UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
¨
Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For quarterly period ended __________
x
Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the transition period from September
16, 2014 to September 30, 2014
COMMISSION FILE NUMBER 033-24138-D
IMAGENETIX,
INC.
(Exact name of registrant as specified in its charter)
| NEVADA |
|
87-0463772 |
(State or other jurisdiction of incorporation or
organization) |
|
(I.R.S. Employer Identification No.) |
| 10845 Rancho Bernardo Road, Suite 105 |
| San Diego, California 92127 |
| (Address of principal executive offices) |
Registrant’s telephone number (including
area code) (858) 674-8455
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
¨
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes x No
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer ¨ |
|
Accelerated filer ¨ |
|
Non-accelerated filer ¨ |
|
Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ Nox
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes x No
¨
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
| Common Stock, $.001 par value |
28,272,955 |
| |
|
| (Class) |
Outstanding at November 19, 2014 |
Imagenetix, Inc.
INDEX
| * | No information provided due to inapplicability of the item. |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Imagenetix, Inc.
Condensed Consolidated Balance Sheets
| | |
September 30, | | |
September 16, | |
| | |
2014 | | |
2014 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | 255,545 | | |
$ | 1,493,709 | |
| Accounts receivable, net | |
| 324,793 | | |
| 160,802 | |
| Inventories, net | |
| 75,474 | | |
| 48,740 | |
| Prepaid expenses and other current assets | |
| 23,899 | | |
| 23,899 | |
| Total current assets | |
| 679,711 | | |
| 1,727,150 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 25,487 | | |
| 25,487 | |
| Goodwill on fresh start from bankruptcy | |
| 8,205,597 | | |
| 8,205,597 | |
| Other assets | |
| 22,969 | | |
| 23,166 | |
| Long-term deferred tax assets | |
| - | | |
| - | |
| Total Assets | |
$ | 8,933,764 | | |
$ | 9,981,400 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Secured note payable | |
$ | - | | |
$ | 726,250 | |
| Accounts payable | |
| 137,078 | | |
| 277,638 | |
| Accrued liabilities | |
| 84,163 | | |
| 244,913 | |
| Customer deposits | |
| 8,250 | | |
| 8,250 | |
| Total current liabilities | |
| 229,491 | | |
| 1,257,051 | |
| | |
| | | |
| | |
| Long term claims payable | |
| 2,250,000 | | |
| 2,400,000 | |
| | |
| | | |
| | |
| Stockholders' equity | |
| | | |
| | |
| Preferred stock, $.001 par value; 5,000,000 shares authorized: none outstanding | |
| - | | |
| - | |
| Common stock, $.001 par value; 50,000,000 shares authorized: 28,272,955 issued and outstanding at September 30, 2014 and September 16, 2014, respectively | |
| 28,272 | | |
| 28,272 | |
| Capital in excess of par value | |
| 6,296,077 | | |
| 6,296,077 | |
| Retained earnings | |
| 129,924 | | |
| - | |
| Total stockholders' equity | |
| 6,454,273 | | |
| 6,324,349 | |
| Total Liabilities and Stockholders' Equity | |
$ | 8,933,764 | | |
$ | 9,981,400 | |
See accompanying notes to unaudited condensed consolidated financial
statements.
Imagenetix, Inc.
Condensed Consolidated Statement of Income
(Unaudited)
| | |
Period Ended | |
| | |
September 30, | |
| | |
2014 | |
| | |
| |
| Net sales | |
| | |
| Product sales | |
$ | 315 | |
| Licenses and royalties | |
| 163,991 | |
| Total net sales | |
| 164,306 | |
| | |
| | |
| Cost of sales | |
| 3,031 | |
| | |
| | |
| Gross profit | |
| 161,275 | |
| | |
| | |
| Operating expenses: | |
| | |
| General and administrative | |
| 3,656 | |
| Payroll expense | |
| 21,292 | |
| Consulting expense | |
| 6,403 | |
| Operating expenses | |
| 31,351 | |
| | |
| | |
| Operating income | |
| 129,924 | |
| | |
| | |
| Other income (expense): | |
| | |
| Other income | |
| - | |
| | |
| | |
| Income before income taxes | |
| 129,924 | |
| | |
| | |
| Income tax expense | |
| - | |
| | |
| | |
| Net income | |
$ | 129,924 | |
| | |
| | |
| Basic net income per share | |
$ | 0.00 | |
| Fully diluted net income per share | |
$ | 0.00 | |
| | |
| | |
| Basic weighted average common shares outstanding | |
| 28,272,955 | |
| Fully diluted weighted average common shares outstanding | |
| 29,350,386 | |
See accompanying notes to unaudited condensed consolidated financial
statements.
Imagenetix, Inc.
Condensed Consolidated Statements of
Cash Flows
(Unaudited)
| | |
Period Ended | |
| | |
September 30, 2014 | |
| Operating activities: | |
| | |
| Net income | |
$ | 129,924 | |
| Adjustments to reconcile net income to cash provided by (used in) operating activities: | |
| | |
| Amortization and depreciation | |
| 197 | |
| Payments on long term bankruptcy claims payable | |
| (150,000 | ) |
| Changes in assets and liabilities: | |
| | |
| (Increase) decrease in accounts receivable | |
| (163,991 | ) |
| (Increase) decrease in inventories | |
| (26,734 | ) |
| Increase (decrease) in accounts payable | |
| (140,560 | ) |
| Increase (decrease) in accrued liabilities | |
| (160,750 | ) |
| Net cash (used in) operating activities | |
| (511,914 | ) |
| Investing activities | |
| | |
| Purchases of property and equipment | |
| - | |
| Net cash used in investing activities | |
| - | |
| Financing activities: | |
| | |
| Payments on secured note payable | |
| (726,250 | ) |
| Net cash (used in) financing activities | |
| (726,250 | ) |
| Net decrease in cash | |
| (1,238,164 | ) |
| Cash, beginning of period | |
| 1,493,709 | |
| Cash, end of period | |
$ | 255,545 | |
| | |
| | |
| Supplemental Disclosure of Cash Flow Information: | |
| | |
| Cash paid during the period for: | |
| | |
| Interest | |
$ | 30,901 | |
| Income taxes | |
$ | - | |
See accompanying notes to unaudited condensed consolidated
financial statements.
IMAGENETIX, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
The consolidated financial statements of Imagenetix, Inc. ("Imagenetix")
presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form
10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United
States of America.
In the opinion of management, the interim consolidated financial
statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods.
Operating results for the period is not necessarily indicative of the results that may be expected for the year.
Emergence from Bankruptcy
Imagenetix filed for protection under the United States Bankruptcy
Code on December 12, 2012. During the period of time from December 12, 2012 to September 16, 2014 (the effective date of the Company’s
Plan of Reorganization), the Company has filed with the SEC on Form 8K portions of its Monthly Operating Report as filed with the
Bankruptcy Court.
The Company’s Plan of Reorganization was approved by the
Court on September 10, 2014 with an effective date of September 16, 2014. The Plan of Reorganization included an issuance of common
stock and warrants for cash, the acquisition of Periodyne, the issuance of common stock to pay professional fees incurred during
the proceeding and a compromise to the claims of TriPharma and the unsecured creditors.
As a result of the issuance of common stock, the Company was
eligible to adopt “fresh-start reporting” which enables the Company to reduce its previous accumulated deficit to zero
as of the effective date of the Plan of Reorganization. The accompanying financial statements reflect this election and, accordingly,
the financial statements are for the period of September 16, 2014 through September 30, 2014 and do not reflect comparative statements
for any prior accounting periods. A reconciliation of the “fresh-start reporting” is included in Note 2.
Earnings Per Share
We follow the Financial Accounting Standards Board Accounting
Standards Codification ("ASC") No. 260. Under ASC No. 260, basic earnings per share is calculated as earnings available
to common stockholders divided by the weighted average number of common shares outstanding. Diluted earnings per share is calculated
as net income divided by the diluted weighted average number of common shares.
The diluted weighted average number of common shares is calculated
using the treasury stock method for common stock issuable pursuant to outstanding common stock warrants.
We adopted ASC 852, Reorganizations, effective as of September
16, 2014, the effective date of the Plan of Reorganization. Under ASC 852 the following pro-forma balance sheet represents the
change from the final bankruptcy filing to the initial accounting balances using “Fresh-Start Reporting.”
IMAGENETIX, INC.
Notes to the Unaudited Condensed Consolidated
Financial Statements (Continued)
| | |
| | |
Reorganization | | |
| |
Fresh-start | | |
| |
| |
| | |
Predecessor | | |
adjustments | | |
| |
adjustments | | |
| |
Successor | |
| | |
| | |
| | |
| |
| | |
| |
| |
| Cash | |
$ | 235,622 | | |
$ | 1,258,087 | | |
1,3 | |
$ | - | | |
| |
$ | 1,493,709 | |
| Accounts receivable | |
| 206,494 | | |
| - | | |
| |
| (45,692 | ) | |
5 | |
| 160,802 | |
| Inventory | |
| 31,780 | | |
| 34,460 | | |
3 | |
| (17,500 | ) | |
5 | |
| 48,740 | |
| Prepaid assets | |
| 23,899 | | |
| - | | |
| |
| - | | |
| |
| 23,899 | |
| Property, plant & equipment | |
| | | |
| - | | |
| |
| 25,487 | | |
5 | |
| 25,487 | |
| Goodwill | |
| | | |
| 1,163,383 | | |
3 | |
| 7,042,214 | | |
5 | |
| 8,205,597 | |
| Intangible assets | |
| 23,166 | | |
| - | | |
| |
| - | | |
| |
| 23,166 | |
| Total assets | |
| 520,961 | | |
| 2,455,930 | | |
| |
| 7,004,509 | | |
| |
| 9,981,400 | |
| | |
| | | |
| | | |
| |
| | | |
| |
| | |
| Accounts payable- post-petition | |
| 532,338 | | |
| (489,000 | ) | |
1,2 | |
| - | | |
| |
| 43,338 | |
| Accrued interest | |
| 30,902 | | |
| - | | |
| |
| | | |
| |
| 30,902 | |
| Accrued liabilities | |
| 23,619 | | |
| 190,393 | | |
4 | |
| - | | |
| |
| 214,012 | |
| Secured liabilities- PRI | |
| 726,250 | | |
| - | | |
| |
| - | | |
| |
| 726,250 | |
| Secured liabilities- TriPharma | |
| 2,594,884 | | |
| (194,884 | ) | |
4 | |
| - | | |
| |
| 2,400,000 | |
| Priority tax liability | |
| 1,895 | | |
| (190 | ) | |
4 | |
| - | | |
| |
| 1,705 | |
| Customer deposits | |
| 128,100 | | |
| (57,870 | ) | |
3 | |
| (61,980 | ) | |
6 | |
| 8,250 | |
| Unsecured debt- pre-petition | |
| 949,628 | | |
| (717,034 | ) | |
4 | |
| - | | |
| |
| 232,594 | |
| Total liabilities | |
| 4,987,616 | | |
| (1,268,585 | ) | |
| |
| (61,980 | ) | |
| |
| 3,657,051 | |
| | |
| | | |
| | | |
| |
| | | |
| |
| | |
| Common stock | |
| 13,061 | | |
| 15,211 | | |
1,2,3 | |
| - | | |
| |
| 28,272 | |
| Additional paid in capital | |
| 13,690,254 | | |
| 6,296,077 | | |
1,2,3 | |
| (13,690,254 | ) | |
7 | |
| 6,296,077 | |
| Retained earnings (deficit) | |
| (18,169,970 | ) | |
| (2,586,773 | ) | |
1,2,3,4 | |
| 20,756,743 | | |
7 | |
| - | |
| Total stockholders' equity (deficit) | |
| (4,466,655 | ) | |
| 3,724,515 | | |
| |
| 7,066,489 | | |
| |
| 6,324,349 | |
| Total liabilities and stockholders equity | |
$ | 520,961 | | |
$ | 2,455,930 | | |
| |
$ | 7,004,509 | | |
| |
$ | 9,981,400 | |
Reorganization adjustments reflect equity funding of the plan
of reorganization, issuance of common stock in exchange of professional fees, the acquisition of Periodyne and the discharge of
liabilities subject to compromise in accordance with the plan of reorganization as follows:
| Issuance of common stock to fund plan of reorganization | |
1 | |
$ | 1,254,800 | |
| Issuance of common stock for professional fees | |
2 | |
| 790,000 | |
| Acquisition of Periodyne | |
3 | |
| 1,258,000 | |
| Liabilities subject to compromise | |
4 | |
| 421,715 | |
| | |
| |
$ | 3,724,515 | |
Fresh-start adjustments to accounts receivable,
inventory, property and equipment, and goodwill reflects the adjustment of the assets of the successor to their fair values, including
tangible assets not previously recognized:
| Accounts receivable |
| |
|
$ | (45,692 | ) |
| Inventory |
| |
|
| (17,500 | ) |
| Property and equipment |
| |
|
| 25,487 | |
| Goodwill |
| |
|
| 7,042,214 | |
| Total asset adjustments |
| 5 |
|
$ | 7,004,509 | |
Fresh-start adjustments to customer deposits reflects the adjustment
of the liabilities of the successor to its fair value:
| Customer deposits | |
6 | |
$ | (61,980 | ) |
(7) Fresh-start adjustment to retained earnings
(deficit) resets accumulated deficit to zero.
IMAGENETIX, INC.
Notes to the Unaudited Condensed Consolidated
Financial Statements (Continued)
Accounts receivable are carried at the
expected realizable value. Accounts receivable consisted of the following:
| | |
September 30, | | |
September 16, | |
| | |
2014 | | |
2014 | |
| | |
| | |
| |
| Accounts receivable | |
$ | 324,793 | | |
$ | 160,802 | |
| Allowance for doubtful accounts | |
| - | | |
| - | |
| | |
| | | |
| | |
| Accounts receivable, net | |
$ | 324,793 | | |
$ | 160,802 | |
At September 30, 2014, we had three customers
which accounted for 51%, 38% and 11%, respectfully, of our accounts receivable balances. At September 16, 2014, we had two customers
which accounted for 77% and 23%, respectfully, of our accounts receivable balances.
For the period ended September 30, 2014,
we had one significant customer who accounted for 100% of sales.
Inventories are carried at the lower of cost or market. Cost
is determined by the first-in first-out method. Indirect overhead costs are allocated to inventory. Inventories consist of the
following:
| | |
September 30, | | |
September 16, | |
| | |
2014 | | |
2014 | |
| | |
| | |
| |
| Finished products | |
$ | 75,474 | | |
$ | 48,740 | |
| Less reserve for obsolescence | |
| - | | |
| - | |
| | |
$ | 75,474 | | |
$ | 48,740 | |
As a result of adopting “Fresh-Start
Reporting” goodwill of $7,042,214 was recognized when accumulated retained deficit was reduced to zero and goodwill of $1,163,383
was recognized on the acquisition of Periodyne.
In May 2011, we entered into a $700,000 secured note payable
with one of the customers of one of our distributors. The terms of the note included quarterly interest payments at a rate of 7.5%
for 18 months at the end of which time the entire note was due. In September 2011, two quarterly interest payments were deferred
and added to the principal of the note increasing the balance to $726,250. As part of the Plan of Reorganization, the secured note,
accrued interest and costs of collection were paid in full in September 2014 subsequent to the effective date of the Plan of Reorganization.
IMAGENETIX, INC.
Notes to the Unaudited Condensed Consolidated
Financial Statements (Continued)
In August 2013, as part of the bankruptcy proceeding, we negotiated
a settlement agreement with TriPharma. TriPharma was successful in obtaining a judgment against us in an amount of approximately
$4 million. The settlement provides for total payments of $2,500,000 if payments are made timely, $3,500,000 if payments are ever
in default, and $2,000,000 if the balance of principal is paid within 18 months of the effective date of the Plan of Reorganization.
As of September 16, 2014 a balance of $2,400,000 remained owing assuming that no default payments would become necessary. This
balance is due $150,000 within 5 days of the effective date of the Plan of Reorganization, $100,000 per quarter for eight quarters,
$125,000 for four quarters, and $150,000 per quarter thereafter until the settlement is paid. During the period ended September
30, 2014, we made a payment of $150,000 leaving a balance of $2,250,000 as of September 30, 2014.
| 8. | COMMITMENTS AND CONTINGENCIES |
Contingencies
We are involved in litigation from time
to time in the normal course of business.
Management believes there are no claims,
which would have a material effect on our financial position.
As part of the Plan of Reorganization we
issued warrants to investors, the principal of Periodyne and employees.
A summary of outstanding warrants is as follows:
| | |
For the Period Ended | |
| | |
September 30, 2014 | |
| | |
| | |
Weighted | |
| | |
| | |
Average | |
| | |
| | |
Exercise | |
| Warrants | |
Shares | | |
Price | |
| Outstanding at beginning of period, September 16, 2014 | |
| 8,409,334 | | |
$ | 0.62 | |
| Granted | |
| - | | |
| - | |
| Cancelled | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | |
| Outstanding at end of the period | |
| 8,409,334 | | |
$ | 0.62 | |
| | |
| | | |
| | |
| Exercisable at end of the the period | |
| 8,409,334 | | |
$ | 0.62 | |
| | |
| | | |
| | |
| Weighted average fair value of warrants granted during the period | |
| - | | |
$ | - | |
IMAGENETIX, INC.
Notes to the Unaudited Condensed Consolidated
Financial Statements (Continued)
We have adopted ASC 740 which prescribes a comprehensive model
of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the
company has taken or expects to take on a tax return. ASC 740 states that a tax benefit from an uncertain position may
be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The
tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement with a taxing authority having full knowledge of all relevant information.
Upon adoption of ASC 740, there was no impact to our
consolidated financial statements. We estimate that the unrecognized tax benefit will not change significantly
within the next twelve months. We will continue to classify income tax penalties and interest as part of general
and administrative expense in our statements of operations. Accrued interest on uncertain tax positions is not
significant. There are no penalties accrued as of September 30, 2014. The following table summarizes
the open tax years for each major jurisdiction:
| Jurisdiction |
|
Open Tax
Years |
| Federal |
|
2011 – 2013 |
| California |
|
2011 – 2013 |
As we have had significant net operating loss carry forwards
from the predecessor company, even if certain of our tax positions were disallowed, it is not foreseen that we would have to pay
any taxes in the near future. Consequently, we do not calculate the impact of interest or penalties on amounts that might be disallowed.
During the period ended September 30, 2014, we reviewed our
deferred tax assets and determined that, as a result of previous continuing losses, we could not expect a greater than 50 percent
likelihood of the tax benefits being realized. Accordingly, we will continue to recognize a full valuation allowance against our
current and long-term deferred tax assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS
WITH RESPECT TO OUR FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM
HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."
Overview
We develop, formulate and market over-the-counter, natural-based
nutritional supplements and skin care products. Our products are proprietary, often supported by scientific studies which we request
and are offered through multiple channels of distribution, including direct marketing companies, also known as network marketing
or multi-level marketing companies, and chain store retailers. Our primary product is Celadrin® a product formulation which
we sell to the mass market through retailers and on a private label basis to wholesale customers. We also license our intellectual
property to third parties.
A key part of our marketing strategy is to provide to our wholesale
customers a "turnkey" approach to the marketing and distribution of our products. This turnkey approach provides these
customers with all the services necessary to market our products, including developing specific product formulations, providing
supporting scientific studies regarding the effectiveness of the product and arranging for the manufacture and marketing of the
product.
Historically, we have sold our own branded product, Celadrin®,
directly to the mass markets through retail sellers. We currently plan to expand our activities in developing, licensing and selling
products and formulations to businesses and organizations that in-turn market our products through multiple channels of distribution,
including direct marketing companies, mass marketing companies, medical, health and nutritional professionals, medical newsletters
and direct response radio and television. We also offer Celadrin® products through wholesale customers that in turn offer their
products containing Celadrin® to mass market retailers.
Management's discussion and analysis
of results of operations and financial condition are based upon the Company's financial statements. These statements have been
prepared in accordance with accounting principles generally accepted in the United States of America. These principles require
management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based
on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical Accounting Policies and Estimates
We have identified ten accounting
principles that we believe are key to an understanding of our financial statements. These important accounting policies require
management's most difficult, subjective judgments.
1. Fresh-Start Reporting.
As a result of the issuance of common stock during its emergence
from a bankruptcy proceeding, the Company was eligible to adopt “fresh-start reporting” which enables the Company to
reduce its previous accumulated deficit to zero as of the effective date of the Plan of Reorganization. A reconciliation of the
“fresh-start reporting” is included in Note 2 to these financial statements.
2. Cash and Cash Equivalents.
For purposes of the financial statements,
we consider all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.
3.
Accounts receivable.
Accounts receivable are carried at the
expected net realizable value. The allowance for doubtful accounts is based on management’s assessment of the collectability
of specific customer accounts and the aging of the accounts receivable. If there were a deterioration of a major customer’s
creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of amounts due
to us could be overstated, which could have a negative impact on operations.
4. Inventory
Inventory is carried at the lower of cost
or market. Cost is determined by the first-in first-out method. Indirect overhead costs are allocated to inventory.
5. Property and Equipment
| | Property and equipment are stated at cost. Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized, upon being placed in service. Expenditures for maintenance and repairs are charged to expense
as incurred. Depreciation is computed over the estimated useful life of three to seven years, except leasehold improvements which
are depreciated over the lesser of the remaining lease life or the life of the asset, using the straight-line method. We follow
the provisions of the Financial Accounting Standards Board Accounting Standards Codification ("ASC") No. 360. Under ASC
No. 360, long-lived assets and certain identifiable intangibles to be held and used by us are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We continuously evaluate
the recoverability of our long-lived assets based on estimated future cash flows and the estimated fair value of such long-lived
assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived
asset. |
6. Trademarks and Patents
Patents and trademarks are carried at cost less accumulated
amortization and are amortized over their estimated useful lives of from 8 to 17 years for patents and 17 years for trademarks.
The carrying value of patents and trademarks is periodically reviewed and impairments, if any, are recognized when the expected
future benefit to be derived from individual intangible assets is less than its carrying value determined based on the provisions
of ASC No. 360 as discussed above.
7. Revenue Recognition
We recognize revenue in accordance with the SEC’s Staff
Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (SAB104) and ASC No. 605. SAB 104 requires
that four basic criteria be met before revenue can be recognized: 1) there is evidence that an arrangement exists; 2) delivery
has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. ASC No. 605 states that revenue
from sales transactions where the buyer has the right to return the product shall be recognized at the time of sale only if (1) the
seller’s price to the buyer is substantially fixed or determinable at the date of sale; (2) the buyer has paid the seller,
or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; (3) the buyer’s
obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; (4) the
buyer acquiring the product for resale has economic substance apart from that provided by the seller; (5) the seller does
not have significant obligations for future performance to directly bring about resale of the product by the buyer; and (6) the
amount of future returns can be reasonably estimated. We recognize revenue upon determination that all criteria for revenue recognition
have been met. The criteria are usually met at the time title passes to the customer, which usually occurs upon shipment. Revenue
from shipments where title passes upon delivery is deferred until the shipment has been delivered.
We account for payments made to customers in accordance with
ASC No. 605, which states that cash consideration (including a sales incentive) given by a vendor to a customer is presumed to
be a reduction of the selling prices of the vendor’s products or services and, therefore, should be characterized as a reduction
of revenue when recognized in the vendor’s income statement, rather than a sales and marketing expense. We have various agreements
with customers that provide for discounts and rebates. These agreements are classified as a reduction of revenue. Certain other
costs associated with customers that meet the requirements of ASC No. 605 are recorded as sales and marketing expense.
We guarantee customer satisfaction. Our policy requires the
customer to return the unused product to the retailer from whom they originally purchased it. We pay the retailer for the returned
product plus a handling cost. We review gross revenue for estimated returns of private label contract manufacturing products and
direct-to-consumer products. The estimated returns are based upon the trailing six months of private label contract manufacturing
gross sales and our historical experience for both private label contract manufacturing and direct-to-consumer product returns.
However, the estimate for product returns does not reflect the impact of a large product recall resulting from product nonconformance
or other factors as such events are not predictable nor is the related economic impact estimable. We periodically assess the adequacy
of this policy and record a liability as necessary.
As part of the services we provide to our private label contract
manufacturing customers, we may perform, but are not required to perform, certain research and development activities related to
the development or improvement of their products. While our customers typically do not pay directly for this service, the cost
of this service is included as a component of the price we charge to manufacture and deliver their products.
Royalties- we recognize revenue from royalties
based on reports provided by our customers (typically 30 days after the end of the quarter on which the royalty payment is based.)
Licensing- we also derive license revenue
from fees for the transfer of proven and reusable intellectual property components. Generally, these payments will include a nonrefundable
technology license fee, which will be payable upon the transfer of intellectual property. License fees will be recognized upon
the execution of the license agreement and transfer of intellectual property provided no further significant performance obligations
exist and collectability is deemed probable. If additional performance obligations are present, we defer revenue recognition until
such time as the performance obligation is satisfied.
8. Income Taxes
We account for income taxes in accordance with ASC No. 740.
This statement requires an asset and liability approach for accounting for income taxes and prescribes a comprehensive model of
how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company
has taken or expects to take on a tax return. ASC No. 740 states that a tax benefit from an uncertain position may be
recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax
benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement with a taxing authority having full knowledge of all relevant information.
Selected Financial Information
Results of Operations
Period Ended September 30, 2014
| | |
Period Ended | |
| | |
9/30/2014 | |
| | |
| |
| Statements of Operations: | |
| | |
| Net sales | |
$ | 164,306 | |
| Cost of goods sold | |
| 3,031 | |
| % of net sales | |
| 1.8 | % |
| Gross profit | |
| 161,275 | |
| % of net sales | |
| 98.2 | % |
| Operating expenses | |
| | |
| General and administrative | |
| 3,656 | |
| Payroll expense | |
| 21,292 | |
| Consulting expense | |
| 6,403 | |
| Total operating expenses | |
| 31,351 | |
| Net income | |
$ | 129,924 | |
| Net income per share basic | |
$ | 0.00 | |
| Net income per share diluted | |
$ | 0.00 | |
Net Sales
Net sales for the period ended September 30, 2014 was $164,306
and was derived primarily from license income. We anticipate that in future periods revenue will increase as a result of our acquiring
Periodyne and increased sales of our products post bankruptcy.
Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 1.8% for
the period ended September 30, 2014. This was the result of minor product sales during the period. We anticipate that in future
periods cost of goods sold will increase as a result of our acquiring Periodyne and increased sales of our products post bankruptcy.
Selling, General and Administrative
Selling, general and administrative expenses were $3,656 for
the period ended September 30, 2014 which included only 15 days. We anticipate expenses will increase during the next quarter.
Payroll Expense
Payroll expense was $21,292 for the period ended September 30,
2014, which represented one two week payroll. Payroll will increase to normal levels during the next quarter.
Consulting Expense
Consulting expense was $6,403 for the period ended September
30, 2014. We anticipate an increase in consulting expense during our next quarter.
Capital Resources
| Working Capital | |
| | |
| | |
| |
| | |
| | |
| | |
Increase | |
| | |
9/30/14 | | |
9/16/14 | | |
(Decrease) | |
| | |
| | |
| | |
| |
| Current assets | |
$ | 679,711 | | |
$ | 1,727,150 | | |
$ | (1,047,439 | ) |
| Current liabilities | |
| 229,491 | | |
| 1,257,051 | | |
| (1,027,560 | ) |
| Working capital | |
$ | 450,220 | | |
$ | 470,099 | | |
$ | (19,879 | ) |
| | |
| | | |
| | | |
| | |
| Long-term debt | |
$ | 2,250,000 | | |
$ | 2,400,000 | | |
$ | (150,000 | ) |
| | |
| | | |
| | | |
| | |
| Stockholders' equity | |
$ | 6,454,273 | | |
$ | 6,324,349 | | |
$ | 129,924 | |
Statements of Cash Flows Select Information
| | |
Period Ended | |
| | |
9/30/14 | |
| Net cash provided by (used in): | |
| | |
| Operating activities | |
$ | (511,914 | ) |
| Investing activities | |
$ | - | |
| Financing activities | |
$ | (726,250 | ) |
| Balance Sheet Select Information | |
| | |
| | |
| |
| | |
| | |
| | |
Increase | |
| | |
9/30/14 | | |
9/16/14 | | |
(Decrease) | |
| | |
| | |
| | |
| |
| Cash | |
$ | 255,545 | | |
$ | 1,493,709 | | |
$ | (1,238,164 | ) |
| | |
| | | |
| | | |
| | |
| Accounts receivable, net | |
$ | 324,793 | | |
$ | 160,802 | | |
$ | 163,991 | |
| | |
| | | |
| | | |
| | |
| Inventories, net | |
$ | 75,474 | | |
$ | 48,740 | | |
$ | 26,734 | |
| | |
| | | |
| | | |
| | |
| Secured note payable | |
$ | - | | |
$ | 726,250 | | |
$ | (726,250 | ) |
| | |
| | | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 221,241 | | |
$ | 522,551 | | |
$ | (301,310 | ) |
Liquidity
We have historically financed our operations internally and
through debt and equity financings. At September 30, 2014, we had cash holdings of $255,545 and a net working capital of $450,220.
ITEM 4T. CONTROLS AND PROCEDURES.
Our chief executive officer and our chief financial officer
conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2014. Based on their evaluation, they concluded that
our disclosure controls and procedures were effective and designed to give reasonable assurance that the information required to
be disclosed by us in reports that we file or submit under the Exchange Act was made known to them by others and was recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms. There was no change in our internal
controls that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably
likely to affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS.
Risk Factors
You should consider the following discussion of risks as well
as other information regarding our common stock. The risks and uncertainties described below are not the only ones. Additional
risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
If any of the following risks actually occur, our business could be harmed.
We cannot provide assurance that debt or equity financings
will be available to fund the company
Since inception, we have satisfied our capital needs through
debt and equity financings and expect to fund the company from these sources until profitability is achieved. There can be no assurance
that funds will be available at terms favorable to us or that future profitability can be achieved.
There Is Only One Supplier for Celadrin®. If We Are Unable
to Purchase Celadrin® from This Supplier, Our Business Would Be Harmed.
There is only one supplier for Celadrin®. We will rely upon
Celadrin® to expand our product lines and revenue in the future. If our Celadrin® supplier goes out of business or elects
for any reason not to supply us with Celadrin®, we would have to find another Celadrin® supplier or suffer a significant
reduction in our revenue.
We Rely upon a Limited Number of Customers the Loss of Which
Would Reduce Our Revenue and Any Earnings.
Our largest customer accounted for 100% of our net sales for
the period ended September 30, 2014. If not replaced by other large customers, the loss of this significantly large customer could
reduce our revenue and adversely affect our cash flow and earnings, if any.
We Have Recently Changed to a Licensing Model to Generate
Revenue Which Could Impact Our Revenue and Profitability.
Our business model has changed from exclusively selling products
directly to wholesalers, retailers, and customers to additionally licensing the sale of our products to third parties. This business
model requires the third parties to commit to such an agreement and to successfully sell products with our technologies. We have
not achieved similar significant revenue producing license deals in the past. If we are not successful at implementing a licensing
model, our revenues, cash flow and earnings, if any, could be adversely affected.
We Rely upon Other Outside Suppliers to Produce Our Products
Which Could Delay Our Product Deliveries.
All of our products are produced by outside manufacturers who
process ingredients provided to them by our suppliers and with whom we have contracts. Our profit margins and our ability to deliver
products on a timely basis are dependent upon these manufacturers and suppliers. Should any of these manufacturers or suppliers
fail to provide us with product, we would be required to obtain new manufacturers and suppliers, which would be costly and time
consuming and could delay our product deliveries.
Product Liability Claims Against Us Could Be Costly.
Some of our nutritional supplements contain newly-introduced
ingredients or combinations of ingredients, and we have little long-term health information about individuals consuming those ingredients.
If any of these products were thought or proved to be harmful, we could be subject to litigation. Although we carry product liability
insurance in the face amount of $1,000,000 per occurrence and $2,000,000 in the aggregate and require our suppliers and manufacturers
to include us as insured parties on their product liability insurance policies, our coverage may not be adequate to protect us
from potential product liability claims and costs of defense.
We Are Subject to Intense Competition from Other Nutritional
Supplement Marketers Which Could Reduce Our Revenue and Profit Margins.
Competition in the nutritional supplement market is intense.
We compete with numerous companies that have longer operating histories, more products and greater name recognition and financial
resources than we do. In order to compete, we could be forced to lower our product prices, which would reduce our revenue and profit
margins.
We Are Highly Regulated, Which Increases Our Costs of Doing
Business.
We are subject to laws and regulations which cover:
| • | the formulation, manufacturing,
packaging, labeling, distribution, importation, sale and storage of our products; |
| • | the health and safety of food and drugs; |
| • | trade practice and direct selling laws; and |
| • | product claims and advertising by us; or for which we may
be held responsible. |
Compliance with these laws and regulations is time consuming
and expensive. Moreover, new regulations could be adopted that would severely restrict the products we sell or our ability to continue
our business. We are unable to predict the nature of any future laws, regulations, interpretations or applications, nor can we
predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business
in the future. These future changes could, however, require the reformulation or elimination of certain products; imposition of
additional record keeping and documentation requirements; imposition of new federal reporting and application requirements; modified
methods of importing, manufacturing, storing or distributing certain products; and expanded or different labeling and substantiation
requirements for certain products and ingredients. Any or all of these requirements could harm our business.
There Are Limitations on the Liability of Our Officers and
Directors Which May Restrict Our Stockholders from Bringing Claims.
Our Bylaws substantially limit the liability of our officers
and directors to us and our stockholders for negligence and breach of fiduciary or other duties to us. This limitation may prevent
stockholders from bringing claims against our officers and directors in the future.
Shares of Our Common Stock Which Are Eligible for Sale by
Our Stockholders May Decrease the Price of Our Common Stock.
We have 28,272,955 common shares outstanding of which approximately
24 million are freely tradable or saleable under Rule 144. We also have outstanding common stock warrants exercisable into up to
8,409,334 shares of common stock which could become free trading if exercised. If our stockholders sell substantial amounts of
our common stock, the market price of our common stock could decrease.
There is a Limited but Potentially Volatile Trading Market
in Our Common Stock, Which May Adversely Affect Our Stock Price.
Our common stock trades on the Electronic Bulletin Board. The
Bulletin Board tends to be highly illiquid, in part because there is no national quotation system by which potential investors
can track the market price of shares except through information received or generated by a limited number of broker-dealers that
make a market in particular stocks. There is a greater chance of market volatility for securities that trade on the Bulletin Board
as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors, including:
• The lack of
readily available price quotations;
• The absence of consistent administrative supervision
of "bid" and "ask" quotations;
• Lower trading volume; and
• Market conditions.
There could be wide fluctuations in the market price of our
common stock. These fluctuations may have an extremely negative effect on the market price of our securities and may prevent an
investor from obtaining a market price equal to his purchase price when he attempts to sell our securities in the open market.
In these situations, the investor may be required to either sell our securities at a market price which is lower than his purchase
price, or to hold our securities for a longer period of time than he planned.
Because Our Common Stock Is Classified as a "Penny Stock,"
Trading in it Could Be Limited, and Our Stock Price Could Decline.
Our common stock falls under the definition of "penny stock"
since our net tangible assets are below $2,500,000. In such event, trading in our common stock may be limited because broker-dealers
are required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving
our common stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers
to participate in transactions involving our common stock.
"Penny stocks" are equity securities with a market
price below $5.00 per share, other than a security that is registered on a national exchange or included for quotation on the Nasdaq
system, unless the issuer has net tangible assets of more than $2,000,000 and has been in continuous operation for greater than
three years. Issuers who have been in operation for less than three years must have net tangible assets of at least $5,000,000.
Rules promulgated by the Securities and Exchange Commission
under Section 15(g) of the Exchange Act require broker-dealers engaging in transactions in penny stocks, to first provide to their
customers a series of disclosures and documents, including:
| • | A standardized risk disclosure document identifying the risks inherent in investment in penny
stocks; |
| • | All compensation received by the broker-dealer in connection with the transaction; |
| • | Current quotation prices and other relevant market data; and |
| • | Monthly account statements reflecting the fair market value of the securities. In addition, these rules
require that a broker-dealer obtain financial and other information from a customer, determine that transactions in penny stocks
are suitable for such customer and deliver a written statement to such customer setting forth the basis for this determination. |
ITEM 6. EXHIBITS.
| Exhibit No. |
|
Title |
| |
|
|
| 31.1 |
|
302 Certification of William P. Spencer, Chief Executive Officer |
| |
|
|
| 31.2 |
|
302 Certification of Lowell W. Giffhorn, Chief Financial Officer |
| |
|
|
| 32.1 |
|
906 Certification of William P. Spencer, Chief Executive Officer |
| |
|
|
| 32.2 |
|
906 Certification of Lowell W. Giffhorn, Chief Financial Officer |
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| IMAGENETIX, INC. |
| a Nevada corporation |
| |
|
|
| Date: November 19, 2014 |
By: |
/s/ WILLIAM P. SPENCER |
| |
|
William P. Spencer |
| |
|
Chief Executive Officer |
| |
|
|
| |
|
(Principal Executive Officer and duly authorized |
| |
|
to sign on behalf of the Registrant) |
Exhibit 31.1
CERTIFICATION AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, William P. Spencer, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Imagenetix, Inc.; |
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change
in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: November 19, 2014 |
By: |
/s/ WILLIAM P. SPENCER |
| |
William P. Spencer |
| |
President and CEO |
Exhibit 31.2
CERTIFICATION AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lowell W. Giffhorn, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Imagenetix, Inc.; |
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we have:
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change
in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s)
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: November 19, 2014 |
By: |
/s/ LOWELL W. GIFFHORN |
| |
Lowell W. Giffhorn |
| |
CFO |
Exhibit 32 .1
Certification pursuant to 18 U.S.C. Section
1350,
as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Imagenetix,
Inc. (the "Company") for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, William P. Spencer, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| 1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and |
| 2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
| Dated: November 19, 2014 |
/s/WILLIAM P. SPENCER |
| |
William P. Spencer |
| |
Chief Executive Officer and President |
Exhibit 32 .2
Certification pursuant to 18 U.S.C. Section
1350,
as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Imagenetix,
Inc. (the "Company") for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, Lowell W. Giffhorn, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| 1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and |
| 2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
| Dated: November 19, 2014 |
/s/LOWELL W. GIFFHORN |
| |
Lowell W. Giffhorn |
| |
Chief Financial Officer |
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