SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

Imagenetix Inc/NV – ‘10-QT’ for 12/31/14

On:  Friday, 2/13/15, at 2:48pm ET   ·   For:  12/31/14   ·   Accession #:  1615774-15-278   ·   File #:  33-24138-D

Previous ‘10-QT’:  ‘10-QT’ on 11/19/14 for 9/30/14   ·   Latest ‘10-QT’:  This Filing

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/13/15  Imagenetix Inc/NV                 10-QT      12/31/14   50:2M                                     S2 Filings LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-QT       Quarterly-Transition Report                         HTML    156K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     19K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     19K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     16K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     16K 
31: R1          Document and Entity Information                     HTML     37K 
23: R2          Condensed Consolidated Balance Sheets (Unaudited)   HTML     87K 
29: R3          Condensed Consolidated Balance Sheets               HTML     37K 
                (Parenthetical) (Unaudited)                                      
33: R4          Condensed Consolidated Statement of Income          HTML     84K 
                (Unaudited)                                                      
45: R5          Condensed Consolidated Statements of Cash Flows     HTML     79K 
                Statement (Unaudited)                                            
24: R6          Basis of Presentation                               HTML     23K 
28: R7          Fresh-Start Reporting                               HTML     40K 
21: R8          Accounts Receivable                                 HTML     23K 
15: R9          Inventories                                         HTML     21K 
46: R10         Goodwill                                            HTML     17K 
35: R11         Secured Note Payable                                HTML     19K 
34: R12         Tripharma Settlement                                HTML     18K 
39: R13         Commitments and Contingincies                       HTML     20K 
40: R14         Equity Transactions                                 HTML     29K 
38: R15         Income Taxes                                        HTML     24K 
41: R16         Basis of Presentation (Policies)                    HTML     25K 
30: R17         Fresh-Start Reporting (Tables)                      HTML     44K 
32: R18         Accounts Receivable (Tables)                        HTML     20K 
37: R19         Inventories (Tables)                                HTML     20K 
50: R20         Equity Transactions (Tables)                        HTML     25K 
43: R21         Income Taxes (Tables)                               HTML     19K 
26: R22         Fresh-Start Reporting (Details)                     HTML    137K 
36: R23         Fresh-Start Reporting (Details 1)                   HTML     26K 
27: R24         Fresh-Start Reporting (Details 2)                   HTML     29K 
14: R25         Fresh-Start Reporting (Details 3)                   HTML     17K 
44: R26         Fresh-Start Reporting (Details Textual)             HTML     17K 
47: R27         Accounts Receivable (Details)                       HTML     25K 
18: R28         Accounts Receivable (Details Textual)               HTML     26K 
17: R29         Inventories (Details)                               HTML     25K 
19: R30         Goodwill (Details Textual)                          HTML     18K 
20: R31         Secured Note Payable (Details Textual)              HTML     26K 
22: R32         Tripharma Settlement (Details Textual)              HTML     51K 
13: R33         Equity Transactions (Details)                       HTML     48K 
42: R34         Income Taxes (Details)                              HTML     22K 
25: R35         Income Taxes (Details Textual)                      HTML     18K 
48: XML         IDEA XML File -- Filing Summary                      XML     66K 
12: EXCEL       IDEA Workbook of Financial Reports                  XLSX     66K 
16: EXCEL       IDEA Workbook of Financial Reports (.xls)            XLS    200K 
 6: EX-101.INS  XBRL Instance -- iagx-20141231                       XML    347K 
 8: EX-101.CAL  XBRL Calculations -- iagx-20141231_cal               XML    100K 
 9: EX-101.DEF  XBRL Definitions -- iagx-20141231_def                XML    198K 
10: EX-101.LAB  XBRL Labels -- iagx-20141231_lab                     XML    445K 
11: EX-101.PRE  XBRL Presentations -- iagx-20141231_pre              XML    336K 
 7: EX-101.SCH  XBRL Schema -- iagx-20141231                         XSD     81K 
49: ZIP         XBRL Zipped Folder -- 0001615774-15-000278-xbrl      Zip     49K 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

¨    Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For quarterly period ended __________

x    Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For the transition period from September 16, 2014 to December 31, 2014

COMMISSION FILE NUMBER 033-24138-D

IMAGENETIX, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number (including area code) (858) 674-8455

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

Yes ¨   No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes x   No ¨

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

Imagenetix, Inc.

INDEX

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Imagenetix, Inc.

Condensed Consolidated Balance Sheets

See accompanying notes to unaudited condensed consolidated financial statements.

Imagenetix, Inc.

Condensed Consolidated Statement of Income

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Imagenetix, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

IMAGENETIX, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The consolidated financial statements of Imagenetix, Inc. ("Imagenetix") presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America.

In the opinion of management, the interim consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. Operating results for the period are not necessarily indicative of the results that may be expected for the year.

Emergence from Bankruptcy

Imagenetix filed for protection under the United States Bankruptcy Code on December 12, 2012. During the period of time from December 12, 2012 to September 16, 2014 (the effective date of the Company’s Plan of Reorganization), the Company filed with the SEC on Form 8Ks portions of its Monthly Operating Reports as filed with the Bankruptcy Court.

The Company’s Plan of Reorganization was approved by the Court on September 10, 2014 with an effective date of September 16, 2014. The Plan of Reorganization included an issuance of common stock and warrants for cash, the acquisition of Periodyne, the issuance of common stock to pay professional fees incurred during the proceeding and a compromise to the claims of TriPharma and the unsecured creditors.

As a result of the issuance of common stock, the Company was eligible to adopt “fresh-start reporting” which enabled the Company to reduce its previous accumulated deficit to zero as of the effective date of the Plan of Reorganization. The accompanying financial statements reflect this election and, accordingly, the financial statements are for the period of September 16, 2014 through December 31, 2014 and do not reflect comparative statements for any prior accounting periods. A reconciliation of the “fresh-start reporting” is included in Note 2.

Earnings Per Share

We follow the Financial Accounting Standards Board Accounting Standards Codification ("ASC") No. 260. Under ASC No. 260, basic earnings per share is calculated as earnings available to common stockholders divided by the weighted average number of common shares outstanding. Diluted earnings per share is calculated as net income divided by the diluted weighted average number of common shares.

The diluted weighted average number of common shares is calculated using the treasury stock method for common stock issuable pursuant to outstanding common stock warrants. For any period in which the calculation of loss per share is anti-dilutive, the diluted weighted average number of shares is the equivalent to the number of shares outstanding.

We adopted ASC 852, Reorganizations, effective as of September 16, 2014, the effective date of the Plan of Reorganization. Under ASC 852 the following pro-forma balance sheet represents the change from the final bankruptcy filing to the initial accounting balances using “Fresh-Start Reporting.”

IMAGENETIX, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

Reorganization adjustments reflect equity funding of the plan of reorganization, issuance of common stock in exchange of professional fees, the acquisition of Periodyne and the discharge of liabilities subject to compromise in accordance with the plan of reorganization as follows:

Fresh-start adjustments to accounts receivable, inventory, property and equipment, and goodwill reflect the adjustment of the assets of the successor to their fair values, including tangible assets not previously recognized:

Fresh-start adjustments to customer deposits reflects the adjustment of the liabilities of the successor to its fair value:

(7) Fresh-start adjustment to retained earnings (deficit) resets accumulated deficit to zero.

IMAGENETIX, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

Accounts receivable are carried at the expected realizable value. Accounts receivable consisted of the following:

At December 31, 2014, we had two customers which accounted for 50% and 48%, respectfully, of our accounts receivable balances. At September 16, 2014, we had two customers which accounted for 77% and 23%, respectfully, of our accounts receivable balances.

For the period ended December 31, 2014, we had one significant customer who accounted for 78% of our net sales.

Inventories are carried at the lower of cost or market. Cost is determined by the first-in first-out method. Indirect overhead costs are allocated to inventory. Inventories consist of the following:

As a result of adopting “Fresh-Start Reporting” goodwill of $7,042,214 was recognized when accumulated retained deficit was reduced to zero and goodwill of $1,163,383 was recognized on the acquisition of Periodyne.

In May 2011, we entered into a $700,000 secured note payable with one of the customers of one of our distributors. The terms of the note included quarterly interest payments at a rate of 7.5% for 18 months at the end of which time the entire note was due. In September 2011, two quarterly interest payments were deferred and added to the principal of the note increasing the balance to $726,250. As part of the Plan of Reorganization, the secured note, accrued interest and costs of collection were paid in full in September 2014 subsequent to the effective date of the Plan of Reorganization.

IMAGENETIX, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

In August 2013, as part of the bankruptcy proceeding, we negotiated a settlement agreement with TriPharma. TriPharma was successful in obtaining a judgment against us in an amount of approximately $4 million. The settlement provides for total payments of $2,500,000 if payments are made timely, $3,500,000 if payments are ever in default, and $2,000,000 if the balance of principal is paid within 18 months of the effective date of the Plan of Reorganization. As of September 16, 2014 a balance of $2,400,000 remained owing assuming that no default payments would become necessary. This balance is due $150,000 within 5 days of the effective date of the Plan of Reorganization, $100,000 per quarter for eight quarters, $125,000 for four quarters, and $150,000 per quarter thereafter until the settlement is paid. During the period ended December 31, 2014, we made payments totaling $250,000 leaving a balance of $2,150,000 as of December 31, 2014.

Contingencies

We are involved in litigation from time to time in the normal course of business.

Management believes there are no claims, which would have a material effect on our financial position.

As part of the Plan of Reorganization we issued warrants to investors, the principal of Periodyne and employees.

A summary of outstanding warrants is as follows:

IMAGENETIX, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

We have adopted ASC 740 which prescribes a comprehensive model of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.  ASC 740 states that a tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information.

Upon adoption of ASC 740, there was no impact to our consolidated financial statements.  We estimate that the unrecognized tax benefit will not change significantly within the next twelve months.  We will continue to classify income tax penalties and interest as part of general and administrative expense in our statements of operations.  Accrued interest on uncertain tax positions is not significant.  There are no

penalties accrued as of December 31, 2014.  The following table summarizes the open tax years for each major jurisdiction:

As we have had significant net operating loss carry forwards from the predecessor company, even if certain of our tax positions were disallowed, it is not foreseen that we would have to pay any taxes in the near future. Consequently, we do not calculate the impact of interest or penalties on amounts that might be disallowed.

During the period ended December 31, 2014, we reviewed our deferred tax assets and determined that, as a result of previous continuing losses, we could not expect a greater than 50 percent likelihood of the tax benefits being realized. Accordingly, we will continue to recognize a full valuation allowance against our current and long-term deferred tax assets.

During the period ended December 31, 2014, we recognized $10,214 of tax expense as a result of alternative minimum tax incurred in previous tax periods.

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

THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."

Overview

We develop, formulate and market over-the-counter, natural-based nutritional supplements and skin care products. Our products are proprietary, often supported by scientific studies which we request and are offered through multiple channels of distribution, including direct marketing companies, also known as network marketing or multi-level marketing companies, and chain store retailers. Our primary product is Celadrin® a product formulation which we sell to the mass market through retailers and on a private label basis to wholesale customers. We also license our intellectual property to third parties.

A key part of our marketing strategy is to provide to our wholesale customers a "turnkey" approach to the marketing and distribution of our products. This turnkey approach provides these customers with all the services necessary to market our products, including developing specific product formulations, providing supporting scientific studies regarding the effectiveness of the product and arranging for the manufacture and marketing of the product.

Historically, we have sold our own branded product, Celadrin®, directly to the mass markets through retail sellers. We currently plan to expand our activities in developing, licensing and selling products and formulations to businesses and organizations that in-turn market our products through multiple channels of distribution, including direct marketing companies, mass marketing companies, medical, health and nutritional professionals, medical newsletters and direct response radio and television. We also offer Celadrin® products through wholesale customers that in turn offer their products containing Celadrin® to mass market retailers.

Management's discussion and analysis of results of operations and financial condition are based upon the Company's financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and 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 values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical Accounting Policies and Estimates

We have identified ten accounting principles that we believe are key to an understanding of our financial statements. These important accounting policies require management's most difficult, subjective judgments.

1. Fresh-Start Reporting.

As a result of the issuance of common stock during its emergence from a bankruptcy proceeding, the Company was eligible to adopt “fresh-start reporting” which enables the Company to reduce its previous accumulated deficit to zero as of the effective date of the Plan of Reorganization. A reconciliation of the “fresh-start reporting” is included in Note 2 to these financial statements.

2. Cash and Cash Equivalents.

For purposes of the financial statements, we consider all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.

3. Accounts receivable.

Accounts receivable are carried at the expected net realizable value. The allowance for doubtful accounts is based on management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there were a deterioration of a major customer’s creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of amounts due to us could be overstated, which could have a negative impact on operations.

4. Inventory

Inventory is carried at the lower of cost or market. Cost is determined by the first-in first-out method. Indirect overhead costs are allocated to inventory.

5. Property and Equipment

6. Trademarks and Patents

Patents and trademarks are carried at cost less accumulated amortization and are amortized over their estimated useful lives of from 8 to 17 years for patents and 17 years for trademarks. The carrying value of patents and trademarks is periodically reviewed and impairments, if any, are recognized when the expected future benefit to be derived from individual intangible assets is less than its carrying value determined based on the provisions of ASC No. 360 as discussed above.

7. Revenue Recognition

We recognize revenue in accordance with the SEC’s Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (SAB104) and ASC No. 605. SAB 104 requires that four basic criteria be met before revenue can be recognized: 1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. ASC No. 605 states that revenue from sales transactions where the buyer has the right to return the product shall be recognized at the time of sale only if (1) the seller’s price to the buyer is substantially fixed or determinable at the date of sale; (2) the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; (3) the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; (4) the buyer acquiring the product for resale has economic substance apart from that provided by the seller; (5) the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and (6) the amount of future returns can be reasonably estimated. We recognize revenue upon determination that all criteria for revenue recognition have been met. The criteria are usually met at the time title passes to the customer, which usually occurs upon shipment. Revenue from shipments where title passes upon delivery is deferred until the shipment has been delivered.

We account for payments made to customers in accordance with ASC No. 605, which states that cash consideration (including a sales incentive) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor’s products or services and, therefore, should be characterized as a reduction of revenue when recognized in the vendor’s income statement, rather than a sales and marketing expense. We have various agreements with customers that provide for discounts and rebates. These agreements are classified as a reduction of revenue. Certain other costs associated with customers that meet the requirements of ASC No. 605 are recorded as sales and marketing expense.

We guarantee customer satisfaction. Our policy requires the customer to return the unused product to the retailer from whom they originally purchased it. We pay the retailer for the returned product plus a handling cost. We review gross revenue for estimated returns of private label contract manufacturing products and direct-to-consumer products. The estimated returns are based upon the trailing six months of private label contract manufacturing gross sales and our historical experience for both private label contract manufacturing and direct-to-consumer product returns. However, the estimate for product returns does not reflect the impact of a large product recall resulting from product nonconformance or other factors as such events are not predictable nor is the related economic impact estimable. We periodically assess the adequacy of this policy and record a liability as necessary.

As part of the services we provide to our private label contract manufacturing customers, we may perform, but are not required to perform, certain research and development activities related to the development or improvement of their products. While our customers typically do not pay directly for this service, the cost of this service is included as a component of the price we charge to manufacture and deliver their products.

Royalties- we recognize revenue from royalties based on reports provided by our customers (typically 30 days after the end of the quarter on which the royalty payment is based.)

Licensing- we also derive license revenue from fees for the transfer of proven and reusable intellectual property components. Generally, these payments will include a nonrefundable technology license fee, which will be payable upon the transfer of intellectual property. License fees will be recognized upon the execution of the license agreement and transfer of intellectual property provided no further significant performance obligations exist and collectability is deemed probable. If additional performance obligations are present, we defer revenue recognition until such time as the performance obligation is satisfied.

8. Income Taxes

We account for income taxes in accordance with ASC No. 740. This statement requires an asset and liability approach for accounting for income taxes and prescribes a comprehensive model of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.  ASC No. 740 states that a tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information.

Selected Financial Information

Results of Operations

Three Months Ended December 31, 2014

Net Sales

Net sales for the three months ended December 31, 2014 was $263,684 and was derived primarily from license income. We anticipate that in future periods revenue will increase as a result of our acquiring Periodyne and increased sales of our products post-bankruptcy.

Cost of Goods Sold

Cost of goods sold as a percentage of net sales was 17.2% for the three months ended December 31, 2014. We anticipate that in future periods cost of goods sold will increase as a result of our acquiring Periodyne and increased sales of our products post-bankruptcy.

Selling, General and Administrative

Selling, general and administrative expenses were $90,059 for the three months ended December 31, 2014. We anticipate expenses will increase as a result of our acquiring Periodyne and increased sales of our products post- bankruptcy.

Payroll Expense

Payroll expense was $149,682 for the three months ended December 31, 2014. We anticipate that payroll expenses will increase in future periods as a result of our acquiring Periodyne and increased sales of our products post- bankruptcy.

Consulting Expense

Consulting expense was $54,264 for the three months ended December 31, 2014. We anticipate an increase in consulting expense in future periods as a result of our acquiring Periodyne and increased sales of our products post- bankruptcy.

Other Income

Other income was $104,419 for the three months ended December 31, 2014 and was comprised of $75,855 of discharged debt obligations and $28,564 from the sharing of 49% of net profits of Hope Science LLC. The Hope Science sharing ratio was negotiated during the company’s bankruptcy proceeding and was in exchange for providing products to Hope Science at cost.

Income Taxes.

Income tax expense was $10,214 for the three months ended December 31, 2014 as a result of recognizing alternative minimum tax for previous periods.

Period Ended December 31, 2014

Net Sales

Net sales for the period ended December 31, 2014 was $427,990 and was derived primarily from license income. We anticipate that in future periods revenue will increase as a result of our acquiring Periodyne and increased sales of our products post-bankruptcy.

Cost of Goods Sold

Cost of goods sold as a percentage of net sales was 11.3% for the period ended December 31, 2014. We anticipate that in future periods cost of goods sold will increase as a result of our acquiring Periodyne and increased sales of our products post-bankruptcy.

Selling, General and Administrative

Selling, general and administrative expenses were $93,715 for the period ended December 31, 2014. We anticipate selling general and administrative expenses will increase as a result of our acquiring Periodyne and increased sales of our products post-bankruptcy.

Payroll Expense

Payroll expense was $170,974 for the period ended December 31, 2014. We anticipate that payroll expenses will increase in future periods as a result of our acquiring Periodyne and increased sales of our products post-bankruptcy.

Consulting Expense

Consulting expense was $60,667 for the period ended December 31, 2014. We anticipate an increase in consulting expense in future periods as a result of our acquiring Periodyne and increased sales of our products post-bankruptcy.

Other Income

Other income was $104,419 for the period ended December 31, 2014 and was comprised of $75,855 of discharged debt obligations and $28,564 from the sharing of 49% of net profits of Hope Science LLC. The Hope Science sharing ratio was negotiated during the company’s bankruptcy proceeding and was in exchange for providing products to Hope Science at cost.

Income Taxes.

Income tax expense was $10,214 for the period ended December 31, 2014 as a result of recognizing alternative minimum tax for previous periods.

Capital Resources

Working Capital

Statements of Cash Flows Select Information

Balance Sheet Select Information

Liquidity

We have historically financed our operations internally and through debt and equity financings. At December 31, 2014, we had cash holdings of $154,895 and a net working capital of $370,621.

ITEM 4T.     CONTROLS AND PROCEDURES.

Our chief executive officer and our chief financial officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2014. Based on their evaluation, they concluded that our disclosure controls and procedures were effective and designed to give reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act was made known to them by others and was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There was no change in our internal controls that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS.

Risk Factors

You should consider the following discussion of risks as well as other information regarding our common stock. The risks and uncertainties described below are not the only ones. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed.

We cannot provide assurance that debt or equity financings will be available to fund the company

Since inception, we have satisfied our capital needs through debt and equity financings and expect to fund the company from these sources until profitability is achieved. There can be no assurance that funds will be available at terms favorable to us or that future profitability can be achieved.

There Is Only One Supplier for Celadrin®. If We Are Unable to Purchase Celadrin® from This Supplier, Our Business Would Be Harmed.

There is only one supplier for Celadrin®. We will rely upon Celadrin® to expand our product lines and revenue in the future. If our Celadrin® supplier goes out of business or elects for any reason not to supply us with Celadrin®, we would have to find another Celadrin® supplier or suffer a significant reduction in our revenue.

We Rely upon a Limited Number of Customers the Loss of Which Would Reduce Our Revenue and Any Earnings.

Our largest customer accounted for 78% of our net sales for the period ended December 31, 2014. If not replaced by other large customers, the loss of this significantly large customer could reduce our revenue and adversely affect our cash flow and earnings, if any.

We Have Recently Changed to a Licensing Model to Generate Revenue Which Could Impact Our Revenue and Profitability.

Our business model has changed from exclusively selling products directly to wholesalers, retailers, and customers to additionally licensing the sale of our products to third parties. This business model requires the third parties to commit to such an agreement and to successfully sell products with our technologies. We have not achieved similar significant revenue producing license deals in the past. If we are not successful at implementing a licensing model, our revenues, cash flow and earnings, if any, could be adversely affected.

We Rely upon Other Outside Suppliers to Produce Our Products Which Could Delay Our Product Deliveries.

All of our products are produced by outside manufacturers who process ingredients provided to them by our suppliers and with whom we have contracts. Our profit margins and our ability to deliver products on a timely basis are dependent upon these manufacturers and suppliers. Should any of these manufacturers or suppliers fail to provide us with product, we would be required to obtain new manufacturers and suppliers, which would be costly and time consuming and could delay our product deliveries.

Product Liability Claims Against Us Could Be Costly.

Some of our nutritional supplements contain newly-introduced ingredients or combinations of ingredients, and we have little long-term health information about individuals consuming those ingredients. If any of these products were thought or proved to be harmful, we could be subject to litigation. Although we carry product liability insurance in the face amount of $1,000,000 per occurrence and $2,000,000 in the aggregate and require our suppliers and manufacturers to include us as insured parties on their product liability insurance policies, our coverage may not be adequate to protect us from potential product liability claims and costs of defense.

We Are Subject to Intense Competition from Other Nutritional Supplement Marketers Which Could Reduce Our Revenue and Profit Margins.

Competition in the nutritional supplement market is intense. We compete with numerous companies that have longer operating histories, more products and greater name recognition and financial resources than we do. In order to compete, we could be forced to lower our product prices, which would reduce our revenue and profit margins.

We Are Highly Regulated, Which Increases Our Costs of Doing Business.

We are subject to laws and regulations which cover:

Compliance with these laws and regulations is time consuming and expensive. Moreover, new regulations could be adopted that would severely restrict the products we sell or our ability to continue our business. We are unable to predict the nature of any future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. These future changes could, however, require the reformulation or elimination of certain products; imposition of additional record keeping and documentation requirements; imposition of new federal reporting and application requirements; modified methods of importing, manufacturing, storing or distributing certain products; and expanded or different labeling and substantiation requirements for certain products and ingredients. Any or all of these requirements could harm our business.

There Are Limitations on the Liability of Our Officers and Directors Which May Restrict Our Stockholders from Bringing Claims.

Our Bylaws substantially limit the liability of our officers and directors to us and our stockholders for negligence and breach of fiduciary or other duties to us. This limitation may prevent stockholders from bringing claims against our officers and directors in the future.

Shares of Our Common Stock Which Are Eligible for Sale by Our Stockholders May Decrease the Price of Our Common Stock.

We have 28,272,955 common shares outstanding of which approximately 24 million are freely tradable or saleable under Rule 144. We also have outstanding common stock warrants exercisable into up to 8,409,334 shares of common stock which could become free trading if exercised. If our stockholders sell substantial amounts of our common stock, the market price of our common stock could decrease.

There is a Limited but Potentially Volatile Trading Market in Our Common Stock, Which May Adversely Affect Our Stock Price.

Our common stock trades on the Electronic Bulletin Board. The Bulletin Board tends to be highly illiquid, in part because there is no national quotation system by which potential investors can track the market price of shares except through information received or generated by a limited number of broker-dealers that make a market in particular stocks. There is a greater chance of market volatility for securities that trade on the Bulletin Board as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors, including:

There could be wide fluctuations in the market price of our common stock. These fluctuations may have an extremely negative effect on the market price of our securities and may prevent an investor from obtaining a market price equal to his purchase price when he attempts to sell our securities in the open market. In these situations, the investor may be required to either sell our securities at a market price which is lower than his purchase price, or to hold our securities for a longer period of time than he planned.

Because Our Common Stock Is Classified as a "Penny Stock," Trading in it Could Be Limited, and Our Stock Price Could Decline.

Our common stock falls under the definition of "penny stock" since our net tangible assets are below $2,500,000. In such event, trading in our common stock may be limited because broker-dealers are required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving our common stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our common stock.

"Penny stocks" are equity securities with a market price below $5.00 per share, other than a security that is registered on a national exchange or included for quotation on the Nasdaq system, unless the issuer has net tangible assets of more than $2,000,000 and has been in continuous operation for greater than three years. Issuers who have been in operation for less than three years must have net tangible assets of at least $5,000,000.

Rules promulgated by the Securities and Exchange Commission under Section 15(g) of the Exchange Act require broker-dealers engaging in transactions in penny stocks, to first provide to their customers a series of disclosures and documents, including:

ITEM 6.     EXHIBITS.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

Dates Referenced Herein

This ‘10-QT’ Filing		Date		Other Filings
Filed on:		2/13/15		None on these Dates
For Period end:		12/31/14
		9/16/14
		9/10/14
		12/12/12
				List all Filings

↑Top

---

Filing Submission 0001615774-15-000278   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

---

---

Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help — Tue., May 7, 3:50:15.2am ET