RGIN Regenicin Inc (CE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A Development Stage Company)

  (UNAUDITED)

NOTE 1 - THE COMPANY  

Windstar, Inc. (the “Company”) was incorporated in the state of Nevada on September 6, 2007 and is in the development stage. On July 19, 2010, the Company amended its Articles of Incorporation to change the name of the Company to Regenicin, Inc. (“Regenicin”). In September 2013, Regenicin formed a new wholly-owned subsidiary for the sole purpose of conducting research in the State of Georgia (together, the “Company”). The subsidiary has no activity since its formation due to the lack of funding.

The Company’s original business was the development of a purification device.  Such business was assigned to the Company’s former management in July 2010.

The Company  has adopted a new business plan and intended to develop and commercialize a potentially lifesaving technology by the introduction of tissue-engineered skin substitutes to restore the qualities of healthy human skin for use in the treatment of burns, chronic wounds and a variety of plastic surgery procedures.

The Company entered into a Know-How License and Stock Purchase Agreement (the “Know-How SPA”) with Lonza Walkersville, Inc. (“Lonza Walkersville”) on July 21, 2010. Pursuant to the terms of the Know-How SPA, the Company paid Lonza Walkersville $3,000,000 and, in exchange, the Company was to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the U.S. Food and Drug Administration (“FDA”) for the commercial sale of technology held by the Cutanogen Corporation (“Cutanogen”), a subsidiary of Lonza Walkersville. Additionally, pursuant to the terms of the Know-How SPA, the Company was entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Under the Know-How SPA, once FDA approval was secured for the commercial sale of the technology, the Company would be entitled to acquire Cutanogen, Lonza Walkersville’s subsidiary, for $2,000,000 in cash.  

Unfortunately, after prolonged attempts to negotiate disputes with Lonza Walkersville failed, on September 30, 2013, the Company filed a lawsuit against Lonza Walkersville, Lonza Group Ltd. (“Lonza Group”) and Lonza America, Inc. (“Lonza America”) (collectively, the “Defendant”) in Fulton County Superior Court in the State of Georgia.

The Company alleges in the complaint that, because of the Defendant’s breaches and tortious conduct, that the Company lost fees paid to the Defendant, which the Defendant did not earn, and suffered consequential damages and lost opportunities. It should also be noted that the $3,000,000 initially paid to Lonza Walkersville, which was recorded as an intangible asset, has been fully written down in the accompanying consolidated financial statements as of September 30, 2013. See Notes 4 and 8.

Given the concerns about the expense of litigation, the Company negotiated a contingency-fee-based arrangement with the law firm that is representing it in this case.  The nature of the arrangement is such that the Company will not have to pay any attorney fees to the law firm unless and until the litigation is resolved in the Company’s favor.  If it loses the litigation, it will not be obliged to pay the firm any attorney fees.  If the Company prevails in the litigation, it will pay the law firm a percentage of the amount recovered from the Defendants.  The Company will, however, have the obligation to pay for the non-attorney fee costs associated with litigation.  Examples of those types of costs include court filing fees, copying costs, expert witness and other third-party vendor charges, travel costs, and so forth.  The Company believes that this contingency-fee arrangement will allow it to control and to minimize the total cost of pursuing this litigation.

The Company intends to continue to develop and gain FDA approval of cell therapy and biotechnology products separate from the Defendant’s patent, under the name PermaDerm ^® , while fully prosecuting the Defendant to regain the Company’s losses. The Company intends to develop and commercialize PermaDerm ^® , a potentially lifesaving technology, by the introduction of tissue-engineered skin substitutes to restore the qualities of healthy human skin for certain clinical indications. The Company developed its own cultured skin substitute after Lonza’s termination notice.

NOTE 2 - BASIS OF PRESENTATION

Interim Financial Statements:

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending September 30, 2014. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2013, as filed with the Securities and Exchange Commission.

Going Concern:

The Company’s consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred cumulative losses of approximately $13.5 million from inception, expects to incur further losses in the development of its business and has been dependent on funding operations through the issuance of convertible debt and private sale of equity securities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include continuing to finance operations through the private or public placement of debt and/or equity securities and the reduction of expenditures. However, no assurance can be given at this time as to whether the Company will be able to achieve these objectives. The consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Development Stage Activities and Operations:

The Company is in the development stage and has had no revenues.  A development stage company is defined as one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

Financial Instruments and Fair Value Measurement:

The carrying value of cash, prepaid expenses and other current assets, accounts payable, accrued expenses and all loans and notes payable in the Company’s consolidated balance sheets approximated their values as of March 31, 2014 and September 30, 2013 due to their short-term nature.

The Company issued notes payable that contained conversion features which were accounted for separately as derivative liabilities and measured at fair value on a recurring basis. Changes in fair value are charged to other income (expenses) as appropriate. The fair value of the derivate liabilities was determined based on Level 2 inputs utilizing observable quoted prices for similar instruments in active markets and observable quoted prices for identical or similar instruments in markets that are not very active. Derivative liabilities totaled $90,452 and $438,779 as of March 31, 2014 and September 30, 2013, respectively.

See Note 6 - Notes Payable - Convertible Promissory Notes for additional information.

Recent Pronouncements:

Effective January 1, 2014, the Company adopted Accounting Standards Update No. 2013-11, “ Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ” (“ASU 2013-11”). ASU 2013-11 is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update should be applied prospectively for annual and interim periods beginning after December 15, 2013. The adoption of ASU 2013-11 did not have a material effect on the Company’s consolidated financial statements.

Management does not believe that any of the recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.

Reclassifications:

Certain amounts of the September 30, 2013 consolidated balance sheet were reclassified to conform to the March 31, 2014 presentation.

NOTE 3 - LOSS PER SHARE

Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share give effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period, only in periods in which such effect is dilutive. The following securities have been excluded from the calculation of net loss per share, as their effect would be anti-dilutive:

NOTE 4 - INTANGIBLE ASSETS

Intangible assets, which include purchased licenses, patents and patent rights, are stated at cost and will be amortized using the straight-line method over their useful lives based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater.

In July 2010, the Company entered into an agreement with Lonza to purchase an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA for the commercial sale of PermaDerm®.

The Company made an initial payment of $3,000,000 to Lonza to purchase this exclusive know-how license and assistance in gaining FDA approval. In conjunction with Lonza, the Company's management intended to create and implement a strategy to conduct clinical trials and assemble and present relevant information and data in order to obtain the necessary approvals. The $3,000,000 payment was recorded as an intangible asset.

After prolonged negotiations, the Company has been unable to resolve contractual and other disputes with Lonza. As a result, on September 30, 2013, the Company filed a lawsuit against Lonza and related entities. The complaint alleges that Lonza determined it would make more money on PermaDerm® if it was not approved by the FDA and that Lonza used certain proprietary information, which the Company had purchased, for at least 13 other companies. The allegations also included that Lonza utilized threats and coercion, including false claims of breach of contract and securities violations, in order to terminate the exclusive know-how license. As a result, the Company received neither the exclusive know-how license that Lonza had promised nor the benefits of the exclusive know-how license.

For the year ended September 30, 2013, due to ongoing disputes and pending any settlement of the lawsuit, the Company determined that the value of the intangible asset and related intellectual property had been fully impaired. As a result, the Company wrote down the value of the intangible asset to $0.

In August 2010, the Company paid $7,500 and obtained the rights to the trademarks PermaDerm® and TempaDerm® from KJR-10 Corp.

At both March 31, 2014 and September 30, 2013, intangible assets totaled $7,500. 

NOTE 5 - LOANS PAYABLE

Loan Payable:

In February 2011, an investor advanced $10,000. The loan does not bear interest and is due on demand. At both March 31, 2014 and September 30, 2013, the loan payable totaled $10,000.

Loans Payable - Related Parties:

In October 2011, Craig Eagle, a director of the Company, advanced the Company $35,000. The loan does not bear interest and is due on demand. At both March 31, 2014 and September 30, 2013, the loan balance was $35,000.

During the six months ended March 31, 2014, Randall McCoy, the Company’s Chief Executive Officer, has made advances to the Company. The loans do not bear interest and are due on demand. At March 31, 2014 and September 30, 2013, the loan balance was $8,500 and $0, respectively.

John Weber, the Company’s Chief Financial Officer, has made advances to the Company. The loans do not bear interest and are due on demand. At March 31, 2014 and September 30, 2013, the loan balance was $48,100 and $28,100, respectively.

In March 2014 the Company received other advances totaling $5,000. The loans do not bear interest and are due on demand. At March 31, 2014 and September 30, 2013, the loan balance was $6,300 and $1,300, respectively. 

At March 31, 2014 and September 30, 2013, loans payable - related parties totaled $97,900 and $64,400, respectively.

NOTE 6 - NOTES PAYABLE

Insurance Financing Note:  

The Company finances certain insurance premiums. In August 2013, the Company financed premiums totaling $57,892. The note is payable over a nine-month term. At March 31, 2014 and September 30, 2013, the balance owed under the note was $17, 644 and $52,220, respectively.

Bridge Financing:

On December 21, 2011, the Company issued a $150,000 promissory note (“Note 2”) to an individual. Note 2 bore interest so that the Company would repay $175,000 on the maturity date of June 21, 2012, which correlated to an effective rate of 31.23%. Additional interest of 10% will be charged on any late payments. Note 2 was not paid at the maturity date and the Company is incurring additional interest described above. At both March 31, 2014 and September 30, 2013, the Note 2 balance was $175,000.

On January 18, 2012, the Company issued a $165,400 convertible promissory note (“Note 3”) to an individual. Note 3 bore interest at the rate of 5% per annum and was due on June 18, 2012. Note 3 and accrued interest thereon was convertible into units at a conversion price of $2.00 per unit. A unit consisted of one share of Series A Convertible Preferred Stock (“Series A Preferred”) and a warrant to purchase one-fourth (1/4), or 25% of one share of common stock. Upon maturity, Note 3 was not automatically converted and the Units were not issued. Instead, in October 2012, a new note was issued with a six month term. The new note bore interest at the rate of 8% per annum and the principal and accrued interest thereon were convertible into shares of common stock at a rate of $0.05 per share. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 500,000 shares of common stock at $0.10 per share. The warrant has not been issued. At maturity, the principal and interest automatically converted and the Company was supposed to issue 3,522,440 shares of common stock. As of March 31, 2014, the shares were not issued and were classified as common stock to be issued. At both March 31, 2014 and September 30, 2013, the Note 3 balance was $0.

On January 27, 2012, the Company issued a $149,290 convertible promissory note (“Note 4”) to an individual. Note 4 bore interest at the rate of 8% per annum and was due on March 31, 2012. Note 4 and accrued interest thereon was convertible into shares of common stock at a rate of $0.05 per share. In addition, the Company issued a warrant to purchase an additional 500,000 shares of common stock at $0.10 per share that expires on January 27, 2014. On March 31, 2012, Note 4 and the accrued interest became due and the Company was supposed to issue 3,027,683 shares of common stock. In May 2013, the Company issued the shares. At both March 31, 2014 and September 30, 2013, the Note 4 balance was $0.

In March 2012, the Company issued a series of convertible promissory notes (“Notes 5-9”) totaling $186,000 to four individuals. Notes 5-9 bore interest at the rate of 33% per annum and were due in August and September 2012. Notes 5-9 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. At maturity, the principal and interest automatically converted and the Company was supposed to issue 4,335,598 shares of common stock. In December 2012, the Company issued 4,079,000 shares to the note holders of Notes 5, 6, 7 and 9. The unissued 256,598 shares for Note 8 are classified as common stock to be issued at March 31, 2014. At both March 31, 2014 and September 30, 2013, the Note 5-9 balances were $0.

In April 2012 through June 2012, the Company issued a series of convertible promissory notes (“Notes 10-18”) totaling $220,000 to nine individuals. Notes 10-18 bore interest at the rate of 33% per annum and were due in October through November 2012. Notes 10-18 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. In December 2012, the Company issued 5,124,500 shares of its common stock for the conversion of principal and accrued interest through the various maturity dates of the notes. At both March 31, 2014 and September 30, 2013, the Note 10-18 balances were $0.

In April 2012, the Company issued a convertible promissory note (“Note 19”) totaling $25,000 to an individual for services previously rendered. Note 19 bore interest at the rate of 33% per annum and was due in October 2012. Note 19 and accrued interest thereon was convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In December 2012, the Company issued 582,500 shares of its common stock for the conversion of principal and accrued interest through the maturity date. At both March 31, 2014 and September 30, 2013, the Note 19 balance was $0.

In July 2012, the Company issued a series of convertible promissory notes (“Notes 20-22”) totaling $100,000 to three individuals. Notes 20-22 bore interest at the rate of 10% per annum and were due in December 2012 and January 2013. Notes 20-22 and accrued interest thereon were convertible into shares of common stock at the rate of $0.10 per share and automatically converted on the maturity dates unless paid sooner by the Company. For financial reporting purposes, the Company recorded discounts of $67,500 to reflect the beneficial conversion features. The discounts were amortized over the terms of Notes 20-22. In February 2013, the Company issued 1,050,000 shares of common stock for the conversion of Notes 20-22 and accrued interest thereon. At both March 31, 2014 and September 30, 2013, the Note 20-22 balance was $0.

In July 2012, the Company issued a convertible promissory note (“Note 23”) totaling $100,000 to an individual. Note 23 bore interest at the rate of 8% per annum and was due in January 2013. Note 23 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date, unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 500,000 shares of common stock at $0.10 per share. The warrant has not been issued. For financial reporting purposes, the Company recorded a discount of $100,000 to reflect the beneficial conversion feature. The discount was amortized over the term of the Note. In January 2013, the Company issued 2,080,000 shares of common stock for the conversion of Note 23 and accrued interest thereon. At both March 31, 2014 and September 30, 2013, the Note 23 balance was $0.

In December 2012, the Company issued a convertible promissory note (“Note 24”) totaling $100,000 to an individual. Note 24 bore interest at the rate of 8% per annum and was due in June 2013. Note 24 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date, unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 500,000 shares of common stock at $0.10 per share. The warrant has not been issued. For financial reporting purposes, the Company recorded a discount of $100,000 to reflect the beneficial conversion feature. The discount was amortized over the term of Note 24. At maturity, the principal and interest automatically converted and the Company was supposed to issue 2,089,880 shares of common stock. As of March 31, 2014, the shares were not issued and were classified as common stock to be issued. The warrant has not been issued as of the date of the issuance of the consolidated financial statements. At both March 31, 2014 and September 30, 2013, the Note 24 balance was $0.

In January 2013, the Company issued a convertible promissory note (“Note 25”) totaling $35,000 to an individual. Note 25 bore interest at the rate of 8% per annum and was due in July 2013. Note 25 and accrued interest thereon was convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a two-year warrant to purchase an additional 175,000 shares of common stock at $0.50 per share. The warrant has not been issued. For financial reporting purposes, the Company recorded a discount of $21,000 to reflect the value of the beneficial conversion feature. The value of the warrant was not recorded as the value was deemed to be immaterial. The discount was amortized over the term of Note 25. On August 1, 2013, the Company issued 728,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. The warrant has not been issued as of the issuance of the consolidated financial statements. At both March 31, 2014 and September 30, 2013, the Note 25 balance was $0.

In March 2013, the Company issued a convertible promissory note (“Note 26”) totaling $25,000 to an individual. Note 26 bore interest at the rate of 8% per annum and was due in September 2013. Note 26 and accrued interest thereon was convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a one-year warrant to purchase an additional 640,000 shares of common stock at $0.001 per share. For financial reporting purposes, the Company recorded a discount of $14,507 to reflect the value of the warrant and a discount of $10,493 to reflect the value of the beneficial conversion feature. The discounts were amortized over the term of Note 26. On February 28, 2014, the Company issued 520,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. The warrant was issued in December 2013 and was exercised on December 24, 2013. At both March 31, 2014 and September 30, 2013, the Note 26 balance was $0.

In April 2013, the Company issued a convertible promissory note (“Note 27”) totaling $15,000 to an individual. Note 27 bore interest at the rate of 8% per annum and was due in September 2013. Note 27 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. For financial reporting purposes, the Company recorded a discount of $1,500 to reflect the beneficial conversion feature. The discount was amortized over the term of Note 27. On February 28, 2014, the Company issued 312,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. At both March 31, 2014 and September 30, 2013, the Note 27 balance was $0.

In April 2013, the Company issued a convertible promissory note (“Note 28”) totaling $25,000 to an individual. Note 28 bears interest at the rate of 8% per annum and was due in October 2013. Note 28 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. For financial reporting purposes, the Company recorded a discount of $10,000 to reflect the beneficial conversion feature. The discount was amortized over the term of Note 28. On February 28, 2014, the Company issued 520,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. At March 31, 2014 and September 30, 2013, the Note 28 balance was $0 and $25,000, respectively.

In May 2013, the Company issued a convertible promissory note (“Note 29”) totaling $25,000 to an individual. Note 29 bore interest at the rate of 8% per annum and was due in November 2013. Note 29 and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. The Company did not record a discount for the conversion feature as the conversion price was greater than the price of the common stock on the issuance date. At maturity, the principal and interest automatically converted and the Company was supposed to issue 520,055 shares of common stock. As of March 31, 2014, the shares were not issued and were classified as common stock to be issued. At March 31, 2014 and September 30, 2013, the Note 29 balance was $0 and $25,000, respectively.

In June 2013, the Company issued convertible promissory notes (“Notes 30-31”) totaling $30,000 to two individuals. The notes bore interest at the rate of 8% per annum and were due in December 2013. The principal and accrued interest thereon was convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue two-year warrants to purchase an additional 600,000 shares of common stock at $0.05 per share. The warrants have not been issued. For financial reporting purposes, the Company recorded discounts of $3,451 to reflect the value of the warrants but did not record discounts for the conversion features as the conversion prices were greater than the stock prices at the issuance dates. The discounts are being amortized over the terms of Notes 30-31. At maturity, the principal and interest automatically converted and the Company was supposed to issue 624,066 shares of common stock. As of March 31, 2014, the shares were not issued and were classified as common stock to be issued. At March 31, 2014, the Note 30-31 balances were $0. At September 30, 2013, the Notes 30-31 balances were $28,774, net of debt discounts of $1,226.

In June 2013, the Company issued a convertible promissory note (“Note 31A”) totaling $25,000 to an individual. The note bore interest at the rate of 8% per annum and was due in December 2013. The principal and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company was to issue a one-year warrant to purchase an additional 320,000 shares of common stock at $0.001 per share. For financial reporting purposes, the Company recorded a discount of $5,116 to reflect the value of the warrants but did not record a discount for the conversion feature as the conversion price was greater than the stock price at the issuance date. The discount was amortized over the term of Notes 31A. On February 7, 2014, the Company issued 520,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. The warrant was exercised on February 7, 2014. At March 31, 2014, the Note 31A balance was $0.

In July 2013, the Company issued convertible promissory notes (“Note 32-34”) totaling $35,000 to three individuals. The notes bore interest at the rate of 8% per annum and were due in January 2014. The principal and accrued interest thereon were convertible into shares of common stock at the rate of $0.05 per share and automatically converted on the maturity dates unless paid sooner by the Company. The Company did not record discounts for the conversion features as the conversion prices were greater than the prices of the common stock on the issuance dates. In February and March 2014, the Company issued 728,000 shares of common stock for the conversion of principal and accrued interest through the date of maturity. At March 31, 2014 and September 30, 2013, the Notes 32-34 balances were $0 and $35,000, respectively.

In August 2013, the Company issued convertible promissory notes (“Note 35-36”) totaling $250,000 to two individuals. The notes bear interest at the rate of 8% per annum and are due in August 2014. The principal and accrued interest thereon are convertible into shares of common stock at the rate of $0.03 per share and automatically convert on the maturity dates unless paid sooner by the Company. The Company did not record discounts for the conversion features as the conversion prices were greater than the prices of the common stock on the issuance dates. At both March 31, 2014 and September 30, 2013, the Notes 35-36 balances were $250,000.

On December 31, 2013, the Company issued a convertible promissory note (“Note 37”) totaling $75,000 to an individual. The note bears interest at the rate of 8% per annum and is due in May 2014. The principal and accrued interest thereon are convertible into shares of common stock at the rate of $0.02 per share and automatically converted on the maturity date unless paid sooner by the Company. In addition, at the date of conversion, the Company is to issue two-year warrants to purchase an additional 937,500 shares of common stock at $0.25 per share. For financial reporting purposes, the Company recorded discounts of $20,455 to reflect the value of the warrants and a discount of $54,545 to reflect the value of the beneficial conversion feature. The discounts are being amortized over the term of Note 37. At March 31, 2014, the Note 37 balance was $44,702, net of debt discounts of $30,298.

Convertible Promissory Notes:

In October 2012, the Company issued a promissory note to a financial institution (the “Lender”) to borrow up to a maximum of $225,000. The note bears interest so that the Company would repay a maximum of $250,000 at maturity, which correlated to an effective rate of 10.59%. In October 2012, the Company received $50,000 upon the signing of the note and then in January through September 2013, the Company received additional proceeds totaling $100,000. In February 2014 the Company received an additional $25,000. Material terms of the note include the following:

1. The Lender may make additional loans in such amounts and at such dates at its sole discretion.

2. The maturity date of each loan is one year after such loan is received.

3. The original interest discount is prorated to each loan received.

4. Principal and accrued interest is convertible into shares of the Company’s common stock at the lesser of $0.069 or 65%-70% (as defined) of the lowest trading price in the 25 trading days previous to the conversion.

5. Unless otherwise agreed to in writing by both parties, at no time can the Lender convert any amount of the principal and/or accrued interest owed into common stock that would result in the Lender owning more than 4.99% of the common stock outstanding.

6. There is a one-time interest payment of 10% of amounts borrowed that is due at the maturity date of each loan.

7. At all times during which the note is convertible, the Company shall reserve from its authorized and unissued common stock to provide for the issuance of common stock under the full conversion of the promissory note. The Company will at all times reserve at least 13,000,000 shares of its common stock for conversion.

8. The Company agreed to include on its next registration statement it files, all shares issuable upon conversion of balances due under the promissory note. Failure to do so would result in liquidating damages of 25% of the outstanding principal balance of the promissory note but not less than $25,000.

The Company is accreting the original issue discount (“OID”) on the initial loan over the life of the loan using the effective interest method. For the six and three months ended March 31, 2014, the accretion amounted to $3,240 and $940, respectively. For the six and three months ended March 31, 2013, the accretion amounted to $2,688 and $1,802, respectively.

The conversion feature contained in the promissory note is considered to be an embedded derivative. The Company bifurcated the conversion feature and recorded a derivative liability on the consolidated balance sheet. The Company recorded the derivative liability equal to its estimated fair value. Such amount was also recorded as a discount to the convertible promissory note and is being amortized to interest expense using the effective interest method. For the six and three months ended March 31, 2014, amortization of the debt discount amounted to $34,748 and $18,893, respectively. For the six and three months ended March 31, 2013, amortization of the debt discount amounted to $11,329 and $7,980, respectively. At March 31, 2014 and September 30, 2013, the unamortized discount is $37,599 and $72,348, respectively.

The Company is required to mark-to-market the derivative liability at the end of each reporting period. For the six and three months ended March 31, 2014, the Company recorded a gain on the change in fair value of the conversion option of $75,174 and $26,252, respectively. For the six and three months ended March 31, 2013, the Company recorded a loss on the change in fair value of the conversion option of ($3,296) and ($2,585), respectively. As of March 31, 2014 and September 30, 2013, the fair value of the conversion option was $28,142 and $224,920.

In the six months ended March 31, 2014, the Company issued 5,514,781 shares of common stock for the conversion of principal and accrued interest of $62,009. For the period April 1, 2014 through May 15, 2014, the Company issued 3,325,611 shares of common stock for the conversion of principal and accrued interest. At March 31, 2014, the balance of the convertible note was $14,665, net of the debt discount of $37,599. At September 30, 2013, the balance of the convertible note was $34,821, net of the debt discount of $72,348.

In May 2013, the Company issued a convertible promissory note totaling $293,700 to a vendor in lieu of amounts payable. The note bears interest at the rate of 12% per annum and was originally due November 21, 2013. The maturity date of the note was extended to February 21, 2014 and extended again to May 31, 2014. The note is secured by all of the assets of the Company. The note and accrued interest are convertible into shares of common stock at a conversion rate of the lower of $0.04 per share or 80% of the average of the lowest three trading prices in the 20 trading days previous to the conversion. In addition, the Company issued a five-year warrant to purchase an additional 50,000 shares of common stock at a per share exercise price of the lower of $0.04 per share or 80% of the average of the lowest three trading prices in the 20 trading days previous to the conversion.

The conversion features contained in the promissory note and the warrant are considered to be embedded derivatives. The Company bifurcated the conversion features and recorded derivative liabilities on the consolidated balance sheet. The Company recorded the derivative liabilities equal to their estimated fair value of $153,300. Such amount was also recorded as a discount to the convertible promissory note and was amortized to interest expense using the effective interest method. For the six and three months ended March 31, 2014, amortization of the debt discount amounted to $64,104 and $0, respectively. For both the six and three months ended March 31, 2013, amortization of the debt discount amounted to $0. As of March 31, 2014 and September 30, 2013, the unamortized discount was $0 and $64,104, respectively.

The Company is required to mark-to-market the derivative liabilities at the end of each reporting period. For the six and three months ended March 31, 2014, the Company recorded a gain on the change in fair value of the conversion option of $151,550 and $87,446, respectively. For both the six and three months ended March 31, 2013, no gain was recognized. As of March 31, 2014 and September 30, 2013, the fair value of the conversion option was $62,309 and $213,858, respectively.

At March 31, 2014, the balance of the convertible note was $293,700 net of the debt discount of $0. At September 30, 2013, the balance of the convertible note was $229,596 net of the debt discount of $64,104.

NOTE 7 - STOCKHOLDERS’ DEFICIENCY

Preferred Stock:

Series A

Series A Preferred pays a dividend of 8% per annum on the stated value and have a liquidation preference equal to the stated value of the shares. Each share of Preferred Stock has an initial stated value of $1 and was convertible into shares of the Company’s common stock at the rate of 10 for 1. Series A Preferred contains a full ratchet anti-dilution feature on the shares of common stock underlying the Series A Preferred for three years on any stock issued below $0.10 per share with the exception of shares issued in a merger or acquisition. As the Company issued common stock at $0.05 per share for the conversion of debt, the conversion rate for the Series A Preferred is now 20 to 1.

The dividends are cumulative commencing on the issue date whether or not declared. Dividends amounted to $35,303 and $17,458 for the six and three months March 31, 2014, respectively. Dividends amounted to $23,002 and $11,307 for the six and three months March 31, 2013, respectively. At March 31, 2014 and September 30, 2013, dividends payable total $215,745 and $180,442, respectively, and are included in accrued expenses.

At both March 31, 2014 and September 30, 2013, 885,000 shares of Series A Preferred were outstanding.

Series B

On January 23, 2012, the Company designated a new class of preferred stock called Series B Convertible Preferred Stock (“Series B Preferred”). Four million shares have been authorized with a liquidation preference of $2.00 per share. Each share of Series B Preferred is convertible into ten shares of common stock. Holders of Series B Convertible Preferred Stock have a right to a dividend (pro-rata to each holder) based on a percentage of the gross revenue earned by the Company in the United States, if any, and the number of outstanding shares of Series B Convertible Preferred Stock, as follows: Year 1 - Total Dividend to all Series B holders = .03 x Gross Revenue in the U.S. Year 2 - Total Dividend to all Series B holders = .02 x Gross Revenue in the U.S. Year 3 - Total Dividend to all Series B holders = .01 x Gross Revenue in the U.S. At March 31, 2014 no shares of Series B Preferred are outstanding.

Common Stock Issuances:

For the six months ended March 31, 2014, the Company issued 2,600,000 shares of its common stock for the conversion of notes payable issued under the Bridge Financing and accrued interest.

The Company issued shares of its common stock for the conversion of principal and accreted interest owed to the Lender as follows:

For the six months ended March 31, 2014, the Company issued 960,000 shares of common stock for the exercise of warrants.

On December 24, 2013, the Company issued 1,038,751 shares of its common stock as a finder fee to an entity for introducing lenders who provided funding to the Company in fiscal 2013. The shares were valued at $35,851.

Stock-Based Compensation:

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 505, “ Equity .” Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505.

On January 6, 2011, the Company approved the issuance of 885,672 options to each of the four members of the board of directors at an exercise price of $0.62 per share that expire on December 22, 2015. On December 10, 2013, the exercise price of the options was changed to $0.035 per share. As a result, the Company revalued the options as required under generally accepted accounting principles and recognized an expense of $27,556. The options were revalued utilizing the Black-Scholes option pricing model with the following assumptions: exercise price: $0.035 - $0.62; expected volatility: 20.71%; risk-free rate: 0.13% - 0.14%; expected term: 1 year.

The expected life is the number of years that the Company estimates, based upon history, that warrants will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. The stock volatility factor is based on the Nasdaq Biotechnology Index. The Company did not use the volatility rate for Company’s common stock as the Company’s common stock had not been trading for the sufficient length of time to accurately compute its volatility when these options were issued.

On December 18, 2012, the Company issued 801,000 shares of its common stock as a finder’s fee to an entity for introducing investors and/or lenders who provided funding to the Company. The shares were valued at $89,370.

Stock based compensation amounted to $27,556 and $-0- for the six and three months ended March 31, 2014, respectively, and is included in general and administrative expenses. Stock based compensation amounted to $89,370 and $-0- for the six and three months ended March 31, 2013, respectively, and is included in interest expense.

NOTE 8 - LONZA TRANSACTION  

The Company entered into the Know-How SPA with Lonza Walkersville on July 21, 2010. Pursuant to the terms of the Know-How SPA, the Company paid Lonza Walkersville $3,000,000 and, in exchange, the Company was to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA for the commercial sale of the Cutanogen technology. Additionally, pursuant to the terms of the Know-How SPA, the Company was entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Under the Know-How SPA, once FDA approval was secured for the commercial sale of the technology, the Company would be entitled to acquire Cutanogen, Lonza Walkersville’s subsidiary, for $2,000,000 in cash.  

On September 30, 2013, the Company filed a lawsuit against the Defendant in Fulton County Superior Court in the State of Georgia.

The Company continued to negotiate for almost six months after Lonza paid the previous shareholders of Cutanogen to settle their lawsuit. The Company attempted to acquire the Cutanogen technology from Lonza in lieu of a license but to no avail. The Company has retained a national law firm to represent its interests in this case.

In the complaint, the Company alleges that it entered into a Know-How SPA with Lonza Walkersville, on July 21, 2010. Pursuant to the terms of the Know-How SPA, the Company paid Lonza Walkersville $3,000,000 and, in exchange, the Company was to receive an exclusive license to use certain proprietary know-how and information necessary to develop and seek approval by the FDA for the Under the Know-How SPA, once FDA approval was secured for the commercial sale of the technology, the Company would be entitled to acquire Cutanogen, Lonza Walkersville’s subsidiary, for $2,000,000 in cash.

However, as the Company alleges in the complaint, the Company believes the Defendant determined that it would make more money on the Cutanogen technology if it was not approved by the FDA and, unbeknownst to the Company, the Company believes Lonza Walkersville never intended to fulfill its obligations under the Know-How SPA. In this regard, the Company alleges in the complaint that Lonza Walkersville used certain proprietary know-how and information for at least thirteen (13) other companies. The Company alleges in the complaint that this is the same certain proprietary know-how and information the Company had purchased for $3 million under the exclusive Know-How SPA.

Further, as the Company alleges in the complaint, the Defendant utilized threats and coercion against the Company throughout the contract term, including false claims of breach and securities violations, in order to attempt to terminate the Know-How SPA unilaterally. As a result, the Company received neither the exclusive license the Defendant had promised, nor the benefit of the exclusive proprietary know-how. Therefore, the Company alleges in the complaint that, because of the Defendant’s breaches and tortious conduct, the Company lost the fees paid to the Defendant, which the Defendant did not earn, and suffered consequential damages and lost opportunities. In addition, the Company did not receive compensation from Lonza Walkersville for the time spent working on the Armed Forces Institute of Regenitive Medicine (AFIRM) grant, nor the time spent working on the Department of Defense (DOD) contract, which the Company was contractually supposed to be paid. The Company also will not receive the expected financial benefit from the DOD contract to help offset the cost of the clinical trials going forward. Lonza’s failure to secure a renewal of the DOD contract will have a significant financial impact on the Company. It should also be noted that the $3 million initially paid to Lonza, which was recorded as an intangible asset, has been fully written off in the accompanying consolidated financial statements as of September 30, 2013.

The case has been removed to the United States District Court for the Northern District of Georgia by Defendant. In conjunction with its removal of the litigation, Defendant filed a motion asking the Federal Court to either dismiss the complaint or to require the Company to file additional details providing more specific information about the Company’s claims. The Company has opposed that motion and filed its own motion asking the Federal Court to remand the case back to the Fulton County Superior Court.

The case was then transferred from Georgia to New Jersey for the convenience of the majority of the witnesses in the case and because the Court found that New Jersey had more significant and stronger ties to the parties than Georgia.  In 2013, Lonza filed a Motion to Dismiss.  In February 2014, Regenicin successfully defeated Lonza’s Motion to Dismiss.  In the February 2014 Order, the Court noted that   “[a]fter a single reading of the complaint the Court was able to understand Regenicin’s general averments.”  The Court further stated, “[c]onsidering their relationship and Regenicin’s numerous allegations, a lengthy pleading is probably unavoidable.”  The Court then ordered Regenicin to amend the Complaint and noted, “[t]here are three Defendants in this action, and Regenicin must be more specific in ascribing its allegations among them… Regenicin must replead its complaint to attribute its allegations to specific Defendants.” In accordance with the February 2014 Order, Regenicin amended its Complaint to add additional details regarding the various misrepresentations that each Lonza entity allegedly made to Regenicin.  A month later, Lonza filed a Second Motion to Dismiss.  Regenicin responded in opposition to Lonza’s Second Motion to Dismiss and is awaiting the New Jersey District Court’s ruling on the Motion.  Regenicin files notices of appearance and pro hac admissions of New Jersey counsel.

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company’s principal executive offices are located in Little Falls, New Jersey. The headquarters is located in the offices of McCoy Enterprises LLC, an entity controlled by Mr. McCoy.

The Company also maintains an office in Pennington, New Jersey, which is the materials and testing laboratory. This office is owned by Materials Testing Laboratory, and the principal is an employee of the Company.

No rent is charged for either premise.