Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2012 |
Accounting Policies [Abstract] | ' |
Consolidation, Policy [Policy Text Block] | ' |
Principles of consolidation: |
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The consolidated financial statements include the accounts of GeneLink, Inc. and its wholly-owned Subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation. |
Use of Estimates, Policy [Policy Text Block] | ' |
Use of estimates: |
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The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Cash and cash equivalents: |
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Highly liquid instruments purchased with a maturity of three months or less are considered to be cash equivalents. At times, cash and cash equivalents may exceed federally insured limits. The Company has not experienced any losses on such accounts. All non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and the Company's non-interest bearing cash balances may again exceed federally insured limits. The Company had $381,277 of interest-bearing amounts on deposit in excess of federally insured limits at December 31, 2011 and no excess of interest-bearing amounts on deposit in excess of federally insured limits at December 31, 2012. |
Trade and Other Accounts Receivable, Policy [Policy Text Block] | ' |
Accounts Receivable: |
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Trade accounts receivable primarily represent amounts due from distributors of our products. The company performs credit evaluations of each customer on an ongoing basis and generally does not require collateral or charge interest or fees on balances. As of December 31, 2012 and 2011, the Company has not recorded an allowance for doubtful accounts as management determined all amounts are collectible. |
Inventory, Policy [Policy Text Block] | ' |
Inventory: |
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Inventory is valued at the lower of cost (using the first-in, first-out method) or market. Inventory consists primarily of raw materials for the custom nutritional and skincare products sold by the Company. Cost is determined on a specific identification basis. Work in process and finished goods inventory are insignificant in relation to the raw material inventory since production process is short and goods are manufactured to order and shipped shortly after completion. The cost of finished goods inventory includes the cost of materials, third-party contract manufacturing and overhead. In the event that the Company identifies excess, obsolete or unsalable inventory, its value is written down to net realizable value. |
Property, Plant and Equipment, Policy [Policy Text Block] | ' |
Property and equipment: |
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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 or the lesser of the expected life or term of the lease as to leasehold improvements as noted below: |
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Office furniture and equipment | 3 - 5 years | | | | | | | |
Equipment | 3 - 5 years | | | | | | | |
Leasehold improvements | 5 years | | | | | | | |
Software | 3 - 5 years | | | | | | | |
Intangible Assets, Finite-Lived, Policy [Policy Text Block] | ' |
Intangible Assets: |
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Intangible assets include costs incurred to apply and obtain patents for its products. Patents are amortized upon approval by regulatory authorities over the estimated useful life of the asset, generally fifteen years on a straight-line basis. |
Deferred Charges, Policy [Policy Text Block] | ' |
Deferred Loan Costs: |
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Loan acquisition costs are amortized over the term of the debt using the effective interest method. |
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | ' |
Long lived assets: |
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The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of an asset and its eventual disposition is less than its carrying amount. The Company recorded $65,517 of impairment loss from abandonment of patents in the year ended December 31, 2012 and had not identified any such impairment losses during the year ended December 31, 2011. |
Revenue Recognition, Policy [Policy Text Block] | ' |
Revenue recognition: |
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The Company recognizes revenues from the sales of products upon shipment. Revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred and title and risk of loss have transferred to the customer, the sales price is determinable and collectability is reasonably assured. |
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For direct sales to consumers by the Company’s subsidiary, GeneWize, prior to its sale in 2012, revenue was reduced for refunds on certain products during the trial period which is the first 60 days after the initial order is shipped. The Company recorded a reserve for refunds based on historical refunds provided to customers which is recorded as a reduction of revenue and is included in accrued expenses on the accompanying balance sheet. The Company received advance payments from these consumer sales which was recorded as deferred revenue until shipment occurs. |
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Prepaid sales incentives and deferred revenue-license fees represent prepaid fees that are deferred and recognized over the term of the underlying agreement with licensees. |
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The Company recognizes revenue from licensing agreements as earned, which is generally when products are shipped from distributors, over the term of the agreement. |
Research and Development Expense, Policy [Policy Text Block] | ' |
Research and Development: |
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Research and development costs are expensed as incurred. |
Advertising Costs, Policy [Policy Text Block] | ' |
Advertising |
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The Company expenses advertising when incurred. Advertising expense was $28,924 and $57,825 for the years ended December 31, 2012 and 2011, respectively. |
Compensation Related Costs, Policy [Policy Text Block] | ' |
Stock-Based Compensation: |
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Stock-based compensation is recorded for recognition of the cost of employee or director services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. The stock-based compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (typically, the vesting period). |
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The Company estimates the fair value of each option award issued under its stock option plans on the date of grant using a lattice option-pricing model that uses the following assumptions: |
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| a) | The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock for a period commensurate with the expected life. These historical periods may exclude portions of time when unusual transactions occurred. | | | | | | |
| b) | The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. | | | | | | |
| c) | For shares that vest contingent upon achievement of certain performance criteria, an estimate of the probability of achievement is applied in the estimate of fair value. If the goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. | | | | | | |
| d) | The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. | | | | | | |
| e) | The risk-free interest rate is based upon a treasury security with a maturity comparable to the contractual term of the options. | | | | | | |
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In addition, the Company separates the grants into homogeneous groups and analyzes the assumptions for each group and computes the expense for each group utilizing these assumptions. |
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| | Assumptions for Awards Granted in | |
Years Ended December 31, |
| | 2012 | | | 2011 | |
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Expected volatility | | | 180-182 | % | | | 144-203 | % |
Risk-free interest rate | | | 4.5 | % | | | 4.5-5.0 | % |
Expected dividend yield | | | 0 | % | | | 0 | % |
Expected life in years | | | 5.0-10.0 | | | | 5.0 – 10.0 | |
Earnings Per Share, Policy [Policy Text Block] | ' |
Earnings per share: |
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Basic loss per share is calculated using the weighted average number of common shares outstanding for the period and diluted is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding. Given that the Company is in a net loss position, there is no difference between basic and diluted weighted average shares since the common stock equivalents would be antidilutive. |
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The following common stock equivalents are excluded from the loss per share calculation as their effect would have been antidilutive: |
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| | Year Ended December 31, | |
| | 2012 | | | 2011 | |
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Options | | | 21,980,833 | | | | 19,631,833 | |
Warrants | | | 24,248,042 | | | | 22,552,458 | |
Debt conversion shares | | | 16,794,583 | | | | 15,544,583 | |
Debt conversion warrants | | | 1,875,000 | | | | 1,875,000 | |
Income Tax, Policy [Policy Text Block] | ' |
Income taxes: |
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The Company has not recorded current income tax expense due to the generation of net operating losses. Deferred income taxes are accounted for using the balance sheet approach which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. |
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The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more-likely-than-not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company’s remaining open tax years subject to examination by the Internal Revenue Service include the years ended December 31, 2008 through December 31, 2012. |
Derivatives, Reporting of Derivative Activity [Policy Text Block] | ' |
Derivative Financial Instruments: |
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The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt and equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. An evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability. |
Beneficial Conversion and Warrant Valuation [Policy Text Block] | ' |
Beneficial Conversion and Warrant Valuation: |
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The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt instruments that have conversion features at fixed rates that are in-the-money when issued. The Company also records the fair value of warrants issued in connection with debt instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants, based on their relative fair value, and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion feature. The discounts recorded in connection with the BCF and warrant valuation are recognized for convertible debt as interest expense over the term of the debt using the effective interest method. |
Fair Value of Financial Instruments, Policy [Policy Text Block] | ' |
Fair Value of Financial Instruments: |
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The Company’s financial instruments are recorded at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value: |
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| · | Level 1 – Valuation based on quoted market prices in active markets for identical assets and liabilities. | | | | | | |
| · | Level 2 – Valuation based on quoted market prices for similar assets and liabilities in active markets. | | | | | | |
| · | Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value. | | | | | | |
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Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2012. The Company uses the market approach to measure fair value of its Level 1 financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
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The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, accounts receivable, accounts payable and accrued expenses. The fair value of the Company’s convertible notes payable approximate their carrying value based upon current rates available to the Company. |
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In 2009, the Company issued Convertible Notes and warrants to a group of accredited investors (see Note 8). The Company engaged a third party to complete a valuation of the warrants issued to the placement agent and note holders and the conversion feature under the Convertible Notes which are recorded as debt costs and debt discounts on the accompanying balance sheets. The valuation was completed using Level 2 inputs. |
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During 2011, the Company issued warrants in connection with a license and distribution agreement (see Note 11) and engaged a third party to complete a valuation of those warrants which were recorded as Prepaid Sales Incentive on the accompanying balance sheet. The valuation was completed using Level 2 inputs. |
Other Business Risks [Policy Text Block] | ' |
Industry Risk and Concentration: |
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The business of marketing nutrition and skin care products is highly competitive and sensitive to the introduction of new products which may rapidly capture a significant share of the market. These market segments include numerous manufacturers, distributors, marketers, retailers and physicians that actively compete for the business of consumers both in the United States and abroad. In addition, the Company anticipates that it will be subject to increasing competition in the future from sellers that utilize electronic commerce. Many of these competitors have longer operating histories, significantly greater financial, technical, product development, marketing and sales resources, greater name recognition, larger established customer bases and better-developed distribution channels than does the Company. |
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The Company’s present or future competitors may be able to develop products that are comparable or superior to those offered by the Company, adapt more quickly than the Company does to new technologies, evolving industry trends and standards or customer requirements, or devote greater resources to the development, promotion and sale of their products than does the Company. For example, if the Company’s competitors develop skin care or nutritional treatments that prove to be more effective than our products, demand for our products could be reduced. Accordingly, the Company may not be able to compete effectively in our markets and competition may intensify. The Company is also subject to significant competition for the recruitment of distributors from other network marketing organizations, including those that market nutritional supplements and skin care products as well as other types of products. |
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The Company’s ability to be competitive will depend, in significant part, on its success in recruiting and retaining market partners through the maintenance of an attractive product portfolio and other incentives. The Company cannot ensure that its programs for recruitment and retention of partners will be successful, and if they are not, the Company’s financial condition and operating results would be harmed. |
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The Company sells its products through a limited number of distributors. Certain of these distributors, together with entities under their common control, each individually accounted for greater than 10% of total revenues and greater than 10% of accounts receivable as follows: Revenues for 2012 and accounts receivable as of December 31, 2012 from GeneWize, our former subsidiary were $1,476,000 and $77,811, respectively which accounted for 69% of our net sales for the year and 100% of our outstanding accounts receivable at year end. No other customers were more than 10% of sales and revenues generated outside the United States were less than 10% of total revenues for all years presented. |
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The Company relies entirely on a limited number of third parties to supply raw materials, manufacture our products and perform laboratory tests on the Company’s behalf. In the event any of the Company’s third party suppliers, manufacturers or laboratories was to become unable or unwilling to continue to provide the Company with services and products in required volumes and at suitable quality levels, the Company would be required to identify and obtain acceptable replacement sources. |
New Accounting Pronouncements, Policy [Policy Text Block] | ' |
Recent accounting pronouncements |
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In July 2012, the Financial Accounting Standards Board completed an accounting standards update entitled "ASU 2012-02, Intangibles - Goodwill and Other" that revises the requirements around how entities test indefinite-lived intangible assets, other than goodwill, for impairment. The guidance will allow entities to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. If entities determine, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. The Company will adopt this standard in the first quarter of 2013 and does not expect the adoption of this standard to have an impact on its consolidated financial statements. |