Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
|
For
the quarterly period ended March 31, 2010
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
|
For
the transition period from _______ to _______
Commission
File Number: 001-32715
INTERLEUKIN
GENETICS, INC.
(Exact
name of registrant in its charter)
|
Delaware
|
|
94-3123681
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
135
Beaver Street, Waltham, MA
|
|
02452
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
Telephone Number: (781)
398-0700
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 o
Indicate
by check mark whether each registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES o NO o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer o
|
Accelerated
filer o
|
| |
|
|
Non-Accelerated
filer o (Do not
check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES o NO x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
Class
|
|
Outstanding
at April 30, 2010
|
|
Common
Stock, par value $0.001 per share
|
|
36,510,627
|
INTERLEUKIN
GENETICS, INC.
FORM
10-Q
FOR
THE QUARTER ENDED MARCH 31, 2010
Table
of Contents
|
|
|
Page
|
|
PART I—FINANCIAL
INFORMATION
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
Condensed
Balance Sheets as of March 31, 2010
(Unaudited) and December 31, 2009
|
|
3
|
|
|
Condensed
Statements of Operations (Unaudited)
|
|
4
|
|
|
Condensed
Statements of Stockholders’ (Deficit) Equity (Unaudited)
|
|
5
|
|
|
Condensed
Statements of Cash Flows (Unaudited)
|
|
6
|
|
|
Notes
to Condensed Financial Statements (Unaudited)
|
|
7
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
|
15
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
|
21
|
|
|
Item
4T. Controls and Procedures
|
|
22
|
|
|
PART II—OTHER
INFORMATION
|
|
|
|
|
Item
1. Legal Proceedings
|
|
23
|
|
|
Item
1A. Risk Factors
|
|
23
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
23
|
|
|
Item
3. Defaults Upon Senior Securities
|
|
23
|
|
|
Item 4. [Removed and Reserved]
|
|
23
|
|
|
Item
5. Other Information
|
|
23
|
|
|
Item
6. Exhibits
|
|
24
|
|
|
Signatures
|
|
25
|
|
PART
I —FINANCIAL INFORMATION
Item
1. Financial Statements
INTERLEUKIN
GENETICS, INC.
CONDENSED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
6,090,047 |
|
|
$ |
906,248 |
|
|
Accounts
receivable from related party
|
|
|
11,776 |
|
|
|
24,594 |
|
|
Trade
accounts receivable
|
|
|
120 |
|
|
|
9,285 |
|
|
Inventory
|
|
|
167,514 |
|
|
|
118,430 |
|
|
Prepaid
expenses and other current assets
|
|
|
307,284 |
|
|
|
225,493 |
|
|
Current
assets of discontinued operations
|
|
|
32,666
|
|
|
|
31,941
|
|
|
Total
current assets
|
|
|
6,609,407 |
|
|
|
1,315,991 |
|
|
Fixed
assets, net
|
|
|
734,635 |
|
|
|
769,981 |
|
|
Intangible
assets, net
|
|
|
716,627 |
|
|
|
745,490 |
|
|
Other
assets
|
|
|
238,001
|
|
|
|
238,001 |
|
|
Total
assets
|
|
$ |
8,298,670
|
|
|
$ |
3,069,463
|
|
|
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
467,356 |
|
|
$ |
321,444 |
|
|
Accrued
expenses
|
|
|
353,082 |
|
|
|
281,806 |
|
|
Deferred
revenue
|
|
|
346,505 |
|
|
|
107,792 |
|
|
Liabilities
of discontinued operations
|
|
|
848,967
|
|
|
|
1,123,049 |
|
|
Total
current liabilities
|
|
|
2,015,910 |
|
|
|
1,834,091 |
|
|
Convertible
long term debt
|
|
|
9,000,000
|
|
|
|
7,000,000 |
|
|
Total
liabilities
|
|
|
11,015,910 |
|
|
|
8,834,091 |
|
|
Commitments
and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
Stockholders’
(deficit) equity:
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock, $0.001 par value — 6,000,000 shares authorized;
5,000,000 shares of Series A issued and outstanding at March 31, 2010
and December 31, 2009; aggregate liquidation preference of $18,000,000 at
March 31, 2010
|
|
|
5,000 |
|
|
|
5,000 |
|
|
Common
stock, $0.001 par value — 100,000,000 shares authorized; 36,494,890
and 32,102,435 shares issued and outstanding at March 31, 2010 and
December 31, 2009, respectively
|
|
|
36,495 |
|
|
|
32,102 |
|
|
Additional
paid-in capital
|
|
|
90,789,508 |
|
|
|
85,763,379 |
|
|
Accumulated
deficit
|
|
|
(93,548,243 |
) |
|
|
(91,565,109 |
) |
|
Total
stockholders’ (deficit) equity
|
|
|
(2,717,240 |
) |
|
|
(5,764,628 |
) |
|
Total
liabilities and stockholders’ (deficit) equity
|
|
$ |
8,298,670
|
|
|
$ |
3,069,463
|
|
The
accompanying notes are an integral part of these financial
statements.
INTERLEUKIN
GENETICS, INC.
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Three Months Ended March 31,
|
|
| |
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
(As Adjusted)
|
|
| Revenue: |
|
|
|
|
|
|
|
Genetic
testing
|
|
$ |
365,911 |
|
|
$ |
137,511 |
|
|
Contract
research and development
|
|
|
— |
|
|
|
203,687 |
|
|
Other
|
|
|
2,799 |
|
|
|
6,266 |
|
|
Total
revenue
|
|
|
368,710 |
|
|
|
347,464 |
|
|
Cost
of revenue
|
|
|
413,407 |
|
|
|
304,971 |
|
|
Gross
profit (loss)
|
|
|
(44,697 |
) |
|
|
42,493 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
560,202 |
|
|
|
881,556 |
|
|
Selling,
general and administrative
|
|
|
1,283,065 |
|
|
|
1,479,154 |
|
|
Amortization
of intangibles
|
|
|
28,863 |
|
|
|
28,863 |
|
|
Total
operating expenses
|
|
|
1,872,130 |
|
|
|
2,389,573 |
|
|
Loss
from operations
|
|
|
(1,916,827 |
) |
|
|
(2,347,080 |
) |
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
296 |
|
|
|
8,216 |
|
|
Interest
expense
|
|
|
(66,603 |
) |
|
|
(32,055 |
) |
|
Total
other income (expense)
|
|
|
(66,307 |
) |
|
|
(23,839 |
) |
|
Loss
from continuing operations before income taxes
|
|
|
(1,983,134 |
) |
|
|
(2,370,919 |
) |
|
Provision for
income taxes
|
|
|
— |
|
|
|
(10,000 |
) |
|
Loss
from continuing operations
|
|
|
(1,983,134 |
) |
|
|
(2,380,919 |
) |
|
Loss
from discontinued operations, net of income taxes
|
|
|
— |
|
|
|
(75,168 |
) |
|
Net
loss
|
|
$ |
(1,983,134 |
) |
|
$ |
(2,456,087 |
) |
|
Basic and diluted net loss per
common share from:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.06 |
) |
|
$ |
(0.08 |
) |
|
Discontinued
operations
|
|
|
— |
|
|
|
— |
|
|
Net
loss
|
|
$ |
(0.06 |
) |
|
$ |
(0.08 |
) |
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
33,139,173 |
|
|
|
31,855,981 |
|
The
accompanying notes are an integral part of these financial
statements.
INTERLEUKIN
GENETICS, INC.
CONDENSED
STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
For
the Three months ended March 31, 2010 and 2009
(Unaudited)
|
|
|
Convertible Preferred
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
|
5,000,000 |
|
|
$ |
5,000 |
|
|
|
31,799,381 |
|
|
$ |
31,799 |
|
|
$ |
85,458,334 |
|
|
$ |
(81,012,706 |
) |
|
$ |
4,482,427 |
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,456,087 |
) |
|
|
(2,456,087 |
) |
|
Common
stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock purchase
|
|
|
— |
|
|
|
— |
|
|
|
126,500 |
|
|
|
126 |
|
|
|
34,028 |
|
|
|
— |
|
|
|
34,154 |
|
|
Employee
stock purchase plan
|
|
|
— |
|
|
|
— |
|
|
|
31,506 |
|
|
|
32 |
|
|
|
5,325 |
|
|
|
— |
|
|
|
5,357 |
|
|
Restricted
stock awards
|
|
|
— |
|
|
|
— |
|
|
|
12,500 |
|
|
|
13 |
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,982
|
|
|
|
—
|
|
|
|
41,982
|
|
|
Balance
as of March 31, 2009
|
|
|
5,000,000 |
|
|
$ |
5,000 |
|
|
|
31,969,887 |
|
|
$ |
31,970 |
|
|
$ |
85,539,656 |
|
|
$ |
(83,468,793 |
) |
|
$ |
2,107,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2009
|
|
|
5,000,000 |
|
|
$ |
5,000 |
|
|
|
32,102,435 |
|
|
$ |
32,102 |
|
|
$ |
85,763,379 |
|
|
$ |
(91,565,109 |
) |
|
$ |
(5,764,628 |
) |
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,983,134 |
) |
|
|
(1,983,134 |
) |
|
Common
stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement, net of offering costs of $319,545
|
|
|
— |
|
|
|
— |
|
|
|
4,375,002 |
|
|
|
4,375 |
|
|
|
4,926,083 |
|
|
|
— |
|
|
|
4,930,458 |
|
|
Exercise
of stock option
|
|
|
— |
|
|
|
— |
|
|
|
1,300 |
|
|
|
2 |
|
|
|
336 |
|
|
|
— |
|
|
|
338 |
|
|
Employee
stock purchase plan
|
|
|
— |
|
|
|
— |
|
|
|
16,153 |
|
|
|
16 |
|
|
|
11,776 |
|
|
|
— |
|
|
|
11,792 |
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,934
|
|
|
|
—
|
|
|
|
87,934
|
|
|
Balance
as of March 31, 2010
|
|
|
5,000,000
|
|
|
$ |
5,000
|
|
|
|
36,494,890
|
|
|
$ |
36,495
|
|
|
$ |
90,789,508
|
|
|
$ |
(93,548,243 |
) |
|
$ |
(2,717,240 |
) |
The
accompanying notes are an integral part of these financial
statements.
INTERLEUKIN
GENETICS, INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
For the Three Months Ended March 31,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(As Adjusted)
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,983,134 |
) |
|
$ |
(2,456,087 |
) |
|
Net
loss from discontinued operations
|
|
|
—
|
|
|
|
(75,168 |
)
|
|
Net
loss from continuing operations
|
|
|
(1,983,134 |
) |
|
|
(2,380,919 |
) |
|
Adjustments
to reconcile net loss from continuing operations to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
104,085 |
|
|
|
116,289 |
|
|
Stock-based
compensation expense
|
|
|
87,934 |
|
|
|
39,646 |
|
|
Changes
in operating assets and liabilities, net of business sold:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
21,983 |
|
|
|
453 |
|
|
Inventory
|
|
|
(49,084 |
) |
|
|
— |
|
|
Prepaid
expenses and other current assets
|
|
|
(82,516 |
) |
|
|
(56,431 |
) |
|
Accounts
payable
|
|
|
145,913 |
|
|
|
(493,603 |
) |
|
Accrued
expenses
|
|
|
71,276 |
|
|
|
152,532 |
|
|
Deferred
revenue
|
|
|
238,713 |
|
|
|
(50,971 |
) |
|
Deferred
tax provision
|
|
|
— |
|
|
|
10,000 |
|
|
Net
cash used in operating activities of discontinued
operations
|
|
|
(274,082 |
) |
|
|
(52,284 |
) |
|
Net
cash used in operating activities
|
|
|
(1,718,912 |
) |
|
|
(2,715,288 |
) |
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Capital
additions
|
|
|
(39,877 |
) |
|
|
(557,736 |
) |
|
Other
assets
|
|
|
— |
|
|
|
28,998 |
|
|
Net
cash used in investing activities of discontinued operations
|
|
|
—
|
|
|
|
(1,443 |
)
|
|
Net
cash used in investing activities
|
|
|
(39,877 |
) |
|
|
(530,181 |
) |
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of notes payable
|
|
|
2,000,000 |
|
|
|
— |
|
|
Proceeds from
registered direct offering of common stock
|
|
|
5,250,002 |
|
|
|
— |
|
|
Registered direct
offering costs
|
|
|
(319,544 |
) |
|
|
— |
|
|
Proceeds
from issuance of common stock
|
|
|
— |
|
|
|
34,154 |
|
|
Proceeds
from employee stock purchase plan
|
|
|
11,792 |
|
|
|
5,357 |
|
|
Proceeds
from exercise of employee stock options
|
|
|
338 |
|
|
|
— |
|
|
Net
cash provided by financing activities
|
|
|
6,942,588
|
|
|
|
39,511
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
5,183,799 |
|
|
|
(3,205,958 |
) |
|
Cash
and cash equivalents, beginning of period
|
|
|
906,248
|
|
|
|
4,952,481 |
|
|
Cash
and cash equivalents, end of period
|
|
$ |
6,090,047 |
|
|
$ |
1,746,523 |
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$ |
— |
|
|
$ |
— |
|
|
Cash
paid for interest
|
|
$ |
50,397 |
|
|
$ |
50,411 |
|
The
accompanying notes are an integral part of these financial
statements.
INTERLEUKIN
GENETICS, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1—Basis
of Presentation
The condensed financial statements
include the accounts of Interleukin Genetics, Inc. (the Company) as of
March 31, 2010 and December 31, 2009 and for the three months ended March 31,
2010. The condensed financial statements for the three months ended March 31,
2009 include the accounts of the Company and its then wholly-owned subsidiaries.
Prior to the opening of business on July 1, 2009 the Company and its then
wholly-owned subsidiary AJG Brands, Inc. sold substantially all of the Alan
James Group business and assets of AJG Brands, Inc. Operating results for AJG
Brands, Inc. are reflected herein in discontinued operations.
The financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States of America for interim financial reporting.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. As
of March 31, 2009 all intercompany accounts and transactions have been
eliminated in consolidation. These unaudited condensed financial statements,
which, in the opinion of management, reflect all adjustments (including normal
recurring adjustments) necessary for a fair presentation, should be read in
conjunction with the financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2009. Operating results are not necessarily indicative of the results that may
be expected for any future interim period or for the entire fiscal
year.
For information regarding our critical
accounting policies and estimates, please refer to “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Critical Accounting
Policies and Estimates” contained in our Annual Report on Form 10-K for the year
ended December 31, 2009 and Note 4 to our condensed financial statements
contained herein.
The
Company applies the provisions of FASB ASC 280, Segment Reporting, which
established standards for reporting information about operating segments in
annual and interim financial statements, and requires that companies report
financial and descriptive information about their reportable segments based on
management’s approach. The standard also established related disclosures about
products and services, geographic areas and major customers. As a result of the
acquisition of the assets and business of the Alan James Group in August 2006
and until prior to the opening of business on July 1, 2009 when substantially
all of the assets and business were sold, the Company had two reportable
segments: Personalized Health and Consumer Products.
As of
March 31, 2010, the Company has one segment remaining, the genetic test
business, which was formerly defined as the Personalized Health segment and is
reflected herein as continuing operations. The Company develops genetic tests
for sale into the emerging personalized health market and performs testing
services that can help individuals improve and maintain their health through
preventive measures. The Company’s principal operations and markets are located
in the United States.
The Company has evaluated all events or
transactions that occurred after March 31, 2010 through the date of issuance of
these financial statements. The Company did not have any material recognizable
or non recognizable subsequent events.
Note 2—Operating
Matters and Liquidity
The
Company has experienced net operating losses since its inception through March
31, 2010, including a net loss of $2.0 million for the three months then ended,
contributing to an accumulated deficit of $93.5 million as of March 31, 2010.
The Company has increased its borrowings at March 31, 2010 to $9.0 million under
its line of credit with Pyxis Innovations Inc., an affiliate of Alticor
(“Pyxis”).
The
Company continues to take steps to control expenses and enhance its liquidity
and cash flow. Prior to the opening of business on July 1, 2009, the Company
sold substantially all of the Alan James Group business of its subsidiary AJG
Brands, Inc. for $4.6 million consisting of $4.4 million in cash and a $0.2
million holdback. The Company decided to sell these non-core assets as a way to
concentrate on its genetic test business. The Company will no longer have the
positive cash flow of this business but will have lower administration and
operating costs as a result of the focus on the genetic test business. The
Company continues to further reduce operating costs such as consulting and
research expenses to focus on our product development efforts. We continue our
efforts to sublease unused office space to further offset operating
costs.
On March
5, 2010, the Company entered into a definitive agreement with certain
institutional investors to sell $5.3 million of securities in a registered
direct offering. Net proceeds of approximately $4.9 million were received on
March 10, 2010. In addition, the Company has access to $5.3 million of available
credit under the credit facility with Pyxis which permits borrowings any time
prior to June 30, 2011.
We expect
that our current financial resources, including the amount available under our
credit facility with Pyxis, are adequate to fund our current and planned
operations for the next 18 months.
Note 3—Discontinued
Operations
Prior to
the opening of business on July 1, 2009, the Company and its wholly-owned
subsidiary, AJG Brands, Inc. entered into an asset purchase agreement with
Nutraceutical Corporation and Pep Products, Inc., a wholly-owned subsidiary of
Nutraceutical Corporation, pursuant to which substantially all of the Alan James
Group business and assets of AJG Brands, Inc. were sold to Pep Products, Inc.
for an aggregate price of $4,572,292. The proceeds consisted of a $200,000
holdback reflected in other assets and $4,372,292 of cash received on July 1,
2009. The holdback is available to satisfy potential amounts owed to the buyer
pursuant to the agreement and may be payable to the Company on July 1, 2011. The
assets sold consisted primarily of accounts receivable, inventories, property
and equipment and other assets related to the business, which primarily
develops, markets and sells nutritional supplements and related products into
retail consumer channels. The buyer did not assume accounts payable and accrued
liabilities. Subsequent to the closing, AJG Brands, Inc.’s name was changed to
Interleukin Brands, Inc. (“IBI”). The assets remaining in IBI consisted
primarily of certain remaining accounts receivable and inventory which have been
fully reserved for. Liabilities at March 31, 2010 and December 31, 2009
primarily consist of accruals for inventory in the retail channel with the right
of return.
The Company recognized a loss on the
sale of discontinued operations of $1,346,202 in the quarter ended June 30, 2009
including direct costs of the disposition of $674,243.
AJG Brands, Inc.’s sales reported in
discontinued operations for the three months ended March 31, 2009 were
$1,547,531.
The following is a summary of the net
assets sold at the close of business on June 30, 2009.
|
Accounts
receivable
|
|
$ |
1,114,835 |
|
|
Inventories
|
|
|
783,512 |
|
|
Property
and equipment, net.
|
|
|
21,073 |
|
|
Other
assets
|
|
|
72,993 |
|
|
|
|
$ |
1,992,413
|
|
Note 4—Significant
Accounting Policies
Revenue
Recognition
Revenue
from genetic testing services is recognized when there is persuasive evidence of
an arrangement, service has been rendered, the sales price is determinable and
collectability is reasonably assured. Service is deemed to be rendered when the
results have been reported to the individual who ordered the test. To the extent
that tests have been prepaid but results have not yet been reported, recognition
of all related revenue is deferred. As of March 31, 2010 and December 31, 2009,
the Company has deferred revenue of $346,505 and $107,792, respectively, for
tests that have been prepaid but results have not yet been
reported.
Revenue
from product sales is recognized when there is persuasive evidence of an
arrangement, delivery has occurred and title and risk of loss have transferred
to the customer, the sales price is determinable and collectability is
reasonably assured. The Company has no consignment sales. Product revenue is
reduced for allowances and adjustments, including returns, discontinued items,
discounts, trade promotions and slotting fees.
Revenue
from contract research and development is recognized over the term of the
contract as the Company performs its obligations under that contract (including
revenue from Alticor, a related party).
Accounts
Receivable
Pursuant
to the asset purchase agreement in connection with the Company’s sale of
substantially all of the Alan James Group business and assets, the Company
retained non acquired accounts receivable in the amount of $180,605 which was
fully reserved for as uncollectible at June 30, 2009. At March 31, 2010, the
balance in such non acquired accounts approximated $107,000, which is deemed
uncollectable and has been fully reserved for. Prior to the sale, trade accounts
receivable was stated at estimated net realizable value, which is generally the
invoiced amount less any estimated discount related to payment terms. The
Company offered its Consumer Product customers a 2% cash discount if payment was
made within 30 days of the invoice date, however, most customers took the
discount regardless of when payment occurred.
Inventory
Inventory
on hand at March 31, 2010 consists of product genetic test kits related to our
Inherent Health® brand of
genetic tests. Inventory is stated at the lower of cost or market. No overhead
or administrative costs are included in inventory. No inventory reserve is
required at March 31, 2010 as all test kits are available for sale and
management has determined will be sold. When a kit is sold the corresponding
cost of the kit is recorded as cost of goods sold and removed from
inventory.
As part
of the Company’s sale of substantially all of the Alan James Group business and
assets, all non acquired inventory amounting to approximately $129,000 was
scrapped and written off in the fourth quarter of 2009.
Inventory
consisted of the following at March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
|
|
|
|
|
|
Raw materials
|
|
$ |
134,429 |
|
|
$ |
103,479 |
|
|
Finished goods
|
|
|
33,085 |
|
|
|
14,951 |
|
|
Total inventory,
net
|
|
$ |
167,514
|
|
|
$ |
118,430
|
|
Income
Taxes
The
preparation of its financial statements requires the Company to estimate its
income taxes in each of the jurisdictions in which it operates, including those
outside the United States, which may be subject to certain risks that ordinarily
would not be expected in the United States. The Company accounts for income
taxes in accordance with FASB ASC 740, Income Taxes, which requires
the recognition of taxes payable or refundable for the current year and deferred
tax liabilities and assets for the future tax consequences of events that have
been recognized in the financial statements or tax returns. The measurement of
current and deferred tax liabilities and assets is based on provisions of the
enacted tax law; the effects of future changes in tax laws or rates are not
anticipated. The Company records a valuation allowance to reduce its deferred
tax assets to the amount that is more likely than not to be
realized.
Significant
management judgment is required in determining the Company’s provision for
income taxes, its deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets. The Company has recorded a full
valuation allowance against its deferred tax assets of $27.0 million as of
March 31, 2010, due to uncertainties related to its ability to utilize these
assets. The valuation allowance is based on management’s estimates of taxable
income by jurisdiction in which the Company operates and the period over which
the deferred tax assets will be recoverable. In the event that actual results
differ from these estimates or management adjusts these estimates in future
periods, the Company may need to adjust its valuation allowance, which could
materially impact its financial position and results of operations.
Due to
recent changes in Massachusetts corporate income tax regulations, the Company
will be filing a combined tax return with Alticor affiliated entities and as a
result, the Company’s net operating losses (for state tax purposes) will be
fully utilized at March 31, 2010. The combined filing will have no impact on the
Company's financial statements due to the full valuation allowance that offsets
any deferred tax assets.
The
Company reviews its recognition threshold and measurement process for recording
in the financial statements uncertain tax positions taken or expected to be
taken in a tax return. The Company reviews all material tax positions for all
years open to statute to determine whether it is more likely than not that the
positions taken would be sustained based on the technical merits of those
positions. The Company did not recognize any adjustments for uncertain tax
positions during the three months ended March 31, 2010.
Basic
and Diluted Net Loss per Common Share
The
Company applies the provisions of FASB ASC 260, Earnings per Share, which
establishes standards for computing and presenting earnings per share. Basic and
diluted net loss per share was determined by dividing net loss applicable to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is the same as basic
net loss per share for all the periods presented, as the effect of the potential
common stock equivalents is anti-dilutive due to the loss in each period.
Potential common stock equivalents excluded from the calculation of diluted net
loss per share consists of stock options, warrants, convertible preferred stock
and convertible debt as described in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding
|
|
|
1,493,367 |
|
|
|
2,225,667 |
|
|
Warrants
outstanding
|
|
|
2,150,000 |
|
|
|
400,000 |
|
|
Convertible
preferred stock
|
|
|
28,160,200 |
|
|
|
28,160,200 |
|
|
Convertible
debt
|
|
|
1,584,981
|
|
|
|
704,436
|
|
|
Total
|
|
|
33,388,548
|
|
|
|
31,490,303
|
|
Fair
Value of Financial Instruments
The
Company, using available market information, has determined the estimated fair
values of financial instruments. The stated values of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to the
nature of these instruments. The carrying amount of long-term convertible debt
approximates its fair value as the rate applicable to such debt reflects
periodic changes in overall market interest rates.
Cash
and Cash Equivalents
Cash and cash equivalents include money
market funds we have on deposit with our commercial bank. These funds are
available on demand and could be in excess of FDIC insurance
limits.
Recent Accounting
Pronouncements
Please
see the discussion of “Recent Accounting Pronouncements” in Note 4, Significant
Accounting Policies contained in the Notes to Financial Statements included in
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2009.
Note 5—Strategic
Alliance with Alticor Inc.
Since
March 2003, the Company has maintained a broad strategic alliance with several
affiliates of the Alticor family of companies to develop and market novel
nutritional and skin care products. The alliance initially included an equity
investment, a multi-year research and development agreement, a licensing
agreement with royalties on marketed products, the deferment of outstanding loan
repayment and the refinancing of bridge financing obligations. The alliance
continues to evolve and recent events under the alliance are described in this
Note 5.
On
February 25, 2008, the Company entered into a research agreement (RA8) with an
affiliate of Alticor, effective January 1, 2008, to expand the research
being performed under its current agreements with Alticor through 2008. The
Company received $1,200,000 during 2008 under the research agreement, on a time
and materials basis. Additionally, in 2009 and 2008 the Company recognized as
revenue approximately $524,000 and $800,000, respectively of previously deferred
revenue. In addition to the $800,000 of deferred revenue recognized under RA8,
$168,254 of funds previously paid to the Company by Alticor under research
agreement 3 (RA3) and research agreement 4 (RA4), for which no work has been
performed, do not need to be repaid to Alticor. Accordingly, the Company has
classified such funding as additional paid-in capital.
On
January 31, 2009, the Company entered into an amendment to RA8. The amendment
extended the term from a maximum of six months to eight months, terminating on
September 30, 2009. The Company received an additional $200,316 on March 31,
2009 under the terms of the amendment to complete ongoing research, which was
recognized as deferred revenue as of March 31, 2009. At March 31, 2010, all
research agreements with Alticor were complete and the $200,316 has been
recognized as revenue.
On
October 20, 2009 the Company entered into a Merchant Network and Channel Partner
Agreement with Amway Corp., d/b/a/ Amway Global (“Amway Global”) a subsidiary of
Alticor Inc. Pursuant to the Agreement, Amway Global will sell the Company’s
Inherent Health brand of genetic tests through its e-commerce website via a
hyperlink to our e-commerce site. We paid Amway Global $90,000 in commissions
for the three months ended March 31, 2010 representing a percentage of net sales
received by us from Amway Global customers.
Note
6—Convertible Debt
On
August 17, 2006, our existing credit facility with Pyxis was amended to
provide the Company with access to approximately $14,300,000 of additional
working capital borrowings at any time prior to August 17, 2008. Any
amounts borrowed bear interest at prime, require quarterly interest payments and
on demand a payment of all outstanding principal on August 16, 2011. The
principal amount of any borrowing under this credit facility is convertible at
Pyxis’ election into a maximum of 2,533,234 shares of common stock, reflecting a
conversion price of $5.6783 per share.
Pursuant
to the terms of the notes, Pyxis converted the indebtedness due on June 30,
2008, representing an aggregate principal amount of $595,336 and accrued
interest of $7,450, into 943,032 shares of the Company’s common
stock.
This
credit facility has been extended several times. Most recently, on February 1,
2010, the Company entered into an amendment to extend the availability of the
existing credit facility with Pyxis until June 30, 2011. As of March 31, 2010,
there was $9,000,000 in principal outstanding under the credit facility which
includes $2,000,000 the Company borrowed on February 1, 2010 leaving $5,316,255
of available credit.
Note 7—Commitments
and Contingencies
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future material effect on its financial condition,
results of operations or cash flows.
Legal
Proceedings
On
February 11, 2010, Genetic Technologies Limited, or GTL, filed a complaint in
the United States District Court for the Western District of Wisconsin. The
complaint names the Company and eight other corporations as defendants in an
alleged patent infringement lawsuit (Genetics Technologies Limited vs. Beckman
Coulter, Inc., et. al., Civil Action No. 10-CV-00069, W.D. Wis., filed February
11, 2010). The Company was served with the complaint on March 24, 2010. The
complaint alleges that the defendants make, use or sell products or services
that infringe one or more claims of the patent owned by GTL, U.S. Patent No.
5,612,179, or the ’179 Patent, which expired on March 10, 2010. In the
Company’s case, the complaint alleges that it offers and provides genetic risk
assessment testing services that utilize methods set forth in one or more claims
of the ‘179 Patent. The Company believes that it has substantial defenses
to the claims asserted in the complaint. As of March 31, 2010, it is not
possible to assess the risk of loss, if any, related to this
matter.
Employment
Agreements
On
January 21, 2010, the Company entered into an employment agreement with Lewis H.
Bender, its Chief Executive Officer. The agreement replaced and superseded the
employment agreement between the Company and Mr. Bender that was to expire by
its terms on January 22, 2010. The agreement has an initial term of one year and
is automatically renewable for successive one year periods unless at least 90
days prior notice is given by either the Company or Mr. Bender. The agreement
also provides that Mr. Bender will serve as a member of the Company’s Board of
Directors for as long as he serves as the Company’s Chief Executive Officer,
subject to any required approval of the Company’s shareholders.
The
agreement is terminable by the Company for cause or upon thirty days prior
written notice without cause and by Mr. Bender upon thirty days prior written
notice for “good reason” (as defined in the agreement) or upon ninety days prior
written notice without good reason. If the Company terminates Mr. Bender without
cause or Mr. Bender terminates his employment for good reason, then the Company
will pay Mr. Bender, in addition to any accrued, but unpaid compensation prior
to the termination, an amount equal to eighteen months of his base salary. If
the Company terminates Mr. Bender without cause or Mr. Bender terminates his
employment with good reason after a “change of control” (as defined in the
agreement), then the Company will pay Mr. Bender, in addition to any accrued,
but unpaid compensation prior to the termination, an amount equal to twenty-four
months of his base salary, and all unvested stock options will automatically
vest.
The
agreement also includes non-compete and non-solicitation provisions for a period
of twelve months following the termination of Mr. Bender’s employment with the
Company.
Note 8—Capital
Stock
Authorized
Preferred and Common Stock
At March
31, 2010, the Company had authorized 6,000,000 shares of $0.001 par value
Series A Preferred Stock, of which 5,000,000 were issued and outstanding.
At March 31, 2010, the Company had authorized 100,000,000 shares of $0.001 par
value common stock of which 72,520,584 shares were outstanding or reserved for
issuance. Of those, 36,494,890 shares were outstanding; 28,160,200 shares were
reserved for the conversion of Series A Preferred to common stock;
1,584,981 shares were reserved for the conversion of the $9,000,000 of debt
outstanding under the credit facility with Pyxis; 2,937,295 shares were reserved
for the potential exercise of authorized and outstanding stock options; 400,000
shares were reserved for the exercise of outstanding warrants to purchase common
stock at an exercise price of $2.50 per share which are exercisable currently
until the expiration date of August 9, 2012; 1,750,000 shares were reserved for
the exercise of outstanding warrants to purchase common stock at an exercise
price of $1.30 per share which are exercisable currently until the expiration
date of March 5, 2015; 256,977 shares were reserved for the potential exercise
of rights held under the Employee Stock Purchase Plan; and 936,241 shares were
reserved for the issuance upon the conversion of convertible notes that may be
issued to Pyxis under the existing credit facility.
On March
5, 2010, the Company entered into a definitive agreement with certain
institutional investors to sell $5.3 million of securities in a registered
direct offering. The investors purchased an aggregate of 4,375,002 units for
$1.20 per unit, with each unit consisting of a share of common stock and a
warrant to purchase 0.40 of a share of common stock. The warrants are
exercisable at $1.30 per share and expire in five years. Net proceeds to the
Company after fees and expenses were approximately $4.9 million.
Series A
Preferred Stock
On
March 5, 2003, the Company entered into a Stock Purchase Agreement with
Pyxis, pursuant to which Pyxis purchased from the Company 5,000,000 shares of
Series A Preferred Stock for $7,000,000 in cash on that date, and an
additional $2,000,000 in cash that was paid, as a result of the Company
achieving a certain milestone, on March 11, 2004.
The
Series A Preferred Stock accrues dividends at the rate of 8% of the
original purchase price per year, payable only when, as and if declared by the
Board of Directors and are non-cumulative. To date, no dividends have been
declared on these shares. If the Company declares a distribution, with certain
exceptions, payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets (excluding cash dividends) or
options or rights to purchase any such securities or evidences of indebtedness,
then, in each such case the holders of the Series A Preferred Stock shall
be entitled to a proportionate share of any such distribution as though the
holders of the Series A Preferred Stock were the holders of the number of
shares of Common Stock into which their respective shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock entitled to receive such
distribution.
In the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of the Series A Preferred Stock shall
be entitled to receive, prior and in preference to any distribution of any of
the Company’s assets or surplus funds to the holders of its Common Stock by
reason of their ownership thereof, the amount of two times the then-effective
purchase price per share, as adjusted for any stock dividends, combinations or
splits with respect to such shares, plus all declared but unpaid dividends on
such share for each share of Series A Preferred Stock then held by them.
The liquidation preference at March 31, 2010 was $18,000,000. After receiving
this amount, the holders of the Series A Preferred Stock are entitled to
participate on an as-converted basis with the holders of Common Stock in any of
the remaining assets.
Each
share of Series A Preferred Stock is convertible at any time at the option
of the holder into a number of shares of the Company’s Common Stock determined
by dividing the then-effective purchase price ($1.80, and subject to further
adjustment) by the conversion price in effect on the date the certificate is
surrendered for conversion. As of March 31, 2010, the Series A Preferred
Stock was convertible into 28,160,200 shares of Common Stock reflecting a
current conversion price of $0.3196 per share.
Each
holder of Series A Preferred Stock is entitled to vote its shares of
Series A Preferred Stock on an as-converted basis with the holders of
Common Stock as a single class on all matters submitted to a vote of the
stockholders, except as otherwise required by applicable law. This means that
each share of Series A Preferred Stock will be entitled to a number of
votes equal to the number of shares of Common Stock into which it is convertible
on the applicable record date.
Note 9—Stock-Based
Compensation Arrangements
Stock-based
compensation arrangements consisted of the following as of March 31, 2010: three
share-based compensation plans, restricted stock awards; an employee stock
purchase plan; and employee compensation agreements. Total compensation cost
that has been charged against income for stock-based compensation arrangements
is as follows:
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
Stock
option grants beginning of period
|
|
$ |
1,331 |
|
|
$ |
38,984 |
|
|
Stock-based
arrangements during the period:
|
|
|
|
|
|
|
|
|
|
Stock option
grants
|
|
|
84,503 |
|
|
|
428 |
|
|
Restricted stock
issued:
|
|
|
|
|
|
|
|
|
|
Employee stock purchase
plan
|
|
|
2,100 |
|
|
|
945 |
|
|
Employment
agreements
|
|
|
—
|
|
|
|
1,625
|
|
|
|
|
$ |
87,934
|
|
|
$ |
41,982
|
|
Stock
option grants
The
following table details stock option activity for the three months ended March
31, 2010 and 2009:
|
|
|
Three Months Ended March 31,
2010
|
|
|
Three Months Ended March 31,
2009
|
|
| |
|
|
|
|
Weighted Avg
Exercise
Price
|
|
|
|
|
|
Weighted Avg
Exercise
Price
|
|
|
Outstanding,
beginning of period
|
|
|
1,578,917 |
|
|
$ |
2.07 |
|
|
|
2,100,917 |
|
|
$ |
2.33 |
|
|
Granted
|
|
|
126,500 |
|
|
|
0.83 |
|
|
|
138,500 |
|
|
|
0.26 |
|
|
Exercised
|
|
|
(1,300 |
) |
|
|
0.26 |
|
|
|
— |
|
|
|
— |
|
|
Canceled/Expired
|
|
|
(210,750 |
) |
|
|
4.54 |
|
|
|
(13,750 |
) |
|
|
0.75 |
|
|
Outstanding,
end of period
|
|
|
1,493,367 |
|
|
$ |
1.62 |
|
|
|
2,225,667 |
|
|
$ |
2.21 |
|
|
Exercisable,
end of period
|
|
|
897,167 |
|
|
$ |
2.07 |
|
|
|
1,470,667 |
|
|
$ |
2.85 |
|
The
Company’s share-based payments that result in compensation expense consist of
stock option grants and shares issued under the Employee Stock Purchase Plan.
During the three-month period ended March 31, 2010, the Company granted stock
options under the 2000 Employee Stock Compensation Plan and the 2004 Employee,
Director & Consultant Stock Plan. At March 31, 2010, the Company had an
aggregate of 1,443,928 shares of Common Stock available for grant; including
272,482 shares under the 2000 Employee Stock Compensation Plan and 1,171,446
under the 2004 Employee, Director & Consultant Stock Plan. Each of these
plans expires ten years from the date the plan was approved.
It is the
Company’s policy to grant stock options with an exercise price equal to the fair
market value of the Company’s common stock at the grant date, and stock options
to employees generally vest over five years based upon continuous service.
Historically, the majority of the Company’s stock options have been granted in
connection with the employee’s start date with the Company. In addition, the
Company may grant stock options in recognition of promotion and/or
performance.
For
purposes of determining the stock-based compensation expense for stock option
awards in 2010, the Black-Scholes option-pricing model was used with the
following weighted-average assumptions:
|
Risk-free
interest rate
|
|
|
2.3 |
% |
|
Expected
life
|
|
5.7
|
years |
|
Expected
volatility
|
|
|
126.4 |
% |
|
Dividend
Yield
|
|
|
0 |
% |
Using
these assumptions, the weighted average grant date fair value of options granted
in 2010 was $0.80.
Employee
Stock Purchase Plan
Purchases
made under the Company’s Employee Stock Purchase Plan are deemed to be
compensatory because employees may purchase stock at a price equal to 85% of the
fair market value of the Company’s common stock on either the first day or the
last day of a calendar quarter, whichever is lower. During the three months
ended March 31, 2010 and 2009, employees purchased 16,153 and 31,506 shares,
respectively, of common stock at a weighted-average purchase price of $0.73 and
$0.17, respectively, while the weighted-average fair value was $0.86 and $0.20
per share, respectively, resulting in compensation expense of $2,100 and $945,
respectively.
Restricted
Stock Awards
Holders
of restricted stock awards participate fully in the rewards of stock ownership
of the Company, including voting and dividend rights. Recipients of restricted
stock awards are generally not required to pay any consideration to the Company
for these restricted stock awards. The Company measures the fair value of the
shares based on the last reported price at which the Company’s common stock
traded on the date of the grant and compensation cost is recognized over the
remaining service period. During each of the three months ended March 31, 2010
and 2009 the Company granted restricted stock awards of 22,500 and 12,500
shares, respectively.
At March
31, 2010, there was approximately $318,000 of total unrecognized cost related to
non-vested share-based compensation arrangements granted under the Company’s
stock plans.
Note 10—Industry
Risk and Concentration
The
Company develops genetic risk assessment tests under contract, performs research
for its own benefit and, to a lesser extent, provides research services to a
collaborative partner. As of March 31, 2010, the Company has introduced four
genetic risk assessment tests commercially. Two of the tests are branded and
sold through the Company’s strategic partner — Alticor. Commercial success
of the Company’s genetic risk assessment tests will depend on their success as
scientifically credible and cost-effective by consumers and the marketing
success of the Company and its collaborative partner.
Research
in the field of disease predisposing genes and genetic markers is intense and
highly competitive. The Company has many competitors in the United States and
abroad that have considerably greater financial, technical, marketing, and other
resources available. If the Company does not discover disease predisposing genes
or genetic markers and develop risk assessment tests and launch such services or
products before its competitors, then the potential for significant revenues may
be reduced or eliminated.
During the three months ended March 31,
2009, we had one significant customer, Alticor, our principal shareholder that
accounted for approximately 96% of our revenues from continuing operations.
During the three months ended March 31, 2010, approximately 51% of our revenue
came from sales through our Merchant Network and Channel Partner Agreement with
Amway Corp. d/b/a Amway Global (“Amway Global”), a subsidiary of Alticor.
Pursuant to this Agreement, Amway Global sells our genetic tests through its
e-commerce web site via a hyperlink to our e-commerce site.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion of our financial condition and results of operations should
be read in conjunction with the unaudited condensed financial statements and the
notes thereto included elsewhere in this document.
General
Overview and Trends
Interleukin
Genetics, Inc. is a personalized health company that develops condition-focused,
unique genetic tests. Our overall mission is to provide test products that can
help individuals improve or maintain their health through preventive measures.
Our vision is to use the science of applied genetics to empower individuals and
physicians to better understand the set of actions and steps necessary to guide
the best lifestyle and treatment options. We believe that the science of applied
genetics can help companies provide improved services to their consumers, and
assist in improving outcomes in drug development and use.
During the three months ended March 31,
2010, we continued to focus our resources on sales of our new Inherent Health™
brand of genetic tests and related programs, which began at the end of the
second quarter of 2009, including the first-of-its-kind test for weight
management that identifies an individual’s genetic tendencies for weight gain
and metabolism. The brand launch offers customers a full suite of affordable,
easy-to-use and meaningful genetic tests in heart health, bone health,
nutritional needs, as well as PST®, the periodontal disease risk assessment
test.
We experienced extensive scientific and
media attention relating to our weight management genetic test. On March 3,
2010, we and researchers from Stanford University announced findings from a
retrospective clinical study collaboration involving our Weight Management
Genetic Test during a presentation at the American Heart Association’s annual
epidemiology and prevention conference. According to Stanford University
researchers, the differences in weight loss that were observed in individuals
who followed a diet matched to their genotype versus one that was not matched to
their genotype “is highly significant in numerous categories and represents an
approach to weight loss that has not been previously reported in the
literature.” This announcement follows our release of top line positive results
from the study on September 29, 2009.
Sales of our genetic tests increased
significantly in the three months ended March 31, 2010, as compared to the same
period in the prior year driven primarily by subsequent media attention after
the findings announced at the American Heart Association’s conference. The
findings were reported in multiple national print publications as well as
television. What we have experienced is a better understanding of the importance
of our genetic test in the field of personalized health when public awareness is
gained. We plan to explore further media opportunities in the future. We did not
incur any significant expenses relating to this media.
Prior to the opening of business on
July 1, 2009 we sold substantially all of the Alan James Group business and
assets of our wholly-owned subsidiary AJG Brands, Inc. to Pep Products, Inc., a
subsidiary of Nutraceutical Corporation. We continue to pay ongoing amounts owed
on the accrued liabilities primarily related to inventory remaining at the
retail level. During the quarter, we reached a final settlement with a retailer
for approximately $0.3 million and we expect to continue to settle these
accounts within the amounts accrued for at the date of the transaction. We are
now focusing on genetic test development and commercialization which was
formerly defined as our Personalized Health segment and is reflected as
continuing operations.
Up to and
including June 30, 2009, we had two primary business segments that
included:
|
|
·
|
Personalized Health
Segment – this segment conducts, researches, develops, markets and
sells genetic tests panels primarily in inflammatory and metabolic areas
to provide better insight into health, wellness and disease. Following the
sale of substantially all of the Alan James Group business and assets
prior to the opening of business on July 1, 2009, the Personalized Health
segment became our only business
segment.
|
|
|
·
|
Consumer Products
Segment – this segment was comprised of the Alan James Group
business assets, which we sold prior to the opening of business on July 1,
2009, and was focused on developing, selling and marketing nutritional
supplements and products into retail consumer channels. Following the sale
of substantially all of the Alan James Group business and assets, the
Consumer Products segment ceased to
exist.
|
We have
traditionally spent approximately $3-4 million annually on research and
development. We completed our research agreements with Alticor in 2009 and are
now dedicating our resources to our own product development efforts. Our
research & development expenses may decrease as we focus more on our own
development and commercialization efforts. This is different than in prior years
when our development focus was concentrated in research and development to bring
new test configurations to market. As a result of the launch of our Inherent
Health® brand of
genetic tests, we expect corporate selling, general, marketing and
administrative expenses associated with our genetic test products to increase in
2010 and beyond.
In the
genetic test business, competition is in flux and the markets and customer base
are not well established. Adoption of new technologies by consumers requires
substantial market development and customer education. Historically, we have
focused on our relationship with our primary customer, Alticor, a significant
direct marketing company, in order to assist us in developing the market for our
products and educating our potential customers. Our challenge in 2010 and beyond
will be to develop the market for our own personalized health products. We have
begun to allocate considerable resources to our own brand of consumer products,
including the June 2009 launch of our new Inherent Health® brand of
genetic tests and related programs. Due to the early stage of these initiatives,
we cannot predict with certainty fluctuations we may experience in our test
revenues or whether revenues derived from the Merchant Network and Channel
Partner Agreement with Amway Global will ever be material or if material, will
be sustained in future periods.
Three
Months Ended March 31, 2010 and March 31, 2009
Continuing
Operations
Total
revenue from continuing operations for the three months ended March 31, 2010 was
$0.4 million, compared to $0.3 million for the three months ended
March 31, 2009. The increase of $0.1 million, or 6.1%, is primarily attributable
to increases in genetic testing revenue offset by decreases in contract research
and royalty revenue. Genetic testing revenue increased to $0.4 million, or
166.1%, in the three months ended March 31, 2010, compared to $0.1 million in
the three months ended March 31, 2009. The increase is primarily attributable to
sales of our Inherent Health™ Brand of genetic tests, which benefitted from
media attention surrounding the March 2010 announcement of successful study
results with Stanford University on our weight management genetic test. Genetic
testing revenue is derived from tests sold and processed, which is driven by
consumer demand. We had no contract research revenue in the three months ended
March 31, 2010, compared to $0.2 million in the three months ended March 31,
2009. The decrease of $0.2 million is primarily attributable to the completion
in 2009 of our reimbursable research projects with Alticor.
During the three months ended March 31,
2009, we had one significant customer, Alticor, our principal shareholder, that
accounted for approximately 96% of our revenues from continuing operations.
During the three months ended March 31, 2010, approximately 51% of our revenue
came from sales through our Merchant Network and Channel Partner Agreement with
Amway Corp. d/b/a Amway Global, a subsidiary of Alticor. Pursuant to this
agreement, Amway Global sells our genetic tests through its e-commerce web site
via a hyperlink to our e-commerce site.
Cost of revenue from continuing
operations for the three months ended March 31, 2010 was $0.4 million or 112.1%
of revenue, compared to $0.3 million, or 87.8% of revenue, for the three months
ended March 31, 2009. The significant increase in the cost of revenue as a
percentage of revenue is primarily attributable to increased fixed costs
associated with our genetic testing laboratory. Fixed costs were impacted during
the three months ended March 31, 2010 by the operation of new high volume
genetic testing equipment, which we expect to be absorbed by increases in volume
of tests performed. Increased costs associated with this equipment are
recognized in the first quarter of 2010, where no such costs were recognized in
the first quarter of 2009. In addition, variable costs, such as laboratory
supplies, increased due to the higher volume of genetic tests processed. The
first quarter of 2010 is the first period where the volumes of tests performed
was nearly sufficient to cover the full operational expense of the laboratory
since we installed the new equipment in 2009, however, we can provide no
assurance that we will be able to maintain or increase the volume of tests
performed in subsequent periods.
Gross margin from continuing operations
for the three months ended March 31, 2010, was a loss of $45,000, or 12.1%,
compared to a profit of $42,000, or 12.2%, for the three months ended March 31,
2009. The decrease in gross margin is primarily attributable to increased fixed
costs associated with our genetic testing laboratory and a decrease in contract
research revenue.
Research
and development expenses from continuing operations were $0.6 million for the
three months ended March 31, 2010, compared to $0.9 million for the three months
ended March 31, 2009. The decrease of $0.3 million, or 36.5% is primarily
attributable to decreased clinical trial expenses related to our research
agreements with Alticor and decreased compensation and consulting expenses as
compared to the three months ended March 31, 2009.
Selling,
general and administrative expenses from our continuing operations were $1.3
million for the three months ended March 31, 2010, compared to $1.5 million for
the three months ended March 31, 2009. The decrease of $0.2 million, or 13.3% is
primarily attributable to decreased expenses relating to administrative support
consultants and lower compensation expenses offset by increased product
development and advertising costs associated with our new Inherent Health™ Brand
of genetic tests, sales commissions paid to Amway as part of our Merchant
Channel and Partner Store Agreement and legal costs related to general corporate
and compliance.
Interest
expense from continuing operations was $67,000 for the three months ended March
31, 2010, as compared to $32,000 for the three months ended March 31, 2009. The
increase in interest expense of $35,000 is primarily attributable to increased
borrowings on our credit facility with Pyxis.
Interest
income from continuing operations was $300 for the three months ended March 31,
2010 as compared to $8,200 for the three months ended March 31, 2009. The
decrease in interest income of $7,900 is primarily attributable to lower
interest being earned on available cash balances. The current financial market
conditions have significantly reduced the interest rate we are able to earn on
our cash and cash equivalent balances.
Liquidity
and Capital Resources
As of
March 31, 2010, we had cash and cash equivalents of $6.1 million and
borrowings available under our credit facility of approximately
$5.3 million, which permits borrowing at any time prior to June 30,
2011.
Cash used
in continuing operations was $1.4 million for the three months ended March 31,
2010, as compared to $2.7 million for the three months ended March 31,
2009. Cash used in operations is primarily impacted by operating results and
changes in working capital, particularly the timing of the collection of
receivables, inventory levels and the timing of payments to suppliers. A
significant use of cash in the three months ended March 31, 2010 were payments
of $0.3 million, relating to the settlement of our obligations with former
customers of the Alan James Group in connection with their rights of return of
purchased product. A final settlement was reached with a major customer for
inventory yet to be returned in accordance with the contractual terms of the
retail relationship. The total settlement amounted to $0.3 million with $0.1
paid in March 2010 and the balance to be paid in the second quarter of 2010. The
amounts paid were previously accrued in our financial statements. This use of
cash was offset by a significant increase in genetic test sales resulting from
the media surrounding the weight loss study results. Cash received from genetic
test sales which is reflected in deferred revenue until the test report is
issued increased by $0.2 million as compared to the three months ended March 31,
2009.
Prior to
the sale of substantially all of the Alan James Group business and assets, we
received positive operating cash flow from the retail sale of supplements. The
combination of positive operating cash flow from the operations of The Alan
James Group reduced our need for borrowings from our credit line with Pyxis. As
we build our genetic test business the need for capital may increase due to the
sale of the Alan James Group business.
Cash used
in investing activities of our continuing operations was $40,000 for the three
months ended March 31, 2010, compared to $0.5 million for the three months ended
March 31, 2009. During the three months ended March 31, 2009, capital additions
primarily consisted of new commercial laboratory equipment that was purchased
and installed which allows for high volume processing of genetic test samples.
We believe that based on current and projected volumes, our laboratory equipment
is sufficient to process genetic tests and no additional material capital
purchases will be needed in the foreseeable future.
Cash
provided by financing activities of our continuing operations was $6.9 million
for the three months ended March 31, 2010 compared to $40,000 for the three
months ended March 31, 2009. On February 1, 2010 we received proceeds from the
issuance of a note payable in the amount of $2.0 million under our existing
credit facility with Pyxis. We have no financial covenants as part of our credit
facility with Pyxis. As of March 31, 2010, we had $9.0 million outstanding under
the credit facility, which is reflected as long term debt on our balance sheet
and is convertible, at the option of Pyxis into shares of our common stock at a
price of $5.6783 per share. On March 5, 2010, we entered into a definitive
agreement with certain institutional investors to sell $5.3 million of
securities in a registered direct offering. The investors purchased an aggregate
of 4,375,002 units for $1.20 per unit, with each unit consisting of a share of
common stock and a warrant to purchase 0.40 of a share of common stock. The
warrants are exercisable at $1.30 per share and expire in five years. Net
proceeds to us after fees and expenses were approximately $4.9 million. We
received approximately $12,000 and $39,000, respectively from the exercise of
stock options and stock purchases through the employee stock purchase plan for
the three months ended March 31, 2010 and 2009.
The
amount of operating cash we generate is not currently sufficient to continue to
fund and grow our operations. We believe our success depends on our ability to
have sufficient capital and liquidity to achieve our objectives of closing
negotiations with partners and creating additional distribution channels for our
genetic testing products and technology. In addition to our current operating
line of credit we may have to raise additional capital. Even though we are
experiencing sales increases in our genetic testing business we must take
additional steps to reduce our operating costs. In 2009, we reduced our
headcount in non essential areas. We are currently attempting to sublease
approximately one-third of our 19,000 square feet of office space. The space
includes offices and a laboratory that is not being used. We have significantly
reduced our research and development programs to only those that focus on
technology related to deals with potential commercial partners. We have taken
steps to reduce our corporate administrative expenses by working with or seeking
new vendors who offer the same service for a lower cost. While we expect that
our current and anticipated financial resources, including the amount available
under our credit facility with Pyxis and the $4.9 million in net proceeds we
received from our March 2010 registered direct offering, are adequate to
maintain our current and planned operations for at least the next 18 months, we
anticipate we will need substantial additional funds in the future, which we
intend to obtain from operations, alliances or raising additional capital, but
such funding may not be available on terms acceptable to us, or at
all.
On
December 23, 2009, we filed a shelf registration statement with the SEC for the
issuance of common stock, preferred stock, various series of debt securities
and/or warrants to purchase any of the securities, either individually or in
units, with a total value of up to $75 million, from time to time at prices and
on terms to be determined at the time of such offerings. This filing was
declared effective on January 5, 2010. After taking into account the securities
we issued in the March 2010 registered direct offering, we have approximately
$67.5 million of securities available for sale under our effective shelf
registration statement, although we may be limited by the rules and regulations
of the SEC and the NYSE Amex in the amount of securities we may offer under this
registration statement. Even if we are successful in raising additional capital,
we may not be able to raise enough capital to cover our ongoing operating
expenses and may be forced to seek other strategic
alternatives.
On
December 23, 2008, we were notified of our failure to comply with the NYSE Amex,
hereinafter referred to as the Exchange, continued listing standards under
section 1003 of the Exchange’s Company Guide. Specifically, the Exchange noted
our failure to comply with section 1003(a) (iii) of the Company Guide because
our stockholders’ equity was less than $6,000,000 and we had losses from
continuing operations and net losses in our five most recent fiscal years. The
notice was based on a review by the Exchange of publicly available information,
including our Quarterly Report on Form 10-Q for the quarter ended September 30,
2008. As of December 31, 2008, our stockholders equity was $4.5 million, and as
of December 31, 2009 we had a stockholders’ deficit of $5.8 million. On January
27, 2009, we submitted a plan to the Exchange to meet the continued listing
requirements. The plan consists of several elements, but is primarily focused on
increasing the sales of our products and services and raising additional equity
capital. On March 27, 2009, we were notified that the Exchange found our plan to
regain compliance with the continued listing standards to be unacceptable. We
filed an appeal for an oral hearing and submitted a revised plan to the
Exchange. On May 11, 2009, the Exchange notified us that the Exchange accepted
our redrafted plan of compliance, without a hearing, and granted us an extension
until December 31, 2009 to regain compliance with the continued listing
standards. In December 2009, we provided more information to the Exchange and
requested an extension. The Exchange continued to review our progress toward
regaining compliance and on March 17, 2010 granted us an extension until June
23, 2010 to regain compliance. Failure to make progress consistent with the plan
or to regain compliance with the continued listing standards will likely result
in delisting from the Exchange, which could significantly impact our ability to
raise additional capital.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements. The preparation of these financial
statements and related disclosures in conformity with accounting principles
generally accepted in the United States of America requires us to (i) make
judgments, assumptions and estimates that affect the reported amounts of assets,
liabilities, revenue and expenses; and (ii) disclose contingent assets and
liabilities. A critical accounting estimate is an assumption that could have a
material effect on our financial statements if another, also reasonable, amount
were used or a change in the estimates is reasonably likely from period to
period. We base our accounting estimates on historical experience and other
factors that we consider reasonable under the circumstances. However, actual
results may differ from these estimates. To the extent there are material
differences between our estimates and the actual results, our future financial
condition and results of operations will be affected. Our most critical
accounting policies and estimates upon which our financial condition depends,
and which involve the most complex or subjective decisions or assessments are
set forth in Note 4 to our financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2009. There have been no significant
changes in our accounting policies nor changes from the methodology applied by
management for critical accounting estimates previously disclosed in our most
recent Annual Report on Form 10-K.
Revenue
Recognition:
Revenue
from genetic testing services is recognized when there is persuasive evidence of
an arrangement, service has been rendered, the sales price is determinable and
collectability is reasonably assured. Service is deemed to be rendered when the
results have been reported to the individual who ordered the test. To the extent
that tests have been prepaid but results have not yet been reported, recognition
of all related revenue is deferred. As of March 31, 2010 and December 31, 2009,
we had deferred revenue of $347,000 and $108,000, respectively, for tests that
have been prepaid but results have not yet been reported.
Revenue
from contract research and development is recognized over the term of the
contract as we perform our obligations under that contract (including revenue
from Alticor, a related party).
Allowance
for Sales Returns:
At March
31, 2010, we have reserved for estimated sales returns and discontinued items
applicable to the non-acquired accounts resulting from our sale of substantially
all of the assets of the Alan James Group business. The reserve of approximately
$0.8 million is deemed to be adequate and no additional amounts were added at
March 31, 2010. Payments of approximately $0.3 million were made that directly
related to the product returns from non acquired accounts during the three
months ended March 31, 2010.
Trade
Promotions:
Pursuant
to the asset purchase agreement in connection with the sale of substantially all
of the Alan James Group business and assets, we fully accrued for the
approximately $150,000 of agreed upon trade promotions implemented prior to June
30, 2009. At March 31, 2010, the balance of trade promotions estimated to be due
in the future was $41,000.
Accounts
Receivable:
Pursuant
to the asset purchase agreement in connection with our sale of substantially all
of the Alan James Group business and assets, we retained non acquired accounts
receivable in the amount of $180,605 which was fully reserved for as
uncollectible at June 30, 2009. At March 31, 2010, the balance in such non
acquired accounts approximated $107,000 which were deemed uncollectable and had
been fully reserved for. Prior to the sale, trade accounts receivable were
stated at their estimated net realizable value, which is generally the invoiced
amount less any estimated discount related to payment terms.
Inventory:
We value
our inventory at the lower of cost or market. We monitor our inventory and
analyze it on a regular basis. Cycle counts are taken periodically to verify
inventory levels. In addition, we analyze the movement of items within our
inventory in an effort to determine the likelihood that inventory will be sold
or used before expiration dates are reached. We provide an allowance against
that portion of inventory that we believe is unlikely to be sold or used before
expiration dates are reached. An adverse change in any of these factors may
result in the need for additional inventory allowance.
Stock-Based
Compensation:
We
account for our stock-based compensation expense in accordance with FASB ASC
718, Compensation – Stock
Compensation. The standard addresses all forms of share-based payment
(SBP) awards, including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. We expense SBP awards
with compensation cost for SBP transactions measured at fair value. Compensation
cost for the portion of awards for which the requisite service has not been
rendered that are outstanding as of the effective date shall be recognized as
the requisite service is rendered on or after the effective date. The
compensation cost for that portion of awards shall be based on the grant-date
fair value of those awards as calculated from the pro forma disclosures. Common
stock purchased pursuant to our employee stock purchase plan will be expensed
based upon the fair market value in excess of purchase price.
Cash
Equivalents:
Cash and
cash equivalents include money market funds we have on deposit with our
commercial bank. These funds are available on demand and are carried at cost
which approximates fair value.
Fixed
Assets:
Fixed assets are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
provided using the straight-line method over estimated useful lives of three to
five years. Leasehold improvements are amortized over the estimated useful life
of the asset, or the remaining term of the lease, whichever is
shorter.
Intangible
Assets:
Purchase
accounting requires extensive use of accounting estimates and judgments to
allocate the purchase price to the fair market value of the assets purchased and
liabilities assumed. We have accounted for our acquisitions using the purchase
method of accounting. Values were assigned to intangible assets based on
third-party independent valuations, as well as management’s forecasts and
projections that include assumptions related to future revenue and cash flows
generated from the acquired assets. We determined that due to the sale of
substantially all of the Alan James Group business and assets prior to the
opening of business on July 1, 2009, $3,251,838 of intangible assets became
permanently impaired and were expensed.
During
the annual fiscal year end close process and on an ongoing basis, we evaluate
our intangible assets for impairment. We first must investigate if there was a
triggering event that would cause us to evaluate the value of the intangible
assets as outlined in the accounting standard for intangible assets. No
impairment write-down was required in the quarter ended March 31,
2010.
Income
Taxes:
The
preparation of our financial statements requires us to estimate our income taxes
in each of the jurisdictions in which we operate, including those outside the
United States, which may be subject to certain risks that ordinarily would not
be expected in the United States. We account for income taxes in accordance with
FASB ASC 740, Income
Taxes, which requires the recognition of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the financial statements or
tax returns. The measurement of current and deferred tax liabilities and assets
is based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. We record a valuation allowance to reduce
our deferred tax assets to the amount that is more likely than not to be
realized.
Significant
management judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded
against deferred tax assets. We have recorded a full valuation allowance against
our deferred tax assets of $27.0 million as of March 31, 2010, due to
uncertainties related to our ability to utilize these assets. The valuation
allowance is based on management’s estimates of taxable income by jurisdiction
in which we operate and the period over which the deferred tax assets will be
recoverable. In the event that actual results differ from these estimates or
management adjusts these estimates in future periods, we may need to adjust our
valuation allowance, which could materially impact our financial position and
results of operations.
Due to
recent changes in the Massachusetts corporate income tax regulations, we will be
filing on a combined basis with our other affiliated entities on a go-forward
basis and as a result, net operating losses will be fully utilized at March 31,
2010. The combined filing will have no impact on our financial statements due to
the full valuation allowance that offsets any deferred tax assets.
In
addition, the standard prescribes how a company should recognize, measure,
present and disclose in its financial statements uncertain tax positions that a
company has taken or expects to take on a tax return. At March 31, 2010, we
reviewed all material tax positions for all years open to statute and for all
tax jurisdictions open to statute to determine whether it was more likely than
not that the positions taken would be sustained based upon the technical merits
of those positions. These provisions had no impact on our financial
statements.
Contingencies:
Estimated
losses from contingencies are accrued by management based upon the likelihood of
a loss and the ability to reasonably estimate the amount of the loss. Estimating
potential losses, or even a range of losses, is difficult and involves a great
deal of judgment. Management relies primarily on assessments made by its
external legal counsel to make our determination as to whether a loss
contingency arising from litigation should be recorded or disclosed. Should the
resolution of a contingency result in a loss that we did not accrue because
management did not believe a loss was probable or capable of being reasonably
estimated, then this loss would result in a charge to income in the period the
contingency was resolved.
Recent
Accounting Pronouncements
Please
see the discussion of “Recent Accounting Pronouncements” in Note 4, Significant
Accounting Policies contained in the Notes to Financial Statements included in
our Annual Report on Form 10-K for the year ended December 31,
2009.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
As of
March 31, 2010, the only financial instruments we carried were cash and cash
equivalents denominated in U.S. dollars. We believe the market risk arising from
holding these financial instruments is not material. While we recognize that the interest rates these
instruments bear are currently at historically low levels, we believe
it is most prudent to maintain these
relatively low risk positions during this time of unprecedented volatility and
uncertainty across the global financial markets.
Some of
our sales and some of our costs occur outside the United States and are
transacted in foreign currencies. Accordingly, we are subject to exposure from
adverse movements in foreign currency exchange rates. At this time we do not
believe this risk is material and we do not currently use derivative financial
instruments to manage foreign currency fluctuation risk. However, if foreign
sales increase and the risk of foreign currency exchange rate fluctuation
increases, we may in the future consider utilizing derivative instruments to
mitigate these risks.
Item 4T. Controls and
Procedures
(a) Evaluation of Disclosure Controls
and Procedures. Our principal executive officer and principal financial
officer, after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of
the end of the period covered by this Quarterly Report on Form 10-Q, have
concluded that, based on such evaluation, our disclosure controls and procedures
were adequate and effective to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms, and is accumulated and communicated to our management,
including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Control Over
Financial Reporting. No change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15(d)-15(f)) occurred during the
quarter ended March 31, 2010 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II—OTHER INFORMATION
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Item
1.
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Legal
Proceedings.
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On
February 11, 2010, Genetic Technologies Limited, or GTL, filed a complaint in
the United States District Court for the Western District of Wisconsin. The
complaint names Interleukin and eight other corporations as defendants in an
alleged patent infringement lawsuit (Genetics Technologies Limited vs. Beckman
Coulter, Inc., et. al., Civil Action No. 10-CV-00069, W.D. Wis., filed February
11, 2010). We were served with the complaint on March 24, 2010. The
complaint alleges that the defendants make, use or sell products or services
that infringe one or more claims of the patent owned by GTL, U.S. Patent No.
5,612,179, or the ’179 Patent, which expired on March 10, 2010. In our
case, the complaint alleges that it offers and provides genetic risk assessment
testing services that utilize methods set forth in one or more claims of the
‘179 Patent. We believe that we have substantial defenses to the claims
asserted in the complaint.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2009. which could materially
affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks that we face. In
addition, risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially adversely affect our business,
financial condition and/or operating results. There have been no material
changes in or additions to the risk factors included in our Annual Report on
Form 10-K for the year ended December 31, 2009.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q and, in particular, our Management’s Discussion
and Analysis of Financial Condition and Results of Operations set forth in Part
I – Item 2 contain or incorporate a number of forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. Any or all of our forward-looking statements in
this Quarterly Report on Form 10-Q may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors mentioned in our discussion in this Quarterly
Report on Form 10-Q will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially.
Without
limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects”
and similar expressions are intended to identify forward-looking statements.
There are a number of factors that could cause actual events or results to
differ materially from those indicated by such forward-looking statements, many
of which are beyond our control, including the factors set forth under “Item 1A.
Risk Factors” of our Annual Report on Form 10-K
for the year ended December 31, 2009. In addition, the forward-looking
statements contained herein represent our estimate only as of the date of this
filing and should not be relied upon as representing our estimate as of any
subsequent date. While we may elect to update these forward-looking statements
at some point in the future, we specifically disclaim any obligation to do so to
reflect actual results, changes in assumptions or changes in other factors
affecting such forward-looking statements.
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Item
2.
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Unregistered
Sales of Equity Securities and Use of
Proceeds.
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Not
applicable.
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Item
3.
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Defaults
Upon Senior Securities.
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Not
applicable.
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Item
4
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[Removed
and Reserved.]
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Item
5.
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Other
Information.
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Not
Applicable
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Exhibit
Number
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Exhibit
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4.1
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Form
of Common Stock Purchase Warrant issued by Interleukin Genetics, Inc. to
the investors in the March 2010 offering (incorporated by reference to
Exhibit 4.1 of the Company’s current Report on Form 8-K filed on March 5,
2010 (File No. 000-32715))
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31.1*
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Certification
by Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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31.2*
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Certification
by Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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32.1*
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Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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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.
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Interleukin
Genetics, Inc.
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Date:
May 13, 2010
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By:
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/s/
Lewis H. Bender
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Lewis
H. Bender
Chief
Executive Officer
(Principal
Executive Officer)
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Date:
May 13, 2010
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By:
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/s/
Eliot
M. Lurier
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Eliot
M. Lurier
Chief
Financial Officer
(Principal
Financial Officer)
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