10-Q 1 form10q93011v5.htm FORM 10-Q Form 10-Q 6/30/10


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549


FORM 10-Q


 X       

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2011


    

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________


Commission File No.

000-53750


PROTEONOMIX, INC.

(Exact Name of Registrant As Specified In Its Charter)


Delaware

 

13-3842844

(State Or Other Jurisdiction Of
Incorporation Or Organization)

 

(I.R.S. Employer Identification No.)



187 Mill Lane, Mountainside, NJ 07052

(Address of Principal Executive Offices and Zip Code)


Registrant’s Telephone Number, Including Area Code: (973) 544-6116


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  ü    No ___


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer [  ]    Accelerated Filer [  ] Non-Accelerated Filer [  ] Smaller Reporting Company [ü]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

 Yes __ No  ü


The number of shares outstanding of the registrant’s common stock, as of November 1, 2011, was 7,410,556.




NOTE REGARDING FORWARD-LOOKING STATEMENTS


Our disclosure and analysis in this Report contains forward-looking statements which provide our current expectations or forecasts of future events.  Forward-looking statements in this Report include, without limitation:


·

information concerning possible or assumed future results of operations, trends in financial results and business plans, including those related to earnings, earnings growth, revenue and revenue growth;

·

statements about the level of our costs and operating expenses relative to our revenues, and about the expected composition of our revenues;

·

statements about expected future sales trends for our products;

·

statements about our future capital requirements and the sufficiency of our cash, cash equivalents, and available bank borrowings to meet these requirements;

·

information about the anticipated release dates of new products;

·

other statements about our plans, objectives, expectations and intentions;

·

and other statements that are not historical fact.


Forward-looking statements generally can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “intends, “plans,” “should,” “seeks,” “pro forma,” “anticipates,” “estimates,” “continues,” or other variations thereof (including their use in the negative), or by discussions of strategies, plans or intentions.  Such statements include but are not limited to statements under Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Report, and elsewhere in this Report.  A number of factors could cause results to differ materially from those anticipated by such forward-looking statements, including those discussed under Part II, Item 1A - Risk Factors of this Report. The absence of these words does not necessarily mean that a statement is not forward-looking.  Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including factors described in Part II, Item 1A -  Risk Factors of this Report.  You should carefully consider the factors described in Part II, Item 1A - Risk Factors of this Report in evaluating our forward-looking statements.


You should not unduly rely on these forward-looking statements, which speak only as of the date of this Report.  We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Report, or to reflect the occurrence of unanticipated events.  You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission.






















           2



   PROTEONOMIX, INC.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

4

   

   ITEM 1. FINANCIAL STATEMENTS

4

   

   Condensed Consolidated Balance Sheets

4

   Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

5

   Condensed Consolidated Statements of Cash Flows

6

   Notes to Condensed Consolidated Financial Statements

7

   

   ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

   AND RESULTS OF OPERATIONS

24

  

   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

35

  

    ITEM 4. CONTROLS AND PROCEDURES

35


PART II.  OTHER INFORMATION

36


   ITEM 1.

LEGAL PROCEEDINGS

36


   ITEM 1A.

RISK FACTORS

36


   ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

36


   ITEM 3.

DEFAULTS UPON SENIOR SECURITIES AND CONVERTIBLE NOTES

36


   ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

36


   ITEM 5.

OTHER INFORMATION

37


   ITEM 6.

EXHIBITS

37


   SIGNATURES

38

















3


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PROTEONOMIX, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

SEPTEMBER 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

(UNAUDITED)

 

 

 

 

 

 

SEPTEMBER 30,

 

DECEMBER 31,

 

 

 

 

2011

 

2010

 

 

Current Assets:

 

 

 

 

 

 

   Cash and cash equivalents

 

 $                        5

 

 $                      18

 

 

   Accounts receivable, net

 

                   19,282

 

                   15,379

 

 

   Inventory

 

                 153,056

 

                 187,299

 

 

   Prepaid expenses

 

                   30,000

 

                         -   

 

 

 

 

 

 

 

 

 

      Total Current Assets

 

                 202,343

 

                 202,696

 

 

 

 

 

 

 

 

 

   Fixed assets, net of depreciation

 

                   25,066

 

                   31,928

 

 

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

 

   Intangible assets, net of amortization

 

                 229,341

 

                 242,439

 

 

   Intellectual Property License, net of amortization

 

               2,919,957

 

               3,175,098

 

 

 

 

 

 

 

 

 

      Total Other Assets

 

               3,149,298

 

               3,417,537

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 $            3,376,707

 

 $            3,652,161

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

   Obligation to issue common stock

 

 $            1,144,000

 

 $            1,144,000

 

 

   Current portion of notes payable - related parties

 

                 813,547

 

               1,098,421

 

 

   Current portion of convertible note

 

               1,645,500

 

               1,900,000

 

 

   Accounts payable and accrued expenses

 

               3,332,942

 

               2,952,590

 

 

 

 

 

 

 

 

 

      Total Current Liabilities

 

               6,935,989

 

               7,095,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Total Liabilities

 

               6,935,989

 

               7,095,011

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

   Preferred stock, $.001 Par Value; 10,000,000 shares authorized

 

 

 

 

 

 

     Preferred stock Series A - 200,000 shares issued and outstanding

 

                       200

 

                       200

 

 

     Preferred stock Series B - 6 shares issued and outstanding

 

                         -   

 

                         -   

 

 

     Preferred stock Series C - 50,000 shares issued and outstanding

 

                         50

 

                         50

 

 

   Common stock, $.001 Par Value; 240,000,000 shares authorized

 

 

 

 

 

 

     and 7,060,556 and 5,161,984 shares issued and outstanding

 

                     7,061

 

                     5,162

 

 

   Additional paid-in capital

 

             16,774,962

 

             15,919,761

 

 

   Retained earnings (deficit)

 

           (20,341,555)

 

           (19,368,023)

 

 

 

 

 

 

 

 

 

      Total Stockholders’ Equity (Deficit)

 

             (3,559,282)

 

             (3,442,850)

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 $            3,376,707

 

 $            3,652,161

 

 

                                                                         4

 

 

 

 

 

 

 

 

 

PROTEONOMIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

 

 

 

 

 

 

 

 

         NINE MONTHS ENDED

 

SEPTEMBER 30,

 

SEPTEMBER 30,

 

2011

 

2010

 

(UNAUDITED)

 

(UNAUDITED)

OPERATING REVENUES

 

 

 

   Sales

 $     18,994

 

 $     68,972

 

 

 

 

COST OF GOODS SOLD

 

 

 

   Inventory - beginning

                 187,299

 

                 192,465

   Purchases

                    3,678

 

                       545

 

                 190,977

 

                 193,010

   Inventory - end

               (153,056)

 

               (190,680)

      Total Cost of Goods Sold

                  37,921

 

                    2,330

 

 

 

 

GROSS PROFIT (LOSS)

                 (18,927)

 

                   66,642

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

   Wages and wage related expenses

                 194,760

 

                 318,752

   Stock based compensation

                           -

 

                 134,695

   Professional, consulting and marketing fees

                 263,040

 

              1,604,786

   Other general and administrative expenses

                 152,354

 

                 300,791

   Depreciation and amortization

                 284,662

 

                   10,428

      Total Operating Expenses

                 894,816

 

              2,369,452

 

 

 

 

LOSS BEFORE OTHER INCOME (EXPENSE)

               (913,743)

 

             (2,302,810)

 

 

 

 

   Interest income (expense), net

                 (59,735)

 

                 (19,026)

      Total Other Income (expense)

                 (59,735)

 

                 (19,026)

 

 

 

 

NET LOSS BEFORE PROVISION FOR INCOME TAXES

               (973,478)

 

             (2,321,836)

Provision for Income Taxes

                       (54)

 

                     (938)

 

 

 

 

NET LOSS APPLICABLE TO COMMON SHARES

 $     (973,532)

 

 $   (2,322,774)

 

 

 

 

NET LOSS PER BASIC AND DILUTED SHARES

 $     (0.16)

 

 $      (0.51)

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON

 

 

 

   SHARES OUTSTANDING

              6,151,540

 

              4,540,618

 

 

 

 



5


 

PROTEONOMIX, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

 

 

 

 

 

THREE MONTHS ENDED

 

SEPTEMBER 30,

 

2011

 

2010

 

(UNAUDITED)

 

(UNAUDITED)

OPERATING REVENUES

 

 

 

   Sales

 $               7,015

 

 $            21,647

 

 

 

 

COST OF GOODS SOLD

 

 

 

   Inventory - beginning

              187,207

 

             190,353

   Purchases

                (3,391)

 

                   545

 

              183,816

 

             190,898

   Inventory - end

             (153,056)

 

            (190,680)

      Total Cost of Goods Sold

                30,760

 

                   218

 

 

 

 

GROSS PROFIT  (LOSS)

              (23,745)

 

               21,429

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

   Wages and wage related expenses

                63,406

 

             103,423

   Stock based compensation

                        -

 

             121,201

   Professional, consulting and marketing fees

              142,403

 

             331,488

   Other general and administrative expenses

                54,050

 

               74,596

   Depreciation and amortization

                95,378

 

                 3,476

      Total Operating Expenses

              355,237

 

             634,184

 

 

 

 

LOSS BEFORE OTHER INCOME (EXPENSE)

             (378,982)

 

            (612,755)

 

 

 

 

   Interest income (expense), net

              (20,880)

 

                       -

      Total Other Income (expense)

              (20,880)

 

                       -

 

 

 

 

NET LOSS BEFORE PROVISION FOR INCOME TAXES

             (399,862)

 

            (612,755)

Provision for Income Taxes

                        -

 

                  (938)

 

 

 

 

NET LOSS APPLICABLE TO COMMON SHARES

 $          (399,862)

 

 $         (613,693)

 

 

 

 

NET LOSS PER BASIC AND DILUTED SHARES

 $               (0.06)

 

 $              (0.13)

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON

 

 

 

   SHARES OUTSTANDING

            6,779,034

 

           4,897,734

 

 

 

 


6



 

PROTEONOMIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

NINE MONTHS ENDED

 

 

SEPTEMBER 30,

 

 

2011

 

2010

 

 

(UNAUDITED)

 

(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

   Net loss

 

 $       (973,532)

 

 $       (2,322,774)

 

 

 

 

 

   Adjustments to reconcile net loss to net cash

 

 

 

 

     used in operating activities:

 

 

 

 

     Depreciation and amortization

 

            284,662

 

               10,428

     Consulting services rendered for convertible note

 

             90,000

 

                       -

     Common stock issued for consulting services

 

             14,600

 

               73,950

     Stock based compensation

 

                      -

 

             134,695

     Obligation to issue common shares - services

 

                      -

 

           1,283,625

     

 

 

 

 

  Changes in assets and liabilities

 

 

 

 

     (Increase) in accounts receivable

 

              (3,903)

 

               16,033

     Decrease in inventory

 

             34,243

 

                 1,785

     Decrease in prepaid expenses

 

             18,000

 

                       -

     Increase in accounts payable and

 

 

 

 

       and accrued expenses

 

            395,351

 

             354,282

     Total adjustments

 

            832,953

 

           1,874,798

 

 

 

 

 

     Net cash (used in) operating activities

 

          (140,579)

 

            (447,976)

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Increase in patent fees

 

              (9,560)

 

            (156,346)

 

 

 

 

 

     Net cash (used in) investing activities

 

              (9,560)

 

            (156,346)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Proceeds from notes payable - related parties

 

            150,126

 

             507,424

 

 

 

 

 

       Net cash provided by financing activities

 

            150,126

 

             507,424

 

 

 

 

 

NET INCREASE (DECREASE) IN

 

 

 

 

    CASH AND CASH EQUIVALENTS

 

                  (13)

 

              (96,898)

 

 

 

 

 

CASH AND CASH EQUIVALENTS -

 

 

 

 

    BEGINNING OF PERIOD

 

                   18

 

               99,827

 

 

 

 

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

 $                  5

 

 $              2,929

 

 

 

 

 

CASH PAID DURING THE YEAR FOR:

 

 

 

 

    Income taxes

 

 $                   -

 

 $                 938

    Interest expense

 

 $                   -

 

 $                     -

 

 

 

 

 

SUPPLEMENTAL NONCASH INFORMATION:

 

 

 

 

 

 

 

 

 

    Common stock issued for consulting services

 

 $           14,600

 

 $            73,950

    Conversion of notes payable and accrued interest for common stock

 

 

 

 

       and additional paid in capital

 

 $         766,500

 

 $           417,879

    Conversion of obligation to issue common shares to common stock

 

 

 

 

       and additional paid in capital

 

 $                 -   

 

 $           300,593

    Common stock issued for prepaid consulting services

 

 $           48,000

 

 $                   -   

    Consulting services rendered for convertible note

 

 $           90,000

 

 $                   -   

 

 

 

 

 


7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 -ORGANIZATION AND BASIS OF PRESENTATION


The unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes.  Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.  It is suggested that these financial statements be read in conjunction with the December 31, 2010 Form 10-K filed with the SEC, including the audited financial statements and the accompanying notes thereto.  While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.


These unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.

Proteonomix, Inc. (the “Company") is a Delaware corporation incorporated on June 26, 1995 as Azurel, Ltd. In September 2006, Azurel, Ltd. changed its name to National Stem Cell Holding, Inc. and then in August 2008 the name of the Company was changed to Proteonomix, Inc.

Azurel, Ltd. was incorporated on June 26, 1995 in the State of Delaware and marketed a line of fragrances. On February 2, 2001, Azurel filed a voluntary petition for protection from creditors under Chapter 11 in the United States Bankruptcy Court for the District of New Jersey, Newark until it was discharged from bankruptcy in December, 2005. Control was changed in September 2006 when Azurel acquired National Stem Cell, Inc. and its subsidiary, The Sperm Bank of New York, Inc. through a share exchange agreement.  In this transaction the common stock was reverse split 1:37. Azurel subsequently changed its name following the acquisition. Then again in August 2008, the Company reverse split its stock 1:10 when the name was changed to Proteonomix, Inc.

On January 14, 2005, National Stem Cell, Inc. acquired The Sperm Bank of New York, Inc. a company established in 1997 operating as a reproductive cell and tissue bank. National Stem Cell, Inc. acquired The Sperm Bank of New York, from its sole shareholder, for a note payable in the amount of $150,000 and acquired the accounts receivable and inventory valued at $150,000. On January 13, 2006, National Stem Cell Inc. converted the note payable into 21,866 shares of common stock. The acquisition was treated as a purchase transaction.

On July 8, 2008, the Company formed Proteoderm, Inc. as a wholly-owned subsidiary. Through this subsidiary, the Company produces and synthesizes protein polypeptides and growth hormone secreted by stem cells and incorporates them into uniquely formulated personal care products. Proteoderm, Inc. has generated no revenues since inception.

On January 5, 2010, the Company formed the Proteonomix Regenerative Translational Medicine Institute, (“PRTMI”), as a wholly-owned subsidiary. PRTMI will focus on the translation of research in stem cell biology and cellular therapy to clinical applications of regenerative medicine.  PRTMI formed PRTMI RD, a company incorporated in the Dominican Republic in February, 2010.  

On February 24, 2010 the Company acquired StromaCel, Inc., a wholly-owned subsidiary for the price of its formation cost on December 24, 2009.  The mission of StromaCel is to develop therapies using stromal cells. Stromal cells are key components of tissues and provide critical cytokines and growth factors as well as the cellular microenvironment for normal homeostasis.

On May 4, 2010, Proteonomix licensed from the Cohen-McNiece Foundation the Stromal Cell technology for potential therapeutic use in the regrowth of damaged cardiac cells after a heart attack.  The Cohen-McNiece Foundation was formed by Proteonomix President, Michael Cohen, and its Chief Scientific Officer and Vice-President, Ian McNiece, PhD to develop cellular technology for patients who have suffered myocardial infarctions.  The Technology was licensed in exchange for a 2% royalty on gross revenue derived from use of the StromalCel Technology and 1,000,000 stock options exercisable for five years at $3.55 per share vested immediately to Michael Cohen, our President and 90% owner of the Cohen-McNiece Foundation. The 2% royalty will be used by the Foundation to do further research into stem cell applications. Proteonomix also received a right of first refusal to license any technology developed by the Foundation.

8

Proteonomix has sub-licensed the StromaCel Technology to StromaCel for a 2% royalty, but Proteonomix will remain responsible for all costs associated with patent prosecution for the StromaCel Technology. In the event of bankruptcy, the rights to the Technology granted by the license revert to the Foundation.

On August 6, 2010 the Company formed a new subsidiary XGen Medical LLC, a Nevis Islands entity (“XGen Medical” or “XGen”). XGen Medical has been established with the intention of conducting business in the global medical marketplace. Proteonomix plans on utilizing XGen Medical to serve as a platform for joint ventures with medical facilities worldwide. It was anticipated that new relationships formed with XGen Medical will create medical facilities capable of not just attracting treatments locally, but also acting as hubs for medical tourism. The establishment of a separate subsidiary, XGen Medical LLC., was useful in order to allow Proteonomix to properly enter global markets with the intention of soliciting business through our proprietary PRTMI model.  Under an agreement, two investors were responsible for investing $5,000,000 into XGen Medical in exchange for a 49% interest in XGen Medical.  In exchange for the investment StromaCel was to provide XGen Medical with the technology and know how to practice the cardiac treatment utilizing the technology, and Proteoderm granted distribution rights to cosmeceuticals containing the proprietary stromal cell cosmetic technology in the GCC countries. Due to a default by one of the investors, the remaining investor has indicated that payments toward satisfaction of the contract will be made. To the date of this filing no such payments have been made. The Company plans on litigating to the fullest extent of the law to collect this investment along with any penalties incurred in the default. The negotiations with the second investor failed and the counterparties to the XGen Medical Agreements breached their contract responsibilities. We have assumed one hundred percent (100%) ownership of XGen Medical and are contemplating legal actions against both Patrizio Shawal Pilati and Valentina Earp-Jones, the counterparties to the XGen Medical Agreement. The minority shareholders that are in default will be pursued by all legal means.  

The Company owns and operates seven subsidiaries, The Sperm Bank of New York, Inc., Proteoderm, Inc., National Stem Cell, Inc., PRTMI, StromaCel, Inc.,  XGen Medical, LLC and Thor Biopharma.  

The Company is a biotechnology company engaged in the discovery and development of stem cell therapeutic products. The Company is developing pre-clinical-stage therapeutic agents and treatments for cancer, diabetes, heart, lung, and kidney diseases as well as for stem cell bone marrow and organ transplants. The Company’s discoveries involve stem cell treatments without using embryonic stem cells.


In January, 2011, Ian McNiece joined the Company’s Board of Directors, and the Company formed Thor BioPharma, Inc. as a wholly owned subsidiary to exploit the Company’s UMK-121 Technology related to stem cells that were licensed during the same month from the Cohen McNiece Foundation.  The management of the Company will divert resources to Thor Biopharma as the need may arise.


On January 3, 2011 the Company formed a new subsidiary, THOR BioPharma, Inc., in order to provide an entry into the pharmaceutical market. On March 2, 2011, The Company entered into an agreement with The Cohen McNiece Foundation, Inc. (the "Foundation"), a Florida not-for-profit corporation, to exclusively develop and license the Foundation's UMK-121 Mobilization of Bone marrow Stem Cell technology ("UMK-121") which is a proprietary technology based upon existing FDA approved drugs. The License imposes no upfront costs on the Issuer which will sublicense UMK-121 to its wholly owned subsidiary THOR BioPharma. The Company is required to make milestone payments to the Foundation upon 1) the issuance of a patent, 2) completion of Phase III trials and 3) commercialization which will require the payment of a 3% royalty on net sales. On April 7, 2011, the Company announced that it had filed a provisional patent application in anticipation of commencement of its initial clinical trial of a drug combination thought to extend life expectancy for a class of terminally ill patients awaiting liver transplants. The Company, based upon its exclusive license agreement to develop Mobilization of Bone Marrow Stem Cells Technology (UMK-121), filed a patent application in April 2011, covering mobilization of non-hematopoietic stem cells for applications in regenerative medicine.


On February 1, 2011, the Company filed an additional patent application to improve the Company's patent position on StromaCel with respect to a newly developed breakthrough method of stem cell expansion. This new methodology is used to mass-produce stem cells for therapeutic use once the stem cell line has been selected and purified. The Company believes that the new process application will dramatically expand product availability and reduce the cost of production of StromaCel to the Company and patient. The Company also believes that the technology presented in the new patent application will allow it to move to a new clinical trial quickly for the StromaCel product. Furthermore, the Company believes that this expansion model will be applicable to a wide range of stem cell technologies, providing further trials and potential revenue streams to the Company.



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On February 1, 2011, the Company filed a Registration Statement on Form S-1 covering an exchange proposal whereby shareholders would exchange their common stock for convertible preferred stock that would allow the holder to convert their preferred stock into 1.3 times as many common shares by paying a declining conversion price and ultimately converting their common shares after three years at no additional price. Management believes that this transaction will not impact our business model nor our scientific research in the long term. The Company received a brief comment letter from the SEC staff requesting the filing of a Form TO and general modification of the filing to comply with exchange and/or tender offer disclosure. However, since the receipt of that comment, the Company has decided to significantly amend its registration statement to drop the exchange offer and proceed with a private placement of common stock and warrants.

On July 27, 2011, the Company and Gilford Securities, Inc. (“Gilford”) of New York, NY signed a Letter of Engagement whereby Gilford undertakes to act as a dealer on a best efforts basis in a proposed public offering of the Company’s securities.  Gilford is to receive a refundable grant of 325,000 shares of the Company’s common stock, and 8% of the cash proceeds for the first $5,000,000 of gross proceeds raised by Gilford and 10% cash for any sums raised by Gilford in excess of $5,000,000. In addition Gilford is to receive seven year warrants equal to 8% of the securities sold up to $5,000,000 and equal to 10% of the securities in excess of $5,000,000 all exercisable at the public offering price.  Gilford also would be compensated for any private funds raised or any merger and acquisition work performed.  Gilford also has the right to act as the syndicate manager in its sole discretion.

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB") Accounting Standards Codification (“ASC") 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10"). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the United States Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs").

The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

Going Concern


During the nine-month period ended September 30, 2011, the Company’s revenue generating activities consisting solely of the sperm bank activities have not produced sufficient funds for profitable operations and have incurred significant operating losses since inception. In view of these matters, realization of certain of the assets in the accompanying consolidated balance sheet is dependent upon continued operations, which in turn is dependent upon our ability to meet our financial requirements, raise additional financing on acceptable terms, and the success of future operations. We anticipate revenues to commence on our cosmeceutical products by the end of 2011 on these products. We have outstanding trade and accrued payables of $3,332,942 including accrued salaries due to our management of $1,550,000, and loans from our Chief Executive Officer’s of $713,888.

As shown in the accompanying condensed consolidated financial statements the Company has incurred recurring losses of $973,532 and $2,322,774 for the nine months ended September 30, 2011 and 2010 respectively.  In addition, the Company has a working capital deficit in the amount of $6,733,646 as of September 30, 2011. The Company has continued to develop its pre-clinical-stage therapeutic agents and various treatments utilizing stem cell treatments while generating revenues and operating its sperm bank division.

Our independent registered public accounting firm’s report on the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2010, contains an explanatory paragraph wherein they expressed an opinion that there is substantial doubt about our ability to continue as a going concern.  Accordingly, careful consideration of such opinions should be given in determining whether to continue or become our stockholder.


As of September 30, 2011, we had a cash balance of $5. Management believes these funds to be insufficient to fund our operations, absent any cash flow from operations or funds from the sale of our equity or debt securities. We are currently spending or incurring (and accruing) expenses of approximately $100,000 per month on operations and the continued research and development of our technologies and products.  Management believes that we will require approximately an additional $2,100,000 to fund our operations for the next 12 months and to repay certain outstanding trade payables and accrued expenses.

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There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period. Management believes that the Company’s capital requirements will depend on many factors. These factors include the final phase of development of their pre-clinical stage therapeutic agents being successful as well as product implementation and distribution.  

The condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to derivative liabilities, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions 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 could differ from those estimates.  

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of six months or less to be cash equivalents. Any amounts of cash in financial institutions over FDIC insured limits, exposes the Company to cash concentration risk.  

Fair Value of Financial Instruments (other than Derivative Financial Instruments)

The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings.  

Research and Development

The Company incurs costs on activities that relate to research and development of new technology and products.  Research and development costs are expensed as incurred. Certain of these costs may be reduced by government grants and investment tax credits where applicable. The Company has never had any government grants or investment tax credits.

Intangible Assets

The Company’s intangible assets consist of patents and intellectual property, which are carried at the purchase price and/or the legal cost to obtain them. Patents are being amortized over their estimated useful lives, which range from seven to seventeen years. The cost of intellectual property purchased from others that is immediately marketable or that has an alternative future use is capitalized and amortized as intangible assets. Capitalized costs are amortized using the straight-line method over the estimated economic life of the related asset. The Company periodically reviews its capitalized intangible assets to assess recoverability based on the projected undiscounted cash flows from operations, and impairments are recognized in operating results when a permanent diminution in value occurs.

The value assigned to the license is being amortized over a ten-year life. The Company will test for impairment on an annual basis and impair the value if necessary.

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Revenue Recognition

The Company recognizes revenue for the sales of its donor sperm samples, which have been the only source of revenue to date are when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue and recognizes it when it becomes due and payable. The Company assesses the probability of collection based on a number of factors, including past transaction history with the customer and the current financial condition of the customer. If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes reasonably assured.

The Company anticipates revenue from support agreements it enters into will be recognized on a straight-line basis over the life of the contract, although the fee is due and payable at the time the agreement is signed or upon annual renewal.

Accounts Receivable

The Company intends to conduct business with companies based on an evaluation of each customer’s financial condition, generally without requiring collateral.  Exposure to losses on receivables is expected to vary from customer to customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. Management has determined that there is an allowance of $72,115 for doubtful accounts at September 30, 2011.

Accounts receivable will generally be due within 30 days and collateral is not required.

Income Taxes

Under ASC 740 the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Uncertainty in Income Taxes

Under ASC 740-10-25 recognition and measurement of uncertain income tax positions is required using a “more-likely-than-not" approach.  Management evaluates their tax positions on an annual basis and has determined that as of September 30, 2011 no additional accrual for income taxes is necessary.

Fixed Assets

Fixed assets are stated at cost.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized.  Deduction is made for retirements resulting from renewals or betterments.


Impairment of Long-Lived Assets

Long-lived assets, primarily its licenses and fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does not perform a periodic assessment of assets for impairment in the absence of such information or indicators.  Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.



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(Loss) Per Share of Common Stock


Basic net (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share ("EPS") include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share on the consolidated statement of operations due to the fact that the Company reported a net loss and to do so would be anti-dilutive for the periods presented.


The following is a reconciliation of the computation for basic and diluted EPS:


                                                               

September 30, 2011 

 September 30, 2010

Net loss

$ (973,532)         

 $  (2,322,774)

Weighted-average common shares

Outstanding (Basic)

    6,151,540            

     4,540,618


Weighted-average common stock

Equivalents

Series A1 Preferred Stock

    2,000,000

      

     2,000,000     

Stock options

                 

    1,122,498   

     

                -   

Convertible Notes

    2,006,707           

                -


Weighted-average commons shares

Outstanding (Diluted)

  11,280,745         

     6,540,618


Stock-Based Compensation


In 2006, the Company adopted the provisions of ASC 718-10 “Share Based Payments". The adoption of this principle had no effect on the Company’s operations.

ASC 718-10 requires recognition of stock-based compensation expense for all share-based payments based on fair value. Prior to January 1, 2006, the Company measured compensation expense for all of its share-based compensation using the intrinsic value method.


The Company has elected to use the modified-prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.  

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services".  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital. For common stock issuances to non-employees that are fully vested and are for future periods, the Company classifies these issuances as prepaid expenses and expenses the prepaid expenses over the service period. At no time has the Company issued common stock for a period that exceeds one year.



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Segment Information

The Company follows the provisions of ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information".  This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions.  The Company operates in five distinct reporting segments, as of September 30, 2011 and for the nine months ended September 30, 2011 and 2010.

Inventory

Inventory is valued at the lower of cost (on a first-in, first-out (FIFO) basis) or market. Inventory of $153,056 as of September 30, 2011 consists of donor’s sperm samples. Based on the method in which these samples are contained, it is very rare that a sample would spoil. Samples are cleared for cryopreservation after rigorous laboratory testing. Samples are cryopreserved in nitrogen vapor and are maintained frozen until purchased by a client. There has been no reserve for obsolescence of inventory and inventory is only removed upon use. The Company, to date has never destroyed any samples in inventory, or sold samples that were not viable (alive after been thawed for use).


Beneficial Conversion Features

ASC 470-20 applies to convertible securities with beneficial conversion features that must be settled in stock and to those that give the issuer a choice in settling the obligation in either stock or cash. ASC 470-20 requires that the beneficial conversion feature should be valued at the commitment date as the difference between the conversion price and the fair market value of the common stock into which the security is convertible, multiplied by the number of shares into which the security is convertible. ASC 470-20 further limits this amount to the proceeds allocated to the convertible instrument.


Noncontrolling Interests


In accordance with ASC 810-10-45, Noncontrolling Interests in Consolidated Financial Statements, the Company classifies controlling interests as a component of equity within the consolidated balance sheets. The Company had applied the provisions in ASC 810-10-45 to the financial information for the year ended December 31, 2010. During the year ended December 31, 2010, the Company formed XGen and was a 51% owner, however retained the remaining 49% shortly after formation. As a result, no amounts were applied to the former minority owners of XGen.


Recent Accounting Pronouncements

In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 did not have a material impact on the financial statements.

In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10") which permits entities to choose to measure many financial instruments and certain other

items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

In December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements. ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment.

ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of ASC 810-10-65 did not have a material impact on the Company’s financial position, results of operations or cash flows.

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In December 2007, the Company adopted ASC 805, Business Combinations (“ASC 805"). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition.  ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.

ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met.  Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption is not permitted and the ASC is to be applied prospectively only.  Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed.  The adoption of ASC 805 did not have a material effect on the Company’s financial position, results of operations or cash flows.

In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities", (“ASC 815"). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. ASC 815 did not have a material impact on their results of operations or financial position.

In April 2008, ASC issued ASC 350, “Determination of the Useful Life of Intangible Assets". This amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350. The guidance is used for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. ASC 350 did not have a materially impact their financial position, results of operations or cash flows.

ASC 470-20, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (“ASC 470-20") requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. ASC 470-20 did not have a material effect on its financial position, results of operations or cash flows.

ASC 815-40, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock" (“ASC 815-40"), provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative. ASC 815-40 also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock. ASC 815-40 did not have a material impact on its financial position, results of operations and cash flows.

ASC 470-20-65, “Transition Guidance for Conforming Changes to, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" (“ASC 470-20-65"). ASC 470-20-65 is effective for years ending after December 15, 2008. The overall objective of ASC 470-20-65 is to provide for consistency in application of the standard. The Company has computed and recorded a beneficial conversion feature in connection with certain of their prior financing arrangements and the adoption of ASC 470-20-65 did not have a material effect on that accounting.

In May 2009, the FASB published ASC 855, “Subsequent Events" (“ASC 855"). ASC 855 requires the Company to disclose the date through which subsequent events have been evaluated and whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. ASC 855 is effective for financial periods ending after June 15, 2009.

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (“ASU 2009-05"). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability.

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ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.

In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the roll forward of information in Level 3 are required for the Company with its first interim filing in 2011. The adoption of ASU 2010-06 did not have a material impact on the financial statements.


In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”. This update addresses both the interaction of the requirements of Topic 855, “Subsequent Events”, with the SEC’s reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4). The amendments in this update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances. Adoption of ASU 2010-09 did not have a material impact on the Company’s consolidated results of operations or financial condition.

Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.


NOTE 3 -FIXED ASSETS


Fixed assets as of September 30, 2011 (unaudited) and December 31, 2010 were as follows:  

Estimated   

Useful Lives            September 30,    December 31,

(Years)                        2011                  2010

Computer Equipment

5

$ 13,281

            $ 13,281

Machinery and Equipment

5-7

     5,868                 5,868

Leasehold Improvement

15

   20,980               20,980

Furniture and fixtures

7

   28,350               28,350

   68,479               68,479

Less: accumulated depreciation

  (43,413)            (36,551)

Fixed assets, net

$ 25,066            $ 31,928


There was $6,862 and $6,861 charged to operations for depreciation expense for the nine months ended September 30, 2011 and 2010, respectively.  


NOTE 4 - INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY LICENSE


Intangible assets as of September 30, 2011 (unaudited) and December 31, 2010 were as follows:  

                   

Estimated   

Useful Lives    September 30,       December 31,

(Years)              2011                     2010

Patents and Trademarks

10

       $272,391

           $262,831

Less: accumulated amortization                                            

       (  43,050)                   (20,392)

Intangible assets, net                                                               

      $ 229,341                 $ 242,439

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The Intellectual Property License as of September 30, 2011 (unaudited) and December 31, 2010 were as follows:  


Estimated   

Useful Lives    September 30,          December 31,

(Years)              2011                          2010

Intellectual Property License

10

       $3,401,891

     $3,401,891

Less: accumulated amortization                                            

          (481,934)            (226,793)

Intellectual Property License, net                                                      $ 2,919,957       $  3,175,098


There was $277,799 and $3,567 charged to operations for amortization expense for the nine months ended September 30, 2011 and 2010, respectively.  


NOTE 5 - PROMISSORY NOTES

The Company had outstanding $0 in promissory notes payable and $0 in accrued interest as of September 30, 2011.  The Company entered into promissory notes for $392,675 between April and July 2007 with six individuals/companies. On December 31, 2008, the Company renegotiated these notes. In the process of this, the Company added $57,675 in interest that was unpaid during 2008. The Company also issued shares to the note holders to cure a default under the note and extended the due date to January 30, 2009. The notes accrued interest at annual interest rates of 10% and were to mature from October 2007 to January 2008. The Company negotiated a full settlement on April 15, 2010 and issued 354,070 shares for all principal and interest due the promissory note holders.

The Company had issued 16,500 warrants with these notes that have since been converted to shares of common stock and none of the warrants remain outstanding.


NOTE 6 - RELATED PARTY LOANS


The Company has unsecured loans and advances with officers of $813,547 as of September 30, 2011. The loans and advances are typically repaid through conversions to shares of common stock. The advances are short-term and typically repaid within 6 months. The officers have not accrued interest on these amounts through December 31, 2010 as the repayment of the advances were made on a recurring basis. Effective, January 1, 2011, the board of directors agreed to pay 3% interest on all amounts outstanding. Interest expense for the nine months ended September 30, 2011 and accrued for as of September 30, 2011 on these loans amounts to $18,628. These loans were made to fund the Company with working capital during the process of securing contracts.  All loans and advances are due on demand and are included in current liabilities. In addition, the Company has other related party payables outstanding that consist of accrued compensation and related expenses to the President and former CFO of the Company totaling $1,550,000 as of September 30, 2011. This amount has been included in current liabilities on the consolidated balance sheets. In January, the Company issued previously approved shares of the Company common stock to Michael Cohen, 625,000 shares for debt conversion of $350,000, and Steven Byle, 178,572 shares for debt conversion of $100,000.

NOTE 7 – CONVERTIBLE NOTE

The Company entered into an agreement with a company that was owed shares of stock and this was recorded as a liability for stock to be issued. This Company as of December 17, 2010 was owed 1,208,500 shares of common stock valued at $2,000,000. The shares were accrued at various dates from 2009 and 2010. The Company agreed to convert their liability of stock to be issued to them to a convertible note. The note is convertible at the holders request at the market value of the stock at the time of the request for conversion, or may be paid in cash at the time of a financing.

The Board of Directors agreed to charge a 3% interest rate on this note effective January 1, 2011. On December 31, 2010, the Company converted $100,000 into 200,000 shares of stock ($0.50), which was the fair value of the stock on the date of the conversion. There were conversions of $344,500 into 925,000 shares of common stock in the nine months ended September 30, 2011. In addition, this company issued there shares equivalent to $90,000 to a third party for services during the nine months ended September 30, 2011, and the Company added the $90,000 to the note balance. As of September 30, 2011 the balance on the convertible note is $1,645,500. The Company has reflected this note as a current liability as it is due on demand. The interest expense for the nine months ended September 30, 2011 and accrued for on the note as of September 30, 2011 is $41,107.

17

NOTE 8 - LICENSING AGREEMENTS

The John Hopkins University

On November 14, 2005, the Company subsidiary, National Stem Cell, Inc. (NSC) entered into an intellectual property licensing agreement with The John Hopkins University (“JHU"). The license agreement relates to certain patents pending and contains royalty payment arrangements as well as funding guarantees.

Due to certain internal JHU intellectual property timeline issues regarding technology development with NSC and the NSC’s failure to pay fees in connection with the development, JHU discontinued the Company’s research plan and terminated the agreement.


During 2005 and 2006, $296,250 was recognized as license fees and remained outstanding as of December 31, 2007. During 2008, the Company and JHU negotiated a settlement agreement which was executed on September 24, 2008. The settlement agreement stipulated that should a $10,000 payment be made, the total amount due would be reduced to $190,000. The Company made the payment and the Company recognized $96,250 in forgiveness of the JHU payable. As of September 30, 2010, NSC has $190,000 outstanding, respectively to JHU under the terms of the agreement.  


During the third and fourth quarters of 2010, NSC made payments totaling $100,000 towards this obligation. As of September 30, 2011, the total outstanding liability is $90,000. . However, NSC is currently in default on the John Hopkins obligation and on June 17, 2011 JHU obtained judgment by consent and JHU has not yet commenced collection activity.  NSC plans to continue paying this obligation if and when funded.  

The Stromal Cell Technology License

On May 4, 2010, Proteonomix licensed from the Cohen-McNiece Foundation the Stromal Cell technology for potential therapeutic use in the regrowth of damaged cardiac cells after a heart attack.  The Cohen-McNiece Foundation was formed by Proteonomix President, Michael Cohen, and its Chief Scientific Officer and Vice-President, Ian McNiece, PhD to develop cellular technology for patients who have suffered myocardial infarctions.  The Technology was licensed in exchange for a 2% royalty on gross revenue derived from use of the StromalCel Technology and 1,000,000 stock options exercisable for five years at $3.55 per share vested immediately to Michael Cohen, our President and 90% owner of the Cohen-McNiece Foundation.

The 2% royalty will be used by the Foundation to do further research into stem cell applications. Proteonomix also received a right of first refusal to license any technology developed by the Foundation.

Proteonomix has sub-licensed the StromaCel Technology to StromaCel for a 2% royalty, but Proteonomix will remain responsible for all costs associated with patent prosecution for the StromaCel Technology. In the event of bankruptcy, the rights to the Technology granted by the license revert to the Foundation.

The Company has determined that the estimated useful life of the Intellectual Property License is ten years, and the Company commencing May 2010 will amortize the license over this ten-year period. In addition, the Company performed its annual impairment test on the value of this license and determined that no further impairment is necessary at December 31, 2010.

On February 1, 2011 the Company announced that it has filed an additional patent on the StromaCel technology that was intended to improve the Company's patent position on StromaCel with respect to a newly developed breakthrough method of stem cell expansion.

NOTE 9 - COMMITMENTS

Lease Agreement

The Company has entered into an oral lease agreement for its research and development, manufacturing, warehousing and administrative offices on a month to month basis. The Company estimates that the monthly obligation is approximately $2,500 per month. In addition, the Company leases office space on a monthly basis n the amount of $249 per month.


18


Employment Agreements with Officers

The Company has entered into an employment agreement with its President and CEO. The agreement obligates the Company to pay this officer base compensation of $325,000 per year which includes a $75,000 bonus. The Company and the officer can terminate this agreement, and can adjust compensation at anytime during the length of the contract.  In addition, the officer is to receive 50,000 shares of common stock for each patent filed in which he is named as inventor or investigator. The Company has issued all shares under this agreement. On July 1, 2009, the Company and its President and CEO, modified the employment agreement to include: a) the Company’s recognition of the assignment by the President and CEO at no additional consideration by the Company of the technologies, including the patent applications to the Company’s subsidiary, National Stem Cell, Inc.; b) for the transfer of the 2 Proteoderm patents and future patent applications related to inventions and discoveries related to stem cell derived cosmetics and cosmeceuticals, 50,000 Series C Preferred Shares with a par value of $0.001 (see Note 10) and the right to receive 20% of the outstanding shares of the Company’s subsidiary, Proteoderm, Inc. in the event it shall become a public company. The right set forth above shall be non-transferable except to the JSM Family Trust (of which 25,000 of these shares were transferred to the JSM Family Trust on July 10, 2011); and c) an increase in the vehicle allowance to $1,000 per month.

On July 1, 2009, we entered into an employment agreement with Robert Kohn, pursuant to which Mr. Kohn serves as Chief Financial Officer until June 29, 2012. Pursuant to the agreement, Mr. Kohn is entitled to receive a salary of $150,000 per annum which accrues until the Company receives $1,500,000 in equity, debt or joint venture funding. Mr. Kohn will receive an additional $50,000 per annum if the Company receives $3,000,000 in debt, equity or joint venture funding and an additional $50,000 per annum if the Company receives $10,000,000 in debt, equity or joint venture funding. In addition, Mr. Kohn is entitled to the issuance of 250,000 shares of common stock upon the execution of the employment agreement as a signing bonus.

Mr. Kohn also receives an additional 250,000 shares upon the spin-off of any subsidiary as a public company in the event such spin-off occurs during the term of the agreement.

In addition, Mr. Kohn receives a benefits package including health insurance, vision, dental, and life insurance. In addition, pursuant to his employment agreement, Mr. Kohn is entitled to reimbursement for all medical and dental expenses for himself and his immediate family which are not covered by insurance. The agreement is for a term of three years from July 1, 2009, unless terminated by the Company or Mr. Kohn by written notice given 90 days prior to the expiration of the agreement. The agreement may also be terminated by us for "cause," as such term is defined in the agreement. Upon termination, Mr. Kohn will only be entitled to accrued salary, and benefits which have vested at the time of termination. On September 30, 2010, the Company and Mr. Kohn entered into a Separation Agreement, and in accordance with the terms of the agreement, Mr. Kohn will relinquish his duties as CFO and in return, receive $187,500 of his accrued compensation, $37,500 of his accrued fringe benefits, and keep 156,250 shares of common stock he received for his signing bonus, and return the 93,750 shares that were received in October 2010.

Consulting Agreements

The Company has entered into consulting agreements with consultants to assist in developing the Company’s business. The agreements range in term from one year to three years. The agreements call for the issuance of common stock as the Company does not have sufficient cash flow to compensate its consultants with cash.

In December 2009, the Company entered into a three year agreement with the Company’s Chief Scientific Officer and Vice-President, Ian McNiece, PhD.  Under the terms of the agreement Mr. McNiece will receive $4,000 per month for three years which is accrued until the Company has received $3,000,000 in equity or convertible debt financing.  Furthermore, Mr. McNiece will receive 200,000 shares of common stock- 50,000 shares on the first and second anniversary of the signing of the agreement and 100,000 shares at the end of the agreement. The Company accrued the first 50,000 shares as of December 31, 2010.

Effective June 1, 2010, the Company entered into a one year agreement at $7,500 per month with Wolfe, Axelrod and Weinberger to provide marketing services.  Wolfe, Axelrod and Weinberger will receive 75,000 stock options @$5.00 per share ratably over twelve months commencing July 1, 2010.  The Company has a right to terminate the agreement after three months including all fees and stock options.  The maximum stock options to be issued, if terminated, would be 18,750 shares. The Company has expensed $30,000 through December 31, 2010, and issued 10,000 shares of stock in October 2010 to cover 2 additional months of service through November 30, 2010. The Company has not utilized the services subsequent to November 30, 2010 and terminated this agreement at that time. There is currently $15,000 due to Wolfe, Axelrod and Weinberger as of September 30, 2011. The Company has expensed in stock-based compensation 37,500 options at a value of $72,507.  


19

On June 15, 2010 the Company entered into a three month agreement with Logoform AG to perform business development, research and related investment relations services.  Logoform AG received 100,000 stock options @ $5.00 per share exercisable until June 15, 2011, ratably over twelve months commencing July 15, 2010. The Company has expensed 49,998 options through December 31, 2010 as stock-based compensation in accordance with the terms of the agreement. There will be no additional options granted subsequent to December 31, 2010 as the contract has been terminated. The value of the options was $96,673 for the year ended December 31, 2010 relating to these options.

On September 20, 2010 the Company entered into an agreement for investor relation services with a consultant. The agreement has a one-year term. As compensation under the agreement, the Company issued 100,000 shares of common stock valued

at $50,000, the fair value of the common stock at the time of issuance.

License Agreement

In January 2009, the Company entered into a three-year license and purchase agreement with two China based companies for the exclusive license of the Proteoderm products in China, Hong Kong and Taiwan (the “territory"). The agreement includes pricing, delivery and minimum purchase requirements for the China-based companies of these products. Through September 30, 2011, no products have been purchased.  The Company did not meet the terms of the agreement due to delays in financing.  

Litigation

The Company has been threatened to be sued by Fred Grant, a consultant who introduced the Company to Ice Cold Stocks.com. The Company denies the claim.


James Magee, President of GEM Media, who contends the Company has responsibility for $350,000 of charges associated with the failed XGen Dubai project and Mark Huggins of Hulk Media who alleges liability for $60,000 in commissions for the introduction to GEM and other related consulting services. The Company believes it has meritorious defenses to both of these assertions and would defend any litigation that arises from these allegations vigorously.


On March 22, 2011, the Company was notified by a collection agency regarding a debt owed to a prior law firm in the amount of $168,812. The Company’s legal counsel is investigating this claim, however the Company does not believe that the amount is owed. As of September 30, 2011, the Company has included this amount in its accounts payable and accrued expenses while they determine if the amount claimed is due.


NOTE 10 -STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

In April 2009, the Company had determined that it had not obtained the proper authorization required to issue any classes of its preferred stock.  As a result, it was determined that the issuance of the Company’s Class A and Class B Preferred Stock were never legally executed, as such, do not exist.  Therefore, as of January, 2005, the Company established an unsettled obligation to the holders of any aforementioned Class A and Class B Preferred Stock.

As of September 30, 2011, the Company has 10,000,000 shares of preferred stock authorized with a par value of $.001. The Company increased the authorized shares from 4,000,000 to 10,000,000 on July 21, 2008. The preferred stock may be issued from time to time, in one or more series, each series to be appropriately designated by a distinguishing letter or title, prior to the issue of any shares thereof. In August 2008, the Company’s board of directors approved a 1:10 reverse split. All shares reflected in the condensed consolidated financial statements are shown post-split.

In May 2009, the Company formally designated three series of preferred stock; the Series A Convertible Preferred Stock consists of 200,000 shares, convertible into common stock, each share for 10 shares of common stock; the Series B Preferred Stock which consists of 6 shares; and the Series C Preferred Stock which consists of 50,000 shares.  In November 2011, the Company amended its designation of the Series A Preferred Stock and Series C Preferred Stock to provide anti-dilution protection against both forward and reverse splits of the Company’s common stock and other reorganizations of similar nature. In the event that the common stock of the Company is subject to a reverse split, the number of shares into which the Series A and the Series C Preferred Stock are convertible remain unchanged. The Series C was amended to provide convertibility into the common stock of the Company at the option of the holder at a ratio of 10 common shares for each share of Series C Preferred Stock.


20

Each share of Series A Preferred Stock is convertible into 10 shares of common stock. The Company, prior to realizing that the preferred stock had not been properly authorized, assumed that it had issued 200,000 shares of Series A Preferred Stock in 2005 to its President. The 200,000 shares were thought to have been issued for a value of a $2,000 (par) as founders’ shares. As a result, the Company performed an informal valuation and determined there was no increase in the value of the preferred stock and as of December 31, 2008, there was a $2,000 obligation to issue preferred shares on the consolidated balance sheets, respectively. These shares were issued in May 2009.

The Company also had assumed that it had properly issued 6 shares of Series B Preferred Stock. Each share of the Series B Preferred Stock enables the holder to nominate and appoint one member to the board of directors. The Company’s President was to be the holder of the six shares of Series B Preferred Stock, and upon proper authorization, the Company formally issued these shares to the President in May 2009. The Series B Preferred Shares value is par.


On July 1, 2009, Michael Cohen and Jacob Cohen entered into a technology license agreement with Company relating to stem cell based cosmetic and cosmeceutical technologies they developed. The license agreement provides that they receive a) 50,000 Shares of the Company’s Series C Preferred Stock, par value $.001 per share and (b) the right to receive 20% of the outstanding shares of the Company’s subsidiary, Proteoderm, Inc. in the event it shall become a public company. The right set forth above shall be non-transferable except to the JSM Family Trust. Each share of Series C Preferred Stock shall be entitled to one hundred votes on all matters submitted to a vote of the Corporation’s shareholders. Jacob Cohen’s 25,000 shares were transferred on July 10, 2011 to the JSM Family Trust. The 50,000 shares of the Series C Preferred Stock were issued in July 2009.  

September 30, 2011

 

 

 

 

 

 

 

 

 

Preferred Stock

Authorized Date

 

Issue Date

Number of Shares

 

Par Value

 

Fair Value

Intrinsic Value

Conversion to Common Stock

Series “A" (1)

January 2005

May, 2009

200,000

$.001

$2,000

$2,000

10:1

Series “B" (1)

January 2005

May, 2009 

6

$.001

<$1

<$1

None

Series “C" (2)

July 1, 2009

July 1, 2009

50,000

$.001

$50

$50

100:1


(1) Issued to the President and CEO, Michael Cohen authorized in January 2005 as Founder’s shares.

(2) Issued equally to the President & CEO, Michael Cohen and his brother Jacob Cohen for the development of the Proteoderm products.  Michael Cohen and Jacob Cohen (Jacob Cohen’s share has been since transferred to the JSM Family Trust) have the right to receive 20% of the outstanding shares of the Company’s subsidiary, Proteoderm, Inc. in the event it shall become a public company.


In November 2011, a new Series D Preferred Stock was designated that is convertible into the common stock of the Company at a ratio of ten shares of common for each share of Series D Preferred Stock that is converted.  The Series D Preferred Stock is also protected against dilution in the event of forward splits, reverse splits and reorganizations.  In the event of a reverse split, the number of shares issued upon conversion of the Series D Preferred Stock remains unchanged.


In November 2011, Series D shares were issued to Michael Cohen in the amount of 130,000 shares in lieu of reduction of debt of $100,000, Steven Byle in the amount of 100,000 shares in lieu of services rendered, Ian McNiece in the amount of 30,000 shares as an amendment to his 2009 Consulting Agreement obviating the need for the Company to issue to him 100,000 shares of common stock, and Roger Fidler in the amount of 35,000 shares for legal services rendered and his agreement to provide legal services to the Company in the future, and Jeffrey Maller in the amount of 10,000 shares for consulting services.

Common Stock

As of September 30, 2011, the Company has 240,000,000 shares of common stock authorized with a par value of $.001. On July 21, 2008, the Company amended its certificate of incorporation to increase the authorized shares from 50,000,000 to 240,000,000.   

The Company has 7,060,556 shares issued and outstanding as of September 30, 2011.  

The Company has had its common stock reverse split twice since 2006. In May 2006, the Company reverse split its shares 1:37 and then again in August 2008, the Company’s board of directors approved a 1:10 reverse split. All shares reflected in the condensed consolidated financial statements are shown post-split.  

 21

 

During 2007, the Company issued 124,987 shares of common stock for various services, marketing and interest valued at fair value at the time the services were performed. These services were valued at $685,676. In addition, the Company recorded a capital contribution of $30,000 from a third party with no shares of common stock being issued. The Company recorded this directly to additional paid in capital.

During 2008, the Company issued 224,106 shares of common stock for various services, marketing and interest valued at fair value at the time the services were performed or interest accrued. These services were valued at $1,320,414. In addition, the Company issued 582,200 shares of common stock (on April 14, 2008, approved for issuance on June 4, 2007) in conversion of loans from the Company’s President and accrued compensation to the Company’s President in the amount of $1,318,617. The value was determined based on average pricing at the times the liabilities were incurred.

In the year ended December 31, 2009, the Company issued 1,137,990 shares of common stock to consultants due for obligations arising from various marketing services and professional fees for services rendered from November 30, 2007 to November 18, 2008, for fair value at the time services were performed, valued at $5,082,780. The Board had authorized the shares to consultants at the time services were performed but the obligation was not satisfied until the share issuance in 2009.  

During 2009, the Company authorized and issued 615,800 shares for various services including professional fees and marketing valued at $1,464,390 for the fair value at the time the services were performed. In addition, the Company issued 100,000 shares of common stock on November 18, 2009 in conversion of loans from the Company’s President for $150,000 and conversion of advances from our past Secretary of $75,000 in exchange for 50,000 shares of common stock.  The shares were issued at fair value at the time of conversion.

In the year ended December 31, 2010 the Company issued 897,320 shares of common stock (net of 93,750 shares that were canceled) including 29,000 shares for professional fees for services rendered during the second quarter of 2010, for fair value at the time services were performed, valued at $73,950.  The Board had authorized the shares to the professionals at the time services were performed.  250,000 shares were issued to Robert Kohn, our CFO, due November 1, 2009 under the terms of his employment contract.  The Board had authorized the shares at November 1, 2009 but the obligation was not satisfied until the share issuance June 4, 2010 of these shares 93,750 shares ($66,563 value) were returned upon the execution of the Separation agreement as defined above. 354,070 shares were issued on April 15, 2010 to satisfy the outstanding promissory notes including settlement of all principal and interest.  (See Note 5- Promissory Notes). 58,000 shares were issued to satisfy vendor payables ($58,767 value), 100,000 shares ($50,000 value) were issued in accordance with an investor relation agreement entered into in September and 200,000 shares ($100,000 value) were issued in conversion of a convertible note. In addition, the obligation for common stock to be issued at December 31, 2010 was reduced to $1,144,000, which represents 350,000 shares of common stock. During 2010, 953,500 shares were accrued for at a value of $1,739,625; $2,000,000 of this obligation was converted into a convertible note (1,208,500 shares); 414,125 shares ($300,594) were satisfied by stock issuances; and 31,750 shares ($27,563 value) that were previously accrued were written off during the year.

In the nine months ended September 30, 2011, the Company issued common stock to Michael Cohen, 625,000 shares for debt conversion of $350,000, and Steven Byle, 178,572 shares for debt conversion of $100,000. In addition, the Company issued 20,000 shares valued at $14,600 for services rendered. 925,000 shares of been issued in conversion of $344,500 in convertible notes payable; and 150,000 shares have been issued to an investor relations company for services rendered for a period of twelve months. The shares issued are exempt from registration under Sec. 4(2) of the Securities Act of 1933.

Warrants

The Company has no warrants outstanding as of September 30, 2011 or for the year ended December 31, 2010.


Options


The Board of Directors in 2010 approved the Proteonomix, Inc. 2010 Employees, Directors, Officers and Consultants Stock Option and Stock Award Plan (the “2010 Plan”). The 2010 Plan, reserved 2,500,000 shares that may be optioned or issued for all eligible participants.


The Company had granted 20,000 options to a consultant in May 2009 for her work related to Proteoderm products. Of the 20,000 options, 10,000 were exercisable immediately with the remaining 10,000 exercisable upon completion of the consultant’s engagement. The options are to expire in five years.

22 

The exercise price of the options is $2.50 per share. The options were valued utilizing the Black-Scholes method and have a put option value of $1.5395, calculated based on an expected term of 5 years, expected stock volatility of 100%, expected stock dividend yield of 0%, and risk-free interest rate of 3%. The value of the 10,000 options that are expensed in May 2009 is $15,395.


The Company had granted 15,000 options to a consultant in April 2010 for his work related to Proteoderm products. Of the 15,000 options, 5,000 were exercisable immediately with an additional 5,000 exercisable upon completion of certain requirements under the terms of the contract and the remaining 5,000 exercisable upon completion of the consultant’s engagement. The options are to expire in five years.

 

The exercise price of the options is $3.50 per share. The options were valued utilizing the Black-Scholes method and have a put option value of $2.6987, calculated based on an expected term of 5 years, expected stock volatility of 180.50%, expected stock dividend yield of 0%, and risk-free interest rate of 1.75%. The value of the 5,000 options that are expensed in April, 2010 is $13,494.


The Company had granted 1,000,000 options to its President, Michael Cohen, on April 26, 2010 exercisable immediately. The options are to expire in five years.  These were issued pursuant to a license agreement for Stromal Cell. The exercise price of the options is $3.55 per share. The options were valued utilizing the Black-Scholes method and have a put option value of $3.4019, calculated based on an expected term of 5 years, expected stock volatility of 180.5%, expected stock dividend yield of 0%, and risk-free interest rate of 1.75%. The value of the 1,000,000 options that are capitalized as license on the condensed consolidated balance sheet is $3,401,891.  These options are exempt for any stock splits or other reorganizations that would effect the option holder negatively.


The Company had granted 75,000 options to a U.S. based investor relations firm on June 1, 2010 exercisable ratably over 12 months commencing July 1, 2010. The options are to expire in five years.  If Proteonomix cancels the contract after a three month trial period, then the maximum amount of options exercisable is 18,750. The Company has expensed six months of these options (37,500 total) that have vested through December 31, 2010 as stock based compensation in the amount of $72,507 as of December 31, 2010.  There will be no further options vested as the contract was terminated.

 

The Company had granted 100,000 options to a European investor relations firm on June 15, 2010 exercisable ratably over 12 months commencing July 15, 2010. The options are to expire in June 2011.  The Company has expensed six months of these options (49,998 total) that have vested through December 31, 2010 as stock based compensation in the amount of $96,673 as of December 31, 2010. There will be no further options vested as the contract was terminated.


September 30, 2011

 

 

 

 

 

Stock Options

Number

Exercise Price (1)

Relative Value (2)

Fair Value

Term

Outstanding at Beginning

of the Year (3)


20,000


$2.50

 

$15,395

 

$50,000


5 Years

Kishore Ahuja, M.D. (4)

15,000

$3.50

$13,494

$52,500

5 Years

Michael Cohen, President (5)

1,000,000

$3.55

$3,401,891

$3,550,000

5 Years

Wolfe, Axelrod & Weinberger (6)

75,000

$5.00

$51,944

$375,000

5 Years

Logoform AG (7)

100,000

$5.00

$69,257

$500,000

         5 Year

Cancelled options (6 and 7)


Options Outstanding at September 30, 2011

(87,502) 



1,122,498

$5.00

 

 

 


(1) The exercise price is based on the Fair Market Value of the common stock at date of grant.


(2) Relative value is based on the Black-Scholes method.

23

 (3) 20,000 options were granted in May 2009 at $2.50 per share.


(4) 15,000 options were granted on April 1, 2010 at $3.50 per share. 10,000 options will be exercisable upon the completion of certain requirements of the contract, and 5,000 are exercisable as of April 2010.                                                                        


(5) Michael Cohen, the President of Proteonomix was granted 1,000,000 options on April, 26, 2010 at $3.55 per share. These options were issued to acquire the StromaCel Technology in the Company’s subsidiary, StromCel.                                                                                                                           

                   

(6) 75,000 options were issued on June 1, 2010 at $5.00 per share.  These are vested equally over a 12 month period starting July 1, 2010 and can be cancelled after a 90 day period except for 18,750 shares, which cannot be cancelled. All options subsequent to vesting after December 31, 2010 have been cancelled as the contract has been terminated.


(7) 100,000 options were issued on June 15, 2010 @ $5.00 per share vested equally over 12 months beginning July 2010. All options subsequent to vesting after December 31, 2010 have been cancelled as the contract has been terminated.



NOTE 11 -

PROVISION FOR INCOME TAXES


Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities.  Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return.  


Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.  At September 30, 2011, deferred tax assets consist of the following:  


Net operating losses

$ 6,203,134

Valuation allowance

(6,203,134)

$

-


At September 30, 2011, the Company had a net operating loss carry-forward in the amount of $18,244,511 available to offset future taxable income through 2031.  The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.  A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the periods ended September 30, 2011 and 2010 is summarized as follows:


September 30, 2011

      September 30, 2010

Federal statutory rate

(34.0%)

                                  (34.0%)

State income taxes, net of federal benefits

3.3

                                          3.3

Valuation allowance

30.7

                                        30.7

0

%

                0%


NOTE 12 -

FAIR VALUE MEASUREMENTS

On January 1, 2008, the Company adopted ASC 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

Level 1 inputs: Quoted prices for identical instruments in active markets.

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 inputs: Instruments with primarily unobservable value drivers.

24

NOTE 13 - SEGMENT INFORMATION

The Company operates and the chief decision maker for the Company segregates the operations into five separate distinct reporting segments. These segments are the sperm bank division, the stem-cell division, and includes the minimal operating expenses of Proteoderm, the skin care products division, PRTMI, Thor and StromaCel.

Operating segment data for the nine months ended September 30, 2011 is as follows:

 

Stem-Cell/Thor

Proteoderm

Sperm Bank

PRTMI & PRTMI RD(1)

StromaCel/ XGen

 

Total

 

Sales

$ -

$ -

$18,994

$ -

$ -

 

$18,994

 

Cost of sales

$ -

$ -

$37,921

$ -

$ -

 

$37,921

 

Gross profit (loss)

$ -

 $ -

($18,927)

$ -

$ -

 

($18,927)

 

Operating expenses

$553,811

$-

$56,397

$-

$-

 

$610,208

 

Depreciation and amortization

$29,520

$ -

$ -

$ -

 $255,142

 

$284,662

 

Other income (expense)

($55,509)

($2,775)

$ -

($112)

($1,339)

 

($59,735)

 

Net (loss)

($638,840)

($2,775)

($75,324)

($112)

($256,481)

 

($973,532)

 

Segment assets

$284,407

$-

$172,343

$-

$2,919,957

 

$3,376,707

 

Fixed Assets, net of depreciation

$25,066

                $ -

$ -

$ -

$ -

 

$25,066

 

(1)

PRTMI RD is a wholly-owned subsidiary of PRTMI.


Operating segment data for the six months ended September 30, 2010 is as follows:


 

Stem-Cell

Proteoderm

Sperm Bank

PRTMI & PRTMI RD(1)

StromaCel/ XGen

 

Total

 

Sales

$ -

$ -

$68,972

$ -

$ -

 

$68,972

 

Cost of sales

$ -

$ -

$2,330

$ -

$ -

 

$2,330

 

Gross profit

$ -

 $ -

$66,642

$ -

$ -

 

$66,642

 

Operating expenses

$2,210,298

$23,282

$63,938

$2,100

$60,344

 

$2,359,962

 

Depreciation and amortization

$10,428

$ -

$ -

$ -

 $ -

 

$10,428

 

Other income (expense)

($19,026)

$ -

$ -

$ -

$ -

 

($19,026)

 

Net income (loss)

($2,239,752)

(23,282)

$2,704

($2,100)

($60,344)

 

($2,322,774)

 

Segment assets

$222,834

$-

$216,489

$2,900

$3,401,891

 

$3,844,114

 

Fixed Assets, net of depreciation

$34,216

                $ -

$ -

$ -

$ -

 

$34,216

 

(1)

PRTMI RD is a wholly-owned subsidiary of PRTMI.


NOTE 14 - SUBSEQUENT EVENT

The Company entered into a consulting agreement with a consultant in July 2011, however work did not commence until October 2011. The consultant was engaged to perform business advice, consultation, information and services to the Company regarding marketing and business matters as well as business development strategies. The term of the agreement was for a period of three weeks, however can be extended. The Company in October 2011 issued 50,000 shares of common stock as compensation under the agreement.

The Company converted $150,000 (300,000 shares at $0.50) of their convertible note in October 2011 and an additional $200,000 (500,000 shares at $.40) in November, 2011.

25



In November 2011, the Company amended its designation in Delaware of the Series A Preferred Stock and Series C Preferred Stock to provide anti-dilution protection against both forward and reverse splits of the Company’s common stock and other reorganizations of similar nature. In the event that the common stock of the Company is subject to a reverse split, the number of shares into which the Series A and the Series C Preferred Stock are convertible remain unchanged. The Series C was amended to provide convertibility into the common stock of the Company at the option of the holder at a ratio of 100 common shares for each share of Series C Preferred Stock.


In November 2011, a new Series D Preferred Stock was designated in Delaware authorizing the issuance of 2,000,000 shares of the Sereis D Preferred Stock that is convertible into the common stock of the Company at a ratio of ten shares of common for each share of Series D Preferred Stock that is converted.  The Series D Preferred Stock is also protected against dilution in the event of forward splits, reverse splits and reorganizations.  In the event of a reverse split, the number of shares issued upon conversion of the Series D Preferred Stock remains unchanged.


In November 2011, Series D shares were issued to Michael Cohen in the amount of 130,000 shares in lieu of $100,000 of debt forgiveness, Steven Byle in the amount of 100,000 shares for services rendered, Ian McNiece in the amount of 30,000 shares as an amendment to his 2009 Consulting Agreement obviating the need for the Company to issue to him 100,000 shares of common stock, and Roger Fidler in the amount of 35,000 shares for legal services rendered and his agreement to provide legal services to the Company in the future, and Jeffrey Maller in the amount of 10,000 shares for consulting services pursuant to a consulting agreement described below.

The Company entered into a Consulting Agreement in November, 2011 pursuant to which the Company issued 100,000 shares of its restricted common stock for providing services for management consulting, business advisory, shareholder information and public relations.  The Consultant will also receive 100,000 shares of common stock from a third party for which the Company will incur an obligation to the third party in the amount of $100,000.

The Company engaged Jeffrey Maller as a consultant to assist the Company in development of new business opportunities, develop proposals and term sheets for such prospects and the drafting of legal documents. The term of the agreement is for a period of three years and compensation will be in the form of the Company’s Series D Preferred Stock. The Consultant received 10,000 Series D Preferred shares in November 2011 and will receive additional 10,000 Series D Preferred shares on the first and second anniversary dates of the consulting agreement.


ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General


You should read the following summary together with the more detailed information and consolidated financial statements and notes thereto and schedules appearing elsewhere in this report.  Throughout this report when we refer to the “Company,” “Proteonomix,” “we,” “our” or “us,” we mean Proteonomix, Inc., and its subsidiaries.


This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, intangible assets, and contingencies.  We base our estimates on historical experience, where available, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions and conditions.


Except for historical information, the material contained in this Management’s Discussion and Analysis is forward-looking.  Our actual results could differ materially from the results discussed in the forward-looking statements, which include certain risks and uncertainties.  These risks and uncertainties include the rate of market development and acceptance of our products, the

unpredictability of our sales cycle, the limited revenues and significant operating losses generated to date, and the possibility of significant ongoing capital requirements.

26

Our independent registered public accounting firm’s report on the consolidated financial statements for the year ended December 31, 2010 contains an explanatory paragraph wherein they expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinions should be given in determining whether to continue or become our stockholder.


General Business Overview

We are a biotechnology company engaged in the discovery and development of stem cell therapeutics, tissue banking services and cosmeceutical products. Our technologies are embodied in patent applications including but not limited to: a medium and scaffolding for enhancing the growth of stem cells, a growth platform for stem cells, a unique cord blood banking cryopreservation bag, a device to eliminate malformed stem cells via filtration. We have developed products utilizing our intellectual property including but not limited to an anti-aging cosmeceutical based on our NC138 protein matrix and the StromaCel cardiac treatment.  We have utilized our management and advisory team in conjunction with third party universities and research centers to develop these products and technologies. We have further developed an innovative business model for early commercialization and expedited FDA trials for our products and services through an international network of laboratories.

Company Overview

Cosmeceuticals – We have developed a range of anti-aging and wound care products, that we intend to manufacture, market and sell through our Proteoderm subsidiary based on a stem cell secreted matrix of proteins that stimulate collagen.

Stem Cell Therapies – We are developing a diverse array of therapies for major diseases such as cardiac arrest and diabetes. Our first product, StromaCel cellular material for post-myocardial infarction patients that we intend to bring to FDA trials in 2011 in conjunction with our new cellular expansion technology

Tissue Banking We provide various laboratory services including reproductive and other tissue banking through our subsidiary Sperm Bank of New York. We intend to apply our expansion technology to greatly enhance profitability in this field as part of our business strategy.

Business Model – We are seeking to establish an international network of laboratories through which we intend to reach market early for treatments still in FDA trials while simultaneously expediting the FDA trials with the data collected from the treatment.

Pharmacological – Our first pharmacological product, currently named UMK 121, provides for the in vivo mobilization of specific bone marrow stem cells. The pre-clinical studies were conducted in rodents and a large animal model to confirm the potential of the UMK-121 technology to mobilize Stromal Stem Cells (“SSCs”) into the peripheral blood of animals, thereby making the SSCs available for therapeutic uses. The Company has created a wholly owned subsidiary, Thor Biopharma Inc. (“THOR”) to develop and commercialize the UMK 121. THOR is in a late stage agreement negotiation with the University of Miami on the implementation of a human clinical trial.

Technology Overview

We have worked together with independent outside laboratories and national universities to develop a portfolio of complementary and synergistic technologies covering all steps in the Regenerative Therapy process. These steps include:

Cell Identification – Stem cells occur in various organs in the body, identifying the desired cells from all other cells is the first step towards a treatment. We have filed patent applications for biomarkers specifically identifying Islet Cells in the pancreas for diabetes treatment and Stromal Cells in bone marrow for cardiac treatment, marketed under the brand name StromaCel.

Cell Isolation Once the cells are identified, the desired cells must be isolated from all others to create a pure material to increase efficiency and reduce rejection. This is the second step towards a treatment. We have filed patents on a method of stem cell isolation for various applications.

Cell Conversion – For some treatments, the Stem Cells must be converted from one type to another. We have filed a patent for conversion of pancreatic stem cells into insulin producing beta cells as part of our diabetes research.

27

Cell Expansion – Once the desired cells have been identified, isolated, and converted for the desired result, the quantity must be dramatically increased in number. Current technology is generally limited to a five-generation increase in cells before differentiation (replication errors). We have developed a unique growth medium and matrix that currently shows many additional generations without differentiation.

Cryopreservation – The final step in treatment is the preservation of the material for storage and transport. We have developed a technology that decreases the numbers of cells lost during the cryopreservation and thawing process and further reduces the chances of contamination.

Cosmeceutical Overview

We discovered a matrix of proteins and polypeptides, NC-138TM, secreted from our patent pending Stem Cell growth platform. Based upon this protein matrix, we have developed a line of Anti-Aging Skin Care Products which are ready for commercialization. When NC-138TM was first discovered, it showed exciting, positive results in a double-blind study. We launched this product at the Anti-Aging Conference in 2008, and since then, we have signed up approximately 200 physicians in our “prescription” treatment program and received a substantial number of serious international distributorship inquiries. However, full product launch has been delayed due to lack of financing.. Upon securing financing, we will seek to exploit our network of interested physician and distributors to make a worldwide product launch.

Proteoderm is ready for initial market entry as an over the counter Anti-Aging product. We have contacted with Dr. Smeena Khan to conduct a formal 150 patient study. Pre-sales have commenced on the internet and first sales will be online only. Once sufficient revenue exists to cover cash flows on larger orders, the product will be brought to the high-end “prescription” market and for mass international distribution. We anticipate that our first shipment will occur prior to the last quarter of 2011.

StromaCelTM Cardiac Treatment

StromaCelTM is a post Myocardial Infarction Treatment using Allogenic Stem Cells from Bone Marrow donors. Administered via an IV drip in the first two weeks following Infarction, it has been demonstrated to increases long-term recovery of heart function. StromaCelTM was developed in conjunction with a major academic institution and is now ready for commercialization and FDA trials. We have developed an improved protocol for material expansion that has recently completed validation runs at a major academic institution increasing from 10X times to 50X expansion.

StromaCelTM intends to sell to foreign PRTMI’s for treatment of patients abroad. The Company intends to utilize the revenues and data to support and supplant respectively an FDA trial of the product. Contracts have been signed with medical facilities in the Dominican Republic and it is to soon to determine when the Company will begin treating patients. Material production has been contracted to the major academic institution. The Company anticipates expanding their PRTMI network to serve local patients in countries not subject to FDA type regulations and fly in patients from nearby regulated countries when properly funded.

Cord Blood Model

We have developed a Cord Blood expansion technology and combined it with an improved Cryopreservation system. These technologies make it possible to change the standard model for Cord Blood Banking. Under our model, Umbilical Cord Blood banking will become a free service to patients and we will increase the donor supply to eliminate shortages. Once we can complete our trials (pre clinical and FDA), we will use our expansion and cryopreservation system to increase the number of usable cells in a donated cord blood unit; and offer a free service to process, cryopreserve and bank one dose per patient for the patient’s lifetime. The patient must, however, agree to donate all additional doses to transplant patients and parents are given an opportunity to protect their child (patient).

Regenerative Translational Medicine

Regenerative medicine refers to research into treatments that restore adult body parts. There are three strategies for future treatments: the injection of stem cells or progenitor cells; the induction of regeneration by introduced substances; and the transplantation of in vitro grown organs and tissues.

28

Translation Medicine is the emerging view of medical practice and interventional epidemiology, as a natural 21st century progression from Evidence-Based Medicine. It integrates research inputs from the basic sciences, social sciences and political sciences to optimize both patient care and also preventive measures which may extend beyond the provision of healthcare services.

Translational Research is the underlying basis for Translational Medicine that is the process which leads from evidence based medicine to sustainable solutions for public health problems. Fulfilling the promise of translational research for improving the health and longevity of the world’s population depends on developing broad-based teams of scientists and scholars who are able to focus their efforts of clinical trials into changes in clinical practice, informed by evidence from the social and political sciences.

We are a 100% owner in PRTMI. PRTMI anticipates focusing on the translation of promising research in stem cell biology and cellular therapy to clinical applications of regenerative medicine. The mission of PRTMI will be to undertake clinical trials in regenerative medicine for delivery of cutting edge therapies. XGen will interface between clinical programs to identify potential therapies to move into clinical studies. This will involve development of clinical protocols, development of manufacturing of cellular products for clinical use, monitoring and compliance of the clinical trials. Further, PRTMI will provide for the seamless transition between the lab and the patient care facility.

History of the Company

Azurel, Ltd. was incorporated on June 26, 1995 in the State of Delaware and marketed a line of fragrances. On February 2, 2001, Azurel filed a voluntary petition for protection from creditors under Chapter 11 in the United States Bankruptcy Court for the District of New Jersey, Newark until it was discharged from bankruptcy in December, 2005. In September 2006, Azurel, Ltd., through a share exchange agreement, acquired National Stem Cell Inc. and its subsidiary, The Sperm Bank of New York and changed its name to National Stem Cell Holding, Inc.

National Stem Cell had intellectual property consisting of research into immunological isolation of stem cell populations derived from umbilical cord blood and bone marrow and, in March 2006, began working with the John Hopkins University and developed multiple patents in stem cell expansion, stem cell growth and identification of particular types of stem cells.

The Sperm Bank of New York, an operating wholly-owned subsidiary of National Stem Cell, derives its revenue from the sale of donated sperm units to potential parents and from the cryopreservation of sperm units maintained by individuals for future use.

On July 8, 2008, the Company formed Proteoderm as a third wholly-owned subsidiary. Through this subsidiary, the Company produces and synthesizes protein polypeptides secreted by stem cells and incorporate them into uniquely formulated personal care products.

In August 2008, the Company changed its name to Proteonomix, Inc.

In an effort to place different technologies and therapies in different subsidiaries, Stromacel, Inc. ("StromaCel") was registered as a Florida corporation on December 24, 2009 by our President and CEO, Michael Cohen, for $168.   In February, 2010 we acquired all of StromaCel’s authorized shares at cost for $168 and StromaCel became a subsidiary of the Company.  

We formed Proteonomix Regenerative Translational Medicine Institute, Inc. ("PRTMI") as a Florida corporation on January 5, 2010 and PRTMI RD, SRL incorporated under the laws of the Dominican Republic in February, 2010 as a subsidiary of PRTMI. PRTMI will focus on the translation of promising research in stem cell biology and cellular therapy to clinical applications of regenerative medicine. At present, the PRTMI subsidiary does not have any assets, including technology licenses. We cannot guarantee if and when it will become operational.

StromaCel intends to develop therapies using stromal cells which are key components of tissues and provide critical cytokines and growth factors as well as the cellular microenvironment for normal homeostasis. A cytokine is a small protein released by cells that affects the interactions and communications between cells and the behavior of cells. A growth factor is a naturally occurring substance capable of stimulating cellular growth, proliferation and differentiation. Homeostasis is a self-regulating process by which a biological system maintains stability while adjusting to changing conditions. Stromal cells provide a niche proliferation environment for stem cells. StromaCel's goal is to study the basic cellular properties of stromal cells and to identify the utility of cellular and protein derivatives in disease repair.

29

With the above in mind, on May 4, 2010, Proteonomix licensed from the Cohen-McNiece Foundation the Stromal Cell technology (“Technology”) for potential therapeutic use in the regrowth of damaged cardiac cells after a heart attack.  The Cohen-McNiece Foundation was formed by Proteonomix President, Michael Cohen, and its Chief Scientific Officer and Vice-President, Ian McNiece, PhD to develop cellular technology for patients who have suffered myocardial infarctions.  The Technology was licensed in exchange for a 2% royalty on gross revenue derived from use of the Technology and 1,000,000 stock options at $3.55 per share to Michael Cohen, the Company’s president.  The 2% royalty will be used by the Foundation to do further research into stem cell applications. Proteonomix received a right of first refusal to license any technology developed by the Foundation. Proteonomix has sub-licensed the Technology to StromaCel for a 2% royalty, but Proteonomix will remain responsible for all costs associated with patent prosecution for the Technology.  In the event of bankruptcy, the rights to the Technology granted by the license revert to the Foundation. On February 1, 2011 the Company announced that it has filed an additional patent on the StromaCel technology that was intended to improve the Company's patent position on StromaCel with respect to a newly developed breakthrough method of stem cell expansion.

On June 1, 2010, Proteonomix began to concentrate its Research and Development resources on the development of StromaCel in order to further develop its portfolio of intellectual properties and global partnerships.

On May 24, 2010, Proteonomix launched its retail web site, www.proteoderm.com, and began accepting pre-orders for its anti-aging line of skin care products. Proteoderm contains Matrix NC-138 an anti-aging bioactive ingredient, developed by Proteonomix Inc. Matrix NC-138 is the first product in the Company's pipeline that was a result of the Company's R & D program stem cell and collagen growth. The Company does not anticipate filling orders until the second quarter of 2012.

On May 28, 2010, Proteonomix completed the development of a new formulation of Proteoderm. The new formulation will only be available at licensed health professionals' offices. The new product, Proteoderm PS (physician strength) is designed to provide a specific dosage of the active ingredient Matrix NC-138, to the patient depending on the patient's skin type and genomic analysis.  

This should enable the professional to emphasize the use of information about an individual patient to select or optimize that patient's preventative and therapeutic care for their skin.

On June 1, 2010 Proteonomix retained Wolfe Axelrod Weinberger Associates (“WAW”), an investor relations agency for one year.  WAW is to receive $7,500 a month and options to purchase 75,000 shares at a purchase price of $5.00 per share, which vest ratably over the 12 month contract commencing July 1, 2010.  The Company has a right to terminate the agreement after three months including all fees and stock options.  The maximum stock options to be issued, if terminated, would be 18,750 shares. The Company has expensed $30,000 through December 31, 2010, and issued 10,000 shares of stock in October 2010 to cover 2 additional months of service through November 30, 2010. The Company has not utilized the services subsequent to November 30, 2010 and terminated this agreement at that time. There is currently $15,000 due to Wolfe, Axelrod and Weinberger as of December 31, 2010. The Company has expensed in stock-based compensation 37,500 options at a value of $72,507.  


On June 15, 2010 Proteonomix retained Logoform AG, to provide marketing, investor relations and capital raising services for Proteonomix for three months.  Logoform AG received 100,000 stock options @ $5.00 per share exercisable until June 15, 2011, ratably over twelve months commencing July 15, 2010. The Company has expensed 49,998 options through December 31, 2010 as stock-based compensation in accordance with the terms of the agreement. There will be no additional options granted subsequent to December 31, 2010 as the contract has been terminated. The value of the options was $96,673 for the year ended December 31, 2010 relating to these options. Logoform AG also received 50,000 shares of Proteonomix freely tradable, duly authorized and validly issued shares to be paid by a third party on behalf of the Company.  Logoform AG will also receive a four percent finder’s fee for equity or debt raised up to $3,000,000.  


On June 16, 2010 Proteonomix shares began to trade on the OTC Bulletin Board under the symbol PROT.


On January 3, 2011 Ian McNiece joined our Board of Directors





30

On January 3, 2011 the Company formed a new subsidiary, THOR BioPharma, Inc., in order to provide an entry into the pharmaceutical market. On March 2, 2011, The Company entered into an agreement with The Cohen McNiece Foundation, Inc. (the "Foundation"), a Florida not-for-profit corporation, to exclusively develop and license the Foundation's UMK-121 Mobilization of Bone marrow Stem Cell technology ("UMK-121") which is a proprietary technology based upon existing FDA approved drugs. The License imposes no upfront costs on the Issuer which will sublicense UMK-121 to its wholly owned subsidiary THOR BioPharma. The Issuer is required to make milestone payments to the Foundation upon 1) the issuance of a patent, 2) completion of Phase III trials and 3) commercialization which will require the payment of a 3% royalty on net sales. On April 7, 2011, the Company announced that it filed a provisional patent application in anticipation of commencement of its initial clinical trial of a drug combination thought to extend life expectancy for a class of terminally ill patients awaiting liver transplants. The Company, based upon its exclusive license agreement to develop Mobilization of Bone Marrow Stem Cells Technology (UMK-121), filed a patent application in April 2011, covering mobilization of non-hematopoietic stem cells for applications in regenerative medicine.

Financial Operations Overview

Revenues

Our revenues and associated direct costs since inception are a result of our sales of donor sperm samples from our Sperm Bank of New York subsidiary, a company engaged in reproductive tissue banking.  In 2011 we anticipate the beginning of sales in the last quarter for our Proteoderm products.

General and Administrative Expenses

General and administrative expenses consist primarily of the costs associated with our general management, including salaries, professional fees such as legal and accounting, marketing expenses and advisory fees. We have increased our general and administrative expense for legal and accounting compliance costs, investor relations and other activities associated with operating as a publicly traded company.  We have strengthened our administrative capabilities through various consulting agreements. Continued increases will also likely result from additional operational, financial, accounting and advisory contracts.  The majority of our expenses were paid by stock based compensation agreements.

Income Taxes

We have not recognized any deferred tax assets or liabilities in our financial statements since we cannot assure their future realization. Because realization of deferred tax assets is dependent upon future earnings, a full valuation allowance has been recorded on the net deferred tax assets, which relate primarily to net operating loss carry-forwards. In the event that we become profitable within the next several years, we have net deferred tax assets (before a 100% valuation allowance) of approximately $6,203,134 that may be utilized prior to us having to recognize any income tax expense or make payments to the taxing authorities. Utilization of our net operating loss carry-forwards in any one year may be limited under IRC Section 382, and we could be subject to the alternative minimum tax, thereby potentially diminishing the value to us of this tax asset.


Principal Offices


The Company leases approximately 3,269 square feet of office space pursuant to the terms of a lease entered into on April 13, 2010, which expired on April 30, 2011, for a monthly lease payment of $5,585. The Company has renewed the agreement on a month to month basis. The Company believes that such office space will be sufficient for its needs for the next 12 months, although the lease does not contain a renewal option.  The Company’s principal offices are located at 187 Mill Lane, Mountainside, NJ 07052. Our telephone number at such address is (973) 544-6116.








31



Results of Operations

Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010

The following analysis reflects the condensed consolidated results of operations of Proteonomix, Inc. and its subsidiaries.


2011

Stem-Cell/Thor

Proteoderm

Sperm Bank

PRTMI & PRTMI RD(1)

StromaCel/ XGen

 

Total

Sales

$ -

$ -

$18,994

$ -

$-

 

$18,994

Cost of sales

$ -

$ -

$37,921

$ -

             $ -

 

$37,921

Gross profit (loss)

$ -

$ -

($18,927)

$ -

$ -

 

($18,927)

Operating expenses

$553,811

$-

$56,397

$ -

$-

 

$610,208

Depreciation and amortization

$29,520

$ -

$ -

$ -

$ 255,142

 

$284,662

Other income (expense)

($55,509)

($2,775)

$ -

($112)

($1,339)

 

($59,735)

Net income (loss)

$(638,840)

($2,775)

($75,324)

($112)

($256,481)

 

($973,532)

(1)    PRTMI RD is a wholly-owned subsidiary of PRTMI.

 

 

 

 

 


 

 

 

2010

Stem-Cell

Proteoderm

Sperm Bank

PRTMI & PRTMI RD(1)

StromaCel/ XGen

 

Total

Sales

$ -

$ -

$68,972

$ -

$ -

 

$68,972

Cost of sales

$ -

$ -

$2,330

$ -

$ -

 

$2,330

Gross profit

$ -

$ -

$66,642

$ -

$ -

 

$66,642

Operating expenses

$2,210,298

$23,282

$63,938

$2,100

$60,344

 

$2,359,962

Depreciation and amortization

$10,428

$ -

$ -

$ -

$ -

 

$10,428

Other income (expense)

($19,026)

$ -

$ -

$ -

$ -

 

($19,026)

Net income (loss)

($2,239,752)

($23,282)

$2,704

($2,100)

($60,344)

 

($2,322,774)

(1)    PRTMI RD is a wholly-owned subsidiary of PRTMI.

 

 

 

 

 

 

 


Net Revenues.  Net revenues were $18,994 for the nine month period ended September 30, 2011, compared to $68,972 for the comparable period in 2010, or a decrease of $49,978. The decrease is due to a smaller demand for the sperm bank services. A majority of the revenue is driven by the storage of the samples versus the actual sale of the samples.


Cost of Sales.  Cost of sales for the nine months ended September 30, 2011 was $37,921 (200% of net revenue), compared to $2,330 (4% of net revenue) during the same period in 2010, an increase of $35,591. The increased costs are the result of additional costs involved in the production of the samples and change in inventory.


Operating Expenses and Depreciation.  Operating expenses and depreciation for the nine months ended September 30, 2011, decreased $1,475,520 (62.2%) to $894,870 for 2011 as compared to $2,370,390 for the same period in 2010. The table below details the components of operating expense, as well as the dollar and percentage changes for the nine-month period ended September 30.






32






 

Nine Months Ended September 30,

 

2011

 

2010

 

$ Change

 

% Change

 

 

 

 

 

 

 

 

Wage and wage related costs

 $ 194,760 

 

 $ 318,752 

 

 $ (123,992)

 

  (38.9)

Professional fees

  263,040 

 

  1,604,786 

 

  (1,341,746)

 

  (83.6)

Insurance costs

  11,540 

 

  35,906 

 

  (24,366)

 

  (67.9)

Rent - building and equipment

  23,303 

 

  26,228 

 

  (2,925)

 

  (11.2)

Travel and related

  32,374 

 

  179,729 

 

  (147,355)

 

  (82.0)

Miscellaneous expenses

  85,191 

 

  59,866 

 

  25,325 

 

  42.3 

Depreciation and amortization

  284,662 

 

  10,428 

 

  274,234 

 

  2,629.8 

Stock based compensation

  -   

 

  134,695 

 

  (134,695)

 

  (100.0)

   Total

 $ 894,870 

 

 $ 2,370,390 

 

 $ (1,475,520)

 

  (62.2)

 

 

 

 

 

 

 

 



Wage and wage related costs, which includes salaries, commissions, taxes and benefits, decreased $123,992 (38.9%), due to a reduction in wages and reduced taxes as the CFO was no longer with the Company.


Professional fees include legal, accounting, stock transfer agent, SEC filing, and general consulting fees. Professional fees decreased for the nine months ended September 30, 2011 versus the same period last year by $1,341,746 (83.6%) due to: a decrease in the issuance of stock for services rendered during the quarter and a decrease in the accrued stock liability and a decrease in legal fees.


Insurance costs in the nine months ended September 30, 2011, were $11,540 compared to $35,906 for the same period in 2010, a decrease of $24,366 (67.9%). The decrease is attributed to a reduction in policy limitations and the policy for D & O insurance expiring.


Rent decreased by $2,925 (11.2%) to $23,303 in the nine months ended September 30, 2011, as compared to $26,228 for the same period in 2010, due to the Company’s allocation of rent relating to their sperm bank operations.

32

Travel expense for the nine months ended September 30, 2011 of $32,374 compared to the same period for 2010 of $179,729, or a decrease of $147,355 (82.0%).


Miscellaneous expense increased by $25,325 (42.3%) to $85,191 for the nine months ended September 30, 2011, as compared to $59,866 for the same period in 2010. The decrease was due to the Company’s lack of cash flow.


Depreciation expense in our operating expenses for the nine months ended September 30, 2011of $284,662compared to the same period for 2010 of $10,428 increased as a result of the amortization of the license and the patents.


Stock-based compensation, which represents a noncash expense category, represents stock-based compensation to consultants under various contracts. During the nine months ended September 30, 2011the Company recognized no stock based compensation compared to $134,695 for the period ended September 30, 2010.


The Company measures employee stock option expense in based on the Black-Scholes fair value as outlined above in accordance with ASC 718-10. ASC 718-10 requires the recognition of all share-based payments to employees or to non-employee directors, as compensation for service on the Board of Directors, as compensation expense in the consolidated financial statements. The amount of compensation is measured based on the estimated fair values of such stock-based payments on their grant dates, and is amortized over the estimated service period to vesting.  Consulting expense for stock-based payments to consultants is based on the fair value of the stock-based compensation at inception and amortized over the estimated service period but, in accordance with ASC 505-50, is remeasured on each reporting date until the performance commitment is complete.


Other Income (Expense). Other income (expense) includes interest income, interest expense and other non-operating income. Other expense for the nine months ended September 30, 2011 was $59,735 compared to other expense of $19,026 for the same period last year. The increase in other expense from 2010 of $40,709 is the result of the interest on the related party debt being calculated at 3% commencing January 1, 2011.


33


Net Loss and Net Loss per Share.  Net loss for the nine months ended September 30, 2011 was $973,532, compared to $2,322,774 for the same period in 2010, for a decreased net loss of $1,349,242 (58%). Net loss per share for the nine months ended September 30, 2011 was $0.16 compared to $0.51 in the same period for 2010, based on the weighted average shares outstanding of 6,151,540 and 4,540,618, respectively. The decreased net loss for the nine months ended September 30, 2011 compared to the same period in 2010 arose from the following: (i) decreased net revenue of $49,978, (ii) increased cost of sales of $35,591, (iii) decreased salary and benefit costs of $123,992, (iv) decreased professional fees of $1,341,746, (v) a decrease in insurance costs of $24,366, (vi) decreased travel and entertainment costs of $147,355, (vii) an increase in miscellaneous costs of $25,325, (viii) a decrease in rent expense of $2,925, and (ix) an increase in other net non-operating income and expense of $40,709.

Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

The following analysis reflects the condensed consolidated results of operations of Proteonomix, Inc. and its subsidiaries.


2011

Stem-Cell/Thor

Proteoderm

Sperm Bank

PRTMI & PRTMI RD(1)

StromaCel/ XGen

 

Total

Sales

$ -

$ -

$7,015

$ -

$-

 

$7,015

Cost of sales

$ -

$ -

$30,760

$ -

             $ -

 

$30,760

Gross profit

$ -

$ -

($23,745)

$ -

$ -

 

($23,745)

Operating expenses

$241,549

$-

$18,310

$ -

$-

 

$259,859

Depreciation and amortization

$10,331

$ -

$ -

$ -

$ 85,047

 

$95,378

Other income (expense)

($19,456)

($935)

$ -

($38)

($451)

 

($20,880)

Net income (loss)

$(271,336)

($935)

($42,055)

($38)

($85,498)

 

($399,862)

(1)    PRTMI RD is a wholly-owned subsidiary of PRTMI.

 

 

 

 

 



 

 

 

2010

Stem-Cell

Proteoderm

Sperm Bank

PRTMI & PRTMI RD(1)

StromaCel/ XGen

 

Total

Sales

$ -

$ -

$21,647

$ -

$-

 

$21,647

Cost of sales

$ -

$ -

$218

$ -

$ -

 

$218

Gross profit

$ -

$ -

$21,429

$ -

$ -

 

$21,429

Operating expenses

$538,399

$5,094

$28,653

$ -

$59,500

 

$631,646

Depreciation and amortization

$3,476

$ -

$ -

$ -

$ -

 

$3,476

Other income (expense)

$-

$ -

$ -

$ -

$ -

 

$-

Net income (loss)

$(541,875)

($5,094)

($7,224)

$ -

($59,500)

 

($613,693)

(1)    PRTMI RD is a wholly-owned subsidiary of PRTMI.

 

 

 

 

 

 

 


Net Revenues.  Net revenues were $7,015 for the three month period ended September 30, 2011, compared to $21,647 for the comparable period in 2010, or a decrease of $14,632. The decrease is due to a smaller demand for the sperm bank services. A majority of the revenue is driven by the storage of the samples versus the actual sale of the samples.


Cost of Sales.  Cost of sales for the three months ended September 30, 2011 was $30,760 (439% of net revenue), compared to $218 (1% of net revenue) during the same period in 2010, an increase of $30,542. The increased costs are the result of additional costs involved in the production of the samples.


Operating Expenses and Depreciation.  Operating expenses and depreciation for the three months ended September 30, 2011, decreased $278,947 (44%) to $355,237 for 2011 as compared to $634,184 for the same period in 2010. The table below details the components of operating expense, as well as the dollar and percentage changes for the three-month period ended September 30.

34

 

Three Months Ended September 30,

 

2011

 

2010

 

$ Change

 

% Change

 

 

 

 

 

 

 

 

Wage and wage related costs

 $ 63,406 

 

 $ 103,423 

 

 $ (40,017)

 

(38.7)

Professional fees

  142,403 

 

  331,488 

 

  (189,085)

 

(57.0)

Insurance costs

  7,655 

 

  13,021 

 

  (5,366)

 

(41.2)

Rent - building and equipment

  5,108 

 

  9,354 

 

  (4,246)

 

(45.4)

Travel and related

  2,380 

 

  51,740 

 

  (49,360)

 

(95.4)

Miscellaneous expenses

  38,907 

 

  481 

 

  38,426 

 

7,988.8 

Depreciation and amortization

  95,378 

 

  3,476 

 

  91,902 

 

2,643.9 

Stock based compensation

  -   

 

  121,201 

 

  (121,201)

 

100.0 

   Total

 $ 355,237 

 

 $ 634,184 

 

 $ (278,947)

 

(44.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Wage and wage related costs, which includes salaries, commissions, taxes and benefits, decreased $40,017 (38.7%), due to a reduction in wages and reduced taxes as the CFO was no longer with the Company.


Professional fees include legal, accounting, stock transfer agent, SEC filing, and general consulting fees. Professional fees decreased for the three months ended September 30, 2011 versus the same period last year by $189,085 (57.0%) due to: a decrease in the issuance of stock for services rendered during the quarter and a decrease in the accrued stock liability and a decrease in legal fees.


Insurance costs in the three months ended September 30, 2011, were $7,655 compared to $13,021 for the same period in 2010, a decrease of $5,366 (41.2%). The decrease is attributed to a reduction in policy limitations and the policy for D & O insurance expiring.


Rent decreased by $4,246 (45.4%) to $5,108 in the three months ended September 30, 2011, as compared to $9,354 for the same period in 2010, due to the Company’s allocation of rent relating to their sperm bank operations.


Travel expense for the three months ended September 30, 2011 of $2,380 compared to the same period for 2010 of $51,740, or a decrease of $49,360 (95.4%).


Miscellaneous expense increased by $38,426 (7988.8%) to $38,907 for the three months ended September 30, 2011, as compared to $481 for the same period in 2010. The decrease was due to the Company’s lack of cash flow.

 

Depreciation expense in our operating expenses for the three months ended September 30, 2011of $95,378 compared to the same period for 2010 of $3,476 increased as a result of the amortization of the license and the patents.


Stock-based compensation, which represents a noncash expense category, represents stock-based compensation to consultants under various contracts. During the three months ended September 30, 2011and 2010, the Company recognized $0 and $121,201 in stock-based compensation expense for consultants.  


The Company measures employee stock option expense in based on the Black-Scholes fair value as outlined above in accordance with ASC 718-10. ASC 718-10 requires the recognition of all share-based payments to employees or to non-employee directors, as compensation for service on the Board of Directors, as compensation expense in the consolidated financial statements. The amount of compensation is measured based on the estimated fair values of such stock-based payments on their grant dates, and is amortized over the estimated service period to vesting.  Consulting expense for stock-based payments to consultants is based on the fair value of the stock-based compensation at inception and amortized over the estimated service period but, in accordance with ASC 505-50, is remeasured on each reporting date until the performance commitment is complete.


Other Income (Expense). Other income (expense) includes interest income, interest expense and other non-operating income. Other expense for the three months ended September 30, 2011 was $20,880 compared to other expense of $0 for the same period last year. The increase in other expense from 2010 of $20,880 is the result of the interest on the related party debt being calculated at 3% commencing January 1, 2011.



35

Net Loss and Net Loss per Share.  Net loss for the three months ended September 30, 2011 was $399,862, compared to $613,693 for the same period in 2010, for a decreased net loss of $303,626 (50%). Net loss per share for the three months ended September 30, 2011 was $0.06 compared to $0.13 in the same period for 2010, based on the weighted average shares outstanding of 6,779,034 and 4,897,734, respectively. The decreased net loss for the three months ended September 30, 2011 compared to the same period in 2010 arose from the following: (i) decreased net revenue of $14,632, (ii) increased cost of sales of $30,542, (iii) decreased salary and benefit costs of $40,017, (iv) decreased professional fees of $189,085, (v) a decrease in insurance costs of $5,366, (vi) decreased travel and entertainment costs of $49,360, (vii) an increase in miscellaneous costs of $38,426, (viii) a decrease in rent expense of $4,246, and (ix) an increase in other net non-operating income and expense of $20,880.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities:


 

 

Nine Months Ended September 30

Category

 

2011

 

2010

 

 

 

 

 

Net cash provided (used) in operating activities

 

 $ (140,579)

 

 $ (447,976)

Net cash provided (used) in investing activities

 

  (9,560)

 

  (156,346)

Net cash provided by financing activities

 

  150,126 

 

  507,424 

 

 

 

 

 

Net increase (decrease) in cash

 

 $ (13)

 

 $ (96,898)

 

 

 

 

 





Net Cash Used in Operations


Net cash used in operating activities for the nine months ended September 30, 2011, was $140,579, compared with net cash used in operating activities of $447,976 during the same period for 2010, or a decrease in the use of cash for operating activities of $307,397 (69%). The decrease in the use of cash is due to: (i) lower net income (loss) of $973,532 offset by an increase in accounts receivable of $3,903 and an increase in accounts payable of $395,351.


Net Cash Used in Investing Activities


In 2011 and 2010, the only investing activities were the increase in costs associated with filing patents of $9,560 and $156,346, respectively.


Net Cash Provided by Financing Activities


Net proceeds from financing activities were $150,126 for the nine months ended September 30, 2011 compared with $507,424 for the same period in 2010, or a decrease of $357,298 (71%). Of the 2011 and 2010 proceeds from financing activities, 100% was from the issuance of new debt to related parties from cash infused into the Company. Management is seeking, and expects to continue to seek to raise additional capital through equity or debt financings, including through one or more equity or debt financings to fund its operations, and pay amounts due to its creditors and employees. However, there can be no assurance that the Company will be able to raise such additional equity or debt financing or obtain such bank borrowings on terms satisfactory to the Company or at all.



Cash and Cash Equivalents


Our cash and cash equivalents decreased during the nine months ended September 30, 2011 by $13, compared to a decrease in cash and cash equivalents during the same period in 2010 of $96,898. As outlined above, the decrease in cash and cash equivalents for the current fiscal period was the result of; (i) cash used in operating activities of $140,579, (ii) cash used for the net increase in patent costs of $9,560, and (iii) a decrease in cash by $150,126 from financing activities.



36



Working Capital Information - The following table presents a summary of our working capital at the end of each period:


 

 

(Unaudited)

 

 

Category

 

September 30, 2011

 

December 31, 2010

 

 

 

 

 

Cash and cash equivalents

 

 $ 5 

 

 $ 18 

 

 

 

 

 

Current assets

 

  202,343 

 

  202,696 

Current liabilities

 

  6,935,989 

 

  7,095,011 

Working capital (deficit)

 

 $ (6,733,646)

 

 $ (6,892,315)

 

 

 

 

 



At September 30, 2011, we had a working capital deficit of $6,733,646, compared with a working capital deficit at December 31, 2010 of $6,892,315, a decrease in working capital deficit of $158,669 (3%). As of September 30, 2011, the Company had cash and cash equivalents of $13 as compared to $18 on December 31, 2010. The increase in cash is the net result of our operating, investing and financing activities outlined above. Our revenue generating activities during the period, as in previous years, have not produced sufficient funds for profitable operations, and we have incurred operating losses since inception. Accordingly, we have continued to utilize the cash raised in our financing activities to fund our operations. In addition to raising cash through additional financing activities, we may supplement our future working capital needs through the extension of trade payables and increases in accrued expenses. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon



our continued operations, which in turn is dependent upon our ability to meet our financial requirements, raise additional financing, and the success of our future operations.


Our cash and cash equivalents during the nine months ended September 30, 2011 decreased by $13 and is the net result of our operating, investing and financing activities outlined above. Our revenue generating activities during the period, as in previous years, have not produced sufficient funds for profitable operations, and we have incurred operating losses since inception.  Accordingly, we have continued to utilize the cash raised in our financing activities to fund our operations. In addition to raising cash through additional financing activities, we have supplemented, and expect to continue to supplement, our future working capital needs through the extension of trade payables, ongoing noninterest bearing loans from our chief executive officer, additional deferral of salaries for executive officers, employees and consultants. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon our continued operations, which in turn is dependent upon our ability to meet our financial requirements, raise additional financing, and the success of our future operations.


In view of the above matters, realization of certain of the assets in the accompanying balance sheets is dependent upon our continued operation, which in turn is dependent upon our ability to meet our financial requirements, raise additional financing, and the success of its future operations.


Additional Capital


To the extent that additional capital is raised through the sale of our equity or equity-related securities of our subsidiaries, the issuance of our securities could result in dilution to our stockholders. No assurance can be given that we will have access to the capital markets in the future, or that financing will be available on terms acceptable to satisfy our cash requirements, implement our business strategies, If we are unable to access the capital markets or obtain acceptable financing, our results of operations and financial condition could be materially and adversely affected.  We may be required to raise substantial additional funds through other means. We have not begun to receive revenues from our cord blood services or cosmeceutical sales at this point. Management may seek to raise additional capital through one or more equity or debt financings or through bank borrowings.  We cannot assure our stockholders that our technology and products will be commercially accepted or that revenues will be sufficient to fund our operations.


If adequate funds are not available to us, we may be required to curtail operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or products.





37

Off-Balance Sheet Arrangements


We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current of future effect upon our financial condition or results of operations as of September 30, 2011 and December 31, 2010.


Financial Condition, Going Concern Uncertainties and Events of Default




During the nine-month period ended September 30, 2011, Proteonomixs’ revenue generating activities have not produced sufficient funds for profitable operations and we have incurred operating losses since inception. In view of these matters, realization of certain of the assets in the Company’s consolidated balance sheet is dependent upon continued operations, which in turn is dependent upon our ability to meet our financial requirements, raise additional financing on acceptable terms, and the success of future operations. Also, we have outstanding trade and accrued payables of $3,332,942 including accrued salaries due to our management of $1,550,000. Also, our Chief Executive Officer’s net outstanding loan was $713,888.


Our independent registered public accounting firm’s report on the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2010, contains an explanatory paragraph wherein they expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinions should be given in determining whether to continue or become our stockholder.


Significant Accounting Policies




The preparation of the Company’s financial statements requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented.  For a discussion of the Company’s critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  Except as disclosed in Note 2 of our 2010 Form 10-K, there have been no material changes to these critical accounting policies that impacted the Company’s reported amounts of assets, liabilities, revenues or expenses during the nine month period ended September 30, 2011.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We have not entered into, and do not expect to enter into, financial instruments for trading or hedging purposes.


ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures


Management of Proteonomix Inc., which consists primarily of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  The Company’s internal control over financial reporting has been designed 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 generally accepted in the United States of America.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.



38

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting at September 30, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of September 30, 2011, management identified significant deficiencies related to (i) the absence of U.S. GAAP expertise or an internal accounting staff, (ii) our internal audit functions and (iii) the absence of an Audit Committee which resulted in an ineffective system of internal control at September 30, 2011. 


Based on our evaluation under the frameworks described above, our management has concluded that our internal control over financial reporting was not effective as of September 30, 2011.


In order to correct the above mentioned deficiencies, we have taken and plan on taking the following remediation measures:

·

We intend to appoint additional members to our board of directors in 2011 and establish an audit committee.

·

We intend to hire additional staff in 2011 familiar with financial reporting controls and compliance with Sarbanes-Oxley rules and regulations as well as U.S. GAAP.

·

We intend to hire internal audit staff to consolidate and concentrate our efforts with the building of its six subsidiaries.

·

We intend to segregate duties and implement appropriate review procedures throughout the accounting and administration controls.

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this quarterly report.


Changes in Internal Controls

There were no changes in the Company’s internal controls over financial reporting during the period covered by the Report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.


PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

John Hopkins University (“JHU”) has sued National Stem Cell, Inc., a wholly owned subsidiary of the Company for the total outstanding liability of $90,000. On June 17, 2011 JHU obtained judgment by consent and JHU has not yet commenced collection activity.  NSC plans to continue paying this obligation if and when funded.


During September, 2011, Pearl Cohen Zedek Latzer LLP, former patent attorneys for the Company, filed suit against the Company to collect past due legal fees in the amount of $168,812.10.  The Company has filed to dismiss the suit for failure to properly serve the Complaint. The Company intends to vigorously defend this suit to which the Company believes it has meritorious defenses and counterclaims.  In the event that the Company fails to prevail in this litigation an adverse decision would materially and adversely affect the Company.




ITEM 1A.  RISK FACTORS


An investment in our common stock involves a high degree of risk.  You should carefully consider the risks described below and other information contained in this Report in deciding whether to invest in our common stock.  Additional risks not presently known to us or which we currently consider immaterial may also adversely affect our company.  If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected.  In such case, the trading price of our common stock could decline, and you could lose a part of your investment.

39

Risks Related to Our Company and Our Operations


We have a severe working capital deficit and, in addition to proceeds from financings, we continue to have outstanding loans from our chief executive officer and accrued salaries due to our executive officers and employees in order to indirectly fund operations.


As of September 30, 2011, we had a working capital deficit of approximately $6,733,646. During the nine months ended September 30, 2011, our revenue generating activities had not produced sufficient funds for profitable operations and we have incurred operating losses since inception. Although we have obtained cash from certain financings, we continue to have outstanding loans from our chief executive officer of approximately $713,888, and accrued salaries due our executive officers in the amount of $1,550,000. In the event we are unable to pay our accrued salaries, we may not be able to maintain them which could materially adversely affect our business and operations, including our ongoing activities.




ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None


ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None



ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None


ITEM 5.     OTHER INFORMATION

None




























40

ITEM 6.     EXHIBITS

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.


 

 

Incorporated by Reference


Filed

Herewith


       

Exhibit No.

   10.57    

Exhibit Description


Agreement with Gilford Securities, Inc.

Form

Filing Date


31.1

Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)

 

 

X

31.2

Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)

 

 

X

32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)

 

 

X

32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)

 

 

X


 101.INS

 

XBRL Instance Document.*

101.SCH

 

XBRL Taxonomy Extension Schema.*

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase.*

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase.*

101.LAB

 

XBRL Taxonomy Extension Label Linkbase.*

101.PRE

 

XBRL Extension Presentation Linkbase.*

 

*

Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets for the period ended September 30, 2011 (Unaudited) and December 31, 2010 (ii) the Consolidated Statements of Operations (Unaudited) for the nine months ended September 30, 2011 and September 30, 2010,  (iii) the Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 2011 and September 30, 2010, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) related notes to these financial statements tagged as blocks of text. The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.  




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.



PROTEONOMIX, INC.

By:  /s/ Michael Cohen

        Michael Cohen

        Chief Executive Officer

        (Principal Executive Officer)

By:  /s/ Michael Cohen

       Michael Cohen

       Chief Financial Officer

       (Principal Financial and Accounting Officer)


Date: November 14, 2011

41