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 March 31, 2016

¨ 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	¨	Smaller reporting company	þ
(Do not check if smaller reporting company)

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

As of May 11, 2016 there were 173,029,840 shares of Common Stock, $0.001 par value per share, outstanding.

INTERLEUKIN GENETICS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2016

Table of Contents

	Page
PART I—FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Condensed Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015	3
Condensed Statements of Operations (Unaudited)	4
Condensed Statements of Stockholders’ Equity (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	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24
PART II—OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	26

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

	March 31, 2016			December 31, 2015
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,892,182		$	4,706,018
Accounts receivable from related party		61,107			39,989
Trade accounts receivable		224,345			45,973
Inventory		90,705			124,583
Prepaid expenses		670,078			778,970
Total current assets		3,938,417			5,695,533
Fixed assets, net		598,880			643,900
Intangible assets, net		50,517			58,879
Other assets		28,001			93,208
Total assets	$	4,615,815		$	6,491,520
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	365,737		$	408,374
Accrued expenses		366,908			497,688
Deferred revenue		2,875,299			3,238,541
Short term debt		1,833,333			1,333,333
Total current liabilities		5,441,277			5,477,936
Long Term Debt		2,933,131			3,474,984
Total Liabilities		8,374,408			8,952,920
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value — 450,000,000 shares authorized; 172,953,440 and 172,887,221 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively		172,955			172,889
Additional paid-in capital		126,574,513			126,354,036
Accumulated deficit		(130,506,061	)		(128,988,325	)
Total stockholders’ equity		(3,758,593	)		(2,461,400	)
Total liabilities and stockholders’ equity	$	4,615,815		$	6,491,520

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

3 

INTERLEUKIN GENETICS, INC.

CONDENSED STATEMENTS OF OPERATIONS

	(Unaudited)
	Three Months Ended March 31,
	2016			2015
Revenue:
Genetic testing	$	262,469		$	347,900
Other		698,449			55,312
Total revenue		960,918			403,212
Cost of revenue		526,946			331,041
Gross profit		433,972			72,171
Operating expenses:
Research and development		480,057			182,530
Selling, general and administrative		1,311,185			1,562,791
Amortization of intangibles		8,362			19,414
Total operating expenses		1,799,604			1,764,735
Loss from operations		(1,365,632	)		(1,692,564	)
Other income (expense):
Interest income		-			222
Interest expense		(113,750	)		(112,500	)
Interest expense Non-cash		(38,354	)		(38,353	)
Total other income (expense)		(152,104	)		(150,631	)
Loss before income taxes		(1,517,736	)		(1,843,195	)
Benefit for income taxes		-			-
Net loss	$	(1,517,736	)	$	(1,843,195	)
Basic and diluted net loss per common share	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding, basic and diluted		172,951,968			172,737,553

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

4 

INTERLEUKIN GENETICS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance as of December 31, 2015		-	$	-		172,887,221	$	172,889	$	126,354,036	$	(128,988,325	)	$	(2,461,400	)
Net loss		-		-		-		-		-		(1,517,736	)		(1,517,736	)
Common stock issued:
Horizon Warrant		-		-		-		-		2,962		-			2,962
Employee stock purchase plan		-		-		66,219		66		3,245		-			3,311
Stock-based compensation expense		-		-		-		-		214,270		-			214,270
Balance as of March 31, 2016		-	$	-		172,953,440	$	172,955	$	126,574,513	$	(130,506,061	)	$	(3,758,593	)

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

5 

INTERLEUKIN GENETICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months  Ended March 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,517,736	)	$	(1,843,195	)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation and amortization		62,346			70,204
Amortization of loan issuance costs and fair value of warrants		26,315			23,354
Stock-based compensation expense		214,270			146,310
Changes in operating assets and liabilities:
Accounts receivable, net		(178,372	)		1,334
Receivable from related party		(21,118	)		(33,416	)
Inventory		33,878			28,277
Prepaid expenses and other current assets		108,892			(97,691	)
Accounts payable		(42,637	)		132,078
Accrued expenses		(145,239	)		(161,588	)
Deferred revenue		(363,242	)		(89,242	)
Deferred liability		14,459			16,082
Net cash used in operating activities		(1,808,184	)		(1,807,493	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions		(8,963	)		(16,928	)
Net cash used in investing activities		(8,963	)		(16,928	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement offering costs		-			(4,100	)
Proceeds from employee stock purchase plan		3,311			5,481
Net cash provided by financing activities		3,311			1,381
Net increase (decrease) in cash and cash equivalents		(1,813,836	)		(1,823,040	)
Cash and cash equivalents, beginning of period		4,706,018			11,466,807
Cash and cash equivalents, end of period	$	2,892,182		$	9,643,767
Cash paid for interest	$	113,750		$	123,750

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

6 

INTERLEUKIN GENETICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2016

(UNAUDITED)

Note 1—Basis of Presentation

Interleukin Genetics, Inc. (“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 or therapeutic measures. The Company’s principal operations and markets are located in the United States.

The accompanying condensed financial statements include the accounts of the Company as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and March 31, 2015.

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, 2015. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire 2016 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, 2015 and Note 3 to our condensed financial statements contained herein.

Note 2—Operating Matters and Liquidity

The Company has experienced net operating losses since its inception through March 31, 2016. The Company had net losses of $7.9 million and $6.3 million for the years ended December 31, 2015 and 2014, respectively, and $1.5 million for the three months ended March 31, 2016, contributing to an accumulated deficit of $130.5 million as of March 31, 2016.

The Company continues to take steps to reduce genetic test processing costs. Cost savings are primarily achieved through test process improvements. Management believes that the current laboratory space is adequate to process high volumes of genetic tests.

On December 23, 2014, the Company entered into a Securities Purchase Agreement (the “2014 Purchase Agreement”) with various accredited investors (the “2014 Investors”), pursuant to which the Company sold to the 2014 Investors in a private placement transaction (the “December 2014 Private Placement”) an aggregate of 50,099,700 shares of common stock at a price of $0.1003 per share for gross proceeds of approximately $5.025 million. The 2014 Investors also received warrants to purchase up to an aggregate of 50,099,700 shares of common stock an exercise price of $0.1003 per share (the “2014 Warrants”). The 2014 Warrants are all currently exercisable and have a term of seven years.

On December 23, 2014, the Company entered into a Venture Loan and Security Agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (the “Lender”) under which the Company has borrowed $5.0 million. The loan bears interest at a floating rate equal to the One Month LIBOR Rate (with a floor of 0.50%) plus 8.50%. In the event that the One Month LIBOR Rate, as reported in the Wall Street Journal, exceeds 0.50%, the interest rate will be adjusted by an amount equal to the difference between such rates at the end of that particular month. At March 31, 2015, the rate was 9.0% per annum. The loan is to be repaid in forty-five (45) monthly payments consisting of fifteen (15) monthly payments of only interest followed by thirty (30) equal monthly payments of principal and interest. In addition, at the end of the repayment term (or at early termination of the loan) a final payment equal to 4.5% of the loan will be due and payable. The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual property. The Company has also agreed not to pledge or otherwise encumber its intellectual property assets, subject to certain exceptions. In connection with the Loan Agreement, the Company issued to the Lender and its affiliates warrants to purchase a total of 2,492,523 shares of common stock at an exercise price of $0.1003 per share, which the Company refers to herein as the Lender Warrants. The Lender Warrants have a term of ten (10) years.

7 

The Company’s financial statements have been prepared assuming that it will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might result from the outcome of this uncertain realization. The Company expects to incur additional losses in 2016 and, accordingly, is dependent on financings and potential revenue to fund its operations and support the market adoption of the PerioPredict^® test. The timing of any revenues that the Company may receive from the PerioPredict test is uncertain at this time, and is contingent upon a number of factors, including the Company’s ability to consummate arrangements with partners to promote the PerioPredict test, the Company’s partners’ ability to develop insurance plans that provide for use of the PerioPredict test and reimbursement of the test and to develop a viable market for such plans, and the timing of utilization of the PerioPredict test pursuant to such plans, or other possible arrangements. The Company expects to have the cash resources necessary to support the further commercialization of the PerioPredict test for at least into the second half of 2016.

The ability of the Company to realize the carrying value of its fixed assets and intangible assets is especially dependent on management’s ability to successfully execute on its plan. The Company needs to generate additional funds in order to meet its financial obligations. If it is unsuccessful in doing so, the Company may not be able to realize the carrying value of its fixed assets and intangible assets.

Note 3—Summary of Significant Accounting Policies

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. The Company’s most critical accounting policies are more fully discussed in these notes to the financial statements.

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. For the three months ended March 31, 2016, the Company recognized $262,000 of revenue associated with genetic testing compared to $348,000 for three months ended March 31, 2015. To the extent that tests have been prepaid but results have not yet been reported, recognition of all related revenue is deferred. As of March 31, 2016 and December 31, 2015, the Company had deferred revenue of $2.9 million and $3.2 million, respectively. Included in deferred revenue at March 31, 2016 is $2.6 million for kits that are still outstanding one year or longer after initial kit sale, of which $0.25 million was sold directly to consumers (credit card payments) and $2.3 million was sold to distributors for a promotional bundle. Beginning in September 2012 and again in 2013, Access Business Group LLC (“ABG”), an affiliate of Alticor, Inc., a related party (“Alticor”), placed purchase orders totaling approximately $3.3 million consisting of Weight Management test kits. The kits are included as part of a promotional bundle of products that Amway sold to their Individual Business Owners (IBOs).

8 

The Company recognizes breakage revenue related to genetic test kits utilizing the remote method. Under the remote method, breakage revenue should be recognized when the likelihood of the customer exercising rights of redemption becomes remote. The term remote requires statistical analysis of customer redemption patterns for all tests sold and returned. The Company analyzed redemption patterns from 2009 through 2015 and determined the period of time after which the likelihood of test redemption was remote was three years after the sale of a genetic test kit. Included in genetic test revenue in the three months ended March 31, 2016 is $61,000 of breakage revenue related to unredeemed genetic test kits sold in the first three months of 2013, compared to genetic test revenue in the three months ended March 31, 2015 of $76,000 related to unredeemed genetic test kits sold in the first three months of 2012. The Company expects to continue to recognize breakage revenue and the corresponding deferred cost of goods on a quarterly basis based on the historical analysis.

Sales Commission

On October 26, 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. 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. The Company accounts for sales commissions due to Amway Global under the Merchant Network and Channel 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. The cost of commissions was $67,000 and $88,000 for the three months ended March 31, 2016 and 2015, 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. No accounts receivable reserve is required at March 31, 2016 as all accounts receivable are expected to be collected.

Inventory

Inventory is carried at lower of cost (first-in, first-out method) or market and no inventory reserve was deemed necessary at December 31, 2015 or March 31, 2016. As the Company does not manufacture any products, no overhead costs are included in inventory. The Company has contracted with a fulfillment provider to supply its PerioPredict genetic tests kits to dental offices. The agreement with the fulfillment provider requires the provider to purchase and fulfill all materials related to the genetic test kit and delivery, with the Company’s approval. The Company pays for materials and fulfillment charges when the product is shipped. During the three months ended March 31, 2015, the Company purchased $33,000 of inventory related to its PerioPredict test. The balance of our inventory is related to our Inherent Health brand and is stored at a different fulfillment provider. Any kit components held at a fulfillment center are reflected in inventory.

Inventory consisted of the following:

	March 31, 2016		December 31, 2015
Raw materials	$	79,503	$	112,372
Finished goods		11,202		12,211
Total inventory, net	$	90,705	$	124,583

9 

Stock-Based Compensation

The Company accounts for stock-based compensation expense in accordance with FASB ASC 718, Compensation – Stock Compensation. The standard addresses all forms of share-based payment (SBP) awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. We expense SBP awards within compensation cost for SBP transactions measured at fair value. Compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the effective date shall be recognized as the requisite service is rendered on or after the effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated under the Black-Scholes option pricing model. Common stock purchased pursuant to our employee stock purchase plan will be expensed based upon the fair market value in excess of purchase price.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which requires the recognition of 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 $33.9 million as of March 31, 2016, 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.

As a result of the Company’s change in its capital structure during the quarters ended June 30, 2013 and December 31, 2014, the Company may have undergone IRC section 382 ownership changes which would limit its ability to realize the benefit of its tax attributes (i.e., federal/state net operating losses and research and development credits) during their respective carry forward periods. The Company has not performed an analysis to determine the extent of such limitations, if any.

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 months ended March 31, 2016.

Research and Development

Research and development costs are expensed as incurred.

Basic and Diluted Net Loss per Common Share

The Company applies the provisions of FASB ASC 260, Earnings per Share, which establishes standards for computing and presenting earnings per 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 are as follows:

10 

	As of March 31,
	2016		2015
Options outstanding		22,089,527		8,052,900
Warrants outstanding		88,301,079		88,301,079
Total		110,390,606		96,353,979

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 short term nature of these instruments. The fair value of warrants is calculated using the Black-Scholes pricing model.

Cash and Cash Equivalents

The Company maintains its cash and cash equivalents with a domestic financial institution that the Company believes to be of high credit standing. The Company believes that, as of March 31, 2016, its concentration of credit risk related to cash and cash equivalents was not significant. Cash and cash equivalents are available on demand and are generally in excess of FDIC insurance limits.

Fixed Assets

Fixed assets are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the remaining term of the lease.

Assets that have not yet been placed in service, have the costs incurred presented as part of Projects in Progress. Once the asset has been placed in service, the related costs are transferred to the appropriate category and depreciation commences. There are no items in Projects in Process for the three months ended March 31, 2016.

Segment Reporting

As of March 31, 2016 and 2015, the Company has one segment, the genetic test business. 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.

Recent Accounting Pronouncements

 FASB ASC 606 ASU 2014-09 - Revenue from contracts with customers.

In May 2014, the FASB issued amended guidance on contracts with customers to transfer goods or services or contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The guidance requires an entity to recognize revenue on contracts with customers to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires that an entity depict the consideration by applying the following five steps:

· Identify the contract(s) with a customer.

· Identify the performance obligations in the contract.

· Determine the transaction price.

· Allocate the transaction price to the performance obligations in the contract.

· Recognize revenue when (or as) the entity satisfies a performance obligation.

11 

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. This amendment is to be either retrospectively adopted to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application.

In April, 2015 the FASB voted to defer the required implementation date of ASU 2014-09 to December 2017. Public companies may elect to adopt the standard along the original timeline. We are evaluating the impact of the adoption of this guidance to determine whether or not it has a material impact on the Company's financial statements.

FASB ASC 606 ASU 2014-15 - Presentation of Financial Statements—Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.

In August 2014, the FASB issued ASU No. 2014-15, which applies should a company be facing probable liquidation within one year of the issuance of the financial statements, but is not actually in liquidation at the time of issuance.  The applicable basis for presentation remains as a going concern, but if liquidation within one year is probable, then certain disclosures must be included in the financial statement presentation.  ASU 2014-15 is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We are evaluating the impact of ASU 2014-15 on our financial disclosures, but are not electing early adoption at this time.

FASB ASU No. 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.

In November 2015, the FASB issued ASU No. 2015-17, which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented.  The Company is currently evaluating the impact of ASU 2015-07 on its consolidated financial statements. 

FASB ASU 2016-02 - Leases (Topic 842).

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842). The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements. 

FASB ASU No. 2016-09, - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

In March 2016, the FASB issued ASU No. 2016-09. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements. 

Note 4—Related Party Transactions

Since March 2003, the Company has maintained a broad strategic alliance with several affiliates of the Alticor Inc. family of companies, a related party. The alliance initially 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.

12 

On October 26, 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. 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 $67,000 and $88,000 in commissions for the three months ended March 31, 2016 and 2015, respectively, representing a percentage of net sales to their customers. The Company expenses commissions owed to Amway Global in the month of sale to the customer.

Beginning in September 2012 and again in 2013, Access Business Group LLC (“ABG”), an affiliate of Alticor placed purchase orders totaling approximately $3.3 million consisting of Weight Management test kits. The kits are included as part of a promotional bundle of products that Amway sells to their Individual Business Owners (IBOs). Of the $3.3 million in orders, $1.5 million was received for the 2013 program and $1.8 million for the 2014 program. As a component of the 2013 promotional program, and not reflective of actual product expiry, the kits were required to be redeemed by December 31, 2013. In February 2014, the Company removed the redemption date requirement for the 2013 promotional program, for which ABG paid the Company $519,000 as a retrospective increase in the product purchase price. All cash received related to the 2013 promotional program, including the $519,000, will be treated as deferred revenue until kits are returned for processing or the breakage analysis determines the probability of eventual redemption is remote. In October 2014, the Company received $250,000 as a retrospective increase in the product purchase price for unsold kits as consideration for extending the required redemption date of the 2014 promotional program to December 31, 2017. All cash received for these kits will be treated as deferred revenue until specific kits are returned for processing or on the final allowed redemption date of December 31, 2017.

On September 21, 2012, the Company entered into a License Agreement with Access Business Group International LLC (“ABGI”), an affiliate of Alticor. Pursuant to the License Agreement, the Company has granted ABGI and its affiliates a non-exclusive license to use the technology related to Interleukin’s Weight Management genetic test and to sell the Weight Management test in Europe, Russia and South Africa (the “Territories”). ABGI, or a laboratory designated by ABGI, will be responsible for processing the tests, and the Company will receive a royalty for each test sold, which royalty will increase if certain pending patent applications are issued. The License Agreement has an initial term of five years from the date of first commercial sale of the Weight Management test under the agreement which was in June 2013. Thereafter, the term will automatically renew for additional one-year periods unless at least 60 days prior notice is delivered by either party. During the three months ended March 31, 2016 and March 31, 2015, $59,000 and $54,000, respectively, related to license fees was earned.

In connection with the execution of the License Agreement, the Company and ABGI also entered into a Professional Services Agreement (the “PSA”) pursuant to which the Company has agreed to provide services to ABGI in connection with its sale and processing of the tests within the Territories. No fees were earned in the three months ended March 31, 2016 or March 31, 2015.

For the three months ended March 31, 2016 and 2015, approximately 14% and 56%, respectively, of our revenue came from sales through our Merchant Network and Channel Partner Agreement with Amway Global, and 3% and 14%, respectively, of our revenue came from sales through ABG’s promotional product bundle program.

On February 25, 2013, the Company entered into a Preferred Participation Agreement with Renaissance Health Services Corporation (“RHSC”), for itself and on behalf of certain of its affiliates and subsidiaries. This agreement was amended and restated on November 1, 2013. RHSC is a related party through its affiliation with Delta Dental of Michigan, Inc. (“DDMI”), a stockholder of the Company. Pursuant to this agreement, as amended, affiliates of RHSC agreed to reimburse the Company a fixed price for each PerioPredict genetic test that the Company processed for a customer of affiliates of RHSC. This amended agreement had a term of three years beginning February 25, 2013, unless terminated earlier (1) upon the mutual written agreement of us and RHSC, (2) if either party becomes the subject of bankruptcy, insolvency, liquidation or other similar proceedings, or (3) in the event of an uncured breach of the amended agreement by either party. This agreement terminated on February 25, 2016 and a revised agreement was executed in April 2016.  

13 

Note 5—Debt Instruments

Venture Loan and Security Agreement

On December 23, 2014, the Company entered into the Loan Agreement with Horizon Technology Finance Corporation (the “Lender”) under which the Company has borrowed $5.0 million. The loan bears interest at a floating rate equal to the One Month LIBOR Rate (with a floor of 0.50%) plus 8.50%. In the event that the One Month LIBOR Rate, as reported in the Wall Street Journal, exceeds 0.50%, the interest rate will be adjusted by an amount equal to the difference between such rates at the end of that particular month. At March 31, 2016, the rate was 9.0% per annum. The loan is to be repaid in forty-five (45) monthly payments consisting of fifteen (15) monthly payments of only interest followed by thirty (30) equal monthly payments of principal and interest. In addition, at the end of the repayment term (or at early termination of the loan) a final payment equal to 4.5% of the loan will be due and payable. The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual property. The Company has also agreed not to pledge or otherwise encumber its intellectual property assets, subject to certain exceptions. In connection with the Loan Agreement, the Company issued to the Lender and its affiliates warrants to purchase a total of 2,492,523 shares of common stock at an exercise price of $0.1003 per share, which the Company refers to herein as the Lender Warrants. The Lender Warrants have a term of ten (10) years.

Additionally, $88,918 in cash fees paid to the Lender and $261,386, the intrinsic value of the Lender Warrants, were recorded as a discount on the loan and subsequently are amortized over the term of the loan in the Company’s Condensed Statements of Operations. The final non-principal payment of $225,000 will be accrued as additional interest expense, using the effective interest method, over the term of the loan. As of March 31, 2016, the unamortized discount associated with the loan was $234,000. Cash interest expense for the three months ended March 31, 2016 and 2015 was $114,000 and $113,000, respectively. Non-cash interest expense was $38,000 for both the three months ended March 31, 2016 and 2015.

Note 6—Commitments and contingencies

Operating Lease

The Company leases its office and laboratory space under a non-cancelable operating lease which was originally scheduled to expire on March 31, 2014. In May 2010, the Company completed a sublease of 6,011 square feet of underutilized office and laboratory space and on March 31, 2014, the sublease expired. On February 7, 2014, the Company entered into the Second Amendment to Commercial Lease which, among other things a) extended the term of the lease from March 31, 2014 to March 31, 2017; b) reduced the 19,000 square feet, the amount of space under the master lease, by approximately 6,011 square feet, to approximately 13,000 square feet, which is the amount of space the Company currently occupies; and, c) set an initial base rent with an escalation of 2.06% of base rent in year two and another 2.06% in year three.

Rent expense, was $84,000 and $80,000 for the three months ended March 31, 2016 and 2015, respectively.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on its financial condition, results of operations or cash flows.

Employment Agreements

Kenneth S. Kornman, DDS, Ph.D.

In January 2016, Dr. Kornman was granted an option to purchase 400,000 shares of the Company’s common stock. This option has an exercise price of $0.05 per share. The option vests as to 1/48 of the shares at the beginning of each month beginning on February 1, 2016.

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Scott Snyder

On December 26, 2012, the Company entered into an employment agreement with Scott Snyder for the position of Chief Marketing Officer beginning on January 2, 2013. Mr. Snyder’s employment with the Company terminated effective November 13, 2015. The Company will pay an amount equal to six months of his base salary in effect at the time of the termination with such payment made in equal installments on the Company’s regularly-scheduled payroll dates. All stock options granted to Mr. Snyder expired unexercised as of February 11, 2016.

Bonus Plan

On February 26, 2014, the Compensation Committee approved an Employee Bonus Plan (the “Employee Bonus Plan”) that replaced the bonus plan approved on December 21, 2012. Under the Employee Bonus Plan, bonuses may be awarded upon the achievement of corporate goals, however, the Compensation Committee has absolute discretion as to whether bonuses will be awarded and the size of any bonus, notwithstanding whether any such corporate goals are met. Bonus accruals totaling $166,000 were recorded in 2015 in accrued expenses on the balance sheet. In January 2016, the Board of Directors approved the 2015 bonus disbursement for that amount, which occurred in February 2016.

Note 7—Capital Stock

Authorized Preferred and Common Stock

As of March 31, 2016, the Company has 6,000,000 shares of preferred stock, par value $0.001 authorized and 450,000,000 shares of common stock, par value $0.001 authorized. As of March 31, 2016 the Company has 172,953,440 shares of common stock outstanding and the following shares of common stock are reserved for issuance:

	Reserved for issuance		Strike Price		Expiry
Shares reserved under outstanding stock options and options available for grant		52,107,279
Rights associated with Employee Stock Purchase Plan		233,854
Warrants to purchase common stock associated with December 2014 private placement		50,189,431	$	0.1003		Dec 23, 2021
Warrants to purchase common stock associated with December 2014 venture loan and security agreement		2,492,523	$	0.1003		Dec 23, 2024
Warrants to purchase common stock associated with September 2014 consulting agreement with Danforth Advisors		100,000	$	0.2500		Sep 8, 2024
Outstanding warrants issued in June 2012		437,158	$	0.2745		Jun 29, 2017
Outstanding warrants issued in May 2013, vesting May 2013		20,655,737	$	0.2745		May 17, 2020
Outstanding warrants issued in May 2013, vesting August 2013		14,426,230	$	0.2745		Aug 9, 2020
Total common shares reserved for issuance at March 31, 2016		140,642,212
Total common shares issued and outstanding at March 31, 2016		172,953,440
Total common shares outstanding and reserved for issuance at  March 31, 2016		313,595,652

15 

On May 17, 2013, the Company entered into a Common Stock Purchase Agreement (the “2013 Purchase Agreement”) with various accredited investors (the “2013 Investors”), pursuant to which the Company sold securities to the 2013 Investors in a private placement transaction (the “May 2013 Private Placement”). In the May 2013 Private Placement, the Company sold an aggregate of 43,715,847 shares of its common stock at a price of $0.2745 per share for gross proceeds of $12,000,000. The 2013 Investors also received warrants to purchase up to an aggregate of 32,786,885 shares of common stock at an exercise price of $0.2745 per share (the “2013 Warrants”). The 2013 Warrants were immediately exercisable as to 63% of the shares issuable thereunder. The remaining 37% of the shares issuable under the 2013 Warrants were to become exercisable upon an increase in the number of authorized shares of common stock. On August 9, 2013, the Company’s shareholders’ approved an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 150,000,000 to 300,000,000 shares, which provided for adequate authorized shares for all potential common stock equivalents issued pursuant to the May 2013 Private Placement. The 2013 Warrants are all currently exercisable and have a term of seven years from the date they became exercisable.

For its services in this transaction, the placement agent received cash compensation in the amount of approximately $780,000 and the placement agent and an affiliate received warrants to purchase an aggregate of 2,295,082 shares of common stock, at an exercise price of $0.2745 per share (the “2013 Placement Agent Warrants”). The 2013 Placement Agent Warrants became exercisable on August 9, 2013, following shareholder approval of an increase in the Company’s authorized shares of common stock and expire August 9, 2020. The cash compensation and the fair value of the warrants were recorded as issuance costs resulting in a reduction to shareholders’ equity.

In connection with the May 2013 Private Placement, all preferred stockholders converted their shares of Preferred Stock to common stock resulting in the issuance of 39,089,161 shares of common stock (the “2013 Preferred Conversion”) and $14,316,255 in principal amount of outstanding convertible debt held by a related party was converted into 2,521,222 shares of common stock (the “2013 Debt Conversion”).

In September, 2014, the Company issued warrants to the Company’s financial consultant, Danforth Advisors, to purchase up to 100,000 shares of common stock at a price of $0.25 per share. The warrants have a ten (10) year term and vest on a monthly basis over two years, provided that, if the Company terminates the agreement without cause before the one year anniversary, 50% of the warrants immediately vest, and if the Company terminates the agreement without cause on extension after one year, the remaining 50% of the warrants immediately vest. The warrant will also become exercisable in full upon a change of control of the Company if the agreement is still in effect. The fair value of the warrants at issuance was recorded as equity totaling $24,000 and will be amortized to consulting fees over the remaining service requirement. The non-cash compensation expense was $3,000 for the three months ended March 31, 2016 and 2015.

On December 23, 2014, the Company entered into a Securities Purchase Agreement (the “2014 Purchase Agreement”) with various accredited investors (the “2014 Investors”), pursuant to which it sold to the 2014 Investors in a private placement transaction (the “December 2014 Private Placement”) an aggregate of 50,099,700 shares of common stock at a price of $0.1003 per share for gross proceeds of approximately $5.025 million. The 2014 Investors also received warrants to purchase up to an aggregate of 50,099,700 shares of common stock an exercise price of $0.1003 per share (the “2014 Warrants”). The 2014 Warrants are all currently exercisable and have a term of seven years.

16 

For services related to this transaction, the placement agent and legal counsel received an aggregate of $218,000 in cash fees and the placement agent received warrants to purchase an aggregate of 89,731 shares of common stock (“2014 Placement Agent Warrants”). The cash fees and the fair value of the 2014 Placement Agent Warrants were recorded as equity issuance costs resulting in a reduction to shareholders’ equity.

The 2014 Warrants and the 2014 Placement Agent Warrants were recorded as equity at fair value on the date of issuance. Fair value of the 2014 Warrants was calculated using the following inputs in a Black-Scholes model:

	December 23, 2014
Risk-free interest rate		1.98	%
Expected life		7 years
Expected volatility		138.4	%
Dividend yield		0	%

On the close date of the 2014 Purchase Agreement, the fair value of the 2014 Warrants was $5.2 million, and the fair value of the 2014 Placement Agent Warrants was $9,000.

Registration Rights Agreements

In connection with the May 2013 Private Placement, on May 17, 2013, the Company also entered into a Registration Rights Agreement with the 2013 Investors and others, pursuant to which the Company was required to file a registration statement on Form S-1 within 45 days of May 17, 2013 to cover the resale of (i) the shares of common stock sold to the 2013 Investors and the shares of common stock underlying the 2013 Warrants, (ii) the shares of common stock issued pursuant to the 2013 Preferred Conversion and the 2013 Debt Conversion, and (iii) the shares of common stock underlying the 2013 Placement Agent Warrants. The Company filed the registration statement on July 1, 2013, and it was declared effective on August 8, 2013.

In connection with the December 2014 Private Placement, on December 23, 2014, the Company also entered into a Registration Rights Agreement with the 2014 Investors and the placement agent, pursuant to which the Company was required to file a registration statement on Form S-1 within 45 days of December 23, 2014 to cover the resale of (i) the shares of common stock sold to the 2014 Investors and the shares of common stock underlying the 2014 Warrants and (ii) the shares of common stock underlying the 2014 Placement Agent Warrants. The Company filed the registration statement on February 6, 2015, and it was declared effective on March 31, 2015.

Venture Loan and Security Agreement

On December 23, 2014, the Company entered into the Loan Agreement with Horizon Technology Finance Corporation under which the Company has borrowed $5.0 million. In connection with the Loan Agreement, the Company issued to the Lender and its affiliates Lender Warrants to purchase a total of 2,492,523 shares of common stock at an exercise price of $0.1003 per share. The Lender Warrants have a term of ten (10) years.

The Lender Warrants were recorded as equity at fair value on the date of issuance. Fair value of the Lender Warrants was calculated using the following inputs in a Black-Scholes model:

	December 23, 2014
Risk-free interest rate		2.17	%
Expected life		10 years
Expected volatility		121.6	%
Dividend yield		0	%

The fair value of the Lender Warrants at issuance was $261,000. Cash interest paid during the three months ended March 31, 2016 and 2015 totaled $114,000 and $113,000, respectively. Non-cash interest related to debt discounts was $38,000 for the three months ended March 31, 2016 and 2015, with a remaining debt discount balance of $234,000.

17 

Note 8—Stock-Based Compensation Arrangements

Total stock-based compensation is as follows:

	Three Months Ended March 31,
	2016		2015
Stock option grants beginning of period	$	210,340	$	98,440
Stock-based arrangements during the period:
Stock option grants		3,367		47,048
Restricted stock issued:
Employee stock purchase plan		563		822
	$	214,270	$	146,310

Stock option and restricted stock grants

The following table details stock option activity:

	Three Months  Ended March 31, 2016
	Shares			Weighted Average Exercise Price
Outstanding, beginning of period		21,657,776		$	0.21
Stock options granted		1,185,400			0.05
Cancelled/Expired		(753,649	)		0.33
Outstanding, end of period		22,089,527		$	0.20
Exercisable, end of period		3,329,168		$	0.37

As of March 31, 2016 and 2015, there was approximately $2.1 million and $1.4 million, respectively, of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Company’s stock plans.

Restricted Stock Awards

At March 31, 2016 and 2015, there were no outstanding restricted stock awards.

Stock Option Grants

On August 9, 2013, the Company’s shareholders’ approved the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan”). The 2013 Plan allows for the issuance of up to 8,860,000 additional shares of our common stock pursuant to awards granted under the 2013 Plan. Additionally, the 2013 plan allows for the issuance of up to a maximum of 2,435,500 additional shares of our common stock, pursuant to the cancellation, forfeiture, or expiry, of awards granted under the 2004 Employee, Director and Consultant Stock Plan and terminated on or after the 2013 Plan approval on August 9, 2013. On July 21, 2015, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of shares of common stock available for issuance thereunder by 30,000,000 shares. During the three month period ended March 31, 2016, the Company granted 1,185,400 stock options under the 2013 Plan. At March 31, 2016, the Company had an aggregate of 30,017,752 shares of common stock available for grant under the 2013 Plan.

18 

Pursuant to his Employment Agreement, on April 6, 2015, Mr. Carbeau was granted options to purchase up to 14,245,227 shares of Interleukin’s common stock at an exercise price of $0.1525 per share (the closing price of the common stock on April 6, 2015). Of those options, 2,622,948 were granted under the 2013 Plan and 11,622,279 were granted outside of the 2013 Plan. The options will vest as to 25% of the shares on April 6, 2016, and as to an additional 2.083% of the shares on the last day of each successive month thereafter, provided that he remains employed by Company on the vesting date.

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, and 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.

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 three months ended March 31, 2016 and 2015, employees purchased 66,219 and 54,820 shares, respectively, of common stock at a weighted-average purchase price of $0.05 and $0.10, respectively, while the weighted-average market value was $0.06 and $0.12 per share, respectively, resulting in compensation expense of $563 and $822, respectively.

Note 9—Industry Risk and Concentration

The Company develops genetic risk assessment tests and performs research for its own benefit. As of March 31, 2016, the Company sells five genetic risk assessment tests. Commercial success of the Company’s genetic risk assessment tests will depend on their success at being deemed to be scientifically credible and cost-effective by consumers and the marketing success of the Company and its collaborative partners.

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 three months ended March 31, 2016 and 2015, approximately 14% and 56%, respectively, of the Company’s revenue came from sales through the Merchant Network and Channel Partner Agreement with Amway Global, and 3% and 14%, respectively, of the Company’s revenue came from sales through ABG’s promotional product bundle program.

Note 10—Subsequent Events

On April 5, 2016, the Company announced the results of discussions with the U.S. Food and Drug Administration (FDA) in response to an Untitled Letter issued by the FDA on November 4, 2015 and a meeting on February 3, 2016 with personnel within the FDA’s Office of In Vitro Diagnostics and Radiological Health (OIR) to discuss the Company’s written response to OIR with respect to the Untitled Letter. OIR personnel recently confirmed that PerioPredict is a laboratory developed test (LDT) currently subject to FDA enforcement discretion and may continue to be marketed without prior marketing authorization at this time. OIR personnel also acknowledged that the Company does not currently offer a test for osteoarthritis, about which the OIR had inquired in the Untitled Letter.

19 

The Company’s Bone Health and Heart Health tests, which are part of the Inherent Health line of tests, will be transitioned from a direct-to-consumer (DTC) distribution channel to a distribution model under which a licensed healthcare provider orders tests and oversees any resulting change in care. Following further discussions with the FDA personnel, these two tests will be available through the Company’s DTC retail channels until May 22, 2016, at which time they will no longer be available unless requested by an authorized healthcare provider. Any Heart Health and Bone Health tests purchased through retail channels prior to that date will be processed through September 19, 2016. After these dates, the tests will only be made available to and processed for a licensed healthcare provider. We continue discussions with the FDA to determine appropriate next steps, if any, for our Weight Management test.

On April 20, 2016, the Company entered into an agreement with Reimbursement Specialists Inc. (“RSI”), a Comprehensive Benefit Administrators (“CBA”) company, to include coverage for PerioPredict as part of its Freedom Dental Plan.

On April 26, 2016, the Company received a notice of allowance for a patent by the United States Patent and Trademark Office (USPTO) for an application covering the Company’s PerioPredict Genetic Risk Test. The application, entitled “Method for Determining Severity and Progression of Periodontal Disease,” has allowed claims covering methods of determining a subject’s genotype to ascertain their risk of developing severe periodontal disease and the treatment of those at risk to slow the progression of the disease.

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. develops and markets proprietary genetic tests for chronic diseases and health-related conditions. Our products provide information that is not otherwise available to empower individuals and their healthcare providers to manage their health and wellness through genetics-based insights and actionable guidance. We leverage our research, intellectual property, and genetic test development expertise in inflammation and metabolism to identify an individual’s risk for severe and progressive chronic inflammatory diseases, thereby enabling personalized healthcare. We market our tests through healthcare professionals, partnerships with health and wellness companies, and other distribution channels. We have patents covering the use of specific patterns of gene variations for a number of common chronic diseases. Our lead products are our proprietary PerioPredict genetic test that identifies individuals with an increased risk for severe and progressive periodontitis due to a life-long genetic predisposition to over-produce Interleukin-1 (IL-1), a key mediator of inflammation, and our Inherent Health line of genetic tests.

During the three months ended March 31, 2016, our principal focus has been on commercializing our PerioPredict test and related programs. PerioPredict serves as a central component to an enhanced benefit design or wellness initiative directed to lower medical costs through disease avoidance and reduced disease progression and complications. The test identifies individuals at high risk for elevated systemic inflammation, enabling a risk stratification framework to personalize care interventions and patient outreach. The program creates value through early identification of risk, elevated professional surveillance for disease detection, and enhanced patient engagement and compliance

We market PerioPredict to large employers, who are typically self-insured, and to insurance carriers. Our employer customers see value in the potential reduction of medical costs associated with the highly prevalent inflammatory diseases that our program can provide. Within the insurance carrier segment, we place particular emphasis on carriers with dental-medical integration (DMI) products, either in place or in development, and integrated delivery networks (IDNs), as these customers are best positioned to realize value from the reduction of medical costs associated with the highly prevalent inflammatory diseases that our program can provide.

We pursue these customers through our internal team and through consultants and other third parties, including channel partners, primarily benefits consulting firms, who may be helpful to identify, and facilitate initial interactions with, potential customers. We have established two such relationships at this point, with Employee Benefit Consulting Group LLC (EBCG), a firm with expertise in the U.S. insurance market and strong relationships with employers, insurance carriers, and health and wellness providers, and with Comprehensive Benefit Administrators (“CBA”), which has included PerioPredict as part of its Freedom Dental Plan that CBA promotes to their customers.

20 

The timing of any revenues that we may receive from our marketing efforts is very uncertain at this time and is dependent on a number of variables, many of which we may have a limited ability to influence. We may never receive significant revenues for the PerioPredict test.

We process test samples in our CLIA-certified genetic testing laboratory, which must hold certain licenses, certifications, and permits to conduct our business. Laboratories that perform testing on human specimens for the purpose of providing information for the diagnosis, prevention or treatment of disease or assessment of health are subject to the Clinical Laboratory Improvement Amendments of 1988 (CLIA). CLIA requires such a laboratory to be certified by the federal government and mandates compliance with various operational, personnel, facilities, administration, quality and proficiency testing requirements intended to insure that testing services are accurate, reliable and timely. Requirements for testing under CLIA vary based on the level of complexity of the testing performed. Laboratories performing high complexity tests, such as genetic tests, must comply with more stringent requirements than laboratories performing moderate or waived testing. Our laboratory was most recently inspected in September 2015 and no deficiencies or other issues were noted and our CLIA license was renewed. 

Our Inherent Health brand of genetic tests includes the first-of-its-kind test for weight management that identifies an individual’s genetic tendencies for weight gain related to either fat or carbohydrates in the diet. The Inherent Health brand also offers customers a full suite of affordable, easy-to-use and meaningful genetic tests in heart health, bone health and nutritional needs. In addition, we launched additional products 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.

We market our Inherent Health brand of genetic assessment tests primarily through our commercial relationships with Alticor Inc. affiliated companies. Alticor is a related party. On October 26, 2009, we entered into a Merchant Network and Channel Partner Agreement with Amway Corp., d/b/a/ Amway Global (“Amway Global”), a subsidiary of Alticor. Pursuant to this agreement, Amway Global sells our Inherent Health brand of genetic tests through its e-commerce website via a hyperlink to our e-commerce site. In the three months ended March 31, 2016 and 2015, revenues from this agreement accounted for approximately 14% and 56% of our revenues, respectively.

Beginning in September 2012 and again in 2013, Access Business Group LLC (ABG), an affiliate of Alticor, placed purchase orders totaling approximately $3.3 million consisting of Weight Management kits. Of the $3.3 million in orders received in 2013, $1.8 million was related to the 2014 program and $1.5 million was related to the 2013 program. Cash for the kits purchased for the 2013 program was received in the first quarter of 2013 and cash for the kits purchased for the 2014 program was received by December 31, 2013. As a component of the 2013 promotional program, and not reflective of actual product expiry, the kits were required to be redeemed before December 31, 2013. In February 2014, we removed the redemption date requirement for the 2013 promotional program, for which ABG paid us $519,000 as a retrospective increase in the product purchase price. Cash related to the 2013 promotional program, including the $519,000, will be treated as deferred revenue until kits are redeemed or the breakage analysis determines the probability of eventual redemption is remote. In October 2014, we received $250,000 as a retrospective increase in the product purchase price for unsold kits as consideration for extending the required redemption date of the 2014 promotional program to December 31, 2017. Cash received for these kits will be treated as deferred revenue until kits are redeemed for processing or on the final allowed redemption date of December 31, 2017. For the three months ended March 31, 2016 and 2015, approximately 3% and 14%, respectively, of our revenue came from sales through ABG’s promotional product bundle program.

On September 21, 2012, we entered into a License Agreement (the License Agreement) with Access Business Group International LLC (ABGI), an affiliate of Alticor. Pursuant to this License Agreement, we granted ABGI and its affiliates a non-exclusive license to use the technology related to our Weight Management genetic test and to sell the Weight Management test in Europe, Russia and South Africa. ABGI, or a laboratory designated by ABGI, is responsible for processing the tests, and we receive a royalty for each test sold. The License Agreement has an initial term of five years from the date of first commercial sale of the Weight Management test under the agreement. For the three months ended March 31, 2016 and 2015, $59,000 and $54,000, respectively, in license fees have been received pursuant to the License Agreement. The increase in license fees is due primarily to higher per-unit royalties resulting from the issuance of patents in the European Union and Russia, and additional unit volume from new Eastern European markets. 

21 

Our research and development expenses are focused on our own development and commercialization efforts related primarily to our PerioPredict and cardiovascular disease genetic tests. We are also focusing on seeking potential commercial partners to validate our technology within their specific business model as a collaboration with little or no cost to us. This is different than in prior years when our development focus was concentrated in research and development to bring new test configurations to market.

We recognize revenue from genetic testing services 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. During the fourth quarter of 2013, we concluded that sufficient historical customer genetic test redemption patterns existed to determine the period of time after which the likelihood of test redemption was remote for Inherent Health tests purchased. Based on our analysis of the redemption data, we estimate that period of time to be three years after the sale of a genetic test kit. Prior to making this determination, revenue was recognized only on test kits returned and processed. Beginning in the fourth quarter of 2013, we began to recognize breakage revenue related to genetic tests kits utilizing the remote method. Under the remote method, breakage revenue should be recognized when the likelihood of the customer exercising rights of redemption becomes remote. The term remote requires statistical analysis of customer redemption patterns for all tests sold and returned. We analyzed redemption patterns from 2009 through 2015. Included in genetic test revenue in the three months ended March 31, 2016 and 2015, is $61,000 and $76,000, respectively, of breakage revenue related to unredeemed genetic test kits from the first quarters of 2013 and 2012, respectively. We expect to continue to recognize breakage revenue and the corresponding deferred cost of goods as well as analyze the data on a quarterly basis based on the historical analysis.

In the genetic test business, competition is in flux and the markets and customer base are not well established. Adoption of new technologies by customers requires substantial market development and customer education. Historically, we have focused on our relationship with our primary customer, 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 2016 and beyond will be to develop the market for our personalized health products, in particular our PerioPredict test, and we will allocate considerable resources to commercialization of PerioPredict. Due to the early stage of this initiative, we cannot predict with certainty fluctuations we may experience in our genetic test revenues or whether such revenues will ever be material, or if material, will be sustained in future periods.

Results of Operations

Three Months Ended March 31, 2016 and 2015

Total revenue was $961,000 for the three months ended March 31, 2016 compared to $403,000 for the three months ended March 31, 2015. The change in total revenue is largely attributable to a contracted research project, partially offset by a decrease in kits returned for processing related to ABG’s promotional product bundle.

During the three months ended March 31, 2016, 14% of our sales revenue came through our Merchant Network and Channel Partner Agreement with Amway Global, compared to 56% during the three months ended March 31, 2015. During the same periods, 3% and 14%, respectively, of our revenue came from sales through ABG’s promotional product bundle program.

Cost of revenue for the three months ended March 31, 2016, was $527,000, or 55% of total revenue, compared to $331,000, or 82% of total revenue, for the three months ended March 31, 2015. The decrease in the cost of revenue as a percentage of revenue in the three months ended March 31, 2016 is primarily attributable to the fixed laboratory costs being applied to higher revenue in the period, which was largely due to a contracted research project.

22 

Research and development expenses were $480,000 for the three months ended March 31, 2016, compared to $183,000 for the three months ended March 31, 2015. The 163% increase of $298,000 is primarily attributable to expenses related to Dr. Kornman moving back to the R&D department in April 2015 as President and Chief Scientific Officer from his previous position as CEO. While he served as CEO, expenses generated by Dr. Kornman were recorded as selling, general and administrative expenses. The increase in research and development expenses was also partially due to increased compensation expense related to annual salary increases for existing staff.

Selling, general and administrative expenses were $1.3 million for the three months ended March 31, 2016, compared to $1.6 million for the three months ended March 31, 2015. The 16% decrease is primarily attributable to lower compensation costs related to terminated employees, CEO recruiting expenses in 2015 that did not recur in 2016 and Dr. Kornman’s expenses being recorded in research and development, partially offset by increased expenses related to the new CEO in 2016.

Interest expense was $152,000 for the three months ended March 31, 2016, compared to $151,000 for the three months ended March 31, 2015. The interest expense is entirely related to our venture loan and security agreement with Horizon entered into on December 23, 2014.

Liquidity and Capital Resources

As of March 31, 2016, we had cash and cash equivalents of $2.9 million.

Cash used in operations was $1.8 million for the three months ended March 31, 2016 and $1.8 million for the three months ended March 31, 2015. There was an increase in prepaid expenses in the three months ended March 31, 2016, offset by cash received related to contracted research revenue.

Cash used in investing activities was $9,000 for the three months ended March 31, 2016, compared to $17,000 for the three months ended March 31, 2015. The $9,000 in 2016 relates to the purchase of new lab equipment. The majority of the $17,000 in 2015 relates to the purchase of new computer equipment that was part of Projects in Progress as of March 31, 2015.

Cash provided by financing activities was $3,300 for the three months ended March 31, 2016, compared to $1,400 for the three months ended March 31, 2015. The Company received $3,300 from stock purchases through the employee stock purchase plan during the three months ended March 31, 2016 compared to $5,500 for the three months ended March 31, 2015. The $5,500 received through the employee stock purchase plan for the three months ended March 31, 2015 was offset by $4,100 in additional fees related to the December 2014 Private Placement.

The amount of cash we generate from operations is currently not sufficient to continue to fund operations and grow our business. We expect that our current financial resources will be adequate to maintain our current and planned operations into the second half of 2016. We believe our success depends on our ability to generate significant revenues for the PerioPredict test. The timing of any revenues that we may receive for the PerioPredict test is uncertain at this time, and is contingent upon a number of factors, including our ability to attract employer and insurance carriers as customers directly, to consummate arrangements with additional partners to promote the PerioPredict test, our partners’ ability to attract customers for PerioPredict, and the timing of utilization of the PerioPredict test by customers, among other possible variables. We do not expect to receive any material revenues from the PerioPredict test until mid to late 2016, at the earliest, and the timing of any such revenues may be substantially later. We may never receive significant revenues from the PerioPredict test.

Until such time, if ever, that we generate revenues sufficient to fund operations, we may fund our operations by issuing common stock, debt or other securities in one or more public or private offerings, as market conditions permit, or through the incurrence of debt from commercial lenders. However, no assurance can be given at this time as to whether we will be able to achieve these objectives. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. There can be no assurance that additional funds will be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or cease activities or operations or enter into licenses or other arrangements with third parties on terms that may be unfavorable to us or sell, license or relinquish rights to develop or commercialize our products, technologies or intellectual property, or seek protection under U.S. bankruptcy laws. The financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

23 

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 3 to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. 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 3, “Summary of 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, 2015 and Note 3, “Summary of Significant Accounting Policies” contained in the Notes to unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

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 March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

24 

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

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, contains or incorporates 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, 2015. In addition, the forward-looking statements contained herein represent our estimates and expectations only as of the date of this filing and should not be relied upon as representing our estimates and expectations 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. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

Not applicable.

25 

Item 6. Exhibits.

Exhibit Number	Exhibit
10.1+	Services Agreement, effective February 1, 2016, by and between Interleukin Genetics, Inc. and Metagenics, Inc. (incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K filed on March 16, 2016 (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 March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Stockholders’ Deficit, (iv) the Condensed Statements of Cash Flows, and (v) Notes to Condensed Financial Statements.

* Filed herewith.

+ The Securities and Exchange Commission with respect to certain portions of this exhibit has previously granted confidential treatment. Omitted portions have been filed separately with the Securities and Exchange Commission

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: May 12, 2016	By:	/s/ Mark B. Carbeau
		Mark B. Carbeau Chief Executive Officer (Principal Executive Officer)
Date: May 12, 2016	By:	/s/ Stephen DiPalma
		Stephen DiPalma Interim Chief Financial Officer (Principal Financial Officer)

26 

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF

SARBANES-OXLEY ACT OF 2002

I, 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 consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter 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: May 12, 2016	/s/ Mark B. Carbeau
	Mark B. Carbeau 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, 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 consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly 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: May 12, 2016	/s/ Stephen J. DiPalma
	Stephen J. DiPalma Interim Chief Financial Officer (Principal Financial and Accounting 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 March 31, 2016 (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: May 12, 2016	/s/ Mark B. Carbeau
	Mark B. Carbeau Chief Executive Officer
	/s/ Stephen J. DiPalma
Date: May 12, 2016	Stephen J. DiPalma Interim Chief Financial Officer (Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 11, 2016
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Entity Registrant Name	INTERLEUKIN GENETICS INC
Entity Central Index Key	0001037649
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	ILIU
Entity Common Stock, Shares Outstanding		173,029,840

XML

CONDENSED BALANCE SHEETS - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 2,892,182	$ 4,706,018
Accounts receivable from related party	61,107	39,989
Trade accounts receivable	224,345	45,973
Inventory	90,705	124,583
Prepaid expenses	670,078	778,970
Total current assets	3,938,417	5,695,533
Fixed assets, net	598,880	643,900
Intangible assets, net	50,517	58,879
Other assets	28,001	93,208
Total assets	4,615,815	6,491,520
Current liabilities:
Accounts payable	365,737	408,374
Accrued expenses	366,908	497,688
Deferred revenue	2,875,299	3,238,541
Short term debt	1,833,333	1,333,333
Total current liabilities	5,441,277	5,477,936
Long Term Debt	2,933,131	3,474,984
Total Liabilities	$ 8,374,408	$ 8,952,920
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.001 par value — 450,000,000 shares authorized; 172,953,440 and 172,887,221 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively	$ 172,955	$ 172,889
Additional paid-in capital	126,574,513	126,354,036
Accumulated deficit	(130,506,061)	(128,988,325)
Total stockholders’ equity	(3,758,593)	(2,461,400)
Total liabilities and stockholders’ equity	$ 4,615,815	$ 6,491,520

XML

CONDENSED BALANCE SHEETS [Parenthetical] - $ / shares	Mar. 31, 2016	Dec. 31, 2015
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	450,000,000	450,000,000
Common stock, shares issued	172,953,440	172,887,221
Common stock, shares outstanding	172,953,440	172,887,221

XML

CONDENSED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenue:
Genetic testing	$ 262,469	$ 347,900
Other	698,449	55,312
Total revenue	960,918	403,212
Cost of revenue	526,946	331,041
Gross profit	433,972	72,171
Operating expenses:
Research and development	480,057	182,530
Selling, general and administrative	1,311,185	1,562,791
Amortization of intangibles	8,362	19,414
Total operating expenses	1,799,604	1,764,735
Loss from operations	(1,365,632)	(1,692,564)
Other income (expense):
Interest income	0	222
Interest expense	(113,750)	(112,500)
Interest expense Non-cash	(38,354)	(38,353)
Total other income (expense)	(152,104)	(150,631)
Loss before income taxes	(1,517,736)	(1,843,195)
Benefit for income taxes	0	0
Net loss	$ (1,517,736)	$ (1,843,195)
Basic and diluted net loss per common share (in dollars per share)	$ (0.01)	$ (0.01)
Weighted average common shares outstanding, basic and diluted (in shares)	172,951,968	172,737,553

XML

CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY DEFICIT - 3 months ended Mar. 31, 2016 - USD ($)	Total	Convertible Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]
Balance at Dec. 31, 2015	$ (2,461,400)	$ 0	$ 172,889	$ 126,354,036	$ (128,988,325)
Balance (in shares) at Dec. 31, 2015		0	172,887,221
Net loss	(1,517,736)	$ 0	$ 0	0	(1,517,736)
Horizon warrant	2,962	0	0	2,962	0
Employee stock purchase plan	3,311	$ 0	$ 66	3,245	0
Employee stock purchase plan (in shares)		0	66,219
Stock-based compensation expense	214,270	$ 0	$ 0	214,270	0
Balance at Mar. 31, 2016	$ (3,758,593)	$ 0	$ 172,955	$ 126,574,513	$ (130,506,061)
Balance (in shares) at Mar. 31, 2016		0	172,953,440

XML

CONDENSED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$ (1,517,736)	$ (1,843,195)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation and amortization	62,346	70,204
Amortization of loan issuance costs and fair value of warrants	26,315	23,354
Stock-based compensation expense	214,270	146,310
Changes in operating assets and liabilities:
Accounts receivable, net	(178,372)	1,334
Receivable from related party	(21,118)	(33,416)
Inventory	33,878	28,277
Prepaid expenses and other current assets	108,892	(97,691)
Accounts payable	(42,637)	132,078
Accrued expenses	(145,239)	(161,588)
Deferred revenue	(363,242)	(89,242)
Deferred liability	14,459	16,082
Net cash used in operating activities	(1,808,184)	(1,807,493)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions	(8,963)	(16,928)
Net cash used in investing activities	(8,963)	(16,928)
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement offering costs	0	(4,100)
Proceeds from employee stock purchase plan	3,311	5,481
Net cash provided by financing activities	3,311	1,381
Net increase (decrease) in cash and cash equivalents	(1,813,836)	(1,823,040)
Cash and cash equivalents, beginning of period	4,706,018	11,466,807
Cash and cash equivalents, end of period	2,892,182	9,643,767
Cash paid for interest	$ 113,750	$ 123,750

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Note 1—Basis of Presentation

Interleukin Genetics, Inc. (“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 or therapeutic measures. The Company’s principal operations and markets are located in the United States.

The accompanying condensed financial statements include the accounts of the Company as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and March 31, 2015.

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, 2015. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire 2016 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, 2015 and Note 3 to our condensed financial statements contained herein.

XML

Operating Matters and Liquidity

3 Months Ended

Mar. 31, 2016

Going Concern [Abstract]

Operating Matters and Liquidity

Note 2—Operating Matters and Liquidity

The Company has experienced net operating losses since its inception through March 31, 2016. The Company had net losses of $7.9 million and $6.3 million for the years ended December 31, 2015 and 2014, respectively, and $1.5 million for the three months ended March 31, 2016, contributing to an accumulated deficit of $130.5 million as of March 31, 2016.

The Company continues to take steps to reduce genetic test processing costs. Cost savings are primarily achieved through test process improvements. Management believes that the current laboratory space is adequate to process high volumes of genetic tests.

On December 23, 2014, the Company entered into a Securities Purchase Agreement (the “2014 Purchase Agreement”) with various accredited investors (the “2014 Investors”), pursuant to which the Company sold to the 2014 Investors in a private placement transaction (the “December 2014 Private Placement”) an aggregate of 50,099,700 shares of common stock at a price of $0.1003 per share for gross proceeds of approximately $5.025 million. The 2014 Investors also received warrants to purchase up to an aggregate of 50,099,700 shares of common stock an exercise price of $0.1003 per share (the “2014 Warrants”). The 2014 Warrants are all currently exercisable and have a term of seven years.

On December 23, 2014, the Company entered into a Venture Loan and Security Agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (the “Lender”) under which the Company has borrowed $5.0 million. The loan bears interest at a floating rate equal to the One Month LIBOR Rate (with a floor of 0.50%) plus 8.50%. In the event that the One Month LIBOR Rate, as reported in the Wall Street Journal, exceeds 0.50%, the interest rate will be adjusted by an amount equal to the difference between such rates at the end of that particular month. At March 31, 2015, the rate was 9.0% per annum. The loan is to be repaid in forty-five (45) monthly payments consisting of fifteen (15) monthly payments of only interest followed by thirty (30) equal monthly payments of principal and interest. In addition, at the end of the repayment term (or at early termination of the loan) a final payment equal to 4.5% of the loan will be due and payable. The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual property. The Company has also agreed not to pledge or otherwise encumber its intellectual property assets, subject to certain exceptions. In connection with the Loan Agreement, the Company issued to the Lender and its affiliates warrants to purchase a total of 2,492,523 shares of common stock at an exercise price of $0.1003 per share, which the Company refers to herein as the Lender Warrants. The Lender Warrants have a term of ten (10) years.

The Company’s financial statements have been prepared assuming that it will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might result from the outcome of this uncertain realization. The Company expects to incur additional losses in 2016 and, accordingly, is dependent on financings and potential revenue to fund its operations and support the market adoption of the PerioPredict^®  test. The timing of any revenues that the Company may receive from the PerioPredict  test is uncertain at this time, and is contingent upon a number of factors, including the Company’s ability to consummate arrangements with partners to promote the PerioPredict  test, the Company’s partners’ ability to develop insurance plans that provide for use of the PerioPredict  test and reimbursement of the test and to develop a viable market for such plans, and the timing of utilization of the PerioPredict test pursuant to such plans, or other possible arrangements. The Company expects to have the cash resources necessary to support the further commercialization of the PerioPredict  test for at least into the second half of 2016.

The ability of the Company to realize the carrying value of its fixed assets and intangible assets is especially dependent on management’s ability to successfully execute on its plan. The Company needs to generate additional funds in order to meet its financial obligations. If it is unsuccessful in doing so, the Company may not be able to realize the carrying value of its fixed assets and intangible assets.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2016

Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 3—Summary of Significant Accounting Policies

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. The Company’s most critical accounting policies are more fully discussed in these notes to the financial statements.

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. For the three months ended March 31, 2016, the Company recognized $262,000 of revenue associated with genetic testing compared to $348,000 for three months ended March 31, 2015. To the extent that tests have been prepaid but results have not yet been reported, recognition of all related revenue is deferred. As of March 31, 2016 and December 31, 2015, the Company had deferred revenue of $2.9 million and $3.2 million, respectively. Included in deferred revenue at March 31, 2016 is $2.6 million for kits that are still outstanding one year or longer after initial kit sale, of which $0.25 million was sold directly to consumers (credit card payments) and $2.3 million was sold to distributors for a promotional bundle. Beginning in September 2012 and again in 2013, Access Business Group LLC (“ABG”), an affiliate of Alticor, Inc., a related party (“Alticor”), placed purchase orders totaling approximately $3.3 million consisting of Weight Management test kits. The kits are included as part of a promotional bundle of products that Amway sold to their Individual Business Owners (IBOs).

 

The Company recognizes breakage revenue related to genetic test kits utilizing the remote method. Under the remote method, breakage revenue should be recognized when the likelihood of the customer exercising rights of redemption becomes remote. The term remote requires statistical analysis of customer redemption patterns for all tests sold and returned. The Company analyzed redemption patterns from 2009 through 2015 and determined the period of time after which the likelihood of test redemption was remote was three years after the sale of a genetic test kit. Included in genetic test revenue in the three months ended March 31, 2016 is $61,000 of breakage revenue related to unredeemed genetic test kits sold in the first three months of 2013, compared to genetic test revenue in the three months ended March 31, 2015 of $76,000 related to unredeemed genetic test kits sold in the first three months of 2012. The Company expects to continue to recognize breakage revenue and the corresponding deferred cost of goods on a quarterly basis based on the historical analysis.

 

Sales Commission

On October 26, 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. 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. The Company accounts for sales commissions due to Amway Global under the Merchant Network and Channel 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. The cost of commissions was $67,000 and $88,000 for the three months ended March 31, 2016 and 2015, 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. No accounts receivable reserve is required at March 31, 2016 as all accounts receivable are expected to be collected.

Inventory

Inventory is carried at lower of cost (first-in, first-out method) or market and no inventory reserve was deemed necessary at December 31, 2015 or March 31, 2016. As the Company does not manufacture any products, no overhead costs are included in inventory. The Company has contracted with a fulfillment provider to supply its PerioPredict genetic tests kits to dental offices. The agreement with the fulfillment provider requires the provider to purchase and fulfill all materials related to the genetic test kit and delivery, with the Company’s approval. The Company pays for materials and fulfillment charges when the product is shipped. During the three months ended March 31, 2015, the Company purchased $33,000 of inventory related to its PerioPredict test. The balance of our inventory is related to our Inherent Health brand and is stored at a different fulfillment provider. Any kit components held at a fulfillment center are reflected in inventory.

 

Inventory consisted of the following:

	March 31, 2016		December 31, 2015
Raw materials	$	79,503	$	112,372
Finished goods		11,202		12,211
Total inventory, net	$	90,705	$	124,583

Stock-Based Compensation

The Company accounts for stock-based compensation expense in accordance with FASB ASC 718, Compensation – Stock Compensation. The standard addresses all forms of share-based payment (SBP) awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. We expense SBP awards within compensation cost for SBP transactions measured at fair value. Compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the effective date shall be recognized as the requisite service is rendered on or after the effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated under the Black-Scholes option pricing model. Common stock purchased pursuant to our employee stock purchase plan will be expensed based upon the fair market value in excess of purchase price.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which requires the recognition of 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 $33.9 million as of March 31, 2016, 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.

 

As a result of the Company’s change in its capital structure during the quarters ended June 30, 2013 and December 31, 2014, the Company may have undergone IRC section 382 ownership changes which would limit its ability to realize the benefit of its tax attributes (i.e., federal/state net operating losses and research and development credits) during their respective carry forward periods. The Company has not performed an analysis to determine the extent of such limitations, if any.

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 months ended March 31, 2016.

Research and Development

Research and development costs are expensed as incurred.

Basic and Diluted Net Loss per Common Share

The Company applies the provisions of FASB ASC 260, Earnings per Share, which establishes standards for computing and presenting earnings per 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 are as follows:

	As of March 31,
	2016		2015
Options outstanding		22,089,527		8,052,900
Warrants outstanding		88,301,079		88,301,079
Total		110,390,606		96,353,979

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 short term nature of these instruments. The fair value of warrants is calculated using the Black-Scholes pricing model.

Cash and Cash Equivalents

The Company maintains its cash and cash equivalents with a domestic financial institution that the Company believes to be of high credit standing. The Company believes that, as of March 31, 2016, its concentration of credit risk related to cash and cash equivalents was not significant. Cash and cash equivalents are available on demand and are generally in excess of FDIC insurance limits.

Fixed Assets

Fixed assets are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the remaining term of the lease.

Assets that have not yet been placed in service, have the costs incurred presented as part of Projects in Progress. Once the asset has been placed in service, the related costs are transferred to the appropriate category and depreciation commences. There are no items in Projects in Process for the three months ended March 31, 2016.

Segment Reporting

As of March 31, 2016 and 2015, the Company has one segment, the genetic test business. 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.

Recent Accounting Pronouncements

 FASB ASC 606 ASU 2014-09 - Revenue from contracts with customers.

In May 2014, the FASB issued amended guidance on contracts with customers to transfer goods or services or contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The guidance requires an entity to recognize revenue on contracts with customers to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires that an entity depict the consideration by applying the following five steps:

· Identify the contract(s) with a customer.

· Identify the performance obligations in the contract.

· Determine the transaction price.

· Allocate the transaction price to the performance obligations in the contract.

· Recognize revenue when (or as) the entity satisfies a performance obligation.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. This amendment is to be either retrospectively adopted to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application.

In April, 2015 the FASB voted to defer the required implementation date of ASU 2014-09 to December 2017. Public companies may elect to adopt the standard along the original timeline. We are evaluating the impact of the adoption of this guidance to determine whether or not it has a material impact on the Company's financial statements.

FASB ASC 606 ASU 2014-15 - Presentation of Financial Statements—Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.

In August 2014, the FASB issued ASU No. 2014-15, which applies should a company be facing probable liquidation within one year of the issuance of the financial statements, but is not actually in liquidation at the time of issuance.  The applicable basis for presentation remains as a going concern, but if liquidation within one year is probable, then certain disclosures must be included in the financial statement presentation.  ASU 2014-15 is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We are evaluating the impact of ASU 2014-15 on our financial disclosures, but are not electing early adoption at this time.

FASB ASU No. 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.

In November 2015, the FASB issued ASU No. 2015-17, which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented.  The Company is currently evaluating the impact of ASU 2015-07 on its consolidated financial statements. 

FASB ASU 2016-02 - Leases (Topic 842).

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842). The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements. 

FASB ASU No. 2016-09, - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

In March 2016, the FASB issued ASU No. 2016-09. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements. 

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Related Party Transactions

3 Months Ended

Mar. 31, 2016

Related Party Transactions [Abstract]

Related Party Transactions

Note 4—Related Party Transactions

Since March 2003, the Company has maintained a broad strategic alliance with several affiliates of the Alticor Inc. family of companies, a related party. The alliance initially 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.

On October 26, 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. 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 $67,000 and $88,000 in commissions for the three months ended March 31, 2016 and 2015, respectively, representing a percentage of net sales to their customers. The Company expenses commissions owed to Amway Global in the month of sale to the customer.

Beginning in September 2012 and again in 2013, Access Business Group LLC (“ABG”), an affiliate of Alticor placed purchase orders totaling approximately $3.3 million consisting of Weight Management test kits. The kits are included as part of a promotional bundle of products that Amway sells to their Individual Business Owners (IBOs). Of the $3.3 million in orders, $1.5 million was received for the 2013 program and $1.8 million for the 2014 program. As a component of the 2013 promotional program, and not reflective of actual product expiry, the kits were required to be redeemed by December 31, 2013. In February 2014, the Company removed the redemption date requirement for the 2013 promotional program, for which ABG paid the Company $519,000 as a retrospective increase in the product purchase price. All cash received related to the 2013 promotional program, including the $519,000, will be treated as deferred revenue until kits are returned for processing or the breakage analysis determines the probability of eventual redemption is remote. In October 2014, the Company received $250,000 as a retrospective increase in the product purchase price for unsold kits as consideration for extending the required redemption date of the 2014 promotional program to December 31, 2017. All cash received for these kits will be treated as deferred revenue until specific kits are returned for processing or on the final allowed redemption date of December 31, 2017.

On September 21, 2012, the Company entered into a License Agreement with Access Business Group International LLC (“ABGI”), an affiliate of Alticor. Pursuant to the License Agreement, the Company has granted ABGI and its affiliates a non-exclusive license to use the technology related to Interleukin’s Weight Management genetic test and to sell the Weight Management test in Europe, Russia and South Africa (the “Territories”). ABGI, or a laboratory designated by ABGI, will be responsible for processing the tests, and the Company will receive a royalty for each test sold, which royalty will increase if certain pending patent applications are issued. The License Agreement has an initial term of five years from the date of first commercial sale of the Weight Management test under the agreement which was in June 2013. Thereafter, the term will automatically renew for additional one-year periods unless at least 60 days prior notice is delivered by either party. During the three months ended March 31, 2016 and March 31, 2015, $59,000 and $54,000, respectively, related to license fees was earned.

In connection with the execution of the License Agreement, the Company and ABGI also entered into a Professional Services Agreement (the “PSA”) pursuant to which the Company has agreed to provide services to ABGI in connection with its sale and processing of the tests within the Territories. No fees were earned in the three months ended March 31, 2016 or March 31, 2015.

For the three months ended March 31, 2016 and 2015, approximately 14% and 56%, respectively, of our revenue came from sales through our Merchant Network and Channel Partner Agreement with Amway Global, and 3% and 14%, respectively, of our revenue came from sales through ABG’s promotional product bundle program.

On February 25, 2013, the Company entered into a Preferred Participation Agreement with Renaissance Health Services Corporation (“RHSC”), for itself and on behalf of certain of its affiliates and subsidiaries. This agreement was amended and restated on November 1, 2013. RHSC is a related party through its affiliation with Delta Dental of Michigan, Inc. (“DDMI”), a stockholder of the Company.  Pursuant to this agreement, as amended, affiliates of RHSC agreed to reimburse the Company a fixed price for each PerioPredict genetic test that the Company processed for a customer of affiliates of RHSC. This amended agreement had a term of three years beginning February 25, 2013, unless terminated earlier (1) upon the mutual written agreement of us and RHSC, (2) if either party becomes the subject of bankruptcy, insolvency, liquidation or other similar proceedings, or (3) in the event of an uncured breach of the amended agreement by either party. This agreement terminated on February 25, 2016 and a revised agreement was executed in April 2016.

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Debt Instruments

3 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

Debt Instruments

Note 5—Debt Instruments

Venture Loan and Security Agreement

On December 23, 2014, the Company entered into the Loan Agreement with Horizon Technology Finance Corporation (the “Lender”) under which the Company has borrowed $5.0 million. The loan bears interest at a floating rate equal to the One Month LIBOR Rate (with a floor of 0.50%) plus 8.50%. In the event that the One Month LIBOR Rate, as reported in the Wall Street Journal, exceeds 0.50%, the interest rate will be adjusted by an amount equal to the difference between such rates at the end of that particular month. At March 31, 2016, the rate was 9.0% per annum. The loan is to be repaid in forty-five (45) monthly payments consisting of fifteen (15) monthly payments of only interest followed by thirty (30) equal monthly payments of principal and interest. In addition, at the end of the repayment term (or at early termination of the loan) a final payment equal to 4.5% of the loan will be due and payable. The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual property. The Company has also agreed not to pledge or otherwise encumber its intellectual property assets, subject to certain exceptions. In connection with the Loan Agreement, the Company issued to the Lender and its affiliates warrants to purchase a total of 2,492,523 shares of common stock at an exercise price of $0.1003 per share, which the Company refers to herein as the Lender Warrants. The Lender Warrants have a term of ten (10) years.

Additionally, $88,918 in cash fees paid to the Lender and $261,386, the intrinsic value of the Lender Warrants, were recorded as a discount on the loan and subsequently are amortized over the term of the loan in the Company’s Condensed Statements of Operations. The final non-principal payment of $225,000 will be accrued as additional interest expense, using the effective interest method, over the term of the loan. As of March 31, 2016, the unamortized discount associated with the loan was $234,000. Cash interest expense for the three months ended March 31, 2016 and 2015 was $114,000 and $113,000, respectively. Non-cash interest expense was $38,000 for both the three months ended March 31, 2016 and 2015.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2016

Commitments and Contingencies [Abstract]

Commitments and contingencies

Note 6—Commitments and contingencies

Operating Lease

The Company leases its office and laboratory space under a non-cancelable operating lease which was originally scheduled to expire on March 31, 2014. In May 2010, the Company completed a sublease of 6,011 square feet of underutilized office and laboratory space and on March 31, 2014, the sublease expired. On February 7, 2014, the Company entered into the Second Amendment to Commercial Lease which, among other things a) extended the term of the lease from March 31, 2014 to March 31, 2017; b) reduced the 19,000 square feet, the amount of space under the master lease, by approximately 6,011 square feet, to approximately 13,000 square feet, which is the amount of space the Company currently occupies; and, c) set an initial base rent with an escalation of 2.06% of base rent in year two and another 2.06% in year three.

Rent expense, was $84,000 and $80,000 for the three months ended March 31, 2016 and 2015, respectively.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on its financial condition, results of operations or cash flows.

Employment Agreements

Kenneth S. Kornman, DDS, Ph.D.

In January 2016, Dr. Kornman was granted an option to purchase 400,000 shares of the Company’s common stock. This option has an exercise price of $0.05 per share. The option vests as to 1/48 of the shares at the beginning of each month beginning on February 1, 2016.

Scott Snyder

On December 26, 2012, the Company entered into an employment agreement with Scott Snyder for the position of Chief Marketing Officer beginning on January 2, 2013. Mr. Snyder’s employment with the Company terminated effective November 13, 2015. The Company will pay an amount equal to six months of his base salary in effect at the time of the termination with such payment made in equal installments on the Company’s regularly-scheduled payroll dates. All stock options granted to Mr. Snyder expired unexercised as of February 11, 2016.

Bonus Plan

On February 26, 2014, the Compensation Committee approved an Employee Bonus Plan (the “Employee Bonus Plan”) that replaced the bonus plan approved on December 21, 2012. Under the Employee Bonus Plan, bonuses may be awarded upon the achievement of corporate goals, however, the Compensation Committee has absolute discretion as to whether bonuses will be awarded and the size of any bonus, notwithstanding whether any such corporate goals are met. Bonus accruals totaling $166,000 were recorded in 2015 in accrued expenses on the balance sheet. In January 2016, the Board of Directors approved the 2015 bonus disbursement for that amount, which occurred in February 2016.

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Capital Stock

3 Months Ended

Mar. 31, 2016

Capital Stock [Abstract]

Capital Stock

Note 7—Capital Stock

Authorized Preferred and Common Stock

As of March 31, 2016, the Company has 6,000,000 shares of preferred stock, par value $0.001 authorized and 450,000,000 shares of common stock, par value $0.001 authorized. As of March 31, 2016 the Company has 172,953,440 shares of common stock outstanding and the following shares of common stock are reserved for issuance:

	Reserved		Strike
	for issuance		Price		Expiry
Shares reserved under outstanding stock options and options available for grant		52,107,279
Rights associated with Employee Stock Purchase Plan		233,854
Warrants to purchase common stock associated with December 2014 private placement		50,189,431	$	0.1003		Dec 23, 2021
Warrants to purchase common stock associated with December 2014 venture loan and security agreement		2,492,523	$	0.1003		Dec 23, 2024
Warrants to purchase common stock associated with September 2014 consulting agreement with Danforth Advisors		100,000	$	0.2500		Sep 8, 2024
Outstanding warrants issued in June 2012		437,158	$	0.2745		Jun 29, 2017
Outstanding warrants issued in May 2013, vesting May 2013		20,655,737	$	0.2745		May 17, 2020
Outstanding warrants issued in May 2013, vesting August 2013		14,426,230	$	0.2745		Aug 9, 2020
Total common shares reserved for issuance at March 31, 2016		140,642,212
Total common shares issued and outstanding at March 31, 2016		172,953,440
Total common shares outstanding and reserved for issuance at  March 31, 2016		313,595,652

On May 17, 2013, the Company entered into a Common Stock Purchase Agreement (the “2013 Purchase Agreement”) with various accredited investors (the “2013 Investors”), pursuant to which the Company sold securities to the 2013 Investors in a private placement transaction (the “May 2013 Private Placement”). In the May 2013 Private Placement, the Company sold an aggregate of 43,715,847 shares of its common stock at a price of $0.2745 per share for gross proceeds of $12,000,000. The 2013 Investors also received warrants to purchase up to an aggregate of 32,786,885 shares of common stock at an exercise price of $0.2745 per share (the “2013 Warrants”). The 2013 Warrants were immediately exercisable as to 63% of the shares issuable thereunder. The remaining 37% of the shares issuable under the 2013 Warrants were to become exercisable upon an increase in the number of authorized shares of common stock. On August 9, 2013, the Company’s shareholders’ approved an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 150,000,000 to 300,000,000 shares, which provided for adequate authorized shares for all potential common stock equivalents issued pursuant to the May 2013 Private Placement. The 2013 Warrants are all currently exercisable and have a term of seven years from the date they became exercisable.

For its services in this transaction, the placement agent received cash compensation in the amount of approximately $780,000 and the placement agent and an affiliate received warrants to purchase an aggregate of 2,295,082 shares of common stock, at an exercise price of $0.2745 per share (the “2013 Placement Agent Warrants”). The 2013 Placement Agent Warrants became exercisable on August 9, 2013, following shareholder approval of an increase in the Company’s authorized shares of common stock and expire August 9, 2020. The cash compensation and the fair value of the warrants were recorded as issuance costs resulting in a reduction to shareholders’ equity.

In connection with the May 2013 Private Placement, all preferred stockholders converted their shares of Preferred Stock to common stock resulting in the issuance of 39,089,161 shares of common stock (the “2013 Preferred Conversion”) and $14,316,255 in principal amount of outstanding convertible debt held by a related party was converted into 2,521,222 shares of common stock (the “2013 Debt Conversion”).

In September, 2014, the Company issued warrants to the Company’s financial consultant, Danforth Advisors, to purchase up to 100,000 shares of common stock at a price of $0.25 per share. The warrants have a ten (10) year term and vest on a monthly basis over two years, provided that, if the Company terminates the agreement without cause before the one year anniversary, 50% of the warrants immediately vest, and if the Company terminates the agreement without cause on extension after one year, the remaining 50% of the warrants immediately vest. The warrant will also become exercisable in full upon a change of control of the Company if the agreement is still in effect. The fair value of the warrants at issuance was recorded as equity totaling $24,000 and will be amortized to consulting fees over the remaining service requirement. The non-cash compensation expense was $3,000 for the three months ended March 31, 2016 and 2015.

On December 23, 2014, the Company entered into a Securities Purchase Agreement (the “2014 Purchase Agreement”) with various accredited investors (the “2014 Investors”), pursuant to which it sold to the 2014 Investors in a private placement transaction (the “December 2014 Private Placement”) an aggregate of 50,099,700 shares of common stock at a price of $0.1003 per share for gross proceeds of approximately $5.025 million. The 2014 Investors also received warrants to purchase up to an aggregate of 50,099,700 shares of common stock an exercise price of $0.1003 per share (the “2014 Warrants”). The 2014 Warrants are all currently exercisable and have a term of seven years.

For services related to this transaction, the placement agent and legal counsel received an aggregate of $218,000 in cash fees and the placement agent received warrants to purchase an aggregate of 89,731 shares of common stock (“2014 Placement Agent Warrants”). The cash fees and the fair value of the 2014 Placement Agent Warrants were recorded as equity issuance costs resulting in a reduction to shareholders’ equity.

The 2014 Warrants and the 2014 Placement Agent Warrants were recorded as equity at fair value on the date of issuance. Fair value of the 2014 Warrants was calculated using the following inputs in a Black-Scholes model:

	December 23, 2014
Risk-free interest rate		1.98	%
Expected life		7 years
Expected volatility		138.4	%
Dividend yield		0	%

On the close date of the 2014 Purchase Agreement, the fair value of the 2014 Warrants was $5.2 million, and the fair value of the 2014 Placement Agent Warrants was $9,000.

Registration Rights Agreements

In connection with the May 2013 Private Placement, on May 17, 2013, the Company also entered into a Registration Rights Agreement with the 2013 Investors and others, pursuant to which the Company was required to file a registration statement on Form S-1 within 45 days of May 17, 2013 to cover the resale of (i) the shares of common stock sold to the 2013 Investors and the shares of common stock underlying the 2013 Warrants, (ii) the shares of common stock issued pursuant to the 2013 Preferred Conversion and the 2013 Debt Conversion, and (iii) the shares of common stock underlying the 2013 Placement Agent Warrants. The Company filed the registration statement on July 1, 2013, and it was declared effective on August 8, 2013.

In connection with the December 2014 Private Placement, on December 23, 2014, the Company also entered into a Registration Rights Agreement with the 2014 Investors and the placement agent, pursuant to which the Company was required to file a registration statement on Form S-1 within 45 days of December 23, 2014 to cover the resale of (i) the shares of common stock sold to the 2014 Investors and the shares of common stock underlying the 2014 Warrants and (ii) the shares of common stock underlying the 2014 Placement Agent Warrants. The Company filed the registration statement on February 6, 2015, and it was declared effective on March 31, 2015.

Venture Loan and Security Agreement

On December 23, 2014, the Company entered into the Loan Agreement with Horizon Technology Finance Corporation under which the Company has borrowed $5.0 million. In connection with the Loan Agreement, the Company issued to the Lender and its affiliates Lender Warrants to purchase a total of 2,492,523 shares of common stock at an exercise price of $0.1003 per share. The Lender Warrants have a term of ten (10) years.

The Lender Warrants were recorded as equity at fair value on the date of issuance. Fair value of the Lender Warrants was calculated using the following inputs in a Black-Scholes model:

	December 23, 2014
Risk-free interest rate		2.17	%
Expected life		10 years
Expected volatility		121.6	%
Dividend yield		0	%

The fair value of the Lender Warrants at issuance was $261,000. Cash interest paid during the three months ended March 31, 2016 and 2015 totaled $114,000 and $113,000, respectively. Non-cash interest related to debt discounts was $38,000 for the three months ended March 31, 2016 and 2015, with a remaining debt discount balance of $234,000.

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Stock-Based Compensation Arrangements

3 Months Ended

Mar. 31, 2016

Stock-Based Compensation Arrangements [Abstract]

Stock-Based Compensation Arrangements

Note 8—Stock-Based Compensation Arrangements

Total stock-based compensation is as follows:

	Three Months Ended March 31,
	2016		2015
Stock option grants beginning of period	$	210,340	$	98,440
Stock-based arrangements during the period:
Stock option grants		3,367		47,048
Restricted stock issued:
Employee stock purchase plan		563		822
	$	214,270	$	146,310

Stock option and restricted stock grants

The following table details stock option activity:

	Three Months
	Ended March 31, 2016
			Weighted Average
	Shares		Exercise Price
Outstanding, beginning of period		21,657,776	$	0.21
Stock options granted		1,185,400		0.05
Cancelled/Expired		(753,649)		0.33
Outstanding, end of period		22,089,527	$	0.20
Exercisable, end of period		3,329,168	$	0.37

As of March 31, 2016 and 2015, there was approximately $2.1 million and $1.4 million, respectively, of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Company’s stock plans.

Restricted Stock Awards

At March 31, 2016 and 2015, there were no outstanding restricted stock awards.

Stock Option Grants

On August 9, 2013, the Company’s shareholders’ approved the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan”). The 2013 Plan allows for the issuance of up to 8,860,000 additional shares of our common stock pursuant to awards granted under the 2013 Plan. Additionally, the 2013 plan allows for the issuance of up to a maximum of 2,435,500 additional shares of our common stock, pursuant to the cancellation, forfeiture, or expiry, of awards granted under the 2004 Employee, Director and Consultant Stock Plan and terminated on or after the 2013 Plan approval on August 9, 2013. On July 21, 2015, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of shares of common stock available for issuance thereunder by 30,000,000 shares. During the three month period ended March 31, 2016, the Company granted 1,185,400 stock options under the 2013 Plan. At March 31, 2016, the Company had an aggregate of 30,017,752 shares of common stock available for grant under the 2013 Plan.

Pursuant to his Employment Agreement, on April 6, 2015, Mr. Carbeau was granted options to purchase up to 14,245,227 shares of Interleukin’s common stock at an exercise price of $0.1525 per share (the closing price of the common stock on April 6, 2015). Of those options, 2,622,948 were granted under the 2013 Plan and 11,622,279 were granted outside of the 2013 Plan. The options will vest as to 25% of the shares on April 6, 2016, and as to an additional 2.083% of the shares on the last day of each successive month thereafter, provided that he remains employed by Company on the vesting date.

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, and 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.

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 three months ended March 31, 2016 and 2015, employees purchased 66,219 and 54,820 shares, respectively, of common stock at a weighted-average purchase price of $0.05 and $0.10, respectively, while the weighted-average market value was $0.06 and $0.12 per share, respectively, resulting in compensation expense of $563 and $822, respectively.

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Industry Risk and Concentration

3 Months Ended

Mar. 31, 2016

Risks and Uncertainties [Abstract]

Industry Risk and Concentration

Note 9—Industry Risk and Concentration

The Company develops genetic risk assessment tests and performs research for its own benefit. As of March 31, 2016, the Company sells five genetic risk assessment tests. Commercial success of the Company’s genetic risk assessment tests will depend on their success at being deemed to be scientifically credible and cost-effective by consumers and the marketing success of the Company and its collaborative partners.

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 three months ended March 31, 2016 and 2015, approximately 14% and 56%, respectively, of the Company’s revenue came from sales through the Merchant Network and Channel Partner Agreement with Amway Global, and 3% and 14%, respectively, of the Company’s revenue came from sales through ABG’s promotional product bundle program.

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Subsequent Events

3 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

Subsequent Event

Note 10—Subsequent Events

On April 5, 2016, the Company announced the results of discussions with the U.S. Food and Drug Administration (FDA) in response to an Untitled Letter issued by the FDA on November 4, 2015 and a meeting on February 3, 2016 with personnel within the FDA’s Office of In Vitro Diagnostics and Radiological Health (OIR) to discuss the Company’s written response to OIR with respect to the Untitled Letter. OIR personnel recently confirmed that PerioPredict is a laboratory developed test (LDT) currently subject to FDA enforcement discretion and may continue to be marketed without prior marketing authorization at this time. OIR personnel also acknowledged that the Company does not currently offer a test for osteoarthritis, about which the OIR had inquired in the Untitled Letter.

The Company’s Bone Health and Heart Health tests, which are part of the Inherent Health line of tests, will be transitioned from a direct-to-consumer (DTC) distribution channel to a distribution model under which a licensed healthcare provider orders tests and oversees any resulting change in care. Following further discussions with the FDA personnel, these two tests will be available through the Company’s DTC retail channels until May 22, 2016, at which time they will no longer be available unless requested by an authorized healthcare provider. Any Heart Health and Bone Health tests purchased through retail channels prior to that date will be processed through September 19, 2016. After these dates, the tests will only be made available to and processed for a licensed healthcare provider. We continue discussions with the FDA to determine appropriate next steps, if any, for our Weight Management test.

On April 20, 2016, the Company entered into an agreement with Reimbursement Specialists Inc. (“RSI”), a Comprehensive Benefit Administrators (“CBA”) company, to include coverage for PerioPredict as part of its Freedom Dental Plan.

On April 26, 2016, the Company received a notice of allowance for a patent by the United States Patent and Trademark Office (USPTO) for an application covering the Company’s PerioPredict Genetic Risk Test. The application, entitled “Method for Determining Severity and Progression of Periodontal Disease,” has allowed claims covering methods of determining a subject’s genotype to ascertain their risk of developing severe periodontal disease and the treatment of those at risk to slow the progression of the disease.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Significant Accounting Policies [Abstract]

Management Estimates

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. The Company’s most critical accounting policies are more fully discussed in these notes to the financial statements.

Revenue Recognition

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. For the three months ended March 31, 2016, the Company recognized $262,000 of revenue associated with genetic testing compared to $348,000 for three months ended March 31, 2015. To the extent that tests have been prepaid but results have not yet been reported, recognition of all related revenue is deferred. As of March 31, 2016 and December 31, 2015, the Company had deferred revenue of $2.9 million and $3.2 million, respectively. Included in deferred revenue at March 31, 2016 is $2.6 million for kits that are still outstanding one year or longer after initial kit sale, of which $0.25 million was sold directly to consumers (credit card payments) and $2.3 million was sold to distributors for a promotional bundle. Beginning in September 2012 and again in 2013, Access Business Group LLC (“ABG”), an affiliate of Alticor, Inc., a related party (“Alticor”), placed purchase orders totaling approximately $3.3 million consisting of Weight Management test kits. The kits are included as part of a promotional bundle of products that Amway sold to their Individual Business Owners (IBOs).

 

The Company recognizes breakage revenue related to genetic test kits utilizing the remote method. Under the remote method, breakage revenue should be recognized when the likelihood of the customer exercising rights of redemption becomes remote. The term remote requires statistical analysis of customer redemption patterns for all tests sold and returned. The Company analyzed redemption patterns from 2009 through 2015 and determined the period of time after which the likelihood of test redemption was remote was three years after the sale of a genetic test kit. Included in genetic test revenue in the three months ended March 31, 2016 is $61,000 of breakage revenue related to unredeemed genetic test kits sold in the first three months of 2013, compared to genetic test revenue in the three months ended March 31, 2015 of $76,000 related to unredeemed genetic test kits sold in the first three months of 2012. The Company expects to continue to recognize breakage revenue and the corresponding deferred cost of goods on a quarterly basis based on the historical analysis.

Sales Commissions

Sales Commission

On October 26, 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. 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. The Company accounts for sales commissions due to Amway Global under the Merchant Network and Channel 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. The cost of commissions was $67,000 and $88,000 for the three months ended March 31, 2016 and 2015, respectively.

Accounts Receivable

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. No accounts receivable reserve is required at March 31, 2016 as all accounts receivable are expected to be collected.

Inventory

Inventory

Inventory is carried at lower of cost (first-in, first-out method) or market and no inventory reserve was deemed necessary at December 31, 2015 or March 31, 2016. As the Company does not manufacture any products, no overhead costs are included in inventory. The Company has contracted with a fulfillment provider to supply its PerioPredict genetic tests kits to dental offices. The agreement with the fulfillment provider requires the provider to purchase and fulfill all materials related to the genetic test kit and delivery, with the Company’s approval. The Company pays for materials and fulfillment charges when the product is shipped. During the three months ended March 31, 2015, the Company purchased $33,000 of inventory related to its PerioPredict test. The balance of our inventory is related to our Inherent Health brand and is stored at a different fulfillment provider. Any kit components held at a fulfillment center are reflected in inventory.

 

Inventory consisted of the following:

	March 31, 2016		December 31, 2015
Raw materials	$	79,503	$	112,372
Finished goods		11,202		12,211
Total inventory, net	$	90,705	$	124,583

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation expense in accordance with FASB ASC 718, Compensation – Stock Compensation. The standard addresses all forms of share-based payment (SBP) awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. We expense SBP awards within compensation cost for SBP transactions measured at fair value. Compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the effective date shall be recognized as the requisite service is rendered on or after the effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated under the Black-Scholes option pricing model. Common stock purchased pursuant to our employee stock purchase plan will be expensed based upon the fair market value in excess of purchase price.

Income Taxes

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which requires the recognition of 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 $33.9 million as of March 31, 2016, 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.

 

As a result of the Company’s change in its capital structure during the quarters ended June 30, 2013 and December 31, 2014, the Company may have undergone IRC section 382 ownership changes which would limit its ability to realize the benefit of its tax attributes (i.e., federal/state net operating losses and research and development credits) during their respective carry forward periods. The Company has not performed an analysis to determine the extent of such limitations, if any.

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 months ended March 31, 2016.

Research and Development

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 Common Share

The Company applies the provisions of FASB ASC 260, Earnings per Share, which establishes standards for computing and presenting earnings per 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 are as follows:

	As of March 31,
	2016		2015
Options outstanding		22,089,527		8,052,900
Warrants outstanding		88,301,079		88,301,079
Total		110,390,606		96,353,979

Fair Value of Financial Instruments

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 short term nature of these instruments. The fair value of warrants is calculated using the Black-Scholes pricing model.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company maintains its cash and cash equivalents with a domestic financial institution that the Company believes to be of high credit standing. The Company believes that, as of March 31, 2016, its concentration of credit risk related to cash and cash equivalents was not significant. Cash and cash equivalents are available on demand and are generally in excess of FDIC insurance limits.

Fixed Assets

Fixed Assets

Fixed assets are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the remaining term of the lease.

Assets that have not yet been placed in service, have the costs incurred presented as part of Projects in Progress. Once the asset has been placed in service, the related costs are transferred to the appropriate category and depreciation commences. There are no items in Projects in Process for the three months ended March 31, 2016.

Segment Reporting

Segment Reporting

As of March 31, 2016 and 2015, the Company has one segment, the genetic test business. 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.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 FASB ASC 606 ASU 2014-09 - Revenue from contracts with customers.

In May 2014, the FASB issued amended guidance on contracts with customers to transfer goods or services or contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The guidance requires an entity to recognize revenue on contracts with customers to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires that an entity depict the consideration by applying the following five steps:

· Identify the contract(s) with a customer.

· Identify the performance obligations in the contract.

· Determine the transaction price.

· Allocate the transaction price to the performance obligations in the contract.

· Recognize revenue when (or as) the entity satisfies a performance obligation.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. This amendment is to be either retrospectively adopted to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application.

In April, 2015 the FASB voted to defer the required implementation date of ASU 2014-09 to December 2017. Public companies may elect to adopt the standard along the original timeline. We are evaluating the impact of the adoption of this guidance to determine whether or not it has a material impact on the Company's financial statements.

FASB ASC 606 ASU 2014-15 - Presentation of Financial Statements—Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.

In August 2014, the FASB issued ASU No. 2014-15, which applies should a company be facing probable liquidation within one year of the issuance of the financial statements, but is not actually in liquidation at the time of issuance.  The applicable basis for presentation remains as a going concern, but if liquidation within one year is probable, then certain disclosures must be included in the financial statement presentation.  ASU 2014-15 is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We are evaluating the impact of ASU 2014-15 on our financial disclosures, but are not electing early adoption at this time.

FASB ASU No. 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.

In November 2015, the FASB issued ASU No. 2015-17, which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented.  The Company is currently evaluating the impact of ASU 2015-07 on its consolidated financial statements. 

FASB ASU 2016-02 - Leases (Topic 842).

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842). The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements. 

FASB ASU No. 2016-09, - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

In March 2016, the FASB issued ASU No. 2016-09. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements. 

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2016

Significant Accounting Policies [Abstract]

Inventory

Inventory consisted of the following:

	March 31, 2016		December 31, 2015
Raw materials	$	79,503	$	112,372
Finished goods		11,202		12,211
Total inventory, net	$	90,705	$	124,583

Potential Common Stock Equivalents Excluded from Calculation of Diluted Net Loss per Share

Potential common stock equivalents excluded from the calculation of diluted net loss per share are as follows:

	As of March 31,
	2016		2015
Options outstanding		22,089,527		8,052,900
Warrants outstanding		88,301,079		88,301,079
Total		110,390,606		96,353,979

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Capital Stock (Tables)

3 Months Ended

Mar. 31, 2016

Authorized, Issued and Reserved shares of common stock

As of March 31, 2016 the Company has 172,953,440 shares of common stock outstanding and the following shares of common stock are reserved for issuance:

	Reserved		Strike
	for issuance		Price		Expiry
Shares reserved under outstanding stock options and options available for grant		52,107,279
Rights associated with Employee Stock Purchase Plan		233,854
Warrants to purchase common stock associated with December 2014 private placement		50,189,431	$	0.1003		Dec 23, 2021
Warrants to purchase common stock associated with December 2014 venture loan and security agreement		2,492,523	$	0.1003		Dec 23, 2024
Warrants to purchase common stock associated with September 2014 consulting agreement with Danforth Advisors		100,000	$	0.2500		Sep 8, 2024
Outstanding warrants issued in June 2012		437,158	$	0.2745		Jun 29, 2017
Outstanding warrants issued in May 2013, vesting May 2013		20,655,737	$	0.2745		May 17, 2020
Outstanding warrants issued in May 2013, vesting August 2013		14,426,230	$	0.2745		Aug 9, 2020
Total common shares reserved for issuance at March 31, 2016		140,642,212
Total common shares issued and outstanding at March 31, 2016		172,953,440
Total common shares outstanding and reserved for issuance at  March 31, 2016		313,595,652

Venture Loan [Member]

Black-Scholes Pricing Model Assumptions to Determine Fair Value of Warrants

Fair value of the Lender Warrants was calculated using the following inputs in a Black-Scholes model:

	December 23, 2014
Risk-free interest rate		2.17	%
Expected life		10 years
Expected volatility		121.6	%
Dividend yield		0	%

Placement Agent Warrants 2014 [Member]

Black-Scholes Pricing Model Assumptions to Determine Fair Value of Warrants

Fair value of the 2014 Warrants was calculated using the following inputs in a Black-Scholes model:

	December 23, 2014
Risk-free interest rate		1.98	%
Expected life		7 years
Expected volatility		138.4	%
Dividend yield		0	%

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Stock-Based Compensation Arrangements (Tables)

3 Months Ended

Mar. 31, 2016

Stock-Based Compensation Arrangements [Abstract]

Total Compensation Cost Recorded for Stock-Based Compensation

Total stock-based compensation is as follows:

	Three Months Ended March 31,
	2016		2015
Stock option grants beginning of period	$	210,340	$	98,440
Stock-based arrangements during the period:
Stock option grants		3,367		47,048
Restricted stock issued:
Employee stock purchase plan		563		822
	$	214,270	$	146,310

Schedule of Stock option activity

The following table details stock option activity:

	Three Months
	Ended March 31, 2016
			Weighted Average
	Shares		Exercise Price
Outstanding, beginning of period		21,657,776	$	0.21
Stock options granted		1,185,400		0.05
Cancelled/Expired		(753,649)		0.33
Outstanding, end of period		22,089,527	$	0.20
Exercisable, end of period		3,329,168	$	0.37

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Operating Matters and Liquidity - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended		12 Months Ended
	Dec. 23, 2014	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015	Dec. 31, 2014
Line of Credit Facility [Line Items]
Net Income Loss		$ (1,517,736)	$ (1,843,195)	$ 7,900,000	$ 6,300,000
Accumulated deficit		$ (130,506,061)		$ (128,988,325)
Venture Loan [Member]
Line of Credit Facility [Line Items]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.1003
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	2,492,523
Debt Instrument, Description of Variable Rate Basis	The loan bears interest at a floating rate equal to the One Month LIBOR Rate (with a floor of 0.50%) plus 8.50%. In the event that the One Month LIBOR Rate, as reported in the Wall Street Journal, exceeds 0.50%, the interest rate will be adjusted by an amount equal to the difference between such rates at the end of that particular month
Debt Instrument, Payment Terms	The loan is to be repaid in forty-five (45) monthly payments consisting of fifteen (15) monthly payments of only interest followed by thirty (30) equal monthly payments of principal and interest. In addition, at the end of the repayment term (or at early termination of the loan) a final payment equal to 4.5% of the loan will be due and payable
Proceeds from Issuance of Long-term Debt	$ 5,000,000
Debt Instrument, Interest Rate, Stated Percentage	9.00%		9.00%
Warrants Expire Term	10 years
Venture Loan [Member] | Horizon Technology Finance Corporation [Member]
Line of Credit Facility [Line Items]
Debt Instrument, Description of Variable Rate Basis	The loan bears interest at a floating rate equal to the One Month LIBOR Rate (with a floor of 0.50%) plus 8.50%. In the event that the One Month LIBOR Rate, as reported in the Wall Street Journal, exceeds 0.50%, the interest rate will be adjusted by an amount equal to the difference between such rates at the end of that particular month.
December 2014 Private Placement [Member]
Line of Credit Facility [Line Items]
Sale of Stock, Number of Shares Issued in Transaction	50,099,700
Sale of Stock, Price Per Share	$ 0.1003
Sale of Stock, Consideration Received on Transaction	$ 5,025,000
2014 warrants [Member]
Line of Credit Facility [Line Items]
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.1003
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	50,099,700

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Summary of Significant Accounting Policies (Schedule Of Inventory) (Detail) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Inventory Disclosure [Line Items]
Raw materials	$ 79,503	$ 112,372
Finished goods	11,202	12,211
Total inventory, net	$ 90,705	$ 124,583

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Summary of Significant Accounting Policies (Potential Common Stock Equivalents Excluded from Calculation of Diluted Net Loss per Share) (Detail) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potential common stock equivalents excluded from the calculation of diluted net loss per share	110,390,606	96,353,979
Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potential common stock equivalents excluded from the calculation of diluted net loss per share	22,089,527	8,052,900
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potential common stock equivalents excluded from the calculation of diluted net loss per share	88,301,079	88,301,079

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Summary of Significant Accounting Policies- Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Significant Accounting Policies [Line Items]
Deferred revenue	$ 2,900,000		$ 3,200,000
Sales commissions	$ 67,000	$ 88,000
Percentage of cash discount offered to customers	2.00%
Deferred tax assets, valuation allowance	$ 33,900,000
Revenue Recognition, Milestone Method, Revenue Recognized	262,000	348,000
ABG [Member]
Significant Accounting Policies [Line Items]
Purchase Order Placed	3,300,000
Fulfillment Center [Member]
Significant Accounting Policies [Line Items]
Payments To Acquire of Inventory	33,000
Genetic Test Revenue [Member]
Significant Accounting Policies [Line Items]
Breakage Revenue	61,000	$ 76,000
Customer Payment [Member]
Significant Accounting Policies [Line Items]
Deferred revenue	250,000
Kits Components [Member]
Significant Accounting Policies [Line Items]
Deferred revenue	2,600,000
Distributors [Member]
Significant Accounting Policies [Line Items]
Deferred revenue	$ 2,300,000

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Related Party Transactions - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended
	Oct. 31, 2014	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2013
Business Acquisition [Line Items]
Prior Period Notice		60 days
Proceeds from License Fees Received		$ 59,000	$ 54,000
Business Combination, Consideration Transferred	$ 250,000
Amway Global [Member]
Business Acquisition [Line Items]
Commissions paid		$ 67,000	$ 88,000
Amway Global [Member] | Sales [Member]
Business Acquisition [Line Items]
Concentration Risk, Percentage		14.00%	56.00%
ABG [Member]
Business Acquisition [Line Items]
Purchase Order Placed		$ 3,300,000
Payments to Acquire Businesses, Gross		$ 519,000
ABG [Member] | Sales [Member]
Business Acquisition [Line Items]
Concentration Risk, Percentage		3.00%	14.00%
ABG [Member] | 2014 Program [Member]
Business Acquisition [Line Items]
Purchase Order Received				$ 1,800,000
ABG [Member] | 2013 Program [Member]
Business Acquisition [Line Items]
Purchase Order Received				$ 1,500,000

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Debt Instruments - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended
	Dec. 23, 2014	Mar. 31, 2016	Mar. 31, 2015
Debt Instrument [Line Items]
Debt Instrument, Unamortized Discount		$ 234,000
Interest Paid		113,750	$ 123,750
Paid-in-Kind Interest		38,000	$ 38,000
Venture Loan [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Long-term Debt	$ 5,000,000
Debt Instrument, Description of Variable Rate Basis	The loan bears interest at a floating rate equal to the One Month LIBOR Rate (with a floor of 0.50%) plus 8.50%. In the event that the One Month LIBOR Rate, as reported in the Wall Street Journal, exceeds 0.50%, the interest rate will be adjusted by an amount equal to the difference between such rates at the end of that particular month
Debt Instrument, Interest Rate, Stated Percentage	9.00%		9.00%
Debt Instrument, Payment Terms	The loan is to be repaid in forty-five (45) monthly payments consisting of fifteen (15) monthly payments of only interest followed by thirty (30) equal monthly payments of principal and interest. In addition, at the end of the repayment term (or at early termination of the loan) a final payment equal to 4.5% of the loan will be due and payable
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	2,492,523
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.1003
Warrants Expire Term	10 years
Interest Expense, Debt	$ 88,918
Intrinsic Value Of Warrants	261,386
Interest Expense, Other	$ 225,000
Debt Instrument, Unamortized Discount		234,000
Interest Paid		114,000	$ 113,000
Paid-in-Kind Interest		$ 38,000	$ 38,000

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Commitments and Contingencies - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended
	Jan. 31, 2015	Mar. 31, 2016	Mar. 31, 2015	Feb. 26, 2014
Loss Contingencies [Line Items]
Operating Leases, Rent Expense		$ 84,000	$ 80,000
Property Under Commercial Lease And Sublease Details		On February 7, 2014, the Company entered into the Second Amendment to Commercial Lease which, among other things a) extended the term of the lease from March 31, 2014 to March 31, 2017; b) reduced the 19,000 square feet, the amount of space under the master lease, by approximately 6,011 square feet, to approximately 13,000 square feet, which is the amount of space the Company currently occupies
Granted, Weighted Avg.Exercise Price		$ 0.05
Employee-related Liabilities, Current				$ 166,000
Operating Leases Base rent In Year Two		2.06%
Operating Leases Base Rent In Year Three		2.06%
Dr. Kornman [Member]
Loss Contingencies [Line Items]
Share-Based Compensation Arrangement By Share-Based Payment Award, Options, Grants In Period, Gross	400,000
Granted, Weighted Avg.Exercise Price	$ 0.05

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Capital Stock (Authorized, Issued and Reserved shares of common stock) (Detail)	3 Months Ended
	Mar. 31, 2016 $ / shares shares
Reserved for issuance	140,642,212
Total common shares issued and outstanding at March 31, 2016	172,953,440
Total common shares outstanding and reserved for issuance at March 31, 2016	313,595,652
Warrants with common stock additional purchase rights associated with December 2014 private placement [Member]
Reserved for issuance	50,189,431
Strike Price | $ / shares	$ 0.1003
Expiry	Dec. 23, 2021
Warrants to purchase common stock associated with September 2014 consulting agreement with Danforth Advisors [Member]
Reserved for issuance	100,000
Strike Price | $ / shares	$ 0.2500
Expiry	Sep. 08, 2024
Shares reserved under outstanding stock options and options available for grant [Member]
Reserved for issuance	52,107,279
Shares reserved for future issuance under the Employee Stock Purchase Plan [Member]
Reserved for issuance	233,854
Warrants to purchase common stock associated with December 2014 venture loan and security agreement [Member]
Reserved for issuance	2,492,523
Strike Price | $ / shares	$ 0.1003
Expiry	Dec. 23, 2024
Outstanding warrants issued in June 2012 [Member]
Reserved for issuance	437,158
Strike Price | $ / shares	$ 0.2745
Expiry	Jun. 29, 2017
Outstanding warrants issued in May 2013, vesting May 2013 [Member]
Reserved for issuance	20,655,737
Strike Price | $ / shares	$ 0.2745
Expiry	May 17, 2020
Outstanding warrants issued in May 2013, vesting August 2013 [Member]
Reserved for issuance	14,426,230
Strike Price | $ / shares	$ 0.2745
Expiry	Aug. 09, 2020

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Capital Stock (Black Scholes model to determine the fair value of the warrants) (Detail)	1 Months Ended
	Dec. 23, 2014
2014 Placement Agent Warrants [Member]
Stockholders Equity [Line Items]
Risk-free interest rate	1.98%
Expected life	7 years
Expected volatility	138.40%
Dividend Yield	0.00%
Lender Warrants [Member]
Stockholders Equity [Line Items]
Risk-free interest rate	2.17%
Expected life	10 years
Expected volatility	121.60%
Dividend Yield	0.00%

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Capital Stock - Additional Information (Detail) - USD ($)	1 Months Ended			3 Months Ended
	Dec. 23, 2014	Sep. 30, 2014	May. 17, 2013	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015	Aug. 09, 2013
Stockholders Equity [Line Items]
Convertible preferred stock, par value				$ 0.001
Convertible preferred stock, shares authorized				6,000,000
Common stock, shares authorized				450,000,000		450,000,000
Common stock, par value				$ 0.001		$ 0.001
Allocated Share-based Compensation Expense				$ 3,000	$ 3,000
Common Stock Shares Issued				172,953,440		172,887,221
Debt Conversion, Converted Instrument, Shares Issued				2,521,222
Interest Paid				$ 113,750	123,750
Paid-in-Kind Interest				38,000	38,000
Debt Instrument, Unamortized Discount				234,000
Debt Conversion, Original Debt, Amount				$ 14,316,255
May 2013 Private Placement [Member] | Minimum [Member]
Stockholders Equity [Line Items]
Common stock, shares authorized							150,000,000
May 2013 Private Placement [Member] | Maximum [Member]
Stockholders Equity [Line Items]
Common stock, shares authorized							300,000,000
Venture Loan [Member]
Stockholders Equity [Line Items]
Warrants exercise price per share	$ 0.1003
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	2,492,523
Warrants and Rights Outstanding	$ 261,000
Proceeds from Issuance of Long-term Debt	5,000,000
Warrants Expiration Term				10 years
Interest Paid				$ 114,000	113,000
Paid-in-Kind Interest				38,000	$ 38,000
Debt Instrument, Unamortized Discount				$ 234,000
Investor [Member]
Stockholders Equity [Line Items]
Sale of Stock, Consideration Received on Transaction	$ 5,025,000
Sale of Stock, Number of Shares Issued in Transaction	50,099,700
Warrants exercise price per share	$ 0.1003
Sale of Stock, Price Per Share	$ 0.1003
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	50,099,700
Danforth Advisors [Member]
Stockholders Equity [Line Items]
Common stock, par value		$ 0.25
Warrants Fair Value Disclosure		$ 24,000
Common Stock Shares Issued		100,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage		50.00%
Common Stock [Member]
Stockholders Equity [Line Items]
Convertible Preferred Stock, Shares Issued upon Conversion				39,089,161
Common Stock [Member] | May 2013 Private Placement [Member]
Stockholders Equity [Line Items]
Sale of Stock, Consideration Received on Transaction			$ 12,000,000
Sale of Stock, Number of Shares Issued in Transaction			43,715,847
Sale of Stock, Price Per Share			$ 0.2745
Warrants 2013 [Member]
Stockholders Equity [Line Items]
Percentage Of Warrants Exercisable			63.00%
Percentage Of Warrants Exercisable After Shareholder Approval			37.00%
Warrants exercise price per share			$ 0.2745
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			32,786,885
Warrants 2014 [Member]
Stockholders Equity [Line Items]
Warrants and Rights Outstanding						$ 5,200,000
Placement Agent Warrants [Member]
Stockholders Equity [Line Items]
Allocated Share-based Compensation Expense				$ 780,000
Warrants To Purchase Of Common Stock				2,295,082
Warrants exercise price per share				$ 0.2745
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				89,731
Warrants and Rights Outstanding						$ 9,000
Payments for Underwriting Expense				$ 218,000

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Stock-Based Compensation Arrangements (Stock-Based Compensation) (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Share-based Compensation	$ 214,270	$ 146,310
Stock option grants beginning of period [Member]
Share-based Compensation	210,340	98,440
Stock option grants [Member]
Share-based Compensation	3,367	47,048
Employee Stock Purchase Plan [Member]
Share-based Compensation	$ 563	$ 822

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Stock-Based Compensation Arrangements (Stock Option and Restricted Stock Grants) (Detail)	3 Months Ended
	Mar. 31, 2016 $ / shares shares
Shares
Outstanding, beginning of period | shares	21,657,776
Stock options granted | shares	1,185,400
Cancelled/Expired | shares	(753,649)
Outstanding, end of period | shares	22,089,527
Exercisable, end of period | shares	3,329,168
Weighted Avg. Exercise Price
Outstanding, beginning of period | $ / shares	$ 0.21
Stock options granted | $ / shares	0.05
Cancelled/Expired | $ / shares	0.33
Outstanding, end of period | $ / shares	0.20
Exercisable, end of period | $ / shares	$ 0.37

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Stock-Based Compensation Arrangements - Additional Information (Detail) - USD ($)		1 Months Ended	3 Months Ended
	Apr. 06, 2015	Jul. 21, 2015	Mar. 31, 2016	Mar. 31, 2015	Aug. 09, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Share-based Awards Other than Options			$ 2,100,000	$ 1,400,000
Granted,Weighted Avg.Exercise Price			$ 0.05
Employment Agreement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	14,245,227
Granted,Weighted Avg.Exercise Price	$ 0.1525
Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Issued During Period, Shares, Employee Stock Purchase Plans			66,219
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock purchase price			85.00%
Weighted-average purchase price			$ 0.05	$ 0.10
Weighted-average fair value			$ 0.06	$ 0.12
Compensation expense			$ 563	$ 822
Employee Stock Purchase Plan [Member] | Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Issued During Period, Shares, Employee Stock Purchase Plans			66,219	54,820
2013 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Payment Award, Number of Shares Authorized					8,860,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		30,000,000	1,185,400
2013 Plan [Member] | Employment Agreement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	2,622,948
2013 Plan [Member] | Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			30,017,752
2004 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Payment Award, Number of Shares Authorized					2,435,500
Outside of 2013 Plan [Member] | Employment Agreement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	11,622,279

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Industry Risk and Concentration - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Amway Global [Member]
Sales Revenue Goods Net Percentage	14.00%	56.00%
ABG’s Promotional Product Bundle Program [Member]
Sales Revenue Goods Net Percentage	3.00%	14.00%