of common stock. The Note is convertible at the option of the holder into common stock at the rate of $20.00 per share. | |
| 30,000 | | |
| 30,000 | |
| |
| | | |
| | |
One demand loan extended by an investor in March 2004 and January 2005, bearing interest at 12% per year, now due on demand. Principal in the amount of $5,000 was paid in September 2013. | |
| 10,000 | | |
| 15,000 | |
| |
| | | |
| | |
One promissory note issued to an accredited investors in May 2006, originally maturing in June 2006, due on demand. The note carried interest at the rate of 10% per year and is convertible into common shares at the rate of $20.00 /share. The note was acquired by a new investor and a new note was issued for the principal and accrued interest in August 2013. | |
| - | | |
| 25,000 | |
| |
| | | |
| | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
Two promissory notes issued to three accredited investors in September 2006, maturing at various dates between November 30, 2006 and January 31, 2007, now due on demand. The notes carried interest at the rate of 10% per year until maturity and thereafter are subject to a rate of 14% per year, and are convertible into common shares at the rate of $20.00 /share. One note was converted as of September 2, 2011 into common stock at the conversion price of $0.352 per share. | |
| 48,000 | | |
| 48,000 | |
| |
| | | |
| | |
Two promissory notes issued to three accredited investors in October 2006, maturing on January 31, 2007, now due on demand. The notes carried interest at the rate of 10% per year until maturity and thereafter are subject to a rate of 14% per year, and are convertible into common shares at the rate of $20.00 /share. One note was converted as of September 2, 2011 into common stock at the conversion price of $0.352 per share. | |
| 44,000 | | |
| 44,000 | |
| |
| | | |
| | |
One promissory note issued to an accredited investors in January 2007, maturing on March 31, 2007, now due on demand. The notes carried interest at the rate of 10% per year until maturity and thereafter are subject to a rate of 14% per year, and are convertible into common shares at the rate of $20.00 /share.
| |
| 75,000 | | |
| 75,000 | |
| |
| | | |
| | |
One promissory note issued to an accredited investor in May 2007, maturing on September 30, 2007, now due on demand. The note carried interest at the rate of 10% per year until maturity and thereafter is subject to a rate of 12% per year. The note calls for the interest payable in common stock, calculated at $8.00 per share. The note is convertible into common shares at the rate of $8.00 /share. | |
| 25,000 | | |
| 25,000 | |
| |
| | | |
| | |
Promissory note, originally in the amount of $2,710,563 issued to a service provider, due on July 31, 2008. The note carried interest at the rate of 10% per year compounded monthly. In November 2009, the creditor and the Company entered into an agreement whereby, against payment of $110,000 in cash, the principal amount of the note was reduced to $400,000. | |
| 400,000 | | |
| 400,000 | |
| |
| | | |
| | |
Two promissory notes, issued in November 2009 as part of a series of debt restructuring transactions whereby existing promissory notes, most of which were past due or payable on demand, and interest accrued thereon were exchanged into Units at the rate of 1 :1 between old note principal plus accrued interest to Unit price, at a price of $100,000 per Unit. Each Unit consisted of a 30 month promissory note for $100,000, carrying interest at 15% per year and 100 shares of Series F Convertible Preferred Stock, whereby every “F” share was converted into 120,000 common shares on April 20, 2010. The notes and interest accrued thereon are repayable in five quarterly installments beginning 18 months after issue. Six of the notes converted in September 2011 into Series G Convertible Preferred Stock at the rate of one share of G Preferred per $73.50 of principal and accrued interest. The Unit Note holders were entitled to a reduced conversion rate of one share of Series G Preferred per $50 of debt if they invested an amount equal to 25% of the principal amount of such holder’s Unit Note in the Series G Preferred equity offering. In April 2013, $67,021 of principal plus accrued interest was converted into 2,044 shares of Series G Preferred Stock, realizing a gain of $46,978. | |
| 85,726 | | |
| 152,747 | |
| |
| | | |
| | |
One promissory note issued to an accredited investor in March 2012, maturing September 23, 2013. The note carries interest at the rate of 10% per year until maturity and is payable quarterly in common stock valued at $0.20 per share. The note is convertible into common shares at the rate of $0.20 share. The note plus accrued interest was paid off in September 2013. | |
| - | | |
| 25,000 | |
| |
| | | |
| | |
Four promissory notes issued to an accredited investor in June and July 2012, maturing eight months after issuance. The notes carry interest at the rate of 24% per year. The notes and accrued interest were repaid in January 2013. | |
| - | | |
| 100,000 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
One promissory note issued to an accredited investor in November 2012, maturing three months after issuance. The note carries interest at the rate of 24% per year. The note and accrued interest were repaid in January 2013. | |
| - | | |
| 100,022 | |
| |
| | | |
| | |
One promissory note issued to an accredited investor in December 2012, maturing one month after issuance. The note carries interest at the rate of 24% per year. The note and accrued interest were repaid in January 2013. | |
| - | | |
| 50,000 | |
| |
| | | |
| | |
One promissory note was issued as Senior Secured Convertible Notes in September 2011 as part of the Debt Reorganization and Financing Agreement dated July 14, 2011. The note is convertible into Series G Preferred Stock. The note bears interest at 10% per year and matures on March 31, 2015. | |
| 29,606 | | |
| 29,606 | |
| |
| | | |
| | |
Five promissory notes issued to accredited investors in March and April 2012, maturing thirty-six months after issuance. The note carries interest at the rate of 10% per year until maturity and are payable quarterly in common stock valued at $0.20 per share. The notes are convertible into common shares at the rate of $0.20 share. One note in the principal amount of $25,000 was paid off in January 2013. | |
| 74,306 | | |
| 39,584 | |
| |
| | | |
| | |
Two promissory notes issued to an accredited investor in March 2013, maturing twelve months after issuance. The notes carry interest at the rate of 15% per year until maturity. The notes are convertible into common shares at the rate of $0.25/ share. | |
| 97,924 | | |
| - | |
| |
| | | |
| | |
Four notes issued to an accredited investor in April, May and June 2013, maturing between eight to twelve months after issuance. The notes carry interest at the rate of 15% per year until maturity. The notes and accrued interest were repaid in January 2014. | |
| 191,551 | | |
| - | |
| |
| | | |
| | |
One promissory note issued to an accredited investor in May 2013, maturing ten months after issuance. The note carries interest at the rate of 15% per year until maturity. The note is convertible into common shares at the rate of $0.20/ share. | |
| 96,012 | | |
| - | |
| |
| | | |
| | |
One promissory note issued to an accredited investor in May 2013, maturing nine months after issuance. The note carries interest at the rate of 15% per year until maturity. The note and accrued interest was repaid in February 2014. | |
| 95,948 | | |
| - | |
| |
| | | |
| | |
One promissory note re-issued to an accredited investor in August 2013, maturing seven months after re-issuance. The note carries interest at the rate of 10% per year until maturity. The note and accrued interest was repaid in January 2014. | |
| 53,000 | | |
| - | |
| |
| | | |
| | |
One promissory note issued to an accredited investor in August 2013, maturing six months after issuance. The note carries interest at the rate of 15% per year until maturity. | |
| 24,197 | | |
| - | |
| |
| | | |
| | |
Total Debt | |
| 1,380,270 | | |
| 1,183,959 | |
| |
| | | |
| | |
Less short-term portion | |
| 1,276,358 | | |
| 1,144,375 | |
| |
| | | |
| | |
Long-term portion | |
$ | 103,912 | | |
$ | 39,584 | |
Included in total debt as of December 31, 2013 and 2012 of $1,380,270
and $1,183,959 is an unamortized debt discount of $70,062 and $135,417, respectively.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
Debt to affiliates is as follows:
| |
December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Promissory note issued to an accredited investor in March 2009. The note was due on September 26, 2009 and carrying interest at 24% per year. | |
$ | 33,000 | | |
$ | 33,000 | |
| |
| | | |
| | |
Promissory note issued to an accredited investor in July 2009. The note was due on October 28, 2009 and carrying interest at 36% per year. | |
| 16,600 | | |
| 16,600 | |
| |
| | | |
| | |
Purchase order financing note issued in May 2010, carry interest at 24% per year and due on demand. | |
| 100,000 | | |
| 100,000 | |
| |
| | | |
| | |
One demand promissory note issued to an accredited investor in March 2012. The note carries interest at the rate of 12% per year and is payable quarterly in common stock valued at $0.20 per share. The note is convertible into common shares at the rate of $0.20 share. The note and accrued interest were repaid in January 2013. | |
| - | | |
| 75,000 | |
| |
| | | |
| | |
Eight promissory notes issued to accredited investors in June through September 2012, maturing eight months after issuance. The notes carry interest at the rate of 24% per year. The notes and accrued interest were repaid in January 2013. | |
| - | | |
| 264,000 | |
| |
| | | |
| | |
One promissory note issued to an accredited investor in October 2012 maturing four months after issuance. The notes carry interest at the rate of 24% per year. The note and accrued interest were repaid in January 2013. | |
| - | | |
| 500,000 | |
| |
| | | |
| | |
Two promissory notes issued to accredited investors in December 2012 maturing one month after issuance. The notes carry interest at the rate of 24% per year. The note and accrued interest were repaid in January 2013. | |
| - | | |
| 27,500 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
Long-Term Debt to affiliates is as follows:
| |
December 31, | |
| |
2013 | | |
2012 | |
Four promissory notes were issued as Senior Secured Convertible Notes in September 2011 as part of the Debt Reorganization and Financing Agreement dated July 14, 2011. The notes are convertible into common shares at a rate of $0.20/share. The notes bear interest at 10% per year and mature on March 31, 2015. | |
$ | 1,425,522 | | |
$ | 1,425,522 | |
| |
| | | |
| | |
Eight promissory notes issued to accredited investors in May through August 2013, maturing six to nine months after issuance. The notes carry interest at the rate of 15% per year. | |
| 2,104,584 | | |
| - | |
| |
| | | |
| | |
Four promissory notes issued to accredited investors in July 2013, maturing seven months after issuance. The notes carry interest at the rate of 12% per year. | |
| 589,544 | | |
| - | |
| |
| | | |
| | |
Total debt to affiliates | |
| 4,269,250 | | |
| 2,441,622 | |
| |
| | | |
| | |
Less short-term portion due to affiliates | |
| 2,843,728 | | |
| 2,441,622 | |
| |
| | | |
| | |
Total Long-Term Debt to affiliates | |
$ | 1,425,522 | | |
$ | - | |
Included in total debt as of December 31, 2013 and 2012 of $4,269,250
and $2,441,622 is an unamortized debt discount of $82,560 and $0, respectively.
The following is a schedule of future minimum debt payments
as of December 31, 2013:
Year Ending December 31, | |
| | |
2014 | |
$ | 4,269,250 | |
2015 | |
| 1,380,270 | |
Total minimum payments required | |
$ | 5,649,520 | |
During 2012, the Company issued convertible debt with a carrying
value of $391,000. The convertible debt included warrants and derivatives valued at approximately $1,100,000. The Company recorded
a debt discount of $391,000 and a loss from warrants/derivative issued with debt greater than debt carrying value totaling $736,000.
2013 Modification of Debt
The following debt instruments were modified in 2013. The
modification of debt included the addition of a conversion feature therefore requiring the Company to record the transaction in
accordance with ASC 470 “Debt” modification of debt accounting.
At December 31, 2013, the Company had promissory notes issued
to four affiliated investors with an outstanding balance of $1,455,128, which were due on demand. As of December 31, 2013, the
Company reached an agreement with the investors to extend the debt for fifteen months. At the date of extension, the debt payable
was $1,455,128. The fair value of the new debt is $1,096,487, which includes the fair value of the conversion feature of
$358,641. The conversion rate on the new convertible note is $0.20 per share of common stock. As of December 31, 2013
the loss on debt modification of $358,641 has been included in the accompanying Statement of Stockholders’ Deficit.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
9. INCOME TAX
The Company has analyzed filing positions in all of the federal
and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.
The Company does not believe it has any tax positions that should not be recognized under FASB ASC 740-10.
The reconciliation of the effective income tax rate
to the Federal statutory rate is as follows:
| |
2013 | | |
2012 | |
Federal Income Tax Rate | |
| (34.0 | )% | |
| (34.0 | )% |
State Income Tax, Net of Federal Benefit | |
| (5.94 | )% | |
| (5.94 | )% |
Change in valuation allowance | |
| 39.94 | % | |
| 39.94 | % |
Sale of New Jersey NOL | |
| (46.0 | )% | |
| (34.0 | )% |
Effective Income Tax Rate | |
| (46.0 | )% | |
| (34.0 | )% |
As of December 31, 2013, the Company has net operating loss
carry forwards of approximately $57,000,000 that can be utilized to offset future taxable income for Federal income tax purposes
through 2031. Net operating loss carry forwards expire starting in 2024 through 2032. Utilization of these net loss carry forwards
is subject to the limitations of Internal Revenue Code Section 382. Because of the current uncertainty of realizing
the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes has been established.
Deferred income taxes are recognized for the tax consequence
of such temporary differences at the enacted tax rate expected to be in effect when the differences reverse. Because of the current
uncertainty of realizing the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes
has been established. The full realization of the tax benefit associated with the carry forward depends predominantly upon the
Company's ability to generate taxable income during the carry forward period.
Significant components of the Company's deferred tax assets
and liabilities are summarized as follows:
| |
December 31, | |
| |
2013 | | |
2012 | |
Deferred tax assets | |
| 23,165,000 | | |
| 21,190,000 | |
Less: Valuation Allowance | |
| (23,165,000 | ) | |
| (21,190,000 | ) |
| |
| | | |
| | |
Net Deferred Tax Assets | |
$ | - | | |
$ | - | |
The Company’s deferred income tax valuation allowance
increased by $1,975,000 to $23,165,000 as of December 31 2013.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
10. CAPITAL STOCK
|
a) |
Series B, C, D Convertible Preferred Stock and Common Stock |
|
|
Convertible Series B preferred shares ("Series B") are non-dividend bearing, and are convertible into shares of the Company’s common stock at any time at the option of the holder and are subject to adjustment in accordance with certain anti-dilution clauses. Cumulative Series C preferred shares ("Series C") are not convertible but are entitled to cumulative cash dividends at the rate of $.65 per share per annum, payable in each year commencing the year after all the shares of Series B are retired. There were no cumulative cash dividends payable as of December 31, 2013 and 2012, respectively. Convertible Series D preferred shares ("Series D") are non-dividend bearing and are convertible into shares of the Company’s common stock at the option of the Company and are subject to adjustment in accordance with certain anti-dilution clauses. All Series D Preferred Shares were converted into common stock in April 2002. |
|
|
The holders of Series B and Series C preferred stock have no voting rights. Each share of common stock is entitled to one vote. |
|
a.2) |
Dividend Restrictions |
|
|
No cash dividends may be declared or paid on the Company’s common stock if, and as long as, Series B preferred stock is still outstanding or there are dividends in arrears on outstanding shares of Series C preferred stock. No dividends may be declared on Series C shares if, and as long as, any Series B shares are outstanding. There were no cumulative cash dividends payable as of December 31, 2013 and 2012, respectively. |
|
a.3) |
Other information is summarized as follows: |
| |
Convertible Series B | | |
Cumulative Series C | |
Number of common shares to be issued upon conversion of each preferred share | |
| 10 | | |
| None | |
| |
| | | |
| | |
Redemption price and involuntary liquidation value per preferred shares (if redeemed, ranking would be Convertible Series D then , Convertible Series B then Cumulative Series C) | |
$ | 2.00 | | |
$ | 10.00 | (1) |
| |
| | | |
| | |
(1) Plus any dividend in arrears. | |
| | | |
| | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
CAPITAL STOCK (continued)
b) Series E Convertible Preferred Stock
b.1) Authorized Number
Fifty Thousand (50,000) of the authorized shares of
Preferred Stock are hereby designated “Series E Convertible Preferred Stock” par value $1.00 per share (“E Preferred”).
b.2) Designation
The rights, preferences, privileges, restrictions
and other matters relating to E Preferred, as filed with the Secretary of State, Delaware, are as follows:
(1) Dividends
The shares of E Preferred shall not bear any dividends.
(2) Distribution
of Assets Upon Liquidation In the event the Company shall be liquidated, dissolved or wound up, whether voluntarily
or involuntarily, each holder of shares of E Preferred, shall be able to share ratably in the proceeds available along with the
holders of shares of Common Stock on an as converted basis (meaning for these purposes, that each share of E Preferred shall have
rights equivalent to the number of shares of Common Stock into which such E Preferred is convertible).
(3) Voting
Rights Each holder of outstanding shares of E Preferred shall be entitled to the number of votes equal to the number
of whole shares of Common Stock into which the share of E Preferred held by such holder would then be convertible assuming a sufficient
number of shares of Common Stock were then authorized and available for issuance, at each meeting of the stockholders of the Company
(and written actions of stockholders in lieu of meetings) with respect to any and all matters presented to the stockholders of
the Company for their action or consideration (including without limitation, any matter voted on together with the holders of Common
Stock). Except as provided by law, by any of the provisions contained herein or by the provisions establishing any other
series of stock, holders of E Preferred shall vote together with the holders of Common Stock as a single class.
(4) Mandatory
Conversion of E Preferred All of the shares of E Preferred shall be automatically converted into
shares of Common Stock at the Conversion Rate then in effect (a "Mandatory Conversion"). The “Conversion
Rate” is 10,000 shares of Common Stock for each share of E Preferred. All issued and outstanding shares of E Preferred converted
into shares of common stock on March 15, 2010 at the rate of 10,000 shares of common stock for each share of E Preferred.
c) Series F Convertible Preferred Stock
c.1) Authorized Number
Ten Thousand (10,000) of the authorized shares of
Preferred Stock are hereby designated “Series F Convertible Preferred Stock” par value $1.00 per share (“F Preferred”).
c.2) Designation
The rights, preferences, privileges, restrictions
and other matters relating to F Preferred, as filed with the Secretary of State, Delaware, are as follows:
(1) Dividends
The shares of F Preferred shall not bear any dividends.
(2) Distribution
of Assets Upon Liquidation In the event the Company shall be liquidated, dissolved or wound up, whether voluntarily
or involuntarily, each holder of shares of F Preferred, shall be able to share ratably in the proceeds available along with the
holders of shares of Common Stock on an as converted basis (meaning for these purposes, that each share of F Preferred shall have
rights equivalent to the number of shares of Common Stock into which such F Preferred is convertible).
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
CAPITAL STOCK (continued)
(3) Voting
Rights (a) Each holder of outstanding shares of F Preferred shall be entitled to the number of votes
equal to the number of whole shares of Common Stock into which the share of F Preferred held by such holder would then be convertible
assuming a sufficient number of shares of Common Stock were then authorized and available for issuance, at each meeting of the
stockholders of the Company (and written actions of stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Company for their action or consideration (including without limitation, any matter voted on together
with the holders of Common Stock). Except as provided by law, by any of the provisions contained herein or by the provisions
establishing any other series of stock, holders of F Preferred shall vote together with the holders of Common Stock as a single
class.
(b) Until such time as the Company has
achieved annual EBITDA (as defined in the agreement) of at least $10,000,000, the consent of a majority of the holders of the outstanding
shares of F Preferred, voting as a separate class, shall be required to approve: (i) any offer, sale, designation or issuance of
any security senior to or pari passu with the F Preferred; (ii) the repurchase or redemption of capital stock of the Company
(except from employees at cost upon termination); (iii) any increase or decrease in the number of authorized shares of Common Stock
or Preferred Stock; (iv) any amendment to the Certificate of Incorporation or other governing documents of the Company; (v) any
alteration or change to the rights, preferences or privileges of the F Preferred, by merger, consolidation or otherwise; (vi) the
entry into the sale or exclusive license of all or substantially all the assets of the Company, mergers, consolidations, other
business combinations, recapitalizations and liquidations; (vii) any acquisition of the stock or assets of any other entity; (viii)
any dividends or distributions on the Company’s capital stock; and (ix) the expansion into any new businesses. The
foregoing will apply to any subsidiary or controlled affiliate of the Company.
(4) Conversion
of F Preferred At the option of the holder each share of F Preferred may be converted into fully paid and non-assessable
shares of the Company’s Common Stock at the rate of 120,000 shares of Common Stock for each share of F Preferred.
d) Series G Convertible Preferred Stock
c.1) Authorized Number
Four Hundred Thousand (400,000) of the authorized
shares of Preferred Stock are hereby designated “Series G Convertible Preferred Stock” par value $1.00 per share, stated
value $50 (“G Preferred”).
c.2) Designation
The rights, preferences, privileges, restrictions
and other matters relating to G Preferred, as filed with the Secretary of State, Delaware, are as follows:
(1) Dividends
The shares of G Preferred shall bear a 10% annual dividend, payable quarterly in kind based on the equivalent of 90%
of the average of the last ten trading day closing price of the Common Stock prior to the dividend payment date.
(2) Distribution
of Assets Upon Liquidation In the event the Company shall be liquidated, dissolved or wound up, whether voluntarily
or involuntarily, each holder of shares of G Preferred, has a liquidation preference before any payment or distribution on the
Common Stock or on any other class of stock ranking junior to the G Preferred up to the Stated Value and, thereafter, shares ratably
in proceeds available along with the holders of shares of Common Stock and any other share of stock entitled to payment upon liquidation.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
CAPITAL STOCK (continued)
(3) Voting
Rights (a) Each holder of outstanding shares of G Preferred shall be entitled to the number of votes
equal to the number of whole shares of Common Stock into which the share of G Preferred held by such holder would then be convertible
assuming a sufficient number of shares of Common Stock were then authorized and available for issuance, at each meeting of the
stockholders of the Company (and written actions of stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Company for their action or consideration (including without limitation, any matter voted on together
with the holders of Common Stock). Except as provided by law, by any of the provisions contained herein or by the provisions
establishing any other series of stock, holders of G Preferred shall vote together with the holders of Common Stock as a single
class.
(4) Conversion
of G Preferred At the option of the holder each share of G Preferred may be converted into fully paid and non-assessable
shares of the Company’s Common Stock at the rate of 250 shares of Common Stock for each share of G Preferred. The holder
of each G Preferred has anti-dilution rights whereby any Common Stock shares that are issued or sold at a price less than the Conversion
Rate in effect, then the Conversion Rate shall be reduced to an amount equal to the New Securities Issuance Price.
e) Common Stock
e.1) Authorized Number
Two Billion (2,000,000,000) of the authorized shares
of Common Stock are hereby designated “ Common Stock” par value $0.001 per share.
The cost of all share-based awards to employees, including
grants of warrants and restricted stock, is recognized in the financial statements based on the fair value of the awards at grant
date. The fair value of the warrant award is determined using the Black-Scholes valuation model on the date of grant. The fair
value of the share-based awards is recognized as stock-based compensation expense on a straight-line basis over the requisite service
period from the date of grant. As of December 31, 2013, there was approximately $43,125 of total unrecognized compensation cost
related to non-vested warrant based compensation arrangements granted under the Company’s compensation plan. The cost is
expected to be recognized over a period of 2 years. This expected cost does not include the impact of any future stock-based compensation
awards.
11. OPTIONS AND WARRANTS
In February 2000, Millennium adopted its 2001 Stock
Option Plan ("The 2001 Plan"). The 2001 Plan provides that certain options granted thereunder are intended to qualify
as "Incentive Stock Options" (ISO) within the meaning of Section 422A of the United States Internal Revenue Code of 1986,
while non-qualified options may also be granted under the Plan. The Plan provided for the grant of options for up to 500,000 shares.
The purchase price per common stock deliverable upon exercise of each ISO shall not be less than 100% of the fair market value
of the common stock on the date such option is granted. If an ISO is issued to an individual who owns, at the time of grant, more
than 10% of the total enhanced voting power of all classes of Millennium’s common stock, the exercise price of such option
shall be at least 110% of the fair market value of the common stock on the date of grant and the term of the option shall not exceed
five years from the date of grant. The purchase price of shares subject to non-qualified stock options shall be determined by a
committee established by the Board of Directors with the condition that such prices shall not be less than 85% of the fair market
value of the common stock at the time of grant. Millennium had no options issued pursuant to this Plan as of December 31, 2013
and 2012, respectively.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
OPTIONS AND WARRANTS (continued)
|
|
December 31, 2013 |
|
|
December 31, 2012 |
|
|
|
Shares |
|
|
Weighted
Average
Exercise
Price |
|
|
Shares |
|
|
Weighted
Average
Exercise
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding - beginning of year |
|
|
18,190,906 |
|
|
$ |
0.225 |
|
|
|
7,631,544 |
|
|
$ |
0.404 |
|
Warrants exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Warrants granted |
|
|
1,140,000 |
|
|
|
0.185 |
|
|
|
10,587,500 |
|
|
|
0.129 |
|
Warrants expired |
|
|
(7,500 |
) |
|
|
60.000 |
|
|
|
(28,138 |
) |
|
|
12,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding - end of year |
|
|
19,323,406 |
|
|
$ |
0.200 |
|
|
|
18,190,906 |
|
|
$ |
0.225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants price range at end of year |
|
|
$0.10 - $16.00 |
|
|
|
$0.10 - $60.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants price for exercised shares |
|
|
$0.00 |
|
|
|
$0.00 |
|
The following table summarizes information about
fixed-price warrants outstanding
Range of Exercise
Prices |
|
|
Number
Outstanding at
December 31,
2013 |
|
|
Average
Remaining
Contractual
Life |
|
Weighted
Average
Exercise Price |
|
|
Number
Exercisable at
December 31,
2012 |
|
|
Weighted
Average
Exercise Price |
|
$ |
0.10 |
|
|
|
7,500,000 |
|
|
47 Mo’s |
|
$ |
0.10 |
|
|
|
7,500,000 |
|
|
$ |
0.10 |
|
$ |
0.17 |
|
|
|
8,033,406 |
|
|
92 Mo’s |
|
$ |
0.17 |
|
|
|
7,533,406 |
|
|
$ |
0.17 |
|
$ |
0.20 |
|
|
|
3,727,500 |
|
|
16 Mo’s |
|
$ |
0.20 |
|
|
|
3,087,500 |
|
|
$ |
0.20 |
|
$ |
16.00 |
|
|
|
62,500 |
|
|
72 Mo’s |
|
$ |
16.00 |
|
|
|
62,500 |
|
|
$ |
16.00 |
|
$ |
60.00 |
|
|
|
- |
|
|
|
|
$ |
60.00 |
|
|
|
7,500 |
|
|
$ |
60.00 |
|
|
|
|
|
|
19,323,406 |
|
|
|
|
|
|
|
|
|
18,190,906 |
|
|
|
|
|
Total compensation cost recognized in the income
statement for stock-based employee and directors’ compensation awards was $457,500 and $1,280,679 in 2013 and 2012, respectively.
The cost of all share-based awards to employees,
including grants of warrants and restricted stock, is recognized in the financial statements based on the fair value of the awards
at grant date. The fair value of the warrant award is determined using the Black-Scholes valuation model on the date of grant.
The fair value of the share-based awards is recognized as stock-based compensation expense on a straight-line basis over the requisite
service period from the date of grant. As of December 31, 2013, there was approximately $43,125 of total unrecognized compensation
cost related to non-vested warrant based compensation arrangements granted under the Company’s compensation plan. The cost
is expected to be recognized over a period of 2 years. This expected cost does not include the impact of any future stock-based
compensation awards.
In 2012 the Company issued 3,000,000 warrants to
an officer. The Company valued the warrants utilizing the Black Scholes method with the following inputs: stock price of $0.10,
exercise price of $0.10, volatility of 177.45%, term of 5 years, risk free rate of 2.50% and dividend rate of 0%.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
12. OPERATING LEASE, LICENSE
AND EMPLOYMENT COMMITMENTS
The Company leases office space
in Newark, NJ under an operating lease.
The following is a schedule
of future minimum rental payments (exclusive of allocated expenses) required under operating leases that have initial or non-cancelable
lease terms in excess of one year as of December 31, 2013:
Year Ending December 31, | |
| | |
2014 | |
$ | 50,400 | |
2015 | |
| 50,400 | |
2016 | |
| 12,600 | |
Total minimum payments required | |
$ | 113,400 | |
Rent expense for the Company under operating leases
for the years ended December 31, 2013 and 2012 was $47,282 and $37,928, respectively.
The Company entered into a license agreement with
minimum royalty payments totaling $13,600,000. In the year ended December 31, 2013, $450,000 has been paid for the year ending
December 31, 21014.
Year Ending December 31, | |
| | |
2014 | |
$ | 1,800,000 | |
2015 | |
| 2,100,000 | |
2016 | |
| 2,700,000 | |
2017 | |
| 3,200,000 | |
2018 | |
| 3,800,000 | |
| |
$ | 13,600,000 | |
Pursuant to the Summary of Debt Reorganization and
Financing dated July 14, 2011, Mr. James salary was amended to reduce his salary to $150,000 per annum until the Company reaches
three consecutive fiscal quarters of positive Net Income at which point his annual salary will increase to $200,000. The gross-up
provisions with regards to any issuances under the Management Warrant Grant Program have been eliminated. Mr. James will receive
a bonus of $25,000 upon receiving three consecutive fiscal quarters of positive Net Income.
Pursuant to an amended and restated employment agreement,
Carl Germano is employed as the Chief Science Officer of Millennium. The Agreement terminates on November 1, 2014; provided, Mr.
Germano has the right to extend the term of employment for two additional years. Pursuant to the Agreement, Mr. Germano
currently receives a base annual salary of $150,000 per year which increases to $200,000 per year in the event (a) the Company's
annual revenues exceed $15,000,000; (b) the Company enters into a licensing agreement with an unrelated third party where the minimum
upfront licensing fee is no less than $3,000,000; or (c) the Company achieves two quarters of positive cash flow. In
addition, during the term of the Agreement, Mr. Germano is entitled to receive an annual bonus at the discretion of the Company.
Mr. Germano also received 114.1667 E Preferred (which in 2010 converted into 18,021 shares of Common Stock) and Performance Shares.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
The Agreement terminates upon Mr. Germano’s
death and may be terminated at the option of the Company as a result of Mr. Germano’s disability or for “cause”
as defined in the Agreement. Mr. Germano has the right to terminate the Agreement for “good reason” as defined
in the Agreement. In the event that the Agreement is terminated due to Mr. Germano’s death or disability, he is
entitled to receive his annual salary for a period equal to the lessor of (i) three months from the date of death or disability
or (ii) the balance of the Term; and all other accrued but unpaid compensation and benefits. If the Agreement is terminated
by the Company for “cause”, Mr. Germano is not entitled to receive any compensation other than accrued but unpaid compensation
and benefits. In the event Mr. Germano terminates the Agreement for “good reason”, the Company shall pay
to Mr. Germano his annual salary through the date of the end of the contract term; bonuses that have accrued and are unpaid as
of the date of termination; and any Options which have been granted to Mr. Germano as of the date of the termination. The
Agreement also provides for Mr. Germano is subject to confidentiality, non-solicitation and non-compete covenants for a period
of one year following his termination, provided such termination is not by the Company without “cause” or by Mr. Germano
for “good reason”.
13. STOCK GRANTED FOR SERVICES AND FINANCING
During the year ended December 31, 2013 the Company
issued 1,637,500 shares of Common Stock valued at $202,270 and 4,000 shares of Convertible Series G Preferred Stock valued at $122,000
for services. The value of the Common Stock is the fair market value on the date of issuance.
During the year ended December 31, 2013 the Company
issued 6,390,625 shares of Common Stock valued at $505,509 for compensation. The value of the Common Stock is the fair market value
on the date of issuance.
14. RELATED PARTY TRANSACTIONS
During 2013 and 2012, we also issued restricted stock
awards and warrants to certain officers and directors, as follows:
Mr. James received 2,000,000 shares of common stock
in January 2013 valued at $150,200, in recognition of services performed. The value of the Common Stock is the fair market value
on the date of issuance.
Mr. Germano received 2,000,000 shares of common stock
in January 2013 valued at $150,200, in recognition of services performed. The value of the Common Stock is the fair market value
on the date of issuance.
Mr. DeLucia received 500,000 shares of common stock
in January 2012 valued at $50,000, for director fees. The value of the Common Stock is the fair market value on the date of issuance.
In 2012 the Company issued 3,000,000 warrants to
an officer. The Company valued the warrants utilizing the Black Scholes method with the following inputs: stock price of $0.10,
exercise price of $0.10, volatility of 177.45%, term of 5 years, risk free rate of 2.50% and dividend rate of 0%.
Refer to footnote 8 for affiliated debt transactions.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
15. LITIGATION
All legal matters contained within this Note to the
Financial Statement have been accrued for on the Company’s balance sheet as a liability as of December 31, 2013.
Creative Healthcare Solutions, LLC vs. Millennium Biotechnologies
Inc, Ct. of Common Pleas of Delaware County Ohio, Case No. 07 CV H 11 1420) Millennium was not satisfied with the service
rendered by Creative Healthcare Solutions, LLC in 2005 which were associated with the development of Resurgex Select collateral
materials developed in December of 2005. Millennium subsequently was forced to destroy and dispose of over 80% of the materials
provided by Creative Healthcare Solutions due to the poor quality of the materials. Millennium has been unsuccessful in resolving
the dispute and subsequently Creative Healthcare Solutions, LLC has filed legal action for demand of payment in the amount of $63,718
for services rendered. Millennium continues to negotiate a settlement with regards to this legal proceeding.
Robert Half International vs. Millennium Biotechnologies,
Inc. filed on September 30, 2009 in the Superior Court of New Jersey, Law Division, Middlesex County. Robert Half International
claims a total of $18,507 plus costs and fees based upon the Millennium Biotechnologies, Inc.’s failure to pay the plaintiff
the fees associated with the full time hiring of an employee.
16. SUBSEQUENT EVENTS
The Company received $3,357,144 on January 23, 2014
from the sale of the New Jersey Technology Business Tax Transfer Program. The Company paid a fee of $302,143 upon the successful
receipt of the sale proceeds. The net amount the Company received was $3,055,001.
In January 2014 the Company approved issuance of 10,000
shares of Series G preferred associated with the one year extension of a $2,000,000 loan.
In January 2014 the Company paid off $528,000 of principal
for notes that were outstanding as of December 31, 2013.
In February 2014 the Company increased the preferred
stock, convertible Series G authorized shares to 400,000.
In March 2014 the Company approved issuance of 4,750,000
shares of common stock to certain officers and employees.
In March 2014 the Company approved issuance of 500,000
shares of common stock for director fees.
INERGETICS,
INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
BALANCE SHEETS
(Unaudited)
| |
June 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Assets | |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash | |
$ | 15,313 | | |
$ | 106,773 | |
Accounts receivable, net | |
| 583,297 | | |
| 472,297 | |
Receivable from the Technology Business Tax Certificate Transfer Program | |
| - | | |
| 3,357,144 | |
Deferred cost of goods sold | |
| 493,539 | | |
| 569,036 | |
Inventories, net | |
| 972,526 | | |
| 420,186 | |
Prepaid expenses | |
| 462,849 | | |
| 447,355 | |
Total Current Assets | |
| 2,527,524 | | |
| 5,372,791 | |
| |
| | | |
| | |
Patents and intangible assets, net | |
| 148,603 | | |
| 149,391 | |
Goodwill | |
| 135,000 | | |
| 135,000 | |
Deposits | |
| 201,099 | | |
| 421,191 | |
Total Assets | |
$ | 3,012,226 | | |
$ | 6,078,373 | |
Liabilities and Stockholders’ Deficit | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 3,551,849 | | |
$ | 5,089,488 | |
Deferred Revenue | |
| 1,075,182 | | |
| 1,269,470 | |
Obligations to be settled in stock | |
| 849,433 | | |
| 699,085 | |
Derivative liability | |
| 790,000 | | |
| 318,000 | |
Short-term debt, net of unamortized debt discount | |
| 2,403,645 | | |
| 1,276,358 | |
Short-term debt to affiliates, net of unamortized
debt discount | |
| 3,756,709 | | |
| 2,843,728 | |
Total Current Liabilities | |
| 12,426,818 | | |
| 11,496,129 | |
Long-term debt | |
| 259,479 | | |
| 103,912 | |
Long-term debt, net to affiliates | |
| - | | |
| 1,425,522 | |
| |
| 12,686,297 | | |
| 13,025,563 | |
Commitments and Contingencies | |
| | | |
| | |
Preferred stock, Convertible Series
G, authorized 400,000 par $1, stated Value $50: 215,281 and 198,074 shares issued and outstanding | |
| 9,092,217 | | |
| 8,743,284 | |
Stockholders’ Deficit | |
| | | |
| | |
Preferred stock: | |
| | | |
| | |
Convertible Series B, par value $2; 65,141 shares issued and outstanding | |
| 130,282 | | |
| 130,282 | |
Cumulative Series C, par value $1; 64,763 shares issued and outstanding | |
| 64,763 | | |
| 64,763 | |
Convertible Series D, par value $1; 0 shares issued and outstanding | |
| - | | |
| - | |
Convertible Series E, par value$1; 0 shares issued and outstanding | |
| - | | |
| - | |
Convertible Series F, par value $1; 0 shares issued and outstanding | |
| - | | |
| - | |
Common stock, par value $0.001; authorized 2,000,000,000
shares; issued and outstanding 82,295,000 and 62,461,448 shares, respectively | |
| 82,295 | | |
| 62,462 | |
Additional paid-in capital | |
| 71,463,122 | | |
| 68,789,021 | |
Accumulated Deficit | |
| (90,506,750 | ) | |
| (84,737,002 | ) |
Total Stockholders’ Deficit | |
| (18,766,288 | ) | |
| (15,690,474 | ) |
Total Liabilities and Stockholders’ Deficit | |
$ | 3,012,226 | | |
$ | 6,078,373 | |
The accompanying notes are an integral part of the condensed
consolidated financial statements.
INERGETICS,
INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Total Revenues | |
$ | 523,615 | | |
$ | 66,667 | | |
$ | 1,003,417 | | |
$ | 73,442 | |
Cost of Goods Sold | |
| 310,437 | | |
| 50,475 | | |
| 673,040 | | |
| 55,245 | |
Gross Profit | |
| 213,178 | | |
| 16,192 | | |
| 330,377 | | |
| 18,197 | |
| |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 8,521 | | |
| - | | |
| 12,929 | | |
| - | |
Selling, general and administrative expense | |
| 1,555,511 | | |
| 866,787 | | |
| 4,696,231 | | |
| 2,258,683 | |
Total operating expenses | |
| 1,564,032 | | |
| 866,787 | | |
| 4,709,160 | | |
| 2,258,683 | |
Loss from Operations | |
| (1,350,854 | ) | |
| (850,595 | ) | |
| (4,378,783 | ) | |
| (2,240,486 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expense) | |
| | | |
| | | |
| | | |
| | |
Amortization of debt discount | |
| (35,650 | ) | |
| (45,078 | ) | |
| (169,003 | ) | |
| (82,132 | ) |
Gain on extinguishment of debt | |
| 2,787 | | |
| 46,978 | | |
| 18,378 | | |
| 46,978 | |
Gain (loss) on fair market valuation of derivatives | |
| 542,000 | | |
| 35,000 | | |
| (472,000 | ) | |
| (36,000 | ) |
Interest and financing cost, net | |
| (400,970 | ) | |
| (118,502 | ) | |
| (768,340 | ) | |
| (199,309 | ) |
Total Other Income (Expense) | |
| 108,167 | | |
| (81,602 | ) | |
| (1,390,965 | ) | |
| (270,463 | ) |
Loss before Provision for Income taxes | |
| (1,242,687 | ) | |
| (932,197 | ) | |
| (5,769,748 | ) | |
| (2,510,949 | ) |
State taxes | |
| - | | |
| (500 | ) | |
| - | | |
| (3,999 | ) |
Net Loss | |
| (1,242,687 | ) | |
| (932,697 | ) | |
| (5,769,748 | ) | |
| (2,514,948 | ) |
Preferred Dividend | |
| (321,525 | ) | |
| (302,000 | ) | |
| (579,963 | ) | |
| (743,900 | ) |
Net Loss applicable to common shareholders | |
$ | (1,564,212 | ) | |
$ | (1,234,697 | ) | |
$ | (6,349,711 | ) | |
$ | (3,258,848 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Loss per Common Share - Basic and Diluted | |
$ | (0.02 | ) | |
$ | (0.02 | ) | |
$ | (0.09 | ) | |
$ | (0.06 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted Average Number of common shares outstanding - Basic and Diluted | |
| 78,183,619 | | |
| 53,022,927 | | |
| 71,135,031 | | |
| 50,657,324 | |
The accompanying notes are an integral part of the condensed
consolidated financial statements.
INERGETICS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
| |
For the Six Months Ended
June 30, | |
| |
2014 | | |
2013 | |
Cash Flows from Operating Activities | |
| | | |
| | |
Net Loss | |
$ | (5,769,746 | ) | |
$ | (2,514,948 | ) |
Adjustments to Reconcile Net Loss to | |
| | | |
| | |
Net Cash Used In Operations | |
| | | |
| | |
Loss on fair market valuation of derivatives | |
| 472,000 | | |
| 36,000 | |
Depreciation and amortization | |
| 788 | | |
| 763 | |
Common Stock issued for financing expenses | |
| 17,365 | | |
| - | |
Preferred Stock issued for financing expenses | |
| 262,418 | | |
| - | |
Common Stock issued for services | |
| 199,609 | | |
| 59,500 | |
Common stock issued for compensation | |
| 1,332,883 | | |
| 450,600 | |
Amortization of Prepaid expenses paid for in stock | |
| - | | |
| - | |
Gain on extinguishment of debt | |
| (18,378 | ) | |
| (46,978 | ) |
Accretion of debt discount | |
| 169,003 | | |
| 82,132 | |
| |
| | | |
| | |
Changes in Assets and Liabilities | |
| | | |
| | |
(Increase) in accounts receivable | |
| (111,000 | ) | |
| (55,971 | ) |
Decrease in receivable from Technology Business Tax Certificate Transfer
Program | |
| 3,357,144 | | |
| 2,209,715 | |
(Increase) in inventories | |
| (552,340 | ) | |
| (138,297 | ) |
Decrease in deferred cost of goods sold | |
| 75,497 | | |
| - | |
(Increase) Decrease in prepaid expenses | |
| (215,103 | ) | |
| 22,073 | |
(Increase) in note receivable | |
| - | | |
| (5,128 | ) |
(Increase) of intangible assets | |
| - | | |
| (41,000 | ) |
(Increase) Decrease in deposits | |
| 220,092 | | |
| (4,666 | ) |
(Decrease) in accounts payable and accrued expenses | |
| (304,434 | ) | |
| 22,572 | |
(Decrease) in customer deposits | |
| - | | |
| (39,970 | ) |
(Decrease) in deferred revenue | |
| (194,288 | ) | |
| - | |
| |
| | | |
| | |
Net Cash (Used in) Provided by Operating Activities | |
| (1,058,490 | ) | |
| 36,397 | |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Acquisition of business | |
| - | | |
| (75,000 | ) |
Net Cash Provide by Investing Activities | |
| - | | |
| (75,000 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from debt | |
| 1.495,030 | | |
| 1,203,090 | |
Repayment of debt | |
| (528,000 | ) | |
| (1,171,522 | ) |
Net Cash Used in Financing Activities | |
| 967.030 | | |
| 31,568 | |
| |
| | | |
| | |
Net Decrease in Cash | |
| (91,460 | ) | |
| (7,035 | ) |
Cash at beginning of period | |
| 106,773 | | |
| 8,846 | |
Cash at end of period | |
$ | 15,313 | | |
$ | 1,811 | |
| |
| | | |
| | |
Supplemental Disclosure of Cash Flow information: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest Expense | |
$ | 213,621 | | |
$ | 85,575 | |
Income Taxes | |
$ | - | | |
$ | 3,999 | |
| |
| | | |
| | |
Non-cash | |
| | | |
| | |
Common Stock issued for prepaid services (1,850,000
shares) | |
$ | 399,163 | | |
$ | - | |
Issuance of G shares as Preferred dividend (9,851 and 14,878 shares) | |
$ | 579,963 | | |
$ | 743,900 | |
Change in liability of stock to be Issued | |
$ | 150,348 | | |
$ | 333,863 | |
Issuance of G shares for Business Acquisition | |
$ | - | | |
$ | 140,000 | |
The accompanying notes are an integral part of the condensed
consolidated financial statements.
INERGETICS, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
On March 15, 2010 the Company
changed its name to Inergetics, Inc. Inergetics, Inc. (the Company or "Inergetics"), formerly Millennium Biotechnologies
Group, Inc., is a holding company for its subsidiary Millennium Biotechnologies, Inc. ("Millennium").
Millennium was incorporated
in the State of Delaware on November 9, 2000 and is located in New Jersey. Millennium is a research based bio-nutraceutical
corporation involved in the field of nutritional science. Millennium’s principal source of revenue is from sales
of its nutraceutical supplements, Resurgex Select® and Resurgex Essential™ and Resurgex Essential Plus™ which
serve as a nutritional support for immuno-compromised individuals undergoing medical treatment for chronic debilitating diseases.
Millennium has developed Surgex for the sport nutritional market. The Company acquired Bikini Ready®, a leader in weight loss
lifestyle solutions and SlimTrim™, the affordable, premium value diet brand. The Company has a licensing agreement to sell
the Martha Stewart Essentials line of supplements. The Company’s efforts going forward will focus on sales of Martha
Stewart Essentials™ line of supplements, Surgex in powder and pill forms as well as powder and pills for Bikini Ready and
pills for SlimTrim.
The accompanying unaudited
condensed consolidated financial statements include the accounts of Inergetics, Inc. and its subsidiary. These condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Regulation S-X. Certain information in footnote disclosures normally
included in financial statements prepared in conformity with accounting principles generally accepted in the United States of
America has been condensed or omitted pursuant to such principles and the financial results for the periods presented may not
be indicative of the full year’s results. The Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction
with the December 31, 2013 audited financial statements and the accompanying notes thereto filed with the Securities and Exchange
Commission on Form 10-K.
Principles of Consolidation
The condensed consolidated
financial statements include the accounts of the Company and its subsidiary and are prepared in accordance with accounting principles
generally accepted in the United States. All significant inter-company transactions and balances have been eliminated.
Certain information in footnote
disclosure normally included in the financial statements have been condensed or omitted and the financial statements might not
be indicative of a full year’s results. The Company believes the disclosures are adequate to make the information presented
not misleading.
The financial statements should
be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year-ended December
31, 2013 included in the Company’s Annual Report on Form 10-K filed on March 31, 2014.
Use of Estimates
The preparation of the financial
statements in conformity with United States generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
Goodwill
Goodwill and other acquired
intangible assets with indefinite lives are not amortized, but are tested for impairment annually and when an event occurs or
circumstances change such that it is more likely than not that an impairment may exist. Our annual testing date is December 31.
We test goodwill for impairment by first comparing the carrying value of net assets to the fair value of the related operations.
If the fair value is determined to be less than carrying value, a second step is performed to compute the amount of the impairment.
In this process, a fair value for goodwill is estimated, based in part on the fair value of the operations, and is compared to
its carrying value. The shortfall of the fair value below carrying value represents the amount of goodwill impairment. Intangibles
consist of brand and trade names acquired in business combinations. We test these intangibles for impairment by comparing their
carrying value to current projections of discounted cash flows attributable to the brand and trade names. Any excess carrying
value over the amount of discounted cash flows represents the amount of the impairment.
Revenue Recognition
Revenue is recognized net
of discounts, rebates, promotional adjustments, price adjustments and estimated returns and upon transfer of title and risk to
the customer which occurs at shipping (F.O.B. terms). Upon shipment to various customers when all performance obligations
are met and collectability is reasonably assured revenue is recognized. Upon shipment to specific customers with the right
of return the Company defers revenues as returns are not reasonably estimable. As of June 30, 2014 and December 31, 2013,
deferred revenue totaled $1,075,182 and $1,269,470, respectively.
Deferred Revenue and Deferred Cost of
Goods Sold
Deferred revenue consists
substantially of amounts billed or payments received in advance of revenue recognition. Deferred cost of goods sold as of June
30, 2014 and December 31, 2013 of $493,539 and $569,036, respectively, related to deferred product revenues includes direct product
costs. Once all revenue recognition criteria have been met, the deferred revenues and associated cost of goods sold are recognized.
Income Taxes
The Company provides for
income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled
in the Company’s income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in
different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized
for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
Loss Per Common Share
Net loss per share, in accordance
with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number
of shares of Common Stock outstanding during the period. Common Stock equivalents have not been included in this computation since
the effect would be anti-dilutive. During a loss period, the effect of the potential exercise of stock options, warrants, convertible
preferred stock and convertible debt are not considered in the diluted income (loss) per share calculation since the effect would
be anti-dilutive.
Fair Value of Financial Instruments
For financial instruments
including cash, accounts receivable, prepaid expenses, debt, accounts payable and accrued expenses, the carrying values approximated
their fair value.
Fair value estimates are made
at a specific point in time, based on relevant market information and information about the financial statement. These estimates
are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
2 . GOING CONCERN AND LIQUIDITY ISSUES
The Company’s future success is dependent
upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management
believes they can raise the appropriate funds needed to support their business plan and develop an operating company which is
cash flow positive.
However, the Company has a working capital deficit,
significant debt outstanding, incurred substantial net losses for the six months ended June 30, 2014 and 2013 and has accumulated
a deficit of approximately $91 million at June 30, 2014. The Company has not been able to generate sufficient cash from operating
activities to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or
raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to
continue as a going concern.
The condensed consolidated financial statements
do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might
result should the Company be unable to continue as a going concern.
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
3. |
CONCENTRATIONS OF BUSINESS AND CREDIT RISK |
The Company maintains cash
balances in several financial institutions which are insured by the Federal Deposit Insurance Corporation up to certain federal
limitations.
The Company provides credit
in the normal course of business to customers located throughout the U. S. The Company performs ongoing credit evaluations of
its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers,
historical trends, and other information.
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Inventories are stated at
the lower of cost or market on a first in, first out basis. Inventories consist of work-in-process, raw materials, finished goods,
and packaging for the Company’s Martha Stewart Essentials, SURGEX®, RESURGEX ESSENTIAL ®, Bikini Ready®
and SlimTrim™ product lines. Inventories consist of the following:
| |
June 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Finished Goods | |
$ | 912,574 | | |
$ | 378,472 | |
Packaging | |
| 59,952 | | |
| 41,714 | |
| |
| 972,526 | | |
| 420,186 | |
Less: Reserve for obsolescence | |
| - | | |
| - | |
Total | |
$ | 972,526 | | |
$ | 420,186 | |
Prepaid expenses are for services
that have been paid in advance primarily with stock that are amortized over the life of the contract. The agreements pertain to
pricing structure, distribution, warehousing, inventory management, financial advisory services, pro athlete endorsements and
licensing agreements.
| 6. | ACCOUNTS PAYABLE
AND ACCRUED EXPENSES |
Accounts payable and accrued expenses consisted
of the following:
| |
June 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Accounts payable | |
$ | 2,567,449 | | |
$ | 2,866,017 | |
Owed to officer | |
| 30,650 | | |
| 16,088 | |
Accrued interest | |
| 453,827 | | |
| 1,016,584 | |
Accrued rent expense | |
| 135,874 | | |
| 135,874 | |
Accrued salaries, bonuses and payroll taxes | |
| 113,615 | | |
| 824,492 | |
Accrued professional fees | |
| 250,434 | | |
| 230,433 | |
| |
$ | 3,551,849 | | |
$ | 5,089,488 | |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
| 7. | SHORT TERM DEBT,
NET OF DEBT DISCOUNT |
In the first Six months of 2014, the Company realized
gross proceeds of $1,495,030 in new cash. Proceeds from the sale of its 12% to 15.0% twelve month Unsecured Convertible Notes
and Unsecured Notes, in the aggregate original principal amount of $1,495,030 (the “Notes”) to accredited investors
(the “Investors”). Interest on the outstanding principal balance of the Notes is payable upon maturity
of the note. For the convertible notes, the outstanding principal balance of the Notes and all accrued but unpaid interest thereon
may be converted at any time at the option of each Investor into shares of Common Stock at the Conversion Price of $ .20 per share. The
Company may prepay the Notes at any time without penalty to the Investors.
Unsecured Notes, net debt discount, consist of
the following:
| |
June 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Unsecured Convertible Notes | |
$ | 2,739,271 | | |
$ | 1,450,333 | |
Debt discount | |
| (76,147 | ) | |
| (70,063 | ) |
| |
| 2,663,124 | | |
| 1,380,270 | |
Less long term portion | |
| 259,479 | | |
| 103,912 | |
Short term portion | |
$ | 2,403,645 | | |
$ | 1,276,358 | |
The Company committed to issue 561,918 shares of
common stock for origination fees during the Six months ended June 30, 2014 and recorded a debt discount of $ 77,207.
Gain on Troubled Debt Restructuring
2014 Modification of Debt
The following debt instruments were modified in
2014. The modification of debt included the addition of a conversion feature therefore requiring the Company to record the transaction
in accordance with ASC 470 “Debt” modification of debt accounting.
At December 31, 2013, the Company had promissory
notes issued to one affiliated investor with an outstanding balance of $2,000,000, which were due on demand. During January 2014,
the Company reached an agreement with the investor to extend the debt for twelve months. At the date of extension, the new debt
payable was $2,000,000. The new debt incurred origination fees paid through the issuance of Series G preferred stock valued at
$232,500, resulting in an adjustment to Stockholders’ Deficit.
At December 31, 2013, the Company had promissory
notes issued to three accredited investors with an outstanding balance of $249,535, which were due on demand. During January 2014,
the Company reached an agreement with the investors to extend the debt for six to twelve months. At the date of extension, the
debt payable was $249,535. The fair value of the new debt is $223,548. The conversion rate on the new convertible note is $0.20
per share of common stock. As of June 30, 2014 the loss on debt modification of $25,987 has been included in the Statement of
Operations. The loss incurred with debt restructuring approximates $0.00 per share.
At December 31, 2013, the Company had Notes issued
to six accredited investors with an outstanding principal and interest balance of $465,872, which were due on demand. In the six
months ended June 30, 2014, the Company reached an agreement with the investors to convert into 1,336,918 shares of common stock
plus $43,725 in cash as full settlement. The debt and accrued interest was valued at $506,801 which exceeded the
fair market value of the common stock and cash by $18,378. The difference resulted in a gain on troubled debt restructuring
of $18,378 has been included in the Statement of Operations in the six months ended June 30, 2014. The gain incurred with debt
restructuring approximates $0.00 per share.
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
| 8. | SHORT TERM DEBT
– RELATED PARTIES, NET OF DEBT DISCOUNT |
In the Six months ended June 30, 2014, the Company
realized gross proceeds of $ 1,085,030, from the sale of its 12.0 % six month Unsecured Convertible Notes and Secured Promissory
Notes, in the aggregate original principal amount of $100,000 (the “Notes”) to an accredited investor (the “Investor”). Interest
on the outstanding principal balance of the Notes is payable upon maturity of the note. The Company may prepay the Notes at any
time without penalty to the Investors.
The Company issued 125,000 shares of common stock
for origination fees during the Six months ended June 30, 2014, in connection with this debt and recorded a debt discount of $26,740.
| 9. | FAIR VALUE MEASUREMENTS |
The following table represents the fair value hierarchy
for those financial assets measured at fair value on a recurring basis
| |
Fair Value at | | |
| | |
| | |
| |
| |
June 30, | | |
Fair Value Measurement Using | |
| |
2014 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liability – Conversion Feature | |
$ | 790,000 | | |
| - | | |
| - | | |
$ | 790,000 | |
| |
$ | 790,000 | | |
| - | | |
| - | | |
$ | 790,000 | |
| |
Fair Value at | | |
| | |
| | |
| |
| |
December 31, | | |
Fair Value Measurement Using | |
| |
2013 | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liability – Conversion Feature | |
$ | 318,000 | | |
| - | | |
| - | | |
$ | 318,000 | |
| |
$ | 318,000 | | |
| - | | |
| - | | |
$ | 318,000 | |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FAIR VALUE MEASUREMENTS, Continued
The table below sets forth a summary of changes
in the fair value of the Company’s Level 3 financial liabilities (Derivative liability – Conversion Feature) for the Six
months ended June 30, 2014:
| |
June 30, | |
| |
2014 | |
Balance at December 31, 2013 | |
$ | 318,000 | |
Derivative converted into Equity | |
| (8,000 | ) |
Change in fair market value of Conversion Feature | |
| 480,000 | |
Balance at June 30, 2014 | |
$ | 790,000 | |
Warrant activity for the six
months ended June 30, 2014 is as follows:
| |
| | |
Weighted | | |
| | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Contractual Term In | | |
Intrinsic | |
| |
Warrants | | |
Price | | |
Months | | |
Value | |
Outstanding at December 31, 2013 | |
| 19,323,406 | | |
$ | 0.200 | | |
| 63 | | |
$ | 300,000 | |
| |
| | | |
| | | |
| | | |
| | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Exercised | |
| (531,262 | ) | |
| 0.104 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Expired or cancelled | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding and exercisable at June 30, 2014 | |
| 18,792,144 | | |
$ | 0.197 | | |
| 8-88 | | |
$ | - | |
| 11. | COMMITMENTS
AND CONTINGENCIES |
The Company entered into a
license agreement with minimum royalty payments totaling $ 1,800,000, $ 2,100,000, $ 2,700,000, $ 3,200,000 and $ 3,800,000 for
each of the years ended 2014, 2015, 2016, 2017 and 2018, respectively. $1,350,000 was paid as of June 30, 2014 and recorded in
prepaid expenses.
INERGETICS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
During
the third quarter, the Company was not able to make the payment that was due July 1, 2014 to Martha Stewart Living Omnimedia pursuant
to our license agreement. While we are in discussions to work out terms of payment, we most likely will need to raise additional
funds to meet our obligations under the license agreement.
During the third quarter of
2013 the Company received $1,000,000 net proceeds and issued a 12% secured subordinated convertible promissory note to the Investor
in the principal amount of $1,500,000 (the “Note”) and a Common Stock Purchase Warrant (the “Warrant”)
to purchase 2,500,000 shares of the Company’s Common Stock (the “Common Stock”). Principal and interest (at
the rate of 12% per annum) is due and payable under the Note on July 14, 2015. If the Company files a registration statement with
the Securities and Exchange Commission (the SEC”) covering the resale of the shares of Common Stock issuable upon conversion
of the Note and exercise of the Warrant on or before 45 days after July 14, 2014, the principal amount of the Note shall be reduced
by $200,000, and if the registration statement is declared effective by the SEC within 120 days of July 14, 2014, the principal
amount of the Notes shall be further reduced by $300,000. Principal and accrued but unpaid interest is convertible into shares
of the Company’s Common Stock at a price (the “Conversion Price”) equal the lesser (i) $0.35 per share, or (ii)
62% of the lowest trading price of the Common Stock as quoted by Bloomberg L.P. for the ten trading days immediately preceding
the date of conversion (subject to adjustments as provided in the Note). However, in no event shall the Conversion Price be less
than $0.031 per share (the “Floor Price”). The Company filed a registration statement with the Securities and Exchange
Commission on August 1, 2014, reducing the principal amount by $200,000 to $1,300,000.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses
of Issuance and Distribution
We will pay all expenses in connection with the registration
and sale of the common stock by the Selling Stockholder. The estimated expenses of issuance and distribution are set
forth below.
SEC filing fee | |
$ | 190.54 | |
Legal expenses | |
$ | 30,000 | * |
Accounting expenses | |
$ | 5,000 | * |
Miscellaneous | |
$ | 4,809.46 | * |
Total | |
$ | 40,000 | * |
* Estimate
Item 14. Indemnification of Directors and Officers
Our Amended and Restated Certificate of
Incorporation states that we shall indemnify our directors and officers to the maximum extent permitted by Delaware law. Section
145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, permits us to indemnify
any and all persons, including our directors, officers, employees and agents, whom we shall have power to indemnify under said
section (the "Indemnitee") from and against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for therein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. We shall pay in advance of the final disposition of such Indemnitee upon the receipt of an undertaking
by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified
by us as authorized in the Amended and Restated Certificate of Incorporation. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended, may be permitted to such directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered
Securities
| |
| | |
| | |
| | |
Six Months | |
| |
Year Ended December 31, | | |
Ended June 30, | |
| |
2011 | | |
2012 | | |
2013 | | |
2014 | |
| |
| | |
| | |
| | |
| |
COMMON STOCK ISSUANCES | |
| | | |
| | | |
| | | |
| | |
Common stock issued in lieu of cash in payment of services | |
| 375,000 | | |
| 11,395,000 | | |
| 1,637,500 | | |
| 3,005,000 | |
| |
| | | |
| | | |
| | | |
| | |
Common stock issued in lieu of cash in payment of interest | |
| 53,375 | | |
| 895,184 | | |
| 2,851,711 | | |
| 918,086 | |
| |
| | | |
| | | |
| | | |
| | |
Common stock issued pursuant to debt being converted into equity | |
| 3,595,698 | | |
| | | |
| | | |
| 4,102,261 | |
| |
| | | |
| | | |
| | | |
| | |
Common stock issued as compensation | |
| | | |
| 1,142,514 | | |
| 6,390,625 | | |
| 4,985,000 | |
| |
| | | |
| | | |
| | | |
| | |
Common stock issued for common stock subscribed | |
| | | |
| 2,240,200 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Common stock issued pursuant to conversions of Series G Preferred Stock | |
| | | |
| 5,254,000 | | |
| 3,934,750 | | |
| 6,481,375 | |
| |
| | | |
| | | |
| | | |
| | |
Common stock issued pursuant to exercise of warrants | |
| | | |
| | | |
| | | |
| 341,830 | |
| |
| | | |
| | | |
| | | |
| | |
Total Common Stock Issuances | |
| 4,024,073 | | |
| 20,926,898 | | |
| 14,814,586 | | |
| 19,833,552 | |
| |
| | | |
| | | |
| | | |
| | |
PREFERRED STOCK ISSUANCES | |
| | | |
| | | |
| | | |
| | |
Series G Preferred stock issued pursuant to debt being converted into equity | |
| 96,755 | | |
| | | |
| 2,044 | | |
| 1,070 | |
| |
| | | |
| | | |
| | | |
| | |
Series G Preferred stock issued at a price of $50 per share | |
| 19,000 | | |
| 2,700 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Series G Preferred stock issued for payment in kind dividend | |
| 5,072 | | |
| 23,507 | | |
| 31,204 | | |
| 9,851 | |
| |
| | | |
| | | |
| | | |
| | |
Series G Preferred stock issued in lieu of cash in payment of services | |
| | | |
| 20,500 | | |
| 4,000 | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Series G Preferred stock issued in lieu of cash in payment of interest | |
| | | |
| 4,420 | | |
| 4,307 | | |
| 18,400 | |
| |
| | | |
| | | |
| | | |
| | |
Series G Preferred stock issued for business acquisition | |
| | | |
| | | |
| 8,000 | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Series G Preferred stock issued for extinguishment of debt | |
| | | |
| | | |
| 14,360 | | |
| 10,000 | |
| |
| | | |
| | | |
| | | |
| | |
Total Preferred stock issuances | |
| 120,827 | | |
| 51,127 | | |
| 63,915 | | |
| 39,321 | |
In connection with the foregoing, we relied
upon the exemption from securities registration afforded by Rule 506 of Regulation D as promulgated by the United States Securities
and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”) and/or Section 4(a)(2)
of the Securities Act.
Item 16. Exhibits
Exhibit |
|
Description |
3(i).1 |
|
Amended and Restated Certificate of Incorporation of the Company (1) |
|
|
|
3(i).2 |
|
Certificate of Amendment to the Certificate of Incorporation of the Company (2) |
|
|
|
3(i).3 |
|
Certificate of Designations (Series E and Series F Preferred Stock) (3) |
|
|
|
3(i).4 |
|
Certificate of Amendment to the Certificate of Incorporation of the Company (4) |
|
|
|
3(i).5 |
|
Certificate of Amendment to the Certificate of Incorporation of the Company (5) |
|
|
|
3(i).6 |
|
Amended and Restated Certificate of Designations (Series G Preferred Stock)** |
|
|
|
3(i).7 |
|
Certificate of Incorporation of Millennium (6) |
|
|
|
3(ii).1 |
|
Bylaws of the Company (7) |
|
|
|
3(ii).2 |
|
Bylaws of Millennium (6) |
|
|
|
4.1 |
|
Form of Senior Secured Promissory Note** |
|
|
|
4.2 |
|
May 6, 2014 Convertible Note issued to Black Mountain (11) |
|
|
|
4.3 |
|
May 21, 2014Debenture issued to 31 Group, LLC. (11) |
|
|
|
4.4 |
|
July 14, 2014 Note issued to 31 Group (12) |
|
|
|
4.5 |
|
July 14, 2014 Warrant issued to 31 Group (12) |
|
|
|
4.6 |
|
Form of Series G Preferred Stock Certificate** |
|
|
|
4.7 |
|
Form of Amendment to Senior Secured Promissory Note** |
|
|
|
5.1 |
|
Opinion of Silverman Shin Byrne & Gilchrest PLLC** |
|
|
|
10.1 |
|
Agreement and Plan of Reorganization between the Company, Millennium and the Stockholders of Millennium dated July 26, 2001(8) |
|
|
|
10.2 |
|
Ventiv Subordination Agreement(13) |
|
|
|
10.3 |
|
Second Amendment to Ventiv Security Agreements and Convertible Note(13) |
|
|
|
10.4 |
|
Ventiv Service Agreement(13) |
|
|
|
10.5 |
|
Amended and Restated Employment Agreement for Carl Germano effective November, 2009 (4) |
|
|
|
10.6 |
|
Employment agreement of Michael C. James effective July 1, 2010 (9) |
|
|
|
10.7 |
|
May 7, 2013 Licensing Agreement with Martha Stewart Living Omnimedia, Inc. (10) |
|
|
|
10.8 |
|
May 6, 2014 Purchase Agreement with Black Mountain (11) |
|
|
|
10.9 |
|
May 21, 2014 Exchange Agreement with 31 Group, LLC (11) |
|
|
|
10.10 |
|
July 14, 2014 Securities Purchase Agreement with 31 Group (12) |
|
|
|
10.11 |
|
July 14, 2014 Security Agreement with 31 Group (12) |
|
|
|
10.12 |
|
July 14, 2014 Millennium Biotechnologies, Inc. Guaranty of Note with 31 Group (12) |
|
|
|
10.13 |
|
Employment Agreement with James E. Kras, effective October 1, 2012** |
|
|
|
10.14 |
|
January 9, 2013 Asset Purchase Agreement with Whole Products LLC** |
|
|
|
21.1 |
|
Subsidiaries of the Company** |
|
|
|
23.1 |
|
Consent of Friedman LLP, Independent Registered Public Accounting Firm* |
|
|
|
23.2 |
|
Consent of Silverman Shin Byrne & Gilchrest PLLC (included in Exhibit 5.1) |
|
|
|
24.1 |
|
Power of Attorney (included on the signature page hereto |
101.INS*** |
|
XBRL Instance Document |
|
|
|
101.SCH*** |
|
XBRL Taxonomy Extension Schema |
|
|
|
101.CAL*** |
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF*** |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB*** |
|
XBRL Taxonomy Extension Label Linkbase |
|
|
|
101.PRE*** |
|
XBRL Taxonomy Extension Presentation Linkbase |
(1) |
Previously filed as a Schedule to the Company's Definitive Information Statement on Schedule 14C, filed with the Commission on March 8, 2002, and incorporated herein by reference. |
|
|
(2) |
Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on February 6, 2006, and incorporated herein by reference. |
|
|
(3) |
Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on October 13, 2009, and incorporated herein by reference. |
|
|
(4) |
Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by reference. |
|
|
(5) |
Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on July 7, 2011, and incorporated herein by reference. |
|
|
(6) |
Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 2001, and incorporated herein by reference. |
|
|
(7) |
Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1981, and incorporated herein by reference. |
|
|
(8) |
Previously filed as an exhibit to the Company's report on Form 8-K filed on August 10, 2001, and incorporated herein by reference. |
|
|
(9) |
Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, and incorporated herein by reference. |
|
|
(10) |
Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference (Confidential Treatment granted with respect to portions of the Agreement). |
|
|
(11) |
Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on June 3, 2014, and incorporated herein by reference. |
|
|
(12) |
Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on July 15, 2014, and incorporated herein by reference. |
|
|
(13) |
Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on November 17, 2009, and incorporated herein by reference. |
| *** | Pursuant to Rule
406T of Regulation S-T, these interactive data files are deemed not filed or part of
a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject
to liability. |
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in
the “Calculation of Registration Fee” table in the effective registration statement; and (iii) To include any material
information with respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability of the undersigned
registrant under the Securities Act to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering
of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant to Rule 424 (§ 230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating
to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of
the undersigned registrant; and
(iv) Any other communication that is an offer in the offering
made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final adjudication of such issue.
For the purpose of determining liability under the Securities
Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§ 230.430A
of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede
or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or
made in any such document immediately prior to such date of first use.
SIGNATURES
In accordance with the requirements of the Securities Act
of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of Newark, State of New Jersey, on September 9, 2014.
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INERGETICS, INC. |
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(Registrant) |
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By: |
s/Michael James |
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Michael James, |
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Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to the registration statement has been signed by the following persons in the capacities and on the dates
indicated.
Signature |
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Title |
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Date |
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s/Michael James |
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Chief Executive Officer |
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Michael James |
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(Principal Executive), Chief Financial Officer (Principal Financial Officer and Chief
Accounting Officer), and Director |
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September 9, 2014 |
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* |
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Carl Germano |
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Executive Vice President and Director |
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September 9, 2014 |
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* |
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Director |
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James DeLucia |
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September 9, 2014 |
* By: |
s/Michael James |
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Michael James, |
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Attorney-in-Fact |
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Inergetics, Inc.
Amendment No. 1 to
Registration Statement on Form S-1
Index to Exhibits
Exhibit No. |
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Description |
23.1 |
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Consent of Friedman LLP, independent registered public accounting
firm. |
Exhibit “23.1”
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We hereby consent to the inclusion in this Amendment No. 1
to the Registration Statement No. 333 - 197784, of our report dated March 31, 2014 relating to the financial statements of
Inergetics, Inc., which appears in such Registration Statement. We also consent
to the reference to us under the heading “Experts” in such Registration Statement.
/s/ Friedman LLP
East Hanover, NJ
September 11, 2014