SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
(Mark
One)
x
ANNUAL
REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2007
o
TRANSITION
REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
transition period _________ to____________
Commission
file number: 000-51248
OPTIGENEX
INC.
(Exact
name of small business issuer as specified in its charter)
|
Delaware
|
|
20-1678933
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(IRS
Employer I.D. Number)
|
|
1170
Valley Brook Ave., 2nd Floor, Suite B, Lyndhurst, NJ
|
|
07071
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Issuer's
telephone number, including area code: (201) 355-2098
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act: Common Stock, par value
$0.001 per share.
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.
o
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
Issuer's
revenues for the fiscal year ended December 31, 2007 were $465,970.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, as of May 2, 2008, was $66,533 based upon
the
closing price of $0.001 for such date as reported on the Over-the-Counter
Bulletin Board.
There
were 66,533,776 shares of Common Stock outstanding as of May 2, 2008.
Transitional
Small Business Disclosure Format (check one): Yes
o
No
x
ANNUAL
REPORT ON FORM 10-KSB
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
TABLE
OF
CONTENTS
|
PART
I.
|
|
|
|
|
|
|
|
Item
1.
|
Business
|
1
|
|
|
|
|
|
Item
2.
|
Description
of Properties
|
6
|
|
|
|
|
|
Item
3.
|
Legal
Proceedings
|
6
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
7
|
|
|
|
|
|
PART
II.
|
|
|
|
|
|
|
|
Item
5.
|
Market
for Common Equity and Related Stockholder Matters
|
8
|
|
|
|
|
|
Item
6.
|
Management's
Discussion and Analysis or Plan of Operation
|
9
|
|
|
|
|
|
Item
7.
|
Financial
Statements
|
16
|
|
|
|
|
|
Item
8.
|
Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
|
16
|
|
|
|
|
|
Item
8A.
|
Controls
and Procedures
|
16
|
|
|
|
|
|
Item
8B.
|
Other
Information
|
16
|
|
|
|
|
|
PART
III.
|
|
|
|
|
|
|
|
Item
9.
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance With
Section
16(a) of the Exchange Act
|
17
|
|
|
|
|
|
Item
10.
|
Executive
Compensation
|
18
|
|
|
|
|
|
Item
11.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
19
|
|
|
|
|
|
Item
12.
|
Certain
Relationships and Related Transactions
|
20
|
|
|
|
|
|
Item
13.
|
Exhibits
|
21
|
|
|
|
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
22
|
|
|
|
|
|
SIGNATURES
|
23
|
CAUTIONARY
NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain
statements in this Annual Report on Form 10-KSB constitute forward-looking
statements for purposes of the securities laws. Forward-looking statements
include all statements that do not relate solely to the historical or current
facts, and can be identified by the use of forward looking words such as "may",
"believe", "will", "expect", "expected", "project", "anticipate", "anticipated",
"estimates", "plans", "strategy", "target", "prospects" or "continue". These
forward looking statements are based on the current plans and expectations
of
our management and are subject to a number of uncertainties and risks that
could
significantly affect our current plans and expectations, as well as future
results of operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. This Form 10-KSB contains important information about the risk
factors above. In making these forward-looking statements, we claim the
protection of the safe-harbor for forward-looking statements contained in the
Private Securities Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. We do not
assume any obligation to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors affecting
such forward-looking statements.
PART
I
Item
1.
Description
of Business
Overview
Optigenex
Inc. (“we”, “our”, “us”) was incorporated in the State of Delaware under the
name Idunna, Inc. on July 10, 2002. Idunna, Inc. changed its name to Kronogen
Sciences Inc. ("Kronogen") on November 21, 2002.
On
April
4, 2003, Kronogen acquired certain assets of the Giampapa Institute for
Anti-Aging Medical Therapy, a sole proprietorship of the State of New Jersey
and
Optigene-X LLC, a New Jersey limited liability company (collectively
"Giampapa"). This acquisition provided Kronogen with an exclusive license to
certain intellectual property including patents, patents pending and trademarks
that Giampapa utilized in its business. In this transaction, Kronogen issued
an
aggregate of 1,400,000 shares of its common stock to three individuals and
a
note payable of $173,080 to an individual for the release of his existing
license agreement to utilize the same intellectual property. On July 30, 2003,
Kronogen changed its name to Optigenex Inc.
On
November 6, 2003, Optigenex acquired certain assets and assumed certain
liabilities of CampaMed LLC, a New Jersey limited liability company
("CampaMed"). This acquisition provided Optigenex with certain intellectual
property including patents, patents pending and trademarks that CampaMed
utilized in its business. In this transaction, Optigenex issued an aggregate
of
1,156,250 shares of its common stock to seven individuals and note payable
to
CampaMed of $150,000. Optigenex also assumed certain liabilities of CampaMed
in
the amount of $128,512. In addition, Optigenex issued options to purchase an
aggregate of 150,000 shares of its common stock at an exercise price of $0.001
to four individuals in exchange for the release of an existing royalty
obligation related to the intellectual property that Optigenex was acquiring
from CampaMed.
On
July
30, 2004, Optigenex entered into an Asset Purchase Agreement (the "Transaction")
with Vibrant Health International, a Nevada corporation ("Vibrant"), Optigenex
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Vibrant
("Acquisition Corp"), and Thomas McAdam ("McAdam), who, prior to the closing
of
the Transaction, was the principal shareholder and the sole officer and director
of Vibrant. At the time of the Transaction, Vibrant was a reporting company
for
SEC purposes, however, its common stock was not registered with the SEC and
as
such, its shares were not listed on an established exchange or quoted on the
Over-the-Counter Bulletin Board.
Vibrant
was holding company that conducted its business of selling nutraceutical
products through its wholly owned subsidiary Vibrant Health Inc. a Colorado
corporation ("VHI"). At the time of the Transaction, in addition to Acquisition
Sub and VHI, Vibrant also had another wholly owned subsidiary, Optigenex Merger
Inc., a Delaware corporation ("Merger Inc."). Prior to the closing of this
Transaction on July 30, 2004, Vibrant sold 100% of the common stock of VHI
to
McAdam in exchange for 3,417,560 shares of Vibrant that were owned by McAdam.
These shares were cancelled and returned to the treasury of Vibrant. This
reduced the total number of shares outstanding of Vibrant from 4,360,600 to
943,040. Simultaneously, Vibrant affected a .599 to 1 reverse split of its
common shares which reduced the total number of shares outstanding to 564,885.
In
this
Transaction, Acquisition Sub purchased all of the assets and assumed all of
the
liabilities of Optigenex in exchange for 8,621,255 shares of Vibrant common
stock ("Vibrant Shares"), which represented approximately 94% of Vibrant's
common stock outstanding immediately after the Transaction. The 8,621,255 shares
issued by Vibrant to Optigenex were equal to the total number of Optigenex
shares outstanding on July 30, 2004. Vibrant also issued 681,895 options
("Substitute Options") and 111,668 warrants ("Substitute Warrants") to purchase
shares of Vibrant common stock to Optigenex. The number of Substitute Options
and Substitute Warrants were equal to the number of Optigenex options and
warrants that were issued and outstanding on the date of the Transaction. The
Substitute Options and Substitute Warrants issued by Vibrant had the same
exercise price and the same terms as the Optigenex options and warrants.
Simultaneous
with the closing of the Transaction on July 30, 2004, Vibrant merged with and
into its wholly owned Delaware subsidiary Merger Inc. with Merger Inc. being the
surviving corporation. Also on July 30, 2004, Optigenex distributed its
remaining assets, which consisted of the Vibrant Shares, the Substitute Options
and the Substitute Warrants, directly to its shareholders, option holders and
warrant holders. Upon the dissolution of Optigenex on July 30, 2004, Merger
Inc.
changed its name to Optigenex Inc.
On
August
25, 2004, Acquisition Sub, which contained the assets and liabilities that
were
acquired in the Transaction, merged with and into Optigenex with Optigenex
being
the surviving corporation. The effect of this merger was to eliminate
Acquisition Sub as a legal subsidiary of Optigenex.
On
April
15, 2005, we registered our common stock under Section 12(g) of the Securities
Exchange Act of 1934 and our shares began trading on the Over-the-Counter
Bulletin Board under the ticker symbol OPGX.OB.
Description
of the Company's Business
Optigenex
Inc. is engaged in the manufacturing and licensing worldwide of unique health,
wellness and beauty products based on its wholly natural botanical extract
ingredient, AC-11®. A series of third party clinical, pre-clinical and other
scientific studies documented in peer reviewed, published articles support
the
science behind AC-11®. Four (4) U.S. patents protect the extraction, testing,
and manufacturing processes associated with the AC-11® proprietary compound.
The
company licenses its technology for the manufacture and sale of privately
labeled products containing AC-11® to third-party marketing companies in the
personal care and nutraceutical industries. The company also develops and
markets its own products featuring AC-11® as a core ingredient.
AC-11®
is
a bioactive form of the medicinal herb known as Uncaria tomentosa, a plant
indigenous to the Amazon rainforest and other tropical regions of South and
Central America. AC-11® is manufactured for Optigenex by the Centroflora Group
of Sao Paulo, Brazil, using a patented process that delivers an essentially
alkaloid free, water-soluble extract, standardized to an 8% carboxyl alkyl
ester
concentration. Manufacturing takes place under the direction of Optigenex at
Centroflora’s facilities utilizing specialized equipment developed and owned by
Optigenex. The Centroflora Group is a U.S. FDA-approved manufacturer and
complies with standards for quality control recognized and accepted worldwide.
In
data
compiled from over 10 years of scientific research and development, AC-11® has
been shown to help the body’s natural ability to repair, on a cellular level,
DNA damaged as a result of exposure to stress, pollution and the photochemical
effects of the sun, which in turn may prevent premature aging of the skin.
In
separate clinical studies, AC-11® also has been shown to be an effective
anti-inflammatory and anti-tumor agent, as well as an immune system enhancer.
The
Optigenex product line consists of the Activar Skin Renewal System and AC-11®
sold as a bulk ingredient to domestic and international partners in the
nutraceutical, cosmeceutical, personal care, skin care, and hair care
industries. In March 2006, the company began selling the Activar Skin Renewal
System of topical skin care products containing AC-11® as an active ingredient.
The Activar line currently consists of a day, night and eye repair creams.
Initially, Optigenex marketed these products directly to consumers through
a
celebrity-endorsed television infomercial. The infomercial aired in test markets
in March 2006. After reviewing the results, the company decided not to expand
the campaign nationally due to the insufficient levels of revenue generated
based on the pricing models that had been adopted and the high cost of
purchasing media time. Beginning in late 2007, Optigenex began repositioning
the
skin care line to appeal to higher-end retail, salon, MLM and other market
customers by introducing the products to select domestic and international
wholesale distributors experienced with products in these channels at these
price points.
The
Company’s ability to increase revenues is highly dependent upon its existing
customers successful marketing of AC-11® based products and the company making
further inroads licensing its technology to potential wholesale distribution
partners. In addition, the company is focused on increasing its revenues and
cash flows by expanding its marketing footprint through the development of
new
products in the personal care and wellness industries.
Research
and Development
The
benefits of AC-11 are supported by a 10 year history of research and development
including pre-clinical and clinical studies and published peer reviewed
articles, which demonstrate statistically significant reduction in DNA damage
and measurable enhancement of DNA repair activity. In numerous in-vitro studies
and clinical trials, AC-11 has demonstrated activity in the following areas.
DNA
Repair - As the human body ages, its natural ability to repair DNA damage caused
by both oxidative and non-oxidative stress decreases. This adversely affects
health and well being. AC-11 has also been shown to protect and decrease damage
to cellular DNA caused by free radicals as well as increase the human body’s DNA
repair capacity. AC-11 also reduces non-oxidative damage to cellular DNA due
to
exposure to the sun’s harmful rays and damage caused by stress and/or viral or
bacterial disease states.
Anti-Inflammatory
- Animal and human studies have found that AC-11 inhibits the immune mediator
NF-kB. Research has shown that the inhibition of NF-kB is a rational strategy
for the treatment of chronic inflammation. This may create potential uses for
AC-11 in the treatment of Arthritis, Chrohn’s Disease, Colitis, Irritable Bowel
Syndrome, Lupus and other auto-immune diseases.
Immune
System Enhancement - AC-11 has been shown to help increase the number of white
blood cells, which help the body fight off infection. In addition, many
chemotherapeutic and immunosuppressant agents reduce white blood cell counts
predisposing the body to infection. In animal studies, AC-11 has also been
shown
to decrease the time for recovery caused by reduced white blood cell counts.
A
low white blood cell count is found in such conditions like HIV/AIDS, and is
also seen following organ transplants and in chemotherapy.
From
time
to time, we have provided funding to academic and other institutions for
pre-clinical and clinical studies to evaluate the efficacy and mechanisms of
action of AC-11, and we may continue to do so in the future. We may also supply
AC-11 for use in studies for which we provide no funding. We believe that
positive results from these studies, whether or not funded by us, would provide
benefits to us by furthering the acceptance of AC-11. We intend to make
presentations at various meetings to gain acceptance of AC-11. If we obtain
successful research outcomes, we plan to publicize these findings to reposition
our products and increase the demand for AC-11. We believe that successful
research studies, if obtained, would strengthen our chances of obtaining
developmental funding from pharmaceutical or other strategic partners for
further pre-clinical and clinical trials.
Government
Regulation
In
the
United States, the manufacturing, processing, formulation, packaging, labeling,
advertising and sale of dietary supplements are regulated primarily by the
Federal Food, Drug and Cosmetic Act, as amended, among others, by the Dietary
Supplemental Health and Education Act of 1994 ("DSHEA Act") and by various
federal agencies, including the Food & Drug Agency (the "FDA") and the U.S.
Federal Trade Commission (the "FTC") and, to a lesser extent, the Consumer
Product Safety Commission and the United States Department of Agriculture.
Our
activities may also be subject to regulation by various governmental agencies
for the states and localities in which our products are manufactured,
distributed or sold, and may be regulated by governmental agencies in certain
countries outside the United States in which our products may be distributed
and
sold. Among other matters, regulation by the FDA and FTC is concerned with
product safety and claims that refer to a product's ability to treat or prevent
disease or other adverse health conditions.
Under
the
DSHEA, the FDA regulates the formulation, manufacture and labeling of dietary
supplements, including our products. The DSHEA Act (i) defines dietary
supplements, (ii) permits "structure/function" statements under certain
conditions and (iii) permits, under certain conditions, the use of published
literature in connection with the sale of herbal products. As dietary
supplements, our products do not require approval by the FDA prior to marketing
but are nevertheless subject to various regulatory requirements concerning
their
composition, permissible claims (including substantiation of any claims),
manufacturing procedures and other elements. DSHEA prohibits marketing dietary
supplements through claims for, or with intended uses in, the treatment or
prevention of diseases. There can be no assurance that our supplement products
can be identified and differentiated from competing products sufficiently enough
on the basis of permissible claims regarding composition to compete
successfully.
FDA
regulations require us and our suppliers to meet relevant regulatory good
manufacturing practices for the preparation, packaging and storage of these
products. Good manufacturing practices for dietary supplements have yet to
be
promulgated, but are expected to be proposed. The Dietary Supplement Health
and
Education Act of 1994 revised the provisions of the Federal Food, Drug and
Cosmetic Act concerning the composition and labeling of dietary supplements,
which we believe is generally favorable to the dietary supplement industry.
The
Dietary Supplement Health and Education Act created a new statutory class of
"dietary supplements." This new class includes vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet. In
general, a dietary supplement is a product (other than tobacco) that is intended
to supplement the diet that bears or contains one or more of the following
dietary ingredients: a vitamin, a mineral, a herb or other botanical, an amino
acid, a dietary substance for use by man to supplement the diet by increasing
the total daily intake, or a concentrate, metabolite, constituent, extract,
or
combinations of these ingredients; is intended for ingestion in pill, capsule,
tablet, or liquid form; is not represented for use as a conventional food or
as
the sole item of a meal or diet; and is labeled as a "dietary supplement."
However, the DSHEA grandfathered, with certain limitations, dietary ingredients
that were on the market before October 15, 1994. A dietary supplement containing
a new dietary ingredient and placed on the market on or after October 15, 1994
must have a history of use or other evidence establishing a basis for expected
safety. Manufacturers of dietary supplements having a "structure-function"
statement must have substantiation that the statement is truthful and not
misleading.
As
dietary products, our products are regulated by FDA regulations promulgated
under the DSHEA. Dietary supplements do not require approval by the FDA prior
to
marketing but are nevertheless subject to various regulatory requirements
concerning their composition, permissible claims (including substantiation
of
any claims), manufacturing procedures and other elements. DSHEA prohibits
marketing dietary supplements through claims for, or with intended uses in,
the
treatment or prevention of diseases.
In
general, a dietary supplement:
|
·
|
is
a product (other than tobacco) that is intended to supplement the
diet
that bears or contains one or more of the following dietary ingredients:
a
vitamin, a mineral, a herb or other botanical, an amino acid, a dietary
substance for use by man to supplement the diet by increasing the
total
daily intake, or a concentrate, metabolite, constituent, extract,
or
combinations of these ingredients;
|
|
·
|
is
intended for ingestion in pill, capsule, tablet, or liquid form;
|
|
·
|
is
not represented for use as a conventional food or as the sole item
of a
meal or diet; and
|
|
·
|
is
labeled as a "dietary supplement."
|
Dietary
supplements must follow labeling guidelines outlined by the FDA. Neither dietary
supplements nor personal care products require FDA or other government approval
or notification to market in the United States.
Under
the
DSHEA, companies that manufacture and distribute dietary supplements are limited
in the statements that they are permitted to make about nutritional support
on
the product label without FDA approval. In addition, a manufacturer of a dietary
supplement must have substantiation for any such statement made and must not
claim to diagnose, mitigate, treat, cure or prevent a specific disease or class
of disease.
The
product label must also contain a prominent disclaimer. These restrictions
may
restrict our flexibility in marketing our product. Although product labels
must
be submitted to the FDA, they are not subject to that agency's prior approval.
We believe that we have made all necessary filings with the FDA.
We
believe that all of our existing and proposed products do not require
governmental approvals to be marketed in the United States. However, the FDA
could conclude that our products are drugs and either require us to conduct
clinical trials to establish efficacy and safety or cease to market these
products. If this were to occur, our business, financial condition and results
of operations may be negatively impacted.
Compliance
with applicable FDA and any state or local statutes is critical. Although we
believe that we are in compliance with applicable statutes, there can be no
assurance that, should the FDA amend its guidelines or impose more stringent
interpretations of current laws or regulations that we would be able to comply
with these new guidelines. We are unable to predict the nature of such 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 regulations could,
however, require the reformation of certain products to meet new standards,
market withdrawal or discontinuation of certain products not able to be
reformulated, imposition of additional record keeping requirements, expanded
documentation regarding the properties of certain products, expanded or
different labeling and/or additional scientific substantiation.
Federal
agencies have a variety of available remedies, including initiating
investigations, issuing warning letters and cease and desist orders, requiring
corrective labels or advertising, requiring consumer redress (for example,
requiring that a company offer to repurchase products previously sold to
consumers), seeking injunctive relief or product seizure and imposing civil
penalties or commencing criminal prosecution. In addition, certain state
agencies have similar authority, as well as the authority to prohibit or
restrict the manufacture or sale of products within their jurisdiction. There
can be no assurance that the regulatory environment in which we operate and
intend to operate will not change or that such regulatory environment, or any
specific action taken against us, will not result in a material adverse effect
on our business, financial condition or results of operations. In addition,
we
may incur significant costs in complying with government regulations, defending
claims of non-compliance or both. Moreover, there can be no assurance that
new
legislation or regulation, including changes to existing laws or regulations,
will not materially adversely affect our business, financial condition and
results of operations.
Intellectual
Property
Patents
Our
core
intellectual property lies in four U.S. patents issued for the
extraction, testing and manufacturing processes of AC-11. These patents are
as
follows:
US6039949:
method of preparation and composition of a water soluble extract of the plant
species Uncaria;
US6238675:
method of preparation and composition of a water soluble extract of the plant
species Uncaria for enhancing immune, anti-inflammatory and anti-tumor processes
of warm blooded animals; and
US6361805:
method of preparation and composition of a water soluble extract of the plant
species Uncaria for enhancing immune, anti-inflammatory, anti-tumor and DNA
repair processes of warm blooded animals.
US6964784:
method of preparation and composition of a water soluble extract of the
bioactive component of the plant species Uncaria for enhancing immune,
anti-inflammatory, anti-tumor and DNA repair processes of warm blooded animals.
This patent is directed to administering the isolated purified active ingredient
of the composition claimed in the 6238675 patent as a quinic acid alkyl ester.
There
are
corresponding international patent filings for the above four patents. These
patents expire between 2016 and 2022.
Trademarks
We
own
the following seven registered trademarks:
·
"Time
Machine"
·
"Age
Manager"
·
"AC-11"
·
"Age
Manager Professional"
·
"Optigene-X"
·
"Optigene"
·
“CMed-100”
In
addition, we have a trademark application pending for the name "Activar" and
“Optigenexx”
Royalty
Agreements
In
connection with the November 2003 acquisition of assets from CampaMed LLC,
we
entered into a separate agreement with Pierre Apraxine, Christian Flood, Peter
Koepke and the Estate of John B. Elliott that obligates us to pay royalties
in
connection with the sale or licensing of any product that contains any compound,
substance or ingredient derived or isolated from the Uncaria tomentosa vine
such
as our proprietary product AC-11, or its predecessor C-MED-100 (collectively
referred to herein as "AC-11".) The maximum amount payable under this agreement
is $347,700. The royalties are based on sales, as defined in the agreement,
of
any product that we sell or license. The royalty payments are calculated as
follows: (i) 6% of gross sales for any product that we sell that contain AC-11
as an ingredient which includes our nutritional supplement products and (ii)
10%
of gross sales of bulk AC-11.
Also
in
connection with the November 2003 acquisition of assets from CampaMed LLC,
we
agreed to pay CampaMed additional payments based on 6% of the gross sales of
any
product containing AC-11, and 10% of the gross sales of any bulk AC-11, until
additional payments in an aggregate amount of $500,000 have been
made.
Competition
We
compete with companies engaged in the bulk ingredient, and personal care
markets. Most of our competitors if not all, have significantly greater
financial and human resources and have a longer operating history. In
considering our competitive position, we distinguish between our bulk ingredient
business, and skin care business.
The
bulk
ingredient business is dominated by well established market leaders including
AHD International, Schouten and Applied Food Science who market and sell a
multitude of ingredients, both proprietary and non-proprietary, through a number
of diverse channels. Our bulk ingredient business consists of our proprietary
product AC-11 and as such, we are dependent upon one product for all our sales.
In addition, we utilize a few distributors who market our ingredient to
nutracuetical and skin care manufacturers and marketers along with direct to
consumer retail marketing companies who use our ingredient in private branded
nutraceutical and skin care finished products.
In
our
skin care business, we expect to compete with offerings from large consumer
product companies including; Unilever and Procter & Gamble, as well as large
cosmetic companies such as Avon Products and Estee Lauder. Many of these
products are marketed and advertised as having benefits similar to our skin
care
products. We will also compete with numerous companies that market skin care
products via television infomercials. In addition we will compete with a number
of companies that currently sell skin care products that contain Uncaria
tomentosa as an ingredient. These companies include Joie de Vie, Murad and
Optimal Outcome.
The
Company’s ability to increase revenues is highly dependent upon its existing
customers successful marketing of AC-11® based products and the company making
further inroads licensing its technology to potential channel partners. In
addition, the company is focused on increasing its revenues and cash flows
by
expanding its marketing footprint through the development of new products in
the
personal care and wellness industries.
Employees
As
of
March 31, 2008, we had 1 full-time employee who serves as our Chief Executive
Officer and Chief Financial Officer.
Item
2.
Description
of Property
Our
executive offices are located at 1170 Valley Brook Avenue, 2
nd
Floor,
Suite B, Lyndhurst, New Jersey. We currently sublease approximately 2,000 square
feet of space on a month to month basis at a monthly rent of $5,325. Our
sublease expires on July 31, 2008.
Item
3.
Legal
Proceedings
We
are
not currently involved in any legal proceedings.
We
received a letter on April 10, 2008, listing a series of complaints on behalf
of
a former employee as follows:
|
1.
|
The
Company’s abandonment of patent application number 10/438,247 which names
the former employee as inventor.
|
|
2.
|
The
assertion that the Company is in breach of an exclusive license agreement
with the former employee and the
Company
owes certain royalties for products sold by claims made under US
patent
no. 5,895,652 and that the Company was
obligated
to pay maintenance fees on same.
|
We
believe that the claims are without merit and responded on May 6, 2008. We
maintain that the former employee filed the 10/438,247 patent application while
under an employment contract with us. We believe that the former employee
violated his employment agreement by filing the 10/438,247 patent in his name
without filing the proper assignment to Optigenex.
We
believe that the former employee is in breach of the aforementioned license
agreement for a series of violations including but not limited to;
|
|
a)
|
Failure
to communicate with us on outstanding office
actions.
|
|
|
b)
|
The
unauthorized marketing and sale of products by the former employee
through
his company Suracell.
|
|
|
c)
|
The
unauthorized sale and marketing of products containing AC-11® thus
infringing on our patents and trademarks through
Suracell.
|
Furthermore,
we have not sold any products that might be covered by any claims of US patent
no. 5,895,652.
Item
4.
Submission
of Matters to a Vote of Security Holders
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 2007.
PART
II
Item
5.
Market
for Common Equity and Related Stockholder Matters
Our
common stock has been quoted on the OTC Bulletin Board under the symbol
"OPGX.OB" since April 15, 2005.
The
following table shows the reported high and low closing bid quotations per
share
for our common stock based on information provided by the OTC Bulletin Board.
Such over-the-counter market quotations reflect inter-dealer prices, without
markup, markdown or commissions and may not necessarily represent actual
transactions or a liquid trading market
.
|
|
|
High
|
|
Low
|
|
|
First
Quarter ended March 31, 2006
|
|
$
|
0.80
|
|
$
|
0.13
|
|
|
Second
Quarter ended June 30, 2006
|
|
$
|
0.25
|
|
$
|
0.07
|
|
|
Third
Quarter ended September 30, 2006
|
|
$
|
0.10
|
|
$
|
0.07
|
|
|
Fourth
Quarter ended December 31, 2006
|
|
$
|
0.10
|
|
$
|
0.011
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter ended March 31, 2007
|
|
$
|
0.15
|
|
$
|
0.011
|
|
|
Second
Quarter ended June 30, 2007
|
|
$
|
0.06
|
|
$
|
0.015
|
|
|
Third
Quarter ended September 30, 2007
|
|
$
|
0.055
|
|
$
|
0.0022
|
|
|
Fourth
Quarter ended December 31, 2007
|
|
$
|
0.0062
|
|
$
|
0.0012
|
|
Holders
As
of
March 31, 2008, we had approximately 166 holders of record of our common stock.
Certain of our shares were held in street name and as such, we believe that
the
actual number of beneficial owners is higher.
Dividends
We
have
never declared or paid any cash dividends on our common stock. For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and we do not anticipate paying any cash
dividends on our common stock. Any future determination to pay dividends will
be
at the discretion of our board of directors and will be dependent upon then
existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects,
and other factors that our board of directors considers relevant.
Recent
Sales of Unregistered Securities
In
the
fourth quarter of the year ended December 31, 2007 we did not issue any
restricted securities.
Item
6.
Management's
Discussion and Analysis or Plan of Operation
The
following discussion should be read in conjunction with our consolidated
financial statements including the notes thereto contained in this report.
In
addition to historical information, the following discussion and other parts
of
this annual report contain forward-looking information that involves risks
and
uncertainties.
Cautionary
Note Regarding Forward Looking Statements
Certain
statements in this Annual Report on Form 10-KSB constitute forward-looking
statements for purposes of the securities laws. Forward-looking statements
include all statements that do not relate solely to the historical or current
facts, and can be identified by the use of forward looking words such as "may",
"believe", "will", "expect", "expected", "project", "anticipate", "anticipated",
"estimates", "plans", "strategy", "target", "prospects" or "continue". These
forward looking statements are based on the current plans and expectations
of
our management and are subject to a number of uncertainties and risks that
could
significantly affect our current plans and expectations, as well as future
results of operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. Such risks and uncertainties include those in this report on Form
10-KSB. In making these forward-looking statements, we claim the protection
of
the safe-harbor for forward-looking statements contained in the Private
Securities Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. We do not
assume any obligation to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors affecting
such forward-looking statements.
Overview
We
supply
bulk material
and
finished products
featuring
our
patented and wholly natural compound AC-11® (“AC-11”) as a core ingredient to
wholesale distributors, skin care and nutrace
u
tical
marketing companies. These companies create their own private labeled products
utilizing our compound and technology for the retail market
.
In
addition, we license our technology and trademark to third party marketers
and
manufacturers of skin care and
nutraceutical
products
.
The
decision to purchase our patented ingredient and license our technology is
driven in large part by the scientific and clinical evidence validating the
safety and efficacy of AC-11. In third party studies AC-11 has been shown to
repair damage to DNA due to multiple factors including; over exposure to the
sun, environmental pollution, stress and other toxins. In addition, AC-11 has
demonstrated effectiveness as an inhibitor of pro-inflammatory agents and as
an
immune system enhancer.
AC-11
is
a bioactive form of the medicinal herb known as
Uncaria
tomentosa
which is
indigenous to the Amazon rainforest and other tropical areas of South and
Central America. AC-11 is manufactured
using
our
specialized equipment and patented process
by the
Centroflora Group of Sao Paulo, Brazil,
to
deliver
a
unique
alkaloid
free, water soluble extract, standardized to an 8% carboxyl alkyl ester
concentration. This facility complies with worldwide, voluntary standards for
quality management
and Good
Manufacturing Practices
.
In
October of 2007 we discontinued our direct to consumer sales of Activar AC-11
oral nutritional supplements through our Internet website
www.AC-11.com
.
The
decision to cease sales through this channel was influenced by the exclusive
rights we granted to Solgar Herb and Vitamin to market AC-11 supplements to
the
retail market. We have no plans to re-introduce the Activar AC-11 oral
supplement through our Internet site in the near future.
We
sell
AC-11 as a bulk ingredient to companies in the
nutraceutical
,
cosmeceutical
,
skin
care and hair care industries. Although we have executed
bulk
ingredient supply
and
trademark license
agreements with
customers such as Itochu Corporation (Tokyo, Japan), Solgar Herb and Vitamin
Company and
Life
Extension, we continue to be highly dependent on a small base of customers
that
purchase bulk AC-11 as an ingredient and as such, these customers make purchases
from us only when required to do so in connection with their manufacturing
cycle
and market demand. We rely on independent commissioned sales people, consultants
and management to introduce us to prospective marketing partners and
customers.
We
have
developed
a
line of
proprietary topical skin care products which contain AC-11 as an active
ingredient.
C
onsist
ing
of a day
cream, night cream and eye cream
the
products
are
designed to repair damage to the skin
due
to
multiple
causes including; exposure to ultraviolet rays, stress and pollution while
enhancing skin elasticity, and reducing wrinkles and other visible signs of
aging.
Our
products
are
marketed
to
appeal to a targeted demographic audience which includes women ages 30 and
over.
These
skin
care
products are manufactured for us by Celmark, a division of Garden State
Nutritional
.
We
are
currently in discussions with wholesale marketing companies who may distribute
our manufactured skin care products to the retail consumer. Also, through our
partner Itochu Corporation Tokyo and on a direct basis, we are exploring
strategies to license our technology and trademark (AC-11®) for use in a variety
of skin care products containing our patented ingredient. We
plan
to
seek other wholesale channels of distribution for bulk AC-11
,
manufactured skin care
skin
care products
and our
technology
to
distribution
networks both domestically and in international markets.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us 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 the reported amounts of revenues and expenses during the
reporting periods. On an on-going basis, we evaluate our estimates, including
those related to collection of accounts receivable, inventory obsolescence,
sales returns and non-monetary transactions such as stock based compensation,
impairment of intangible assets and derivative liabilities related to
convertible notes payable. We base our estimates on historical experience and
on
other assumptions that are believed to be reasonable under the circumstances.
As
the number of variables and assumptions affecting the probable future resolution
of the uncertainties increase, these judgments become even more subjective
and
complex. Actual results may differ from these estimates.
We
have
identified the following critical accounting policies, described below, that
are
the most important to the portrayal of our current financial condition and
results of operations.
Accounts
Receivable and Bad Debt Expense
Accounts
receivable are reported at their outstanding unpaid principal balances net
of an
allowance for doubtful accounts. We estimate bad debt expense based upon past
experience related to specific customers' ability to pay and current economic
conditions. At December 31, 2007, our allowance for doubtful accounts was
approximately $27,000.
Inventory
Our
inventories are stated at the lower of cost, determined by the average cost
method, or market. Our inventories consist of raw materials that we purchase
from a sole supplier in Brazil and our proprietary compound known as AC-11
which
is manufactured in Brazil. We periodically review our inventories for evidence
of spoilage and/or obsolescence and we remove these items from inventory at
their carrying value. During 2007, we incurred inventory write-offs of
approximately $174,000 as follows: (i) $162,000 of obsolete inventory which
consisted of finished skin care products; (ii) $12,000 of bulk AC-11 which
was
damaged. An inventory valuation allowance is established when we determine
that
quantities of inventory items on hand may exceed projected demand prior to
the
expiration date of such inventory items. At December 31, 2007, we recorded
an
inventory allowance of approximately $161,000 related to the book value of
finished goods that we determined may not be sold prior to their respective
expiration dates. At December 31, 2007, our inventory valuation allowance is
$1,233,000.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, the product
has
been delivered, the rights and risks of ownership have passed to the customer,
the price is fixed and determinable, and collection of the resulting receivable
is reasonably assured. For arrangements that include customer acceptance
provisions, revenue is not recognized until the terms of acceptance are met.
For
our
nutritional supplements, we provide a 100% money back guarantee on all unopened
and undamaged products that are returned to us within 60 days of purchase.
We
estimate an allowance for product returns at the time of shipment based on
historical experience. In 2007, product returns were negligible. We monitor
our
estimates on an ongoing basis and we may revise our allowance for product
returns to reflect recent experience. To date, we have not made any significant
changes in our allowance for returns. Products returned as a result of damage
incurred during shipment are replaced at our cost. We do not estimate an
allowance for returns due to damage as historically the level of returns has
been negligible. For our bulk sales of AC-11, our standard return policy
provides for a reimbursement of the full purchase price for any bulk AC-11
that
does not conform with the stated specifications. We must receive notification
of
a return request within 30 days from the date that the customer accepts
delivery
Intangibles
We
account for long-lived assets and certain identified intangible assets such
as
patents and trademarks in accordance with Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
Management reviews these long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not
be recoverable. An asset is considered to be impaired when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value. We monitor our projections
of
expected future net cash flows on an ongoing basis. If we determine that our
projections require revision due to specific events such as a delayed product
launch or a change in our product mix, or changes in economic conditions, we
may
incur additional write-offs. We did not incur an impairment charge in 2007.
We
recorded an impairment charge of approximately $935,000 in 2006.
Derivative
Instrument Liabilities related to Convertible Notes and Warrants
In
connection with the sale of convertible notes and warrants on August 31, 2005,
October 17, 2005, February 17, 2006, September 15, 2006 and February 14, 2007,
we determined that in accordance with EITF No. 00-19, "Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled in, a Company's Own
Stock," and SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," that the conversion feature of the convertible notes represents
an
embedded derivative. As such, we are required to estimate the fair value of
the
embedded derivative and the warrants at of the end of each reporting period
and
these values are recorded as liabilities. We estimate fair value using the
Black-Scholes option pricing model. This model requires us to make estimates
such as the expected holding period, the expected future volatility of our
common stock and the risk-free rate of return over the holding period. These
estimates directly affect the reported amounts of the derivative instrument
liabilities.
Employee
Stock Options and Stock Based Compensation
Effective
January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, (“SFAS
123(R)”), which requires the measurement and recognition of compensation expense
for all share-based payment awards to employees and directors based on estimated
fair values. We adopted SFAS 123(R) using the modified prospective transition
method. Under this transition method, share-based compensation expense
recognized during 2006 included: (a) compensation expense for all
share-based awards granted prior to, but not yet vested, as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123, and (b) compensation expense for all share-based
awards granted on or after January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123(R). In accordance with
the modified prospective transition method, our consolidated financial
statements for prior periods have not been restated to reflect the impact of
SFAS 123(R).
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
RESULTS
OF OPERATIONS
For
the year ended December 31, 2007 compared to the year ended December 31,
2006.
Net
Sales
Our
net
sales are derived primarily from the sale of AC-11 as a bulk ingredient to
other
companies in the nutritional supplement and cosmeceutical industries who utilize
it in their own proprietary products. During 2006 and 2007, we also sold our
line of proprietary skin care products which contain AC-11 as a core ingredient
to domestic and international distributors. Currently we do not sell our skin
care products direct to consumers. In October 2007, we discontinued our direct
to consumer sales of our Activar AC-11 oral nutritional supplements through
our
Internet website. The decision to cease sales through this channel was
influenced by the exclusive rights we granted to Solgar Herb and Vitamin to
market their own proprietary AC-11 supplements to the retail market. We have
no
plans to re-introduce the Activar AC-11 oral supplement through our Internet
site in the near future.
Net
sales
for the year ended December 31, 2007 were $465,970 compared to net sales of
approximately $300,924 for the year ended December 31, 2006, an increase of
$165,046 or 54.8%. Our net sales by product category are summarized in the
following table:
|
|
|
|
|
|
|
$
|
|
%
|
|
|
|
|
2007
|
|
2006
|
|
Inc/(Dec)
|
|
Inc/(Dec)
|
|
|
Activar
AC-11
|
|
$
|
21,790
|
|
$
|
44,829
|
|
|
(23,039
|
)
|
|
(51.4
|
)%
|
|
Bulk
AC-11
|
|
|
381,843
|
|
|
163,100
|
|
|
218,743
|
|
|
134.1
|
%
|
|
Skin
Care Products
|
|
|
20,498
|
|
|
61,947
|
|
|
(41,449
|
)
|
|
(66.9
|
)%
|
|
License
Fee
|
|
|
39,960
|
|
|
—
|
|
|
39,960
|
|
|
NA
|
|
|
Other
|
|
|
1,879
|
|
|
31,048
|
|
|
(29,169
|
)
|
|
(93.9
|
)%
|
|
Total
Revenue
|
|
$
|
465,970
|
|
$
|
300,924
|
|
$
|
165,046
|
|
|
54.8
|
%
|
For
the
year ended December 31, 2007, sales of our nutritional supplement product
Activar AC-11 decreased $23,039 or 51.4% compared to the year ended December
31,
2006. This decrease was due to lower unit volume and not the result of a price
decrease or discounting.
For
the
year ended December 31, 2007, sales of bulk AC-11 increased $218,743 or 134.1%
compared to the year ended December 31, 2006. This increase was due primarily
to
sales made to new customers in 2007.
For
the
year ended December 31, 2007, sales of our skin care products decreased $41,449
or 66.9% compared to the year ended December 31, 2006. In 2006, we sold our
skin
care products via a TV infomercial which we discontinued during the third
quarter of 2006.
In
July
2007, we sold a two-year exclusive trademark license in exchange for an upfront
fee of $159,840. We recorded the upfront license fee as deferred income and
we
will amortize it to revenue in equal monthly amounts of $6,660 over the two-year
period of the license. During year ended December 31, 2007, the Company recorded
license fee revenue of $39,960. The balance of deferred income at December
31,
2007 was $119,880.
Other
sales consist primarily of sales that we made to our joint venture companies
PMO
Products and Prometheon Labs in 2006. Also included in other sales are royalties
that we earned from products sold by third parties that utilize our trademark
AC-11®. We did not make sales to these joint venture companies in 2007 as we
sold our joint venture interests in 2006
.
Cost
of Sales
Cost
of
sales includes direct and indirect costs associated with manufacturing AC-11
and
our line of nutritional supplement and skin care products that contain AC-11
as
an ingredient. Cost of sales was $568,936 and $1,515,688 for the years ended
December 31, 2007 and 2006, respectively. Included in cost of sales are
write-offs of obsolete inventory of approximately $174,000 and $280,000 in
2007
and 2006 respectively. Also included in cost of sales are inventory allowances
of $160,000 and $1,073,000 in 2007 and 2006, respectively, related to certain
inventory items which we determined may not be sold prior to the items
expiration date. As a result of the inventory write-offs and valuation
allowance, we incurred a gross loss of $102,966 in 2007 compared to a gross
loss
of $1,214,764 in 2006. Excluding the effect of the inventory write-offs and
valuation allowance, our gross profit would have been $231,034 or 49.6% in
2007
compared to $138,236 or 45.9%.
Selling,
General and Administrative Expenses
Selling,
general and administrative (SG&A) expenses include salaries, employee
benefits, marketing and advertising costs, professional fees related to
scientific research, legal and accounting fees, rent and other office related
expenses. Also included in SG&A are various non-cash expenses such as
depreciation, amortization of intangible assets including patents and other
intellectual property, and stock-based compensation.
The
table
below highlights the major components of our SG&A expenses:
|
|
|
Years
ended
December
31,
|
|
$
|
|
%
|
|
|
|
|
2007
|
|
2006
|
|
Inc/(Dec)
|
|
Inc/(Dec)
|
|
|
Employee
compensation and benefits
|
|
$
|
224,931
|
|
$
|
559,235
|
|
$
|
(334,304
|
)
|
|
(59.8
|
)%
|
|
Marketing,
advertising and promotion
|
|
|
197,114
|
|
|
507,326
|
|
|
(310,212
|
)
|
|
(61.2
|
)%
|
|
Research
and development
|
|
|
8,715
|
|
|
98,675
|
|
|
(89,960
|
)
|
|
(91.2
|
)%
|
|
Consulting
and other professional services
|
|
|
44,751
|
|
|
147,628
|
|
|
(102,877
|
)
|
|
(69.7
|
)%
|
|
Legal
and accounting
|
|
|
309,779
|
|
|
553,000
|
|
|
(243,221
|
)
|
|
(44.0
|
)%
|
|
General
and administrative
|
|
|
155,292
|
|
|
225,078
|
|
|
(69,786
|
)
|
|
(31.0
|
)%
|
|
Occupancy
|
|
|
99,776
|
|
|
153,680
|
|
|
(53,904
|
)
|
|
(35.1
|
)%
|
|
Stock
based compensation
|
|
|
—
|
|
|
213,175
|
|
|
(213,175
|
)
|
|
(100.0
|
)%
|
|
Depreciation
and amortization
|
|
|
247,511
|
|
|
294,731
|
|
|
(47,220
|
)
|
|
(16.0)
|
%
|
|
Total
SG&A
|
|
$
|
1,287,869
|
|
$
|
2,752,528
|
|
$
|
(1,464,659
|
)
|
|
(53.2)
|
%
|
In
total,
SG&A expenses decreased $1,464,659 or 53.2% from $2,752,528 for the year
ended December 31, 2007 to $1,287,869 for the comparable period in 2006. Areas
where we achieved significant cost savings are as follows:
|
|
·
|
Employee
compensation expense decreased $334,304 or 59.8% in 2007 compared
to 2006.
This decrease is due to a reduction in the number of full-time
employees.
|
|
|
·
|
Marketing,
advertising and promotion expenses decreased $310,212 or 61.2% in
2007
compared to 2006. During 2006, we incurred one time costs related
to the
production of our TV infomercial and the purchase of media
time.
|
|
|
·
|
Research
and development expenses decreased $89,960 or 91.2% in 2007 compared
to
2006. This decrease was due to higher product development costs and
higher
costs related to services provided by scientific advisors in 2006
compared
to 2007.
|
|
|
·
|
Consulting
and other professional services decreased $102,877 or 69.7% in 2007
compared to 2006. A majority of this decrease is due to the fact
that in
2006, we engaged the services of consultants in the areas of strategic
planning, mergers and acquisitions, investor relations and business
development. We terminated many of these relationships during
2007.
|
|
|
·
|
Legal
and accounting expenses decreased $243,221 or 44.0% in 2007 compared
to
2006. In 2006 we incurred one time costs related to (i) an accounting
system conversion and (ii) the filing of a Form SB-2 registration
statement with the SEC. We also incurred higher legal costs in 2006
related to the maintenance of our patent
portfolio.
|
|
|
·
|
We
incurred stock based compensation expense of $213,175 in 2006 related
to
stock options and equity awards issued to employees and consultants
pursuant to FASB 123R. We did not incur stock based compensation
during
2007.
|
Interest
Expense
Interest
expense for the year ended December 31, 2007 was $2,798,935 compared to
$9,968,557 in the comparable period in 2006. Of the total in 2007, $2,434,864
was non-cash interest expense resulting from the accounting treatment of our
convertible notes. The remaining $364,071 was interest due under the convertible
notes. As of December 31, 2007, we had not paid $584,062 of interest due under
our convertible notes. This amount was subsequently paid to the note holders
on
January 31, 2008 through the issuance of callable secured convertible
notes.
Impairment
of Intangible Assets
In
connection with an evaluation of the projected demand for the Company’s
products, management determined that certain patents related to these products
were not impaired at December 31, 2007. These patents cover the extraction,
manufacturing and testing processes for the Company’s proprietary compound
AC-11. Management’s determination that there was no impairment was based on an
analysis of the expected future net cash flows generated from the sale of
finished goods in inventory as of December 31, 2007. These finished goods
consisted of finished bulk AC-11 that the Company sells as an ingredient to
its
customer base. Management determined that the projected future net cash flows
generated from product sales was greater than the carrying value of the
underlying patents at December 31, 2007. A key assumption contained in
management’s analysis was the length of the projection period which was limited
to two years due to the fact that the bulk AC-11 currently in inventory will
reach its stated expiration date over this two year period. In addition,
management assumed that it would not manufacture and sell additional bulk AC-11
during the projection period. The sum of the expected future net cash flows
generated over the two year period was $1,169,794 which was approximately equal
to the net book value of the underlying patents at December 31, 2007, of
$1,175,309.
At
December 31, 2006, the Company performed a similar evaluation of the expected
future net cash flows generated from the sale of finished goods in inventory
as
of December 31, 2006. These finished goods consisted of the Company’s
nutritional supplement product, skin care products and finished bulk AC-11.
Management determined that the projected future net cash flows generated from
product sales was less than the carrying value of the underlying patents at
December 31, 2006. A key assumption contained in management’s analysis was the
length of the projection period, which was limited to three years due to the
fact that certain products held in inventory at December 31, 2006, would reach
their stated expiration date over the three year projection period. In addition,
management assumed that it would not manufacture and sell additional quantities
of products during the projection period. The sum of the expected future net
cash flows generated from sales over the three year period was $1,302,826,
which
was less than the net book value of the underlying patents at December 31,
2006
of $2,238,274. Accordingly, the Company recorded an impairment charge of
$935,448 at December 31, 2006.
Net
Change in Value of Common Stock Warrants and Embedded Derivative
Liability
We
are
required to measure the fair value of the warrants and the embedded conversion
feature related to our convertible notes on the date of each reporting period.
The effect of this re-measurement is to adjust the carrying value of the
liabilities related to the warrants and the embedded conversion feature.
Accordingly, during the year ended December 31, 2007, we recorded non-cash
other
income of $1,292,010 related to the decrease in the fair value of the warrants
and embedded derivative liability.
Net
Loss
Net
loss
for the year ended December 31, 2007 was $2,897,760 or $0.17 per share, compared
to a net loss of $7,357,459 or $0.68 for the year ended December 31,
2006.
LIQUIDITY
AND CAPITAL RESOURCES
Based
upon our recurring losses from operations, a stockholders’ deficit of
$25,822,860 as of December 31, 2007, our current rate of cash consumption and
the uncertainty of liquidity related initiatives described below, there is
substantial doubt as to our ability to continue as a going concern. Future
losses are likely to continue unless we successfully implement our business
plan. At December 31, 2007, we had cash of approximately $6,758 and a net
working capital deficit of $4,516,543. We have callable secured convertible
notes in the principal amounts of $1,064,768 and $1,350,000 that are due and
payable on August 31, 2008 and October 19, 2008, respectively.
On
January 31, 2008, we entered into three (3) callable secured convertible notes
with our existing note holders for the purpose of capitalizing interest owed
under all previously executed notes dated August 31, 2005, October 19, 2005,
February 14, 2006, September 15, 2006 and February 12, 2007. The aggregate
principal amount of the three notes is $584,062 which was equal to the aggregate
amount of interest owed to the note holders as of December 31, 2007. We did
not
receive any funds in connection with entering into these notes. The notes carry
an interest rate of 2% and a maturity date of January 31, 2011 and are
convertible into shares of our common stock at 60% (the “Applicable Percentage”)
multiplied by the average of the three lowest intra-day trading prices for
our
common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading
days preceding the conversion date. The full principal amount of the notes
is
due upon the occurrence of an event of default. Interest on the notes is paid
quarterly in arrears.
On
April
15, 2008, we entered into a Securities Purchase Agreement with our four existing
note holders for the sale of $155,000 in callable secured convertible notes
and
warrants to purchase 10,000,000 shares of our common stock. The notes bear
interest at 8% and mature on April 15, 2011. We are not required to make any
principal payments during the term of the notes. The notes are convertible
into
shares of our common stock at the note holders' option, at the lower of (i)
$0.10 per share or (ii) 45% (the “Applicable Percentage”) multiplied by the
average of the three lowest intra-day trading prices for our common stock as
quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding
the conversion date. The full principal amount of the notes is due upon the
occurrence of an event of default. Interest on the notes is paid quarterly
in
arrears.
The
warrants are exercisable for a period of seven years from the date of issuance
and have an exercise price of $0.001 per share. In addition, the conversion
price of the notes and the exercise price of the warrants will be adjusted
in
the event that we issue common stock at a price below the fixed conversion
price
of $0.001, with the exception of any shares of common stock issued in connection
with the notes. We have the right to prepay the entire outstanding balance
of
the notes under certain circumstances at premiums ranging from 35% to 50%.
We
also have the right to prepay a portion of the notes each month in an amount
equal to 104% of the then outstanding principal balance divided by 36, plus
one
month’s interest.
In
connection with entering into the notes on April 15, 2008, we also amended
all
previously executed notes with our existing note holders to reduce the
Applicable Percentage under such notes from 60% to 45%. The aforementioned
notes
were entered into on August 31, 2005, October 19, 2005, February 14, 2006,
September 15, 2006, February 12, 2007 and January 31, 2008.
As
a
result of this sale of additional notes, at April 30, 2008, we have an aggregate
of $5,254,526 of callable secured convertible notes outstanding, which may
hinder our ability to raise additional debt or equity capital. In addition,
we
have granted a security interest in substantially all of our assets to the
holders of the notes. If we were required to repay all or a portion of the
outstanding balance of the notes in cash due to the occurrence of an event
of
default, we would be required to raise additional funds in the event that we
do
not have sufficient cash available. There can be no assurance that any
additional financing will be available when needed, on commercially reasonable
terms or at all. If we were to seek asset based financing, we would need the
approval of the existing note holders which we may not receive. Any additional
equity financing may involve substantial dilution to our then existing
shareholders. Consequently, if we were unable to repay the notes, the note
holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.
We
plan
to seek other channels of wholesale distribution for our nutritional supplement
product, bulk AC-11 and proprietary skin care products such as multi-level
marketing organizations and other distribution networks both domestically and
in
certain international markets. Future sales generated from our products will
depend on numerous factors including the degree to which consumers' perceive
that these products offer superior benefits compared to other more established
brands. If consumers do not believe that our products offer benefits
commensurate with the purchase price, our sales may suffer.
We
maintain high levels of inventory relative to our historical product sales.
We intend to aggressively market our existing inventory of bulk AC-11 in order
to convert this inventory into cash. The shelf life of our bulk AC-11 is
approximately three years from the date of processing. In October 2006, we
began
testing certain lots of our existing inventory of bulk AC-11 using established
and accepted protocols to determine the stability of the active ingredient
and
its microbiology profile. We contracted with an independent laboratory to
perform these tests. Based on the results of this testing, we extended the
shelf
life of these specific lots for an additional 24 month period. As a result,
the
earliest expiration date for our inventory of bulk AC-11 is December 2008.
In
the event that future lots are retested and the test results indicate that
the
active ingredient and/or microbiology profile do not meet our specifications,
we
will be required to write-off the value of this inventory. We are unable to
predict the likelihood at this time of future write-offs related to our bulk
inventory however at December 31, 2007, we incurred an allowance for inventory
obsolescence of approximately $174,000 to reflect the uncertainty of being
able
to sell our existing inventory prior to its expiration.
Given
our
limited cash on hand, we have taken steps to decrease the amount of cash
required to fund our existing operations. We estimate that we will require
approximately $900,000 over the next twelve months or $75,000 per month to
fund
our existing operations. These costs include (i) compensation and healthcare
benefits for our full-time employee, (ii) compensation for consultants who
we
deem critical to our business, (iii) general office expenses including rent
and
utilities, (iv) insurance, (v) outside legal and accounting services and, (vi)
order fulfillment operations.
We
currently do not have the required cash on hand and therefore, we will be
relying on product sales to augment our existing cash. In addition, this
estimated “burn-rate” does not include costs related to (i) marketing and
advertising our products, (ii) cash needed to satisfy existing accounts payable,
(iii) research and new product development and; (iv) interest payable under
our
notes.
Item
7. Financial Statements
The
financial statements are included in this annual report on Form 10-KSB at page
F-1.
Index
to Financial Statements
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
Balance
Sheets as of December 31, 2007 and 2006
|
F-4
|
|
Statements
of Operations for the years ended December 31, 2007 and 2006.
|
F-5
|
|
Statement
of Changes in Shareholders’ Equity (Deficit) for the years ended December
31, 2007 and 2006
|
F-6
|
|
Statements
of Cash Flows for the years Ending December 31, 2007 and 2006
|
F-7
|
|
Notes
to Financial Statements
|
F-8
|
Item
8. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
Item
8A. Controls and Procedures
As
of the
end of the period covered by this report, an evaluation was carried out under
the supervision and with the participation of Daniel Zwiren, our Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of
our
disclosure controls and procedures. The system of disclosure controls and
procedures was designed to be effective at a reasonable assurance level. Based
on that evaluation, Mr. Zwiren has concluded that our disclosure controls and
procedures are effective at the reasonable assurance level to timely alert
him
of information required to be disclosed by us in reports that we file or submit
under the Securities Act of 1934. During the quarter ended December 31, 2007,
there were no changes in our internal controls over financial reporting that
have materially affected, or are reasonably likely to materially affect our
internal controls over financial reporting.
Item
8B. Other Information
None.
PART
III
Item
9. Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance; Compliance With Section 16(a) of the Exchange
Act.
The
following table sets forth certain information about each of our directors
and
our executive officer as of December 31, 2007:
|
Name
|
|
Age
|
|
Positions
|
|
Director
Since
|
|
William
Walters
|
|
70
|
|
Chairman
of the Board
|
|
2004
(1)
|
|
Daniel
Zwiren
|
|
52
|
|
President,
Chief Executive Officer and Chief Financial Officer
|
|
2008
(2)
|
|
Michael
Mullarkey
|
|
40
|
|
Director
|
|
2004
(3)
|
|
(1)
|
Mr.
Walters resigned as a Director of the Company on April 15,
2008.
|
|
(2)
|
Mr.
Zwiren was appointed as a Director of the Company on February 28,
2008.
|
|
(3)
|
Mr.
Mullarkey resigned as a Director of the Company on February 28,
2008.
|
William
Walters
was
appointed Chairman of our Board of Directors on July 30, 2004. Mr. Walters
was
previously the Chairman of the Board of Optigenex Inc. ("Old Optigenex") from
July 2002 until July 30, 2004, the date on which a subsidiary of Vibrant Health
International acquired the assets of Old Optigenex. From November 2001 until
October 2004, Mr. Walters was the Vice-Chairman of Sands Brothers & Co.
Ltd., a New York based investment banking group. From November 2005 to May
2005,
Mr. Walters was employed by Laidlaw Inc., a New York based investment banking
group. In June 2005, Mr. Walters became Chairman of Commonwealth Associates,
a
New York based investment banking group. Mr. Walters founded Whale Securities
in
1984 and served as its Chairman until Whale sold its customer assets and
discontinued its operations in November 2001.
Daniel
Zwiren
was
appointed as our Chief Financial Officer on May 13, 2006 and as our President
and Chief Executive Officer on September 14, 2006. From August 2004 to January
2006, Mr. Zwiren was Managing Director of Valued Ventures LLC an
advisory/capital procurement firm located in New York, New York specializing
in
the biotech and technology industries. From January 2003 to July 2004, Mr.
Zwiren served as a private equity advisor at UBS in New York, New York. From
January 2002 to January 2003, Mr. Zwiren was the Managing Partner of Osprey
Capital LLC, a capital procurement/advisory services company based in Ponte
Vedra Beach, Florida. From January 2000 to December 2000, Mr. Zwiren was
Executive V.P. of telic.net, an early stage Internet telephony service provider
located in New York, New York.
Michael
Mullarkey
was
appointed as a Director of our Company on October 1, 2004. Since November 2001,
he has been the Chairman of the Board of Directors of Workstream Inc., a company
that offers software and services that address the needs of companies to
recruit, train, evaluate, motivate and retain their employees and has been
Workstream's Chief Executive Officer since April 2001. In April 2003, Mr.
Mullarkey assumed the responsibilities of President of Workstream, a position
in
which he previously served from April 2001 until November 2001. From January
2001 to April 2001, Mr. Mullarkey was the President of Allen and Associates
Inc., a full service outplacement firm in the United States, which Workstream
acquired in April 2001. From October 1999 to December 2000, Mr. Mullarkey served
as General Manager of Sony Corporation. From January 1998 to September 1999,
Mr.
Mullarkey was the co-founder and managing director of Information Technology
Mergers & Acquisitions, LLC, an investment capital group managing private
equity funding and investing in emerging technology markets and organizations.
From March 1997 to December 1998, he was the Senior Vice President of sales
and
marketing for Allin Communications, a publicly traded enterprise solution
provider. From October 1989 to February 1997, Mr. Mullarkey was Vice President
and General Manager at Sony Corporation of America, a US subsidiary of Sony
Corporation.
Employment
Agreements with Management
None.
Compliance
With Section 16(a) of the Exchange Act
Section 16(a)
of the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who beneficially own more than 10% of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (“SEC”). Executive officers,
directors and greater than 10% stockholders are also required to furnish us
with
copies of all Section 16(a) forms they file. Based solely on our review of
the reports furnished to us, or written representations from certain reporting
persons, we believe that all filing requirements applicable to our executive
officers, directors and greater than ten percent beneficial owners were timely
made during the fiscal year ended December 31, 2007.
Board
Committees
We
do not
currently have an audit committee or a compensation committee. The full Board
acts in place of a nominating committee to investigate qualified nominees for
election to the Board when vacancies occur.
Code
of Ethics
In
November 2005 we adopted a code of ethics that applies to all of our employees
including our principal executive officer, principal financial officer and
principal accounting officer to our Board of Directors. We will provide to
any
person without charge, a copy of our code of ethics upon the receipt of a
written request sent to our headquarters at 1170 Valley Brook Avenue,
2
nd
Floor,
Suite B, Lyndhurst, NJ 07071.
Item
10. Executive Compensation
The
following table sets forth information with respect to compensation earned
by
the executive officers of the Company for 2007 and 2006.
SUMMARY
COMPENSATION TABLE
|
Name
and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option
Awards
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Zwiren, Chief Executive
|
|
|
2007
|
|
|
140,000
|
|
|
0
|
|
|
0
|
|
|
140,000
|
|
|
Officer
and
Chief Financial Officer (1)
|
|
|
2006
|
|
|
87,500
|
|
|
0
|
|
|
0
|
|
|
87,500
|
|
|
(1)
|
Mr.
Zwiren joined the Company as Chief Financial Officer on May 13, 2006
and
was appointed as Chief Executive Officer on September 14,
2006.
|
Grants
of Plan-Based Awards
We
did
not issue any stock options or other plan-based equity awards in
2007.
Director
Compensation
|
Name
|
|
Fees
Earned
or
Paid in
Cash
($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
William
Walters (1)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
Michael
Mullarkey (2)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(1)
|
Mr.
Walters resigned as a Director of the Company on April 15,
2008.
|
|
(2)
|
Mr.
Mullarkey resigned as a Director of the Company on February 28,
2008.
|
Item
11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
following table sets forth information as of March 31, 2008 regarding the
beneficial ownership of our Common Stock, based on information provided by
(i)
each of our executive officers and directors; (ii) all executive officers and
directors as a group; and (iii) each person who is known by us to beneficially
own more than 5% of the outstanding shares of our Common Stock.
Unless
otherwise indicated, the address of each beneficial owner is in care of
Optigenex Inc., 1170 Valley Brook Avenue, 2
nd
Floor,
Suite B, Lyndhurst, NJ 07071. Unless otherwise indicated, we believe that all
persons named in the following table have sole voting and investment power
with
respect to all shares of Common Stock that they beneficially own.
For
purposes of this table, a person is deemed to be a beneficial owner of the
securities if that person has the right to acquire such securities within 60
days of March 31, 2008 upon the exercise of options or warrants. In determining
the percentage ownership of the persons in the table below, we assumed in each
case that the person exercised all options and warrants which are currently
held
by that person and which are exercisable within such 60 day period, but that
options and warrants held by all other persons were not exercised, and based
the
percentage ownership on 66,533,776 shares outstanding on March 31,
2008.
|
Name
and Address of Beneficial Owner
|
|
Number of Shares (1)
|
|
Percent of Class (2)
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
Walters, Former Chairman of the Board
|
|
|
1,410,000
|
(3)
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Daniel
Zwiren, Chairman, Chief Executive Officer and Chief Financial
Officer
|
|
|
0
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a Group (2 persons)
|
|
|
1,410,000
|
|
|
2.1
|
%
|
*
less
than 1.0%
(1)
All
entries exclude beneficial ownership of shares issuable pursuant to options
that
have not vested or that are not otherwise exercisable as of the date hereof
and
which will not become vested or exercisable within 60 days of March 31,
2008.
(2)
Percentages
are based on 66,533,776 shares of common stock outstanding on March 31, 2008
and
are rounded to nearest one-tenth of one percent. Options that are presently
exercisable or exercisable within 60 days are deemed to be beneficially owned
by
the person holding the options for the purpose of computing the percentage
ownership of that person, but are not treated as outstanding for the purpose
of
computing the percentage of any other person.
(3)
Mr.
Walters resigned as a Director of the Company on April 15, 2008. Includes
options to purchase 400,000 shares of our common stock which are presently
exercisable.
Equity
Compensation Plan Information
The
following table sets forth certain information, as of December 31, 2007
concerning shares of common stock authorized for issuance under the Company’s
equity compensation plans.
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
(a)
|
|
(b)
|
|
for Future Issuance
|
|
|
|
|
Number of Securities
|
|
Weighted Average
|
|
Under Equity
|
|
|
|
|
to be Issued Upon
|
|
Exercise Price of
|
|
Compensation Plans
|
|
|
|
|
Exercise of
|
|
Outstanding
|
|
(Excluding Securities
|
|
|
|
|
Outstanding Options,
|
|
Options, Warrants
|
|
Reflected in
|
|
|
|
|
Warrants and Rights
|
|
and Rights
|
|
Column (a))
|
|
|
Equity
compensation plans approved by shareholders
|
|
|
325,000
|
|
$
|
1.15
|
|
|
4,675,000
|
|
|
Equity
compensation plans not approved by shareholders
|
|
|
1,339,605
|
|
$
|
2.31
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,664,605
|
|
$
|
2.08
|
|
|
4,675,000
|
|
In
July
2004, our shareholders approved the 2004 Stock Incentive Plan (the "Plan").
The
purpose of the Plan is to further the growth of Optigenex by allowing the
Company to compensate employees and consultants who have provided bona fide
services to the Company, through the award of Common Stock of the Company.
The
maximum number of shares of common stock that may be issued under the Plan
is
5,000,000.
The
Board
of Directors is responsible for the administration of the Plan and has full
authority to grant awards under the Plan. Awards may take the form of (i) Stock
Options, (ii) Restricted Stock, (iii) Deferred Stock, and/or (iv) Other
Stock-Based Awards. The Board of Directors has the authority to determine;
(a)
the employees and other persons that will receive awards under the Plan, (b)
the
number of shares covered by each award to be granted to each employee or other
person, and (c) the exercise price, term and vesting periods, if any, in
connection with the granting of an award.
Issuance
of Non-Plan Options during 2007
We
did
not issue any non-plan options in 2007.
Item
12. Certain Relationships and Related Transactions
During
the fiscal year ended December 31, 2006, we paid Dr. Kenji Kitatani, a former
director of our Company consulting fees totaling $39,000. These payments were
made pursuant to a consulting agreement between the Company and Dr. Kitatani
dated October 1, 2004. Dr. Kitatani provided business development services
to
the Company and was paid at a rate of $13,000 per month. Our agreement with
Dr.
Kitatani expired on September 30, 2005, however the Company extended the
agreement on a month to month basis until March 31, 2006. Dr. Kitatani resigned
as a director on May 8, 2006.
Item
13. Exhibits
|
Exhibit
|
|
|
|
No.
|
|
Title
|
|
|
|
|
|
2.1
|
|
Asset
Purchase Agreement dated as of July 30, 2004 by and among Vibrant
Health
International, Optigenex Acquisition Corp., Thomas H. McAdam and
Optigenex
Inc. (i)
|
|
|
|
|
|
2.2
|
|
Certificate
of Ownership and Merger of Vibrant Health International into Optigenex
Merger Inc. (i)
|
|
|
|
|
|
2.3
|
|
Asset
Purchase Agreement dated November 6, 2003 by and among Optigenex
Inc.
CampaMed LLC, the Pero Family Limited Partnership, Ronald W. Pero,
Michael
W. Moers, Gerald E. Morris, Oxigene, Inc., E. Gerald Kay, Allen Williams
and Anthony Worth (iv)
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Registrant - formerly known as Optigenex Merger
Inc.
(i)
|
|
|
|
|
|
3.2
|
|
By-laws
of Optigenex Inc. (i)
|
|
|
|
|
|
4.1
|
|
Form
of Callable Secured Convertible Note (v)
|
|
|
|
|
|
4.2
|
|
Form
of Stock Purchase Warrant (v)
|
|
|
|
|
|
10.1
|
|
Service
Agreement dated as of October 1, 2004 by and between Communications
Policy
and Management Corporation and Optigenex Inc. (ii)
|
|
|
|
|
|
10.2
|
|
Employment
Agreement dated as of April 10, 2003 by and between Kronogen Sciences
Inc.
(predecessor to Old Optigenex) and Richard Serbin.
(iii)
|
|
|
|
|
|
10.3
|
|
Employment
Agreement dated as of April 10, 2003 by and between Kronogen Sciences
Inc.
(predecessor to Old Optigenex) and William Walters.
(iii)
|
|
|
|
|
|
10.4
|
|
Employment
Agreement dated as of April 4, 2003 between Kronogen Sciences Inc.
(predecessor to Old Optigenex) and Dr. Vincent C. Giampapa.
(iii)
|
|
|
|
|
|
10.5
|
|
Employment
Agreement dated as of June 15, 2004 by and between Old Optigenex
and
Joseph W. McSherry. (iii)
|
|
|
|
|
|
10.6
|
|
Employment
Agreement dated as of August 16, 2004 by and between Optigenex Inc.
and
Anthony Bonelli. (iii)
|
|
|
|
|
|
10.7
|
|
Optigenex
Inc. 2004 Incentive Stock Plan (iii)
|
|
|
|
|
|
10.8
|
|
Securities
Purchase Agreement, dated August 31, 2005, by and among Optigenex,
Inc.,
AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC
and New
Millennium Capital Partners II, LLC. (v)
|
|
|
|
|
|
10.9
|
|
Registration
Rights Agreement, dated August 31, 2005, by and among Optigenex,
Inc., AJW
Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and
New
Millennium Capital Partners II, LLC. (v)
|
|
|
|
|
|
10.10
|
|
Security
Agreement, dated as of August 31, 2005, by and among Optigenex, Inc.,
AJW
Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and
New
Millennium Capital Partners II, LLC. (v)
|
|
|
|
|
|
10.11
|
|
Intellectual
Property Security Agreement, dated August 31, 2005, by and among
Optigenex, Inc., AJW Offshore, Ltd., AJW Qualified Partners, LLC,
AJW
Partners, LLC and New Millennium Capital Partners II, LLC.
(v)
|
|
|
|
|
|
10.12
|
|
Agreement
dated November 6, 2003 by and among Optigenex, Pierre Apraxine, Michael
L.K. Hwang as executor for the Estate of John B. Elliott, Anthony
Christian Flood and Peter Koepke (iv)
|
|
|
|
|
|
23.1
|
|
Consent
of Independent Registered Public Accountant (vi)
|
|
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (vi)
|
|
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (vi)
|
|
(i)
|
Incorporated
by reference to our Form 8-K filed on August 12, 2004.
|
|
(ii)
|
Incorporated
by reference to our Form 8-K filed on October 7, 2004.
|
|
(iii)
|
Incorporated
by reference to our Form 10-QSB filed on January 24, 2005.
|
|
(iv)
|
Incorporated
by reference to our Form 10-KSB filed on April 15,
2005.
|
|
(v)
|
Incorporated
by reference to our Form 8-K filed on September 7,
2005.
|
Item
14. Principal Accountant Fees and Services
The
following is a summary of the fees paid or accrued for the audit and other
services provided by our registered independent accounting firms for the fiscal
years ended December 31, 2007 and 2006.
|
|
|
2007
|
|
2006
|
|
|
Audit
Fees
|
|
$
|
53,350
|
(1)
|
$
|
82,000
|
(2)
|
|
Audit
- Related Fees
|
|
|
—
|
|
|
—
|
|
|
Tax
Fees
|
|
|
8,674
|
(3)
|
|
—
|
|
|
All
Other Fees
|
|
|
—
|
|
|
—
|
|
|
Audit
Fees
|
|
$
|
62,024
|
|
$
|
82,000
|
|
(1)
On
May 3, 2007, we retained Stark Winter Schenkein & Co., LLP (“Stark Winter”)
as our new registered independent accountants. All fees paid in 2007 were paid
to Stark Winter Schenkein.
(2)
The
firm of Goldstein Golub Kessler LLP (“GGK”) acted as our principal accountant
through May 1, 2007, at which time we dismissed GGK as reported on a Current
Report on Form 8-K filed on May 7, 2007. GGK had a continuing relationship
with
RSM McGladrey, Inc. (“RSM”), from which it leases auditing staff who are full
time, permanent employees of RSM and through which its partners provide
non-audit services. GGK has no full time employees and therefore, none of the
audit services performed were provided by permanent full-time employees of
GGK. GGK managed and supervised the audit and audit staff, and was
exclusively responsible for the opinion rendered in connection with this
examination.
(3)
We
incurred $8,674 of fees for tax compliance services provided by RMS McGladrey,
Inc.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
OPTIGENEX
INC.
|
|
|
|
/s/
Daniel Zwiren
|
|
Daniel
Zwiren
|
|
Chief
Executive Officer
|
Dated:
May 15, 2008
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Daniel Zwiren
|
|
Chairman
of the Board, Chief Executive Officer (Principal Executive
Officer)
|
|
May
15, 2008
|
|
Daniel
Zwiren
|
|
Chief
Financial Officer (Principal Financial and Accounting
Officer)
|
|
|
OPTIGENEX
INC.
INDEX
TO
FINANCIAL STATEMENTS
December
31, 2007
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-3
|
|
|
|
|
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheets
|
|
|
F-4
|
|
|
Statements
of Operations
|
|
|
F-5
|
|
|
Statement
of Stockholders' Equity (Deficiency)
|
|
|
F-6
|
|
|
Statements
of Cash Flows
|
|
|
F-7
|
|
|
Notes
to Financial Statements
|
|
|
F-8
|
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders
and Board of Directors
Optigenex,
Inc.
We
have
audited the accompanying balance sheet of Optigenex, Inc. as of December 31,
2007, and the related statements of operations, stockholders’ (deficiency) and
cash flows for the year ended December 31, 2007. These financial statements
are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Optigenex, Inc. as of December
31,
2007, and results of its operations and its cash flows for the year ended
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 18 to the financial
statements, the Company has incurred significant losses from operations and
has
working capital and stockholder deficiencies. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to this matter are also discussed in Note 18. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
Stark
Winter Schenkein & Co., LLP
/s/Stark
Winter Schenkein & Co., LLP
Denver,
Colorado
May
8,
2008
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Optigenex
Inc.
We
have
audited the accompanying balance sheet of Optigenex Inc. as of December 31,
2006, and the related statements of operations, stockholders' equity
(deficiency), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Optigenex Inc. as of December
31,
2006, and the results of its operations and its cash flows for the year then
ended in conformity with United States generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has suffered recurring losses
from
operations and has a stockholders deficiency which raises substantial doubt
about its ability to continue as a going concern. The financial statements
do
not include any adjustments that might result from the outcome of this
uncertainty.
As
discussed in Note 1 to the financial statements, effective January 1, 2006,
the Company changed its method of accounting for share-based payments to adopt
Statements of Financial Accounting Standards No. 123(R) Share-Based Payments.
/S/
Goldstein Golub Kessler LLP
GOLDSTEIN
GOLUB KESSLER LLP
New
York,
New York
April
13,
2007
OPTIGENEX
INC.
BALANCE
SHEETS
December
31,
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,758
|
|
$
|
153,153
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $27,426 in
2007 and
2006
|
|
|
10,882
|
|
|
34,510
|
|
|
Inventories,
net
|
|
|
468,774
|
|
|
916,645
|
|
|
Prepaid
expenses and other current assets
|
|
|
16,541
|
|
|
56,396
|
|
|
Total
current assets
|
|
|
502,955
|
|
|
1,160,704
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
19,868
|
|
|
70,023
|
|
|
Intangible
assets, net
|
|
|
1,325,859
|
|
|
1,479,815
|
|
|
Other
assets
|
|
|
39,608
|
|
|
114,183
|
|
|
Total
Assets
|
|
$
|
1,888,290
|
|
$
|
2,824,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
340,949
|
|
$
|
248,565
|
|
|
Accrued
expenses
|
|
|
45,000
|
|
|
272,855
|
|
|
Current
portion of callable secured convertible notes
|
|
|
4,513,669
|
|
|
-
|
|
|
Deferred
income
|
|
|
119,880
|
|
|
-
|
|
|
Total
current liabilities
|
|
|
5,019,498
|
|
|
521,420
|
|
|
|
|
|
|
|
|
|
|
|
Callable
secured convertible notes including embedded derivative
liability
|
|
|
4,427,067
|
|
|
6,152,065
|
|
|
Common
stock warrants
|
|
|
124,054
|
|
|
1,001,047
|
|
|
Total
liabilities
|
|
|
9,570,619
|
|
|
7,674,532
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficiency:
|
|
|
|
|
|
|
|
|
Preferred
stock – $0.001 par value; 5,000,000 shares authorized, none
issued
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock – $0.001 par value; 100,000,000 shares authorized, 52,212,067 and
10,958,736 issued and outstanding respectively
|
|
|
52,212
|
|
|
10,959
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
18,088,319
|
|
|
18,064,334
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(25,822,860
|
)
|
|
(22,925,100
|
)
|
|
Total
stockholders' deficiency
|
|
|
(7,682,329
|
)
|
|
(4,849,807
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
1,888,290
|
|
$
|
2,824,725
|
|
See
Notes
to Financial Statements
OPTIGENEX
INC.
STATEMENTS
OF OPERATIONS
Years
Ended December 31,
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
465,970
|
|
$
|
300,924
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
568,936
|
|
|
1,515,688
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(102,966
|
)
|
|
(1,214,764
|
)
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
1,287,869
|
|
|
2,752,528
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
of intangible assets
|
|
|
–
|
|
|
935,448
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,390,835
|
)
|
|
(4,902,740
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
2,798,935
|
|
|
9,968,557
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in loss from joint ventures
|
|
|
–
|
|
|
18,145
|
|
|
|
|
|
|
|
|
|
|
|
Net
(income)due to change in fair value common stock warrants and derivative
liability
|
|
|
(1,292,010
|
)
|
|
(7,531,983
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,897,760
|
)
|
$
|
(7,357,459
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share – basic and diluted
|
|
$
|
(0.17
|
)
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding – basic and diluted
|
|
|
17,066,532
|
|
|
10,784,159
|
|
See
Notes
to Financial Statements
OPTIGENEX
INC.
STATEMENT
OF STOCKHOLDERS’ DEFICIENCY
For
the
Years Ended December 31, 2006 and 2007
|
|
|
|
|
|
|
Additional
|
|
|
|
Stockholders'
|
|
|
|
|
|
|
|
|
Paid-in
|
|
Accumulated
|
|
Equity
|
|
|
|
|
Number of Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
10,450,234
|
|
$
|
10,450
|
|
$
|
17,797,247
|
|
$
|
(15,567,641
|
)
|
$
|
2,240,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options to consultants
|
|
|
-
|
|
|
-
|
|
|
17,500
|
|
|
-
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of options to employees
|
|
|
-
|
|
|
-
|
|
|
182,675
|
|
|
-
|
|
|
182,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock for services
|
|
|
100,000
|
|
|
100
|
|
|
12,900
|
|
|
-
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes into shares of common stock
|
|
|
408,502
|
|
|
409
|
|
|
54,012
|
|
|
-
|
|
|
54,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,357,459
|
)
|
|
(7,357,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
10,958,736
|
|
|
10,959
|
|
|
18,064,334
|
|
|
(22,925,100
|
)
|
|
(4,849,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes into shares of common stock
|
|
|
41,253,331
|
|
|
41,253
|
|
|
23,985
|
|
|
|
|
|
65,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,897,760
|
)
|
|
(2,897,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
52,212,067
|
|
$
|
52,212
|
|
$
|
18,088,319
|
|
$
|
(25,822,860
|
)
|
$
|
(7,682,329
|
)
|
See
Notes
to Financial Statements
OPTIGENEX
INC.
STATEMENTS
OF CASH FLOWS
Years
Ended December 31,
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,897,760
|
)
|
$
|
(7,357,459
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
50,155
|
|
|
46,811
|
|
|
Amortization
of intangibles
|
|
|
153,956
|
|
|
207,348
|
|
|
Amortization
of debt discount
|
|
|
1,572,364
|
|
|
1,255,036
|
|
|
Amortization
of deferred financing costs
|
|
|
43,400
|
|
|
40,572
|
|
|
Reserve
for obsolete inventory
|
|
|
160,378
|
|
|
1,072,622
|
|
|
Bad
debt expense (recovery)
|
|
|
-
|
|
|
(10,000
|
)
|
|
Stock-based
compensation
|
|
|
-
|
|
|
213,175
|
|
|
Non-cash
financing costs
|
|
|
862,500
|
|
|
8,406,927
|
|
|
Impairment
of intangible assets
|
|
|
-
|
|
|
935,448
|
|
|
Equity
in loss from joint ventures
|
|
|
-
|
|
|
36,145
|
|
|
Net
income from change in value of warrants and embedded derivative
liability
|
|
|
(1,292,010
|
)
|
|
(7,531,983
|
)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
23,628
|
|
|
69,735
|
|
|
Decrease
in inventories
|
|
|
287,493
|
|
|
14,511
|
|
|
Decrease
in prepaid expenses and other current assets
|
|
|
39,855
|
|
|
64,259
|
|
|
Decrease
in other assets
|
|
|
31,175
|
|
|
50,000
|
|
|
Increase
(decrease) in accounts payable
|
|
|
92,384
|
|
|
(194,614
|
)
|
|
Increase
in accrued expenses
|
|
|
356,207
|
|
|
200,315
|
|
|
Increase
(decrease) in deferred income
|
|
|
119,880
|
|
|
(22,036
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(396,395
|
)
|
|
(2,503,188
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Patent
costs
|
|
|
-
|
|
|
(44,034
|
)
|
|
Proceeds
from sale of joint venture interest
|
|
|
-
|
|
|
6,841
|
|
|
Investment
in joint venture
|
|
|
-
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
-
|
|
|
(42,193
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from the sale of convertible notes
|
|
|
250,000
|
|
|
1,865,000
|
|
|
Deferred
financing costs
|
|
|
-
|
|
|
(20,200
|
)
|
|
Repayment
of convertible notes
|
|
|
-
|
|
|
(115,555
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
250,000
|
|
|
1,729,245
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(146,395
|
)
|
|
(816,136
|
)
|
|
Cash
– beginning of year
|
|
|
153,153
|
|
|
969,289
|
|
|
Cash
– end of year
|
|
$
|
6,758
|
|
$
|
153,153
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
205,123
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
discount in connection with recording value of embedded derivative
liability
|
|
$
|
250,000
|
|
$
|
1,865,000
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of convertible note proceeds to warrants
|
|
$
|
800,000
|
|
$
|
8,021,094
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with conversion of convertible
notes
|
|
$
|
65,238
|
|
$
|
54,421
|
|
See
Notes
to Financial Statements
OPTIGENEX
INC.
NOTES
TO
FINANCIAL STATEMENTS
December
31, 2007 and 2006
1.
PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Optigenex
Inc. (the "Company") is engaged in the business of developing and marketing
proprietary products based on its patented compound known as AC-11.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimated
by
management.
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company maintains cash in
bank
deposit accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses on these accounts.
Accounts
receivable are reported at their outstanding unpaid principal balances reduced
by an allowance for doubtful accounts. The Company estimates doubtful accounts
based on historical bad debts, factors related to specific customers' ability
to
pay and current economic trends. The Company writes off accounts receivable
against the allowance when a balance is determined to be
uncollectible.
Inventories
are stated at the lower of cost, determined by the average cost method, or
market. Inventories consists of (i) raw materials that are purchased from a
sole
supplier in Brazil and (ii) the Company’s proprietary compound known as AC-11
which is manufactured in Brazil. The Company periodically reviews its
inventories for evidence of spoilage and/or obsolescence and removes these
items
from inventory at their carrying value. An inventory valuation allowance is
established when management determines that quantities on hand may exceed
projected demand prior to the expiration date of the inventory
item.
The
Company reviews long-lived assets for impairment whenever events or changes
in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An asset is considered to be impaired when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value. At December 31, 2007 and 2006,
management performed an evaluation of the carrying value of intangible assets,
which consist primarily of patents and patents pending that were acquired in
2003. This resulted in impairment charges of $935,448 in 2006. The Company
did
not incur an impairment charge in 2007.
Fair
value estimates discussed herein are based upon certain market assumptions
and
pertinent information available to management. The respective carrying value
of
certain on-balance-sheet financial instruments approximated their fair values.
These financial instruments include cash, accounts receivable, accounts payable
and accrued expenses. Fair values were assumed to approximate carrying values
for these financial instruments because they are short term in nature and their
carrying amounts approximate fair values. The carrying value of the Company’s
Callable Secured Convertible Notes approximated its fair value based on the
current market conditions for similar debt instruments.
Revenue
is recognized when persuasive evidence of an arrangement exists, the product
has
been delivered, the rights and risks of ownership have passed to the customer,
the price is fixed and determinable, and collection of the resulting receivable
is reasonably assured. For arrangements that include customer acceptance
provisions, revenue is not recognized until the terms of acceptance are met.
Reserves for sales returns and allowances are estimated and provided for at
the
time of shipment.
We
estimate an allowance for product returns at the time of shipment based on
historical experience. In 2007, product returns were negligible. We monitor
our
estimates on an ongoing basis and we may revise our allowance for product
returns to reflect recent experience. To date, we have not made any significant
changes in our allowance for returns. Products returned as a result of damage
incurred during shipment are replaced at our cost. We do not estimate an
allowance for returns due to damage as historically the level of returns has
been negligible. For our bulk sales of AC-11, our standard return policy
provides for a reimbursement of the full purchase price for any bulk AC-11
that
does not conform with the stated specifications. We must receive notification
of
a return request within 30 days from the date that the customer accepts
delivery
The
Company follows SFAS 109 "Accounting for Income Taxes" for recording the
provision for income taxes. Deferred tax assets and liabilities are computed
based upon the difference between the financial statement and income tax basis
of assets and liabilities using the enacted marginal tax rate applicable when
the related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets
to
the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes
in
the period of change.
Depreciation
of office and production equipment is provided for by the straight-line method
over the estimated useful lives of the related assets. Leasehold Improvements
are amortized over the shorter of the lease agreement or the useful lives of
the
related assets.
Shipping
costs are included in cost of sales and amounted to approximately $3,000 and
$7,159 for the years ended December 31, 2007 and 2006,
respectively.
Research
and development costs are expensed when incurred. Research and development
costs
were approximately $8,700 and $99,000 for the years ended December 31, 2007
and
2006, respectively.
Costs
incurred for producing and communicating advertising are expensed as incurred
and included in selling, general and administrative expenses in the accompanying
statement of operations. Advertising expenses were approximately $297,000 for
the year ended December 31, 2006. The Company did not incur any advertising
expenses in 2007.
Effective
January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment”, (“SFAS 123(R)”), which requires the measurement and recognition of
compensation expense for all share-based payment awards to employees and
directors based on estimated fair values. The Company adopted SFAS 123(R) using
the modified prospective transition method. Under this transition method,
share-based compensation expense recognized during the year
ended December 31, 2006 includes: (a) compensation expense for
all share-based awards granted prior to, but not yet vested, as of January
1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and (b) compensation expense for all
share-based awards granted on or after January 1, 2006, based on the grant
date
fair value estimated in accordance with the provisions of SFAS 123(R).
As
a
result of adopting SFAS 123R, the Company recorded pretax compensation expense
of $182,675 for the year ended December 31, 2006. Stock-based compensation
is
included in each expense category that includes salary expense. The Company
has
recorded a full valuation allowance on the deferred tax asset related to
stock-based compensation and therefore, no tax benefit is recognized for the
year ended December 31, 2006.
The
Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.
The
Company reviews the terms of convertible debt and equity instruments issued
to
determine whether there are embedded derivative instruments, including the
embedded conversion option, that are required to be bifurcated and accounted
for
separately as a derivative financial instrument. In circumstances where the
convertible instrument contains more than one embedded derivative instrument,
including the conversion option, that is required to be bifurcated, the
bifurcated derivative instruments are accounted for as a single, compound
derivative instrument. Also, in connection with the sale of convertible debt
and
equity instruments, the Company may issue freestanding options or warrants.
When
the ability to physical or net-share settle the conversion option or the
exercise of the freestanding options or warrants is deemed to be not within
the
control of the company, the embedded conversion option or freestanding options
or warrants may be required to be accounted for as a derivative financial
instrument liability.
The
Company may also issue options or warrants to non-employees in connection with
consulting or other services they provide.
Certain
instruments, including convertible debt and equity instruments and the
freestanding options and warrants issued in connection with those convertible
instruments, may be subject to registration rights agreements, which impose
penalties for failure to register the underlying common stock by a defined
date.
Derivative
financial instruments are initially measured at their fair value. For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at
each
reporting date, with changes in the fair value reported as charges or credits
to
income. For option-based derivative financial instruments, the Company uses
the
Black-Scholes option pricing model to value the derivative
instruments.
If
freestanding options or warrants were issued in connection with the issuance
of
convertible debt or equity instruments and will be accounted for as derivative
instrument liabilities (rather than as equity), the total proceeds received
are
first allocated to the fair value of those freestanding instruments. If the
freestanding options or warrants are to be accounted for as equity instruments,
the proceeds are allocated between the convertible instrument and those
derivative equity instruments, based on their relative fair values. When the
convertible debt or equity instruments contain embedded derivative instruments
that are to be bifurcated and accounted for as liabilities, the total proceeds
allocated to the convertible host instruments are first allocated to the fair
value of all the bifurcated derivative instruments. The remaining proceeds,
if
any, are then allocated to the convertible instruments themselves, usually
resulting in those instruments being recorded at a discount from their face
amount.
To
the
extent that the fair values of the freestanding and/or bifurcated derivative
instrument liabilities exceed the total proceeds received, an immediate charge
to income is recognized, in order to initially record the derivative instrument
liabilities at their fair value.
The
discount from the face value of the convertible debt, together with the stated
interest on the instrument, is amortized over the life of the instrument through
periodic charges to income, usually using the effective interest method.
The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed periodically,
including at the end of each reporting period. If re-classification is required,
the fair value of the derivative instrument, as of the determination date,
is
re-classified. Any previous charges or credits to income for changes in the
fair
value of the derivative instrument are not reversed. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based
on whether or not net-cash settlement of the derivative instrument could be
required within twelve months of the balance sheet date.
The
Company amortizes fees associated with obtaining debt instruments over the
term
of the related debt using the effective interest method. Deferred financing
fees
aggregated $34,283 and $77,683 at December 31, 2007 and 2006.
Recent
Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This
standard establishes a standard definition for fair value, establishes a
framework under generally accepted accounting principles for measuring fair
value and expands disclosure requirements for fair value measurements. This
standard is effective for financial statements issued for fiscal years beginning
after November 15, 2007. Adoption of this statement is not expected to have
any
material effect on our financial position or results of operations.
In
September 2006, the FASB issued Financial Accounting Standard No. 158,
Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statement Nos. 87, 88, 106, and 132(R), or FAS
158.
This Statement requires an employer that is a business entity and sponsors
one
or more single-employer defined benefit plans to (a) recognize the funded status
of a benefit plan—measured as the difference between plan assets at fair value
(with limited exceptions) and the benefit obligation—in its statement of
financial position; (b) recognize, as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net periodic benefit
cost pursuant to FAS 87, Employers’ Accounting for Pensions, or FAS 106,
Employers’ Accounting for Postretirement Benefits Other Than Pensions; (c)
measure defined benefit plan assets and obligations as of the date of the
employer’s fiscal year-end statement of financial position (with limited
exceptions); and (d) disclose in the notes to financial statements additional
information about certain effects on net periodic benefit cost for the next
fiscal year that arise from delayed recognition of the gains or losses, prior
service costs or credits, and transition assets or obligations. An employer
with
publicly traded equity securities is required to initially recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after December 15, 2006.
This statement has not had a significant effect on our financial
statements.
In
February 2007, the FASB issued Financial Accounting Standard No. 159 The Fair
Value Option for Financial Assets and Financial Liabilities—Including an
amendment of FASB Statement No. 115 or FAS 159. This Statement permits entities
to choose to measure many financial instruments and certain other items at
fair
value. Most of the provisions of this Statement apply only to entities that
elect the fair value option.
The
following are eligible items for the measurement option established by this
Statement:
1.
Recognized financial assets and financial liabilities except:
|
|
a.
|
An
investment in a subsidiary that the entity is required to
consolidate
|
|
|
b.
|
An
interest in a variable interest entity that the entity is required
to
consolidate
|
|
|
c.
|
Employers’
and plans’ obligations (or assets representing net overfunded positions)
for pension benefits, other postretirement benefits (including health
care
and life insurance benefits), post employment benefits, employee
stock
option and stock purchase plans, and other forms of deferred compensation
arrangements.
|
|
|
d.
|
Financial
assets and financial liabilities recognized under leases as defined
in
FASB Statement No. 13, Accounting for Leases.
|
|
|
e.
|
Deposit
liabilities, withdrawable on demand, of banks, savings and loan
associations, credit unions, and other similar depository
institutions
|
|
|
f.
|
Financial
instruments that are, in whole or in part, classified by the issuer
as a
component of shareholder’s equity (including “temporary equity”). An
example is a convertible debt security with a noncontingent beneficial
conversion feature.
|
2.
Firm
commitments that would otherwise not be recognized at inception and that involve
only financial instruments
3.
Nonfinancial insurance contracts and warranties that the insurer can settle
by
paying a third party to provide those goods or services
4.
Host
financial instruments resulting from separation of an embedded nonfinancial
derivative instrument from a nonfinancial hybrid instrument.
The
fair
value option:
1.
May be
applied instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method
2.
Is
irrevocable (unless a new election date occurs)
3.
Is
applied only to entire instruments and not to portions of
instruments.
The
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, provided the entity
also elects to apply the provisions of FASB Statement No. 157, Fair Value
Measurements. We have not yet determined what effect, if any, adoption of this
Statement will have on our financial position or results of
operations.
In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective as of the beginning of the Company’s fiscal year beginning
after December 15, 2008. The Company has not yet determined the impact, if
any,
of SFAS 160 on its consolidated financial statements.
In
June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”, an interpretation of SFAS No. 109. FINS 48
prescribes a comprehensive model for how companies should recognize, measure,
present and disclose uncertain tax positions taken or expected to be taken
on a
tax return. Under FIN 48, we shall initially recognize tax positions in the
financial statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. We shall initially and
subsequently measure such tax positions as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate settlement
with
the tax authority assuming full knowledge of the position and all relevant
facts. FIN 48 also revises disclosure requirements to include an annual tabular
roll-forward of unrecognized tax benefits. The Company has adopted this
interpretation as required in 2007 and has applied its provisions to all tax
positions upon initial adoption with any cumulative effect adjustment recognized
as an adjustment to retained earnings. Adoption of this statement did not have
any material effect on our financial position or results of
operations.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB 108 provides guidance
on
the consideration of the effects of prior year unadjusted errors in quantifying
current year misstatements for the purpose of a materiality assessment. Adoption
of this statement is not expected to have any material effect on our financial
position or results of operations.
In
December 2006, the FASB issued Staff Position FSP EITF 00-19-2, "Accounting
for
Registration Payment Arrangements". This statement is effective for existing
registration payment arrangements as of January 1, 2007, with earlier
application permitted in previously-unissued financial statements. As discussed
in Note 8 and as permitted by the FSP, we adopted the provisions of this FSP
in
our fourth quarter of 2006, resulting in re-classification of certain of our
outstanding warrants from derivative instrument liabilities to
equity.
2.
LOSS
PER SHARE:
Basic
loss per share is computed by dividing net loss by the weighted-average number
of shares of common stock outstanding during the period. Diluted earnings per
share gives effect to dilutive options, warrants and other potential common
stock outstanding during the period.
Potential
common stock consists of the following:
|
At
December 31,
|
|
2007
|
|
2006
|
|
|
Stock
options
|
|
|
1,664,605
|
|
|
1,664,605
|
|
|
Common
stock warrants
|
|
|
120,891,918
|
|
|
100,891,918
|
|
|
Common
stock issuable upon conversion of convertible notes (1)
|
|
|
6,291,369,444
|
|
|
482,780,444
|
|
|
Total
|
|
|
6,413,925,967
|
|
|
585,336,967
|
|
(1)
At
December 31, 2007 and 2006, the Company had Callable Secured Convertible Notes
outstanding of $4,529,786 and $4,345,024, respectively. The Notes are
convertible into shares of the Company's common stock at the Note Holders'
option, at the lower of (i) $3.20 per share or (ii) 60% of the average of the
three lowest intra-day trading prices for the common stock as quoted on the
Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion
date. At December 31, 2007 and 2006, the Notes would have been convertible
into
shares of the Company’s common stock at prices of $0.00072 and $0.009,
respectively. See Note 8 for a complete discussion of the Callable Secured
Convertible Notes. The Company does not currently have sufficient authorized
common shares to affect the exercise of the stock options or warrants or
conversion of the notes.
3.
INVENTORIES:
At
December 31, 2007 and 2006, inventories net of reserves, were as
follows:
|
|
|
2007
|
|
2006
|
|
|
Raw
materials
|
|
$
|
789,274
|
|
$
|
789,274
|
|
|
Finished
goods
|
|
|
912,500
|
|
|
1,199,993
|
|
|
Inventory
reserves
|
|
|
(1,233,000
|
)
|
|
(1,072,622
|
)
|
|
|
|
$
|
468,774
|
|
$
|
916,645
|
|
The
Company recorded inventory valuation allowances of $160,378 and $1,072,622
at
December 31, 2007 and 2006, respectively. These allowances relate to quantities
of raw materials and finished goods that management determined would not be
sold
prior to their respective expiration dates. The total inventory allowance of
$1,233,000 is equal to the book value of the inventory items at December 31,
2007, which was $691,355 for raw materials and $541,645 for finished goods.
During
2007, the Company incurred inventory write-offs totaling approximately $174,000
as follows:
(1)
Approximately $12,000 of finished bulk AC-11 powder that was damaged in
transit.
(2)
Approximately $162,000 of finished skin care products that it no longer intends
to sell.
During
2006, the Company incurred inventory write-offs totaling approximately $280,000
as follows:
(1)
Approximately $152,000 related to obsolete inventory which consisted of finished
nutritional supplements that reached their stated expiration date.
(2)
Approximately $77,000 of raw material inventory in connection with the
production of finished bulk AC-11 powder that did not conform to the Company’s
specifications.
(3)
Approximately $51,000 of obsolete packaging components for the Company’s skin
care and nutritional supplement products.
4.
PROPERTY AND EQUIPMENT:
Property
and equipment, at cost, consists of the following:
|
December
31,
|
|
2007
|
|
2006
|
|
Useful Life
|
|
|
Office
equipment
|
|
$
|
88,739
|
|
$
|
88,739
|
|
|
3
to 7 years
|
|
|
Leasehold
improvements
|
|
|
66,160
|
|
|
66,160
|
|
|
3
years
|
|
|
Production
equipment
|
|
|
47,550
|
|
|
47,550
|
|
|
3
to 7 years
|
|
|
|
|
|
202,449
|
|
|
202,449
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
(182,581
|
)
|
|
(132,426
|
)
|
|
|
|
|
|
|
$
|
19,868
|
|
$
|
70,023
|
|
|
|
|
5.
INTANGIBLE ASSETS:
Intangible
assets, at cost, consist of the following at December 31:
|
|
|
2007
|
|
2006
|
|
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
Trademarks,
trade names
and
copyrights
|
|
$
|
259,712
|
|
$
|
109,162
|
|
$
|
259,712
|
|
$
|
82,722
|
|
|
Patents
|
|
|
1,720,656
|
|
|
686,079
|
|
|
1,720,656
|
|
|
558,563
|
|
|
Patents
pending
|
|
|
140,732
|
|
|
-
|
|
|
140,732
|
|
|
-
|
|
|
|
|
$
|
2,121,100
|
|
$
|
795,241
|
|
$
|
2,121,100
|
|
$
|
641,285
|
|
The
Company's long-lived assets and certain identified intangible assets such as
patents, patents pending and trademarks are reviewed in accordance with
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142") whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable.
In
connection with an evaluation of the projected demand for the Company’s
products, management determined that certain patents related to these products
were not impaired at December 31, 2007. These patents cover the extraction,
manufacturing and testing processes for the Company’s proprietary compound
AC-11. Management’s determination that there was no impairment was based on an
analysis of the expected future net cash flows generated from the sale of
finished goods in inventory as of December 31, 2007. These finished goods
consisted of finished bulk AC-11 that the Company sells as an ingredient to
its
customer base. Management determined that the projected future net cash flows
generated from product sales was greater than the carrying value of the
underlying patents at December 31, 2007. A key assumption contained in
management’s analysis was the length of the projection period which was limited
to two years due to the fact that the bulk AC-11 currently in inventory will
reach its stated expiration date over this two year period. In addition,
management assumed that it would not manufacture and sell additional bulk AC-11
during the projection period. The sum of the expected future net cash flows
generated over the two year period was $1,169,794 which was approximately equal
to the net book value of the underlying patents at December 31, 2007, of
$1,175,309.
At
December 31, 2006, the Company performed a similar evaluation of the expected
future net cash flows generated from the sale of finished goods in inventory
as
of December 31, 2006. These finished goods consisted of the Company’s
nutritional supplement product, skin care products and finished bulk AC-11.
Management determined that the projected future net cash flows generated from
product sales was less than the carrying value of the underlying patents at
December 31, 2006. A key assumption contained in management’s analysis was the
length of the projection period, which was limited to three years due to the
fact that certain products held in inventory at December 31, 2006, would reach
their stated expiration date over the three year projection period. In addition,
management assumed that it would not manufacture and sell additional quantities
of products during the projection period. The sum of the expected future net
cash flows generated from sales over the three year period was $1,302,826,
which
was less than the net book value of the underlying patents at December 31,
2006
of $2,238,274. Accordingly, the Company recorded an impairment charge of
$935,448 at December 31, 2006.
Patents
are amortized over periods ranging from of 12 to 18 years, which represents
the
remaining lives of the patents. Patent pending applications will be amortized
when the patents are issued. Trademarks, trade names and copyrights are being
amortized over 10 years, the remaining estimated useful lives.
Amortization
expense amounted to approximately $154,000 and $207,000 for the years ended
December 31, 2007 and December 31, 2006, respectively. Estimated amortization
expense for the next five years is as follows:
Year
ending December 31,
|
2008
|
|
$
|
154,000
|
|
|
2009
|
|
$
|
154,000
|
|
|
2010
|
|
$
|
154,000
|
|
|
2011
|
|
$
|
154,000
|
|
|
2012
|
|
$
|
154,000
|
|
6.
ACCRUED EXPENSES:
Accrued
expenses consist of the following at December:
|
|
|
2007
|
|
2006
|
|
|
Accrued
professional fees
|
|
$
|
45,000
|
|
$
|
50,000
|
|
|
Accrued
interest
|
|
|
-
|
|
|
219,991
|
|
|
Other
|
|
|
-
|
|
|
2,864
|
|
|
|
|
$
|
45,000
|
|
$
|
272,855
|
|
7.
DEFERRED INCOME
In
July
2007, the Company sold a two-year exclusive license to a customer in exchange
for an upfront fee of $159,840. The entire amount of the license fee was
received as of September 30, 2007. The Company recorded the upfront license
fee
as deferred income and will amortize it to revenue in equal monthly amounts
of
$6,660 over the two year term of the license. During 2007, the Company recorded
license fee revenue of $39,960. The balance of deferred income at December
31,
2007 was $119,880.
8.
CALLABLE SECURED CONVERTIBLE NOTES AND COMMON STOCK WARRANTS
Between
August 31, 2005 and April 15, 2008, the Company entered into a series of seven
Securities Purchase Agreements with a group of four accredited investors (New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC, collectively the "Note Holders") for the sale of
an
aggregate of $5,504,062 of Callable Secured Convertible Notes (the "Convertible
Notes") and warrants to purchase up to 130,625,000 shares of its common stock
(the “Warrants”).
The
first
five tranches of the Convertible Notes, which were issued between August 31,
2005 and February 14, 2007, bear interest at 8% per annum. Tranche six, which
was issued on January 31, 2008 to settle all accrued interest of $584,062
outstanding as of December 31, 2007, bears interest at 2% per annum. Tranche
seven, which was issued on April 15, 2008 for $155,000, bears interest at 8%
per
annum. All notes mature three years from the date of issuance. The Company
is
not required to make any principal payments during the term of the Convertible
Notes. At December 31, 2007, tranche one has been partially converted by the
Note Holders.
The
Convertible Notes are convertible into shares of the Company's common stock
at
the Note Holders' option, at the lower of (i) a fixed price which, depending
on
the note, is between $0.10 and $3.20 per share or (ii) the “Applicable
Percentage” (60% for tranches one to six and 45% for tranche seven) of the
average of the three lowest intra-day trading prices for the common stock as
quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding
the conversion date. In connection with the issuance of tranche seven on April
15, 2008, the Applicable Percentage for tranches one to six was reduced to
45%.
As
of
December 31, 2007, the average of the three lowest intra-day trading prices
for
the common stock as quoted on the Over-the-Counter Bulletin Board for the 20
preceding trading days was $0.0012, resulting in an effective conversion price
at that date for the tranches outstanding at that date of $0.00072 per share.
During the three months and the year ended December 31, 2007, the Note Holders
converted a total of $40,423 and $65,238, respectively, of the Convertible
Notes
due August 31, 2008 into 35,893,293 and 41,253,331 shares, respectively, of
the
Company's common stock at conversion prices ranging from $0.0091 to $0.001
per
share.
The
Convertible Notes provide for certain Events of Default, which include
non-payment of principal and interest when due and failure to effect
registration of the common shares underlying conversion of the Convertible
Notes
and exercise of the Warrants, if and when required. If an Event of Default
occurs, the Holders may demand repayment at the greater of (a) 140% of the
“Default Sum”, being principal outstanding, together with accrued interest,
default interest due (if any) and registration penalties due (if any) or the
“parity value” of the Default Sum, where parity value means (a) the number of
shares of Common Stock issuable upon conversion of the Default Sum, treating
the
trading day immediately preceding the repayment date as the “conversion date”
for purposes of determining the applicable conversion price, multiplied by
(b)
the highest closing price for the Common Stock during the period beginning
on
the date of first occurrence of the Event of Default and ending one day prior
to
the repayment date.
If
the
Convertible Notes are not in default, the Company has the right to prepay the
Convertible Notes under certain circumstances at a premium ranging from 35%
to
50% of the principal amount, depending on the timing of such prepayment. The
Company has granted the Note Holders a security interest in substantially all
of
the Company's assets.
The
130,625,000 warrants issued (of which 120,625,000 were issued in connection
with
tranches one to five and 10,000,000 were issued on April 15, 2008 in connection
with tranche seven) are exercisable for a period of seven years from the date
of
issuance and have exercise prices that range from $0.001 per share to $4.50
per
share.
The
conversion price of the Convertible Notes and the exercise price of the warrants
will be adjusted in the event that the Company issues common stock at a price
below the initial fixed conversion or exercise price, with the exception of
any
shares of common stock issued in connection with the Convertible Notes. The
conversion price of the Convertible Notes and the exercise price of the warrants
may also be adjusted in certain circumstances such as if the Company pays a
stock dividend, subdivides or combines outstanding shares of common stock into
a
greater or lesser number of shares, or takes such other actions as would
otherwise result in dilution of the Note Holders' position.
The
Note
Holders have contractually agreed to restrict their ability to convert their
Notes or exercise their Warrants and receive shares of the Company's common
stock such that the number of shares of common stock held by the Note Holders
and their affiliates after such conversion or exercise does not exceed 4.99%
of
the then issued and outstanding shares of common stock.
The
Company has the right to prepay the entire outstanding balance of the notes
under certain circumstances at a premium of 50%. The Company also has the right
to prepay a portion of the notes (“Partial Call Option”) each month in an amount
equal to 104% of the then outstanding principal balance divided by 36, plus
one
month’s interest. The Company may only prepay the notes in the event that no
event of default exists, there are a sufficient number of shares available
for
conversion of the notes and the market price is at or below $3.20 per share.
This partial call option has the effect of preventing the Note Holders from
converting their notes into shares of the Company’s common stock in the
succeeding month.
As
of
December 31, 2007, the total amount of accrued but unpaid interest due under
the
Convertible Notes was $584,062. This amount was settled by the issuance of
additional Convertible Notes (tranche six) on January 31, 2008, and is included
in the carrying value of the Convertible Notes summarized below.
Pursuant
to Registration Rights Agreements entered into with the Note Holders, the
Company may be required to register for resale, within defined time periods,
the
shares underlying the Warrants and the shares issuable on conversion of the
Convertible Notes. The terms of the Registration Rights Agreements provide
that,
in the event that the required registration statements are not filed or do
not
become effective within the required time periods, the Company is required
to
pay to the Note Holders, as liquidated damages, an amount equal to 2% per month
of the principal amount of the Convertible Notes. This amount may be paid in
cash or, at the Company’s option, in shares of common stock priced at the
conversion price then in effect on the date of the payment. The estimated cost
of any such liquidated damages is accrued when the Company believes it is
probable they will be incurred. The required registration statement for tranches
one to three became effective on February 15, 2006. For tranches four to seven,
the Company is required to file a registration statement only if requested
by
the Note Holders. As of April 30, 2008, no request for registration has been
received from the Note Holders and, at December 31, 2007, no accrual for
liquidated damages has been made.
Because
the number of shares that may be required to be issued on conversion of the
Convertible Notes is dependent on the price of the Company’s common stock and is
therefore indeterminate, the embedded conversion option of the Convertible
Notes
and the Warrants are accounted for as derivative instrument liabilities (see
below) i
n
accordance with EITF Issue 00-19, "Accounting for Derivative Financial
Instruments Indexed To, and Potentially Settled In, a Company's Own Common
Stock" (EITF 00-19). Accordingly, the initial fair values of the embedded
conversion options and the Warrants were recorded as derivative instrument
liabilities. For option-based derivative instruments, the Company estimates
fair
value using the Black-Scholes valuation model, based on the market price of
the
common stock on the valuation date, an expected dividend yield of 0%, a
risk-free interest rate based on
constant
maturity rates published by the U.S. Federal Reserve applicable to the remaining
term of the instruments
,
and an
expected life equal to the remaining term of the instruments.
Because
of the limited historical trading period of our common stock, the expected
volatility of our common stock over the remaining life of the conversion options
and Warrants has been estimated based on a review of the volatility of companies
considered by management to be comparable to the Company.
The
Company is required to re-measure the fair value of these derivative instrument
liabilities at each reporting period.
The
Company calculated the fair value of the embedded conversion feature related
to
the $250,000 Convertible Notes issued on February 14, 2007 to be $312,500,
using
the Black-Scholes valuation model with the following assumptions: market price
of $0.04; exercise price of $0.024, risk free interest rate of 4.76%; expected
volatility of 111% and an expected life of 3 years. The Company calculated
the
fair value of the warrants issued on February 14, 2007 to be $800,000, using
the
Black-Scholes valuation model with the following assumptions: market price
of
$0.04; exercise price of $0.07; risk free interest rate of 4.76%; expected
volatility of 162% and an expected life of 7 years. Because the aggregate fair
values of the Warrants and the embedded conversion feature of $1,112,500
exceeded the principal amount of the notes by $862,500, this excess amount
was
charged directly to expense on February 14, 2007, and the Convertible Notes
were
initially recorded with no carrying value. The resulting discount from the
face
amount of the Convertible Notes is being amortized over their three year term
using the effective interest rate method.
A
summary
of the Callable Secured Convertible Notes at December 31, 2007, is as follows:
|
Issue Date
|
|
Due Date
|
|
Face Amount
|
|
Principal Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
08-31-2005
|
|
|
08-31-2008
|
|
$
|
1,300,000
|
|
$
|
1,064,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-19-2005
|
|
|
10-19-2008
|
|
|
1,350,000
|
|
|
1,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02-17-2006
|
|
|
02-17-2009
|
|
|
1,350,000
|
|
|
1,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09-15-2006
|
|
|
09-15-2009
|
|
|
515,000
|
|
|
515,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02-14-2007
|
|
|
02-14-2010
|
|
|
250,000
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,765,000
|
|
$
|
4,529,786
|
|
|
Less:
unamortized discount
|
|
|
|
|
(1,698,399
|
)
|
|
|
|
|
|
|
|
|
|
|
2,831,387
|
|
|
Add:
embedded derivative liability
|
|
5,525,287
|
|
|
Add:
accrued interest settled January 31, 2008 by issuance of additional
notes
|
|
584,062
|
|
|
|
|
|
|
|
|
|
|
|
8,940,736
|
|
|
Less:
current portion
|
|
(4,513,669
|
)
|
|
|
|
|
|
|
|
|
|
$
|
4,427,067
|
|
The
current portion represents the net carrying value of tranches one and two,
including the embedded derivative liability.
Re-measurement
of the fair value of common stock warrants
The
Company is required to re-measure the fair value of the Warrants at the end
of
each reporting period and adjust the carrying value of the liability related
to
the Warrants. Accordingly, the Company re-measured the fair value of the
120,625,000 Warrants outstanding at December 31, 2007, using the Black-Scholes
valuation model with the following assumptions: market price of common stock
on
the measurement date of $0.0014, exercise prices ranging from $0.07 to $4.50,
risk-free interest rates ranging from 3.07% to 3.58%, expected volatility
ranging from 125% to 162% and expected lives equal to the remaining term of
the
warrants, ranging from 2.6 to 5.9 years. This resulted in an aggregate fair
value for the 120,625,000 warrants of $124,054 at December 31, 2007. As a result
of this re-measurement, for the year ended December 31, 2007, the Company
recorded non-cash other income of $1,676,993 related to the re-measurement
of
the fair value of the Warrants.
Re-measurement
of the fair value of the embedded conversion feature
The
Company is required to re-measure the fair value of the embedded conversion
feature related to the outstanding Convertible Notes on the date of each
reporting period. The effect of this re-measurement is to adjust the carrying
value of the liability related to the embedded conversion feature. Accordingly,
the Company measured the fair value of the embedded conversion feature at
December 31, 2007, using the Black-Scholes valuation model with the following
assumptions: market price of common stock on the measurement date of $0.0014,
exercise price of $0.00072; risk-free interest rates ranging from 3.05% to
3.34%, expected volatility of 115% and expected lives ranging from 0.6 to 2.1
years. This resulted in an aggregate fair value for the embedded conversion
feature of $5,525,287 at December 31, 2007. As a result of this re-measurement,
the Company recorded non-cash other expense of $384,983 for the year ended
December 31, 2007.
In
total,
for the year ended December 31, 2007, the Company recorded non-cash other income
of $1,292,010 related to the net change in the fair value of the liabilities
related to the Warrants and embedded conversion feature.
9.
COMMITMENTS AND CONTINGENCIES:
From
time
to time, the Company conducts research and development activities to support
its
proprietary compound AC-11. The Company generally utilizes the services of
outside contractors such as physicians, scientists and academic institutions.
These outside contractors are compensated on an hourly or fixed price basis.
To
date, the Company has not entered into any research arrangements that require
it
to pay according to research and development milestones. At December 31, 2007,
the Company is not a party to any material research and development
agreement.
The
Company received a letter on April 10, 2008, listing a series of complaints
on
behalf of a former employee:
The
Company’s abandonment of patent application number 10/438,247 which names the
employee as inventor, the assertion that the company is in breach of an
exclusive license agreement with the employee and the company owes certain
royalties for products sold by claims made under US patent no. 5,895,652 and
that the company was obligated to pay maintenance fees on same.
The
company believes the claims are without merit and responded on May 6, 2008,
accordingly. The Company maintains that the employee filed the 247 patent
application while under an employment contract with the company. The company
believes that the employee violated his employment agreement by filing the
247
patent in his name without filing the proper assignment to
Optigenex.
The
company believes that the employee is in breach of the aforementioned license
agreement for a series of violations including but not limited to;
|
|
a)
|
Failure
to communicate with the company on outstanding office
actions
|
|
|
b)
|
The
unauthorized marketing and sale of products through his company
Suracell
|
|
|
c)
|
The
unauthorized sale and marketing of products containing AC-11® infringing
on the company’s patents and trademarks through
Suracell
|
Furthermore,
the company has not sold any products that might be covered by any claims of
US
patent no. 5,895,652.
10.
STOCKHOLDERS' DEFICIENCY:
During
2006, the holders of the Company’s Callable Secured Convertible Notes converted
an aggregate principal amount of $54,421 of their Notes into 408,502 shares
of
common stock at conversion prices ranging from $0.026 to $0.20 per
share.
In
May
2006, the Company issued 100,000 shares to its former law firm in exchange
for
services rendered. The fair market value of the shares on the date of issuance
was $0.13 and accordingly, the Company recorded stock based compensation expense
of $13,000 in connection with this transaction. These shares were issued
pursuant to an effective registration statement on Form S-8.
In
May
2006, the Company issued options to purchase an aggregate of 100,000 shares
of
its common stock to a consultant in exchange for services rendered. The options
have an exercise price of $0.30 per share and are exercisable for a period
of
three years from the dates of the grant. Of the total, 50,000 options vested
immediately and 50,000 vested in December 2006. The fair value of the option
of
$6,000 has been included in selling, general and administrative expenses for
the
year ended December 31, 2006. The fair value of the option grant was estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions: expected volatility 100%; risk-free interest rate of
5.0%; expected life of 3 years; and no expected dividends.
During
2007, the holders of the Company’s Callable Secured Convertible Notes converted
an aggregate principal amount of $65,238 of their Notes into 41,253,331 shares
of common stock at conversion prices ranging from $0.0091 to $0.001 per
share.
11.
STOCK
OPTION PLANS:
In
July
2004, the Board of Directors and then sole stockholder of the Company adopted
the 2004 Stock Incentive Plan, pursuant to which 5,000,000 shares of common
stock have been reserved for issuance. The plan provides for grants of incentive
stock options, non-qualified stock options and shares of common stock to
employees, non-employee directors and others. In the case of an incentive stock
option, the exercise price cannot be less than the fair market value of the
Company's common stock on the date of grant. Vesting schedules for options
and
stock awards and certain other conditions are to be determined by the Board
of
Directors or a committee appointed by the Board of Directors.
The
fair
value of each option award is estimated on the date of each option grant using
the Black-Scholes option valuation model using the assumptions noted in the
following table. Because the Company’s common stock has only traded publicly
since April 2005, the expected volatility for was estimated based on a sampling
of similar size companies. The Company has limited history by which to estimate
the expected holding period of the options, and therefore, has estimated that
the expected holding period for all stock options granted is equal to the
contractual life of the option. As a result of the adoption of FASB 123R, the
Company recorded stock based compensation expense related to employee and
consultant stock options of $200,175 for the year ended December 31, 2006.
The
Company did not issue any stock options in 2007.
The
following table summarizes the assumptions used for options granted during
the
years ended December 31, 2007 and 2006.
|
|
|
Year Ended December 31,
|
|
|
|
|
2007(i)
|
|
2006
|
|
|
Expected
life (in years)
|
|
|
NA
|
|
|
3-5
|
|
|
Risk-free
interest rate
|
|
|
NA
|
|
|
4.66-5.20
%
|
|
|
Volatility
|
|
|
NA
|
|
|
100%
|
|
|
Dividend
yield
|
|
|
NA
|
|
|
None
|
|
(i)
The
Company did not issue any stock options in 2007.
On
March
1, 2006, the Board of Directors of the Company approved the following stock
option issuances:
|
|
|
Quantity
|
|
Exercise Price
|
|
Vesting
|
|
|
Anthony
Bonelli
|
|
|
500,000
|
|
$
|
0.13
|
|
|
Immediately
|
|
|
(President
and
|
|
|
250,000
|
|
$
|
1.00
|
|
|
February 28, 2007
|
|
|
Chief
Executive Officer)
|
|
|
250,000
|
|
$
|
1.00
|
|
|
February 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
McSherry
|
|
|
300,000
|
|
$
|
0.13
|
|
|
Immediately
|
|
|
(Chief
Financial Officer)
|
|
|
100,000
|
|
$
|
1.00
|
|
|
February
28, 2007
|
|
|
|
|
|
100,000
|
|
$
|
1.00
|
|
|
February
28, 2008
|
|
In
connection with his voluntary resignation on May 13, 2006, Mr. McSherry
forfeited all of his outstanding options including options to purchase 300,000
shares which were issued to him in August 2004.
In
connection with his voluntary resignation on August 23, 2006, Mr. Bonelli
forfeited all of his outstanding options including options to purchase 250,000
shares which were issued to him in August 2004 and options to purchase 300,000
shares which were issued to him in February 2005.
A
summary
of the status of the Company's options as of December 31, 2007 is presented
below:
|
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at January
1, 2006
|
|
|
3,301,605
|
|
$
|
2.73
|
|
|
|
|
|
Granted
|
|
|
1,600,000
|
|
$
|
0.52
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3,237,000
|
)
|
$
|
1.79
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
1,664,605
|
|
$
|
2.44
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
1,664,605
|
|
$
|
2.44
|
|
$
|
4.00
|
|
|
Options
exercisable at December 31, 2007
|
|
|
1,664,605
|
|
$
|
2.44
|
|
$
|
4.00
|
|
A
summary
of the status of the Company’s non-vested stock options as of December 31, 2007,
and of changes during the year ended December 31, 2007, is presented
below:
|
|
|
Number
of
Options
|
|
Weighted
Average
Option Price
|
|
|
Non-vested
at December 31, 2006
|
|
|
—
|
|
|
NA
|
|
|
Granted
|
|
|
—
|
|
|
NA
|
|
|
Vested
|
|
|
—
|
|
|
NA
|
|
|
Forfeited/Cancelled
|
|
|
—
|
|
|
NA
|
|
|
Outstanding
at December 31, 2007
|
|
|
—
|
|
|
NA
|
|
The
Company did not issue any stock options during the year ended December 31,
2007.
The weighted-average grant date fair value of options granted during the years
ended December 31, 2006 was $0.08.
The
following table summarizes information for options currently outstanding and
exercisable at December 31, 2007:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
Range of
Exercise Prices
|
|
Shares
Underlying
Options
|
|
Weighted-
Average
Remaining
Life
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
Underlying
Options
|
|
Weighted-
Average
Exercise
Price
|
|
|
$
|
0.001
|
|
|
9,210
|
|
|
.91
years
|
|
$
|
0.001
|
|
|
9,210
|
|
$
|
0.001
|
|
|
$
|
0.01
|
|
|
16,000
|
|
|
1.75
years
|
|
|
0.01
|
|
|
16,000
|
|
|
0.01
|
|
|
$
|
0.30
|
|
|
100,000
|
|
|
1.40
years
|
|
|
0.30
|
|
|
100,000
|
|
|
0.01
|
|
|
$
|
1.00
|
|
|
165,000
|
|
|
.01
years
|
|
|
1.00
|
|
|
165,000
|
|
|
1.00
|
|
|
$
|
2.00
|
|
|
259,395
|
|
|
.08
years
|
|
|
2.00
|
|
|
259,395
|
|
|
2.00
|
|
|
$
|
3.00
|
|
|
1,115,000
|
|
|
1.67
years
|
|
|
3.00
|
|
|
1,115,000
|
|
|
3.00
|
|
|
$
|
0.001-$3.00
|
|
|
1,664,605
|
|
|
1.24
years
|
|
$
|
2.44
|
|
|
1,664,605
|
|
$
|
2.44
|
|
The
table
below summarizes warrants outstanding as of December 31, 2007 and
2006:
|
|
|
Exercise
|
|
Shares Underlying
Warrants Outstanding
as of December 31,
|
|
|
Expiration Date
|
|
Price
|
|
|
2007
|
|
|
2006
|
|
|
May 2009
|
|
$
|
3.30
|
|
|
16,667
|
|
|
16,667
|
|
|
June
2009
|
|
$
|
3.30
|
|
|
89,667
|
|
|
89,667
|
|
|
July
2009
|
|
$
|
3.30
|
|
|
5,334
|
|
|
5,334
|
|
|
March
2010
|
|
$
|
3.00
|
|
|
66,786
|
|
|
66,786
|
|
|
June
2010
|
|
$
|
3.00
|
|
|
30,664
|
|
|
30,664
|
|
|
July
2010
|
|
$
|
3.00
|
|
|
57,800
|
|
|
57,800
|
|
|
August
2010
|
|
$
|
4.50
|
|
|
203,124
|
|
|
203,124
|
|
|
October
2010
|
|
$
|
4.50
|
|
|
210,938
|
|
|
210,938
|
|
|
February
2011
|
|
$
|
4.50
|
|
|
210,938
|
|
|
210,938
|
|
|
September
2013
|
|
$
|
0.10
|
|
|
100,000,000
|
|
|
100,000,000
|
|
|
February
2014
|
|
$
|
0.07
|
|
|
20,000,000
|
|
|
—
|
|
|
|
|
|
|
|
|
120,891,918
|
|
|
100,891,918
|
|
12.
INCOME TAXES
The
Company has net operating loss carry-forwards of approximately $16,785,000
available to offset taxable income through the year 2028.
The
tax
effects of loss carry-forwards and the valuation allowance that give rise to
deferred tax assets are as follows:
|
Net
operating losses
|
|
$
|
5,707,000
|
|
|
Temporary
book/tax difference related to:
|
|
|
|
|
|
Impairment
of intangible assets
|
|
|
1,238,000
|
|
|
Non
employee stock based compensation
|
|
|
270,000
|
|
|
Inventory
allowance
|
|
|
419,000
|
|
|
|
|
|
7,634,000
|
|
|
Less
valuation allowance
|
|
|
(7,634,000
|
)
|
|
Deferred
tax assets
|
|
$
|
-0-
|
|
The
difference between income taxes computed at the statutory federal rate of 34%
and the benefit for income taxes relates to the following:
|
December
31,
|
|
2007
|
|
2006
|
|
|
Tax
benefit at the federal statutory rate
|
|
|
34
|
%
|
|
34
|
%
|
|
Valuation
allowance
|
|
|
(34
|
)%
|
|
(34
|
)%
|
|
|
|
|
-0-
|
%
|
|
-0-
|
%
|
The
principal difference between the operating loss for tax purposes and the
reported operating loss results principally from stock compensation and the
accounting treatment of derivatives. The use of the operating loss may be
limited by any change of control of the Company.
13.
RELATED PARTY TRANSACTIONS:
The
following are related party transactions:
|
Year
ended December 31,
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Consulting
fees paid to a director of the Company (a)
|
|
|
—
|
|
$
|
39,000
|
|
(a)
This
director resigned on May 8, 2006.
At
December 31, 2006, 44% of accounts receivable or approximately $27,000 was
due
from a company whose significant stockholder was also a 5% stockholder of the
Company on such date. This account receivable is still past due as of December
31, 2007, and there is substantial doubt that the full amount of the receivable
will be paid. Accordingly, the Company has reserved the entire balance of the
account receivable of $27,000.
14.
ROYALTY AGREEMENTS:
In
connection with the November 2003 acquisition of assets from CampaMed LLC,
the
Company entered into a separate agreement with a group of four individuals
which
obligated the Company to pay royalties in connection with the sale or licensing
of any product that contains any compound, substance or ingredient derived
or
isolated from the Uncaria tomentosa vine such as its proprietary product AC-11,
or its predecessor C-MED-100 (collectively referred to as "AC-11".) The maximum
amount payable under this agreement is $347,700. The royalties are based on
sales, as defined in the agreement, of any product that we sell or license.
The
royalty payments are calculated as follows: (i) 6% of gross sales for any
products that contain AC-11 as an ingredient which includes the Company’s
nutritional supplement products and (ii) 10% of gross sales of bulk AC-11.
As of
December 31, 2007, total royalties under this agreement were $111,964 however
of
this total, the Company has not paid $49,403. Prior to January 1, 2007, these
royalty payments were recorded as additional purchase cost as they were
incurred. Beginning on January 1, 2007, these royalty payments are expensed
as
they are incurred. The total remaining royalty obligation under the agreement
as
of December 31, 2007 is $235,736 and the agreement remains in effect until
this
amount is paid.
Also
in
connection with the November 2003 acquisition of assets from CampaMed LLC,
the
Company agreed to pay CampaMed LLC additional payments based on 6% of the gross
sales of any product containing AC-11, and 10% of the gross sales of any bulk
AC-11, until such additional payments in an aggregate amount of $500,000 have
been made. As of December 31, 2007, total royalties under this agreement were
$111,964 however of this total, the Company has not paid $49,403. Prior to
January 1, 2007, these royalty payments were recorded as additional purchase
cost as they were incurred. Beginning on January 1, 2007, these royalty payments
are expensed as they are incurred. The total remaining royalty obligation under
the agreement as of December 31, 2007, is $388,036 and the agreement remains
in
effect until this amount is paid.
Additionally,
in connection with the CampaMed acquisition, the Company has assumed a royalty
obligation based on sales of certain products using the Thiol or Nicoplex
Technology. The maximum amount of royalties due is $3,500,000 and will be paid
based on product sales, as defined in the agreement. Currently, the Company
is
not marketing these products and it is not required to make any payments under
the agreement, other than payments based on product sales.
15.
SIGNIFICANT CUSTOMERS:
In
2007,
the Company’s three largest customers accounted for 36.3%, 17.1% and 10% of
total sales and the Company’s five largest customers accounted for an aggregate
of 74.0% of total sales.
In
2006,
the Company’s two largest customers accounted for 10.2% and 10.0% of total sales
and the Company’s five largest customers accounted for an aggregate of 41.1% of
total sales. At December 31, 2006, the Company’s largest customer accounted for
an aggregate of 16.4% of accounts receivable and the Company’s five largest
customers accounted for an aggregate of 32.2% of total accounts
receivable.
16.
SIGNIFICANT SUPPLIER:
The
Company purchases 100% of the raw material for its products from a single
supplier located in Brazil. In addition, the Company's proprietary manufacturing
and processing equipment is located in a warehouse that is owned by this
supplier. The Company is not contractually obligated to make minimum purchases
from this supplier.
17.
JOINT
VENTURES:
PMO
Products Inc.
In
November 2004, the Company entered into a joint venture with the two principals
of Pierre Michel Salon, a leading New York City based hair salon to develop
and
market a line of professional hair care products that contain AC-11 as an
ingredient. The Company contributed $25,000 in cash for a 50% ownership interest
in a newly formed corporation named PMO Products Inc., a New York corporation
("PMO"). In August 2005, PMO began selling these products exclusively to the
Pierre Michel Salon in New York City.
The
Company accounted for its investment in PMO under the equity method. Since
inception in November 2004 and through August 31, 2006, PMO incurred a total
net
loss of $36,318 of which the Company’s 50% share was $18,159.
On
August
31, 2006, the Company and PMO entered into an agreement whereby PMO purchased
the Company’s 50% ownership interest in exchange for $6,841 in cash. The
purchase price represented the net book value of the Company’s investment in PMO
as of such date. The parties also entered into a seven-year Supply Licensing
Agreement with PMO which allows PMO to utilize the Company’s registered
trademark AC-11® for the sale of hair-care products in North America, South
America and Japan. PMO granted the Company a seven-year trademark license to
use
its trademark “RepHair, by Pierre Michel” for hair-care products sold in Europe,
all of Asia (except Japan) and Australia.
Since
inception in November 2004 and through August 31, 2006, the Company sold
approximately $26,000 of products to PMO. The Company recorded as deferred
income, the profit from any sales it made to PMO until such time that the
products were resold by PMO to an independent third party. At August 31, 2006,
deferred income related to product sales made to PMO was $7,837. In connection
with the sale of its ownership interest in PMO on such date, the Company
reclassified the remaining deferred income of $7,837 to revenue as it no longer
had any rights to the remaining inventory of PMO.
Prometheon
Labs LLC
In
September 2005, the Company contributed $40,000 in cash for a 50% ownership
interest in Prometheon Labs LLC, (“Prometheon”) a New York limited liability
company which was formed for the purpose of developing and marketing an oral
nutritional supplement containing the Company’s ingredient AC-11. The Company’s
joint venture partner Prometheon Holding LLC, contributed $40,000 in cash for
its 50% ownership interest in Prometheon. In June 2006, the Company and
Prometheon Holding each advanced an additional $5,000 in cash to Prometheon
for
working capital purposes.
The
Company accounted for its investment in Prometheon under the equity method.
Since inception in September 2005 through November 30, 2006, Prometheon incurred
a total net loss of $125,600 of which the Company’s 50% share was $62,800
however the Company only recorded losses totaling $45,000 which represented
the
entire amount of its investment.
On
November 19, 2006, the Company and its joint venture partner Prometheon Holding
entered into an agreement whereby Prometheon Holding purchased the Company’s 50%
ownership interest in Prometheon in exchange for $18,000 in cash. The purchase
price exceeded the net book value of the Company’s investment in Prometheon
which on November 30, 2006, the date of closing of the transaction, was $0.
The
parties also entered into a five-year Supply and Trademark Licensing Agreement
which allows Prometheon to continue to develop and market oral nutritional
supplement products containing AC-11.
Since
inception in September 2005 and through November 30, 2006, the Company sold
approximately $27,000 of products to Prometheon. The Company recorded as
deferred income, the profit from any sales it made to Prometheon until such
time
that the products were resold by Prometheon to an independent third party.
At
November 30, 2006, deferred income related to sales made to Prometheon was
$5,253 and in connection with the sale of its ownership interest in Prometheon
on such date, the Company reclassified the remaining deferred income of to
revenue as it no longer had any rights to the remaining inventory of
Prometheon.
18.
GOING
CONCERN:
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has suffered recurring losses
from
operations aggregating $25,822,860 and has working capital and stockholders’
deficiencies of $4,516,543 and $7,682,329 which raises substantial doubt about
its ability to continue as a going concern. In the event that the Company’s
operations do not generate sufficient cash flow in the future, the Company
will
need to obtain additional debt or equity capital. There can be no assurances
that the Company will be successful in raising additional debt or equity capital
on terms acceptable to the Company or at all. The accompanying financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
19.
SUBSEQUENT EVENTS (UNAUDITED):
In
January 2008, the holders of the Company’s Callable Secured Convertible
Debentures converted the principal amount of $14,322 into 14,321,709 shares
of
the Company’s common stock.
On
January 31, 2008, the Company entered into three (3) Callable Secured
Convertible Notes (the “Notes”) with its existing note holders for the purpose
of capitalizing interest owed under all previously executed notes dated August
31, 2005, October 19, 2005, February 14, 2006, September 15, 2006 and February
12, 2007. The aggregate principal amount of the three Notes is $584,062 which
was equal to the aggregate amount of interest owed to the Investors as of
December 31, 2007. The Company did not receive any funds in connection with
entering into these Notes. The Notes carry an interest rate of 2% and a maturity
date of January 31, 2011. The Notes are convertible into shares of the Company’s
common stock at 60% of the average of the three lowest intra-day trading prices
for the Company’s common stock as quoted on the Over-the-Counter Bulletin Board
for the 20 trading days preceding the conversion date.
On
April
15, 2008, the Company entered into four (4) Callable Secured Convertible Notes
(the “Notes”) with its existing note holders for working capital purposes. The
aggregate principal amount of these notes was $155,000. The Notes carry an
interest rate of 8% per annum and mature on April 15, 2011. At the election
of
the note holder, the Notes are convertible into shares of the Company’s common
stock at the lesser of (i) $3.20 or (ii) 45% of the average of the three lowest
intra-day trading prices for the Company’s common stock as quoted on the
Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion
date. The Company also granted the note holders warrants to purchase 10,000,000
shares of the Company’s common stock at an exercise price of $0.001. The
warrants expire seven years from the date of issuance.
Simultaneously
on April 15, 2008, the Company amended all previously executed Notes with its
note holders to reduce the Applicable Percentage under such Notes from 60%
to
45%. The aforementioned notes were entered into on August 31, 2005, October
19,
2005, February 14, 2006, September 15, 2006, February 12, 2007 and January
31,
2008.
Optigenex (CE) (USOTC:OPGX)
과거 데이터 주식 차트
부터 5월(5) 2024 으로 6월(6) 2024
Optigenex (CE) (USOTC:OPGX)
과거 데이터 주식 차트
부터 6월(6) 2023 으로 6월(6) 2024
