NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Nature and Continuance of Operations
Janus Resources, Inc. (the “Company”, “we”, “us”, and “our”) is in the business of developing and, if warranted, commercializing organ regeneration technologies. The Company was previously involved in the exploration and development of both mineral exploration properties and oil and gas properties. The Company sold its oil and gas properties on February 18 and 19, 2013. Effective February 19, 2013, the Company became a development stage company.
On July 29, 2013, our Board of Directors approved the disposition of our Fostung tungsten mineral properties located in Canada (the “Fostung Property”).
Management is evaluating alternatives for the disposition of these mineral exploration assets. The properties may not be disposed of by sale and therefore are classified as assets held and used during the periods presented.
On July 12, 2013, we, together with our
wholly owned subsidiary, Janus Acquisition Corp., a Nevada corporation (“JAC”), entered into an asset purchase agreement with Dr. Jörg Gerlach, MD, PhD, (the "Asset Purchase Agreement"), pursuant to which JAC purchased all of Dr. Gerlach’s rights, title and interest to an organ regeneration technology (collectively, the “Regeneration Technology”). The Company plans to further the development of the Regeneration Technology and, if commercially viable, bring the product to market for use in a variety of applications.
The Company has recently incurred net operating losses and operating cash flow deficits. The Company’s total accumulated deficit is $4,585,897 as of June 30, 2013. The Company does not currently generate revenues and will continue to incur losses from operations and operating cash flow deficits in the future. Management believes that the Company’s cash and cash equivalent balances, anticipated cash flows from operations and other external sources of capital will be sufficient to meet its cash requirements for the next six months. The future of the Company after December 2013 will depend in large part on its ability to successfully raise capital from external sources to fund operations.
2. Significant Accounting Policies
Basis of Presentation and Principles of Accounting
As the Company is devoting substantially all of its efforts to establishing a new business, and while planned principal operations have commenced, there has been no revenue generated from sales, license fees or royalties, and as such, the Company is considered a development stage company. Accordingly, the Company’s consolidated financial statements are presented in accordance with authoritative accounting guidance related to a development stage enterprise.
The interim consolidated financial statements included herein have been prepared by the Company, without audit, in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) pursuant to Part 210 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.
In management’s opinion, the unaudited consolidated financial statements contained herein reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of our financial position, results of operations, and cash flows on a basis consistent with that of our prior audited consolidated financial statements. The Company has evaluated information about subsequent events that became available to them through the date the financial statements were issued. This information relates to events, transactions or changes in circumstances that would require us to adjust the amounts reported in the financial statements or to disclose information about those events, transactions or changes in circumstances. However, the results of operations for interim periods may not be indicative of results to be expected for the full fiscal year. Therefore, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements including the notes thereto for the year ended December 31, 2012, which may be found under the Company’s profile on EDGAR.
The accounting policies followed by the Company are set out in Note 2 to the audited consolidated financial statements for the year ended December 31, 2012 and have been consistently followed in the preparation of these interim consolidated financial statements.
Principles of Consolidation
These interim consolidated financial statements have been prepared in accordance with US GAAP and include the accounts of the Company and its wholly-owned subsidiaries, JAC, Fostung Resources, Limited (“Fostung”) and Entheos Energy, Inc. (“Entheos”). Collectively, they are referred to herein as “the Company.” All significant intercompany transactions and balances have been eliminated. JAC was incorporated under the laws of the State of Nevada on June 12, 2013. Fostung was incorporated on May 10, 2011, in Ontario Canada. Entheos was incorporated under the laws of the State of Nevada on October 5, 2000.
Applicable Accounting Guidance
Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative non-governmental US GAAP as found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).
Accounting Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results, as determined by future events, may differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents at June 30, 2013 and December 31, 2012.
Research and Development Costs
The Company intends to outsource its research and development efforts and expenses related costs as incurred, including the cost of manufacturing product for testing, licensing fees and costs associated with planning and conducting clinical trials. The value ascribed to patents and other intellectual property acquired will be capitalized if or when it relates to particular research and development projects that may have alternative future uses.
Stock Options
The Company measures all stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period. The Company uses the Black-Scholes pricing model to determine the fair value of stock-based compensation awards on the date of grant. The Black-Scholes pricing model requires management to make assumptions regarding option lives, expected volatility, and risk free interest rates.
Income Taxes
The Company recognizes income taxes on an accrual basis based on tax position taken or expected to be taken in our tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized. Should they occur, our policy is to classify interest and penalties related to tax positions as interest expense. Since our inception, no such interest or penalties have been incurred.
Discontinued Operations
The assets and financial results of the Company’s oil and gas properties are being reported as discontinued operations as a result of the sale thereof in February 2013. Certain amounts reported in the prior periods presented have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported net income (loss). See “Note 3. Discontinued Oil and Gas Operations” for a summary of the amounts reclassified for the periods presented herein.
Earnings (Loss) Per Share
The Company presents both basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period presented. Diluted EPS amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period presented. Potentially dilutive shares of common stock consisted of 350,000 and 350,000 common stock options for the three and six month periods ended June 30, 2013, respectively. There were no potentially dilutives shares outstanding for the three and six month periods ended June 30, 2012. During the periods presented, potentially dilutive shares of common stock were not included in the computation of dilutive loss per share as to do so would be anti-dilutive.
Foreign Currency Translation
Transactions and account balances originally stated in currencies other than the U.S. dollar have been translated into U.S. dollars as follows:
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Revenue and expense items are translated at the average exchange rate for the period in which they are incurred.
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·
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Non-monetary assets and liabilities at the rate of exchange in effect on the dates the assets were acquired or the liabilities were incurred.
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·
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Monetary assets and liabilities at the exchange rate at the balance sheet date.
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Exchange gains and losses are recorded in operations in the period in which they occur, except for exchange gains and losses related to translation of monetary assets and liabilities associated with mineral properties, which are deferred and included in mineral properties.
Comprehensive Income (Loss)
Comprehensive loss is comprised of net loss and foreign currency translation adjustments for the periods presented.
Related Party Transactions
A related party is generally defined as (i) any person who holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone who directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. See “Note 7. Related Party Transactions” for further discussion.
3. Discontinued Oil and Gas Operations
On February 18, 2013, we completed the sale of our working interest in the Onnie Ray #1, Haile #1, Pearce #1 and Stahl #1 oil wells. We entered into an Assignment Agreement with Leexus Oil LLC, the wells operator, whereby the Company assigned its right, title and interest in the oil, gas and mineral leases and the oil and gas wells. Consideration for the assignment was the assumption of all outstanding liabilities and assumption of all future payments for any and all work performed on the wells.
On February 19, 2013, we completed the sale of our working interest in the Cooke #6 well. We entered into an Assignment Agreement with Millennium Petro-Physics, the well operator, whereby we assigned the right, title and interest in the oil, gas and mineral leases and the oil and gas wells. Consideration for the assignment was $3,000 cash.
The carrying amount of the oil and gas properties was $24,127 on the date of disposal. The related asset retirement obligation amounted to $57,532 and liabilities assumed amounted to $12,932. Including the $3,000 cash received, the Company recognized a gain of $49,337 in the six month period ended June 30, 2013, as a result of the disposal.
The Company’s revenue, reported in discontinued operations, for the three and six months ended June 30, 2013 were $0 and $0, respectively, and for the three and six months ended June 30, 2012 were $3,462 and $9,515, respectively. The Company’s net income (loss) reported in discontinued operations for the three and six months ended June 30, 2013 was $0 and $49,337, respectively, and for the three and six months ended June 30, 2012 was $(662) and $35, respectively. The Company has not recognized any revenue nor incurred expenses with respect to its previously owned oil and gas properties since the sale of its oil and gas properties, and will not recognize any continuing cash flows with respect to these properties in future.
Assets and liabilities of discontinued operations in the accompanying balance sheets consist of the following:
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December 31, 2012
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Assets:
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Unproven Properties
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$
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537,501
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Depreciation and impairment
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(513,374
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)
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Oil and gas properties, net
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$
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24,127
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Liabilities:
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|
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Accounts payable
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$
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(12,932
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)
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Asset retirement obligation
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(57,532
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)
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$
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(70,464
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)
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4. Mineral Properties and Exploration Expenses
Foster Township, Sudbury, Ontario, Canada - Fostung Tungsten Property
(a)
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On June 8, 2011, pursuant to an asset purchase agreement, the Company paid CAD $500,000 in cash for the acquisition of EMC Metals Corp.’s 100% leasehold interest in two mining leases known as the Fostung Property. The Fostung Property consists of two contiguous claim blocks of 30 claims totaling 485 hectors. The nine claims covered by Mining Lease 108592 expire on October 31, 2031. The twenty-one claims covered by Mining Lease 108847 have been extended by the Ministry of Northern Development, Mines and Forestry (“MNDMF”) through March 31, 2032. The Fostung Property is located in Foster Township, Sudbury Mining Division, Ontario, Canada. It is approximately 8 kilometers southeast of the town of Espanola and 70 kilometers west-southwest of the town of Sudbury. An excellent all-weather gravel road extends from Espanola, crossing the property and providing access to the west bay of Lake Panache.
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A production bonus in the amount of CAD $500,000 is payable to Breakwater Resources Ltd. by the Company within thirty business days following the commencement of commercial production from the property. A 1% net smelter return royalty on the property is also payable to Breakwater Resources Ltd. by the Company. No capitalized costs have been amortized as of June 30, 2013. The Company did not incur any impairment of these capitalized costs through June 30, 2013.
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(b)
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The Fostung Property also consists of four unpatented mining claims, located in Foster Township in the Sudbury Mining Division, Ontario, Canada, comprised of 26 claim units, were recorded in the name of Fostung Resources Ltd. on June 7, 2011. Two of the four mining claim blocks consisting of two contiguous claims are located to the north east of the structural trend in the two contiguous claim blocks of 30 claims referred to in (a) above. Two of the four mining claim blocks consisting of two contiguous claims are located to the south west of the structural trend in the two contiguous claim blocks of 30 claims referred to in (a) above. Each of the four claims had an expiration date of June 7, 2013. On July 18, 2013, we filed an application for relief from forfeiture with the MNDMF to renew the leases. The aggregate amount required to be expended in order to renew the four claims is CAD $10,400.
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5. Common Stock Options
Approval of the 2013 Long-Term Incentive Plan
On June 20, 2013, the Board of Directors (the “Board”) adopted, subject to receiving shareholder approval, the 2013 Long-Term Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for the issuance of stock options of up to 20,000,000 shares (subject to adjustment) of the Company’s common stock to officers, directors, key employees and consultants of the Company and its subsidiaries. Options granted to employees under the Incentive Plan, including directors and officers who are employees, may be incentive stock options or non-qualified stock options; options granted to others under the Incentive Plan are limited to non-qualified stock options.
The Incentive Plan is administered by the Board or a committee designated by the Board. Subject to the provisions of the Incentive Plan, the Board has the authority to determine the officers, employees and consultants to whom options will be granted, the number of shares covered by each option, vesting rights and the terms and conditions of each option that is granted to them; however, no person may be granted in any of the Company’s fiscal year, options to purchase more than 2,000,000 shares under the Incentive Plan, and the aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year cannot exceed $100,000. Options granted pursuant to the Incentive Plan are exercisable no later than ten years after the date of grant.
The exercise price per share of common stock for options granted under the Incentive Plan will be the fair market value of the Company’s common stock on the date of grant, using the closing price of the Company’s common stock on the last trading day prior to the date of grant, except for incentive stock options granted to a holder of ten percent or more of the Company’s common stock, for whom the exercise price per share will not be less than 110% of the fair market value. No option can be granted under the Incentive Plan after June 20, 2023.
As of June 30, 2013, there were 19,650,000 shares available for grant.
Stock Option Activity
The following table summarizes stock option activity for the six months ended June 30, 2013.
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Options
Outstanding
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Weighted Average Exercise Price
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Weighted Average Remaining Contractual Life (Years)
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Aggregate
Intrinsic Value
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Balance, December 31, 2012
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-
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$
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-
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-
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$
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-
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Option granted
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350,000
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0.72
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Options cancelled
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-
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-
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Options exercised
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-
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|
|
-
|
|
|
|
|
|
Balance June 30, 2013
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350,000
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|
$
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0.72
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|
10
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$
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-
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|
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Exercisable at June 30, 2013
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-
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The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. The estimated weighted-average fair value of stock options granted during the six month period ended June 30, 2013 was approximately $0.40 per share. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required for the Black-Scholes model. The volatility assumption is based on the Company’s historical experience. The risk-free interest rate is based on a U.S. treasury note with a maturity similar to the option award’s expected life. The expected life represents the average period of time that options granted are expected to be outstanding. The assumptions for volatility, expected life, dividend yield and risk-free interest rate are presented in the table below:
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2013
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Weighted average risk-free interest rate
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0.62%
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Expected life in years
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10 Years
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Weighted Avg Expected volatiltiy
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|
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87.1%
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Expected dividend yield
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$0
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During the three and six month periods ended June 30, 2013, stock-based compensation expense of $829 and $829, respectively, was recognized as general and administrative expenses. There were no stock options outstanding, vested or unvested, during three and six months ended June 30, 2012, so there was no compensation expense recognized. As of June 30, 2013, the Company had $58,948 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of approximately 2.98 years.
The Company issues new shares when options are exercised.
6. Commitments and Contingencies
As part of the acquisition of the Fostung Property the Company will pay to Breakwater Resources Ltd. (i) a Production Bonus in the amount of CAD $500,000 within thirty (30) business days following the commencement of commercial production from the property and (ii) a 1% Net Smelter Return royalty.
On June 27, 2012, the Company entered into an At-Will Executive Services Agreement (the “Bien Services Agreement”) with Ms. Janet Bien, pursuant to which Ms. Bien will serve as the Company’s Chief Financial Officer. Pursuant to the Bien Services Agreement, Ms. Bien will provide the Company with services consistent with that of a Chief Financial Officer on a part-time basis, for which she will be paid a monthly fee of $2,400 and will be reimbursed for any business related expenses. The Bien Services Agreement is terminable by either the Company or Ms. Bien upon written notice with or without cause.
On February 15, 2013, the Company entered into an agreement with Kenneth Kirkland, Ph.D. (the “Kirkland AB Agreement”) pursuant to which Dr. Kirkland will serve as a member of the Company’s Advisory Board. The Kirkland AB Agreement provides for a monthly fee of $2,000 and may be terminated by either party with a five day notice. The Kirkland AB Agreement was terminated effective as of June 30, 2013.
See also “Note 7. Related Party Transactions”.
7. Related Party Transactions
On January 12, 2012, Mr. Cacace resigned from the positions of President, Chief Executive Officer, Chief Financial Officer and Director of the Company and Mr. Derek Cooper was appointed to the positions of President, Chief Executive Officer, Chief Financial Officer and Director of the Company. On June 18, 2012, Mr. Derek Cooper resigned as the Company’s President, Chief Executive Officer, Chief Financial Officer and Director.
Effective as of June 19, 2012, Mr. Joseph Sierchio, one of the Company’s directors, was appointed as its Acting Interim President and Chief Executive Officer; and effective as of June 27, 2012, Ms. Janet Bien was appointed as the Company’s Chief Financial Officer.
On June 20, 2013, Mr. Joseph Sierchio, resigned as the Acting Interim President and Chief Executive Officer and remains a director; Ms. Rhonda B. Rosen was appointed to serve as the President and Chief Executive Officer
and a member of our Board and entered into an employment agreement for a two year term (the “Rosen Employment Agreement”), subject to the earlier termination provisions contained therein. Pursuant to the terms of the Rosen Employment Agreement, Ms. Rosen is paid an annual salary of $120,000. In addition to Ms. Rosen’s salary, she is eligible to receive a cash bonus to be determined by our Board, in their sole discretion. The Rosen Employment Agreement also provides Ms. Rosen with a monthly stipend of no more than $1,500 to cover medical insurance premiums until such time as the Company can make available an alternative medical insurance plan.
In the event Ms. Rosen’s employment with the Company is terminated other than “For Cause,” as defined in the Rosen Employment Agreement, Ms. Rosen is eligible to receive a severance payment equal to one-half (1/2) of her monthly salary in effect on the date of termination for every one (1) month period that she has been employed by the Company after she has been employed for six (6) months pursuant to the Employment Agreement up to a maximum aggregate payment equal to three (3) monthly payments.
Subject to her entry into a non-statutory stock option agreement with us, Ms. Rosen was issued incentive stock options to purchase up to 350,000 shares of the Company’s common stock at an exercise price of $0.72 per share, the closing price of the Company’s common stock as quoted on the OTC Markets Group Inc. QB tier on June 19, 2013, pursuant to the Incentive Plan. Subject to her continued employment by the Company, 150,000 of the option shares vest in equal installments on the first, second and third anniversary of Ms. Rosen’s employment and the remaining 200,000 option shares vest upon Ms. Rosen meeting certain milestones, as determined by the Board in its sole discretion.
On August 1, 2013, the Board appointed Dr. Kenneth Kirkland to serve as a member of the Board. Prior to this appointment, Dr. Kirkland resigned from Company’s Advisory Board. See “Note 6. Commitments and Contingencies.”
As compensation for their service on the Board, Dr. Kirkland and Mr. Sierchio will receive an annual retainer of $6,000, payable in equal quarterly installments in arrears and prorated for any partial quarters of service. Additionally,
subject to their entering into a non-statutory stock option agreement with us, Dr. Kirkland and Mr. Sierchio were each issued incentive stock options to purchase up to 20,000 shares of our common stock at an exercise price of $0.65 per share, the closing price of the Company’s common stock as quoted on the OTC Markets Group Inc. QB tier on July 31, 2013, pursuant to the Incentive Plan. Subject to their continued service as a member of the Board, 10,000 of the option shares vest immediately and 10,000 of the option shares vest on the first anniversary of date of grant.
For the three and six month periods ended June 30, 2013, fees of $10,867 (2012: $7,500) and $18,067 (2012: $16,689), respectively, were paid or are due to officers of the Company. Included in accounts payable - related parties at June 30, 2013 is $6,067 (December 31, 2012: $7,200) for fees due to officers.
For the three and six month periods ended June 30, 2013 and 2012, advisory board fees of $6,000 (2012: $0) and $9,000 (2012: $2,000), respectively, were paid to non-officer directors of the Company. Included in accounts payable – related parties at June 30, 2013 is $2,000 (December 31, 2012: $0) for advisory fees.
For the three and six month periods ended June 30, 2013, legal fees of $45,965 (2012: $32,222) and $84,939 (2012: $44,966) were paid or are due to a company controlled by our director, Mr. Sierchio. Included in accounts payable - related parties at June 30, 2013 is $22,500 (December 31, 2012: $2,438) for legal fees.
8. Subsequent Events
On July 12, 2013, we, together with our
wholly owned subsidiary, JAC, entered into an Asset Purchase Agreement with Dr. Jörg Gerlach, MD, PhD, pursuant to which JAC purchased all of Dr. Gerlach’s rights, title and interest in the Regeneration Technology. The Company plans to further the development of the Regeneration Technology and, if commercially viable, bring the product to market for use in the treatment of burns, wounds and other dermatological needs. Pursuant to the terms of the Asset Purchase Agreement, upon the closing of the transaction, the Company paid Dr. Gerlach an agreed upon initial cash sum and issued to Dr. Gerlach a Series A Stock Purchase Warrant (the “Series A Warrant”) entitling him to purchase shares of the Company’s common stock, subject to vesting milestones through July 11, 2019, at an exercise price of $0.35 per share. An additional agreed upon cash sum will be paid to Dr. Gerlach upon the Company attaining certain milestones related to the Regeneration Technology. The Company is in the process of valuing the Series A Warrant.
As part of the Company’s acquisition of the Regeneration Technology, the Company agreed to pay Vector Asset Management, Inc. (“Vector”) a finder’s fee in the amount of $47,000 (the “Cash Fee”) within sixty (60) days of the closing of the acquisition of the Regeneration Technology (the “Closing Date”). Vector may elect to receive the Cash Fee, or a portion thereof, by accepting a convertible promissory note (the “Vector Note”) in the principal amount of any or all of the Cash Fee otherwise payable and bearing interest at the rate of seven percent (7%) per annum, payable upon the earlier of December 14, 2014, or upon demand in the event that the Company shall have effected a financing or series of financings in excess of $1,000,000. The Vector Note will be convertible into shares of the Company’s common stock at a price equal to the average closing prices of the Company’s common stock for the ten (10) trading days prior to the Closing Date.
On July 29, 2013, the Board approved the disposition of the Fostung Property. M
anagement is evaluating alternatives for the disposition of these mineral exploration assets.
On July 29, 2013, the Board appointed Dr. Kenneth Kirkland to serve as a member of the Board effective as of August 1, 2013. See also “Note 7. Related Party Transactions.”
On August 1, 2013, the Company engaged Vector to assist the Company with identifying subject matter experts in the medical device and biotechnology industries and to assist the Company with its ongoing research, development and, if warranted, commercialization of its Regeneration Technology (collectively, the “Services”). In consideration of the Services, the Company will pay Vector a monthly consulting fee of $5,000. The consulting agreement with Vector continues until December 31, 2014, unless earlier terminated by either party upon five days prior written notice.