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EX-32.1 - EXHIBIT 32.1 - GENELINK INCv326456_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - GENELINK INCv326456_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - GENELINK INCv326456_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - GENELINK INCv326456_ex31-1.htm

 

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2012

 

OR

 

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

 

For the transition period from ______ to ______

 

Commission File No. 000-30518

 

GENELINK, INC.
(Exact name of registrant specified in its charter)

 

PENNSYLVANIA   23-2795613

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

8250 Exchange Drive Suite 120

Orlando, Florida

  32809
(Zip Code)
(Address of principal executive offices)    

 

(800) 558-4363
Registrant’s telephone number, including area code

 

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
   
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Number of Shares of Common Stock

Outstanding on November 14, 2012

253,352,022

  

 
 

 

 

PART I. FINANCIAL INFORMATION

 

    Page
ITEM 1 Financial Statements.
     
  Condensed Consolidated Balance Sheets at September 30, 2012  (unaudited) and December 31, 2011 3-4
     
  Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2012 and 2011(unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows  for the nine months ended September  30, 2012 and 2011(unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements 7-15

 

2
 

 

GENELINK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS

 

   September 30, 2012   December 31, 2011 
CURRENT ASSETS          
Cash and cash equivalents  $977,456   $740,769 
Accounts Receivable   148,202    235,458 
Inventory   426,700    562,191 
Prepaid Expenses   155,953    244,248 
Current portion of prepaid sales incentives   76,667    76,667 
           
Total Current Assets   1,784,978    1,859,333 
Property, plant and equipment   280,990    167,812 
Prepaid Sales Incentives   329,664    383,333 
Intangible Assets   212,227    235,587 
Loan Costs, net of accumulated amortization of $142,316 and $108,544   70,485    104,257 
Other Assets   19,814    29,343 
Total Assets  $2,698,158   $2,779,665 

 

See Notes to Condensed Consolidated Financial Statements

 

3
 

 

GENELINK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

   September 30, 2012   December 31, 2011 
           
CURRENT LIABILITIES          
Accounts payable  $1,235,259   $1,370,849 
Accrued interest   425,003    304,457 
Accrued compensation   17,085    94,188 
Other accrued expenses   132,157    103,370 
Deferred stock subscriptions   1,250,000    - 
Deferred revenue   86,455    208,279 
Current portion of deferred license fees   150,000    - 
Advances from Purchaser   -    204,500 
Due to shareholder   10,000    10,000 
           
Total current liabilities   3,305,959    2,295,643 
           
Non-refundable advance deposit   731,533    750,000 
Deferred  revenue – license fees   500,000    250,000 
Convertible notes payable, net of discounts   1,057,336    965,015 
Total liabilities   5,594,828    4,260,658 
           
SHAREHOLDERS’ DEFICIT          
Common stock, par value $0.01 per share; authorized 350,000,000 shares; issued:  217,303,204 and 204,944,485  shares; outstanding:  212,944,045 and  200,585,326  shares   2,173,032    2,049,448 
Additional paid in capital   22,085,537    21,582,109 
Accumulated deficit   (26,603,004)   (24,560,315)
Treasury stock, 4,359,159 shares, at cost   (552,235)   (552,235)
Total shareholders’ deficit   (2,896,670)   (1,480,993)
Total liabilities and shareholders’ deficit  $2,698,158   $2,779,665 

 

See Notes to Condensed Consolidated Financial Statements

 

4
 

 

GENELINK, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   For The
Three Months
Ended
September 30, 2012
   For The
Three Months
Ended
September 30,
2011
(As Restated,
see Note 3)
   For The
Nine Months
Ended
September 30,
2012
   For The
Nine Months
Ended
September 30, 2011
(As restated,
see Note 3)
 
REVENUE  $425,073   $1,069,760   $1,723,660   $3,802,874 
COST OF GOODS SOLD   514,822    438,438    1,241,528    1,404,037 
GROSS PROFIT (LOSS)   (89,749)   631,322    482,132    2,398,837 
                     
EXPENSES                    
Selling, general and administrative   723,698    1,468,074    2,725,494    4,429,770 
Research and development   72,237    43,713    150,162    60,326 
Amortization and depreciation   6,356    31,828    52,717    105,104 
    802,291    1,543,615    2,928,373    4,595,200 
                     
OPERATING LOSS   (892,040)   (912,293)   (2,446,241)   (2,196,363)
                     
OTHER INCOME (EXPENSE)                    
Interest expense   (82,437)   (66,157)   (247,545)   (200,017)
Interest income   91    456    1,212    865 
Gain on sale of subsidiary   -    -    669,054    - 
Loss on disposal of assets   -    -    (19,168)   - 
    (82,346)   (65,701)   403,552    (199,152)
NET LOSS  $(974,386)  $(977,994)  $(2,042,689)  $(2,395,515)
                     
NET LOSS PER SHARE, BASIC AND DILUTED  $(0.00)  $(0.01)  $(0.01)  $(0.01)
                     
Weighted average common shares and diluted potential common shares   207,721,823    199,340,698    202,766,054    171,696,261 

 

See Notes to Condensed Consolidated Financial Statements

 

5
 

 

GENELINK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

   Nine Months Ended September 30, 
   2012   2011
(As restated,
see Note 3)
 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(2,042,689)  $(2,395,515)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization:          
Included in cost of goods sold   21,589    - 
Included in other operating expenses   52,717    105,104 
Amortization of debt discounts   126,093    116,488 
Common stock issued for services   74,862    27,000 
Stock-based compensation   248,150    356,725 
Amortization of fees and incentives   (64,798)   - 
Gain on sale of subsidiary   (669,054)   - 
Loss on disposal of fixed asset   19,168    - 
Changes in assets and liabilities:          
Accounts receivable   (145,026)   31,532 
Inventory   137,658    (207,638)
Prepaid expenses   23,141    (168,225)
Other assets   9,529    (2,113)
Accounts payable and accrued expenses   126,008    62,892 
Accrued compensation   (21,394)   (31,100)
Deferred revenue   (15,078)   (21,134)
Deferred revenues – license fees   500,000    - 
Net cash used in operating activities   (1,619,124)   (2,125,984)
CASH FLOWS FROM INVESTING ACTIVITIES          
Capital expenditures   (237,461)   (41,354)
Proceeds from sale of subsidiary   539,272    - 
Long-term receivable related to sale of subsidiary   (164,358)   - 
Collections on receivable from sale of subsidiary   164,358    - 
Net cash provided (used) in investing activities   301,811    (41,354)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of common stock and warrants, net   304,000    2,209,320 
Proceeds from common stock subscriptions, pending acceptance   1,250,000      
Principal payments on note   -    23,310 
Net cash provided by financing activities   1,554,000    2,232,630 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   236,687    65,292 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   740,769    429,299 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $977,456   $494,591 
           
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION          
Cash payments for interest  $909    - 
Stock warrants issued for fundraising  $22,750   $156,385 

 

See Notes to Condensed Consolidated Financial Statements

 

6
 

 

GENELINK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The accompanying condensed consolidated financial statements of GeneLink Inc., d/b/a GeneLink Biosciences, Inc. and subsidiaries (the “Company”) are unaudited, but in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.

 

These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (SEC). The results of operations for the three month and nine month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2012 or for any future period.

 

Note 1.   Organization

 

The Company is a genetics-based, personal healthcare firm that has developed DNA assessments measuring personal DNA tendencies that can have a significant impact on overall wellness of an individual client or customer. These small differences in DNA, called SNPs (“snips”) can indicate genetic variants that may not be performing at optimal levels and can be linked to aging and other wellness issues. GeneLink scientists use the DNA assessments information on each client and then formulate products to optimize health and wellness within the normal ranges. As discussed further in Note 4, the Company divested its interest in GeneWize effective February 10, 2012 as part of a strategic realignment of its business to offer its products through third-party market partners, and to refocus efforts on research, development and manufacturing of custom products for those market partners.

 

Note 2.   Summary of Significant Accounting Policies

 

Principles of consolidation:

 

The condensed consolidated financial statements include the accounts of the GeneLink, Inc. and its wholly-owned Subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of estimates:

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and cash equivalents:

 

Highly liquid instruments purchased with a maturity of three months or less are considered to be cash equivalents. At times, cash and cash equivalents may exceed federally insured limits. The Company has not experienced any losses on such accounts. All non-interest bearing cash balances were fully insured at September 30, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and the Company's non-interest bearing cash balances may again exceed federally insured limits. The Company had no interest-bearing amounts on deposit in excess of federally insured limits at September 30, 2012.

 

7
 

 

Accounts Receivable:

 

Accounts receivable include amounts due from customers and credit card service partners of which the majority represent reserves for potential charge-backs. As of September 30, 2012 and December 31, 2011, the Company has not recorded an allowance for doubtful accounts as management believes all amounts are collectible.

 

Inventory:

 

Inventory consists primarily of raw materials for the custom nutritional and skincare products sold by the Company. Inventory is valued at the lower of cost (using the first-in, first-out method) or market.

 

Property and equipment:

 

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of 3 to 5 years of the related assets or the lesser of the expected life or term of the lease as to leasehold improvements.

 

Intangible Assets:

 

Intangible assets include costs incurred to apply and obtain patents for its products. Patents are amortized upon approval by regulatory authorities over the estimated useful life of the asset, generally fifteen years on a straight-line basis.

 

Deferred Loan Costs: Loan acquisition costs are amortized over the term of the debt using the effective interest method.

 

Long lived assets:

 

The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of an asset and its eventual disposition is less than its carrying amount. The Company had not identified an impairment of any such assets for the year ended December 31, 2011. In the nine months ended September 30, 2012, certain pending patents were abandoned and amounts capitalized for the patents were expensed.

 

Revenue recognition:

 

Revenue 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, generally upon shipment of product.

 

For retail sales to consumers prior to the sale of Genewize in February, 2012, revenue is reduced for refunds on certain products during the trial period which is the first 60 days after the initial order is shipped. The Company recorded a reserve for refunds based on historical refunds provided to customers which is recorded as a reduction of revenue and is included in accrued expenses on the accompanying balance sheet. The Company received advance payments from retail customers on products ordered which is recorded as deferred revenue until shipment occurs.

 

Prepaid sales incentives and deferred revenue-license fees represent prepaid fees that are deferred and recognized over the term of the underlying agreement with licensees.

 

The company recognizes revenue from licensing agreements as earned, which is generally when products are shipped from distributors, over the term of the agreement.

 

8
 

 

Research and Development:

 

Research and development costs are expensed as incurred.

 

Advertising

 

The Company expenses advertising when incurred. Advertising expense was $39,183 and $32,776 for the nine months ended September 30, 2012 and 2011, respectively.

 

Stock-Based Compensation:

 

Stock-based compensation is recorded for recognition of the cost of employee or director services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. The stock-based compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (typically, the vesting period).

 

The Company estimates the fair value of each option award issued under its stock option plans on the date of grant using a lattice option-pricing model that uses the assumptions noted below. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock for a period commensurate with the expected life. These historical periods may exclude portions of time when unusual transactions occurred. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. For shares that vest contingent upon achievement of certain performance criteria, an estimate of the probability of achievement is applied in the estimate of fair value. If the goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. In addition, the Company separates the grants into homogeneous groups and analyzes the assumptions for each group and computes the expense for each group utilizing these assumptions.

 

   Assumptions for Awards
Granted for the Nine Months
Ended September 30,
 
   2012   2011 
Expected volatility  180-182%   146-203% 
Risk-free interest rate  4.50%  4.50%
Expected dividend yield  0%  0%
Exercise Price  0.02-0.06   0.08-0.10 
           

The Company granted 3,060,000 and 4,900,000 options during the nine months ended September 30, 2012 and September 30, 2011, respectively. The total fair value of shares vested during the nine months ended September 30, 2012 and September 30, 2011 was $248,150 and $220,660 respectively.

 

Earnings per share

 

Basic loss per share is calculated using the weighted average number of common shares outstanding for the period and diluted is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding. Given that the Company is in a net loss position, there is no difference between basic and diluted weighted average shares since the common stock equivalents would be antidilutive.

 

The following common stock equivalents are excluded from the loss per share calculation as their effect would have been antidilutive:

 

   Nine Months Ended September 30, 
   2012   2011 
Options   22,180,833    19,632,833 
Warrants   23,035,791    14,157,458 
Debt conversion shares   16,482,083    15,232,083 
Debt conversion warrants   1,875,000    1,875,000 

 

9
 

 

Income taxes:

 

The Company has not recorded current income tax expense due to the generation of net operating losses. Deferred income taxes are accounted for using the balance sheet approach which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.

 

The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company’s remaining open tax years subject to examination by the Internal Revenue Service include the years ended December 31, 2009 through December 31, 2011.

 

Derivative Financial Instruments:

 

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt and equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. An evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability.

 

Beneficial Conversion and Warrant Valuation:

 

The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt instruments that have conversion features at fixed rates that are in-the-money when issued. The Company also records the fair value of warrants issued in connection with debt instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants, based on their relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature. The discounts recorded in connection with the BCF and warrant valuation are recognized for convertible debt as interest expense over the term of the debt using the effective interest method.

 

Fair Value of Financial Instruments:

 

The Company’s financial instruments are recorded at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

 

· Level 1 – Valuation based on quoted market prices in active markets for identical assets and liabilities.
   
· Level 2 – Valuation based on quoted market prices for similar assets and liabilities in active markets.
   
· Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2012.

 

The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, accounts receivable, and accounts payable and accrued expenses. The fair value of the Company’s convertible notes payable approximate their carrying value based upon current rates available to the Company.

 

10
 

 

During 2011, the Company issued warrants in connection with a license and distribution agreement (see Note 4) and engaged a third party to complete a valuation of those warrants which were recorded as Prepaid Sales Incentive on the accompanying balance sheet. The valuation was completed using Level 2 inputs.

 

Note 3:   2011 Restatement

 

The accompanying financial statements for the interim periods ended September 30, 2011 were restated for the following reasons:

 

Adjustments

·The Company determined that the amortization of the loan costs, warrant discount and BCF discount related to the convertible debt was improperly recorded and interest expense was understated by $24,810 in the three months ended September 30, 2011 and $74,431 for the nine months ended September 30, 2011. These adjustments were related to the previously disclosed restatement of loan costs, warrant discounts and beneficial conversion feature discounts at December 31, 2010.

 

Reclassifications:

·The Company improperly presented depreciation and amortization of $33,330 as other income (expense) during the three months ended September 30, 2011 which has been reclassified to operating expenses and increased the operating loss. For the nine months ended September 30, 2011 $108,609 of depreciation and amortization expense was reclassified to operating expenses and increased the operating loss.

 

The following table summarizes the impact of the adjustments and restatements for the periods ended September 30, 2011:

 

Statements of Operations

Three Months and Nine Months ended September 30, 2011 (Unaudited)

 

   As Previously             
   Reported   Adjustments   Reclassification   As Restated 
Operating Loss:                    
Three Months ended September 30, 2011  $(880,009)  $1,046   $(33,330)  $(912,293)
Nine Months ended September 30, 2011   (2,090,892)   3,138    (108,609)   (2,196,363)
Interest Expense:                    
Three Months ended September 30, 2011   41,347    24,810    -    66,157 
Nine Months ended September 30, 2011   125,088    74,431    498    200,017 
Net Loss:                    
Three Months ended September 30, 2011   (954,230)   (23,764)   -    (977,994)
Nine Months ended September 30, 2011   (2,217,127)   (71,293)   -    (2,395,515)
Earnings per share:                    
Three Months ended September 30, 2011   (0.01)   (0.00)   -    (0.01)
Nine Months ended September 30, 2011  $(0.01)  $(0.00)  $-   $(0.01)

 

11
 

 

Note 4:  Sale of GeneWize

 

On October 13, 2011, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Capsalus Corp. (“Capsalus”), pursuant to which the Company agreed to sell 100% of the stock of its wholly-owned subsidiary, GeneWize Life Sciences, Inc. (“GeneWize”). The Stock Purchase Agreement provided for a purchase price of $500,000 payable at the closing, plus an earn-out of between $1.5 million and $4.5 million, subject to the performance of GeneWize after the closing. The earn-out amount is calculated as the greater of $25,000 per month or 10% to 15% of GeneWize monthly gross revenues, payable monthly through April, 2017. The effective date of the closing was February 10, 2012; the date final documents were completed following approval of the transaction by the shareholders of GeneLink. Due to continuing involvement with GeneWize subsequent to the sale, this transaction was not accounted for as a discontinued operation.

 

GeneLink recorded a gain on sale of subsidiary as of February 10, 2012. Consideration for the sale included the $500,000 cash received from Capsalus and an additional $39,272 for working capital. Additional consideration included the earn-out amount which was valued at $164,358, the Company’s estimate of net present value of probable cash collections under the agreement. The total consideration of $703,630 was offset by net liabilities and related costs of sale resulting in a gain on sale of $759,054. In the second quarter of 2012, a review of working capital calculations resulted in a correction of an error in the estimate of working capital of $90,000, decreasing the final gain on sale to $669,054.

 

GeneLink, GeneWize and Capsalus also entered into an Interim Management Agreement dated October 13, 2011, pursuant to which Capsalus managed the operation of GeneWize until the closing date of February 10, 2012. Pursuant to the Interim Management Agreement, Capsalus was responsible for all expenses and received all revenues of GeneWize from October 1, 2011 through the date of closing. Capsalus advanced $204,500 to GeneWize prior to December 31, 2011 to fund operations which was recorded as “Advances from Purchaser” on the accompanying balance sheet at December 31, 2011 and an additional $75,000 was advanced to Genewize by Capsalus prior to the closing of the sale of GeneWize. This amount was assumed by Genewize in February 2012 upon the closing of the sale of GeneWize.

 

On October 13, 2011, GeneLink entered into a License and Distribution Agreement (the “LDA”) with Gene Elite LLC (“Gene Elite”) which expires in 2017 with successive five-year renewal options provided Gene Elite meets sales and performance criteria. Pursuant to the LDA, GeneLink granted Gene Elite the exclusive right to sell certain skin care and nutrition products in the direct sales, multi- level marketing (MLM) and athletic formula channels. Pursuant to the LDA, the Company received $1,500,000 in license fees, of which $1,000,000 (the “Up-front fee”) was received during 2011 and $500,000 was received on February 10, 2012, the closing date of the sale of GeneWize. The LDA provides for $750,000 of the Up-front fee as a Nonrefundable Advance Deposit which accrues interest at 4% per year and will be paid through product credits or issuance of common stock at market price, at the discretion of Gene Elite. The remaining $750,000 of the license fees was recorded as “Deferred Revenue - License Fees” on the accompanying balance sheet, which will be recognized over the term of the LDA beginning on February 10, 2012.

 

In connection with the LDA, GeneLink and Gene Elite entered into a Warrant Purchase Agreement dated October 13, 2011 pursuant to which GeneLink granted Gene Elite warrants to purchase (i) 6,000,000 shares of common stock of GeneLink at an exercise price of $0.10 per share and (ii) 2,000,000 shares of common stock of GeneLink at an exercise price of $0.45 per share (collectively, the “non-performance warrants”). In addition, and, subject to certain performance requirements being satisfied, Gene Elite was granted warrants to purchase 6,000,000 shares of common stock of GeneLink at an exercise price of $0.20 per share (the “performance warrants”). The 8,000,000 shares underlying the non-performance warrants, valued at $460,000 at issue date, are accounted for as “Prepaid Sales Incentives” on the accompanying balance sheet and will be amortized over the life of the licensing agreement. The non-performance warrants were valued using a Binomial Lattice Option Valuation Technique (“Binomial”) and the following assumptions:

 

Fair market value of asset  $0.06 
Exercise price   $0.10 - .0.45 
Expected life   5.0 Years 
Equivalent volatility   164%
Expected dividend yield   0%
Risk-free rate   4.5%

 

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The issuance date of the performance warrants was the date of closing, February 10, 2012, and management currently does not expect the performance warrants to be earned.

 

On February 10, 2012, GeneLink, Gene Elite and GeneWize entered into a sub-licensing and distribution agreement (SLDA) which grants GeneWize the exclusive rights contained in the LDA to market and sell certain skin care and nutrition products in the direct sales, multi- level marketing (MLM) and athletic formula channels. The term of the SLDA is concurrent with the term of the LDA including the successive renewal options granted under the LDA.

 

Through September 30, 2012, Capsalus has paid $165,900 of the earn-out amount. Capsalus has failed to pay any earn-out due subsequent to June 30, 2012. The Company is in discussions with Capsalus regarding this receivable.

 

Note 5:   Shareholder’s Equity

 

During the three months ended September 30, 2012, the Company sold 7,833,333 shares of restricted Common Stock of the Company at an exercise price of $0.03 per share pursuant to a Confidential Private Offering Memorandum, and received an aggregate gross amount of $235,000.

 

In connection with the above offering, the Company incurred a total of $13,800 in placement fees and expenses and issued warrants to acquire 575,000 shares of Common Stock at an exercise price of $0.03 per share to First Equity Capital Securities, Inc., as placement agent, in connection with the sale of these units.

 

During the three months ended June 30, 2012, the Company sold 3,000,000 shares of restricted Common Stock of the Company at an exercise price of $0.03 per share pursuant to a Confidential Private Offering Memorandum, and received an aggregate gross amount of $90,000.

 

In connection with the above offering, the Company incurred a total of $7,200 in placement fees and expenses and issued warrants to acquire 300,000 shares of Common Stock at an exercise price of $0.03 per share to First Equity Capital Securities, Inc., as placement agent, in connection with the sale of these units.

 

Kenneth R. Levine, a holder of more than five percent of the equity securities of the Company, a member of the Company’s Scientific Advisory Board, and an advisor to the Company’s board of directors, is an officer and owner of First Equity Capital Securities, Inc. First Equity has been engaged by the Company to advise and support the Board and the Company with regard to numerous issues, including but not limited to, strategic business development, financial and operating issues, and legal relationships. First Equity is currently entitled to receive a stipend of $5,000 per month for such services. First Equity was compensated in the amount of $80,000 for services provided to the Company in relation to the Company’s transactions in relation to the sale of GeneWize and the development of various licenses and agreements related thereto.

 

Note 6:   Related Parties

 

Consulting Fees

 

The Company entered into a consulting agreement with a shareholder and officer of the Company for scientific advisory services. The agreement provides for annual payments of $30,000, payable $2,500 per month. As of September 30, 2012 and December 31, 2011, amounts due the officer were $5,000 and $2,500, respectively, and are included in accounts payable on the accompanying balance sheets. Since 2008, the Company has maintained a consulting agreement with First Equity Capital Securities, to provide advisory and other services. The agreement provides for annual payments of $60,000, payable in the amount of $5,000 per month. On March 2, 2012, First Equity converted all amounts then owed under this agreement to 1,487,220 shares of restricted common stock. At September 30, 2012 accounts payable included $30,000 for amounts due to First Equity under this agreement.

 

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Due to Shareholder

 

A shareholder advanced the Company $10,000 which remained due as of September 30, 2012. Such advance does not bear interest and is due upon demand.

 

Note 7.   Contingencies

 

Marketing and advertising practices in the dietary supplement and skin care areas are subject to Federal Trade Commission (FTC) regulation. Enforcement actions have been undertaken by the FTC against companies alleged to have made false and misleading marketing statements. The FTC actions have resulted in consent decrees and required monetary payments by the involved parties. The Company believes that it currently is in compliance with all relevant FTC regulations. New regulations may be promulgated as a result of new legislation or by changing enforcement policy in any of the relevant regulatory agencies.

 

In March 2011, the Company received a Civil Investigative Demand (“CID”) consisting of interrogatories and a request to produce documents from the FTC as part of its investigation into unnamed persons engaged directly or indirectly in the advertising or marketing of dietary supplements, foods, drugs, devices, or any other product or service intended to provide a health benefit or to affect the structure or function of the body. The Company expended significant resources in 2011 and into 2012 in an attempt to comply with this request.

 

During 2012, the staff of the FTC (the “staff”) investigated the Company for potential violations of Sections 5 and 12 of the Federal Trade Commission Act, 15 U.S.C. Sections 45 and 52, in connection with the advertising, marketing and sale of its DNA Assessments and genetically customized nutritional supplements and skin repair serum products. The Company strongly believes its advertising and marketing are lawful and appropriate.

 

Following additional discussions with the staff, on October 26, 2012, in order to resolve this matter, the Company entered into a proposed consent decree with the Federal Trade Commission with regard to the FTC’s investigation. The proposed order is subject to approval by the full Commission.

 

The resolution of this matter may involve limitations on GeneLink’s activities, including but not limited to restrictions on the Company’s marketing claims and practices and the institution of monitoring obligations. These restrictions are also anticipated to apply to the marketing claims and practices of GeneLink’s marketing partners and distributors. The pending consent agreement does not include any fine and/or economic redress.

 

Note 8.   Going Concern and Management’s Plans

 

The Company has incurred recurring operating losses since inception including a loss of $2,042,689 in the nine months ending September 30, 2012 and had an accumulated deficit at September 30, 2012 of $26,603,004. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

The Company's ability to continue as a going concern is dependent upon the achievement of its marketing plans to enhance sales and its ability to raise capital. Management continues to work with existing market partners as well as pursuing additional distribution opportunities. Management also believes it has the opportunities before it to increase sales which will provide a foundation for raising additional capital. The Company’s financial statements have been prepared on the basis that it is a going concern, which assumes continuity of operations and the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments that might result if the Company was forced to discontinue its operations.

 

Note 9.   Subsequent Events

 

From October 1, 2012 through the date of this filing, the Company sold an additional 41,666,667 shares of restricted Common Stock of the Company at an exercise price of $0.03 per share pursuant to a Confidential Private Offering Memorandum, and received an aggregate amount of $1,250,000. These funds were received prior to September 30, 2012 however acceptance of the subscription was not complete until the review of subscriber eligibility was completed in early October when shares were issued. Therefore, these funds were recorded as a liability at September 30, 2012. In connection with the above offering, the Company incurred a total of $50,000 in placement fees and expenses and issued warrants to acquire 4,166,667 shares of Common Stock at an exercise price of $0.03 per share to First Equity Capital Securities, Inc., as placement agent, in connection with the sale of these units.

 

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In September 2009, the Company brought action against two prior law firms in New Jersey Superior Court, alleging that their failure to timely provide legal services and make or authorize required filings caused the Company to lose valuable Japanese and U.S. patent rights. In March 2010, the Company voluntarily dismissed one of the law firms from the action. In August 2010, the remaining law firm filed a counterclaim for alleged unpaid legal fees owed to it by the Company. The defendant attempted to remove the matter to U.S. District Court, but in it was remanded back to the New Jersey Superior Court. The defendant appealed the remand decision, but in 2012 the Federal Circuit dismissed the defendants appeal. In July 2012 the parties have agreed to mutually dismiss all claims against each other with prejudice. As of September 30, 2012 the settlement arrangements were still in progress.

 

As noted above, on October 26, 2012, the Company entered into a proposed consent order with the Federal Trade Commission with regard to an ongoing investigation. The order is subject to approval by the full Commission.

 

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

 

Statements in this Report that relate to future results and events are based on the Company’s current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties. For a discussion of factors affecting the Company’s business and prospects, see “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors Affecting the Company’s Business and Prospects” in the 2011 Form 10-K.

 

Operating results for the nine-month period ended September 30, 2012 are not necessarily indicative of the results that may be expected for the full fiscal year.

 

GENERAL

 

The Company has created a breakthrough methodology for SNP (single nucleotide polymorphism) based genetic profiling (patents issued and pending) and the Company is marketing and/or licensing these proprietary assessments to companies that manufacture or market to the nutraceutical, personal care and skin care industries, as well as developing our own proprietary products for sale based on its profiling system.

 

The Company’s expansion into the bioscience field with its innovative genetic profiles help companies create and deliver customized products – personalized wellness and “quality of life” products tailored to their customer’s individual needs – based on the science of genetics, thereby allowing the consumer and/or their health care provider to determine what vitamin/nutritional supplements, skin-care products, and health care or weight loss regimens are indicated for their individual needs.

 

OVERVIEW

 

In the first nine months of 2012, the Company continued as a leading solution provider in the genetically customized nutritional and personal care marketplace. On February 10, 2012, the Company completed its divestiture of direct selling subsidiary GeneWize to Capsalus Corp. From January 1, 2012 until February 10, 2012, GeneWize operated under Capsalus management and GeneLink ownership. As of September 30, 2012 GeneWize continued as a distributor of the Company’s products under its new ownership. Revenues declined, in part as GeneWize retail revenues were only includable through February 10, 2012. For the balance of the nine months ended September 30, 2012, revenues are recognized by GeneLink as wholesale provider. More details are provided below in Results of Operations.

 

Results of Operations

 

COMPARISON OF THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

 

Revenues. Total revenues for the three months ended September 30, 2012 was $425,073 as compared to $1,069,760 for the three months ended September 30, 2011, a 61% decrease. For the nine months ended September 30, 2012 total revenue was $1,723,660 as compared to $3,802,874 for the nine months ended September 30, 2011, a decrease of $2,079,214 or 55%. The drop is attributable to transition from retail to wholesale revenues for the period February 11, 2012 to September 30, 2012 resulting from the sale of GeneWize and a reduction in new affiliate enrollments by GeneWize prior to the sale of GeneWize.

 

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Gross Profit. Gross profit decreased from $631,322 and $2,398,837 for the three and nine months ended September 30, 2011, respectively, to a gross loss of $(89,749) for the three months ended September 30, 2012 and a gross profit of $482,132 for the nine months ended September 30, 2012. Gross profit margin decreased from 59% and 63% for the three months and nine months ended September 30, 2011, respectively, to (21%) and 28% for the three months and nine months ended September 30, 2012, respectively. In the third quarter of 2012, inventory was transferred from a third-party manufacturing facility and physical counts were made which resulted in a negative inventory adjustment of $116,500. Gross profit margins decreased due to a transition from retail to wholesale revenues during the period after the sale of GeneWize was finalized and the inventory adjustment in the third quarter of 2012.

 

Expenses. Operating expenses for the three months ended September 30, 2012 were $802,291 as compared to $1,543,615 for the three months ended September 30, 2011, a decrease of $741,234 or 48%. For the nine months ended September 30, 2012 operating expenses were $2,928,373 as compared to $4,595,200 for the nine months ended September 30, 2011, a decrease of $1,666,827 or 36%. The decrease in expenses for the three months and nine months ended September 30, 2012 primarily resulted primarily from the elimination of commission expenses attributable to the sale of GeneWize combined with expense reduction measures taken in the third quarter of 2012. Savings were offset by increased legal expenses required for regulatory compliance with the FTC inquiry noted in Recent Regulatory Developments section set forth below. No sales commission expense were paid to sales affiliates in the three months ended September 30, 2012 and $146,551 was paid for the nine months ended September 30, 2012, as compared to $326,575 for the three months ended September 30, 2011 and $1,169,754 for the nine months ended September 30, 2011. Such commission expense represented 30.5% of Company revenues for the three months ended September 30, 2011 and 8.5% and 30.7% of Company revenues for the nine months ended September 30, 2012 and 2011, respectively. Additional legal costs related to regulatory compliance totaled approximately $72,905 and $147,905 in the three months ended September 30, 2012 and September 30, 2011, respectively and $358,626 and $325,729 in the nine months ended September 30, 2012 and September 30, 2011, respectively.

 

Operating Losses. The Company incurred an operating loss of $892,040 for the three months ended September 30, 2012, as compared to an operating loss of $912,293 for the three months ended September 30, 2011, a decrease of $20,253, resulting largely from reduced affiliate commissions offset by a third quarter inventory adjustment. The Company incurred an operating loss of $2,446,241 for the nine months ended September 30, 2012, as compared to an operating loss of $2,196,363 for the nine months ended September 30, 2011, an increase of $249,878. The operating loss for the three months and nine months ended September 30, 2012 includes $150,625 and $248,150, respectively, of non-cash expenses related to stock and option grants that were issued during such quarter or that vested from prior periods. The loss for the three months and nine months ended September 30, 2011 includes $136,065 and $356,725 respectively, of non-cash expenses related to stock and option grants that were issued during such quarter or that vested from prior periods.

 

Net Losses. The Company incurred a net loss of $974,386 for the three months ended September 30, 2012 as compared to a net loss of $977,994 for the three months ended September 30, 2011, and decrease of $ 3,607. For the nine months ended September 30, 2012 the Company incurred a net loss of $2,042,689 as compared to a net loss of $2,395,515 in the nine months ended September 30, 2011. The decreased net loss is due to the gain on sale of GeneWize of $669,054 offset by decreased revenues due to the shift to wholesale sales.

 

LIQUIDITY AND CAPITAL RESOURCES

 

For the nine months ended September 30, 2012, the Company’s primary liquidity requirements have been the funding of its corporate overhead, including the payment of staff compensation, operating expenses and accounts payable, as well as the funding of legal expenses required for regulatory compliance with the FTC inquiry noted in Recent Regulatory Developments section set forth below. In addition the Company expended resources toward tenant improvements for new facilities and implementation of in-house manufacturing. Liquidity was negatively impacted by the failure of Capsalus to meet its obligation to pay earn-out amounts in the third quarter, which are estimated to amount to be approximately $155,000 at September 30, 2012.

 

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Cash and cash equivalents at September 30, 2012 amounted to $977,456 as compared to $740,769 at December 31, 2011, an increase of $236,687. During the first nine months of 2012, the Company’s operating activities utilized $1,619,124 as compared to $2,125,984 for the first nine months of 2011, a decrease of $ 506,860. This decrease in use of funds for operating activities is primarily related to receipt of funds related to the licensing agreements related to the sale of GeneWize, offset by cash utilized during these periods to fund the Company’s operating losses.

 

Investing activities provided $301,811 in proceeds for the nine month period ended September 30, 2012 as compared to $41,354 in use of funds for the nine month period ended September 30, 2011, an increase of $343,165. The increase in funds from financing activities was primarily due to the receipt of funds for the sale of GeneWize, offset and capital expenditures related to the implementation of manufacturing in-house. Financing activities provided $1,554,000 in funds during the nine months ended September 30, 2012 as compared to providing $2,232,630 in the nine months ended September 30, 2011 primarily from stock subscriptions received and sales of restricted common stock, less costs associated with such offerings. Stock subscriptions amounting to $1,250,000 were received late in the third quarter and were reviewed and accepted in October, 2012.

 

The Company may require additional funds in 2012 to further implement its sales and marketing strategy, enhancements to manufacturing, for research and development and for other working capital needs. If the Company is not able to secure such additional required funding, it will continue to realize negative cash flow and losses and may not be able to continue operations.

 

Financial Condition

 

Assets of the Company decreased from $2,779,665 at December 31, 2011, to $2,698,008 at September 30, 2012, a decrease of $77,112. This decrease was primarily due to decreases in accounts receivable due to the sale of GeneWize combined with the decreases in inventory and by increases in property, plant and equipment related to the conversion to in-house manufacturing.

 

Liabilities increased from $4,260,658 at December 31, 2011 to $5,594,828 September 30, 2012, an increase of $1,338,706. The increase is attributable to increases in deferred license fees related to the licensing of GeneWize sales and increased accrued expenses relating to sales of common stocks partially offset by the assumption of GeneWize liabilities by the purchaser. The $1,057,336 amount of convertible promissory notes payable reflected on the September 30, 2012 balance sheet is net of debt issuance costs and stock conversion discounts amounting to $128,542. As of September 30, 2012, $1,250,000 principal amount of convertible secured promissory notes and $391,542 of related accrued interest were outstanding.

 

RECENT REGULATORY DEVELOPMENTS

 

Marketing and advertising practices in the dietary supplement and skin care areas are subject to Federal Trade Commission (FTC) regulation. Enforcement actions have been undertaken by the FTC against companies alleged to have made false and misleading marketing statements. The FTC actions have resulted in consent decrees and required monetary payments by the involved parties. The Company believes that it currently is in compliance with all relevant FTC regulations. New regulations may be promulgated as a result of new legislation or by changing enforcement policy in any of the relevant regulatory agencies. The Company endeavors to proactively anticipate changes in the regulatory environment and to maintain appropriate compliance.

 

In March 2011, the Company received a Civil Investigative Demand (“CID”) consisting of interrogatories and a request to produce documents from the FTC as part of its investigation into unnamed persons engaged directly or indirectly in the advertising or marketing of dietary supplements, foods, drugs, devices, or any other product or service intended to provide a health benefit or to affect the structure or function of the body. The Company expended significant resources in 2011 and into 2012 in an attempt to comply with this request.

 

During 2012, the staff of the FTC (the “staff”) investigated the Company for potential violations of Sections 5 and 12 of the Federal Trade Commission Act, 15 U.S.C. Sections 45 and 52, in connection with the advertising, marketing and sale of its DNA Assessments and genetically customized nutritional supplements and skin repair serum products. The Company strongly believes its advertising and marketing are lawful and appropriate.

 

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Following additional discussions with the staff, on October 26, 2012, in order to resolve this matter, the Company entered into a proposed consent decree with the Federal Trade Commission with regard to the FTC’s investigation. The proposed order is subject to approval by the full Commission.

 

The resolution of this matter may involve limitations on GeneLink’s activities, including but not limited to restrictions on the Company’s marketing claims and practices and the institution of monitoring obligations. These restrictions are also anticipated to apply to the marketing claims and practices of GeneLink’s marketing partners and distributors. The pending consent agreement does not include any fine and/or economic redress.

 

FACTORS AFFECTING THE COMPANY’S BUSINESS AND PROSPECTS

 

Statements included in this Report on Form 10-Q, including within the Management’s Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature, are intended to be and are hereby identified as “forward looking statements” for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements due to several factors. The Company undertakes no obligation to publicly release any revisions to these forward looking statements or reflect events or circumstances after the date hereof.

 

There are a number of factors that affect the Company’s business and the result of its operations. These factors include general economic and business conditions; the success of the Company’s market partners in direct selling efforts; the level of acceptance of the Company’s products and services; the rate and commercial applicability of advancements and discoveries in the genetics field; and the Company’s ability to enter into strategic alliances with companies in the genetics industry.

 

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

Item 4.CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer and the Interim Chef Financial Officer have concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)), that such disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in the Company’s internal control over financial reporting during the three months ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1

 

In September 2009, the Company brought action against two prior law firms in New Jersey Superior Court, alleging that their failure to timely provide legal services and make or authorize required filings caused the Company to lose valuable Japanese and U.S. patent rights. In March 2010, the Company voluntarily dismissed one of the law firms from the action. In August 2010, the remaining law firm filed a counterclaim for alleged unpaid legal fees owed to it by the Company. The defendant attempted to remove the matter to U.S. District Court, but in it was remanded back to the New Jersey Superior Court. The defendant appealed the remand decision, but in 2012 the Federal Circuit dismissed the defendants appeal. The parties have recently agreed to mutually dismiss all claims against each other with prejudice.

 

Item 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended September 30, 2012, the Company sold 49,500,000 shares of restricted Common Stock of the Company at an exercise price of $0.03 per share pursuant to a Confidential Private Offering Memorandum, and received an aggregate gross amount of $1,485,000 as described below

 

Date  $ of Investment   Number of Shares Issued   Number of
Investors
 
7/01/2012  $35,000    1,166,667    1 
7/01/2012  $125,000    4,166,667    1 
7/20/2012  $25,000    833,333    1 
7/28/2012  $250,000    8,333,333    1 
8/27/2012  $50,000    1,666,667    1 
9/24/2012  $1,000,000    33,333,333    1 

 

In connection with the above offering, the Company incurred a total of $63,800 in placement fees and expenses and issued warrants to acquire 4,625,000 shares of Common Stock at an exercise price of $0.03 per share to First Equity Capital Securities, Inc., as placement agent, in connection with the sale of these units.

 

During the three months ended June 30, 2012, the Company sold 3,000,000 shares of restricted Common Stock of the Company at an exercise price of $0.03 per share pursuant to a Confidential Private Offering Memorandum, and received an aggregate gross amount of $90,000 as described below

 

Date  $ of Investment   Number of Shares Issued   Number of
Investors
 
6/24/2012  $90,000    3,000,000    1 

 

In connection with the above offering, the Company incurred a total of $7,200 in placement fees and expenses and issued warrants to acquire 300,000 shares of Common Stock at an exercise price of $0.03 per share to First Equity Capital Securities, Inc., as placement agent, in connection with the sale of some of these units.

 

First Equity has been engaged by the Company to advise and support the Board and the Company with regard to numerous issues, including but not limited to, strategic business development, financial and operating issues, and legal relationships. First Equity is currently entitled to receive a stipend of $5,000 per month for such services. Kenneth R. Levine, a holder of more than five percent of the equity securities of the Company, is the President and owner of First Equity. First Equity has been engaged by the Company to perform investment banking services since 2003, including capital formation, for which First Equity has, from time to time, acted as a Placement Agent for compensation.  Mr. Levine attends Board of Directors and Audit Committee meetings of the Company as a non-voting participant and is a member of the Company’s Scientific Advisory Board. First Equity was compensated in the amount of $80,000 for services provided to the Company in relation to the Company’s transactions in relation to the sale of GeneWize and the development of various licenses and agreements related thereto.

 

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Item 3.DEFAULTS UPON SENIOR SECURITIES

 

None.

 

Item 4.MINE SAFETY DISCLOSURES

 

Not applicable.

  

Item 5.OTHER INFORMATION

 

Not applicable.

 

Item 6.EXHIBITS

 

Exhibit No.   Description
     
31.1   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of the Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of the Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* * * * * *

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

GENELINK, INC.

(Registrant)

 

Date: November 14, 2012 By:          s/ Bernard L. Kasten, Jr., M.D.
  Bernard L. Kasten, Jr., M.D., Chief Executive Officer and Principal Financial Officer

 

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