FORM 10-Q/A
(Amendment No. 1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2012
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission file number 0-3338
INERGETICS, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 22-1558317 |
| (State or other Jurisdiction of | (IRS Employer |
| Incorporation or Organization) | Identification No.) |
205 Robin Road, Suite 222, Paramus, NJ 07652
(Address of Principal Executive Office) (Zip Code)
(908) 604-2500
(Registrant’s telephone number including area code)
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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o |
| Non-accelerated filer o | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of May 9, 2012, 34,047,076 shares of Common Stock, $0.001 par value.
Explanatory Note
We are filing this Amendment No. 1 on Form 10-Q/A (this "Form 10-Q/A") to amend our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 (the "Original Filing"), as originally filed with the Securities and Exchange Commission (the "SEC") on May 21, 2012 (the "Original Filing Date") to reflect a restatement of the following previously filed financial statements:
| · | our condensed consolidated statements of cash flows for the three months ended March 31, 2012, as discussed in Note 2 to the financial statements included in Item 1 of this Form 10-Q/A. |
The restatement corrects one number which was expressed as a negative number but should have been recorded as a positive number. The correction does not change any of the totals previously reported in the statement.
We have reported a material weakness in our internal controls in relation to our financial reporting process. Due to these material weaknesses, our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures continue not to be effective as of the end of the period covered by this report. For more information, see Item 4 included in this Form 10-Q/A.
Although this Form 10-Q/A supersedes the Original Filing in its entirety, this Form 10-Q/A amends and restates only Items 1 and 4 of Part I, solely as a result of, and to reflect, the restatement, and no other information in the Original Filing is amended hereby. This Form 10-Q/A speaks as of the Original Filing Date and does not reflect any events that may have occurred subsequent to the Original Filing Date. In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, as a result of this Form 10-Q/A, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original Report have been re-executed and re-filed as of the date of this Amended Report and are included as exhibits hereto.
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INERGETICS, INC. AND SUBSIDIARY
INDEX
| Page | ||
| Number | ||
| PART 1 - FINANCIAL INFORMATION | ||
| Item 1 | Financial Statements (unaudited): | |
| Condensed Consolidated Balance Sheets | ||
| - March 31, 2012 and December 31, 2011 | 4 | |
| Condensed Consolidated Statements of Operations | ||
| - Three months ended March 31, 2012 and 2011 | 5 | |
| Condensed Consolidated Statements of Cash Flows | ||
| - Three months ended March 31, 2012 and 2011 (as restated) | 6 | |
| Notes to Condensed Consolidated Financial Statements | 7– 15 | |
| Item 2 | Management’s Discussion and Analysis of Financial Condition | |
| and Results of Operations | 16 | |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 18 |
| Item 4 | Controls and Procedures | 18 |
| PART II - OTHER INFORMATION | 20 | |
| Item 1 | Legal Proceedings | 20 |
| Item 1A. | Risk Factors | 20 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3 | Defaults Upon Senior Securities | 20 |
| Item 4 | Removed and Reserved | 20 |
| Item 5 | Other Information | 20 |
| Item 6 | Exhibits | 21 |
| SIGNATURES | 22 | |
| 3 |
PART I - Item 1
INERGETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 5,552 | $ | 2,517 | ||||
| Accounts receivable, net | 1,670 | 1,895 | ||||||
| Inventories, net | 97,284 | 136,094 | ||||||
| Prepaid expenses | 1,519,864 | 253,878 | ||||||
| Total Current Assets | 1,624,370 | 394,384 | ||||||
| Patents, net | 5,374 | 5,518 | ||||||
| Deposits | 2,299 | 2,299 | ||||||
| Total Assets | $ | 1,632,043 | $ | 402,201 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 2,295,230 | $ | 2,038,999 | ||||
| Obligations to be settled in stock | 1,025,400 | 665,500 | ||||||
| Customer Prepayments | 39,970 | 39,970 | ||||||
| Derivative liability | 636,000 | - | ||||||
| Short-term debt | 839,747 | 839,747 | ||||||
| Short-term debt – related parties | 224,600 | 149,600 | ||||||
| Total Current Liabilities | 5,060,947 | 3,733,816 | ||||||
| Long-term debt, net of debt discount | 31,689 | 29,606 | ||||||
| Long-term debt – related parties | 1,425,522 | 1,425,522 | ||||||
| 6,518,158 | 5,188,944 | |||||||
| Commitment and Contingencies | ||||||||
| Preferred stock, Convertible Series G, authorized 200,000, par $1, stated | ||||||||
| Value $50: 125,783 and 120,827 shares issued and outstanding | 5,825,965 | 5,621,665 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock: | ||||||||
| Convertible Series B, par value $2; 65,141 shares issued and outstanding | 130,282 | 130,282 | ||||||
| Cumulative Series C, par value $1; 64,763 shares issued and outstanding | 64,763 | 64,763 | ||||||
| Convertible Series D, par value $1; 0 shares issued and outstanding | - | - | ||||||
| Convertible Series E, par value$1; 0 shares issued and outstanding | - | - | ||||||
| Convertible Series F, par value $1; 0 shares issued and outstanding | - | - | ||||||
| Common stock, par value $0.001; authorized 2,000,000,000 shares; issued and outstanding 33,930,576 and 27,780,205 shares, respectively | 33,930 | 27,781 | ||||||
| Additional paid-in capital | 66,620,691 | 65,281,614 | ||||||
| Common stock subscribed | 360,000 | 360,000 | ||||||
| Accumulated Deficit | (77,921,746 | ) | (76,272,848 | ) | ||||
| Total Stockholders’ Deficit | (4,886,115 | ) | (4,786,743 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 1,632,043 | $ | 402,201 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 4 |
INERGETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| Total Revenues | $ | 8,497 | $ | 14,074 | ||||
| Cost of Goods Sold | 5,209 | 8,463 | ||||||
| Gross Profit | 3,288 | 5,611 | ||||||
| Research and development cost | 36,698 | 13,750 | ||||||
| Selling, general and administrative expense | 925,639 | 579,451 | ||||||
| Total operating expenses | 962,337 | 593,201 | ||||||
| Loss from Operations | (959,049 | ) | (587,590 | ) | ||||
| Other Income (Expense) | ||||||||
| Accretion of debt discount | (67,083 | ) | (70,717 | ) | ||||
| Loss from issuance of convertible debt and warrants with derivative features | (452,000 | ) | - | |||||
| Gain on fair market valuation of derivatives | 1,000 | - | ||||||
| Interest and financing cost, net | (171,766 | ) | (227,522 | ) | ||||
| Total Other Income (Expense) | (689,849 | ) | (298,239 | ) | ||||
| Loss before Provision for Income taxes | (1,648,898 | ) | (885,829 | ) | ||||
| Benefit from Income Taxes | - | - | ||||||
| Net Loss | (1,648,898 | ) | (885,829 | ) | ||||
| Preferred Dividend | 148,850 | - | ||||||
| Net Loss applicable to common shareholders | $ | (1,797,748 | ) | $ | (885,829 | ) | ||
| Net Loss per Common Share - | ||||||||
| Basic and Diluted | $ | (0.06 | ) | $ | (0.04 | ) | ||
| Weighted Average Number of common shares outstanding - Basic and Diluted | 30,136,344 | 23,756,132 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
| 5 |
INERGETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| (As Restated) | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | (1,648,898 | ) | $ | (885,829 | ) | ||
| Adjustments to Reconcile Net Loss to | ||||||||
| Net Cash used in Operations | ||||||||
| Gain on fair market valuation of derivatives | (1,000 | ) | - | |||||
| Depreciation and amortization | 144 | 144 | ||||||
| Common Stock issued for financing expenses | 109,033 | - | ||||||
| Loss on issuance of convertible debt and warrants | 452,000 | - | ||||||
| Accretion of debt discount | 67,083 | 70,717 | ||||||
| Changes in Assets and Liabilities | ||||||||
| Decrease (increase) in accounts receivable | 225 | (930 | ) | |||||
| Decrease in inventories | 38,810 | 18,927 | ||||||
| Decrease (Increase) in prepaid expenses | 504,406 | 83,982 | ||||||
| Increase in customer prepayments | - | 6,827 | ||||||
| Increase in accounts payable and accrued expenses | 256,232 | 85,806 | ||||||
| Net Cash Used in Operating Activities | (221,965 | ) | (620,356 | ) | ||||
| Net Cash Used in Investing Activities | - | - | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from loans and notes payable | 260,000 | 650,000 | ||||||
| Repayment of loans and notes payable | (35,000 | ) | (30,000 | ) | ||||
| Net Cash Provided by Financing Activities | 225,000 | 620,000 | ||||||
| Net Increase (decrease) in Cash | 3,035 | (356 | ) | |||||
| Cash at beginning of period | 2,517 | 1,089 | ||||||
| Cash at end of period | $ | 5,552 | $ | 733 | ||||
| Supplemental Disclosure of Cash Flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest Expense | $ | - | $ | 6,100 | ||||
| Income Taxes | $ | - | $ | - | ||||
| Non-cash | ||||||||
| Convertible Preferred Stock G issued for prepaid services (12,000 shares) | $ | 556,500 | $ | - | ||||
| Common Stock issued for prepaid services (3,644,357 shares) | $ | 963,026 | $ | - | ||||
| Issuance of G shares as Preferred dividend (2,977 shares) | $ | 148,850 | $ | - | ||||
| Prepaid expenses for liability of stock to be issued for services (2,900,000 shares) | $ | 739,900 | $ | - | ||||
| Common stock issued for accrued expenses (2,125,000 shares) | $ | 380,000 | $ | - | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On March 15, 2010 the Company changed its name to Inergetics, Inc. Inergetics, Inc. (the Company or "Inergetics"), formerly Millennium Biotechnologies Group, Inc., is a holding company for its subsidiary Millennium Biotechnologies, Inc. ("Millennium").
Millennium was incorporated in the State of Delaware on November 9, 2000 and is located in New Jersey. Millennium is a research based bio-nutraceutical corporation involved in the field of nutritional science. Millennium’s principal source of revenue is from sales of its nutraceutical supplements, Resurgex Select® and Resurgex Essential™ and Resurgex Essential Plus™ which serve as a nutritional support for immuno-compromised individuals undergoing medical treatment for chronic debilitating diseases. Millennium has developed Surgex for the sport nutritional market. The Company’s efforts going forward will focus on sales of Surgex in powder, bar and ready to drink forms.
The accompanying unaudited condensed consolidated financial statements include the accounts of Inergetics, Inc. and its subsidiary. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America has been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction with the December 31, 2011 audited financial statements and the accompanying notes thereto filed with the Securities and Exchange Commission on Form 10-K.
In January 2011 The Board of Directors approved a reverse split of 1 for 80. The financial statements have retroactively restated common shares to the earliest presentation reported along with the earnings per share calculation.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its subsidiary. All significant inter-company transactions and balances have been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| 7 |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Revenue Recognition
Revenue is recognized net of discounts, rebates, promotional adjustments, price adjustments and estimated returns and upon transfer of title and risk to the customer which occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations and collection is reasonably assured as the majority of sales are paid for prior to shipping.
Income Taxes
The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company’s income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the three months ended March 31, 2012, and 2011.
Loss Per Common Share
Net loss per share, in accordance with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. Common Stock equivalents have not been included in this computation since the effect would be anti-dilutive. During a loss period, the effect of the potential exercise of stock options, warrants, convertible preferred stock and convertible debt are not considered in the diluted income (loss) per share calculation since the effect would be anti-dilutive. The results of operations were a net loss for the three months ended March 31, 2012 and 2011, therefore the basic and diluted weighted average common shares outstanding were the same.
Fair Value of Financial Instruments
For financial instruments including cash, accounts receivable, prepaid expenses, debt, accounts payable and accrued expenses, the carrying values approximated their fair value.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
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INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to the issuance of our condensed consolidated financial statements for the quarter ended March 31, 2012, we have discovered an error in the condensed consolidated statement of cash flows. The increase in prepaid expenses should have been a decrease in prepaid expenses for the three months ended March 31, 2012. The restatement does not change any of the totals previously reported.
3. GOING CONCERN AND LIQUIDITY ISSUES
The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating company which is cash flow positive.
However, the Company has a working capital deficit, significant debt outstanding, incurred substantial net losses for the three months ended March 31, 2012 and 2011 and has accumulated a deficit of approximately $78 million at March 31, 2012. The Company has not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.
4. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
The Company maintains cash balances in several financial institutions which are insured by the Federal Deposit Insurance Corporation up to certain federal limitations.
The Company provides credit in the normal course of business to customers located throughout the U. S. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.
| 9 |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. INVENTORIES
Inventories are stated at the lower of cost or market on a first in, first out basis. Inventories consist of work-in-process, raw materials, finished goods, and packaging for the Company’s SURGEX®, RESURGEX ESSENTIAL® and RESURGEX ESSENTIAL PLUS® product lines. Cost-of-goods sold are calculated using the average costing method. Inventories consist of the following:
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Finished Goods | $ | 255,037 | $ | 266,733 | ||||
| Work in Process | 49,200 | - | ||||||
| Raw Materials | 56,073 | 131,213 | ||||||
| Packaging | 35,474 | 36,648 | ||||||
| 395,784 | 434,594 | |||||||
| Less: Reserve for losses | (298,500 | ) | (298,500 | ) | ||||
| Total | $ | 97,284 | $ | 136,094 | ||||
6. PREPAID EXPENSES
Prepaid expenses are for services that have been paid in advance primarily with stock that are amortized over the life of the contract. The agreements pertain to pricing structure, distribution, warehousing, inventory management, financial advisory services and pro athlete endorsements. During the quarter ended March 31, 2012 the Company issued Series G preferred stock and common stock for prepaid services of approximately $1,500,000.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Accounts payable | $ | 931,684 | $ | 864,542 | ||||
| Accrued interest | 407,061 | 344,328 | ||||||
| Accrued rent expense | 135,874 | 135,874 | ||||||
| Accrued salaries, bonuses and payroll taxes | 632,417 | 491,646 | ||||||
| Accrued professional fees | 188,194 | 202,609 | ||||||
| $ | 2,295,230 | $ | 2,038,999 | |||||
| 10 |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. CONVERTIBLE NOTES, NET OF DEBT DISCOUNT
In the first quarter of 2012, the Company realized gross proceeds of $150,000 from the sale of its 10.0% eighteen and thirty six month Unsecured Convertible Notes, in the aggregate original principal amount of $150,000 (the “Notes”) and Warrants to five accredited investors (the “Investors”). Interest on the outstanding principal balance of the Notes is payable quarterly in arrears in shares of Common Stock at a value of $0.20 per share. The entire outstanding principal balance of the Notes and the accrued but unpaid interest thereon is due between eighteen and thirty six months from date of issue. The outstanding principal balance of the Notes and all accrued but unpaid interest thereon may be converted at any time at the option of each Investor into shares of Common Stock at the Conversion Price of $.20 per share. The Company may prepay the Notes at any time without penalty to the Investors.
The Notes provide for anti-dilution protection in the event that any shares of Common Stock, or securities convertible into Common Stock, are issued at less than the Conversion Price.
Unsecured Notes, net debt discount, consist of the following:
| March 31, | March 31, | |||||||
| 2012 | 2011 | |||||||
| Unsecured Convertible Notes | $ | 150,000 | $ | - | ||||
| Debt discount | (147,917 | ) | - | |||||
| $ | 2,083 | $ | - | |||||
The Company recorded a debt discount from the conversion option in the Notes and the Exercise Price of the Warrants of approximately $150,000. The debt discount is being amortized over the life of the Debentures and is included in other income and expense.
The Company recorded an immediate loss on the issuance of the Unsecured Convertible Notes due to the fair value of the conversion options and warrants exceeding the carrying value of the convertible debt by $401,000. The $401,000 loss on issuance is included in loss from issuance of convertible debt and warrants with derivative features on the accompanying condensed consolidated statement of operations.
9. SHORT TERM DEBT
The Secured Promissory Unit Notes issued in November 2009 with the principal amount outstanding of $152,747 and accrued interest of $53,482 as of March 31, 2012 are in default due to non-payment. The Secured Promissory Unit Notes and interest accrued thereon are repayable in five quarterly installments beginning 18 months after issue.
10. SHORT-TERM DEBT – RELATED PARTIES
During the quarter ended March 31, 2012 the Company issued a short term debt in the amount of $75,000 to Seahorse Enterprises, LLC, a related party. The note is payable on demand and bears interest at the annual rate of 12%. The holder of the note was also issued three year cashless warrants to purchase150,000 shares at an exercise price of $.20. The Warrants were valued at $30,000, bifurcated from the debt, recorded as a debt discount and were expensed on the grant date due to the notes being due on demand. The Company valued the warrants utilizing the black scholes method with the following inputs: stock price of $0.22, exercise price of $0.20, volatility of 197.86%, term of 3 years, risk free rate of 2% and dividend rate of 0%.
| 11 |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SHORT-TERM DEBT – RELATED PARTIES, Continued
During the quarter ended March 31, 2012 the Company issued 2 short term Unsecured Convertible Notes in the aggregate amount of $35,000 and warrants to an entity controlled by an Officer of the Company. The Notes paid interest at 10% per annum and were convertible into shares of the Company’s Common Stock at a conversion rate of $.20 per share. The Company bifurcated the warrants and conversion option of the debt from the debt because the warrants and conversion option contained a down round provision that triggered derivative liability treatment. The Company recorded an immediate loss on the issuance of the Unsecured Convertible Notes due to the fair value of the conversion options and warrants exceeding the carrying value of the convertible debt by $51,000. The $51,000 loss on issuance is included in loss on issuance of convertible debt and warrants on the accompanying condensed consolidated statement of operations. The Unsecured Convertible Notes were paid in full with cash by the Company under the terms of the Unsecured Convertible Notes during the period ending March 31, 2012. On the date of payment of the Notes the Company expensed $35,000 of associated debt discount to amortization expense which is included in other income and expense in the accompanying condensed consolidated statement of operations. The warrants associated with the related party debt are still outstanding as of March 31, 2012.
11. DERIVATIVE LIABILITY
Secured Convertible Notes Conversion Option
The Notes (as defined in note 7 below) are convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a conversion price of $0.20 per share (the “Conversion Price.”) (See note 7 below.) The conversion feature was bifurcated from the Notes due to a down round provision in the terms of the conversion feature and accounted for as a free standing derivative liability in the accompanying condensed balance sheet.
The Company recorded the conversion feature as a liability based upon its fair value on each reporting date.
The table below summarizes the fair values of the Company’s financial liabilities:
| Fair Value at | ||||||||||||||||
| March 31, | Fair Value Measurement Using | |||||||||||||||
| 2012 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liability – Conversion Feature | $ | 150,000 | - | - | $ | 150,000 | ||||||||||
| $ | 150,000 | - | - | $ | 150,000 | |||||||||||
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (Derivative liability – Conversion Feature) for the three months ended March 31, 2012 and 2011:
| March 31, | March 31, | |||||||
| 2012 | 2011 | |||||||
| Balance at beginning of period – January 1, 2012 and 2011, respectively | $ | - | $ | - | ||||
| Additions to derivative instruments | 178,000 | - | ||||||
| Change in fair market value of Conversion Feature | (3,000 | ) | - | |||||
| Retirement of Conversion Feature | (25,000 | ) | - | |||||
| Balance at end of period – March 31, 2012 and 2011, respectively | $ | 150,000 | $ | - | ||||
| 12 |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE LIABILITY, Continued
The Company computed the fair value of the conversion feature using the Black-Scholes model.
The following are the key assumptions used in connection with this computation:
| March 31, 2012 | Inception | |||||||
| Number of shares | 750,000 | 925,000 | ||||||
| Conversion Price | .20 | .20 | ||||||
| Volatility | 193 - 197.86% | 197.70- 203.19% | ||||||
| Risk-free interest rate | 2% | 2% | ||||||
| Expected dividend yield | 0% | 0% | ||||||
| Life of Notes | 17 to 35 months | 18 to 36 months | ||||||
Warrant Liability
In connection with the issuance of the Notes, the Company issued warrants to purchase up to 2,312,500 shares of Common Stock (the “Warrants”). The Warrants are exercisable for a 36 month period of time since the date of issuance and have an exercise price of $0.20 per share (the “Exercise Price”).
The Warrants provide for anti-dilution protection in the event that any shares of Common Stock, or securities convertible into Common Stock, are issued at less than the Exercise Price. The Company accounts for the Warrants as derivative liabilities in the accompanying condensed balance sheet.
The Company computed the value of the warrants using the Black-Scholes model.
The following are the key assumptions used in connection with this computation:
| March 31, 2012 | Inception | |||||||
| Number of shares | 2,312,500 | 2,312,500 | ||||||
| Conversion Price | .20 | .20 | ||||||
| Volatility | 197.86-203.67% | 197.70- 203.19% | ||||||
| Risk-free interest rate | 2% | 2% | ||||||
| Expected dividend yield | 0% | 0% | ||||||
| Life of Warrants | 35 months | 36 months | ||||||
The Company recognizes their derivative financial instruments as assets or liabilities in the financial statements and measures them at fair value with changes in fair value reflected as current period income or loss.
| 13 |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVE LIABILITY, Continued
The table below summarizes the fair values of the Company’s financial liabilities:
| Fair Value at | ||||||||||||||||
| March 31, | Fair Value Measurement Using | |||||||||||||||
| 2012 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Derivative liability – Warrants | $ | 486,000 | - | - | $ | 486,000 | ||||||||||
| $ | 486,000 | - | - | $ | 486,000 | |||||||||||
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability) for the three months ended March 31, 2012 and 2011:
| March 31, | March 31, | |||||||
| 2012 | 2011 | |||||||
| Balance at beginning of period – January 1, 2012 and 2011, respectively | $ | - | $ | - | ||||
| Additions to derivative instruments | 459,000 | - | ||||||
| Change in fair market value of Warrants | 27,000 | - | ||||||
| Balance at end of period – March 31, 2012 and 2011, respectively | $ | 486,000 | $ | - | ||||
| 12. | PREFERRED DIVIDEND |
The Series G Preferred pays a dividend, quarterly, at an annual rate of 10% (as a percentage of the Stated Value per share) payable in G Preferred based on the equivalent of 90% of the average of the last ten trading day closing price of the Common Stock prior to the dividend payment date. The amount of the dividend paid during the quarter ended March 31, 2012 was $148,850.
| 14 |
INERGETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 13. | WARRANTS |
Warrant activity for the three months ended March 31, 2012 is as follows:
| Weighted | ||||||||||||||
| Average | Aggregate | |||||||||||||
| Number of | Exercise | Remaining | Intrinsic | |||||||||||
| Warrants | Price | Contractual Term | Value | |||||||||||
| Outstanding at December 31, 2011 | 7,631,544 | $ | 0.404 | 9 Mo’s – 117 Mo’s | $ | 452,004 | ||||||||
| Granted | 2,462,500 | 0.200 | 36 Mo’s | 73,875 | ||||||||||
| Exercised | - | - | - | - | ||||||||||
| Outstanding and exercisable at March 31, 2012 | 10,094,044 | $ | 0.354 | 6 Mo’s – 114 Mo’ | $ | 525,879 | ||||||||
| 14. | SUBSEQUENT EVENTS |
During the second quarter of 2012 the Company issued one three year convertible promissory note totaling $50,000. The note is convertible into common stock at the conversion price of $0.20 per share. The notes bear interest at 10% per annum. The note holders also received 625,000 cashless warrants which expire three years from date of issuance and are convertible at the price of $0.20 per common share.
The Company also issued a convertible promissory note in the amount of $73,000. The note bears interest at the annual rate of 8%. The note is convertible at a 42% discount of the lowest market price during the ten (10) trading day period on the latest complete trading day.
On May 17, 2012, Kenneth R. Sadowsky resigned from the Board of Directors.
| 15 |
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Pursuant To "Safe Harbor" Provisions
Of Section 21e Of The Securities Exchange Act Of 1934
Except for historical information, the Company's reports to the Securities and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases, as well as other public documents and statements, contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements. These risks and uncertainties include general economic and business conditions, development and market acceptance of the Company's products, current dependence on the willingness of investors to continue to fund operations of the Company and other risks and uncertainties identified in the risk factors discussed below and in the Company's other reports to the Securities and Exchange Commission, periodic press releases, or other public documents or statements.
Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.
Results of Operations for the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011:
Total revenues generated from the sales of Resurgex Essential™, Resurgex Essential Plus™, Resurgex Select® and Surgex™ for the quarter ended March 31, 2012 totaled $8,497, a decrease of 40% from the quarter ended March 31, 2011 which totaled $14,074. The primary reason for the decrease was due to lack of sales from our Resurgex Essential Plus and Resurgex Select product line due to Companys’ focus on building the Surgex brand during the quarter ended March 31, 2012.
At this stage in the Company’s development, revenues are not yet sufficient to cover ongoing operating expenses.
Gross profits for the quarter ended March 31, 2012 amounted to $3,288 for a 39% gross margin. Gross profits decreased $2,323 or 41% for the quarter ended March 31, 2012 compared to $5,611 for the quarter ended March 31, 2011. The decrease in gross profits is a result of lower revenue due to lack of inventory for our Resurgex Essential Plus and Resurgex Select product line.
After deducting research and development costs of $36,698 and selling, general and administrative expenses of $962,337, the Company realized an operating loss of $959,049 for the quarter ended March 31, 2012. Operating losses of $959,049 increased $371,459 or 62% as compared to the first quarter of 2011 operating loss of $587,590. The majority of the increase was due to professional fees in the amount of $443,815 associated with pricing structures, distribution, warehousing, inventory management, financial advisory services, pro athlete endorsements and investor relations. Non-operating expenses totaled $689,849 for the quarter ended March 31, 2012 a increase of 131% or $391,610 as compared to $298,239 for the quarter ended March 31, 2011. The increase in non-operating expenses of $391,610 was due to the loss associated with the fair value of the derivative instruments issued with the convertible debt and warrants in the amount of $452,000 offset by a decrease of $3,634 from the reduction of amortization of debt discount and a reduction in interest expense of $55,756 due to less debt outstanding.
The net result for the quarter ended March 31, 2012 was a loss of $1,797,748 or $0.06 per share which included a preferred dividend on the Series G stock in the amount of $148,850, compared to a loss of $885,829 or $0.04 per share for the first quarter of 2011. The net loss for the first quarter of 2012 increased by $911,919 or 103% as compared to the first quarter of 2011, primarily due to an increase in selling, general and administrative expenses and loss incurred in the issuance of convertible debt and warrants. Management will continue to make an effort to lower operating expenses and increase revenue. The Company will continue to invest in further expanding its operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting the name and products of the Company. Given the fact that most of the operating expenses are fixed or have quasi-fixed character management expects them to significantly decrease as a percentage of revenues as revenues increase.
| 16 |
Disclosure About Off-Balance Sheet Arrangements
We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.
Critical Accounting Policies
Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this report.
Liquidity and Capital Resources
The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating, cash flow positive company. The Company has been operating with negative cash flows for the past 11 years.
The Company incurred substantial net losses for the three months ended March 31, 2012 and the year ended December 31, 2011 and has accumulated a deficit of $77,921,746 at March 31, 2012. The Company has not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company has never reported Net Income.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.
The Company’s business operations generally have been financed by debt investments through promissory notes with accredited investors. During the three months of 2012, the Company obtained new debt from the issuance of promissory notes that supplied the majority of the funds that were needed to finance operations during the reporting period. The new issuance of debt requires conversion of existing debt which may not be able to convert on favorable terms. Such new borrowings resulted in the receipt by the Company of $260,000. While these funds sufficed to compensate for the negative cash flow from operations they were not sufficient to build up a liquidity reserve. As a result, the Company’s financial position at the end of the reporting period showed a working capital deficit of $3,436,577. During the first three months of 2012 the Company obtained new financing sufficient to fund ongoing working capital requirements. We need to continue to raise funds to cover working capital requirements until we are able to raise revenues to a point of positive cash flow.
| 17 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 4. Control and Procedures
Evaluation of disclosure controls and procedures
Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weakness and significant deficiencies in our internal control over financial reporting described below, our disclosure controls and procedures were not effective, as of the March 31, 2012, to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that the information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011 based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, our management concluded that, as of March 31, 2012, our internal control over financial reporting was not effective.
A significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Management identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control over financial reporting as of December 31, 2011 and March 31, 2012:
| · | Material weakness: The Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with the Company’s financial reporting requirements. |
| · | Significant deficiencies: |
| o | Inadequate segregation of duties |
Nevertheless, based on a number of factors, including the performance of additional procedures performed by management designed to ensure the reliability of our financial reporting, our Chief Executive Officer and Chief Financial Officer believe that the consolidated financial statements included with this periodic report fairly present, in all material respects, our financial position, results of operations, and cash flows as of the dates, and for the periods, presented, in conformity with United States Generally Accepted Accounting Principals.
| 18 |
Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q. There was no change in the Company's internal control over financial reporting identified in that evaluation that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting, other than what has been reported above.
| 19 |
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Creative Healthcare Solutions, LLC vs. Millennium Biotechnologies Inc, Ct. of Common Pleas of Delaware County Ohio, Case No. 07 CV H 11 1420) Millennium was not satisfied with the service rendered by Creative Healthcare Solutions, LLC in 2005 which were associated with the development of Resurgex Select collateral materials developed in December of 2005. Millennium subsequently was forced to destroy and dispose of over 80% of the materials provided by Creative Healthcare Solutions due to the poor quality of the materials. Millennium has been unsuccessful in resolving the dispute and subsequently Creative Healthcare Solutions, LLC has filed legal action for demand of payment in the amount of $63,718 for services rendered. Millennium continues to negotiate a settlement through counsel with regards to this legal proceeding.
Ronald Burgert vs. Millennium Biotechnologies, Inc., et al. filed on the 9th day of October 2008 in District Court of Dallas County, Dallas, Texas. Mr. Burgert has filed a claim in the amount of $25,000 based on a note dated May 18, 2006. As of March 26, 2008 the balance due on the note, including unpaid principal and interest, was $31,635. On December 1, 2008, the 14th Judicial District, Dallas County, Dallas, Texas issued a default judgment against Millennium Biotechnologies, Inc. in the amount of $31,636 plus interest and unpaid attorney’s fees.
Robert Half International vs. Millennium Biotechnologies, Inc. filed on September 30, 2009 in the Superior Court of New Jersey, Law Division, Middlesex County. Robert Half International claims a total of $18,507 plus costs and fees based upon the Millennium Biotechnologies, Inc.’s failure to pay the plaintiff the fees associated with the full time hiring of an employee.
First Insurance Fund vs. Millennium Biotechnologies filed on November 18, 2010 in the Superior Court of New Jersey, Civil Division, Somerset/Hunterdon-Special Civil Part, Case# SOM-DC007284-10. First Insurance Fund claims a total of $13,489.99 including costs and fees based upon Millennium Biotechnologies failure to pay the plaintiff for Insurance invoices. On February 28, 2011, there was a levy on Millennium’s bank account in the amount of $1,644. On February 14, 2012, there was a levy on Millennium’s bank account in the amount of $2,320.
Item 1A Risk Factors
Not Applicable
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
- None
Item 3 Defaults Upon Senior Securities
See Note 8 to the Consolidated Financial Statements in Part I above.
Item 4 Removed and Reserved
Item 5 Other Information
- None
| 20 |
Item 6 a) Exhibits
| 31.1 | Certification of Mark C. Mirken, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Michael C. James, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of Mark C. Mirken, Chief Executive Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
| 32.2 | Certification of Michael C. James, Chief Financial Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
| 21 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INERGETICS, INC. | ||
| Date: May 25, 2012 | By: | /s/ Michael C. James |
| Michael C. James | ||
| Chief Financial Officer | ||
| Chief Accounting Officer | ||
| 22 |
EXHIBIT 31.1
Certifications pursuant to Securities and Exchange Act of 1934
Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
I, Mark C. Mirken, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of the Inergetics, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) for the Registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
| Date: May 25, 2012 | By: | /s/ Mark C. Mirken |
| President and Chief Executive Officer |
EXHIBIT 31.2
Certifications pursuant to Securities and Exchange Act of 1934
Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
I, Michael C. James, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Inergetics, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer(s) and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) for the Registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
| Date: May 25, 2012 | By: | /s/ Michael C. James |
| Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inergetics, Inc. (the "Company") on Form 10-Q/A for the quarter ended March 31, 2012 (the "Form 10-Q/A"), I, Mark C. Mirken, Chief Executive Officer of the Company, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, that the Company's Form 10-Q/A fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q/A, fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: May 25, 2012 | /s/ Mark C. Mirken | |
| Mark C. Mirken | ||
| President and Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inergetics, Inc. (the "Company") on Form 10-Q/A for the quarter ended March 31, 2012 (the "Form 10-Q/A"), I, Michael C. James, Chief Financial Officer of the Company, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge, that the Company's Form 10-Q/A fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q/A, fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: May 25, 2012 | /s/ Michael C. James | |
| Michael C. James, Chief Financial Officer |
|
GOING CONCERN AND LIQUIDITY ISSUES
|
3 Months Ended |
|---|---|
|
Mar. 31, 2012
|
|
| GOING CONCERN AND LIQUIDITY ISSUES | 3. GOING CONCERN AND LIQUIDITY ISSUES
The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating company which is cash flow positive.
However, the Company has a working capital deficit, significant debt outstanding, incurred substantial net losses for the three months ended March 31, 2012 and 2011 and has accumulated a deficit of approximately $78 million at March 31, 2012. The Company has not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern. |