Attached files
file | filename |
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EX-32.1 - IMAGENETIX INC /NV/ | v194025_ex32-1.htm |
EX-31.1 - IMAGENETIX INC /NV/ | v194025_ex31-1.htm |
EX-31.2 - IMAGENETIX INC /NV/ | v194025_ex31-2.htm |
EX-32.2 - IMAGENETIX INC /NV/ | v194025_ex32-2.htm |
EX-10.26 - IMAGENETIX INC /NV/ | v194025_ex10-26.htm |
EX-10.27 - IMAGENETIX INC /NV/ | v194025_ex10-27.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x Quarterly
Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
1934
For
quarterly period ended June 30,
2010
¨ Transition
Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
1934
For the
transition period from _____ to _____
COMMISSION
FILE NUMBER 033-24138-D
IMAGENETIX,
INC.
(Exact
name of registrant as specified in its charter)
NEVADA
|
87-0463772
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
10845
Rancho Bernardo Road, Suite 105
|
San Diego,
California 92127
|
(Address
of principal executive
offices)
|
Registrant’s
telephone number (including area code) (858)
674-8455
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ 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.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
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 ¨ No
x
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:
Common Stock, $.001 par
value
|
11,810,788
|
|
(Class)
|
Outstanding
at August 16, 2010
|
Imagenetix,
Inc.
INDEX
Page
|
||||
PART
I. FINANCIAL INFORMATION
|
||||
Item
1. Financial Statements:
|
||||
Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and
March 31, 2010
|
3 | |||
Condensed Consolidated Statements of Earnings for the three months ended
June 30, 2010 and 2009 (unaudited)
|
4 | |||
Condensed Consolidated Statements of Cash Flows for the three months ended
June 30, 2010 and 2009 (unaudited)
|
5 | |||
Notes to Unaudited Condensed Consolidated Financial
Statements
|
6 | |||
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
11 | |||
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
* | |||
Item
4T. Controls and Procedures
|
16 | |||
PART
II. OTHER INFORMATION
|
||||
Item
1. Legal Proceedings
|
17 | |||
Item
1A. Risk Factors
|
17 | |||
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
20 | |||
Item
3. Defaults Upon Senior Securities
|
* | |||
Item
4. Reserved
|
* | |||
Item
5. Other Information
|
* | |||
Item
6. Exhibits
|
21 | |||
SIGNATURES
|
||||
*
No information provided due to inapplicability of the
item.
|
2
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
Imagenetix,
Inc.
Condensed
Consolidated Balance Sheets
June 30,
|
March 31,
|
|||||||
2010
|
2010
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 593,713 | $ | 981,510 | ||||
Accounts
receivable, net
|
914,657 | 1,049,047 | ||||||
Inventories,
net
|
1,296,792 | 1,350,041 | ||||||
Prepaid
expenses and other current assets
|
187,772 | 150,690 | ||||||
Deferred
tax asset
|
1,328,200 | 932,800 | ||||||
Total
current assets
|
4,321,134 | 4,464,088 | ||||||
Property and equipment,
net
|
81,122 | 89,137 | ||||||
Long-term
prepaid expenses
|
15,000 | 18,000 | ||||||
Other
assets
|
121,958 | 124,598 | ||||||
Total
Assets
|
$ | 4,539,214 | $ | 4,695,823 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Secured
note payable to a bank
|
$ | 500,000 | $ | - | ||||
Accounts
payable
|
524,979 | 996,827 | ||||||
Accrued
liabilities
|
78,218 | 82,392 | ||||||
Customer
deposits
|
19,262 | 25,374 | ||||||
Contract
payable
|
42,667 | 85,972 | ||||||
Total
current liabilities
|
1,165,126 | 1,190,565 | ||||||
Stockholders'
equity
|
||||||||
Preferred
stock, $.001 par value; 5,000,000 shares authorized: none
outstanding
|
- | - | ||||||
Common
stock, $.001 par value; 50,000,000 shares authorized: 11,810,788 and
11,010,788 issued and outstanding at June 30 and March 31, 2010 ,
respectively
|
11,810 | 11,010 | ||||||
Capital
in excess of par value
|
13,272,781 | 12,801,171 | ||||||
Accumulated
deficit
|
(9,910,503 | ) | (9,306,923 | ) | ||||
Total
stockholders' equity
|
3,374,088 | 3,505,258 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 4,539,214 | $ | 4,695,823 |
See
accompanying notes to unaudited condensed consolidated financial
statements.
3
Imagenetix,
Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
|
||||||||
June 30,
|
June 30,
|
|||||||
2010
|
2009
|
|||||||
Net
sales
|
$ | 1,084,964 | $ | 1,702,290 | ||||
Cost
of sales
|
749,634 | 1,055,198 | ||||||
Gross
profit
|
335,330 | 647,092 | ||||||
Operating
expenses:
|
||||||||
General
and administrative
|
595,779 | 807,949 | ||||||
Payroll
expense
|
242,530 | 254,417 | ||||||
Consulting
expense
|
410,034 | 280,400 | ||||||
Operating
expenses
|
1,248,343 | 1,342,766 | ||||||
Operating
loss
|
(913,013 | ) | (695,674 | ) | ||||
Other
income (expense):
|
||||||||
Other
income
|
817 | 1,417 | ||||||
Interest
expense
|
(89,084 | ) | (2,405 | ) | ||||
Other
expense
|
(88,267 | ) | (988 | ) | ||||
Loss
before income taxes
|
(1,001,280 | ) | (696,662 | ) | ||||
Income
tax benefit
|
(397,700 | ) | (282,000 | ) | ||||
Net
loss
|
$ | (603,580 | ) | $ | (414,662 | ) | ||
Basic
net loss per share
|
$ | (0.05 | ) | $ | (0.04 | ) | ||
Diluted
net 1oss per share
|
$ | (0.05 | ) | $ | (0.04 | ) | ||
Basic
weighted average common shares outstanding
|
11,309,689 | 11,010,788 | ||||||
Diluted
weighted average common shares outstanding
|
11,309,689 | 11,010,788 |
See
accompanying notes to unaudited condensed consolidated financial
statements.
4
Imagenetix,
Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
Three Months Ended
|
||||||||
June 30, 2010
|
June 30, 2009
|
|||||||
Operating
activities:
|
||||||||
Net
loss
|
$ | (603,580 | ) | $ | (414,662 | ) | ||
Adjustments
to reconcile net loss to cash provided by (used in) operating
activities:
|
||||||||
Amortization
and depreciation
|
12,954 | 13,285 | ||||||
Provision
for inventory obsolescence
|
(5,917 | ) | 20,089 | |||||
Non
cash expense related to issuance of warrants and granting of stock
options
|
72,410 | 36,460 | ||||||
Changes
in assets and liabilities:
|
||||||||
(Increase)
decrease in accounts receivable
|
134,390 | 233,633 | ||||||
(Increase)
decrease in inventories
|
59,166 | (200,417 | ) | |||||
(Increase)
decrease in other assets
|
(34,081 | ) | 27,051 | |||||
(Increase)
decrease in deferred taxes
|
(397,700 | ) | (282,000 | ) | ||||
Increase
(decrease) in accounts payable
|
(471,848 | ) | 337,024 | |||||
Increase
(decrease) in accrued liabilities
|
(4,174 | ) | (13,882 | ) | ||||
Increase
(decrease) in income taxes payable
|
- | (69,803 | ) | |||||
Increase
(decrease) in customer deposits
|
(6,112 | ) | 25,370 | |||||
Net
cash (used in) provided by operating activities
|
(1,244,492 | ) | (287,852 | ) | ||||
Investing
activities
|
- | - | ||||||
Financing
activities:
|
||||||||
Payments
on contracts payable
|
(43,305 | ) | (21,822 | ) | ||||
Payments
on patent license financed
|
- | (2,980 | ) | |||||
Proceeds
from bridge loans and bank financings
|
910,000 | - | ||||||
Payments
on bridge loans
|
(410,000 | ) | - | |||||
Proceeds
from sale of common stock
|
400,000 | - | ||||||
Net
cash provided by (used in) financing activities
|
856,695 | (24,802 | ) | |||||
Net
decrease in cash and cash equivalents
|
(387,797 | ) | (312,654 | ) | ||||
Cash and cash
equivalents, beginning of period
|
981,510 | 1,225,723 | ||||||
Cash and cash
equivalents, end of period
|
$ | 593,713 | $ | 913,069 | ||||
Supplemental
Disclosure of Cash Flow Information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 31,531 | $ | 2,405 | ||||
Income
taxes
|
$ | - | $ | 69,803 |
See
accompanying notes to unaudited condensed consolidated financial
statements.
5
IMAGENETIX,
INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
1.
|
BASIS OF
PRESENTATION
|
The
consolidated financial statements of Imagenetix, Inc. ("Imagenetix") presented
herein have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q and do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America. These statements should be read in conjunction
with our audited consolidated financial statements and notes thereto included in
Form 10-K for the year ended March 31, 2010.
In the
opinion of management, the interim consolidated financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. Operating results for the three month periods are
not necessarily indicative of the results that may be expected for the
year.
Earnings Per
Share
We follow
the Financial Accounting Standards Board Accounting Standards Codification
("ASC") No. 260. Under ASC No. 260, basic earnings per share is
calculated as earnings available to common stockholders divided by the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated as net income divided by the diluted weighted average number of
common shares. The diluted weighted average number of common shares is
calculated using the treasury stock method for common stock issuable pursuant to
outstanding stock options and common stock warrants. See Note 6 for a discussion
of commitments to issue additional shares of common stock and
warrants.
Stock Based
Compensation
We
account for stock based compensation under ASC Nos. 718 and 505. ASC Nos. 718
and 505 require all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on
their fair values.
We have
selected the Black-Scholes method of valuation for share-based compensation. The
charge is recognized in non-cash compensation, which is included in stock-based
compensation expense, on a straight-line basis over the remaining service period
based on the options’ original estimate of fair value.
We apply
ASC Nos. 718 and 505 in valuing options granted to consultants and estimate the
fair value of such options using the Black-Scholes option-pricing model. The
fair value is recorded as consulting expense as services are provided. Options
granted to consultants for which vesting is contingent based on future
performance are measured at their then current fair value at each period end,
until vested.
Research
and Development
We incur
expenses to further develop our products and formulas, commission entities to
perform clinical trials and evaluate potential products to expand our
portfolio. In addition, we recently received a new patent for a drug
candidate which, if successful, will address periodontal diseases. We
have started the initial new drug process and have completed several animal
studies. During the three months ended June 30, 2010 we incurred
research and development expenses, which are included in general and
administrative expenses in the statement of operations, of $19,491
compared to $39,675 for the corresponding period of the previous fiscal
year.
6
IMAGENETIX,
INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
2.
|
NEW
ACCOUNTING STANDARDS
|
In
February 2010, the FASB issued a standards update on improving disclosures about
subsequent events so that SEC filers no longer are required to disclose the date
through which subsequent events have been evaluated in originally issued and
revised financial statement. This update to the standards is effective for this
interim report. The adoption of this update to the standards did not impact our
financial statements as it only impacts the footnote disclosures. We have
included the applicable disclosures in Note 9, Subsequent
Events.
A variety
of proposed or otherwise potential accounting standards are currently under
study by standard-setting organizations and various regulatory
agencies. Because of the tentative and preliminary nature of these
proposed standards, management has not determined whether implementation of such
proposed standards would be material to the Company’s consolidated financials
statements.
3.
|
ACCOUNTS
RECEIVABLE
|
Accounts
receivable are carried at the expected realizable value. Accounts receivable
consisted of the following:
June 30,
|
March 31,
|
|||||||
2010
|
2010
|
|||||||
Accounts
receivable - trade
|
$ | 1,050,657 | $ | 1,185,047 | ||||
Allowance
for doubtful accounts
|
(50,000 | ) | (50,000 | ) | ||||
Allowance
for returns and discounts
|
(86,000 | ) | (86,000 | ) | ||||
Accounts
receivable, net
|
$ | 914,657 | $ | 1,049,047 |
At June
30, 2010, we had three customers which accounted for 27%, 19% and 17%,
respectfully, of our accounts receivable balances. At March 31,
2010, we had three customers which accounted for 48%, 21% and 10%, respectfully,
of our accounts receivable balances.
For the
three months ended June 30, 2010, we had three significant customers which
accounted for 32%, 20% and 16%, respectfully, of sales. For the three
months ended June 30,2009, we had four significant customers which accounted for
36%, 12%, 11% and 10%, respectfully, of sales.
4.
|
INVENTORIES
|
Inventories
consist of the following:
June 30,
|
March 31,
|
|||||||
2010
|
2010
|
|||||||
Raw
materials
|
$ | 1,074,135 | $ | 1,032,817 | ||||
Finished
products
|
147,214 | 216,099 | ||||||
Boxes,
labels, tubes & bottles
|
219,531 | 251,130 | ||||||
1,440,880 | 1,500,046 | |||||||
Reserve
for obsolescence
|
(144,088 | ) | (150,005 | ) | ||||
$ | 1,296,792 | $ | 1,350,041 |
5.
|
OTHER
ASSETS
|
The
following is a summary of intangible assets which are included in “Other Assets”
on the face of the balance sheet:
7
IMAGENETIX,
INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
June 30,
|
March 31,
|
|||||||
2010
|
2010
|
|||||||
Trademarks
|
$ | 13,032 | $ | 13,032 | ||||
Patent
|
172,965 | 172,965 | ||||||
Deferred
tax asset
|
26,900 | 24,600 | ||||||
212,897 | 210,597 | |||||||
Less
accumulated amortization
|
90,939 | 85,999 | ||||||
$ | 121,958 | $ | 124,598 |
6.
|
SECURED
NOTE PAYABLE TO A BANK
|
In June
2010, we entered into an asset based line of credit with a bank. The
terms of the agreement enable us to borrow up to 65% of our accounts receivables
and up to $300,000 of our inventory subject to certain limitations
. The maximum amount we can borrow is $1,500,000 of which $500,000
was outstanding at June 30, 2010. The interest rate on the
outstanding balance is the greater of the prime rate plus 1.75% or 5% plus a
maintenance fee of 0.25% and an annual facility fee of 1% of the maximum
borrowing amount. The bank has been given a secured position in the
assets of the company. At June 30, 2010, we were not in compliance
with a covenant requiring us to have net losses not to exceed $300,000 for our
first fiscal quarter. As a
result of this non-compliance, the bank may cease making further loans
under this line of credit, call the balance, or exercise its security interests
in the assets of the Company. We
anticipate the bank will issue a waiver concerning this
non-compliance.
7.
|
EQUITY
TRANSACTIONS
|
In May
2010, we issued 800,000 shares of restricted common stock to two institutional
investors for an aggregated amount of $400,000, or $0.50 per share.
During
the quarter ended June 30, 2010, we recorded non-cash interest of $57,553 as a
result of bridge loans we entered into and paid off during the
quarter. We also recorded non-cash compensation of $5,705 and
non-cash general and administrative expense of $9,152 for stock options and
warrants issued to employees and consultants. For the quarter ended
June 30, 2009, we recorded non-cash compensation and general and
administrative expense of $36,460. The
significant assumptions used in the Black Sholes model to estimate the expenses
for the issuance of stock options and warrants are as follows:
Three months ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Expected
term of options and warrants
|
5
years
|
5
years
|
||||||
Expected
volatility
|
79 | % | 73 | % | ||||
Expected
dividends
|
None
|
None
|
||||||
Risk-free
interest rate
|
1.79
to 2.01
|
% | 2.95 | % | ||||
Forfeitures
|
0 | % | 0 | % |
8
IMAGENETIX,
INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
A summary
of the options outstanding follows:
For the Three Months Ended
|
||||||||
June 30, 2010
|
||||||||
Weighted
|
||||||||
Average
|
||||||||
Exercise
|
||||||||
Options
|
Shares
|
Price
|
||||||
Outstanding
at beginning of year
|
1,589,000 | $ | 1.26 | |||||
Granted
|
- | - | ||||||
Cancelled
|
- | - | ||||||
Exercised
|
- | - | ||||||
Outstanding
at end of the period
|
1,589,000 | $ | 1.26 | |||||
Exercisable
at end of the the period
|
1,589,000 | $ | 1.26 | |||||
Weighted
average fair value of options granted during the period
|
- | $ | - |
As of
June 30, 2010, the unamortized portion of stock compensation expense on all
existing stock options was $0.
A summary
of other warrants outstanding follows:
For the Three Months Ended
|
||||||||
June 30, 2010
|
||||||||
Weighted
|
||||||||
Average
|
||||||||
Exercise
|
||||||||
Warrants
|
Shares
|
Price
|
||||||
Outstanding
at beginning of year
|
3,960,707 | $ | 1.15 | |||||
Granted
|
351,341 | 0.46 | ||||||
Cancelled
|
(200,000 | ) | 2.11 | |||||
Exercised
|
- | - | ||||||
Outstanding
at end of the period
|
4,112,048 | $ | 1.05 | |||||
Exercisable
at end of the the period
|
4,112,048 | $ | 1.05 | |||||
Weighted
average fair value of warrants
|
||||||||
granted
during the period
|
351,341 | $ | 0.27 |
8.
|
INCOME
TAXES
|
We have
adopted ASC 740 which prescribes a comprehensive model of how a company should
recognize, measure, present, and disclose in its financial statements uncertain
tax positions that the company has taken or expects to take on a tax
return. ASC 740 states that a tax benefit from an uncertain position
may be recognized if it is "more likely than not" that the position is
sustainable, based upon its technical merits. The tax benefit of a qualifying
position is the largest amount of tax benefit that is greater than 50 percent
likely of being realized upon ultimate settlement with a taxing authority having
full knowledge of all relevant information.
9
IMAGENETIX,
INC.
Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)
Upon
adoption of ASC 740, there was no impact to our consolidated financial
statements. We estimate that the unrecognized tax benefit will not
change significantly within the next twelve months. We will continue
to classify income tax penalties and interest as part of general and
administrative expense in our statements of operations. Accrued
interest on uncertain tax positions is not significant. There are no
penalties accrued as of June 30, 2010. The following table summarizes
the open tax years for each major jurisdiction:
Jurisdiction
|
Open Tax
Years
|
||
Federal
|
2007 – 2009 | ||
California
|
2007 – 2009 |
As we
have had significant net operating loss carry forwards, even if certain of our
tax positions were disallowed, it is not foreseen that we would have to pay any
taxes in the near future. Consequently, we do not calculate the impact of
interest or penalties on amounts that might be disallowed.
9.
|
SUBSEQUENT
EVENTS
|
In
accordance with FASB ASC Topic 855- Subsequent Events, general standards are
established for the accounting and disclosures of events that occurred after the
balance sheet date but before financial statements are issued or are available
to be issued. For the three months ended June 30, 2010, we evaluated,
for potential recognition and disclosure, events that occurred through the date
of the filing of our Quarterly Report on form 10Q for the three months ended
June 30, 2010, and determined no adjustment or additional disclosure is
needed.
10
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THE
FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR
FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."
SEE ALSO OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31,
2010.
Overview
We
develop, formulate and market over-the-counter, natural-based nutritional
supplements and skin care products. Our products are proprietary, often
supported by scientific studies which we request and are offered through
multiple channels of distribution, including direct marketing companies, also
known as network marketing or multi-level marketing companies, and chain store
retailers. Our primary product is Celadrin® a product formulation which we sell
to the mass market through retailers and on a private label basis to wholesale
customers.
A key
part of our marketing strategy is to provide to our wholesale customers a
"turnkey" approach to the marketing and distribution of our products. This
turnkey approach provides these customers with all the services necessary to
market our products, including developing specific product formulations,
providing supporting scientific studies regarding the effectiveness of the
product and arranging for the manufacture and marketing of the
product.
We sell
Celadrin®, our own branded product, directly to the mass markets through
retailers. . We also develop and sell products and formulations to
businesses and organizations that market these products through multiple
channels of distribution, including direct marketing companies, mass marketing
companies, medical, health and nutritional professionals, medical newsletters
and direct response radio and television. We also offer Celadrin® products
through wholesale customers that in turn offer their products containing
Celadrin® to mass market retailers.
Management's discussion and analysis or
plan of operation is based upon the Company's financial statements. These
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. These principles require management to
make certain estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates based on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Critical
Accounting Policies and Estimates
We have identified four accounting
principles that we believe are key to an understanding of our financial
statements. These important accounting policies require management's most
difficult, subjective judgments.
1.
|
Accounts
receivable
|
Accounts
receivable are carried at the expected net realizable value. The allowance for
doubtful accounts is based on management’s assessment of the collectibility of
specific customer accounts and the aging of the accounts receivable. If there
were a deterioration of a major customer’s creditworthiness, or actual defaults
were higher than historical experience, our estimates of the recoverability of
amounts due to us could be overstated, which could have a negative impact on
operations.
2.
|
Inventory
|
Inventory
is carried at the lower of cost or market. Cost is determined by the first-in
first-out method. At each period end, management adjusts the
inventory allowance based on estimates. These estimates take into
account
spoilage,
yields, obsolescence and overstocked inventory amounts.
11
3.
|
Revenue
Recognition
|
We
recognize revenue in accordance with the SEC’s Staff Accounting Bulletin
No. 104, “Revenue Recognition in Financial Statements” (SAB104) and ASC
605. SAB 104 requires that four basic criteria be met before
revenue can be recognized: 1) there is evidence that an arrangement exists; 2)
delivery has occurred; 3) the fee is fixed or determinable; and 4)
collectibility is reasonably assured. ASC 605 states that revenue from sales
transactions where the buyer has the right to return the product shall be
recognized at the time of sale only if (1) the seller’s price to the buyer
is substantially fixed or determinable at the date of sale; (2) the buyer
has paid the seller, or the buyer is obligated to pay the seller and the
obligation is not contingent on resale of the product; (3) the
buyer’s obligation to the seller would not be changed in the event of theft or
physical destruction or damage of the product; (4) the buyer acquiring the
product for resale has economic substance apart from that provided by the
seller; (5) the seller does not have significant obligations for future
performance to directly bring about resale of the product by the buyer; and
(6) the amount of future returns can be reasonably estimated. We recognize
revenue upon determination that all criteria for revenue recognition have been
met. The criteria are usually met at the time title passes to the customer,
which usually occurs upon shipment. Revenue from shipments where title passes
upon delivery is deferred until the shipment has been delivered.
We
account for payments made to customers in accordance with ASC 605, which states
that cash consideration (including a sales incentive) given by a vendor to a
customer is presumed to be a reduction of the selling prices of the vendor’s
products or services and, therefore, should be characterized as a reduction of
revenue when recognized in the vendor’s income statement, rather than a sales
and marketing expense. We have various agreements with customers that provide
for discounts and rebates. These agreements are classified as a reduction of
revenue. Certain other costs associated with customers that meet the
requirements of ASC 605 are recorded as sales and marketing
expense.
We
guarantee customer satisfaction. Our policy requires the customer to return the
unused product to the retailer from whom they originally purchased
it. We pay the retailer for the returned product plus a handling
cost. We periodically assess the adequacy of this policy and record a
reserve as necessary. At June 30, 2010, we had established a
reserve of $86,000 to allow for potential customer returns, advertising and
discounts.
We review
gross revenue for estimated returns of private label contract manufacturing
products and direct-to-consumer products. The estimated returns are based upon
the trailing six months of private label contract manufacturing gross sales and
our historical experience for both private label contract manufacturing and
direct-to-consumer product returns. However, the estimate for product returns
does not reflect the impact of a large product recall resulting from product
nonconformance or other factors as such events are not predictable nor is the
related economic impact estimable. For the three months ended
June 30, 2010, there were no returns that would suggest a liability needed to be
recorded.
As part
of the services we provide to our private label contract manufacturing
customers, we may perform, but are not required to perform, certain research and
development activities related to the development or improvement of their
products. While our customers typically do not pay directly for this service,
the cost of this service is included as a component of the price we charge to
manufacture and deliver their products.
4.
|
Income
Taxes
|
Deferred
income taxes are provided using the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of the changes in tax laws
and rates of the date of enactment.
12
When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not
that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are
not offset or aggregated with other portions. Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the
benefits associated with the tax positions taken that exceed the amount measured
as described above is reflected as a liability for unrecognized tax benefits in
the accompanying balance sheet along with any associated interest and penalties
that would be payable to the taxing authorities upon examination.
Selected
Financial Information
Results
of Operations
Three
Months Ended June 30, 2010 Compared to Three Months Ended June 30,
2009
Three Months Ended
|
||||||||||||||||
Increase
|
||||||||||||||||
6/30/10
|
6/30/09
|
(Decrease)
|
%
|
|||||||||||||
Statements
of Operations:
|
||||||||||||||||
Net
sales
|
$ | 1,084,964 | $ | 1,702,290 | $ | (617,326 | ) | -36.3 | % | |||||||
Cost
of goods sold
|
749,634 | 1,055,198 | (305,564 | ) | -29.0 | % | ||||||||||
%
of net sales
|
69 | % | 62 | % | 7 | % | 11.5 | % | ||||||||
Gross
profit
|
335,330 | 647,092 | (311,762 | ) | -48.2 | % | ||||||||||
%
of net sales
|
31 | % | 38 | % | -7 | % | -18.7 | % | ||||||||
Operating
expenses
|
||||||||||||||||
General
and administrative
|
595,779 | 807,949 | (212,170 | ) | -26.3 | % | ||||||||||
Payroll
expense
|
242,530 | 254,417 | (11,887 | ) | -4.7 | % | ||||||||||
Consulting
expense
|
410,034 | 280,400 | 129,634 | 46.2 | % | |||||||||||
Total
operating expenses
|
1,248,343 | 1,342,766 | (94,423 | ) | -7.0 | % | ||||||||||
Interest
expense
|
(89,084 | ) | (2,405 | ) | 86,679 | 3604.1 | % | |||||||||
Other
income
|
817 | 1,417 | (600 | ) | -42.3 | % | ||||||||||
Provision
for (benefit from) taxes
|
(397,700 | ) | (282,000 | ) | 115,700 |
NM
|
||||||||||
Net
income (loss)
|
(603,580 | ) | (414,662 | ) | (188,918 | ) |
NM
|
|||||||||
Net
income (loss) per share basic
|
(0.05 | ) | (0.04 | ) | (0.01 | ) |
NM
|
|||||||||
Net
income (loss) per share diluted
|
(0.05 | ) | (0.04 | ) | (0.01 | ) |
NM
|
Net
Sales
Net sales
for the quarter ended June 30, 2010 decreased $617,326, a 36.3% decrease, to
$1,084,964 compared to $1,702,290 for the quarter ended June 30,
2009. The primary reasons for the sales decrease are a reduction in
distributor sales as a result of the elimination of a supply agreement with one
of our customers during the previous fiscal year and a reduction in weight loss
product sales which have proven to be random offset by increases in sales of our
own branded product, Celadrinâ, to the mass market and
sales to our wholesale customers as follows:
13
Breakdown
of net sales
Three Months Ended June 30,
|
||||||||||||||||||||
2010
|
2009
|
Increase
|
||||||||||||||||||
$
|
%
|
$
|
%
|
(Decrease)
|
||||||||||||||||
Wholesale
|
$ | 512,973 | 47 | % | $ | 305,835 | 18 | % | $ | 207,138 | ||||||||||
Mass
market
|
341,678 | 31 | % | 227,791 | 13 | % | 113,887 | |||||||||||||
Distibutors
|
230,313 | 21 | % | 1,168,664 | 69 | % | (938,351 | ) | ||||||||||||
$ | 1,084,964 | 100 | % | $ | 1,702,290 | 100 | % | $ | (617,326 | ) |
With the
anticipated expansion to all Costco stores of both Celadrin® and BioGuard®, the
intial shipment of Celadrin® to 800 Walmart stores and the recent orders for
BioGuard® to RiteAid stores, we anticipate mass market sales to become our
leading revenue generator and provide improved sales during the balance of our
current fiscal year.
Cost of Goods
Sold
Cost of
goods sold as a percentage of net sales increased to 69% for the quarter ended
June 30, 2010 compared to 62% for the quarter ended June 30,
2009. This increase was the result of the product mix, reduced gross
revenue and continued advertising allowances on our mass market
sales. We anticipate this percentage to decrease as we increase our
mass market sales allowing for an economy of scale to be recognized on both
product costs and advertising allowances.
General and
Administrative
General
and administrative expenses decreased $212,170, a 26% decrease, to $595,779 for
the quarter ended June 30, 2010 compared to $807,949 for the quarter ended June
30, 2009. This decrease was primarily due to a reduction in
advertising expenses of approximately $167,000, a decrease in travel related
costs of approximately $27,000 and a reduction in research and development
expenses of approximately $20,000. We anticipate future increases in
general and administrative expenses as we increase our advertising campaign for
Celadrin® and and increase clinical research studies related to our periodontal
drug development candidate.
Payroll
Expense
Payroll
expense decreased to $242,530 for the quarter ended June 30, 2010, a decrease of
5% or $11,887 compared to $254,417 for the quarter ended June 30,
2009. This decrease was a result of non-cash compensation
decreases related to employee stock options for the current fiscal period
compared to the previous year fiscal period.
Consulting
Expenses
Consulting
expenses increased to $410,034 for the quarter ended June 30, 2010, an increase
of 46% or $129,634 compared to $280,400 for the quarter ended June 30,
2009. This increase was a result of expenses related to doing both a
debt and equity financing during the current quarter of approximately $45,000,
the costs of an investor relations program of approximately $16,000, and
increased legal expenses of approximately $60,000.
Interest
Expense
Interest
expense of $89,084 was recognized during the quarter ended June 30, 2010
compared to $2,405 for the quarter ended June 30, 2009. This increase
was the result of non-cash interest of $57,553 coupled with cash payments of
$31,531 related to the issuance of bridge loans in anticipation of an asset
based line of credit with a bank. The bridge loans were issued and
paid off during the quarter but the investors received warrants and a cash
premium on the extinguishment of the debt.
14
Provision for Income
Taxes
An income
tax benefit of $397,700 was recognized during the current quarter compared to
$282,000 recognized during the quarter ended June 30, 2009.
Capital
Resources
Working
Capital
Increase
|
||||||||||||
6/30/10
|
3/31/10
|
(Decrease)
|
||||||||||
Current
assets
|
$ | 4,321,134 | $ | 4,464,088 | $ | (142,954 | ) | |||||
Current
liabilities
|
1,165,126 | 1,190,565 | (25,439 | ) | ||||||||
Working
capital
|
$ | 3,156,008 | $ | 3,273,523 | $ | (117,515 | ) | |||||
Long-term
debt
|
$ | - | $ | - | $ | - | ||||||
Stockholders'
equity
|
$ | 3,374,088 | $ | 3,505,258 | $ | (131,170 | ) |
Statements
of Cash Flows Select Information
Three Months Ended
|
Increase
|
|||||||||||
6/30/10
|
6/30/09
|
(Decrease)
|
||||||||||
Net
cash provided by (used in):
|
||||||||||||
Operating
activities
|
$ | (1,244,492 | ) | $ | (287,852 | ) | $ | (956,640 | ) | |||
Investing
activities
|
$ | - | $ | - | $ | - | ||||||
Financing
activities
|
$ | 856,695 | $ | (24,802 | ) | $ | 881,497 |
Balance
Sheet Select Information
Increase
|
||||||||||||
6/30/10
|
3/31/10
|
(Decrease)
|
||||||||||
Cash
and cash equivalients
|
$ | 593,713 | $ | 981,510 | $ | (387,797 | ) | |||||
Accounts
receivable, net
|
$ | 914,657 | $ | 1,049,047 | $ | (134,390 | ) | |||||
Inventories,
net
|
$ | 1,296,792 | $ | 1,350,041 | $ | (53,249 | ) | |||||
Notes
payable to bank
|
$ | 500,000 | $ | - | $ | 500,000 |
Liquidity
We have
historically financed our operations internally and through debt and equity
financings. At June 30, 2010, we had cash holdings of $593,713, a decrease of
$387,797 compared to March 31, 2010. Our net working capital position
at June 30, 2010, was $3,156,008 compared to $3,273,523 as of March 31,
2010. We have initiated a direct mass market strategy with our own
products, Celadrin® and BioGuard. We continue to develop
our drug candidate which, if the drug is successfully comercialized,
will address periodontal diseases. We have started the initial new
drug process and have completed several animal studies.
A significant portion of our working capital may be needed to implement the mass
market advertising campaign, increase inventory to accommodate an increase in
orders, finance an increase in receivables as a result of increased sales
activity and fund new drug development trials.
15
During
the quarter ended June 30, 2010, we sold common stock for cash aggregating
$400,000 to two institutional investors. In June 2010, we entered
into an asset based line of credit with a bank for up to $1,500,000 to finance
accounts receivable, inventory and advertising. At June 30, 2010, the
line of credit had a balance of $500,000. The bank has been given a
secured position in the assets of the company. At June 30, 2010, we
were not in compliance with a covenant requiring us to have net losses not to
exceed $300,000 for our first fiscal quarter. We
believe that our cash position plus potential debt or equity financings will be
sufficient to fund our operating activities for at least the next 12
months.
New
Accounting Standards
See Note
2- Recent Accounting Pronouncements- to our condensed consolidated financial
statements included in Item 1 of this Form 10-Q for discussion of recent
accounting pronouncements.
ITEM
4T. CONTROLS AND PROCEDURES.
Disclosure Controls and
Procedures
The
Company maintains disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is
recorded, processed, summarized, and reported within the specified time periods
and accumulated and communicated to the Company’s management, including its
Principal Executive Officer and Principal Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
The
Company’s management, under the supervision and with the participation of its
Principal Executive Officer and its Principal Financial Officer, evaluated the
effectiveness of its disclosure controls and procedures (as defined in
Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of the
end of the period covered by this report. Based on that evaluation, the
Company’s Principal Executive Officer and Principal Financial Officer concluded
that the Company’s disclosure controls and procedures were effective as of June
30, 2010 to provide reasonable assurance in the Company’s financial
reporting.
Management
believes that there are no material inaccuracies or omissions of material fact
and, to the best of its knowledge, believes that the condensed consolidated
financial statements for the quarter ended June 30, 2010, fairly present in all
material respects the financial condition and results of operations for the
Company in conformity with accounting principles generally accepted in the
United States of America.
There
have not been any changes in the Company’s internal control over financial
reporting during the quarter ended June 30, 2010, which have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Limitations on the Effectiveness of
Controls
A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be met. The
Company’s management, including its Principal Executive Officer and its
Principal Financial Officer, do not expect that the Company’s disclosure
controls will prevent or detect all errors and all fraud. Further, the design of
a control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with associated policies or procedures. Because of
the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
16
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
TriPharma
Arbitration
On April
30, 2010, TriPharma, Inc., a customer of Imagenetix, filed a legal action
in the United States Southern District Court of California, case number
10CV0933IEG, related to an Exclusive Marketing and Supply Agreement, as amended
on June 19, 2008. TriPharma asserts that Imagenetix
breached the terms of the Agreement and seeks injunctive relief and unspecified
damages. The Company denies the allegations and believes the claims
to be frivolous and totally devoid of merit. The Company has retained litigation
counsel and intends to vigorously defend the claims. The amount, if any, of
ultimate liability with respect to the foregoing cannot be determined. Despite
the inherent uncertainties of litigation, the Company at this time does not
believe that TriPharma's claim will have a material adverse impact on its
financial condition, results of operations, or cash flows.
ITEM
1A. RISK FACTORS.
Risk
Factors
You
should consider the following discussion of risks as well as other information
regarding our common stock. The risks and uncertainties described below are not
the only ones. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business operations. If
any of the following risks actually occur, our business could be
harmed.
There
Is Only One Supplier for Celadrin®. If We Are Unable to Purchase Celadrin® from
This Supplier, Our Business Would Be Harmed.
There is
only one supplier for Celadrin®, which we use in approximately 61% of our
products and which represented approximately 72% of our sales for the year ended
March 31, 2010. We will rely upon Celadrin® to expand our product lines and
revenue in the future. If our Celadrin® supplier goes out of business or elects
for any reason not to supply us with Celadrin®, we would have to find another
Celadrin® supplier or suffer a significant reduction in our
revenue.
We
Rely upon a Limited Number of Customers the Loss of Which Would Reduce Our
Revenue and Any Earnings.
Our
largest customers accounted for 32%, 20% and 16% of our net sales for the three
months ended June 30, 2010 and 42%and 15% for the year
ended March 31, 2010. During the previous fiscal year , we entered
into a buyout agreement with our largest customer at that time which will result
in no significant revenue from that customer in future periods. We
have several other customers with increased revenue during the three months
ended June 30, 2010 which will, at least, partially offset the loss of this
significant customer. If not replaced by other large customers, the
loss of any significantly large customer could reduce our revenue and adversely
affect our cash flow and earnings, if any.
We
Rely upon Other Outside Suppliers to Produce Our Products Which Could Delay Our
Product Deliveries.
All of
our products are produced by outside manufacturers who process ingredients
provided to them by our suppliers and with whom we have contracts. Our profit
margins and our ability to deliver products on a timely basis are dependent upon
these manufacturers and suppliers. Should any of these manufacturers or
suppliers fail to provide us with product, we would be required to obtain new
manufacturers and suppliers, which would be costly and time consuming and could
delay our product deliveries.
17
Product
Liability Claims Against Us Could Be Costly.
Some of
our nutritional supplements contain newly-introduced ingredients or combinations
of ingredients, and we have little long-term health information about
individuals consuming those ingredients. If any of these products were thought
or proved to be harmful, we could be subject to litigation. Although we carry
product liability insurance in the face amount of $1,000,000 per occurrence and
$2,000,000 in the aggregate and require our suppliers and manufacturers to
include us as insured parties on their product liability insurance policies, our
coverage may not be adequate to protect us from potential product liability
claims and costs of defense.
We
Are Subject to Intense Competition from Other Nutritional Supplement Marketers
Which Could Reduce Our Revenue and Profit Margins.
Competition
in the nutritional supplement market is intense. We compete with numerous
companies that have longer operating histories, more products and greater name
recognition and financial resources than we do. In order to compete, we could be
forced to lower our product prices, which would reduce our revenue and profit
margins.
We
Are Highly Regulated, Which Increases Our Costs of Doing Business.
We are
subject to laws and regulations which cover:
|
•
|
the
formulation, manufacturing, packaging, labeling, distribution,
importation, sale and storage of our
products;
|
|
•
|
the
health and safety of food and
drugs;
|
|
•
|
trade
practice and direct selling laws;
and
|
|
•
|
product
claims and advertising by us; or for which we may be held
responsible.
|
Compliance
with these laws and regulations is time consuming and expensive. Moreover, new
regulations could be adopted that would severely restrict the products we sell
or our ability to continue our business. We are unable to predict the nature of
any future laws, regulations, interpretations or applications, nor can we
predict what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on our business in the future. These
future changes could, however, require the reformulation or elimination of
certain products; imposition of additional record keeping and documentation
requirements; imposition of new federal reporting and application requirements;
modified methods of importing, manufacturing, storing or distributing certain
products; and expanded or different labeling and substantiation requirements for
certain products and ingredients. Any or all of these requirements could harm
our business.
There
Are Limitations on the Liability of Our Officers and Directors Which May
Restrict Our Stockholders from Bringing Claims.
Our
Bylaws substantially limit the liability of our officers and directors to us and
our stockholders for negligence and breach of fiduciary or other duties to us.
This limitation may prevent stockholders from bringing claims against our
officers and directors in the future.
Shares
of Our Common Stock Which Are Eligible for Sale by Our Stockholders May Decrease
the Price of Our Common Stock.
We have
11,810,788 common shares outstanding which are freely tradeable or saleable
under Rule 144. We also have outstanding common stock warrants and
stock options exercisable into up to 5,701,048 shares of common stock which
could become free trading if exercised. If our stockholders
sell substantial amounts of our common stock, the market price of our common
stock could decrease.
18
There
is a Limited but Potentially Volatile Trading Market in Our Common Stock, Which
May Adversely Affect Our Stock Price.
Our
common stock trades on the Electronic Bulletin Board. The Bulletin Board tends
to be highly illiquid, in part because there is no national quotation system by
which potential investors can track the market price of shares except through
information received or generated by a limited number of broker-dealers that
make a market in particular stocks. There is a greater chance of market
volatility for securities that trade on the Bulletin Board as opposed to a
national exchange or quotation system. This volatility may be caused by a
variety of factors, including:
|
•
|
The
lack of readily available price
quotations;
|
|
•
|
The
absence of consistent administrative supervision of "bid" and "ask"
quotations;
|
|
•
|
Lower
trading volume; and
|
|
•
|
Market
conditions.
|
There
could be wide fluctuations in the market price of our common stock. These
fluctuations may have an extremely negative effect on the market price of our
securities and may prevent an investor from obtaining a market price equal to
his purchase price when he attempts to sell our securities in the open market.
In these situations, the investor may be required to either sell our securities
at a market price which is lower than his purchase price, or to hold our
securities for a longer period of time than he planned.
Because
Our Common Stock May Be Classified as "Penny Stock," Trading in it Could Be
Limited, and Our Stock Price Could Decline.
In the
future, our common stock may fall under the definition of "penny stock" if our
net tangible assets decline below $2,500,000. In such event, trading in our
common stock would be limited because broker-dealers will be required to provide
their customers with disclosure documents prior to allowing them to participate
in transactions involving our common stock. These disclosure requirements are
burdensome to broker-dealers and may discourage them from allowing their
customers to participate in transactions involving our common
stock.
"Penny
stocks" are equity securities with a market price below $5.00 per share, other
than a security that is registered on a national exchange or included for
quotation on the Nasdaq system, unless, as in our case, the issuer has net
tangible assets of more than $2,000,000 and has been in continuous operation for
greater than three years. Issuers who have been in operation for less than three
years must have net tangible assets of at least $5,000,000.
Rules
promulgated by the Securities and Exchange Commission under Section 15(g) of the
Exchange Act require broker-dealers engaging in transactions in penny stocks, to
first provide to their customers a series of disclosures and documents,
including:
|
•
|
A
standardized risk disclosure document identifying the risks inherent in
investment in penny stocks;
|
|
•
|
All
compensation received by the broker-dealer in connection with the
transaction;
|
|
•
|
Current
quotation prices and other relevant market data;
and
|
|
•
|
Monthly
account statements reflecting the fair market value of the securities. In
addition, these rules require that a broker-dealer obtain financial and
other information from a customer, determine that transactions in penny
stocks are suitable for such customer and deliver a written statement to
such customer setting forth the basis for this
determination.
|
19
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
During
the quarter ended June 30, 2010, we issued common stock and common
stock purchase warrants as follows:
Common
Stock
Date Stock
|
Price per
|
||||||||||
Stockholder
|
Issued
|
Number of Shares
|
Share
|
Consideration
|
|||||||
Lake
Street Fund LP
|
5/28/2010
|
500,000 | $ | 0.50 |
Cash
|
||||||
MidSouth
Investor Fund LP
|
5/28/2010
|
300,000 | $ | 0.50 |
Cash
|
Common
Stock Purchase Warrants
Name
|
Date of Issuance
|
Number of Shares
|
Exercise Price
|
Expiraton Date
|
|||||||
James
& Josephine Zolin
|
5/27/2010
|
50,000 | $ | 0.50 |
5/27/2015
|
||||||
Anthony
W. & Barbara Opperman
|
5/27/2010
|
100,000 | $ | 0.50 |
5/27/2015
|
||||||
Kim
Vanderlinden
|
5/27/2010
|
12,500 | $ | 0.50 |
5/27/2015
|
||||||
Chris
Lahiji
|
5/27/2010
|
5,000 | $ | 0.50 |
5/27/2015
|
||||||
Kleeman
Family 2004 Revocable Trust
|
5/27/2010
|
25,000 | $ | 0.50 |
5/27/2015
|
||||||
Olivier
Morin
|
5/27/2010
|
12,500 | $ | 0.50 |
5/27/2015
|
||||||
Security
Research Associates
|
6/30/2010
|
146,341 | $ | 0.41 |
6/30/2015
|
With
respect to the above securities issuances, the Registrant relied on exemptions
provided by Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Rule 506 under the Securities Act. No advertising or
general solicitation was employed in offering the securities. The securities
were issued to a limited number of persons all of whom were accredited investors
as that term is defined in Rule 501 of Regulation D under the
Securities Act. All were capable of analyzing the merits and risks of their
investment, acknowledged in writing that they were acquiring the securities for
investment and not with a view toward distribution or resale, and understood the
speculative nature of their investment. All securities issued contained a
restrictive legend prohibiting transfer of the shares except in accordance with
federal securities laws.
The
proceeds received from the issuance of the above securities will be used for
working capital purposes.
20
ITEM
6.
|
EXHIBITS.
|
Exhibit
No.
|
Title
|
|
10.26
|
Form
of 7% Convertible Debenture Dated May 25, 2010
|
|
10.27
|
Loan
Agreement Dated June 30, 2010
|
|
31.1
|
302
Certification of William P. Spencer, Chief Executive
Officer
|
|
31.2
|
302
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
|
32.1
|
906
Certification of William P. Spencer, Chief Executive
Officer
|
|
32.2
|
|
906
Certification of Lowell W. Giffhorn, Chief Financial
Officer
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IMAGENETIX,
INC.
|
|||
a
Nevada corporation
|
|||
Date: August
16, 2010
|
By:
|
/s/ WILLIAM P. SPENCER
|
|
William
P. Spencer
|
|||
Chief
Executive Officer
|
|||
(Principal
Executive Officer and duly authorized
|
|||
to
sign on behalf of the
Registrant)
|
21