SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE OF 1934
For the Transition Period From to
Commission file number 0-3338
INERGETICS, INC.
(Exact Name of Registrant as Specified in
its Charter)
| Delaware |
22-1558317 |
| (State or other Jurisdiction of |
(IRS Employer |
| Incorporation or Organization) |
Identification No.) |
| |
|
| 550 Broad Street, Suite 1212, Newark, N.J. 07102 |
| (Address of Principal Executive Office) |
(Zip Code) |
(908) 604-2500
(Registrant’s telephone number including
area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨
No x
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 x
Indicate by check mark whether the registrant
(1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes x
No ¨
Indicate by check mark 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 definition 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 x
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
No x
Based on the closing price of the Common Stock on the OTC Electronic
Bulletin Board as reported on December 31, 2014, ($0.01), the aggregate market value of the 133,080,268, shares of the Common Stock
held by persons other than officers, directors and persons known to the Registrant to be the beneficial owners (as the term is
defined under the rules of the Securities and Exchange Commission) of more than five percent of the Common Stock on December 31,
2014 (the last business day of the registrant's most recently completed first fiscal quarter), was approximately $1,330,803. By
the foregoing statements, the Registrant does not intend to imply that any of the officers, directors, or beneficial owners are
affiliates of the registrant or that the aggregate market value, as computed pursuant to rules of the Securities and Exchange Commission,
is in any way indicative of the amount which could be obtained for such shares of Common Stock.
The Registrant’s revenues for the fiscal year ended December
31, 2014, were $1,991,688.
As of April 8, 2015 218,508,160
shares of Common Stock, $0.001 par value were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: SEE
EXHIBIT INDEX
INERGETICS, INC.
CONTENTS
CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR"
PROVISIONS OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934
Certain statements
in this Annual Report on Form 10-K (the “Form 10-K”), including statements under “Item 1. Business,”“Item
1A. Risk Factors,”“Item 3. Legal Proceedings” and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Result of Operations,” constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange
Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,”
“may,” “will,” “should,” or “anticipates” or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. All statements other
than statements of historical fact included in this Form 10-K regarding our financial position, business strategy and plans or
objectives for future operations are forward-looking statements. Without limiting the broader description of forward-looking
statements above, we specifically note that statements regarding development and market acceptance of our products, current dependence
on the willingness of investors to continue to fund our operations are all forward-looking in nature.
Such forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements and other factors referenced in this Form 10-K. We do not undertake and specifically decline any obligation to
publicly release the results of any revisions which may be made to any forward-looking statement to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
ITEM 1: BUSINESS
SUMMARY
Inergetics, Inc. (the “Company,”
“Inergetics,” “we” or “us”), formerly Millennium Biotechnologies Group, Inc., is a holding
company for its sole operating subsidiary, Millennium Biotechnologies, Inc. (“Millennium”).
Millennium was incorporated in the State
of Delaware on November 9, 2000, and is located in New Jersey. Millennium is a research based bio-nutraceutical corporation
involved in the field of nutritional science. Millennium's principal source of revenue is from sales of its nutraceutical
supplements.
On March 15, 2010 we changed our name to
Inergetics, Inc.
Inergetics, through its subsidiary Millennium,
engages in the research, development, and marketing of specialized nutritional supplements as an adjunct to medical treatments
for select medical conditions, as well as for athletes seeking improved recovery and advanced performance. We currently market
products which are targeted toward individuals. Millennium’s currently manufactures and markets the following four proprietary
product lines and 36 SKU’s to 7 separate target markets:
| · | Martha Stewart™ Essentials; |
We believe that our products are unique
in that they deliver healthy, whole food calories and do not contain high-fructose corn syrup or corn oil, which are not healthy
or suitable forms of calories for Millennium’s targeted markets. These ingredients have also shown to correlate with an increase
in obesity, a promotion of insulin resistance, and are implicated in inflammation and cancer. Additionally, the use of high levels
of Omega-6 fats (corn oil) has been shown to promote tumor growth in animal models.
Millennium developed Surgex™ ( www.surgexsports.com
) sports nutritional formula in late 2007. Surgex™ was tested in two single-blind placebo controlled clinical trials conducted
on the Division 1A Football and Soccer players at Rutgers University. Base on the results of these trials we believe that Surgex™
addresses the nutritional concerns of both professional and amateur elite athletes. These athletes often experience similar symptoms
post-workout to those battling immuno-compromised conditions, such as fatigue, loss of lean muscle, oxidative stress, and reduced
immune function.
Millennium acquired Bikini Ready™
and SlimTrim in January 2013. Both Bikini Ready and SlimTrim are sold into the diet category in retail stores. In addition, SlimTrim
is also sold direct to consumer on its web site www.slimtrim1.com and Bikini Ready is sold direct to consumer on its web
site www.bikinireadylifestyle.com.
In May 2013, Millennium acquired the license
for Martha Stewart™ Essentials. Condition specific supplements were developed for women. The product is sold in retailers
and on the web site www.marthastewartessentials.com.
In March 2015 the Company
launched Nulief™, a branded nutritional supplement offering the holistic benefits associated with Cannabidiol (CBD).
Inergetics and Terra Tech Corp. developed Nulief under the insightful guidance and extensive expertise of the
Scientific/Medical Advisory Board the companies convened in early 2014.
We are headquartered in Newark, New Jersey,
and our common stock currently trades on the Over-the-Counter (OTCQB) market under the symbol “NRTI.”
Distribution
Channels
Retail Distribution
We make our branded products available to
consumers in more than 15,000 retail stores. Our products are currently available in the United States and internationally through
PriceSmart membership warehouse clubs in Central America and the Caribbean. We continue to expand our marketing presence in an
effort to increase our distribution in developed and emerging markets to our consumers throughout the world.
Direct-To Consumer Distribution
In the direct to consumer channel, customers
order Surgex™ through our website SurgexSports.com or by contacting us directly. Currently, SlimTrim is sold direct to consumer
on its web site www.slimtrim1.com. Bikini Ready is sold direct to consumer on its web site www.bikinireadylifestyle.com.
Martha Stewart™ Essentials is sold direct to consumer on the web site www.marthastewartessentials.com. Generally,
the products are shipped directly to the customer’s home within one business day and arrive within 2 to 5 business days depending
on the customers’ geographic location.
PRODUCTS
Surgex™
Surgex™, is a nutritional support
formula that aims to address the concerns of many elite athletes who suffer from symptoms such as (fatigue, lean muscle loss, lactic
acid buildup, oxidative stress, and stressed immune systems). This formula is designed to improve recovery parameters in efforts
to enhance the performance of professional and collegiate athletes.
The National Collegiate Athletic Association
(NCAA) has specific rules about the use of certain amino acids, or anabolic agents. In fact, colleges and universities are prohibited
from purchasing any product that contains amino acids or anabolic agents for athletes. This led to the development of the Surgex™
nutritional support formula.
Millennium has tested its sports nutrition
formula products at Rutgers University in New Jersey, among both the Men’s Division I Soccer Team and the Men’s Division
I Football Team in two separate single-blind placebo-controlled studies. Both studies illustrated the product’s beneficial
effects as a post-workout recovery aid, assisting the athlete in maximizing training responses and optimal recovery and improving
performance.
Surgex Meal is a Meal Replacement Shake
from powder. Surgex Fix is a pre-work and recovery powder shake. Both the Meal Replacement and Fix are NCAA compliant. Surgex also
has Surgex Pump and pre workout powder drink. Surgex Thermo is a thermogenic pill.
Bikini Ready™
Bikini Ready Yummy Shake from powder is
a low calorie meal substitute. Bikini Ready Weight Loss Catalyst is a thermogenic supplement containing fat burning ingredients.
Bikini Ready Cleanse is a multi-component formula to address weight loss and detox at the same time using a natural healthy gentle
laxative effect. Bikini Ready Fashion Multi is a comprehensive multiple vitamin containing ingredients to block carbohydrates,
stimulate metabolism and protect cells which blocks carbohydrates from being absorbed. Bikini Ready Gummies stimulate the body’s
metabolism.
SlimTrim
SlimTrim is an inclusive weight loss formula
at an affordable price.
Martha Stewart™ Essentials
Martha Stewart™ Essentials
is a complete line of whole-food based supplements created specifically for women. The line consists of six SKU’s which are
condition specific. The line is comprised of a Women’s Multivitamin, Hair, Skin & Nails, Digestive Health, Graceful Aging,
Menopause Support, Bone Support and Women’s Multivitamin Gummies.
Product Functionality Overview
Several health concerns must be addressed
when it comes to effectively providing nutrition. While other “single magic bullet” products on the market largely
only focus on one area while potentially neglecting others, Millennium’s products have been developed to address the major
dietary concerns that may be influenced by nutritional support, when incorporated as an adjunct to a individual’s care.
We have focused on condition specific products
with scientifically advanced formulas. Many of the products are whole food based and gluten free.
MARKETS
Size of the Nutritional supplement Market
The nutritional supplement market is expected
to increase in excess of $32 billion by 2014 according to Nutritional Business Journal. This growth is likely to be attributed
to several factors, including industry efforts to promote supplements as more essential than ever in weak economic times since
they can help to avert the need for much costlier prescription drugs and medical treatments, bolstered product credibility as a
result of the newly implemented federal GMP (Good Manufacturing Practices) and AER (adverse event report) requirements, increased
industry self-regulation, and a steady stream of innovative new products targeting an ever broader range of increasingly specific
conditions—especially the many age-related issues of aging Boomers and seniors.
Sports Nutrition Market
Based on historical acceptance by 10 NBA
teams, PGA golfers, and NFL players with little or no marketing budget, management expects to significantly improve results with
proper marketing and distribution strategies which cater to the mass market of sports nutrition consumers.
Products such as those listed below, as
well as many other “high protein” drinks, are marketed as sports nutrition supplements and may be considered competitive
products to our Surgex™ sports nutrition formula. It is important to note that as the high-protein drink market is expansive,
these competitive products are not an exhaustive list of competitors. Rather, these products are representative of some of the
high-protein drink products on the market today that may compete with Surgex™ sports nutrition formula. Surgex™ sports
nutrition formula will likely provide athletes with the important calories they need while being competitively priced with other
products.
| · | BSN Syntha-6™ Extended Release Protein Blend by BSN Inc. |
| · | Muscle Milk ® by CytoSport Inc. |
| · | FRS, an antioxidant health drink, by New Sun Nutrition, Inc. |
| · | Gatorade ® Performance Series |
Target Markets
Millennium re-launched Surgex™ in
the first quarter of 2013. Greater details on these markets are provided below.
Sports Recovery
Competitive athletes often suffer from similar
symptoms to those battling cancer or immuno-compromised diseases, such as fatigue, oxidative stress, muscle wasting, and possibly
lack of immune support due to the demands they put on their bodies daily. In order to compete effectively, these athletes need
a solution to address some of the key concerns they face, described below.
| · | Fatigue and Mitochondrial Dysfunction. Damage done to the mitochondria is typically attributed to the buildup of free radicals
and other noxious byproducts, such as lactic acid that accumulates during and after strenuous activity. |
| · | Oxidative Stress. Oxygen consumption greatly increases during exercise, which leads to increased free radical production. Also,
free radical formation within the muscle during exercise can easily damage muscle tissue and inhibit performance by the induction
of fatigue. |
| · | Muscle Wasting. A common problem during strenuous activity is lean muscle loss or wasting as muscle tends to breakdown after
vigorous activity. This problem can have a serious impact on performance and recovery. |
| · | Immune Support. Exercise has also been shown to have a positive effect on the immune system if one does not over train. Signs
and signals of overtraining are a constant feeling of fatigue, loss of strength or endurance, and although still exercising, a
feeling of burnout. Additionally, excessive exercise or periods of very heavy conditioning could lead to suppression of immunity
for several hours to a week or longer, creating a brief period of vulnerability when the risk of upper respiratory tract infections
is increased. |
Effect of Banned Nutritionals
In recent years, professional athletes have
come under considerable scrutiny for taking different substances or performance enhancers. Whether it is the Olympics, Tour de
France, baseball, or other professional sports, organizations constantly test athletes for chemicals within their body that would
indicate they have taken an illegal substance to boost their performance. Millennium’s Surgex™ sports nutritional formula
product is devoid of any banned substances.
Rutgers Studies: Demonstrating the Effect
of Surgex™ Sports Nutrition Formula vs. Placebo
Millennium has conducted two clinical trials
at Rutgers University among the Men’s Division I Soccer and Football teams, comparing the effect of the Surgex™ sports
nutrition formula versus a placebo. We believe that both studies showed the product’s beneficial effects as post-workout
recovery aid, assisting the athlete in maximizing training responses and aiding in optimal recovery. Surgex was formerly called
Resurgex.
Division I Men’s Soccer Team-Results
of the Trial-Published in The Journal for Strength and Conditioning Research
Millennium conducted its first clinical
trial among the Rutgers University Men’s Division I Soccer team during their preseason training regimen. The clinical trial
was accepted for publication in The Journal for Strength and Conditioning Research (“JSCR”). The JCSR is the official
research journal of the National Strength and Conditioning Association. This journal is recognized as the preeminent publication
for strength and conditioning coaches worldwide. These thought leaders rely on this journal for the future of leading edge science
as applied to their profession.
Preseason training often places a high demand
on athletes, and requires them to engage in frequent, high-intensity workouts with limited time devoted to recovery. Soccer players
spend a considerable portion of a match at an intensity close to 75% of VO2 max (the maximum amount of oxygen in milliliters that
one can use in one minute per kilogram of body weight) and rely on anaerobic metabolism and power during brief bursts of sprinting,
kicking, and jumping. These players must be able to perform near maximal capacity for extended periods, which may result in increased
oxidative stress. With outside supplementation of protective nutraceuticals, it may be possible to reduce acute and chronic oxidative
stress, as well as capitalize on gains from intense preseason training.
The purpose of this study was to examine
changes in performance and oxidative stress in collegiate soccer players over the course of preseason preparation, and to determine
the impact of a supplemental proprietary nutraceutical blend proposed to reduce oxidative stress and enhance recovery.
Results
A summary of the findings of the soccer
trial is provided in Table 8.
| Table 8 |
| Inergetics, Inc. |
| NUTRITIONAL SUPPLEMENTATION (RESURGEX ® ) IN MALE COLLEGE SOCCER PLAYERS: |
| EFFECTS ON PERFORMANCE AND OXIDATIVE STRESS |
| |
| Improved Performance |
There were significant changes in performance capacity as reduced oxidative stress in the Resurgex ® group versus the control group (leading high-protein nutritional formula). |
| |
|
| Improved Lactic Acid Response |
The Resurgex ® group had improved lactic acid responses to exercise and time to exhaustion versus the control group. |
| |
|
| Reduced Oxidative Stress |
The Resurgex ® group had significantly lower oxidative stress markers (isoprostanes and LPOs) versus the control group. |
| |
|
| Source: Inergetics, Inc. |
|
This single-blind, placebo-controlled trial
found that our Surgex™ sports nutrition formula enhanced performance parameters and reduced oxidative stress levels (free
radical damage caused by exercise) in players. Oxidative stress in the body is caused by imbalance or overload of oxidants (free
radicals from air, food, metabolism, medications, stress, disease, etc.). Sustained oxidative stress disrupts the cells’
defenses, resulting in damage that contributes to the development of many diseases.
Results indicated a beneficial effect of
the Surgex™ sports nutrition formula, including improvements in performance capacity, time to exhaustion, lactic acid response,
and reduced oxidative stress. This data suggests an important role for Resurgex® in the sports fitness field in addition to
its proven benefits for cancer and immuno-compromised medical patients. We believe that the fact that this trial is approved for
publication in the JSCR confirms the results of this clinical trial have been reviewed and approved by an independent and accredited
third party.
Rutgers’ Division I Football Team-Results
of the Trial Published in the Journal of Comparative Exercise Physiology.
We also conducted a second clinical trial
on the Rutgers University Division I Football team versus a placebo group. The study tested the recovery time, strength, and body
composition of the players versus a placebo (a leading competitor sports formula). We believe that the results concluded that the
Surgex™ sports nutrition formula significantly enhanced recovery parameters, strength, and body composition in the football
players.
Results
Those receiving the Surgex™ sports
nutrition formula showed significant increases in their peak power, as measured by Wingate testing (assessment for peak anaerobic
power, anaerobic fatigue, and total anaerobic capacity through a combination of running, vertical jumping, and resistance training),
better muscle to fat weight gains, and an improved testosterone:cortisol ratio, as well as reduction of interleukin 6 (IL6), creatine
kinase, and isoprostanes versus the control group.
Testosterone and cortisol are the two hormones
affected by training. The cortisol levels typically elevate and break down lean muscle. Testosterone, in contrast, which is the
supporter of lean muscle, decreases, therefore causing lean muscle breakdown in the body after strenuous exercise. In this study,
the Resurgex® group had significantly improved testosterone to cortisol ratios versus the control group. A summary of the findings
of this study is provided in Table 9.
| Table 9 |
| Inergetics, Inc. |
| NUTRITIONAL SUPPLEMENTATION (RESURGEX ® ) IN MALE COLLEGE FOOTBALL PLAYERS: |
| EFFECTS ON STRENGTH, BODY COMPOSITION, AND OXIDATIVE STRESS |
| |
|
| Improved Body Composition |
While both groups gained weight, the Resurgex ® group gained muscle and lost a slight amount of body fat while a leading competitor sports formula (control) group gained ½ of their body weight as fat. |
| |
|
| Improved Power and Strength |
Using Wingate testing, peak power was measured for each test and standardized by body weight. The increase in peak power in the Resurgex ® group was approximately 86% greater than the increase in the leading competitor sports formula group. |
| |
|
| Improved Recovery Parameters |
The Resurgex ® group had a significant improvement in their testosterone:cortisol ratio, while a leading competitor sports formula group had a decrease in this ratio. |
| |
|
| Source: Inergetics, Inc. |
|
The practical application emerging from
the study demonstrates the beneficial application of the Surgex™ sports nutrition formula as a post-workout recovery aid,
assisting the athlete in maximizing training responses by helping to buffer the acute and chronic biochemical challenges to optimal
recovery. The product also has the ability to reduce inflammatory and oxidative stress markers, as well as compounds that can break
down muscle. Millennium believes that these findings can help us position the Surgex™ sports nutrition formula as an aid
to help athletes increase their performance by improving recovery, strength, and energy parameters.
Millennium launched Bikini Ready™
in the first quarter of 2013. The Bikini Ready products are directed towards active women that want to live the healthy life style.
The products are sold in the drug and grocery channels.
Millennium acquired SlimTrim in January
2013. The products are sold as affordable weight loss formulas. The products are sold in the drug and grocery channels.
Millennium entered into a licensing agreement
with Martha Stewart Living Omnimedia, Inc. in May 2013 for the Martha Stewart™ Essentials line. The products were launched
September 2013. The line of supplements is condition specific, whole food based directed towards women. The line of supplements
is all sold into the drug and grocery channels along with direct to consumer sales over the internet. Over the term of the agreement
which expires in December 2018, we have a minimum licensing fee due in a total amount of $13,800,000. The Company has not paid
the July 1, 2014 payment in the amount of $450,000, nor the January 1, 2015 payment of $525,000 or the April 1, 2015 payment of
$525,000.
Intellectual Property
Millennium owns all rights to the formulations
of Resurgex Select ®, Resurgex®, Resurgex Plus®, Resurgex Essential™, Resurgex Essential Plus™,
Surgex™, Bikini Ready and SlimTrim and has filed compositional patent applications with respect to these formulations. Resurgex®,
Resurgex Plus®, Resurgex Select ®, and Surgex™ are registered trademarks filed with the U.S. Patent and
Trademark Office (USPTO). Additionally, we have patents pending for all product lines in 57 countries worldwide.
Millennium owns the Bikini Ready trademark.
On January 7, 2003, Resurgex® was issued
a use and composition patent (U.S. Patent 6,503,506, Nutrient therapy for immuno-compromised patients). Millennium was granted
a composition patent for Resurgex Select® in December of 2006. In addition, the Surgex™ line of products is patent pending
in the United States and 57 countries worldwide. We rely on trade secrets and unpatented proprietary technology in addition to
our patented technologies.
On March 20, 2006, Millennium received the
Healthcare Common Procedure Coding System (HCPCS) code for Resurgex Select ® . HCPCS is one of the formats in which
nutritional formulas may be coded for Medicare reimbursement and is specifically required for Medicaid reimbursement in many states.
Growth Strategy and Distribution
Millennium has implemented a strategy that
is intended to penetrate the Food Drug Mass (FDM) channels of distribution with its nutritional products. Our products are currently
distributed in approximately 15,000 retail stores. We intend on growing distribution with more retailers through our internal sales
force and utilization of our broker network. The FDM has in excess of 300,000 stores in the United States. We have numerous web
sites where the products can be purchased directly by the consumer. Our products can also be purchased at various E-retailers.
RESEARCH AND DEVELOPMENT
During the year ended 2014 and 2013, we
spent $23,944 and $44,090, respectively, on research and development of our products. The research and development expenses incurred
in 2014 and 2013 are directly related to the development of the Bikini Ready and Martha Stewart Essentials product line.
COMPETITION
Our products target
the nutritional supplement market. The products that most directly compete with our products in the adult nutrition market are
produced by mainstream manufacturers, as well as generic (store branded) products that are marketed head-to-head against these
products. We believe that our products can compete because:
| · | Many of the mass-market competitors manufacture their products using the least expensive ingredients, which ensures low retail
price and high profitability. This means diminished bioavailability and low biological value, as well as less benefit to the end
user. |
| · | Millennium’s products were developed with the ingredients necessary in order to deliver optimal performance. |
| · | Millennium’s products deliver therapeutic levels of active ingredients based on the scientific research. |
| · | Millennium has a use and composition patent for the existing formulas. Ensure ® and Boost ® are composed of mostly
corn syrup and provide “empty calories,” which could do more harm than good, especially in glucose-sensitive individuals. |
Notwithstanding the foregoing, the biotechnology
and nutraceutical supplement industries are highly competitive and subject to significant and rapid technological change. Developments
by our competitors may render our products obsolete or noncompetitive. Numerous companies compete in our market, many of which
have greater size and financial, personnel, distribution and other resources greater than ours. Our principal competition in the
distribution channels where we are marketing our current products and where we intend to market other products comes from a limited
number of large nationally known manufacturers and many smaller manufacturers of nutraceutical supplements. In addition, large
pharmaceutical companies compete with us on a limited basis in the nutraceutical supplement market. Increased competition from
such companies could have a material adverse effect on us because such companies have greater financial and other resources available
to them and possess distribution and marketing capabilities far greater than ours. We also face competition in mass market distribution
channels from private label nutraceutical supplements offered by health and natural food store chains and drugstore chains. We
cannot assure that we will be able to compete.
MANUFACTURING
Command Nutritionals, LLC is our outsourced
manufacturer and co-packager for the powder products at their facility in Fairfield, New Jersey.
Dr. Vita is our outsourced manufacturer
and co-packager for the tablet products at their facility in Las Vegas, Nevada.
GOVERNMENT REGULATION
The manufacturing, processing, formulation,
packaging, labeling and advertising of all of Millennium’s product lines are subject to regulation by federal agencies, including
the Food and Drug Administration (the "FDA"), the Federal Trade Commission, the Consumer Product Safety Commission,
the United States Department of Agriculture, the United States Postal Service and the United States Environmental Protection Agency.
These activities are also subject to regulation by various agencies of the states and localities in which we sell and plan to sell
our products.
The Dietary Supplement Health and Education
Act of 1994 (the "Dietary Supplement Law") broadly regulates nutritional labeling, claims and manufacturing requirements
for dietary supplements. The Dietary Supplement Law provides for regulation of Statements of Nutritional Support ("Statements").
These Statements may be made if they are truthful and not misleading and if "adequate" substantiation for the claims
is available. Statements can describe claims of enhanced well-being from use of the dietary supplement or product statements that
relate to affecting a structure or function of the body. However, statements cannot claim to diagnose, treat, cure, or prevent
any disease, regardless of the possible existence of scientific reports substantiating such claims.
Statements appearing in dietary supplement
labeling must be accompanied by disclaimer stating that the FDA has not evaluated the Statements. Notification to the FDA of these
Statements is not considered approval of the Statements. If the FDA determines in possible future proceedings that dietary supplement
Statements fail to meet the requirements of the Dietary Supplement Law, a product may be subject to regulation as a drug. The FDA
retains all enforcement means available to it (i.e. seizure, civil or criminal penalties, etc.), when investigating or enforcing
labeling claims.
The Federal Trade Commission ("FTC")
regulates advertising of dietary supplements which includes all of Millennium’s products. The Federal Trade Commission Act
prohibits unfair or deceptive trade practices and false or misleading advertising. The FTC has recently been very active in its
enforcement of advertising against manufacturers and distributors of nutritional dietary supplements having instituted several
enforcement actions resulting in signed agreements and payment of large fines. Although we have not been the target of a
FTC investigation, there can be no assurance that the FTC will not investigate our advertising in the future.
We are unable to predict the nature of any
future laws, regulations, interpretations, or applications, nor can we predict what effect additional governmental regulations
or administrative orders, when and if promulgated, would have on our business in the future. They could, however, require
the reformulation of certain products not possible to be reformulated, imposition of additional record keeping requirements, and
expanded documentation of the properties of certain products, expanded or different labeling and scientific substantiation regarding
product ingredients, safety or usefulness. Any or all such requirements could have a material adverse effect on our results
of operations and financial condition.
PRODUCT LIABILITY AND INSURANCE
The Company, like other producers and distributors
of ingested products, faces an inherent risk of exposure to product liability claims in the event that, among other things, the
use of its products results in injury. We maintain insurance against product liability claims with respect to the products we manufactures.
With respect to the retail and direct marketing distribution of products produced by others, our principal form of insurance consists
of arrangements with each of our suppliers of those products to name us as beneficiary on each of such vendor’s product liability
insurance policies. We do not buy products from suppliers who do not maintain such coverage.
SIGNIFICANT CUSTOMERS
For the year ended December 31, 2014, two
significant customers (defined as contributing at least 10%) accounted for 36% (19%, and 17%) of net sales. For the year ended
December 31, 2013, three significant customers (defined as contributing at least 10%) accounted for 55% (31%, 13%, and 11%) of
net sales. The loss of any of these customers could have a material adverse effect on our business. One of these customers discontinued
selling one of the Company’s brands in January 2015.
EMPLOYEES
As of April 7, 2014, we employed 9 full
time persons. Two are primarily engaged in overall managerial functions associated with operations and raising capital. Six are
engaged in distribution partnerships and sales and marketing. One is primarily engaged in day to day managerial operations. We
have no collective bargaining agreements with its employees.
INFORMATION SYSTEMS INFRASTRUCTURE
Our website, which is based on internally
developed software and other third party software, is hosted in New York at Futurological Strategies, Inc. Our servers and our
network are monitored 24 hours a day, seven days a week.
We use a variety of techniques to protect
our confidential customer data. When our customers place an order or access their account information, we use a secure server (SSL)
to transfer information. Our secure server software encrypts all information entered before it is sent to our server. All customer
data is protected against unauthorized access. We use Thawte software to secure our credit card transactions.
ITEM 1A: RISK FACTORS
An investment in our company involves a
high degree of risk. In addition to the other information included in this Form 10-K, you should carefully consider the following
risk factors described and the risk factors that may be described in any applicable supplement. You should consider these matters
in conjunction with the other information included in this filing. The risks and uncertainties described in this filing and any
applicable filing supplement are not the only ones facing us. Additional risks and uncertainties that we do not presently know
about or that we currently believe are not material may also adversely affect our business. Our business, results of operations
or financial condition could be seriously harmed, and the trading price of our common stock may decline due to any of these or
other risks.
You should carefully consider the risks, uncertainties and
other factors described below, in addition to the other information set forth in this Annual Report on Form 10-K, including our
consolidated financial statements and the related notes thereto. Any of these risks, uncertainties and other factors could materially
and adversely affect our business, financial condition, results of operations, cash flows or prospects. In that case, the trading
price of our Common Stock could decline, and you may lose all or part of your investment. An investment in our securities is speculative
and involves a high degree of risk. You should not invest in our securities if you cannot bear the economic risk of your investment
for an indefinite period of time and cannot afford to lose your entire investment. There may be additional risks that we do not
presently know of or that we currently believe are immaterial which could also impair our business and financial position. See
also “Cautionary Note Regarding Forward-Looking Statements.”
RISKS RELATED TO OUR BUSINESS
We have operated at a loss and cannot assure that we will
be able to attain profitable operations.
Although we are generating revenues, we
continue to operate at a loss. During the year ended December 31, 2014 and 2013, we generated revenues of $1,991,688 and $847,834,
respectively, from sales of our products. However, during these periods we realized net losses of $8,118,016 and $4,187,892, of
which, respectively, $2,668,621 and $1,761,810 were non-cash items. We expect to continue incurring operating losses until we are
able to derive meaningful revenues from marketing our four product lines and other products we intend to bring to market. We cannot
assure that we will be able to attain profitable operations.
We require additional funding to maintain our operations
and to further develop our business. Our inability to obtain additional financing would have an adverse effect on our business.
Our success depends on our ability to develop
a market for our products and other nutraceutical supplements we intend to bring to market. This means having an adequate advertising
and marketing budget and adequate funds to continue to promote our products, including making minimum royalty payments to Martha
Stewart Living Omnimedia, Inc. (please see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations’ Liquidity and Capital Resources”). Although our revenues have increased, our operating expenses are
significantly greater than our revenues. During 2014 we obtained new capital in the form of debt resulting in the receipt by us
of $3,060,030. These funds in conjunction with ongoing operating revenues provided adequate capital for our operating needs for
these periods. We need to continue to raise funds to cover working capital and for other financial requirements until we are able
to raise revenues to a point of positive cash flow. In this regard, we note that we were not able to make the payment that was
due July 1, 2014 to Martha Stewart Living Omnimedia pursuant to our license agreement. While we are in discussions to work out
terms of payment, we most likely will need to raise additional funds to meet our obligations under the license agreement. We plan
to raise additional funds, as before, through additional equity or debt financings. We may not be able to raise such funds on terms
acceptable to us or at all. Financings may be on terms that are dilutive or potentially dilutive to our stockholders. If sources
of financing are insufficient or unavailable, we will be required to modify our operating plans to the extent of available funding
or curtail or suspend operations.
The Note and other debt instruments to which we are a party
contain certain restrictions on the incurrence of indebtedness, the raising funds through the sale of securities or engaging in
certain major transactions without the consent of the holders of these instruments. These restrictions could have a material adverse
effect on our business.
The Note and other debt instruments to which
we are a party place restrictions on our ability to incur indebtedness, raise funds through the sale of securities or engage in
certain major transactions without the consent of the holders of such instruments. Our inability to raise needed funds from borrowings
or the sale of securities, or our inability to effect certain major business transactions could have a material adverse effect
on our business.
Our year end audited financial statements contain a “going
concern” explanatory paragraph. Our inability to continue as a going concern would require a restatement of assets and liabilities
on a liquidation basis, which would differ materially and adversely from the going concern basis on which our financial statements
included in this report have been prepared.
Our consolidated financial statements for the year ended December
31, 2014 and 2013 included herein have been prepared on the basis of accounting principles applicable to a going concern. Our auditors’
report on the consolidated financial statements contained herein includes an additional explanatory paragraph following the opinion
paragraph on our ability to continue as a going concern. A note to these consolidated financial statements describes the reasons
why there is substantial doubt about our ability to continue as a going concern and our plans to address this issue. Our December
31, 2014 and 2013 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our inability to continue as a going concern would require a restatement of assets and liabilities on a liquidation basis, which
would differ materially and adversely from the going concern basis on which our consolidated financial statements have been prepared.
We are subject to significant government regulation.
The packaging, labeling, advertising, promotion,
distribution and sale of Surgex™, Bikini Ready™, SlimTrim and Martha Stewart™ Essentials and other products we
plan to produce and market are subject to regulation by numerous governmental agencies, the most active of which is the U.S. Food
and Drug Administration, which regulates our products under the Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder. Our products are also subject to regulation by, among other regulatory entities, the Consumer Product Safety Commission,
the U.S. Department of Agriculture and the Environmental Protection Agency. Advertising and other forms of promotion and methods
of marketing of our products are subject to regulation by the U.S. Federal Trade Commission, which regulates these activities under
the Federal Trade Commission Act. The manufacture, labeling and advertising of our products are also regulated by various state
and local agencies. Failure to comply with applicable regulatory requirements may result in, among other things, injunctions, product
withdrawals, recalls, product seizures, and fines. In addition, we are unable to predict the nature of any future laws, regulations,
interpretations, or applications, nor can we predict what effect additional governmental regulations or administrative orders,
when and if promulgated, would have on our business in the future. They could, however, require the reformulation of
certain products not possible to be reformulated, imposition of additional record keeping requirements, and expanded documentation
of the properties of certain products, expanded or different labeling and scientific substantiation regarding product ingredients,
safety or usefulness. Our inability to comply with any or all such current or future requirements could have a material adverse
effect on our results of operations and financial condition. Please see “Business; Government Regulation”.
We have been dependent on a few major customers. If we are
unable to develop more customers our business most likely will be adversely affected
For the year ended December 31, 2014, two
significant customers (defined as contributing at least 10%) accounted for 36% (19% and 17%) of net sales. For the year ended December
31, 2013, three significant customers accounted for 55% (31%, 13% and 11%) of net sales. The loss of any of these customers could
have a material adverse effect on our business.
Our involvement in defending product liability claims could
have a detrimental effect on our operations.
Like other retailers and distributors of
products designed for human consumption, we face an inherent risk of exposure to product liability claims in the event that the
use of our products results in injury. We may be subjected to various product liability claims, including, among others, that our
products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with
other substances. We carry $25,000,000 of product liability insurance. Thus, any product liabilities exceeding our coverage relating
to our products could have a material adverse effect on our business, financial condition and results of operations.
We face significant competition.
The biotechnology and nutraceutical supplement
industries are highly competitive and subject to significant and rapid technological change. Developments by our competitors may
render our products obsolete or noncompetitive. Numerous companies compete in our market, many of which have greater size and financial,
personnel, distribution and other resources greater than ours. Our principal competition in the distribution channels where we
are marketing our current products and where we intend to market other products comes from a limited number of large nationally
known manufacturers and many smaller manufacturers of nutraceutical supplements. In addition, large pharmaceutical companies compete
with us on a limited basis in the nutraceutical supplement market. Increased competition from such companies could have a material
adverse effect on us because such companies have greater financial and other resources available to them and possess distribution
and marketing capabilities far greater than ours. We also face competition in mass market distribution channels from private label
nutraceutical supplements offered by health and natural food store chains and drugstore chains. We cannot assure that we will be
able to compete.
If we are unable to protect our intellectual property or
we infringe on intellectual property of others, our business and financial condition may be materially and adversely affected.
We own all rights to the formulation of
Resurgex®, Resurgex Plus®, Resurgex Select®, Surgex™, Bikini Ready™ and SlimTrim and have a use and compositional
patent with respect to Resurgex® (which covers Resurgex Plus®), and Resurgex Select®. Surgex™ is patent pending.
We also have registered trademarks for the names "Resurgex", “Resurgex Plus” and “Resurgex Select”.
“Surgex” has preliminary Trade mark reservation status. We have filed patent applications internationally with regards
to all patents and patents pending. No assurance can be given that patents will be issued from pending applications or that there
right, if issued and the rights from our existing patents and registered name will afford us adequate protections. In addition,
we rely on trade secrets and unpatented proprietary technology. There is no assurance that others may not independently develop
the same or similar technology or produce products which provide the same benefits as the current product lines.
Although we will seek to ensure that our
products do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert
intellectual property infringement claims against us. Any infringement claims by third parties against us may have a material adverse
effect on our business, financial condition and results of operations.
RISKS RELATED TO OUR COMMON STOCK
Because our Board can issue common stock and convertible
preferred without stockholder approval and because certain of our convertible securities have conversion prices that could drop
due to anti-dilution provisions, you could experience substantial dilution.
Our Board of Directors has the authority
to issue up to 2,000,000,000 shares of common stock, shares of preferred stock that can be converted into common stock at high
ratios and options and warrants to purchase shares of our common stock without stockholder approval. In addition, we have issued
convertible securities, including the Note, that contain anti-dilution provisions that could result in lower conversion prices.
As of December 31, 2014, there were 713,674,451 shares issued and outstanding or reserved for issuance on a fully-diluted basis.
Future issuance of additional shares of common stock could be at values substantially below the current market price of our common
stock and, therefore, could represent substantial dilution to investors in this offering. In addition, our Board could issue large
blocks of our common stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval.
Anti-takeover provisions of the Delaware General Corporation
Law and our ability to issue preferred stock could discourage a merger or other type of corporate reorganization or a change in
control even if they could be favorable to the interests of our stockholders.
The Delaware General Corporation Law contains
provisions which may enable our management to retain control and resist a takeover of us. These provisions generally prevent us
from engaging in a broad range of business combinations with an owner of 15% or more of our outstanding voting stock for a period
of three years from the date that this person acquires his stock. In addition, our Certificate of Incorporation allows us to issue
shares of preferred stock without any vote or further action by our stockholders. Our Board of Directors has the authority to fix
and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred
stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred
stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before
dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium,
prior to the redemption of our common stock. Accordingly, these provisions could discourage or make more difficult a change in
control or a merger or other type of corporate reorganization even if they could be favorable to the interests of our stockholders.
We do not intend to pay cash dividends in the foreseeable
future.
We have not declared or paid cash dividends
on our capital stock in many decades. We currently intend to retain all of our earnings, if any, for use in its business and do
not anticipate paying any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion
of our Board of Directors and will depend upon a number of factors, including future earnings, the success of our business activities,
our general financial condition and future prospects, general business conditions and such other factors as the Board of Directors
may deem relevant. In addition, no cash dividends may be declared or paid on our common stock if, and as long as, the Series B
Preferred Stock is outstanding or there are unpaid dividends on outstanding shares of Series C Preferred Stock. No dividends may
be declared on the Series C Preferred Stock if, and as long as, the Series B Preferred Stock is outstanding. Accordingly, it is
unlikely that we will declare any cash dividends in the foreseeable future. The Series G Preferred Stock does not pay a cash dividend,
but does pay a quarterly payment in kind dividend.
The rights of the holders of our common stock will be subordinate
to our creditors and to the holders of our preferred stock in a liquidation. No assurance can be given as to the amount of assets,
if any, that would be available for common stockholders in the event of a liquidation.
In liquidation, the rights of equity security
holders like our common stockholders are subordinate to holders of our debt obligations. As of December 31, 2014, we owe $12,172,729
to our creditors. In addition, the holders of our Series G Preferred Stock have a preference in liquidation over the holders of
our common stock. Accordingly, in the event of liquidation, no assurance can be given as to the amount of remaining assets, if
any, available for payment to common stockholder.
We cannot assure that there will be
a sustained public market for our common stock.
At present, our common stock is quoted on
the OTC Bulletin Board and tradable in the over-the-counter market. Our common stock is not traded on a sustained basis or with
significant volume. In addition, we currently do not meet the requirements for listing our common stock on NASDAQ or a national
securities exchange and we cannot assure if or when our common stock will be listed on such an exchange. For the foregoing reasons,
we cannot assure that there will be a significant and sustained public market for the sale of our common stock. Accordingly, if
you purchase our common stock, you may be unable to resell it. In the absence of any readily available secondary market for our
common stock, you may experience great difficulty in selling your shares at or near the price that you originally paid.
The market price of our common stock
may be volatile.
The market price of our common stock may
fluctuate and be affected by a number of factors, including, without limitation:
| · | Fluctuations in our operating results; |
| · | our announcements of significant contracts, milestones, acquisitions; |
| · | Announcements of innovations, new products or new patents by us or
by our competitors; |
| · | Governmental regulation; |
| · | additions or departures of key personnel; |
| · | significant sales of common stock or common stock equivalents or termination
of stock transfer restrictions; |
| · | changes in financial estimates by securities analysts; |
| · | fluctuations in stock market price and volume; |
| · | Patent or proprietary rights developments; and |
| · | Proxy contests or litigation. |
.
Our stock price may be adversely
affected if a significant amount of shares are sold in the public market.
As of April 7, 2015, approximately 28,456,839
shares of our common stock constituted "restricted securities" as defined in Rule 144 under the Securities Act. Generally,
pursuant to Rule 144, stockholders who are not affiliates of our company can resell their restricted securities after they have
held them for at least six months. In addition, as of April 7, 2015, approximately 33,800,000 shares of common stock are issuable
upon conversion of the Notes and exercise of the Warrants, and approximately 1,253,160 shares of common stock are issuable upon
conversion of other debt and of preferred stock, which debt and preferred stock has been held for at least six months. Consequently,
most of our restricted securities and securities issuable upon conversion of convertible debt and convertible preferred stock are
or soon will be eligible for public sale. As of April 7, 2015, in addition to the Warrant, we had warrants outstanding for the
purchase of an aggregate of 21,292,144 shares of our common stock. To the extent the exercise price of these warrants is less than
the market price of the common stock, the holders of the warrants are likely to exercise them and, eventually, sell the underlying
shares of common stock and to the extent that the exercise price of the warrants are adjusted pursuant to anti-dilution protection,
the warrants could be exercisable or convertible for even more shares of common stock. Moreover, we most likely will issue additional
shares of common stock and/or instruments convertible into or exercisable for common stock to raise funding or compensate employees,
consultants and/or directors. We are unable to estimate the amount, timing or nature of future sales of outstanding common stock.
Sales of substantial amounts of our common stock in the public market could cause the market price for our common stock to decrease.
Furthermore, a decline in the price of our common stock would likely impede our ability to raise capital through the issuance of
additional shares of common stock or other equity securities.
Our common stock is considered a “penny stock”.
The application of the “penny stock” rules to our common stock could limit the trading and liquidity of our common
stock, adversely affect the market price of our common stock and increase the transaction costs to sell shares of our common stock.
Our common stock is a “low-priced”
security or “penny stock” under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance
with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document
which describes the risks associated with such stocks, the broker-dealers duties in selling the stock, the customer’s rights
and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving
the customer for low- priced stock transactions based on the customer’s financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer,
and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of
broker-dealers to make a market in our common stock, will decrease liquidity of our common stock and will increase transaction
costs for sales and purchases of our common stock as compared to other securities.
If we fail to establish and maintain an effective system
of internal control, we may not be able to report our financial results accurately and timely or to prevent fraud. In this regard,
primarily due to our small size, our management has reported certain material weaknesses and significant deficiencies. Any inability
to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price
of our common stock.
Effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed. In our recent periodic reports, our management identified the following material weakness
and significant deficiency in its assessment of the effectiveness of internal control over financial reporting: Material weakness:
we did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement
of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with our financial
reporting requirements. Significant deficiency: Given our limited personnel, inadequate segregation of duties. Our small size and
any future internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.
We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may
in the future discover areas of our internal control that need improvement.
Because the risk factors referred to
above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by
us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors
emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTY
We do not own any real estate or other physical properties material
to our operations. We operate from leased space. Our executive offices are located at 550 Broad Street, Suite 1212, Newark, N.J.
07102 which contains approximately 2,800 square feet of floor space.
We warehouse and distribute our products
from two, third party facilities. They are located at 889 Waverly Avenue, Holtsville, NY 11742 and 2427 Bond Street, University
Park, IL 60484.
ITEM 3: LEGAL PROCEEDINGS
Creative Healthcare Solutions, LLC vs. Millennium
Biotechnologies Inc, Ct. of Common Pleas of Delaware County Ohio, Case No. 07 CV H 11 1420). Millennium was not satisfied with
the service rendered by Creative Healthcare Solutions, LLC in 2005 which were associated with the development of Resurgex Select
collateral materials developed in December of 2005. Millennium subsequently was forced to destroy and dispose of over 80% of the
materials provided by Creative Healthcare Solutions due to the poor quality of the materials. Millennium has been unsuccessful
in resolving the dispute and subsequently Creative Healthcare Solutions, LLC filed legal action for demand of payment in the amount
of $63,718 for services rendered.
Robert Half International vs. Millennium
Biotechnologies, Inc. filed on September 30, 2009 in the Superior Court of New Jersey, Law Division, Middlesex County. Robert Half
International claims a total of $18,507 plus costs and fees based upon the Millennium’s failure to pay the plaintiff the
fees associated with the full time hiring of an employee.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information
Our common stock is quoted on the Over-the-Counter
Bulletin Board (OTCQB) under the ticker symbol “NRTI”. The following table shows, for the periods indicated,
the high and low bid prices per share of our common stock as by OTC Bulletin Board. Over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The
market for the common stock has been sporadic and there have been long periods during which there were few, if any, transactions
in the common stock and no reported quotations. Accordingly, reliance should not be placed on the quotes listed below, as the trades
and depth of the market may be limited, and therefore, such quotes may not be a true indication of the current market value of
our common stock.
| | |
High/Bid | | |
Low/Bid | |
| 2012 | |
| | | |
| | |
| First Quarter | |
$ | 0.56 | | |
$ | 0.11 | |
| Second Quarter | |
| 0.25 | | |
| 0.10 | |
| Third Quarter | |
| 0.12 | | |
| 0.05 | |
| Fourth Quarter | |
| 0.12 | | |
| 0.04 | |
| | |
| | | |
| | |
| 2013 | |
| | | |
| | |
| First Quarter | |
$ | 0.16 | | |
$ | 0.04 | |
| Second Quarter | |
| 0.21 | | |
| 0.07 | |
| Third Quarter | |
| 0.15 | | |
| 0.09 | |
| Fourth Quarter | |
| 0.14 | | |
| 0.08 | |
| 2014 | |
| | | |
| | |
| First Quarter | |
$ | 0.34 | | |
$ | 0.08 | |
| Second Quarter | |
| 0.25 | | |
| 0.07 | |
| Third Quarter | |
| 0.09 | | |
| 0.02 | |
| Fourth Quarter | |
| 0.06 | | |
| 0.01 | |
As of March 30, 2015, the last reported
sale price of our common stock, as reported by the OTCQB, was $0.015.
(b) Holders
As of April 7, 2015, there were approximately
561 stockholders of record for our common stock. The number of record holders does not include stockholders whose securities are
held in street names. In addition, there were approximately 10 holders of record of our Series B Convertible Preferred Stock, 67
holders of record of our Series C Preferred Stock and 31 holders of record of our Series G Convertible Preferred Stock.
(c) Dividends
We have not declared or paid, nor have we
any present intention to pay, cash dividends on our common stock. No cash dividends may be declared or paid on our common stock
if, and as long as, the Series B Preferred Stock is outstanding or there are unpaid dividends on outstanding shares of Series C
Preferred Stock. No dividends may be declared on the Series C Preferred Stock if, and as long as, the Series B Preferred Stock
is outstanding. Accordingly, it is unlikely we will declare any cash dividends in the foreseeable future.
Securities authorized for issuance under equity compensation
plans
| Plan category | |
Number of
securities to
be issued upon
exercise
of outstanding
options,
warrants and rights | | |
Weighted-average
exercise price of
outstanding options,
warrants
and rights | | |
Number of
securities
remaining
available for
future issuance
under
equity
compensation
plans | |
| Equity compensation plans approved by security holders | |
| - | | |
| - | | |
| - | |
| Equity compensation plans not approved by security holders | |
| - | | |
| - | | |
| 500,000 | |
| Total | |
| - | | |
| - | | |
| 500,000 | |
Information about common stock that may be issued upon the exercise
of options and warrants is contained in the Notes to Consolidated Financial Statements attached hereto.
Company repurchases of Equity Securities
None.
ITEM 6: SELECTIVE FINANCIAL DATA
Not applicable.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should
be read with the financial statements and accompanying notes included elsewhere in this Form 10-K and the information described
under the captions “Business”, “Risk Factors ” and “Forward-Looking Statements
” above. The following discussion is intended to assist the reader in understanding and evaluating our financial position.
Results of Operations for the year ended
December 31, 2014 compared to the year ended December 31, 2013:
Total revenues generated from the sales
of Surgex™, Bikini Ready™, SlimTrim and Martha Stewart™ Essentials for the year ended December 31, 2014 totaled
$1,991,688 an increase of 135% from the year ended December 31, 2013 which totaled $847,834.
At this stage in our development, revenues
are not yet sufficient to cover ongoing operating expenses.
Gross profits for the year ended December
31, 2014 amounted to $520,354 for a 26% gross margin. Gross profits increased $275,526 or 113% for the year ended December 31,
2014 compared to $244,828 for the year ended December 31, 2013 with a 29% gross profit margin in 2013. The increase in gross profits
and gross margin is a result of higher revenue from more brands with more retail distribution.
After deducting research and development
costs of $23,944 and selling, general and administrative expenses of $7,419,867, which included an increase of $972,882 in non-cash
outlays in the form of restricted stock issued for compensation, we realized an operating loss of $6,923,457. Operating losses
for 2014 of $6,923,457 were up $632,524 or 10% as compared to the 2013 operating loss of $6,290,933. The overall increase was offset
by approximately $323,139 decrease due to lower outside consulting fees for pro athletes and $263,314 for other experts in mass
market distribution. The license expense increased approximately $379,104 compared to 2013, since 2014 was the first full year
of a license agreement with minimum royalty payments. Promotion and marketing expense for the brands increased approximately $331,898
due to increase awareness. Warrant expense decreased approximately $175,000.
Other income and expense, net totaled $1,568,704
for the year ended December 31, 2014 an increase of 26% or $320,100 as compared to $1,248,604 for the year ended December 31, 2013.
A net gain of $46,978 was realized in connection with debt restructuring which occurred in 2013 versus zero in 2014. In 2014 there
was a gain on the fair market valuation of the derivatives in the amount of $1,167,000 versus a loss of $91,000 in 2013. These
income items are offset by losses and expenses in regards to the amortization of debt discount which is $1,373,143 in 2014 an increase
of $928,693 from $444,450 in 2013 due to the additional debt issued in 2014 with associated origination fees. There was a loss
from the extinguishment of debt in the amount of $176,496 in 2014 versus zero in 2013. There was a loss from warrants and derivatives
issued with debt greater than the carrying value in the amount of $185,000 in 2014 versus zero in 2013. Interest and financing
expense was $1,001,065 in 2014 increased by $240,933 from $760,132 in 2013 due to the addition debt issued in 2014.
We sold the net operating loss carry forward
for the State of New Jersey in the Technology Business Tax Certificate Transfer Program. We were approved to sell $375,645 for
the year ended December 31, 2014. The proceeds were collected in January 2015 net of fees. We were approved to sell $3,357,144
for the year ended December 31, 2013. The proceeds were collected in January 2014 net of fees.
Preferred dividends of $1,371,006 for the
year ended December 31, 2014 decreased 12% or $189,194 as compared to $1,560,200 for the year ended December 31, 2013. The decrease
was due to the lower price of the common stock which the preferred shares are convertible into.
The net result for the year ended December
31, 2014 was a loss of $9,489,022 or $0.11 per share, compared to a loss of $5,748,092 or $0.10 per share for the prior year. Management
will continue to make an effort to lower operating expenses and increase revenue. We will continue to invest in further expanding
our operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting
our name and products. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects
them to significantly decrease as a percentage of revenues as revenues increase.
Disclosure About Off-Balance Sheet Arrangements
We do not have any transactions, agreements
or other contractual arrangements that constitute off-balance sheet arrangements.
Critical Accounting Estimates
Our Management's Discussion and Analysis
of Financial Condition and Results of Operations section discusses our consolidated condensed financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing
operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation
of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are
not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis
and in the notes to the consolidated financial statements included in this filing.
Liquidity and Capital Resources
Our future success is dependent upon our
ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management
believes, but cannot assure, that they can raise the appropriate funds needed to support our business plan and develop an operating,
cash flow positive company. We have been operating with negative cash flows for over 12 years.
We incurred substantial net losses for the
year ended December 31, 2014 and have accumulated a deficit of $92,855,018 at December 31, 2014. We have not been able to generate
sufficient cash from operating activities to fund our ongoing operations. There is no guarantee that we will be able to generate
enough revenue and/or raise capital to support our operations. These factors raise substantial doubt about our ability
to continue as a going concern. We have never reported Net Income.
The consolidated financial statements included
herein do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that
might result should we be unable to continue as a going concern.
Our business operations generally have been
financed by debt investments through promissory notes with accredited investors. During the year ended December 31,
2014 and 2013, we obtained new debt from the issuance of promissory notes that supplied the funds that were needed to finance operations
during the reporting period. The new issuance of debt requires conversion of existing debt which may not be able to convert on
favorable terms. Such new borrowings resulted in the receipt by us of $3,060,030 and $3,331,688, respectively. While
these funds sufficed to compensate for the negative cash flow from operations they were not sufficient to build up a liquidity
reserve. As a result, our financial position at December 31, 2014 showed a working capital deficit of $10,628,954. During
the first three months of 2015, we obtained new financing sufficient to fund ongoing working capital requirements. We
need to continue to raise funds to cover working capital requirements until we are able to raise revenues to a point of positive
cash flow. For the period January 1, 2015 through April 7, 2015, we obtained new debt from the issuance of promissory notes that
supplied the funds that were needed to finance operations during the that period. The recent issuance of the Debentures to Union
Capital, LLC, 31 Group, LLC and Macallan Partners, LLC requires conversion of existing debt which may not be able to convert on
favorable terms. Such new borrowings resulted in the receipt by us of approximately $335,000.
Pursuant to our license agreement with Martha
Stewart Living Omnimedia, Inc. (“MSLO”), we are required to make minimum royalty payments totaling $2,100,000, $2,700,000,
$3,200,000 and $3,800,000 for each of the years ended 2015, 2016, 2017 and 2018, respectively. We have made all requisite royalties
payments through June 2014. We were not able to make the payment that was due July 1, 2014 in the amount of $450,000 nor payment
due January 1, 2015 in the amount of $525,000 or the payment due April 1, 2015 in the amount of $525,000. We are in discussions
with MSLO to work out terms of payment. If we are unable to come to acceptable terms, we would be in default of the terms of the
license agreement.
Effects of Inflation
We are subject to price
risks arising from price fluctuations in the market prices of the products that we sell. Management does not believe that inflation
risk is material to our business or our consolidated financial position, results of operations, or cash flows.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
Not applicable.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s Consolidated Financial Statements as of
and for the two years ended December 31, 2014 and 2013 and Notes to Financial Statements are included at the end of this report.
Reference is made to the “Index to Financial Statement Schedule” on page 31.
ITEM 9: CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the two years ended December 31,
2014, there were no reportable events as the term is described in Item 304(a)(1)(iv) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Management of the Company has evaluated,
with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered
by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as a result of the material weakness and significant deficiencies in our internal control over financial reporting described
below, our disclosure controls and procedures were not effective, as of the December 31, 2014, to ensure that information required
to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and forms, and that the information required to be disclosed
by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 based
on the 1992 framework set forth in the report entitled Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, our management concluded
that, as of December 31, 2014, our internal control over financial reporting was not effective.
A significant deficiency is a deficiency,
or combination of deficiencies in internal control over financial reporting, that adversely affects the entity’s ability
to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles
such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than
inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a deficiency or
a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Management identified the following material
weakness and significant deficiency in its assessment of the effectiveness of internal control over financial reporting as of December
31, 2014:
| · | Material weakness: The Company did not maintain effective controls over certain aspects of the
financial reporting process because we lacked a sufficient complement of personnel with a level of accounting expertise and an
adequate supervisory review structure that is commensurate with the Company’s financial reporting requirements. |
| · | Significant deficiency: Inadequate segregation of duties |
This annual report
does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only management's report in this annual report.
Changes in Internal Control over
Financial Reporting
Management of the Company
has evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company's internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended
December 31, 2014. There was no change in the Company's internal control over financial reporting identified in that evaluation
that occurred during the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial reporting, other than what has been reported above.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information about all of our directors
and executive officers are as follows:
| Name and age |
|
Position |
|
Term(s) of Office |
| |
|
|
|
|
| Michael C. James, 56 |
|
Chief Financial Officer |
|
July 1, 2010 until present |
| |
|
Chief Executive Officer |
|
June 11, 2012 until present |
| |
|
Chairman of the Board |
|
June 11, 2012 until present |
| |
|
Director |
|
September 24, 2009 until present |
| |
|
|
|
|
| James E. Kras, 46 |
|
President |
|
March 18, 2014 until present |
| |
|
|
|
|
| James DeLucia, 48 |
|
Director |
|
December 26, 2012 until present |
There are no family relationships among
our officers and directors. All directors hold office until the next annual meeting of stockholders and the election and qualification
of their successors. Vacancies on the Board of Directors may be filled by the remaining directors until the next annual stockholders’
meeting. Officers serve at the discretion of the Board.
A summary of the business experience for
each of our present officers and directors is as follows:
Michael C. James
Mr. James has been our Chief Financial Officer
since July 1, 2010 and Chief Executive Officer since June 11, 2012. Mr. James is the Chief Financial Officer for Terra Tech Corp.
since April 17, 2011. For the past fourteen years, Mr. James has been the Managing Partner of Kuekenhof Capital Management, LLC,
a private investment management company, where he holds the position of Managing Director of Kuekenhof Equity Fund, L.P. and Kuekenhof
Partners, L.P. Currently, Mr. James is a director of Guided Therapeutics, Inc. where he is Chairman of the Board and serves as
Chairman on the Audit Committee. He was a board member of Nestor, Inc. from 2006 until June 2009 and CEO of that company
from January 2009 through September 11, 2009. While acting as CEO, Mr. James turned that company profitable and headed
a complete financial restructuring. The business was sold on September 8, 2009 from the Receiver’s Estate in Superior Court
of the State of Rhode Island. From 1995 to 1999, Mr. James was a Partner at Moore Capital Management, Inc., a private
investment management company. Prior to his position at Moore Capital, from 1991 to 1994, he was employed by Buffalo Partners,
L.P., a private investment management company, where he held the position of Chief Financial and Administrative Officer. From 1986
to 1991, he was employed by National Discount Brokers and held the positions of Treasurer and Chief Financial Officer. He began
his career in 1980 as a staff accountant with Eisner, LLP. Mr. James received a Bachelor of Science in Accounting from Fairleigh
Dickenson University.
James E. Kras
Mr. Kras has been our Chief Marketing Officer
since July 1, 2012 and President since March 18, 2014. Prior to joining Inergetics, Mr. Kras was the Managing Member of Whole Products
LLC, a nutritional supplement company from February, 2009 through June 2012. He was Director of Marketing at Ajinomoto USA, a pharmaceutical
company from 2007 until 2009. Mr. Kras worked for Aegis/Carat as Account Director securing and managing Wyndham Hotel’s digital
business as well as spearheading the Revlon account. From 2006 to 2007, while at search marketing pioneer, iCrossing, he drove
national account growth with clients such as Chrysler and Vitamin Shoppe, helping to position iCrossing for acquisition. Mr. Kras’
nutrition marketing success includes working at NBTY (Nature’s Bounty) from 2001 through 2005, where his brand management
team nearly doubled division sales in three years to more than $200 million.
James DeLucia
Mr. DeLucia is the Founder, President and
CEO of AR James Media, Inc., an award winning outdoor advertising and marketing firm that owns and operates over 1,000 billboards
across the New York/New Jersey metro area. AR James Media specializes in the outdoor advertising business including transit shelters,
junior billboards and various other “out-of-home” mediums including large format and digital. Mr. DeLucia oversees
AR James Media’s state and municipal programs including public biding and relationship management with various government
officials. Mr. DeLucia started his career on the floor of the New York Mercantile Exchange in 1989. Mr. DeLucia became a member
of two divisions of the Chicago Board of Trade, COMEX in 1992 and NYMEX in 1999. After experiencing success as a futures and options
broker, Mr. DeLucia formed ALX Energy, Inc. ALX Energy, Inc. was the premier futures and options brokerage company for banks, hedge
funds, utility companies and other large institutions. Mr. DeLucia’s expert skills and knowledge led ALX to obtain the record
for the most volume ever executed in the Natural Gas prop month close in the history of the contract.
Independent Director
Our Board of Directors has determined that
James DeLucia is an independent director as (i) defined in Rule 10A-3(b)(1)(ii) under the Exchange Act and (ii) under Sections
803A(2) and 803B(2)(a) of the NYSE MKT LLC Company Guide (although our securities are not listed on the NYSE MKT LLCE or any other
national exchange).
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth
certain compensation information for: (i) the person who served as our Chief Executive Officer during the year ended December 31,
2014, regardless of the compensation level, and (ii) each of our other executive officers, serving as an executive officer at any
time during 2013, as well as the most highly compensated employees who did not serve as executive officers during 2013. Compensation
information is shown for the fiscal years ended December 31, 2014 and 2013:
Name
and
Principal Position | |
Year | |
Salary
($)(1) | | |
Directors
Fee ($) | | |
Other Annual
Compensation($)(2) | | |
Restricted Stock Awards
($)(3) | | |
Securities
Underlying
Options ($) | | |
All
Other
Compensation($) | |
| Michael C. James | |
2014 | |
| 150,000 | | |
| - | | |
| - | | |
| 550,000 | | |
| - | | |
| | |
| Chief
Executive Officer | |
2013 | |
| 150,000 | | |
| - | | |
| - | | |
| 150,200 | | |
| - | | |
| - | |
| Chief
Financial Officer and Director | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| James E. Kras | |
2014 | |
| 150,000 | | |
| - | | |
| - | | |
| 550,000 | | |
| - | | |
| | |
| President and Director | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Carl Germano | |
2014 | |
| 121,154 | | |
| - | | |
| - | | |
| 550,000 | | |
| - | | |
| - | |
| Executive
Vice President and Director | |
2013 | |
| 150,000 | | |
| - | | |
| - | | |
| 150,200 | | |
| - | | |
| - | |
| (1) | The value of other non-cash compensation, except for the items listed under (2), (3) and (4), that
was extended to or paid for individuals named above did not exceed 10% of the aggregate cash compensation paid to such individual,
or to all executive officers as a group. |
| (2) | Consists of automobile expenses allowances. |
| (3) | We recognize expenses for options and warrants granted to employees on the basis of fair value
calculated using the Black-Scholes formula. |
Stock Options /Stock Purchase Warrants:
There were no options
granted during 2014 or 2013.
Compensation of our Directors
During 2014 and 2013
none of our Directors received cash compensation. In each year of 2014 and 2013 James DeLucia received 500,000 restricted shares
of common stock.
Employment Agreements
Michael C. James
Pursuant to an employment agreement, Michael
C. James is employed as the Chief Financial Officer of the Company and Millennium. The Agreement terminates on May 31, 2015; provided,
Mr. James has the right to extend the term of employment for two additional years. Pursuant to a debt reorganization and financing
in 2011, Mr. James’ salary was amended to reduce his salary to $150,000 per annum until we reach three consecutive fiscal
quarters of positive “Net Income” at which point his annual salary will increase to $200,000. The gross-up provisions
with regards to any issuances under the Management Warrant Grant Program have been eliminated. Mr. James will receive a bonus of
$25,000 upon receiving three consecutive fiscal quarters of positive Net Income. In June 2012, the Board of Directors appointed
Mr. James the Chief Executive Officer.
The Agreement terminates upon Mr. James’
death and may be terminated at our option as a result of Mr. James’ disability or for “cause” as defined in the
Agreement. Mr. James has the right to terminate the Agreement for “good reason” as defined in the Agreement. In the
event that the Agreement is terminated due to Mr. James’ death or disability, he is entitled to receive his annual salary
for a period equal to the lessor of (i) three months from the date of death or disability or (ii) the balance of the Term; and
all other accrued but unpaid compensation and benefits. If the Agreement is terminated by us for “cause”, Mr. James
is not entitled to receive any compensation other than accrued but unpaid compensation and benefits. In the event Mr. James terminates
the Agreement for “good reason”, we shall pay him his annual salary through the date of the end of the contract term;
bonuses that have accrued and are unpaid as of the date of termination; and any Options which have been granted to Mr. James as
of the date of the termination. The Agreement also provides for Mr. James is subject to confidentiality, non-solicitation and non-compete
covenants for a period of one year following his termination, provided such termination is not by us without “cause”
or by Mr. James for “good reason”.
James E. Kras
Pursuant to an employment agreement, James
Kras is employed as the Chief Marketing Officer of the Company and Millennium. The Agreement terminates on September 30, 2017;
provided, Mr. Kras has the right to extend the term of employment for two additional years. Mr. Kras’ salary is $150,000
per annum. In March 2014, the Board of Directors appointed Mr. Kras the President.
The Agreement terminates upon Mr. Kras’
death and may be terminated at our option as a result of Mr. Kras’ disability or for “cause” as defined in the
Agreement. Mr. Kras has the right to terminate the Agreement for “good reason” as defined in the Agreement. In the
event that the Agreement is terminated due to Mr. Kras’ death or disability, he is entitled to receive his annual salary
for a period equal to the lessor of (i) three months from the date of death or disability or (ii) the balance of the Term; and
all other accrued but unpaid compensation and benefits. If the Agreement is terminated by us for “cause”, Mr. Kras
is not entitled to receive any compensation other than accrued but unpaid compensation and benefits. In the event Mr. Kras terminates
the Agreement for “good reason”, we shall pay him his annual salary through the date of the end of the contract term;
bonuses that have accrued and are unpaid as of the date of termination; and any Options which have been granted to Mr. Kras as
of the date of the termination. The Agreement also provides for Mr. Kras is subject to confidentiality, non-solicitation and non-compete
covenants for a period of one year following his termination, provided such termination is not by us without “cause”
or by Mr. Kras for “good reason”.
Change of Control Compensation
Per their respective employment agreements,
upon the occurrence of a “change in control”(as defined in their employment agreements), Messrs, James, Germano and
Kras are entitled to the same benefits they would receive had they terminated their employment agreements for “good reason”.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of April
8, 2015, the beneficial ownership of our common stock by each executive officer and director, all executive officers and directors
as a group, and each person known to us to own beneficially, or of record, five percent or more of our outstanding shares of common
stock:
| Title | |
Name and Address of | |
Amount and Nature of | | |
Percent | |
| of Class | |
Beneficial Owner | |
Beneficial Ownership (1) | | |
of Class | |
| Common Stock | |
| |
| | | |
| | |
| | |
Michael C. James | |
| 11,496,396 | | |
| 5.11 | %(2) |
| | |
James E. Kras | |
| 9,533,125 | | |
| 4.26 | %(2) |
| | |
James DeLucia | |
| 1,025,000 | | |
| 0.47 | % |
| | |
as a Group (3 persons) | |
| 22,054,521 | | |
| 9.57 | %(2) |
| | |
| |
| | | |
| | |
| Address of all persons above: c/o
the Company. | |
| | | |
| | |
| | |
| |
| | | |
| | |
| | |
Leon Frenkel | |
| 24,000,000 | (2) | |
| 9.99 | %(2) |
| | |
1600 Flat Rock Road, Penn Valley, PA 19072 | |
| | | |
| | |
| | |
| |
| | | |
| | |
| | |
Seahorse Enterprises | |
| 23,486,000 | (2) | |
| 9.99 | %(2) |
| | |
1 Powderhill Way, Westborough, MA 01581 | |
| | | |
| | |
| | |
| |
| | | |
| | |
| | |
31 Group, LLC | |
| 24,250,000 | (3) | |
| 9.99 | %(3) |
| | |
5 Hanover Square, New York, NY 10004 | |
| | | |
| | |
| (1) | For purposes of this table, a person or group of persons is deemed to have “beneficial ownership”
of any shares of common stock which such person has the right to acquire within 60 days of April 8, 2015. For purposes of computing
the percentage of outstanding shares of common stock held by each person or group of persons named above, any security which such
person or persons has or have the right to acquire within such date is deemed to be outstanding but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnote to this table and
pursuant to applicable community property laws, we believe based on information supplied by such persons, that the persons named
in this table have sole voting and investment power with respect to all shares of common stock which they beneficially own. |
| (2) | Included, for each of these stockholders, shares of common stock issuable upon conversion of convertible
notes, Series G Preferred Stock and warrants. Pursuant to the terms of the notes and the preferred stock, such securities are not
convertible to the extent that such conversion would result in beneficial ownership (determined in accordance with Section 13(d)
of the Exchange Act) by such stockholder and its affiliates of more than 9.99% of the outstanding shares of common stock. Accordingly,
the number of shares listed as beneficially owned by each of these stockholders excludes any shares to which such stockholder would
be entitled to but for this 9.99% limitation. |
| (3) | Included, for each of these stockholders, shares of common stock issuable upon conversion of convertible
notes and warrants. Pursuant to the terms of the notes such securities are not convertible to the extent that such conversion would
result in beneficial ownership (determined in accordance with Section 13(d) of the Exchange Act) by such stockholder and its affiliates
of more than 9.99% of the outstanding shares of common stock. Accordingly, the number of shares listed as beneficially owned by
each of these stockholders excludes any shares to which such stockholder would be entitled to but for this 9.99% limitation. |
| ITEM 13: | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE |
Pursuant to an employment agreement, Michael
C. James is employed as the Chief Financial Officer of the Company and Millennium. The Agreement terminates on May 31, 2015; provided,
Mr. James has the right to extend the term of employment for two additional years. Pursuant to the Summary of Debt Reorganization
and Financing dated July 14, 2011, Mr. James’ salary was amended to reduce his salary to $150,000 per annum until the Company
reaches three consecutive fiscal quarters of positive “Net Income” at which point his annual salary will increase to
$200,000. The gross-up provisions with regards to any issuances under the Management Warrant Grant Program have been eliminated.
Mr. James will receive a bonus of $25,000 upon receiving three consecutive fiscal quarters of positive Net Income. In June 2012,
the Board of Directors appointed Mr. James the Chief Executive Officer.
The Agreement terminates upon Mr. James’
death and may be terminated at the option of the Company as a result of Mr. James’ disability or for “cause”
as defined in the Agreement. Mr. James has the right to terminate the Agreement for “good reason” as defined in the
Agreement. In the event that the Agreement is terminated due to Mr. James’ death or disability, he is entitled to receive
his annual salary for a period equal to the lessor of (i) three months from the date of death or disability or (ii) the balance
of the Term; and all other accrued but unpaid compensation and benefits. If the Agreement is terminated by the Company for “cause”,
Mr. James is not entitled to receive any compensation other than accrued but unpaid compensation and benefits. In the event Mr.
James terminates the Agreement for “good reason”, the Company shall pay to Mr. James his annual salary through the
date of the end of the contract term; bonuses that have accrued and are unpaid as of the date of termination; and any Options which
have been granted to Mr. James as of the date of the termination. The Agreement also provides for Mr. James is subject to confidentiality,
non-solicitation and non-compete covenants for a period of one year following his termination, provided such termination is not
by the Company without “cause” or by Mr. James for “good reason”.
Pursuant to an amended and restated employment
agreement, Carl Germano is employed as the Chief Science Officer of Millennium. The Agreement terminates on November 1, 2014; provided,
Mr. Germano has the right to extend the term of employment for two additional years. Pursuant to the Agreement, Mr.
Germano currently receives a base annual salary of $150,000 per year which increases to $200,000 per year in the event (a) the
Company's annual revenues exceed $15,000,000; (b) the Company enters into a licensing agreement with an unrelated third party where
the minimum upfront licensing fee is no less than $3,000,000; or (c) the Company achieves two quarters of positive cash flow. In
addition, during the term of the Agreement, Mr. Germano is entitled to receive an annual bonus at the discretion of the Company.
Mr. Germano also receives standard benefits available to other executive officers.
The Agreement terminates upon Mr. Germano’s
death and may be terminated at the option of the Company as a result of Mr. Germano’s disability or for “cause”
as defined in the Agreement. Mr. Germano has the right to terminate the Agreement for “good reason” as defined
in the Agreement. In the event that the Agreement is terminated due to Mr. Germano’s death or disability, he is
entitled to receive his annual salary for a period equal to the lessor of (i) three months from the date of death or disability
or (ii) the balance of the Term; and all other accrued but unpaid compensation and benefits. If the Agreement is terminated
by the Company for “cause”, Mr. Germano is not entitled to receive any compensation other than accrued but unpaid compensation
and benefits. In the event Mr. Germano terminates the Agreement for “good reason”, the Company shall pay
to Mr. Germano his annual salary through the date of the end of the contract term; bonuses that have accrued and are unpaid as
of the date of termination; and any Options which have been granted to Mr. Germano as of the date of the termination. The
Agreement also provides for Mr. Germano is subject to confidentiality, non-solicitation and non-compete covenants for a period
of one year following his termination, provided such termination is not by the Company without “cause” or by Mr. Germano
for “good reason”.
The Company’s board of directors consists of the following
three directors: Michael James, Carl Germano and James DeLucia.
| ITEM 14: | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
AUDIT FEES
Friedman LLP billed
us $90,482 and $121,988 for professional services for the audit of the consolidated financial statements in 2014 and 2013 and other
fees for services that only an independent registered public accounting firm can perform, such as the review of our interim consolidated
financial statements included in our Form 10-Q filings and assistance with and review of documents filed with the SEC.
AUDIT-RELATED FEES
Friedman LLP did not
bill us for, nor perform professional services rendered for assurance and related services that were reasonably related to the
performance of audit or review of the Company's financial statements during the fiscal years ended December 31, 2014 and December
31, 2013.
TAX FEES
Friedman LLP billed
us in the aggregate amount of $0 for professional services rendered for tax related services during the fiscal year ended December
31, 2014 and 2013.
ALL OTHER FEES
The aggregate fees
billed by Friedman LLP for services rendered to the Company during the last two fiscal years, other than as reported above, were
$0 and $0, respectively.
The Board pre-approves
all auditing services and the terms thereof (which may include providing comfort letters in connection with securities underwriting)
and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act or the applicable rules
of the SEC or the Public Company Accounting Oversight Board) to be provided to the Company by the independent auditor; provided,
however, the pre-approval requirement is waived with respect to the provisions of non-audit services for the Company if the “de
minimus” provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve non-audit services
may be delegated to one or more members of the Board, who shall present all decisions to pre-approve an activity to the full Board
at its first meeting following such decision.
PART IV
ITEM 15. Exhibits
| Exhibit |
|
Description |
| 3(i).1 |
|
Amended and Restated Certificate of Incorporation of the Company (1) |
| |
|
|
| 3(i).2 |
|
Certificate of Amendment to the Certificate of Incorporation of the Company (2) |
| |
|
|
| 3(i).3 |
|
Certificate of Designations (Series E and Series F Preferred Stock) (3) |
| |
|
|
| 3(i).4 |
|
Certificate of Amendment to the Certificate of Incorporation of the Company (4) |
| |
|
|
| 3(i).5 |
|
Certificate of Amendment to the Certificate of Incorporation of the Company (5) |
| |
|
|
| 3(i).6 |
|
Amended and Restated Certificate of Designations (Series G Preferred Stock)* |
| |
|
|
| 3(i).7 |
|
Certificate of Incorporation of Millennium (6) |
| |
|
|
| 3(ii).1 |
|
Bylaws of the Company (7) |
| |
|
|
| 3(ii).2 |
|
Bylaws of Millennium (6) |
| |
|
|
| 4.1 |
|
Form of Senior Secured Promissory Note* |
| |
|
|
| 4.2 |
|
May 6, 2014 Convertible Note issued to Black Mountain (11) |
| |
|
|
| 4.3 |
|
May 21, 2014Debenture issued to 31 Group, LLC. (11) |
| |
|
|
| 4.4 |
|
July 14, 2014 Note issued to 31 Group (12) |
| |
|
|
| 4.5 |
|
July 14, 2014 Warrant issued to 31 Group (12) |
| |
|
|
| 4.6 |
|
Form of Series G Preferred Stock Certificate* |
| |
|
|
| 4.7 |
|
Form of Amendment to Senior Secured Promissory Note* |
| |
|
|
| 10.1 |
|
Agreement and Plan of Reorganization between the Company, Millennium and the Stockholders of Millennium dated July 26, 2001(8) |
| |
|
|
| 10.2 |
|
Ventiv Subordination Agreement(13) |
| |
|
|
| 10.3 |
|
Second Amendment to Ventiv Security Agreements and Convertible Note(13) |
| |
|
|
| 10.4 |
|
Ventiv Service Agreement(13) |
| |
|
|
| 10.5 |
|
Amended and Restated Employment Agreement for Carl Germano effective November, 2009 (4) |
| |
|
|
| 10.6 |
|
Employment agreement of Michael C. James effective July 1, 2010 (9) |
| |
|
|
| 10.7 |
|
May 7, 2013 Licensing Agreement with Martha Stewart Living Omnimedia, Inc. (10) |
| |
|
|
| 10.8 |
|
May 6, 2014 Purchase Agreement with Black Mountain (11) |
| |
|
|
| 10.9 |
|
May 21, 2014 Exchange Agreement with 31 Group, LLC (11) |
| |
|
|
| 10.10 |
|
July 14, 2014 Securities Purchase Agreement with 31 Group (12) |
| |
|
|
| 10.11 |
|
July 14, 2014 Security Agreement with 31 Group (12) |
| 10.12 |
|
July 14, 2014 Millennium Biotechnologies, Inc. Guaranty of Note with 31 Group (12) |
| |
|
|
| 10.13 |
|
Employment Agreement with James E. Kras, effective October 1, 2012* |
| |
|
|
| 10.14 |
|
January 9, 2013 Asset Purchase Agreement with Whole Products LLC* |
| |
|
|
| 14 |
|
Corporate Code of Ethics and Business Conduct (14) |
| |
|
|
| 21 |
|
Subsidiaries of the Company* |
| |
|
|
| 31.1 |
|
Certification of Michael C. James, Chief Executive Officer and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| |
|
|
| 32.1 |
|
Certification of Michael C. James, Chief Executive Officer and Chief Financial Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.* |
| 101.INS* |
|
XBRL Instance Document |
| |
|
|
| 101.SCH* |
|
XBRL Taxonomy Extension Schema |
| |
|
|
| 101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase |
| |
|
|
| 101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase |
| |
|
|
| 101.LAB* |
|
XBRL Taxonomy Extension Label Linkbase |
| |
|
|
| 101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase |
| (1) | Previously filed as a Schedule to the Company's Definitive Information Statement on Schedule 14C, filed with the Commission
on March 8, 2002, and incorporated herein |
by reference.
| (2) | Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on February 6, 2006,
and incorporated herein by reference. |
| (3) | Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on October 13, 2009,
and incorporated herein by reference. |
| (4) | Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, and incorporated herein by
reference. |
| (5) | Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on July 7, 2011, and incorporated herein by
reference. |
| (6) | Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 2001, and incorporated herein by
reference. |
| (7) | Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
1981, and incorporated herein by reference. |
| (8) | Previously filed as an exhibit to the Company's report on Form 8-K filed on August 10, 2001, and incorporated herein by
reference. |
| (9) | Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010,
and incorporated herein by reference. |
| (10) | Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013,
and incorporated herein by reference (Confidential Treatment granted with respect to portions of the Agreement). |
| (11) | Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on June 3, 2014, and incorporated herein by
reference. |
| (12) | Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on July 15, 2014, and incorporated herein by
reference. |
| (13) | Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on November 17, 2009,
and incorporated herein by reference. |
| (14) | Previously filed as an exhibit to the Company’s Annual report on Form 10-KSB for the fiscal year ended December 31, 2002. |
SIGNATURES
In accordance with Section 13 or 15(d)
of the Securities Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
INERGETICS, INC. |
|
|
| |
|
|
|
| |
By: |
/s/ Michael C. James |
|
Date: April 15, 2015 |
| |
|
Michael C. James |
|
|
| |
|
Chief Executive Officer |
|
|
| |
|
Chief Financial Officer |
|
|
| |
|
(Principal Executive and |
|
|
| |
|
Financial Officer), |
|
|
| |
|
|
|
|
|
In accordance with the requirements of the Securities Exchange
Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
| |
Name |
|
Date |
| |
|
|
|
| |
/s/ Michael C. James |
|
April 15, 2015 |
| |
Michael C. James, Director |
|
|
| |
|
|
|
| |
/s/ James E. Kras |
|
April 15, 2015 |
| |
James Kras, Director |
|
|
| |
|
|
|
| |
/s/ James DeLucia |
|
April 15, 2015 |
| |
James DeLucia, Director |
|
|
INERGETICS, INC. AND SUBSIDY
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Report Of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Inergetics,
Inc. and Subsidiary
We
have audited the accompanying consolidated balance sheets of Inergetics, Inc. and Subsidiary (the “Company”) as of
December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows
for each of the two years in the period ended December 31, 2014. Inergetics, Inc.’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Inergetics,
Inc. as of December 31, 2014, and 2013, and the results of its operations and its cash flows for each of the two years in the period
ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.
The
accompanying consolidated financial statements for December 31, 2014 have been prepared assuming that the Company will continue
as a going concern. As more fully described in Note 2 to the consolidated financial statements, the Company has incurred substantial
accumulated deficits and operating losses and has a working capital deficiency of $10,628,954. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are
also discussed in Note 2. The consolidated financial statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the
outcome of this uncertainty.
|
East Hanover,
New Jersey |
|
April
14, 2015 |
Inergetics, Inc. and Subsidiary
Consolidated Balance Sheets
| | |
December 31,
2014 | | |
December 31,
2013 | |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | 5,762 | | |
$ | 106,773 | |
| Accounts receivable | |
| 342,607 | | |
| 472,297 | |
| Receivable from the Technology Business Tax Certificate Transfer Program | |
| 375,645 | | |
| 3,357,144 | |
| Deferred cost of goods sold | |
| - | | |
| 569,036 | |
| Inventories, net | |
| 686,275 | | |
| 420,186 | |
| Prepaid expenses | |
| 133,486 | | |
| 447,355 | |
| Total current assets | |
| 1,543,775 | | |
| 5,372,791 | |
| | |
| | | |
| | |
| Patents and intangible assets, net | |
| 147,815 | | |
| 149,391 | |
| Goodwill | |
| 135,000 | | |
| 135,000 | |
| Deposits | |
| 101,508 | | |
| 421,191 | |
| Total assets | |
$ | 1,928,098 | | |
$ | 6,078,373 | |
| | |
| | | |
| | |
| Liabilities and Stockholders’ Deficit | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 4,416,724 | | |
$ | 5,089,488 | |
| Deferred revenue | |
| - | | |
| 1,269,470 | |
| Obligations to be settled in stock | |
| 553,812 | | |
| 699,085 | |
| Derivative liability | |
| 910,590 | | |
| 318,000 | |
| Short-term debt, net of unamortized debt discount | |
| 2,462,528 | | |
| 1,276,358 | |
| Short-term debt to affiliates, net of unamortized debt discount | |
| 3,829,075 | | |
| 2,843,728 | |
| Total current liabilities | |
| 12,172,729 | | |
| 11,496,129 | |
| Long-term debt | |
| - | | |
| 103,912 | |
| Long-term debt to affiliates | |
| - | | |
| 1,425,522 | |
| Total liabilities | |
| 12,172,729 | | |
| 13,025,563 | |
| Commitments and contingencies | |
| | | |
| | |
| Preferred stock, Convertible Series B, par value $2; 65,141 shares issued and outstanding | |
| 130,282 | | |
| 130,282 | |
| Preferred stock, Convertible Series G , authorized 400,000, par value $1, stated value $50: issued and outstanding 246,976 and 198,074 shares, respectively | |
| 8,952,711 | | |
| 8,743,284 | |
| Stockholders’ deficit | |
| | | |
| | |
| Preferred stock, par value $1: | |
| | | |
| | |
| Cumulative Series C, par value $1; 64,763 shares issued and outstanding | |
| 64,763 | | |
| 64,763 | |
| Common stock, par value $0.001; authorized 2,000,000,000 shares; issued
and outstanding 143,301,039 and 62,461,448 shares, respectively | |
| 143,301 | | |
| 62,462 | |
| Additional paid-in capital | |
| 73,319,330 | | |
| 68,789,021 | |
| Accumulated deficit | |
| (92,855,018 | ) | |
| (84,737,002 | ) |
| Total stockholders’ deficit | |
| (19,327,624 | ) | |
| (15,820,756 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 1,928,098 | | |
$ | 6,078,373 | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statements of Operations
| | |
For the Years Ended December 31, | |
| | |
2014 | | |
2013 | |
| Net sales | |
$ | 1,991,688 | | |
$ | 847,834 | |
| Cost of sales | |
| 1,471,334 | | |
| 603,006 | |
| Gross profit | |
| 520,354 | | |
| 244,828 | |
| Research and development costs | |
| 23,944 | | |
| 44,090 | |
| Selling, general and administrative expenses (including share based compensation of $914,479 and $611,500, respectively) | |
| 7,419,867 | | |
| 6,491,671 | |
| | |
| | | |
| | |
| Loss from operations | |
| (6,923,457 | ) | |
| (6,290,933 | ) |
| Other income (expense) | |
| | | |
| | |
| Gain incurred in connection with troubled debt restructuring, net | |
| - | | |
| 46,978 | |
| Amortization of debt discount | |
| (1,373,143 | ) | |
| (444,450 | ) |
| Loss on extinguishment of debt | |
| (176,496 | ) | |
| - | |
| Loss from warrants/derivatives issued with debt greater than debt carrying value | |
| (185,000 | ) | |
| - | |
| Gain (Loss) on fair market valuation of derivatives | |
| 1,167,000 | | |
| (91,000 | ) |
| Interest and financing expense, net | |
| (1,001,065 | ) | |
| (760,132 | ) |
| Other expense, net | |
| (1,568,704 | ) | |
| (1,248,604 | ) |
| | |
| (8,492,161 | ) | |
| (7,539,537 | ) |
| Benefit from sale of state net operating loss credits | |
| 374,145 | | |
| 3,351,645 | |
| Net loss | |
| (8,118,016 | ) | |
| (4,187,892 | ) |
| Preferred dividend | |
| 1,371,006 | | |
| 1,560,200 | |
| Net loss applicable to common shareholders | |
$ | (9,489,022 | ) | |
$ | (5,748,092 | ) |
| | |
| | | |
| | |
| Net loss per share attributable to common shareholders – basic and diluted | |
$ | (0.11 | ) | |
$ | (0.10 | ) |
| | |
| | | |
| | |
| Weighted average number of common shares outstanding – basic and diluted | |
| 89,362,341 | | |
| 55,307,453 | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statement of Stockholders'
(Deficit)
For the Years Ended December 31, 2014
and 2013
| | |
Preferred
Stock | | |
| | |
| | |
| | |
| | |
| |
| | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
| | |
| | |
Additional | | |
| | |
| |
| | |
Series B | | |
Series B | | |
Series C | | |
Series C | | |
Series G | | |
Series G | | |
Common Stock | | |
Paid in | | |
Accumulated | | |
| |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance January 1, 2013 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| 150,938 | | |
$ | 7,147,465 | | |
| 48,707,103 | | |
$ | 48,708 | | |
$ | 68,606,679 | | |
$ | (80,549,110 | ) | |
$ | (4,551,213 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock for services | |
| | | |
| | | |
| | | |
| | | |
| 4,000 | | |
| 122,000 | | |
| 1,637,500 | | |
| 1,637 | | |
| 200,633 | | |
| | | |
| 324,270 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock for interest | |
| | | |
| | | |
| | | |
| | | |
| 4,307 | | |
| 153,740 | | |
| 2,851,711 | | |
| 2,852 | | |
| 403,656 | | |
| | | |
| 560,248 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock for compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 6,390,625 | | |
| 6,391 | | |
| 499,118 | | |
| | | |
| 505,509 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Warrants issued for compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 206,700 | | |
| | | |
| 206,700 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred stock Converted into common stock | |
| | | |
| | | |
| | | |
| | | |
| (15,739 | ) | |
| (741,950 | ) | |
| 3,934,750 | | |
| 3,934 | | |
| 738,016 | | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Debt converted into equity | |
| | | |
| | | |
| | | |
| | | |
| 2,044 | | |
| 55,188 | | |
| | | |
| | | |
| | | |
| | | |
| 55,188 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of preferred stock for assets | |
| | | |
| | | |
| | | |
| | | |
| 8,000 | | |
| 140,000 | | |
| | | |
| | | |
| | | |
| | | |
| 140,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss on extinguishment of debt | |
| | | |
| | | |
| | | |
| | | |
| 14,360 | | |
| 358,641 | | |
| | | |
| | | |
| (358,641 | ) | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred stock dividend | |
| | | |
| | | |
| | | |
| | | |
| 31,204 | | |
| 1,560,200 | | |
| | | |
| | | |
| (1,560,200 | ) | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stock retired | |
| | | |
| | | |
| | | |
| | | |
| (1,040 | ) | |
| (52,000 | ) | |
| (1,060,241 | ) | |
| (1,060 | ) | |
| 53,060 | | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (4,187,892 | ) | |
| (4,187,892 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance December 31, 2013 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| 198,074 | | |
$ | 8,743,284 | | |
| 62,461,448 | | |
$ | 62,462 | | |
$ | 68,789,021 | | |
$ | (84,737,002 | ) | |
$ | (6,947,190 | ) |
The accompanying notes are an integral part
of the consolidated financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statement of Stockholders'
Deficit
| | |
Preferred Stock | | |
| | |
| | |
| | |
| | |
| |
| | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
Convertible | | |
| | |
| | |
Additional | | |
| | |
| |
| | |
Series B | | |
Series B | | |
Series C | | |
Series C | | |
Series G | | |
Series G | | |
Common Stock | | |
Paid in | | |
Accumulated | | |
| |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance January 1, 2014 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| 198,074 | | |
$ | 8,743,284 | | |
| 62,461,448 | | |
$ | 62,462 | | |
$ | 68,789,021 | | |
$ | (84,737,002 | ) | |
$ | (6,947,190 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock for services | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 3,767,500 | | |
| 3,768 | | |
| 632,620 | | |
| | | |
| 636,388 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock for interest | |
| | | |
| | | |
| | | |
| | | |
| 18,400 | | |
| 612,924 | | |
| 1,052,437 | | |
| 1,052 | | |
| 151,700 | | |
| | | |
| 765,676 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of common stock for compensation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 6,627,069 | | |
| 6,627 | | |
| 1,478,795 | | |
| | | |
| 1,485,422 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Exercise of cashless warrants | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 341,830 | | |
| 342 | | |
| (342 | ) | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred stock Converted into common stock | |
| | | |
| | | |
| | | |
| | | |
| (40,725 | ) | |
| (2,036,250 | ) | |
| 18,113,250 | | |
| 18,113 | | |
| 2,018,137 | | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Debt converted into common stock | |
| | | |
| | | |
| | | |
| | | |
| 1,070 | | |
| 53,460 | | |
| 50,937,505 | | |
| 50,937 | | |
| 1,843,678 | | |
| | | |
| 1,948,075 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss on extinguishment of debt | |
| | | |
| | | |
| | | |
| | | |
| 10,000 | | |
| 208,287 | | |
| | | |
| | | |
| (208,287 | ) | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of debt rolled for related party | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (14,986 | ) | |
| | | |
| (14,986 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Preferred stock dividend | |
| | | |
| | | |
| | | |
| | | |
| 60,157 | | |
| 1,371,006 | | |
| | | |
| | | |
| (1,371,006 | ) | |
| | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (8,118,016 | ) | |
| (8,118,016 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance December 31, 2014 | |
| 65,141 | | |
$ | 130,282 | | |
| 64,763 | | |
$ | 64,763 | | |
| 246,976 | | |
$ | 8,952,711 | | |
| 143,301,039 | | |
$ | 143,301 | | |
$ | 73,319,330 | | |
$ | (92,855,018 | ) | |
$ | (10,244,631 | ) |
The accompanying notes are an integral part
of the consolidated financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statements of Cash Flows
| | |
For the Years Ended December 31, | |
| | |
2014 | | |
2013 | |
| Cash Flows from Operating Activities: | |
| | | |
| | |
| Net loss | |
$ | (8,118,016 | ) | |
$ | (4,187,892 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Loss (gain) on extinguishment of debt | |
| 176,496 | | |
| (46,978 | ) |
| (Gain) loss on derivatives | |
| (1,167,000 | ) | |
| 91,000 | |
| Amortization of intangible assets | |
| 1,576 | | |
| 1,551 | |
| Amortization of debt discount | |
| 1,373,143 | | |
| 444,450 | |
| Stock issued for services | |
| 334,238 | | |
| 202,270 | |
| Stock issued for compensation | |
| 1,479,972 | | |
| 505,509 | |
| Stock issued for interest expense and financing expenses | |
| 285,196 | | |
| 406,508 | |
| Warrant grants issued for compensation and services | |
| - | | |
| 206,700 | |
| Equity instruments issued with debt greater than debt carrying amount | |
| 185,000 | | |
| - | |
| Inventory reserve | |
| - | | |
| (49,200 | ) |
| Change in assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 129,690 | | |
| (472.297 | ) |
| Receivable from the Technology Business Tax Certificate Transfer Program | |
| 2,981,499 | | |
| (1,147,429 | ) |
| Deferred cost of goods sold | |
| 569,036 | | |
| (569,036 | ) |
| Inventories | |
| (266,089 | ) | |
| (366,810 | ) |
| Prepaid expenses | |
| (20,369 | ) | |
| 3,044 | |
| Deposits | |
| 319,683 | | |
| (418,892 | ) |
| Accounts payable and accrued expenses | |
| 372,375 | | |
| 2,326,763 | |
| Deferred revenue | |
| (1,269,470 | ) | |
| 1,269,470 | |
| Customer prepayments | |
| - | | |
| (39,970 | ) |
| Net cash used in operating activities | |
| (2,633,041 | ) | |
| (1,841,239 | ) |
| Cash Flows from Investing Activities: | |
| | | |
| | |
| Business acquisition | |
| - | | |
| (100,000 | ) |
| Purchase of intangible assets | |
| - | | |
| (41,000 | ) |
| Net cash used in investing activities | |
| - | | |
| (141,000 | ) |
| | |
| | | |
| | |
| Cash Flows from Financing Activities: | |
| | | |
| | |
| Proceeds from debt | |
| 3,060,030 | | |
| 3,331,688 | |
| Repayment of debt | |
| (528,000 | ) | |
| (1,251,522 | ) |
| Net cash provided by financing activities | |
| 2,532,030 | | |
| 2,080,166 | |
| Net (decrease) increase in cash | |
| (101,011 | ) | |
| 97,927 | |
| Cash at beginning of year | |
| 106,773 | | |
| 8,846 | |
| Cash at end of year | |
$ | 5,762 | | |
$ | 106,773 | |
| | |
| | | |
| | |
| Supplemental disclosure of cash and non-cash investing and financing transactions: | |
| | | |
| | |
| | |
| | | |
| | |
| Interest paid | |
$ | 215,855 | | |
$ | 86,169 | |
| Income taxes paid | |
$ | 1,500 | | |
$ | 5,500 | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Consolidated Statements of Cash Flows
| | |
For the Years Ended December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Debt converted to Convertible Preferred Stock Series G shares | |
$ | 53,460 | | |
$ | 55,188 | |
| | |
| | | |
| | |
| Convertible Preferred Stock Series G shares issued for financing | |
$ | 612,924 | | |
$ | 153,740 | |
The accompanying notes are an integral part of the consolidated
financial statements.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and business
Millennium was incorporated in the State of Delaware
on November 9, 2000 and is located in New Jersey. Millennium is a research based bio-nutraceutical corporation involved in the
field of nutritional science. Millennium’s principal source of revenue is from sales of its nutraceutical supplements.
On March 15, 2010 the Company
changed its name to Inergetics, Inc. Inergetics, Inc. (the “Company” or "Inergetics"), formerly Millennium
Biotechnologies Group, Inc., which is the holding company for its subsidiary Millennium Biotechnologies, Inc. (the “Subsidiary”
or "Millennium").
Reclassifications
Certain reclassifications have been made to the
2013 financial statements to conform to the consolidated 2014 financial statement presentation. These reclassifications had no
effect on net losses or cash flows as previously reported.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on our experience and
on various assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions.
Cash and Cash Equivalents
Cash and all highly liquid investments with a maturity
of three months or less from the date of purchase, including money market mutual funds, short-term time deposits, and government
agency and corporate obligations, are classified as cash and cash equivalents.
Accounts Receivable
The Company continuously monitors collections and payments
from our customers and regularly adjusts credit limits of customers based upon payment history and a customer’s current credit
worthiness, as judged by us. There was no allowance for doubtful accounts as of December 31, 2014 and 2013.
Receivable from
Technology Business Tax Certificate Transfer Program
The receivable is from the Company selling the New
Jersey State net operating loss carry forwards. The Company was able to transfer $375,645 of total available tax benefits of $375,645
for the year ended December 31, 2014. The receivable was collected on January 16, 2015. The Company was able to transfer $3,357,144
of total available tax benefits of $3,357,144 for the year ended December 31, 2013. The receivable was collected on January 23,
2014. The Company paid a fee of $33,808 and $302,143 for the years ended December 31, 2014 and 2013, respectively, in connection
with the approval of the Tax Certificate Transfer Program.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Goodwill
Goodwill and other acquired intangible assets with
indefinite lives are not amortized, but are tested for impairment annually and when an event occurs or circumstances change such
that it is more likely than not that an impairment may exist. Our annual testing date is December 31. We test goodwill for impairment
by first comparing the carrying value of net assets to the fair value of the related operations. If the fair value is determined
to be less than carrying value, a second step is performed to compute the amount of the impairment. In this process, a fair value
for goodwill is estimated, based in part on the fair value of the operations, and is compared to its carrying value. The shortfall
of the fair value below carrying value represents the amount of goodwill impairment. Intangibles consist of brand and trade names
acquired in business combinations. We test these intangibles for impairment by comparing their carrying value to current projections
of discounted cash flows attributable to the brand and trade names. Any excess carrying value over the amount of discounted cash
flows represents the amount of the impairment. At the conclusion of our test the Company has realized that there has not been any
impairment.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation, which includes amortization of assets under capital leases, is calculated using the straight-line method
over the estimated useful lives of the assets: 3-8 years for machinery and equipment, leasehold improvements are amortized over
the shorter of the estimated useful lives or the underlying lease term. Repairs and maintenance expenditures which do not extend
the useful lives of related assets are expensed as incurred. As of December 31 2014 and 2013, all property and equipment has been
fully depreciated.
Patents
Patents are capitalized and amortized over 240 months.
Amortization expense was $1,576 and $1,551 for 2014 and 2013, respectively.
Evaluation of Long-Lived Assets
Long-lived assets are assessed for recoverability
on an ongoing basis as impairment indicators arise. In evaluating the fair value and future benefits of long-lived assets, their
carrying value would be reduced by the excess, if any, of the long-lived asset over management’s estimate of the anticipated
undiscounted future net cash flows of the related long-lived asset.
Revenue Recognition
Revenue is recognized net of discounts, rebates,
promotional adjustments, price adjustments and estimated returns and upon transfer of title and risk to the customer which generally
occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations and collection is reasonably
assured as the majority of sales are paid for prior to shipping.
Discounts are reductions to invoiced amounts offered
to customers for payment within a specified period and are estimated upon sale utilizing historic customer payment experience.
Consistent with industry practice, the Company maintains
a return policy that allows customers to return product within a specified period prior and subsequent to the expiration date.
The Company’s estimate of the provision for returns is generally based upon historic experience with actual returns.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Price adjustments, which include shelf stock adjustments,
are credits issued to reflect decreases in the selling prices of products. Shelf stock adjustments are based upon the amount of
product which the customer has remaining in its inventory at the time of the price reduction. Decreases in selling prices are discretionary
decisions made by the Company to reflect market conditions. Amounts recorded for estimated price adjustments are based upon specified
terms with direct customers, estimated launch dates of competing products, estimated declines in market price and, in the case
of shelf stock adjustments, estimates of inventory held by the customer.
Certain retailers require guaranteed
sales. Revenue is recognized as sales are made to the retail consumer.
Advertising costs
Advertising costs are charged to operations when
incurred. Advertising expense was $31,243 and $8,157 for the years ended December 31, 2014 and 2013, respectively.
Shipping and Handling Costs
Shipping costs of $130,581 and $43,299 are included
in cost of sales for the years ended December 31, 2014 and 2013, respectively. Handling costs of $112,005 and $44,467 are included
in general and administrative expenses for the years ended December 31, 2014 and 2013, respectively.
Stock and Warrant Based Compensation
Stock and warrant based compensation is measured
at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee
service period (generally the vesting period of the grant). Compensation expense is recognized based on the estimated grant date
fair value method using the Black-Scholes valuation model. The Company account for the issuance of stock and warrants for services
based on the estimated fair value of options and warrants using the Black-Scholes pricing model. This model’s calculations
include the exercise price, the market price of shares on grant date, weighted average assumptions for risk-free interest rates,
expected life of the warrant, expected volatility of our stock and expected dividend yield. The amounts recorded in the financial
statements for share-based expense could vary significantly based on the subjective assumptions used in the pricing model.
We account for the issuance of stock and warrants
for services from non-employees based on an estimate of the fair value of warrants issued using the Black-Scholes pricing model.
This model’s calculations include the exercise price, the market price of shares on grant date, weighted average assumptions
for risk-free interest rates, expected life of the warrant, expected volatility of our stock and expected dividend yield. The amounts
recorded in the financial statements for share-based expense could vary significantly if we were to use different assumptions.
The Company issued 2,500,000 warrants, during the
year ended December 31, 2014 for an expense of $25,000 and 1,140,000 warrants, that vested over three years, for an expense of
$206,700 during the year ended December 31, 2013. The Company did not issue any stock options during the year ended December 31,
2014 and 2013, respectively.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Income Taxes
The Company provides for income taxes based on enacted
tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company’s income
tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial
reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are
available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes.
Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance
against the related federal and state deferred tax assets for the years ended December 31, 2014 and 2013.
Loss Per Common Share
Basic and diluted loss per common share is computed
by dividing net loss by the weighted average number of common shares outstanding during the periods. Potential common shares used
in computing diluted earnings per share related to stock options, warrants, convertible preferred stock and convertible debt which,
if exercised, would have an anti- dilutive effect on earnings per share, and there for have not been included, Anti-dilutive securities
not included in net loss per share calculations for the years presented include:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| Potentially dilutive securities: | |
| | | |
| | |
| Convertible debt and accrued interest | |
| 390,211,843 | | |
| 10,751,345 | |
| Liability of shares to be issued | |
| 4,314,380 | | |
| 3,330,000 | |
| Convertible Preferred stock | |
| 154,555,045 | | |
| 49,713,545 | |
| Outstanding time-based warrants | |
| 21,292,144 | | |
| 19,323,406 | |
Fair Value of Financial Instruments
The Company measures and discloses the estimated
fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting
principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy
requires the use of observable market data when available. The levels are defined as follows:
Level 1 – quoted prices
for identical instruments in active markets;
Level 2 – quoted prices for similar instruments
in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations
in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from
valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
For financial instruments including cash, prepaid
expenses and other current assets, short-term debt, accounts payable and accrued expenses, it was assumed that the carrying values
approximated fair value because of their short-term maturities.
Fair value estimates are made at a specific point
in time, based on relevant market information and information about the financial statement. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
Continued
Research and Development
Research and development
costs are expensed as incurred.
2. GOING CONCERN
The Company’s future success is dependent upon
its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management
believes they can raise the appropriate funds needed to support their business plan and develop an operating, cash flow positive
company.
However the Company has incurred substantial net
losses for the years ended December 31, 2014 and 2013 and has accumulated a deficit of approximately $93 million at December 31,
2014 and $85 million at December 31, 2013. The Company has not been able to generate sufficient cash from operating activities
to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital
to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a
going concern.
The consolidated financial statements do not include
any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the
Company be unable to continue as a going concern.
3. BUSINESS ACQUISITION
On January 9, 2013 (the “Acquisition date”),
the Company entered into a definitive agreement pursuant to which it acquired, through its Millennium Biotechnologies, Inc. wholly-owned
subsidiary, the trademark of Bikini Ready® and the brand SlimTrim™. Under the agreement the Company acquired the URL’s,
formula and customer list. Under the terms of this agreement the Company paid $100,000 cash and 8,000 shares of Series G preferred
stock valued at $140,000.
The transaction was accounted for as a purchase business
combination. We account for business combinations in accordance with the acquisition method. The acquisition method of accounting
requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. The
excess of the purchase price over the fair value of assets acquired is recognized as goodwill. Certain adjustments to the assessed
fair values of the assets and liabilities made subsequent to the acquisition date, but with the measurement period, which is up
to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income.
Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.
The results from operations for the period from acquisition date to December 31, 2013 have been included in the Company’s
consolidated statement of operations. Pro forma information with respect to the acquisition are not included in these financial
statements as the information is not material.
In accordance with generally accepted accounting
principles, intangible assets are recorded at fair values as of the date of the transaction. The Company’s allocation to
identifiable intangible assets and liabilities according to their respective fair values, is as follows:
| Intangible assets, trademarks | |
$ | 100,000 | |
| Intangible assets, customer list | |
| 5,000 | |
| Goodwill | |
| 135,000 | |
| Purchase Price | |
$ | 240,000 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Intangible assets with estimated
useful lives are amortized over a 5 year period. The goodwill is not amortized for financial statement purposes in accordance with
generally accepted accounting principles.
4. CONCENTRATIONS OF BUSINESS AND CREDIT
RISK
The Company maintains cash balances in several financial
institutions which currently are insured by the Federal Deposit Insurance Corporation. Balances in these accounts may, at times,
exceed the federally insured limits.
The Company provides credit in the normal course
of business to customers and performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts
based on factors surrounding the credit risk of specific customers, historical trends, and other information.
For the year ended December 31, 2014, two significant
customers (defined as contributing at least 10%) accounted for 36% (19%, and 17%) of net sales. For the year ended December 31,
2013, three significant customers (defined as contributing at least 10%) accounted for 55% (31%, 13%, and 11%) of net sales. The
loss of any of these customers could have a material adverse effect on our business.
5. INVENTORIES
Inventories are stated at the lower of cost or market
and consist of finished goods and packaging for the Company’s Surgex™, Bikini Ready™, SlimTrim and Martha Stewart™
Essentials product lines. Cost-of-goods sold are calculated using the weighted average costing method. Inventories consisted of
the following:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| Finished Goods | |
$ | 634,578 | | |
$ | 378,472 | |
| Packaging | |
| 51,697 | | |
| 41,714 | |
| | |
| 686,275 | | |
| 420,186 | |
| Less: Reserve for obsolescence | |
| - | | |
| - | |
| Total | |
$ | 686,275 | | |
$ | 420,186 | |
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of
the following:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| Accounts payable | |
$ | 3,067,081 | | |
$ | 2,866,017 | |
| Accrued interest | |
| 833,215 | | |
| 1,016,584 | |
| Accrued rent expense | |
| 135,874 | | |
| 135,874 | |
| Accrued salaries, bonuses and payroll taxes | |
| 125,391 | | |
| 824,492 | |
| Accrued professional fees | |
| 218,593 | | |
| 230,433 | |
| Owed to officers | |
| 36,570 | | |
| 16,088 | |
| | |
$ | 4,416,724 | | |
$ | 5,089,488 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
7. FAIR VALUE MEASUREMENTS
The following table represents the fair value hierarchy
for those financial assets measured at fair value on a recurring basis:
| December 31, 2014 | |
Level I | | |
Level II | | |
Level III | | |
Total | |
| | |
| | |
| | |
| | |
| |
| Derivative liability | |
| | | |
| | | |
| 910,590 | | |
| 910,590 | |
| Total liabilities | |
$ | - | | |
$ | - | | |
$ | 910,590 | | |
$ | 910,590 | |
| | |
| | | |
| | | |
| | | |
| | |
| December 31, 2013 | |
Level I | | |
Level II | | |
Level III | | |
Total | |
| | |
| | |
| | |
| | |
| |
| Derivative liability | |
| | | |
| | | |
| 318,000 | | |
| 318,000 | |
| Total liabilities | |
$ | - | | |
$ | - | | |
$ | 318,000 | | |
$ | 318,000 | |
Liabilities measured at fair value
on a recurring basis using significant unobservable inputs (Level3):
| | |
Derivative
Liabilities | |
| January 1, 2014 | |
$ | (318,000 | ) |
| Issuance of notes with derivatives | |
| (2,845,000 | ) |
| Derivative debt converted into equity | |
| 1,085,410 | |
| Gain on fair market valuation of derivatives | |
| 1,167,000 | |
| December 31, 2014 | |
$ | (910,590 | ) |
8. DEBT
Debt is as follows:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Convertible Promissory Note to an accredited investor dated May 20, 2003, maturing May 20, 2004, now due on demand, bearing interest at a rate 8% per annum payable in restricted shares of common stock. The Note is convertible at the option of the holder into common stock at the rate of $20.00 per share. | |
| 30,000 | | |
| 30,000 | |
| | |
| | | |
| | |
| One demand loan extended by an investor in March 2004 and January 2005, bearing interest at 12% per year, now due on demand. Principal in the amount of $5,000 was paid in September 2013. The balance outstanding was converted into common stock in January 2014. | |
| - | | |
| 10,000 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
| Two promissory notes issued to accredited investors in September 2006, maturing at various dates between November 30, 2006 and January 31, 2007, now due on demand. The notes carried interest at the rate of 10% per year until maturity and thereafter are subject to a rate of 14% per year, and are convertible into common shares at the rate of $20.00 /share. | |
| 48,000 | | |
| 48,000 | |
| | |
| | | |
| | |
| Two promissory notes issued to accredited investors in October 2006, maturing on January 31, 2007, now due on demand. The notes carried interest at the rate of 10% per year until maturity and thereafter are subject to a rate of 14% per year, and are convertible into common shares at the rate of $20.00 /share. | |
| 44,000 | | |
| 44,000 | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investors in January 2007, maturing on March 31, 2007, now due on demand. The notes carried interest at the rate of 10% per year until maturity and thereafter are subject to a rate of 14% per year, and are convertible into common shares at the rate of $20.00 /share. | |
| 75,000 | | |
| 75,000 | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in May 2007, maturing on September 30, 2007, now due on demand. The note carried interest at the rate of 10% per year until maturity and thereafter is subject to a rate of 12% per year. The note calls for the interest payable in common stock, calculated at $8.00 per share. The note is convertible into common shares at the rate of $8.00 /share. | |
| 25,000 | | |
| 25,000 | |
| | |
| | | |
| | |
| Promissory note, originally in the amount of $2,710,563 issued to a service provider, due on July 31, 2008. The note carried interest at the rate of 10% per year compounded monthly. In November 2009, the creditor and the Company entered into an agreement whereby, against payment of $110,000 in cash, the principal amount of the note was reduced to $400,000. | |
| 400,000 | | |
| 400,000 | |
| | |
| | | |
| | |
| Two promissory notes, issued in November 2009 as part of a series of debt restructuring transactions whereby existing promissory notes, most of which were past due or payable on demand, and interest accrued thereon were exchanged into Units at the rate of 1:1 between old note principal plus accrued interest to Unit price, at a price of $100,000 per Unit. Each Unit consisted of a 30 month promissory note for $100,000, carrying interest at 15% per year and 100 shares of Series F Convertible Preferred Stock, whereby every “F” share was converted into 120,000 common shares on April 20, 2010. The notes and interest accrued thereon are repayable in five quarterly installments beginning 18 months after issue. Six of the notes converted in September 2011 into Series G Convertible Preferred Stock at the rate of one share of G Preferred per $73.50 of principal and accrued interest. The Unit Note holders were entitled to a reduced conversion rate of one share of Series G Preferred per $50 of debt if they invested an amount equal to 25% of the principal amount of such holder’s Unit Note in the Series G Preferred equity offering. In April 2013, $67,021 of principal plus accrued interest was converted into 2,044 shares of Series G Preferred Stock, realizing a gain of $46,978. In April 2014, $85,726 of principal plus accrued interest was converted into 750,000 shares of common stock, realizing a gain of $18,378. | |
| - | | |
| 85,726 | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
| One promissory note was issued as Senior Secured Convertible Notes in September 2011 as part of the Debt Reorganization and Financing Agreement dated July 14, 2011. The note is convertible into Series G Preferred Stock. The note bears interest at 10% per year and matures on March 31, 2015. | |
| 29,606 | | |
| 29,606 | |
| | |
| | | |
| | |
| Five promissory notes issued to accredited investors in March and April 2012, maturing thirty-six months after issuance. The note carries interest at the rate of 10% per year until maturity and are payable quarterly in common stock valued at $0.20 per share. The notes are convertible into common shares at the rate of $0.20 share. One note in the principal amount of $25,000 was paid off in January 2013. One note in the principal amount of $50,000 converted into common stock in March 2014. | |
| 70,139 | | |
| 74,306 | |
| | |
| | | |
| | |
| Two promissory notes issued to an accredited investor in March 2013, maturing twelve months after issuance. The notes carry interest at the rate of 15% per year until maturity. The notes are convertible into common shares at the rate of $0.25/ share. | |
| 112,288 | | |
| 97,924 | |
| | |
| | | |
| | |
| Four notes issued to an accredited investor in April, May and June 2013, maturing between eight to twelve months after issuance. The notes carry interest at the rate of 15% per year until maturity. The notes and accrued interest were repaid in January 2014. | |
| - | | |
| 191,551 | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in May 2013, maturing ten months after issuance. The note carries interest at the rate of 15% per year until maturity. The note is convertible into common shares at the rate of $0.20/ share. | |
| - | | |
| 96,012 | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in May 2013, maturing nine months after issuance. The note carries interest at the rate of 15% per year until maturity. The note and accrued interest was repaid in February 2014. | |
| - | | |
| 95,948 | |
| | |
| | | |
| | |
| One promissory note re-issued to an accredited investor in August 2013, maturing seven months after re-issuance. The note carries interest at the rate of 10% per year until maturity. The note and accrued interest was repaid in January 2014. | |
| - | | |
| 53,000 | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in August 2013, maturing six months after issuance. The note carries interest at the rate of 15% per year until maturity. | |
| 26,521 | | |
| 24,197 | |
| | |
| | | |
| | |
| Two promissory notes issued to an accredited investor in March and April 2014, maturing eighteen months after issuance. The note carries interest at the rate of 15% per year until maturity. | |
| 269,368 | | |
| - | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in May 2014, maturing twelve months after issuance. The note carries interest at the rate of 12% per year. The note is convertible into common shares at the rate of 62% of lowest trading price over the past 20 day trading period. | |
| 439,052 | | |
| - | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in July 2014, maturing twelve months after issuance. The note carries interest at the rate of 12% per year. The note is convertible into common shares at the rate of 62% of lowest trading price over the past 20 day trading period. | |
| 507,425 | | |
| - | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in October 2014, maturing twelve months after issuance. The note carries interest at the rate of 12% per year. The note is convertible into common shares at the rate of 62% of lowest trading price over the past 20 day trading period. | |
| 19,863 | | |
| - | |
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
| One promissory note issued to an accredited investor in October 2014, maturing twelve months after issuance. The note carries interest at the rate of 4% per year. The note is convertible into common shares at the rate of 55% of lowest trading price over the past 20 day trading period. | |
| 40,685 | | |
| - | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in October 2014, maturing twelve months after issuance. The note carries interest at the rate of 12% per year. The note is convertible into common shares at the rate of 62% of lowest trading price over the past 20 day trading period. | |
| 65,526 | | |
| - | |
| | |
| | | |
| | |
| One promissory note issued to an accredited investor in October 2014, maturing twelve months after issuance. The note carries interest at the rate of 12% per year. The note is convertible into common shares at the rate of 55% of lowest trading price over the past 20 day trading period. | |
| 35,055 | | |
| - | |
| | |
| | | |
| | |
| Three promissory note issued to an accredited investors in December 2014,
maturing one month after issuance. The note carries interest at the rate of 24% per year until maturity. The note
and accrued interest was repaid in January 2015. | |
| 225,000 | | |
| - | |
| | |
| | | |
| | |
| Total Debt | |
| 2,462,528 | | |
| 1,380,270 | |
| | |
| | | |
| | |
| Less short-term portion | |
| 2,462,528 | | |
| 1,276,358 | |
| | |
| | | |
| | |
| Long-term portion | |
$ | - | | |
$ | 103,912 | |
Included in total debt as of December 31, 2014 and 2013 of $2,462,528
and $1,380,270 is an unamortized debt discount of $1,047,888 and $70,062, respectively.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
DEBT (Continued)
Debt to affiliates is as follows:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Promissory note issued to an accredited investor in March 2009. The note was due on September 26, 2009 and carrying interest at 24% per year. In March 2014 the note and accrued interest was converted into Preferred Stock Series G. | |
$ | - | | |
$ | 33,000 | |
| | |
| | | |
| | |
| Promissory note issued to an accredited investor in July 2009. The note was due on October 28, 2009 and carrying interest at 36% per year. | |
| 16,600 | | |
| 16,600 | |
| | |
| | | |
| | |
| Purchase order financing note issued in May 2010, carry interest at 24% per year and due on demand. The note was purchased by another debt holder and converted into common stock. | |
| - | | |
| 100,000 | |
| | |
| | | |
| | |
| Four promissory notes were issued as Senior Secured Convertible Notes in September 2011 as part of the Debt Reorganization and Financing Agreement dated July 14, 2011. The notes are convertible into common shares at a rate of $0.08/share. The notes bear interest at 10% per year and mature on March 31, 2015. | |
| 1,425,522 | | |
| 1,425,522 | |
| | |
| | | |
| | |
| Eight promissory notes issued to accredited investors in May through August 2013, maturing six to nine months after issuance. The notes carry interest at the rate of 15% per year. In May 2014 some of the notes were purchased by another debt holder, the balance was rolled into a new note for $1,250,000. | |
| - | | |
| 2,104,584 | |
| | |
| | | |
| | |
| Four promissory notes issued to accredited investors in July 2013, maturing seven months after issuance. The notes carry interest at the rate of 12% per year. In May 2014 some of the notes were purchased by another debt holder, the balance was rolled into a new note for $1,250,000. | |
| - | | |
| 589,544 | |
| | |
| | | |
| | |
| One promissory note issued to accreditied investor in May 2014, maturing January 23, 2015. The note carry interest at the rate of 12% per year. | |
| 1,250,000 | | |
| - | |
| | |
| | | |
| | |
| Six promissory notes issued to accredited investors in March, April and June 2014 maturing six months after issuance. The notes carry interest at the rate of 12% per year. | |
| 300,030 | | |
| - | |
| | |
| | | |
| | |
| One promissory note issued to accredited investor in May 2014, maturing February 23, 2015. The note carries interest at the rate of 12% per year. | |
| 510,000 | | |
| - | |
| | |
| | | |
| | |
| One promissory note issued to accredited investor in June 2014, maturing March 3, 2015. The note carries interest at the rate of 12% per year. | |
| 200,000 | | |
| - | |
| | |
| | | |
| | |
| Two promissory notes issued to accredited investor in September 2014, maturing in October 2014 and April 2015. The note carries interest at the rate of 12% per year. | |
| 126,923 | | |
| - | |
| | |
| | | |
| | |
| Total debt to affiliates | |
| 3,829,075 | | |
| 4,269,250 | |
| | |
| | | |
| | |
| Less short-term portion due to affiliates | |
| 3,829,075 | | |
| 2,843,728 | |
| | |
| | | |
| | |
| Total Long-Term Debt to affiliates | |
$ | - | | |
$ | 1,425,522 | |
Included in total debt as of December 31, 2014 and 2013 of $3,829,075
and $4,269,250 is an unamortized debt discount of $0 and $82,560, respectively.
The following is a schedule of future minimum debt payments
as of December 31, 2014:
| Year Ending December 31, | |
| | |
| 2015 | |
$ | 3,829,075 | |
| Total minimum payments required | |
$ | 3,829,075 | |
2013 Modification of Debt
The following debt instruments were modified in 2013. The
modification of debt included the addition of a conversion feature therefore requiring the Company to record the transaction in
accordance with ASC 470 “Debt” modification of debt accounting.
At December 31, 2013, the Company had promissory notes issued
to four affiliated investors with an outstanding balance of $1,455,128, which were due on demand. As of December 31, 2013, the
Company reached an agreement with the investors to extend the debt for fifteen months. At the date of extension, the debt payable
was $1,455,128. The fair value of the new debt is $1,096,487, which includes the fair value of the conversion feature of
$358,641. The conversion rate on the new convertible note is $0.20 per share of common stock. As of December 31, 2013
the loss on debt modification of $358,641 has been included in the accompanying Statement of Stockholders’ Deficit.
9. INCOME TAX
The Company has analyzed filing positions in all of the federal
and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.
The Company does not believe it has any tax positions that should not be recognized under FASB ASC 740-10.
The reconciliation of the effective income tax rate
to the Federal statutory rate is as follows:
| | |
2014 | | |
2013 | |
| Federal Income Tax Rate | |
| (34.0 | )% | |
| (34.0 | )% |
| State Income Tax, Net of Federal Benefit | |
| (5.94 | )% | |
| (5.94 | )% |
| Change in valuation allowance | |
| 39.94 | % | |
| 39.94 | % |
| Sale of New Jersey NOL | |
| (4.40 | )% | |
| (46.0 | )% |
| Effective Income Tax Rate | |
| (4.40 | )% | |
| (46.0 | )% |
As of December 31, 2014, the Company has net operating loss
carry forwards of approximately $65,000,000 that can be utilized to offset future taxable income for Federal income tax purposes
through 2031. Net operating loss carry forwards expire starting in 2024 through 2032. Utilization of these net loss carry forwards
is subject to the limitations of Internal Revenue Code Section 382. Because of the current uncertainty of realizing
the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes has been established.
Deferred income taxes are recognized for the tax consequence
of such temporary differences at the enacted tax rate expected to be in effect when the differences reverse. Because of the current
uncertainty of realizing the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes
has been established. The full realization of the tax benefit associated with the carry forward depends predominantly upon the
Company's ability to generate taxable income during the carry forward period.
Significant components of the Company's deferred tax assets
and liabilities are summarized as follows:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| Deferred tax assets | |
| 26,899,000 | | |
| 23,165,000 | |
| Less: Valuation Allowance | |
| (26,899,000 | ) | |
| (23,165,000 | ) |
| | |
| | | |
| | |
| Net Deferred Tax Assets | |
$ | - | | |
$ | - | |
The Company’s deferred income tax valuation allowance
increased by $3,734,000 to $26,899,000 as of December 31 2014.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
10. CAPITAL STOCK
| a) | Series B and C, Convertible Preferred Stock and Common Stock |
Convertible Series B preferred shares ("Series
B") are non-dividend bearing, and are convertible into shares of the Company’s common stock at any time at the option
of the holder and are subject to adjustment in accordance with certain anti-dilution clauses. Cumulative Series C preferred shares
("Series C") are not convertible but are entitled to cumulative cash dividends at the rate of $.65 per share per annum,
payable in each year commencing the year after all the shares of Series B are retired. There were no cumulative cash dividends
payable as of December 31, 2014 and 2013, respectively.
The holders of Series B and Series C preferred stock
have no voting rights. Each share of common stock is entitled to one vote.
| a.2) | Dividend Restrictions |
No cash dividends may be declared or paid on the
Company’s common stock if, and as long as, Series B preferred stock is still outstanding or there are dividends in arrears
on outstanding shares of Series C preferred stock. No dividends may be declared on Series C shares if, and as long as, any Series
B shares are outstanding. There were no cumulative cash dividends payable as of December 31, 2014 and 2013, respectively.
| a.3) | Other information is summarized as follows: |
| | |
Convertible
Series B | | |
Cumulative
Series C | |
| Number of common shares to be issued upon conversion of each preferred share | |
| 10 | | |
| None | |
| | |
| | | |
| | |
| Redemption price and involuntary liquidation value per preferred shares (if redeemed, ranking would be Convertible Series D then , Convertible Series B then Cumulative Series C) | |
$ | 2.00 | | |
$ | 10.00 | (1) |
(1) Plus any dividend in arrears.
b) Series G Convertible Preferred Stock
b.1) Authorized Number
Four Hundred Thousand (400,000) of the authorized
shares of Preferred Stock are hereby designated “Series G Convertible Preferred Stock” par value $1.00 per share, stated
value $50 (“G Preferred”).
b.2) Designation
The rights, preferences, privileges, restrictions
and other matters relating to G Preferred, as filed with the Secretary of State, Delaware, are as follows:
(1) Dividends
The shares of G Preferred shall bear a 10% annual dividend, payable quarterly in kind based on the equivalent of 90%
of the average of the last ten trading day closing price of the Common Stock prior to the dividend payment date.
(2) Distribution
of Assets Upon Liquidation In the event the Company shall be liquidated, dissolved or wound up, whether voluntarily
or involuntarily, each holder of shares of G Preferred, has a liquidation preference before any payment or distribution on the
Common Stock or on any other class of stock ranking junior to the G Preferred up to the Stated Value and, thereafter, shares ratably
in proceeds available along with the holders of shares of Common Stock and any other share of stock entitled to payment upon liquidation.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
CAPITAL STOCK (continued)
(3) Voting
Rights (a) Each holder of outstanding shares of G Preferred shall be entitled to the number of votes
equal to the number of whole shares of Common Stock into which the share of G Preferred held by such holder would then be convertible
assuming a sufficient number of shares of Common Stock were then authorized and available for issuance, at each meeting of the
stockholders of the Company (and written actions of stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Company for their action or consideration (including without limitation, any matter voted on together
with the holders of Common Stock). Except as provided by law, by any of the provisions contained herein or by the provisions
establishing any other series of stock, holders of G Preferred shall vote together with the holders of Common Stock as a single
class.
(4) Conversion
of G Preferred At the option of the holder each share of G Preferred may be converted into fully paid and non-assessable
shares of the Company’s Common Stock at the rate of 625 shares of Common Stock for each share of G Preferred. The holder
of each G Preferred has anti-dilution rights whereby any Common Stock shares that are issued or sold at a price less than the Conversion
Rate in effect, then the Conversion Rate shall be reduced to an amount equal to the New Securities Issuance Price.
c) Common Stock
c.1) Authorized Number
Two Billion (2,000,000,000) of the authorized shares
of Common Stock are hereby designated “ Common Stock” par value $0.001 per share.
The cost of all share-based awards to employees, including
grants of warrants and restricted stock, is recognized in the financial statements based on the fair value of the awards at grant
date. The fair value of the warrant award is determined using the Black-Scholes valuation model on the date of grant. The fair
value of the share-based awards is recognized as stock-based compensation expense on a straight-line basis over the requisite service
period from the date of grant. As of December 31, 2014, there was approximately $43,125 of total unrecognized compensation cost
related to non-vested warrant based compensation arrangements granted under the Company’s compensation plan. The cost is
expected to be recognized over a period of 2 years. This expected cost does not include the impact of any future stock-based compensation
awards.
11. OPTIONS AND WARRANTS
In February 2000, Millennium adopted its 2001 Stock
Option Plan ("The 2001 Plan"). The 2001 Plan provides that certain options granted thereunder are intended to qualify
as "Incentive Stock Options" (ISO) within the meaning of Section 422A of the United States Internal Revenue Code of 1986,
while non-qualified options may also be granted under the Plan. The Plan provided for the grant of options for up to 500,000 shares.
The purchase price per common stock deliverable upon exercise of each ISO shall not be less than 100% of the fair market value
of the common stock on the date such option is granted. If an ISO is issued to an individual who owns, at the time of grant, more
than 10% of the total enhanced voting power of all classes of Millennium’s common stock, the exercise price of such option
shall be at least 110% of the fair market value of the common stock on the date of grant and the term of the option shall not exceed
five years from the date of grant. The purchase price of shares subject to non-qualified stock options shall be determined by a
committee established by the Board of Directors with the condition that such prices shall not be less than 85% of the fair market
value of the common stock at the time of grant. Millennium had no options issued pursuant to this Plan as of December 31, 2014
and 2013, respectively.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
OPTIONS AND WARRANTS (continued)
| | |
December 31, 2014 | | |
December 31, 2013 | |
| | |
Shares | | |
Weighted
Average
Exercise
Price | | |
Shares | | |
Weighted
Average
Exercise
Price | |
| | |
| | |
| | |
| | |
| |
| Warrants outstanding - beginning of year | |
| 19,323,406 | | |
$ | 0.200 | | |
| 18,190,906 | | |
$ | 0.225 | |
| Warrants exercised | |
| (531,262 | ) | |
| 0.104 | | |
| - | | |
| - | |
| Warrants granted | |
| 2,500,000 | | |
| 0.200 | | |
| 1,140,000 | | |
| 0.185 | |
| Warrants expired | |
| - | | |
| 0.000 | | |
| (7,500 | ) | |
| 60.000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Warrants outstanding - end of year | |
| 21,292,144 | | |
$ | 0.223 | | |
| 19,323,406 | | |
$ | 0.200 | |
| | |
| | | |
| | | |
| | | |
| | |
| Warrants price range at end of year | |
| $0.10 - $16.00 | | |
| $0.10 - $16.00 | |
| | |
| | | |
| | | |
| | | |
| | |
| Warrants price for exercised shares | |
| $0.00 | | |
| $0.00 | |
The following table summarizes information about
fixed-price warrants outstanding
Range of Exercise
Prices | | |
Number
Exercisable at
December 31,
2014 | | |
Average
Remaining
Contractual
Life | |
Weighted
Average
Exercise Price | | |
Number
Exercisable at
December 31,
2013 | | |
Weighted
Average
Exercise Price | |
| $ | 0.10 | | |
| 7,500,000 | | |
35 Mo’s | |
$ | 0.10 | | |
| 7,500,000 | | |
$ | 0.10 | |
| $ | 0.17 | | |
| 8,002,144 | | |
79 Mo’s | |
$ | 0.17 | | |
| 8,033,406 | | |
$ | 0.17 | |
| $ | 0.20 | | |
| 6,227,500 | | |
25 Mo’s | |
$ | 0.20 | | |
| 3,727,500 | | |
$ | 0.20 | |
| $ | 16.00 | | |
| 62,500 | | |
60 Mo’s | |
$ | 16.00 | | |
| 62,500 | | |
$ | 16.00 | |
| $ | 60.00 | | |
| - | | |
| |
$ | 60.00 | | |
| - | | |
$ | 60.00 | |
| | | | |
| 21,292,144 | | |
| |
| | | |
| 19,323,406 | | |
| | |
Total compensation cost recognized in the income
statement for stock-based employee and directors’ compensation awards was $1,592,552 and $457,500 in 2014 and 2013, respectively.
The cost of all share-based awards to employees,
including grants of warrants and restricted stock, is recognized in the financial statements based on the fair value of the awards
at grant date. The fair value of the warrant award is determined using the Black-Scholes valuation model on the date of grant.
The fair value of the share-based awards is recognized as stock-based compensation expense on a straight-line basis over the requisite
service period from the date of grant. As of December 31, 2014, there was approximately $0 of total unrecognized compensation cost
related to non-vested warrant based compensation arrangements granted under the Company’s compensation plan. The cost is
expected to be recognized over a period of 2 years. This expected cost does not include the impact of any future stock-based compensation
awards.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
12. OPERATING LEASE, LICENSE
AND EMPLOYMENT COMMITMENTS
The Company leases office space
in Newark, NJ under an operating lease.
The following is a schedule
of future minimum rental payments (exclusive of allocated expenses) required under operating leases that have initial or non-cancelable
lease terms in excess of one year as of December 31, 2014:
| Year Ending December 31, | |
| | |
| 2015 | |
| 50,400 | |
| 2016 | |
| 12,600 | |
| Total minimum payments required | |
$ | 63,000 | |
Rent expense for the Company under operating leases
for the years ended December 31, 2014 and 2013 was $50,400 and $47,282, respectively.
The Company entered into a license
agreement with minimum royalty payments totaling $13,600,000. In the year ended December 31, 2014, $1,350,000 has been paid
for the year ending December 31, 2014 with a remaining balance from 2014 of $450,000 nor payment due January 1, 2015 in the
amount of $525,000 or the payment due April 1, 2015 in the amount of $525,000. We are in discussions with MSLO to work out
terms of payment. If we are unable to come to acceptable terms, we would be in default of the terms of the license agreement.
| Year Ending December 31, | |
| | |
| 2015 | |
| 2,100,000 | |
| 2016 | |
| 2,700,000 | |
| 2017 | |
| 3,200,000 | |
| 2018 | |
| 3,800,000 | |
| | |
$ | 11,800,000 | |
Pursuant to the Summary of Debt Reorganization and
Financing dated July 14, 2011, Mr. James salary was amended to reduce his salary to $150,000 per annum until the Company reaches
three consecutive fiscal quarters of positive Net Income at which point his annual salary will increase to $200,000. The gross-up
provisions with regards to any issuances under the Management Warrant Grant Program have been eliminated. Mr. James will receive
a bonus of $25,000 upon receiving three consecutive fiscal quarters of positive Net Income.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
13. STOCK GRANTED FOR SERVICES AND FINANCING
During the year ended December 31, 2014 the Company
issued 3,767,500 shares of Common Stock valued at $334,238 for services. The value of the Common Stock is the fair market value
on the date of issuance.
During the year ended December 31, 2014 the Company
issued 6,627,069 shares of Common Stock valued at $1,479,972 for compensation. The value of the Common Stock is the fair market
value on the date of issuance.
14. RELATED PARTY TRANSACTIONS
During 2014 and 2013, we also issued restricted stock
awards and warrants to certain officers and directors, as follows:
Mr. James received 2,000,000 shares of common stock
in March 2014 valued at $550,000, in recognition of services performed. The value of the Common Stock is the fair market value
on the date of issuance.
Mr. Kras received 2,000,000 shares of common stock
in March 2014 valued at $550,000, in recognition of services performed. The value of the Common Stock is the fair market value
on the date of issuance.
Mr. DeLucia received 500,000 shares of common stock
in March 2014 valued at $140,000, for director fees. The value of the Common Stock is the fair market value on the date of issuance.
Refer to footnote 8 for affiliated debt transactions.
Inergetics, Inc. and Subsidiary
Notes to Consolidated Financial Statements
15. LITIGATION
All legal matters contained within this Note to the
Financial Statement have been accrued for on the Company’s balance sheet as a liability as of December 31, 2014.
Creative Healthcare Solutions, LLC vs. Millennium Biotechnologies
Inc, Ct. of Common Pleas of Delaware County Ohio, Case No. 07 CV H 11 1420) Millennium was not satisfied with the service
rendered by Creative Healthcare Solutions, LLC in 2005 which were associated with the development of Resurgex Select collateral
materials developed in December of 2005. Millennium subsequently was forced to destroy and dispose of over 80% of the materials
provided by Creative Healthcare Solutions due to the poor quality of the materials. Millennium has been unsuccessful in resolving
the dispute and subsequently Creative Healthcare Solutions, LLC has filed legal action for demand of payment in the amount of $63,718
for services rendered. Millennium continues to negotiate a settlement with regards to this legal proceeding.
Robert Half International vs. Millennium Biotechnologies,
Inc. filed on September 30, 2009 in the Superior Court of New Jersey, Law Division, Middlesex County. Robert Half International
claims a total of $18,507 plus costs and fees based upon the Millennium Biotechnologies, Inc.’s failure to pay the plaintiff
the fees associated with the full time hiring of an employee.
16. SUBSEQUENT EVENTS
The Company received $375,645 on January 16, 2015 from
the sale of the New Jersey Technology Business Tax Transfer Program. The Company paid a fee of $33,808 upon the successful receipt
of the sale proceeds. The net amount the Company received was $341,837.
Debt in the principal amount of $379,000 and accrued
interest in the amount of $1,775 converted into 61,081,644 common shares of stock.
In February 2015 the Company raised $75,000 of one
year convertible debt paying annual interest at 9.09% The debt is convertible into common stock at 55% of the lowest closing price
based on the prior 15 trading days.
In March 2015 the Company raised $150,000 of one year
convertible debt paying annual interest at 12%. The debt is convertible into common stock at 62% of the lowest trading price on
the prior 10 trading days.
In March 2015 the Company raised
$110,000 of one year convertible debt paying annual interest at 4%. The debt is convertible into common stock at 55% of the lowest
trading price on the prior 15 trading days.
Exhibit 3(i).6
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES AND
LIMITATIONS OF SERIES
G CONVERTIBLE PREFERRED STOCK OF
INERGETICS, INC.
Acting pursuant to
Sections 151(a) and (g) of the Delaware General Corporation Law, the undersigned, Michael C. James, the duly elected and acting
Chief Executive Officer of Inergetics, Inc. (the “Company”) hereby certifies that the Board of Directors of the Company
(the “Board”) and the holders of the outstanding shares of Series G Convertible Preferred Stock (“G Preferred”)
duly approved the following Amended and Restated Certificate of Designation of Series G Convertible Preferred Stock of the Company
on February 10, 2014 and February 10, 2014, respectively, and that the Certificate of Incorporation, as restated and as amended,
of the Company (the “Certificate of Incorporation”) expressly authorizes the Board to so designate and issue one or
more series of preferred stock, par value $1.00 per share, of the Company (the “Preferred Stock”). The designations,
powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions
thereof in respect of the G Preferred are as follows.
I. G PREFERRED
A. Authorized
Number and Stated Value. Four Hundred Thousand (400,000) of the authorized shares of Preferred Stock are hereby designated “Series
G Convertible Preferred Stock” par value $1.00 per share (“G Preferred”) with a stated value of $50.00 per share
(“Stated Value”).
B. Designation.
The rights, preferences, privileges, restrictions and other matters relating to G Preferred are as follows:
(1) Dividends.
(a) Holders
of G Preferred (“Holders”) shall be entitled to receive in shares of G Preferred, and the Company shall pay in G Preferred,
cumulative dividends on the G Preferred at the rate per share (as a percentage of the Stated Value per share) of 10% per annum,
payable quarterly in arrears commencing on September 30, 2011 and thereafter on each December 31, March 31, June 30 and September
30, except if such date is not a Business Day, in which case such dividend shall be payable on the next succeeding Business Day
(each, a “Dividend Payment Date”). A Business Day as used herein shall mean any day other than a Saturday, Sunday or
other day on which national banks in New Jersey are not open for business. Dividends on the G Preferred shall be calculated on
the basis of a 360-day year, shall accrue daily commencing on the date of issuance of the G Preferred, and shall be deemed to accrue
from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends.
(b) The
number of shares of G Preferred to be issued for such dividend shall be equal to the following: the number of Series G shares owned
by such holder on the Dividend Payment Date multiplied by a fraction (x) the numerator of which is 2.5% of the quotient obtained
from dividing the Stated Value by 90% of the arithmetic average of the closing prices for the Company’s Common Stock (“Common
Stock”) for each of the 10 Trading Days ending immediately preceding the applicable Dividend Payment Date and (y) the denominator
of which is the quotient obtained from dividing the Stated Value by the Conversion Rate. A Trading Day as used herein means any
day during which the Principal Trading Market shall be open for business and the Principal Trading Market means the OTC Bulletin
Board or such other market on which the Common Stock is principally traded at the relevant time. Such shares shall be duly authorized,
validly issued, fully paid, non-assessable and free and clear of all encumbrances.
(2) Distribution
of Assets Upon Liquidation. In the event the Company shall be liquidated, dissolved or wound up (each, a “Liquidation
Event”), whether voluntarily or involuntarily, each Holder of shares of G Preferred, shall be entitled to receive and to
be paid out of the assets of the Company legally available for distribution to its stockholders, before any payment or distribution
shall be made on the Common Stock or on any other class of stock ranking junior to the G Preferred upon a Liquidation Event, an
amount equal to the Stated Value per share and, thereafter, to share ratably in the proceeds available along with the holders of
shares of Common Stock and any other share of stock entitled to payment upon a Liquidation Event.
(3) Voting
Rights. Each Holder of outstanding shares of G Preferred shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of G Preferred held by such Holder would then be convertible (as adjusted from time
to time pursuant to Section I.B(4) hereof), at each meeting of the stockholders of the Company (and written actions of stockholders
in lieu of meetings) with respect to any and all matters presented to the stockholders of the Company for their action or consideration
(including without limitation, any matter voted on together with the holders of Common Stock). Notwithstanding the foregoing, shares
of G Preferred will not have voting rights unless and to the extent that the holdings of G Preferred results in the Holder thereof
and its Affiliates (as such term is defined in Rule 405 under the Act) and any other Persons whose beneficial ownership of Common
Stock would be aggregated with such Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”), having greater than 9.99% of the voting power of the Company’s voting securities. For purposes
of this subsection, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and
regulations promulgated thereunder. The Holder may waive the voting limitation described in this Section I.B (3), in whole or in
part, upon and effective after 61 days prior written notice to the Company. Except as provided by law, by any of the provisions
contained herein or by the provisions establishing any other series of stock, Holders of G Preferred shall vote together with the
holders of Common Stock as a single class.
(4) Conversion
of G Preferred.
(a) At the
option of the Holder, at any time after issuance, each share of G Preferred may be converted into fully paid and non-assessable
shares of Common Stock as follows (the “Conversion Rate”): $50.00 divided by the VWAP (as defined below) of the Company’s
Common Stock for the ten trading day period commencing on the fifth trading day after the date of the public announcement of the
“Transactions” (as defined below) in a Current Report on Form 8-K (or other applicable form). Notwithstanding the foregoing,
the Conversion Rate shall not result in the issuance of more than 625 shares of Common Stock or less than 250 shares of Common
Stock per share of Series G, on the terms and conditions set forth in this Section I.B(4). “VWAP” (volume weighted
average price) means, for any date, the price determined by the first of the following clauses that applies: (i) if the Common
Stock is then listed or quoted on a National Securities Exchange (an “Exchange”) as defined in the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Exchange as reported by Bloomberg L.P., (ii) if the Common Stock is quoted on the OTC
Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (iii) if the Common Stock is not then quoted on the OTC Bulletin Board and if prices for the Common Stock are then
reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (iv) in all other cases,
the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by holders of
a majority of principal amount of the outstanding 30 month Secured Promissory Notes of the Company initially issued effective February
3, 2011 and reasonably acceptable to the Company. Notwithstanding the foregoing, shares of G Preferred may not be converted unless
and to the extent that, as a result of such conversion the Holder thereof and its Affiliates (as such term is defined in Rule 405
under the Act) and any other Persons whose beneficial ownership of Common Stock would be aggregated with such Holder’s for
purposes of Section 13(d) of the 1934 Act would (i) own in excess of 9.99% of the issued and outstanding shares of Common Stock
or (ii) have greater than 9.99% of the voting power of the Company’s voting securities. For purposes of this subsection,
beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated
thereunder. The Holder may waive the conversion limitation described in this Section I.B (4), in whole or in part, upon and effective
after 61 days prior written notice to the Company.
(b) No
Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of shares of G Preferred; instead,
the Company shall round such fraction of a share of Common Stock up to the nearest whole number.
(c) Adjustments
of Conversion Rate for Stock Dividends, Subdivisions, Combinations or Consolidation of Common Stock, Consolidations and Mergers,
and upon Issuance of Common Stock.
(i) If
the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then on the date such payment is made or such
change is effective, the Conversion Rate of the G Preferred shall be increased so that the number of shares of Common Stock issuable
on conversion of any shares of the G Preferred shall be increased in proportion to such increase of outstanding shares.
(ii) If
the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then on the effective date of such combination, the Conversion Rate for each share of G Preferred shall
be decreased so that the number of shares of Common Stock issuable on conversion of shares of the G Preferred shall be decreased
in proportion to such decrease in outstanding shares.
(iii) In
the case of the consolidation or merger of the Company with or into another person (other than a consolidation or merger pursuant
to which the holders of the outstanding voting securities of the Company immediately prior to such consolidation or merger hold
equity securities representing a majority of the voting power of the Company or surviving entity immediately following such consolidation
or merger), on the effective date of such consolidation or merger (the “Effective Date”), the Conversion Rate and/or
the securities to be received upon conversion of each share of G Preferred shall be adjusted so the number of shares of stock and
other securities and property (including cash) to which such Holder of G Preferred would have been entitled upon the Effective
Date as if the Holder had converted the G Preferred immediately prior thereto.
(iv) If
at any time, the Company issues or sells, or in accordance with this Section I.B(4)(c)(iv) is deemed to have issued or sold, any
shares of Common Stock, with the exception of Excluded Stock (as defined below), for a consideration per share (the “New
Securities Issuance Price”) less than the Conversion Rate in effect immediately prior to such time (each such sale or issuance,
a “Dilutive Issuance”), then concurrent with such Dilutive Issuance, the Conversion Rate then in effect shall be reduced
to an amount equal to the New Securities Issuance Price. “Excluded Stock” means the issuance of Common Stock (a) upon
exercise or conversion of any options or other securities outstanding or pursuant to written contracts or agreements as of July
14, 2011 (provided that such exercise, conversion or issuance occurs in accordance with the terms thereof, without amendment or
modification), (b) the issuance of Common Stock or grant of options to employees, officers or directors of the Company pursuant
to a stock option plan or other stock plan duly approved by the Company’s stockholder and adopted by the Company’s
Board of Directors, (c) the issuance of Common Stock or grant of options in exchange for the fair value of services provided to
the Company by sales or marketing consultants pursuant to written agreements duly approved by the Company’s Board of Directors
including a majority of the Company’s independent directors, (d) the issuance of any securities pursuant to the transactions
(the “Transactions”) described in a “July 14, 2011 Summary of Debt Reorganization and Financing”, a copy
of which is available from the Company, including, but not limited to, Common Stock as interest under certain Notes, dividends
payable on G Preferred, equity securities (including preferred stock) and other securities convertible into or exercisable for
Common Stock or other securities (that are convertible into or exercisable for Common Stock) (e) pursuant to a Strategic Financing
(as defined below), or (f) the issuance of any G Preferred (or the issuance of shares of Common Stock upon conversion thereof or
dividends thereon). A “Strategic Financing" means the issuance of Common Stock or any right to acquire Common Stock
in connection with any acquisition by the Company or its subsidiary, Millennium Biotechnologies, Inc. (“MBI”), by whatever
means, of any business, assets or technologies, or, with regard to the Company or MBI, to any vendor, customer, lease or similar
arrangement, the primary purpose of which is not to raise funds. For purposes of determining the adjusted Conversion Rate under
this Section I.B(4)(c)(iv), the following shall be applicable:
(x) If the
Company in any manner issues or sells any securities or instruments of debt or equity convertible into or exercisable for shares
of Common Stock or any combination thereof other than Excluded Stock (“Convertible Securities”) and the lowest price
per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less than the Conversion
Rate in effect immediately prior to such Dilutive Issuance, then such share of Common Stock shall be deemed to be outstanding and
to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per
share. For the purposes of this Section I.B(4)(c)(iv), the “lowest price per share for which one share of Common Stock is
issuable upon such conversion, exchange or exercise” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible
Securities and upon the conversion, exchange or exercise of such Convertible Securities. No further adjustment of the Conversion
Rate shall be made upon the actual issuance of such Common Stock or upon conversion, exchange or exercise of such Convertible Securities.
(y) If
any Common Stock or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the gross amount received by the Company therefor. If any Common Stock or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company will be the arithmetic average of the closing price of such securities during
the ten (10) consecutive Trading Days ending on the date of receipt of such securities. The fair value of any consideration other
than cash or securities will be determined by the Company in good faith.
(d) In
the event any shares of G Preferred shall be converted pursuant to this Section I.B(4) or otherwise reacquired by the Company,
the shares so converted or reacquired shall, absent a determination to the contrary by the Board, be canceled, may not be reissued
as G Preferred and shall revert to the status of authorized but unissued and undesignated shares of Preferred Stock and may be
redesignated and reissued.
(5) Reservation
of Shares. The Company shall, so long as any of shares of G Preferred are outstanding, reserve and keep available out of its
authorized but unissued shares of Common Stock, a sufficient number of shares for the purpose of effecting conversion of such shares
of G Preferred.
(6) Lost
or Stolen Certificates. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate representing the shares of G Preferred and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender
and cancellation of the certificate, the Company shall execute and deliver a new preferred stock certificate of like tenor and
date.
IN WITNESS WHEREOF,
the Company has caused this Amended and Restated Certificate of Designation of Series G Convertible Preferred Stock to be duly
executed by its Chief Executive Officer and attested to by its Secretary on this 10th day of February, 2014.
| s/ |
|
| Michael C. James, Chief Executive Officer |
|
| |
|
| ATTEST: |
|
| |
|
| s/ |
|
| Frank Guarino, Secretary |
|
Exhibit 4.1
No. ___
NEITHER THESE
SECURITIES NOR THE SHARES INTO WHICH THEY MAY BE CONVERTED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE, AND ARE ISSUED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (ii) IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS
OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
FOR VALUE RECEIVED, the undersigned, Inergetics,
Inc., (“Debtor”) hereby promises to pay to the order of ______________________ (“Holder”),
at ________________ (or such other place as Holder may direct from time to time), whose fax no. is _____________________, in lawful
money of the United States of America and in immediately available funds, the principal amount of ______________________ ($___________) and
all accrued but unpaid interest thereon on December 31, 2013 (the “Maturity Date”).
This Note is one of a series of Secured
Convertible Promissory Notes DUE December 31, 2013 (the “Notes”) being issued pursuant to a plan of financing
and debt restructuring (the “Transactions”) as set forth in the Summary Of Debt Reorganization and Financing
dated July 14, 2011 (the “Summary”), a copy of which is attached hereto as Annex B. All of the
Notes are secured by a first lien and security interest in substantially all of the assets of Debtor and Millennium Biotechnologies,
Inc. (“Guarantor”), pari passu with certain other secured debt set forth in the Security Agreement among
Debtor, Guarantor and the Collateral Agent (as defined below) (“Security Agreement”). Holder of this
Note, by acceptance of this Note, and the holders of the other Notes, by their acceptance of such Notes, have designated Ken Sadowsky,
Leon Frenkel and Seahorse Enterprises LLC (i) as their representative (the “Noteholder Representative”),
for purposes of declaring a default (and enforcement of all rights) under this Note and the other Notes; and (ii) as Collateral
Agent under the terms of the Security Agreement.
1. Interest. Interest shall be
computed on the unpaid principal amount at the per annum rate of ten percent (10%); provided, in the event of the Declaration
of Default as defined hereunder, the principal balance shall bear interest from the date of such Declaration until the date of
actual payment at the per annum rate of fifteen percent (15%). All interest payable hereunder shall be computed on the basis of
actual days elapsed and a year of 360 days.
2. Installment Payments. Installment
payments of interest on the outstanding principal shall be paid as follows: semi-annually in shares of common stock of Debtor (the
“Common Stock”) valued at 90% of the average of the last ten Trading Day closing price per share prior
to the interest due date (each, an “Interest Due Date”). Installment interest payments are payable commencing
November 1, 2011 and on May 1 and November 1 of each year thereafter. Once Debtor achieves $1,000,000 in “Net Income”
in any 12 month period, it will start to repay outstanding principal at the rate of 2.5% per quarter. “Net Income”
means Sales, less (i) Cost of Goods Sold, (ii) Selling, General and Administrative Expenses and (iii) Interest Expense. All unpaid
principal and accrued but unpaid interest shall be due and payable in full on the Maturity Date.
3. Prepayment. Debtor may, from
time to time, prepay all or any portion of this Note without the prior consent of Holder upon at least ten (10) Business Days’
prior written notice.
4. Guaranty. Payment in full
of this Note in accordance with its terms is guaranteed by Guarantor.
5. Conversion.
(a) Conversion.
At any time after the Original Issue Date until this Note is no longer outstanding, the outstanding principal amount of this Note
and any accrued but unpaid interest shall be convertible, in whole or in part, into shares of Common Stock at the option of Holder,
at any time and from time to time. Holder shall effect conversions by delivering to Debtor a notice of conversion, the form of
which is attached hereto as Annex A (a “Notice of Conversion”), specifying therein the amount
of principal and accrued but unpaid interest of this Note to be converted and the date on which such conversion shall be effected
(such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder,
Holder shall not be required to physically surrender this Note to Debtor unless the entire principal amount of this Note has been
so converted. Conversions of principal hereunder shall have the effect of lowering the outstanding principal amount of this Note
in an amount equal to the applicable conversion. Holder and Debtor shall maintain records showing the principal and interest amount(s)
converted and the date of such conversion(s), which records shall be reconciled by Debtor and Holder in writing (by facsimile,
e-mail or other written form) after each such conversion. Debtor may deliver an objection to any Notice of Conversion within one
(1) Business Day of delivery of such Notice of Conversion. Holder, and any assignee by acceptance of this Note, acknowledge
and agree that, by reason of the provisions of this paragraph, following conversion of a portion of the principal of this Note,
the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.
(b) Conversion Price.
The conversion price for conversion of principal in effect on any Conversion Date (the “Conversion Price”)
per share, subject to adjustment as provided below, shall be the volume weighted average price (“VWAP”)
of the Common Stock for the ten Trading Day period commencing on the fifth trading day after the date of the first public announcement
of the Transactions described in the Summary in a Current Report on Form 8-K (or other applicable form). Notwithstanding the foregoing,
the Conversion Price (after taking into account the one-for-eighty reverse-split of the Common Stock approved in May 2011) shall
not be greater than $0.2 nor less than $0.08. “VWAP” means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a National Securities Exchange (an “Exchange”)
as defined in the Securities Exchange Act of 1934, as amended (the “1934 Act”), the daily volume weighted
average price of the Common Stock for such date (or the nearest preceding date) on the Exchange as reported by Bloomberg L.P.,
(b) if the Common Stock is quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date
(or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then quoted on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a
similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common
Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by holders of a majority of principal amount of the outstanding Notes and reasonably acceptable
to the Company. Computation of the amount of shares of Common Stock to be issued upon conversion of any accrued but unpaid interest
shall be made in the same manner as installment payments of interest are calculated in Section 2 above utilizing the most recently
passed Interest Due Date.
(c) Mechanics of
Conversion.
(i) Conversion
Shares Issuable Upon Conversion of Principal Amount. The number of shares of Common Stock issuable upon a conversion of Principal
hereunder shall equal the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (x)
the Conversion Price. Such number, plus the number of shares of Common Stock issuable upon conversion of accrued but unpaid interest
in accordance with Section 5(b) above, the “Conversion Shares”.
(ii) Delivery
of Certificate Upon Conversion. Not later than ten (10) Trading Days after each Conversion Date (the “Share Delivery
Date”), Debtor shall deliver, or cause to be delivered, to Holder a certificate or certificates representing the
Conversion Shares being acquired upon the conversion of this Note. “Trading Day” means a day on which
the principal Trading Market is open for business, and, if the Common Stock is not then listed or quoted for trading on a Trading
Market, Trading Day shall mean a Business Day. “Trading Market” means the following markets or exchanges
on which the Common Stock is listed or quoted for trading on the date in question: the NYSE Amex, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Bulletin Board or the Pink Sheets.
“Business Day” means any day except Saturday, Sunday or other day on which commercial banks in the City
of New York are authorized or required by law to remain closed.
(iii) Reservation
of Shares Issuable Upon Conversion. Debtor covenants that it will at all times reserve and keep available out of its authorized
and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of Persons other than Holder, not less than such aggregate
number of shares of the Common Stock as shall be issuable (taking into account the adjustments and restrictions of Section 6)
upon the conversion of the outstanding principal amount of this Note. Debtor covenants that all shares of Common Stock that shall
be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
(iv) Fractional
Shares. Debtor shall not be required to issue fractions of shares upon conversion hereunder. If any fraction of a share would,
except for the provisions of this Section, be issuable upon conversion hereunder, Debtor shall issue one whole share in lieu of
such fraction.
(v) Transfer
Taxes. Debtor will pay any documentary stamp taxes attributable to the initial issuance of Conversion Shares issuable upon
the conversion of this Note; provided, however, that Debtor shall not be required to pay any tax or taxes which may be payable
in respect of any transfer involved in the issuance or delivery of any certificates for Conversion Shares in a name other than
that of the registered holder of this Note in respect of which such shares are issued. Holder shall be responsible for income taxes
due under federal or state law, if any such tax is due.
(d) Certain Conversion
Restrictions. The number of shares of Common Stock that may be acquired by Holder upon any conversion of the principal amount
of the Note shall be limited to the extent necessary to insure that, following such conversion, the total number of shares of Common
Stock then beneficially owned by Holder and its Affiliates (as such term is defined in Rule 405 under the Securities Act), and
any other Persons whose beneficial ownership of Common Stock would be aggregated with such Holder’s for purposes of Section
13(d) of the 1934 Act, does not exceed 9.99% of the total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such conversion) or provide Holder with greater than 9.99% of the voting
power of Debtor’s voting securities. For such purposes, the beneficial ownership shall be determined in accordance with Section
13(d) of the 1934 Act and the rules and regulations promulgated thereunder. Each delivery of a Conversion Notice hereunder will
constitute a representation by the Holder that it has evaluated the limitations set forth in this Section 5(d) and has determined
that issuance of the full number of the Conversion Shares issuable in respect of such Conversion Notice does not violate the restrictions
contained in this Section 5(d). Holder may waive the conversion limitation described in this Section 5(d), in whole or in part,
upon and effective after 61 days prior written notice to Debtor.
6. Conversion Price Adjustments.
The Conversion Price is subject to adjustment from time to time as set forth in this Section 6.
(a) Stock Dividends
and Splits. If Debtor, at any time while this Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise
makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares
of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this Section 6(a) shall become effective
immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and
any adjustment pursuant to clause (ii) or (iii) of this Section 6(a) shall become effective immediately after the effective date
of such subdivision or combination.
(b) Antidilution
Adjustment of Conversion Price upon Issuance of Common Stock. If at any time this Note is outstanding, Debtor issues or sells,
or in accordance with this Section 6(b) is deemed to have issued or sold, any shares of Common Stock, with the exception of Excluded
Stock (as defined below), for a consideration per share (the “New Securities Issuance Price”) less than
the Conversion Price in effect immediately prior to such time (each such sale or issuance, a “Dilutive Issuance”),
then concurrent with such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New
Securities Issuance Price. “Excluded Stock” means the issuance of Common Stock (a) upon exercise or conversion
of any options, warrants or other securities outstanding or pursuant to written contracts or agreements as of the date of this
Note (provided that such exercise, conversion or issuance occurs in accordance with the terms thereof, without amendment or modification),
(b) the issuance of Common Stock or grant of options to employees, officers or directors of Debtor pursuant to a stock option plan
or other stock plan duly approved by Debtor’s stockholders and adopted by Debtor’s Board of Directors, (c) the issuance
of Common Stock or grant of options in exchange for the fair value of services provided to Debtor by sales or marketing consultants
pursuant to written agreements duly approved by Debtor’s Board of Directors including a majority of Debtor’s independent
directors (d) the issuance any securities pursuant to the Transactions as set forth in the Summary, including, but not limited
to, the issuance of the Notes, Common Stock as interest under the Notes or dividends under preferred stock, equity securities (including
preferred stock) and other securities convertible into or exercisable for Common Stock or other securities (that are convertible
into or exercisable for Common Stock) or (e) pursuant to a Strategic Financing (as defined below). A “Strategic Financing"
means the issuance of Common Stock or any right to acquire Common Stock in connection with any acquisition by Debtor or Guarantor,
by whatever means, of any business, assets or technologies, or, with regard to Debtor or Guarantor, to any vendor, customer, lease
or similar arrangement, the primary purpose of which is not to raise funds. For purposes of determining the adjusted Conversion
Price under this Section 6(b), the following shall be applicable:
(i) Issuance
of Convertible Securities. If Debtor in any manner issues or sells any securities or instruments of debt or equity convertible
into or exercisable for shares of Common Stock other than Excluded Stock (“Convertible Securities”) and
the lowest price per share for which one share of Common Stock is issuable upon such conversion, exchange or exercise thereof is
less than the Conversion Price in effect immediately prior to such Dilutive Issuance, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by Debtor at the time of the issuance of sale of such Convertible Securities
for such price per share. For the purposes of this Section 6(b)(i), the “lowest price per share for which one share of Common
Stock is issuable upon such conversion, exchange or exercise” shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by Debtor with respect to any one share of Common Stock upon the issuance or sale of the Convertible
Security and upon the conversion, exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock or upon conversion, exchange or exercise of such Convertible Securities.
(ii) Calculation
of Consideration Received. If any Common Stock or Convertible Securities are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor will be deemed to be the gross amount received by Debtor therefor. If any Common
Stock or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than
cash received by Debtor will be the fair value of such consideration, except where such consideration consists of marketable securities,
in which case the amount of consideration received by Debtor will be the arithmetic average of the closing price of such securities
during the ten (10) consecutive Trading Days ending on the date of receipt of such securities. The fair value of any consideration
other than cash or securities will be determined jointly by Debtor and Collateral Agent (the “Required Holders”)
in good faith. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation
(the “Valuation Event”), the fair value of such consideration will be determined within five Business
Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser selected by Debtor and the
Required Holders. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees
and expenses of such appraiser shall be borne equally by Debtor and the Required Holders.
7. Default.
(a) Events of
Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an “Event
of Default”, and collectively as “Events of Default”:
(i) Debtor fails
to pay any amount due hereunder which default continues uncured for more than five (5) business days following the due date thereof;
(ii) Debtor or
Guarantor dissolves or suspends or discontinues doing business or becomes unable, or admits in writing its inability, to pay its
debts as they mature;
(iii) Debtor or
Guarantor makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its
creditors or principal creditors in connection with a moratorium or adjustment of the indebtedness due to them;
(iv) a case or
proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether
at law or in equity) is filed against a Debtor or Guarantor or all or any part of their properties and such petition or application
is not dismissed within sixty (60) days after the date of its filing or Debtor or Guarantor shall file any answer admitting or
not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding
or the relief requested is granted sooner; or
(v) a case or proceeding
under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Debtor or Guarantor or for all or any part of their property.
(b) Declaration
of Default. Following the occurrence of an Event of Default, the Noteholder Representative, upon a vote or written instruction
of holders of Notes representing the majority in dollar amount of the outstanding principal balance of all the Notes, shall declare
the Notes to be in default by serving on Debtor a written notice thereof (the “Declaration of Default”)
in which event the entire principal balance, together with accrued interest, shall be immediately due and payable. The Noteholder
Representative is designated on behalf of Holder and on behalf of all other holders of the Notes to pursue such action or enforcement
procedures as it shall deem appropriate to enforce the rights of the holders of the Notes under the Notes and the Security Agreement.
8. Miscellaneous.
(a) Amendments,
Etc. No amendment, modification, termination or waiver of any provision of this Note, and no consent to any departure by Debtor
here from, shall in any event be effective unless the same shall be in writing and signed by Holder, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose for which given.
(b) Other Rights.
No failure to exercise, and no delay in exercising on the part of Holder of, any right, power or privilege under this Note shall
preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies
of Holder herein provided are cumulative and not exclusive of any rights or remedies provided by law.
(c) Binding Effect;
Successors and Assigns. This Note and the terms, covenants and conditions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that Debtor shall not have the right to assign or transfer
this Note or its rights or obligations hereunder or any interest herein without the prior written consent of Holder.
(d) Governing
Law. This Note shall be a contract made under and governed by, and construed in accordance with, the laws of the State of New
York, without regard to conflict of laws principles. All obligations of Debtor and rights of Holder expressed herein shall be in
addition to and not in limitation of those provided by applicable law.
(e) Maximum Interest
Rate. This Note is subject to the express condition that at no time shall Debtor be obligated or required to pay interest on
the principal balance at a rate which would subject Holder to either civil or criminal liability as a result of being in excess
of the maximum rate which Debtor are permitted by law to contract or agree to pay. If by the terms of this Note Debtor is at any
time required or obligated to pay interest on the principal balance at a rate in excess of such maximum rate, the rate of interest
under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed
at such maximum rate and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been payments in reduction of the principal balance.
(f) Notices.
All notices and other communications provided to any party hereto under this Note shall be in writing (including telex or facsimile)
and addressed or delivered to such party at its address set forth herein:
| |
If to Holder: |
To the address on the first page of this Note. |
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If to Debtor and/or
Guarantor:
|
Inergetics, Inc.
205 Robin Road, Suite 222
Paramus, NJ 07652
Attn: President
Fax No. (908) 604-2545
Millennium Biotechnologies, Inc.
205 Robin Road, Suite 222
Paramus, NJ 07652
Attn: President
Fax No. (908) 604-2545 |
or at such other address as may be designated
by such party from time to time in a notice complying with the terms of this section. Any notice shall be deemed given upon receipt.
(g) Severability.
Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable
law. Any provision of this Note that is prohibited by, unenforceable or invalid in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition, unenforceability or invalidity, without invalidating the remainder of such
provisions of this Note or affecting the validity or enforceability of such provision in any other jurisdiction.
(h) Captions.
Section captions used in this Note are for convenience of reference only and shall not affect the construction of this Note.
(i) Counterparts.
This Note may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts
shall together constitute but one and the same Note.
(j) WAIVER OF
JURY TRIAL. HOLDER BY ACCEPTANCE OF THIS NOTE, DEBTOR AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS NOTE, AND AGREE THAT ANY
SUCH ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL
INDUCEMENT FOR HOLDER ENTERING INTO THIS NOTE.
[signature page follows]
[Secured Promissory Note Signature Page]
IN WITNESS WHEREOF, Debtor has caused this
Note to be duly executed as of the date first written above.
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INERGETICS, Inc. |
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By: |
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Name: Mark C. Mirken
Title: Chief Executive Office |
Guaranty
The undersigned hereby guarantees payment
in full of the foregoing Note in accordance with its terms.
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Millennium Biotechnologies, Inc. |
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By: |
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Name: Mark C. Mirken |
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Title: Chief Executive Officer |
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby
elects to convert principal and/or accrued but unpaid interest under the 10% Secured Convertible Promissory Note due December 31,
2013 of Inergetics, Inc., a Delaware corporation (the “Company”), into shares of common stock, $0.001 par value
per share (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below.
If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
| Conversion calculations: |
Date to Effect Conversion: |
|
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Principal Amount of Note to be Converted: |
|
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Amount of Accrued but Unpaid Interest |
|
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to be Converted: |
|
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Number of shares of Common Stock to be issued: |
|
ANNEX B
Summary Of Debt Reorganization and Financing
Inergetics, Inc.
July 14, 2011
Introduction: As of June
30, 2011, Inergetics, Inc. including its wholly-owned subsidiary, Millennium Biotechnologies, Inc. (collectively, the “Company”)
had approximately $6,253,5241 in secured debt, including principal, interest and penalties, all of which is in
default, and approximately $2,054,000 in unsecured debt, including principal, interest and penalties, most of which is in default.
The Company needs to substantially reduce or eliminate this debt and raise new capital to move forward with its business plan,
sustain day to day business operations and fund revenue growth. As discussed below in “Funding Commitment”, the Company
has obtained a commitment for up to $2,000,000 in new capital (the “Funding Commitment”) from Seahorse Enterprises
LLC (the “Principal Investor”). The Funding Commitment is subject to the terms and conditions described below.
Notwithstanding the foregoing, as discussed below, the Company already has received an advance of $700,000 of the Funding Commitment
and may receive additional advances of the Funding Commitment at the sole discretion of the Principal Investor (the foregoing advances
collectively, the “Commitment Advance”).
A summary of the details and requirements
to complete the various aspects of the debt conversion and new funding to be effective (the “Transactions”)
are as follows:
Bridge Financing And Prior Debt Exchange:
The Company has issued Secured Promissory
Notes due December 31, 2013 (the “First Position Bridge Notes”) effective as of February 3, 2011 to a group
of investors consisting of Kenneth Sadowsky, one of the Company’s directors, the Principal Investor and the Primary Creditors
(as defined below) (collectively, the “Investor Group”) for $450,000 received on February 3, 2011. The Company
also has issued an additional First Position Bridge Note in the amount of $700,000 to the Principal Investor representing the aggregate
amount of the Commitment Advance as of July 7, 2011.
1 All references to debt are as of a specified date.
As interest and any other obligations under the debt will continue to accrue, the actual amount of any debt will increase with
the passage of time unless and until such debt is converted to equity or paid off.
The First Position Bridge Notes bear interest
at the rate of 10% per annum and are secured by a first priority lien and security interest in substantially all of the Company’s
assets including the assets of the Company’s subsidiary with the exception of accounts receivable which may be factored,
subject to the approval of the Investor Group. The only debt that is pari passu to this first priority lien and security interest
with regard to substantially all of the Company’s assets is debt pursuant to the Unit Notes (as defined below), debt in the
original principal amount of $69,571 as of June 30, 2011 owed to the Primary Creditor. Debt in the original principal amount of
$100,000 as of June 30, 2011 owed to the Principal Investor is pari passu with regard to one purchase order from May 2010. See
the discussion below about Purchase Order/Payables Notes. Interest on the outstanding principal of the First Position Bridge Notes
is payable semi-annually in shares of the Company’s common stock (the “Common Stock”) valued at 90% of
the average of the last ten trading day closing price per share prior to the interest due date. All principal and unpaid accrued
interest thereon will be due and payable on December 31, 2013. Notwithstanding the foregoing, once the Company achieves $1,000,000
in “Net Income” (as defined below in the “First Equity Offering”) in any consecutive 12 month period, the
Company will start to repay outstanding principal at the rate of 2.5% per quarter. In addition, the holders have the right to convert
the principal amount and any accrued but unpaid interest under the First Position Bridge Notes into shares of Common Stock at the
following rate (the “Conversion Price”) per share: the volume weighted average price (“VWAP”)
of the Company’s Common Stock for the ten trading day period commencing on the fifth trading day after the date of the first
public announcement of the Transactions in a Current Report on Form 8-K (or other applicable form) (the “Transaction 8-K”).
Notwithstanding the foregoing, the Conversion Price shall not be greater than $0.2 or less than $0.08. “VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed
or quoted on a National Securities Exchange (an “Exchange”) as defined in the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Exchange as reported by Bloomberg L.P., (b) if the Common Stock is quoted on the OTC Bulletin
Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board, (c) if the Common Stock is not then quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent appraiser selected in good faith by holders of a majority
of principal amount of the outstanding First Position Bridge Notes and reasonably acceptable to the Company. The Conversion Price
is subject to adjustment for certain corporate events such as stock splits, dividend issuances and, subject to certain exceptions,
issuances of shares of Common Stock (or instruments convertible into or exercisable for Common Stock) at a price below the then
Conversion Price. Notwithstanding the foregoing, no conversion of the First Position Bridge Notes into shares of Common Stock can
occur to the extent that, upon such conversion, the holder thereof and its affiliates would (i) own in excess of 9.99% of the issued
and outstanding shares of Common Stock or (ii) have greater than 9.99% of the voting power of the Company’s voting securities.
For the purposes of this limitation on conversion, beneficial ownership shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder.
The Company also has issued First Position
Bridge Notes in the aggregate principal amount of $825,000 to the Investor Group and an additional holder in exchange for all of
the outstanding 24 month Secured Promissory Notes (the “August 2010 Secured Notes”) issued to them in August
2010, including all accrued but unpaid interest and any other sums due thereunder.
As a result of the foregoing, as of July
7, 2011, there are outstanding First Position Bridge Notes in the aggregate principal amount of $1,975,000 (plus accrued interest
and other obligations thereon). In addition, the Company will be issuing additional First Position Bridge Notes in the event the
Principal Investor makes any Commitment Advance in the future.
Issuance Of Equity In Exchange For
Other Debt And Fund Raising:
The Company has designated 200,000
shares of its authorized but unissued and undesignated preferred stock as Series G Convertible Preferred Stock (the “G
Preferred”). The G Preferred has a per share stated value of $50.00 (the “Stated Value”) and is convertible
into Common Stock at the following rate (the “Conversion Rate”) per share of G Preferred: $50.00 divided by
the VWAP of the Company’s Common Stock for the ten trading day period commencing on the fifth trading day after the date
of the filing of the Transaction 8-K. Notwithstanding the foregoing, the Conversion Rate shall not result in the issuance of more
than 625 shares of Common Stock or less than 250 shares of Common Stock per share of Series G. The G Preferred pays a dividend,
quarterly, at an annual rate of 10% (as a percentage of the Stated Value per share) payable in G Preferred based on the equivalent
of 90% of the average of the last ten trading day closing price of the Common Stock prior to the dividend payment date. In other
words, the holders of Series G will receive on September 30, 2011 and thereafter on each December 31, March 31, June 30 and September
30 as dividend such number of shares of Series G as equal to the number of Series G shares owned by such holder multiplied by a
fraction (x) the numerator of which is 2.5% of the quotient obtained from dividing the Stated Value by 90% of the arithmetic average
of the closing prices for the Common Stock for each of the 10 Trading Days ending immediately preceding the applicable Dividend
Payment Date Value and (y) the denominator of which is the quotient obtained from dividing Stated Value by the Conversion Rate.
The Conversion Rate is subject to adjustment for certain corporate events such as stock splits, dividend issuances and, subject
to certain exceptions, issuances of shares of Common Stock (or instruments convertible into or exercisable for Common Stock) at
a price below the then Conversion Rate. The G Preferred has a liquidation preference before any payment or distribution on the
Common Stock or on any other class of stock ranking junior to the G Preferred up to the Stated Value and, thereafter, shares ratably
in the proceeds available along with the holders of shares of Common Stock and any other share of stock entitled to payment upon
liquidation. The holders of G Preferred vote along with the holders of Common Stock, and are entitled to the number of votes equal
to the number of whole shares of Common Stock into which the G Preferred would then be convertible. Notwithstanding the foregoing:
(i) shares of G Preferred will not have voting rights to the extent that the beneficial ownership of G Preferred results in the
holder thereof and its affiliates, having greater than 9.99% of the voting power of the Company’s voting securities and (ii)
shares of G Preferred will not be convertible if, upon such conversion, the holder thereof and its affiliates would (x) own in
excess of 9.99% of the issued and outstanding shares of Common Stock or (y) have greater than 9.99% of the voting power of the
Company’s voting securities. For the purposes of this limitation on voting and conversion, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
First Equity Offering:
The Company was going to raise up to $700,000
from the sale of G Preferred at $50.00 per share from “Accredited Investors” as that term is defined under the
Securities Act of 1933, as amended (the “First Equity Offering”). To the extent that the Company was unable
to raise $700,000, the Principal Investor agreed to purchase the balance of the G Preferred in the First Equity Offering out of
the Funding Commitment, which amount would include $700,000 of the Commitment Advance made as of the date hereof, including Commitment
Advance which have been converted into the First Position Bridge Notes. The Principal Investor has advanced all $700,000, so there
will not be a First Equity Offering. However, the Principal Investor will convert this $700,000 of Commitment Advances into G Preferred
in accordance with the terms of the First Equity Offering once the following conditions (the “First Equity Offering Conditions”)
have been met:
| (i) | Unsecured Debt Exchange For Common Stock: The holders of at least
80% of the Company’s unsecured debt (excluding (a) trade payables and (b) an aggregate, as of June 30, 2011, of approximately
$645,711 of unsecured debt owed to Ventiv Commercial Services, LLC and four other debt holders) shall exchange their debt for shares
of Common Stock at a rate equal to 176% of the Conversion Price of the First Position
Bridge Notes (the “Unsecured Debt Exchange”). As of June 30, 2011, such unsecured
debt (exclusive of the trade payables and the $645,711 of excluded unsecured debt) totaled approximately $1,407,668. |
| (ii) | Secured Unit Note Debt Exchange for G Preferred: The holders of at least 90% of the aggregate
principal amount of the Company’s outstanding Secured Unit Notes issued in late 2009 and early 2010 (the “Unit Notes”),
excluding the debt under Unit Notes owned by the Primary Creditors (as defined below) who together are the holders of the largest
amount of the Unit Notes, shall have irrevocably committed to exchange their Unit Notes for shares of G Preferred on the terms
set forth below (the “Unit Note Debt Exchange”). Such exchanges would occur as follows: 35% of a holder’s
Unit Notes would be exchanged and extinguished if and when all of the First Equity Offering Conditions have been met. If and when
the Company raises an aggregate of at least $1,300,000 from the Second Equity Offering (discussed below), the balance (65%) of
the Unit Notes debt would be exchanged and extinguished. In the event that the Company does not raise at least $1,300,000 in the
Second Equity Offering on or prior to October 31, 2011, the balance of such Unit Notes debt would not be exchanged or extinguished
and the Unit Notes representing such amount would be returned to the holders thereof. The Unit Note Debt Exchange will be at a
rate of one share of G Preferred per $73.50 of principal and accrued interest being exchanged. However, any holder of Unit Notes
that separately participates and invests in the Second Equity Offering an amount equal to at least 25% of the principal amount
of such holder’s Unit Notes, shall be entitled to a reduced exchange rate for such holder’s Unit Notes of one share
of G Preferred per $50.00 of debt. As of June 30, 2011, all amounts due under such outstanding Unit Notes (other than those held
by the Primary Creditors) was approximately $1,969,429. For information on the conversion of Unit Notes owned by the Primary Creditors,
see Conversion of Remaining Secured Debt below. |
| (iii) | CEO Mark Mirken shall agree to forgive accrued salary as of December 31, 2010 in the amount of
$165,882. |
| (iv) | CEO Mark Mirken’s employment agreement shall have been
amended (a) to reduce his salary to $175,000 per annum until the Company reaches three consecutive fiscal quarters of positive
“Net Income” (defined as Sales less Cost of Goods Sold less Selling, General
and Administrative Expenses, less Interest Expense) (the “First Net Income
Milestone”), at which point his annual salary will increase to $240,000, (b) to eliminate
the gross-up provisions with regards to any issuances to Mr. Mirken under the Management Warrant Grant Program (discussed below),
(c) to provide for a bonus in the amount of $32,500 upon the Company achieving the First Net Income Milestone, and (d) to provide
for an increase in his annual salary to $306,000 upon the Company achieving $1,000,000 of Net Income in any twelve consecutive
calendar month period (the “Second Net Income Milestone”). |
| (v) | CFO Michael James shall agree to convert his accrued salary of
$100,000 into Common Stock at the Conversion Price. |
| (vi) | CFO Michael James’ employment agreement shall have been
amended (a) to reduce his salary to $150,000 per annum until the Company achieves the First Net Income Milestone, at which point
his annual salary will increase to $200,000, (b) to provide for a bonus in the amount of $25,000 upon the Company achieving the
First Net Income Milestone, (c) to eliminate the gross-up provisions with regards to any issuances to Mr. James under the Management
Warrant Grant Program (discussed below), and (d) to provide for a bonus in the amount of $25,000 in Common Stock at the Conversion
Price upon the consummation of the Unsecured Debt Exchange and the Unit Note Debt Exchange. |
| (vii) | COO Frank Guarino’s employment agreement shall have been
amended (a) to reduce his salary to $100,000 per annum until the Company achieves the First net Income Milestone, at which point
his annual salary will increase to $150,000, (b) to provide for a bonus in the amount of $25,000 upon the Company achieving the
First Net Income Milestone, and (c) to provide for an increase in his annual salary to $200,000 upon the Company achieving the
Second Net Income Milestone. |
| (viii) | The Principal Investor and the Primary Creditor shall have each been granted the right at any time
after the later of January 15, 2012 or the date that the First Equity Offering Conditions have been met and for so long as any
of the First Position Bridge Notes are outstanding, to: (a) require the Board of Directors to increase its number of members by
one, and (b) select a nominee to fill such vacancy created by such increase; provided, each such nominee will be required to be
vetted and approved by the Board of Directors in the Board’s sole discretion. As each of the Principal Investor and Primary
Creditor have this right, it could mean the addition of two members of the Board of Directors. |
| (ix) | The Company shall have entered into a consulting agreement with the Investor Group for their assistance
in structuring the Transactions and providing for a fee of $360,000 upon consummation of the Transactions, payable in Common Stock
based on the VWAP of the Company’s Common Stock for the ten trading day period commencing on the thirtieth calendar day after
the Company effects the one-for-eighty Reverse Split approved by the Company’s Stockholders in March 2010 and announced to
the public in a Form 8-K filed with the SEC on July 7, 20112. This fee will be distributed as agreed among the Investor
Group. |
| (x) | Each of the members of the Investor Group shall have agreed that, after issuance of the First Position
Bridge Notes and for as long as any First Position Bridge Notes are outstanding, such member (including any affiliates of such
member) will not acquire or control more than forty percent (40%) of the outstanding voting power of the Company. |
Second Equity Offering:
The Company will seek to raise up to an
additional $2,300,000 from the sale of G Preferred at $50.00 per share from Accredited Investors in an equity offering of two tranches,
the first of which will be for up to $650,000 and the second of which will be for up to an additional $1,650,000 (collectively,
the “Second Equity Offering”). To the extent that the Company is unable to raise at least $650,000 in either
tranche of the Second Equity Offering, the Principal Investor has agreed to purchase the balance of the G Preferred in such tranches
of the Second Equity Offering from the Funding Commitment representing, in each instance, the difference between $650,000 and the
amount raised.
2 In March 2010, the Company’s
Stockholders empowered the Company’s Board of Directors to effect a reverse stock split of all outstanding shares of Common
Stock to be at a ratio of not less than one-for-forty and not more than one-for-eighty. All references to shares of Common Stock
in this Summary give retroactive effect to this reverse split
The Second Equity Offering will commence
after the First Equity Offering Conditions have been met. However, closing of each tranche of the Second Equity Offering (and release
of funds to the Company) is contingent upon at least one of the following conditions (each, an “Additional Equity Offering
Condition”) being met: (a) the Company entering into new contracts for the Surgex and Resurgex products that are projected
to generate revenues of at least $2,000,000 in a consecutive twenty-four month period, $750,000 of which is projected to be generated
in the first twelve months, (b) the Company completing the development of the RTD (ready to drink), bars and pouches for Surgex
for commercial sale, or (c) the Company completing the development of the RTD (ready to drink) for Surgex Active (low calorie version).
Notwithstanding the foregoing, the Principal Investor has the right to waive the occurrence of a second Additional Equity Offering
Condition with regard to the closing of any part of the second tranche of the Second Equity Offering. For purposes of clarity,
the closing of the first tranche of the Second Equity Offering is contingent upon one of the above three events occurring, and
the closing of the second tranche is contingent upon the happening of at least one of the remaining two events (unless waived by
the Principal Investor).
Funding Commitment:
The Company has obtained the Funding Commitment
for up to $2,000,000 in new capital from the Principal Investor. As of July 7, 2011, the Principal Investor beneficially owned
approximately 9% of the Company’s outstanding shares and approximately $1,366,670 of its debt. The Funding Commitment is
subject to the terms and conditions described herein, including conversion of the Company’s debt in to equity as described
above. Notwithstanding the foregoing conditions, the Company already received Commitment Advances of $700,000 and may receive additional
Commitment Advances at the sole option of the Principal Investor. The Company issued First Position Bridge Notes as payment for
the $700,000 of Commitment Advances, and the Principal Investor has agreed to exchange these Bridge Notes and any Bridge Notes
issued for additional Commitment Advances for shares of Series G in the Equity Offerings. However, if all of the First Equity Offering
Conditions are not met, the Principal Investor has no further obligation under the Funding Commitment, and all funds advanced thereunder
will remain secured debt of the Company. Pursuant to the terms of the Funding Commitment, the Principal Investor will exchange
the $700,000 principal amount Bridge Notes in the First Equity Offering within three business days of the First Equity Offering
Conditions being met. In addition, the Principal Investor is required to invest from the Funding Commitment the difference between
$650,000 and the amount raised from other investors in each tranche of the Second Equity Offering within three business days of
the condition to closing that tranche of the Second Equity Offering being met (up to $1,300,000 in the aggregate). Failure to meet
this requirement would require the Principal Investor to immediately provide the balance of the Funding Commitment. The Principal
Investor is required to deposit a check for $650,000 with Silverman Sclar Shin & Byrne PLLC, counsel to the Company (“Silverman”)
if and when it delivers $650,000 to the Company upon the conditions for closing of the first tranche of the Second Equity Offering
being met. Silverman is to deliver that check to the Company if the conditions for closing of the second tranche of the Second
Equity Offering have been met (or waived by the Principal Investor) on or before October 31, 2011. Otherwise, Silverman is to return
the check to the Principal Investor.
To the extent that the Company raises funds
from sources other than the Principal Investor (“Other Funds”) in the Second Equity Offering, such Other Funds
shall reduce the balance of the remaining $1,300,000 of the Funding Commitment on a dollar–for-dollar basis.
Conversion of Remaining Secured Debt:
As of June 30, 2011, Leon Frenkel (the
“Primary Creditor”) and his affiliates (with the Primary Creditor, the “Primary Creditors”),
hold approximately $2,107,454 of principal, accrued interest, penalties and all other sums due under Unit Notes. Upon all the provisions
of the First Equity Offering Conditions being met, the Primary Creditors will exchange 35% of such debt for G Preferred at a rate
of one share of G Preferred for $50.00 of Unit Note debt. If and when the Company raises an aggregate of at least $1,300,000 from
the Second Equity Offering, the balance (65%) of such Unit Notes debt would be exchanged and extinguished. In the event that the
Company does not raise at least $1,300,000 in the Second Equity Offering on or prior to October 31, 2011, the balance of such Unit
Notes debt will not be exchanged and extinguished and the Unit Notes representing such amount will be returned to the Primary Creditors.
In addition, the Principal Investor and
the Primary Creditor hold notes in the principal amounts of $100,000 and $49,600, respectively. The note held by the Principal
Investor is secured by a specific purchase order, and the notes held by the Primary Creditor are secured by substantially all of
the Company’s assets (the “Purchase Order/Payables Notes”). As of June 30, 2011, there was approximately
$172,724 of principal, accrued interest, penalties and all other sums due under the Purchase Order/Payables Notes. The Principal
Investor and Primary Creditors will have the option in their sole discretion to exchange their Purchase Order/Payables Notes and
all amounts due thereunder for shares of G Preferred at a rate of one share of G Preferred for $50.00 of debt.
Related Party Disclosure:
The granting of the lien and security interest
for the First Position Bridge Notes required the consent of the representatives of the Unit Notes and the August 2010 Secured Notes.
The members of the Investor Group are the collateral agents and representative of the holders of the Unit Notes and the August
2010 Secured Notes and also are the collateral agents and representatives of the holders of the First Position Bridge Notes. In
addition, all of the members of the Investor Group are significant equity holders and creditors of the Company.
Management Warrant Grant Program:
The Company’s Board of Directors
has approved a Management Warrant Grant pursuant to which it has reserved a sufficient number of shares of Common Stock to issue
Common Stock Purchase Warrants (“Management Warrants”) to management. Upon the earlier of November 1, 2011 or
the date upon which the First and Second Equity Offerings have been completed or terminated (such date, the “Determination
Date”), the Company’s management shall be granted Management Warrants exercisable for such number of shares of
Common Stock equal, in the aggregate, to 11% of the “fully diluted” shares of the Company’s Common Stock as of
the Determination Date, less 2,189,050 shares. Fully diluted means, in addition to the shares issued and outstanding as of the
Determination Date, all shares of Common Stock that would be issued as of that date if all instruments providing for the issuance
of additional shares of Common Stock upon exercise, conversion or other contract right (other than the Management Warrants) were
so exercised or converted as of that date. The Management Warrants will be exercisable for a period of ten years at an exercise
price as to not cause a taxable event to management or the Company (subject to adjustment as provided therein). The holders of
the Management Warrants will be restricted from selling the shares issuable upon exercise of the Management Warrants for 15 months
from the date of the grant of the Management Warrants. The Company’s Board of Directors shall have the sole power and discretion
to allocate the Management Warrants among management.
Exhibit 4.6
| NUMBER |
|
SHARES |
| ING-___ |
|
___ |
INERGETICS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE
OF DELAWARE
SERIES G CONVERTIBLE PREFERRED STOCK
THIS CERTIFIES THAT is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES G CONVERTIBLE PREFERRED STOCK, $1.00 PAR VALUE, $50.00 STATED VALUE OF INERGETICS,
INC. (the “Corporation”), transferable on the books of the Corporation in person or by attorney upon surrender
of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to the laws of the
State of Delaware, and to the Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”)
the Certificate of Designation of Rights, Preferences and Limitations of Series G Convertible Preferred Stock (the “Certificate
of Designation”) and the By-Laws of the Corporation, as now or hereafter amended, to all of which the holder of this certificate
by acceptance hereof, assents. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE “ACT”) AND CANNOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION THEREFROM, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE
REASONABLE SATISFACTION OF THE CORPORATION. The shares represented by this certificate are convertible into share of Common
Stock of the Corporation in the manner as set forth in the Certificate of Designation. The powers, preferences, rights, limitations,
and restrictions of the Series G Convertible Preferred Stock are set forth in the Certificate of Designation which has been filed
with the Secretary of the State of Delaware, a copy of which is on file at the office of the Corporation. The Corporation shall
furnish without charge to the record holder of this certificate upon written request by such holder, copies of the Certificate
of Designation, the Certificate of Incorporation and the By-Laws, as well as the document or documents setting for the powers,
preference and rights of each of the other classes of the Corporation’s stock or series thereof and the qualifications, limitations
or restrictions of such preferences or such rights. This certificate is not valid unless signed by its respective officers as set
forth below.
| |
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| Michael C. James |
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| Chief Executive Officer |
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| Chief Financial Officer |
|
Exhibit 4.7
AMENDMENT
TO THE SECURED CONVERTIBLE NOTE
FROM INERGETICS, INC.
TO__________________
DUE DECEMBER 31,
2013 IN THE PRINCIPAL AMOUNT OF $_______
AND RELATED TRANSACTION DOCUMENTS
This Amendment, effective
December 31, 2013 (the “Amendment”), by and between Inergetics, Inc., a corporation organized under the laws of the
State of Delaware (“Inergetics”) and its wholly-owned subsidiary, Millennium Biotechnologies, Inc. (along with Inergetics,
the “Company”), and , a company organized under the laws of the State of (“Holder”
and along with the Company, the “Parties”), to that certain Secured Convertible Note from Inergetics to Holder due
December 31, 2013 in the principal amount of $ (the “Note”), the Security Agreement (as defined in the Note)
and the Intercreditor Agreement (as defined in the Security Agreement) (the foregoing documents, collectively, the “Transaction
Documents”);
WHEREAS the
Parties desire to amend the Transaction Documents on the terms and subject to the conditions contained herein; and
WHEREAS, pursuant
to Section 8(a) of the Note, Section 12 of the Security Agreement and Section 3.1 of the Intercreditor Agreement, the Transaction
Documents may be amended by the Parties in a writing executed by both Parties;
NOW, THEREFORE
in consideration of the mutual covenants and agreements contained herein and in the Transaction Documents, the sufficiency, adequacy
and satisfaction of which are hereby acknowledged, the Parties hereby agree as follows:
1. All capitalized
terms that are not otherwise defined herein have the meanings given to such terms in the Note, or, if not in the Note, in the other
Transaction Documents.
2. Inergetics shall
issue to Holder 5,086 shares of Inergetics Series G Convertible Preferred Stock upon execution of this Amendment.
3. The term “Maturity
Date” in the Note is amended and is now defined as March 31, 2015.
4. The definition
of “Excluded Stock” in Section 6(b) of the Note is amended by adding the following subsection (f) at the end thereof
and, as so amended, reads as follows:
“
or (f) the issuance of any Series G Convertible Preferred Stock of the Company (or the issuance of shares of Common Stock upon
conversion thereof or dividends thereon) issued pursuant to any amendments to the Notes”.
5. Holder hereby
waives: (i) any and all Events of Default exiting, but not cured as of or prior to the date of the execution of this Amendment,
and (ii) any rights under any of the other Transaction Documents that might be triggered by any and all Events of Default herein
waived.
6. Except for the
changes to the Transaction Documents contained in this Amendment, All other terms of the Transaction Documents are unchanged and
remain in full force and effect.
(The remainder
of this page has been intentionally left blank.)
IN WITNESS WHEREOF, the Parties have caused this Amendment
to be executed by their duly authorized representatives as of the day and year first above written.
| |
INERGETICS, INC. |
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| By: |
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| |
Michael C, James, Chief Executive Officer |
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| |
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| |
MILLENNIUM BIOTECHNOLOGIES, INC. |
|
| |
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| By: |
|
|
| |
Michael C, James, Chief Executive Officer |
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| |
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| |
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| |
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| By: |
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Exhibit 10.13
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT effective as of October
1, 2012 (the “Agreement”) by and among Millennium Biotechnologies, Inc., a Delaware corporation (“Company”),
Inergetics, Inc. a Delaware corporation (“Inergetics”) and James Kras (the “Executive”).
WHEREAS, Executive had significant business
experience; and
WHEREAS, Company desires to secure the services
of the Executive, and the Executive desires to be employed by Company in the capacity of Chief Marketing Officer.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements hereinafter set forth and for other good and valuable consideration the sufficiency of which is hereby
acknowledged, Company, Inergetics and the Executive hereby agree as follows:
| 1.1 | Employment. During the term of this Agreement, as defined in Section 1.2 hereof (the “Term”), Company shall
employ the Executive, and the Executive shall render services to Company as its Chief Marketing Officer and shall report directly
to the Chief Executive Officer of Company and Inergetics. The Executive shall have such duties as are consistent with the position
of Chief Marketing Officer. Executive shall devote his full time performance of his duties under this Agreement and shall perform
them faithfully, diligently and competently. The Executive represents and warrants that neither the execution by him of this Agreement
nor the performance by him of his duties and obligations hereunder will violate any agreement to which he is a party or by which
he is bound. |
| 1.2 | Term of Employment. Unless earlier terminated as provided in this Agreement, the term of Executive’s employment
under this Agreement (the “Term”) shall commence on the date hereof) the “Effective Date”) and continue
until September 30, 2017. |
| 2.1 | Base Salary. Company shall pay to Executive throughout the Term an annual salary (the “Base Salary”) at
a rate of $150,000 per annum, payable bi-weekly during the Term, with such increases as may be provided in accordance with the
terms hereof. In addition to any other increase of the Base Salary as provided herein, annual Base Salary shall be increased by
mutual agreement of the parties in each year of the Term. |
| 2.2 | Bonus. In addition to the Base Salary, in the sole discretion of the Board, Executive may be entitled to an annual bonus
(the “Bonus”). |
| 2.3 | Warrant Grant. Executive shall be issued 2,000,000 cashless warrants to acquire such number of shares of the Company’s
common stock, as of October 1, 2012. The warrants in the amount of 1,000,000 immediately on the date of grant. The balance will
vest in the amount of 250,000 at the end of each calendar quarter. The warrants will be fully vested on September 30, 2013. The
warrants will expire on September 30, 2017. |
| 3.1 | General Fringe Benefits. Executive shall be entitled to participate in the life, hospitalization, health, accident and
disability insurance plans, health programs, pension plans, and other benefit and compensation plans, which are or which may become
generally available to senior executives of the Company from time to time. |
| 3.2 | Reimbursements. Company shall pay or reimbursement Executive for all reasonable expenses actually incurred or paid by
Executive during the Term in the performance of Executive’s duties to Company upon presentation by Executive of expense statements
or vouchers. |
| 3.3 | Vacation. The Executive shall be entitled to fifteen (15) days paid vacation each year during the Term in accordance
with the applicable policies of Company. |
| 4. | TERMINATION OF EMPLOYMENT |
| 4.1 | Death. Executive’s employment shall terminate upon his death, and in such event, the estate or other legal representative
of Executive shall be entitled to receive (a) Executive’s Base Salary for a period equal to the lesser of (i) three months
from the date of death or (ii) the balance of the Term; (b) all compensation and any Options or Warrants which have been granted
to the Executive and vested as of the date and benefits that are accrued and unpaid as of the date of death. |
| 4.2 | Termination by Company. Executive’s employment may be terminated at the option of the Company by notice to Executive
(i) as a result of Executive’s disability as provided in Section 4.3 hereof, or (ii) for “cause” as defined and
provided in Section 4.4 hereof. |
| 4.3 | Disability. As used in this Agreement, the term “disability” shall mean a physical or mental disability
or incapacity, whether total or partial, of Executive that, in the good faith determination of Company’s Board of Directors
or based upon reasonably competent medical advice, has prevented him from performing substantially all of his duties under this
Agreement during a period of 30 days during twelve month period. If Company shall terminate Executive’s employment pursuant
to this Section 4.3, Executive shall be entitled to continue to receive his Base Salary for a period of three months from the date
of termination (but not exceeding the balance of the Term), as well as (A) all compensation and benefits that are accrued and unpaid
as of the date of disability; and (B) any Options or Warrants which have been granted and have vested to the Executive. |
| 4.4 | Discharge for Cause. If Executive (a) neglects his duties hereunder in a material manner and such neglect shall not
be discontinued within (5) business days after written notice to Executive; (b) is convicted of a felony or other crime involving
fraud, moral turpitude or material loss to Company; (c) materially breaches his affirmative or negative covenants or undertakings
hereunder and such breach shall not be remedied within (5) business days after written notice to Executive thereof; or (d) in bad
faith, commits any act or omits to take any action, to the material detriment of Company; then Company may at any time by notice
terminate Executive’s employment hereunder for “cause”; and Executive shall have no right to receive any compensation
of benefit from Company hereunder on and after the effective date of such notice, except for his Base Salary through the date of
termination; Bonus that is accrued and unpaid as of the date of termination; and Options and Warrants which have been granted to
the Executive and vested as of the date of Termination. |
Termination by Executive for
Good Reason. In the event of: (a) sale of all or substantially all the ownership interests or assets of Company, (b) a merger or
consolidation of Company with any other corporation or entity in which the shareholders of Company own less than 51% of the stock
of the controlling or surviving entity following such merger or consolidation; (c) a material reduction in the nature or scope
of Executive’s titles, authorities, powers, duties or responsibilities hereunder; or (d) unless such removal occurs after
the termination of Executive’s employment for “cause”, then Executive may at any time by notice terminate Executive's
employment hereunder for “good reason”. In the event of such termination or in the event Company shall terminate the
Executive’s employment without cause, Company shall pay to Executive (i) his Base Salary through the date of the end of the
contract term or end of the extension period should the termination without cause occur during an extension period, (ii) Bonus
that is accrued and unpaid as of the date of termination; and (iii) any Options which have been granted to the Executive as of
the date of Termination.
4.5 Termination Benefits.
Upon the expiration of the Term or the termination of Executive's employment for any reason hereunder, the rights and benefits
of Executive under Company's employee benefit plans and programs shall be determined in accordance with the provisions of such
plans and programs.
5. PROHIBITED ACTIVITIES
5.1. Non-competition.
During the Non-Compete Period, Executive shall not directly or indirectly compete with, be engaged in the business of, be employed
by, act as a consultant to, or be a director, officer, employee, owner or partner of, any person or entity which is engaged in
the primary business of Company at such time and in the territories served by Company in such business during the period of employment.
5.2. Solicitation of Employees.
During the Non-Compete Period, Executive shall not directly or indirectly employ, or solicit to leave Company's employ, or solicit
to join the employ of another person or entity (including any such person or entity owned or controlled, directly or indirectly,
by Executive) any employee of Company or any person who has been such an employee during the twelve months preceding Executive's
date of termination.
5.3. Confidential Information.
During and at all times subsequent to the Term, Executive shall keep secret and shall not exploit or disclose or make accessible
to any person or entity, except in furtherance of the business of Company, and except as may be required by law or legal process,
any confidential business information of any type that was acquired or developed by either Company or any of its subsidiaries or
affiliates, or Executive, prior to or during the Term. In addition, the term “confidential business information” shall
not include information which (a) is or becomes generally available to the public other than as a result of a disclosure by Executive;
or (b) was available to Executive prior to any employment by Company as a result of his general business experience.
5.4. Divisibility.
The provisions contained in this Section 5 as to the time period and scope of activities restricted shall be deemed divisible,
so that if any provision contained in this Section is determined to be invalid or unenforceable, that provision shall be deemed
modified so as to be valid and enforceable to the full extent lawfully permitted.
5.5. Relief. Executive
acknowledges that the provisions of this Section are reasonable and necessary for the protection of Company and that Company will
be irreparably damaged if such covenants are not specifically enforced. Accordingly, it is agreed that Company will be entitled
to injunctive relief for the purpose of restraining Executive from violating such covenants (and no bond or other security shall
be required in connection therewith), in addition to any other relief to which Company may be entitled.
6.1. General. Any and
all formulations, devices, materials, technology or other inventions (collectively “Inventions”) made, developed
or created by the Executive (whether at the request or suggestion of Company or otherwise, whether alone or in conjunction with
others, and whether during regular hours of work or otherwise) during the Term, will be promptly and fully disclosed by the Executive
to Company and shall be Company’s exclusive property. The Executive will promptly deliver to Company all papers, drawings,
models, data and other material relating to any Invention made, developed or created by him as aforesaid. The Executive acknowledges
that any Inventions developed, made, or created by the Executive during the Term shall be deemed “Works for Hire” and
that Company shall have the exclusive right to copyright, patent or otherwise protect such Inventions. Executive agrees to assign
to Company its successors, legal representatives and assigns all rights, including patent rights, in and to any such Inventions
and further agrees to cooperate with Company if Company pursues patent protection for such Inventions. Specifically, and without
limitation, Executive agrees to communicate to Company any facts known to the Executive respecting said Invention, to sign all
lawful papers, to execute all divisional, continuing and reissue applications, to make all declarations and to generally do everything
possible to assist Company to obtain and to enforce patent rights for said Invention in the United States and abroad.
7. MISCELLANEOUS
7.1. Survival. The
covenants and agreements set forth in this Agreement shall survive Executive’s termination of employment.
7.2. Headings. The
Section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation
of this Agreement.
7.3. Assignment. This
Agreement shall not be assignable by Executive without the prior written consent of Company, and shall inure to the benefit of
and be binding upon Executive and his legal representatives.
7.4. Governing Law.
This Agreement shall be governed by and construed in accordance with the law of the State of New Jersey applicable to agreements
made and to be performed in that State, without reference to its principles of conflicts of law.
7.5. Arbitration; Consent
to Jurisdiction. Any controversy or claim arising out of or relating to this Agreement including, without limitation, the interpretation
or the breach thereof, shall be settled by arbitration in the City, County and State of New Jersey in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then obtaining, and judgment upon the award rendered by a panel of three
(3) Arbitrators may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, this agreement to arbitrate
shall not bar either party from seeking temporary or provisional remedies in any Court having jurisdiction thereof. Company and
Executive hereby consent and submit to the personal jurisdiction of the United States District Court for the District of New Jersey
and any New Jersey State court of competent jurisdiction located in Bergen County, New Jersey in any suit, action or proceeding
(other than as provided in the first sentence of this Section) arising out of or relating to this Agreement.
7.6. Notices. All notices,
requests, demands and other communications (collectively, “Notices”) that are required or may be given under this Agreement,
shall be in writing, signed by the party or the attorney for that party. All Notices shall, except as otherwise specifically provided
herein to the contrary, be deemed to have been duly given or made: if by hand, immediately upon delivery; if by telecopier or similar
device, immediately upon sending, provided notice is sent on a business day during the hours of 9:00 a.m. and 6:00 p.m. E.S.T.,
but if not, then immediately upon the beginning of the first business day after being sent; if by Federal Express, Express Mail
or any other overnight delivery service, one day after being placed in the exclusive custody and control of said courier; and if
mailed by certified mail, return receipt requested, five (5) business days after mailing. All notices are to be given or made to
the parties at the following addresses (or to such other address as either party may designate by notice in accordance with the
provisions of this Section):
If to Company or Subsidiary
at:
Inergetics, Inc.
205 Robin Road
Paramus, NJ 07652
Telephone: 908-604-2500
Facsimile: 201-262-1313
If to Executive at:
James Kras
_______
_______
Telephone: ________________
Fax: ______________________
7.7. Enforceability.
If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.
7.8. Waiver. The failure
of a party to this Agreement to insist on any occasion upon strict adherence to any term of this Agreement shall not be considered
to be a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be in writing.
7.9. Complete Agreement.
This Agreement supersedes any prior or contemporaneous agreements between the parties with respect to its subject matter, is intended
as a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter, and
cannot be changed or terminated orally.
7.10. Indemnification.
In the absence of Company’s ability to provide Directors and Officers Insurance, Company will hereby indemnify and hold-harmless
the Executive from any claims or litigation which would normally protect the Executive under the umbrella of a standard Directors
and Officers Insurance policy
7.11. Entire Agreement;
Amendment. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings between or among Inergetics, Company and the Executive,
including the Prior Agreement. The Agreement may be amended at any time by mutual written agreement of the parties hereto.
7.12. Withholding.
Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to the Executive in connection with his employment hereunder.
8. SECTION 409A.
8.1. General. The
parties acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and the parties
agree to use their best efforts to achieve timely compliance with Section 409A, including without limitation any such regulations
or other guidance that may be issued after the date hereof. Notwithstanding any provision of this Agreement to the contrary, in
the event that Company determines that any compensation or benefits payable or provided under this Agreement may be subject to
Section 409A, Company may adopt (without any obligation to do so or to indemnify the Executive for failure to do so) such limited
amendments to this Agreement and appropriate policies and procedures, including amendments and policies with retroactive effect,
that Company reasonably determines are necessary or appropriate to (i) exempt the compensation and benefits payable under this
Agreement from Section 409A and/or preserve the intended tax treatment of the compensation and benefits provided with respect to
this Agreement or (ii) comply with the requirements of Section 409A.
8.2. Separation from Service
under 409A. Notwithstanding any provision to the contrary in this Agreement:
(a) No amount shall be payable
pursuant to Section 4.5 unless the termination of Executive’s employment constitutes a “separation from service”
within the meaning of Section 1.409A-1(h) of the Department of Treasury Regulations; and
(b) If the Executive is deemed
at the time of his separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of
the Code, to the extent delayed commencement of any portion of the termination benefits to which the Executive is entitled under
this Agreement (after taking into account all exclusions applicable to such termination benefits under Section 409A), including,
without limitation, any portion of the additional compensation awarded pursuant to Section 4.5, is required in order to avoid a
prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of the Executive’s termination benefits
shall not be provided to the Executive prior to the earlier of (A) the expiration of the six-month period measured from the date
of the Executive’s “separation from service” with Company (as such term is defined in the Department of Treasury
Regulations issued under Section 409A of the Code) or (B) the date of the Executive’s death. Upon the earlier of such dates,
all payments deferred pursuant to this Section 8.2(b) shall be paid in a lump sum to the Executive, and any remaining payments
due under the Agreement shall be paid as otherwise provided herein; and
(c) The determination of whether
the Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his
separation from service shall be made by Company in accordance with the terms of Section 409A of the Code and applicable guidance
there under (including, without limitation, Section 1.409A-1(i) of the Department of Treasury Regulations (and any successor provision
thereto); and
(d) For purposes of Section
409A, the Executive’s right to receive installment payments pursuant to Section 4.5 shall be treated as a right to receive
a series of separate and distinct payments.
[Signature page follows]
IN WITNESS WHEREOF, Company and Inergetics
have caused this Agreement to be duly executed by their authorized representatives and the Executive has hereunto set his hand,
in each case effective as of the day and year first above written.
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INERGETICS, INC. |
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MILLENNIUM BIOTECHNOLOGIES, INC. |
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By: |
s/ |
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Michael C. James, CEO |
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EXECUTIVE: |
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s/ |
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James Kras |
Exhibit 10.14
Asset Purchase Agreement
THIS ASSET PURCHASE AGREEMENT (“Agreement”) is made
on January 9, 2013 by and between Whole Products LLC, P.O. Box 333, Highlands, New Jersey 07732, (the “Whole Products”),
and Millennium Biotechnologies, Inc. (“Millennium”) a wholly owned subsidiary of Inergetics, Inc. (“Inergetics”)
both Millennium and Inergetics are located at 205 Robin Road, Suite 222, Paramus, New Jersey 07652.
RECITALS
Whole Products-Selling Entity
Whole Products is a Limited Liability Company duly organized,
validly existing and in good standing under the laws of New Jersey.
Millennium-Purchasing Entity
Millennium is a Corporation duly organized, validly existing
and in good standing in the under the laws of Delaware.
ASSET PURCHASE
Subject to the terms and conditions of this Agreement, on the
Effective Date mentioned above, Whole Products shall sell the assets listed below free of encumbrances’ and liens to Millennium.
Effective Date of Asset Purchase
The Asset Purchase shall be effective on the date which this
agreement is fully executed.
Assets of Whole Products
The managing member of Whole Products agrees that the assets
listed below will be acquired by Millennium:
| - | Trademark of Bikini Ready |
| § | www.bikinireadylifestyle.com |
Terms of Asset Purchase
On the effective date of the Asset Purchase, Millennium Biotechnologies,
Inc. a wholly owned subsidiary of Inergetics, Inc. will take ownership of the assets listed above pursuant to the following terms
and conditions:
| · | $75,000 to be paid upon the receipt of the funding from the sale of
the New Jersey Net Operating Loss Carry forward. Approximate date of receipt would be by the end of January 2013. |
| · | $25,000 to be paid when the acquired assets have generated accumulated
sales of $250,000. |
| · | 8,000 shares of Series G stock upon closing. The Series G has
a stated value of $50 per share and each share is convertible into 250 shares of common stock (NRTI). The Series G stock
pays a 2.5 % quarterly dividend (10% annually) which is based on ninety percent of the last 10 trading days prior to the last trading
day of the month. The stated value of the shares that will be issued is $400,000 ($50 x 8,000 Series G Preferred shares)
per Schedule A. |
| · | There is a holding period of six months from the date of closing before
any of the common stock could be sold in the open market. |
INTERPRETATION AND ENFORCEMENT
Notices
Any notice, request, demand or other communication require or
permitted under this Agreement may be delivered in person, deliver by certified mail, return receipt requested or delivered by
facsimile transmission. Deliveries by certified mail or by facsimile transmission will be sent to the address of the respective
party as first indicated above or as may be updated in the future in writing by either party.
Counterpart Executions
This agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
Partial Invalidity
If any term of this agreement is held by a court of competent
jurisdiction to be void and unenforceable, the remainder of the contract terms shall remain in full force and effect.
Applicable Law
The validity, interpretation and performance of this agreement
shall be controlled by and construed under the laws of the State of New Jersey.
Approvals
The office bearers and members of each constituent entity to
this Asset Purchase Agreement have approved by the voting percentages required by articles, operating agreement and the law the
terms and conditions of this Agreement.
In witness of the mutual promises made above, Whole Products
and Inergetics have executed this Asset Purchase Agreement on the date first stated above.
Whole Products, LLC
| Inergetics, Inc. |
Millennium Biotechnologies, Inc. |
| s/ |
|
s/ |
| Michael C. James |
|
Michael C. James |
| Chief Executive Officer |
|
Chief Executive Officer |
| Chief Financial Officer |
|
Chief Financial Officer |
Schedule A
| Shareholder | |
Shares of Series G | |
| James Kras | |
| 3,600 | |
| Marshall Post | |
| 2,800 | |
| Dario Pressimone | |
| 1,200 | |
| Thelma Goldberg | |
| 400 | |
| Total | |
| 8,000 | |
Exhibit “21”
SUBSIDIARIES
Millennium Biotechnologies, Inc., a Delaware corporation.
EXHIBIT 31.1
Certifications pursuant to Securities
and Exchange Act of 1934
Rule 13a-14 as adopted pursuant
to Section 302 of Sarbanes-Oxley Act of 2002
I, Michael C. James, certify that:
1. I have reviewed this annual report on Form 10-K
of the Registrant;
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 presented 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-a5(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-a5(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 the 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. |
| (d) | Disclosed in this report any change in the Registrant's internal control over financial 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; and |
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 involves management
or other employees who have a significant role in the Registrant's internal controls over financial reporting. |
| Date: April 15, 2015 |
By: |
/s/ Michael C. James |
| |
|
Chief Executive Officer |
| |
|
Chief Financial Officer |
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
the Annual Report of Inergetics, Inc. (the "Company") on Form 10-K for the year ended December 31, 2014 (the "Form
10-K"), I, Michael C. James, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, that the Company's Form 10-K fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-K, fairly presents,
in all material respects, the financial condition and results of operations of the Company.
| Dated: April 15, 2015 |
/s/ Michael C. James |
| |
Michael C. James |
| |
Chief Executive Officer |
| |
Chief Financial Officer |