Item 1. Financial Statements. |
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| Certification of Chief Executive Officer and Chief Financial Officer | ||||||||
| Certification pursuant to 18 U.S.C. Section 1350 | ||||||||
Genelink, Inc - Recent Material Event- 2 -
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GENELINK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements
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GENELINK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The accompanying notes are an integral part of the consolidated financial statements.
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GENELINK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
The accompanying notes are an integral part of the consolidated financial statements.
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GENELINK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
The accompanying notes are an integral part of the consolidated financial statements.
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GENELINK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
The accompanying notes are an integral part of the consolidated financial statements.
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GENELINK, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements in this Report that relate to future results and events are based on the Companys
current expectations. Actual results in future periods may differ materially from those currently
expected or desired because of a number of risks and uncertainties. For a discussion of factors
affecting the Companys business and prospects, see Item 2 Managements Discussion and Analysis
of Financial Condition and Results of Operations Factors Affecting the Companys Business and
Prospects.
Operating results for the nine-month period ended September 30, 2007 are not necessarily indicative
of the results that may be expected for the full fiscal year ending December 31, 2007.
BUSINESS OPERATIONS AND HISTORY
The Company was founded in response to the information being generated in the field of human
molecular genetics. Scientists are discovering an increasing number of connections between genes
and specific diseases or physical attributes and tendencies. These findings are a direct result of
the National Institute of Health Genome Project.
In May 2007, the Company received a U.S. patent: Kits and Methods for Assessing Skin Health for
its proprietary method for assessing skin health and for the application of a therapeutic skin
health regimen related to its assessment. The Company received an international patent (Australia)
Kits and Methods for Assessing Oxidative Stress for its proprietary method of predicting
oxidative (free radical) damage in humans.
The Company has developed proprietary SNP-based genetic profiles (named GeneLink Nutragenetic
ProfileTM
and Dermagenetics® profiles). These profiles provide a means of predicting an
individuals inherent genetic capacity to combat such conditions as oxidative stress and other
important selected areas of physiologic health. The profiles, for example, can measure a persons
potential to efficiently control oxygen free radical damage, eliminate hydrogen peroxide, protect
and repair oxidized phospholipids and destroy harmful environmental compounds.
The Companys profile assessment enables nutritional and skin care companies and health care
professionals to recommend a specific and targeted regime of antioxidant vitamins, nutrients or
skin care formulations that have been specifically designed to compensate for predicted
deficiencies and to help provide individuals the best of health and appearance.
In 2004, The Company formed a wholly owned subsidiary, Dermagenetics, Inc., to provide its
genetically customized products and services to the skin and personal care market.
The Companys Oxidative Stress (OS) Profile (US patent pending, Australian patent issued) provides
a means of predicting an individuals inherent genetic capacity to combat oxidative stress. The
profile can measure a persons potential to efficiently control oxygen free radical damage,
eliminate hydrogen peroxide, protect and repair oxidized phospholipids and destroy harmful
environmental compounds.
This profile information will enable nutritional and skin care companies to recommend a specific
and targeted regime of antioxidant vitamins, nutrients or skin-care formulations that have been
specifically designed to compensate for predicted deficiencies. Thus, the OS profile can be used
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to make rational choices to help optimize nutritional and skin care needs to provide the best of
health and appearance.
The Companys Skin Health test for skin aging looks for SNPs in several key genes that are
associated with oxidative stress, skin irritation, photo aging and an individuals ability to
naturally defend against environmental stresses. Skin health test results can be used to guide
consumers to skin therapies or skin products containing unique active ingredients (SNPActives) and
formulations designed to help alleviate specific oxidative stress and other potential deficiencies
in the skin.
The Companys has also developed a Cardiovascular Risk Profile and an Osteopenia Susceptibility
Profile.
Cardiovascular disease claims more lives each year than the next five leading causes of death
combined. The Company has recently developed a Cardiovascular Risk Profile, that analyzes a broad
collection of genes believed to play an important part in heart health, according to the latest
research. The Companys Cardiovascular Risk Profile is designed to identify SNPs associated with
increased risk of developing high blood pressure, atherosclerosis, inflammation, problems with
vascular integrity and coronary artery disease.
Osteopenia is a condition that often leads to osteoporosis, a disease characterized by low bone
density. The Companys Osteopenia gene test looks for SNPs in several key genes that are
associated with bone density. Since osteoporosis can develop undetected for decades, this test may
be a tool to help determine the future risk for fractures and related clinical conditions such as
spinal column compression and bone breaks with or without falls and guide early interventions or
therapies that help combat or prevent the condition.
The Company has developed a NQ01 SNP profile. NQ01 is a protein that contributes to the recharging
Coenzyme Q10. Coenzyme Q10 is a natural compound made by the human body that helps cells produce
energy and protect against free radicals that can damage DNA and other molecules of the cell. The
NQ01 assessment is complete, ready to market and a provisional patent has been filed.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended September 30, 2007, the Companys primary liquidity requirements
have been the payment of operating expenses. In the first nine months of 2007, the Company raised
$432,875 through the issuance of convertible loans.
Cash and cash equivalents at September 30, 2007 amounted to $44,760 as compared to $149,695 at
December 31, 2006, a decrease of $104,935. During the first nine months of 2007, the Companys
operating activities utilized $143,418, as compared to $404,612 for the first nine months of 2006,
a decrease of $261,194. Cash utilized during the nine month period ended September 30, 2007
primarily was used to fund a portion of the Companys $143,418 of cash losses for such period.
Financing activities provided $432,875 for the nine month period ended September 30, 2007 as
compared to $445,838 for the nine months ended September 30, 2006, a decrease of $12,963.
Financing activities in the nine months ended September 30, 2007 resulted primarily from the
issuance of convertible secured loans.
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On November 9 and 13, 2007, the Company raised a total of $1,165,524.66 through the sale of common
stock and warrants. The Company sold Units, at a price of $0.075 per Unit, each Unit consisting of
one (1) share of common stock and a one-quarter (1/4) of a warrant to acquire one share of common
stock at an exercise price of $0.10 per share. A total of 15,540,328 shares of common stock of the
Company and warrants to acquire a total of 3,885,082 shares of common stock were issued. The
Company also paid a total of $101,502 and issued warrants to acquire 2,114,624 shares of common
stock to advisors in connection with the Units. Included in this total is payment of $36,702 of
fees and issuance of warrants to acquire 764,624 shares of common stock to First Equity Capital
Securities, Inc. Kenneth R. Levine a holder of more than five percent of the equity of the Company
is an officer and owner of First Equity Capital Securities. The Company will also be responsible
for reimbursing out of pocket costs incurred by such advisors in an amount not to exceed 3% of the
proceeds raised by such advisors.
The Company intends to use the proceeds of the offering to fund, among other things: adding
infrastructure to support the Companys existing and anticipated licensing agreements; the
development and pursuit of its redirected business plans, including the pursuit of new revenue
producing distribution channels; the support and enhancement of the Companys intellectual property
portfolio; working capital requirements; corporate overhead, including professional fees and
expenses; and the payment of outstanding payables and trade debt. The Company will require
additional funds to fully fund its redirected business plan and for general working capital needs.
COMPARISON
OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007
TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 Financial Condition
Assets of the Company decreased from $714,393 at December 31, 2006 to $580,008 at September 30,
2007, a decrease of $134,385. This decrease was primarily due to the decrease in cash and cash
equivalents of $104,935, which cash was used to partially fund cash losses for such period.
Liabilities decreased from $1,732,284 at December 31, 2006 to $1,541,675 at September 30, 2007, a
decrease of $190,609. This decrease in liabilities primarily resulted from a decrease in accrued
compensation payable from $710,323 as of December 31, 2006 to $144,168, a decrease of $566,155. An
officer and director of the Company agreed to reduce accrued compensation due as of September 30,
2007 from $752,617 to $90,000 in exchange for certain consideration. This decrease in liabilities
was partially offset by an increase in convertible secured loans payable from $622,890 at December
31, 2006 to $828,812 at September 30, 2007, an increase of $205,922, and an increase in short term
loans payable from $18,000 at December 31, 2006 to $118,000 at September 30, 2007, an increase of
$100,000.
Current Year Performance and Earnings Outlook
Revenues. The total revenues for the nine months ended September 30, 2007 were $85,216 as
compared to $142,548 for the nine months ended September 30, 2006, a decrease of $57,332. Total
revenues for the three months ended September 30, 2007 were $26,150 as compared to $59,122 for the
three months ended September 30, 2006, a decrease of $32,972. Revenues decreased primarily because
the Company focused on finalizing its plan to redirect its business and marketing efforts.
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Expenses. Total expenses for the nine months ended September 30, 2007 were
$1,163,474 as compared to $696,779 for the nine months ended September 30, 2006, an increase of
$466,695, primarily resulting from the $363,400 cost for the fair value of options granted to
officers, directors and consultants incurred during the nine months ended September 30, 2007. If
this option cost had not been incurred, expenses for the nine month period ended September 30, 2007
would have increased only $103,295 from those incurred during the nine month period ended September
30, 2009. The increase in expenses was also partially caused by an increase in professional fees
from $155,895 for the nine months ended September 30, 2006 to $266,221 for the nine months ended
December 31, 2007, an increase of $110,326, primarily resulting from costs incurred in connection
with the litigation brought against the Company by John R. DePhillipo, the former Chief Executive
Officer and a former director of the Company.
Total expenses for the three months ended September 30, 2007 were $565,289, as compared to $171,904
for the three months ended September 30, 2006, an increase of $393,385. This increase primarily
relates to the $363,400 cost for the fair value of options granted to officers, directors and
consultants during such period. If this option cost had not been incurred, expenses for the three
month period ended September 30, 2007 would have increased only $29,985 from those incurred during
the three month period ended September 30, 2006.
Losses. The Company incurred a loss of $1,135,736 for the nine months ended September 30,
2007 as compared to a loss of $607,964 for the nine months ended September 30, 2006, an increase of
$527,772. If the $363,400 cost for the fair value of options granted to officers, directors and
consultants had not been incurred, the increase in losses would have been $164,372. Operating
losses increased from $404,612 for the nine months ended September 30, 2006 to $493,418 for the
nine months ended September 30, 2007, an increase of $88,806.
The Company incurred a loss of $550,747 for the three months ended September 30, 2007, as compared
to a loss of $138,698 for the three months ended September 30, 2006, an increase of $412,049. If
the $363,400 cost for the fair value of options granted to officers, directors and consultants had
not been incurred, the increase in losses would have been $48,649.
FACTORS AFFECTING THE COMPANYS BUSINESS AND PROSPECTS
There are a number of factors that affect the Companys business and the results of its operations.
These factors include general economic and business conditions; the level of acceptance of the
Companys products and services; the rate and commercial applicability of advancements and
discoveries in the genetics field; the Companys ability to enter into strategic alliances with
companies in the health care, nutritional and skin-care industries; and the ability of the Company
to raise the financing necessary to implement its business and marketing plan, to pay salaries to
its officers and employees and to pay its accounts payable.
In July 2006, the United States Government Accountability Office (GAO) delivered testimony before
the United States Senate Special Committee on Aging. The GAO testified that in an evaluation of
genetic tests purchased from the websites of four of the Companys competitors, the GAO determined
that the tests were misleading, that they made predictions that were medically unproven and
unambiguous and that did not provide meaningful information to customers. The GAO found that the
recommendations were instead based upon information submitted on questionnaires accompanying the
genetic tests. The GAO also found that the recommendation of costly personalized dietary
supplements in connection with the test results misled consumers and could be harmful. The GAO
also recommended oversight of laboratories
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that perform genetic tests. The GAO included that with future advances in science, nutragenetic
tests may be valid in the future.
The Company believes that its tests and products differ from those tested by the GAO in a number of
ways. The Company does not currently market genetically guided nutragenetic products directly to
consumers and currently does not market any nutragenetic or other nutritional products. The
Company does not utilize any lifestyle type of questionnaire in making any health-related
recommendations or in making any product or service recommendations. Additionally, with respect to
its Dermagenetics® line of products, the Company offers a money-back guarantee. However, the
Company and its genetic tests and products may be harmed or damaged by negative publicity or market
and consumer reaction to the GAO testimony and report.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and other procedures that are designed to ensure
that information required to be disclosed in its Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by an issuer
in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the issuers management, including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
With the participation of management, the Companys Chief Executive Officer and Acting Chief
Financial Officer evaluated the effectiveness of the design and operation of the Companys
disclosure controls and procedures at the conclusion of the fiscal quarter ended September 30,
2007. Based upon this evaluation, the Chief Executive Officer and Acting Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective in ensuring that
material information required to be disclosed is included in the reports that it files with the
Securities and Exchange Commission.
Change In Internal Controls
There were no changes in the Companys internal controls over financial reporting or, to the
knowledge of the Companys management, in other factors that have materially affected or are
reasonably likely to materially affect internal controls over financial reporting during the fiscal
quarter ended September 30, 2007.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
* * * * * *
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.
GENELINK, INC.
(Registrant)
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