UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Regenicin, Inc.
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 143,377,001 as of February 20, 2015 .

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our consolidated financial statements included in this Form 10-Q are as follows:

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended December 31, 2014 are not necessarily indicative of the results that can be expected for the full year.

REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.

REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See Notes to Consolidated Financial Statements.

REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

REGENICIN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements. 

REGENICIN, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - THE COMPANY  

The Company’s business plan is 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.

On November 7, 2014, the Company entered into an Asset Sale Agreement (the “Sale Agreement”) with Amarantus Bioscience Holdings, Inc., (“Amarantus”). Under the Sale Agreement, the Company agreed to sell to Amarantus all of its rights and claims in the litigation currently pending in the United States District Court for the District of New Jersey against Lonza Walkersville and Lonza America, Inc. (the “Lonza Litigation”). This includes all of the Cutanogen intellectual property rights and any Lonza manufacturing know-how technology. In addition, the Company has agreed to sell the PermaDerm® trademark and related intellectual property rights associated with it. The purchase price to be paid by Amarantus will consist of: (i) $3,600,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. See Note 4 for a further discussion.

The Company intends to use the net proceeds of the transaction to fund development of cultured cell technology and to pursue approval of the products through the U.S. Food and Drug Administration. We have been developing our own unique cultured skin substitute since we received 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 note disclosures 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 three months ended December 31, 2014 are not necessarily indicative of the results that may be expected for the year ending September 30, 2015. 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, 2014, 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 an accumulated deficit of $8,539,946 as of December 31, 2014, 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. In addition, the Company intends on using the proceeds from the Sale Agreement to fund operations. 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. 

Financial Instruments and Fair Value Measurement:

The Company measures fair value of its financial assets on a three-tier value hierarchy, which prioritizes the inputs, used in the valuation methodologies in measuring fair value:

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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 December 31, 2014 and September 30, 2014 due to their short-term nature.

Common stock of Amarantus represents equity investments in common stock that the Company classifies as available for sale. Such investments are carried at fair value in the accompanying consolidated balance sheets. Fair value is determined under the guidelines of GAAP which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Realized gains and losses, determined using the first-in, first-out (FIFO) method, are included in net income. Unrealized gains and losses are reported as other comprehensive income and are included in equity.

The common stock of Amarantus is restricted from sale for six months from acquisition pursuant to Security and Exchange Commission Rule 144. Accordingly, the stock is valued at the closing price reported on the active market on which the security is traded less a discount for the restrictions. This valuation methodology is considered to be using Level 2 inputs. The total value of Amarantus common stock at December 31, 2014 is $2,466,000. The Company did not own Amarantus stock at December 31, 2014. The unrealized loss for the three months ended December 31, 2014 was $534,000, net of income taxes, and was reported as a component of comprehensive income.

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 $165,072 and $5,164 as of December 31, 2014 and September 30, 2014, respectively. See Note 6 – Notes Payable – Convertible Promissory Notes for additional information.

Recent Pronouncements:

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. 

NOTE 3 – INCOME (LOSS) PER SHARE

Basic income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted loss per share gives 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 table summarizes the components of the income (loss) per common share calculation:

The following securities have been excluded from the calculation of net loss per share for the quarter ended December 31, 2013, as their effect would be anti-dilutive:

The following securities have been excluded from the diluted per share calculation for the quarter ended December 31, 2014 because the exercise price was greater than the average market price of the common shares:  

NOTE 4 – SALE OF ASSET

On November 7, 2014, the Company entered into a Sale Agreement with Amarantus, Clark Corporate Law Group LLP ("CCLG") and Gordon & Rees, LLP (“Gordon & Rees”). Under the Sale Agreement, the Company agreed to sell to Amarantus all of its rights and claims in the litigation currently pending in the United States District Court for the District of New Jersey against Lonza Walkersville and Lonza America, Inc. These include all of the Cutanogen intellectual property rights and any Lonza manufacturing know-how technology. In addition, the Company has agreed to sell its PermaDerm® trademark and related intellectual property rights associated with it. The purchase price to be paid by Amarantus was of: (i) $3,500,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. A portion of the cash purchase price is allocated to repay debt. On January 30, 2015, the agreement was amended whereby the cash portion of the purchase price was increased by $100,000 to $3,600,000 and the final payment was extended to February 20, 2015. The final payment of $2,500,000 was not paid on February 20, 2015.

The cash portion of the sale price will be paid as follows:

Since Amarantus did not adhere to the original and amended agreement, the Company did not record the final installment due of $2,500,000 as income.

The payments to CCLG, when completed, will satisfy in full the obligations owed to CCLG under its secured promissory note. The $3,000,000 in Amarantus common stock was satisfied by the issuance of 37,500,000 shares of Amarantus common stock from Amarantus to the Company. In addition to the sale price, Amarantus paid Gordon & Rees $450,000 at closing. The payment to Gordon & Rees was to satisfy in full all contingent litigation fees and costs owed to Gordon & Rees in connection with the Lonza Litigation.

As a result of the Sale Agreement, the Company determined that it is no longer liable for accounts payable to Lonza in the amount of $973,374. The amount has been written-off and is included in operating expenses.

In addition, the Company granted to Amarantus an exclusive five (5) year option to license any engineered skin designed for the treatment of patients designated as severely burned by the FDA developed by the Company. Amarantus can exercise this option at a cost of $10,000,000 plus a royalty of 5% on gross revenues in excess of $150 million. 

NOTE 5 - INTANGIBLE ASSETS

As discussed in Note 1, the Company paid $3,000.000 to Lonza in 2010 to purchase an exclusive know-how license and assistance in gaining FDA approval. The $3,000,000 payment was recorded as an intangible asset. Due to ongoing disputes and pending any settlement of the lawsuit, the Company subsequently 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 during the year ended September 30, 2013.

The Company paid $7,500 in August 2010 and $10,000 in November 2014 to obtain the rights to the trademarks PermaDerm® and TempaDerm® from KJR-10 Corp.

As discussed in Note 4, the Company sold all its intangible assets on November 7, 2014. At September 30, 2014, intangible assets totaled $7,500. 

NOTE 6 - 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 December 31, 2014 and September 30, 2014, the loan payable totaled $10,000.

Loans Payable - Related Parties:

In October 2011, Craig Eagle, a director of the Company, made advances to the Company. The loan does not bear interest and is due on demand. At both December 31, 2014 and September 30, 2014, the loan balance was $38,221.

During the year ended September 31, 2014, Randall McCoy, the Company’s Chief Executive Officer, made advances to the Company. The loans do not bear interest and are due on demand. At December 31, 2014 and September 30, 2014, the loan balance was $3,500 and $8,500, 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 December 31, 2014 and September 30, 2014, the loan balance was $141,430 and $122,100, respectively.

In March through September 2014, the Company received other advances totaling $35,696. The loans do not bear interest and are due on demand. At December 31, 2014 and September 30, 2014 the loan balances were $29,956 and $36,996, respectively. 

At December 31.2014 and September 30, 2014, loans payable - related parties totaled $213,107 and $205,817, respectively. 

NOTE 7 - NOTES PAYABLE

Insurance Financing Note: 

In September 2014, the Company financed certain insurance premiums totaling $51,613. The note requires an initial down payment of $10,322 and is payable over a nine-month term with interest at 6.45%. At December 31, 2014 and September 30, 2014, the balance owed under the note was $24,774 and $51,613, 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 December 31, 2014 and September 30, 2014, the Note 2 balance was $175,000.

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 were scheduled to convert to 520,055 shares of common stock but the individual waived the conversion of the principal and accrued interest. At both December 31, 2014 and September 30, 2014, the Note 29 balance was $25,000.

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 maturity, the principal and interest were scheduled to automatically convert into 4,500,000 shares of common stock but the individuals waived the conversion of the principal and accrued interest. In November 2014 the Company repaid $25,000 of principal on each note. At December 31, 2014 and September 30, 2014, the Notes 35-36 balances were $225,000 and 250,000, respectively.

Convertible Promissory Note:

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%. From inception until February 2014, the Company received $175,000. 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.

In October 2014, the remaining balance due on these notes of $9,592 plus accrued interest of $1,499 was converted into 7,920,291 shares of the Company’s common stock.

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 three month ended December 31, 2014 and 2013, amortization of the debt discount amounted to $7,675 and $15,855, respectively. At December 31, 2014 and September 30, 2014, the unamortized discount is $-0- and $7,675, respectively.

The Company is required to mark-to-market the derivative liability at the end of each reporting period. For the three months ended December 31, 2014 and 2013, the Company recorded a gain on the change in fair value of the conversion option of $5,163 and $48,992, respectively and as of December 31, 2014 and September 30, 2014 the fair value of the conversion option was $-0- and $5,163, respectively.

In May 2013, the Company issued a convertible promissory note totaling $293,700 to CCLG 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 August 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 but the number of shares that can be issued is limited as defined in the note agreement. 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 note was not paid at the maturity date but no action was taken by CCLG. For the period from October 1, 2014 through January 13, 2015, the Company paid $200,000 of principal and accrued interest.

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. 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 three months ended December 31, 2014 and 2013, amortization of the debt discount amounted to $-0- and $64,104, respectively. The debt discount was fully amortized as of September 30, 2014.

The Company is required to mark-to-market the derivative liabilities at the end of each reporting period. For the three months ended December 31, 2014 and 2013, the Company recorded a gain (loss) on the change in fair value of the conversion option of $(533,393) and $146,807 respectively, and as of December 31, 2014 and September 30, 2013, the fair value of the conversion option was $165,072 and $-0-, respectively.

At December 31, 2014 and September 30, 2014, the balance of the convertible note was $184,648 and $293,700, respectively.

NOTE 8 - INCOME TAXES

The Company did not incur current tax expense for both the three months ended December 31, 2014 and 2013. The provision for income taxes of $1,965,700 for the three months ended December 31, 2014 represents deferred taxes. There was no provision for the three months ended December 31, 2014.

At December 31, 2014, the Company had available approximately $6.3 million of net operating loss carry forwards which expire in the years 2028 through 2033. 

Significant components of the Company’s deferred tax assets at December 31, 2014 and September 30, 2014 are as follows:

Due to the uncertainty of their realization, a valuation allowance has been established for a portion of the income tax benefit for these deferred tax assets.

At both December 31, 2014 and September 30, 2014, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of September 30, 2014 and 2013, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

The Company files its federal income tax returns under a statute of limitations. The 2011 through 2014 tax years generally remain subject to examination by federal tax authorities. The Company has not filed any of its state income tax returns since inception. Due to recurring losses, management believes that once such returns are filed, the Company would incur state minimum tax liabilities that were not deemed material to accrue.  

NOTE 9 - 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.

The dividends are cumulative commencing on the issue date whether or not declared. Dividends amounted to $17,845 and $17,845 for the three months December 30, 2014 and 2013, respectively. At December 31, 2014 and September 30, 2014, dividends payable total $269,087 and $251,242, respectively, and are included in accrued expenses.

At both December 31, 2014 and September 30, 2014, 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 December 31, 2014, no shares of Series B Preferred are outstanding.

Common Stock Issuances:

In October 2014, the Company issued 7,920,291 shares of its common stock for the conversion of principal and accreted interest owed to the Lender.

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 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.

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

NOTE 10 - 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 office is attached to his residence but has its own entrances, restroom and kitchen facilities.

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

No rent is charged for either premise.

NOTE 11 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of this filing.

On January 15, 2015, the Company issued a stock option agreement with an Officer of the Company. The agreement grants the Officer an option to purchase 10 million shares of common stock at $0.02 per share. The agreement expires on January 15, 2019.

As discussed in Note 4 – Sale of Asset, Amarantus did not make its scheduled $2.5 million payment that was due on February 20, 2015. 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview 

On September 30, 2013, we filed a lawsuit against Lonza Walkersville, Inc. (“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.

We continued to negotiate for almost six months after Lonza paid the previous shareholders of Cutanogen Corporation (“Cutanogen”) to settle their lawsuit. We attempted to acquire the Cutanogen technology from Lonza in lieu of a license, but to no avail. We retained the national law firm of Gordon and Rees, LLP (“Gordon & Rees”) to represent us in this case.

In our complaint, we allege that we entered into a Know-How License and Stock Purchase Agreement (“Know-How SPA”) with Lonza Walkersville, on July 21, 2010. Pursuant to the terms of the Know-How SPA, we paid Lonza Walkersville $3,000,000 and, in exchange, we were 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 the Cutanogen technology. Additionally, pursuant to the terms of the Know-How SPA, we were entitled to receive certain related assistance and support from Lonza Walkersville upon payment of the $3,000,000. Once we secured FDA approval for the commercial sale of technology, the Know-How SPA provided that we were to pay Lonza Walkersville an additional $2,000,000 to buy its subsidiary, Cutanogen.

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

Further, as we allege in the complaint, the Defendant utilized threats and coercion against us 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, we received neither the exclusive license the Defendant had promised, nor the benefit of the exclusive proprietary know-how. Therefore, we allege in the complaint that, because of the Defendant’s breaches and tortious conduct, we lost the fees paid to the Defendant, which the Defendant did not earn, and suffered consequential damages and lost opportunities. In addition, we 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 we were contractually supposed to be paid. We 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 us. It should also be noted that the $3 million initially paid to Lonza, which was recorded as an intangible asset, was fully written off in the accompanying financial statements as of September 30, 2013.

On November 7, 2014, we entered into an Asset Purchase Agreement (“the Agreement”) with Amarantus Bioscience Holdings, Inc. (“Amarantus”), Clark Corporate Law Group, LLP (“CCLG”) and Gordon & Rees. Under the Agreement, we have agreed to sell to Amarantus: (i) all of our Cutanogen intellectual property rights, including all intellectual property rights related to PermaDerm® and any other engineered skin technology for the treatment of severe burns in humans, including any related trademarks, and (ii) all of our rights and claims in our litigation against the Defendant (the “Lonza Litigation”).

In exchange, Amarantus has agreed to pay: (i) $3,500,000 in cash, and (ii) shares of common stock in Amarantus having a value of $3,000,000. A portion of the cash purchase price has been allocated to CCLG, who is our sole senior secured creditor.

The payments to CCLG, when completed, will satisfy in full our obligations owed to CCLG under its secured promissory note. The $3,000,000 in Amarantus common stock was satisfied by the issuance of 37,500,000 shares of Amarantus common stock to us. In addition to the purchase price, Amarantus paid Gordon & Rees $450,000 at closing. The payment to Gordon & Rees satisfied in full all obligations for litigation fees and costs owed by us to Gordon & Rees in connection with the Lonza Litigation.

On January 30, 2015, the Agreement was amended whereby the cash portion of the purchase price was increased by $100,000 to $3,600,000 and the final payment was extended to February 20, 2015. In accordance with the amended agreement, the cash portion of the sales price is to be paid as follows: