10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-32715

INTERLEUKIN GENETICS, INC.

(Exact name of registrant in its charter)

Delaware	94-3123681
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
135 Beaver Street, Waltham, MA	02452
(Address of principal executive offices)	(Zip Code)

Registrant’s Telephone Number: (781) 398-0700

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 each 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 (§232.405 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-Accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨   NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 31, 2011
Common Stock, par value $0.001 per share	36,684,256

INTERLEUKIN GENETICS, INC.

FORM 10-Q

FOR THE QUARTER ENDED June 30, 2011

Table of Contents

	Page
PART I—FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Condensed Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010	3
Condensed Statements of Operations (Unaudited)	4
Condensed Statements of Stockholders’ Deficit (Unaudited)	5
Condensed Statements of Cash Flows (Unaudited)	6
Notes to Condensed Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
Item 4. Controls and Procedures	19
PART II—OTHER INFORMATION	20
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3. Defaults Upon Senior Securities	20
Item 4. [Removed and Reserved]	20
Item 5. Other Information	20
Item 6. Exhibits	21

Smaller Reporting Company – Scaled Disclosure

Pursuant to Item 10(f) of Regulation S-K promulgated under the Securities Act of 1933, as amended, as indicated herein, we have elected to comply with the scaled disclosure requirements applicable to “smaller reporting companies”.

2

PART I —FINANCIAL INFORMATION

Item 1.     Financial Statements

 INTERLEUKIN GENETICS, INC.

CONDENSED BALANCE SHEETS

	June 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,713,976		$	3,999,029
Trade accounts receivable		67,350			36,960
Federal grant receivable		—			117,946
Receivables from related party		114,414			14,657
Inventory		97,340			117,849
Prepaid expenses		259,043			266,349
Other current assets		200,000			200,000
Total current assets		2,452,123			4,752,790
Fixed assets, net		410,683			554,172
Intangible assets, net		572,311			630,037
Other assets		38,001			38,001
Total assets	$	3,473,118		$	5,975,000
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	463,045		$	509,647
Accrued expenses		225,839			443,255
Deferred revenue		762,377			515,953
Current portion of long-term debt		11,000,000			—
Liabilities of discontinued operations		—			164,241
Total current liabilities		12,451,261			1,633,096
Convertible long-term debt		—			11,000,000
Total liabilities		12,451,261			12,633,096
Commitments and contingencies (Note 8)
Stockholders’ deficit
Convertible preferred stock, $0.001 par value — 6,000,000 shares authorized; 5,000,000 shares of Series A issued and outstanding at June 30, 2011 and December 31, 2010; aggregate liquidation preference of $18,000,000 at June 30, 2011		5,000			5,000
Common stock, $0.001 par value — 100,000,000 shares authorized; 36,658,933 and 36,594,799 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively		36,659			36,594
Additional paid-in capital		90,999,575			90,851,709
Accumulated deficit		(100,019,377	)		(97,551,399	)
Total stockholders’ deficit		(8,978,143	)		(6,658,096	)
Total liabilities and stockholders’ deficit	$	3,473,118		$	5,975,000

The accompanying notes are an integral part of these financial statements.

3

INTERLEUKIN GENETICS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenue:
Genetic testing	$	779,116		$	563,540		$	1,498,563		$	929,451
Other		17,749			9,412			17,787			12,211
Total revenue		796,865			572,952			1,516,350			941,662
Cost of revenue		438,464			431,616			796,053			845,023
Gross profit		358,401			141,336			720,297			96,639
Operating expenses:
Research and development		359,799			325,298			664,618			742,295
Selling, general and administrative		1,253,143			1,615,295			2,455,598			3,041,566
Amortization of intangibles		28,863			28,863			57,726			57,726
Total operating expenses		1,641,805			1,969,456			3,177,942			3,841,587
Loss from operations		(1,283,404	)		(1,828,120	)		(2,457,645	)		(3,744,948	)
Other income (expense):
Interest income		1,901			906			4,307			1,201
Interest expense		(89,130	)		(72,925	)		(177,281	)		(139,527	)
Gain  on disposal of assets		—			24,500			4,275			24,500
Total other income (expense)		(87,229	)		(47,519	)		(168,699	)		(113,826	)
Loss from continuing operations before income taxes		(1,370,633	)		(1,875,639	)		(2,626,344	)		(3,858,774	)
Provision for income taxes		—			—			—			—
Loss from continuing operations		(1,370,633	)		(1,875,639	)		(2,626,344	)		(3,858,774	)
Income  from discontinued operations, net of income taxes		158,366			482,530			158,366			482,530
Net loss	$	(1,212,267	)	$	(1,393,109	)	$	(2,467,978	)	$	(3,376,244	)
Basic and diluted net loss per common share from:
Continuing operations	$	(0.04	)	$	(0.05	)	$	(0.07	)	$	(0.11	)
Discontinued operations		0.01			0.01			0.00			0.01
Net Loss	$	(0.03	)	$	(0.04	)	$	(0.07	)	$	(0.10	)
Weighted average common shares outstanding, basic and diluted		36,650,158			36,509,762			36,634,173			34,833,778

The accompanying notes are an integral part of these financial statements.

4

INTERLEUKIN GENETICS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Six Months Ended June 30, 2011 and 2010

(Unaudited)

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance as of December 31, 2009		5,000,000	$	5,000		32,102,435	$	32,102	$	85,763,379	$	(91,565,109	)	$	(5,764,628	)
Net loss		—		—		—		—		—		(3,376,244	)		(3,376,244	)
Common stock issued:
Private placement, net of offering costs of $365,329		—		—		4,375,002		4,375		4,880,300		—			4,884,675
Exercise of stock option		—		—		1,300		2		336		—			338
Employee stock purchase plan		—		—		31,890		32		21,831		—			21,863
Stock-based compensation expense		—		—		—		—		109,293		—			109,293
Balance as of June 30, 2010		5,000,000	$	5,000		36,510,627	$	36,511	$	90,775,139	$	(94,941,353	)	$	(4,124,703	)
Balance as of December 31, 2010		5,000,000	$	5,000		36,594,799	$	36,594	$	90,851,709	$	(97,551,399	)	$	(6,658,096	)
Net loss		—		—		—		—		—		(2,467,978	)		(2,467,978	)
Common stock issued:
Employee stock purchase plan		—		—		64,134		65		16,900		—			16,965
Stock-based compensation expense		—		—		—		—		130,966		—			130,966
Balance as of June 30, 2011		5,000,000	$	5,000		36,658,933	$	36,659	$	90,999,575	$	(100,019,377	)	$	(8,978,143	)

The accompanying notes are an integral part of these financial statements.

5

 

INTERLEUKIN GENETICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,467,978	)	$	(3,376,244	)
Income  from discontinued operations		158,366			482,530
Net loss from continuing operations		(2,626,344	)		(3,858,774	)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		202,897			212,006
Stock-based compensation expense		130,966			109,293
Changes in operating assets and liabilities:
Accounts receivable		(30,390	)		(56,205	)
Federal grant receivable		117,946			—
Receivable from related party		(99,757	)		16,468
Inventory		20,509			(489	)
Prepaid expenses and other current assets		7,306			(47,639	)
Accounts payable		(46,602	)		19,588
Accrued expenses		(217,417	)		310,197
Deferred revenue		246,424			281,965
Net cash used in operating activities of discontinued operations		(5,875	)		(440,519	)
Net cash used in operating activities		(2,300,337	)		(3,454,109	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions		(1,681	)		(77,572	)
Net cash used in investing activities		(1,681	)		(77,572	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable		—			2,000,000
Proceeds from registered direct offering of common stock		—			5,250,002
Registered direct offering costs		—			(365,329	)
Proceeds from employee stock purchase plan		16,965			21,863
Proceeds from exercise of employee stock options		—			338
Net cash provided by financing activities		16,965			6,906,874
Net increase (decrease) in cash and cash equivalents		(2,285,053	)		3,375,193
Cash and cash equivalents, beginning of period		3,999,029			906,248
Cash and cash equivalents, end of period	$	1,713,976		$	4,281,441
Supplemental disclosures of cash flow information:
Cash paid for interest	$	178,260		$	117,000

The accompanying notes are an integral part of these financial statements.

6

INTERLEUKIN GENETICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

June 30, 2011

Note 1—Basis of Presentation

The condensed financial statements include the accounts of Interleukin Genetics, Inc. (the Company) as of June 30, 2011 and December 31, 2010 and for the three and six months ended June 30, 2011 and 2010.

The financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited condensed financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year.

For information regarding our critical accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2010 and Note 4 to our condensed financial statements contained herein.

The Company develops genetic tests for sale into the emerging personalized health market and performs testing services that can help individuals improve and maintain their health through preventive measures. The Company’s principal operations and markets are located in the United States.

The Company has evaluated all events or transactions that occurred after June 30, 2011 through the date of issuance of these financial statements. The Company did not have any material recognizable or non-recognizable subsequent events.

Note 2—Operating Matters and Liquidity

The Company has experienced net operating losses since its inception through June 30, 2011, including a net loss of $2.5 million for the six months then ended, contributing to an accumulated deficit of $100 million as of June 30, 2011. The Company has borrowings of $11.0 million at June 30, 2011 under its line of credit with Pyxis Innovations Inc., an affiliate of Alticor (“Pyxis”).

In March 2010, the Company entered into a definitive agreement with institutional investors to sell $5.3 million of securities in a registered direct offering. Net proceeds of approximately $4.9 million were received on March 10, 2010.

The Company continues to take steps, as it did in 2010, to further reduce operating costs including consulting, research and personnel expenses. In addition the Company has reduced its costs of processing genetic tests in its laboratory by working with suppliers to develop more efficient raw materials such as equipment processing plates. The Company’s current laboratory space is deemed to be adequate and able to process high volumes of genetic tests.

We expect that our current and anticipated financial resources, including $3.3 million available under our credit facility with Pyxis, are adequate to maintain our current and planned operations through July 2012.

7

Note 3—Discontinued Operations

In August 2006, the Company acquired the assets and business of the Alan James Group, LLC (the Alan James Group). The Alan James Group was a provider of products and services in the consumer healthcare marketplace and the acquired business primarily developed, marketed and sold nutritional products and engaged in related activities. Prior to the opening of business on July 1, 2009, the Company and its wholly-owned subsidiary, AJG Brands, Inc. entered into an asset purchase agreement with Nutraceutical Corporation and Pep Products, Inc., a wholly-owned subsidiary of Nutraceutical Corporation, pursuant to which substantially all of the Alan James Group business and assets of AJG Brands, Inc. were sold to Pep Products, Inc.

Prior to June 30, 2011, we reserved for estimated sales returns, discontinued items and trade promotions applicable to the non-acquired accounts resulting from our sale of substantially all of the assets of the Alan James Group business. During the quarter ended June 30, 2011, $600 was paid to former customers leaving approximately $158,366 for future returns. We completed an analysis of all return activity since the time of sale and determined that the remaining reserve was no longer required. The adjustment is reflected in income from discontinued operations in the June 30, 2011 statement of operations.

The balance of other current assets of $200,000 at June 30, 2011 represents a receivable from Nutraceutical Corporation in connection with the transaction in June 2009 which was received on July 1, 2011.

Note 4—Significant Accounting Policies

Revenue Recognition

Revenue from genetic testing services is recognized when there is persuasive evidence of an arrangement, service has been rendered, the sales price is determinable and collectability is reasonably assured. Service is deemed to be rendered when the results have been reported to the individual who ordered the test. To the extent that tests have been prepaid but results have not yet been reported, recognition of all related revenue is deferred. As of June 30, 2011 and December 31, 2010, the Company has deferred genetic test revenue of $762,000 and $506,000, respectively.

Sales Commissions

The Company accounts for sales commissions due to Amway Global under the Merchant Channel and Partner Agreement in accordance with SEC Staff Accounting Bulletin (“SAB”) 104. Commissions are recorded as an expense at the time they become due which is at the point of sale by Amway Global. Commissions were $543,000 and $169,000 for the six months ended June 30, 2011 and 2010, respectively.

Accounts Receivable

Accounts receivable is stated at estimated net realizable value, which is generally the invoiced amount less any estimated discount related to payment terms. The Company offers its commercial genetic test customers a 2% cash discount if payment is made by bank wire transfer within 10 days of the invoice date.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market. As the Company does not manufacture any products, no overhead costs are included in inventory. No inventory reserve is required at June 30, 2011 as all test kits are available for sale and are expected to be sold at amounts in excess of cost. When a kit is sold, the corresponding cost of the kit is recorded as deferred cost of goods sold, a component of prepaid expenses, and removed from inventory.

Inventory consisted of the following at June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Raw materials	$	93,233	$	110,347
Finished goods		4,107		7,502
Total inventory	$	97,340	$	117,849

8

Income Taxes

 The Company accounts for income taxes by recording taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.

Significant management judgment is required in determining the Company’s provision (benefit) for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. The Company has recorded a full valuation allowance against its deferred tax assets of approximately $29.3 million as of June 30, 2011, due to uncertainties related to its ability to utilize these assets. The valuation allowance is based on management’s estimates of taxable income by jurisdiction in which the Company operates and the period over which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates or management adjusts these estimates in future periods, the Company may need to adjust its valuation allowance, which could materially impact its financial position and results of operations.

The Company files a combined Massachusetts tax return with certain Alticor affiliated entities, referred to herein as “the unitary group”. Massachusetts law requires corporations with net operating loss carryforwards to go back to each year in which the loss was generated and recompute the loss as if it occurred on a consolidated basis. The Company was required to include data from the newly formed unitary group as if the unitary group was in place during the loss years. As a result, the losses generated by the Company were eliminated through this required computation. The combined filing will have no impact on the Company's financial statements.

The Company reviews its recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. The Company reviews all material tax positions for all years open to statute to determine whether it is more likely than not that the positions taken would be sustained based on the technical merits of those positions. The Company did not recognize any adjustments for uncertain tax positions as of and during the three and six months ended June 30, 2011 and 2010.

Research and Development

Research and development costs are expensed as incurred.

Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per share was determined by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is the same as basic net loss per share for all the periods presented, as the effect of the potential common stock equivalents is anti-dilutive due to the loss in each period. Potential common stock equivalents excluded from the calculation of diluted net loss per share consists of stock options, warrants, convertible preferred stock and convertible debt as set forth in the table below:

	As of June 30,
	2011		2010
Options outstanding		2,217,267		1,676,967
Warrants outstanding		2,150,000		2,150,000
Convertible preferred stock		28,160,200		28,160,200
Convertible debt		1,937,200		1,584,981
Total		34,464,667		33,572,148

9

   

Fair Value of Financial Instruments

The Company, using available market information, has determined the estimated fair values of financial instruments. The stated values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the nature of these instruments. The fair value of our convertible debt is inherently difficult to determine as a result of the Company’s financial condition and history of operating losses. For financial reporting purposes, the Company has estimated the fair value of its debt as the difference between the book value of its assets less liabilities to third parties other than the debt holder.

Cash and Cash Equivalents

The Company maintains its cash and cash equivalents with domestic financial institutions that the Company believes to be of high credit standing. The Company believes that, as of June 30, 2011, its concentration of credit risk related to cash and cash equivalents was not significant. Cash and cash equivalents are available on demand and at times may be in excess of FDIC insurance limits.

Recent Accounting Pronouncements

Please see the discussion of “Recent Accounting Pronouncements” in this Note 4, Significant Accounting Policies contained in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Recently Issued

Fair Value Measurement — In May 2011, the Financial Accounting Standards Board (FASB) issued Fair Value Measurement (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Accounting Standards Update (ASU) No. 2011-04) , which provides additional guidance for fair value measurements.  These updates to the FASB Accounting Standards Codification (ASC or Codification) include clarifications regarding existing fair value measurement principles and disclosure requirements, and also specific new guidance for items such as measurement of instruments classified within stockholders’ equity and disclosures regarding the sensitivity of Level 3 measurements to changes in valuation model inputs.  These updates to the Codification are effective for interim and annual periods beginning after Dec. 15, 2011.  The Company does not expect the implementation of this guidance to have a material impact on its financial statements.

Comprehensive Income — In June 2011, the FASB issued Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU No. 2011-05) , which updates the Codification to require the presentation of the components of net income, the components of other comprehensive income (OCI) and total comprehensive income in either a single continuous statement of comprehensive income or in two separate, but consecutive statements of net income and comprehensive income. These updates do not affect the items reported in OCI or the guidance for reclassifying such items to net income. These updates to the Codification are effective for interim and annual periods beginning after Dec. 15, 2011. The Company does not expect the implementation of this guidance to have a material impact on its consolidated financial statements.

No new updates or other guidance issued to date by the FASB in 2011 are expected to have a material impact on the Company’s financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. The Company concluded that patent related legal costs, which had previously been classified with research and development expenses, should be classified as selling, general and administrative expenses. For the three and six months ended June 30, 2010, these costs amounted to $116,000 and $259,000, respectively. Such reclassifications had no impact on the Company’s reported results of operations.

10

Note 5—Strategic Alliance with Alticor Inc.

Since March 2003, the Company has maintained a broad strategic alliance with several affiliates of the Alticor family of companies to develop and market novel nutritional and skin care products. The alliance previously included an equity investment, a multi-year research and development agreement, a licensing agreement with royalties on marketed products, the deferment of outstanding loan repayment and the refinancing of bridge financing obligations. Pyxis Innovations, Inc., an affiliate of Alticor, is the Company’s largest shareholder.

In October 2009, the Company entered into a Merchant Network and Channel Partner Agreement with Amway Corp., d/b/a/ Amway Global (“Amway Global”) a subsidiary of Alticor Inc. Pursuant to this Agreement, Amway Global sells the Company’s Inherent Health® brand of genetic tests through its e-commerce website via a hyperlink to our e-commerce site. We paid Amway Global $543,000 and $169,000 in commissions for the six months ended June 30, 2011 and 2010, respectively, and $281,000 and $79,000, respectively, for the three months ended June 30, 2011 and 2010, respectively, representing a percentage of net sales to their customers.

On April 15, 2011, the Company entered into a contract services agreement with Alticor Corporate Enterprises Inc. and Amway International Inc. (collectively, “Alticor”). Pursuant to this agreement, the Company shall provide marketing, promotional and training services to Alticor in connection with its marketing of the Company’s weight management genetic test. Upon execution of the agreement on April 15, 2011, the agreement received retroactive effect as of October 15, 2010 and the initial term expires on October 14, 2011. The Company will receive approximately $143,000 for its services under the agreement for the initial term. The agreement may be renewed for successive one-year periods upon mutual written agreement by the parties. Alticor has the right to designate which personnel of the Company perform services under the agreement. Alticor may terminate the agreement at any time if the Company fails to perform the services in a timely, diligent, workmanlike or acceptable manner or with anyone other than the Company’s personnel specified by Alticor, or in the event that the Company becomes insolvent. The Company may terminate the agreement if Alticor defaults under the agreement. The agreement also contains standard confidentiality, ownership and restrictions on the transfer of intellectual property covenants. The Company has recorded a receivable for $107,000 representing amounts due under the agreement at June 30, 2011.

Note 6—Convertible Debt

On August 17, 2006, our existing credit facility with Pyxis was amended to provide the Company with access to approximately $14.4 million of working capital borrowings at any time prior to August 17, 2008. Any amounts borrowed thereunder bear interest at the prime rate, require quarterly interest payments and become due on demand beginning on August 16, 2011. The principal amount of any borrowing under this credit facility is convertible at Pyxis’ election into a maximum of 2,533,234 shares of common stock, reflecting a conversion price of $5.6783 per share.

This credit facility has been extended several times. Most recently, on September 30, 2010, the Company entered into an amendment to extend the availability of borrowings under the existing credit facility with Pyxis until June 30, 2012.  In addition, the due date was extended from August 16, 2011 to June 30, 2012. As of June 30, 2011, there was $11,000,000 in principal outstanding under the credit facility leaving $3,316,255 of available credit. The fair value of convertible debt is estimated to be approximately $2.0 million at June 30, 2011.

Note 7—Intangible Assets

Intangible assets at June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011			December 31, 2010
Patent costs	$	1,154,523		$	1,154,523
Less — Accumulated amortization		(582,212	)		(524,486	)
Total	$	572,311		$	630,037

Patent amortization expense was $28,863 for the three months ended June 30, 2011 and 2010, respectively, and $57,726 for the six months ended June 30, 2011 and 2010, respectively.

11

Patent costs which are amortized on a straight-line basis over a 10-year life, are scheduled to amortize as follows:

Year ending December 31,
2011 (six months)	$	57,726
2012		115,453
2013		109,266
2014		94,100
2015		77,656
Thereafter		118,110
	$	572,311

Note 8—Commitments and Contingencies

Employment Agreements

On February 14, 2011, the Company entered into an employment agreement with Lewis H. Bender, its Chief Executive Officer. The agreement replaced and superseded the employment agreement between the Company and Mr. Bender that expired by its terms on January 22, 2011. The agreement has an initial term of one year and is automatically renewable for successive one year periods unless at least 90 days prior notice is given by either the Company or Mr. Bender. The agreement also provides that Mr. Bender will serve as a member of the Company’s Board of Directors for as long as he serves as the Company’s Chief Executive Officer, subject to any required approval of the Company’s shareholders.

The agreement is terminable by the Company for cause or upon thirty days prior written notice without cause and by Mr. Bender upon thirty days prior written notice for “good reason” (as defined in the agreement) or upon ninety days prior written notice without good reason. If the Company terminates Mr. Bender without cause or Mr. Bender terminates his employment for good reason, then the Company will pay Mr. Bender, in addition to any accrued, but unpaid compensation prior to the termination, an amount equal to six months of his base salary. If the Company terminates Mr. Bender without cause or Mr. Bender terminates his employment with good reason within six months after a “change of control” (as defined in the agreement), then the Company will pay Mr. Bender, in addition to any accrued, but unpaid compensation prior to the termination, an amount equal to twelve months of his base salary, and all unvested stock options will automatically vest.

The agreement also includes non-compete and non-solicitation provisions for a period of six months following the termination of Mr. Bender’s employment with the Company.

Operating Lease

The Company leases its office and laboratory space under a non-cancelable operating lease expiring on March 31, 2014. In May 2010, the Company completed a sublease of approximately 6,000 square feet of underutilized office and laboratory space which reduced our total space operating costs. The sublease expires on March 31, 2013 and has a one year renewal option. The loss on the sublease of $51,044 was recognized in the second quarter of 2010. Rent expense, net of the benefit of the sublease, was $161,000 and $258,000 for the six months ended June 30, 2011 and 2010, respectively.

12

Note 9—Capital Stock

Authorized Preferred and Common Stock

 

At June 30, 2011, the Company had authorized 6,000,000 shares of $0.001 par value Series A Preferred Stock, of which 5,000,000 were issued and outstanding. At June 30, 2011, the Company had authorized 100,000,000 shares of $0.001 par value common stock of which 74,045,170 shares were outstanding or reserved for issuance. Of those, 36,658,933 shares were outstanding; 28,160,200 shares were reserved for the conversion of Series A Preferred to common stock; 1,937,200 shares were reserved for the conversion of the $11,000,000 of debt outstanding under the credit facility with Pyxis; 4,451,880 shares were reserved for the potential exercise of authorized and outstanding stock options; 400,000 shares were reserved for the exercise of outstanding warrants to purchase common stock at an exercise price of $2.50 per share which are exercisable currently until the expiration date of August 9, 2012; 1,750,000 shares were reserved for the exercise of outstanding warrants to purchase common stock at an exercise price of $1.30 per share which are exercisable currently until the expiration date of March 5, 2015; 102,934 shares were reserved for the potential exercise of rights held under the Employee Stock Purchase Plan; and 584,023 shares were reserved for the issuance upon the conversion of convertible notes that may be issued to Pyxis under the existing credit facility.

On March 5, 2010, the Company entered into a definitive agreement with certain institutional investors to sell $5.3 million of securities in a registered direct offering. The investors purchased an aggregate of 4,375,002 units for $1.20 per unit, with each unit consisting of a share of common stock and a warrant to purchase 0.40 of a share of common stock. The warrants are exercisable at $1.30 per share and expire in five years. Net proceeds to the Company after fees and expenses were approximately $4.9 million.

Series A Preferred Stock

On March 5, 2003, the Company entered into a Stock Purchase Agreement with Pyxis, pursuant to which Pyxis purchased from the Company 5,000,000 shares of Series A Preferred Stock for $7,000,000 in cash on that date, and an additional $2,000,000 in cash that was paid, as a result of the Company achieving a certain milestone, on March 11, 2004.

The Series A Preferred Stock accrues dividends at the rate of 8% of the original purchase price per year, payable only when, as and if declared by the Board of Directors and are non-cumulative. To date, no dividends have been declared on these shares. If the Company declares a distribution, with certain exceptions, payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series A Preferred Stock were the holders of the number of shares of common stock into which their respective shares of Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of common stock entitled to receive such distribution.

In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the Company’s assets or surplus funds to the holders of its common stock by reason of their ownership thereof, the amount of two times the then-effective purchase price per share, as adjusted for any stock dividends, combinations or splits with respect to such shares, plus all declared but unpaid dividends on such shares for each share of Series A Preferred Stock then held by them. The liquidation preference at June 30, 2011 was $18,000,000. After receiving this amount, the holders of the Series A Preferred Stock are entitled to participate on an as-converted basis with the holders of Common Stock in any of the remaining assets.

Each share of Series A Preferred Stock is convertible at any time at the option of the holder into a number of shares of the Company’s common stock determined by dividing the then-effective purchase price ($1.80, and subject to further adjustment) by the conversion price in effect on the date the certificate is surrendered for conversion. As of June 30, 2011, the Series A Preferred Stock was convertible into 28,160,200 shares of common stock reflecting a current conversion price of $0.3196 per share.

Each holder of Series A Preferred Stock is entitled to vote its shares of Series A Preferred Stock on an as-converted basis with the holders of common stock as a single class on all matters submitted to a vote of the stockholders, except as otherwise required by applicable law. This means that each share of Series A Preferred Stock will be entitled to a number of votes equal to the number of shares of common stock into which it is convertible on the applicable record date.

13

Note 10—Stock-Based Compensation Arrangements

Total compensation cost that has been recorded for stock-based compensation arrangements is as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
Stock options outstanding beginning of year	$	44,949	$	19,810		$	73,600	$	21,141
Stock-based arrangements during the period:
Stock option grants		14,092		(182	)		54,511		84,321
Restricted stock issued:
Employee Stock Purchase Plan		1,450		1,731			2,855		3,831
Total	$	60,491	$	21,359		$	130,966	$	109,293

Stock option grants

The following table details stock option activity for the six months ended June 30, 2011 and 2010:

	Six Months Ended June 30, 2011					Six Months Ended June 30, 2010
	Shares			Weighted Avg Exercise Price		Shares			Weighted Avg Exercise Price
Outstanding, beginning of period		1,611,267		$	1.54		1,591,417		$	2.06
Granted		781,000			0.35		323,500			0.77
Exercised		(2,500	)		0.00		(13,800	)		0.02
Canceled/Expired		(172,500	)		1.18		(224,150	)		4.32
Outstanding, end of period		2,217,267		$	1.15		1,676,967		$	1.52
Exercisable, end of period		1,086,967		$	1.75		921,017		$	2.05

At the Company’s 2011 annual meeting held on June 16, 2011, stockholders approved an amendment to the 2004 Employee, Director and Consultant Stock Plan increasing the aggregate number of shares of common stock which may be offered under the plan by an additional 2,000,000 shares. At June 30, 2011, the Company had an aggregate of 2,234,613 shares of common stock available for grant under this plan.

 It is the Company’s policy to grant stock options with an exercise price equal to the fair market value of the Company’s common stock at the grant date. Stock options to employees generally vest over four years based upon continuous service. Historically, the majority of the Company’s stock options have been granted in connection with the employee’s start date with the Company. In addition, the Company may grant stock options in recognition of promotion and/or performance.

For purposes of determining the stock-based compensation expense for stock option awards in 2011, the Black-Scholes option-pricing model was used with the following weighted-average assumptions:

Risk-free interest rate		2.08	%
Expected life	5.73 years
Expected volatility		123.33	%
Dividend yield		0	%

Using these assumptions, the weighted average grant date fair value of options granted in 2011 was $0.30.

14

Employee Stock Purchase Plan

Purchases made under the Company’s Employee Stock Purchase Plan are deemed to be compensatory because employees may purchase stock at a price equal to 85% of the fair market value of the Company’s common stock on either the first day or the last day of a calendar quarter, whichever is lower. During the six months ended June 30, 2011 and 2010, employees purchased 64,134 and 31,890 shares, respectively, of common stock at a weighted-average purchase price of $0.26 and $0.69, respectively, while the weighted-average fair value was $0.31 and $0.81 per share, respectively, resulting in compensation expense of $2,855 and $3,831, respectively.

Restricted Stock Awards

Holders of restricted stock awards, which vest over a period of four years, participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. Recipients of restricted stock awards are generally not required to pay any consideration to the Company for these restricted stock awards. The Company measures the fair value of the shares based on the last reported price at which the Company’s common stock traded on the date of the grant and compensation cost is recognized over the remaining service period. During each of the three months ended June 30, 2011 and 2010, the Company did not grant restricted stock awards. During the six months ended June 30, 2011 and 2010, the Company granted restricted stock awards of 0 and 10,000 shares, respectively.

At June 30, 2011, there was approximately $419,519 of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Company’s stock plans.

Note 11—Industry Risk and Concentration

The Company develops genetic risk assessment tests and performs research for its own benefit. As of June 30, 2011, the Company has introduced four genetic risk assessment tests commercially. Commercial success of the Company’s genetic risk assessment tests will depend on their success as scientifically credible and cost-effective by consumers and the marketing success of the Company and its collaborative partner.

Research in the field of disease predisposing genes and genetic markers is intense and highly competitive. The Company has many competitors in the United States and abroad that have considerably greater financial, technical, marketing, and other resources available. If the Company does not discover disease predisposing genes or genetic markers and develop risk assessment tests and launch such services or products before its competitors, then the potential for significant revenues may be reduced or eliminated.

During the six months ended June 30, 2011 and 2010, approximately 67% and 32%, respectively, of our revenue came from sales through our Merchant Network and Channel Partner Agreement with Amway Global, a subsidiary of Alticor.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included elsewhere in this document.

General Overview and Trends

Interleukin Genetics, Inc. is a personalized health company that develops specific, health area focused, unique genetic tests. Our overall mission is to provide test products that can help individuals improve or maintain their health through preventive measures. Our vision is to use the science of applied genetics to empower individuals and physicians to better understand the set of actions and steps necessary to guide the best lifestyle and treatment options. We believe that the science of applied genetics can help companies provide improved services to their consumers, and assist in improving outcomes in drug development and use.

15

During the three months ended June 30, 2011, we continued to focus our resources on sales of our Inherent Health® brand of genetic tests and the execution of our clinical study with the University of Michigan and Renaisance Health Services for PST®. The Inherent Health® brand offers customers a full suite of affordable, easy-to-use and meaningful genetic tests in weight management, heart health, bone health and nutritional needs. We offer an additional product under the name Wellness Select that allows our e-commerce customers to purchase any combination of our Inherent Health® genetic tests at a discounted price. During the quarter ended June 30, 2011, customer orders continue to indicate that selling multiple tests in one package is a valuable addition to our Inherent Health® brand. In addition to our Inherent Health® test products we offer PST®, the periodontal disease risk assessment test sold through a Licensing Agreement with OralDNA Labs, Inc. a Quest Diagnostics Inc. company.

Sales of our genetic tests increased significantly in the three months ended June 30, 2011, as compared to the same period in the prior year driven primarily by increased orders through our Merchant Network and Channel Partner Agreement with Amway Corp. d/b/a Amway Global, a subsidiary of Alticor and our commercial partners.

Prior to the opening of business on July 1, 2009 we sold substantially all of the Alan James Group business and assets of our wholly-owned subsidiary AJG Brands, Inc. to Pep Products, Inc., a subsidiary of Nutraceutical Corporation. While we continue to make payments related to retail inventory returns, the amount of the payments has declined significantly. During the three months ended June 30, 2011, we paid only $600 to former customers. We believe that any remaining payments will be minimal and, accordingly, have reversed the remaining reserve of $158,366 which had been established in June 2009 for related returns.

Our total research and development expenses were $1.4 million in 2010 and $0.7 million in the first six months of 2011 as we focus on our own development and commercialization efforts in the areas of weight management and periodontal disease. In addition, we are working with potential commercial partners to validate our technology within their specific business model often as a collaboration with little or no cost to us.

During the six months ended June 30, 2011, the University of Michigan, led by Dr. William Giannobile, Director of the Michigan Center for Oral Health Research (“MCOHR”) at the School of Dentistry continued to enroll patients in our joint clinical study on risk factors predictive of periodontal disease progression to tooth loss using a new version of Interleukin Genetics’ PST® genetic test. The clinical study makes use of a large, long term dental claims database to test whether risk factors, including genetic information, can guide more successful intervention and thus reduce the adverse outcomes of periodontal disease, such as tooth loss. The researchers intend to enroll approximately 4,000 consenting individuals with more than 15 consecutive years of documented oral health history.  Participants provide information on periodontitis risk factors and their DNA. University of Michigan researchers will assess the frequency of preventive visits that are consistent with maintenance of proper periodontal health in patients classified as either low-risk or high-risk for periodontitis progression.  Renaissance Health Service Corporation, a nonprofit organization focused on the advancement of oral health, provides funding for the trial. As of June 30, 2011 the study enrollment is progressing and we expect full enrollment by the end of 2011.

In May 2011 we entered into a research collaboration with Metagenics, Inc. to identify predictive biomarker combinations for use with Metagenics Compound Meta-060, which is a proprietary and patented formulation of tetrahydro iso-alpha acids derived from hops, in development for weight management. A key aim of the collaboration is to investigate if genetic variations identified by Interleukin Genetics are beneficial to improving weight loss and maintenance of weight loss in adults using Meta-060. Metagenics will be funding the clinical and genetic research.

In the genetic test business, competition is in flux and the markets and customer base are not well established. Adoption of new technologies by consumers requires substantial market development and customer education. Historically, we have focused on our relationship with our primary customer, Amway Global, a subsidiary of Alticor, a significant direct marketing company, in order to assist us in developing the market for our products and educating our potential customers. Our challenge in 2011 and beyond will be to develop the market for our own personalized health products. We continue to allocate considerable resources to our Inherent Health® brand of genetic test products. Due to the early stage of these initiatives, we cannot predict with certainty fluctuations we may experience in our test revenues or whether revenues derived from the Merchant Network and Channel Partner Agreement with Amway Global will ever be material or if material, will be sustained in future periods.

16

Results of Operations

Three Months Ended June 30, 2011 and June 30, 2010

Total revenue for the three months ended June 30, 2011 was $0.8 million, compared to $0.6 million for the three months ended June 30, 2010. The increase of $0.2 million, or 39.1%, is primarily attributable to sales of our Inherent Health® brand of genetic tests through our Merchant Network and Channel Partner Agreement with Amway Global In addition, $49,000 was recognized from processing genetic tests as part of our ongoing PST® clinical study with the University of Michigan. Genetic testing revenue is derived from tests sold and processed, which is driven by consumer demand.

During the three months ended June 30, 2011, 69% of our sales revenue came through our Merchant Network and Channel Partner Agreement with Amway Global compared to 27% during the three months ended June 30, 2010. Pursuant to this agreement, Amway Global sells our genetic tests through its e-commerce web site via a hyperlink to our e-commerce site.

Cost of revenue for the three months ended June 30, 2011 was $0.4 million, or 55.0% of revenue, compared to $0.4 million, or 75.3% of revenue, for the three months ended June 30, 2010. The significant decrease in the cost of revenue as a percentage of revenue is primarily attributable to increased revenue and more efficient processing of genetic tests. During 2011, we worked with our genetic testing supply vendors to provide more efficient materials that result in a lower cost of production.

Research and development expenses were $0.4 million for the three months ended June 30, 2011, compared to $0.3 million for the three months ended June 30, 2010. The increase in research and development expenses is primarily attributable to increased consulting costs related to our weight management genetic test offset by decreased compensation and allocated facility operating costs.

Selling, general and administrative expenses were $1.3 million for the three months ended June 30, 2011, compared to $1.6 million for the three months ended June 30, 2010. The decrease of $0.3 million, or 22.4%, is primarily attributable to decreased expenses related to lower compensation, professional fees and promotion expenses partially offset by increased patent related legal fees and sales commissions paid to Amway Global as part of our Merchant Network and Channel Partner Agreement.

Interest expense was $89,000 for the three months ended June 30, 2011, as compared to $73,000 for the three months ended June 30, 2010. The increase in interest expense of $16,000 is attributable to higher borrowings on our credit facility with Pyxis.

Results of Operations

Six Months Ended June 30, 2011 and June 30, 2010

Total revenue for the six months ended June 30, 2011 was $1.5 million, compared to $0.9 million for the six months ended June 30, 2010. The increase of $0.6 million, or 61.0%, is primarily attributable to sales of our Inherent Health® brand of genetic tests through our Merchant Network and Channel Partner Agreement with Amway Global. In addition, $49,000 was recognized from processing genetic tests as part of our ongoing PST® clinical study with the University of Michigan.

During the six months ended June 30, 2011, 67% of our sales revenue came through our Merchant Network and Channel Partner Agreement with Amway Global compared to 32% during the six months ended June 30, 2010.

Cost of revenue for the six months ended June 30, 2011 was $0.8 million or 52.5% of revenue, compared to $0.8 million, or 89.7% of revenue, for the six months ended June 30, 2010. Changes in expenses impacting the cost of revenue as a percentage of revenue are primarily attributable to increased revenue and more efficient processing of genetic tests. During 2011, we worked with our genetic testing supply vendors to provide more efficient materials that result in a lower cost of production.

17

Research and development expenses were $0.7 million for the six months ended June 30, 2011, compared to $0.7 million for the six months ended June 30, 2010. The small decrease in research and development expenses are primarily attributable to decreased compensation and allocated facility operating costs partially offset by increased consulting costs related to our weight management genetic test.

Selling, general and administrative expenses were $2.5 million for the six months ended June 30, 2011, compared to $3.0 million for the six months ended June 30, 2010. The decrease of $0.5 million, or 19.3% is primarily attributable to decreased expenses related to lower compensation, professional fees and promotion expenses partially offset by increased patent related legal fees and sales commissions paid to Amway Global as part of our Merchant Network and Channel Partner Agreement.

Interest expense was $177,000 for the six months ended June 30, 2011, as compared to $140,000 for the six months ended June 30, 2010. The increase in interest expense of $37,000 is attributable to higher borrowings on our credit facility with Pyxis.

Liquidity and Capital Resources

As of June 30, 2011, we had cash and cash equivalents of $1.7 million and borrowings available under our credit facility with Pyxis of approximately $3.3 million, which permits borrowing at any time prior to June 30, 2012.

Cash used in operations was $2.3 million for the six months ended June 30, 2011, as compared to $3.5 million for the six months ended June 30, 2010. Cash used in operations is primarily impacted by operating results and changes in working capital, particularly the timing of the collection of receivables, inventory levels and the timing of payments to suppliers. This use of cash in 2010 was offset by a significant increase in genetic test sales resulting from media attention we received in 2010 and in 2011 by increased sales through the Merchant Network and Channel Partner Agreement with Amway Global. A significant use of cash in the first six months of 2010 were total payments of $0.4 million relating to the settlement of our obligations with former customers of the Alan James Group in connection with their rights of return of purchased product which included a final settlement reached with a major customer for inventory yet to be returned in accordance with the contractual terms of the relationship. The total settlement amounted to $0.3 million which was fully paid by June 30, 2010. During the six months ended June 30, 2011, $5,900 was paid to former customers. We believe that any payments that may be made to former customers in the future will be minimal. In addition, the $0.2 million in other current assets at June 30, 2011 represents a receivable from Nutraceutical Corporation in connection with the transaction in July 2009. The $0.2 million was received on July 1, 2011. Cash received from genetic test sales, which is reflected in deferred revenue until the test report is issued, increased by $246,000 to $762,000 at June 30, 2011 as compared to December 31, 2010.

Cash used in investing activities, consisting of purchases of fixed assets, was $2,000 for the six months ended June 30, 2011, compared to $78,000 for the six months ended June 30, 2010.

Cash provided by financing activities was $17,000 for the six months ended June 30, 2011 compared to $6.9 million for the six months ended June 30, 2010. On February 1, 2010, we received $2.0 million under our existing credit facility with Pyxis. We have no financial covenants as part of our credit facility with Pyxis. As of June 30, 2011, we had $11.0 million outstanding under the credit facility, which is reflected as current portion of long term debt on our balance sheet and is convertible, at the option of Pyxis into shares of our common stock at a price of $5.6783 per share. On March 5, 2010, we sold $5.3 million of securities in a registered direct offering with certain institutional investors. The investors purchased an aggregate of 4,375,002 units for $1.20 per unit, with each unit consisting of a share of common stock and a warrant to purchase 0.40 of a share of common stock. The warrants are exercisable at $1.30 per share and expire in March 2015. Net proceeds after fees and expenses were approximately $4.9 million. We received approximately $17,000 and $22,000, respectively, from the exercise of stock options and stock purchases through the employee stock purchase plan for the six months ended June 30, 2011 and 2010.

18

The amount of cash we generate from operations is not currently sufficient to continue to fund and grow our business. We believe our success depends on our ability to have sufficient capital and liquidity to achieve our objectives of closing negotiations with partners and creating additional distribution channels for our genetic testing products and technology. In addition to maintaining our current operating line of credit we will be required to raise additional capital. Even though we are experiencing sales increases in our genetic testing business we continue to explore additional steps to reduce our operating costs. In 2010, we reduced our headcount in non-essential areas. We were successful in the second quarter of 2010 in completing a sublease of approximately 6,000 square feet, or one-third of our total office space. The space includes offices and a laboratory that was being underutilized. Our remaining office and laboratory space is adequate for our current business needs. We are able to process high volumes of genetic tests in our current laboratory. During the first six months of 2011, we reduced our cost of processing samples in our laboratory by working with our raw material vendors to make our genetic testing process more efficient resulting in lower processing costs. We have significantly reduced our research and development programs to only those that focus on technology related to agreements with potential commercial partners. We have taken steps to reduce our corporate administrative expenses by working with or seeking new vendors who offer the same service for a lower cost. While we expect that our current and anticipated financial resources, including the amount available under our credit facility with Pyxis, are adequate to maintain our current and planned operations through July 2012, we will need substantial additional funds in the future. We intend to obtain such funds from operations, through strategic alliances or through the sale of equity or debt securities, but such funding may not be available on terms acceptable to us, or at all. Our common stock was delisted from the NYSE Amex in 2010 and is currently trading on the OTCQB™. As a result, our access to capital through the public markets may be more limited.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements. The preparation of these financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to (i) make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenue and expenses; and (ii) disclose contingent assets and liabilities. A critical accounting estimate is an assumption that could have a material effect on our financial statements if another, also reasonable, amount were used or a change in the estimates is reasonably likely from period to period. We base our accounting estimates on historical experience and other factors that we consider reasonable under the circumstances. However, actual results may differ from these estimates. To the extent there are material differences between our estimates and the actual results, our future financial condition and results of operations will be affected. Our most critical accounting policies and estimates upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are set forth in Note 4 to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no significant changes in our accounting policies or changes from the methodology applied by management for critical accounting estimates previously disclosed in our most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements

Please see the discussion of “Recent Accounting Pronouncements” in Note 4, Significant Accounting Policies contained in the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. No new updates or other guidance issued to date by the FASB in 2011 are expected to have a material impact on the Company’s financial statements.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we have elected scaled disclosure reporting obligations and therefore are not required to provide the information required by this Item 3.

Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f)) occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

19

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. In addition, risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes in or additions to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2010.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and, in particular, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I – Item 2 contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially.

Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. There are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors set forth under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010 and under “Item 1A. Risk Factors” above in this Quarterly Report on Form 10-Q. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4 [Removed and Reserved.]

Item 5. Other Information.

Not applicable.

20

Item 6. Exhibits.

Exhibit Number	Exhibit
10.1†	Contract Services Agreement, entered into on April 15, 2011, by and among Alticor Corporate Enterprises Inc. and Amway International Inc. and Interleukin Genetics, Inc.
10.2	Interleukin Genetics, Inc. 2004 Employee, Director and Consultant Stock Plan (incorporated by reference to Appendix A of the Definitive Proxy Statement of Interleukin Genetics, Inc. filed on April 29, 2011 (File No. 001-32715))
31.1	Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	The following materials from Interleukin Genetics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Unaudited Condensed Balance Sheets, (ii) the Unaudited Condensed Statements of Operations, (iii) the Unaudited Condensed Statements of Stockholders’ Equity (Deficit), (iv) the Unaudited Condensed Statements of Cash Flows, and (v) Notes to Unaudited Condensed Financial Statements, tagged as blocks of text.

† Confidential portions of this document have been filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

* Users of the XBRL data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Interleukin Genetics, Inc.
Date: August 12, 2011	By:	/s/ Lewis H. Bender
		Lewis H. Bender Chief Executive Officer (Principal Executive Officer)
Date: August 12, 2011	By:	/s/ Eliot M. Lurier
		Eliot M. Lurier Chief Financial Officer (Principal Financial Officer)

22

EX-10.1

Exhibit 10.1

CONTRACT SERVICES AGREEMENT

THIS AGREEMENT is made effective as of October 15, 2010, by and among ALTICOR CORPORATE ENTERPRISES INC., a Delaware corporation with offices at 7575 Fulton Street East, Ada, Michigan 49355 and AMWAY INTERNATIONAL INC., a Delaware corporation, with offices located at 7575 Fulton Street East, Ada, Michigan 49355 (collectively, “Alticor”), and INTERLEUKIN GENETICS, INC., a Delaware corporation with offices located at 135 Beaver Street, Waltham, Massachusetts 02452 (“Contractor”).

WHEREAS, Alticor wishes to retain Contractor on a limited basis to render services in accordance with Schedule A, PROJECT SPECIFICATIONS, and

WHEREAS, Contractor represents that it has sufficient training, expertise and time to provide such services, and is willing to provide such services as an independent contractor in accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, the parties agree as follows:

1.           Services.  Alticor hereby retains Contractor as an independent contractor to provide the services detailed in Schedule A, attached hereto.  Additional Schedules A may be executed from time to time by the parties hereto during the term of this Agreement.  Any such Schedule A shall be a part of the Agreement and is hereby incorporated by reference.  This Agreement shall apply to any and all services provided to Alticor by Contractor and paid for by Alticor.  Contractor hereby warrants and represents that any employee, agent or subcontractor that Contractor assigns to Alticor is authorized to work in the United States, and that Contractor has complied with the Immigration Reform and Control Act of 1986 (IRCA).  Contractor further warrants and represents that Contractor has completed, in accordance with applicable law, the I-9 Employment Eligibility Verification form for each individual assigned to Alticor.  A copy of such I-9 Employment Eligibility Verification shall be made available to Alticor upon Alticor’s request.

2.           Term and Compensation.  This Agreement shall commence on the date above written and shall remain in effect for a period of one (1) year or for the time stated on an applicable Schedule A, whichever is later.  This Agreement may be renewed for successive one (1) year periods upon mutual written agreement of the parties hereto.  Execution of a new Schedule A after the expiration of a current one (1) year term of this Agreement may serve as notice of mutual agreement of the parties to renew this Agreement, however, amendments to any existing Schedule A shall not serve to renew the Agreement unless otherwise specified by the parties, in writing, in the amended Schedule A.  As compensation for Contractor’s services and consultation, Alticor shall pay Contractor as set forth on Schedule A.

3.           Independent Contractor.  The relationship between Contractor and Alticor under this Agreement is to be that of an independent contractor.  The personnel provided by Contractor shall be under the control of Contractor. Contractor shall be responsible for making Social Security payments on behalf of its employees and Alticor shall not be responsible for withholding any federal, state, city or other local income taxes or procurement of unemployment compensation or workers’ compensation insurance for services performed under this Agreement.  This Agreement shall not confer on Contractor, its employees, agents or subcontractors, any right to company service credit, employee benefits or fringe benefits, which are provided to Alticor employees.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

If Contractor engages a subcontractor to provide services hereunder, Contractor’s agreement with such subcontractor shall include a provision that such subcontractor shall be responsible for making its own Social Security payments and shall account for compensation on its income tax returns.  Contractor shall be responsible for the acts, errors and omissions of its subcontractors.

4.           Confidentiality.  Contractor is aware of Alticor’s need to maintain the confidentiality of its business.  Contractor is also aware that certain records maintained by Alticor contain individually identifiable confidential information subject to confidentiality obligations imposed by state and federal laws or which individuals expect Alticor to maintain on a confidential basis.  Examples of such information includes but is not limited to health information, social security numbers, credit card and other financial account numbers, drivers licenses, and personnel records.  Therefore, Contractor agrees to take the utmost precautions to ensure that the confidentiality of Alticor’s records, papers, effects, and accounting matters are preserved, agrees not to divulge or discuss with any [***]or third parties Alticor’s confidential matters relating to the Alticor business or the confidential records it maintains, or to access, use or disclose individually identifiable confidential information except as expressly permitted by Alticor.  Upon termination of this Agreement, Contractor shall return all of Alticor’s records, papers, effects and materials which have been entrusted to Contractor, its employees, agents or subcontractors in connection with Contractor’s performance hereunder.  Additionally, Contractor shall return all notes, memoranda, correspondence, and reports completed, or in process, at the time of termination.

With respect to Alticor's confidential business records, this covenant of confidentiality shall survive any termination of this Agreement for so long as such material or information does not enter the public domain (through no fault of Contractor).  With respect to Alticor's individually identifiable confidential information, this covenant of confidentiality shall survive any termination of this Agreement for so long as Contractor maintains such information.  Contractor is required to execute and shall then cause each employee, agent or subcontractor assigned to perform services for Alticor to sign the AGREEMENT REGARDING CONFIDENTIALITY AND INTELLECTUAL PROPERTY, attached hereto as Schedule B, which shall protect Alticor's confidential records.  If Contractor may have access to individually identifiable confidential information, Contractor will also sign the Confidentiality and Privacy Addendum, attached hereto as Schedule D.

5.           Performance, Travel, Safety, Security and Expenses.  Contractor shall perform the above services at the location which best facilitates successful completion of the project.  If services are performed on Alticor’s premises, Contractor shall be responsible for its safety while on the premises and shall make certain that its employees, agents and subcontractors are familiar with and abide by Alticor’s written safety regulations.  Contractor, when providing services on Alticor’s premises or at premises designated by Alticor for performance, shall comply with and cause each of its employees, agents and subcontractors supplying services to Alticor to comply with the terms of Alticor’s Contractor Expectations form, attached hereto as Schedule C.  If requested by Alticor, all personnel provided by Contractor to Alticor pursuant to Schedule A and providing services at Alticor facilities must successfully undergo hair drug testing at Contractor’s expense.  Proof of successfully passing such test must be provided to Alticor upon request.  Alticor shall pay or reimburse Contractor for all reasonable expenses (including travel and lodging) incurred by in performance of the services required of Contractor under this Agreement. If the performance of services hereunder require that Contractor travel outside the city in which Contractor’s or Alticor’s offices are located and for which Contractor will incur expenses on behalf of Alticor, prior approval for said travel and reasonable expenses are required.  It is understood that Contractor will not be paid mileage for travel within the city in which either Contractor’s or Alticor’s offices are located.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

2

6.           Insurance. Contractor shall maintain in effect at all times during the term hereof standard insurance of the types and in the amounts generally typical for the services being provided and acceptable to Alticor, protecting against losses, claims, demands, proceedings, damages, costs, charges and expenses for injuries to any person or damage to property arising out of Contractor’s performance under this Agreement, to the extent such injuries or damage are due to the fault or negligence of Contractor, or its employees, agents or subcontractors.  Alticor and its employees, agents or subcontractors shall not be deemed to be employees, agents or subcontractors of Contractor.  Upon request, Contractor shall furnish to Alticor insurance certificates which confirm Contractor’s insurance coverage and which include Alticor as an additional insured under such insurance policies.

7.           Warranty and Indemnification; Limitation of Liability. Contractor represents and warrants that the services to be performed hereunder shall be solely performed by Contractor, its employees, agents or subcontractors, that Contractor is the originator of such services, that Contractor will not knowingly or negligently conduct any work or create any materials under this Agreement that infringe or violate any rights of another party, and that Contractor can grant all of the rights set forth herein.  Contractor agrees to indemnify, hold harmless and defend Alticor and its employees, agents and subcontractors from all third party claims, liability, damages, loss and expense including fees, costs and reasonable attorneys’ fees, for injuries to persons or property or resulting from (i) violation of any law by Contractor in the conduct of its activities under this Agreement or (ii) any negligence or willful misconduct of Contractor in the course of activities under this Agreement, except when the same shall arise from the sole negligence of Alticor or its employees, agents or subcontractors.   Contractor shall also indemnify and hold harmless Alticor for any payments, fines, penalties and costs paid by Alticor as a result of: (a) Contractor’s, or its employees’, agents’ or subcontractors’ failure to pay Social Security or applicable income taxes; (b) Contractor’s failure to comply with IRCA; (3) Contractor’s failure to comply with the provisions of Section 1 regarding I-9 Employment Eligibility Verification responsibilities; or (4) breach of any warranty or representation made by Contractor in this Agreement.  Alticor shall promptly provide notice to Contractor of any claims for which it will seek indemnification, and Alticor shall have the right to control the defense of the claim, at its own expense.  Unless specifically set forth herein, nothing herein shall modify Contractor’s indemnification obligations to Alticor and its employees, agents, and subcontractors

EXCEPT IN THE CASE OF LIABILITY UNDER THE PARAGRAPH ABOVE OR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, (I) IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION ANY LOSS OF USE, LOSS OF BUSINESS, COST OF PROCUREMENT OF SUBSTITUTE SERVICES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND THE SERVICES RENDERED HEREUNDER, EVEN IF THE PARTIES ARE AWARE OF THE POSSIBILITY OF SUCH DAMAGES, AND (II) CONTRACTOR’S TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT AND THE RELATED SERVICES RENDERED HEREUNDER, WHETHER IN CONTRACT OR TORT OR OTHERWISE, WILL NOT EXCEED ANY FEES ACTUALLY PAID BY ALTICOR TO CONTRACTOR UNDER THIS AGREEMENT DURING THE THIRTY-SIX (36) MONTH PERIOD IMMEDIATELY PRECEDING THE DATE THAT THE CAUSE OF ACTION AROSE.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

3

                      8.           Termination.  Should Contractor at any time refuse, fail, or neglect to perform the services required under this Agreement with promptness or diligence, fail to perform in a workmanlike and acceptable manner, fail in the performance of the services or otherwise not meet Alticor’s expectations, or become insolvent, Alticor may terminate the Contractor’s right to proceed with services or such parts of the services as to which such defaults have occurred or may require Contractor to provide the services of another employee, agent or subcontractor of Contractor, at Alticor’s sole discretion.  All rights as set forth in Section 9 below accrued at or before termination shall be vested solely in Alticor, as provided in such Section.

Without limiting the generality of the foregoing, the parties acknowledge that all services to be performed by Contractor hereunder shall be performed by [***], and in the event that [***] becomes unavailable to perform such services, or his performance of services is unsatisfactory to Alticor, in its sole discretion, Alticor may request that Contractor perform such services through another of its employees or, in Alticor’s sole discretion, terminate this Agreement and the Services provided hereunder immediately in accordance with this Section and without further liability to Contractor for any payments except those incurred as of the date of the termination.  Contractor may terminate this Agreement if Alticor defaults in the performance of any of its obligations under this Agreement.  If this Agreement is terminated pursuant to section 8 of this Agreement, Alticor shall be obligated to pay Contractor a pro rata portion of the Compensation set forth on Schedule A for services performed by the Contractor to the reasonable satisfaction of Alticor until the date of termination.

9.         Ownership.  Nothing in this Agreement shall be construed to transfer ownership of, or grant a license under, any intellectual property rights of a party which rights are existing as of the effective date of this Agreement, from one party to the other party.

The parties acknowledge ownership of intellectual property rights in work and documents created by Contractor in the performance of services under this Agreement and any Schedule hereto as follows:

(a)Unless otherwise expressly set forth herein, all intellectual property rights in work and documents created, conceived and/or first reduced to practice by Contractor through Contractor’s employees, agents or subcontractors who perform services pursuant hereto; (i) whether or not created, conceived, or first reduced to practice with the use of Alticor’s time, equipment, materials, supplies, facilities, trade secrets or Confidential Information;. and (ii) whether created, conceived, and/or first reduced to practice by Contractor acting alone or Alticor and Contractor personnel working together, which relate solely to genetic tests currently developed by or produced by Contractor without regard to Alticor’s channel of distribution, direct selling model, [***], or other operations and which result from the services performed by Contractor, Contractor’s employees, agents or subcontractors pursuant hereto (the “Genetic Test Intellectual Property”), shall be owned by Contractor and licensed to Alticor pursuant to Section 10(a) below; provided, however, that any trademarks, the registrations or applications for which are paid for by Alticor shall be owned by Alticor and not licensed to Contractor, whether or not they are Genetic Test Intellectual Property, Combined Intellectual Property (as defined below), or Non-Genetic Test Intellectual Property (as defined below.)  For the avoidance of doubt, all intellectual property rights in work and documents created, conceived and/or first reduced to practice by Contractor or Contractor’s employees, agents, or subcontractors developed prior to, during, or after the term of this Agreement which relate to genetic tests currently developed by or produced by Contractor or to other genetic tests and which do not result from the services performed hereunder shall be owned by Contractor and shall not be licensed to Alticor pursuant to this Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4

(b)Unless otherwise expressly set forth herein, all intellectual property rights in work and documents created, conceived and/or first reduced to practice by Contractor through Contractor’s employees, agents or subcontractors who perform services pursuant hereto (i) whether or not created, conceived, or first reduced to practice with the use of Alticor’s time, equipment, materials, supplies, facilities, trade secrets or Confidential Information; (ii) whether or not otherwise resulting from or suggested by the services to be provided by Contractor hereunder; and (iii) whether created, conceived, and/or first reduced to practice by Contractor acting alone or Alticor and Contractor personnel working together, which relate to genetic tests currently developed by or produced by Contractor as they apply to or are used in Alticor’s channel of distribution, direct selling model, [***], or other operations (the “Combined Intellectual Property”), shall be owned by Alticor and licensed to Contractor pursuant to Section 10(b) below; provided, however, that any trademarks, the registrations or applications for which are paid for by Alticor shall be owned by Alticor and not licensed to Contractor, whether or not they are Genetic Test Intellectual Property, Combined Intellectual Property, or Non-Genetic Test Intellectual Property (as defined below.)

(c)Unless otherwise expressly set forth herein, all intellectual property rights in work and documents created, conceived and/or first reduced to practice by Contractor through Contractor’s employees, agents or subcontractors who perform services pursuant hereto (i) whether or not created, conceived, or first reduced to practice with the use of Alticor’s time, equipment, materials, supplies, facilities, trade secrets or Confidential Information; (ii) whether or not otherwise resulting from or suggested by the services to be provided by Contractor hereunder; and (iii) whether created, conceived, and/or first reduced to practice by Contractor acting alone or Alticor and Contractor personnel working together, which are unrelated to genetic tests (the “Non-Genetic Test Intellectual Property”) shall be owned by Alticor and not licensed to Contractor, including any trademarks, the registrations or applications for which are paid for by Alticor, whether or not they are Genetic Test Intellectual Property, Combined Intellectual Property, or Non-Genetic Test Intellectual Property.

All intellectual property rights in work and documents shall automatically and immediately be deemed to be the property of the party specified in Sections 9(a) through (c) above as of the date authored, made, conceived or first reduced to practice.  Both parties agree to cooperate in seeking any appropriate protection on the intellectual property rights described in Sections 9(a) through (c) above in accordance with this Agreement and shall cause its employees to execute any and all applications, assignments, or other instruments which the requesting party deems necessary to effectuate such protection and assign between the parties such rights as required by this Agreement to be assigned and to apply for and obtain copyright, trademark and patent registrations in the U.S. or any applicable foreign country.

Contractor also agrees that to the extent allowed by law any copyrightable work authored by Contractor or its employees, agents or subcontractors under this Agreement which shall be owned by Alticor pursuant to Sections 9(a) through (c) above shall be considered a “work made for hire” as that term is defined in the Copyright Law of the United States of America and that Alticor is entitled to claim authorship of such material and sole ownership of the copyright.  To the extent any such work is not a “work made for hire,” Contractor further agrees to assign, hereby does assign, and shall cause its employees, agents or subcontractors to assign to Alticor all right, title, and interest in the work and the materials, including all copyrights, domestic and foreign, and to execute any assignments, or other documents, presented to it by Alticor relating to this assignment.  Contractor and its employees, agents and subcontractors shall not exercise any right under copyright or other right of Alticor in such work or materials, without the prior written approval of Alticor.  The assignment of rights contemplated in this Agreement includes all rights to sue for all infringements, including those which may have occurred before this assignment, and to recover past damages.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

5

Contractor hereby acknowledges the existence of, and hereby expressly and forever waives, its moral rights arising under U.S. federal law, such as the rights described in 17 U.S.C. § 106(a)(3), and under any state law and under the laws of any other country that conveys rights of the same nature or any other type of moral right or droit moral, and knowingly executes this waiver on the following terms: (a) this waiver applies to all works prepared by Contractor under this Agreement which shall be owned by Alticor pursuant to Sections 9(a) through (c) above  and (b) this waiver applies to any and all uses and applications in which either the attribution right (and rights of a similar nature) or the integrity right (and rights of a similar nature) may be implicated.

Contractor further agrees to promptly secure, on behalf of Alticor, waivers of all such moral rights that may be held by Contractor’s employees, agents or subcontractors as a result of or related to Contractor’s performance of its services under this Agreement.

Unless otherwise set out in any applicable Schedule A, PROJECT SPECIFICATIONS, or other written communication from Alticor to Contractor, Contractor will obtain all consents and releases necessary for the use of any music, including synchronization rights, photo, graphic, or other copyrighted materials, or the name, likeness, portrait or picture of any person in any advertising, promotional, or other materials which it prepares for Alticor, including consents from Alticor’s employees who appear in such materials.  Such consents and releases shall be sufficient to allow Contractor to pass copyright ownership to Alticor as required pursuant to this Section 9, unless otherwise agreed to in writing by the parties.

10.           Licenses.   Subject to all applicable confidentiality obligations:

(a)           Contractor agrees to grant and hereby grants to Alticor a non-exclusive, royalty-free, perpetual license to use all Genetic Test Intellectual Property in any manner whatsoever in its business.  Said license is paid up and without territorial restrictions.

(b)           Alticor agrees to grant and hereby grants to Contractor a royalty-free, non-exclusive, non-transferable, royalty-free, perpetual license to use all Combined Intellectual Property in connection with the sale of genetic tests currently developed by or produced by Contractor.  Said license is paid up and without territorial restrictions.  Contractor has no right to permit or sublicense any third party to use the Combined Intellectual Property, unless with the prior written approval of Alticor.

11.           Disclosure of Ideas to Alticor.  Contractor agrees to disclose promptly to Alticor all intellectual property rights, works of authorship, inventions, improvements and developments when made, conceived, or first reduced to practice in Contractor’s performance of services hereunder related solely to Combined Intellectual Property or Non-Genetic Test Intellectual Property.  Upon termination of this Agreement for any reason, Contractor shall promptly provide to Alticor all written records of such intellectual property rights, works of authorship, inventions, improvements and developments, and make full disclosure thereof to Alticor, whether or not they have been reduced to writing.

12.           Force Majeure.  Neither party shall be liable to the other party for any delay or failure to perform its obligations if such delay or failure arises from any cause beyond the reasonable control of that party.  Under no circumstances shall Contractor be excused of its responsibilities under this Agreement or any Schedule if its delay or failure to perform is a result of a labor dispute or strike.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

6

13.           Notice.  All written notices required under this Agreement shall be deemed to have been given on the next day by fax, electronic mail or other electronic means or upon personal delivery, or in ten (10) days upon delivery in the mail, first class, with postage prepaid.  Notices shall be sent to the addressees indicated below unless written notification of change of address shall have been given.

If to Alticor:	If to Contractor:
Amway International Inc.	Interleukin Genetics Inc.
Attention:  [***]	Attention:  Lewis Bender
With copy to:  General Counsel	135 Beaver Street
7575 Fulton Street East	Waltham, Massachusetts  02452
Ada, Michigan  49355
Tel: [***]	Tel:  (781) 298-0700
Fax: [***]	Fax:  (781) 298-0720
E-mail: [***]	E-mail:  lbender@ilgenetics.com

14.           General Terms and Conditions.  This Agreement, and the Schedules attached hereto, incorporate the entire understanding of the parties and supersedes any prior agreements between the parties regarding this subject matter.  No waiver or modification of this Agreement shall be binding unless it is in writing and signed by the parties.  No waiver of a breach shall be deemed to constitute a waiver of any future breach, whether of a similar or dissimilar nature.  This Agreement shall not be assigned by Contractor without Alticor’s written consent.  This Agreement shall be governed and construed in accordance with the laws of the State of Michigan without regard to its conflict of laws provisions.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

7

IN WITNESS WHEREOF, this Agreement has been executed effective as of the date first above written.

ALTICOR CORPORATE ENTERPRISES INC.
By:	/s/ Kim S. Mitchell
Name:	Kim S. Mitchell
Title:	Assistant Secretary
Dated:	April 15, 2011

AMWAY INTERNATIONAL INC.
By:	/s/ Kim S. Mitchell
Name:	Kim S. Mitchell
Title:	Assistant Secretary
Dated:	April 15, 2011

INTERLEUKIN GENETICS, INC.
By:	/s/ Lewis H. Bender
Name:	Lewis H. Bender
Title:	Chief Executive Officer
Dated:	April 15, 2011

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

8

SCHEDULE A

PROJECT SPECIFICATIONS

                      This Schedule A is a part of the CONTRACT SERVICES AGREEMENT, dated effective as of October 15, 2010, by and among Alticor Corporate Enterprises Inc., Amway International Inc. (collectively, “Alticor”) and Interleukin Genetics, Inc. (“Contractor”, which Agreement is hereby incorporated by reference.

DESCRIPTION OF SERVICES

                      Contractor hereby agrees to provide to Alticor the following services in connection with the [***]:

[***]

DELIVERABLES

                      Contractor shall provide reports related to the above activities on a periodic basis and as requested by Alticor management.  In addition, Contractor and Alticor shall agree on defined deliverables which may be refined and amended over time (“Deliverables”).  Such Deliverables shall be identified in discussions and communications between Contractor and Alticor and may form part of amendment(s) to this Schedule A from time to time.

                      PERFORMANCE SCHEDULE

                      Contractor shall provide the services and produce the Deliverables identified in this Agreement and Schedule A during the term of this Agreement and on a performance schedule as agreed by Contractor and Alticor.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

9

COMPENSATION AND PAYMENT

           As compensation for services rendered to Alticor by Contractor during the term of this Agreement, Alticor shall pay Contractor (as the case may be) as follows:

A. One Hundred Forty Three Thousand Thirty Six U.S. Dollars (US$143,036) [***]

[***]

In addition, Alticor shall reimburse expenses in the amounts specified as reimbursable expenses included in invoices for the above fees in accordance with the terms of this Agreement.

B. The compensation terms set forth herein may be renegotiated at the conclusion of the then current term of the Agreement.  In no event shall any notice of an increase in compensation or a unilateral increase in compensation by Contractor prior to the termination of the then current term of this Agreement be effective.

C.  Invoices:  Contractor shall submit its invoices to Amway Accounts Payable at:

1. [***]

·   Upon the execution of this Schedule, a Purchase Order (PO) will be created and faxed or e-mailed to Contractor.

·   The PO number and line number must be included on each invoice to avoid delays in processing.

The PO number will be set up with multiple lines, with differing account numbers, depending on the service requirement.  It is imperative that the PO number and line number appear on the invoice as instructed when the service request is made.  The PO number and line number will be provided at the time the service is requested.

2. Each invoice shall (a) [***], (b) include the description of services and hours expended by each Contractor employee, agent or subcontractor performing services; and (c) separately itemize expenses for which reimbursement is sought by date, type of expense and name of individual who incurred the expense.  [***]. This Section shall control all matters related to Contractor invoices and any conflicting or additional terms in a Contractor invoice shall not be binding on Alticor.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

10

TERM

                      The Schedule A shall be effective beginning October 15, 2010, and shall remain in effect until October 14, 2011.  Alticor reserves the right to terminate this Agreement if the tasks and projects for which Contractor has been engaged are completed prior to the effective termination date set forth on this Schedule A.

Acknowledged and Agreed to by:

ALTICOR CORPORATE ENTERPRISES INC.		AMWAY INTERNATIONAL INC.
By:	/s/ Kim S. Mitchell	By:	/s/ Kim S. Mitchell
Name:	Kim S. Mitchell	Name:	Kim S. Mitchell
Title:	Assistant Secretary	Title:	Assistant Secretary
Dated:	April 15, 2011	Dated:	April 15, 2011

INTERLEUKIN GENETICS INC.
By:	/s/ Lewis H. Bender
Name:	Lewis H. Bender
Title:	Chief Executive Officer
Dated:	April 15, 2011

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

11

SCHEDULE B

AGREEMENT REGARDING

CONFIDENTIALITY AND INTELLECTUAL PROPERTY

                      THIS AGREEMENT is made effective as of October 15, 2010 by and among ALTICOR CORPORATE ENTERPRISES INC., a Delaware corporation with offices at 7575 Fulton Street East, Ada, Michigan  49355 and AMWAY INTERNATIONAL INC., a Delaware corporation, with offices located at 7575 Fulton Street East, Ada, Michigan  49355 (collectively, “Alticor”), and INTERLEUKIN GENETICS, INC., a Delaware corporation with offices located at 135 Beaver Street, Waltham, Massachusetts  02452 (“Contractor).

RECITALS

                      Contractor performs various services for, or vends products to, Alticor and in the course of the provision of such services or vending has been, or may be, given access to information (including information conceived, originated or developed by Contractor for Alticor, and information developed by third parties and licensed for use by, or otherwise disclosed to, Alticor), regarding the business, trade practices, planning, policies, products and technology of Alticor, from which Contractor may gain knowledge of Alticor's research, development, manufacturing, purchasing, financing, accounting, engineering, marketing, and selling, which Alticor considers to be confidential information and trade secrets, [***] (“Business  Confidential Information”).  Contractor may also have access to individually identifiable confidential information that is subject to confidentiality obligations imposed by state or federal law or by expectations of confidentiality of those who are the subjects of such information (“Individual Confidential Information”), or to health information that is subject to the Health Information Portability and Accountability Act (“Protected Health Information”).  Business Confidential Information, Individual Confidential Information, and Protected Health Information will be referred to collectively as "Confidential Information."

                      Such Confidential Information has been developed through substantial expenditures by Alticor of time, effort and money or acquired in the course of Alticor’s operations.  The unauthorized use or disclosure of the Confidential Information by Contractor could result in irreparable damage and loss to Alticor.

                      As part of Contractor's services for, or as a vendor to, Alticor, Contractor may be permitted to access or receive information contained in one or more of Alticor's computer systems, requiring Contractor to be issued an Alticor computer identification and access password, along with other information pertaining to Alticor computer access techniques, such as dial-in telephone numbers and procedures.

AGREEMENT

Alticor and Contractor (Contractor as defined in this Schedule means Contractor, its employees, agents or subcontractors) agree as follows:

1.           To prevent unauthorized access to Alticor’s computer-based information, Contractor hereby agrees to comply with the following Password Security Policy while using Alticor computer systems in performance hereunder:

           NO USER SHALL EVER REVEAL HIS OR HER PASSWORD TO ANY PERSON, EVEN IF THAT PERSON IS AN EMPLOYEE OF ALTICOR.  OTHER ALTICOR INFORMATION, INCLUDING BUT NOT LIMITED TO DIAL-IN PHONE NUMBERS AND PROCEDURES, FOR ALTICOR COMPUTERS SHALL BE SHARED ONLY WITH EMPLOYEES WHO HAVE A GENUINE NEED TO KNOW.  VIOLATION OF THIS POLICY BY ANY NON-ALTICOR EMPLOYEE MAY BE CAUSE FOR TERMINATION OF THE CONTRACT SERVICES AGREEMENT AND/OR MAY SUBJECT SUCH INDIVIDUAL OR THE COMPANY HE OR SHE REPRESENTS, OR BOTH, TO LEGAL ACTION.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

12

2.           Contractor shall cause each of its employees, agents or subcontractors assigned to provide services to Alticor to sign this Agreement.  Contractor may only share Individual Confidential Information and Protected Health Information with agents or subcontractors as permitted under Schedules D and E to the Contract Services Agreement.

3.           Contractor shall keep and hold in confidence all Confidential Information, including without limitation, all records and documents of which he or she may have knowledge, and all data obtained by Contractor from Alticor's computer system, and unless required by his or her services for Alticor, Contractor will not remove from Alticor's premises any record, information or other document or data relating to any business of Alticor, or make any unauthorized copy thereof or disclose such Confidential Information to any third party.  All Confidential Information is recognized as property of Alticor, and is not to be used for Contractor's own or another's benefit or communicated to any unauthorized person, at any time, without the written consent of Alticor.  Upon expiration or termination of the Contract Services Agreement to which this is a Schedule, Contractor will return to Alticor all Confidential Information in its possession and will not retain any copies thereof.

4.           Contractor shall make no copies of or alter any software located in or installed on Alticor's computer system, unless Contractor is a vendor of the particular software being copied or altered and is maintaining, enhancing, or upgrading such software at Alticor's request.  In no event will Contractor program any software purchased by Alticor in such a way that Contractor can affect or stop the operation of such software, regardless of reason.

5.           If this Agreement is being executed by an employee, agent or subcontractor of Contractor, the undersigned: (a) acknowledges the intellectual property rights placed in Alticor under Section 9, Ownership, of the Contract Services Agreement to which this is a Schedule, (b) acknowledges that the undersigned has been provided a copy of the Contract Services Agreement and (c) agrees to the vesting of such ownership in Alticor and other rights to Alticor attendant thereto.

6.           If Contractor is required to access information contained in Alticor's computer system, Alticor will issue to each of Contractor’s employees, agents or subcontractors who need such access on behalf of Contractor, a computer identification and access password, and information on the appropriate techniques to gain access to Alticor's computer system.  From time to time, Alticor may, but is not required to, furnish to Contractor a list of Contractor's personnel who are permitted access to information in Alticor's computer system pertaining to Contractor's business with Alticor.  Contractor will not permit access to such information by any of its personnel except those so listed.

7.           This Agreement (Schedule B) and the Contract Services Agreement shall inure to the benefit of Alticor, its successors and assigns, and shall remain a continuous obligation of Contractor even after termination as provided by the Contract Services Agreement.  The terms of this Agreement (Schedule B) are in addition to and not a modification or a limitation of the Contract Services Agreement. The terms of this Agreement (Schedule B) are specifically enforceable.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

13

8.           Contractor has read and understands the password security policy, as well as all of the terms and conditions set forth in this Agreement (Schedule B), and agrees to comply with them and to limit its access to Alticor's computer system to business usage only.

9.           This Agreement (Schedule B) may be executed in several counterparts, each of which when so executed will be deemed to be an original and such counterparts together will constitute one and the same instrument.

IN WITNESS WHEREOF, this Agreement has been entered into by the parties as signified by the respective signatures of the duly authorized individuals below.

ALTICOR CORPORATE ENTERPRISES INC.		AMWAY INTERNATIONAL INC.
By:	/s/ Kim S. Mitchell	By:	/s/ Kim S. Mitchell
Name:	Kim S. Mitchell	Name:	Kim S. Mitchell
Title:	Assistant Secretary	Title:	Assistant Secretary
Dated:	April 15, 2011	Dated:	April 15, 2011

INTERLEUKIN GENETICS INC.
By:	/s/ Lewis H. Bender
Name:	Lewis H. Bender
Title:	Chief Executive Officer
Dated:	April 15, 2011

           ADDENDUM:  I have read and understand the terms of this Agreement and agree to comply with them.

Signature:	[***]	Witness:	/s/ Stacy Riemsma
	Contractor’s employee, agent or subcontractor		Stacy Riemsma
		Dated: April 15, 2011

Printed or Typed Name:  [***]
Dated:  April 15, 2011

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

14

SCHEDULE C

Responsibilities of Contractors, Consultants and Vendors Providing Services to Alticor

Alticor has established corporate policies that provide for a safe work environment, protect individual rights and well being, protect company property and fulfill legal responsibilities.

As a provider of contract, consulting and/or other vendor services to Alticor, Contractor and its employees, agents and subcontractors are expected by Alticor to understand and comply with the policies stated below.  Questions should be addressed with the appropriate Alticor contact person immediately.

[***]

ALTICOR CORPORATE ENTERPRISES INC.		AMWAY INTERNATIONAL INC.
By:	/s/ Kim S. Mitchell	By:	/s/ Kim S. Mitchell
Name:	Kim S. Mitchell	Name:	Kim S. Mitchell
Title:	Assistant Secretary	Title:	Assistant Secretary
Dated:	April 15, 2011	Dated:	April 15, 2011

INTERLEUKIN GENETICS INC.
By:	/s/ Lewis H. Bender
Name:	Lewis H. Bender
Title:	Chief Executive Officer
Dated:	April 15, 2011

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

15

SCHEDULE D

CONFIDENTIALITY AND PRIVACY ADDENDUM

This Confidentiality and Privacy Addendum (“Addendum”) is entered into effective as of October 15, 2010 by and among ALTICOR CORPORATE ENTERPRISES INC., a Delaware corporation with offices at 7575 Fulton Street East, Ada, Michigan  49355 and AMWAY INTERNATIONAL INC., a Delaware corporation, with offices located at 7575 Fulton Street East, Ada, Michigan  49355 (collectively, “Alticor”), and INTERLEUKIN GENETICS, INC., a Delaware corporation with offices located at 135 Beaver Street, Waltham, Massachusetts  02452 (“Contractor), and amends the Contract Services Agreement (the “Agreement”) previously entered into between Alticor and Contractor.

           In consideration for Contractor’s access to and/or use of Individually Identifiable Confidential Information (“IICI”), Contractor and Alticor agree as follows:

1.Definitions of Individually Identifiable Confidential Information (“IICI”).  As used in this Addendum, IICI is information collected and/or maintained by Alticor that identifies or describes, or may be used to identify an individual, including, but not limited to, names, date and location of birth, gender, account information, credit card numbers, driver’s license information, salary history, personal check information, tax or financial information, medical information, employment information, information governed by Federal and State privacy laws and regulations, information that individuals reasonably expect to be kept confidential, and any other individually identifiable information deemed confidential by Alticor.

2.Obligations and Activities of Contractor.

2.1.           Contractor and its directors, officers, employees, contractors and agents shall not use or further disclose IICI other than as permitted or required by this Addendum, as authorized in writing by an authorized representative of Alticor or as required by law.

2.2.           Contractor shall use appropriate safeguards to prevent unauthorized use or disclosure of the IICI and shall report to Alticor any unauthorized use or disclosure of IICI.

2.3.           To the extent that Contractor creates, receives, maintains or transmits electronic IICI, Contractor hereby represents and warrants that it will:

2.3.1. Implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of the electronic IICI that Contractor creates, receives, maintains or transmits on behalf of Alticor;

2.3.2.Ensure that any agent, including a subcontractor, to whom Contractor provides electronic IICI implements reasonable and appropriate safeguards to protect the IICI; and

2.3.3.Report to Alticor any security incident involving IICI of which Contractor becomes aware.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

16

2.4.           Contractor shall mitigate, to the extent practicable, any harm arising out of any unauthorized use or disclosure of IICI.  In the event of an unauthorized disclosure or a security incident, if Alticor reasonably concludes that individuals must be provided notification of such event, Contractor will provide such notification at its own expense in a form and manner acceptable to Alticor.

2.5.           Contractor shall ensure that any agent, including a subcontractor, who may have access to IICI agrees in writing to the same restrictions and conditions that apply to Contractor with respect to such information.

2.6.           At the request of Alticor, Contractor shall make available to Alticor its internal practices, books, and records relating to the use and disclosure of IICI received from Alticor, or created or received on behalf of Alticor, in a time and manner designated by Alticor.

2.7.           In the event Contractor receives a subpoena, court or administrative order or other discovery request or mandate for release of IICI, Alticor shall have the right to control Contractor's response to such request.  Contractor shall notify Alticor of the request as soon as reasonably practicable, but in any event within two (2) business days of receipt of such request.

3.Restrictions on Use; Non Disclosure.  Except as otherwise expressly permitted in writing by an authorized representative of Alticor, Contractor shall not access or use IICI unless necessary to perform functions, activities, or services for, or on behalf of, Alticor except as necessary to perform the services set forth in Schedule A of the Contract Services Agreement.   Contractor will not disclose, reveal or otherwise provide access to IICI to any person or entity other than its employees without express written permission by an authorized representative of Alticor.

4.Term and Termination.

4.1.           Term.  This Addendum shall be effective as of the date it is executed, and shall terminate when all of the IICI provided by Alticor to Contractor, or created or received by Contractor on behalf of Alticor, is destroyed or returned to Alticor, or, if it is infeasible to return or destroy IICI, protections are extended to such information, in accordance with the termination provisions in this Section.

4.2.           Termination for Breach.  Upon Alticor’s knowledge of a material breach of the terms of this Addendum by Contractor, Alticor shall either:

4.2.1.Provide an opportunity for Contractor to cure the breach or end the violation and terminate the Agreement and this Addendum if Contractor does not cure the breach or end the violation within the time specified by Alticor;

4.2.2.Immediately terminate the Agreement and this Addendum if Contractor has breached a material term of this Addendum and cure is not possible; or

4.2.3.If neither termination nor cure is feasible, report the violation to the appropriate government agency.

4.3.           Other Conditions Allowing for Immediate Termination.  Notwithstanding anything to the contrary in the Agreement or this Addendum, Alticor may terminate the Agreement and this Addendum immediately upon written notice to Contractor, without any term of notice and/or judicial intervention being required, and without liability for such termination, in the event that:

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

17

4.3.1.Contractor receives (i) a Criminal Conviction, (ii) is excluded, barred or otherwise ineligible to participate in any government health care program, (iii) is named as a defendant in a criminal proceeding for a violation of any information privacy and protection law; or (iv) is found to have or stipulates that it has violated any privacy, security or confidentiality protection requirements under any applicable information privacy and protection law in any administrative or civil proceeding in which Contractor has been joined.;

4.3.2.A trustee or receiver is appointed for any or all property of Contractor;

4.3.3.Contractor becomes insolvent or unable to pay debts as they mature, or ceases to so pay, or makes an assignment for benefit of creditors;

4.3.4.Bankruptcy or insolvency proceedings under bankruptcy or insolvency code or similar law, whether voluntary or involuntary, are properly commenced by or against Contractor;

4.3.5.Contractor is dissolved or liquidated.

4.4.           Effect of Termination.

4.4.1.Except as provided in Section 4.4.2 of this section, upon termination of the Agreement or this Addendum, for any reason, Contractor shall return or destroy all IICI received from Confidential, or created or received by Contractor on behalf of Alticor.  This provision shall apply to Confidential Health Information that is in the possession of subcontractors or agents of Contractor.  Contractor shall retain no copies of the IICI.

4.4.2.In the event that return or destruction of the IICI is not feasible, Contractor shall extend the protections of this Addendum to the IICI and limit further uses and disclosures to those purposes that make the return or destruction infeasible, for so long as Contractor maintains such IICI.

5.Miscellaneous.

5.1.           Amendment.  No provision of this Addendum may be modified except by a written document signed by a duly authorized representative of the parties.  The parties agree to amend either the Agreement or this Addendum, as appropriate, to conform with any new or revised legislation, rules and regulations to which Alticor is subject now or in the future.  If within ninety (90) days of either party first providing written notice to the other of the need to amend the Agreement or Addendum , the parties, acting in good faith, are i) unable to mutually agree upon and make amendments or alterations to the Agreement or Addendum to meet the requirements in question, or ii) alternatively, the parties determine in good faith that amendments or alterations to the requirements are not feasible, then either party may terminate the Agreement upon thirty (30) days written notice.

5.2.           Assignment.  No party may assign or transfer any or all of its rights and/or obligations under this Addendum or any part of it, nor any benefit or interest in or under it, to any third party without the prior written consent of the other party, which shall not be reasonably withheld.

5.3.           Survival.  The respective rights and obligations of Contractor under Section 4.4 of this Addendum shall survive the termination of this Addendum.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

18

5.4.           Interpretation. If there is an inconsistency between the language in the Agreement and this Addendum, the language in this Addendum shall control.

5.5.           Breach of Contract.  In addition to any other rights Alticor may have in the Agreement, this Addendum, or by operation of law or in equity, Alticor may i) terminate the Agreement if Alticor determines that Contractor has violated a material term of this Addendum, and ii) at its option, cure or end any such violation.  Alticor's cure of a breach of this Addendum shall not be construed as a waiver of any other rights Alticor has in the Agreement, this Addendum or by operation of law or in equity.

5.6.           Indemnification.  Contractor shall indemnify Alticor for any and all claims, inquiries, costs or damages, including but not limited to any monetary penalties, that Alticor incurs arising from a violation by Contractor of its obligations hereunder.

5.7.           Third Party Rights.  The terms of this Addendum are not intended, nor should they be construed, to grant any rights to any parties other than Contractor and Alticor.

5.8.           Electronic Data Security.  To the extent that Contractor creates, receives, maintains or transmits electronic IICI, Contractor hereby represents and warrants that it will:

5.8.1. Implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of the electronic IICI that Contractor creates, receives, maintains or transmits on behalf of Alticor;

5.8.2.Ensure that any agent, including a subcontractor, to whom Contractor provides electronic IICI implements reasonable and appropriate safeguards to protect the IICI; and

5.8.3.Report to Alticor any security incident involving IICI of which Contractor becomes aware.

5.9.           Minimum Necessary.  Contractor hereby represents and warrants that, for all IICI that Contractor accesses or requests from Alticor for the purposes of providing services under the Agreement, it shall access or request only that amount of information that is minimally necessary to perform such services.  In addition, for all uses and disclosures of IICI by Contractor, Contractor represents and warrants that it shall institute and implement policies and practices to limit such uses and disclosures to that which is minimally necessary to perform its services under the Agreement.

5.10. Injunctive Relief.  Contractor acknowledges and stipulates that its unauthorized use or disclosure of IICI while performing services pursuant to the Agreement or this Addendum would cause irreparable harm to Alticor, and in such event, Alticor shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages and injunctive relief, together with the right to recover from Contractor costs, including reasonable attorneys' fees, for any such breach of the terms and conditions of the Agreement or this Addendum.

5.11.          Notice.  All notices required under this Addendum shall be in writing and shall be deemed to have been given on the next day by fax or other electronic means or upon personal delivery, or in ten (10) days upon delivery in the mail, first class, with postage prepaid.  Notices shall be sent to the addressees indicated below unless written notification of change of address shall have been given.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

19

5.12           Owner of IICI.  Under no circumstances shall Contractor be deemed in any respect to be the owner of any IICI used or disclosed by or to Contractor pursuant to the terms of the Agreement or this Addendum.

5.13           Notice.  All notices required under this Addendum shall be in writing and shall be deemed to have been given on the next day by fax, electronic mail, or other electronic means or upon personal delivery, or in ten (10) days upon delivery in the mail, first class, with postage prepaid.  Notices shall be sent to the addressees indicated below unless written notification of change of address shall have been given.

If to Alticor:	If to Contractor:
Amway International Inc.	Interleukin Genetics Inc.
Attention:  [***]	Attention:  Lewis Bender
With copy to:  General Counsel	135 Beaver Street
7575 Fulton Street East	Waltham, Massachusetts  02452
Ada, Michigan  49355
Tel: [***]	Tel:  (781) 298-0700
Fax: [***]	Fax:  (781) 298-0720
E-mail: [***]	E-mail:  lbender@ilgenetics.com

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

20

IN WITNESS WHEREOF, the parties have executed this Addendum effective as of the day and year first written above.

ALTICOR CORPORATE ENTERPRISES INC.		AMWAY INTERNATIONAL INC.
By:	/s/ Kim S. Mitchell	By:	/s/ Kim S. Mitchell
Name:	Kim S. Mitchell	Name:	Kim S. Mitchell
Title:	Assistant Secretary	Title:	Assistant Secretary
Dated:	April 15, 2011	Dated:	April 15, 2011

INTERLEUKIN GENETICS INC.
By:	/s/ Lewis H. Bender
Name:	Lewis H. Bender
Title:	Chief Executive Officer
Dated:	April 15, 2011

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Registrant’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

21

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF

SARBANES-OXLEY ACT OF 2002

I, Lewis H. Bender, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Interleukin Genetics, 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 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 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 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 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.

Date: August 12, 2011	/s/ Lewis H. Bender
	Lewis H. Bender
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF

SARBANES-OXLEY ACT OF 2002

I, Eliot M. Lurier, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Interleukin Genetics, 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 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 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 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 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.

Date: August 12, 2011	/s/ Eliot M. Lurier
	Eliot M. Lurier
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18,

UNITED STATES CODE)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18 United States Code), each of the undersigned officers of Interleukin Genetics, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 12, 2011	/s/ Lewis H. Bender
	Lewis H. Bender Chief Executive Officer
Date: August 12, 2011	/s/ Eliot M. Lurier
	Eliot M. Lurier Chief Financial Officer

XML



CONDENSED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Convertible preferred stock, par value	$ 0.001	$ 0.001
Convertible preferred stock, shares authorized	6,000,000	6,000,000
Convertible preferred stock, shares issued	5,000,000	5,000,000
Convertible preferred stock, shares outstanding	5,000,000	5,000,000
Convertible preferred stock, liquidation preference	$ 18,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	36,658,933	36,594,799
Common stock, shares outstanding	36,658,933	36,594,799

XML



CONDENSED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenue:
Genetic testing	$ 779,116	$ 563,540	$ 1,498,563	$ 929,451
Other	17,749	9,412	17,787	12,211
Total revenue	796,865	572,952	1,516,350	941,662
Cost of revenue	438,464	431,616	796,053	845,023
Gross profit	358,401	141,336	720,297	96,639
Operating expenses:
Research and development	359,799	325,298	664,618	742,295
Selling, general and administrative	1,253,143	1,615,295	2,455,598	3,041,566
Amortization of intangibles	28,863	28,863	57,726	57,726
Total operating expenses	1,641,805	1,969,456	3,177,942	3,841,587
Loss from operations	(1,283,404)	(1,828,120)	(2,457,645)	(3,744,948)
Other income (expense):
Interest income	1,901	906	4,307	1,201
Interest expense	(89,130)	(72,925)	(177,281)	(139,527)
Gain on disposal of assets		24,500	4,275	24,500
Total other income (expense)	(87,229)	(47,519)	(168,699)	(113,826)
Loss from continuing operations before income taxes	(1,370,633)	(1,875,639)	(2,626,344)	(3,858,774)
Provision for income taxes
Loss from continuing operations	(1,370,633)	(1,875,639)	(2,626,344)	(3,858,774)
Income from discontinued operations, net of income taxes	158,366	482,530	158,366	482,530
Net loss	$ (1,212,267)	$ (1,393,109)	$ (2,467,978)	$ (3,376,244)
Basic and diluted net loss per common share from:
Continuing operations	$ (0.04)	$ (0.05)	$ (0.07)	$ (0.11)
Discontinued operations	$ 0.01	$ 0.01	$ 0.00	$ 0.01
Net Loss	$ (0.03)	$ (0.04)	$ (0.07)	$ (0.10)
Weighted average common shares outstanding, basic and diluted	36,650,158	36,509,762	36,634,173	34,833,778

XML



Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Jul. 31, 2011
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Trading Symbol	ILIU
Entity Registrant Name	INTERLEUKIN GENETICS INC
Entity Central Index Key	0001037649
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		36,684,256

XML



Strategic Alliance with Alticor Inc.

6 Months Ended

Jun. 30, 2011

Strategic Alliance with Alticor Inc.

Note 5—Strategic Alliance with Alticor Inc.

Since March 2003, the Company has maintained a broad strategic alliance with several affiliates of the Alticor family of companies to develop and market novel nutritional and skin care products. The alliance previously included an equity investment, a multi-year research and development agreement, a licensing agreement with royalties on marketed products, the deferment of outstanding loan repayment and the refinancing of bridge financing obligations. Pyxis Innovations, Inc., an affiliate of Alticor, is the Company’s largest shareholder.

In October 2009, the Company entered into a Merchant Network and Channel Partner Agreement with Amway Corp., d/b/a/ Amway Global (“Amway Global”) a subsidiary of Alticor Inc. Pursuant to this Agreement, Amway Global sells the Company’s Inherent Health® brand of genetic tests through its e-commerce website via a hyperlink to our e-commerce site. We paid Amway Global $543,000 and $169,000 in commissions for the six months ended June 30, 2011 and 2010, respectively, and $281,000 and $79,000, respectively, for the three months ended June 30, 2011 and 2010, respectively, representing a percentage of net sales to their customers.

On April 15, 2011, the Company entered into a contract services agreement with Alticor Corporate Enterprises Inc. and Amway International Inc. (collectively, “Alticor”). Pursuant to this agreement, the Company shall provide marketing, promotional and training services to Alticor in connection with its marketing of the Company’s weight management genetic test. Upon execution of the agreement on April 15, 2011, the agreement received retroactive effect as of October 15, 2010 and the initial term expires on October 14, 2011. The Company will receive approximately $143,000 for its services under the agreement for the initial term. The agreement may be renewed for successive one-year periods upon mutual written agreement by the parties. Alticor has the right to designate which personnel of the Company perform services under the agreement. Alticor may terminate the agreement at any time if the Company fails to perform the services in a timely, diligent, workmanlike or acceptable manner or with anyone other than the Company’s personnel specified by Alticor, or in the event that the Company becomes insolvent. The Company may terminate the agreement if Alticor defaults under the agreement. The agreement also contains standard confidentiality, ownership and restrictions on the transfer of intellectual property covenants. The Company has recorded a receivable for $107,000 representing amounts due under the agreement at June 30, 2011.

XML



Stock-Based Compensation Arrangements

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation Arrangements

Note 10—Stock-Based Compensation Arrangements

Total compensation cost that has been recorded for stock-based compensation arrangements is as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
Stock options outstanding beginning of year	$	44,949	$	19,810		$	73,600	$	21,141
Stock-based arrangements during the period:
Stock option grants		14,092		(182	)		54,511		84,321
Restricted stock issued:
Employee Stock Purchase Plan		1,450		1,731			2,855		3,831
Total	$	60,491	$	21,359		$	130,966	$	109,293

Stock option grants

The following table details stock option activity for the six months ended June 30, 2011 and 2010:

	Six Months Ended June 30, 2011					Six Months Ended June 30, 2010
	Shares			Weighted Avg Exercise Price		Shares			Weighted Avg Exercise Price
Outstanding, beginning of period		1,611,267		$	1.54		1,591,417		$	2.06
Granted		781,000			0.35		323,500			0.77
Exercised		(2,500	)		0.00		(13,800	)		0.02
Canceled/Expired		(172,500	)		1.18		(224,150	)		4.32
Outstanding, end of period		2,217,267		$	1.15		1,676,967		$	1.52
Exercisable, end of period		1,086,967		$	1.75		921,017		$	2.05

At the Company’s 2011 annual meeting held on June 16, 2011, stockholders approved an amendment to the 2004 Employee, Director and Consultant Stock Plan increasing the aggregate number of shares of common stock which may be offered under the plan by an additional 2,000,000 shares. At June 30, 2011, the Company had an aggregate of 2,234,613 shares of common stock available for grant under this plan.

 It is the Company’s policy to grant stock options with an exercise price equal to the fair market value of the Company’s common stock at the grant date. Stock options to employees generally vest over four years based upon continuous service. Historically, the majority of the Company’s stock options have been granted in connection with the employee’s start date with the Company. In addition, the Company may grant stock options in recognition of promotion and/or performance.

For purposes of determining the stock-based compensation expense for stock option awards in 2011, the Black-Scholes option-pricing model was used with the following weighted-average assumptions:

Risk-free interest rate		2.08	%
Expected life	5.73 years
Expected volatility		123.33	%
Dividend yield		0	%

Using these assumptions, the weighted average grant date fair value of options granted in 2011 was $0.30.

Employee Stock Purchase Plan

Purchases made under the Company’s Employee Stock Purchase Plan are deemed to be compensatory because employees may purchase stock at a price equal to 85% of the fair market value of the Company’s common stock on either the first day or the last day of a calendar quarter, whichever is lower. During the six months ended June 30, 2011 and 2010, employees purchased 64,134 and 31,890 shares, respectively, of common stock at a weighted-average purchase price of $0.26 and $0.69, respectively, while the weighted-average fair value was $0.31 and $0.81 per share, respectively, resulting in compensation expense of $2,855 and $3,831, respectively.

Restricted Stock Awards

Holders of restricted stock awards, which vest over a period of four years, participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. Recipients of restricted stock awards are generally not required to pay any consideration to the Company for these restricted stock awards. The Company measures the fair value of the shares based on the last reported price at which the Company’s common stock traded on the date of the grant and compensation cost is recognized over the remaining service period. During each of the three months ended June 30, 2011 and 2010, the Company did not grant restricted stock awards. During the six months ended June 30, 2011 and 2010, the Company granted restricted stock awards of 0 and 10,000 shares, respectively.

At June 30, 2011, there was approximately $419,519 of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Company’s stock plans.

XML



Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation

Note 1—Basis of Presentation

The condensed financial statements include the accounts of Interleukin Genetics, Inc. (the Company) as of June 30, 2011 and December 31, 2010 and for the three and six months ended June 30, 2011 and 2010.

The financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited condensed financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year.

For information regarding our critical accounting policies and estimates, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2010 and Note 4 to our condensed financial statements contained herein.

The Company develops genetic tests for sale into the emerging personalized health market and performs testing services that can help individuals improve and maintain their health through preventive measures. The Company’s principal operations and markets are located in the United States.

The Company has evaluated all events or transactions that occurred after June 30, 2011 through the date of issuance of these financial statements. The Company did not have any material recognizable or non-recognizable subsequent events.

XML



Intangible Assets

6 Months Ended

Jun. 30, 2011

Intangible Assets

Note 7—Intangible Assets

Intangible assets at June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011			December 31, 2010
Patent costs	$	1,154,523		$	1,154,523
Less — Accumulated amortization		(582,212	)		(524,486	)
Total	$	572,311		$	630,037

Patent amortization expense was $28,863 for the three months ended June 30, 2011 and 2010, respectively, and $57,726 for the six months ended June 30, 2011 and 2010, respectively.

Patent costs which are amortized on a straight-line basis over a 10-year life, are scheduled to amortize as follows:

Year ending December 31,
2011 (six months)	$	57,726
2012		115,453
2013		109,266
2014		94,100
2015		77,656
Thereafter		118,110
	$	572,311

XML



Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies

Note 8—Commitments and Contingencies

Employment Agreements

On February 14, 2011, the Company entered into an employment agreement with Lewis H. Bender, its Chief Executive Officer. The agreement replaced and superseded the employment agreement between the Company and Mr. Bender that expired by its terms on January 22, 2011. The agreement has an initial term of one year and is automatically renewable for successive one year periods unless at least 90 days prior notice is given by either the Company or Mr. Bender. The agreement also provides that Mr. Bender will serve as a member of the Company’s Board of Directors for as long as he serves as the Company’s Chief Executive Officer, subject to any required approval of the Company’s shareholders.

The agreement is terminable by the Company for cause or upon thirty days prior written notice without cause and by Mr. Bender upon thirty days prior written notice for “good reason” (as defined in the agreement) or upon ninety days prior written notice without good reason. If the Company terminates Mr. Bender without cause or Mr. Bender terminates his employment for good reason, then the Company will pay Mr. Bender, in addition to any accrued, but unpaid compensation prior to the termination, an amount equal to six months of his base salary. If the Company terminates Mr. Bender without cause or Mr. Bender terminates his employment with good reason within six months after a “change of control” (as defined in the agreement), then the Company will pay Mr. Bender, in addition to any accrued, but unpaid compensation prior to the termination, an amount equal to twelve months of his base salary, and all unvested stock options will automatically vest.

The agreement also includes non-compete and non-solicitation provisions for a period of six months following the termination of Mr. Bender’s employment with the Company.

Operating Lease

The Company leases its office and laboratory space under a non-cancelable operating lease expiring on March 31, 2014. In May 2010, the Company completed a sublease of approximately 6,000 square feet of underutilized office and laboratory space which reduced our total space operating costs. The sublease expires on March 31, 2013 and has a one year renewal option. The loss on the sublease of $51,044 was recognized in the second quarter of 2010. Rent expense, net of the benefit of the sublease, was $161,000 and $258,000 for the six months ended June 30, 2011 and 2010, respectively.

XML



Convertible Debt

6 Months Ended

Jun. 30, 2011

Convertible Debt

Note 6—Convertible Debt

On August 17, 2006, our existing credit facility with Pyxis was amended to provide the Company with access to approximately $14.4 million of working capital borrowings at any time prior to August 17, 2008. Any amounts borrowed thereunder bear interest at the prime rate, require quarterly interest payments and become due on demand beginning on August 16, 2011. The principal amount of any borrowing under this credit facility is convertible at Pyxis’ election into a maximum of 2,533,234 shares of common stock, reflecting a conversion price of $5.6783 per share.

This credit facility has been extended several times. Most recently, on September 30, 2010, the Company entered into an amendment to extend the availability of borrowings under the existing credit facility with Pyxis until June 30, 2012.  In addition, the due date was extended from August 16, 2011 to June 30, 2012. As of June 30, 2011, there was $11,000,000 in principal outstanding under the credit facility leaving $3,316,255 of available credit. The fair value of convertible debt is estimated to be approximately $2.0 million at June 30, 2011.

XML



CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2010
Private placement, offering costs	$ 365,329

XML



Operating Matters and Liquidity

6 Months Ended

Jun. 30, 2011

Operating Matters and Liquidity

Note 2—Operating Matters and Liquidity

The Company has experienced net operating losses since its inception through June 30, 2011, including a net loss of $2.5 million for the six months then ended, contributing to an accumulated deficit of $100 million as of June 30, 2011. The Company has borrowings of $11.0 million at June 30, 2011 under its line of credit with Pyxis Innovations Inc., an affiliate of Alticor (“Pyxis”).

In March 2010, the Company entered into a definitive agreement with institutional investors to sell $5.3 million of securities in a registered direct offering. Net proceeds of approximately $4.9 million were received on March 10, 2010.

The Company continues to take steps, as it did in 2010, to further reduce operating costs including consulting, research and personnel expenses. In addition the Company has reduced its costs of processing genetic tests in its laboratory by working with suppliers to develop more efficient raw materials such as equipment processing plates. The Company’s current laboratory space is deemed to be adequate and able to process high volumes of genetic tests.

We expect that our current and anticipated financial resources, including $3.3 million available under our credit facility with Pyxis, are adequate to maintain our current and planned operations through July 2012.

XML



Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations

Note 3—Discontinued Operations

In August 2006, the Company acquired the assets and business of the Alan James Group, LLC (the Alan James Group). The Alan James Group was a provider of products and services in the consumer healthcare marketplace and the acquired business primarily developed, marketed and sold nutritional products and engaged in related activities. Prior to the opening of business on July 1, 2009, the Company and its wholly-owned subsidiary, AJG Brands, Inc. entered into an asset purchase agreement with Nutraceutical Corporation and Pep Products, Inc., a wholly-owned subsidiary of Nutraceutical Corporation, pursuant to which substantially all of the Alan James Group business and assets of AJG Brands, Inc. were sold to Pep Products, Inc.

Prior to June 30, 2011, we reserved for estimated sales returns, discontinued items and trade promotions applicable to the non-acquired accounts resulting from our sale of substantially all of the assets of the Alan James Group business. During the quarter ended June 30, 2011, $600 was paid to former customers leaving approximately $158,366 for future returns. We completed an analysis of all return activity since the time of sale and determined that the remaining reserve was no longer required. The adjustment is reflected in income from discontinued operations in the June 30, 2011 statement of operations.

The balance of other current assets of $200,000 at June 30, 2011 represents a receivable from Nutraceutical Corporation in connection with the transaction in June 2009 which was received on July 1, 2011.

XML



Industry Risk and Concentration

6 Months Ended

Jun. 30, 2011

Industry Risk and Concentration

Note 11—Industry Risk and Concentration

The Company develops genetic risk assessment tests and performs research for its own benefit. As of June 30, 2011, the Company has introduced four genetic risk assessment tests commercially. Commercial success of the Company’s genetic risk assessment tests will depend on their success as scientifically credible and cost-effective by consumers and the marketing success of the Company and its collaborative partner.

Research in the field of disease predisposing genes and genetic markers is intense and highly competitive. The Company has many competitors in the United States and abroad that have considerably greater financial, technical, marketing, and other resources available. If the Company does not discover disease predisposing genes or genetic markers and develop risk assessment tests and launch such services or products before its competitors, then the potential for significant revenues may be reduced or eliminated.

During the six months ended June 30, 2011 and 2010, approximately 67% and 32%, respectively, of our revenue came from sales through our Merchant Network and Channel Partner Agreement with Amway Global, a subsidiary of Alticor.

XML



Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Significant Accounting Policies

Note 4—Significant Accounting Policies

Revenue Recognition

Revenue from genetic testing services is recognized when there is persuasive evidence of an arrangement, service has been rendered, the sales price is determinable and collectability is reasonably assured. Service is deemed to be rendered when the results have been reported to the individual who ordered the test. To the extent that tests have been prepaid but results have not yet been reported, recognition of all related revenue is deferred. As of June 30, 2011 and December 31, 2010, the Company has deferred genetic test revenue of $762,000 and $506,000, respectively.

Sales Commissions

The Company accounts for sales commissions due to Amway Global under the Merchant Channel and Partner Agreement in accordance with SEC Staff Accounting Bulletin (“SAB”) 104. Commissions are recorded as an expense at the time they become due which is at the point of sale by Amway Global. Commissions were $543,000 and $169,000 for the six months ended June 30, 2011 and 2010, respectively.

Accounts Receivable

Accounts receivable is stated at estimated net realizable value, which is generally the invoiced amount less any estimated discount related to payment terms. The Company offers its commercial genetic test customers a 2% cash discount if payment is made by bank wire transfer within 10 days of the invoice date.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market. As the Company does not manufacture any products, no overhead costs are included in inventory. No inventory reserve is required at June 30, 2011 as all test kits are available for sale and are expected to be sold at amounts in excess of cost. When a kit is sold, the corresponding cost of the kit is recorded as deferred cost of goods sold, a component of prepaid expenses, and removed from inventory.

Inventory consisted of the following at June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Raw materials	$	93,233	$	110,347
Finished goods		4,107		7,502
Total inventory	$	97,340	$	117,849

Income Taxes

 The Company accounts for income taxes by recording taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.

Significant management judgment is required in determining the Company’s provision (benefit) for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. The Company has recorded a full valuation allowance against its deferred tax assets of approximately $29.3 million as of June 30, 2011, due to uncertainties related to its ability to utilize these assets. The valuation allowance is based on management’s estimates of taxable income by jurisdiction in which the Company operates and the period over which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates or management adjusts these estimates in future periods, the Company may need to adjust its valuation allowance, which could materially impact its financial position and results of operations.

The Company files a combined Massachusetts tax return with certain Alticor affiliated entities, referred to herein as “the unitary group”. Massachusetts law requires corporations with net operating loss carryforwards to go back to each year in which the loss was generated and recompute the loss as if it occurred on a consolidated basis. The Company was required to include data from the newly formed unitary group as if the unitary group was in place during the loss years. As a result, the losses generated by the Company were eliminated through this required computation. The combined filing will have no impact on the Company's financial statements.

The Company reviews its recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. The Company reviews all material tax positions for all years open to statute to determine whether it is more likely than not that the positions taken would be sustained based on the technical merits of those positions. The Company did not recognize any adjustments for uncertain tax positions as of and during the three and six months ended June 30, 2011 and 2010.

Research and Development

Research and development costs are expensed as incurred.

Basic and Diluted Net Loss per Common Share

Basic and diluted net loss per share was determined by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is the same as basic net loss per share for all the periods presented, as the effect of the potential common stock equivalents is anti-dilutive due to the loss in each period. Potential common stock equivalents excluded from the calculation of diluted net loss per share consists of stock options, warrants, convertible preferred stock and convertible debt as set forth in the table below:

	As of June 30,
	2011		2010
Options outstanding		2,217,267		1,676,967
Warrants outstanding		2,150,000		2,150,000
Convertible preferred stock		28,160,200		28,160,200
Convertible debt		1,937,200		1,584,981
Total		34,464,667		33,572,148

   

Fair Value of Financial Instruments

The Company, using available market information, has determined the estimated fair values of financial instruments. The stated values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the nature of these instruments. The fair value of our convertible debt is inherently difficult to determine as a result of the Company’s financial condition and history of operating losses. For financial reporting purposes, the Company has estimated the fair value of its debt as the difference between the book value of its assets less liabilities to third parties other than the debt holder.

Cash and Cash Equivalents

The Company maintains its cash and cash equivalents with domestic financial institutions that the Company believes to be of high credit standing. The Company believes that, as of June 30, 2011, its concentration of credit risk related to cash and cash equivalents was not significant. Cash and cash equivalents are available on demand and at times may be in excess of FDIC insurance limits.

Recent Accounting Pronouncements

Please see the discussion of “Recent Accounting Pronouncements” in this Note 4, Significant Accounting Policies contained in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Recently Issued

Fair Value Measurement — In May 2011, the Financial Accounting Standards Board (FASB) issued Fair Value Measurement (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Accounting Standards Update (ASU) No. 2011-04) , which provides additional guidance for fair value measurements.  These updates to the FASB Accounting Standards Codification (ASC or Codification) include clarifications regarding existing fair value measurement principles and disclosure requirements, and also specific new guidance for items such as measurement of instruments classified within stockholders’ equity and disclosures regarding the sensitivity of Level 3 measurements to changes in valuation model inputs.  These updates to the Codification are effective for interim and annual periods beginning after Dec. 15, 2011.  The Company does not expect the implementation of this guidance to have a material impact on its financial statements.

Comprehensive Income — In June 2011, the FASB issued Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU No. 2011-05) , which updates the Codification to require the presentation of the components of net income, the components of other comprehensive income (OCI) and total comprehensive income in either a single continuous statement of comprehensive income or in two separate, but consecutive statements of net income and comprehensive income. These updates do not affect the items reported in OCI or the guidance for reclassifying such items to net income. These updates to the Codification are effective for interim and annual periods beginning after Dec. 15, 2011. The Company does not expect the implementation of this guidance to have a material impact on its consolidated financial statements.

No new updates or other guidance issued to date by the FASB in 2011 are expected to have a material impact on the Company’s financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. The Company concluded that patent related legal costs, which had previously been classified with research and development expenses, should be classified as selling, general and administrative expenses. For the three and six months ended June 30, 2010, these costs amounted to $116,000 and $259,000, respectively. Such reclassifications had no impact on the Company’s reported results of operations.

XML



CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT (USD $)	Total	ConvertiblePreferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Deficit
Beginning Balance at Dec. 31, 2009	$ (5,764,628)	$ 5,000	$ 32,102	$ 85,763,379	$ (91,565,109)
Beginning Balance (in shares) at Dec. 31, 2009		5,000,000	32,102,435
Net loss	(3,376,244)				(3,376,244)
Common stock issued:
Private placement, net of offering costs of $365,329 (in shares)			4,375,002
Private placement, net of offering costs of $365,329	4,884,675		4,375	4,880,300
Exercise of stock option (in shares)			1,300
Exercise of stock option	338		2	336
Employee stock purchase plan (in shares)			31,890
Employee stock purchase plan	21,863		32	21,831
Stock-based compensation expense	109,293			109,293
Ending Balance at Jun. 30, 2010	(4,124,703)	5,000	36,511	90,775,139	(94,941,353)
Ending Balance (in shares) at Jun. 30, 2010		5,000,000	36,510,627
Beginning Balance at Dec. 31, 2010	(6,658,096)	5,000	36,594	90,851,709	(97,551,399)
Beginning Balance (in shares) at Dec. 31, 2010		5,000,000	36,594,799
Net loss	(2,467,978)				(2,467,978)
Common stock issued:
Employee stock purchase plan (in shares)			64,134
Employee stock purchase plan	16,965		65	16,900
Stock-based compensation expense	130,966			130,966
Ending Balance at Jun. 30, 2011	$ (8,978,143)	$ 5,000	$ 36,659	$ 90,999,575	$ (100,019,377)
Ending Balance (in shares) at Jun. 30, 2011		5,000,000	36,658,933

XML



CONDENSED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (2,467,978)	$ (3,376,244)
Income from discontinued operations	158,366	482,530
Loss from continuing operations	(2,626,344)	(3,858,774)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	202,897	212,006
Stock-based compensation expense	130,966	109,293
Changes in operating assets and liabilities:
Accounts receivable	(30,390)	(56,205)
Federal grant receivable	117,946
Receivable from related party	(99,757)	16,468
Inventory	20,509	(489)
Prepaid expenses and other current assets	7,306	(47,639)
Accounts payable	(46,602)	19,588
Accrued expenses	(217,417)	310,197
Deferred revenue	246,424	281,965
Net cash used in operating activities of discontinued operations	(5,875)	(440,519)
Net cash used in operating activities	(2,300,337)	(3,454,109)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions	(1,681)	(77,572)
Net cash used in investing activities	(1,681)	(77,572)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable		2,000,000
Proceeds from registered direct offering of common stock		5,250,002
Registered direct offering costs		(365,329)
Proceeds from employee stock purchase plan	16,965	21,863
Proceeds from exercise of employee stock options		338
Net cash provided by financing activities	16,965	6,906,874
Net increase (decrease) in cash and cash equivalents	(2,285,053)	3,375,193
Cash and cash equivalents, beginning of period	3,999,029	906,248
Cash and cash equivalents, end of period	1,713,976	4,281,441
Supplemental disclosures of cash flow information:
Cash paid for interest	$ 178,260	$ 117,000

XML



Capital Stock

6 Months Ended

Jun. 30, 2011

Capital Stock

Note 9—Capital Stock

Authorized Preferred and Common Stock

 

At June 30, 2011, the Company had authorized 6,000,000 shares of $0.001 par value Series A Preferred Stock, of which 5,000,000 were issued and outstanding. At June 30, 2011, the Company had authorized 100,000,000 shares of $0.001 par value common stock of which 74,045,170 shares were outstanding or reserved for issuance. Of those, 36,658,933 shares were outstanding; 28,160,200 shares were reserved for the conversion of Series A Preferred to common stock; 1,937,200 shares were reserved for the conversion of the $11,000,000 of debt outstanding under the credit facility with Pyxis; 4,451,880 shares were reserved for the potential exercise of authorized and outstanding stock options; 400,000 shares were reserved for the exercise of outstanding warrants to purchase common stock at an exercise price of $2.50 per share which are exercisable currently until the expiration date of August 9, 2012; 1,750,000 shares were reserved for the exercise of outstanding warrants to purchase common stock at an exercise price of $1.30 per share which are exercisable currently until the expiration date of March 5, 2015; 102,934 shares were reserved for the potential exercise of rights held under the Employee Stock Purchase Plan; and 584,023 shares were reserved for the issuance upon the conversion of convertible notes that may be issued to Pyxis under the existing credit facility.

On March 5, 2010, the Company entered into a definitive agreement with certain institutional investors to sell $5.3 million of securities in a registered direct offering. The investors purchased an aggregate of 4,375,002 units for $1.20 per unit, with each unit consisting of a share of common stock and a warrant to purchase 0.40 of a share of common stock. The warrants are exercisable at $1.30 per share and expire in five years. Net proceeds to the Company after fees and expenses were approximately $4.9 million.

Series A Preferred Stock

On March 5, 2003, the Company entered into a Stock Purchase Agreement with Pyxis, pursuant to which Pyxis purchased from the Company 5,000,000 shares of Series A Preferred Stock for $7,000,000 in cash on that date, and an additional $2,000,000 in cash that was paid, as a result of the Company achieving a certain milestone, on March 11, 2004.

The Series A Preferred Stock accrues dividends at the rate of 8% of the original purchase price per year, payable only when, as and if declared by the Board of Directors and are non-cumulative. To date, no dividends have been declared on these shares. If the Company declares a distribution, with certain exceptions, payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series A Preferred Stock were the holders of the number of shares of common stock into which their respective shares of Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of common stock entitled to receive such distribution.

In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the Company’s assets or surplus funds to the holders of its common stock by reason of their ownership thereof, the amount of two times the then-effective purchase price per share, as adjusted for any stock dividends, combinations or splits with respect to such shares, plus all declared but unpaid dividends on such shares for each share of Series A Preferred Stock then held by them. The liquidation preference at June 30, 2011 was $18,000,000. After receiving this amount, the holders of the Series A Preferred Stock are entitled to participate on an as-converted basis with the holders of Common Stock in any of the remaining assets.

Each share of Series A Preferred Stock is convertible at any time at the option of the holder into a number of shares of the Company’s common stock determined by dividing the then-effective purchase price ($1.80, and subject to further adjustment) by the conversion price in effect on the date the certificate is surrendered for conversion. As of June 30, 2011, the Series A Preferred Stock was convertible into 28,160,200 shares of common stock reflecting a current conversion price of $0.3196 per share.

Each holder of Series A Preferred Stock is entitled to vote its shares of Series A Preferred Stock on an as-converted basis with the holders of common stock as a single class on all matters submitted to a vote of the stockholders, except as otherwise required by applicable law. This means that each share of Series A Preferred Stock will be entitled to a number of votes equal to the number of shares of common stock into which it is convertible on the applicable record date.

XML



CONDENSED BALANCE SHEETS (USD $)	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 1,713,976	$ 3,999,029
Trade accounts receivable	67,350	36,960
Federal grant receivable		117,946
Receivables from related party	114,414	14,657
Inventory	97,340	117,849
Prepaid expenses	259,043	266,349
Other current assets	200,000	200,000
Total current assets	2,452,123	4,752,790
Fixed assets, net	410,683	554,172
Intangible assets, net	572,311	630,037
Other assets	38,001	38,001
Total assets	3,473,118	5,975,000
Current liabilities:
Accounts payable	463,045	509,647
Accrued expenses	225,839	443,255
Deferred revenue	762,377	515,953
Current portion of long-term debt	11,000,000
Liabilities of discontinued operations		164,241
Total current liabilities	12,451,261	1,633,096
Convertible long-term debt		11,000,000
Total liabilities	12,451,261	12,633,096
Commitments and contingencies (Note 8)
Stockholders' deficit
Convertible preferred stock, $0.001 par value - 6,000,000 shares authorized; 5,000,000 shares of Series A issued and outstanding at June 30, 2011 and December 31, 2010; aggregate liquidation preference of $18,000,000 at June 30, 2011	5,000	5,000
Common stock, $0.001 par value - 100,000,000 shares authorized; 36,658,933 and 36,594,799 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively	36,659	36,594
Additional paid-in capital	90,999,575	90,851,709
Accumulated deficit	(100,019,377)	(97,551,399)
Total stockholders' deficit	(8,978,143)	(6,658,096)
Total liabilities and stockholders' deficit	$ 3,473,118	$ 5,975,000