UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K /A
Amendment
No. 1
☒ ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended: December 31, 2013
☐ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-54729
INTELLICELL
BIOSCIENCES, INC.
(Exact name
of registrant as specified in its charter)
| Nevada |
|
91-1966948 |
|
(State
or Other Jurisdiction of
Incorporation or Organization) |
|
(I.R.S.
Employer
Identification No.) |
460 Park Avenue,
17th Floor, New York, New York 10022
(Address of principal executive offices)
(Zip Code)
(646) 576-8700
(Registrant's
telephone number, including area code )
Securities registered pursuant to Section
12(b) of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act:
Common Stock,
$0.0001 par value per share
(Title of Class)
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ☐
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,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer ☐ |
Accelerated
filer ☐ |
| Non-accelerated filer ☐ |
Smaller reporting company ☒ |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting
and non-voting common equity held by non-affiliates was 4,228,019, computed by reference to the closing price of the common stock
on June 30, 2013.
The number of outstanding shares of
the Registrant’s Common Stock, $0.0001 par value, at May 9, 2014 was 2,230,314,377.
Documents incorporated by reference:
None .
EXPLANATORY NOTE
This amended annual report
on Form 10-K/A amends and restates in its entirety the annual report on Form 10-K that was filed with the U.S. Securities
and Exchange Commission (the “SEC”) on May 12, 2014 and reflects certain corrections made in connection with
the Company’s accounting for the application of fair value assessment for transactions involving derivative
obligations related to the issuance of convertible debt instruments. The transactions include (1) derivative valuation at
inception of the debt instrument, (2) upon conversion of the instrument to common stock, (3) upon assignment of the debt
instrument and (4) upon valuation of the derivative at December 31, 2013. The Company also detected errors in the recording
of debt discounts, upon issuance of debt instruments. These incorrectly recorded debt discounts also affected amortization
expense for the fiscal year ended December 31, 2013.
Below is a summary of changes to accounts for the December
31, 2013 reporting period:
| | |
December
31, 2013 | |
| Balance
Sheet | |
As
Filed | | |
As
Restated | |
| | |
| | |
| |
| Convertible Debentures | |
$ | 840,900 | | |
$ | 452,607 | |
| Notes Payable | |
| 341,100 | | |
| 727,545 | |
| Convertible Promissory Notes | |
| 3,505,883 | | |
| 2,755,986 | |
| Derivative Instruments (long term) | |
| 3,774,790 | | |
| 6,958,822 | |
| Additional paid-in-capital | |
| 38,961,322 | | |
| 41,256,261 | |
| Accumulated deficit | |
$ | (48,903,450 | ) | |
$ | (53,630,673 | ) |
| | |
Year
ended
December 31, 2013 | |
| Statement
of Operations | |
As
Filed | | |
As
Restated | |
| | |
| | |
| |
| Changes
in fair value of derivative instruments | |
$ | (2,787,770 | ) | |
$ | (2,944,352 | ) |
| Financing Costs | |
| (305,112 | ) | |
| (4,606,010 | ) |
| Income (Loss) on
Conversion of Debt | |
| (2,137,266 | ) | |
| (2,272,409 | ) |
| Net Loss | |
| (11,140,817 | ) | |
| (15,868,039 | ) |
| Net Loss per share,
basic and diluted | |
$ | (0.07 | ) | |
$ | (0.10 | ) |
This amended annual report on Form
10-K/A has revised Item 1 “Financial Statements,” Item 2 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and Item 9A “Controls and Procedures.” In connection with the filing of
this amended annual report on Form 10-K/A and pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities and Exchange Act of
1934, the Company is including with this amended annual report on Form 10-K/A certain currently
dated certifications. This amended annual report on Form
10-K/A speaks as of the original filing date of the Form 10-K, except as noted.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Statements in this amended
annual report may be “forward-looking statements.” Forward-looking statements include, but are not limited to,
statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to
our future activities or other future events or conditions. These statements are based on current expectations, estimates and
projections about our business based, in part, on assumptions made by management. These statements are not guarantees of
future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes
and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements
due to numerous factors, including those described above and those risks discussed from time to time in this prospectus,
including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in this annual report and in other documents which we file with the
Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our
ability to raise any financing which we may require for our operations, competition, government regulations and requirements,
pricing and development difficulties, our ability to make acquisitions and successfully integrate those acquisitions with our
business, as well as general industry and market conditions and growth rates, and general economic conditions. Any
forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update
any forward-looking statement to reflect events or circumstances after the date of the filing of this amended annual
report, except as may be required under applicable securities laws.
PART I
We urge you to read this entire
amended annual report on Form 10-K /A , including the “Risk Factors” section and the financial statements
and related notes included herein. As used in this amended annual report , nless context otherwise requires, the words “we,”
“us”, “our,” “the Company,” “Intellicell” and “Registrant” refer to
Intellicell Biosciences, Inc., including subsidiaries and predecessors, except where it is clear that the term refers to Intellicell
Biosciences, Inc. Also, any reference to “common shares,” or “common stock,” refers to our common stock,
par value $0.0001 per share.
ITEM 1. BUSINESS.
Overview
We are an emerging leader in the
regenerative medicine market using adult autologous stromal vascular fraction cells (SVFs) derived from the blood vessels in adipose
tissue. Among other cell types, stromal vascular fraction contains adult stem cells. We believe that our cell therapy
processes and procedures are exempt under PHS Section 361, CFR 1271.10 or CFR 1271.15(b) same day surgical procedure. Therefore,
we do not believe that we will be required to obtain Food and Drug Administration (“FDA”) drug or biologic like approvals,
although there can be no assurance that the FDA will require our products to obtain approval in the future.
We currently operate from Regen Medical
PC office based surgery center facility in New York, NY, an entity controlled by Dr. Steven Victor, our chief executive officer,
where we have our cGTP (current good tissue practices) cellular processing laboratory which is registered with the FDA. It is our
intent to place our cGTP cellular processing labs in ambulatory surgery centers or hospitals and operate them under cGTP and SOPs
in other major US metropolitan areas.
The Company anticipates that it will
have multiple revenue streams in the next 12 months including, but not limited to: (i) cellular product sales revenues, (ii) continuing
medical education courses, (iii) cell banking, (iv) international licenses and royalties.
Our Technology
We use a proprietary, patented technology
developed by our founder, Dr. Steven Victor, which provides us with the ability to extract, separate and process the stromal vascular
fraction cells from the blood vessels in adult adipose (fat) tissue in about one hour. We believe that our technology produces
the most cells from the least amount of fat (60 cc) at the lowest cost and the least amount of manipulation when compared to other
technology or processes currently available that employ manipulative processes or enzymes to achieve cell separation. Further,
all cells manufactured using our technology and proprietary process are done so under strict United States Food and Drug Administration
(“FDA”) cGTP guidelines and SOPs that we have established.
We believe that stromular vascular fraction
(“SVFs”) derived from the application of our proprietary process yield a functionally diverse population of cells that
are synergistic and able to communicate with each other and with other cells in their local environment. We also believe that since
we do not have to wash out the blood and do not digest the extracellular matrix versus competitors’ enzymatic protocols that
our product is superior. The mixture of cells has multiple functions and is highly integrated and we believe more potent than adipose
stem cells themselves.
We further believe that IntelliCells™,
when returned to a patient’s own body by way of same-day same clinical procedure (autologous treatment) and delivered via
Point of Care, have little or no risk of disease transfer, rejection or allergic reaction. We also believe that IntelliCells™
have the potential to treat a wide variety of clinical conditions involving orthopedic, gastrointestinal, periodontal, aesthetic
and other conditions or disorders.
Our Strategy
We plan to focus our initial efforts
on regenerative medicine in the areas of orthopedics, sports medicine, pain, aesthetics and periodontal diseases. According to arthritistoday.org,
at least 25 million people nationwide are affected in the world of orthopedics, sports medicine and pain, which, just nationally,
makes that a penetrable market into the billions of dollars. Likewise, according to Research and Markets Aesthetics Report and
Global Data’s market report for the periodontal market, the aesthetics and periodontal markets make up at least a minimum
of $750 million and over a billion dollar market, respectively. We will focus on orthopedics including osteoarthritis,
aesthetics, pain, periodontal and other indications by making our Intellicells™ available to practicing physicians using
Regen Medical’s office based surgical center (“OBSC”). We plan to establish and install our cGTP cellular
processing labs in ambulatory surgery centers and hospitals to make our cellular product available to a wide range of physician
specialties to use under the practice of medicine. We believe that we may also be able to license our technology for
wound care, cardiac, gastrointestinal (colitis/ileitis), multiple sclerosis and autism to other companies in the regenerative medicine
field.
In addition to our core focus noted
above in which we provide cGTP cellular processing labs, we also intend to expand our areas of focus, as we are able to locate
and partner with parties interested in utilizing or licensing our technology for other areas. In this regard, we intend
to engage in a multi-pronged approach with respect to the utilization and commercialization of our proprietary process that will
involve entering into technology licensing agreements and related service agreements with physicians and physician practice
groups, that we will enable to practice our cell therapy procedures in our US facilities. We will also be seeking to enter into
technology licensing agreements or other arrangements that cover particular international territories or countries as described
in greater detail below.
Another focus of our business development
will involve engaging in and our coordinating Institutional Review Board (”IRB”) approved clinical studies at prominent
medical centers, some of which studies may also be the subject of Investigational New Drug applications (“IND’s”)
with the goal of obtaining medical or regulatory approval for significant clinical indications, where, if and as required, of the
Intellicells™ produced with our proprietary process. We have recently formed a wholly-owned subsidiary, ICBS Research, Inc.,
through which we plan to engage in research and development activities by collaborating with university based research organizations. We
have started our first FDA IND study that will be on osteoarthritis of the knee with Dr. James Andrews and inVentiv as our CRO.
We believe these activities may lead to additional patents and intellectual. ICBS Research, Inc., our wholly owned subsidiary, will
also coordinate scientific research with world class researchers to learn more about the Intellicell™ process and the use
of the cells in medical procedures and as to how it may be used as a more efficacious delivery mechanism or as to how it may be
co-administered in conjunction with other medical therapies. In the future Intellicell plans to conduct human clinical studies
under an IND in osteoarthritis of the knee, diabetic ulcers of the lower extremities, multiple sclerosis, periodontal gum recession
and dermal wrinkles to obtain FDA approval where such approval may be necessary.
We are also exploring and undertaking,
either on our own or in collaboration with one or more third parties, providing a service for the collection, processing and storage
of autologous cells. We intend to market this service to liposuction patients in addition to any patient who might want to store
their SVFs for future use.
Our Competitive Advantage
We believe that our proprietary process
offers significant advantages over other competing processes or technologies currently being employed that utilize enzymes or other
manipulative methods to harvest or culture cells, including:
| ● |
We believe that our process is in compliance with existing FDA regulations – under current FDA Guidelines for human cell and tissue based products (HCT/P) (based on FDA regulations found at 21 C.F.R. § 1271), patients are allowed to use their own HCT/P for just about any indication, so long as the use of those cells is autologous (a situation in which the donor and recipient are the same person), the cells are minimally manipulated, the clinical use is homologous, and the procedure takes place as a single procedure as defined by the physician. |
| ● |
Our procedure takes place during the same office visit. The point of care nature of the process is a required element of the protocol required by our licenses, and is emphasized in our technician and physician training. |
| ● |
We believe that the number of adult autologous stem cells and other progenitor cells that comprise the SVF’s that are harvested from the tissue through the use of our proprietary process are significantly higher than the number of cells produced through the use of other technology or processes currently available that employ manipulative processes or enzymes to achieve cell separation. |
| ● |
We had engaged Millipore, a division of Merck, to perform a CD (cluster of differentiation) antibody flow cytometry study which has confirmed the high-quality composition of the IntelliCells™. |
| ● |
We believe that our patented process provides significant time and cost efficiencies at the point of care- using our proprietary ultrasound cavitation technique, SVFs can be separated at low cost and in less time, as compared to competing technologies that utilize enzymes. |
We also believe that IntelliCells™
have the potential to treat not only aesthetic conditions, orthopedic and sports injuries, and pain, but also a wide variety of
clinical conditions involving cardiac, gastrointestinal, periodontal, and autistic disorders. In that regard, we will be seeking
to undertake clinical studies in partnership with well-known universities and hospitals for the following indications and markets:
| Application |
|
Market |
| Osteoarthritis |
|
Internal Medicine and Orthopedic |
| Gum Regeneration |
|
Periodontal |
| Non-healing Diabetic Ulcers |
|
Wound healing |
| Multiple Sclerosis |
|
Internal Medicine |
| Cartilage Regeneration |
|
Orthopedic and Sports Medicine |
| Tendon Repair |
|
Orthopedic and Sports Medicine |
| Facial Lines and Wrinkles |
|
Aesthetic Medicine |
| Chronic Migraine Headache |
|
Neurological |
| Bone Regeneration |
|
Periodontal and General Surgery |
| Hair Regeneration |
|
Aesthetic Medicine |
The Regenerative Medicine Market
Overview of Stromal Vascular Fraction
Stromal Vascular Fraction (“Fraction”)
is the cells obtained from the blood vessels in the lipoaspirate from the small volume of fat harvested, minus the fat cells (adipocytes)
and non-cellular material. The Fraction contains a wide number of cellular types including pre-adipocytes, endothelial cells,
smooth muscle cells, pericytes, fibroblasts, and adult stem cells (ASCs). In addition, the Fraction also contains blood cells from
the capillaries supplying the adipocytes and the extracellular matrix. We refer to this mixture of cells as SVF or SVF cells or
SVFC.
SVF also includes erythrocytes or red
blood cells, B and T cells, macrophages, monocytes, mast cells, natural killer (NK) cells, hematopoietic stem cells and endothelial
progenitor cells and more. Also the Fraction includes adipocyte endocrine secretions, and importantly, contains growth factors
such as transforming growth factor beta (TGF), platelet-derived growth factor (PDGF), and fibroblast growth factor (FGF), among
others.
This is very much like the secretions
of cells in the presence of an extracellular matrix. The SVF also contains the various proteins present in the tissue extracellular
matrix.
How Do SVFs work?
Investigators have postulated a number
of nonexclusive mechanisms through which SVFs can be used to repair and regenerate tissues. First, adult stem cells within the
SVF delivered into an injured or diseased tissue may secrete cytokines and growth factors that stimulate recovery in a paracrine
manner. These factors would modulate the “stem cell niche” of the host by stimulating the recruitment of endogenous
stem cells to the site and promoting their differentiation along the required lineage pathway.
In a related manner, SVFs might provide
antioxidants chemicals, free radical scavengers, and chaperone/heat shock proteins at an ischemic site. As a result, toxic substances
released into the local environment would be removed, thereby promoting recovery of the surviving cells. Studies have suggested
that transplanted bone marrow–derived mesenchymal stem cells or MSCs can deliver new mitochondria to damaged cells, thereby
rescuing aerobic metabolism. It may develop that similar studies in SVFs will uncover a comparable ability to contribute mitochondria.
A final mechanism is to differentiate components of SVFs along a desired cellular lineage.
Source: Adipose-Derived Stem
Cells for Regenerative Medicine, Jeffrey M. Gimble, Adam J. Katz and Bruce A. Bunnell, Circ. Res. 2007;100;1249-1260
The Process of SVF Extraction
We intend to use our patented, proprietary
laboratory system, which we have developed internally, that is composed primarily of an ultrasound unit and a centrifuge, and is
performed in a closed sterile system which is readily available in the marketplace in conjunction with a proprietary closed process
for the initial separating of SVF from vascular tissue found to be contained in adipose tissue. This process includes the use of
a flow cytometer that will allow for immediate verification of the quantity and viability of processed cells prior to their reintroduction
back to the same patient, a process overlooked by alternative systems and processes.
The extraction process for the SVF cell
therapies can be summarized as follows:
| |
Using a simple
procedure, a cannulae attached to a syringe is inserted into the abdomen or other location for fat extraction and 60 cc of
adipose tissue is harvested from the patient. This is sufficient for most treatments and cell storage of excess SVFC. |
| |
The harvested
tissue is then broken down using an ultrasound mechanical separation process, leaving substantially all of the cells viable
but allowing them to be separated from the non-cellular material. |
| |
The mix of SVF
cells and unwanted materials are spun down in a centrifuge to isolate the desired cells that form a “pellet” like
substance that can be drawn out of the now separated materials. |
| |
The cells are
tested with a flow cytometer to determine cell count and cell viability. |
| |
The cells are
then administered back to the same patient by their physician under the practice of medicine through one or more of the following
modes of administration: |
| |
Intravenous:
The SVF's may be administered through a standard intravenous drip. |
| |
Intra-articular
injection: The SVF's may be injected into and around an arthritic or injured joint such as the knee or shoulder. |
| |
Intra-oral injection:
The SVF's may be injected into the oral cavity in the particular region around teeth where gum recession has been observed. |
| |
Banking of stem
cells is useful for some procedures that require repeat therapeutic administration as well as for other therapeutic uses that
may be required in the future. The Company currently does not have a cell banking license in New York State, but
has applied for the license. |
Market Data
Regenerative Medicine and Cell Therapy Overview
Source: Proteus Venture Partners
Regenerative Medicine (RM) is a rapidly
expanding set of innovative medical technologies that restore function by enabling the body to repair, replace, and regenerate
damaged, aging or diseased cells, tissues and organs.
According to a recent report, Worldwide
Markets and Emerging Technologies for Tissue Engineering and Regenerative Medicine, by Life Science Intelligence (LSI), the
largely untapped global market potential for tissue engineering and regenerative medicine products will exceed $118 billion by
2013. The actual current market, which represents only a fraction of the potential market, was estimated at $1.5 billion in 2008.
The report forecasts rapid growth driven by various factors, including increased adoption in various clinical areas and trends
in international markets.
Regenerative therapies have been demonstrated
(in trials or the laboratory) to heal broken bones, treat severe burns, blindness, deafness, heart damage, nerve damage, Parkinson's
Disease, diabetes and other conditions. Significant momentum has been achieved in recent years as evidenced by the surge in government
and foundation research funding, with over 65 academic programs and more than $1.5 billion in worldwide funding for research, expected
to grow to $14 billion in 10 years. There are greater than 175,000 peer-reviewed publications, over 10,000 issued and pending patents,
and more than 900 FDA-approved clinical trials testing regenerative medicine technologies. More than 400 regenerative medicine
products have reached the market today, with more than 600 in development. This, in turn, has led to a proliferation of patient
advocacy groups rightfully demanding a shift in medical treatment paradigms from "band aid therapies" to prevention,
cure, rejuvenation, restoration, and replacement. More than 1.2 million patients have been treated with regenerative products and
therapies.
Source: Proteus Venture Partners
Licensing
As described above, we intend to engage
in a multi-pronged approach with respect to the utilization and commercialization of our proprietary process that will focus on:
| ● |
Entering into licensing agreements and related service agreements with ambulatory surgery centers or hospitals that are located in the United States that provide for the sale of our cellular products, from our labs that will receive lipoaspirate harvested from their patients and employ our proprietary process to the obtain the IntelliCell™ product, and then return the IntelliCell™ product to the physician on the same day labeled “autologous and homologous.” In these arrangements, the clinical use of these IntelliCells™ is not specified in labeling or promotion, but will be left solely to the physician in the exercise of their medical judgment and under the practice of medicine. Under these arrangements, we will be collecting processing fees and/or service fees from the physicians or hospitals. |
| ● |
Entering into technology licensing agreements that cover a particular international territory or country pursuant to which the licensee shall have the right to set up and/or sublicense the right to set up labs in the territory using equipment purchased from us and that are operated in accordance with protocols set by us. Under these arrangements, we will be collecting an up-front territorial licensing fee and then will receive additional fees based upon from sublicensing and/or processing fees received by the licensees during the term of the license. |
Licensing Agreement with The Andrews
Research and Education Foundation, Inc. and related Consulting Agreement with Dr. James Andrews
On March 11, 2014 (the “Effective
Date”), the Company executed a Laboratory Services and License Agreement (the “License Agreement”),
effective March 7, 2014, with The Andrews Research and Education Foundation, Inc. (“AREF”) pursuant to which the Company
agreed to grant certain technology and trademark licenses to AREF.
The term of the License Agreement shall
be for a period of three (3) years commencing on March 7, 2014 and shall automatically renew for subsequent periods of three (3)
years unless either party to the License Agreement provides notice of its intention not to renew at least ninety (90) days prior
to the expiration of any three (3) year term.
Subject to the terms and conditions
of the License Agreement, the Company agreed to grant AREF a non-exclusive (except for the Pensacola, Florida area and a surrounding
radius of 150 miles), non-assignable, non-transferrable, non-sublicensable license to market the use of and practice the Technology
(as such term is defined in the License Agreement) at AREF’s premises for restricted purposes as provided in the License
Agreement. The Company also agreed to grant AREF a non-exclusive, non-assignable, non-sublicensable, license to the Trademarks
(as such term is defined in the Agreement). Furthermore, the Company reserved the perpetual worldwide right to license and use
the Patent (as defined in the License Agreement), Trademarks and the Technology licensed under the License Agreement for any purpose.
Except for when performed for research
purposes, AREF shall pay to the Company a fee equal to Two Thousand Five Hundred Dollars ($2,500.00) per Tissue Processing (as
such term is defined in the License Agreement) case processed. The parties to the License Agreement have mutually agreed not to
disclose any Confidential Information (as such term is defined in the License Agreement), whether verbal or written, conveyed to
them prior to, during or subsequent to the term of the License Agreement.
The foregoing description of the License
Agreement does not purport to be complete and is qualified in its entirety by reference to such document and incorporated herein
as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 12, 2014.
Additionally, on March 11, 2014, the
Company executed a Consulting Agreement (the “Consulting Agreement”) with Dr. James Andrews, effective March 7, 2014,
pursuant to which Dr. Andrews shall serve as Chairman of the Intellicell Orthopedic Cellular Therapy Advisory Board. The initial
term of the Agreement shall be for a period of ten (10) years unless extended as provided in the Agreement or unless terminated
by either party with thirty (30) days advance written notice to the other party. In consideration for Consultant’s services,
the Consultant shall be paid a monthly fee and make a monthly charitable contribution to the Andrews Foundation after the Company
closes a Capital Raise (as defined in the Consulting Agreement), and the amount of such monthly fee and monthly charitable contribution
shall be determined based on the amount raised in the Capital Raise. For example, if the value of the Capital Raise is equal to
or greater than $2,000,000 but less than $15,000,000, the monthly fee payable to the Consultant thereafter shall be equal to $30,000
(with $6,000 of such amount payable to Dr. Michael Immel) with a charitable contribution of $10,000 payable to the Andrews Foundation
thereafter for the term of the Consulting Agreement.
Furthermore, commencing on March 1,
2014 and ending on May 1, 2017, on each of March 1, June 1, October 1 and January 1 during such period, the Company shall issue
and the Consultant shall be entitled to receive non-qualified stock options to purchase a number of shares of the Company’s
common stock equal to 750,000 divided by the average of the closing bid price per share of such common stock for the ten (10) trading
days immediately prior to the date of issuance, subject to certain adjustments as set forth in the Consulting Agreement. The options
have a strike price of $0.0058 per share and are exercisable for ten (10) years. A portion (13.33%) of such options will be issued
to the Andrews Foundation (and Dr. Immel shall receive 20% of such options). In addition, The Company shall issue to the Consultant
6,666,666 shares of its common stock based on the market price at the date of the execution of the License Agreement (see description
above), as well as 2,000,000 shares to Dr. Immel and 1,333,333 shares to the Andrews Foundation. Additionally, 1,000,000 shares
shall be issued to the Consultant, 200,000 shares shall be issued to Dr. Immel and 133,333 shares shall be issued to the Andrews
Foundation upon FDA approval of the Company’s Stromal Vascular Fraction Cell injection for treatment of osteoarthritis.
The Consulting Agreement contains customary
representations and warranties, as well as a mutual indemnification provision, an assignment of inventions and patents provision
and a confidentiality and trade secrets provision. The foregoing description of the Consulting Agreement does not purport to be
complete and is qualified in its entirety by reference to such document and incorporated herein as Exhibit 10.2 to the Current
Report on Form 8-K filed with the SEC on March 12, 2014.
Agreement with Regen Medical P.C.
On April 16, 2012, we entered into a
technology license and administrative services agreement with Regen Medical P.C., the medical practice which is owned by, and through
which, our Chief Executive Officer, Dr. Steven Victor, engages in the practice of Cosmetic Dermatology. Pursuant to the agreement,
we, among other things, (i) granted Regen Medical the non-exclusive and non-assignable license to utilize our proprietary process
and technology for its patients, (ii) granted Regen Medical a license to use a laboratory which can be used by Regen Medical for
use of the Company’s proprietary process, (iii) were appointed as the exclusive manager and administrator of Regen Medical’s
operations which relate to the implementation of our proprietary process as well as Regen Medical’s cosmetic dermatology
practice, and (iv) were appointed the sole provider of non-medical managerial, administrative and business functions for Regen
Medical’s cosmetic dermatology practice. The agreement was effective as of April 16, 2012 and was to continue
until April 16, 2017.
On August 26, 2013, the Company
and Regen entered into a termination and general release agreement (the “Termination Agreement”), effective December
31, 2012 (the “Effective Date”), pursuant to which the Company and Regen agreed, among other things, that as of the
Effective Date, (i) the Company shall forgive the $514,000 owed to the Company by Regen under the Regen Agreement in exchange
for the exclusive right to certain open label data and other data which the Company would like to have the rights to use as empirical
data or evidence of the efficacy of the Company’s proprietary process (the “Clinical Data”), (ii) the parties
will take all necessary steps to enter into an agreement for the grant of a license to Regen for the Company’s proprietary
process as well as a license of the Clinical Data, (iii) the Regen Agreement is terminated in its entirety and shall be deemed
null and void and of no further force or effect and (iii) neither Company nor Regen shall have any further rights or obligations
under the Regen Agreement. Each party also provided a general release to the other party with respect to the Regen Agreement
and all transactions contemplated by the Regen Agreement.
International Licensing Agreements
As of the date hereof, we have entered
into the licensing agreements covering the territories of Canada, Australia, New Zealand, and Thailand.
Canadian License Agreement
On December 15, 2011, we entered into
an exclusive lab services agreement with Regenastem, Inc., a Canadian corporation, pursuant to which we granted the licensee the
exclusive right and license to utilize our proprietary process as well as our trademarks for the purpose of providing tissue processing
services for humans and animals in Canada. The agreement had an initial term ending on August 26, 2031, and shall continue on successive
five-year terms thereafter unless terminated by either party. Either party may terminate the agreement, for among other things,
the failure to cure a material breach of the agreement within 10 business days or if either party makes an assignment for the benefit
of creditors, is adjudicated bankrupt or insolvent, commences proceedings under bankruptcy law or licensee is unable to generate
at least $500,000 in fees payable to us with any eighteen (18) month period during the Term. We may terminate the agreement, if
among other things, the licensee fails to follow our protocol for tissue processing or if the licensee fails to report any tissue
processing case to us. If the agreement is terminated for non-performance as described above, we shall repurchase the license from
the licensee for an amount equal to two times the license fee earned by the licensee through the date of such termination.
In addition, licensee agreed to invest
$500,000 in our Series D Preferred Stock financing, $250,000 of which was invested in December 2011 after the signing of the license
and the remaining $250,000 of which was invested in January 2012. The parties agreed that, within one hundred and twenty (120)
days before the expiration of the term, the licensee will pay a renewal fee of $500,000 for the next 10 years and/or two 5 year
renewal terms in total. For each tissue processing case performed by licensee, the licensee is required to pay us, on a monthly
basis, a fee of thirty percent (30%) of the fess designated by us for tissue processing. In addition, for each laboratory facility
set up by the licensee, the licensee shall pay us 30% of the net profit realized from the establishment of such laboratory facility.
Australia
and New Zealand
On December 16, 2011, the Company entered
into an exclusive lab services agreement (the “Australian Agreement”) with Cell-Innovations Pty Ltd. (“Australian
Licensee”) pursuant to which the Company granted Australian Licensee the exclusive right and license to the Company’s
technology and trademarks so that the Australian Licensee can utilize the Company’s technology and trademarks to provide
tissue processing services for humans in Australia and New Zealand. As of the date hereof, the Company and Australian Licensee
are in a dispute over some of the terms of the Australian Agreement, including, but not limited to, compliance by the Australian
Licensee with IBC Protocols (as defined in the Australian Agreement). While the Company has commenced discussions with the
Australian Licensee concerning the disputes that have arisen under the terms of the Australian Agreement, there can be no assurance
that the Company and the Australian Licensee will come to any mutual understanding with respect to any of the issues in question.
As of the date of this Memorandum, the Company is continuing to evaluate what further action(s), if any, it make take in response
to the dispute with the Australian Licensee, which action(s) may include, but not be limited to, terminating the Australian Agreement.
Thailand
On April 7, 2012, we entered into an
exclusive lab services license agreement with StemCells 21 Co., Ltd. pursuant to which we granted the licensee, among other things,
(i) an exclusive, non-assignable, non-transferable, license to utilize and commercially exploit our proprietary process and trademarks,
solely for the provision of the separation of Adipose Stromal Vascular Fraction from fat tissue within the Kingdom of Thailand.
We also granted the licensee the right to grant sublicenses in accordance with the provisions of the agreement, so that the licensee
can utilize the Technology and Trademarks (as defined in the Agreement) to provide Tissue Processing services in various territories.
The agreement has an initial term ending on April 7, 2022, and shall continue on successive one-year terms thereafter unless terminated
by either party
On October 23, 2012, the Company sent
a letter to StemCells 21 Co. Ltd. (the “Thailand Licensee”) pursuant to which the Company notified the Thailand Licensee
that it intends to terminate the Laboratory Services License Agreement, dated April 7, 2012 by and between the Company and Thailand
Licensee (the “Thailand Agreement”), effective immediately. The Company is terminating the Thailand Agreement,
for, among other reasons, Thailand Licensee’s (i) attempt to determine the Technology (as defined in the Thailand Agreement)
for Tissue Processing (as defined in the Thailand Agreement), (ii) failure to provide monthly reports summarizing Thailand Licensee’s
efforts to utilize and commercially exploit the Patents (as defined in the Thailand Agreement) and Technology, (iii) operation
of the Technology without using the name “Intellicell Thailand”, (iv) operation of the Technology in ways that fall
outside the scope of the Thailand Agreement and (v) failure to notify the Company of infringing uses of the Technology.
Pursuant to the terms of the Thailand Agreement, the Thailand Licensee has ten (10) business days to cure an event of default under
the Thailand Agreement (except for termination of the Thailand Agreement as set forth in subsection (i) above which allows the
Company to terminate the Thailand Agreement immediately).
Lasersculpt IP License Agreement
On July 20, 2012, the Company entered
into an intellectual property license agreement (the “License Agreement”) with Lasersculpt, Inc., a corporation
controlled by Dr. Steven Victor, the Company’s chief executive officer (“Lasersculpt”), pursuant to which
Lasersculpt licensed to the Company, among other things, the right to (i) use, market, broadcast and otherwise exploit a 30 minute
infomercial, 30 and 60 second commercials and other produced content regarding the Lasersculpt method and procedure (the “Shows”)
(ii) product and commercially exploit new versions of the Shows, as well as any sequels, prequels and other productions based on
the Shows or the IP Rights (as defined in the License Agreement), and (iii) use and exploit the IP Rights (as defined in the License
Agreement) in any manner the Company, in its sole discretion, deems necessary or advisable. The License Agreement shall
have an initial term of ten (10) years from the date of the License Agreement, unless terminated sooner in accordance with the
License Agreement (the “Term”). In consideration for the rights granted under the License Agreement,
the Company agreed to (i) issue 430,000 shares of Common Stock to Lasersculpt (which shares were transferred by Dr. Victor out
of his personal holdings in the Company directly to Lasersculpt) and (ii) pay Lasersculpt royalties in an amount equal to 5% of
Net Revenue (as defined in the License Agreement) received by the Company during the Term (which royalties Dr. Victor and his affilates
have agreed to not receive).
Other Licensing Agreements
As of the date hereof, we have entered
into the licensing agreements covering the areas of Philadelphia, Pennsylvania, Dallas/Ft. Worth, Texas, Palm Beach, Florida, Metaire,
Lousiana, Lake Mary, Florida, Denver, Colorado,Sugarland, Texas and Baton Rouge, Louisiana.
On November
1, 2010 we entered into agreement with Thomas E. Young MD, LLC, pursuant to which we granted Dr. Young a license to the Company’s
Technology so Dr. Young can utilize the Technology to provide tissue processing services within a 50 mile radius of Philadelphia,
PA. In consideration for the Technology, Dr. Young agreed to pay us (i) a licensing fee of $80,000, and (ii) a fee of
$400 for each tissue processing case processed for each of Dr. Young’s patients.
On November 15, 2010, we entered into
agreement with R. Craig Saunders, pursuant to which we granted Dr. Saunders a license to the Technology so Dr. Saunders can utilize
the Technology to provide tissue processing services within a 50 mile radius of Dallas/Ft. Worth, Texas. In consideration
for the Technology, Dr. Saunders agreed to pay us (i) a licensing fee of $80,000 and (ii) a fee of $400 for each tissue processing
case processed for each of Dr. Saunder’s patients.
In February 2011, we entered into agreement
with Foursight LLC, pursuant to which as granted Foursight a ten year license to the Technology so Foursight can utilize the Technology
to provide tissue processing services within a 50 mile radius of Lake Worth, Florida. In consideration for the Technology,
Foursight agreed to pay us (i) an equipment fee of $45,000 and (ii) a royalty payment equal to the greater of (x) $250 for each
processing case or (y) 10% of Foursight’s gross revenue in any calendar year. In the event Foursight fails to
achieve certain minimum yearly net revenue targets in any calendar year during the term of the agreement (generating annual royalties
of $130,000 for 2011 and increasing over the term to up to $390,000 in 2016 and beyond), the Company shall have the right to terminate
the agreement upon 30 days written notice to Foursight.
On February
28, 2011, we entered into agreement with Dauterive Medical, Inc. (“DMI”), pursuant to which we granted DMI a five
year license to the Technology so DMI can utilize the Technology to provide tissue processing services within a 70 mile radius
of Metaire, LA. In consideration for the Technology, DMI agreed to pay us (i) a licensing fee of $1 and (ii) a royalty
payment equal to $500 for each processing case performed by DMI and we agreed to pay DMI $500 for each processing case referred
to us by DMI. The agreement may be terminated by either party in the event of a material default of any duty, obligation or responsibility
imposed by the agreement which has not been cured within ten business days after the non-defaulting party gives written notice
to the defaulting party of such default. In addition, in the event that certain minimum annual revenue targets are not met ($1,000,000
of tissue processing cases) during the term of the agreement, we shall have the right to terminate the agreement for non-performance
upon 30 days written notice to DMI for an amount equal to two times the license fee paid less all cumulative fees paid by us to
the date of such termination. In the event we exercise such right to terminate for non-performance, DMI would have the right to
elect to have the agreement become non-exclusive as to the territory for the remainder of the initial term.
On April
29, 2011, we entered into agreement with AGE Management LLC, pursuant to which we granted AGE a five year license to the Technology
so AGE can utilize the Technology to provide tissue processing services within a 50 mile radius of Lake Mary, Florida. In consideration
for the Technology, AGE agreed to pay us (i) a license fee of $80,000 and (ii) a royalty payment equal to $500 for each tissue
processing case. The agreement may be terminated by either party in the event of a material default of any duty, obligation or
responsibility imposed by the agreement which has not been cured within ten business days after the non-defaulting party gives
written notice to the defaulting party of such default. In addition, in the event that certain minimum annual revenue targets
are not met ($1,000,000 of tissue processing cases) during the term of the agreement, we shall have the right to terminate the
agreement for non-performance upon 30 days written notice to AGE for an amount equal to two times the license fee paid less all
cumulative fees paid by us to the date of such termination. In the event we exercise such right to terminate for non-performance,
AGE would have the right to elect to have the agreement become non-exclusive as to the territory for the remainder of the initial
term.
On June
14, 2011, we entered into agreement with AllWin Scientific Corporation, pursuant to which we granted AllWin a five year license
to the Technology so AllWin can utilize the Technology to provide tissue processing services within a 25 mile radius of Denver,
Colorado. In consideration for the Technology, AllWin agreed to pay us (i) a license fee of $80,000 and (ii) a royalty payment
equal to $500 for each tissue processing case. The agreement may be terminated by either party in the event of a material default
of any duty, obligation or responsibility imposed by the agreement which has not been cured within ten business days after the
non-defaulting party gives written notice to the defaulting party of such default. In addition, in the event that certain minimum
annual revenue targets are not met ($400,000 of tissue processing cases) during the term of the agreement, we shall have the right
to terminate the agreement for non-performance upon 30 days written notice to AllWin for an amount equal to two times the license
fee paid less all cumulative fees paid by us to the date of such termination. In the event we exercise such right to terminate
for non-performance, AllWin would have the right to elect to have the agreement become non-exclusive as to the territory for the
remainder of the initial term.
On June
27, 2011, we entered into agreement with PBH Holdings, LLC ("PBH"), pursuant to which we granted PBH a five year license
to the Technology so PBH can utilize the Technology to provide tissue processing services within a territory to be determined
as per population density (comprising an approximate 50 mile radius of Sugarland, Texas). In consideration for the Technology,
PBH agreed to pay us (i) a license fee of $80,000 and (ii) a royalty payment equal to $500 for each tissue processing case. The
agreement may be terminated by either party in the event of a material default of any duty, obligation or responsibility imposed
by the agreement which has not been cured within ten business days after the non-defaulting party gives written notice to the
defaulting party of such default. In addition, in the event that certain minimum annual revenue targets are not met ($1,000,000
of tissue processing cases) during the term of the agreement, we shall have the right to terminate the agreement for non-performance
upon 30 days written notice to PBH for an amount equal to two times the license fee paid less all cumulative fees paid by us to
the date of such termination. In the event we exercise such right to terminate for non-performance, PBH would have the right to
elect to have the agreement become non-exclusive as to the territory for the remainder of the initial term.
In July,
2011, we entered into agreement with Regenerative Laboratory Services of Baton Rouge, LLC, pursuant to which we granted Regenerative
a five year license to the Technology so Regenerative can utilize the Technology to provide tissue processing services within
a specified territory comprising an approximate 50 mile radius of Baton Rouge, Lousiana. In consideration for the Technology,
Regenerative agreed to pay us (i) a license fee of $80,000 and (ii) a royalty payment equal to $500 for each tissue processing
case. The agreement may be terminated by either party in the event of a material default of any duty, obligation or responsibility
imposed by the agreement which has not been cured within ten business days after the non-defaulting party gives written notice
to the defaulting party of such default. In addition, in the event that certain minimum annual revenue targets are not met ($250,000
of tissue processing cases) during the term of the agreement, we shall have the right to terminate the agreement for non-performance
upon 30 days written notice to Regenerative for an amount equal to two times the license fee paid less all cumulative fees paid
by us to the date of such termination. In the event we exercise such right to terminate for non-performance, Regenerative would
have the right to elect to have the agreement become non-exclusive as to the territory for the remainder of the initial term.
As of the
date hereof, we believe that the licensees in Philadelphia, Pennsylvania, Dallas/Ft. Worth, Texas, Palm Beach, Florida, Metaire,
Lousiana, and Lake Mary, Florida are either in default and/or non-compliance with the duties, obligation or responsibility imposed
upon them by the agreement and we intend to pursue our remedies accordingly. In addition, we have received notification of termination
from the licensees in Denver, Colorado and Baton Rouge, Louisiana, which notifications include demand for payments. We believe
that such parties were also in default and/or non-compliance with the duties, obligation or responsibility imposed upon them by
the agreement, and we intend to pursue our remedies and/or vigorously defend ourselves against any claims made by such parties.
Sales
and Marketing
Our current
marketing objectives focus on achieving rapid growth by entering into agreements to install our cGTP cellular processing lab in
ambulatory surgery centers and hospitals located in the United States that initially focus on regenerative medicine in the areas
of Aesthetics, Orthopedics, Sports Medicine, Pain Management and Periodontal Diseases, and by entering into technology licensing
agreements that cover a particular international territory or country. Finally, another focus of our business development will
involve engaging in and our coordinating clinical studies at prominent medical centers with the goal of obtaining FDA approval
for major clinical indications of the SVF’s yielded from the use of our proprietary process.
Research
and Development
We have
recently formed a wholly-owned subsidiary, ICBS Research, Inc., through which we plan to conduct research and development activities
on our own and in combination with academic, government and industry collaborators.
In contemplation
of our proposed research and development activities, in December 2011, we entered into a strategic collaborative agreement with
Numoda Corporation, a large Contract Research Organization (CRO) that provides a number of clinical research services to the biotech
industry. Under the terms of the agreement, Numoda agreed to invest $500,000 into us based on our achievement of certain
milestones to be agreed upon between the parties, in exchange for our contracting with Numoda to provide CRO services in planned
in-human clinical studies commencing in 2012. As of the date hereof, Numoda has not invested any money into the Company.
We have
also had preliminary discussions with several researchers and Universities regarding the establishment of clinical studies
for the purpose of exploring therapeutic use of IntelliCells™. The currently contemplated initial areas under study with
proposed partners are:
| ● |
Non-healing
diabetic ulcers (wound healing); and |
| ● |
Military
severe injuries deploying the IntelliCell™ product (process) on the battlefield as part of the care provider on-site. |
The October
2011 Issue of the Journal of Implant & Advanced Clinical Dentistry published an article on a prospective pilot study on the
clinical application of SVF with stem cells in the treatment of gingival recession defects using our proprietary process to be
conducted by Dr. Nicholas Toscano. Dr. Toscano is a member of our advisory board.
As previously
disclosed above, we have started our first FDA IND study that will be on osteoarthritis of the knee with Dr. James Andrews and
inVentiv as our CRO. On March 11, 2014, the Company executed a Consulting Agreement with Dr. James Andrews, effective March 7,
2014, pursuant to which Dr. Andrews shall serve as Chairman of the Intellicell Orthopedic Cellular Therapy Advisory Board.
Competition
We compete
with many pharmaceutical, biotechnology, medical device and bio tools companies, as well as other private and public stem cell
companies involved in the development and commercialization of cell-based medical technologies and therapies in the regenerative
medicine industry. Regenerative medicine is a rapidly evolving industry, primarily through the development of cell-based therapies
or devices designed to isolate cells from human tissues. Most efforts involve cell sources, such as bone marrow, embryonic and
fetal tissue, umbilical cord and peripheral blood and skeletal muscle. Companies working in the area of regenerative medicine
include, among others, Cytori Therapeutics, Stem Cell Assurance, Inc., Osiris, Aastrom Biosciences, Aldagen, BioTime, Baxter International,
Celgene, Geron, Harvest Technologies, Mesoblast, Regenexx, NeoStem, X-Cell Center, Stem Cells, Athersys, and Tissue Genesis. Companies
working in the area of biological tools include, among others, Life Technologies, Asterand, Pacific Biosciences of California,
and AllCells. Currently, we are aware of certain regenerative medical companies that provide processes for extracting
SVF containing adult stem cells from adipose (fat) tissue. As techniques for expanding the use of stem cells improve,
the use of collection techniques of adult stem cells could increase and compete with our services. Many of our competitors and
potential competitors have substantially greater financial, technological, research and development, marketing and personnel resources
than we do. We cannot with any accuracy forecast when or if these companies are likely to bring cell therapies to market
for procedures that we are also pursuing.
Patents
and Proprietary Rights
Our success
will likely depend upon our ability to preserve our proprietary patented process and operate without infringing on the proprietary
rights of other parties. However, we may rely on certain proprietary technologies and know-how that are not patentable or that
we determine to keep as trade secrets. We intend to protect our proprietary information, in part, by the use of confidentiality
and assignment of invention agreements with our officers, directors, employees, consultants, significant scientific collaborators
and sponsored researchers that will generally provide that all inventions conceived by the individual in the course of rendering
services to us shall be our exclusive property. The following table identifies the published pending patent applications
that are owned by us:
| Number | |
Country | |
Filing
Date | |
Issue Date | |
Expiration
Date | |
Title |
| Patent Applications | |
| |
| |
| |
|
| | |
| |
| |
| |
| |
|
| US 13/323,030 | |
U.S. | |
| |
January 17, 2013 | |
N/A | |
Ultrasonic Cavitation Derived Stromal Or Mesenchymal Vascular Extracts And Cells Derived Therefrom Obtained From Adipose Tissue And Use Thereof |
| | |
| |
| |
| |
| |
|
| PCT/US2011/064464 | |
PCT | |
| |
Pending | |
N/A | |
Ultrasonic Cavitation Derived Stromal Or Mesenchymal Vascular Extracts And Cells Derived Therefrom Obtained From Adipose Tissue And Use Thereof |
| INTELLICELL
BIOSCIENCES INC. PATENT PORTFOLIO CHART |
|
| (MAY
27, 2013) |
|
|
|
|
|
| H&W
Ref. |
Country |
Patent
Application No.
Patent No. |
Filing
Date
Issue Date |
Status |
Action |
| ULTRASONIC
CAVITATION DERIVED STROMAL OR MESENCHYMAL VASCULAR EXTRACTS AND CELLS DERIVED THEREFROM OBTAINED FROM ADIPOSE
TISSUE AND USE THEREOF |
| 2 |
US |
8,440,440 |
14-May-13 |
|
|
| 5 |
US-CON |
13/745,367 |
1-Jan-13 |
Preexam |
Continuation |
| 3 |
PCT |
PCT/US11/64464 |
12-Dec-11 |
Published |
National
Stage Filing Due 6/27/2013 |
| ISOLATION
OF STROMAL VASCULAR FRACTION FROM NON-LIVING ADIPOSE TISSUE USING ULTRASONIC CAVITATION |
| 10 |
PRO |
61/674,116 |
20-Jul-2012 |
Pending |
Pending
US/FF 7/20/2013 |
| 000010A |
PRO |
61/721,917 |
02-Nov-2012 |
Pending |
Pending
Updated Matter 10 |
| METHOD
OF HARVESTING SVF FROM VARIOUS TISSUES USING INDIRECT ULTRASONIC CAVITATION |
| 20 |
PRO |
61/773,482 |
6-Mar-13 |
Pending |
Pending
US/FF 3/6/2014 |
| 000020A |
PRO |
61/793,934 |
15-Mar-13 |
Pending |
Pending
Updated Matter 20 |
| ISOLATION
OF SVF FROM ADIPOSE TISSUE OBTAINED USING HOMOGENIZATION WITH BEADS |
| 30 |
PRO |
61/693,982 |
28-Aug-12 |
Pending |
Pending
US/FF 8/28/2013 |
| ALLOGENEIC
STORMAL VASCULAR FRACTION TRANSPLANTATION BY BLOOD TYPE MATCHING |
| 4 |
PRO |
61/784,173 |
14-Mar-13 |
Pending |
Pending
US/FF 3/14/2014 |
When
appropriate, we will continue to seek patent protection for inventions in our core technologies and in ancillary technologies
that support our core technologies or which we otherwise believe will provide us with a competitive advantage. We will accomplish
this by filing and maintaining patent applications for discoveries we make, either alone or in collaboration with scientific collaborators
and strategic partners. Typically, we plan to file patent applications in the United States. In addition, we plan to obtain licenses
or options to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in
advancing our research, development and commercialization initiatives and our strategic business interest.
Government
Regulation
The health
care industry is highly regulated in the United States. The federal government, through various departments and agencies, and
state and local governments regulate and monitor the health care industry. The following is a general overview of the laws and
regulations pertaining to our business.
Human
cells, tissues, and cellular and tissue-based products (“HCT/Ps”) Regulation
The U.S.
Food and Drug Administration (the “FDA”) regulates the manufacture of human cells, tissues, and cellular and tissue-based
products (“HCT/Ps”) under the authority of Section 361 of the Public Health Safety Act (“PHS Act”) and
exercises this authority pursuant to the regulations governing HCT/Ps in Part 1271 in Title 21 of the Code of Federal Regulations.
The FDA
regulatory requirements for HCT/Ps, such as IntelliCells™, are complex and evolving. The FDA sets forth criteria for determining
whether an HCT/P can be regulated solely under Section 361 of the PHS Act, i.e. , as a “361 HCT/P.”
A 361 HCT/P is regulated solely as an HCT/P, without additional regulation as a medical device, drug, or biologic.
Under the
FDA regulations, an HCT/P qualifies as a 361 HCT/P if it meets all of the following criteria: (i) it is minimally manipulated;
(ii) it is intended for homologous use only, as reflected by labeling, advertising, or other indications of the manufacturer’s
objective intent; (iii) it is not combined with a device, drug or biologic (with limited exceptions); and (iv) either (a) it does
not have a systemic effect and is not dependent upon metabolic activity for its primary function (with certain exceptions) or
(b) it does have a systemic effect or is dependent upon metabolic activity for its primary function and is intended for certain
uses, including autologous use. Such 361 HCT/Ps may be commercially distributed without the FDA’s premarket clearance or
approval. The FDA permits manufacturers to proceed to market based upon a self-determination that a product qualifies
as a 361 HCT/P. The FDA reserves the right to disagree, and also has voluntary procedures for obtaining an advance agency determination.
We believe the autologous stem cells that are derived from the IntelliCells™ process meet the FDA’s requirements to
be regulated solely as 361 HCT/Ps, and have proceeded to market on that basis.
The regulatory
requirements of 21 C.F.R. Part 1271 applicable to HCT/Ps include the following:
| ● |
registration
and listing of HCT/Ps with the FDA; |
| |
|
| ● |
current good tissue
practices, specifically including requirements for the facilities, environmental controls, equipment, supplies and reagents,
recovery of HCT/Ps from the patient, processing, storage, labeling and document controls, and distribution and shipment of
the HCT/Ps to the laboratory, storage, or other facility; |
| |
|
| ● |
tracking and traceability
of HCT/Ps and equipment, supplies, and reagents used in the manufacture of HCT/Ps; |
| |
|
| ● |
adverse event
reporting; |
| |
|
| ● |
FDA inspection; |
| |
|
| ● |
importation of
HCT/Ps; and |
| |
|
| ● |
abiding by any
FDA order of retention, recall, destruction, and cessation of manufacturing of HCT/Ps. |
We believe
the donor screening requirements in Part 1271 do not apply because our product is made from autologous tissue.
Possible
Additional FDA Device, Drug, or Biologic Regulatory Requirements
On March
13, 2012, the Company received a regulatory Warning Letter from FDA regarding the Intellicell™ process. A Warning Letter
is an FDA notification to a regulated company that the Agency believes the company to have violated the Federal Food, Drug, and
Cosmetic Act (“FDC Act”), but it is not considered final agency enforcement action. The March Warning Letter stated
that FDA believed the Intellicell™ process to be a new drug or a biologic product requiring a new drug application (“NDA”)
or biologics license application ("BLA"). This was based on statements that the Agency believed that the
Company was using adipose tissues for non-homologous use, and that these cells were more than minimally manipulated. Such
products would not be considered HCT/Ps regulated solely under section 361 of the PHS Act. The Warning Letter also
noted a number of cGMP issues at the Intellicell lab facility (which the Company has since shut down and moved).
On April
2, 2012, the Company timely submitted a comprehensive response to the Warning Letter that provided a detailed explanation of the
Intellicell™ process, which uses non-adipose adult stem cells in the SVF matrix (i.e., our adult autologous vascular cells). The
letter further explained how the SVF product is used, and why it should be considered appropriate homologous use under section
361 of the PHS Act and FDA regulations at 21 C.F.R. § 1271. The response letter noted that all of the cells contained
in SVF are characteristic of vascular tissue, and are simply extracted from adipose tissue.
On November
19, 2012, the Company received a letter (the “FDA Letter”) from the FDA as part of its ongoing discussion and correspondence
with the FDA regarding a warning letter the Company received from the FDA on March 13, 2012. The FDA stated in the FDA Letter
that it believes that the Company’s process does not meet the definition of minimal manipulation, does not fall within the
definition of homologous use of the adipose tissue and is not the same surgical procedure under 21 CFR 1271.3(f)(1), 21 CFR 1271.10(a)(2)
and 21 CFR 1271.15(b), respectively, and as such, the Company is required to have FDA approval for its product, and file an investigational
new drug (IND) application for planned in-human clinical studies. In December 2012, the Company filed an appeal with FDA
under 21 CFR 1075 for internal review of the FDA’s decisions. The Company has made every effort to comply
with FDA requirements for human cell and tissue products (“HCT/Ps”) that are not subject to FDA pre-approval and it
continues to believe that its product/process is compliant with currently FDA requirements.
The response
letter also notified FDA that we were opening a new facility that would be fully cGMP compliant, and that the Company had retained
several expert consultants to assist in quality and regulatory compliance. We believe that the steps we have taken should resolve
the FDA regulatory issues noted in the Warning Letter; however, there is no guarantee that FDA will agree with our position on
the regulatory status of the AAVC product or on cGMP compliance.
If the FDA
were to disagree with our conclusion that IntelliCells™ qualify as a 361 HCT/P, then IntelliCells™ could be subject
to additional FDA regulatory requirements applicable to medical devices or drugs under the FDC Act or biological products under
Section 351 of the PHS Act and implementing regulations, depending upon which of these categories FDA concluded applies to IntelliCells™.
The
Company underwent a thorough inspection by the FDA from May 14, 2013 through June 2, 2013, of its cellular laboratory facility.
The observations from the FDA inspection were provided to the company in the Form 483. The Company has responded to those observations
in a timely manner. IntelliCell has taken the necessary actions to address the relevant observations of the FDA inspection.
Medical
Device Regulation
The FDA
regulates the design/development process, clinical testing, manufacture, safety, labeling, sale, distribution, and promotion of
medical devices under the FDC Act. Included among these regulations are premarket clearance and premarket approval requirements,
and the Quality System Regulation (which imposes Good Manufacturing Practice requirements). Other statutory and regulatory requirements
govern, among other things, registration and inspection, medical device listing, prohibitions against misbranding and adulteration,
labeling, and post-market reporting.
The regulatory
clearance/approval process can be lengthy, expensive, and uncertain. Unless an exemption applies, any medical device that we would
bring to market must first receive either premarket notification clearance (by making a 510(k) submission) or premarket approval
(by filing a premarket approval application (“PMA”)) from the FDA pursuant to the FDC Act. In addition, certain modifications
made to marketed devices also may require 510(k) clearance or approval of a PMA supplement. The FDA’s 510(k) clearance process
usually takes from four to twelve months, but it may take longer. The process of obtaining PMA approval is much more costly and
uncertain and may take one or more years from the time the process is initiated. We cannot be sure that 510(k) clearance or PMA
approval will be obtained for any product that we propose to market.
A clinical
study in support of a PMA application or 510(k) submission for a “significant risk” device requires an Investigational
Device Exemption (“IDE”) application approved in advance by the FDA for a limited number of patients. The IDE application
must be supported by appropriate data, such as animal and laboratory testing results. If the device presents a “non-significant
risk” to the patient, a sponsor may begin the clinical study without the need for FDA approval. In all cases, the clinical
study must be conducted under the auspices of an Institutional Review Board (“IRB”) pursuant to the FDA’s regulatory
requirements intended for the protection of subjects and to assure the integrity and validity of the data.
Medical
devices are subject to post-market reporting requirements when the device may have caused or contributed to the death or serious
injury, and for certain device malfunctions that would be likely to cause or contribute to a death or serious injury if the malfunction
were to recur. If safety or effectiveness problems occur after the product reaches the market, the FDA may take steps to prevent
or limit further marketing of the product. The FDA actively enforces regulations prohibiting marketing and promotion of devices
for indications or uses that have not been cleared or approved by the FDA. Modifications or enhancements of products that could
affect the safety or effectiveness or effect a major change in the intended use of a device that was either cleared through the
510(k) process or approved through the PMA process may require further FDA review through new 510(k) or PMA submissions.
Failure
to comply with applicable requirements can result in application integrity proceedings, fines, recalls or seizures of products,
injunctions, civil penalties, total or partial suspensions of production, withdrawals of existing product approvals or clearances,
refusals to approve or clear new applications or notifications, and criminal prosecution.
Drug
and Biological Product Regulation
To obtain
approval of a drug or biological product from the FDA, a company must, among other requirements, submit data supporting safety
and efficacy as well as detailed information on the manufacture and composition of the product. In most cases, this entails extensive
laboratory tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications
for review by the FDA, are costly in time and effort, and may require significant capital investment.
A company
typically conducts human clinical trials in three sequential phases, but the phases may overlap. Phase 1 trials consist of testing
of the product in a small number of patients or healthy volunteers, primarily for safety at one or more doses. Phase 2 trials,
in addition to safety, evaluate the efficacy of the product in a patient population somewhat larger than Phase 1 trials. Phase
3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically dispersed
test sites. A company must submit to the FDA a protocol, which must also be approved by the IRBs at the institutions participating
in the trials, prior to commencement of each clinical trial. The trials must be conducted in accordance with the FDA’s good
clinical practices. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time.
To obtain
marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing, together with,
and among other things, detailed information on the manufacture and composition of the product, in the form of a NDA, or, in the
case of a biologic, a BLA. Under federal law, the submission of most NDAs and BLAs is subject to a substantial application user
fee, currently exceeding $1.5 million, and the manufacturer and/or sponsor under an approved NDA or BLA are also subject to annual
product and establishment user fees, currently exceeding $86,000 per product and $497,000 per establishment. These fees are typically
increased annually. We cannot be sure that NDA or BLA approval would be obtained for any product that we propose to market.
All approved
drug and biological products are subject to continuing regulation by the FDA, including record-keeping requirements, reporting
of adverse experiences with the product, sampling and distribution requirements, notifying the FDA and gaining its approval of
certain manufacturing or labeling changes, complying with certain electronic records and signature requirements, submitting periodic
reports to the FDA, maintaining and providing updated safety and efficacy information to the FDA, and complying with FDA promotion
and advertising requirements. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible
legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action, criminal
prosecution, or civil penalties.
The FDA
may require post-marketing studies or clinical trials to develop additional information regarding the safety of a product. These
studies or trials may involve continued testing of a product and development of data, including clinical data, about the product’s
effects in various populations and any side effects associated with long-term use. The FDA may require post-marketing studies
or trials to investigate known serious risks or signals of serious risks or identify unexpected serious risks and may require
periodic status reports if new safety information develops. Failure to conduct these studies in a timely manner may result in
substantial civil fines.
Drug and
biological product manufacturers and their subcontractors are required to register their establishments with the FDA and certain
state agencies, and to list their products with the FDA. The FDA periodically inspects manufacturing facilities in the United
States and abroad in order to assure compliance with the applicable current good manufacturing practices (“cGMP”)
regulations and other requirements. Facilities also are subject to inspections by other federal, foreign, state, or local agencies.
In complying with the cGMP regulations, manufacturers must continue to expend time, money and effort in record-keeping and quality
control to assure that the product meets applicable specifications and other post-marketing requirements. We must ensure that
any third-party manufacturers continue to expend time, money and effort in the areas of production, quality control, record keeping
and reporting to ensure full compliance with those requirements. Failure to comply with these requirements subjects
the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or seizure of product.
Newly discovered
or developed safety or efficacy data may require changes to a product’s approved labeling, including the addition of new
warnings and contraindications, additional preclinical or clinical studies, or even in some instances, revocation or withdrawal
of the approval. Violations of regulatory requirements at any stage, including after approval, may result in various adverse consequences,
including the FDA’s withdrawal of an approved product from the market, other voluntary or FDA-initiated action that could
delay or restrict further marketing, and the imposition of civil fines and criminal penalties against the manufacturer and NDA
or BLA holder. Later discovery of previously unknown problems may result in restrictions on the product, manufacturer or NDA or
BLA holder, including withdrawal of the product from the market. New government requirements may be established that could delay
or prevent regulatory approval, or affect the conditions under which approved products are marketed.
State
and Local Government Regulation
Some states
and local governments regulate human tissue banking facilities and require these facilities to obtain specific licenses. Our processing
centers may be required to comply with such state laws, including becoming licensed as a tissue bank and being subject to inspection.
Some states, such as New York, California and Maryland, may require licensure of out-of-state facilities that process tissue of
residents of those states. We must obtain the applicable state licensures for our processing centers and comply with the current
and any new licensing laws that become applicable in the future.
Health
Insurance Portability and Accountability Act—Protection of Patient Health Information
The Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”) included the Administrative Simplification provisions
that require the Secretary of the Department of Health and Human Services (“HHS”) to publicize standards for the electronic
exchange, privacy, and security of health information. HHS published the Standards for Privacy of Individually Identifiable
Health Information (“Privacy Rule”) and the Security Standards for the Protection of
Electronic Protected Health Information (“Security Rule”) to protect the privacy and security of certain
health information. The Privacy Rule addresses the use and disclosure of an individual’s protected health information by
covered entities and applies to health plans, health care clearinghouses, and any health care provider who transmits health information
in electronic format. In addition to these entities, the Privacy Rule also applies to business associates and requires certain
requirements to be placed in contracts between business associates and covered entities.
The Security
Rule establishes a national security standard for protecting certain health information that is held or transferred in electronic
form. The Security Rule implements the protections in the Privacy Rule by addressing the technical and non-technical safeguards
that covered entities must put in place to secure individuals’ electronic protected health information.
Companies
failing to comply with the HIPAA standards may be subject to civil money penalties or criminal prosecution. To the extent that
our business requires compliance with HIPAA, it intends to fully comply with all requirements.
Other
Applicable U.S. Laws
In addition
to the above-described regulation by United States federal and state government, the following are other federal and state laws
and regulations that could directly or indirectly affect our ability to operate the business:
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state
and local licensure, registration, and regulation of the development of pharmaceuticals and biologics; |
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state and local
licensure of medical professionals; |
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state statutes
and regulations related to the corporate practice of medicine; |
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other laws and
regulations administered by the U.S. Food and Drug Administration; |
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other laws and
regulations administered by the U. S. Department of Health and Human Services; |
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state and local
laws and regulations governing human subject research and clinical trials; |
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the federal physician
self-referral prohibition, also known as Stark Law, and any state equivalents to Stark Law; |
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the Medicare and
Medicaid Anti-Kickback Law and any state equivalent statutes and regulations; |
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Federal and state
coverage and reimbursement laws and regulations; |
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state and local
laws and regulations for the disposal and handling of medical waste and biohazardous material; and |
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Occupational Safety
and Health (“OSHA”) regulations and requirements. |
Employees
As of December
31, 2013, we had 6 full-time employees. We have not experienced any work disruptions or stoppages and we consider our relationship
with our employees to be strong. None of our employees are covered by a collective-bargaining agreement.
Our Website
Our website
address is www.intellicellbiosciences.com. Information found on our website is not incorporated
by reference into this report. We make available free of charge through our website our SEC filings furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the SEC.
ITEM
1A. RISK FACTORS.
An investment
in our common stock involves a high degree of risk. In determining whether to purchase our common stock, an investor should carefully
consider all of the material risks described below, together with the other information contained in this report before making
a decision to purchase our securities. An investor should only purchase our securities if he or she can afford to suffer the loss
of his or her entire investment.
Risks
Relating to Our Business and Industry
We
are a development-stage company with a limited operating history, no marketed tests and substantial losses predicted for the foreseeable
future.
The Company’s
wholly-owned subsidiary commenced operations in the regenerative medicine industry in August 2010. As such, we have
a limited operating history and have not earned any profits to date. To date, we have not achieved, and we may never
achieve, revenues sufficient to offset expenses. We expect to devote substantially all of our resources to the completion of build-out
of our Ambulatory Surgical Center in New York, NY, the cell processing laboratory within that facility and develop and commercialize
our regenerative medical products.
Because
of the numerous risks and uncertainties associated with developing and commercializing our regenerative medical products, we are
unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and
you may never receive a return on an investment in our shares of common stock. An investor in our common shares must carefully
consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of procedures
and products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize
our regenerative medical products, and our business may fail.
Our
auditors have expressed substantial doubt about our ability to continue as a going concern.
In their
report dated May 9, 2014, Rosen Seymour Shapss Martin & Company LLP stated that our financial statements for the fiscal years
ended December 31, 2013 and 2012, were prepared assuming that we would continue as a going concern. Our ability to continue as
a going concern is an issue raised as a result of our recurring losses from operations and our net capital deficiency. We continue
to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit.
Our
regenerative medical products may not gain acceptance among physicians, healthcare professionals and third-party payors, which
could have a material impact on our future business, financial condition and operations.
Our success
will depend upon our regenerative medical products being accepted in the market. The degree of market acceptance of our tests
by physicians, healthcare professionals and third-party payers will depend on a number of factors, including:
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our
ability to provide acceptable evidence of clinical utility; |
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successful
integration into clinical practice; |
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availability
and advantages of alternative tests; |
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effectiveness
of our sales and marketing efforts and strategies; |
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pricing
and positive health economics; and |
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our
ability to obtain sufficient insurance coverage or reimbursement. |
If any tests
that we commercialize fail to gain market acceptance, our ability to generate revenue would be impaired, which could have a material
impact on our business, financial condition and operations.
Additional
financing is necessary for the implementation of our growth strategy.
We may require
additional debt and/or equity financing to pursue our growth strategy. Given our limited operating history and existing losses,
there can be no assurance that we will be successful in obtaining additional financing. Lack of additional funding could force
us to curtail substantially our growth plans or cease of operations. Furthermore, the issuance by us of any additional securities
pursuant to any future fundraising activities undertaken by us would dilute the ownership of existing shareholders and may reduce
the price of our common stock. Furthermore, debt financing, if available, will require payment of interest and may
involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional
future funding may jeopardize our ability to continue our business and operations.
If
we are unable to adequately acquire and protect or enforce our intellectual property, our competitive position could be impaired.
Our commercial
success depends in part on our ability to obtain patents or rights to patents and maintain their validity, protect our trade secrets
and effectively enforce our proprietary rights or patents against infringers. Although we have filed, or have licenses to, patent
applications in respect of the technology underlying our regenerative medicine products, there are no guarantees that such patent
applications will result in issued patents, that any patents that might be issued will protect our technology or that we will
develop other patentable tests in the future. Moreover, there can be no assurance that a patent granted to us or in respect of
which we hold a license will make the related test more competitive, that third parties will not contest the protection granted
by the patent, or that the patents of third parties will not be detrimental to our commercial activities. Our failure or inability
to protect our trade secrets and proprietary know-how could impair our competitive position. There is no guarantee that other
companies will not independently develop tests similar to our regenerative products or any future tests that we develop, that
they will not imitate our tests or that our competitors will not produce tests designed to circumvent our proprietary rights.
Potential
claims alleging infringement of third party’s intellectual property by us could harm our ability to compete and result in
significant expense to us and loss of significant rights.
From time
to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies that are
important to our business. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the
efforts of our technical and management personnel, cause product shipment delays, disrupt our relationships with our customers
or require us to enter into royalty or licensing agreements, any of which could have a material adverse effect upon our operating
results. Royalty or licensing agreements, if required, may not be available on terms acceptable to us. If a claim against us is
successful and we cannot obtain a license to the relevant technology on acceptable terms, license a substitute technology or redesign
our products to avoid infringement, our business, financial condition and results of operations would be materially adversely
affected.
If
the FDA imposes device, drug, or biologic regulation on IntelliCells™, we may not be able to obtain the necessary clearance
or approval to market IntelliCells™ in a timely manner or at all. Even if we do obtain approval, the cost and delay could
materially adversely affect our financial condition, results of operations and cash flows.
The FDA
allows HCT/Ps (human cell and tissue products) to proceed to market without prior clearance or approval. We believe IntelliCells™
qualify under this foregoing section and under Title 21 of the Code of Federal Regulations, Part 1271.10 (21 C.F.R. § 1271.10),
and we have not invoked FDA’s voluntary procedures for seeking a ruling. We cannot assure you that the FDA would agree with
our determination. For example, such HCT/Ps must be “minimally manipulated.” We believe that our use of ultrasound
cavitation or other physical means, rather than chemical means, to separate non-cellular material and to create IntelliCells™
qualifies as minimal manipulation. However, to our knowledge, the FDA has not publicly addressed the issue of ultrasound cavitation
and minimal manipulation, and could disagree. If the FDA were to decide that ultrasound cavitation is more than minimal manipulation,
then IntelliCells™ would no longer qualify for these exemptions.
The FDA
may disagree with the Company that using SVFC for regenerative inductions represents homologous use (same basic function) and
otherwise meet the conditions of 21 C.F.R. § 1271, If FDA were to disagree, Intellicells™ would require premarket approval
as a drug, medical device, or biological product.
If the FDA
were to disagree with our determination, or were to prospectively alter the requirements for HCT/P eligibility, the agency could
require us to stop marketing IntelliCells™ until we met burdensome and lengthy medical device, drug, or biologic premarket
clearance or approval requirements, which could include a requirement to gather extensive supporting clinical data. We do not
know if clearance or approval of our IntelliCells™ could be obtained in a timely fashion, or at all. Even if such clearance
or approval could be obtained, IntelliCells™ would be subject to more stringent level of post-market regulation as well.
If any of these events were to occur, our financial condition and results of operations and cash flows could be materially and
adversely affected.
We operate
in a highly-regulated environment and may be unable to comply with applicable federal regulations, registrations and approvals.
Failure to comply with applicable licensure, registration, and approval standards may result in a loss of licensure, registration,
and approval or other government enforcement actions.
The FDA
imposes substantial regulatory requirements upon facilities that are engaged in the recovery, processing, storage, labeling, packaging,
or distribution of HCT/Ps.
Our processing
centers will likely be required to comply with the HCT/P regulations and applicable state tissue bank regulation. Although we
do not currently intend to utilize third parties, if any third parties were retained by us to engage in the manufacture of an
HCT/P on our behalf, such third parties must also comply with the HCT/P regulations. If we or our third-party contractors fail
to register, update registration information, or comply with any HCT/P regulation, we could be subject to civil and criminal fines
and penalties and/or injunction, which could adversely affect our business. Furthermore, adverse events in the field of stem cell
therapy may result in greater governmental regulation, which could create increased expenses, potential delays, or otherwise affect
our business.
State and
local governments impose additional licensing and other requirements upon clinical laboratories and facilities that store, handle,
and process human tissue. We may not be able to obtain the necessary licensure required to conduct business in any state in a
timely manner, or at all, and the cost of compliance could adversely affect our ability to operate our business profitably.
In the United
States, we are obligated to comply with HIPAA (Health Insurance Portability and Accountability Act) and state privacy and security
standards. As HIPAA is amended and changed, we will incur additional compliance burdens. We may be required to spend substantial
time and money to ensure compliance with ever-changing federal and state standards as electronic and other means of transmitting
protected health information evolve. Failure to comply with HIPAA standards may subject us to civil money penalties or criminal
prosecution. To the extent that our business requires compliance with HIPAA, we intend to fully comply with all requirements.
Whether
or not the Intellicells™ are regulated as HCT/P products under the PHS Act or require some sort of FDA approval, the product
will be subject to cGMP requirements. These requirements are the minimum standards for facilities and procedures necessary
to ensure that medical products, including HCT/P products are manufactured under proper conditions. We have taken steps to make
sure that our facilities are compliant with cGMP requirements. If FDA disagrees with us on cGMP compliance, the Agency
may take regulatory action against us.
There
are risks associated with our strategy to remotely operate cGTP lab in ambulatory surgery centers and hospitals.
We have
no experience in operating cGTP lab remotely in ambulatory surgery centers and hospitals,. There are numerous risks
associated with this strategy that include, but are not limited to: (i) the costs of setting up and operating such cGTP labs,
(ii) there are substantial risks associated with operating complex businesses remotely, especially one where controlling the cell
therapy lab and operations is so critical, (iii) there are risks associated with controlling growth, (iv) risks exist associated
with adverse events in one facility affecting the business as a whole, (v) there are general risks associated with growth.
We
face competition in our markets from a number of large and small companies, some of which have greater financial, research and
development, production and other resources than we have.
Our services
face competition from services which may be used as an alternative or substitute therefore. In addition we compete with several
large companies in the healthcare industry. To the extent these companies, or new entrants into the market, offer comparable services
at lower prices, our business could be adversely affected. Our competitors can be expected to continue to improve the design and
performance of their products and services and to introduce new products and services with competitive performance characteristics.
There can be no assurance that we will have sufficient resources to maintain our current competitive position. See “Description
of Business - Competition.”
The
current U.S. and global economic conditions could materially adversely affect our results of operations and business condition.
Our operations
and performance depend significantly on economic conditions. Over the past three years, the U. S. economy has experienced a prolonged
economic downturn. While economic conditions have recently improved, there is continued uncertainty regarding the timing or strength
of any economic recovery. If the current economic situation remains weak or deteriorates further, our business could be negatively
impacted by reduced demand for our services or third-party disruptions resulting from higher levels of unemployment, government
budget deficits and other adverse economic conditions. Any of these risks, among other economic factors, could have a material
adverse effect on our financial condition and operating results, and the risks could become more pronounced if the problems in
the U.S. and global economies become worse.
We
are heavily dependent on our senior management, and a loss of a member of our senior management team or our failure to attract,
assimilate and retain other highly qualified personnel in the future, could harm our business.
If we lose
members of our senior management, we may not be able to find appropriate replacements on a timely basis, and our business could
be adversely affected. Our existing operations and continued future development depend to a significant extent upon the performance
and active participation of certain key individuals, including Steven Victor, our Chief Executive Officer, If we were to lose
Mr. Victor, we may not be able to find appropriate replacements on a timely basis and our financial condition and results of operations
could be materially adversely affected.
In addition,
to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these employees is intense,
and we may not be successful in attracting and retaining qualified personnel. We could also experience difficulty in hiring and
retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced
personnel have greater resources than we have. If we fail to attract new personnel, or fail to retain and motivate our current
personnel, our business and future growth prospects could be severely harmed.
Steven
Victor, our chief executive officer, is a practicing cosmetic dermatologist and his duties as a doctor may limit the time he may
be able to spend developing our products.
Dr. Steven
Victor, our chief executive officer, is a practicing cosmetic dermatologist in New York City. Currently, Dr. Victor does
not believe his duties as a practicing physician will limit his ability to function as our sole officer or develop our products.
However, to the extent Dr. Victor’s duties as a practicing physician requires him to limit his commitment to us, it could
impact our ability develop our products which could have an adverse effect on our results of operations.
Our
current officer, directors and principal shareholders may have substantial influence over the election of the Board of Directors
and matters submitted to a stockholder vote.
Our directors,
executive officers and principal (10%) stockholders and their affiliates beneficially own approximately 8% of the outstanding
shares of Common Stock. Accordingly, our executive officers, directors, principal stockholders and certain of their affiliates may
have substantial influence on the ability to control the election of our Board of Directors and the outcome of issues submitted
to our stockholders.
Our
business may be affected by factors outside of our control.
Our ability
to increase sales, and to profitably distribute and sell our products and services, is subject to a number of risks, including
changes in our business relationships with our principal distributors, competitive risks such as the entrance of additional competitors
into our markets, pricing and technological competition, risks associated with the development and marketing of new products and
services in order to remain competitive and risks associated with changing economic conditions and government regulation.
Holders
of some of our promissory notes which are now in default could, if they were to successfully enforce those notes in a law suit,
levy on our assets and have them sold to satisfy our obligations on the notes.
Part of
our debt held by promissory note holders has been assumed by Redwood Management, LLC. However, our bridge notes and our convertible
promissory notes held by some of our promissory note holders are in default, and we are not in a position to repay them. We intend
to use the proceeds of a future offering to pay off such notes. Holders of those notes could if they choose to sue on those notes,
and if they were successful in their lawsuits they could levy on our assets and have those assets sold to satisfy the amounts
we owe them.
Risks
Related to our Common Stock
There
has not been an active public market for our common stock so the price of our common stock could be volatile and could decline
following this offering at a time when you want to sell your holdings.
Our common
stock is traded on the OTCQB under the symbol SVFC. Our common stock is not actively traded and the price of our common stock
may be volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common stock
to fluctuate significantly. These factors include:
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the Food and Drug
Administration (FDA) has re-inspected our facility in early June and issued a 483 Report and the Company has
responded in a timely manner. They may determine that we do not currently meet the guidelines to operate
a cell therapy business or that our cell therapy treatments should be treated as a drug; |
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the failure of
any of our clinical studies; |
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market conditions
or trends related to the biotechnology, cell therapy, stem cell, pharmaceutical, medical device, diagnostics and medical services
industries, or the market in general; |
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announcements
of technological innovations, new commercial products, or other material events by our competitors or us; |
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disputes or other
developments concerning our proprietary rights; |
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changes in, or
failure to meet, securities analysts’ or investors’ expectations of our financial and developmental performance; |
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additions or departures
of key personnel; |
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loss of any strategic
relationship; |
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discussions of
our business, products, financial performance, prospects, or stock price by the financial and scientific press and online
investor communities such as chat rooms; |
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industry developments,
including, without limitation, changes in healthcare policies or practices or third-party reimbursement policies; |
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public concern
as to, and legislative action with respect to, testing or other research areas of cell therapy, stem cells, biopharmaceutical
and pharmaceutical companies, the pricing and availability of prescription drugs or the safety of drugs or drug-like products; |
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regulatory developments
in the United States or foreign countries; and |
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economic, political
and other external factors. |
In addition,
the market price for securities of life science companies, including cell therapy, stem cell, pharmaceutical and biotechnology
companies historically has been volatile, and the securities markets have from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may
cause the market price of our common stock to decline substantially.
Securities
class action litigation is often instituted against companies following periods of volatility in their stock price. This type
of litigation could result in substantial costs to us and divert our management’s attention and resources.
Moreover,
securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating
performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other
interests in our company at a time when you want to sell your interest in us.
Our
common stock will be subject to the “penny stock” rules of the SEC, which may make it more difficult for stockholders
to sell our common stock.
The Securities
and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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a broker or dealer approve a person's account for transactions in penny stocks; and |
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the broker or
dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny
stock to be purchased. |
In order
to approve a person's account for transactions in penny stocks, the broker or dealer must:
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obtain
financial information and investment experience objectives of the person; and |
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make a reasonable
determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker
or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating
to the penny stock market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability determination; and |
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that the broker
or dealer received a signed, written agreement from the investor prior to the transaction. |
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.
The regulations
applicable to penny stocks may severely affect the market liquidity for our common stock and could limit an investor’s ability
to sell our common stock in the secondary market.
As
an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward-looking statements
does not apply to us.
Although
federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under
the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit
of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained
a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary
to make the statements not misleading. Such an action could hurt our financial condition.
Because
certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions
requiring stockholder approval.
Our directors,
executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 15.8% of our outstanding
shares of common stock. As a result, these stockholders, acting together, would have the ability to control the outcome of matters
submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or
substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the
management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common
stock by:
| ● |
delaying, deferring
or preventing a change in corporate control; |
| |
|
| ● |
impeding a merger,
consolidation, takeover or other business combination involving us; or |
| |
|
| ● |
discouraging a
potential acquirer from making a tender offer or otherwise attempting to obtain control of us. |
Because
the holders of our certain of our warrants have cashless exercise rights, we may not receive proceeds from the exercise of the
outstanding warrants if the underlying shares are not registered.
The holders
of certain of our warrants, including the warrants issued in our February 2012 private placement, have cashless exercise rights,
which provide them with the ability to receive common stock with a value equal to the appreciation in the stock price over the
exercise price of the warrants being exercised. This right is not exercisable if the underlying shares are subject to an effective
registration statement. In connection with this offering, we are registering such shares of common stock for resale in order
to satisfy such obligation. However, in the event the warrants are not subject to a current and effective registration statement
on or after the one year anniversary of the date of issuance, the cashless exercise provision of the warrants will be available
to those holders of our warrants and, as a result, we will not receive proceeds from those warrants that are exercised on a cashless
basis.
Future
sales of our common stock could cause our stock price to fall.
Finance
transactions resulting in a large amount of newly issued shares that become readily tradable, or other events that cause current
stockholders to sell shares, could place downward pressure on the trading price of our common stock. In addition, the lack of
a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares
in increments over time to mitigate any adverse impact of the sales on the market price of our stock.
If our stockholders
sell, or the market perceives that our stockholders intend to sell for various reasons, including but not limited to the ending
of restriction on resale, the market price of our common stock could fall. Sales of a substantial number of shares of our common
stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we
deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management’s
attention and harm our business.
We cannot
predict if future issuances or sales of our common stock, or the availability of our common stock for issuance or sale, will harm
the market price of our common stock or our ability to raise capital.
Any
adjustment in the conversion price of our preferred stock or the exercise price of our warrants could have a depressive effect
on our stock price and the market for our stock.
If we are
required to adjust the preferred stock conversion price or the warrant exercise price pursuant to any of the adjustment provisions
of the agreements, the adjustment or the perception that an adjustment may be required, may have a depressive effect on both our
stock price and the market for our common stock.
Failure
to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse
effect on our business and operating results and stockholders could lose confidence in our financial reporting.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide
reliable financial reports or prevent fraud, our operating results could be harmed. Failure to achieve and maintain an effective
internal control environment, regardless of whether we are required to maintain such controls, could also cause investors to lose
confidence in our reported financial information, which could have a material adverse effect on our stock price. Although we are
not aware of anything that would impact our ability to maintain effective internal controls, we have not obtained an independent
audit of our internal controls and, as a result, we are not aware of any deficiencies which would result from such an audit. Further,
at such time as we are required to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may incur significant
expenses in having our internal controls audited and in implementing any changes which are required.
We
have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable
future. Any return on investment may be limited to the value of our common stock.
No cash
dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future
operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would
depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may
consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment
will only occur if our stock price appreciates.
The
requirements of being a public company may strain our resources, divert management’s attention and affect our ability to
attract and retain qualified board members.
We
recently became a public company and subject to the reporting requirements of the Securities Exchange Act of 1934, as amended,
the Sarbanes-Oxley Act. Prior to June 2011, we had not operated as a public company and the requirements of these rules and regulations
will likely increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and
increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and
current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that
we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section 404
of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent auditors attest to, the effectiveness
of our internal controls structure and procedures for financial reporting. Section 404 compliance may divert internal resources
and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures
and certification and attestation requirements of Section 404 by the time we will be required to do so. If we fail to do
so, or if in the future our chief executive officer, chief financial officer or independent registered public accounting firm
determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be
subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions of our company
may suffer, and this could cause a decline in the market price of our common stock. Irrespective of compliance with Section 404,
any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation.
If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial
results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number
of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public
company, which will increase costs. Our management team and other personnel will need to devote a substantial amount of time to
new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention
from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, because our management team has limited experience managing a public company, we may not successfully or efficiently
manage our transition into a public company.
If
securities or industry analysts do not publish research or reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume could decline.
The trading
market for our common stock will be influenced by the research and reports that industry or securities analysts publish about
us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or
few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage,
if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these
analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to decline.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
ITEM
2. PROPERTIES.
Our corporate
offices and laboratory are located at 460 Park Avenue, 17th Floor, New York, New York 10022. We are currently
provided office facilities and related services by a company owned by Dr. Steven Victor, our chief executive officer.
Such company
entered into a 13 year lease for the office space located at 460 Park Avenue for which we have unconditionally guaranteed any
and all obligations owed under the lease to the landlord. In connection with the execution of the lease, we established a restricted
cash account in the amount of approximately $520,000 to be used as a security deposit under the lease.
As of the
date hereof, we have been unsuccessful with a request to the landlord to have the lease assigned to us so that we become the primary
tenant under the terms of the lease.
ITEM
3. LEGAL PROCEEDINGS.
From time
to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. Except as
described below, we know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we,
or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.
On
March 17, 2014, Dean E. Miller, as representative shareholder, on behalf of the nominal defendant Intellicell Biosciences, Inc.,
filed a shareholder’s derivative action against Steven Victor, MD, in his capacity as Chairman - CEO and individually,
Anna Rhodes as former Executive Vice President and individually, Leonard L. Mazur as interim Chief Operating Officer and individually,
Myron Holubiak as a Director and individually, Michael Hershman, as Chairman of the Board of Directors and individually,
Stuart Goldfarb as a former Director and individually, Victor Dermatology & Rejuvenation, P.C., Victor Cosmeceuticals,
Inc., Lasersculpt, Inc., and the Doe Entities 1-5, as defendants, and Intellicell Biosciences, Inc., as nominal-defendant. The
complaint, which was filed on the aforementioned date with the United States District Court Southern District of New York, alleges
that the Company has failed to comply with US Food and Drug Administration and United States Patent and Trade Office regulations.
The allegations in the complaint include, but are not limited to, allegations involving fraud, negligence, false reporting, and
mismanagement of laboratory facilities. Pursuant to the complaint, the amount in controversy exceeds $75,000.00. Furthermore,
the complaint as filed lists the following counts: 1. Against the individual defendants for breach of their fiduciary duties in
connection with their management of the Company; 2. Against the individual defendants for breach of fiduciary duty in connection
with disseminating false information; 3. Against the individual defendants for breach of fiduciary duty for failing to design
and implement adequate internal controls; 4. Request for injunctive relief; 5. Imposition of constructive trust/accounting; and
6. Appointment of referee injunctive relief. The Company believes that such allegations and claims are without merit and intends
to vigorously defend such allegations and claims. Because the inquiry is in its initial stages, the Company is not currently able
to predict the probability of a favorable or unfavorable outcome, or the amount of any possible loss in the event of an unfavorable
outcome. Consequently, no material provision or liability has been recorded for such allegations and claims as of December 31,
2013. However, management is confident in its defenses to such allegations and claims.
On
March 11, 2014, Steven A. Victor (“Dr. Victor”), Intellicell Biosciences, Inc., a Nevada corporation, Intellicell
Biosciences Inc., a New York corporation, and Regen Medical P.C., a New York corporation filed a complaint against Jonathan Schwartz
(“Schwarz”), Joseph P. Salvani (“Salvani”) and Douglas R. Dollinger (“Dollinger”), in the
Supreme Court of the State of New York, County of New York. Schwartz and Salvani, both shareholders of the Company, are represented
by Dollinger in his capacity as legal counsel. Pursuant to the complaint, the plaintiffs’ first cause of action alleges
that the defendants conspired together and acted in concert, to defame Dr. Victor and the Company in an effort to take control
of the Company and to reap large profits by dumping their shares thereafter. Furthermore, the plaintiffs’ second cause of
action alleges that Salvani made false statements to a potential investor, resulting in damages amounting to $250,000.00. The
plaintiffs seek compensatory damages, together with punitive damages and interest in connection with the first cause of action,
and compensatory damages in the amount of $250,000.00, together with punitive damages and interest, in connection with the second
cause of action.
Ironridge
Litigation
On August
8, 2013, a Summons and Complaint (the “Complaint”) was filed along with a Motion for a Temporary Restraining Order
(the “Motion”) before the Supreme Court of the State of New York, County of New York (the “Court”) under
the caption Intellicell Biosciences, Inc. v Ironridge Global IV, LTD., and TCA Global Credit Master Fund, LP, Index
No. 652800/13. The Motion sought to restrain the sale of the Company’s assets.
As
previously reported, on July 15, 2013, while the Company was finalizing an amendment and waiver to that certain Convertible Promissory
Note (the “Note”) issued by the Company in favor of TCA Global Credit Master Fund, LP (“TCA”) on June
7, 2012 in the principal amount of $500,000, the Company was advised that Ironridge Global IV, LTD (“Ironridge”),
led by Mr. John C. Kirkland, Esq., purportedly purchased the Note from TCA. The Complaint and Motion alleged that Ironridge
and TCA each served the Company with a Notice of Foreclosure and Sale, both claiming to be the “Secured Party” of
the same assets.
Given
that Ironridge and TCA asserted that they would sell the secured assets of the Company at auction on August 12, 2013, the Motion
sought to temporarily restrain both parties from so doing. On August 12, 2013, Justice Sherwood, Justice of the Supreme Court,
New York County, issued a written Order granting the relief requested, thereby restraining any sale of assets (the “Temporary
Restraining Order”).
On
August 26, 2013, despite the Company’s best efforts to amicably resolve the dispute related to the Note, a subsequent hearing
on the Motion was held, at which time the Company voluntarily brought with it to Court: (i) a certified check in the amount of
$535,833.33 constituting payment of all principal and interest owed under the Note; and (ii) a stock certificate constituting
the facility fee shares owed to the Secured Party pursuant to that certain Equity Facility Agreement. Since TCA admitted
in prior court filings that it has no remaining interest in the that certain Note and Equity Facility Agreement, both the check
and the stock certificate were tendered to Ironridge in open court, and counsel for Ironridge confirmed receipt thereof to Justice
Oing directly. The company's attorneys argued in court that, with the exception of possible attorney’s fees owed, the Company's
obligations under the transaction documents have now been satisfied in full.
In
addition, the Court found Ironridge’s jurisdictional argument to be unavailing and held that the case shall remain in New
York and directed all parties to file submissions with the Court on September 10, 2013, indicating why any other monies are or
are not owed under those certain transaction documents. Judge Oing further directed that the Temporary Restraining
Order restraining the sale of the Company’s assets shall remain in place indefinitely until further order of the Court and
that the auction shall not be rescheduled and that Ironridge shall not make, post or distribute any further advertisements, internet
postings, blogs or otherwise in relation thereto. Finally, Judge Oing held that the balance of the $680,000 that was
being held in escrow be immediately released.
A three
day hearing was conducted by Judge Gammerman and he ruled that Intellicell does not owe Ironridge or TCA any further payments. The
Company is awaiting a final honor by Judge Oing.
Hanover
Holdings Litigation
On
May 21, 2013, the Supreme Court of the State of New York, County of New York (the “Court”), entered an order (the
“Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section
3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement
(the “Settlement Agreement”) between the Company and Hanover Holdings I, LLC, a New York limited liability company
(“Hanover”), in the matter entitled Hanover Holdings I, LLC v. Intellicell Biosciences, Inc., Case No.
651709/2013 (the “Action”). Hanover commenced the Action against the Company on May 10, 2013 to recover an aggregate
of $706,765.38 of past-due accounts payable of the Company, plus fees and costs (the “Claim”). The Order provides
for the full and final settlement of the Claim and the Action. The Settlement Agreement became effective and binding upon the
Company and Hanover upon execution of the Order by the Court on May 21, 2013.
As previously
disclosed, on May 23, 2013, the Company issued and delivered to Hanover 8,500,000 shares (the “Initial Settlement Shares”)
of the Company’s common stock, $0.001 par value (the “Common Stock”).
The
Settlement Agreement provides that the Initial Settlement Shares will be subject to adjustment on the trading day immediately
following the Calculation Period (as defined below) to reflect the intention of the parties that the total number of shares of
Common Stock to be issued to Hanover pursuant to the Settlement Agreement be based upon a specified discount to the trading volume
weighted average price (the “VWAP”) of the Common Stock for a specified period of time subsequent to the Court’s
entry of the Order. Specifically, the total number of shares of Common Stock to be issued to Hanover pursuant to the Settlement
Agreement shall be equal to the sum of: (i) the quotient obtained by dividing (A) $706,765.38 by (B) 55% of the average of the
lowest 10 VWAPs of the Common Stock over the 80-consecutive trading day period immediately following the date of issuance of the
Initial Settlement Shares (or such shorter trading-day period as may be determined by Hanover in its sole discretion by delivery
of written notice to the Company) (the “Calculation Period”); (ii) the quotient obtained by dividing (A) the total
dollar amount of legal fees and expenses incurred in connection with the Action, which shall not exceed $57,500 (less $5,000 heretofore
paid by the Company) by (B) the VWAP of the Common Stock over the Calculation Period; and (iii) the quotient obtained by dividing
(A) agent fees of $35,338.27 by (B) the VWAP of the Common Stock over the Calculation Period, rounded up to the nearest whole
share (the “VWAP Shares”). As a result, the Company ultimately may be required to issue to Hanover substantially more
shares of Common Stock than the number of Initial Settlement Shares issued (subject to the limitations described below). The Settlement
Agreement further provides that if, at any time and from time to time during the Calculation Period, Hanover reasonably believes
that the total number of Settlement Shares previously issued to Hanover shall be less than the total number of VWAP Shares to
be issued to Hanover or its designee in connection with the Settlement Agreement, Hanover may, in its sole discretion, deliver
one or more written notices to the Company, at any time and from time to time during the Calculation Period, requesting that a
specified number of additional shares of Common Stock promptly be issued and delivered to Hanover or its designee (subject to
the limitations described below), and the Company will upon such request reserve and issue the number of additional shares of
Common Stock requested to be so issued and delivered in the notice (all of such additional shares of Common Stock, “Additional
Settlement Shares”). At the end of the Calculation Period, (i) if the number of VWAP Shares exceeds the number of Initial
Settlement Shares and Additional Settlement Shares issued, then the Company will issue to Hanover or its designee additional shares
of Common Stock equal to the difference between the number of VWAP Shares and the number of Initial Settlement Shares and Additional
Settlement Shares, and (ii) if the number of VWAP Shares is less than the number of Initial Settlement Shares and Additional Settlement
Shares issued, then Hanover or its designee will return to the Company for cancellation that number of shares of Common Stock
equal to the difference between the number of VWAP Shares and the number of Initial Settlement Shares and Additional Settlement
Shares. Hanover may sell the shares of Common Stock issued to it or its designee in connection with the Settlement Agreement at
any time without restriction, even during the Calculation Period.
The
Settlement Agreement provides that in no event shall the number of shares of Common Stock issued to Hanover or its designee in
connection with the Settlement Agreement, when aggregated with all other shares of Common Stock then beneficially owned by Hanover
and its affiliates (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and the rules and regulations thereunder), result in the beneficial ownership by Hanover and its affiliates (as calculated
pursuant to Section 13(d) of the Exchange Act and the rules and regulations thereunder) at any time of more than 9.99% of the
Common Stock.
As
previously disclosed, between June 17, 2013 and December 16, 2013, the Company issued and delivered to Hanover an aggregate of
87,266,171 Additional Settlement Shares pursuant to the terms of the Settlement Agreement approved by the Order.
Since
the issuance of the Initial Settlement Shares and Additional Settlement Shares described above, Hanover demonstrated to the Company’s
satisfaction that it was entitled to receive another 6,009,817 Additional Settlement Shares, based on the adjustment formula described
above, and that the issuance of such Additional Settlement Shares to Hanover would not result in Hanover exceeding the beneficial
ownership limitation set forth above. Accordingly, on December 27, 2013, the Company issued and delivered to Hanover another 6,009,817
Additional Settlement Shares pursuant to the terms of the Settlement Agreement approved by the Order.
The
issuance of Common Stock to Hanover pursuant to the terms of the Settlement Agreement approved by the Order is exempt from the
registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof, as an issuance of securities in exchange
for bona fide outstanding claims, where the terms and conditions of such issuance are approved by a court after a hearing upon
the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall
have the right to appear.
Corcon
Litigation
On
February 27, 2013, JKT Construction Inc. d/b/a/ Corcon (“Corcon”) filed a complaint (the “Corcon Complaint”)
against, among other parties, the Company and Dr. Victor, in the Supreme Court of the State of New York, Case No. 151778/2013,
alleging, among other things, breach of contract, unjust enrichment, quantum meruit and foreclosure on a mechanic’s lien
related to work performed in the build out of the Company’s office’s located at 460 Park Avenue, 17th Floor,
new York, New York 10022 (the “Property”). Corcon is seeking, among other things, that their claims
be determined to be a valid lien against the Property and that they be able to foreclose on and sell the Property, a judgment
for any deficiency against, among other parties, the Company and Dr. Victor and an amount of compensatory damages not less than
$442,334.03, plus interest, costs, attorneys’ fees and expenses.
On May 1,
2013, he entered into an agreement (the “Corcon Agreement”) with Corcon (“Corcon”) to settle the litigation
matter between the Company and Corcon (the “Corcon Litigation”) relating to that certain debt owed Corcon in the aggregate
amount of $547,000 (the “Debt”). For additional information regarding the Corcon Litigation subject to the Corcon
Agreement see the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”)
on March 27, 2013. Under the terms of the Corcon Agreement, Corcon has agreed to dismiss the Corcon Litigation in exchange
for receiving a payment of $475,000 (the “Purchase Price”) from Hanover Holdings I, LLC (“Hanover”) under
the terms of that certain a receivable purchase agreement (the “Corcon Receivable Purchase Agreement”). As
condition to the Corcon Agreement, Hanover and the Company entered into an agreement for Hanover to purchase various debt obligations
of, or claims against the Company and to file a civil action under Section 3(a)(10) (the “3(a)(10) Transaction”)
of the Securities Act of 1933, as amended. Further, as a material inducement to enter into the Corcon Agreement, the
Company agreed to escrow 19,000,000 shares of its common stock to be issued to Corcon in the event the 3(a)(10) Transaction was
not approved and Purchase Price was not received. On May 21, 2013, the Supreme Court of the State of New York, County
of New York, entered an order approving, among other things, the fairness of the terms and conditions of the 3(a)(10) Transaction
as previously disclosed on the Company’s Current Report on Form 8-K filed with the Commission on May 24, 2013.
The Corcon
Litigation was dismissed on May 10, 2013. And the 19,000,000 shares have been returned to the Company’s treasury.
Bluming
Litigation
On
February 14, 2013, the Company was served with notice that on February 13, 2013, Menachem M. Bluming (“Bluming”) filed
a complaint (the “Bluming Complaint”) in the United States District Court for the Southern District of New York, Case
No. 13-cv-0978-CM, alleging, among other things, breach of contract, unjust enrichment and debt owed against the Company, in connection
with, that certain promissory note, dated June 3, 2011, in the aggregate principal amount of $500,000. Bluming
is seeking, among other things, an amount not less than $680,000, representing the principal amount, interest, attorneys’
fees and expenses. The Company is currently working on making arrangements to honor its obligations under these notes,
however, there can be no assurance that any such arrangements will ever materialize or be permissible or sufficient to cover any
or all of the obligations under these notes.
On
May 8, 2013 (the “Effective Date”), the Company entered into a settlement agreement (the “Settlement Agreement”)
with Mendel Bluming (“Bluming”) to settle the previously disclosed litigation matter between the Company and Bluming
(the “Bluming Litigation”) relating to that certain promissory note, dated June 3, 2011, in the aggregate principal
amount of $500,000 (the “Note”). Under the terms of the Settlement Agreement, Bluming has agreed to dismiss
the Bluming Litigation and defer the Company’s obligations under the Note for a period of one year from the Effective Date
(the “Deferral”), in exchange for receiving a payment of $35,000 from Hanover under the terms of that certain receivable
purchase agreement for attorney’s fees owed by the Company to Bluming under the Note. As condition to the Settlement
Agreement, Hanover and the Company entered into an agreement for Hanover to purchase various debt obligations of, or claims against
the Company and to file a civil action under Section 3(a)(10) Transaction. On May 21, 2013, the Supreme Court of the
State of New York, County of New York, entered an order approving, among other things, the fairness of the terms and conditions
of the 3(a)(10) Transaction. In further consideration for the Deferral, the Company has agreed to give Bluming (i)
an aggregate of 32,479 shares of the Company’s common stock; (ii) piggy back registration rights on all shares issued to
Bluming and on the shares underlying that certain warrant certificate for 1,108,860 shares of the Company’s common stock;
and (iii) an option to purchase 233,333 shares of the Company’s common stock at price of $0.15 per share, vesting immediately
and expiring on the fifth anniversary of the Effective Date.
The Bluming
Litigation was dismissed on May 24, 2013.
Sherb
Litigation
In
February 2013, the Company was served with notice that on October 13, 2011, Sherb & Co. LLP (“Sherb”) filed a
complaint (the “Sherb Complaint”) in the Supreme Court of the State of New York, County of New York, Index No. 11/111685,
alleging, among other things, breach of contract, and debt owed against the Company, in connection with accounting and audit services
performed from May 12, 2010 through May 31, 2011. Sherb is seeking, among other things, an amount not less than
$88,508 plus interest. This has been turned into note assumed by MD Global Advisors.
Cragmont
Litigation
On August
21, 2012, a complaint for damages was filed by Ethan Einwohner and Cragmont Capital, LLC (collectively, “Cragmont”)
in the Supreme Court of the State of New York, County of New York, Index No. 652924/2012, alleging, among other things, quantum
meruit, unjust enrichment, fraud and breach of contract related to alleged services performed by Cragmont on behalf of the Company.
The parties entered into a stipulation whereby Craigmont withdrew and dismissed the claim for fraud. The complaint
was amended to add Recurrent Capital LLC as a plaintiff. Cragmont is seeking, among other things, damages of at least
$100,400 plus interest, costs and disbursements.
BFA Litigation
On August
19, 2011, a complaint for damages (was filed by Boisseau, Felicione & Associates, Inc. (“BFA”) in the Circuit
Court of the 15 th Judicial Circuit In and For Palm Beach County, Florida (the “FL Court”), Case No. 50-2011-CA-012551-XXXX-MB
(AE), alleging, among other things, breach of contract under the letter retainer agreement, dated on or about May 16, 2011, by
and between the Company and Plaintiff (the “BFA Agreement”). BFA sought, among other things, damages
of $55,829.00, prejudgment interest and court costs. On December 20, 2011, a default judgment was entered against the Company
for a total of $58,135.74 plus post-judgment interest. In November 2012, the parties entered into a stipulation for
settlement and garnishment whereby BFA agreed to accept $58,135.74 in full settlement of all amounts owed to BFA in full settlement
of all claims against the Company.
The results
of any litigation are inherently uncertain and there can be no assurance that we will prevail in the litigation matter stated
above or otherwise. We plan to pursue our claims and defenses vigorously and expect that the litigation matter discussed above
will be protracted and costly.
ITEM
4. MINE SAFETY DISCLOSURES.
None.
PART
II
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERS PURCHASES OF EQUITY
SECURITES.
During 2010
and until July 7, 2011, our common stock was quoted on the OTCQB under the symbol “CWLC.PK”. As of July 7, 2011,
our quotation symbol on the OTCQB was changed from “CWLC” to “SVFC”. From February 8, 2013 through
May 20, 2013, our common stock was quoted on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “SVFC.OB”. Since
May 20, 2013, our common stock was quoted on the OTCQB under the symbol “SVFC.PK”
The following
table sets forth the range of high and low bid quotations as reported on the OTCQB for the periods indicated.
| Fiscal Year Ended December 31, 2013 | |
High | | |
Low | |
| Quarter ended December 31, 2013 | |
$ | 0.004 | | |
$ | 0.0023 | |
| Quarter ended September 30, 2013 | |
$ | 0.014 | | |
$ | 0.0125 | |
| Quarter ended June 30, 2013 | |
$ | 0.055 | | |
$ | 0.037 | |
| Quarter ended March 31, 2013 | |
$ | 0.11 | | |
$ | 0.10 | |
| | |
| | | |
| | |
| Fiscal Year Ended December 31, 2012 | |
High | | |
Low | |
| Quarter ended December 31, 2012 | |
$ | 0.18 | | |
$ | 0.135 | |
| Quarter ended September 30, 2012 | |
$ | 0.19 | | |
$ | 0.19 | |
| Quarter ended June 30, 2012 | |
$ | 0.25 | | |
$ | 0.25 | |
| Quarter ended March 31, 2012 | |
$ | 1.58 | | |
$ | 1.57 | |
Holders
of Common Stock
As of May
9, 2014, we had 228 holders of record of our common stock and 2,230,314,377 shares of common stock issued and outstanding.
On January 20, 2014, and January 22, 2014, the Board and Majority Shareholder of the Company, respectively, approved an increase
of the authorized shares of common stock of the company from 1,500,000,000 to 3,500,000,000 and an amendment to the par value
of the common stock of the Company from a par value of $0.001 per share to a par value of $0.0001 per share. For more information
please see our Schedule 14C Information Statement filed with the SEC on February 14, 2014.
Dividends
We have
never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable
future. We currently intend to retain any future earnings to fund the development and growth of our business. There are no restrictions
in our certificate of incorporation or by-laws on declaring dividends.
Equity
Compensation Information
The following
table summarizes information about our equity compensation plans as of December 31, 2013.
| Plan Category | |
Number of Shares of
Common Stock to be Issued
upon
Exercise of
Outstanding Options
(a) | | |
Weighted-
Average
Exercise
Price of
Outstanding
Options | | |
Number of Shares
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))
(c) | |
| Equity Compensation Plans Approved by Stockholders | |
| 7,000,000 | | |
$ | 2.05 | | |
| 2,252,074 | |
| Equity Compensation Plans Not Approved
by Stockholders | |
| 7,000,000 | | |
| - | | |
| 7,000,000 | |
| | |
| | | |
| | | |
| | |
| Total | |
| 14,000,000 | | |
$ | 2.05 | | |
| 11,747,926 | |
Recent
Sales Of Unregistered Securities.
Except as
set forth below, we have had no sales of unregistered securities during the year ended December 31, 2013 and December 31, 2012, that
have not been reported on Form 8-K or Form 10-Q. Unless otherwise noted, the issuances noted below are all considered
exempt from registration by reason of Section 4(2) of the Securities Act of 1933, as amended.
Subsequent to Fiscal Year End
Through
April 24, 2014, a total of 1,058,838,813 shares of common stock were issued for various conversions of debt.
ITEM
6. SELECTED FINANCIAL DATA
Not Applicable.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Fiscal Year Ended December 31,
2013 Compared to Fiscal Year Ended December 31, 2012
Revenue
Revenue for the year ended December
31, 2013 and 2012 was $0 and $534,972, respectively. Revenues in 2012 were attributable to fees from cases processed by licensees
which were primarily related party revenue of $514,000 earned in accordance with the Regen Medical technology license and administrative
services agreement dated April 16, 2012. We intend to engage in a multi-pronged approach with respect to the utilization and commercialization
of our proprietary process that will involve entering into technology licensing agreements and related service agreements with
physicians, physician practice groups, hospitals and ambulatory service centers located in the United States. We will also be seeking
to enter into technology licensing agreements that cover a particular international territory or country. In addition, we will
also be seeking to establish “Centers of Excellence” in conjunction with physicians under an arrangement whereby we
are appointed the exclusive managing agent for the professional corporation in exchange for the grant of a license to the professional
corporation to utilize our proprietary process. Depending upon the arrangement involved, we will be collecting some combination
of fees from licensing, processing, service, and management, as well as up-front territorial licensing fees.
License fees will generally be
payable upon signing of a license agreement and will be recognized as revenue ratably over the appropriate period of time to which
the revenue item relates.
Cost of goods sold and Gross Margin
Cost of goods sold were $0 and $434,852
for the years ended December 31, 2013 and 2012, respectively. These costs were primarily salaries and related costs attributable
to the Regen technology license and administrative services agreement and the cost of supplies for cases processed in our
tissue processing center in New York.
Gross margin were $0 and $100,090 for
the years ended December 31, 2013 and 2012, respectively. In the future, in addition to the cost of equipment sold directly to
licensees, the cost of goods sold effecting gross margins will include costs for the supplies sold to licensees for the processing
of each tissue processing case and the direct sales costs associated with license fees received.
Operating expenses
Research and development expenses
were $441,913 and $291,889 for the years ended December 31, 2013 and 2012, respectively. The principal component of research development
costs consists services as the attending physician in patient cases, for lab technicians, and for nursing staff employed by Dr.
Victor’s medical practice included as part of the ongoing research of our technologies and processes.
The Company continues to increase the
research and development staff in the current year period and applicable laboratory supplies and disposables. The principal component
of research development costs consists of fees payable to the Chief Executive Officer, who is a principal shareholder of the Company,
for services as the attending physician in patient cases, for lab technicians, and for nursing staff employed by Dr. Victor’s
medical practice included as part of the ongoing research of our technologies and processes. Payment of these fees will be contingent
upon the Company either generating $2.0 million in revenues or completing an equity offering of the Company’s common stock
or other securities equal to or greater than $5.0 million, whichever occurs first. The fees payable to Dr. Victor for these cases
range from $5,000 to $10,000 per case.
Sales and marketing expenses
were $39,614 and $263,927 for the years ended December 31, 2013 and 2012, respectively. Sales and marketing expenses consist of
costs associated with the development of our brochure and informational materials, our website, an informational video and travel
expenses to attend professional meetings, as well as commissions on sales.
General and administrative expenses
were $3,652,443 and $3,613,210 for the years ended December 31, 2013 and 2012, respectively. The following are the significant
components of the general and administrative costs:
Salary Expense
General and administrative is comprised
of salary expenses of $526,690 and $988,231 for the years ended December 31, 2013 and 2012, respectively. Included in the salary
expense and related to a significant shareholder as a result of this individual serving in the capacity of our Chief Executive
Officer was $275,000 for each years ending December 31, 2013 and 2012. In addition, we incurred salary expenses totaling $180,000
and $205,000 for the years ending December 31, 2013 and 2012, respectively, to the spouse of our Chief Executive Officer and majority
shareholder.
Loss of Accounts Receivable
The Company and Regen Medical entered
into a termination and general release agreement, effective December 31, 2012, pursuant to which the Company and Regen Medical
agreed the Company shall forgive the $514,000 owed to the Company by Regen Medical under the Regen Medical Agreement in exchange
for the exclusive right to certain open label data and other data which the Company would like to have the rights to use as empirical
data or evidence of the efficacy of the Company’s proprietary process. The Company expensed a loss of accounts
receivable of $514,000 for the year-end December 31, 2012.
Rent and office administrative expenses
Included in general and administrative
expenses are $759,978 and $467,803 of rent and office administrative costs for the years ended December 31, 2013 and 2012, respectively. Rent
in the prior year included $150,000 for our previous office facilities and administrative office services provided by a company
owned by our chief executive officer and majority shareholder and approximately $318,000 for the office space located at 460 Park
Avenue. Rent in the current year includes rent for the office space located at 460 Park Avenue as well as an adjustment
of $246,223 in rent expense related to the deferred rent liability that was booked to conform with GAAP.
Professional fees
For the years end December 31, 2013
and 2012, we have incurred approximately $980,085 and $1,070,703 in legal and professional fees primarily related the FDA
compliance, public company costs and financing transactions.
Depreciation
Depreciation expense is included in
general and administrative costs and amounted to $405,702 and $221,428 for the years ended December 31, 2013 and 2012, respectively.
Employee Stock Based Compensation. During
the years ended December 31, 2013 and 2012, we incurred employee stock based compensation expenses of $1,386,765 and $2,333,922,
respectively, for incentive stock options and common stock issued to employees. The incentive stock options were valued
using the Black Scholes method.
Non-Employee Stock Based Compensation.
During the years ended December 31, 2013 and 2012, non-employee stock based compensation of $0 and $8,298,732 were incurred as
non-cash charges, respectively. Non-employee stock based compensation is comprised of the following:
| · |
During the year ended December 31, 2013 the Company issued 0 shares of common stock shares for medical advisory and professional services valued at $0 compared to 5,455,668 shares valued at $5,713,038 during the year ended December 31, 2012. |
| · |
During the year ended December 31, 2013, the Company issued 0 warrants and 0 non-employee stock options for consulting and profession services valued at $0 and $0, respectively, compared to 1,684,200 warrants and 150,000 non-employee stock options valued at $2,720,764 and $34,930 during the year ended December 31, 2012. |
The value of the warrants and non-employee
stock options were determined using the Black Scholes method, the details of which are more fully explained within the notes to
the financial statements.
Changes in Fair Value of Derivative
Liability
The Company has issued various instruments
(as detailed below) which are accounted for as derivative liabilities and are valued at fair value at the date of issuance and
at each balance sheet date. The change in value of these instruments is recorded as a charge (or as income). During the years
ended December 31, 2013 and 2012, the Company recorded an expense in the amount of $2 ,944,351 and income in the amount
of $13,804,271, respectively, relating to the change in value of all its derivative liabilities.
The instruments with derivative properties
are as follows:
Convertible Debt - Derivative Liabilities
In May 2011, IntelliCell completed a
convertible debt offering aggregating $1,385,000. The units offered consist of a $50,000 subordinated convertible debenture payable
one year from the date of issue with interest at a rate of 6% and convertible, at the option of the holder, into the Company’s
common stock at an initial conversion price of $1.72 per share. Each unit also included a detachable five (5) year warrant to purchase
57,143 shares of IntelliCell’s common stock at an exercise price of $1.72 per share. The proceeds from the issuance
of convertible debt securities with detachable warrants were allocated between the warrants and the debt security. The discount
is being amortized over the life of the debt. As of December 31, 2011, the Company recorded an original issue discount of $288,564
related to the value of the warrants that will be amortized as interest expense over the initial one year term of the convertible
debentures. As of December 31, 2011, the Company has recognized $216,422 of interest expense as a result of such amortization.
The Company accounted for the conversion
features underlying the convertible debentures an issued in accordance with GAAP, as the conversion feature embedded in the convertible
debentures could result in the debentures being converted to a variable number of the Company’s common shares. The Company
determined the value of the derivate conversion features of these debentures issued during the year ended December 31, 2011 at
the relevant commitment dates to be $32,209 utilizing a Black-Scholes valuation model. The change in fair value of the liability
for the conversion feature resulted in a reduction to income of $583,837 and a reduction to income of $3,893,821 for year ended
December 31, 2013 and 2012, respectively, which is included in the accompanying financial statements. The fair value of the derivative
conversion features was determined to be $1,051 and $587,520 at December 31, 2013 and 2012, respectively.
The Company accounted for the detachable
warrants included with the convertible debentures as liabilities in accordance with GAAP, as the warrants are subject to anti-dilution
protection and could result in them being converted to a variable number of the Company’s common shares. The Company determined
the value of the derivate feature of the warrants issued during year ended December 31, 2011 at the relevant commitment dates to
be $332,401 utilizing a Black-Scholes valuation model. The change in fair value of the liability for the warrants resulted in a
reduction to income of $382,296 and a charge to income of $9,921,400, respectively for year ended December 31, 2013 and 2012, respectively,
which is included in the accompanying financial statements. The fair value of the derivative conversion features was determined
to be $6,254 and $388,550 at December 31, 2013 and 2012, respectively.
As discussed, as a result of the Company’s
Merger, and the effect of recapitalization, the exercise price of the convertible debentures and warrants was decreased from $1.72
to $.88. The subordinated convertible debentures are convertible into an aggregate of 1,561,443 shares of common stock and
warrants to purchase an aggregate of 3,071,542 shares of common stock.
Common Stock Offering - Derivative
Liabilities
In February 2012, the Company entered
into securities purchase agreements with accredited investors, pursuant to which the Company sold (i) an aggregate of 2,600,000
shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), (ii) class A warrants
to purchase an aggregate of 5,200,000 shares of Common Stock (the “Class A Warrants”), and (iii) class B warrants to
purchase an aggregate of 5,200,000 shares of Common Stock (the “Class B Warrants” and together with the Class A Warrants,
the “Warrants”), for aggregate gross cash proceeds of $2,627,649, which consisted of $2,100,000 of cash and the exchange
and cancelation of a promissory note (bearing principal and interest totaling $527,549) and a warrant ("Exchange Agreement").
The Class A Warrants are exercisable
for a period of five years from the date of issuance at an initial exercise price of $2.00, subject to adjustment. The Class B
Warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $3.75, subject to
adjustment. The exercise price of the Warrants were subject to anti-dilution protection if shares or share-indexed financing instruments
were sold at less than the stated conversion prices.
Therefore, the associated conversion
feature requires liability classification under GAAP which is carried at their fair value to be reevaluated each reporting
period. We estimate their fair value as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls),
because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion
behavior estimates) that are necessary to determine the fair value of this type of financial instrument.
We determined the value of the derivative
conversion features of these debentures issued at the relevant commitment dates to be $19,036,312 utilizing a Black-Scholes valuation
model.
Between September 5, 2012 and October
11, 2012, the February 2012 investors (including the investor that exchanged and cancelled his outstanding promissory note) agreed
to certain amendments to their securities purchase agreement and exchange their respective Warrants for (i) an aggregate
of 6,100,000 shares of the Company’s Common Stock (ii) a new series A warrant to purchase an aggregate of 6,100,000
shares of Common Stock at an exercise price of seventy-five cents ($0.75) per share and (iii) a new series B warrant to purchase
an aggregate of 6,100,000 shares of Common Stock at an exercise price of seventy-five cents ($0.75) per share.
As of December 31, 2013 and 2012, the Company had 100,000
Class A and 100,000 Class B warrants outstanding, these warrants were not exchanged and retained their anti-dilutive properties.
The value of the derivative liability associated with the conversion feature of these warrants were $482 and $10,950 for the years
ended December 31, 2013 and 2012, respectively.
Loss before income tax and Net
Loss
Loss before income tax for the years
ended December 31, 2013 and 2012 was $ 15,868,039 and $4,151,891, respectively, which includes a charge for the non-cash
change in fair value of derivative liabilities and other expense of $2, 944,351 for the year ended December 31, 2013 and
a reduction of charges for the non-cash change in fair value of derivative liabilities of $13,804,271 for the year end December
31, 2012. Furthermore, loss before income tax for the year ended December 31, 2013 and 2012 included non-cash charges of $4,300,899
and $0 for financing costs for convertible debt issuances, non-cash expense for Employee Stock Compensation of $1,386,765
and $2,333,922, non-cash expense for Non-Employee Stock Based Compensation of $0 and $8,298,732, and stock based financing costs
of $305,112 and $3,041,660, respectively, as discussed above. As we are just beginning to implement our business strategy
we anticipate that we will continue to have operating losses for the next several calendar quarters until such time as we have
been able to establish a sufficient number of licensees generating licensing, processing, service, and management fees to us,
as well as up-front territorial licensing fees, sufficient to cover our operating costs.
Liquidity and Capital Resources
We had a working capital deficit as
of December 31, 2013 of $ 8,527,193 , compared to a working capital deficit at December 31, 2012 of $6,687,734.
Our cash and cash equivalents as December
31, 2013 was $0, compared to cash balances at December 31, 2012 of $10,159. We are in the early stages of the implementation of
our business strategy and anticipate we will require additional cash to fund our operations for the next twelve months inclusive
of costs associated with attracting, training and acquiring laboratory equipment for licensees, costs associated with the conducting
of clinical research needed to establish and protect the therapeutic benefits of our technologies, costs associated with the development
and marketing and promotional and educational materials relative to our services and costs associated with building out the infrastructure
necessary to manage and control our business. In the near term, we plan to utilize our existing limited cash balances and proceeds
from licensing, processing, service, and management fees to us, as well as up-front territorial licensing fees, and additional
debt and equity based financings to maintain our operations.
Based on our current cash and cash equivalents
levels and expected cash flow from operations, we believe our current cash position is not sufficient to fund our cash requirements
during the next twelve months, including operations and capital expenditures. We intend to license our proprietary technology and
services or obtain equity and/or debt financing to support our current and proposed operations and capital expenditures. We cannot
assure that continued funding will be available. There can be no assurance, however, that any such opportunities may arise, or
that any such acquisitions may be consummated. Additional financing may not be available on satisfactory terms when required. To
the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. We
currently have no firm commitments for any additional capital. There is no guarantee that we will be successful in raising
the funds required. If additional financing is not available or is not available on acceptable terms, we will have to curtail our
operations.
Net cash from operating activities
Net cash used in operating activities
was $1,159,641 and $1,064,556 for the year ended December 31, 2013 and 2012, respectively. Cash was used primarily to fund our
operating losses exclusive of non-cash expenditures such as stock compensation for services and changes in the fair value of our
derivative liabilities. For the year ended December 31, 2013, operating activities were impacted by increases in our accounts payable
of $1,608,004, and $1,775,489 in increases in loss on conversion of accounts payable to common stock.
Net cash from investing activities
Net cash provided by (used in) investing
activities was $219,158 and $(2,747,072) for the years ended December 31, 2013 and 2012, respectively, which includes a write-off
of $12,240 in office furniture in the year ended December 31, 2013 and $929,457 for the purchase of office furniture and equipment
and lab equipment for the year ended December 31, 2012. Additionally, there was a write-off of $275,000 and additional
costs of $1,532,181 for Construction-in-progress costs for the lease build-out in our new corporate and operations facility, respectively,
in the years ended December 31, 2013 and 2012. Furthermore, $93,175 and $285,434 of net advances were due from Regen
Medical, and the Company had an increase in restricted cash for the security deposit on their lease of $124,547 and $0, respectively
during the years ended December 31, 2013 and 2012.
Net cash from financing activities
Net cash provided by financing activities
was $930,324 and $3,711,593 for the year ended December 31, 2013 and 2012, respectively, consisting of $0 and $2,766,050 of net
proceeds received from the sale of our common stock, $0 and $230,000 of gross proceeds from our Series D preferred stock offering,
and $416,000 and $0 of gross proceeds from our convertible note offering, respectively. Additionally, the Company received
net related party advances from Dr. Victor in the amount of $414,324 and $113,976, convertible debentures of $100,000 and
$0, and notes payable of a net $0 and $601,567 for the year end December 31, 2013 and 2012, respectively.
Intellicell Convertible Promissory
Notes
In accordance with the provisions of
the Intellicell Notes, we notified the holders of their right to have the Intellicell Notes repaid upon completion of our recent
equity financing (pursuant to which we received aggregate gross proceeds of $2,627,549, which consisted of $2,100,000 of
cash and the exchange and cancelation of a promissory note (bearing principal and interest totaling $527,549) and a warrant),
or to convert their Intellicell Notes into shares of our common stock. As of the date of this Annual Report on Form 10-K,
holders of Intellicell Notes in the principal amount of $469,215 have converted their Intellicell Notes into shares of our common
stock. On May 17, 2012, the holder of an aggregate of $500,000 principal amount of IntelliCell Notes informed the Company that
it is in default and demanded repayment under the IntelliCell Notes. Pursuant to the terms of the IntelliCell Notes,
upon the occurrence, after the expiration of a cure period of fifteen (15) days with respect to monetary defaults, following the
receipt by the Company of written notice from a holder of a default in the payment of any installment of principal or interest,
or any part thereof, when due, a holder, at its election may accelerate the unpaid balance of the principal and all accrued interest
due under this Note and declare the same payable at once without further notice or demand. Upon an event of default
under the IntelliCell Notes, the holders of the IntelliCell Notes shall be entitled to, among other things (i) the principal amount
of the IntelliCell Notes along with any interest accrued but unpaid thereon and (ii) costs and expenses in connection with the
collection and enforcement under the IntelliCell Notes, including reasonable attorneys’ fees. As a result of
the notice of default, as of the date of December 31, 2013 the IntelliCell Notes in the aggregate principal amount of $330,000
are immediately due and payable. All note holders of these Convertible notes were paid in full in the as of February
5, 2014 . The note holders were paid by assignment and assumption agreements executed by the company under revised convertible
debt issuances.
TCA Global MasterFund, L.P. Convertible
Note
On June 7, 2012, the Company issued
the Convertible Promissory Note (the "Note") in favor of TCA Global Master Fund, L.P. ("TCA") in exchange for
gross proceeds of $500,000. The maturity date of the Convertible Note is June 7, 2013, and the Convertible Note bears
interest at a rate of twelve percent (12%) per annum. The Convertible Note is convertible into shares of the Company’s
common stock, par value $0.001 per share (the "Common Stock") at a price equal to ninety-five percent (95%) of the
average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior
to the date of conversion. The Convertible Note may be prepaid in whole or in part at the Company’s option without
penalty.
Committed Equity Facility Agreement
On June 7, 2012, the Company entered
into the Equity Agreement with TCA. Pursuant to the terms of the Equity Agreement, for a period of twenty-four months
commencing on the effective date of the Registration Statement (as defined herein), TCA shall commit to purchase up to $2,000,000
of the Company’s common stock, par value $0.001 per share (the “Shares”), pursuant to Advances (as defined below),
covering the Registrable Securities (as defined below). The purchase price of the Shares under the Equity Agreement
is equal to ninety-five percent (95%) of the lowest daily volume weighted average price of the Company’s common stock during
the five (5) consecutive trading days after the Company delivers to TCA an Advance notice in writing requiring TCA to advance funds
(an “Advance”) to the Company, subject to the terms of the Equity Agreement.
The “Registrable Securities”
include (i) the Shares; and (ii) any securities issued or issuable with respect to the Shares by way of exchange, stock dividend
or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
As further consideration for TCA entering
into and structuring the Equity Facility, the Company paid TCA a fee by issuing to TCA that number of shares of the Company’s
common stock that equal $110,000.
TCA Default Notice
On August 8, 2013, a Summons and Complaint
(the “Complaint”) was filed along with a Motion for a Temporary Restraining Order (the “Motion”) before
the Supreme Court of the State of New York, County of New York (the “Court”) under the caption Intellicell
Biosciences, Inc. v Ironridge Global IV, LTD., and TCA Global Credit Master Fund, LP, Index No. 652800/13. The Motion sought
to restrain the sale of the Company’s assets.
As previously reported, on July 15,
2013, while the Company was finalizing an amendment and waiver to that certain Convertible Promissory Note (the “Note”)
issued by the Company in favor of TCA Global Credit Master Fund, LP (“TCA”) on June 7, 2012 in the principal amount
of $500,000, the Company was advised that Ironridge Global IV, LTD (“Ironridge”), led by Mr. John C. Kirkland, Esq.,
purportedly purchased the Note from TCA. The Complaint and Motion alleged that Ironridge and TCA each served the Company
with a Notice of Foreclosure and Sale, both claiming to be the “Secured Party” of the same assets.
Given that Ironridge and TCA asserted
that they would sell the secured assets of the Company at auction on August 12, 2013, the Motion sought to temporarily restrain
both parties from so doing. On August 12, 2013, Justice Sherwood, Justice of the Supreme Court, New York County, issued a written
Order granting the relief requested, thereby restraining any sale of assets (the “Temporary Restraining Order”).
On August 26, 2013, despite the Company’s
best efforts to amicably resolve the dispute related to the Note, a subsequent hearing on the Motion was held, at which time the
Company voluntarily brought with it to Court: (i) a certified check in the amount of $535,833.33 constituting payment of all principal
and interest owed under the Note; and (ii) a stock certificate constituting the facility fee shares owed to the Secured Party pursuant
to that certain Equity Facility Agreement. Since TCA admitted in prior court filings that it has no remaining interest
in the that certain Note and Equity Facility Agreement, both the check and the stock certificate were tendered to Ironridge in
open court, and counsel for Ironridge confirmed receipt thereof to Justice Oing directly. The company's attorneys argued in court
that, with the exception of possible attorney’s fees owed, the Company's obligations under the transaction documents have
now been satisfied in full.
In addition, the Court found Ironridge’s
jurisdictional argument to be unavailing and held that the case shall remain in New York and directed all parties to file submissions
with the Court on September 10, 2013, indicating why any other monies are or are not owed under those certain transaction documents. Judge
Oing further directed that the Temporary Restraining Order restraining the sale of the Company’s assets shall remain in place
indefinitely until further order of the Court and that the auction shall not be rescheduled and that Ironridge shall not make,
post or distribute any further advertisements, internet postings, blogs or otherwise in relation thereto. Finally, Judge
Oing held that the balance of the $680,000 that was being held in escrow be immediately released.
Ludlow Capital Convertible Promissory
Note
On April 30, 2013, the Company issued
a Convertible Promissory Note to Ludlow Capital, LLC, for $15,000 in professional services. The terms of the Convertible
Promissory Note require repayment immediately and bear a 0% interest rate. The Convertible Promissory Note is convertible
into shares of the Company’s common stock, par value $0.001 per share (the "Common Stock") at a price that shall
be 10% below the closing bid upon notice of conversion. The Convertible Promissory Note is currently due and payable.
Steven Victor Convertible Promissory
Note
On October 1, 2013, the Company issued
a $1,000,000 convertible promissory note to Steven Victor to memorialize $585,794 of accrued salary and $414,206 of personal loans
due to Steven Victor. The convertible promissory note is payable on demand and bears an annual 12% simple interest rate. The
convertible promissory note is convertible into shares of the Company’s common stock, par value, $0.001 per share (the “Common
Stock”) at a price equal to the average five trading day closing bid price during the five days immediately prior to the
conversion date multiplied by two.
On October 11, 2013, the Company was
advised that the convertible promissory note was assigned to Redwood Management, LLC.
Anna Rhodes Convertible Promissory
Note
On October 1, 2013, the Company issued
a $389,711 convertible promissory note to Anna Rhodes to memorialize $229,464 of accrued salary and $160,247 of personal loans
due to Anna Rhodes. The convertible promissory note is payable on demand and bears an annual 12% simple interest rate. The
convertible promissory note is convertible into shares of the Company’s common stock, par value, $0.001 per share (the “Common
Stock”) at a price equal to the average five trading day closing bid price during the five days immediately prior to the
conversion date multiplied by two.
On October 11, 2013, the Company was
advised that the convertible promissory note was assigned to Redwood Management, LLC.
WHC Capital Convertible Promissory
Note
On November 15, 2013, the Company issued
a 75,000 convertible promissory note to WHC Capital. The Company received $66,000 in cash and $9,000 was recorded as
an other receivable on the balance sheet. The terms of the convertible promissory note require repayment on November 15, 2014 and
bears an interest rate of 12% per annum. The convertible promissory note is convertible into shares of the Company’s
common stock, par value, $0.001 per share (the “Common Stock”) at a price equal to 48% of the lowest intra-day trading
price for the Company’s common stock during the fifteen trading days immediately preceding the conversion date.
During November and December 2013, $39,617
of the principal of the convertible promissory note was converted to 49,920 shares of common stock.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet
arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
Contractual Obligation and Commitments
The following table is a summary of
contractual cash obligations for the periods indicated that existed as of December 31, 2013, and is based on information appearing
in the notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
| |
|
Total |
|
|
Less than
1 Year |
|
|
1-2 Years |
|
|
3-5 Years |
|
|
More than
5 Years |
|
| Current Debt Obligations |
|
$ |
|
|
|
$ |
4,733,319 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current Operating Lease Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total obligations |
|
$ |
|
|
|
$ |
4,733,319 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The
full text of our audited consolidated financial statements as of December 31, 2013 and December 31, 2012, begins on page F-1
of this amended annual report on Form 10-K /A .
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
We do not
have any changes in or disagreements with accountants on accounting and financial disclosure.
ITEM
9A. CONTROLS AND PROCEDURES.
On
or about August 29, 2014, the Board of Directors of the Company, upon the recommendation of the Company’s management and
after discussions with the Company’s current and former independent registered public accounting firms, concluded that the
quarterly financial statements filed on Form 10-Q for the period ended September 30, 2013 and March 31, 2014 and the annual financial
statements filed on Form 10-K for the year ended December 31, 2013 as previously issued should no longer be relied upon and will
be restated.
This
amended annual report on Form 10-K/A reflects certain corrections made in connection with the Company’s accounting
for the application of fair value assessment for transactions involving derivative obligations related to the issuance
of convertible debt instruments. The transactions include (1) derivative valuation at inception of the debt instrument, (2)
upon conversion of the instrument to common stock, (3) upon assignment of the debt instrument and (4) upon valuation of the
derivative at December 31, 2013. The Company also detected errors in the recording of debt discounts, upon issuance of
debt instruments. These incorrectly recorded debt discounts also affected amortization expense for the fiscal year
ended December 31, 2013.
This
restatement has impacted the Company’s CEO and accounting professionals original conclusions regarding the
effectiveness of disclosure controls and procedures and internal controls over financial reporting by further demonstrating
the need for the Company to segregate duties and develop a stronger internal control environment. The Company is planning to
further segregate duties related to internal controls over financial reporting as it increases its number of employees. The
Company plans to hire additional employees in 2015 to change its disclosure controls and procedures and prevent future
misstatements of a similar nature.
Evaluation
of Disclosure Controls and Procedures
We carried
out an evaluation, under the supervision and with the participation of our management, including our principal executive officer
and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures include, without limitation,
means controls and other procedures that are designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms and (ii) accumulated and communicated to the issuer's management, including its
principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on this evaluation, because of our limited resources and limited number of employees,
management concluded that our disclosure controls and procedures were ineffective as of December 31, 2013.
Management
has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment.
Management believes that these material weaknesses are due to the small size of our accounting staff. The small size
of our accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of
such remediation.
To mitigate
the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with
the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will
enable us to implement adequate segregation of duties within the internal control framework.
These control deficiencies could
result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our
consolidated financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed
additional analyses and procedures in order to conclude that our consolidated financial statements for the fiscal year ended December
31, 2013 included in this amended annual report on Form 10-K /A were fairly stated in accordance with US GAAP. Accordingly,
management believes that despite our material weaknesses, our consolidated financial statements for the fiscal year ended
December 31, 2013 are fairly stated, in all material respects, in accordance with US GAAP.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, which consists of our
Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over
financial reporting based on criteria established in the framework in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), as supplemented by the COSO publication Internal
Control over Financial Reporting – Guidance for Smaller Public Companies . Based on their evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective
as of December 31, 2013 for the deficiencies set forth above.
This amended annual report
does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission
that permits us to provide only management’s report in this amended annual report.
Limitations
on Effectiveness of Controls and Procedures
Our management,
including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures
or our internal controls will prevent all errors and all fraud. Further, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the company have been detected. These inherent limitations include, but are not limited to, the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future
events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
Changes
in Internal Control over Financial Reporting
No changes
in our internal control over financial reporting have come to management's attention during our last fiscal quarter that have
materially affected, or are likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION.
Not applicable.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Executive
Officers and Directors
The names,
ages and positions of our directors and executive officers as of May 9, 2014, are as follows:
| Name |
|
Age |
|
Position |
| Steven A. Victor,
M.D. |
|
62 |
|
Chairman of the
Board of Directors, Chief Executive Officer, President, Secretary and Treasurer |
| Leonard Mazur |
|
68 |
|
Interim Chief
Operating Officer and Director |
| Michael Hershman |
|
69 |
|
Director |
| Myron Holubiak |
|
67 |
|
Director |
| Sam Khashman |
|
45 |
|
Director |
All directors
hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers are
elected annually by the board of directors and serve at the discretion of the board.
Background
of Executive Officers and Directors
The principal
occupations for the past five years (and, in some instances, for prior years) of each of our directors and executive officers
are as follows:
STEVEN
A. VICTOR M.D. was appointed as our chief executive officer, president, secretary, treasurer and director on June 3,
2011. Dr. Victor is a practicing celebrity dermatologist with over 20 years of experience. Author of the book “Ageless
Beauty – A Dermatologist’s Guide to Looking Younger Without Plastic Surgery”, Guest Appearances on 20/20, Good
Morning America, The Today Show, etc., along with features in nationally published fashion/style magazines. Dr. Victor is renowned
in the field of Dermatology, pioneering some of the most effective and interesting treatments in skin rejuvenation today. He has
lectured around the world, consulted for numerous cosmetic companies, featured in numerous magazines and featured in various Television
and News segments. Dr. Victor has developed numerous successful consumer products for distribution through the Cosmeceuticals
and Prescription skin care channels. Medicis (MRX/NYSE), a specialty pharmaceutical company that develops and markets products
for the treatment of dermatological, aesthetic, and podiatric conditions, was initially launched successfully with 6 Rx products
of Dr. Victor’s including Benzashave, a patented product. Dr Victor launched the one of the first acne infomercials in 1992
and developed the products for the Cher Skin Care infomercial. Dr. Victor has held numerous teaching appointments and holds a
Bachelor of Arts degree from New York University and a received his M.D. degree from New York College. Dr. Victor was
selected to serve as a director due to his deep familiarity with our business, the regenerative medical industry, our proprietary
process and his extensive entrepreneurial background.
LEONARD
L. MAZUR was appointed to our Board of Directors on June 3, 2011 and interim chief operating officer on February
14, 2013. Mr. Mazur since January 2008 is the co-founder and Vice Chairman of Akrimax Pharmaceuticals, LLC, a privately
held pharmaceutical company specializing in producing cardiovascular and general pharmaceutical drugs Between January
2005 to May 2012 he served as Co-Founder and Chief Operating Officer of Triax Pharmaceuticals LLC, a specialty pharmaceutical
company producing prescription dermatological drugs.. Prior to joining Triax, he was the founder and, from 1995 to 2005, Chief
Executive Officer of Genesis Pharmaceutical, Inc., a dermatological products company that marketed its products through dermatologists’
offices. In addition, Mr. Mazur has extensive sales, marketing and business development experience from his tenures at Medicis
Pharmaceutical Corporation, as executive vice president, ICN Pharmaceuticals, Inc., Knoll Pharma (a division of BASF), and Cooper
Laboratories, Inc. Mr. Mazur is a member of the Board of Trustees of Manor and is a recipient of the Ellis Island Medal of Honor.
Mr. Mazur has marketing and entrepreneurial experience in the pharmaceutical industry, and his experiences with pharmaceutical
products make him a valuable member of our Board of Directors.
MICHAEL
HERSHMAN was appointed as a director on November 19, 2012.Mr. Hershman has been president and chief executive
officer of The Fairfax Group LLC, an investigative, security and crises management firm, since founding the company in 1983. Mr.
Hershman is an internationally recognized expert on matters relating to transparency, accountability, governance, litigation and
security. Over the years, Mr. Hershman has served as a senior staff investigator for the Senate Watergate Committee, as chief
investigator for a joint Presidential and Congressional commission, reviewing state and federal laws on wiretapping and electronic
surveillance, as chief investigator for the Federal Election Commission, as deputy staff director for the Subcommittee on International
Organizations of the U.S. House of Representatives and as deputy auditor general for the Foreign Assistance Program of the U.S.
Agency for International Development. In 1993, Mr. Hershman co-founded Transparency International, the largest independent,
not-for-profit coalition promoting transparency and accountability in business and in government. For the past six years he has
served Interpol as a member of the International Group of Experts on Corruption, and for the past twelve years, he has sat on
the board of the International Anti-Corruption Conference Committee. Mr. Hershman is a member of the board of directors of the
U.S. Chamber of Commerce Foundation. Since 2007, Mr. Hershman has been a member of the board of directors and the executive committee
of the Center for International Private Enterprise. For the past twelve years Mr. Hershman has been a member of Interpol’s
International Group of Experts on Corruption and now serves as Vice Chairman. Mr. Hershman is also on the board of the International
Anti-Corruption Conference Committee, the Financial Coalition against Child Pornography, which is a project of the National Center
for Missing and Exploited Children and he is a member of the Advisory Council of the George Mason University School of Information
Technology and Engineering. Mr. Hershman was selected to serve as a director due to his experience as a director of
other public companies and his experience with corporate compliance.
MYRON
HOLUBIAK was appointed to our Board of Directors on October 23, 2012. Mr. Holubiak is the former President
of Roche Laboratories, Inc. He held this position from December 1998 to August 2001. From August 2001 to June 2002, Mr. Holubiak
was President, Chief Operating Officer and member of the Board of Directors of iPhysicianNet, Inc., a video detailing company.
From July 2002 to April 2007 Mr. Holubiak was President and Chief Operating Officer of HealthSTAR Communications, Inc., a
health care marketing communications network of 16 companies. Currently, Mr. Holubiak is the President and a member
of the board of directors of 1-800-Doctors, Inc., a medical referral company that provides consumers with access to physicians
and hospitals. From April 2004 to July 2008 Mr. Holubiak served on the board of directors of Nastech Pharmaceuticals Company,
Inc. (now Marina Biotech, Inc.). Mr. Holubiak is also a member of the board of directors of Venture Biosciences, Inc. Mr.
Holubiak is currently the Chairman of the Board of Directors of BioScrip, Inc, which is a specialty pharmaceutical company. Mr.
Holubiak was selected to serve as a director due to his deep familiarity with the healthcare industry, his extensive entrepreneurial
background and his public company experience.
SAM KHASHMAN founded
Technology Partners, Inc. (dba IMAGINE Software) in 2000 and has an extensive background in systems integration, process efficiency,
and imaging systems with more than 18 years of experience in executive leadership. He has spent his career implementing and developing
national and international markets for various business software solutions, and is recognized in radiology for combining complex
processes into single system solutions. Mr. Khashman is also involved in numerous civic organizations and currently serves on
the board of the National Chamber Foundation, the public policy think tank of the U.S. Chamber of Commerce in Washington D.C.
and the advisory board of InfraGard Nations Capital Members Alliance, Inc.
Significant
Employees
None
Advisory
Board
We have
access to a number of academic and industry advisors with expertise in regenerative medicine. Members of our advisory
board meet with our management and key employees on an ad hoc basis to provide advice in their respective areas of expertise and
further assist us by periodically reviewing with management our proposed activities. The members of our advisory board
include the following doctors and scientific personnel: Dr. James R. Andrews, Dr. Frederic Nicola, Dr. Sydney Coleman, Dr. Eric
Richter, Dr. Harold Bafitis, Dr. Lyle Cain, Dr. Benton Emblom. Additional members of our advisory board include Mr. Jack Schneider,
a former managing director of Allen & Co, as well as Mr. Stuart Goldfarb, a former director of the Company who was also the
former CEO of Atrinsic, Inc. as well as the former President and CEO of Bertelsmann Direct North America (now known as Direct
Brands, Inc.). Many of our advisory board members possess insight and significant experience in the emerging market for regenerative
medicine, as well as the potential areas of application of our proprietary, patent pending process technology. We further believe
that some of these individuals may be instrumental in advancing our research and development programs. Our advisory board members
have already made significant contributions to our proposed programs, including providing input on proposed trials and protocols
as well as endpoint design. In connection with a member’s retention on our advisory board, they enter into advisory
agreements that provide for compensation to them, generally in the form of warrants to purchase shares of common stock of the
Company, which also contain provisions for confidentiality as well as assignment of invention agreements, subject to the member
respective obligations and responsibilities to any institution or institutions at which they are employed.
Advisory
Board Consulting Agreement with Dr. James Andrews
On March
11, 2014, the Company executed a Consulting Agreement (the “Consulting Agreement”) with Dr. James Andrews, effective
March 7, 2014, pursuant to which Dr. Andrews shall serve as Chairman of the Intellicell Orthopedic Cellular Therapy Advisory Board. The
initial term of the Agreement shall be for a period of ten (10) years unless extended as provided in the Agreement or unless terminated
by either party with thirty (30) days advance written notice to the other party. In consideration for Consultant’s
services, the Consultant shall be paid a monthly fee and make a monthly charitable contribution to the Andrews Foundation after
the Company closes a Capital Raise (as defined in the Consulting Agreement), and the amount of such monthly fee and monthly charitable
contribution shall be determined based on the amount raised in the Capital Raise. For example, if the value of the
Capital Raise is equal to or greater than $2,000,000 but less than $15,000,000, the monthly fee payable to the Consultant thereafter
shall be equal to $30,000 (with $6,000 of such amount payable to Dr. Michael Immel) with a charitable contribution of $10,000
payable to the Andrews Foundation thereafter for the term of the Consulting Agreement.
Furthermore,
commencing on March 1, 2014 and ending on May 1, 2017, on each of March 1, June 1, October 1 and January 1 during such period,
the Company shall issue and the Consultant shall be entitled to receive non-qualified stock options to purchase a number of shares
of the Company’s common stock equal to 750,000 divided by the average of the closing bid price per share of such common
stock for the ten (10) trading days immediately prior to the date of issuance, subject to certain adjustments as set forth in
the Consulting Agreement. The options have a strike price of $0.0058 per share and are exercisable for ten (10) years. A
portion (13.33%) of such options will be issued to the Andrews Foundation (and Dr. Immel shall receive 20% of such options). In
addition, The Company shall issue to the Consultant 6,666,666 shares of its common stock based on the market price at the date
of the execution of the License Agreement (see description above), as well as 2,000,000 shares to Dr. Immel and 1,333,333 shares
to the Andrews Foundation. Additionally, 1,000,000 shares shall be issued to the Consultant, 200,000 shares shall be
issued to Dr. Immel and 133,333 shares shall be issued to the Andrews Foundation upon FDA approval of the Company’s Stromal
Vascular Fraction Cell injection for treatment of osteoarthritis.
The Consulting
Agreement contains customary representations and warranties, as well as a mutual indemnification provision, an assignment of inventions
and patents provision and a confidentiality and trade secrets provision. The foregoing description of the Consulting
Agreement does not purport to be complete and is qualified in its entirety by reference to such document, which is attached as
Exhibit 10.2 hereto and incorporated herein by reference.
Family
Relationships
There are
no family relationships between any director, executive officer, or person nominated or chosen by the registrant to become a director
or executive officer.
Involvement
in Certain Legal Proceedings
To our knowledge,
during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been a party
to:
| ● |
any
bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that time; |
| ● |
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses); |
| ● |
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or
banking activities or to be associated with any person practicing in banking or securities activities; |
| ● |
being
found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated; |
| ● |
being
subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or
regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity; or |
| ● |
being
subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization,
any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over
its members or persons associated with a member. |
Code
of Ethics
We have
adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. A copy of our code of ethics was filed as an exhibit
to our 2011 Annual Report on Form 10-K. Investors may also request a copy of the code of ethics, free of charge, by
contacting the Company’s at 460 Park Avenue, 17th Floor, New York, New York 10021, Attention: Secretary.
Audit
Committee
The Audit
Committee’s responsibilities include: (i) reviewing the independence, qualifications, services, fees, and performance
of the independent registered public accountants, (ii) appointing, replacing and discharging the independent auditors, (iii) pre-approving
the professional services provided by the independent auditors, (iv) reviewing the scope of the annual audit and reports
and recommendations submitted by the independent auditors, and (v) reviewing our financial reporting and accounting policies,
including any significant changes, with management and the independent auditors. The Audit Committee also prepares the Audit Committee
report that is required pursuant to the rules of the SEC.
The Audit
Committee currently consists of Michael Hershman, chairman of the Audit Committee, and Myron Holubiak. The board of directors
has adopted a written charter setting forth the authority and responsibilities of the Audit Committee which is available on our
website at www.intellicellbiosciences.com.
Compensation
Committee
The Compensation
Committee has responsibility for assisting the board of directors in, among other things, evaluating and making recommendations
regarding the compensation of the executive officers and directors of our company; assuring that the executive officers are compensated
effectively in a manner consistent with our stated compensation strategy; producing an annual report on executive compensation
in accordance with the rules and regulations promulgated by the SEC; periodically evaluating the terms and administration
of our incentive plans and benefit programs and monitoring of compliance with the legal prohibition on loans to our directors
and executive officers.
Leonard
Mazur is the chairman of the Compensation Committee.
Compensation
Committee Interlocks and Insider Participation
Mr. Mazur
is an officer of our company. None of our executive officers currently serves, or in the past year has served, as a member of
the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of
directors or compensation committee.
Corporate
Governance/Nominating Committee
The Corporate
Governance/Nominating Committee has responsibility for assisting the board of directors in, among other things, effecting board
organization, membership and function including identifying qualified board nominees; effecting the organization, membership and
function of board committees including composition and recommendation of qualified candidates; establishment of and subsequent
periodic evaluation of successor planning for the chief executive officer and other executive officers; development and evaluation
of criteria for Board membership such as overall qualifications, term limits, age limits and independence; and oversight of compliance
with the Corporate Governance Guidelines. The Corporate Governance/Nominating Committee shall identify and evaluate the qualifications
of all candidates for nomination for election as directors. Potential nominees are identified by the Board of Directors based
on the criteria, skills and qualifications that have been recognized by the Corporate Governance/Nominating Committee. While our
nomination and corporate governance policy does not prescribe specific diversity standards, the Corporate Governance/Nominating
Committee and its independent members seek to identify nominees that have a variety of perspectives, professional experience,
education, differences in viewpoints and skills, and personal qualities that will result in a well-rounded Board of Directors.
The Corporate
Governance/Nominating Committee currently consists of Myron Holubiak, chairman of the Corporate Governance/Nominating Committee,
Michael Hershman.
Audit
Committee Financial Expert
We do not
currently have an “audit committee financial expert” as defined under Item 407(e) of Regulation S-K. The Board
is actively seeking to appoint an individual to the Board of Directors and the Audit Committee who would be deemed an audit committee
financial expert.
Director
Compensation
Directors
are expected to timely and fully participate in all regular and special board meetings, and all meetings of committees that they
serve on.
For the
fiscal year ended 2013, Dr. Steven Victor received 300,000,000 options to purchase our common stock and all other directors received
30,000,000 stock options to purchase our common stock.
Director
Independence
Two of our
directors, Michael Hershman and Myron Holubiak, are independent directors, pursuant to the NASDAQ definition of independence.
2011
Stock Incentive Plan
The purpose
of our 2011 Stock Incentive Plan, as amended (the “2011 Plan”) is to enable us to attract, retain and motivate key
employees, directors and, on occasion, consultants, by providing them with stock options. Stock options granted under the 2011
Plan may be either incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986, or non-qualified
stock options. Pursuant to the 2011 Plan, stock options to purchase an aggregate of 7,000,000 shares of common stock may be granted
under the 2011 Plan.
The 2011
Plan will be administered by the Compensation Committee, or by the board of directors as a whole. The Compensation Committee or
the board of directors, if applicable, has the power to determine the terms of any stock options granted under the 2011 Plan,
including the exercise price, the number of shares subject to the stock option and conditions of exercise. Stock options granted
under the 2011 Plan are generally not transferable, and each stock option is generally exercisable during the lifetime of the
optionee only by such optionee. The exercise price of all incentive stock options granted under the 2011 Plan must be at least
equal to the fair market value of the shares of common stock on the date of the grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our stock, the exercise price of any incentive stock option
granted must be equal to at least 110% of the fair market value on the grant date. The term of all incentive stock options under
the 2011Plan may not exceed ten years, or five years in the case of 10% owners.
2012
Stock Incentive Plan
The purpose
of our 2012 Stock Incentive Plan, as amended (the “2012 Plan”) is to enable us to attract, retain and motivate key
employees, directors and, on occasion, consultants, by providing them with stock options. Stock options granted under the 2012
Plan may be either incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986, or non-qualified
stock options. Pursuant to the 2012 Plan, stock options to purchase an aggregate of 7,000,000 shares of common stock may be granted
under the 2011 Plan.
The 2012
Plan will be administered by the Compensation Committee, or by the board of directors as a whole. The Compensation Committee or
the board of directors, if applicable, has the power to determine the terms of any stock options granted under the 2012 Plan,
including the exercise price, the number of shares subject to the stock option and conditions of exercise. Stock options granted
under the 2012 Plan are generally not transferable, and each stock option is generally exercisable during the lifetime of the
optionee only by such optionee. The exercise price of all incentive stock options granted under the 2012 Plan must be at least
equal to the fair market value of the shares of common stock on the date of the grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our stock, the exercise price of any incentive stock option
granted must be equal to at least 110% of the fair market value on the grant date. The term of all incentive stock options under
the 2012 Plan may not exceed ten years, or five years in the case of 10% owners.
ITEM
11. EXECUTIVE COMPENSATION.
Summary
Compensation Table
The
table below sets forth, for the last two fiscal years, the compensation earned by (i) each individual who served as our principal
executive officer or principal financial officer during the last fiscal year and (ii) our most highly compensated executive officer,
other than those listed in clause (i) above, who were serving as executive officers at the end of the last fiscal year (together,
the “Named Executive Officers”). No other executive officer had annual compensation in excess of $100,000 during the
last fiscal year.
| | |
| | |
| | |
| | |
Option | | |
All Other | | |
| |
| | |
| | |
Salary | | |
Bonus | | |
Awards | | |
Compensation | | |
Total | |
| Name and Principal Position | |
Year | | |
($) | | |
($) | | |
($) | | |
($)(2) | | |
($) | |
| Steven A Victor, | |
| 2013 | | |
| 275,000 | | |
| - | | |
| - | | |
$ | 15,000 | | |
$ | 290,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Chairman of the Board of Directors of the Company, Chief Executive Officer
and President | |
| 2012 | | |
| 275,000 | (1) | |
| - | | |
| - | | |
$ | 15,000 | | |
$ | 290,000 | |
| (1) |
During
the fiscal year ended December 31, 2012 and 2013, Dr. Victor was not paid and $275,000 was accrued as compensation for his
employment with the Company. |
| (2) |
Represents
the value of the use of a rental property by Dr. Victor that was paid for by the Company. |
Outstanding
Equity Awards at Fiscal Year-End
Other
than as set forth below, there were no outstanding unexercised options, unvested stock, and/or equity incentive plan awards issued
to our named executive officers as of December 31, 2013.
| | |
Option Award | | |
Stock Award |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| |
Equity |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Equity | |
Inventive |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Incentive | |
Plan |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
Plan | |
Awards: |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Market | | |
Awards: | |
Market |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Value | | |
Number | |
or Payout |
| | |
| | |
| | |
Equity | | |
| | |
| | |
| |
of | | |
of | |
Value of |
| | |
| | |
| | |
Incentive | | |
| | |
| | |
Number | |
Shares | | |
Unearned | |
Unearned |
| | |
| | |
| | |
Plan | | |
| | |
| | |
of | |
or | | |
Shares, | |
Shares, |
| | |
| | |
| | |
Awards: | | |
| | |
| | |
Shares | |
Units of | | |
Units or | |
Units or |
| | |
Number of | | |
Number of | | |
Number of | | |
| | |
| | |
or Units | |
Stock | | |
Other | |
Other |
| | |
Securities | | |
Securities | | |
Securities | | |
| | |
| | |
of Stock | |
That | | |
Rights | |
Rights |
| | |
Underlying | | |
Underlying | | |
Underlying | | |
| | |
| | |
That | |
Have | | |
That | |
That |
| | |
Unexercised | | |
Unexercised | | |
Unexercised | | |
Option | | |
Option | | |
Have | |
Not | | |
Have Not | |
Have Not |
| | |
Options (#) | | |
Options (#) | | |
Unearned | | |
Exercise | | |
Expiration | | |
Not | |
Vested | | |
Vested | |
Vested |
| Name | |
Exercisable | | |
Unexercisable | | |
Options | | |
Price ($) | | |
Date | | |
Vested | |
($) | | |
(#) | |
($) |
| Steven A. Victor | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
0 | |
| 0 | | |
0 | |
0 |
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth information regarding the beneficial ownership of our common stock as of May 9, 2014 and as adjusted
to reflect the sale of our common stock offered by this prospectus, by (a) each person who is known by us to beneficially own
5% or more of our common stock, (b) each of our directors and executive officers, and (c) all of our directors and executive officers
as a group.
| Name of Beneficial Owner (1) | |
Common Stock Beneficially Owned | | |
Percentage of
Common Stock (2) | |
| Dr. Steven Victor(3) | |
| 179,277,712 | | |
| 8 | % |
| Leonard Mazur | |
| 408,528 | | |
| * | % |
| Michael Hershman | |
| - | | |
| - | % |
| Myron Holubiak | |
| - | | |
| - | % |
| Sam Hershman | |
| | | |
| | |
| All Executive Officers and Directors as a group (5 people) | |
| 179,686,240 | | |
| 8 | % |
| 5% Shareholders | |
| - | | |
| - | % |
| None | |
| | | |
| | |
(*)
- Less than 1%.
| (1) |
|
Except
as otherwise below, the address of each beneficial owner is c/o Intellicell Biosciences, Inc, 460 Park Avenue, 17th Floor, New
York, New York 10022. |
| (2) |
|
Applicable
percentage ownership is based on 2,230,314,377 shares of common stock outstanding as of May 9, 2014, together with securities
exercisable or convertible into shares of common stock within 60 days of May 9, 2014, for each stockholder. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of May 9,
2014, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other
person. Does not include (i) 7,250,000 shares of common stock underlying the series C preferred stock, (ii) 9,066,667 shares of
common stock underlying $1,360,000 of convertible notes (which are convertible at price of $0.15), and (iv) 3,071,542 shares of
common stock underlying warrants (which are exercisable at a price of $0.88). |
| (3) |
|
Includes
15,058,000 shares of common stock underlying 15,058 shares of series B preferred stock
issued to Dr. Victor in connection with the Merger. Each share of series B preferred
stock shall be convertible into 1,000 shares of our common stock. In addition, the holders
of the series B preferred stock shall be entitled to notice of stockholders’ meeting
and to vote as a single class with the holders of the common stock upon any matter submitted
to the stockholders for a vote, and shall be entitled to such number of votes as shall
equal the product of (a) the number of shares of common stock into which the series B
preferred stock is convertible into on the record date of such vote multiplied by (b)
ten (10). Also includes 1,745,371 shares of common stock owned by VPI LaserLipo, Inc.,
a company in which Dr. Victor is an officer and director (and in which he owns less than
1% of the shares). Does not include (i) 33,000,000 shares of common stock owned by Anna
Rhodes, Dr. Victor’s wife, or (ii) 281,373 shares of common stock owned by Amy
Rhodes, Dr. Victor’s sister-in-law, as to which he disclaims beneficial ownership.
|
| (4) |
|
Includes
(i) 3,109,096 shares of common stock and (ii) 1,000,000 shares of common stock issuable
upon exercise of outstanding options to purchase shares of common stock. Anna Rhodes
is the wife of Steven Victor, MD, our chief executive officer. As indicated above, Dr.
Victor disclaims beneficial ownership over the shares of our common stock held by Anna
Rhodes.
|
| (5) |
|
As
indicated above, VPI LaserLipo, Inc. is a company in which Dr. Victor is an officer and director (and in which he owns less than
1% of the shares). By virtue of his role as an officer and director, Dr Victor may be deemed the control person on VPI LaserLipo,
Inc. |
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
Company is provided office facilities and related services by a company owned by the Company’s CEO, a significant shareholder.
The Company has recorded rent and utilities expenses of $759,978 and $467,803, respectively, representing the Company’s
portion of use for such for year ended December 31, 2013 and 2012, respectively.We have paid or accrued such rent expense since
inception. On June 1, 2011, a company owned by Steven Victor, our chief executive officer, entered into a 13 year lease for new
office space located at 460 Park Avenue, for which we unconditionally guaranteed any and all obligations owed under the lease
to the landlord. In connection with the execution of the lease, we established a restricted cash account in the amount of approximately
$650,000 to secure a line of credit to be used as a security deposit under the lease. We estimate we will pay approximately 60%
of the approximately monthly lease of $53,000 and utilities per month to sublease office space from the company owned by Dr. Victor.
As of the date of this filing herein, the Company has not finalized the sublease agreement.
We
have recorded salary expense of $275,000 related to our Steven Victor as a result of this individual serving in the capacity of
our Chief Executive Officer since for the year ended December 31, 2013 and salary expenses totaling $205,000 accrued and payable
to our Executive Vice President Anna Rhodes who is a related party, a shareholder and the spouse of the majority shareholder.
On
April 16, 2012, we entered into a technology license and administrative services agreement with Regen Medical P.C., the medical
practice which is owned by, and through which, our Chief Executive Officer, Dr. Steven Victor, engages in the practice of Cosmetic
Dermatology. Pursuant to the agreement, we, among other things, (i) granted Regen Medical the non-exclusive and non-assignable
license to utilize our proprietary process and technology for its patients, (ii) granted Regen Medical a license to use a laboratory
which can be used by Regen Medical for use of the Company’s proprietary process and (iii) were appointed as the exclusive
manager and administrator of Regen Medical’s operations which relate to the implementation of our proprietary process as
well as Regen Medical’s cosmetic dermatology practice, and (iv) were appointed the sole provider of non-medical managerial,
administrative and business functions for Regen Medical’s cosmetic dermatology practice. The agreement was effective as
of April 16, 2012 and was to continue until April 16, 2017.
On
August 26, 2013, the Company and Regen entered into a termination and general release agreement (the “Termination Agreement”),
effective December 31, 2012 (the “Effective Date”), pursuant to which the Company and Regen agreed, among other things,
that as of the Effective Date, (i) the Company shall forgive the $514,000 owed to the Company by Regen under the Regen Agreement
in exchange for the exclusive right to certain open label data and other data which the Company would like to have the rights
to use as empirical data or evidence of the efficacy of the Company’s proprietary process (the “Clinical Data”),
(ii) the parties will take all necessary steps to enter into an agreement for the grant of a license to Regen for the Company’s
proprietary process as well as a license of the Clinical Data, (iii) the Regen Agreement is terminated in its entirety and shall
be deemed null and void and of no further force or effect and (iii) neither Company nor Regen shall have any further rights or
obligations under the Regen Agreement. Each party also provided a general release to the other party with respect to the Regen
Agreement and all transactions contemplated by the Regen Agreement.
From
time to time, we have received advances from certain of our officers to meet short term working capital needs. These advances
may not have formal repayment terms or arrangements. As of December 31, 2013, Dr. Steven Victor, our Chief Executive Officer and
majority shareholder advanced 414,324 to us for working capital purposes. These advances may not have formal repayment terms or
arrangements.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The
following is a summary of fees for professional services rendered by Rosen Seymour Shapps Martin & Company LLP (“RSSM”),
our registered independent public accounting firm for the year ended December 31, 2013 and 2012:
| Description of services | |
2013 | | |
2012 | |
| Audit fees | |
$ | 123,344.25 | | |
$ | 97,000 | |
| Audit related fees | |
$ | | | |
$ | | |
| Tax fees | |
$ | | | |
$ | | |
| All other fees | |
$ | | | |
$ | | |
| Total | |
$ | 123,344.25 | | |
$ | 97,000 | |
Audit
fees. Audit fees represent fees for professional services performed by RSSM for the audit of our annual financial statements
and the review of our quarterly financial statements, as well as services that are normally provided in connection with statutory
and regulatory filings or engagements.
Audit-related
fees. Audit-related fees represent fees for assurance and related services performed by RSSM that are reasonably related to
the performance of the audit or review of our financial statements.
Tax
Fees. RSSM did not perform any tax compliance services.
All
other fees. RSSM did not receive any other audit fees for 2013.
The
Board of Directors selects our independent public accountant, establishes procedures for monitoring and submitting information
or complaints related to accounting, internal controls or auditing matters, engages outside advisors, and makes decisions related
to funding the outside auditory and non-auditory advisors.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The
following documents are filed as a part of this report or incorporated herein by reference:
| |
(1) |
Our
Consolidated Financial Statements are listed on page F-1 of this Annual Report. |
| |
(2) |
Financial
Statement Schedules: None |
| |
(3) |
Exhibits: |
The
following documents are included as exhibits to this Annual Report:
|
Exhibit Number |
|
Description |
| |
|
|
| 2.1 |
|
Share Exchange Agreement dated as of March 17, 2003 by and between i-Track, Inc. and Strategic Communications Partners, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2003 and incorporated herein by reference). |
| |
|
|
| 2.2 |
|
Merger Agreement, dated as of April 26, 2011, between Media Exchange Group, Inc., Intellicell Acquisition Corp. and Intellicell Biosciences, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2011 and incorporated herein by reference). |
| |
|
|
| 2.3 |
|
Amended and Restated Merger Agreement, dated as of June 3, 2011, between Media Exchange Group, Inc., Intellicell Acquisition Corp. and Intellicell Biosciences, Inc. (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2011 and incorporated herein by reference). |
| |
|
|
| 2.4 |
|
Asset Purchase Agreement, dated June 6, 2011, by and between Media Exchange Group, Inc. and Consorteum Holdings, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2011 and incorporated herein by reference). |
| |
|
|
| 3.1 |
|
Articles of Incorporation (filed as Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 (File No. 333-49388) filed with the SEC on November 6, 2000 and incorporated herein by reference). |
| |
|
|
| 3.2 |
|
Certificate of Amendment to the Articles of Incorporation changing the Company’s name to China Wireless Communications, Inc., dated March 21, 2003 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 31, 2003 and incorporated herein by reference). |
| |
|
|
| 3.3 |
|
Certificate of Amendment to the Articles of Incorporation, as amended, dated November 22, 2004 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 22, 2004 and incorporated herein by reference). |
| |
|
|
| 3.4 |
|
Certificate of Amendment to the Articles of Incorporation changing the Company’s name to Media Exchange Group, Inc., dated May 17, 2010 (filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed with the SEC on April 18, 2012 and incorporated herein by reference). |
| 3.5 |
|
Certificate of Designation for the Company’s Series B Convertible Preferred Stock (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2011 and incorporated herein by reference). |
| |
|
|
| 3.6 |
|
Certificate of Correction to the Certificate of Designation for the Company's Series B Convertible Preferred Stock. (filed as Exhibit 3.5 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2011 and incorporated herein by reference). |
| |
|
|
| 3.7 |
|
Certificate of Designation for the Company’s Series C Convertible Preferred Stock (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2011 and incorporated herein by reference). |
| 3.8 |
|
Certificate of Correction to the Certificate of Designation for the Company’s Series C Convertible Preferred Stock (filed as Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2011 and incorporated herein by reference). |
| |
|
|
| 3.9 |
|
Amendment to the Certificate of Designation for the Company's Series C Convertible Preferred Stock. (filed as Exhibit 3.6 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2011 and incorporated herein by reference). |
| |
|
|
| 3.10 |
|
Articles of Merger, dated June 27, 2011, changing the Company’s name to Intellicell Biosciences, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 26, 2011 and incorporated herein by reference). |
| |
|
|
| 3.11 |
|
Certificate of Designations of Preferences, Rights and Limitations of the series D convertible preferred stock of Intellicell Biosciences, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2011 and incorporated herein by reference). |
| |
|
|
| 3.12 |
|
Certificate of Amendment to the Articles of Incorporation, as amended, dated June 1, 2012 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 4, 2012 and incorporated herein by reference). |
| |
|
|
| 3.13 |
|
Certificate of Designations of Preferences, Rights and Limitations of the series E convertible preferred stock of Intellicell Biosciences, Inc (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 3.14 |
|
Certificate of Amendment to the Articles of Incorporation, as amended, dated November 26, 2013 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2013 and incorporated herein by reference). |
| |
|
|
| 3.15 |
|
Certificate of Designations, Rights and Preferences of Series E Preferred Stock filed with the Secretary of State of the State of Nevada on January 17, 2014 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 23, 2014 and incorporated herein by reference). |
| |
|
|
| 3.16 |
|
Certificate of Correction of Series E Preferred Stock filed with the Secretary of State of the State of Nevada on January 22, 2014 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 23, 2014 and incorporated herein by reference). |
| |
|
|
| 3.17 |
|
Certificate of Amendment to the Articles of Incorporation, as amended, dated March 7, 2014 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2014 and incorporated herein for by reference). |
| 3.2 |
|
Bylaws (filed as Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (File No. 333-49388) filed with the SEC on November 6, 2000 and incorporated herein by reference). |
| |
|
|
| 3.21 |
|
Amendment to the Bylaws (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 21, 2014 and incorporated herein by reference). |
| |
|
|
| 4.1 |
|
Form of warrant to purchase common stock issued by to the warrantholders of Intellicell Biosciences, Inc. in June 2011 (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed with the SEC on April 18, 2012 and incorporated herein by reference). |
| |
|
|
| 4.2 |
|
Form of warrant to purchase common stock issued by Intellicell Biosciences, Inc. in the October 2011 private placement (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2011 and incorporated herein by reference). |
| 4.3 |
|
Form of class A warrant to purchase shares of common stock issued by Intellicell Biosciences, Inc. in the February 2012 private placement (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2012 and incorporated herein by reference). |
| |
|
|
| 4.4 |
|
Form of class B warrant to purchase shares of common stock issued by Intellicell Biosciences, Inc. in the February 2012 private placement (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2012 and incorporated herein by reference). |
| |
|
|
| 4.5 |
|
Convertible Note, dated June 7, 2012, issued by the Company in favor of TCA (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 8, 2012 and incorporated herein by reference). |
| |
|
|
| 4.6 |
|
Form of New Series A Warrant issued to the February 2012 Investors (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 4.7 |
|
Form of New Series B Warrant issued to the February 2012 Investors (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 4.8 |
|
Form of Warrant issued to the November 2012 Investor (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 21, 2012 and incorporated herein by reference). |
| |
|
|
| 4.9 |
|
Note, dated February 20, 2013, by and between the Company and JMJ Financial Note, dated February 20, 2013, by and between the Company and JMJ Financial (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 26, 2013 and incorporated herein by reference). |
| |
|
|
| 4.10 |
|
Amendment to the JMJ Financial Note, effective February 20, 2013 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 26, 2013 and incorporated herein by reference). |
| |
|
|
| 10.1 |
|
Assignment and Assumption Agreement, dated June 6, 2011, by and between Media Exchange Group, Inc. and Consorteum Holdings, Inc. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2011 and incorporated herein by reference). |
| |
|
|
| 10.2 |
|
Amendment Agreement, dated June 6, 2011, by and between Consorteum Holdings, Inc. and Media Exchange Group, Inc. (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2011 and incorporated herein by reference). |
| |
|
|
| 10.3 |
|
Form of Guaranty for lease dated June 2011 (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2011 and incorporated herein by reference). |
| |
|
|
| 10.4 |
|
Guaranty, dated June 30, 2011, by Consorteum Holdings, Inc. in favor of Media Exchange Group, Inc. (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on July 26, 2011 and incorporated herein by reference). |
| 10.5 |
|
Waiver, dated June 30, 2011, by and between Media Exchange Group, Inc. and Consorteum Holdings, Inc. (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on July 26, 2011 and incorporated herein by reference). |
| |
|
|
| 10.6 |
|
Letter Agreement, dated July 21, 2011, by and between Intellicell Biosciences, Inc. (f/k/a Media Exchange Group, Inc.) and Consorteum Holdings, Inc. (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on July 26, 2011 and incorporated herein by reference). |
| |
|
|
| 10.7 |
|
Lab Services License Agreement, dated August 29, 2011 by and between Intellicell Biosciences, Inc. and The PAWS Pet Company, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2011 and incorporated herein by reference). |
| 10.8 |
|
Non-Exclusive Technology and Trademark License Agreement dated February 2011, by and between Intellicell Biosciences, Inc. and Foursight LLC. (filed as Exhibit 10.5 to the Company's Current Report on From 8-K/A filed with the SEC on October 19, 2011 and incorporated herein by reference). |
| |
|
|
| 10.9 |
|
Form of securities purchase agreement by and among Intellicell Biosciences, Inc. and the institutional accredited investors in the private placement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2011 and incorporated herein by reference). |
| |
|
|
| 10.10 |
|
Form of securities purchase agreement by and among Intellicell Biosciences, Inc. and the non-institutional accredited investors in the private placement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2011 and incorporated herein by reference). |
| |
|
|
| 10.11 |
|
Form of registration rights agreement by and among Intellicell Biosciences , Inc. and the investors in the private placement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2011 and incorporated herein by reference). |
| |
|
|
| 10.12 |
|
Agreement dated November 1, 2010, by and between Intellicell Biosciences, Inc. (f/k/a Regen Biosciences, Inc.) and Thomas E. Young MD, LLC (filed as Exhibit 10.6 to the Company's Current Report on From 8-K/A filed with the SEC on December 9, 2011 and incorporated herein by reference). |
| |
|
|
| 10.13 |
|
Agreement dated November 15, 2010, by and between Intellicell Biosciences, Inc. (f/k/a Regen Biosciences, Inc.) and R. Craig Saunders (filed as Exhibit 10.7 to the Company's Current Report on From 8-K/A filed with the SEC on December 9, 2011 and incorporated herein by reference). |
| |
|
|
| 10.14 |
|
Non-Exclusive Technology and Trademark License Agreement dated February 28, 2011, by and between Intellicell Biosciences, Inc. and Dauterive Medical, Inc. (filed as Exhibit 10.8 to the Company's Current Report on From 8-K/A filed with the SEC on December 21, 2011 and incorporated herein by reference). |
| |
|
|
| 10.15 |
|
Exclusive
Canadian National Laboratory Services License Agreement, dated December 15, 2011, by and between Intellicell Biosciences,
Inc. and RegenaStem, Inc. (filed as Exhibit 10.4 to the Company's Current Report on From 8-K filed with the SEC on February
3, 2012 and incorporated herein by reference). |
| |
|
|
| 10.16 |
|
Laboratory
Services License Agreement, dated December 16, 2011, by and between Intellicell Biosciences, Inc. and Cell-Innovations Pty
Ltd. (filed as Exhibit 10.5 to the Company's Current Report on From 8-K filed with the SEC on February 3, 2012 and incorporated
herein by reference). |
| 10.17 |
|
Form of securities purchase agreement by and among Intellicell Biosciences, Inc. and the investors in the February 2012 private placement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2012 and incorporated herein by reference). |
| |
|
|
| 10.18 |
|
Form of registration rights agreement by and among Intellicell Biosciences, Inc. and the investors in the February 2012 private placement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2012 and incorporated herein by reference). |
| |
|
|
| 10.19 |
|
2011 Incentive Stock Plan (filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed with the SEC on April 18, 2012 and incorporated herein by reference). |
| |
|
|
| 10.20 |
|
Laboratory Services License Agreement, dated April 7, 2012, by and between Intellicell Biosciences, Inc. and StemCells21 Co., Ltd. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 11, 2012 and incorporated herein by reference). |
| 10.21 |
|
Technology License and Administrative Services Agreement, dated April 16, 2012, by and between Intellicell Biosciences, Inc. and Regen Medical, P.C. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 19, 2012 and incorporated herein by reference). |
| |
|
|
| 10.22 |
|
Equity Agreement, dated June 7, 2012, by and among Intellicell Biosciences, Inc. and TCA (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 13, 2012 and incorporated herein by reference). |
| |
|
|
| 10.23 |
|
Registration Rights Agreement, dated June 7, 2012, by and among Intellicell Biosciences, Inc. and TCA (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 13, 2012 and incorporated herein by reference). |
| |
|
|
| 10.24 |
|
Form of subscription agreement by and among Intellicell Biosciences, Inc. and the series E convertible preferred stock investors (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 10.25 |
|
Form of Exchange Agreement by and between Intellicell Biosciences, Inc. and the February 2012 Investors (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 10.26 |
|
Form of Amendment Agreement by and between Intellicell Biosciences, Inc. and the February 2012 Investors (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 10.27 |
|
Form of Amendment Agreement by and between Intellicell Biosciences, Inc. and the Series D Preferred Stock Investors (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 10.28 |
|
Intellectual Property License Agreement, dated July 20, 2012, by and between Lasersculpt, Inc. and Intellicell Biosciences, Inc (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2012 and incorporated herein by reference). |
| |
|
|
| 10.29 |
|
Form of Exchange Agreement for the Series E Preferred Stock Investors (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 8, 2012 and incorporated herein by reference). |
| |
|
|
| 10.30 |
|
Form of subscription agreement by and among Intellicell Biosciences, Inc. and the November 2012 Investor (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 21, 2012 and incorporated herein by reference). |
| 10.31 |
|
Stipulation of Settlement between the Company and Hanover, dated May 14, 2013 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2013 and incorporated herein by reference). |
| |
|
|
| 10.32 |
|
Order Approving Fairness, Terms and Conditions of Exchange and Issuance Pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, dated May 21, 2013 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2013 and incorporated herein by reference). |
| |
|
|
| 10.33 |
|
Agreement by and between the Company and Corcon (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 6, 2013 and incorporated herein by reference). |
| |
|
|
| 10.34 |
|
Settlement Agreement by and between the Company and Bluming (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 6, 2013 and incorporated herein by reference). |
| 10.35 |
|
Securities Purchase Agreement, dated March 11, 2014, by and between the Company and the Investor (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 11, 2014 and incorporated herein by reference) |
| |
|
|
| 10.36 |
|
Secured Convertible Debenture, dated March 11, 2014, by and between the Company and the Investor (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 11, 2014 and incorporated herein by reference) |
| |
|
|
| 10.37 |
|
Warrant No. SVFC-1-1, dated March 11, 2014, issued by the Company to the Investor (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 11, 2014 and incorporated herein by reference) |
| |
|
|
| 10.38 |
|
Guaranty Agreement, dated March 11, 2014, by and among the Company, Intellicell NY, ICBS, Tech-Stem, and the Investor (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 11, 2014 and incorporated herein by reference) |
| |
|
|
| 10.39 |
|
Security Agreement, dated March 11, 2104, by and among the Company, Intellicell NY, ICBS, Tech-Stem, and the Investor (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 11, 2014 and incorporated herein by reference) |
| |
|
|
| 10.40 |
|
Intellectual Property Security Agreement, dated March 11, 2014, by and among the Company, Intellicell NY, ICBS, Tech-Stem, and the Investor (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on March 11, 2014 and incorporated herein by reference) |
| |
|
|
| 10.41 |
|
Pledge Agreement, dated March 11, 2014, by and among the Company, Intellicell NY, ICBS, Tech-Stem, and the Investor (filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on March 11, 2014 and incorporated herein by reference) |
| |
|
|
| 10.42 |
|
Laboratory Services and License Agreement, dated effective March 7, 2014, by and between the Company and The Andrews Research and Education Foundation, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 12, 2014 and incorporated herein by reference) |
| |
|
|
| 10.43 |
|
Consulting Agreement, dated effective March 7, 2014 by and between the Company and Dr. James Andrews (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 12, 2014 and incorporated herein by reference) |
| |
|
|
| 14 |
|
Code of Ethics (filed as Exhibit 14 to the Company’s Annual Report on Form 10-K filed with the SEC on April 18, 2012 and incorporated herein by reference). |
| 16.1 |
|
Letter from Sherb & Co., Inc., dated August 11, 2011 (filed as Exhibit 16.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 18, 2011 and incorporated herein by reference) |
| |
|
|
| 17 |
|
Letter of Resignation from John Pavia, dated April 12, 2013 (filed as Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 24, 2013. |
| |
|
|
| 21.1 |
|
List of Subsidiaries (filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed with the SEC on April 18, 2012 and incorporated herein by reference). |
| |
|
|
| 31.1 |
|
Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).* |
| |
|
|
| 31.2 |
|
Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).* |
| 32.1 |
|
Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| |
|
|
| 32.2 |
|
Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| |
|
|
| 99.1 |
|
Press Release dated Janaury 29, 2014 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2014 and incorporated herein by reference). |
| |
|
|
| 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* |
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
INTELLICELL BIOSCIENCES, INC. |
|
| |
|
|
|
| Date: October 9 ,
2014 |
By: |
/s/ Steven A. Victor |
|
| |
|
Name: Steven A. Victor |
|
| |
|
Title: Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), and Director |
|
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
| SIGNATURE |
|
TITLE |
|
DATE |
| |
|
|
|
|
| /s/ Steven A. Victor |
|
Chief Executive Officer, and Director (Principal |
|
October 9 ,
2014 |
| Steven A. Victor |
|
Executive Officer, Principal
Financial and Accounting Officer) |
|
|
| |
|
|
|
|
| /s/ Leonard Mazur |
|
Director |
|
October 9 , 2014 |
| Leonard Mazur |
|
|
|
|
| |
|
|
|
|
| /s/ Michael Hershman |
|
Director |
|
October 9 , 2014 |
| Michael Hershman |
|
|
|
|
| |
|
|
|
|
| /s/ Myron Holubiak |
|
Director |
|
October 9 , 2014 |
| Myron Holubiak |
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Stockholder and Board of Directors of
IntelliCell BioSciences, Inc. and Subsidiary:
We have audited the accompanying consolidated
financial statement of IntelliCell BioSciences, Inc. and Subsidiary, which comprise the balance sheets as of December 31, 2013
and 2012, and the related consolidated statements of operations, changes in stockholders’ deficiency, and cash flows for
the years then ended and the related notes to the consolidated financial statements.
Management’s Responsibility for the
Financial Statements
Management is responsible for the preparation
and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
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 audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of IntelliCell BioSciences, Inc.
and Subsidiary as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years then
ended, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the accompanying
consolidated financial statements of IntelliCell BioSciences, Inc. and Subsidiary has been restated as of December 31, 2013 and
for the year then ended to reflect to correction of an error during the third and fourth quarters of 2013 in the Company’s
accounting for the fair value assessment of transactions involving derivative obligations related to the issuance of convertible
debt instruments.
/s/ Rosen Seymour Shapss Martin & Company
LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
May 9, 2014, except for note 2 dated October
7, 2014
| Intellicell
BioSciences, Inc. and Subsidiary |
| CONSOLIDATED
BALANCE SHEETS |
| AS
OF DECEMBER 31, 2013 AND 2012 |
| | |
| | |
| |
| | |
(Restated) | | |
| |
| | |
2013 | | |
2012 | |
| | |
| | |
| |
| ASSETS |
| | |
| | |
| |
| CURRENT
ASSETS: | |
| | |
| |
| Cash | |
$ | - | | |
$ | 10,159 | |
| Other
current assets | |
| 9,000 | | |
| - | |
| Total
Current Assets | |
| 9,000 | | |
| 10,159 | |
| | |
| | | |
| | |
| Property
and equipment, net | |
| 2,670,499 | | |
| 2,797,045 | |
| Financing
fees, net | |
| 8,712 | | |
| 92,750 | |
| Restricted
cash for security deposit | |
| 525,453 | | |
| 650,000 | |
| TOTAL
ASSETS | |
$ | 3,213,664 | | |
$ | 3,549,954 | |
| | |
| | | |
| | |
| LIABILITIES
AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT
LIABILITIES: | |
| | | |
| | |
| Convertible
debentures | |
$ | 452,607 | | |
$ | 1,360,000 | |
| Notes
payable | |
| 727,545 | | |
| 236,600 | |
| Accounts
payable and accrued expenses | |
| 2,609, 254 | | |
| 2,162,268 | |
| Accrued
interest | |
| 388,302 | | |
| 106,287 | |
| License
fee payable | |
| 922,500 | | |
| 1,222,500 | |
| Deferred
rent liability | |
| 372,378 | | |
| - | |
| Convertible
promissory notes | |
| 2,755,986 | | |
| 699,167 | |
| Accrued
liabilities, related party, net | |
| 307,621 | | |
| 911,071 | |
| Total
Current Liabilities | |
| 8,536,193 | | |
| 6,697,893 | |
| | |
| | | |
| | |
| Derivative
liabilities | |
| 6,958,822 | | |
| 987,020 | |
| | |
| | | |
| | |
| TOTAL
LIABILITIES | |
| 15,495,015 | | |
| 7,684,913 | |
| | |
| | | |
| | |
| Commitments
and contingencies | |
| | | |
| | |
| STOCKHOLDERS'
DEFICIT: | |
| | | |
| | |
| Series
B convertible preferred stock, $0.01 par value, 21,000 shares authorized, 15,057 and 15,057 issued and outstanding at December
31, 2013 and 2012, respectively | |
| 151 | | |
| 151 | |
| Series
C convertible preferred stock, $0.01 par value, 13,000 shares authorized, 7,250 and 7,250 issued and outstanding at December
31, 2013 and 2012, respectively | |
| 73 | | |
| 73 | |
| Series
D convertible preferred stock, $0.01 par value, 500,000 shares authorized, 56,500 and 56,500 issued and outstanding at December
31, 2013 and 2012, respectively | |
| 565 | | |
| 565 | |
| Common
stock, $0.0001 par value, 1,500,000,000 and 500,000,000 shares authorized, 922,722,023 and 58,545,053 issued and outstanding
at December 31, 2013 and 2012, respectively | |
| 92,272 | | |
| 5,854 | |
| Additional
paid in capital | |
| 41,256,261 | | |
| 33,621,031 | |
| Accumulated
deficit | |
| (53,630,673 | ) | |
| (37,762,633 | ) |
| TOTAL
STOCKHOLDERS' DEFICIT | |
| (12,281,351 | ) | |
| (4,134,959 | ) |
| TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
$ | 3,213,664 | | |
$ | 3,549,954 | |
The
accompanying notes are an integral part of these consolidated financial statements
| Intellicell BioSciences, Inc. and Subsidiary |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
| | |
| | |
| |
| | |
(Restated) | | |
| | |
| | |
2013 | | |
2012 | |
| | |
| | | |
| | |
| NET REVENUES: | |
| | | |
| | |
| Revenues | |
$ | - | | |
$ | 20,942 | |
| Revenues - related party | |
| - | | |
| 514,000 | |
| TOTAL NET REVENUES | |
| - | | |
| 534,942 | |
| | |
| | | |
| | |
| COST OF GOODS SOLD: | |
| | | |
| | |
| Cost of goods sold | |
| - | | |
| 434,852 | |
| TOTAL COST OF GOODS SOLD | |
| - | | |
| 434,852 | |
| | |
| | | |
| | |
| GROSS PROFIT | |
| - | | |
| 100,090 | |
| | |
| | | |
| | |
| OPERATING EXPENSES: | |
| | | |
| | |
| Research and development | |
| 441,913 | | |
| 291,889 | |
| Sales and marketing | |
| 39,614 | | |
| 263,927 | |
| General and administrative | |
| 3,652,443 | | |
| 3,613,210 | |
| Employee stock based compensation | |
| 1,386,765 | | |
| 2,333,922 | |
| Non-employee stock based compensation | |
| - | | |
| 8,298,732 | |
| TOTAL OPERATING EXPENSES | |
| 5,520,735 | | |
| 14,801,680 | |
| | |
| | | |
| | |
| LOSS FROM OPERATIONS | |
| (5,520,735 | ) | |
| (14,701,590 | ) |
| | |
| | | |
| | |
| OTHER INCOME (EXPENSE): | |
| | | |
| | |
| Loss on conversion of debt to equity | |
| (2 ,272,409 | ) | |
| - | |
| Interest expense | |
| (389,934 | ) | |
| (212,912 | ) |
| Financing costs | |
| ( 4,606,010 | ) | |
| (3,041,660 | ) |
| Amortization of debt discount | |
| (134,600 | ) | |
| - | |
| Change in fair value of derivative liabilities | |
| (2, 944,351 | ) | |
| 13,804,271 | |
| TOTAL OTHER INCOME (EXPENSE) | |
| ( 10,347,304 | ) | |
| 10,549,699 | |
| | |
| | | |
| | |
| LOSS BEFORE PROVISION FOR INCOME TAXES | |
| ( 15,868,039 | ) | |
| (4,151,891 | ) |
| | |
| | | |
| | |
| Provision for income taxes | |
| - | | |
| - | |
| | |
| | | |
| | |
| NET LOSS | |
$ | ( 15,868,039 | ) | |
$ | (4,151,891 | ) |
| | |
| | | |
| | |
| LOSS PER SHARE: | |
| | | |
| | |
| Basic and diluted | |
$ | (0. 10 | ) | |
$ | (0.13 | ) |
| | |
| | | |
| | |
| WEIGHTED AVERAGE SHARES OUTSTANDING: | |
| | | |
| | |
| Basic and diluted | |
| 153,636,036 | | |
| 32,338,788 | |
The
accompanying notes are an integral part of these consolidated financial statements
Intellicell BioSciences Inc. and Subsidiary
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2013 and 2012
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
(2013-
Restated) | | |
(2013-
Restated) | | |
(2013-
Restated) | |
| | |
| Convertible
Series B
Preferred Stock | | |
| Convertible
Series C
Preferred Stock | | |
| Convertible
Series D
Preferred Stock | | |
| Common
Stock | | |
Additional
Paid In | | |
Accumulated | | |
| | |
| | |
| Shares
| | |
Amount
| | |
| Shares
| | |
Amount
| | |
| Shares | | |
Amount
| | |
| Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| Balances,
December 31, 2011 | |
| 18,280 | | |
$ | 183 | | |
| 10,823 | | |
$ | 109 | | |
| 42,000 | | |
$ | 420 | | |
| 21,034,938 | | |
$ | 2,103 | | |
$ | 15,868,148 | | |
$ | (33,610,742 | ) | |
$ | (17,739,779 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Proceeds
from sales of common stock at $1.00 per share, net of fees | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,100,000 | | |
| 210 | | |
| 2,044,040 | | |
| | | |
| 2,044,250 | |
| Conversion
of note payable and accrued interest to common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 687,500 | | |
| 69 | | |
| 902,479 | | |
| | | |
| 902,548 | |
| Stock
issued for the conversion of convertible debentures and accrued interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 118,794 | | |
| 12 | | |
| 103,636 | | |
| | | |
| 103,648 | |
| Conversion
of Series B Preferred to common stock | |
| (3,223 | ) | |
| (32 | ) | |
| | | |
| | | |
| | | |
| | | |
| 3,222,362 | | |
| 322 | | |
| (290 | ) | |
| | | |
| - | |
| Conversion
of Series C Preferred to common stock | |
| | | |
| | | |
| (3,573 | ) | |
| (36 | ) | |
| | | |
| | | |
| 3,572,500 | | |
| 357 | | |
| (321 | ) | |
| | | |
| - | |
| Issuance
of Series D Preferred shares, net of fees | |
| | | |
| | | |
| | | |
| | | |
| 14,500 | | |
| 145 | | |
| | | |
| - | | |
| 229,855 | | |
| | | |
| 230,000 | |
| Issuance
of shares in private placement with a unit investment of $.15 per share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 4,999,996 | | |
| 500 | | |
| 721,300 | | |
| | | |
| 721,800 | |
| Issuance
of additional shares for anti-dilution | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 16,128,295 | | |
| 1,613 | | |
| 2,740,197 | | |
| | | |
| 2,741,810 | |
| Stock
issued to employees | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 750,000 | | |
| 75 | | |
| 120,175 | | |
| | | |
| 120,250 | |
| Stock-based
compensation related to employee stock options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,213,672 | | |
| | | |
| 2,213,672 | |
| Stock-based
compensation related to non-employee stock options | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 34,930 | | |
| | | |
| 34,930 | |
| Compensation
expense related to the issuance of warrants | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,720,764 | | |
| | | |
| 2,720,764 | |
| Stock
issued for professional services at fair market value | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 5,930,668 | | |
| 593 | | |
| 5,922,446 | | |
| | | |
| 5,923,039 | |
| Net
loss for the year ended December 31, 2012 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (4,151,891 | ) | |
| (4,151,891 | ) |
| Balances,
December 31, 2012 | |
| 15,057 | | |
| 151 | | |
| 7,250 | | |
| 73 | | |
| 56,500 | | |
| 565 | | |
| 58,545,053 | | |
| 5,854 | | |
| 33,621,031 | | |
| (37,762,633 | ) | |
| (4,134,959 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock-based
compensation expense related to employee stock options | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,386,764 | | |
| - | | |
| 1,386,764 | |
| Stock
issued for professional services at fair market value | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,000,000 | | |
| 500 | | |
| 89,500 | | |
| - | | |
| 90,000 | |
| Stock
issued for the payment of accounts payable | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 101,775,988 | | |
| 10,178 | | |
| 2,629,029 | | |
| - | | |
| 2,639,207 | |
| Stock
issued for the payment of financing fees | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 19,000,000 | | |
| 1,900 | | |
| 24,700 | | |
| - | | |
| 26,600 | |
| Stock
issued for the payment of related party payables | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 207,691,000 | | |
| 20,769 | | |
| 269,998 | | |
| - | | |
| 290,767 | |
| Stock
issued in settlement of facility fee due to Ironridge | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,959,613 | | |
| 496 | | |
| 91,416 | | |
| - | | |
| 91,912 | |
| Conversion
of convertible debenture principal into common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 128,694,835 | | |
| 12,869 | | |
| 176,231 | | |
| - | | |
| 189,100 | |
| Conversion
of convertible promissory note principal into common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 397,486,725 | | |
| 39,749 | | |
| 607,610 | | |
| - | | |
| 647,359 | |
| Write
off of common stock recorded but never issued | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (431,191 | ) | |
| (43 | ) | |
| 43 | | |
| - | | |
| - | |
| Gain
on Conversion of convertible debenture principal into common stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,294,939 | | |
| | | |
| 2,294,939 | |
| Overpayment
of preferred stock charged off to additional paid in capital | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 65,000 | | |
| - | | |
| 65,000 | |
| Net
loss for the year ended December 31, 2013 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| | | |
| | | |
| ( 15,868,039 | ) | |
| ( 15,868,039 | ) |
| Balances,
December 31, 2013 | |
| 15,057 | | |
$ | 151 | | |
| 7,250 | | |
$ | 73 | | |
| 56,500 | | |
$ | 565 | | |
| 922,722,023 | | |
$ | 92,272 | | |
$ | 41,256,261 | | |
$ | ( 53,630,672 | ) | |
$ | ( 12,281,350 | ) |
The
accompanying notes are an integral part of these consolidated financial statements
| Intellicell
BioSciences, Inc. and Subsidiary |
| CONSOLIDATED
STATEMENTS OF CASH FLOWS |
| FOR
THE YEARS ENDED DECEMBER 31, 2013 AND 2012 |
| | |
| | |
| |
| | |
(Restated) | | |
| |
| | |
2013 | | |
2012 | |
| | |
| | |
| |
| CASH FLOWS
FROM OPERATING ACTIVITIES: | |
| | |
| |
| Net
loss | |
$ | ( 15,868,039 | ) | |
$ | (4,151,891 | ) |
| Adjustment
to reconcile change in net loss to net cash used in operating activities: | |
| | | |
| | |
| Common
stock issued for consulting services | |
| 90,000 | | |
| - | |
| Non-employee
stock compensation issued for services in excess of proceeds | |
| - | | |
| 8,468,732 | |
| Employee
stock compensation | |
| 1,386,764 | | |
| 2,333,922 | |
| Loss
on uncollectable accounts receivable | |
| - | | |
| 514,000 | |
| Loss
on conversion of accounts payable to common stock | |
| 2,137,266 | | |
| - | |
| Loss
on conversion of debt to common stock | |
| 135,142 | | |
| - | |
| Depreciation
expense | |
| 405,702 | | |
| 221,428 | |
| Amortization
of financing costs | |
| 84,038 | | |
| 129,850 | |
| Amortization
of Debt Discount Costs | |
| 134,600 | | |
| - | |
| Convertible
Debt Financing Costs | |
| 4,300,899 | | |
| - | |
| Stock
based financing costs | |
| 118,512 | | |
| 2,741,810 | |
| Interest
from original issue discount on convertible debentures | |
| - | | |
| 121,660 | |
| Change
in fair value of derivative liabilities | |
| 2,944,351 | | |
| (13,804,271 | ) |
| Promissory
notes issued for services rendered | |
| 99,000 | | |
| - | |
| Convertible
promissory notes issued for services rendered | |
| 265,000 | | |
| - | |
| Liquidated
damages added to principal of converible promissory note | |
| 25,000 | | |
| - | |
| Changes
in operating assets and liabilities: | |
| | | |
| | |
| Accounts
receivable | |
| - | | |
| (514,000 | ) |
| Accounts
payable and accrued expenses | |
| 1,608,004 | | |
| 1,775,489 | |
| Accrued
interest | |
| 389,934 | | |
| - | |
| Deferred
income | |
| - | | |
| 720,000 | |
| Deferred
rent | |
| 372,378 | | |
| - | |
| Accrued
liabilities, related party | |
| 211,808 | | |
| 378,715 | |
| | |
| | | |
| | |
| NET
CASH USED IN OPERATING ACTIVITIES | |
| (1,159,641 | ) | |
| (1,064,556 | ) |
| | |
| | | |
| | |
| CASH
FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Advances
to related party | |
| 373,767 | | |
| (285,434 | ) |
| Purchase
of property and equipment | |
| (279,156 | ) | |
| (2,461,638 | ) |
| Restricted
cash for security deposit | |
| 124,547 | | |
| - | |
| | |
| | | |
| | |
| NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | |
| 219,158 | | |
| (2,747,072 | ) |
| | |
| | | |
| | |
| CASH
FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Proceeds
from issuance of convertible debentures | |
| 100,000 | | |
| - | |
| Proceeds
from issuance of notes payable, net | |
| - | | |
| 601,567 | |
| Proceeds
from issuance of convertible promissory note | |
| 416,000 | | |
| - | |
| Proceeds
from related party advances | |
| 414,324 | | |
| 113,976 | |
| Proceeds
from sale of Series D convertible preferred stock, net of fees | |
| - | | |
| 230,000 | |
| Proceeds
from sale of common stock | |
| - | | |
| 2,766,050 | |
| NET
CASH PROVIDED BY FINANCING ACTIVITIES | |
| 930,324 | | |
| 3,711,593 | |
| | |
| | | |
| | |
| Net
decrease in cash | |
| (10,159 | ) | |
| (100,035 | ) |
| | |
| | | |
| | |
| Cash,
beginning of year | |
| 10,159 | | |
| 110,194 | |
| | |
| | | |
| | |
| Cash,
end of year | |
$ | - | | |
$ | 10,159 | |
| | |
| | | |
| | |
| SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
| Cash
paid for interest | |
$ | - | | |
$ | 20,000 | |
| Cash
paid for taxes | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| NON-CASH
ACTIVITIES: | |
| | | |
| | |
| Common
stock issued for loss on conversion to accounts payable | |
$ | 2,137,266 | | |
$ | - | |
| Conversion
of accounts payable and accrued expenses to common stock | |
$ | 501,940 | | |
$ | - | |
| Monies
owed on Convertible Promissory Note | |
$ | 9,000 | | |
$ | - | |
| Promissory
notes issued in lieu of accounts payable | |
$ | 5,500 | | |
$ | - | |
| Conversion
of principal of convertible debentures to common stock | |
$ | 189,100 | | |
$ | 103,648 | |
| Conversion
of principal of convertible promissory notes to common stock | |
$ | 647,359 | | |
$ | - | |
| Issuance
of convertible promissory notes in lieu of accrued salaries, related parties and advances, related parties | |
$ | 1,389,711 | | |
$ | - | |
| Issuance
of common stock for related party liabilities and advances to related parties | |
$ | 290,767 | | |
$ | - | |
| Issuance
of convertible promissory notes in lieu of advances to related parties | |
$ | 125,000 | | |
$ | - | |
| Issuance
of promissory notes in lieu of accounts payable | |
$ | 386,445 | | |
$ | - | |
| Assignment
of debt from convertible debentures to convertible promissory notes | |
$ | 730,000 | | |
$ | - | |
| Interest
converted into principal convertible promissory notes | |
$ | 107,919 | | |
$ | - | |
| Conversion
of license fees payable to convertible debentures | |
$ | 300,000 | | |
$ | - | |
| Overpayment
of preferred stock charged off to additional paid in capital | |
$ | 65,000 | | |
$ | - | |
| Write
off of common stock recorded yet never issued | |
$ | 43 | | |
$ | - | |
| Shares
issued in conjunction with the stock exchange agreement | |
$ | - | | |
$ | 1,037,000 | |
| Conversion
of note payable and accrued interest to common stock and warrants | |
$ | - | | |
$ | 902,548 | |
| Conversion
of note payable and accrued interest to common stock | |
$ | - | | |
$ | 103,648 | |
The
accompanying notes are an integral part of these consolidated financial statements
IntelliCell
BioSciences Inc. and Subsidiary
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. |
Description
of Business |
Formation
IntelliCell
Biosciences Inc., (“Intellicell”) a New York corporation, was formed under the name Regen Biosciences, Inc.
on August 13, 2010 as a pioneering regenerative medicine company to develop and commercialize regenerative medical technologies
in large markets with unmet clinical needs. On February 17, 2011, Regen Biosciences, Inc. changed its name to IntelliCell
BioSciences Inc. (“IntelliCell”). To date, IntelliCell has developed proprietary technologies that allow
for the efficient and reproducible separation of stromal vascular fraction (branded “IntelliCell™”) containing
adipose stem cells that can be performed in tissue processing centers and in doctors’ offices.
In
conjunction with the formation of IntelliCell (formerly Regen Biosciences, Inc.), a shareholder contributed, as part of his initial
capital contribution, one hundred percent (100%) of the outstanding stock of Tech Stem Inc., a New York corporation (“Tech
Stem”) originally formed on May 24, 2010. Tech Stem’s business is the sourcing, sales and distribution
of laboratory equipment and supplies utilized in tissue processing related to IntelliCell’s technologies.
Reverse
Merger
On
April 27, 2011, IntelliCell and Media Exchange Group, Inc. (“MEG”) entered into an Agreement and Plan of Merger which
was amended on June 3, 2011 (the “Merger Agreement”). Under the terms of the Merger Agreement, a subsidiary
of MEG (“Merger Sub”) merged into IntelliCell. The Merger Sub ceased to exist as a corporation and IntelliCell
continued as the surviving corporate entity. As a result of the merger, MEG’s former shareholders acquired majority
of IntelliCell’s outstanding common stock and all of IntelliCell’s Series B preferred stock. The recapitalized
IntelliCell Biosciences, Inc. is hereafter referred to as “IntelliCell” or the “Company”. As consideration
for the Merger, the holders of the an aggregate of 7,975,768 shares of IntelliCell’s common stock exchanged their shares
of common stock for an aggregate of 15,476,978 shares of the Company’s common stock and Dr. Steven Victor, the principal
shareholder of IntelliCell and Chief Executive Officer (“CEO”), exchanged an aggregate of 10,575,482 shares of IntelliCell’s
common stock for an aggregate of 20,521 shares of the Company’s series B preferred stock. Each share of series B preferred
stock is convertible into 1,000 shares of the Company’s common stock. In addition, the holders of the series B preferred
stock are entitled to notice of stockholders’ meetings and to vote as a single class with the holders of the Common Stock
on any matter submitted to the stockholders for a vote, and are entitled to the number of votes equal the product of (a) the number
of shares of Common Stock into which the series B preferred stock is convertible into on the record date of the vote multiplied
by (b) ten (10). The closing of the Merger took place on June 3, 2011 (the “Closing Date”).
Prior
to the consummation of the Merger, the Company entered into agreements the holders of an aggregate of $1,619,606 of indebtedness
to the Company, comprised of accrued compensation in the amount of $1,201,551, promissory notes in the principal amount of $263,707
plus accrued interest of $9,398 less unamortized debt discounts of $83,264 and accrued expenses totaling $228,414 in exchange
for the issuance of an aggregate of 12,123 shares of series C preferred stock. Each share of series C preferred stock
shall be convertible into 1,000 shares of the Company’s common stock. Certain holders of the Company’s series C preferred
stock have contractually agreed to restrict their ability to convert the series C preferred stock such that the number of shares
of the Company common stock held by each of holder and its affiliates after such conversion shall not exceed 4.99% of the Company’s
then issued and outstanding shares of common stock.
Furthermore,
prior to the consummation of the Merger, the Company entered into agreements with the holders of an aggregate of $250,000 of accrued
compensation, pursuant to which such persons agreed to forgive all amounts owed to the Company.
| 2. |
Restatement
of Previously Issued Financial Statements |
Subsequent
to the filing of our Form 10-K for the year ended December 31, 2013, the Company identified errors in accounting for the application
of fair value assessment for transactions involving derivative obligations, including derivative valuation at inception, conversion,
assignment and period end. The Company also detected errors in the recording of debt discounts. The Company has assessed the impact
of the accounting errors on its 3rd quarter 2013 financial statements, year-end December 31, 2013 financial statements
and 1st quarter 2014 financial statements, and concluded that, although there was no impact on the Company’s
cash position, the effect on its financial statements was material.
The
impact on the Company’s balance sheets was to restate the balance sheet items of Notes Payables, Convertible Notes Payable
Convertible Debentures Payable, additional paid in capital and accumulated deficit for the three periods of September 30, 2013,
December 31, 2013 and March 31, 2014.
In
addition, the items restated on the statements of income (loss) were financing costs, gain/(loss) on conversions of debt to equity,
and change in fair value of derivative liabilities.
The tables below summarize the impact of
the restatement from amounts previously reported on the Company’s Form 10-Q for the periods ended September 30, 2013 and
March 31, 2014 and Form 10K for the period ended December 31, 2013.
| | |
September 30, 2013 | |
| Balance Sheet | |
As Filed | | |
As Restated | |
| | |
| | |
| |
| Convertible Debentures | |
$ | 1,725,719 | | |
$ | 1,481,595 | |
| Derivative Instruments (long term) | |
| 6,876 | | |
| 2,913,730 | |
| Accumulated deficit | |
$ | (44,554,265 | ) | |
$ | (47,216,995 | ) |
| | |
Three months ended
September 30, 2013 | | |
Nine months ended
September 30, 2013 | |
| Statement
of Operations | |
As Filed | | |
As Restated | | |
As Filed | | |
As Restated | |
| Changes in fair value of derivative
instruments | |
$ | 75,581 | | |
$ | (1,134,691 | ) | |
$ | 980,144 | | |
$ | (230,128 | ) |
| Financing Costs | |
| (856,019 | ) | |
| (2,302,602 | ) | |
| (1,023,769 | ) | |
| (2,470,352 | ) |
| Net Loss | |
| (1,817,096 | ) | |
| (4,479,827 | ) | |
| (6,791,631 | ) | |
| (9,454,362 | ) |
| Net Loss per share, basic and diluted | |
$ | (0.02 | ) | |
$ | (0.04 | ) | |
$ | (0.09 | ) | |
$ | (0.12 | ) |
| | |
December 31, 2013 | |
| Balance Sheet | |
As Filed | | |
As Restated | |
| | |
| | |
| |
| Convertible Debentures | |
$ | 840,900 | | |
$ | 452,607 | |
| Notes Payable | |
| 341,100 | | |
| 727,545 | |
| Convertible Promissory Notes | |
| 3,505,883 | | |
| 2,755,986 | |
| Derivative Instruments (long term) | |
| 3,774,790 | | |
| 6,958,822 | |
| Additional paid-in-capital | |
| 38,961,322 | | |
| 41,256,261 | |
| Accumulated deficit | |
$ | (48,903,450 | ) | |
$ | (53,630,673 | ) |
| | |
Year ended
December
31, 2013 | |
| Statement of Operations | |
As Filed | | |
As Restated | |
| | |
| | |
| |
| Changes in fair value of derivative instruments | |
$ | (2,787,770 | ) | |
$ | (2,944,352 | ) |
| Financing Costs | |
| (305,112 | ) | |
| (4,606,010 | ) |
| Income (Loss) on Conversion of Debt | |
| (2,137,266 | ) | |
| (2,272,409 | ) |
| Net Loss | |
| (11,140,817 | ) | |
| (15,868,039 | ) |
| Net Loss per share, basic and diluted | |
$ | (0.07 | ) | |
$ | (0.10 | ) |
| | |
March 31, 2014 |
| Balance Sheet | |
As Filed | |
As Restated |
| | |
| |
|
| Convertible Debentures | |
$ | 5,311,892 | | |
$ | 502,872 | |
| Convertible Promissory Notes | |
| 2,316,271 | | |
| 1,749,793 | |
| Derivative Instruments (long term) | |
| 14,055,788 | | |
| 15,128,073 | |
| Additional paid-in-capital | |
| 40,535,612 | | |
| 46,807,939 | |
| Accumulated deficit | |
$ | (61,908,223 | ) | |
$ | (63,822,910 | ) |
| | |
Three months ended
March
31, 2014 | |
| Statement of Operations | |
As Filed | | |
As Restated | |
| | |
| | |
| |
| Changes in fair value of derivative instruments | |
$ | (10,280,997 | ) | |
$ | 8,476,056 | |
| Financing Costs | |
| (715,614 | ) | |
| (17,119,990 | ) |
| Income (Loss) on Conversion of Debt | |
| - | | |
| 399,762 | |
| Net Loss | |
| (13,004,773 | ) | |
| (10,240,334 | ) |
| Net Loss per share, basic and diluted | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since
inception resulting in an accumulated deficit of $ 53,630,673 and a working capital deficit of $ 8,527,193 as of December
31, 2013, respectively. Further losses are anticipated in the continued development of its business, raising substantial doubt
about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon
the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and
repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs
over the next twelve months with existing cash on hand and a private placement of common stock or other debt or equity securities.
There can be no assurance that we will be able to obtain further financing, do so on reasonable terms, or do so on terms that
would not substantially dilute our current stockholders’ equity interests in us. If we are unable to raise additional funds
on a timely basis, or at all, we probably will not be able to continue as a going concern.
| 4. |
Summary
of Significant Accounting Policies |
Basis
of Presentation
The
financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
Principles
of Consolidation
The
consolidated financial statements include the accounts of IntelliCell and those of Tech Stem Inc., the Company’s wholly
owned subsidiary (collectively the “Company”). All significant inter-company transactions and balances
have been eliminated.
Management’s
Use of Estimates and Assumptions
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from these estimates. Management’s estimates and assumptions are reviewed periodically, and the
effects of revisions are reflected in the consolidated financial statements in the periods they are determined to be necessary.
Fair
Value of Financial Instruments
GAAP
requires certain disclosures regarding the fair value of financial instruments. The fair value of financial instruments is made
as of a specific point in time, based on relevant information about financial markets and specific financial instruments. As these
estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with
precision. Changes in assumptions can significantly affect estimated fair values.
GAAP
defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal, or most advantageous market in which it would
transact, and it considers assumptions that market participants would use when pricing the asset or liability.
GAAP
establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the degree
of subjectivity that is necessary to estimate the fair value of a financial instrument. GAAP establishes three levels of inputs
that may be used to measure fair value:
Level
1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or
liabilities.
Level
2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that
are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices
for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived
valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market
data.
Level
3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant
to the measurement of the fair value of the assets or liabilities.
Share
Based Expenses
GAAP
prescribes that accounting and reporting standards for all stock-based payment awards to employees, including employee stock options,
restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities.
The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists.
A present obligation to settle in cash or other assets exists if:
| |
a) |
the
option to settle by issuing equity instruments lacks commercial substance, or |
| |
|
|
| |
b) |
the
present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the
transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity. |
With
respect to stock-based compensation issued to non-employees and consultants GAAP requires that the amount of share-based
payment transactions be based on the fair value of whichever is more reliably measurable:
| |
a) |
the
goods or services received or |
| |
|
|
| |
b) |
the
equity instruments issued. |
The
fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance
completion date.
Revenue
Recognition
The
Company licenses independent third parties to use the Company’s technology in order to enable them to establish tissue processing
centers in major metropolitan markets, as well as establishing centers it will operate. Each center will utilize the
Company’s proprietary technology in conjunction with a suite of laboratory equipment selected by the Company that will enable
the lab to process adipose tissue into stromal vascular fraction containing adipose stem cells using the Company’s technology
and protocols. In certain centers, the Company will maintain ownership of the laboratory equipment and in other cases
the laboratory equipment will be sold to an independent party. These license fees are payable upon signing of a license
agreement and are recognized as revenue ratably over the license.
The
Company has also entered into agreements with independent sales representative organizations that will market the centers services
to physicians in the geographic area. Fees for tissue processing cases from such physicians will be collected by the
Company and recognized upon performance of the laboratory analysis. Sales of equipment by Tech Stem are recognized
when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is
reasonably assured.
Concentrations
The
Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. This
potentially subjects the Company to a concentration of credit risk; however the Company believes the risk is negligible. The
Company’s carrying amount of deposits in financial institutions did not exceed federally insured limits December 31,
2013.
Certain
Risks and Uncertainties
The
Company has a limited operating history and its prospects are subject to the risks and uncertainties frequently encountered by
companies in the early stages of development and commercialization, especially those companies in rapidly evolving and technologically
advanced industries such as the biotech / medical device field. The future viability of the Company largely depends
on its ability to complete development of new products and processes and maintain and/or receive regulatory approval for those
products and processes. No assurance can be given that the Company’s new processes and products will be successfully
developed, regulatory approvals will be maintained or granted, or acceptance of these processes and products by the medical and
patient communities will be achieved.
Accounts
Receivable
The
Company extends credit to customers without requiring collateral. The Company provides for doubtful accounts based on management’s
evaluations of the collectability of accounts receivable. Management’s evaluation is based on the Company’s historical
collection experience and a review of past-due amounts. Based on management’s evaluation of collectability, the Company
did not require an allowance for doubtful accounts as of December 31, 2013 and 2012, respectively. The Company determines accounts
receivable to be delinquent when collection is past due under the agreed upon terms. Accounts receivable are written
off when it is determined that amounts are uncollectible.
Equipment
Equipment
is recorded at cost. Depreciation and amortization are computed for financial reporting purposes utilizing the straight-line
method over the estimated useful lives of the related asset or, for leasehold improvements, the shorter of the lease term or estimated
useful life.
Maintenance
and repairs are charged to expense as incurred. Costs of renewals and betterments are capitalized.
Research
and Development Costs
Research
and development (“R&D”) expenses include supplies, salaries, benefits, and other headcount related
costs, clinical trial and related clinical manufacturing costs, contract and other outside service and facilities and overhead
costs. The Company expenses the costs associated with research and development activities when incurred.
Income
Taxes
The
Company accounts for income taxes using the liability method. The liability method requires recognition of future tax
benefits, measured by enacted rates, attributable to deductible temporary differences between financial statement and income tax
bases of assets and liabilities to the extent that realization of such benefits is “more likely than not.” The
Company’s temporary differences between financial statement and income tax reporting relate primarily to receivable reserves,
depreciation expense, and operating loss carryforwards. This standard also provides guidance on derecognition of income tax assets
and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties
associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.
GAAP
requires that, in applying the liability method, the financial statement effects of an uncertain tax position be recognized based
on the outcome that is more likely than not to occur. Under this criterion the most likely resolution of an uncertain tax position
should be analyzed base on technical merits and on the outcome that will likely be sustained under examination.
Net
Loss per Share
Basic
net loss per share is calculated by dividing the net loss for the period by the weighted-average number of common shares outstanding
during the period. Diluted net loss per share is calculated by dividing loss for the period by the weighted-average number of
common shares outstanding during the period, increased by potentially dilutive common shares ("dilutive securities")
that were outstanding during the period. Dilutive securities include stock options and warrants granted and convertible debt.
The Company’s loss attributable to common stockholders, along with the dilutive effect of potentially issuable common stock
due to outstanding options warrants and convertible securities cause the normal computation of diluted loss per share to be smaller
than the basic loss per share; thereby yielding a result that is counterintuitive. Consequently, the diluted loss per share amount
presented does not differ from basic loss per share due to this “anti-dilutive” effect.
Reclassifications
Certain
prior year amounts were reclassified to conform with current year presentation.
| 5. |
Property
and Equipment |
The
Company’s property and equipment at December 31, 2013 and 2012 consists of the following:
| | |
2013 | | |
2012 | |
| Lab equipment | |
$ | 206,089 | | |
$ | 203,204 | |
| Leasehold Improvements | |
| 2,226,181 | | |
| 1,954,181 | |
| Furniture & Fixtures | |
| 463,769 | | |
| 459,498 | |
| Computer Equipment | |
| 416,816 | | |
| 416,816 | |
| | |
| 3,312,855 | | |
| 3,033,699 | |
| Less accumulated depreciation | |
| 642,356 | | |
| 236,654 | |
| Property and Equipment, net | |
$ | 2,670,499 | | |
$ | 2,797,045 | |
Depreciation
expense for the year ended December 31, 2013 and 2012 was $405,702 and $221,428, respectively and is included in general and administrative
expenses on the Company’s statement of operations.
| 6. |
Accounts
Payable and Accrued Liabilities |
Accounts
payable and accrued liabilities at December 31, 2013 and 2012 are as follows:
| | |
2013 | |
2012 |
| Accounts payable | |
$ | 2,020,971 | | |
$ | 1,376,790 | |
| Accrued expenses and liabilities | |
| 154,040 | | |
| 466,811 | |
| Accrued payroll | |
| 434,243 | | |
| 273,667 | |
| Other | |
| — | | |
| 45,000 | |
| Total | |
$ | 2,609,254 | | |
$ | 2,162,268 | |
During
the years ended December 31, 2013 and 2012, the Company executed various license agreements and collected an aggregate of $ 0
and $ 1,222,500 , respectively , in license fees for six centers which had not yet commenced operations as of December
31, 2013. Consequently, recognition of such revenue had been deferred pending commencement of operations. The Company
was unable to perform its obligations in regards to the licensing agreements and, accordingly, the agreements were cancelled.
The Company has classified the amounts to be returned to the former licensees as Licensee Fees Payable on the consolidated balance
sheet.
In
2013, the Company converted three different license fees outstanding into convertible debentures totaling $300,000, bringing the
total balance as of December 31, 2013 to $922,500.
Consorteum
Notes Payable
In
conjunction with the Merger, the Company assumed notes payable in the principal amount of $2,463,652 plus accrued interest of
$369,898.
Following
completion of the Merger, the Company entered into an asset purchase agreement (the “Consorteum Purchase Agreement”)
with Consorteum Holdings, Inc. (“Consorteum”), an unrelated company, pursuant to which the Company agreed to sell,
transfer and assign to Consorteum all of the Company’s rights, title and interests to, and agreements relating to, its digital
trading card business and platform in exchange for Consorteum assuming an aggregate principal amount of $1,864,152 of indebtedness
of the Company (the “Consorteum Notes”). Such rights include, but are not limited to, the Company’s name, phone
number and listing, reputation, relationships and other intangible assets (including its rights to any intellectual property or
proprietary technology), as well as the company’s rights under certain licensing agreements (“Digital Trading Assets”).
Also
on June 6, 2011, the Company and Consorteum entered into an amendment agreement (the “Amendment Agreement”) to the
Consorteum Purchase Agreement pursuant to which the parties agreed, among other things, that the obligations of the Parties to
consummate the transactions contemplated by the Purchase Agreement are subject to (i) the approval of the Board of Directors of
each of the parties, and (ii) the completion of the assignment of the Assumed Liabilities (including receipt of all the necessary
consents of the holders of all outstanding indebtedness of the Buyer).
On
June 30, 2011, the Company and Consorteum agreed to waive the requirement that the conditions precedent set forth in the Consorteum
Purchase Agreement as amended be satisfied on or before closing and each party agreed that as of the date of the Consorteum Purchase
Agreement, Consorteum would assume an aggregate of $1,477,052 of principal indebtedness plus accrued interest from the Company
totaling $250,695 less unamortized note discounts of $9,890. Upon completion of the requirements of the Consorteum Purchase Agreement
and the Amendment Agreement, the note holders who consented to the assumption of their obligations by Consorteum received shares
of Consorteum common stock in satisfaction of their notes. Included in the notes assumed by Consorteum were notes payable to former
officers and directors of the Company prior to the Merger totaling $450,000 in principal plus accrued interest of $74,935. Notwithstanding
the foregoing, Consorteum agreed to provide the Company a guarantee, whereby Consorteum agrees to unconditionally and irrevocably
guarantee to the Company the prompt and complete payment, as and when due and payable (whether at stated maturity or by required
prepayment, acceleration, demand or otherwise), of any remaining notes payable for which the Company had not received the necessary
consent as of the date of the waiver. As a result of the foregoing, the transactions contemplated by the Consorteum Purchase Agreement
closed on June 30, 2011.
Upon
completion of the Consorteum Purchase Agreement, the Company had notes payable totaling $986,600 that were not assumed in the
agreement.
During
the period ending June 30, 2012, $375,000 of the principal balance of the Consorteum Notes and accrued interest of $152,549 was
converted to common stock and warrants as part of the February 2012 private placement. Furthermore, in the year ended December
31, 2012, another $375,000 of the principal balance of the Consorteum Notes was converted to common stock and warrants.
As
of December 31, 2013 and 2012, the principal balance of the Consorteum Notes amounted to $236,600 and accrued interest amounted
to $55,688 and $41,768, respectively. These Consorteum Notes are currently in default.
Frank
Note
On
August 26, 2012, the Company entered into a secured promissory note (the “Frank Note”) with Fredrick Frank (the “August
2012 Lender”) pursuant to which the August 2012 Lender loaned the Company $200,000 that was due and payable on October 31,
2012 in accordance with the terms of the Frank Note (the “Maturity Date”). The Frank Note is secured by 500,000 shares
of the Company’s common stock. On November 6, 2012, the Company and the August 2012 Lender agreed to extend the Frank
Note until November 30, 2012. Fredrick Frank is an advisor of the Company.
In
August 2013 the Company was advised that the Frank Note and accrued interest of $18,696 was assigned to Redwood as part of Redwood
Deal #1.
JJK
Notes Payable
On
May 29, 2013 and June 26, 2013, the Company issued promissory notes in the amount of $50,000 and $75,000, respectively, for advances
from JJK, LLC (the “JJK Notes”). The terms of the JJK Notes required repayment in 30 days and an annual interest rate
of 10%. The notes are currently due and payable.
In
August 2013 the Company was advised that the JJK Notes and accrued interest of $28,442 were assigned to Redwood as part of Redwood
Deal #4.
May
Davis Partners Note Payable
On
September 4, 2013, the Company issued a promissory note in the amount of $75,000, for $75,000 cash, of which $72,000 went to pay
accrued expenses for accounting fees and $3,000 were expensed as legal fees, to May Davis Partners (the “May Davis Note”).
The terms of the May Davis Note require repayment in 21 days and 10% compounded interest effective upon the maturity date of September
25, 2013. The May Davis Note is currently due and payable.
As
of December 31, 2013, the principal balance of the May Davis Note amounted to $75,000, plus accrued interest of $2,210.
Sichenzia
Ross Notes Payable
On
September 16, 2013, the Company issued a promissory note in the amount of $386,445 to Sichenzia Ross Friedman Ference, LP, for
outstanding legal fees due (the “Sichenzia Note”). The terms of the Sichenzia Note require repayment by December 31,
2013, and annual simple interest of 10%.
As
of December 31, 2013 the principal balance of the Sichenzia Note amounted to $386,445 and accrued interest of $11,271.
MD
Global Partners, LLC Notes Payable
On
October 11, 2013 and November 6, 2013, the Company issued promissory notes in the amount of $15,000 and $4,000, respectively
for compensation due to MD Global Partners for services of raising capital for the Company (the “MD Global
Notes”). The terms of the MD Global Notes require repayment on demand and 10% interest compounded
annually. The MD Global Notes are currently due and payable.
As
of December 31, 2013, the principal balance of the MD Global Notes was $19,000 plus accrued interest of $394.
Highland
Capital Notes Payable
On
December 11, 2013 and December 20, 2013, the Company issued promissory notes to Highland Capital (the “Highland Notes”)
in the amount of $5,500 for money owed to a stock transfer agent and $5,000 for legal expenses owed, respectively. The
Highland Notes are due June 25, 2014 and July 1, 2014, respectively. The interest rate on the Highland Notes is not
specified. The Highland Notes are currently due and payable.
As
of December 31, 2013, the principal balance of the Highland Notes were $10,500.
As
of December 31, 2013 and 2012, the principal balance of the Company's notes payable were as follows:
| | |
(Restated)
2013 | | |
2012 | |
| Consorteum notes payable | |
$ | 236,600 | | |
$ | 236,600 | |
| May Davis Notes | |
| 75,000 | | |
| - | |
| Sichenzia Ross Friedman Ference Note | |
| 386,445 | | |
| - | |
| MD Global Notes | |
| 19,000 | | |
| - | |
| Highland Notes | |
| 10,500 | | |
| - | |
| Total | |
$ | 727,545 | | |
$ | 236,600 | |
| 9. |
Related
Party Transactions |
Rent
The
Company is provided office facilities and related services by a company owned by the Company’s CEO, a significant shareholder.
The Company has recorded rent and utilities expenses of $759,978 and $467,803, respectively, representing the Company’s
portion of use for such for year ended December 31, 2013 and 2012, respectively.
Officer
Salary
The
Company has recorded a salary expense of $275,000 and $275,000 for the years ended December 31, 2013 and 2012, respectively, related
to the Company’s CEO and a salary expense totaling approximately $205,000 and $205,000 for the years ended December
31, 2013 and 2012, respectively, recorded for the Company’s Executive Vice President, a shareholder and the spouse of the
Company's CEO.
During
the year ended December 31, 2013, the Company converted $585,794 of the CEO’s accrued salary, and $229,464 of the Executive
Vice President’s accrued salary into convertible notes payable.
Officer
Advance
From
time to time, the Company has received advances from certain of its officers to meet short term working capital needs. These advances
have no formal repayment terms or arrangements.
Advances
received for working capital purposes amounted to $176,940 and $103,366 as of December 31, 2013 and 2012, respectively. These
advances do not have formal repayment terms or arrangements.
Regen
Agreement
On
April 16, 2012, the Company entered into a technology license and administrative services agreement (the “Agreement”)
with Regen Medical P.C., the medical practice which is owned by, and through which, our CEO, Dr. Steven Victor, engages in the
practice of Cosmetic Dermatology (“Regen Medical”). Pursuant to the Agreement, the Company, among other things, (i)
granted Regen Medical the non-exclusive and non-assignable license to utilize the Company's proprietary process and
technology for its patients, (ii) granted Regen Medical a license to use a laboratory which can be used by Regen Medical for use
of the Company’s proprietary process and (iii) was appointed as the exclusive manager and administrator of Regen Medical’s
operations which relates to the implementation of the Company's proprietary process as well as Regen Medical’s cosmetic
dermatology practice, and (iv) was appointed the sole provider of non-medical managerial, administrative and business functions
for Regen Medical’s cosmetic dermatology practice. The Agreement became effective as of April 16, 2012 and shall
continue until April 16, 2017. Thereafter, the Agreement is to be automatically renewed for successive five year periods
unless either party notifies the other in writing of its intention not to renew the Agreement. Such a notice is to be given at
least 12 months but no more than 15 months prior to the expiration of the then current term. Either party may terminate
the Agreement, for among other things, the failure to cure a material breach of the agreement within 30 days after receipt of
written notice or in the event any state or federal laws or regulations, now existing or enacted or promulgated after the effective
date, are interpreted in such a manner as to indicate that the structure of the agreement may be in violation of any such laws
or regulations.
In consideration for the services to be provided
under the Agreement, Regen Medical is to pay the Company (i) an annual administrative fee of $600,000, payable in equal monthly
installments during the term of the agreement (subject to an annual increase of up to a maximum of ten percent (10%) beginning
on the second anniversary of the effective date), (ii) an annual technology license fee of $120,000, payable in equal monthly installments
during the term of the term of the agreement, for the use of our proprietary process (including the laboratory and the laboratory
technician) and (iii) a processing fee of $1,000 for each tissue processing case that utilizes our proprietary process. The
Company is also entitled to a an annual performance fee during the term of either (i) $150,000, in the event total income
to Regen Medical exceeds $5,500,000 or (ii) $200,000, in the event that total income to Regen Medical exceeds $7,000,000. In
addition, beginning on October 16, 2013 and on each six month anniversary thereafter during the term, the Company is entitled to
a share of Regen Medical’s Savings (as defined below), minus its share of any Loss (as defined below”), based upon
an agreed upon base burden percentage for Regen Medical (the “Base Burden Percentage”). The Base Burden Percentage
is to be calculated by dividing (a) the aggregate actual costs of Regen Medical paid by the Company during the period ending on
December 31, 2011 by (b) the aggregate revenue of Regen Medical collected by the Company during the period ending on December 31,
2011; provided , however , that the Base Burden Percentage shall be recalculated on January 1,
2013 and every 12 months thereafter during the term by dividing (i) the aggregate actual costs for the Regen Medical paid by the
Company during the preceding three six-month periods by (ii) the aggregate Savings or Loss is to be calculated by subtracting (a)
the aggregate actual costs for the Regen Medical paid by the Company during the preceding Period from (b) an amount equal to (I)
the Base Burden Percentage multiplied by (ii) the aggregate revenue of the Regen Medical collected by the Company during the preceding
Period (the “Burden Amount”). If the Burden Amount exceeds the Period Actual Costs (the “Savings”) or the
Period Actual Costs exceed the Burden Amount (the “Loss”), Regen Medical and the Company shall share such Savings or
Loss 65% for the account of the Regen Medical and 35% for the account of the Company. The Company recognized revenue of $0
and $514,000 for the years ended December 31, 2013 and 2012, respectively, under the agreements.
On August
26, 2013, the Company and Regen Medical entered into a termination and general release agreement (the “Termination Agreement”),
effective December 31, 2012 (the “Effective Date”), pursuant to which the Company and Regen Medical agreed, among
other things, that as of the Effective Date, (i) the Company shall forgive the $514,000 owed to the Company by Regen Medical
under the Regen Medical Agreement in exchange for the exclusive right to certain open label data and other data which the Company
would like to have the rights to use as empirical data or evidence of the efficacy of the Company’s proprietary process
(the “Clinical Data”), (ii) the parties will take all necessary steps to enter into an agreement for the grant of
a license to Regen Medical for the Company’s proprietary process as well as a license of the Clinical Data, (iii) the Regen
Medical Agreement is terminated in its entirety and shall be deemed null and void and of no further force or effect and (iv) neither
Company nor Regen Medical shall have any further rights or obligations under the Regen Medical Agreement. Each party also
provided a general release to the other party with respect to the Regen Medical Agreement and all transactions contemplated by
the Regen Medical Agreement.
Research
and Development
Research
and development costs for the years ended December 31, 2013 and 2012 was $441,913 and $291,889 respectively, including fees accrued
and payable to Regen Medical for services as the attending physician in fifteen (15) patient cases included as part of the Company’s
ongoing research of its technologies and processes in the amount of $287,000 and $0 for the years ended December 31, 2013 and
2012, respectively. No fees were accrued for the years ended December 31, 2013 and 2012.
As
of December 31, 2013 and 2012, accrued research fees totaled $361,000 for both years.
LMazur
Associates JV Loan
On
September 1, 2012, the Company entered into a secured promissory note (the “Note”) with LMazur Associates JV
(the “Agent”), as agent for LMazur Associates JV, and JJK LLC (collectively, the “Lender”) pursuant
to which the Lender loaned the Company $100,000 that was due and payable on October 1, 2012 in accordance with the terms of the
Note (the “Maturity Date”). LMazur Associates JV is an entity controlled by Leonard Mazur, a director of the
Company. The Note bore interest at a rate of 10% per annum, which was payable on the Maturity Date. The Company’s
obligations under the Note were guaranteed by Dr. Steven Victor, the Company’s CEO. In addition, the Company, Dr. Victor
and the Lender entered into a pledge and security Agreement pursuant to which the Note was secured by all of Dr. Victor’s
shares of series B preferred stock of the Company. The Note, and all accrued and unpaid interest thereon, was paid in full on
October 1, 2012.
As
of December 31, 2013 and 2012, the following related party amounts were due from (to) the Company:
| | |
12/31/2013 | | |
12/31/2012 | |
| Regen Medical advances, net of accrued research fees due of $287,000 and $0 as of December 31, 2013 and 2012, respectively | |
$ | (93,174 | ) | |
$ | (285,434 | ) |
| Advances to Dr. Steven Victor, CEO | |
| (530,534 | ) | |
| (21,508 | ) |
| Credit card payables | |
| 176,940 | | |
| 103,366 | |
| Accrued research fees | |
| 361,000 | | |
| 361,000 | |
| Accrued payroll | |
| 393,389 | | |
| 753,647 | |
| Totals | |
$ | 307,621 | | |
$ | 911,071 | |
| 10. |
Convertible
Debentures |
May
2011 Convertible Debenture Offering
In
May 2011, IntelliCell completed a convertible debt offering aggregating $1,385,000. The units offered consist of a
$50,000 subordinated convertible debenture payable one year from the date of issue with interest at a rate of 6% and convertible,
at the option of the holder, into the Company’s common stock at an initial conversion price of $1.72 per share (the “May
2011 Debentures”). Each unit also included a detachable five (5) year warrant to purchase 57,143 shares of IntelliCell’s
common stock at an exercise price of $1.72 per share. The proceeds from the issuance of convertible debt securities
with detachable warrants were allocated between the warrants and the debt security. The discount is being amortized over the life
of the debt. As of December 31, 2011, the Company recorded an original issue discount of $288,564 related to the value of the
warrants that will be amortized as interest expense over the initial one year term of the May 2011 Debentures.
As
a result of the Company’s Merger, and the effect of recapitalization, the exercise price of the May 2011 Debentures and
warrants was decreased from $1.72 to $.88. The subordinated convertible debentures are convertible into an aggregate of 1,561,443
shares of common stock and warrants to purchase an aggregate of 3,071,542 shares of common stock.
On
May 17, 2012, the holder of an aggregate of $500,000 principal amount of IntelliCell Notes informed the Company that it is in
default and demanded repayment under the IntelliCell Notes. Pursuant to the terms of the IntelliCell Notes, upon the occurrence,
after the expiration of a cure period of fifteen (15) days with respect to monetary defaults, following the receipt by the Company
of written notice from a holder of a default in the payment of any installment of principal or interest, or any part thereof,
when due, a holder, at its election may accelerate the unpaid balance of the principal and all accrued interest due under this
Note and declare the same payable at once without further notice or demand. Upon an event of default under the IntelliCell Notes,
the holders of the IntelliCell Notes shall be entitled to, among other things (i) the principal amount of the IntelliCell Notes
along with any interest accrued but unpaid thereon and (ii) costs and expenses in connection with the collection and enforcement
under the IntelliCell Notes, including reasonable attorneys’ fees. As a result of the notice of default, the
IntelliCell Notes in the aggregate principal amount of $1,360,000 are immediately due and payable. The Company is currently working
with its investors on making arrangements to honor its obligations under the IntelliCell Notes, however, there can be no assurance
that any such arrangements will ever materialize or be permissible or sufficient to cover any or all of the obligations under
the IntelliCell Notes. In conjunction with the agreement arrangements with the note holders, $77,744 of accrued interest was converted
to 89,358 shares of the Company's common stock in May 2012. Furthermore, a $25,000 convertible debenture and related
accrued interest of $904 was converted to 29,436 shares of common stock during the year ended December 31, 2012.
During
the year ended December 31, 2013, Redwood Management, LLC (“Redwood”) assumed $1,030,000 of the May 2011 Debentures,
which included $600,000 of principal and $60,781 of accrued interest as part of Redwood Deal #1, and $430,000 as part of Redwood
Deal #2.
As
of December 31, 2013, the May 2011 Debentures had a principal balance totaling $330,000 and accrued interest of $31,816. The
May 2011 Debentures are currently in default.
Hudson
Street, LLC Convertible Debentures
On
October 7, 2013, Hudson Street LLC (“Hudson”), assumed a total of $300,000 of convertible notes from Redwood as part
of their total convertible debentures. On October 31, 2013, the Company issued a secured convertible debenture with Hudson for
$100,000 (combined, the “Hudson Debentures”). Under the terms of the agreement, Hudson has the rights of first refusal
for a period of eighteen months from the issuance of the debenture on any issuance or sale of capital stock that the Company issues
to raise additional capital. The terms of the Hudson Debentures require repayment on the date of the note and bears a 10% simple
annual interest rate. The Hudson Debentures are convertible into shares of the Company’s common stock at a price equal to
48.5% of the average 3 lowest trades (not on the same day) of the common stock of the 20 trading days immediately preceding the
conversion date as quoted by Bloomberg, LP. The conversion feature of the debentures have been bifurcated from the host contract
and accounted for separately as a derivative. The bifurcation of the embedded derivative created a debt discount which reduced
the book value of the $100,000 debenture and increases prospectively the amount of interest expense to be recognized over the
life of the debenture.
In
the last quarter of 2013, $189,100 of the principal balance of the Hudson Debentures were converted to 128,694,835 shares of common
stock.
As of December 31, 2013, the Hudson Debentures
had a principal balance, net of debt discounts , totaling $ 122,607 and accrued interest of $4,527.
License
Fee Conversion
On
January 1, 2013, the Company issued three separate secured convertible debentures totaling $300,000 to convert license fees due
certain third parties. Bill Hess, POBD Holding Co. was issued a convertible debenture for $80,000. Patty
Dixon, Allwin Scientific Corp. was issued a convertible debenture for $60,000. Brian Kozer, MD was issued a convertible
debenture for $160,000. The terms of these convertible debentures were the same: a maturity date of January 1, 2014,
10% simple interest calculated on a 360 day year, and a conversion rate equal to 48.5% of the average of the three lowest traded
prices (not the same day) of the common Stock, determined on the then current trading market for the Common Stock for 20 trading
days immediately preceding the Conversion Date as quoted by Bloomberg, LP. The conversion feature of the debentures have been
bifurcated from the host contract and accounted for separately as a derivative. The bifurcation of the embedded derivative created
a debt discount which reduced the book value of the $300,000 debenture and increases prospectively the amount of interest expense
to be recognized over the life of the debenture.
As of December 31, 2013, the three convertible
debentures memorializing license fees due totaled $0, net of discounts and had accrued interest of $30,000. These debentures are
currently in default.
The Company accounted for the conversion features
underlying the convertible debentures and issued in accordance with GAAP, as the conversion feature embedded in the convertible
debentures could result in the debentures being converted to a variable number of the Company’s common shares. . The fair
value of the derivative conversion features for the debentures was determined to be $1 ,828,155 and $587,520 at December
31, 2013 and 2012, respectively.
As
of December 31, 2013 and 2012, the principal balance of the Company's convertible debentures were as follows:
| | |
(Restated)
12/31/2013 | | |
12/31/2012 | |
| May 2011 convertible debentures | |
$ | 330,000 | | |
$ | 1,360,000 | |
| Hudson convertible debentures, net of debt discount of $88,293 | |
| 122,607 | | |
| - | |
| Hess convertible debentures, net of debt discount of $80,000 | |
| - | | |
| - | |
| Dixon convertible debentures, net of debt discount of $60,000 | |
| - | | |
| - | |
| Kozer convertible debentures, net of debt discount
of $160,000 | |
| - | | |
| - | |
| | |
$ | 452,607 | | |
$ | 1,360,000 | |
The Company accounted for the detachable warrants
included with the convertible debentures as liabilities in accordance with GAAP, as the warrants are subject to anti-dilution
protection and could result in them being converted to a variable number of the Company’s common shares. . The fair value
of the derivative conversion features for the warrants was determined to be $6, 254 and $388,550 at December 31, 2013 and
2012, respectively.
| 11. |
Convertible
Notes Payable |
TCA
Convertible Promissory Note
On
June 7, 2012, the Company issued a convertible promissory note to TCA Global Master Fund, L.P. ("TCA") for $500,000
(the “TCA Note”). The maturity date of the TCA Note is June 7, 2013, and the Convertible Note bears interest
at a rate of twelve percent (12%) per annum. The TCA Note is convertible into shares of the Company’s common
stock at a price equal to ninety-five percent (95%) of the average of the lowest daily volume weighted average price of the common
stock during the five (5) trading days immediately prior to the date of conversion. The TCA Note may be prepaid in
whole or in part at the Company’s option without penalty.
Pursuant
to the terms of the Equity Agreement, for a period of twenty-four months commencing on the effective date of a registration statement,
TCA is to commit to purchase up to $2,000,000 of the Company’s common stock, pursuant to Advances, covering the Registerable
Securities. The purchase price of the Shares under the Equity Agreement is equal to ninety-five percent (95%) of the
lowest daily volume weighted average price of the Company’s common stock during the five (5) consecutive trading days after
the Company delivers to TCA an Advance notice in writing requiring TCA to advance funds (an “Advance”) to the Company,
subject to the terms of the Equity Agreement.
As
further consideration for TCA entering into and structuring the Equity Facility, on June 14, 2012, the Company paid TCA a fee
by issuing 275,000 shares of its common stock that equal to $110,000.
In
July 2013, the Company was advised that the TCA Note was sold to Ironridge Global IV, Ltd.
As
of December 31, 2013 and 2012, the TCA Note had a principal balance of $500,000 for both years, and accrued interest of $15,000
and $75,000, respectively.
Ludlow
Capital Convertible Promissory Note
On
April 30, 2013, the Company issued a convertible promissory note to Ludlow Capital, LLC, for $15,000 in professional services
(the “Ludlow Note”). The terms of the Ludlow Note require repayment immediately and bear a 0% interest
rate. The Ludlow Note is convertible into shares of the Company’s common stock at a price that shall be 10% below
the closing bid upon notice of conversion. The Ludlow Note is currently due and payable.
Steven
Victor Convertible Promissory Note
On
October 1, 2013, the Company issued a $1,000,000 convertible promissory note to Dr. Steven Victor, the Company’s CEO, to
convert $585,794 of accrued salary and $414,206 of personal loans due to Dr. Steven Victor (the “Victor Note”). The
Victor Note is payable on demand and bears an annual 12% simple interest rate. The Victor Note is convertible into
shares of the Company’s common stock at a price equal to the average five trading day closing bid price during the five
days immediately prior to the conversion date multiplied by one and a half.
On
October 1, 2013, the Company was advised that the Victor Note was assigned to Redwood as part of Redwood Deal #5.
Anna
Rhodes Convertible Promissory Note
On
October 1, 2013, the Company issued a $389,711 convertible promissory note to Anna Rhodes, the Company’s Executive Vice
President, to convert $229,464 of accrued salary and $160,247 of personal loans due to Anna Rhodes (the “Rhodes Note”). The
Rhodes Note is payable on demand and bears an annual 12% simple interest rate. The Rhodes Note is convertible into
shares of the Company’s common stock at a price equal to the average five trading day closing bid price during the five
days immediately prior to the conversion date multiplied by one and a half.
On
October 1, 2013, the Company was advised that the Rhodes Note was assigned to Redwood as part of Redwood Deal #5.
WHC
Capital Convertible Promissory Notes
On November 11, 2013, WHC Capital, LLC (“WHC”)
assumed $100,000 of convertible notes from Redwood as part of their total convertible notes. On November 15, 2013,
the Company issued a $75,000 convertible promissory note to WHC (combined, the “WHC Notes”). The Company
received $66,000 in cash and $9,000 was recorded as other current assets on the balance sheet. The terms of the WHC Notes
require repayment on November 15, 2014 and bears an interest rate of 12% per annum. The WHC Notes are convertible into
shares of the Company’s common stock at a price equal to 48% of the lowest intra-day trading price for the Company’s
common stock during the fifteen trading days immediately preceding the conversion date.
During
November and December 2013, $39,617 of the principal of the WHC Notes was converted into 49,920,000 shares of the Company’s
common stock.
As of December 31, 2013, the WHC Notes had
a principal balance of $62,492, net of debt discounts , and accrued interest of $2,582.
Crowning
Capital Convertible Promissory Note
On
January 10, 2013, the Company entered into a promissory note with Crowning Capital, LLC (the “Crowning Note”) pursuant
to which Crowning Capital performed services in the amount of $250,000. The promissory note has a due date of July
31, 2013, and 0% interest rate. The note is currently due and payable.
In
December 2013, the Company was advised that the Crowning Notes in the amount of $156,250 were assigned to LG Capital.
During
December 2013, $98,845 of the principal of the Notes were converted into 92,476,326 shares of the Company’s common
stock.
The
LG Capital Notes are convertible into shares of the Company’s common stock at a price equal to 65% of the lowest closing
bid price of the common stock for the ten prior trading days upon notice of conversion. The conversion feature of the notes have
been bifurcated from the host contract and accounted for separately as a derivative. The bifurcation of the embedded derivative
created a debt discount which reduced the book value of the $156,250 assigned notes and increased prospectively the amount of
interest expense to be recognized over the life of the note.
As
of December 31, 2013, the notes assigned to LG Capital had a balance of $21,060, net of discount.
As
of December 31, 2013, the unassigned Crowning Note had a principal balance of $ 93,750. This balance was assigned to LG
Capital in January 2014.
JMJ
Financial Promissory Note
On
February 20, 2013 (the "Effective Date"), the Company entered into promissory note, as amended (the “JMJ Note”)
with JMJ Financial (“JMJ”), pursuant to which JMJ agreed to lend the Company up to an aggregate principal amount of
$500,000 (the “Principal Sum”) for an aggregate purchase price of $450,000. JMJ provided $100,000 to the Company on
the Effective Date. The JMJ Note matures one year from the date of each payment by JMJ to the Company (the “Maturity Date”).
The
Company may repay the JMJ Note at any time on or before the 90th day after the Effective Date, after which the Company may not
make further payments on the Note prior to the Maturity Date without written approval from the Investor. If the Company repays
the JMJ Note on or before the 90th day after the Effective Date, the interest rate under the JMJ Note shall be zero percent (0%).
If the Company does not repay the JMJ Note on or before the 90th day after the Effective Date, a one-time interest payment of
12% shall be applied to the Principal Sum.
JMJ
may convert, beginning on the six month anniversary of the Effective Date, the outstanding principal and accrued interest on the
Note into shares of the Company’s common stock at a conversion price per share equal to the lesser of (i) $0.16 or (ii)
60% of the lowest trade price in the 25 trading days prior to the date of conversion (the “Conversion Price”). The
Conversion Price will be subject to adjustment for, among other things, the Company’s failure to be DTC eligible and only
being Xclearing deposit eligible. The conversion feature of the notes have been bifurcated from the host contract and accounted
for separately as a derivative. The bifurcation of the embedded derivative created a debt discount which reduced the book value
of the $125,000 note and increases prospectively the amount of interest expense to be recognized over the life of the note.
The
Company shall include on the next registration statement the Company files with Securities and Exchange Commission (or on the
subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of the JMJ
Note. Failure to include such securities on the next registration statement will result in liquidated damages of 25% of the outstanding
principal balance of the Note, but not less than $25,000, being immediately due and payable to JMJ at its election in the form
of cash or added to the Principal Sum of the JMJ Note.
JMJ
has contractually agreed to restrict its ability to convert the JMJ Note such that the number of shares of the Company common
stock held by the Investor and its affiliates after such conversion does not exceed 4.99% of the Company’s then issued and
outstanding shares of common stock.
So
long as the JMJ Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any security with any term
more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided
to JMJ in the JMJ Note, then the Company shall notify the Borrower of such additional or more favorable term and such term, at
JMJ’s option, shall become a part of the transaction documents with JMJ.
In
October and November 2013, $71,670 of the principal balance of the JMJ Note were converted into 32,500,000 shares of the Company’s
common stock.
As
of December 31, 2013, the balance of the JMJ Note was $ 17,046, net of debt discount , and accrued interest was $24,444.
Redwood
Deal #1
On
August 5, 2013, Redwood assumed $600,000 of principal and $60,781 of accrued interest, which was converted to principal, from
two debenture holders from the May 2011 Offering, and $199,167 of principal and $18,697 of accrued interest, which was converted
to principal, from the Frank Note as part of Redwood Deal #1. The terms of the assumed debt remained the same.
On
October 7, 2013, Redwood assigned a total of $300,000 in principal debt from Redwood Deal #1 to Hudson.
On
November 11, 2013, Redwood assigned a $100,000 in principal debt from Redwood Deal #1 to WHC.
In
October and November 2013, Redwood converted a total of $323,400 in principal from the outstanding debt in Redwood Deal #1 into
102,010,399 shares of the Company’s common stock.
As
of December 31, 2013, the principal balance of Redwood Deal #1 was $155,204, and accrued interest was $50,297.
Redwood
Deal #2
On
August 5, 2013, Redwood assumed $430,000 of total principal from seven debenture holders from the May 2011 Offering as part of
Redwood Deal #2. The terms of the assumed debt remained the same.
In
November and December 2013, Redwood converted a total of $113,787 in principal from the outstanding debt in Redwood Deal #2 into
120,580,000 shares of the Company’s common stock.
As
of December 31, 2013, the principal balance of Redwood Deal #2 was $316,213, and accrued interest was $41,044.
As
of December 31, 2013, the principal balance of Redwood Deal #3 was $386,445, and accrued interest was $11,271.
Redwood
Deal #4
On
August 5, 2013, the Company issued a convertible promissory note to Redwood for $250,000 as part of Redwood Deal #4. The
Company received $125,000 cash, of which $15,000 is being amortized as financing fees over the term of the convertible promissory
note, on August 7, 2013 as a partial payment for the convertible promissory note. The remaining $125,000 was paid in
October 2013. The terms of the convertible promissory note require repayment in one year and bears a 12% simple annual interest
rate. The convertible promissory note is convertible into shares of the Company’s common stock at a price that
shall be the lesser of $0.05 per share or 48% of the average of the lowest traded price of the Common Stock as quoted by Bloomberg,
L.P. on any three trading days during the twenty trading days immediately preceding the conversion date. The convertible promissory
note may be prepaid in whole or in part at the Company’s option without penalty. The conversion feature of the notes
have been bifurcated from the host contract and accounted for separately as a derivative. The bifurcation of the embedded derivative
created a debt discount which reduced the book value of the $250,000 note and increases prospectively the amount of interest expense
to be recognized over the life of the note.
On
October 23, 2013, Redwood assumed $125,000 of principal and $28,442 of accrued interest, which was converted to principal, from
the JJK Notes as part of Redwood Deal #4. The terms of the assumed debt remained the same.
As
of December 31, 2013, the principal balance of Redwood Deal #4 was $ 185,510, net of debt discount , and accrued interest
was $17,336.
Redwood
Deal #5
On
October 1, 2013, Redwood assumed $389,711 of total principal from the Rhodes Note, and $1,000,000 of total principal from the
Victor Note, as part of Redwood Deal #5. The terms of the assumed debt remained the same.
As
of December 31, 2013, the principal balance of Redwood Deal #5 was $1,389,711, and accrued interest was $41,691.
The Company accounted for the conversion
features underlying the convertible notes and issued in accordance with GAAP, as the conversion feature embedded in the convertible
debentures could result in the debentures being converted to a variable number of the Company’s common shares. The fair
value of the derivative conversion features for the notes was determined to be $5,123,932 and $0 at December 31, 2013 and 2012,
respectively.
As
of December 31, 2013 and December 31, 2012, the Company's convertible notes payable and accrued interest was as follows:
| | |
(Restated)
2013 | | |
2012 | |
| TCA Note | |
$ | 500,000 | | |
$ | 500,000 | |
| Ludlow Note | |
| 15,000 | | |
| - | |
| WHC Notes | |
| 62,492 | | |
| - | |
| Crowning Note s | |
| 114,810 | | |
| - | |
| JMJ Note | |
| 17,046 | | |
| - | |
| Redwood Deal #1 | |
| 155,204 | | |
| 199,167 | |
| Redwood Deal #2 | |
| 316,213 | | |
| - | |
| Redwood Deal #4 | |
| 185,510 | | |
| - | |
| Redwood Deal #5 | |
| 1,389,711 | | |
| - | |
| Total | |
$ | 2,755,986 | | |
$ | 699,167 | |
| 12. |
Derivative
Liabilities |
The
Company has issued various financial instruments to investors that contain full ratchet anti-dilution provisions. GAAP
provides guidance on determining what types of financial instruments or embedded features in a financial instrument would cause
the financial instrument to be classified as a liability instead of equity. Under the evaluation criteria, the Company
concluded that the financial instruments that contained full ratchet anti-dilution provisions are to be treated as derivative
liabilities. GAAP requires that the fair value of these liabilities be re-measured at the end of every reporting period
with the change in value over the period reported in the statement of operations. These instruments were valued using
pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated
life.
The
following table sets forth the Company’s estimate of the fair value of the financial instruments that are classified as
derivative liabilities as of December 31:
| | |
(Restated)
2013 | | |
2012 | |
| | |
Quoted Prices in Active Markets for Identical Assets | | |
Significant Other Observable Inputs | | |
Significant Unobservable Inputs | | |
| | |
Quoted Prices in Active Markets for Identical Assets | | |
Significant Other Observable Inputs | | |
Significant Unobservable Inputs | | |
| |
| | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
| Derivative Liabilities | |
$ | - | | |
$ | - | | |
$ | 6,958,822 | | |
$ | 6,958,822 | | |
$ | - | | |
$ | - | | |
$ | 987,020 | | |
$ | 987,020 | |
The
following table sets forth a summary of changes in fair value of our derivative liabilities for the years ended December 31:
| | |
(Restated)
2013 | | |
2012 | |
| | |
| | |
| |
| Beginning balance | |
$ | 987,020 | | |
$ | 14,791,291 | |
| Fair value of financial instruments at issue date | |
| - | | |
| 19,036,312 | |
| Fair value of embedded conversion feature at issue date | |
| 5,002,411 | | |
| - | |
| Change in fair value of financial instruments included in the statement of operations | |
| 6,736 | | |
| (28,946,762 | ) |
| Change in fair value of embedded conversion features included in the statement of operations | |
| 2,922,740 | | |
| (3,893,821 | ) |
| Loss on Conversions of Debt to Equity | |
| (1,960,085 | ) | |
| - | |
| | |
$ | 6,958,822 | | |
$ | 987,020 | |
The
following tables set forth a description of the financial instruments classified as derivate liabilities as of December 31, 2013
and 2012 and the assumption used to value the instruments.
Convertible
Debt
The
derivative liabilities related to the embedded conversion feature and the outstanding warrants were valued using the Black-Scholes
option valuation model and the following assumptions on the following dates:
| |
|
2013 |
|
|
2012 |
|
| |
|
Embedded Detachable Warrants |
|
|
Embedded Conversion Features |
|
|
Embedded Detachable Warrants |
|
|
Embedded Conversion Feature |
|
| Risk free interest rate |
|
|
1.750 |
% |
|
|
0.13 |
% |
|
|
3.00 |
% |
|
|
3.00 |
% |
| Expected volatility (peer group) |
|
|
316.09 |
% |
|
|
316.09- 371.34 |
% |
|
|
105.09 |
% |
|
|
105.09 |
% |
| Expected life (in years) |
|
|
2.25 |
|
|
|
0.58-1.0 |
|
|
|
3.25 |
|
|
|
0.50 |
|
| Expected dividend yield |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Number outstanding |
|
|
3,071,542 |
|
|
|
1,592,259,716 |
|
|
|
3,071,542 |
|
|
|
9,066,667 |
|
| Fair value at issue date |
|
$ |
263,146 |
|
|
$ |
5,002,411 |
|
|
$ |
263,146 |
|
|
$ |
25,418 |
|
| Accumulated change in derivative liability as of the year ended December 31 |
|
$ |
(256,892 |
) |
|
$ |
1, 949,675 |
|
|
$ |
125 ,404 |
|
|
$ |
562,102 |
|
| Fair value at December 31 |
|
$ |
6,254 |
|
|
$ |
6,952,086 |
|
|
$ |
388, 550 |
|
|
$ |
587,520 |
|
Private Placement Offering
The
derivative liabilities related to the warrants issued as part of the private placement offering were valued using the Black-Scholes
option valuation model and the following assumptions on the following dates:
| | |
2013 | | |
2012 | |
| Risk free interest rate | |
| 1.75 | % | |
| 3.00 | % |
| Expected volatility (peer group) | |
| 316.09 | % | |
| 105.09 | % |
| Expected life (in years) | |
| 3.25 | | |
| 4.25 | |
| Expected dividend yield | |
| - | | |
| - | |
| Number outstanding | |
| 200,000 | | |
| 200,000 | |
| Fair value at issue date | |
$ | 19,036,312 | | |
$ | 19,036,312 | |
| Accumulated change in derivative liability as of the year ended December 31 | |
$ | (19,035,831 | ) | |
$ | (19,025,362 | ) |
| Fair value at December 31 | |
$ | 48 2 | | |
$ | 10,950 | |
Deferred
tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the
financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference
between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse
A
reconciliation of tax expense computed at the statutory federal tax rate income (loss) from operations before income taxes to
the actual income tax expense is as follows:
| | |
2013 | | |
2012 | |
| Tax provision (benefits) computed at the statutory rate | |
$ | (4,405,000 | ) | |
$ | (1,637,000 | ) |
| Nondeductible expense | |
| - | | |
| - | |
| | |
| (4,405,000 | ) | |
| (1,637,000 | ) |
| Increase in valuation allowance for deferred tax assets | |
| 4,405,000 | | |
| 1,637,000 | |
| Income tax expense benefit | |
$ | - | | |
$ | - | |
Deferred
income taxes include the net tax effects of net operating loss (NOL) carryforwards and the temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets are as follows:
| | |
2013 | | |
2012 | |
| Stock based compensation | |
$ | 1,387,000 | | |
$ | 2,122,000 | |
| Warrant | |
| - | | |
| 5,357,000 | |
| Fair Value of Derivative Liability | |
| 2,441,000 | | |
| 276,000 | |
| Net operating loss carryover | |
| 10,000,000 | | |
| 6,757,000 | |
| Charitable contributions | |
| - | | |
| 8,000 | |
| Total defered tax assets | |
| 13,828,000 | | |
| 14,520,000 | |
| Valuation allowance | |
| (13,828,000 | ) | |
| (14,520,000 | ) |
| Net deferred tax assets | |
$ | - | | |
$ | - | |
The
Company has provided a valuation reserve against the full amount of the net deferred tax assets, because in the opinion of management,
it is more likely than not that these tax assets will not be realized.
The
Company’s NOL and tax credit carryovers may be significantly limited under the Internal Revenue Code (IRC). NOL and tax
credit carryovers are limited under Section 382 when there is a significant “ownership change” as defined in the IRC.
During 2011 and in prior years, the Company may have experienced such ownership changes, which could impose such limitations.
The
limitation imposed by the IRC would place an annual limitation on the amount of NOL and tax credit carryovers that can
be utilized. When the Company completes the necessary studies, the amount of NOL carryovers available may be reduced significantly.
However, since the valuation allowance fully reserves for all available carryovers, the effect of the reduction would be offset
by a reduction in the valuation allowance.
The
Company files income tax returns in the U.S. federal jurisdiction, and the State of New York.
The
principal features of the Company's capital stock are as follows:
Series
B Preferred Stock
As
of December 31, 2013 and, 2012, the Company has designated 21,000 shares of preferred stock as Series B preferred stock, with
a par value of $.01 per share, of which 15,058 shares of preferred stock are issued and outstanding. Each share of
series B preferred stock shall be convertible into 1,000 shares of the Company’s common stock. In addition,
the holders of the series B preferred stock shall be entitled to notice of stockholders’ meeting and to vote as a single
class with the holders of the Common Stock upon any matter submitted to the stockholders for a vote, and shall be entitled to
such number of votes as shall equal the product of (a) the number of shares of Common Stock into which the series B preferred
stock is convertible into on the record date of such vote multiplied by (b) ten (10).
Series
C Preferred Stock
As
of December 31, 2013 and 2012, the Company has designated 13,000 shares of preferred stock as Series C preferred stock, with
a par value of $.01 per share, of which 7,250 shares of preferred stock are issued and outstanding. Each share of Series
C preferred stock shall be convertible into 1,000 shares of the Company’s common stock. . In addition,
the holders of the series B preferred stock shall be entitled to notice of stockholders’ meeting and to vote as a single
class with the holders of the Common Stock upon any matter submitted to the stockholders for a vote, and shall be entitled to
such number of votes as shall equal to the number of shares of Common Stock into which the series B preferred stock is convertible
into on the record date.
Certain
holders of the Company’s Series C preferred stock have contractually agreed to restrict their ability to convert the Series
C preferred stock such that the number of shares of the Company common stock held by each of holder and its affiliates after such
conversion shall not exceed 4.99% of the Company’s then issued and outstanding shares of common stock.
Series
D Preferred Stock
As
of December 31, 2013 and 2012, the Company has designated 500,000 shares of preferred stock as Series D preferred stock, with
a par value of $.01 per share, of which 56,500 shares of preferred stock are issued and outstanding. Each share of
series D convertible preferred stock is convertible at any time at an initial conversion price equal to $2.00 per share,
subject to adjustment under certain circumstances. As long as the series D preferred stock is outstanding, the conversion
price of the series D convertible preferred stock in effect shall be reduced by $0.05 for every 180 day period a share of series
D preferred stock is held by the investor. The series D convertible preferred stock automatically converts into shares
of the Company’s common stock after three years. Each share of Series D convertible preferred stock was issued
with a warrant to purchase 10 shares of the Company’s common stock. The warrants are exercisable for a period
of five years from the date of issuance at an initial exercise price of $2.00, subject to adjustment under certain circumstances. The
exercise price of the warrants and the conversion price of the series D convertible preferred stock are subject to full ratchet
and anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions
for stock splits, stock dividends, recapitalizations and the like. However, no adjustment made shall cause the exercise price
of the series D convertible preferred stock and warrants to be less than $1.00. The holders of Series D preferred
stock have no voting rights.
Common
Stock
The
Company has authorized 3,500,000,000 shares of common stock, with a par value of $.0001 per share. As of December 31, 2013 and
2012, the Company had 922,722,023 and 58,445,053 shares of common stock issued and outstanding, respectively.
During
the years ended December 31, 2013 and 2012, the Company issued the following equity instruments:
| ● |
During the years ended December 31, 2012 and 2011, the Company entered
into a securities purchase agreement with various investors pursuant to which the Company sold an aggregate of 14,500 and 42,000
shares, respectively, of series D convertible preferred stock and warrants to purchase 145,000 and 420,000, respectively, of the
Company’s common stock, for aggregate gross proceeds of $290,000 and $840,000, respectively. In connection with
the offering, the Company paid professional fees of $60,000 and issued a placement agent 15,000 warrants to purchase shares of
common stock in the year ended December 31, 2012. The warrants issued to the placement agent may be exercised on a cashless basis. |
| |
|
| ● |
In February 2012, the Company entered into securities purchase agreements
with accredited investors pursuant to which the Company sold (i) an aggregate of 2,600,000 shares of the Company’s common
stock, par value $0.001 per share (the “Common Stock”), (ii) class A warrants to purchase an aggregate of 5,200,000
shares of Common Stock (the “Class A Warrants”), and (iii) class B warrants to purchase an aggregate of 5,200,000
shares of Common Stock (the “Class B Warrants” and together with the Class A Warrants, the “Warrants”),
for aggregate gross cash proceeds of $2,627,649, which consisted of $2,100,000 of cash and the exchange and cancelation of a promissory
note (bearing principal and interest totaling $527,549) and a warrant ("Exchange Agreement"). In connection
with the private placement, we paid placement agent fees and professional fees of $55,750 and issued the placement agent 27,500
warrants to purchase shares of common stock. The warrants issued to the placement agent may be exercised on a cashless basis. |
| |
|
| ● |
The Class A Warrants are exercisable for a period of five years from the
date of issuance at an initial exercise price of $2.00, subject to adjustment. The Class B Warrants are exercisable for a period
of five years from the date of issuance at an initial exercise price of $3.75, subject to adjustment. The exercise price of the
Warrants are subject to anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments
provisions for stock splits, stock dividends, recapitalizations and the like. The investors may exercise the Warrants on a cashless
basis anytime after the six month anniversary of the initial exercise date of the Warrants if the shares of common stock underlying
the Warrants are not then registered pursuant to an effective registration statement. In the event the investors exercise the
Warrants on a cashless basis, we will not receive any proceeds. |
| |
|
| ● |
Between September 5, 2012 and October 11, 2012, the February 2012 investors
(including the investor that exchanged and cancelled his outstanding promissory note) agreed to certain amendments to their securities
purchase agreement and exchange their respective Warrants for (i) an aggregate of 6,100,000 shares of the Company’s
Common Stock (ii) a new series A warrant to purchase an aggregate of 6,100,000 shares of Common Stock at an exercise
price of seventy-five cents ($0.75) per share and (iii) a new series B warrant to purchase an aggregate of 6,100,000 shares of
Common Stock at an exercise price of seventy-five cents ($0.75) per share. |
| |
|
| ● |
The Company issued 16,128,295 shares of common stock to the holders of
its February 2012 investors in connection with the anti-dilution features present in the instruments. |
| |
|
| ● |
During the year ended December 31, 2012, the Company issued 118,794 shares
of its common stock in exchange for the conversions of convertible debentures and accrued interest of $103,648. |
| |
|
| ● |
During the year ended December 31, 2012, two of the Company’s
notes payable and the related accrued interest, totaling $902,548, were converted into an aggregate of 687,500 shares of common
stock of the Company based on an agreed upon conversion price ranging from $1.31-$2.00 per share. |
| |
|
| ● |
During the year ended December 31, 2012, the Company issued 750,000 shares
of its common stock to employees. The Company recognized the fair market value of $120,250 as an expense. |
| |
|
| ● |
During the year ended December 31, 2012, the Company issued 5,930,668 shares
of its common stock for professional and advisory services, financing costs and license fees. The Company recognized
the fair market value of $5,923,039 as an expense as of the date of issue. |
| |
|
| ● |
From September through December 2012, the Company entered into securities
purchase agreements,, pursuant to which the Company sold 2,499,998 units, each unit consisting of two (2) shares of the Company’s
common stock, par value $0.001 per share and a warrant to purchase a share of common stock for aggregate gross proceeds of $750,000.
The Warrant is exercisable for a period of five years from the date of issuance at an initial exercise price of $0.45, subject
to adjustment. The exercise price of the Warrant is subject to customary adjustments for stock splits, stock dividends, recapitalizations
and the like. In connection with the private placement, the Company paid placement agent fees and professional fees of $28,200. |
| |
|
| ● |
In May 2013, pursuant to the terms of the Hanover Holdings Settlement Agreement
approved by the court order, on May 23, 2013, the Company issued and delivered to Hanover Holdings, Inc. 8,500,000 Settlement
Shares of the Company’s common stock. The matter is further discussed in litigation section of Note 15, "Commitments". |
| |
|
| ● |
In June 2013, the Company issued Hanover Holdings, Inc. an additional 9,850,000
shares of common stock for additional Settlement Agreement shares. |
| |
|
| ● |
In July 2013, the Company issued Hanover Holdings, Inc. an additional 21,316,171
shares of common stock for additional Settlement Agreement shares. |
| |
|
| ● |
In August 2013, the Company issued Hanover Holdings, Inc. an additional
12,300,000 shares of common stock for additional Settlement Agreement shares. |
| |
|
| ● |
In August 2013, the Company issued Ironridge Global IV, Ltd. 4,959,613
shares of common stock as payment for a facility fee per their litigation settlement. |
| |
|
| ● |
In September 2013, the Company issued Hanover Holdings, Inc. an additional
6,800,000 shares of common stock for additional Settlement Agreement shares. |
| |
|
| ● |
In October 2013, the Company issued Hanover Holdings, Inc. an additional
10,000,000 shares of common stock for additional Settlement Agreement shares. |
| |
|
| ● |
In October 2013, the Company issued to Highland Capital Fund. 5,000,000
shares of common stock for consulting services valued at $90,000. |
| |
|
| ● |
In October 2013, the Company issued a total of 83,035,917 shares of common
stock for debt conversions. |
| ● |
In November 2013, the Company issued a total of 112,583,243 shares of common
stock for debt conversions. |
| |
|
| ● |
In December 2013, the Company issued Hanover Holdings, Inc. an additional
33,009,817 shares of common stock for additional Settlement Agreement shares. This was the final issuance of shares
to Hanover per the Settlement Agreement. |
| |
|
| ● |
In December 2013, the Company issued JJK, LLC 19,000,000 shares of common
stock for JJK, LLC granting extensions to their outstanding notes during 2013. |
| |
|
| ● |
In December 2013, the Company issued Dr. Steven Victor and Anna Phodes
177,691,000 and 30,000,000 shares of common stock, respectively, for conversion of their related party debt. |
| |
|
| ● |
In December 2013, the Company issued a total of 330,562,400 shares of common
stock for debt conversions. |
| 15. |
Stock
Options and Warrants |
Employee
Stock Options
The
following table summarizes the changes in the options outstanding at December 31, 2013, and the related prices for the shares
of the Company’s common stock issued to employees of the Company under a non-qualified employee stock option plan.
Range of
Exercise
Prices | | |
Number
Outstanding | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contractual
Life | | |
Number
Exercisable | | |
Weighted
Average
Exercise
Price | |
| | | |
| | |
| | |
| | |
| | |
| |
| $ | 0.01 - 0.25 | | |
| 1,775,000 | | |
$ | 0.15 | | |
| 8.57 | | |
| 1,762,500 | | |
$ | 0.15 | |
| | 4.00 | | |
| 2,347,926 | | |
| 4.00 | | |
| 7.99 | | |
| 1,879,173 | | |
| 4.00 | |
| | | | |
| 4,122,926 | | |
| | | |
| 8.24 | | |
| 3,641,673 | | |
| | |
A
summary of the Company’s stock awards for options as of December 31, 2013 and changes for the year ended December 31, 2013
is presented below:
| | |
Stock
Options | | |
Weighted
Average
Exercise
Price | |
| Outstanding, December 31, 2012 | |
| 4,747,926 | | |
$ | 1.48 | |
| Granted | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | |
| Expired/Cancelled | |
| (625,000 | ) | |
| - | |
| Outstanding, December 31, 2013 | |
| 4,122,926 | | |
$ | 2.34 | |
| Exercisable, December 31, 2013 | |
| 3,641,673 | | |
$ | 2.14 | |
The
weighted-average fair value of stock options granted to employees during the year ended December 31, 2013 and December 31, 2012,
respectively, and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes-Merton
(“Black-Scholes”) option pricing model are as follows:
| | |
December
31,
2013 | | |
December 31,
2012 | |
| Significant assumptions (weighted-average): | |
| | |
| |
| Risk-free interest rate at grant date | |
| - | | |
| 0.31
to 1.71 | % |
| Expected stock price volatility | |
| - | | |
| 105 | % |
| Expected dividend payout | |
| - | | |
| - | |
| Expected option life (in years) | |
| - | | |
| 3.0
to 10. 0 | |
| Expected forfeiture rate | |
| - | | |
| 0 | % |
| Fair value per share of options granted | |
$ | - | | |
$ | 0.17 | |
The
expected life of awards granted represents the period of time that they are expected to be outstanding. The Company has no historical
experience with which to establish a basis for determining an expected life of these awards. Therefore, the Company only gave
consideration to the contractual terms and did not consider the vesting schedules, exercise patterns and pre-vesting and post-vesting
forfeitures significant to the expected life of the option award.
We
estimate the volatility of our common stock based on the calculated historical volatility of similar entities in industry, in
size and in financial leverage whose share prices are publicly available. We base the risk-free interest rate used in the Black-Scholes-Merton
option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining
term equal to the expected life of the award. We have not paid any cash dividends on our common stock and do not anticipate paying
any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes-Merton
option valuation model.
There
were no options exercised during the years ended December 31, 2013 or 2012.
Total
stock-based compensation expense in connection with options granted to employees recognized in the consolidated statement of operations
for the years ended December 31, 2013 and 2012 was $0 and $2,213,672, respectively, net of tax effect. Total stock-based compensation
expense in connection with options granted to non-employees recognized in the consolidated statement of operations for the years
ended December 31, 2013 and 2012 was $0 and $34,930, respectively, net of tax effect. Additionally, none of the options outstanding
and unvested as of December 31, 2013 had any intrinsic value.
Warrants
The
following table summarizes the changes in the warrants outstanding at December 31, 2013, and the related prices for the shares
of the Company’s common stock issued to non-employees of the Company. These warrants were issued in lieu of cash
compensation for services performed or financing expenses and in connection with the private placements and merger.
Range of
Exercise Prices | | |
Number
Outstanding | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contractual
Life | | |
Number
Exercisable | | |
Weighted
Average
Exercise
Price | |
| | | |
| | |
| | |
| | |
| | |
| |
| $ | 0.33 | | |
| 3,071,542 | | |
$ | 0.33 | | |
| 2.36 | | |
| 3,071,542 | | |
$ | 0.33 | |
| $ | .045 | | |
| 2,566,664 | | |
$ | 0.45 | | |
| 3.90 | | |
| 2,566,664 | | |
$ | 0.45 | |
| $ | 0.75 - 0.86 | | |
| 11,580,000 | | |
$ | 0.75 | | |
| 3.10 | | |
| 11,580,000 | | |
$ | 0.75 | |
| $ | 1.00 | | |
| 42,500 | | |
$ | 1.00 | | |
| 2.98 | | |
| 42,500 | | |
$ | 1.00 | |
| $ | 1.58 | | |
| 45,000 | | |
$ | 1.58 | | |
| 8.25 | | |
| 45,000 | | |
$ | 1.58 | |
| $ | 2.00 | | |
| 2,529,200 | | |
$ | 2.00 | | |
| 3.09 | | |
| 2,529,200 | | |
$ | 2.00 | |
| $ | 2.45 - 2.60 | | |
| 800,000 | | |
$ | 2.51 | | |
| 3.01 | | |
| 800,000 | | |
$ | 2.51 | |
| $ | 3.00 | | |
| 750,000 | | |
$ | 3.00 | | |
| 2.95 | | |
| 750,000 | | |
$ | 3.00 | |
| $ | 3.20 | | |
| 350,000 | | |
$ | 3.20 | | |
| 2.92 | | |
| 350,000 | | |
$ | 3.20 | |
| $ | 3.75 | | |
| 100,000 | | |
$ | 3.75 | | |
| 3.14 | | |
| 100,000 | | |
$ | 3.75 | |
| | | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | | | |
| 21,834,906 | | |
| | | |
| 3.09 | | |
| 21,834,906 | | |
| | |
A
summary of the Company’s stock awards for warrants as of December 31, 2013 and changes for the year ended December 31, 2013
is presented below:
| | |
Warrants | | |
Weighted
Average
Exercise
Price | |
| Outstanding, January 1, 2013 | |
| 22,284,906 | | |
$ | 1.00 | |
| Granted | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | |
| Expired/Cancelled | |
| (450,000 | ) | |
| - | |
| Outstanding, December 31, 2013 | |
| 21,834,906 | | |
| 1.00 | |
| Exercisable, December 31, 2013 | |
| 21,834,906 | | |
| 1.00 | |
The
Company issued 0 and 1,684,000 compensatory warrants to non-employees during the years ended December 31, 2013 and 2012, respectively.
The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model with
the following weighted average assumptions used for the grants, respectively; dividend yield of zero percent for all periods;
expected volatility is 105%; risk-free interest rate from a range of .10% to 2.23%; expected lives ranging from one
years to ten years. Total non-employee stock-based compensation expense in connection with warrants recognized
in the consolidated statement of operations for the years ended December 31, 2013 and 2012 was $0 and $2,720,764, respectively,
net of tax effect.
The
following table presents the computations of basic and dilutive loss per share:
| | |
(Restated)
2013 | | |
2012 | |
| Net Income (Loss) | |
$ | (15,868,039 | ) | |
$ | (4,151,891 | ) |
| | |
| | | |
| | |
| Net income (loss) per share: | |
| | | |
| | |
| Net income (loss) per share – basic | |
$ | (0. 10 | ) | |
$ | (0.13 | ) |
| Net income (loss) per share – diluted | |
$ | (0. 10 | ) | |
$ | (0.13 | ) |
| | |
| | | |
| | |
| Weighted average common shares outstanding – basic | |
| 153,636,036 | | |
| 32,338,788 | |
| Weighted average common shares outstanding – diluted | |
| 153,636,036 | | |
| 32,338,788 | |
For
the year ended December 31, 2013 and 2012 common stock equivalents totaling 5,396,636,857 and 43,931,682 related to warrants, convertible
debt and preferred stock were excluded from the calculation of the diluted net loss per share as their effect would have been
antidilutive.
On
June 1, 2011, a company owned by Dr. Steven Victor, the Company’s CEO, entered into a 13 year lease for new office space,
for which the Company unconditionally guaranteed any and all obligations owed under the lease to the landlord. In connection with
the execution of the lease, the Company established a restricted cash account in the amount of approximately $650,000 to secure
a line of credit to be used as a security deposit under the lease.
The
lease commenced on June 1, 2012 and expire on May 31, 2025. Upon commencement, the aggregate minimum annual lease payments under
operating leases are as follows:
| 2014 | |
$ | 646,062 | |
| 2015 | |
| 665,555 | |
| 2016 | |
| 679,479 | |
| 2017 | |
| 679,479 | |
| 2018 | |
| 679,479 | |
| Thereafter | |
| 5,440,474 | |
| Total | |
$ | 8,790,528 | |
The
Company has evaluated its subsequent events through May 8, 2014, the date the financial statements were available to be issued.
Except as disclosed below, there were no additional significant subsequent events requiring disclosure.
Material
Modification to Rights of Security Holders
On
January 17, 2014, Intellicell Biosciences, Inc. (the “Corporation”) filed a certificate of designations, rights and
preferences (the “Certificate of Designation”) with the Secretary of State of the State of Nevada pursuant to which
the Corporation set forth the designation, powers, rights, privileges, preferences and restrictions of the Series E Preferred
Stock. On January 22, 2014 the Corporation filed a certificate of correction (the “Certificate of Correction”) with
the Secretary of State of Nevada to change the name of the designation from “Series E Preferred Stock” to “Series
F Preferred Stock.” Among other things, each one (1) share of the Series F Preferred Stock shall have voting
rights equal to (x) 0.019607 multiplied by the total issued and outstanding shares of Common Stock eligible to vote at
the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.
For purposes of illustration only, if the total issued and outstanding shares of Common Stock eligible to vote at the time of
the respective vote is 5,000,000, the voting rights of one share of the Series F Preferred shall be equal to 102,036 (0.019607
x 5,000,000) / 0.49) – (0.019607 x 5,000,000) = 102,036).
The
foregoing description of the Series F Preferred Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the Certificate of Designation and the Certificate of Correction, copies of which are attached hereto as Exhibit
99.1 and Exhibit 99.2, respectively, and incorporated herein by reference.
Amendment
to Articles of Incorporation
On
March 7, 2014, Intellicell Biosciences, Inc. (the “Company”) filed an amendment to the Company’s articles of
incorporation with the Secretary of State of the State of Nevada (the “Amendment”), to increase the Company’s
authorized common stock from one billion five hundred million (1,500,000,000) shares of common stock to three billion five hundred
million (3,500,000,000) shares of common stock. The Amendment also changed the par value of the Company’s authorized common
stock from $0.001 per share to $0.0001 per share.
Entry
into a Material Definitive Agreement
On
March 11, 2014 (the “Effective Date”), Intellicell Biosciences, Inc., a Nevada corporation (the “Company”),
entered into a Securities Purchase Agreement (the “SPA”) to issue and sell a secured convertible debenture
(the “Debenture”) to YA Global Investments, L.P., a Cayman Islands exempted company (the “Investor”),
in the principal amount of $2,100,000. In addition to the Debenture, the Company also agreed to issue a warrant to
the Investor entitling the Investor to purchase up to 400,000,000 shares of the Company’s common stock at an exercise price
of $0.005 per share (the “Warrant”). The Company’s issuance of the securities to the Investor
pursuant to the SPA is exempt from registration requirements of the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities
Act.
The
Debenture shall mature on or before March 11, 2015 (the “Maturity Date”) and shall accrue interest at an annual
rate equal to 7.5%. Such interest shall be paid on the Maturity Date (or sooner as provided in the Debenture), in cash or, in
shares of Common Stock in accordance with the terms of the Debenture at the applicable Conversion Price (as defined in the Debenture).
At any time, and at its sole option, the Investor shall be entitled to convert a portion or all amounts of principal and interest
due and outstanding under the Debenture into shares of common stock at a price equal to 48.5% of the average of the three (3)
lowest prices per share of reported trades (not on the same day) of the common stock on the OTC Markets or on the exchange which
the common stock is then listed as quoted by Bloomberg, LP during the twenty (20) trading days preceding the conversion date.
Unless
the Investor provides sixty-five (65) days prior written notice to the Company, the Company shall not effect any conversion, and
the Investor shall not have the right to convert any portion of the Debenture to the extent that after giving effect to such conversion,
the Investor (together with any affiliate of the Investor) would beneficially own more than 9.99% of the then issued and outstanding
shares of common stock.
The
obligations under the Debenture are guaranteed by that certain Guaranty Agreement (the “Guaranty Agreement”)
and secured by that certain (i) Security Agreement (the “Security Agreement”), (ii) Intellectual Property Security
Agreement (the “Intellectual Property Security Agreement”) and (iii) Pledge Agreement (the “Pledge
Agreement”), the aforementioned agreements being dated the Effective Date, and each by and among the Company, Intellicell
Biosciences, Inc., a New York corporation (“Intellicell NY”), ICBS Research Corp., a New York corporation (“ICBS”),
Tech-Stem, Inc., a New York corporation (“Tech-Stem”) and the Investor.
In
connection with the SPA, the Company also entered into lockup agreements dated the Effective Date by and between the Company and
its officers and directors in the form attached as Exhibit C to the SPA, that certain Escrow Agreement dated the Effective Date,
by and among the Company, the Investor, and escrow agent named therein pursuant to the terms of the SPA , and that certain Escrow
Agreement dated the Effective Date, by and among the Company, MD Global Partners, LLC, and the escrow agent named therein pursuant
to the terms of the SPA.
Laboratory
Services and License Agreement
On
March 11, 2014 (the “Effective Date”), Intellicell Biosciences, Inc., a Nevada corporation (the “Company”),
executed a Laboratory Services and License Agreement (the “License Agreement”), effective March 7, 2014, with
The Andrews Research and Education Foundation, Inc. (“AREF”) pursuant to which the Company agreed to grant
certain technology and trademark licenses to AREF.
The
term of the License Agreement shall be for a period of three (3) years commencing on March 7, 2014 and shall automatically renew
for subsequent periods of three (3) years unless either party to the License Agreement provides notice of its intention not to
renew at least ninety (90) days prior to the expiration of any three (3) year term.
Subject
to the terms and conditions of the License Agreement, the Company agreed to grant AREF a non-exclusive (except for the Pensacola,
Florida area and a surrounding radius of 150 miles), non-assignable, non-transferrable, non-sublicensable license to market the
use of and practice the Technology (as such term is defined in the License Agreement) at AREF’s premises for restricted
purposes as provided in the License Agreement. The Company also agreed to grant AREF a non-exclusive, non-assignable, non-sublicensable,
license to the Trademarks (as such term is defined in the Agreement). Furthermore, the Company reserved the perpetual worldwide
right to license and use the Patent (as defined in the License Agreement), Trademarks and the Technology licensed under the License
Agreement for any purpose.
Except
for when performed for research purposes, AREF shall pay to the Company a fee equal to $2,500 per Tissue Processing (as such term
is defined in the License Agreement) case processed. The parties to the License Agreement have mutually agreed not to disclose
any Confidential Information (as such term is defined in the License Agreement), whether verbal or written, conveyed to them prior
to, during or subsequent to the term of the License Agreement.
Consulting
Agreement
On
March 11, 2014, the Company executed a Consulting Agreement (the “Consulting Agreement”) with Dr. James
Andrews, effective March 7, 2014, pursuant to which Dr. Andrews shall serve as Chairman of the Intellicell Orthopedic
Cellular Therapy Advisory Board. The initial term of the Agreement shall be for a period of ten (10) years unless
extended as provided in the Agreement or unless terminated by either party with thirty (30) days advance written notice to
the other party. In consideration for Consultant’s services, the Consultant shall be paid a monthly fee and
make a monthly charitable contribution to the Andrews Foundation after the Company closes a Capital Raise (as defined in the
Consulting Agreement), and the amount of such monthly fee and monthly charitable contribution shall be determined based on
the amount raised in the Capital Raise. For example, if the value of the Capital Raise is equal to or greater than $2,000,000
but less than $15,000,000, the monthly fee payable to the Consultant thereafter shall be equal to $30,000 (with $6,000 of
such amount payable to Dr. Michael Immel) with a charitable contribution of $10,000 payable to the Andrews Foundation
thereafter for the term of the Consulting Agreement.
Furthermore,
commencing on March 1, 2014 and ending on May 1, 2017, on each of March 1, June 1, October 1 and January 1 during such
period, the Company shall issue and the Consultant shall be entitled to receive non-qualified stock options to purchase a
number of shares of the Company’s common stock equal to 750,000 divided by the average of the closing bid price per
share of such common stock for the ten (10) trading days immediately prior to the date of issuance, subject to certain
adjustments as set forth in the Consulting Agreement. The options have a strike price of $0.0058 per share and are
exercisable for ten (10) years. A portion (13.33%) of such options will be issued to the Andrews Foundation (and
Dr. Immel shall receive 20% of such options). In addition, The Company shall issue to the Consultant 6,666,666 shares of its
common stock based on the market price at the date of the execution of the License Agreement (see description above), as well
as 2,000,000 shares to Dr. Immel and 1,333,333 shares to the Andrews Foundation. Additionally, 1,000,000 shares
shall be issued to the Consultant, 200,000 shares shall be issued to Dr. Immel and 133,333 shares shall be issued to the
Andrews Foundation upon FDA approval of the Company’s Stromal Vascular Fraction Cell injection for treatment of
osteoarthritis.
Issuance
of Convertible Debentures
On
January 31, 2014, the Company issued a secured convertible debenture with The Roth Firm for $196,612 to memorialize outstanding
accounts payable. Under the terms of the agreement, The Roth Firm has the rights of first refusal for a period of eighteen
months from the issuance of the debenture on any issuance or sale of capital stock that the Company issues to raise additional
capital. The terms of the convertible debenture require repayment on the date of the note and bears a 10% simple annual
interest rate. The convertible debenture is convertible into shares of the Company’s common stock at a price
equal to 48.5% of the average 3 lowest trades (not on the same day) of the Common Stock of the 20 trading days immediately preceding
the conversion date as quoted by Bloomberg, LP.
On
January 31, 2014, the Company issued a secured convertible debenture with Mintz et al for $25,382 to memorialize outstanding
accounts payable. Under the terms of the agreement, Mintz et al has the rights of first refusal for a period of
eighteen months from the issuance of the debenture on any issuance or sale of capital stock that the Company issues to raise
additional capital. The terms of the convertible debenture require repayment on the date of the note and bears a
10% simple annual interest rate. The convertible debenture is convertible into shares of the Company’s common stock at
a price equal to 48.5% of the average 3 lowest trades (not on the same day) of the common stock of the 20 trading days
immediately preceding the conversion date as quoted by Bloomberg, LP.
On
January 31, 2014, the Company issued a secured convertible debenture with Biologic Consulting Group for $93,005.93 to memorialize
outstanding accounts payable. Under the terms of the agreement, Biologic Consulting Group has the rights of first refusal
for a period of eighteen months from the issuance of the debenture on any issuance or sale of capital stock that the Company issues
to raise additional capital. The terms of the convertible debenture require repayment on the date of the note and bears
a 10% simple annual interest rate. The convertible debenture is convertible into shares of the Company’s common
stock at a price equal to 48.5% of the average 3 lowest trades (not on the same day) of the common stock of the 20 trading days
immediately preceding the conversion date as quoted by Bloomberg, LP.
On
January 31, 2014, the Company issued a secured convertible debenture with The Roth Firm for $196,612 to memorialize outstanding
accounts payable. Under the terms of the agreement, The Roth Firm has the rights of first refusal for a period of eighteen
months from the issuance of the debenture on any issuance or sale of capital stock that the Company issues to raise additional
capital. The terms of the convertible debenture require repayment on the date of the note and bears a 10% simple annual
interest rate. The convertible debenture is convertible into shares of the Company’s common stock at a price
equal to 48.5% of the average 3 lowest trades (not on the same day) of the common stock of the 20 trading days immediately preceding
the conversion date as quoted by Bloomberg, LP.
On
January 31, 2014, the Company issued a secured convertible debenture with University of Florida, Department of Materials Sciences
& Engineering for $33,781 to memorialize outstanding accounts payable. Under the terms of the agreement, University
of Florida, Department of Materials Sciences & Engineering has the rights of first refusal for a period of eighteen months
from the issuance of the debenture on any issuance or sale of capital stock that the Company issues to raise additional capital. The
terms of the convertible debenture require repayment on the date of the note and bears a 10% simple annual interest rate. The
convertible debenture is convertible into shares of the Company’s common stock at a price equal to 48.5% of the average
3 lowest trades (not on the same day) of the common stock of the 20 trading days immediately preceding the conversion date as
quoted by Bloomberg, LP.
On
January 31, 2014, the Company issued a secured convertible debenture with Hunton & Williams, LLP for $187,106.57 to memorialize
outstanding accounts payable. Under the terms of the agreement, Hunton & Williams, LLP has the rights of first
refusal for a period of eighteen months from the issuance of the debenture on any issuance or sale of capital stock that the Company
issues to raise additional capital. The terms of the convertible debenture require repayment on the date of the note
and bears a 10% simple annual interest rate. The convertible debenture is convertible into shares of the Company’s
common stock at a price equal to 48.5% of the average 3 lowest trades (not on the same day) of the common stock of the 20 trading
days immediately preceding the conversion date as quoted by Bloomberg, LP.
On
January 31, 2014, the Company issued a secured convertible debenture with Lucoksky Brookman, LLP for $124,812.45 to memorialize
outstanding accounts payable. Under the terms of the agreement, Lucoksky Brookman, LLP has the rights of first refusal
for a period of eighteen months from the issuance of the debenture on any issuance or sale of capital stock that the Company issues
to raise additional capital. The terms of the convertible debenture require repayment on the date of the note and bears
a 10% simple annual interest rate. The convertible debenture is convertible into shares of the Company’s common
stock at a price equal to 48.5% of the average 3 lowest trades (not on the same day) of the common stock of the 20 trading days
immediately preceding the conversion date as quoted by Bloomberg, LP.
On
January 31, 2014, the Company issued a secured convertible debenture with Buchanan Ingersoll & Rooney for $525,583 to memorialize
outstanding accounts payable. Under the terms of the agreement Buchanan Ingersoll & Rooney has the rights of first
refusal for a period of eighteen months from the issuance of the debenture on any issuance or sale of capital stock that the Company
issues to raise additional capital. The terms of the convertible debenture require repayment on the date of the note
and bears a 10% simple annual interest rate. The convertible debenture is convertible into shares of the Company’s
common stock at a price equal to 48.5% of the average 3 lowest trades (not on the same day) of the common stock of the 20 trading
days immediately preceding the conversion date as quoted by Bloomberg, LP.
TCA
Default Notice
On
July 15, 2013, while the Company was finalizing an amendment and waiver to that certain Convertible Promissory Note (the “Note”)
issued by the Company in favor of TCA Global Credit Master Fund, LP (“TCA”) on June 7, 2012 in the principal amount
of $500,000, the Company was advised that Ironridge Global IV, LTD (“Ironridge”), led by Mr. John C. Kirkland, Esq.,
purportedly purchased the Note from TCA. The Complaint and Motion alleged that Ironridge and TCA each served the Company
with a Notice of Foreclosure and Sale, both claiming to be the “Secured Party” of the same assets.
On
August 8, 2013, a Summons and Complaint (the “Complaint”) was filed along with a Motion for a Temporary Restraining
Order (the “Motion”) before the Supreme Court of the State of New York, County of New York (the “Court”)
under the caption Intellicell Biosciences, Inc. v Ironridge Global IV, LTD., and TCA Global Credit Master Fund, LP, Index
No. 652800/13. The Motion sought to restrain the sale of the Company’s assets.
Given
that Ironridge and TCA asserted that they would sell the secured assets of the Company at auction on August 12, 2013, the Motion
sought to temporarily restrain both parties from so doing. On August 12, 2013, Justice Sherwood, Justice of the Supreme Court,
New York County, issued a written Order granting the relief requested, thereby restraining any sale of assets (the “Temporary
Restraining Order”).
On
August 26, 2013, despite the Company’s best efforts to amicably resolve the dispute related to the Note, a subsequent hearing
on the Motion was held, at which time the Company voluntarily brought with it to Court: (i) a certified check in the amount of
$535,833.33 constituting payment of all principal and interest owed under the Note; and (ii) a stock certificate constituting
the facility fee shares owed to the Secured Party pursuant to that certain Equity Facility Agreement. Since TCA admitted
in prior court filings that it has no remaining interest in the that certain Note and Equity Facility Agreement, both the check
and the stock certificate were tendered to Ironridge in open court, and counsel for Ironridge confirmed receipt thereof to Justice
Oing directly. The company's attorneys argued in court that with the exception of possible attorney’s fees owed, the Company's
obligations under the transaction documents have now been satisfied in full.
In
addition, the Court found Ironridge’s jurisdictional argument to be unavailing and held that the case shall remain in New
York and directed all parties to file submissions with the Court on September 10, 2013, indicating why any other monies are or
are not owed under those certain transaction documents. Judge Oing further directed that the Temporary Restraining
Order restraining the sale of the Company’s assets shall remain in place indefinitely until further order of the Court and
that the auction shall not be rescheduled and that Ironridge shall not make, post or distribute any further advertisements, internet
postings, blogs or otherwise in relation thereto. Finally, Judge Oing held that the balance of the $680,000 that was
being held in escrow be immediately released.
The
Company intends to vigorously defend itself against Ironridge and Kirklands’s improper attempts to seize the Company’s
assets for not giving into Kirkland’s improper threats and demands. The Company will take all legal action necessary to
protect the interests of the Company and its shareholders. The Company is also arranging for all outstanding principal and interest
under the Note to be paid as soon as possible.
Additional
litigations
On
March 17, 2014, Dean E. Miller, as representative shareholder, on behalf of the nominal defendant Intellicell Biosciences, Inc.,
filed a shareholder’s derivative action against Steven Victor, MD, in his capacity as Chairman - CEO and individually,
Anna Rhodes as former Executive Vice President and individually, Leonard L. Mazur as interim Chief Operating Officer and individually,
Myron Holubiak as a Director and individually, Michael Hershman, as Chairman of the Board of Directors and individually,
Stuart Goldfarb as a former Director and individually, Victor Dermatology & Rejuvenation, P.C., Victor Cosmeceuticals,
Inc., Lasersculpt, Inc., and the Doe Entities 1-5, as defendants, and Intellicell Biosciences, Inc., as nominal-defendant. The
complaint, which was filed on the aforementioned date with the United States District Court Southern District of New York, alleges
that the Company has failed to comply with US Food and Drug Administration and United States Patent and Trade Office regulations.
The allegations in the complaint include, but are not limited to, allegations involving fraud, negligence, false reporting, and
mismanagement of laboratory facilities. Pursuant to the complaint, the amount in controversy exceeds $75,000. Furthermore, the
complaint as filed lists the following counts: 1. Against the individual defendants for breach of their fiduciary duties in connection
with their management of the Company; 2. Against the individual defendants for breach of fiduciary duty in connection with disseminating
false information; 3. Against the individual defendants for breach of fiduciary duty for failing to design and implement adequate
internal controls; 4. Request for injunctive relief; 5. Imposition of constructive trust/accounting; and 6. Appointment of referee
injunctive relief. The Company believes that such allegations and claims are without merit and intends to vigorously defend such
allegations and claims. Because the inquiry is in its initial stages, the Company is not currently able to predict the probability
of a favorable or unfavorable outcome, or the amount of any possible loss in the event of an unfavorable outcome. Consequently,
no material provision or liability has been recorded for such allegations and claims as of December 31, 2013. However, management
is confident in its defenses to such allegations and claims.
On
March 11, 2014, Steven A. Victor (“Dr. Victor”), Intellicell Biosciences, Inc., a Nevada corporation, Intellicell
Biosciences Inc., a New York corporation, and Regen Medical P.C., a New York corporation filed a complaint against Jonathan Schwartz
(“Schwarz”), Joseph P. Salvani (“Salvani”) and Douglas R. Dollinger (“Dollinger”), in the
Supreme Court of the State of New York, County of New York. Schwartz and Salvani, both shareholders of the Company, are represented
by Dollinger in his capacity as legal counsel. Pursuant to the complaint, the plaintiffs’ first cause of action alleges
that the defendants conspired together and acted in concert, to defame Dr. Victor and the Company in an effort to take control
of the Company and to reap large profits by dumping their shares thereafter. Furthermore, the plaintiffs’ second cause of
action alleges that Salvani made false statements to a potential investor, resulting in damages amounting to $250,000. The plaintiffs
seek compensatory damages, together with punitive damages and interest in connection with the first cause of action, and compensatory
damages in the amount of $250,000.00, together with punitive damages and interest, in connection with the second cause of action.
On
June 24, 2014, the Company received a unanimous written consent in lieu of a meeting of the holders of its Series F Preferred
Stock, $0.01 par value per share (the “Series F Preferred Stock”), created by unanimous written consent of
the Board of Directors of the Company (the “Board”), as permitted by the Company’s Articles of Incorporation,
as amended and which may be amended from time to time (“Amended Articles”). Each share of Series F Preferred
Stock has the equivalent of 51,133,625 votes of Common Stock (based upon the 2,355,075,373 outstanding number of shares of Common
Stock issued at the time hereof). Currently, there are five (5) holders of Series F Preferred Stock (the “Series F Stockholders”
or the “Majority Stockholders”), holding fifty-one (51) shares of Series F Preferred Stock, resulting in the
Series F Stockholders holding in the aggregate approximately 50.99% of the total voting power of all issued and outstanding voting
capital of the Company.
On
June 24, 2014, the Board approved an increase in the number of authorized shares of Common Stock from Three Billion Five Hundred
Million (3,500,000,000) shares of Common Stock to Ten Billion (10,000,000,000) shares of Common Stock (the “Authorized
Share Increase”) and recommended to the Majority Stockholders that they approve the Authorized Share Increase.
On
June 24, 2014 (the “Record Date”), the Majority Stockholders approved the Authorized Share Increase by written
consent in lieu of a meeting in accordance with the Nevada Revised Statutes. Accordingly, consent of common shareholders are not
required and will not being solicited in connection with the approval of the Authorized Share Increase.
For
the six months ended June 30, 2014, a total of 1,522,793,354 shares of common stock were issued for various conversions of debt.
For
the six months ended June 30, 2014, a total of 145,666,665 shares of common stock were issued for various services rendered by
non- employee consultants and professionals.
In
July 2014, Convertible Debenture and Note Holders converted $115,715 of principal into 167,228,569 shares of its Company’s
common stock.
In
August 2014, Convertible Debenture and Note Holders converted $108,917 of principal into 159,817,308 shares of its Company’s
common stock.
On July 3, 2014, the Company issued
53,568,400 shares to Iron Ridge Global IV LTD in final settlement of all outstanding claims under the TCA/Iron Ridge
convertible promissory note.
The
Company executed a financial consulting agreement with Highland Capital in January 2014. In the two months ended August 31, 2014,
Highland earned fees of $258,700. These fees will be payable in 51,740,000 shares of common stock of the Company. The shares have
not yet been issued as of September 25, 2014.
F-36
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, Steven A. Victor, certify that:
| 1. | | I have reviewed this amended Form 10-K/A of Intellicell Biosciences, Inc.; |
| 2. | | Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
|
| 3. | | Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods present in this report;
|
| 4. | | I am responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared; |
| b) | | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | | Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
| d) | | Disclosed in this report any change in the registrant’s internal control over
financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting. |
| 5. | | I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions): |
| a) | | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and |
| b) | | Any fraud, whether or not material, that involved management or other employees who
have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 9, 2014 |
By: |
/s/ Steven A. Victor |
|
| |
|
Steven A. Victor |
|
| |
|
Principal Executive Officer, President and Chief Executive
Officer
Intellicell Biosciences, Inc. |
|
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL
OFFICER
PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, Steven A. Victor, certify that:
| 1. | | I have reviewed this amended Form 10-K/A of Intellicell Biosciences, Inc.; |
| 2. | | Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | | Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods present in this report; |
| 4. | | I am responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared; |
| b) | | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | | Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and |
| d) | | Disclosed in this report any change in the registrant’s internal control over
financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting. |
| 5. | | I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions): |
| a) | | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and |
| b) | | Any fraud, whether or not material, that involved management or other employees who
have a significant role in the registrant’s internal control over financial reporting. |
| Date: October 9, 2014 |
By: |
/s/ Steven A. Victor |
|
| |
|
Steven A. Victor |
|
| |
|
Principal Financial Officer, President and Chief Executive
Officer
Intellicell Biosciences, Inc. |
|
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS ADOPTED
PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY
ACT OF 2002
In connection with this amended
annual report of Intellicell Biosciences, Inc. (the “Company”), on Form 10-K/A for the year ended December 31, 2013,
as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Steven A. Victor, Principal Executive Officer,
President and Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as
adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| |
(1) |
Such amended annual report on Form 10-K/A for the year ended December 31, 2013, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
(2) |
The information contained in such amended annual report on Form 10-K/A for the year ended December 31, 2013, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: October 9, 2014 |
By: |
/s/ Steven A. Victor |
|
| |
|
Steven A. Victor |
|
| |
|
Principal Executive Officer, President and Chief Executive
Officer
Intellicell Biosciences, Inc. |
|
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this amended annual report of Intellicell
Biosciences, Inc. (the “Company”), on Form 10-K/A for the year ended December 31, 2013, as filed with the U.S. Securities
and Exchange Commission on the date hereof, I, Steven A. Victor, Principal Financial Officer, President and Chief Executive Officer
of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley
Act of 2002, that:
| |
(3) |
Such amended annual report on Form 10-K/A for the year ended December 31, 2013, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
(4) |
The information contained in such amended annual report on Form 10-K/A for the year ended December 31, 2013, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: October 9, 2014 |
By: |
/s/ Steven A. Victor |
|
| |
|
Steven A. Victor |
|
| |
|
Principal Financial Officer, President and Chief Executive
Officer
Intellicell Biosciences, Inc. |
|