<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
GENELINK, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
PENNSYLVANIA 23-2795613
------------ -------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 S. Thurlow Street
Margate, New Jersey 08402
- -------------------------------------- ----------
Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER: (609) 823-6991
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT: NOT APPLICABLE
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT: COMMON STOCK, $.01
PAR VALUE
<PAGE> 2
PART I
GeneLink, Inc. (the "Company") is including the following cautionary
statement to make applicable and take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies,
expectations, future events or performance and underlying assumptions and other
statements which are other than statements of historical facts. Certain
statements contained herein are forward- looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: the ability
of the Company to maintain its rights in its intellectual property; the ability
of the Company to obtain acceptable forms and amounts of financing to fund
planned expansion and operations, technology development, marketing and other
efforts; and the market for its products and services. The Company has no
obligation to update or revise these forward-looking statements to reflect the
occurrence of future events or circumstances.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL BACKGROUND
The Company was organized to offer to the public the safe collection
and preservation of a family's DNA material for later use by the family to
identify and potentially prevent inherited diseases. The Company is the
successor by merger to a Delaware corporation organized under the same name in
September, 1994. Prior to the merger, which occurred in February, 1995, the
predecessor entity engaged in no operations.
The Company was founded in response to the explosion of information
being generated in the field of human molecular genetics. Scientists are
discovering an increasing number of connections between genes and specific
diseases. These findings are a direct result of the National Institutes of
Health Genome Project, which has as its goal the total mapping of the human
genome by the year 2005. Doctors and scientists have known for years that many
individuals and their family members are predisposed to certain diseases. This
inherited disposition is contained within DNA. DNA, the hereditary material of
life, is contained in all of the genes which make up who we are. If one of these
genes is defective it can cause disease. There are more than 100,000 genes in
the human body, all of which are in charge of the transmission of hereditary
characteristics. More than 4,500 diseases are genetically based.
The ability to diagnose genetic disease has greatly expanded over the
past ten years. In decades past, once a family member becomes deceased, the
opportunity to know whether living family members have inherited defective genes
was lost forever. Future generations could not benefit from the DNA store of
knowledge. For this reason, the Company has created a DNA banking service which
stores one's genes through the collection and preservation of pure DNA. This DNA
can be used to establish whether or not the disease or disorder that caused
death was genetic in origin. As researchers continue to identify diseases linked
to defective genes, living family members can use the
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stored DNA to discover if they are at risk for certain diseases such as cancer.
DNA banking shifts the emphasis from diagnosis and treatment, to disease
prediction and prevention. It allows future generations to access their family
genetic history.
THE PRODUCT
The Company has developed a DNA Collection Kit(TM) for the collection
of DNA specimens of its clients. No licensing or training is necessary for the
collection by the client of his or her DNA specimen. The collection process,
which uses six swabs, is self administered and non-invasive and takes less than
five minutes to complete. The client forwards the swabs to the University of
North Texas Health Science Center (the "Health Science Center") and completes
and forwards a data form to the Company. Specimens can be collected during an
individual's lifetime or up to 36 to 40 hours after death.
The Health Science Center will store the DNA specimen for 25 year
intervals. Upon the client's request, and upon the payment of a retrieval fee,
the stored DNA specimen can be retrieved and sent to a laboratory for testing.
More than one test can be made on the same DNA specimen.
AFFILIATES
The Company has an agreement with the Health Science Center through
March 2006 for the storage of the genetic material obtained using the Company's
DNA Collection Kit(TM). The Company has established procedures with the Health
Science Center whereby the Health Science Center will receive a sample in an
envelope enclosed with the kit. The Health Science Center will then analyze the
sample to determine the quantity and quality of the DNA to insure that enough
genetic material is present, extract and store the pure DNA in a frozen state.
The samples are stored in freezers (at minus 20 degrees centigrade) solely used
for the purpose of DNA storage.
The Health Science Center has build an international reputation for DNA
expertise since the opening of its state-of-the-art DNA/Identity Laboratory (the
"Laboratory") in 1990. Today, the Laboratory is the premier paternity testing
site for the state of Texas as well as a growing resource for genetic testing. A
recent expansion of the facility, the DNA Systems Laboratory, has broadened
DNA-based analysis capabilities to include PCR typing, which provides rapid and
reliable testing for infectious diseases.
The Health Science Center is a multidisciplinary center that has been a
state institution since 1975 under the governance of the same state-appointed
Board of Regents that directs the University of North Texas (UNT) in Denton,
Texas. UNT, founded in 1890 and now the state's fourth largest university, is an
emerging national research institution. The two institutions collaborate on a
variety of biomedical research, social service and health care programs.
The Health Science Center charges the Company for each DNA sample
stored. The Company has advanced $13,600 against such fees. In addition, the
Health Science Center charges the Company fees for the retrieval and shipping of
stored DNA specimens upon the request of the Company's clients. The Company
charges its clients a fee per retrieval request.
MARKETING
Since its inception, the Company has considered a number of
alternatives for the marketing of its DNA collection kits. Because of its
limited financial resources and the size of its staff, the Company has elected
to concentrate its marketing activities in the funeral home or death-care
industry.
The Company's strategy in capturing the death-care industry is to reach the
individual funeral home locations, whether corporate-owned or independently
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operated, through its own servicing representatives. The Company is developing a
sales force to individually service each participating funeral home and cemetery
location. The Company's marketing representatives work hand-in-hand with the
funeral home staff to educate, train, service and sell the benefits of the
Company's products.
Historically, the death-care industry has consisted of thousands of
individual family-owned businesses, each owning a single facility, which in most
cases has been passed from one generation to the next. This trend of ownership
started changing in the late 60's. The trend toward corporate-owned funeral
homes has mushroomed all across the United Stated and Canada. Each year, more
and more market share is gained by corporate entities through acquisitions of
independent funeral home operators. The major corporations are Service
Corporation International, The Loewen Group, Stewart Enterprises, Inc., Prime
Succession, Inc., Carriage Services, and Keystone, Inc.
As the competition increases in the death-care industry to capture
market share, the need for unique marketing techniques is apparent. The
traditional lead generating approach for the funeral home and cemetery has been
telemarketing and/or door to door surveys. Typically a funeral home discount is
offered or a free cemetery space given away as a door-opener. These worn-out
approaches have left the funeral home operator and cemetery owner searching for
new creative techniques in lead generation that add value to the communities in
which they serve. The Company offers the funeral home operator and cemetery
owner the fresh new approach they desperately need in capturing market share.
The last chance to gather a person's DNA is at the time of death. The
funeral director, as part of his routine at-need sales process, raises the
Company enrollment opportunity and seeks approval from the family for the
collection of the DNA of the deceased. Once the trauma of the funeral is over
and several weeks have passed, the funeral director, armed with the Company's
DNA Bank Certificate, can easily visit the family and seek additional sales of
both the Company and funeral pre-need services.
The basic strategy of the Company in capturing the death-care market is
to reach the individual funeral home locations, whether corporate-owned or
independently operated, through our own servicing representatives. Much like
other vendors supplying the death-care industry (vault companies, casket
companies, funeral home supply companies, etc.), the Company will develop a
sales force to individually service each participating funeral home/cemetery
location. Our marketing representatives will work hand-in-hand with the funeral
home staff to educate, train, service, and sell the benefits of the Company's
products.
The Company has an existing relationship with a national corporate
funeral entity with 143 funeral homes and 22 cemeteries which will give the
Company the opportunity to cultivate and refine all aspects of the sales
process. Additionally, this relationship will provide the initial area of
concentration for the development of the Company's sales force. Once success is
met within this limited target market, the company will be poised and ready to
cultivate further relationships with other funeral/cemetery corporate entities.
The Company plans to capture 2,000 funeral homes with at-need and
pre-need sales averaging 3 sales per month.
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GOVERNMENT REGULATION
The Food and Drug Administration has determined that the Company's kit
is a device, but is not actively regulated. However, future regulations could
result in the kit becoming a regulated device.
INTELLECTUAL PROPERTY
The Company has filed a patent application on its method of DNA
gathering, which patent application is pending. The Company has received
trademark protection for its name and logo and for the name "DNA Collection
Kit(TM)."
EMPLOYEES AND LABOR RELATIONS
The Company considers its labor relations to be good and, none of its
employees is covered by a collective bargaining agreement. As of September 30,
1999, the Company employed a total of 12 people on a full time and part time
basis in the following areas:
<TABLE>
<CAPTION>
Category Number of Employees
-------- -------------------
<S> <C>
Sales and marketing ....................... 3
Business Development....................... 2
General and administration, including
customer service ..................... 2
Lab Director and Scientist at the
University ........................... 5
</TABLE>
COMPETITION
DNA collection and banking is offered on a regional basis by hospitals
and laboratories throughout the United States. To the best of the Company's
knowledge, its other competitor which targets the funeral home industry, is DNA
Analysis, Inc. However, DNA Analysis, Inc.'s product is more expensive to the
funeral home than the Company's product, involves an invasive collection
procedure, and is stored at funeral homes and laboratories of the owners. The
DNA collected with the Company's kit is extracted and stored at the Health
Science Center.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
PLAN OF OPERATION
The Company intends to implement its Planned Death-care Industry
Marketing Program during the next 12 months. See "DESCRIPTION OF BUSINESS --
Marketing".
In order to fund its planned death-care industry marketing program, the
Company will require approximately $2 million.
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RESULTS OF OPERATIONS
The following table sets forth certain operating information regarding
the Company:
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1999 YEAR ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998 DECEMBER 31, 1997
----------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 10,444 $ 2,263 $ 43,945
Cost of Goods Sold $ 1,238 $ 532 $ 2,524
Net Earnings (Loss) $(426,388) $(648,207) $(118,330)
Net Earnings (Loss) Per Share $ (.43) $ (.07) $ (.02)
</TABLE>
The following summary table presents comparative cash flows of the Company
for the fiscal years ended December 31, 1997 and December 31, 1998, and for the
nine months ended September 30, 1999.
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30, 1999 YEAR ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998 DECEMBER 31, 1997
----------- ----------------- -----------------
<S> <C> <C> <C>
Net cash used in operating
activities $210,676 $409,716 $ 56,060
Net cash used in investing
activities $ 17,144 $227,940 $141,431
Net cash provided by financing
activities $235,237 $634,038 $258,175
</TABLE>
The Company had cash balances totaling $11,334 at December 31, 1998, and
$18,751 at September 30, 1999.
CAPITAL RESOURCES
The Company's capital resources have been provided primarily from capital
contributions from its shareholders. During fiscal 1998, the Company made an
offering of its Common Stock under Rule 504 of Regulation D under the Securities
Act of 1933 which realized $800,000 in subscriptions.
LIQUIDITY
The ability of Company to satisfy its obligations depend in part upon its
ability to reach a profitable level of operations.
ITEM 3. PROPERTIES
The Company leases its principal executive offices located in Margate, New
Jersey at no cost from John and Maria DePhillipo. John DePhillipo is the Chief
Executive Officer and President and a member of the Board of Directors of
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the Company, and Maria DePhillipo is the owner of 14.0% of the shares of the
Company's Common Stock.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The total number of shares of Common Stock of the Company beneficially
owned by each of the officers and directors of the Company, and all of such
directors and officers as a group, all beneficial owners of 10% or more of the
Company's Common Stock and their percentage ownership of the outstanding Common
Stock of the Company as of September 30, 1999, are as follows:
<TABLE>
<CAPTION>
No. of % of
Shares Outstanding(1)
------ --------------
<S> <C> <C>
Dr. Robert P. Ricciardi(2) 4,250,000 34.15%
137 Forge Road
Glen Mills, PA 19342
John R. DePhillipo(3) 2,886,800 25.12%
100 S. Thurlow Avenue
Margate, NJ 08402
Edmund T. and Linda J
DelGuercio, as tenants
by the entireties 2,250,000 21.54%
7 Forrest Lake Drive
Media, PA 19067
Cede & Co.(4) 1,827,490 17.50%
P.O. Box 222
Bowling Green Station
New York, New York 10274
All officers and
directors a group
(2 persons) 7,886,800 52.89%
--------- -----
</TABLE>
(1) Includes 10,293,861 shares currently outstanding, options to acquire
3,800,000 shares and warrants to acquire 314,375 shares.
(2) Includes options to acquire 1,000,000 shares at an exercise price of $.10
per share and options to acquire 1,000,000 shares at an exercise price of $1.00
per share.
(3) Includes 1,436,800 shares owned by Maria DePhillipo, spouse of John R.
DePhillipo, all of whose shares are attributed to Mr. DePhillipo solely for
purposes of this presentation, 250,000 shares owned by trusts, the beneficiaries
of whom are minor children of Mr. DePhillipo and the trustee of whom is Maria
DePhillipo, all of which shares are attributed to Mr. DePhillipo solely for
purposes of this presentation, options to acquire 200,000 shares at an exercise
price of $.10 per share, and options to acquire 1,000,000 at an exercise price
of $1.00 per share.
(4) Cede & Co. Is a nominee holder of shares of Common Stock of the Company as a
depository for brokerage firms and others.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --- --- --------
<S> <C> <C>
John R. DePhillipo 58 Chairman, Chief
Executive Officer, President
Secretary and
Director
Robert P. Ricciardi 52 Treasurer and
Director
</TABLE>
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<PAGE> 8
John R. DePhillipo - Mr. DePhillipo, educated at Temple University in
Business Administration, served from 1990 to 1994 as the Chairman/CEO of Applied
Safety, Inc., which developed a retro-fit driver's side airbag for installation
in new or used vehicles. In August, 1994, Applied Safety ceased operations and
entered into a license and royalty agreement with a New York Stock Exchange
company which was a worldwide manufacturer and supplier of airbags. In October
of 1995, after a lawsuit was filed in Florida by the other party seeking to
terminate the agreement and avoid future royalty payments, Applied Safety filed
for protection under Chapter 11 of the U.S. Bankruptcy Code, Case #95-17950 DAS.
In September 1997, Applied Safety's plan was confirmed by the bankruptcy court,
and Applied Safety has emerged from bankruptcy.
Robert P. Ricciardi, Ph.D. - Dr. Robert Ricciardi is a Professor of
Microbiology at the University of Pennsylvania, where he is Chairman of the
Microbiology and Virology Program of the Molecular Biology Graduate Group. He
received his Ph.D. from the University of Illinois at Urbana in cellular
biology. He was a postdoctoral fellow at Brandeis University and Harvard Medical
School in the Department of Biological Chemistry and was awarded fellowships by
the American Cancer Society, National Institutes of Health and Charles A. King
Trust. He developed one of the first techniques in molecular biology which has
been widely used both to map genes and determine the proteins they encode. While
most of his research has centered on basic mechanisms of cancer, he has
developed, patented and has a patent pending for recombinant delivery vectors
for use as vaccines and for potential use in gene therapy. Dr. Ricciardi has
served as a consultant to The National Institutes of Health, Smith Kline and
Beckman's Department of Molecular Genetics, and Children's Hospital of
Philadelphia's Department of Infectious Disease. He has authored 55
publications, has been awarded a NATO Visiting Professorship at Ferrara Medical
School, Italy, and has been an invitational speaker at various scientific
meetings and a seminar guest speaker at the Mayo Clinic and Johns Hopkins
University.
ITEM 6. EXECUTIVE COMPENSATION.
Since its inception and until the execution of an employment agreement
in February 1998, in lieu of salary the Company loaned funds periodically to Mr.
DePhillipo in consideration of his substantially full-time service on its
behalf. The loans totaled $41,270 in 1994, $175,000 in 1995, $120,650 in 1996
$108,650 in 1997, $205,387 in 1998 and $93,250 in 1999. Each loan bears interest
at the minimum imputed rate, as determined under Section 1274(d) of the Internal
Revenue Code. The balance on these loans as of September 30, 1999 was $742,755.
It is possible that these loans could be treated as compensation for federal and
state income tax purposes.
Mr. DePhillipo has executed notes payable to the Company to evidence
his obligations on account of the loans. Under the terms of his obligations, in
repayment thereof, Mr. DePhillipo will have the right, at any time on or before
December 31, 2003, to transfer to the Company, at their then fair market value,
shares of the Company's Common Stock. Any transfer not in full satisfaction of
the obligation will first be applied to accrued interest and then to principal.
No payments of interest or principal shall be due on account of the loans prior
to December 31, 2003. Fair market value of the Company's Shares shall be equal
to the average between the bid and asked price in the market in which it is
publicly-traded on the last date on which such trades occurred prior to the
transfer of shares from Mr. DePhillipo to the Company. If the Shares are not
publicly-traded, fair market value shall be determined by appraisal by the
Company's accountant then serving, which appraisal shall be final and binding
upon both Mr. DePhillipo and the Company.
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The employment agreement between Mr. DePhillipo and the Company dated
February 24, 1998, which provides for an initial salary of $125,000 per year, an
initial term of five (5) years, benefits, a grant of options to acquire
1,200,000 Shares at an exercise price of $.10 per share, 600,000 of which have
vested with the remaining balance vesting in equal annual installments of
200,000 each commencing January 1, 2000, registration rights and a two (2) year
restrictive covenant.
The Company has entered into a consulting agreement with Dr. Ricciardi
dated February 24, 1998, which provides for initial compensation of $30,000 per
year in 1998 and $60,000 per year in 1999, an initial term of five (5) years,
the grant of options to acquire 1,000,000 Shares at an exercise price of $.10
per Share, 400,000 of which have vested with the remaining balance vesting in
four (4) equal annual installments of 200,000 each commencing January 1, 2000,
registration rights and requires Dr. Ricciardi to perform eight (8) hours of
consulting service per week.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since its inception and until the execution of an employment agreement
in February 1998, in lieu of salary the Company loaned funds periodically to Mr.
DePhillipo in consideration of his substantially full-time service on its
behalf. The loans totaled $41,270 in 1994, $175,000 in 1995, $120,650 in 1996
$108,650 in 1997, $205,387 in 1998 and $93,250 in 1999. Each loan bears interest
at the minimum imputed rate, as determined under Section 1274(d) of the Internal
Revenue Code. The balance on these loans as of September 30, 1999 was $742,755.
If the Internal Revenue Service were to take the position, and successfully
maintain, that any of such loans should have been treated as compensation, both
the Company and Mr. DePhillipo would be liable for income taxes, plus interest
and penalties. The state of New Jersey, where Mr. DePhillipo resides, could also
take a similar position and seek to collect income and other taxes.
Mr. DePhillipo has executed notes payable to the Company to evidence
his obligations on account of the loans. Under the terms of his obligations, in
repayment thereof, Mr. DePhillipo will have the right, at any time on or before
December 31, 2003, to transfer to the Company, at their then fair market value,
shares of the Company's Common Stock. Any transfer not in full satisfaction of
the obligation will first be applied to accrued interest and then to principal.
No payments of interest or principal shall be due on account of the loans prior
to December 31, 2003. Fair market value of the Company's Shares shall be equal
to the average between the bid and asked price in the market in which it is
publicly-traded on the last date on which such trades occurred prior to the
transfer of shares from Mr. DePhillipo to the Company. If the Shares are not
publicly-traded, fair market value shall be determined by appraisal by the
Company's accountant then serving, which appraisal shall be final and binding
upon both Mr. DePhillipo and the Company.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is authorized to issue 75,000,000 shares of Common Stock,
$.01 par value. At September 30, 1999, there were 10,293,861 shares of Common
Stock issued and outstanding. There were 83 shareholders of record of the Common
Stock of the Company as of September 30, 1999.
COMMON STOCK
Holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors, out of funds legally available,
without any preference. Holders of Common Stock are entitled to one vote per
share. Cumulative voting is not allowed for purposes of the election of
directors. Thus, the holders of more than 50% of the shares voting for directors
can elect all directors. The holders of the Common Stock of the
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Company have no preemptive rights to purchase new issues of the securities of
the Company. There are no redemption or conversion features attached to the
Common Stock.
At the present time, the Company does not intend to pay any dividends on
its Common Stock.
Upon liquidation or dissolution of the Company, holders of Common Stock
are entitled to receive pro rata, either in cash or in kind, all of the assets
of the Company after payment of debts.
WARRANTS AND OPTIONS
As of September 30, 1999, there were outstanding 314,375 warrants to
acquire shares of Common Stock of the Company and 3,800,000 options to purchase
shares of Common Stock of the Company, consisting of 2,000,000 options having an
exercise price of $1.00 per share, 800,000 of which have vested, and 1,800,000
options having an exercise price of $.10 per share, 600,000 of which have
vested.
PENNSYLVANIA CORPORATE LAW
The Company is a Pennsylvania corporation, and may become subject to the
anti-takeover provisions of the Pennsylvania Business Corporation Law (the
"Pennsylvania Law"). In general, Pennsylvania Law prevents take-over offers to
acquire equity securities of a Pennsylvania corporation if the offeror would
become a beneficial owner of more than 20% of any class of outstanding equity
securities, and other similar provisions, subject to certain exceptions such as
the written approval of the board of directors. The existence of these
provisions would be expected to have an anti-takeover effect, including attempts
that might result in a premium over the market price for the shares of Common
Stock held by Shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
StockTrans, Inc., 7 East Lancaster Avenue, Ardmore, Pennsylvania; telephone
(610) 649-7300.
REPORTS TO SHAREHOLDERS
The Company will furnish its shareholders with annual reports containing
the consolidated financial statements of the Company examined by independent
certified public accountants. The Company may distribute other reports to the
Shareholders as it deems appropriate.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
GENERAL
The Common Stock of the Company is traded on the NASDAQ Bulletin Board
over-the-counter market, and is quoted under the symbol GNLK.
MARKET PRICE
The Company's Commons Stock has been traded since November, 1998. The
Company's market maker is Olsen, Payne & Company, 215 South State Street, Suite
750, Salt Lake City, Utah 84110.
The following table sets forth the range of high and low closing bid
prices per share of the Common Stock of the Company as reported or the NASDAQ
Bulletin Board for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 High Bid(1) Low Bid(1)
- ---------------------------- -------- -------
<S> <C> <C>
3rd Quarter.......................... Unpriced Unpriced
4th Quarter.......................... $1.31 $.94
Year Ending December 31, 1999
- -----------------------------
1st Quarter ......................... $1.41 $.50
2nd Quarter.......................... $0.88 $.25
3rd Quarter.......................... $0.63 $.18
</TABLE>
- -------------------------------------------
(1) The Company is unaware of the factors which resulted in the significant
fluctuations in the prices per share during the periods being presented,
although it is aware that there is a thin market for the Common Stock, that
there are frequently few shares being traded and that any sales activity
significantly impacts the market.
The closing bid and ask prices of the Common Stock of the Company on November 8,
1999, were $.125 and $.50, respectively.
DIVIDENDS
The Company has not paid any dividends on its Common Stock and does not
expect to do so in the foreseeable future. The Company intends to apply its
earnings, if any, in expanding its operations and related activities.
The payment of cash dividends in the future will be at the discretion of
the Board of Directors and will depend upon such factors as earnings levels,
capital requirements, the Company's financial condition and other factors deemed
relevant to the Board of Directors. In addition, the Company's ability to pay
dividends may become limited under future loan agreements of the Company which
may restrict or prohibit the payment of dividends.
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ITEM 2. LEGAL PROCEEDINGS.
The Company may become subject to legal proceedings and claims which
arise in the ordinary course of business. The Company's management does not
expect that the results in any of these legal proceedings will have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In 1997, four investors converted notes aggregating $40,000 plus
accrued interest into 50,850 Shares at a price of $.83 per Share pursuant to
Rule 506 of Regulation D under the Securities Act of 1933.
In March 1998, the Company converted an aggregate of $175,000 principal
amount of its 9% Subordinated Notes, plus accrued interest and warranties to
acquire Common Stock, into 242,847 Shares at a conversion price of $.72 per
Share pursuant to Rule 506 of Regulation D under the Securities Act of 1933, and
the Company converted an aggregate of $156,500 principal amount of short-term
loans, plus accrued interest, made to the Company in November and December 4,
1997 into 208,665 Shares, at a conversion price of $.75 per share pursuant to
Rule 504 of Regulation D under the Securities Act of 1933.
Also in March 1998, the Company granted an aggregate of 30,000 Shares
to members of its Medical Advisory Board for agreeing to serve on the Medical
Advisory Board, and granted 300,000 share to William E. Parisi pursuant to a
settlement agreement entered into between the Company and Mr. Parisi, each
issued pursuant to Rule 506 of Regulation D under the Securities Act of 1933.
In fiscal 1998, the Company issued 800,000 shares of its Common Stock
for 800,000 in a limited offering made in reliance upon Rule 504 of Regulation D
under the Securities Act of 1933. Upon completion of the offering, the Company
granted Shannon/Rosenbloom Marketing, Inc. 250,000 shares of its Common Stock
for marketing and promotional services rendered pursuant to Rule 506 of
Regulation D of the Securities Act of 1933 and sold to Shannon/Rosenbloom
Marketing, Inc. 250,000 shares of its Common Stock for $25,000 pursuant to Rule
504 of Regulation D under the Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provisions of the Pennsylvania Business Corporation Law provides
for the indemnification of the directors and officers of the Company. These
provisions generally permit indemnification of directors and officers against
certain costs, liabilities and expenses of any threatened, pending or completed
action, suit or proceeding that any such person may incur by reason of serving
in such positions if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such persona had been adjudged to be liable
to the corporation, unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstance of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which a
court shall deem proper. Any determination that indemnification of a director or
an officer, unless ordered by the court, must be made by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum; or by a committee of such directors designated by majority
vote of such directors even though less than a quorum; or if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion; or by the shareholders.
-12
<PAGE> 13
PART F/S
Item 1. Financial Statements
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditor's Report..........................................................F-1
Balance Sheets, December 31, 1998 and December 31, 1997...............................F-2
Statements of Operations and Retained Earnings (Deficit), Years ended
December 31, 1998 and December 31, 1997...............................................F-4
Statements of Changes in Stockholder Equity, Years Ended December 31, 1998 and 1997...F-5
Statements of Cash Flow, Years ended December 31, 1998 and 1997.......................F-6
Notes to Financial Statements.........................................................F-8
Independent Auditor's Report..........................................................F-24
Balance Sheets, September 30, 1999 and 1998 (unaudited)...............................F-25
Statements of Operations and Retained Earnings (Deficit), Nine months ended
September 30, 1999 and 1998(unaudited)................................................F-27
Statements of Changes in Stockholder's Equity, Nine months ended September 30, 1999
and 1998(unaudited)...................................................................F-28
Statements of Cash Flow, Nine months ended September 30, 1999 and 1998(unaudited).....F-29
Notes to Financial Statements.........................................................F-31
</TABLE>
<PAGE> 14
To the Board of Directors and Stockholders
GeneLink, Inc.
(A Development Stage Company)
Margate, New Jersey
We have audited the accompanying balance sheets of GeneLink, Inc. (a development
stage company)as of December 31, 1998 and 1997, and the related statements of
income, retained earnings and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide 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 GeneLink, Inc. as of December
31, 1998 and 1997, and the results of its operation and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The related statements of income, retained earnings and cash flows for the
period from September 21, 1994 (Date of Inception) to December 31, 1998 have
been compiled by us and we did not audit or review those financial statements,
and accordingly, expressed no opinion or other form of assurance on them.
SIEGAL & DROSSNER, P.C.
Certified Public Accountants
March 12, 1999
F-1
<PAGE> 15
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998 & 1997
<TABLE>
<CAPTION>
ASSETS
------
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 11,334 $ 72,918
Accounts Receivable 198 0
Inventory 11,272 10,587
Prepaid Expenses 19,426 13,171
--------- ---------
TOTAL CURRENT ASSETS 42,230 96,676
--------- ---------
LONG TERM RECEIVABLE
Advances to Officers 725,611 613,169
--------- ---------
FIXED ASSETS
Office Furniture 1,154 0
Office Equipment 14,126 8,355
Leasehold Improvements 50,000 0
--------- ---------
65,280 8,355
Less: Accumulated Depreciation (8,613) (5,251)
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 56,667 3,104
--------- ---------
OTHER ASSETS
Deposits 1,640 600
Organization Costs 86,976 86,976
Patent 3,229 3,229
--------- ---------
91,845 90,805
Less: Accumulated Amortization (70,526) (52,916)
--------- ---------
TOTAL OTHER ASSETS 21,319 37,889
--------- ---------
TOTAL ASSETS $ 845,827 $ 750,838
========= =========
</TABLE>
See Accountants' Auditors Report.
F-2
<PAGE> 16
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998 & 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 87,613 $ 128,516
Accrued Payroll Taxes 822 1,582
Accrued Interest 0 15,069
Accrued Expenses 32,325 19,438
Accrued Compensation 30,000 0
Notes Payable - Current Portion 0 331,500
Loans Payable Affiliates -
Current Portion 6,500 24,000
----------- ---------
TOTAL CURRENT LIABILITIES 157,260 520,105
----------- ---------
LONG-TERM LIABILITIES
Loans Payable Affiliates -
Net of current portion 30,000 36,500
----------- ---------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value,
75,000,000 shares authorized
9,643,861 and 102,678 shares
issued and outstanding as of
December 31, 1998 & 1997
respectively 96,439 1,027
Additional Paid-in Capital 1,554,277 537,148
Deficit Accumulated during
the development stage (992,149) (343,942)
----------- ---------
TOTAL STOCKHOLDERS' EQUITY 658,567 194,233
----------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 845,827 $ 750,838
=========== =========
</TABLE>
See Accountants' Auditors Report.
F-3
<PAGE> 17
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
AND FOR THE PERIOD SEPTEMBER 21, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE FOR THE 9/21/94
YEAR ENDED YEAR ENDED (DATE OF INCEPTION)
12/31/98 12/31/97 TO 12/31/98
-------- -------- -----------
<S> <C> <C> <C>
REVENUE $ 2,263 $ 43,945 $ 220,978
----------- ----------- -----------
COST OF GOODS SOLD 532 2,524 34,330
----------- ----------- -----------
GROSS PROFIT 1,731 41,421 186,648
----------- ----------- -----------
EXPENSES
Selling, general and
administrative 301,274 110,087 645,928
Consulting 241,352 620 279,432
Professional fees 85,668 40,370 186,860
Advertising and promotion 40,139 7,362 83,389
Amortization and depreciation 20,972 19,281 79,139
----------- ----------- -----------
689,405 177,720 1,274,748
----------- ----------- -----------
INTEREST EXPENSE 4,219 15,406 19,734
----------- ----------- -----------
INTEREST INCOME 43,686 33,375 115,685
----------- ----------- -----------
NET LOSS BEFORE PROVISION
FOR INCOME TAXES (648,207) (118,330) (992,149)
----------- ----------- -----------
PROVISION FOR INCOME TAXES 0 0 0
----------- ----------- -----------
NET LOSS (648,207) (118,330) (992,149)
ACCUMULATED DEFICIT-
BEGINNING (343,942) (209,524) 0
----------- ----------- -----------
PRIOR PERIOD ADJUSTMENTS 0 (16,088) 0
----------- ----------- -----------
ACCUMULATED DEFICIT-ENDING $ (992,149) $ (343,942) $ (992,149)
=========== =========== ===========
EARNINGS PER SHARE
Basic $ (.07) (.02)
Diluted $ (.07) (.02)
Weighted Average common shares 9,018,348 7,687,200
----------- -----------
Weighted Average common shares
and diluted potential common shares 9,558,348 7,687,200
----------- -----------
</TABLE>
See Accountants' Auditors Report.
F-4
<PAGE> 18
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
No. of Additional During
Shares Dollar Paid-in Development
Issued Amount Capital Stage Total
------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997 102,000 $ 1,020 $ 478,280 $(209,524) $ 269,776
Issuance of common
stock for debt (net) 678 7 43,168 43,175
Prior Period
Adjustment 0 0 15,700 (16,088) (388)
Net (Loss) 0 0 0 (118,330) (118,330)
--------- ------- ----------- --------- ---------
BALANCE,
DECEMBER 31, 1997 102,678 $ 1,027 $ 537,148 $(343,942) $ 194,233
========= ======= =========== ========= =========
Stock Split
75 for 1 7,598,172 75,982 (75,982) 0 0
Issuance of
common stock
for cash (net) 800,000 8,000 633,810 0 641,810
Issuance of
common stock
for services
performed 691,499 6,915 113,085 0 120,000
Issuance of
common stock,
exchanged for debt 451,512 4,515 346,216 0 350,731
Net (loss) 0 0 0 (648,207) (648,207)
--------- ------- ----------- --------- ---------
BALANCE,
DEC. 31, 1998 9,643,861 $96,439 $ 1,554,277 $(992,149) $ 658,567
========= ======= =========== ========= =========
</TABLE>
See Accountants' Auditors report.
F-5
<PAGE> 19
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
AND THE PERIOD SEPTEMBER 21, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE FOR THE 9/21/94
YEAR YEAR (DATE OF
ENDED ENDED INCEPTION)
12/31/98 12/31/97 TO 12/31/98
-------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(648,207) $(118,330) $(992,149)
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation and Amortization 20,972 19,281 79,139
Prior Period Adjustments (Net) 0 (388) 0
Common Stock issued for services 238,501 0 254,201
(Increase) decrease in assets
Accounts Receivable (198) 0 (198)
Inventory (685) (90) (11,272)
Prepaid expenses (6,255) (13,171) (19,426)
Increase (decrease) in liabilities
Accounts payable (40,902) 23,960 87,614
Accrued payroll taxes (760) 1,011 822
Accrued interest (15,069) 12,229 0
Accrued expenses 12,785 19,438 32,223
Accrued marketing expenses 102 0 102
Accrued compensation 30,000 0 30,000
--------- --------- ---------
Net cash provided (used)
by operating activities (409,716) (56,060) (538,944)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (56,926) 0 (65,281)
Increase in organization costs 0 0 (90,205)
Deposit on utilities (1,040) 0 (1,640)
Advances to Officers (227,940) (141,431) (841,109)
--------- --------- ---------
Net cash provided(used)by investing
activities (285,906) (141,431) (998,235)
--------- --------- ---------
</TABLE>
See Accountants' Auditors Report.
F-6
<PAGE> 20
GENELINK ,INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
AND THE PERIOD SEPTEMBER 21, 1994 (DATE OF INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE FOR THE 9/21/94
YEAR YEAR (DATE OF
ENDED ENDED INCEPTION)
12/31/98 12/31/97 TO 12/31/98
-------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net Interest Accrued on Subordinated
debt/advances converted to stock $ 16,228 $ 0 $ 16,228
Proceeds (repayments) from loans and
notes payable (24,000) 258,175 411,175
Proceeds from issuance of common
stock (net) 641,810 0 1,121,110
--------- -------- ----------
Net cash provided by financing
activities 634,038 258,175 1,548,513
--------- -------- ----------
NET INCREASE (DECREASE) IN CASH
Cash, beginning of year (61,584) 60,684 11,334
Cash, end of year 72,918 12,234 0
--------- -------- ----------
$ 11,334 $ 72,918 11,334
========= ======== ==========
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 0 $ 0 0
--------- -------- ----------
Interest paid 0 109 109
--------- -------- ----------
Non-cash Financing transactions:
Conversion of Debt to Stock $ 331,500 $ 43,175 374,675
--------- -------- ----------
Repayment of Officers Loan with Stock $ 118,501 $ 0 $ 118,501
--------- -------- ----------
</TABLE>
See Accountants' Auditors Report.
F-7
<PAGE> 21
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ORGANIZATION
The Company was organized to offer to the public the safe
collection and preservation of a family's DNA material for
later use by the family to determine genetic linkage.
The Company is the successor by merger to a Delaware
Corporation organized under the same name on September 21,
1994. Prior to the merger, which occurred in February, 1995,
the predecessor entity engaged in no operations. The Company's
executive offices are located in Margate, New Jersey.
BUSINESS ACTIVITY
The Company was founded in response to the explosion of
information being generated in the field of human molecular
genetics. Scientists are discovering an increasing number of
connections between genes and specific diseases. These
findings are a direct result of the National Institutes of
Health Genome Project, which has as its goal the total mapping
of the human genome by the year 2005. Doctors and scientists
have known for years that many individuals and their family
members are predisposed to certain diseases. This inherited
disposition is contained within DNA. DNA, the hereditary
material of life, is contained in all of the genes which make
up who we are. If one of these genes is defective it can cause
disease. There are more than 100,000 genes in the human body,
all of which are in charge of the transmission of hereditary
characteristics. More than 4,500 diseases are genetically
based.
Future generations could benefit from the DNA store of
knowledge. For this reason, the Company has created a DNA
banking service that stores DNA before an individual dies.
This DNA can be used to establish whether or not the disease
or disorder that caused death was genetic in origin. As
researchers continue to identify diseases linked to defective
genes, living family members can use the stored DNA to
discover if they are at risk for certain diseases such as
cancer. DNA banking shifts the emphasis from diagnosis and
treatment, to disease prediction and prevention. It allows
future generations to access their family genetic history.
See Accountants' Auditors report.
F-8
<PAGE> 22
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY (CONTINUED)
The Company, during 1994 raised $120,000 from seven individual
investors. During 1995 and 1996 the Company completed a
private placement offering whereby the Company received
$375,000. During 1997, the Company converted debt of
approximately $40,000 into equity.
During 1998, the Company offered a private placement offering
of 800,000 shares at $1.00 per share.
As of November 25, 1998 the Company's stock began trading
under the symbol "GNLK" on the OTC Bulletin Board.
THE PRODUCT
The Company has developed a DNA Collection Kit for the
collection of DNA specimens of its clients. No licensing or
training is necessary for the collection by the client of his
or her DNA specimen. The collection process, which uses six
swabs, is self administered and takes less than five minutes
to complete. The client forwards the swabs to the University
of North Texas Health Science Center at Fort Worth (UNTHSC)
and completes and forwards a data form to the Company.
Specimens can be collected during an individual's lifetime or
up to 36 to 40 hours after death.
UNTHSC will store the DNA specimens for 25 years. Upon the
client's request, and upon the payment of a retrieval fee, the
stored DNA specimen can be retrieved and sent to a laboratory
for testing. More than one test can be made on the same DNA
specimen.
NOTE 1 - A SUMMARY OF THE SIGNIFICANT ACCOUNTING POLICIES OF THE
COMPANY APPLIED IN THE PREPARATION OF THE ACCOMPANYING
FINANCIAL STATEMENTS ARE AS FOLLOWS:
CASH AND CASH EQUIVALENTS
Highly liquid debt instruments purchased with a maturity of
three months or less are considered to be cash equivalents. At
times cash and cash equivalents may exceed insured limits. The
Company maintains some cash balances with Merrill Lynch, which
is SIPC insured up to $300,000.
See Accountants' Auditors report.
F-9
<PAGE> 23
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 1 - A SUMMARY OF THE SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the life of
the assets are capitalized. Depreciation is computed using the
straight line method over the estimated useful lives of the
related assets. Depreciation expense amounted to $3,362 and
$1,670 for the years ended December 31, 1998 & 1997
respectively.
REVENUE AND COST RECOGNITION
Revenues are recorded when the kits are sold as opposed to
when monies are received. Direct costs related to sale of kits
include purchase of kits, samples and delivery expense. The
direct costs of kits are recognized at time of sale to the
customers as opposed to the time of purchase by GeneLink, Inc.
from vendor. Kits purchased by GeneLink, Inc. not yet sold
remain in inventory.
AMORTIZATION OF ORGANIZATION COSTS AND PATENT
Expenses and patents incurred in connection with the formation
of the Company have been capitalized and are amortized over
five years and fifteen years, respectively, on a straight-line
basis. The Company has filed for and has patents pending in
the USA and foreign countries on its' method of DNA gathering,
which patent application is pending. The Company has received
trademark for its' name and logo and for the name "DNA
Collection Kit(TM)". Amortization expense amounted to $17,610
and $17,611 during the year ended December 31, 1998 and 1997
respectively.
See Accountants' Auditors report.
F-10
<PAGE> 24
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consists of kits held for resale. Inventory is
valued at the lower of cost (using the first-in, first-out
method) or market.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") NO. 109,
"ACCOUNTING FOR INCOME TAXES", which requires the use of an
asset and liability approach for financial accounting and
reporting for income taxes. Under this method, deferred tax
assets and liabilities are recognized based on the expected
future tax consequences of temporary differences between the
financial statement carrying amounts and tax basis of assets
and liabilities as measured by the enacted tax rates that are
expected to be in effect when taxes are paid or recovered.
LONG LIVED ASSETS
The Company reviews for the impairment of long-lived assets
and certain identifiable intangibles whenever events or
changes indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of
an asset and its eventual disposition are less than its
carrying amount. The Company has not identified any such
impairment losses during 1998 and 1997.
STOCK SPLIT
In February , 1998, the Company's Board of Directors
authorized a seventy-five for one split effected in the form
of a 100% tax-free stock dividend distributed on February 4,
1998 to stockholders of record as of January 31, 1998.
Stockholders' equity at December 31, 1998 reflects the
retroactive effect of the stock split by reclassifying from
additional capital to common stock the par value of the
additional shares arising from the split.
See Accountants' Auditors report.
F-11
<PAGE> 25
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PER SHARE DATA
Effective November 12, 1998, the Company adopted SFAS No. 128,
"Earnings Per Share." The provisions of SFAS No. 128 establish
standards for computing and presenting earning per share
(EPS). This standard replaces the presentation of primary EPS
with a presentation of basic EPS. Additionally, it requires
dual presentation of basic and diluted EPS for all entities
with complex capital structures and requires a reconciliation
of the numerator and denominator of the diluted EPS
computation. Per share amounts for all periods presented have
been restated to conform with the provisions of SFAS No. 128.
STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock
option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations . As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1998, the Company
adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in
future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25 and provide pro
forma disclosure provisions of SFAS No. 123.
The following schedule summarizes stock option activity and
status as of December 31, 1998:
<TABLE>
<S> <C>
Outstanding at Beginning of Year 0
Granted 2,200,000
Vested 600,000
Exercised 0
Cancelled 0
---------
Outstanding at End of Year 600,000
=========
</TABLE>
See Accountants' Auditors report.
F-12
<PAGE> 26
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Earnings per share are calculated under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share." The following data shows the amounts
used in computing earnings per share and the effect on income
and the weighted average number of shares of dilutive
potential common stock:
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE: 1998 1997*
------------------------- ---- ----
<S> <C> <C> <C>
Net Loss $ (648,207) (118,330)
----------- ----------
Average Common Stock
Outstanding 9,018,348 7,687,200
----------- ----------
Basic earning per share $ (.07) (.02)
----------- ----------
DILUTED EARNINGS PER SHARE:
---------------------------
Net Loss available for
Common Stock and dilutive
securities $ (648,207) (118,330)
----------- ----------
Average Common Stock
Outstanding 9,018,348 7,687,200
----------- ----------
Additional common shares
resulting from Stock Options 540,000 --
----------- ----------
Average Common Stock and
dilutive stock outstanding 9,558,348 7,687,200
----------- ----------
Diluted earnings per share $ (.07) (.02)
----------- ----------
</TABLE>
* Outstanding Shares have been restated to reflect stock split
See Accountants' Auditors report.
F-13
<PAGE> 27
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Company which was formed in 1994, since its inception has
had limited operations and its focus has predominantly been on
raising capital and completing the research and development of
its product in order to market it according to the Company's
business plans.
The deficit accumulated during the development stage was
$992,149 which included a loss of $343,942 from the inception
of the Company through December 31, 1997. During 1996 and
1998, the Company issued common stock, in connection with
services. Certain services were charged to operations and
other amounts were offset to additional paid in capital, as
they were directly attributable to raising capital. The shares
were valued at the fair market value at time of issuance per
FAS No. 123 (Financial Accounting Series "For Stock Based
Compensation.")
NOTE 3 - ADVANCES TO OFFICER
Advances to officer represents loans and accrued interest of
$725,611 and $613,169 at December 31, 1998 and 1997
respectively. The loans accrue interest using the average
applicable one-month Federal Rates (AFRs). The AFR used for
1998 and 1997 was 5.43%.
The officer has executed notes payable to the Company to
evidence his obligation on account of his loans. Under the
terms of his obligation, in repayment thereof, the officer
will have the right, at any time on or before December 31,
2003, to transfer to the Company, at the then fair market
value, shares of the Company's common stock. Any transfer not
in full satisfaction of the obligation will first be applied
to accrued interest and then to principal. No payments of
interest or principal shall be due on account of the loans
prior to December 31, 2003. Fair market value of the Company's
shares shall be equal to the average between the bid and asked
price in the market in which it is publicly-traded on the last
date on which such trades occurred prior to the transfer of
shares from the officer to the Company.
See Accountants' Auditors report.
F-14
<PAGE> 28
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 4 - LOANS PAYABLE - AFFILIATES
The Company's unsecured long-term debt as of December 31, 1998
and 1997 consists of loans from various shareholders with no
stated repayment terms; however, the Company's Board of
Directors approved the payment of $3,000 per month on one of
the loans starting in April, 1998 with no interest being
accrued.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Total Obligations $ 36,500 $ 60,500
Less: Current Portion (30,000) (24,000)
-------- --------
$ 15,500 36,500
======== ========
</TABLE>
NOTE 5 - NOTES PAYABLE
During 1997 the Company entered into short-term subordinated
notes with the following lenders:
<TABLE>
<CAPTION>
NOTE AMOUNT OF INTEREST DATE
LENDER DATE NOTES RATE NOTE DUE
------ ---- ----- ---- --------
<S> <C> <C> <C> <C>
K.Waldron 12/05/97 $100,000 11.5% 12/05/98
Star Machine 11/18/97 10,000 11.5% 11/18/98
S&S Fam.Ptr 12/08/97 25,000 11.5% 12/08/98
M. Caridi 11/05/97 21,500 11.5% 11/05/98
T. Price 11/20/96 15,000 9.0% 11/20/97
J. Fulmer,Jr 11/09/96 25,000 9.0% 11/09/97
W. Smith 11/08/96 25,000 9.0% 11/08/97
B. DeYoung 11/20/96 10,000 9.0% 11/20/97
D. Canter 4/10/97 25,000 9.0% 4/10/98
Foley & Sound 1/08/97 25,000 9.0% 1/08/98
R. A. Hamilton 7/16/97 50,000 9.0% 7/16/98
--------
$331,500
</TABLE>
Interest was accrued in the amount of $15,069 as of December
31, 1997.
During 1998, the Company converted short-term subordinated
notes totaling $331,500 in the aggregate plus accrued interest
in the amount of $19,231 into 451,512 shares of common stock.
See Accountants' Auditors report.
F-15
<PAGE> 29
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 5 - NOTES PAYABLE (CONTINUED)
CONVERSION OF DEBT TO STOCK
During 1997, the following lenders converted their prior
Subordinated Notes bearing 9% interest per annum into stock as
follows:
<TABLE>
<CAPTION>
DATE
NOTE INTEREST CONVERTED ACCRUED NO.OF
LENDER DATE NOTES RATE TO STOCK INTEREST SHARES
- ------ ---- ----- ---- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
S&S Fam. Ptr 9/30/96 5,000 11.5% 4/8/97 299 83
B. DeYoung 7/14/96 5,000 11.5% 4/8/97 422 85
Dr.&Mrs. Ghayad 7/08/96 15,000 11.5% 4/8/97 1,295 256
Dr. Khoury 8/06/96 15,000 11.5% 4/8/97 1,159 254
------- ------ ---
$40,000 $3,175 678
======= ====== ===
</TABLE>
NOTE 6 - SALES, PRICING & INTEREST INCOME
The following summarizes the Company's sales history:
<TABLE>
<CAPTION>
Approximate Sales
Units Dollars
----- -------
<S> <C> <C>
1995 0 $ 0
1996 2,700 175,000
1997 700 44,000
1998 24 2,200
</TABLE>
The Company charges funeral homes which purchase kits between
$71.00 and $77.50 per kit with a minimum order of 200 kits.
The kits are sold to the public by funeral homes at a price of
$175.00 to $275.00 per kit. In addition, there is a retrieval
fee each time the client desires to have a specimen retrieved
from storage and shipped for testing.
The UNTHSC charges the Company for each DNA sample stored. The
Company has advanced $13,070 and $13,171 as of December 31,
1998 and 1997 respectively against such fees. In addition, the
UNTHSC charges the Company fees for the retrieval and shipping
of stored DNA specimens upon the request of the Company's
clients. The Company charges its clients a fee per retrieval
request.
See Accountants' Auditors report.
F-16
<PAGE> 30
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 6 - SALES, PRICING & INTEREST INCOME (CONTINUED)
The Company generated interest income as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest accrued on Advances to Officers $35,556 32,782
Merrill Lynch, savings account 8,130 593
------- ------
$43,686 33,375
======= ======
</TABLE>
NOTE 7 - OPERATING LEASES
The Corporation has various noncancellable operating leases
with terms of 24 to 36 months. The following is a schedule of
future minimum rentals under the leases at December 31, 1998:
<TABLE>
<S> <C>
1999 $ 10,849
2000 4,633
2001 764
--------
16,246
Less Current Portion (10,849)
--------
Long Term Portion $ 5,397
========
</TABLE>
NOTE 8 - INCOME TAXES & NET OPERATING LOSSES
A reconciliation of the difference between the Company's
effective tax rate and the statutory federal income tax rate
of 34% for the year ended December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income tax benefit at statutory rate $ 220,000 43,000
State income tax benefit, net of
federal effect 43,000 6,000
Increase in Valuation Allowance (263,000) (49,000)
--------- --------
$ 0 $ 0
========= ========
</TABLE>
The deferred tax asset as of December 31, 1998 & 1997 of
$263,000 and $49,000 is offset by a valuation allowance of an
equal amount because management believes it is more likely
than not that such assets will not be realized.
The Company has loss carryforwards for the period ending
December 31, 1998 of approximately $990,000 expiring in the
year 2013.
See Accountants' Auditors report.
F-17
<PAGE> 31
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 9 - SHAREHOLDERS' EQUITY
A. STOCK SPLIT
During February 1998, the Company affected a 75-for-1 stock
split thereby authorizing the issuance of up to 75,000,000
shares of Common Stock.
Stockholders equity has been adjusted to give retro-active
effect to the stock split and in addition, all common shares
redeemed as a result of the aforementioned stock split were
retired. The Company increased its' number of shares
authorized from 1,000,000 to 75,000,000 with par value
remaining at $.01. There were 9,643,861 and 102,678
shares(prior to stock split) issued and outstanding as of
December 31, 1998 and December 31, 1997 respectively.
B. CONVERSION OF SUBORDINATED NOTES
During February, 1998, the Company converted an aggregate of
$175,000 principal amount of its 9% Subordinated Notes, plus
accrued interest and warrants to acquire Common Stock into
242,847 shares of restricted stock (after stock split) at a
conversion price of $.72 per share. The Company also converted
an aggregate of $156,500 principal amount of short-term loans,
plus accrued interest, made to the Company during November and
December of 1997 into 208,665 shares (after stock split) at a
conversion price of $.75 per share.
C. PRIVATE PLACEMENT OFFERING MEMORANDUM/STOCK OPTIONS
During 1998, GeneLink, Inc. submitted a private placement
offering memorandum of 800,000 Shares of its common stock at
$1 per share to the residents of New York, New Jersey, Florida
and the District of Columbia under Rule 504 of Regulation D,
which provides an exemption for limited offerings and sales of
securities not exceeding $1,000,000. The proceeds of the
offering were used to fund research and development,
marketing, working capital, payments of salaries to officers,
and general administrative expenses. The Company compensated
Shannon/ Rosenbloom Marketing, Inc., $100,000 for marketing,
promotional and investor relations services which was paid
upon the successful completion of the offering. The offering
expenses included travel, consulting fees, "blue sky" fees,
legal and accounting expenses.
See Accountants' Auditors report.
F-18
<PAGE> 32
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)
In connection with the Private Placement Offering the
Company issued the following stock or options to
purchase stock as follows:
a. 250,000 restricted shares at $.10 per share
Shannon/ Rosenbloom for marketing, promotion, and
investor relations services rendered at the time the
contract was signed.
b. The option of Shannon/Rosenbloom to convert
$25,000 of its $100,000 fee into 250,000 shares of
unrestricted common stock at $.10 per share.
The Company valued the 250,000 restricted stock
shares and the 250,000 Shares of the unrestricted
stock $(25,000 fee converted into stock) at the fair
market value at date of issuance per FAS No. 123 @
$.10 each $(50,000) based upon the fair market value
of services rendered at that time.
c. Options to purchase 2.2 million Shares reserved
for issuance to officers.
d. 720,000 Shares reserved for future issuance to
employees and directors pursuant to incentive stock
programs.
e. Additionally, the Company granted the aggregate of
30,000 Shares to members of its Medical Advisory
Board for agreeing to serve on its Board and 10,000
Shares to a Consultant for services rendered.
NOTE 10 - TRANSACTIONS WITH RELATED PARTIES
The Company is dependent, to a large degree, on the services
of John DePhillipo, its Chairman and Chief Executive Officer
and the Company has entered into a five (5) year employment
agreement dated February 24, 1998, at $125,000 per year. Mr.
DePhillipo also was granted options to acquire 1,200,000
Shares at $.10 per Share, 400,000 of which vested upon the
execution of the employment agreement with the remaining
balance vesting in four (4) equal annual installments of
200,000 each commencing January 1, 1999.
See Accountants' Auditors report.
F-19
<PAGE> 33
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 10 - TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Also, in 1998 the Company issued options as part of an
employment agreement with Robert Ricciardi, Vice President of
Research & Development. This will enable him to acquire shares
of the Company's common stock exercisable at the price of
$0.10 per share. These options will expire ten years from the
execution of the agreement and will vest as follows:
(1) 200,000 shares at the execution of the agreement.
(2) 200,000 shares each January 1, beginning January
1, 1999.
The Company has an agreement with the UNTHSC through March,
2006 for the storage of the genetic material obtained using
one of the Company's kits. Two (2) doctors associated with the
UNTHSC own approximately 20,000 Shares of the Company. The
Company has established protocols with the UNTHSC whereby the
UNTHSC will receive a sample in an envelope enclosed with the
kit, measure the quantity to assure that enough genetic
material is present, analyze the sample to extract the DNA and
freeze and store the material in the refrigerated area
maintained by the UNTHSC making it available for future
retrieval.
A portion of the Company's operations are conducted by
Kelly/Waldron & Company in East Brunswick, New Jersey, which
owns 289,333 Shares of the Company. Kelly/Waldron, which
provides various services to members of the pharmaceutical
industry, acts as the Company's back office, receiving orders
and inquiries, processing data and preparing reports for the
Company. To date, because of the Company's limited operations
and the limited availability of funds, the Company's agreement
with Kelly/Waldron does not require it to make any payments to
Kelly/Waldron for the latter's services. As its business
increases, the Company expects to commence payment of a
management fee to Kelly/Waldron on terms to be agreed upon
between the parties. It is expected that such arrangement will
involve a profit to Kelly/Waldron. As of December 31, 1998 and
1997 the Company owed Kelly/Waldron $19,188 and 19,086
respectively.
See Accountants' Auditors report.
F-20
<PAGE> 34
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 10 - TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
MARKETING
The Company has assembled a marketing team consisting of 4
individuals focusing on the Insurance Industry, Funeral
Industry, Senior Citizen Clinics, Direct Mail Programs and
Genetic Counselors. Training has begun in 10 states and will
encompass approximately 35 locations for the Funeral Industry.
Pursuant to the terms of a marketing agreement, the Company
engaged Shannon/Rosenbloom to perform marketing, promotional
and investor relations services for the Company. The services
rendered by Shannon/Rosenbloom included the dissemination and
publication of the Company's information materials to
Shannon/Rosenbloom's broker networks, market makers and
individual investors. During June, 1998 the Company paid
Shannon/Rosenbloom $75,000, sold 250,000 Shares to
Shannon/Rosenbloom for $.10 per share and issued to Shannon/
Rosenbloom 250,000 restricted Shares.
CONSULTING
The Company has entered into a consulting agreement with Dr.
Ricciardi (shareholder and officer) dated February 24, 1998,
which provides for initial compensation of $30,000 in 1998 and
$60,000 per year in 1999. The initial term of the agreement is
five (5) years. The agreement also grants Dr. Ricciardi the
grant of options to acquire 1,000,000 Shares at an exercise
price of $.10 per Share, 200,000 of which vested upon
execution of the consulting agreement with the remaining
balance vesting in four (4) equal annual installments of
200,000 each commencing January 1, 1999.
SUPPLIER
The Company's kits are assembled by J. Knipper & Company,
Lakewood, New Jersey, which is engaged in supplying various
products to the pharmaceutical industry. Knipper warehouses
the kits for the Company and ships the kits directly to the
funeral home or distributor ordering the kits. The components
of the kits are provided by five (5) suppliers.
See Accountants' Auditors report.
F-21
<PAGE> 35
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 11 - COMMITMENT & CONTINGENCIES
The Company is not at this time involved in any litigations,
nor to the knowledge of management is any litigation
threatened against the Company which might materially affect
the Company.
The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going
concern, which contemplates the realization of assets and
liquidation of liabilities on the normal course of business.
The Company's cash reserves have decreased since the company's
private placement of $800,000 to approximately $10,000 and
sales have slipped from 700 units to 24 units from 1997 to
1998, however, the company is in negotiations for a $1,000,000
Bridge Loan and has announced new marketing plans to enhance
sales and therefore believes that they will be able to
generate sufficient revenue and cash flow for the Company to
continue as a going concern.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company loaned funds to William E. Parisi, a former
officer of the Company. The cumulative outstanding principal
amount of such loans was $148,501, as of June, 1998, which
included accrued interest at the minimum imputed rate, as
determined under Section 1274(d) of the Internal Revenue Code.
As recognition for past services and fundraising efforts on
behalf of the Company, the Company granted Mr. Parisi 300,000
Shares pursuant to a settlement arrangement it has entered
into with Mr. Parisi.
Mr. Parisi repaid his obligation to the Company in June, 1998
by foregoing the issuance of 148,501 Shares at their then fair
market value $(1 per Share). The Company then issued 151,499
shares to Mr. Parisi pursuant to the terms of the settlement
agreement.
See Accountants' Auditors report.
F-22
<PAGE> 36
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 & 1997
NOTE 13 - SUBSEQUENT EVENTS
FINANCING
The Company has received a letter of intent dated March 18,
1999 from Brennan Dyer & Company, LLC, a venture capital
group, to obtain an additional $1 to 2 million of equity based
financing through the issuance of Convertible Preferred Stock.
The Preferred Stock is expected to be issued with a
convertible price in the $1-1 1/2 per share price range
depending on market conditions.
MARKETING AGREEMENT
On January 22, 1998, Genelink and Shannon/Rosenbloom entered
into a marketing agreement. Shannon/Rosenbloom was to provide
certain marketing and promotional services on behalf of
Genelink upon the completion of Genelink's Rule 504 offering
and received compensation of $75,000 and 250,000 shares of
restricted Genelink stock and 250,000 of unrestricted stock.
Shannon/Rosenbloom did not perform all services on behalf of
Genelink which it had agreed to perform under the marketing
agreement. In March, 1999, Genelink and Shannon/Rosenbloom
agreed to mutually resolve any and all existing and potential
claims and disputes each may have against the other with
respect to the marketing agreement. The terms also include the
transfer from Shannon/Rosenbloom to Genelink 75,000 shares of
unrestricted Common Stock and 75,000 shares of restricted
common stock previously issued to Shannon/Rosenbloom.
On January 5, 1999 the Company announced plans to become one
of the first companies to enter the online DNA banking
business. The Company's website will enable consumers
worldwide to order the Company's DNA Collection Kit.
OFFICERS ADVANCES
During the first quarter of 1999, the President and Chief
Executive Officer repaid the Company $110,242 in loans
previously advanced to him.
WARRANTS
During the first quarter of 1999, the Company issued 100,000
warrants for investment banking activities and advice. The
Company also issued 45,000 warrants to associates at UNTHSC
for their continuing support efforts. These warrants entitle
the holders to purchase 145,000 shares of common stock at
anytime on or before December 31, 2003 at the exercise price
of $1.50 per share.
See Accountants' Auditors report.
F-23
<PAGE> 37
To the Board of Directors and Stockholders
GeneLink, Inc.
(A Development Stage Company)
Margate, New Jersey
We have compiled the accompanying balance sheets of GeneLink, Inc. (a
development stage company) as of September 30, 1999 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for the nine
months then ended and for the period September 21, 1994 (date of inception) to
September 30, 1999, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
SIEGAL & DROSSNER, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
PHILADELPHIA, PENNSYLVANIA
October 28, 1999
F-24
<PAGE> 38
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 1999 & 1998
<TABLE>
<CAPTION>
ASSETS
------
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 18,751 $ 136,396
Accounts Receivable 997 0
Inventory 10,959 11,394
Prepaid Expenses 13,887 14,032
--------- ---------
TOTAL CURRENT ASSETS 44,594 161,822
--------- ---------
LONG TERM RECEIVABLE
Note Receivable - Officer 742,755 679,814
--------- ---------
FIXED ASSETS
Office Furniture 1,154 1,154
Office Equipment 14,126 11,279
Leasehold Improvements 50,000 50,000
--------- ---------
65,280 62,433
Less: Accumulated Depreciation (12,624) (6,818)
--------- ---------
TOTAL FIXED ASSETS 52,656 55,615
--------- ---------
OTHER ASSETS
Deposits 1,640 600
Organization Costs 86,976 86,976
Amortizable Debenture Premiums(Net) 34,972 0
Patent 3,228 3,229
--------- ---------
126,816 90,805
Less: Accumulated Amortization (83,137) (66,124)
--------- ---------
TOTAL OTHER ASSETS 43,679 24,681
--------- ---------
TOTAL ASSETS $ 883,684 $ 921,932
========= =========
</TABLE>
See Accountants' Compilation Report and Accompanying Notes.
F-25
<PAGE> 39
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 1999 & 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1999 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable & Accrued Expenses $ 152,205 $ 73,812
Accrued Payroll Taxes 471 2,329
Accrued Interest Payable 5,596 0
Accrued Compensation 178,125 26,250
Loans Payable Affiliates -
Current Portion 0 30,000
Notes Payable - Current Portion 185,000 0
----------- -----------
TOTAL CURRENT LIABILITIES 521,397 132,391
----------- -----------
LONG-TERM LIABILITIES
Loans Payable Affiliates -
Net of current portion 30,500 15,500
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value,
75,000,000 shares authorized
10,465,041 and 9,643,861 shares
issued, 10,293,861 and
9,643,861 outstanding as of
September 30, 1999 & 1998
respectively 104,651 96,439
Treasury Stock, 171,180 shares (177,360) 0
Additional Paid-in Capital 1,823,033 1,554,277
Deficit Accumulated during the
the development stage (1,418,537) (876,675)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 331,787 774,041
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 883,684 $ 921,932
=========== ===========
</TABLE>
See Accountants' Compilation Report and Accompanying Notes.
F-26
<PAGE> 40
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the For the For the For the 9/21/94
Quarter Quarter Nine Months Nine Months (Date of
Ended Ended Ended Ended Inception)
9/30/99 9/30/98 9/30/99 9/30/98 To 9/30/99
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
REVENUE $ 4,496 $ 124 $ 10,444 $ 1,360 $ 231,422
COSTS OF GOODS SOLD 482 3 1,238 47 35,568
------------ ----------- ----------- ----------- -----------
GROSS PROFIT 4,014 121 9,206 1,313 195,854
------------ ----------- ----------- ----------- -----------
EXPENSES
Selling, general and administrative 115,194 61,812 293,721 268,271 939,649
Consulting 14,400 8,750 17,650 223,775 297,082
Professional fees 23,991 10,873 59,068 37,768 245,928
Advertising and promotion 8,202 6,910 29,379 21,961 112,768
Amortization and depreciation 5,541 5,134 16,622 14,775 95,761
------------ ----------- ----------- ----------- -----------
167,328 93,479 416,440 566,550 1,691,188
------------ ----------- ----------- ----------- -----------
INTEREST EXPENSE 35,345 30 47,542 4,219 67,276
------------ ----------- ----------- ----------- -----------
INTEREST INCOME 9,902 12,874 28,388 36,723 144,073
------------ ----------- ----------- ----------- -----------
NET (LOSS) BEFORE PROVISION FOR
INCOME TAXES (188,757) (80,514) (426,388) (532,733) (1,418,537)
PROVISION FOR INCOME TAXES 0 0 0 0 0
------------ ----------- ----------- ----------- -----------
NET (LOSS) $ (188,757) $ (80,514) $ (426,388) $ (532,733) $(1,418,537)
============ =========== =========== =========== ===========
NET (LOSS) PER SHARE BASIC AND
DILUTED $ (.018) $ (.008) $ (.043) $ (.06)
Weighted Average common shares
and diluted potential common shares 10,039,527 9,643,861 9,839,750 8,819,478
------------ ----------- ----------- -----------
</TABLE>
See Accountants' Compilation Report and Accompanying Notes.
F-27
<PAGE> 41
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON COMMON ADDITIONAL DURING
STOCK STOCK TREASURY PAID ON DEVELOPMENT
# OF SHARES AMOUNT STOCK CAPITAL STAGE TOTAL
----------- ------ ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 21, 1994 (INCEPTION) -- $ -- $ -- $ -- $ -- $ --
ISSUANCE OF COMMON STOCK FOR CASH 66,000 660 -- 119,040 0 119,700
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 30,000 300 -- -- -- 300
NET LOSS -- -- -- -- (9,805) (9,805)
---------- -------- ---------- ----------- ----------- ---------
BALANCE AT DECEMBER 31, 1994 96,000 $ 960 $ -- $ 119,040 $ (9,805) $ 110,195
========== ======== =========== =========== =========
ISSUANCE OF COMMON STOCK FOR CASH 5,280 53 -- 329,947 -- 330,000
NET LOSS -- -- -- -- (170,825) (170,825)
---------- -------- ---------- ----------- ----------- ---------
BALANCE AT DECEMBER 31, 1995 101,280 $ 1,013 $ -- $ 448,987 $ (180,630) $ 269,370
========== ======== ========== =========== =========== =========
ISSUANCE OF COMMON STOCK FOR CASH 480 5 -- 29,995 -- 30,000
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 240 2 -- 14,998 -- 15,000
NET LOSS -- -- -- -- (44,982) (44,982)
---------- -------- ---------- ----------- ----------- ---------
BALANCE AT DECEMBER 31, 1996 102,000 $ 1,020 $ -- $ 493,980 $ (225,612) $ 269,388
========== ======== ========== =========== =========== =========
CONVERSION OF DEBT TO COMMON STOCK 678 7 -- 43,168 -- 43,175
NET LOSS -- -- -- -- (118,330) (118,330)
---------- -------- ---------- ----------- ----------- ---------
BALANCE AT DECEMBER 31, 1997 102,678 $ 1,027 $ -- $ 537,148 $ (343,942) $ 194,233
========== ======== ========== =========== =========== =========
STOCK SPLIT 75 FOR 1 7,598,172 75,982 -- (75,982) -- --
ISSUANCE OF COMMON STOCK FOR CASH 800,000 8,000 -- 633,810 -- 641,810
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 691,499 6,915 -- 113,085 -- 120,000
CONVERSION OF DEBT TO COMMON STOCK 451,512 4,515 -- 346,216 -- 350,731
NET LOSS -- -- -- -- (648,207) (648,207)
---------- -------- ---------- ----------- ----------- ---------
BALANCE AT DECEMBER 31, 1998 9,643,861 $ 96,439 $ -- $ 1,554,277 $ (992,149) $ 658,567
========== ======== ========== =========== =========== =========
EXERCISE OF OPTIONS FOR COMMON STOCK 621,180 6,212 -- 55,906 -- 62,118
COMPANY REPURCHASE-COMMON STOCK -- -- (42,360) -- -- (42,360)
COMMON STOCK SUBJECT TO RECISSION
OF MARKETING AGREEMENT -- -- (135,000) 135,000 -- 0
ISSUANCE OF COMMON STOCK-ADDITIONAL
CONSIDERATION FOR DEBENTURES 185,000 1,850 -- 69,600 -- 71,450
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 15,000 150 -- 8,250 -- 8,400
NET LOSS -- -- -- -- (426,388) (426,388)
---------- -------- ---------- ----------- ----------- ---------
BALANCE AT SEPTEMBER 30, 1999 10,465,041 $104,651 $ (177,360) $ 1,823,033 $(1,418,537) $ 331,787
========== ======== ========== =========== =========== =========
</TABLE>
See Accountants' Compilation Report and Accompanying Notes.
F-28
<PAGE> 42
GENELINK ,INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE 9/21/94
NINE MONTHS NINE MONTHS (DATE OF
ENDED ENDED INCEPTION)
9/30/99 9/30/98 TO 9/30/99
------- ------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(426,388) $(532,733) $(1,418,537)
Adjustments to reconcile net income
to net cash provided (used) by
operating activities
Depreciation and Amortization 16,622 14,775 95,761
Common Stock issued for services 8,400 188,501 262,601
(Increase) decrease in assets
Accounts receivable (799) 0 (997)
Inventory 313 (807) (10,959)
Prepaid expenses 5,539 (861) (13,887)
Increase (decrease) in liabilities
Accounts payable & accrued
expenses 32,267 (149,143) 152,205
Accrued payroll taxes (351) 747 471
Accrued interest 5,596 4,163 5,596
Accrued marketing expenses 0 125,000 0
Accrued compensation 148,125 26,250 178,125
--------- --------- -----------
Net cash provided (used)
by operating activities (210,676) (324,108) (749,621)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment 0 (54,078) (65,280)
Increase in organization costs 0 0 (90,205)
Deposit on utilities 0 0 (1,640)
Notes Receivable - Officer (17,144) (185,146) (858,253)
--------- --------- -----------
Net cash provided(used)by investing
activities (17,144) (239,224) (1,015,378)
--------- --------- -----------
</TABLE>
See Accountants' Compilation Report and Accompanying Notes.
F-29
<PAGE> 43
GENELINK ,INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE FOR THE 9/21/94
YEAR ENDED YEAR ENDED DATE OF INCEPTION)
09/30/99 09/31/98 TO 09/30/99
-------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Net interest accrued on subordinated
debt/advances converted to stock $ 0 $ 0 $ 16,228
Proceeds (repayments) from loans and
notes payable (6,000) (15,000) 405,175
Proceeds from Debentures Issued 185,000 0 185,000
Proceeds (expenses) relating to
issuance of common stock (net) 233,597 641,810 1,354,707
Redemption of Treasury Stock (177,360) 0 (177,360)
--------- --------- -----------
Net cash provided by financing
activities 235,237 626,810 1,783,750
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH 7,417 63,478 18,751
Cash, beginning of period 11,334 72,918 0
--------- --------- -----------
Cash, end of period $ 18,751 $ 136,396 $ 18,751
========= ========= ===========
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 0 $ 0 $ 0
========= ========= ===========
Interest paid $ 0 $ 0 $ 0
========= ========= ===========
Non-cash Financing transactions:
Conversion of Debt to Stock $ 0 $ 350,731 $ 374,675
--------- --------- -----------
Repayment of Officers Notes with
Stock $ 42,360 $ 148,501 $ 160,861
--------- --------- -----------
Stock issued in obtaining debenture
financing $ 71,450 $ 0 $ 71,450
--------- --------- -----------
</TABLE>
See Accountants' Compilation Report and Accompanying Notes.
F-30
<PAGE> 44
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 & 1998
NOTE 1 - DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BUSINESS ORGANIZATION
GeneLink, Inc. (the Company) was organized in the state of
Pennsylvania to offer to the public the safe collection and
preservation of a family's DNA material for later use by the
family to determine genetic linkage.
The Company is the successor by merger to a Delaware
Corporation organized under the same name on September 21,
1994. Prior to the merger, which occurred in February, 1995,
the predecessor entity engaged in no operations. The Company's
executive offices are located in Margate, New Jersey.
BUSINESS ACTIVITY
The Company was founded in response to the information being
generated in the field of human molecular genetics. Scientists
are discovering an increasing number of connections between
genes and specific diseases. These findings are a direct
result of the National Institutes of Health Genome Project,
which has as its goal the total mapping of the human genome by
the year 2005. Doctors and scientists have known for years
that many individuals and their family members are predisposed
to certain diseases. This inherited disposition is contained
within DNA. DNA, the hereditary material of life, is contained
in all of the genes which make up who we are. If one of these
genes is defective it can cause disease. There are more than
100,000 genes in the human body, all of which are in charge of
the transmission of hereditary characteristics. More than
4,500 diseases are genetically based.
Management believes future generations could benefit from the
DNA store of knowledge. For this reason, the Company has
created a DNA banking service that stores DNA before an
individual dies. This DNA can be used to establish whether or
not the disease or disorder that caused death was genetic in
origin. As researchers continue to identify diseases linked to
defective genes, living family members can use the stored DNA
to discover if they are at risk for certain diseases such as
cancer. DNA banking shifts the emphasis from diagnosis and
treatment, to disease prediction and prevention. It allows
future generations to access their family genetic history.
See Accountants' Compilation Report.
F-31
<PAGE> 45
GENELINK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 30, 1999 & 1998
NOTE 1 - A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
THE PRODUCT
The Company has developed a DNA Collection Kit for the
collection of DNA specimens of its clients. No licensing or
training is necessary for the collection by the client of his
or her DNA specimen. The collection process, which uses six
swabs, is self administered and takes less than five minutes
to complete. The client forwards the swabs to the University
of North Texas Health Science Center at Fort Worth (UNTHSC)
and completes and forwards a data form to the Company.
Specimens can be collected during an individual's lifetime or
up to 36 to 40 hours after death.
UNTHSC will store the DNA specimens for 25 years. Upon the
client's request, and upon the payment of a retrieval fee, the
stored DNA specimen can be retrieved and sent to a laboratory
for testing. More than one test can be made on the same DNA
specimen.
CASH AND CASH EQUIVALENTS
Highly liquid debt instruments purchased with a maturity of
three months or less are considered to be cash equivalents. At
times cash and cash equivalents may exceed insured limits. The
Company maintains some cash balances with Merrill Lynch, which
is SIPC insured up to $300,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the life of
the assets are capitalized. Depreciation is computed using the
straight line method over the estimated useful lives of the
related assets.
F-32
<PAGE> 46
REVENUE AND COST RECOGNITION
Revenues are recorded when the kits are sold as opposed to
when monies are received. Direct costs related to sale of kits
include purchase of kits, samples and delivery expense. The
direct costs of kits are recognized at time of sale to the
customers as opposed to the time of purchase by GeneLink, Inc.
from vendor. Kits purchased by GeneLink, Inc. not yet sold
remain in inventory.
AMORTIZATION OF ORGANIZATION COSTS AND PATENT
Expenses and patents incurred in connection with the formation
of the Company have been capitalized and are amortized over
five years and fifteen years, respectively, on a straight-line
basis. The Company has filed for and has patents pending in
the USA and foreign countries on its' method of DNA gathering.
The Company has received trademark for its' name and logo and
for the name "DNA Collection Kit(TM)". Amortization expense
amounted to $13,029 and $13,208 during the nine months ended
September 30, 1999 and 1998 respectively.
INVENTORY
Inventory consists of kits held for resale. Inventory is
valued at the lower of cost (using the first-in, first-out
method) or market.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") NO. 109,
"ACCOUNTING FOR INCOME TAXES", which requires the use of an
asset and liability approach for financial accounting and
reporting for income taxes. Under this method, deferred tax
assets and liabilities are recognized based on the expected
future tax consequences of temporary differences between the
financial statement carrying amounts and tax basis of assets
and liabilities as measured by the enacted tax rates that are
expected to be in effect when taxes are paid or recovered.
LONG LIVED ASSETS
The Company reviews for the impairment of long-lived assets
and certain identifiable intangibles whenever events or
changes indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of
an asset and its eventual disposition are less than its
carrying amount. The Company has not identified any such
impairment losses during 1999 and 1998.
RECLASSIFICATIONS
Certain balances not affecting net income have been
reclassified to conform to the current year presentation.
F-33
<PAGE> 47
PER SHARE DATA
Effective November 12, 1998, the Company adopted SFAS No. 128,
"Earnings Per Share." The provisions of SFAS No. 128 establish
standards for computing and presenting earnings per share
(EPS). This standard replaces the presentation of primary EPS
with a presentation of basic EPS. Additionally, it requires
dual presentation of basic and diluted EPS for all entities
with complex capital structures and requires a reconciliation
of the numerator and denominator of the diluted EPS
computation. Per share amounts for all periods presented have
been restated to conform with the provisions of SFAS No. 128.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Company which was formed in 1994, since its inception has
had limited operations and its focus has predominantly been on
raising capital and completing the research and development of
its product in order to market it according to the Company's
business plans.
The deficit accumulated during the development stage was
$1,418,537. During 1996, 1998 and 1999, the Company issued
common stock, in connection with services. Certain services
were charged to operations and other amounts were offset to
additional paid in capital, as they were directly attributable
to raising capital. The shares were valued at the fair market
value at time of issuance per FAS No. 123 (Financial
Accounting Series "For Stock Based Compensation.")
NOTE 3 - PROPERTY & EQUIPMENT
As of September 30, 1999 and 1998, property and equipment
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Office Furniture $ 1,154 $ 1,154
Office Equipment 14,126 11,279
Leasehold Improvement 50,000 50,000
------- -------
$65,280 $62,433
======= =======
</TABLE>
Depreciation expense amounted to $3,593 an $1,567 for the nine
months ended September 30, 1999 and 1998, respectively.
NOTE 4 - NOTES RECEIVABLE-OFFICERS
Since its inception and until the execution of an employment
agreement in early 1998, in lieu of salary, the Company loaned
funds periodically to the officer in consideration of his
substantially full time services provided to the Company.
Notes Receivable-Officers represents loans and accrued
interest of $742,755 and $679,814 at September 30, 1999 and
1998, respectively. The loans accrue interest using the
average applicable one-month Federal Rates (AFRs). The AFR
used for 1999 and 1998 was 5.43%.
The officer has executed notes payable to the Company to
evidence his obligation on account of his loans. Under the
terms of his obligation, in repayment thereof, the officer
will have the right, at any time on or before December 31,
2002, to transfer to the Company, at the then fair market
value, shares of the Company's common stock. Any transfer not
in full satisfaction of the obligation will first be applied
to accrued interest and then to principal. No payments of
interest or principal shall be due on account of the loans
prior to December 31, 2002. Fair market value of the Company's
shares shall be equal to the
F-34
<PAGE> 48
average between the bid and asked price in the market in which
it is publicly-traded on the last date on which such trades
occurred prior to the transfer of shares from the officer to
the Company.
During the period ended September 30, 1999, the officer repaid
$94,504 which included the exercising of 21,180 shares of
vested options which were valued at the then fair market value
of $2.00 per share. The officer then returned these shares to
the company and used the fair market value of $42,360 as a
repayment of his advance.
The Company loaned funds to William E. Parisi, a former
officer of the Company. The cumulative outstanding principal
amount of such loans was $148,501, as of June, 1998, which
included accrued interest at the minimum imputed rate, as
determined under Section 1274(d) of the Internal Revenue Code.
As recognition for past services and fund raising efforts on
behalf of the Company, the Company granted Mr. Parisi 300,000
Shares pursuant to a settlement arrangement it has entered
into with Mr. Parisi.
Mr. Parisi repaid his obligation to the Company in June, 1998
by foregoing the issuance of 148,501 Shares at their then fair
market value $(1 per Share). The Company then issued 151,499
shares to Mr.
Parisi pursuant to the terms of the settlement agreement.
NOTE 5 - OTHER ASSETS - AMORTIZABLE DEBENTURE PREMIUMS
In connection with the Company issuing five (5) debenture
notes payable, additional shares of common stock were issued
in amounts equal to the principal amount of the debenture. The
excess of the fair market value, at date of debenture, to the
par value of the common stock was recorded as an intangible
asset, to be amortized over the life of the debenture. As of
September 30, 1999 the Company's Amortizable Debenture
Premiums were as follows:
<TABLE>
<CAPTION>
Original
Amortizable Net Amortizable
Debenture Amortization Interest Debenture
Debenture# Premium Period Expense Premium
---------- ------- ------ ------- -------
<S> <C> <C> <C> <C>
1 $ 29,500 8 months $ 18,438 $ 11,062
2 $ 8,850 8 months $ 5,531 $ 3,319
3 $ 5,600 5 months $ 2,254 $ 3,346
4 $ 25,000 5 months $ 9,354 $ 15,646
5 $ 2,500 5 months $ 901 $ 1,599
-------- -------- --------
Total $ 71,450 $ 36,478 $ 34,972
======== ======== ========
</TABLE>
NOTE 6 - LOANS PAYABLE - AFFILIATES
The Company's unsecured long-term debt as of September 30,
1999 and 1998 consists of loans from various shareholders with
no stated repayment terms.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total Obligations $ 30,500 $ 45,500
Less: Current Portion 0 (30,000)
-------- --------
$ 30,500 $ 15,500
======== ========
</TABLE>
F-35
<PAGE> 49
NOTE 7 - DEBENTURE-NOTES PAYABLE
During 1999, the Company entered into the following (5) five
debenture payables with individuals with terms indicated
below:
<TABLE>
<CAPTION>
Shares of Common
Stock Issued as
Amount of Additional
Debenture Date Issued Interest Rate Compensation
--------- ----------- ------------- ------------
<S> <C> <C> <C>
$ 50,000 April 30, 1999 12% 50,000
$ 15,000 April 30, 1999 12% 15,000
$ 10,000 July 29, 1999 12% 10,000
$100,000 August 6, 1999 12% 100,000
$ 10,000 August 8, 1999 12% 10,000
</TABLE>
Interest is to be paid quarterly with the principal balance
due December 31, 1999. The Company also issued shares of
common stock as additional consideration equal to the amount
of those debentures. If the debentures haven't been redeemed
on or before the maturity date, the debenture will convert to
shares of common stock in the Company, comprising the shares
referred to above, as well as an additional allocation of
shares equal in value to the amount of the debenture, based on
the closing bid price of the stock on the day of maturity.
Accrued interest payable as of September 30, 1999 was $5,596.
NOTE 8 - NOTES PAYABLE
During the first quarter of 1998, the Company converted
short-term subordinated notes totaling $331,500 in the
aggregate plus accrued interest in the amount of $19,231 into
451,512 shares of common stock.
NOTE 9 - SALES, PRICING & INTEREST INCOME
The following summarizes the Company's sales history:
<TABLE>
<CAPTION>
Approximate Sales
Units Dollars
----- -------
<S> <C> <C>
1995 0 $ 0
1996 2,700 175,000
1997 700 44,000
1998 24 2,200
Nine Months 1999 65 8,427
</TABLE>
The Company charges funeral homes which purchase kits starting
at $149. The kits are sold to the public by funeral homes at a
price of approximately $350 per kit. In addition, there is a
retrieval fee each time the client desires to have a specimen
retrieved from storage and shipped for testing.
The UNTHSC charges the Company for each DNA sample stored. The
Company has advanced $12,955 and $13,171 as of September 30,
1999 and 1998 respectively against such fees. In addition, the
UNTHSC charges the Company fees for the retrieval and shipping
of
F-36
<PAGE> 50
stored DNA specimens upon the request of the Company's
clients. The Company charges its clients a fee per retrieval
request.
The Company generated interest income as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Interest accrued on
Advances to Officers $27,467 $29,217
Merrill Lynch savings account 921 7,506
------- -------
$28,388 $36,723
======= =======
</TABLE>
NOTE 10- OPERATING LEASES
The Corporation has various noncancellable operating leases
with terms of 24 to 36 months. The following is a schedule of
future minimum rentals under the leases at September 30, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
1999 $ 8,137 0
2000 4,633 0
2001 764 0
-------- -
13,534 0
Less Current Portion (10,849) 0
-------- ----
Long Term Portion $ 685 0
======== ====
</TABLE>
NOTE 11- INCOME TAXES
At September 30, 1999 and 1998, the Company had federal and
state tax net operating loss carryforwards of approximately
$1,418,000 and $877,000, respectively. The difference between
the operating loss carryforwards on a tax basis and a book
basis is due principally to differences in depreciation,
amortization, and development costs. The federal carryforwards
will begin to expire in 2009 and the state carryforwards will
begin to expire in 2005, if not otherwise noted.
The Company had a net deferred tax asset of $354,500 and
$219,250 at September 30, 1999 and 1998, primarily from net
operating loss carryforwards. A valuation allowance was
recorded to reduce the deferred tax to zero.
NOTE 12- SHAREHOLDERS' EQUITY TRANSACTIONS
During the period September 21, 1994 (date of inception)
through 1997 the Company funded its operations primarily from
the proceeds of 718,000 of common stock, $58,000 proceeds of
short term convertible debt and $309,000 of services provided
and common stock issued in lieu of cash payments.
F-37
<PAGE> 51
The Company's shareholder equity also consists of:
A. STOCK SPLIT
During February 1998, the Company affected a 75-for-1
stock split thereby authorizing the issuance of up to
75,000,000 shares of Common Stock. Stockholders
equity has been adjusted to give retroactive effect
to the stock split and in addition, all common shares
redeemed as a result of the aforementioned stocks
split were retired. The Company increased its' number
of shares authorized from 1,000,000 to 75,000,000
with par value remaining at $.01.
B. CONVERSION OF SUBORDINATED NOTES
During February, 1998, the Company converted an
aggregate of $175,000 principal amount of its 9%
Subordinated Notes, plus accrued interest and
warrants to acquire Common Stock into 242,847 shares
of restricted stock (after stock split) at a
conversion price of $.72 per share. The Company also
converted an aggregate of $156,500 principal amount
of short-term loans, plus accrued interest, made to
the Company during November and December of 1997 into
208,665 shares (after stock split) at a conversion
price of $.75 per share.
C. PRIVATE PLACEMENT OFFERING MEMORANDUM/STOCK OPTIONS
During 1998, GeneLink, Inc. commenced a private
placement offering memorandum of 800,000 Shares of
its common stock at $1 per share to the residents of
New York, New Jersey, Florida and the District of
Columbia under Rule 504 of Regulation D, which
provides an exemption for limited offerings and sales
of securities not exceeding $1,000,000. The proceeds
of approximately $640,000 of the offering were used
to fund research and development, marketing, working
capital, payments of salaries to officers, and
general administrative expenses. The Company
compensated Shannon/Rosenbloom Marketing, Inc.,
$100,000 for marketing, promotional and investor
relations services which was paid upon the successful
completion of the offering. The offering expenses
included travel, consulting fees, "blue sky" fees,
legal and accounting expenses.
In connection with the Private Placement Offering the
Company issued the following stock or options to
purchase stock as follows:
1. 250,000 restricted shares at $.10 per share
Shannon/Rosenbloom for marketing, promotion, and
investor relations services rendered at the time
the contract was signed.
The option of Shannon/Rosenbloom to convert $25,000
of its $100,000 fee into 250,000 shares of
unrestricted common stock at $.10 per share.
The Company valued the 250,000 restricted stock
shares and the 250,000 Shares of the unrestricted
stock $(25,000 fee converted into stock) at the fair
market value of the services rendered at date of
issuance @ $.10 each $(50,000).
D. TREASURY STOCK
On January 5, 1999, John DePhillipo, (CEO of the
company) purchased 21,180 shares of common stock by
exercising stock options for $2,118. On the same day,
the Company acquired 21,180 shares of common stock in
exchange of $40,242 of
F-38
<PAGE> 52
debt owed to the Company by John DePhillipo. The
shares had an option price of 10(cent) a share and
the fair market value was $2.00 per share.
On March 17, 1999, the Company received 150,000
shares which were previously issued to
Shannon/Rosenbloom. These shares were recorded as
treasury stock a the then fair market value of
$135,000.
E. STOCK OPTIONS AND WARRANTS
The Financial Accounting Standards Board has issued
SFAS 123, which defines a fair value based method of
accounting for an employee stock option and similar
equity instruments and encourages all entities to
adopt that method of accounting for all of their
employee stock compensation plans. However, it also
allows an entity to continue to measure compensation
cost for those plans using the method of accounting
prescribed by Accounting Principles Board Opinion No.
25 (APB 25). Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures
of net income (loss) and, if presented, earnings
(loss) per share, as if the fair value based method
accounting defined in SFAS 123 had been adopted. The
Company has elected to account for its stock-based
compensation plans under APB 25; however, since the
Company options and warrants issued have been less
than or equal to the Fair Market Value at date of
grant, no pro forma disclosures are applicable at
this time.
During 1998 Mr. DePhillipo (CEO of the Company)also
was granted options to acquire 1,200,000 Shares at
$.10 per Share, for services provided to the Company
from its inception, 400,000 of which vested upon the
execution of the employment agreement with the
remaining balance vesting in four (4) equal annual
installments of 200,000 each commencing January.
The Company also issued Dr. Ricciardi (Officer of the
Company) 1,000,000 options that will enable him to
acquire shares of the Company's common stock
exercisable at the price of $.10 per Share for
services provided to the Company from its inception.
These options will expire ten years from the
execution of the agreement and will vest as follows:
(1) 200,000 shares at the execution of the
agreement.
(2) 200,000 shares each January 1, beginning
January 1, 1999.
Pursuant to APB No. 25 compensation expense has not
been recognized in the stock options and warrants
granted as the option/warrants exercise price is less
than or equal to the market value of the Company's
common stock at the time of the grant.
The following schedule summarizes stock option and stock
warrants activity and status as of September 30.
F-39
<PAGE> 53
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Granted 2,425,000 2,200,000
========= =========
Options outstanding at
beginning of the period 600,000 0
Options vested during period 1,429,375 600,000
Options exercised during period (621,180) 0
Cancelled 0 0
--------- ---------
Outstanding at End of Period 1,408,195 600,000
========= =========
</TABLE>
A summary of outstanding options/warrants along with their
exercise price and dates are as follows:
<TABLE>
<CAPTION>
EXERCISE OPTIONS/WARRANTS OUTSTANDING EXPIRATION
PRICE GRANTED OPTIONS/WARRANTS DATE
----- ------- ---------------- ----
<S> <C> <C> <C> <C>
September 30, $ 0.10 2,200,000 2,200,000 01/01/02
1998
September 30, $ 0.10 2,200,000 1,578,820 01/01/02
1999 $ 0.75 45,00 45,000 12/31/04
$ 1.00 2,120,000 2,120000 01/01/02
$ 1.50 64,375 64,375 12/31/03
-------- --------- --------- --------
</TABLE>
NOTE 13 - NET LOSS PER SHARE
Earnings per share is calculated under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share." Basic EPS is calculated using the
weighted average number of common shares outstanding for the
period and diluted EPS is computed using the weighted average
number of common shares and dilutive common equivalent shares
outstanding. Given that the Company is in a loss position,
there is no difference between basic EPS and diluted EPS since
the common stock equivalents would be antidilutive.
F-40
<PAGE> 54
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30 1999 1998
---- ----
<S> <C> <C>
Net loss $ (426,338) $ (532,733)
Weighted average number of shares
of common stock and common stock
equivalents outstanding:
Weighted average number of common
shares outstanding for computing
basic earnings per share 9,839,750 8,819,478
Dilute effect of warrants and stock
options after application of the
treasury stock method * *
----------- -----------
Weighted average number of common
shares outstanding for computing
diluted earnings per share 9,839,750 8,819,478
=========== ===========
Net loss per share-basic & diluted $ (.043) $ (.06)
=========== ===========
</TABLE>
*The following common stock equivalents are excluded from
earnings per share calculation as their effect would have been
antidilutive:
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1999 1998
-------------------------- ---- ----
<S> <C> <C>
Warrants and stock options 862,778 540,000
</TABLE>
NOTE 14 - ADVERTISING
The Company expenses the production costs of advertising the
first time the advertising takes place. Advertising expense
was $29,379 and $21,961 for the nine months ending September
30, 1999 and 1998.
NOTE 15 - RENT
The Company leases its' primary executive offices located in
Margate, New Jersey at no cost from its officers.
Additionally, in September, 1999 the Company leased office
space in Cincinnati, Ohio for a term of one year at a gross
annual rent of $2,220.
NOTE 16 - TRANSACTIONS WITH RELATED PARTIES
The Company is dependent, to a large degree, on the services
of John DePhillipo, its Chairman and Chief Executive Officer
and the Company has entered into a five (5) year employment
agreement dated February 24, 1998, with annual base
compensation of $125,000. Officer compensation for the nine
months ending September 30, 1999 and 1998 was $103,125 and
$120,000, respectively.
Also, in 1998 the Company entered into a five year employment
agreement with Robert Ricciardi, Vice President of Research
and Development, with an agreed upon compensation of $30,000
in 1998 and $60,000 in 1999.
The Company has an agreement with the UNTHSC through March,
2006 for the storage of the genetic material obtained using
one of the Company's kits. Two (2) doctors associated with the
UNTHSC own approximately 20,000 Shares of the Company. The
Company has
F-41
<PAGE> 55
established protocols with the UNTHSC whereby the UNTHSC will
receive a sample in an envelope enclosed with the kit, measure
the quantity to assure that enough genetic material is
present, analyze the sample to extract the DNA and freeze and
store the material in the refrigerated area maintained by the
UNTHSC making it available for future retrieval.
A portion of the Company's operations are conducted by
Kelly/Waldron & Company in East Brunswick, New Jersey, which
owns 289,333 Shares of the Company. Kelly/Waldron, which
provides various services to members of the pharmaceutical
industry, acts as the Company's back office, receiving orders
and inquiries, processing data and preparing reports for the
Company.
To date, because of the Company's limited operations and the
limited availability of funds, the Company's agreement with
Kelly/Waldron does not require it to make any payments to
Kelly/Waldron for the latter's services. As its business
increases, the Company expects to commence payment of a
management fee to Kelly/Waldron on terms to be agreed upon
between the parties. It is expected that such arrangement will
involve a profit to Kelly/Waldron.
As of September 30, 1999 and 1998 the Company owed
Kelly/Waldron $19,608 and $19,188 respectively.
MARKETING
The Company has assembled a marketing team consisting of 4
individuals focusing on the Insurance Industry, Funeral
Industry, Senior Citizen Clinics, Direct Mail Programs and
Genetic Counselors. Training has begun in 10 states and will
encompass approximately 35 locations for the Funeral Industry.
The Company had engaged Shannon/Rosenbloom to perform
marketing, promotional and investor relations services,
pursuant to the terms of a marketing agreement. The services
rendered by Shannon/Rosenbloom included the dissemination and
publication of the Company's information materials to
Shannon/Rosenbloom's broker networks, market makers and
individual investors. During June, 1998 the Company paid
Shannon/ Rosenbloom $75,000, sold 250,000 Shares to
Shannon/Rosenbloom for $.10 per share and issued to Shannon/
Rosenbloom 250,000 restricted Shares. During the first quarter
of 1999, Shannon/Rosenbloom transferred 150,000 shares back to
the Company of the 500,000 shares received prior as they have
not performed all marketing services noted in the original
agreement. The parties have agreed to release each other from
any and all losses, claims, damages or demands.
SUPPLIER
The Company's kits are assembled by J. Knipper & Company,
Lakewood, New Jersey, which is engaged in supplying various
products to the pharmaceutical industry. Knipper warehouses
the kits for the Company and ships the kits directly to the
funeral home or distributor ordering the kits. The components
of the kits are provided by five (5) suppliers.
NOTE 17 - COMMITMENT & CONTINGENCIES
The Company is not at this time involved in any litigation,
nor to the knowledge of management is any litigation
threatened against the Company which might materially affect
the Company.
F-42
<PAGE> 56
The Company's financial statements are prepared using
generally accepted accounting principles applicable to a going
concern, which contemplates the realization of assets and
liquidation of liabilities on the normal course of business.
The Company's cash reserves have decreased since the company's
private placement of $800,000 to approximately $10,000 and
sales have slipped from 700 units to 25 units from 1997 to
1999, however, the company is in negotiations for a $1,000,000
Bridge Loan and has announced new marketing plans to enhance
sales and therefore believes that they will be able to
generate sufficient revenue and cash flow for the Company to
continue as a going concern.
NOTE 18 - SUBSEQUENT EVENTS
FINANCING
The Company has received a letter of intent dated March 18,
1999 from Brennan Dyer & Company, LLC, a venture capital
group, to obtain an additional $1 to 2 million of equity based
financing through the issuance of Convertible Preferred Stock.
The Preferred Stock is expected to be issued with a
convertible price in the $1-1 1/2 per share price range
depending on market conditions. The Company, however, has not
received any financing as of the report date.
MARKETING AGREEMENT
On January 5, 1999 the Company announced plans to become one
of the first companies to enter the online DNA banking
business. The Company's website will enable consumers
worldwide to order the Company's DNA Collection Kit.
F-43
<PAGE> 57
PART III
ITEM 1. INDEX TO EXHIBITS.
Exhibit
- -------
3(i) Articles of Incorporation of the Registrant
3(ii) By-Laws of the Registrant
10 Material Contracts
10.1 DNA Specimen Repository Agreement Between
University of North Texas Health Science
Center at Fort Worth and Genelink, Inc.
dated June 21, 1995;
10.2 Amendment No. 1 to Agreement Between
Genelink, Inc. and University of North Texas
Health Science Center at Fort Worth dated
November 5, 1995;
10.3 Collateral License Agreement By and Between
Genelink, Inc. and University of North Texas
Health Science Center dated July 1, 1996;
10.4 Employment Agreement By and Between
Genelink, Inc. and John R. DePhillipo dated
February 24, 1998;
10.5 Amendment to Employment Agreement By and
Between Genelink, Inc. and John R.
DePhillipo dated December 31, 1998;
10.6 Consulting Agreement By and Between
Genelink, Inc. and Robert P. Ricciardi,
Ph.D. dated February 24, 1998;
10.7 Amendment to Consulting Agreement By and
Between Genelink, Inc. and Robert P.
Ricciardi, Ph.D. dated December 31, 1998.
11 Statement re: computation of per share earnings.
Reference is made to the
Consolidated Statements of
Operations of the
Registrant for its fiscal
years ended December 31,
1998, and 1997, which are
incorporated herein by
reference.
23 Consent of Accountants
27 Financial Data Schedule
-1-
<PAGE> 58
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
GENELINK, INC.
Date: November 10, 1999 By: /s/ John R. DePhillipo
------------------------
John R. DePhillipo, Chairman, Chief
Executive Officer,
President, Secretary and
Director
Date: November 10, 1999 By: /s/ Robert P. Ricciardi
-----------------------
Robert P. Ricciardi, Treasurer
and Director
-2-
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION FOR PROFIT
OF
GENELINK, INC.
In compliance with the requirements of the applicable provision of 15 Pa.C.S.
(relating to corporations and unincorporated associations) the undersigned,
desiring to incorporate a corporation for profit hereby, state(s) that:
1. The name of the corporation is: GeneLink, Inc.
2. The address of this corporation's initial registered office in this
Commonwealth is:
c/o CT Corporation
Seven Penn Center
1635 Market Street
Philadelphia, PA 19103
(Philadelphia County)
3. The corporation is incorporated under the provisions of the Business
Corporation Law of 1988.
4. The aggregate number of shares authorized is: 1,000,000 shares of
common stock having $.01 par value per share.
5. The name and address of the incorporator is:
Elizabeth F. Bethel
c/o Pelino & Lentz, P.C.
One Liberty Place, 32nd Floor
Philadelphia, PA 19103-7393
6. The specified effective date, if any, is N/A
7. The purpose of the corporation is as follows:
The Corporation shall have unlimited power to engage in and to do any
lawful act concerning any and all lawful business for which
corporations may be incorporated under the Business Corporation Law of
1988, as amended, including but not limited to the power to engage in
the manufacture, fabrication, assembly, merchandising and distribution
of various items.
8. The shareholders of the corporation shall not have the right to
cumulate their votes for the election of directors of the corporation.
IN TESTIMONY WHEREOF, the incorporator has signed these Articles of
Incorporation this 5th day of January, 1995.
/s/ Elizabeth F. Betchel
-------------------------------
Elizabeth F. Betchel
3
<PAGE> 2
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 15Pa.C.S. Section 1915 (relating
to articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:
1. The name of the corporation is: GeneLink, Inc.
2. The (a) address of this corporation's current office in this
Commonwealth or (b) name of its commercial registered office provider
and the county of venue is (the Department is hereby authorized to
correct the following information to conform to the records of the
Department):
(a) _______________________________________________________________
(b) c/o CT Corporation 1635 Market Street Philadelphia, PA 19103
Philadelphia
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the
corporation is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: 15Pa.S.C.
Section 1306
4. The date of its incorporation is : January 6, 1995.
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of
--- Amendment in the Department of State.
The amendment shall be effective on: ______________ at
--- _________________. Date
Hour
6. (Check one of the following):
The amendment was adopted by the shareholders (or members)
--- pursuant to 15 Pa.C.S. Section 1914(a) and (b).
X The amendment was adopted by the board of directors pursuant
--- to 15 Pa.C.S. Section 1914 (c).
4
<PAGE> 3
7. (Check, and if appropriate complete, one of the following):
The amendment adopted by the corporation, set forth in full,
--- is as follows:
See Exhibit "A" attached hereto.
X The amendment adopted by the corporation is set forth in full
--- in Exhibit "A" attached hereto and made a part hereof.
8. (Check if the amendment restates the Articles):
The restated Articles of Incorporation supersede the original
--- Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
23rd day of February, 1998.
GENELINK, INC.
By: /s/ John R. DePhillipo
------------------------
John R. DePhillipo
Title: President
5
<PAGE> 4
EXHIBIT A
Pursuant to 15 Pa.C.S.A. Section 1914(c)(3)(ii) the following amendment
to the Articles of Incorporation of GeneLink, Inc. has been approved by the
Board of Directors in order to effectuate a stock split of 75 shares to 1:
4. The aggregate number of shares authorized is 75,000,000 shares
of common stock having $.01 par value per share.
6
<PAGE> 1
EXHIBIT 3.2
BYLAWS
Of
GENELINK, INC.
Adopted January 6, 1995
ARTICLE I - OFFICES
1.1 Offices. The Corporation may have such offices as the board of
directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II - SEAL
2.1 Corporate Seal. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and words "Corporate Seal,
Pennsylvania".
ARTICLE III - SHAREHOLDERS' MEETINGS
3.1 Location of Shareholders' Meetings. Meetings of shareholders shall
be held at the registered office of the corporation or at such other place as
shall be determined by the board of directors.
3.2 Annual Meeting. The annual meeting of the shareholders shall be
held each year on such date and at such time between April 1 and July 1 as shall
be determined by the board of directors for the purpose of electing directors
and for the transaction of such other business as may be properly brought before
the meeting. In each election of directors, the candidates receiving the highest
number of votes, up to the number of directors to be elected in such election,
shall be elected.
3.3 Quorum. The presence, in person or by proxy, of shareholders
entitled to cast a least a majority of the votes which all shareholders are
entitled to cast on the particular matter shall constitute a quorum for the
purpose of considering such matter. The shareholders present at a duly organized
meeting can continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
3.4 Action by Shareholders. Except as otherwise specified herein or
provided by law, whenever any action is to be taken by vote of the shareholders,
it shall be authorized upon receiving the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote thereon.
3.5 Notice of Meetings. Written notice of every meeting of the
shareholders shall be given to each shareholder of record entitled to vote at
the meeting at least ten days prior to the day named for a meeting called to
consider a fundamental change under Chapter 19 of the
7
<PAGE> 2
Business Corporation Law of 1988, as amended or at least five days prior to the
day named for other meetings, unless a greater period of notice is required in a
particular case by law.
3.6 Adjourned Meetings. When a meeting of shareholders is adjourned it
shall not be necessary to give any notice of the adjourned meeting or of the
business to be transacted at an adjourned meeting, other than by announcement at
the meeting at which the adjournment is taken, unless the board of directors
fixes a new record date for the adjourned meeting.
3.7 Judges of Election. In advance of any meeting of shareholders, the
board of directors may appoint judges of election, who need not be shareholders,
to act at such meeting or any adjournment thereof. If judges of election are not
so appointed, the presiding officer of any such meeting may, and on the request
of any shareholder shall, make such appointment at the meeting. The number of
judges shall be one or three. No person who is a candidate for office shall act
as a judge.
3.8 Special Meetings. Except as otherwise provided by law, special
meetings of shareholder may be called by and held at such places as shall be
fixed by the President or the board of directors. The Secretary of this
corporation shall, within three business days after receipt of a written request
by persons who have duly called such meeting, fix the time of the meeting, which
shall be held not more than 60 days after receipt of the request, and the
Secretary or the President shall give notice thereof to the shareholders. If the
Secretary neglects or refuses, within such three business days to fix the time
of the meeting, then the President or the board of directors may do so.
3.9 Record Date. The books of the corporation shall not be closed
against transfers of shares. The record date for determining shareholders for
any purpose where such date has not been fixed by the Board of directors or by
law, shall be at the close of business on the day on which the board of
directors adopt the resolution relating thereto.
ARTICLE IV - DIRECTORS
4.1 Number of Directors; Election; Term. The business of this
corporation shall be managed by a board of directors, consisting of not less
than three nor more than nine in number. The members of the board of directors
shall be elected by the shareholders at the annual meeting of shareholders and
each director shall serve until the next annual meeting of shareholders and
until the director's successor shall have been elected and qualified, or the
director's earlier resignation or removal. The number of directors to be elected
by the shareholders in any year shall be determined by the shareholders at the
annual meeting, and in the absence of such a determination, shall be the same
number as in the preceding year. Within the limits stated in this paragraph, the
number of directors may be increased at any time by the board of directors.
4.2 Quorum. A majority of the directors in office shall be necessary to
constitute a quorum for the transaction of business and the acts of a majority
of the directors present at a meeting at which a quorum is present shall be the
acts of the board of directors.
4.3 Regular and Special Meetings - Timing, Location and Notice. Regular
and special meeting of the board of directors shall be held at such times and
places as shall be fixed by the board of directors. Written notice of every
special meeting of the board of directors shall
8
<PAGE> 3
be given to each director at least one day before the day named for the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board need be specified in the notice of the meeting.
4.4 Committees Generally. The board of directors may, by resolution
adopted by a majority of the directors in office, establish one or more
committees, each committee to consist of one or more of the directors. A
committee, to the extent provided in the resolution of the board of directors
creating it, shall have and may exercise all of the powers and authority of the
board of directors except that a committee shall not have any power or authority
regarding: (i) the submission to shareholders of any actin requiring the
approval of shareholders under the Pennsylvania Business Corporation Law of
1988, as amended, (ii) the creation or filling of vacancies in the board of
directors, (iii) the adoption, amendment or repeal of the bylaws, (iv) the
amendment, adoption or repeal of any resolution of the board that by its terms
is amendable or repealable only by the board, or (v) action on matters committed
by the bylaws or resolution of the board to another committee of the board. Each
committee of the board shall serve at the pleasure of the board.
ARTICLE V - ACTION OF WRITTEN CONSENT AND USE
OF CONFERENCE TELEPHONE
5.1 Actions by Unanimous Written Consent. Any action required or
permitted to be taken at any meeting of the shareholders or the directors, or of
any committee of directors may be taken without a meeting if, prior or
subsequent to the action, a consent thereto in writing setting forth the action
so taken is signed by all the shareholders who would be entitled to vote at a
meeting for such purpose, or by all of the directors in office, or by all of the
members of such committee in office, as the case may be, and is filed with the
Secretary of the Corporation.
5.2 Participation in Meetings by Conference Telephone. One or more
persons may participate in a meeting of the shareholders, of the directors, or
of any committee of directors, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at the meeting.
5.3 Actions by Partial Written Consent of Shareholders. Any action
required or permitted to be taken at a meeting of the shareholders or of a class
of shareholders may be taken without a meeting upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting. The action shall
not become effective until after at least ten days' written notice of the action
has been given to each shareholder entitled to vote thereon who has not
consented thereto.
ARTICLE VI - OFFICERS
6.1 Officers; Term. The corporation shall have a President, Secretary,
and Treasurer and such other officers and assistant officers as the board of
directors shall authorize from time to time who shall be elected or appointed by
the board of directors each to serve for such term as shall be determined by the
board of directors and until his or her successor is chosen and shall
9
<PAGE> 4
have qualified or until his or her earlier resignation or removal. Any of the
foregoing offices may be held by the same person.
6.2 Authority and Duties of Officers. The officers shall have such
authority and perform such duties customarily associated with their respective
offices unless the board of directors shall determine otherwise.
6.3 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors with or without cause,
without prejudice to the contract rights, if any, of the person so removed.
ARTICLE VII - SHARE CERTIFICATES
7.1 Execution of share Certificates. Every share certificate shall be
executed by facsimile or otherwise, by or on behalf of the corporation, by the
President and countersigned by the Treasurer or an Assistant Treasurer or by the
Secretary or an Assistant Secretary. In the event any officer who has signed, or
whose facsimile signature has been placed upon any share certificate shall have
ceased to be such officer because of resignation, removal or otherwise, before
the certificate is issued, it may be issued by the corporation with the same
effect as if the officer had not ceased to be such at the date of issue.
7.2 Transfer of Shares. Transfers of shares shall be made on the books
of the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificates. No transfer shall be made in a manner
inconsistent wit the provisions of Article VIII of the Pennsylvania Uniform
Commercial Code and its amendments and supplements.
7.3 Lost Certificates. Any person claiming a share certificate to be
lost or destroyed shall be issued a new certificate after furnishing the
corporation with a satisfactory affidavit that such certificate has been lost or
destroyed, and, if required by the board of directors, a bond of indemnity to
the corporation with satisfactory surety to protect the corporation or any
person injured by the issue of a new certificate from any liability or expense
by reason thereof.
ARTICLE VIII - INDEMNIFICATION AND LIMITATION
OF DIRECTOR LIABILITY
8.1 Indemnification. Any person who is or is a party or is threatened
to be made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (whether or not the
liability arises or arose from any threatened, pending or completed action by or
in the right o f the corporation) by reason of the fact that the person at any
time is or shall have been a director or officer of the corporation or any of
its subsidiaries, or is or shall have been serving at the written request of the
corporation as a director, officer, employee or agent of another corporation,
for profit or not-for-profit, partnership, joint venture, trust or other
enterprise, and such person's heirs, executors and administrators, shall be
indemnified by the corporation, to the fullest extent permitted by applicable
law, against expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such action or proceeding unless the act or failure to act giving rise to
the claim for indemnification is determined to have constituted willful
misconduct or recklessness. The determination that
10
<PAGE> 5
indemnification shall be made because such standard of conduct has been met may
be made by a court, or in the absence of a court determination, shall be made by
the board by a majority vote of any directors who were not parties to the
action, or proceeding, even though such directors are less than a quorum, or, if
no directors are disinterested, by independent legal counsel in a written
opinion.
8.2 Advancing Expenses. The right to indemnification conferred in this
Article shall include the right to be paid by the corporation the expenses
(including attorneys' fees) incurred by an officer or director in defending any
civil, criminal, administrative or investigative actin, suit or proceeding in
advance of its final disposition upon receipt by the corporation of an
undertaking by or on behalf of the indemnitee to repay such amount if it shall
ultimately be determined that the indemnities is not entitled to be indemnified
for such expenses under this Article or otherwise.
8.3 Contract Right. The right of a person covered by Section 8.1 hereof
to be indemnified or to receive an advancement or reimbursement of expenses
pursuant to Section 8.2 hereof (1) may also be enforced as a contract right
pursuant to which the person entitled thereto may bring suit as if the
provisions hereof were set forth in a separate written contract between the
corporation and such person, and (2) shall continue to exist, if this Article 8
is rescinded or restrictively modified, with respect to events, acts or
omissions occurring before such rescission or restrictive modification is
adopted.
8.4 Non-Exclusivity of Indemnification; Insurance. The foregoing right
of indemnification shall not be deemed exclusive of other rights to which any
director officer, employee, agent or other person may be entitled in any
capacity as a matter of law or under any bylaw, agreement, vote of directors, or
otherwise. The corporation may purchase and maintain insurance on behalf of any
person to the full extent permitted by Pennsylvania law as in effect at the
adoption of this bylaw or as amended from time to time. The corporation may
create a fund of any nature which may, but need not be, under the control of a
trustee, or otherwise secure or insure in any manner its indemnification under
this bylaw.
8.5 Limitation of Director Liability. Each person who at any time is or
shall have been a director of this corporation shall not be personally liable
for monetary damages as such for any action taken, or any failure to take any
action, unless: (1) such person as director has breached or failed to perform
the duties of his office under 15 Pa.C.S. Subchapter 17B, and (2) the breach or
failure to perform constitutes self dealing, willful misconduct or recklessness.
The provisions of this bylaw shall not apply to: (1) responsibility or liability
of such person as director pursuant to any criminal statute; or (2) the
liability of a director for payment of taxes pursuant to local, state or federal
law. The provisions of this bylaw shall be construed to limit the liability of
such person as director in accordance with and to the full extent permitted by
Pennsylvania law as in effect at the time of the adoption of this bylaw or as
amended from time to time.
ARTICLE IX - NOTICE
9.1 Manner of Giving Notice. Except as otherwise specifically provided
in these bylaws, whenever the corporation is required to give written notice to
any person under these bylaws or by statute, it may be given to such person,
either personally or by sending a copy
11
<PAGE> 6
thereof by first class or express mail, postage prepaid, or by telegram (with
messenger service specified), telex or TWX (with answerback received), courier
service, charges prepaid, or by telecopier to his address (or to his telex, TWX,
telecopier or telephone number) appearing on the books of the corporation or, in
the case of directors, supplied by him to the corporation for the purpose of
notice. If the notice is sent by mail, telegraph or by courier service, it shall
be deemed to have been given to the person entitled thereto when deposited in
the United State mail, with a courier service or with a telegraph office for
delivery to such person or, in the case of telex or TWX, when dispatched. Such
notice shall specify the place, day and hour of the meeting and, in the case of
a special meeting of shareholders, the general nature of the business to be
transacted.
ARTICLE X - AMENDMENTS
10.1 Amendments to Bylaws. The bylaws of the corporation may be amended
or repealed by a majority vote of the members of the board of directors, unless
otherwise provided by law, subject always to the power of the shareholders
entitled to vote to change such action.
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<PAGE> 7
ARTICLE XI - FISCAL YEAR
11.1 Fiscal Year. The fiscal year of the corporation shall be fixed by
the board of directors.
ARTICLE XII - CORPORATE DIVISION
12.1 Plan of Division. Any plan of division shall require approval of
the shareholders, in the manner provided in Section 3.4 hereof, notwithstanding
any provision in the Pennsylvania Business Corporation Law of 1998, as amended
to the contrary.
13
<PAGE> 1
EXHIBIT 10.1
DNA SPECIMEN REPOSITORY AGREEMENT
Agreement made this 21st day of June, 1995 between the UNIVERSITY OF
NORTH TEXAS HEALTH SCIENCE CENTER AT FORTH WORTH ("UNTHSC"), an entity of the
State of Texas located in Fort Worth, Texas, and GENELINK, INC. ("GeneLink"), a
Pennsylvania corporation, with its principal office located in Margate, New
Jersey.
NOW, THEREFORE, in consideration of the premises hereinafter set forth,
the parties hereto mutually covenant and agree as follows:
Purpose. GeneLink has originated a program to market kits ("Kits") by
which an individual (the "Client") can obtain his or her DNA specimens
("Specimens") which will then be preserved for 25 years and be available for
various DNA laboratory analysis from time-to-time. A Kit shall be used by one
individual Client to furnish Specimens of that one individual. UNTHSC is willing
to serve as the repository to receive and extract the Specimens, preserve them
for a period of 25 years and make them available for analysis, on the terms set
forth in this Agreement.
Term.
2.1 GeneLink shall designate by notice to UNTHSC the
commencement date of this Agreement, which shall be when GeneLink commences the
sale of Kits and after GeneLink has paid the $13,600 referred to in Section 9.5
below ("Effective Date"). In no event shall the Effective Date be later than
April 30, 1996. Unless sooner terminated in the manner set forth below, the
primary term of this Agreement shall be for a period of five years after the
Effective Date, the parties shall negotiate a possible renewal of the Agreement,
but there shall be no obligation to renew.
2.2 The expiration or earlier termination of the term of this
Agreement shall relieve UNTHSC of the responsibility to continue to receive new
Specimens. It shall not relieve UNTHSC of the responsibilities to continue to
preserve Specimens already received by it for the full period of 25 years from
time of receipt of the Specimens, and to retrieve such Specimens for analysis,
as provided below, nor shall it relieve GeneLink of its obligations hereunder
with regard to such preserved Specimens; provided, however, that at any time
after the expiration or earlier termination of this Agreement GeneLink may
elect, at its expense, to transfer the Specimens to another repository, and
UNTHSC shall cooperate with GeneLink in arranging such transfer.
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<PAGE> 2
3. Exclusivity.
3.1 Within the United States of America, UNTHSC agrees that it
will not during the term of this Agreement and for a period of one year after
termination of this Agreement, engage in any business or perform any service,
directly or indirectly, in competition with the business of GeneLink, or have
any interest, whether as proprietor, partner, stockholder, principal, agent,
consultant, or in any other capacity or manner whatsoever, in any enterprise
which shall so engage, but only to the extent that UNTHSC's purpose of such
interest is to provide long-term DNA specimen preservation services which is in
competition with the business of GeneLink. For purposes of this Section 3.1,
"business of GeneLink" shall not include the provision of analysis and
extraction of DNA, including, without limitation, the DNA analysis and
extraction services currently provided by UNTHSC. During the period of one year
after non-renewal, UNTHSC's only obligation under this Section shall be to
refrain from competing in association with those entities with which GeneLink is
doing business and which are listed by GeneLink in a notice to UNTHSC. UNTHSC
for any reason set forth in Section 4.1, then this Section shall have no effect
and UNTHSC shall not be bound by the noncompete clause incorporated herein.
3.2 During the term of this Agreement, GeneLink agrees not to
engage any entity other than UNTHSC to provide long-term preservation of
Specimens for GeneLink's clients.
4. Termination.
4.1 Subject to Section 2.2 above, either party ("Terminating
Party") may elect immediately to terminate this Agreement prior to the end of
the term in the event that the other party ("Defaulting Party"): (1) dissolves,
disbands, or a liquidator or trustee is appointed or takes possession of the
Defaulting Party's property and such appointment or possession remains in effect
for more than 90 days; (2) is adjudicated bankrupt or insolvent or a petition is
filed against it under any bankruptcy law and is not dismissed within 90 days
after filing; (3) fails to account and/or make any payment due hereunder, and
such failure is not cured within 30 days after written notice is given; (4)
fails in any material and substantial manner to perform any other obligation
required of it hereunder and such failure is not cured within 30 days after
written notice thereof is given; or (5) is found by a court of competent
jurisdiction to have engaged in material acts of deceit or fraud, and all
applicable appeal periods have expired without any appeals being filed, or if
any appeals have been filed, a final, unappealable decision has affirmed such
finding.
4.2 Termination shall be effected by the Terminating Party
providing notice in accordance with this Agreement to the other party declaring
its election to terminate. Termination shall not affect any right of either
party which accrued prior to such termination. Termination shall be without any
further liability on the part of the Terminating Party. In the event of
termination under clause (1) or (2) of subsection 4.1, if no successor is
performing GeneLink's obligations under this Agreement, then GeneLink shall make
available to UNTHSC the names and addresses of each Client and his
identification number and his payment history, so that UNTHSC can identify
Clients requesting retrieval of Specimens.
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<PAGE> 3
5. The Kits.
5.1 GeneLink shall furnish to UNTHSC prototype of any versions
of Kits that it puts into production from time-to-time, and UNTHSC shall
cooperate with GeneLink by promptly furnishing any comments with regard to such
prototypes. However, since the parties are independent contractors, the design,
appearance and specifications of the Kits shall be under the complete control
and responsibility of GeneLink, and UNTHSC shall have no responsibility
therefor, except as follows:
(1) GeneLink may in its marketing of Kits state
that the Specimens shall be stored at
repositories located at UNTHSC and that
quantitative extraction of the Specimens
shall be performed by UNTHSC, or words to
that effect. The parties agree that the
language set forth in Exhibit C attached
hereto and made a part hereof is an
acceptable statement for purposes of this
section, and UNTHSC shall cooperate with
GeneLink in approving unreasonably withheld
or delayed. GeneLink shall obtain the
written approval of UNTHSC prior to using
the name of UNTHSC in its advertising,
marketing, distributing or selling of the
Kits, or in any other manner, other than as
stated in this section and Exhibit C, and
Section 7.4.
(2) UNTHSC shall approve in writing: (a) the
specifications for the implement which the
Client shall use in collecting the Specimen;
(b) the Client instructions included with
the Kit; and (c) any written instructions
inclusive of the data from furnished by
GeneLink to the Client in connection with
retrieval of Specimens as described below,
which approvals shall not be unreasonably
withheld or delayed. GeneLink agrees that
the Client instructions or any data form
included with the Kit shall refer to the
repository, the disposal of Specimens at the
end of the 25 years, confidentiality of the
Client's name, and a statement that the
Specimen may not be appropriate for certain
types of genetic analysis. If GeneLink shall
submit a specification or instruction in
writing to UNTHSC, UNTHSC shall have been
deemed to approve such specification or
instruction unless it notifies GeneLink in
writing within 30 days after receipt
thereof. The parties agree that initially
the specification for the swabs set forth in
Exhibit D attached hereto and made a part
hereof and the collection procedure
described in Exhibit A are approved by the
parties.
(3) Unless otherwise agreed by the parties, each
Kit shall contain 21 bar coded labels, with
an adhesive that is mutually acceptable to
the parties, which acceptance shall not be
unreasonably withheld or delayed.
6. Full Requirements. In performing its services of collecting,
preserving and retrieving Specimens as provided herein, UNTHSC shall maintain
such staff and facilities as
16
<PAGE> 4
may be necessary to meet the full requirements of GeneLink under this Agreement.
The parties recognize that the program is a new venture and that it is not
possible to predict accurately the volume of Specimens that may be received. The
parties recognize that the success of GeneLink's program will depend, in part,
on the ability of UNTHSC to process, and preserve and retrieve Specimens in
whatever quantity GeneLink is able to produce. GeneLink will cooperate with
UNTHSC in advising UNTHSC on the first and fifteenth of each month of the
expected volume of Specimens, and UNTHSC shall be responsible for process,
preserving and retrieving under this Agreement whatever quantity of Specimens is
required by GeneLink to serve its Clients.
7. Collection Procedure.
7.1 GeneLink or the Client shall ship to UNTHSC the Specimens,
which shall contain a number for identification purposes. GeneLink shall
maintain the record of the Client name identified with each number, and UNTHSC
shall be furnished only the numbers for each Specimen.
7.2 UNTHSC shall furnish at the UNTHSC campus and shall
maintain during the term of this Agreement and for a period of 25 years from the
time the last Specimen is received pursuant to this Agreement, a repository
sufficient to store and preserve all Specimens furnished pursuant to this
Agreement and shall maintain the repository in accordance with the following
conditions:
(1) Two separate freezers used to store
Specimens shall be kept at a minimum
temperature of -20(Degree)c. at all times;
provided, however, that UNTHSC may designate
another minimum temperature that will
prohibit bacteriological growth and maintain
the integrity of the Specimen, subject to
the consent of GeneLink, which consent shall
not be unreasonably withheld.
(2) The Specimens shall be kept in a secured
environment, with an alarm system to notify
UNTHSC security of unauthorized entry or of
any failure of freezer temperature.
(3) The repository shall be staffed on an 8 hour
per day/40 hour per week basis. The
repository shall be closed in accordance
with the holiday schedule and emergencies
declared by administration of UNTHSC.
(4) UNTHSC shall maintain a data base for the
repository which shall contain information
regarding receipt and storage of all
Specimens in accordance with their
identification number.
7.3 UNTHSC shall maintain computer contact with GeneLink for
quick and efficient communication.
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<PAGE> 5
7.4 UNTHSC shall provide to GeneLink written and pictorial
material describing the repository, UNTHSC and its personnel that shall be
suitable for promotional use by GeneLink if it should choose to do so, and
UNTHSC hereby authorized such use.
7.5 UNTHSC shall process Specimens received pursuant to this
Agreement within three working days of receipt.
7.6 Upon receipt of Specimen, UNTHSC shall:
(1) Enter the identification number of the
Specimens that it receives into the
repository data base immediately upon
receipt, and advise GeneLink thereof on a
daily basis.
(2) Provide technicians and equipment necessary
to extract the DNA from the swabs in
accordance with the procedure set forth in
Exhibit A hereto, which is incorporated by
reference into this Agreement. UNTHSC may in
writing from time-to-time adopt other
scientifically acceptable PROCEDURES THAT
ARE EQUIVALENT IN ACCURACY TO THE PROCEDURES
SET FORTH IN exhibit a, and shall advise
GeneLink of any such new procedure. In case
of objection by GeneLink, the parties shall
meet and attempt to resolve the matter.
UNTHSC shall seek to extract all available
human specific DNA.
(3) Preserve the Specimen (if at least 4,5000
nanograms of human specific DNA), half in
each of the two freezers for a period of 25
years form the date of receipt, and advise
GeneLink on a daily basis of the Specimens
on that day placed in the freezers and the
semi-quantitative approximate of the total
quantity of DNA in each Specimen.
7.7 UNTHSC shall not be responsible for determining the length
of the DNA from a Specimen. both parties acknowledge that by not determining the
length of the DNA, certain analytical DNA procedures may not be able to be
performed.
7.8 In the event that the testing of the Specimen by UNTHSC
determines that a Client's Specimen does not yield at least 4,500 nanograms of
DNA, UNTHSC shall preserve the Specimen, notify GeneLink, and GeneLink shall
seek to obtain new Specimens from such Client to replace the initial Specimen.
7.9 Upon placing the Specimen in the freezer, and UNTHSC's
receipt of payment as provided herein, UNTHSC shall issue a certificate to be
sent to the Client by GeneLink which shall certify that UNTHSC is preserving the
Specimen in it repository for the 25 year period. The form of the certificate
shall be agreed to in writing form time-to-time by the parties. the parties
agree that initially the form attached hereto as Exhibit F shall be the form of
the certificate.
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<PAGE> 6
7.10 In the event that shipping instructions and payment of
reasonable shipping and handling costs have not been received by UNTHSC within
90 days after the expiration of the 25 year preservation period, UNTHSC shall,
at its sole option, ship within the Untied States at UNTHSC's cost, outdated
Specimens to a GeneLink location or subsequent repository as designated by
GeneLink, in group mailings at intervals to be determined by UNTHSC, or
otherwise discard the Specimens in accordance with applicable law.
8. Retrieval and Analysis of Specimens.
8.1 GeneLink shall advise UNTHSC when a Client wishes to
retrieve Specimens for analysis and furnish a copy of the Client's consent. Such
consent shall conform with applicable state and federal law. Analysis shall be
performed at such laboratory as the Client shall designate. If UNTHSC shall have
the capability to perform such analysis, GeneLink will include UNTHSC on the
same basis as other qualified laboratories in whatever information about
specific testing laboratories, if any, GeneLink furnishes to the Client or its
representatives.
8.2 Upon being notified by GeneLink that a Client wishes to
access a Specimen, UNTHSC shall within three business days retrieve the
requested Specimens in accordance with the procedures set forth in Exhibit B
attached hereto and incorporated by reference to this Agreement; test the
Specimen for efficacy; package and send the appropriate portion of the Specimen
as directed by GeneLink; and return the unused portion of the Specimen to
storage.
8.3 The size of the portion of the Specimen to be removed
shall be determined by the testing laboratory authorized to perform the Client
order test.
8.4 UNTHSC does not guarantee and shall not be held
responsible for the number of genetic tests that can be performed on an
individual's stored DNA during the storage period.
8.5 GeneLink shall be responsible for collecting retrieval
fees from the Client and paying UNTHSC the appropriate fees prior to the
retrieval and testing of Specimens.
8.6 UNTHSC shall advise GeneLink on a daily basis of the
Specimens shipped to laboratories for analysis.
9. Payment.
9.1 Subject to Section 9.6 below, on or before the 15th day of
each month of the term of this Agreement (or the next succeeding business day),
GeneLink shall pay UNTHSC (***) per Client submitting Specimens to UNTHSC during
the previous month. Such payment shall constitute the entire fee for the DNA
extraction and 25 year storage of such Specimen by UNTHSC as provided herein.
Such payment shall be made by GeneLink without regard to the Client's payment or
non-payment to GeneLink.
9.2 At the time of each payment in accordance with Section
9.1, GeneLink shall also pay UNTHSC (****) for or any Client submitting
additional Specimens to UNTHSC during the previous month in order to replace or
supplement deficient Specimens. Such payment
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<PAGE> 7
shall constitute the entire fee for the quantitative extraction and 25 year
storage of such additional Specimens. Such payment shall be made by GeneLink
without regard to the individual's payment or non-payment to GeneLink.
9.3 In the development of GeneLink's program, the selection of
collection materials and the development of the procedure for collection set
forth in Exhibit A, GeneLink has relied upon the advise and assistance of
UNTHSC. If an excessive number of Specimens, for whatever reason, do not contain
the required minimum amount of DNA, then UNTHSC shall work with GeneLink to
resolve the problem.
9.4 Prior to the Effective Date of this Agreement, GeneLink
shall pay to UNTHSC $3,600 to be used for the establishment of the repositories,
approximately as set forth on a capital expenses budget submitted by UNTHSC to
GeneLink prior to the date hereof. Any of such amount that is not used by UNTHSC
for such purpose, shall be returned to GeneLink.
9.5 As the sole method to repay such $3,600 advance, the
payments to UNTHSC in Section 9.1 of this Agreement shall be (***) for the first
5,667 individuals submitting original Specimens. In the event that a portion of
the advance is returned to GeneLink pursuant to Section 9.4, the number of
individuals specified in this Section shall decrease proportionally so that the
amount of repayment equals the advance amount actually used by UNTHSC.
9.6 For UNTHSC's services in retrieving Specimens for analysis
in accordance with exhibit B, GeneLink shall pay UNTHSC a retrieval fee of (***)
per Specimen retrieved. In addition to the retrieval fee, UNTHSC shall be paid
(***) per daily shipment to a particular laboratory for handling the shipment,
and GeneLink shall be responsible for the actual shipping charge and
out-of-pocket cost of packaging material. Payments under this Section shall be
on the same terms as specified in Section 9.1.
9.7 If, after the expiration of the term or the earlier
termination to this Agreement, Specimens are sent by Clients to UNTHSC, UNTHSC
will forward the Specimens as directed by GeneLink, and GeneLink shall pay the
same amounts as applicable for shipment of Specimens under Section 9.6.
10. Notices. All notices required hereunder shall be sufficient only if
in writing and shall be deemed to have been given if delivered (including by
nationally recognized overnight delivery service) or mailed by certified mail,
return receipt requested, postage prepaid, or by facsimile (receipt confirmed):
If to GeneLink, addressed to:
P.O. Box 3212
100 S. Thurlow Avenue
Margate, NJ 08402
Attn: Mr. John R. DePhillipo
Fax No.: (609) 823-6616
20
<PAGE> 8
with a copy to:
Steven J. Serling, Esquire
Pelino & Lentz, P.C.
One Liberty Place, 32nd Floor
1650 Market Street
Philadelphia, PA 19103-7393
Fax No.: (215) 665-1536
if to UNTHSC, addressed to:
University of North Texas
Health Science Center
at Fort Worth
35 Camp Bowie Boulevard
Fort Worth, TX 76107
Attn: Mr. Dennis Shingleton
Fax No.: (817) 735-2424
or such other address as the party to receive the notice shall advise by due
notice hereunder. Notices shall be effective the earlier of receipt or five days
after dispatch.
11. Independent Contractor. This Agreement is not intended as and shall
not be construed as a brokerage agreement or an agreement of joint venture or
partnership or of employment by either party of the other or of its employees.
UNTHSC shall perform all work and services hereunder as an independent
contractor and shall not be an officer, agent, servant or employee of GeneLink.
UNTHSC shall have exclusive control, and the exclusive right to control, the
details of the work and services performed hereunder, and all persons performing
same. Neither UNTHSC nor GeneLink shall incur any indebtedness, enter into any
undertaking or make any commitment in the other party's name or purporting to be
on the other party's behalf except with the express written permission of the
other party.
12. Standard and Care.
12.1 The services to be provided by UNTHSC hereunder shall be
diligently performed with UNTHSC's ordinary and prudent skill and attention and
in conformity with this Agreement and its various exhibits and with the level of
skill appropriate for the preservation and testing of DNA material. without
limiting the foregoing, UNTHSC agrees to be reasonable for all Specimens lost or
damaged while in its possession or control. GeneLink shall use due care in the
performance of its obligations hereunder.
12.2 To the extent permitted by the laws of Texas, UNTHSC
agrees to indemnify and hold harmless GeneLink, its officers, directors,
shareholders and employees from any and all demands, actions, suits, claims,
liability, damage, cost or expense, that arise out of or in connection with the
performance by UNTHSC of its duties hereunder, except for and to the extent of
any action or inaction of GeneLink, its officers or employees, or agents.
12.3 GeneLink agrees to indemnify and hold harmless UNTHSC,
its Board of Regents, officers and employees from any and all demands, actions,
suits, claims, liability, damage, cost or expense, that arise out of or in
connection with the development, manufacturing,
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<PAGE> 9
advertising, marketing, distribution, sale, use or misuse of the Kits, whether
arising out of the acts or omissions of GeneLink, its officers, employees or
agent, or otherwise, except for and to the extent of any action or inaction of
UNTHSC, its officers or employees, or agents.
13. Confidential Information.
13.1 It is understood that in the performance of its services
under this Agreement, UNTHSC may have access to private or confidential
information of Clients. UNTHSC shall use its best efforts to keep, and have its
employees and agents keep, any and all such information confidential and to use
such information only for the purposes of fulfilling its services under this
Agreement or otherwise as agreed to by the Client. this provision shall not
prohibit UNTHSC from disclosing such information to persons required to have
access thereto for the performance of this Agreement, or pursuant to a
requirement of applicable federal or state law.
13.2 UNTHSC recognized the exclusive right of GeneLink in and
to all of the trademarks of GeneLink applied to the Kits, the GeneLink program,
and the services furnished by GeneLink hereunder and any and all of GeneLink's
copyrights of material used in connection therewith. UNTHSC acknowledges that
the system and procedures utilized by GeneLink in performing the services under
this Agreement may contain commercially valuable proprietary confidential
materials utilized by GeneLink in marketing its products are confidential
information and trade secrets which may be disclosed to UNTHSC on a confidential
basis pursuant to this Agreement. UNTHSC shall have no copyright interest,
patent rights, property rights or other interest in the services provided by
GeneLink hereunder or in any developments or improvements thereto (other than
laboratory procedures developed by UNTHSC that do not involve proprietary
material of GeneLink), whether or not presently existing, nor in any software
programs which may be developed by GeneLink to perform its services hereunder.
UNTHSC agrees to hod confidential and to use only in connection with the
services provided under this Agreement all proprietary information GeneLink
furnishes to UNTHSC, which shall have been marked "confidential" or
"proprietary." UNTHSC's obligations under this Section shall not apply to any
information that was known to UNTHSC prior to disclosure by GeneLink, or is or
becomes generally available to the public other than by breach of this Agreement
or is required to be disclosed in accordance with applicable federal or state
law.
13.3 In any academic publication describing its activities
under this Agreement or findings based thereon, UNTHSC shall refer to and
identify GeneLink as the provider of the GeneLink program.
14. Authority. Each party to this Agreement represents to the other
that it has the full right, power and authority to enter into and perform this
Agreement in accordance with all of the terms, provisions, covenants and
conditions thereof, and that the execution and delivery of this Agreement has
been duly authorized by proper corporate or Board of Regents action.
15. Representation of UNTHSC. UNTHSC represents to GeneLink that, based
on UNTHSC's reasonable and prudent professional judgment, based on its
experience in working with DNA and on certain testing procedures it has employed
as described on Exhibit E attached hereto and made a part hereof, UNTHSC is not
currently aware of any scientifically accepted reason why the procedures
described in Exhibits A and B are not appropriate procedures for the
22
<PAGE> 10
purpose of the collection and extraction of DNA; why DNA Specimens collected,
preserved and retrieved in accordance with such procedures and this Agreement
should not survive for at least 25 years or why stored Specimens should not
result in Specimen material appropriate in quality and quantity for DNA analysis
by independent commercial laboratories to identify various types of DNA related
to diseases or medical conditions.
16. Force Majeure Clause. The parties hereto are relieved of any
liability if unable to meet the terms and conditions of this Agreement due to
any "Act of God", riots, epidemics, strikes, or any act or order which is beyond
the control of the party not in compliance; provided that it takes all
reasonable steps practical and necessary to effect prompt resumption of its
responsibilities hereunder.
17. Non-Waiver. The failure of either party to insist upon the
performance of any term or provision of this Agreement or to exercise any right
herein conferred shall not be construed as a waiver or relinquishment of the
party's right to assert or rely upon any such term or right on any future
occasion.
18. Assignability and Benefit. UNTHSC shall not assign its obligations
or rights hereunder. Any unauthorized assignment or delegation by UNTHSC of its
rights or duties hereunder, without the prior written consent of GeneLink, shall
b void and shall constitute a breach of this Agreement. GeneLink shall not
assign its obligations or rights hereunder without the consent of UNTHSC, which
consent shall not be unreasonably withheld or delayed (except that GeneLink may
assign to an entity controlled by or under common control with GeneLink). The
covenants herein contained shall bind and the benefits and advantages shall
inure to the respective successors and permit assignees of the parties, jointly
and severally.
19. Compliance with Applicable Laws. Each party shall be responsible
for obtaining and maintaining at its sole expense and in its name, all licenses
and permits which such party may require in order to perform the services
described herein. UNTHSC and GeneLink shall each comply with all applicable
federal, state and local laws and regulations respectively applicable to each
party in connection with the services contemplated hereunder. both parties
represent that they have no actual knowledge that any federal, state or other
governmental regulatory approvals are required prior to the execution or
effectiveness of this Agreement. All obligations under this Agreement are
subject to any future required federal, state or other city regulatory
approvals. Each party shall use good faith efforts to obtain any such approvals
which are required because of that party's identity, status or actions, and the
other party or parties shall cooperate with any such efforts. If any such
approvals are required but not obtained, then, subject to the provisions of the
following sentence, the obligations to which such approvals apply shall have no
force or effect until such time or times as the required approvals are obtained.
If the unenforceability of any such obligations materially and substantially
diminishes the considerations which otherwise would be received by any party
under this Agreement, than that party may terminate this Agreement without
liability in accordance with Section 4 of this Agreement.
20. Severability. In the event that any provision hereof shall be
deemed in violation of any law or held to be invalid by any court in which this
Agreement shall be interpreted, the violation or invalidity of any particular
provision shall not be deemed to affect any other
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<PAGE> 11
provision hereof, but this Agreement shall be thereafter interpreted as though
the particular provision so held to be in violation or invalid were not
contained herein.
21. Entirety Clause. This written agreement constitutes the entire
agreement of the parties regarding the subject matter of this Agreement.
Statements or representations not included herein shall not be binding upon the
parties, and no subsequent modifications or amendments of any of the terms
hereof shall be valid or binding unless made in writing and signed by both
parties.
22. State Law and Venue. This Agreement shall be construed under the
laws of the State of Texas. the parties consent to the venue of the federal
district court for the Northern District of Texas with respect to legal actions
concerning this Agreement, or, if such court does not have jurisdiction, the
courts of Tarrent County, Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the 21st day of June, 1995.
GENELINK, INC.
June 21, 1995 /s/ John R. DePhillipo
------------- ------------------------------------
Date John R. DePhillipo
President and CEO
UNIVERSITY OF NORTH TEXAS HEALTH
SCIENCE CENTER AT FORT WORTH
By: /s/ David M. Richard, D.O.
---------------------------------
President
24
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1 TO
AGREEMENTS
BETWEEN
GENELINK, INC.
AND
UNIVERSITY OF NORTH TEXAS HEALTH SCIENCE CENTER
AT FORTH WORTH
1. PARTIES. This AMENDMENT is made and entered into by and between
UNIVERSITY OF NORTH TEXAS HEALTH SCIENCE CENTER AT FORTH WORTH, whose address is
3500 Camp Bowie Blvd., Forth Worth, Texas 76107-2699, hereinafter referred to as
"UNTHSC", and GENELINK, INC., a Pennsylvania corporation, with its principal
office located in Margate, New Jersey, hereinafter referred to "GeneLink".
2. AMENDED AGREEMENTS. This is an Amendment to the DNA Specimen
Repository Agreement by and between the above listed parties dated June 21,
1995, hereinafter referred to as "AGREEMENT". A copy of the AGREEMENT is
attached hereto and incorporated by reference. In addition, this is an Amendment
to the Collateral License Agreement by and between the above listed parties
dated July 1, 1996, hereinafter referred to as "LICENSE AGREEMENT". A copy of
the LICENSE AGREEMENT is attached hereto and incorporated by reference.
3. AMENDMENT DATE. This AMENDMENT is effective on April 1, 1996.
4. AMENDMENT. In accordance with Section 21 of the AGREEMENT and
Section 1 of the LICENSE AGREEMENT, and for good and valuable consideration,
GeneLink and UNTHSC hereby make the following amendments:
SECTIONS 9.1 AND 2.1 of the AGREEMENT shall be modified as follows:
GeneLink shall continue to pay UNTHSC (***) per client for a
period of 5 years beyond the date of termination of the
AGREEMENT on March 21, 2001. On or about April 1, 2005, the
parties shall negotiate in good faith a possible adjustment of
this fee based upon current technology and costs. Absent a
written agreement signed by both parties adjusting this
resulting from such negotiation, all kits sold under the terms
of the AGREEMENT will be stored by UNTHSC in accordance with
the terms of the AGREEMENT at the rate of (***) per sample
through March 30, 2006.
SECTION 2 of the LICENSE AGREEMENT shall be replaced with the
following:
This LICENSE AGREEMENT shall be for the term of the AGREEMENT
and for the term of the AMENDMENT effective on April 1, 1996,
through March 30, 2006, and any other subsequent extensions.
This LICENSE
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<PAGE> 2
AGREEMENT shall be subject to termination upon the conditions
of the AGREEMENT.
5. CONFLICT. Other than the matters addressed above, this AMENDMENT
does not act to change or alter any other provision of the AGREEMENT or the
LICENSE AGREEMENT. In the event of a conflict between the terms of this
AMENDMENT and the AGREEMENT, the terms of this AMENDMENT will control. In the
event of a conflict between the terms of this AMENDMENT and the LICENSE
AGREEMENT, the terms of this AMENDMENT will control.
UNIVERSITY OF NORTH TEXAS GENELINK, INC.
HEALTH CENTER AT FORT WORTH
By: /s/ David M. Richard, D.O. By: /s/ John R. DePhillipo
------------------------------ --------------------------
David M. Richard, D.O. John R. DePhillipo
President President and CEO
Date: November 11, 1996 Date: November 5, 1995
26
<PAGE> 1
EXHIBIT 10.3
COLLATERAL LICENSE AGREEMENT
This agreement is made and entered into as of the 1st day of July,
1996, by and between GeneLink, Inc., a Corporation of the Common wealth of
Pennsylvania, having a place of business at Margate, New Jersey (hereinafter
"Genelink"); and university of North Texas Health Science Center having a place
of business at 35 Camp Bowie Blvd., Fort Worth, Texas 76107 (hereinafter
"USTHSC").
W I T N E S S E T H
Whereas, Genelink and UNTHSC have entered into a technology agreement
which was effective as of April 1, 1996 and has a termination date of March 31,
2001;
Genelink is owner of U.S. Patent Application Serial No. 08/558,840
entitled "Non-Invasive Identification System" (hereinafter "Patent
Application");
Accordingly, in consideration of one dollar $(1.00) and other valuable
consideration the parties agree as follows:
1. Subject to the terms and conditions set forth in the aforesaid
agreement dated April 1, 1996, Genelink grants UNTHSC a royalty free
non-exclusive license under the Patent Application.
2. This license shall be for the term of the technology agreement and
subject to termination upon the same conditions set therein.
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<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this License Agreement to
be executed all as of the day and year first above written.
Attest: /s/ Patti Lloyd UNIVERSITY OF NORTH TEXAS
------------------------------------- HEALTH SCIENCE CENTER
Patti Lloyd July 8, 1996
By: /s/ David M. Richards, D.O.
----------------------------
David M. Richards, D.O.
President
Attest: /s/ Dr. Robert P. Ricciardi GENELINK, INC.
Dr. Robert P. Ricciardi May 30, 1996
By: /s/ John R. DePhillipo
----------------------------
John R. DePhillipo
President
28
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT("Agreement") made and entered as of February 24,
1998 by and among GENELINK, INC. (the "Company"), a New Jersey corporation and
JOHN DEPHILLIPO (the "Executive").
BACKGROUND
The parties want to enter into an employment agreement and to set forth
the terms and conditions of the Executive's employment by the Company.
Accordingly, in consideration of the mutual covenants and agreements set forth
herein and the mutual benefits to be derived herefrom, and intending to be
legally bound, the Company and the Executive agree as follows:
1. EMPLOYMENT.
(a) Duties. The Company will employ the Executive, on the
terms set forth in this Agreement, as Chairman of the Board, President and Chief
Executive Officer. The Executive accepts such employment with the Company and
will perform and fulfill such duties as are reasonable and necessary for such
position for the Company and its subsidiaries, devoting his best efforts to the
performance and fulfillment of his duties and to the advancement of the
interests of the Company, subject only to the direction, approval, control and
directives of the Board.
(b) Place of Performance. In his employment by the Company,
the Executive will be based in the Margate, New Jersey metropolitan area, except
for required travel on Company business.
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<PAGE> 2
2. TERM.
The Executive's employment under this agreement will be for a five year
term (the "Term") commencing as of January 1, 1998 (the "Commencement Date") and
will continue uninterrupted for the Term. Each year, unless one party notified
the other party in writing by November 1 of the preceding year, on the
anniversary date of the Commencement Date, the parties will automatically extend
the Term for an additional year. The parties intend the effect that a full five
year Term will always exist under this Agreement.
3. COMPENSATION.
(a) Base Salary. During the Term, the Executive will be
entitled to receive an annual salary in the calendar year 1998 of $125,000 (the
"Base Salary"). Each year thereafter, Executive will be entitled to an increase
in the Base Salary equal to the greatest of: (i) the percentage increase in the
Consumer Price Index for the previous year as reported by the United States
Department of Commerce; (ii) 10%; or, (iii) an amount determined by the Board or
a committee of the Board designated for this purpose, payable in installments at
such time as the Company customarily pays its other senior executive employees
(but in any event no less often than monthly). The increase determined in the
previous sentence will be added to the then current Base Salary to become the
Base Salary for purposes of this Agreement.
(b) I there is a change in control such as would require the
Company to file a Form 8-K with the Securities and Exchange Commission if the
Company was a reporting company, the Executive will be entitled to be paid a
lump sum payment equal to the aggregate Base Salary, with minimum 10% increases
each year, for the next five years, and a lump sum bonus equal to five time the
largest bonus paid to Executive under this Agreement. The
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<PAGE> 3
Company will pay the payments required under the previous sentence within 30
days of the change in control.
(c) Bonus. Executive will receive an annual bonus according to
a Company Bonus Plan adopted by the Board.
4. HEALTH INSURANCE AND OTHER BENEFITS.
During the Term, the Executive will be entitled to all employee
benefits offered by the Company to its senior executives and key management
employees, including, without limitation, all pension, profit sharing,
retirement, stock option, salary continuation, deferred compensation, disability
insurance, hospitalization insurance, major medical insurance, medical
reimbursement, survivor income, life insurance or any other benefit plan or
arrangement established and maintained by the Company, subject to the rules and
regulations then in effect regarding participation therein. In addition, the
Company will obtain and fund for Executive a life insurance policy for
$1,000,000, with the beneficiary.
5. REIMBURSEMENT OF EXPENSES.
The Company will reimburse Executive for all items of travel,
entertainment and miscellaneous expenses that the Executive reasonably incurs in
the performance of his duties hereunder, if the Executive submits to the Company
evidence supporting these expenses as the Company may reasonably require.
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<PAGE> 4
6. AUTOMOBILE ALLOWANCE.
The Company will pay Executive a monthly automobile allowance of $800
for the first year of this Agreement, $800 per month for the second year and
$1000 per month thereafter, subject to increase by the Board. In the
alternative, the Company may obtain an automobile for the Executive's sole use,
to be approved by the Executive. The Company will pay directly or reimburse
Executive for all expenses of the automobile, including, but not limited to,
taxes, insurance, maintenance, fuel, parking, and the like.
7. OPTIONS: GRANT OF SHARES.
(a) Upon the execution of this Agreement, the Company will
issue to Executive options to purchase 1,200,000 shares (the "Shares") of the
Company's common stock $.001 par value, exercisable at the price of $0.10 per
Share. These options will expire ten years from the date hereof and will vest as
follows:
(i) 400,000 Shares upon execution of this Agreement,
and
(ii) 200,000 Shares each January 1, beginning January
1, 1999. Options will be exercisable upon vesting. If there is a change in
control that would require the Company to file a Form 8-K with the Securities
and Exchange Commission of the Company was a reporting company, all unvested
options will be immediately exercisable. The Executive may exercise vested
options by giving the Company a note equal to the Federal Funds Rate published
in the Wall Street Journal as adjusted from time to time. In the alternative,
the Executive may use Shares owned by the Executive, valued at the
then-prevailing market price of the Shares.
(b) The Executive will also be eligible to participate in any
stock option, stock grant, phantom stock, or other employee incentive plan when,
as and if approved by the Board.
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Eligibility in no way creates an obligation of the Company to issue options to
Executive, which will be in the sole and absolute discretion of the Compensation
Committee of the Board.
(c) Upon execution of this Agreement. Executive will receive a
grant of 200,000 Shares as a signing bonus.
(d) The stock grants and options granted under this Section 7
of the Agreement will be adjusted for any recapitalizations, stock dividends,
stock splits or other changes in the Company's capital stock.
8. VACATION.
This Agreement entitles the Executive to four weeks paid vacation in
each calendar year (prorated in any calendar year during which the Company
employs the Executive under this Agreement for less than the entire year
according to the number of days in such calendar year during which he is
employed). The Executive will also be entitled to all paid holidays given by the
Company to its senior executive officer.
9. TERMINATION OF EMPLOYMENT.
(a) Death or Total Disability. If the Executive dies during
the Term, the Agreement will end as of the date of the Executive's death. The
Company will pay the Executive's salary for the remaining Term to Executive's
beneficiary or estate, and all health insurance benefits for Executive's family
will continue for at least two years following the Executive's death. In case of
the Total Disability (as defined below) of the Executive for any consecutive
twelve months during the Term, the Company will have the right to end this
Agreement by giving the Executive thirty (30) days' prior written notice, and
upon the expiration of such thirty (30) day period, the Executive's employment
under this Agreement will end. If there is such a termination, the Company will
pay Executive his salary for the remaining Term. If the Executive will resume
his duties within thirty (30) days after receipt of such a notice of
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<PAGE> 6
termination, this Agreement will continue in full force and effect. Upon
termination of this Agreement under this Section 9(a), the Company will have no
further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be, the portion of salary
that remains unpaid for the Term, including minimum increases and continuation
of benefits.
The term "Total Disability", as used herein, will mean a
mental or physical condition that in the reasonable opinion of an independent
medical doctor selected by the Company renders the Executive unable or
incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement at the time the Executive incurred the disabling
condition. If the Executive is covered under any policy or disability insurance
under Section 4, the definition of Total Disability hereunder will be the
definition of that term in such policy.
(b) The Company may only terminate this Agreement for cause
under this Section 9(b) or under Section 9(a) of this Agreement. Cause for
termination exists only if the Executive is convicted of a felony involving
fraud or violation of the Federal Securities Laws, or a court of competent
jurisdiction finds that the Executive has engaged in conduct involving the
Company that constitutes gross negligence or intentional misconduct. If the
Company terminates the Executive under this Section, all unvested options or
stock grants will be void and the Executive will not receive any salary or
benefit continuation.
10. NO MITIGATION.
This Agreement does not require the Executive to mitigate the amount of
any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor will the amount of any payment provided for in this
Agreement be reduced by any compensation earned by the Executive as the result
of his employment by another employer.
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<PAGE> 7
11. RESTRICTIVE COVENANT.
(a) Competition. Executive undertakes and agrees that until
two years after termination of this Agreement, he will not compete, directly or
indirectly, or participate as a director, officer, employee, consultant agent,
consultant, representative or otherwise, or as a stockholder, partner or joint
venture, or have any direct or indirect financial interest, including, without
limitation, the interest of a creditor, in any business competing directly or
indirectly with the business of Company or any of its subsidiaries.
(b) Trade Secrets. During the Term and after termination for
any reason, Executive will not reveal, divulge, copy or otherwise use any trade
secret of the Company or its subsidiaries, it being acknowledged that all such
information and materials compiled or obtained by or disclosed to Executive
while employed by the Company or its subsidiaries hereunder or otherwise are
confidential and are the exclusive property of the Company and its subsidiaries.
(c) Injunctive Relief. The parties hereto agree that the
remedy at law for any breach of the provisions of this Section 11 will be
inadequate and that this Agreement entitles the Company or any of its
subsidiaries or other successors or assigns to injunctive relief without a bond.
Such injunctive relief will not be exclusive, but will be in addition to any
other rights remedies Company or any of its subsidiaries or their successors or
assigns might have for such breach.
(d) Scope of Covenant. Should the duration, geographical area
or range or prescribed activities contained in subparagraph (a) above be held
unreasonable by any court of competent jurisdiction, then such court may modify
the duration, geographical area or range of prescribed activities to such degree
as to make it or them reasonable and enforceable.
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<PAGE> 8
12. INDEMNIFY.
The Company will indemnify and hold the Executive harmless to the
maximum extent permitted by law against any claim, action, demand, loss, damage,
cost, expense, liability or penalty arising out of any act, failure to act,
omission or decision by him while performing services as an officer, director or
employee of the Company, other than an act, omission or decision by the
Executive that is not in good faith and is without his reasonable belief that
the same is, or was, in the best interests of the Company. To the extent
permitted by law, the Company will pay all attorneys' fees, expenses and costs
actually incurred by the Executive in the defense of any of the claims
referenced herein.
13. MISCELLANEOUS.
(a) Notices. Any notice, demand or communication required or
permitted under this Agreement will be in writing and will either be hand
delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice will be deemed to have been given and received when so hand
delivered or after three business days when so deposited in the U.S. Mail, or
when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company: GeneLink, Inc.
P.O. Box 3212
Margate, NJ 08402
Fax No. (609) ___-____
To Executive:
The parties may change the foregoing addresses at any time by written notice
given in the manner herein provided.
(b) Integration; Modification. This Agreement is the entire
understanding and agreement between the Company and the Executive regarding its
subject matter and supersedes
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<PAGE> 9
all prior negotiations and agreements, whether oral or written, between them
with respect to its subject matter. This Agreement may not be modified except by
a written agreement signed by the Executive and a duly authorized officer of the
Company.
(c) Enforceability. If any provision of this Agreement will be
invalid or unenforceable, in whole or in part, such provision will be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or will be deemed excised from this Agreement,
as the case may be, and this Agreement will be construed and enforced to the
maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
(d) Binding Effect. This Agreement will be binding upon and
inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that the Executive may not assign this
Agreement.
(e) Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances
will be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder will not bar the later exercise of
it.
(f) Governing Law and Interpretation. This Agreement will be
governed by the internal laws of the State of New Jersey. Each party agrees that
he or it, as the case may be, will deal fairly and in good faith with the other
party in performing, observing and complying with the covenants, promises,
duties, obligations, terms and conditions to be performed, observed or complied
with by him or it, as the case may be, hereunder and that this Agreement
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<PAGE> 10
shall be interpreted, construed and enforced according to this covenant despite
any law to the contrary.
(g) Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and will not be
considered in interpreting this Agreement.
(h) Counterparts. The parties may execute this Agreement in
several counterparts, each of which will be deemed to be an original but all of
which together will make up the same instrument.
IN WITNESS WHEREOF, the Executive and the duly authorized officers of
the Company have executed this Agreement on the date first written above.
GENELINK, INC.
By: /s/ John R. DePhillipo
----------------------
John R. DePhillipo
/s/ John R. DePhillipo
----------------------
John R. DePhillipo
38
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EXHIBIT 10.5
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT dated as of the 31st day of
December, 1998 by and between GENELINK, INC., a Pennsylvania corporation (the
"Company"), and JOHN R. DEPHILLIPO ("Executive").
BACKGROUND
The Company and Executive are parties to an Employment Agreement dated
as of February 24, 1998 (the "Original Employment Agreement"), pursuant to which
Executive is employed as president and chief executive officer of the Company.
The parties hereto desire to amend the Employment Agreement as further
set forth below.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
1. Amendment to Paragraph 3(d). Paragraph 3(d) of the Original
Employment Agreement is hereby amended to read in its entirety as follows:
"(d) Repayment of Loans. Executive may pay any loans or advances made
to him by the Company using cash, Company Shares, options to acquire
Company Shares, or any combination, by December 31, 2003, unless
extended by the Company."
2. Full Force and Effect. Except as expressly amended hereby, the
Original Employment Agreement shall remain valid, binding and in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
/s/ John DePhillipo
----------------------
JOHN DEPHILLIPO
GENELINK, INC.
By: /s/ John R. DePhillipo
-----------------------
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<PAGE> 1
EXHIBIT 10.6
CONSULTING AGREEMENT
CONSULTING AGREEMENT ("Agreement") made and entered as of February 24,
1998 by and among GENELINK, INC. (the "Company"), a Pennsylvania corporation and
ROBERT P. RICCIARDI, PH.D. (the "Consultant").
BACKGROUND
The parties want to enter into a consulting agreement and to set forth
the terms and conditions of the Consultant's relationship with the Company.
Accordingly, in consideration of the mutual covenants and agreements set forth
herein and the mutual benefits to be derived herefrom, and intending to be
legally bound, the Company and the Consultant agree as follows:
1. ENGAGEMENT
(a) Duties. The Company will engage the Consultant, on the
terms set forth in this Agreement, as a consultant and Treasurer. The Consultant
accepts such relationship with the Company and will perform and fulfill such
duties as are reasonable and necessary for such position for the Company and its
subsidiaries, devoting his best efforts to the performance and fulfillment of
his duties and to the advancement of the interests of the Company, subject only
to the direction of the Board of Directors of the Company (the "Board"). In no
event will the Consultant be required to provide more than eight (8) hours of
consulting services in any week. Notwithstanding the foregoing, the Company will
not require Consultant to provide more hours of service per week than would be
allowed by his current (or any future) position with the University of
Pennsylvania or other academic institution.
(b) Place of Performance. In his engagement by the Company,
the Consultant will be based in the Philadelphia, Pennsylvania metropolitan
area, except for required travel on Company business.
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<PAGE> 2
2. TERM
The Consultant's engagement under this Agreement will be for a five
year term (the "Term") commencing as of the date of an initial closing of the
Company' limited offering (the "Commencement Date") and will continue
uninterrupted for the Term. Each year, unless one party notified the other party
in writing by sixty (60) days prior to the anniversary of the Commencement Date
(the "Anniversary Date"), on the Anniversary Date, the parties will
automatically extend the Term for an additional year. The parties intend the
effect that a full five year Term will always exist under this Agreement.
3. COMPENSATION
(a) Base Compensation. During the Term, the Consultant will be
entitled to receive annual compensation in the calendar year 1998 of $30,000 and
in the calendar year of 1999 of $60,000 (the "Base Compensation"). Each year
thereafter, Consultant will be entitled to an increase in the Base Compensation
equal to the greatest of: (i) the percentage increase in the Consumer Price
Index for the previous year as reported by the United States Department of
Commerce; (ii) 10%; or (iii) an amount determined by the Board or a committee of
the Board designated for this purpose, payable in installments at such time as
the Company customarily pays its senior management (but in any event no less
often than monthly). The increase determined in the previous sentence will be
added to the then current Base Compensation to become the Base Compensation for
purposes of this Agreement.
(b) If there is a change in control such as would require the
Company to file a Form 8-K with the Securities and Exchange Commission if the
Company was a reporting company under the Securities Exchange Act of 1934 (a
"Change in Control"), the Consultant will be entitled to be paid a lump sum
payment equal to the aggregate Base Compensation, with minimum 10% increases
each year, for the next five years, and a lump sum bonus equal to five
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<PAGE> 3
times the largest bonus paid to Consultant under this Agreement. The Company
will pay the payments required under the previous sentence within 30 days of the
Change in Control.
(c) Bonus. Consultant will receive an annual bonus according
to a Company Bonus Plan adopted by the Board.
4. INSURANCE AND OTHER BENEFITS
During the Term, the Consultant will be entitled to opt into all
benefits offered by the Company to its key management employees, including,
without limitation, all pension, profit sharing, retirement, stock option,
deferred compensation, disability insurance, survivor benefits, life insurance
or any other benefit plan or arrangement established and maintained by the
Company, subject to the rules and regulations then in effect regarding
participation therein. In addition, the Company will obtain and fund for
Consultant a life insurance policy for $1,000,000, with beneficiary to be named
by Consultant.
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<PAGE> 4
5. REIMBURSEMENT OF EXPENSES
The Company will reimburse Consultant for all items of travel,
entertainment and miscellaneous expenses that the Consultant reasonably incurs
in the performance of his duties hereunder, if the Consultant submits to the
Company evidence supporting these expenses as the Company may reasonably
require.
6. OPTIONS: GRANT OF SHARES
(a) Upon the execution of this Agreement, the Company
will issue to Consultant options to purchase
1,000,000 shares (the "Shares") of the Company's
common stock $.01 par value, exercisable at the price
of $0.10 per Share. These options will expire ten
years from the date hereof and will vest as follows:
(i) 200,000 Shares upon execution of this
Agreement, and
(ii) 200,000 Shares each January 1, beginning
January 1, 1999. Options will be exercisable
upon vesting. If there is a Change of
Control, all unvested options will be
immediately exercisable. The Consultant may
exercise vested options by giving the
Company a note equal to the exercise price
of the options exercised, which will bear
interest at a floating rate equal to the
Federal Funds Rate published in the Wall
Street Journal as adjusted from time to
time. In the alternative, the Consultant may
use Shares owned by the Consultant may
retire debt of the Company to the Consultant
in return for Shares. Shares issued or to be
issued pursuant to these options will be
registered for re-sale by the Company on a
Form S-8
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<PAGE> 5
as soon as the Company is eligible to use
Form S-8. The Company will bear the entire
cost of such registration.
(b) The Consultant will also be eligible to participate
in any stock option, stock grant, phantom stock, or
other incentive plan when, as and if approved by the
Board. Eligibility in no way creates an obligation of
the Company to issue options to the Consultant, which
will be in the sole and absolute discretion of the
Compensation Committee of the Board.
(c) The stock grants and options granted under this
Section 6 of the Agreement will be adjusted for any
recapitalizations, stock dividends, stock splits or
other changes in the Company's capital stock.
7. TERMINATION OF EMPLOYMENT
(a) Death and Total Disability. If the Consultant dies
during the Term, this Agreement will end as of the
date of the Consultant's death. The Company will pay
the Consultant's compensation for the remaining Term
to Consultant's beneficiary or estate. In case of
Total Disability (as defined below) of the Consultant
for any consecutive twelve months during the Term,
the Company will have the right to end this Agreement
by giving the Consultant thirty (30) days' prior
written notice, and upon the expiration of such
thirty (30) day period, the Consultant's employment
under this Agreement will end. If there is such a
termination, the Company will pay Consultant his
Compensation for the remaining Term. If the
Consultant will resume his duties within thirty (30)
days after receipt of such a notice of termination,
this Agreement will continue in full force and
effect. Upon termination of this Agreement under this
Section 9(a),
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<PAGE> 6
the Company will have no further obligations or
liabilities under this Agreement, except to pay to
the Consultant's estate or the Consultant, as the
case may be, the portion of Compensation that remains
unpaid for the Term, including minimum increases and
continuation of benefits.
The term "Total Disability", as used herein, will man
a mental or physical condition that in the reasonable opinion of an independent
medical doctor selected by the Company renders the Consultant unable or
incompetent to carry out the material duties and responsibilities of the
Consultant under this Agreement at the time the Consultant incurred the
disabling condition. If the Consultant is covered under any policy of disability
insurance under Section 4, the definition of Total Disability hereunder will be
the definition of that term in such policy.
(b) The Company may only terminate this Agreement for
cause under this Section 9(b) or under Section 9(a)
of this Agreement. Cause for termination exists only
if the Consultant is convicted of a felony involving
fraud or violation of the Federal Securities laws, or
a court of competent jurisdiction finds that the
Consultant has engaged in conduct involving the
Company that constitutes gross negligence or
intentional misconduct. If the Company terminates the
Consultant under this section, all unvested options
or stock grants will be void and the Consultant will
not receive any Compensation or benefit continuation.
8. NO MITIGATION
This Agreement does not require the Consultant to mitigate the amount
of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor will the
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<PAGE> 7
amount of any payment provided for in this Agreement be reduced by any
compensation earned by the Consultant as the result of his employment by another
employer.
9. RESTRICTIVE COVENANT
(a) Competition. Consultant undertakes and agrees that
until two years after termination of this Agreement,
he will not compete, directly or indirectly, or
participate as a director, officer, employee,
consultant agent, consultant, representative or
otherwise, or as a stockholder, partner or joint
venturer, or have any direct or indirect financial
interest, including, without limitation, the interest
of a creditor, in any business competing directly or
indirectly with the business of Company or any of its
subsidiaries.
(b) Trade Secrets. During the Term and after termination
for any reason, Consultant will not reveal, divulge,
copy or otherwise use any trade secret of the Company
or its subsidiaries, it being acknowledged that all
such information and materials compiled or obtained
by or disclosed to Consultant while employed by the
Company or its subsidiaries hereunder or otherwise
are confidential and are the exclusive property of
the Company and its subsidiaries.
(c) Injunctive Relief. The parties hereto agree that the
remedy at law for any breach of the provisions of
this Section 9 will be inadequate and that this
Agreement entitles the Company or any of its
subsidiaries or other successors or assigns to
injunctive relief without a bond. Such injunctive
relief will not be exclusive, but will be in addition
to any other rights and remedies Company or any of
its subsidiaries or their successors or assigns might
have for such breach.
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<PAGE> 8
(d) Scope of Covenant. Should the duration, geographical
area or range or proscribed activities contained in
subparagraph (a) be held unreasonable by any court of
competent jurisdiction, then such court may modify
the duration, geographical area or range of
proscribed activities to such degree as to make it or
them reasonable and enforceable.
10. INDEMNITY
The Company will indemnify and hold the Consultant harmless to
the maximum extent permitted by law against any claim, action, demand, loss,
damage, cost, expense, liability or penalty arising out of any act, failure to
act, omission or decision by him while performing services as an officer,
director or employee of the Company, other than an act, omission or decision by
the Consultant that is not in good faith and is without his reasonable belief
that the same is, or was, in the best interests of the Company. To the extent
permitted by law, the Company will pay all attorneys' fees, expenses and costs
actually incurred by the Consultant in the defense of any of the claims
referenced herein.
11. MISCELLANEOUS
(a) Notices. Any notice, demand or communication required
or permitted under this Agreement will be in writing
and will either be hand-delivered to the other party
or mailed to the addresses set forth below by
registered or certified mail, return receipt
requested or sent by overnight express mail or
courier or facsimile to such address, if a party has
a facsimile machine. Notice will be deemed to have
been given and received when so hand-delivered or
after three business days when so deposited in the
U.S. Mail, or when
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<PAGE> 9
transmitted and received by facsimile or sent by
express mail properly addressed to the other party.
The addresses are:
To the Company: GeneLink, Inc.
P.O. Box 3212
Margate, NJ 08402
Fax No. (609) ____-________
To the Consultant:
The parties may change the foregoing addresses at any time by written notice
given in the manner herein provided.
(b) Integration; Modification. This Agreement is the
entire understanding and agreement between the
Company and the Consultant regarding its subject
matter and supersedes all prior negotiations and
agreement, whether oral or written, between them with
respect to its subject matter. This Agreement may not
be modified except by a written agreement signed by
the Consultant and a duly authorized officer of the
Company.
(c) Enforceability. If any provision of this Agreement
will be invalid or unenforceable, in whole or in
part, such provision will be deemed to be modified or
restricted to the extent and in the manner necessary
to render the same valid and enforceable, or will be
deemed excised from this Agreement, as the case may
be, and this Agreement will be construed and enforced
to the maximum extent permitted by law as if such
provision had been originally incorporated herein as
so modified or restricted, or as if such
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<PAGE> 10
provision had not been originally incorporated
herein, as the case may be.
(d) Binding Effect. This Agreement will be binding upon
and inure to the benefit of the parties, including
and their respective heirs, executors, successors and
assigns, except that the Consultant may not assign
this Agreement.
(e) Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term
or covenant continued in this Agreement, whether by
conduct or otherwise, in any one or more instances
will be deemed or construed as a further or
continuing waiver of any such condition or breach or
a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement.
Moreover, the failure of either party to exercise any
right hereunder will not bar the later exercise of
it.
(f) Governing Law and Interpretation. The internal laws
of the Sate of New Jersey will govern this Agreement.
Each party agrees that he or it, as the case may be,
will deal fairly and in good faith with the other
party in performing, observing and complying with the
covenants, promises, duties, obligations, terms and
conditions to be performed, observed or complied with
by him or it, as the case may be, hereunder; and that
this Agreement shall be interpreted, construed and
enforced according to this covenant despite any law
to the contrary.
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<PAGE> 11
(g) Headings. The headings of the various sections and
paragraphs have been included herein for convenience
only and will not be considered in interpreting this
Agreement.
(h) Counterparts. The parties may execute this Agreement
in several counterparts, each of which will be deemed
to be an original but al of which together will make
up the same instrument.
IN WITNESS WHEREOF, the Consultant and the duly authorized officers of
the Company have executed this Agreement on the date first written
above.
GENELINK, INC.
By: /s/ John R. DePhillipo
----------------------
John R. DePhillipo
/s/ Dr. Robert P. Ricciardi
---------------------------
Dr. Robert P. Ricciardi
50
<PAGE> 1
EXHIBIT 10.7
AMENDMENT TO CONSULTING AGREEMENT
THIS AMENDMENT TO CONSULTING AGREEMENT made and entered to this 31st
day of December, 1998, by and among GENELINK, INC. (the "Company"), a
Pennsylvania corporation, and ROBERT P. RICCIARDI, PH.D. (the "Consultant").
BACKGROUND
The Company and the Consultant are parties to a Consulting Agreement
dated as of February, 1998 (the "Consulting Agreement"). The parties desire to
amend the Consulting Agreement as set forth below.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Amendment to Consulting Agreement. Section 7(a) of the
Consulting Agreement is hereby amended by deleting current
Section 7(a) and replacing it in its entirety as follows:
"(a) Consultant is granted the right and option to purchase
1,000,000 shares (the "Shares") of the Company's Common Stock, exercitate the
price of $.10 per Share, which right and option may be exercised from time to
time, in whole or in pat, on a cumulative basis at any time. Subject to the
provisions of this Section 7(a) to the contrary, in the event that Consultant
ceases to be an employee, consultant, representative or agent of the Company on
or before the dates listed below, Consultant shall be obligated to forfeit to
the Company any and all Shares exercised by Consultant in excess of the number
of Shares set forth below:
<TABLE>
<CAPTION>
No. of Shares No. of Shares
Consultant May Retain Subject to Forfeiture Termination Date
--------------------- --------------------- ----------------
<S> <C> <C>
200,000 800,000 Prior to January 1, 1999
400,000 600,000 Prior to January 1, 2000
600,000 400,000 Prior to January 1, 2001
800,000 200,000 Prior to January 1, 2002
1,000,000 0 On or after January 1, 2002
</TABLE>
Notwithstanding anything in this Section 7(a) to the contrary, Consultant's
obligation to forfeit any Shares he has purchased shall terminate upon a "change
in control" of the Company. For purposes of this Agreement, the term "change in
control" shall be deemed to have occurred when
51
<PAGE> 2
(i) the sale in any one or more related transaction of 33% or more of the
outstanding voting stock of the Company, (ii) the Company sells 50% or more of
its assets in one or a number of related transactions, or (iii) as a result of a
tender offer, merger, consolidation, sale of assets, or contest for election of
directors, or any combination of the foregoing transactions or events,
individuals who were members of the Board of Directors of the Company
immediately prior to any such transaction or event. The Consultant may exercise
options by giving the Company a note equal to the exercise price of the options
exercised, which will bear interest at a floating rate equal to the Federal
Funds Rate published in The Wall Street Journal as adjusted form time to time.
In the alternative, the Consultant may use Shares owned by the Consultant,
valued at the then prevailing market price of the Shares."
2. No Other Amendment. The Consulting Agreement as amended hereby
remains in full force in effect and, except as expressly as stated herein, there
are no other amendments thereto.
IN WITNESS WHEREOF, the parties have executed this Amendment to
Consulting Agreement as of the date set forth above.
GENELINK, INC.
By: /s/ John R. DePhillipo
--------------------------
Chief Executive Officer
By: /s/ Robert P. Ricciardi
--------------------------
Robert P. Ricciardi, Ph.D.
52
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in Form 10-SB of our reports dated October
28, 1999 and March 12, 1999, relating to the financial statements of GeneLink,
Inc., which is contained therein.
Philadelphia, Pennsylvania
November 10, 1999 Siegal & Drossner, P.C.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 11,334
<SECURITIES> 0
<RECEIVABLES> 198
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,230
<PP&E> 65,280
<DEPRECIATION> 8,613
<TOTAL-ASSETS> 845,827
<CURRENT-LIABILITIES> 157,260
<BONDS> 0
0
0
<COMMON> 658,567
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 845,827
<SALES> 2,263
<TOTAL-REVENUES> 2,263
<CGS> 532
<TOTAL-COSTS> 301,274
<OTHER-EXPENSES> 389,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,219
<INCOME-PRETAX> (648,207)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
