Optigenex Inc. - Amended Quarterly Report (10-Q/A)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)

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

For the quarterly period ended: March 31, 2008

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

For the transition period _________ to____________

Commission file number: 000-51248

OPTIGENEX INC.

(Exact name of small business issuer as specified in its charter)

Delaware		20-1678933
(State or other jurisdiction of		(IRS Employer I.D. Number)
incorporation or organization)

1170 Valley Brook Avenue, 2 ^nd Floor Suite B, Lyndhurst, NJ 07071

(Address of principal executive offices)

(212) 905-0189

(Issuer’s telephone number)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated file, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o		Accelerated filer o

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 of 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

There were 66,533,776 shares of Common Stock outstanding as of May 12, 2008.

OPTIGENEX INC.

Table of Contents

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements		2

		Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007	2

		Statements of Operations for the three months ended March 31, 2008 and 2007 (unaudited)	3

		Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)	4

		Notes to Financial Statements	5-11

Item 2.	Management's Discussion and Analysis or Plan of Operation		12

Item 3.	Controls and Procedures		19

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		19

Item 6.	Exhibits		19

SIGNATURES			20

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements.

OPTIGENEX INC.

Balance Sheets

	March 31,			December 31,
	2008			2007
	(Unaudited)
ASSETS

Current Assets:
Cash	$	4,335		$	6,758
Accounts receivable, net		619			10,882
Inventories, net		413,369			468,774
Prepaid expenses and other current assets		16,507			16,541
Total current assets		434,830			502,955

Property and equipment, net		17,769			19,868
Intangible assets, net		1,287,370			1,325,859
Other assets		28,758			39,608
Total Assets	$	1,768,727		$	1,888,290

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Accounts payable	$	447,597		$	340,949
Accrued expenses		113,718			45,000
Current portion of callable secured convetible notes		9,271,151			4,513,669
Deferred income		99,900			119,880
Total current liabilities		9,932,366			5,019,498

Callable secured convertible notes, net of debt discount including embedded derivative liability		3,023,492			4,427,067
Common stock warrants		128,802			124,054
Total liabilities		13,084,660			9,570,619

Commitments

Stockholders' deficiency:

Preferred stock - $0.001 par value; 5,000,000 shares authorized, none issued	$	-		$	-

Common stock - $0.001 par value; 100,000,000 shares authorized, 66,533,776 and 52,212,067 issued and outstanding respectively		66,534			52,212

Additional paid-in capital		18,100,628			18,088,319

Accumulated deficit		(29,483,095	)		(25,822,860	)
Total stockholders' deficiency		(11,315,933	)		(7,682,329	)

Total Liabilities and Stockholders' Deficiency	$	1,768,727		$	1,888,290

See notes to financial statements

OPTIGENEX INC.

Statements of Operations - Unaudited

	Three Months Ended
	March 31,
	2008			2007

Net sales	$	195,424		$	117,569

Cost of sales		88,718			43,836

Gross profit		106,706			73,733

Selling, general and administrative		289,603			401,662

Loss from operations		(182,897	)		(327,929	)

Other (income) expense:

Interest expense, net		509,177			1,324,554

Net (income) expense due to change in fair value common stock warrants and derivative liability		2,968,161			(761,811	)

Net loss	$	(3,660,235	)	$	(890,672	)

Net loss per common share - basic and diluted	$	(0.06	)	$	(0.08	)

Weighted-average number of common shares outstanding - basic and diluted		64,645,199			11,150,086

See notes to financial statements

OPTIGENEX INC.

Statements of Cash Flows – Unaudited

	Three Months Ended
	March 31,
	2008			2007

Cash flows from operating activities:
Net cash used in operating activities	$	(2,423	)	$	(241,100	)

Cash flows from investing activities:
Net cash used in investing activities		-			-

Cash flows from financing activities:
Proceeds from the sale of convertible notes		-			250,000
Net cash provided by financing activities		-			250,000

Net increase (decrease) in cash		(2,423	)		8,900
Cash - beginning of year		6,758			153,153
Cash - end of year	$	4,335		$	162,053

Supplemental schedule of cash flow information:

Cash paid for interest	$	-		$	-

Supplemental schedule of non-cash investing and financing activities:

Debt discount in connection with recording value of embedded derivative liability	$	584,062		$	312,500
Allocation of convertible note proceeds to warrants	$	-		$	800,000
Common stock issued in connection with conversion of convertible notes	$	26,631		$	2,043

See notes to financial statements

Optigenix Inc. - Notes to Financial Statements (Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited interim financial statements of Optigenex Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and the requirements of Rule 8.03 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The unaudited interim financial statements for the three month periods ended March 31, 2008 and 2007 include all adjustments (consisting only of those of a normal recurring nature) necessary for a fair statement of the results of the interim period.

The results of operations for the three month period ended March 31, 2008 are not necessarily indicative of the results of operations expected for the year ending December 31, 2008. These financial statements should be read in conjunction with the audited financial statements as of December 31, 2007, and for the year then ended and the notes thereto, which are contained in the Company’s Form 10-KSB for the year ended December 31, 2007, filed with the Securities and Exchange Commission.

The Company maintains cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses on these accounts.

Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.

Inventories are stated at the lower of cost, determined by the average cost method, or market. Inventories consist of (i) raw materials that are purchased from a sole supplier in Brazil and (ii) the Company’s proprietary compound known as AC-11 which is manufactured in Brazil. The Company periodically reviews its inventories for evidence of spoilage and/or obsolescence and removes these items from inventory at their carrying value. An inventory valuation allowance is established when management determines that quantities on hand may exceed projected demand prior to the expiration date of the inventory item.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value.

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

Note 2. Loss per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share gives effect to dilutive options, warrants and other potential common stock outstanding during the period. Potential common stock, consisting of options and warrants outstanding are shown in the table below:

Potential common stock consists of the following:

At March 31,	2008
Stock options		1,664,605
Common stock warrants		120,891,918
Common stock issuable upon conversion of convertible notes (1)		8,792,286,207
Total		8,914,842,730

(1) At March 31, 2008 the Company had Callable Secured Convertible Notes outstanding of $5,099,526. The Notes are convertible into shares of the Company's common stock at the Note Holders' option, at the lower of (i) $3.20 per share or (ii) 60% of the average of the three lowest intra-day trading prices for the common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion date. At March 31, 2008, the Notes would have been convertible into shares of the Company’s common stock at a price of $0.00058. See Note 6 for a complete discussion of the Callable Secured Convertible Notes. The Company does not currently have sufficient authorized common shares to affect the exercise of the stock options or warrants or conversion of the notes.

Note 3. Inventories

Inventories net of reserves consisted of the following components at March 31, 2008 and December 31, 2007:

	March 31, 2008			December 31, 2007
Raw materials	$	789,274		$	789,274
Finished goods		857,095			912,500
Inventory reserve		(1,233,000	)		(1,233,000	)
	$	413,369		$	468,774

The Company recorded an additional inventory valuation allowance of $160,378 at December 31, 2007. This allowance relates to quantities of raw materials and finished goods that management determined would not be sold prior to their respective expiration dates. The inventory reserve at March 31, 2008 is equal to the book value of the inventory items which was $691,355 for raw materials and $541,645 for finished goods.

Note 4. Deferred Income

In July 2007, the Company sold a two-year exclusive license to a new customer in exchange for an upfront fee of $159,840. The entire amount of the license fee was collected as of September 30, 2007. The Company recorded the upfront license fee as deferred income and will amortize it to revenue in equal monthly amounts of $6,660 over the two-year period of the license. During the three months ended March 31, 2008, the Company recorded license fee revenue of $19,980. The balance of deferred income at March 31, 2008 was $99,900.

Note 5. Stockholders’ Deficiency

During the three months ended March 31, 2008, the Note Holders converted a total of $14,322 of Convertible Notes into 14,321,709 shares of the Company's common stock at a conversion price of $0.001 per share.

Note 6. Callable Secured Convertible Notes and Common Stock Warrants

Between August 31, 2005 and April 15, 2008, the Company entered into a series of seven Securities Purchase Agreements with a group of five accredited investors (New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd., AJW Partners, LLC and AJW Master Fund Ltd., collectively the "Note Holders") for the sale of an aggregate of $5,504,062 of Callable Secured Convertible Notes (the "Convertible Notes") and warrants to purchase up to 130,625,000 shares of its common stock (the “Warrants”).

The first five tranches of the Convertible Notes, which were issued between August 31, 2005 and February 14, 2007, bear interest at 8% per annum. Tranche six, which was issued on January 31, 2008 to settle all accrued interest of $584,062 outstanding as of December 31, 2007, bears interest at 2% per annum. Tranche seven, which was issued on April 15, 2008 for $155,000, bears interest at 8% per annum. All notes mature three years from the date of issuance. The Company is not required to make any principal payments during the term of the Convertible Notes. At March 31, 2008, tranche one has been partially converted by the Note Holders.

The Convertible Notes are convertible into shares of the Company's common stock at the Note Holders' option, at the lower of (i) a fixed price which, depending on the note, is between $0.10 and $3.20 per share or (ii) the “Applicable Percentage” (60% for tranches one to six and 45% for tranche seven) of the average of the three lowest intra-day trading prices for the common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion date. In connection with the issuance of tranche seven on April 15, 2008, the Applicable Percentage for tranches one to six was reduced to 45%.

As of March 31, 2008, the average of the three lowest intra-day trading prices for the common stock as quoted on the Over-the-Counter Bulletin Board for the 20 preceding trading days was $0.00097, resulting in an effective conversion price at that date for the tranches outstanding at that date of $0.00058 per share. During the three months ended March 31, 2008, the Note Holders converted a total of $14,322 of the Convertible Notes due August 31, 2008 into 14,321,709 shares of the Company's common stock at a conversion price of $0.001 per share.

The Convertible Notes provide for certain Events of Default, which include non-payment of principal and interest when due and failure to effect registration of the common shares underlying conversion of the Convertible Notes and exercise of the Warrants, if and when required. If an Event of Default occurs, the Holders may demand repayment at the greater of (a) 140% of the “Default Sum”, being principal outstanding, together with accrued interest, default interest due (if any) and registration penalties due (if any) or the “parity value” of the Default Sum, where parity value means (a) the number of shares of Common Stock issuable upon conversion of the Default Sum, treating the trading day immediately preceding the repayment date as the “conversion date” for purposes of determining the applicable conversion price, multiplied by (b) the highest closing price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the repayment date.

If the Convertible Notes are not in default, the Company has the right to prepay the Convertible Notes under certain circumstances at a premium ranging from 35% to 50% of the principal amount, depending on the timing of such prepayment. The Company has granted the Note Holders a security interest in substantially all of the Company's assets.

The 130,625,000 warrants issued (of which 120,625,000 were issued in connection with tranches one to five and 10,000,000 were issued on April 15, 2008 in connection with tranche seven) are exercisable for a period of seven years from the date of issuance and have exercise prices that range from $0.001 per share to $4.50 per share.

The conversion price of the Convertible Notes and the exercise price of the warrants will be adjusted in the event that the Company issues common stock at a price below the initial fixed conversion or exercise price, with the exception of any shares of common stock issued in connection with the Convertible Notes. The conversion price of the Convertible Notes and the exercise price of the warrants may also be adjusted in certain circumstances such as if the Company pays a stock dividend, subdivides or combines outstanding shares of common stock into a greater or lesser number of shares, or takes such other actions as would otherwise result in dilution of the Note Holders' position.

The Note Holders have contractually agreed to restrict their ability to convert their Notes or exercise their Warrants and receive shares of the Company's common stock such that the number of shares of common stock held by the Note Holders and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.

The Company has the right to prepay the entire outstanding balance of the notes under certain circumstances at a premium of up to 50%. The Company also has the right to prepay a portion of the notes (“Partial Call Option”) each month in an amount equal to 104% of the then outstanding principal balance divided by 36, plus one month’s interest. The Company may only prepay the notes in the event that no event of default exists, there are a sufficient number of shares available for conversion of the notes and the market price is at or below $3.20 per share. This partial call option has the effect of preventing the Note Holders from converting their notes into shares of the Company’s common stock in the succeeding month.

As of December 31, 2007, the total amount of accrued but unpaid interest due under the Convertible Notes was $584,062. This amount was settled by the issuance of additional Convertible Notes (tranche six) on January 31, 2008.

Pursuant to Registration Rights Agreements entered into with the Note Holders, the Company may be required to register for resale, within defined time periods, the shares underlying the Warrants and the shares issuable on conversion of the Convertible Notes. The terms of the Registration Rights Agreements provide that, in the event that the required registration statements are not filed or do not become effective within the required time periods, the Company is required to pay to the Note Holders, as liquidated damages, an amount equal to 2% per month of the principal amount of the Convertible Notes. This amount may be paid in cash or, at the Company’s option, in shares of common stock priced at the conversion price then in effect on the date of the payment. The estimated cost of any such liquidated damages is accrued when the Company believes it is probable they will be incurred. The required registration statement for tranches one to three became effective on February 15, 2006. For tranches four to seven, the Company is required to file a registration statement only if requested by the Note Holders. As of May 15, 2008, no request for registration has been received from the Note Holders and, at March 31, 2008, no accrual for liquidated damages has been made.

Because the number of shares that may be required to be issued on conversion of the Convertible Notes is dependent on the price of the Company’s common stock and is therefore indeterminate, the embedded conversion option of the Convertible Notes and the Warrants are accounted for as derivative instrument liabilities (see below) i n accordance with EITF Issue 00-19, "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company's Own Common Stock" (EITF 00-19). Accordingly, the initial fair values of the embedded conversion options and the Warrants were recorded as derivative instrument liabilities. For option-based derivative instruments, the Company estimates fair value using the Black-Scholes valuation model, based on the market price of the common stock on the valuation date, an expected dividend yield of 0%, a risk-free interest rate based on constant maturity rates published by the U.S. Federal Reserve applicable to the remaining term of the instruments , and an expected life equal to the remaining term of the instruments. Because of the limited historical trading period of our common stock, the expected volatility of our common stock over the remaining life of the conversion options and Warrants has been estimated based on a review of the volatility of companies considered by management to be comparable to the Company. The Company is required to re-measure the fair value of these derivative instrument liabilities at each reporting period.

The Company calculated the fair value of the embedded conversion feature related to the $584,062 Convertible Notes issued on January 31, 2008 to be $1,317,265, using the Black-Scholes valuation model with the following assumptions: market price of $0.0018; exercise price of $0.00066, risk free interest rate of 2.27%; expected volatility of 115% and an expected life of 3 years. Because the fair value of the embedded conversion feature exceeded the principal amount of the notes by $733,203, this excess amount was charged directly to expense on January 31, 2008, and the Convertible Notes were initially recorded with no carrying value. The resulting discount from the face amount of the Convertible Notes is being amortized over their three year term using the effective interest rate method.

A summary of the Callable Secured Convertible Notes at March 31, 2008, is as follows:

Issue Date	Due Date		Face Amount		Principal Outstanding

08-31-2005		08-31-2008	$	1,300,000	$	1,050,464

10-19-2005		10-19-2008		1,350,000		1,350,000

02-17-2006		02-17-2009		1,350,000		1,350,000

09-15-2006		09-15-2009		515,000		515,000

02-14-2007		02-14-2010		250,000		250,000

01-31-2008		01-31-2011		584,062		584,062

			$	5,349,062	$	5,099,526
Less: unamortized discount						(1,865,336	)
						3,234,190
Add: embedded derivative liability						9,060,453
						12,294,643
Less: current portion						(9,271,151	)
					$	3,023,492

The current portion represents the net carrying value of tranches one to three, including the embedded derivative liability.

Re-measurement of the fair value of common stock warrants

The Company is required to re-measure the fair value of the Warrants at the end of each reporting period and adjust the carrying value of the liability related to the Warrants. Accordingly, the Company re-measured the fair value of the 120,625,000 Warrants outstanding at March 31, 2008, using the Black-Scholes valuation model with the following assumptions: market price of common stock on the measurement date of $0.0015, exercise prices ranging from $0.07 to $4.50, risk-free interest rates ranging from 1.71% to 2.56%, expected volatility ranging from 125% to 162% and expected lives equal to the remaining term of the warrants, ranging from 2.4 to 5.9 years. This resulted in an aggregate fair value for the 120,625,000 warrants of $128,802 at March 31, 2008. As a result of this re-measurement, for the three months ended March 31, 2008, the Company recorded a non-cash expense of $4,748 related to the re-measurement of the fair value of the Warrants.

Re-measurement of the fair value of the embedded conversion feature

The Company is required to re-measure the fair value of the embedded conversion feature related to the outstanding Convertible Notes on the date of each reporting period. The effect of this re-measurement is to adjust the carrying value of the liability related to the embedded conversion feature. Accordingly, the Company measured the fair value of the embedded conversion feature at March 31, 2008, using the Black-Scholes valuation model with the following assumptions: market price of common stock on the measurement date of $0.0015, exercise price of $0.00058; risk-free interest rates ranging from 1.51% to 1.79%, expected volatility of 115% and expected lives ranging from 0.4 to 2.8 years. This resulted in an aggregate fair value for the embedded conversion feature of $9,060,453 at March 31, 2008. As a result of this re-measurement, the Company recorded a non-cash expense of $2,230,210 for the three months ended March 31, 2008.

In total, for the three months ended March 31, 2008, the Company recorded non-cash expense of $2,968,161 related to the net change in the fair value of the liabilities related to the Warrants and embedded conversion feature.

Note 7. Stock Based Compensation

In July 2004, the Board of Directors and then sole stockholder of the Company adopted the 2004 Stock Incentive Plan, pursuant to which 5,000,000 shares of common stock have been reserved for issuance. The plan provides for grants of incentive stock options, non-qualified stock options and shares of common stock to employees, non-employee directors and others. In the case of an incentive stock option, the exercise price cannot be less than the fair market value of the Company's common stock on the date of grant. Vesting schedules for options and stock awards and certain other conditions are to be determined by the Board of Directors or a committee appointed by the Board of Directors.

The Company did not issue any stock options during the three months ended March 31, 2008 and 2007.

The following table summarizes the stock option activity for the three months ended March 31, 2008:

	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at December 31, 2007		1,664,605	$	2.44
Granted		—		—
Exercised		—		—
Forfeited/Cancelled		449,395	$	1.69
Outstanding at March 31, 2008		1,215,210	$	2.72	$	5.00
Exercisable at March 31, 2008		1,215,210	$	2.72	$	5.00
Vested and expected to vest at March 31, 2008		1,215,210	$	2.72	$	5.00

A summary of the status of the Company’s non-vested stock options as of March 31, 2008, and changes during the three months ended March 31, 2008, is presented below:

	Number of Options		Weighted Average Option Price
Non-vested at December 31, 2007		—		NA
Granted		—		NA
Vested		—		NA
Forfeited/Cancelled		—		NA
Outstanding at March 31, 2008		—		NA

The following table summarizes information about stock options outstanding and exercisable at March 31, 2008:

	Options Outstanding						Options Exercisable
Exercise prices	Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable		Weighted average exercise price
$0.001		9,210		.66	$	0.001		9,210	$	0.001
$0.01		16,000		1.50	$	0.01		16,000	$	0.01
$0.30		100,000		1.15	$	0.30		100,000	$	0.30
$3.00		1,090,000		1.42	$	3.00		1,090,000	$	3.00
$0.001 - $3.00		1,215,210		1.39	$	2.72		1,215,210	$	2.72

Note 8. Going Concern

The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has experienced a significant loss from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the three months ended March 31, 2008, the Company had a net loss of $3,660,235 and had working capital and stockholders’ deficits of $9,497,536 and $11,315,933, respectively at March 31, 2008.

The Company’s ability to continue as a going concern is contingent upon its ability to secure additional financing, increase ownership equity and achieve profitable operations. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates.

The Company is pursuing financing for its operations and seeking additional private investments. In addition, the Company is seeking to expand its revenue base. Failure to secure such financing or to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Note 9. Subsequent Event

On April 15, 2008, the Company entered into four (4) Callable Secured Convertible Notes (the “Notes”) with its existing note holders for working capital purposes. The aggregate principal amount of these notes was $155,000. The Notes carry an interest rate of 8% per annum and mature on April 15, 2011. At the election of the note holder, the Notes are convertible into shares of the Company’s common stock at the lesser of (i) $3.20 or (ii) 45% of the average of the three lowest intra-day trading prices for the Company’s common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion date. The Company also granted the note holders warrants to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $0.001. The warrants expire seven years from the date of issuance.

Simultaneously on April 15, 2008, the Company amended all previously executed Notes with its note holders to reduce the Applicable Percentage under such Notes from 60% to 45%. The aforementioned notes were entered into on August 31, 2005, October 19, 2005, February 14, 2006, September 15, 2006, February 12, 2007 and January 31, 2008.

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

The following discussion should be read in conjunction with our consolidated financial statements including the notes thereto contained in this report. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking information that involves risks and uncertainties.

Cautionary Note Regarding Forward Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements for purposes of the securities laws. Forward-looking statements include all statements that do not relate solely to the historical or current facts, and can be identified by the use of forward looking words such as "may", "believe", "will", "expect", "expected", "project", "anticipate", "anticipated", "estimates", "plans", "strategy", "target", "prospects" or "continue". These forward looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results, performances or achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include those in this report on Form 10-Q. In making these forward-looking statements, we claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Reform Act of 1995. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.

Overview

We supply bulk material and finished products featuring our patented and wholly natural compound AC-11® (“AC-11”) as a core ingredient to wholesale distributors, skin care and nutrace u tical marketing companies. These companies create their own private labeled products utilizing our compound and technology for the retail market . In addition, we license our technology and trademark to third party marketers and manufacturers of skin care and nutraceutical products .

The decision to purchase our patented ingredient and license our technology is driven in large part by the scientific and clinical evidence validating the safety and efficacy of AC-11. In third party studies AC-11 has been shown to repair damage to DNA due to multiple factors including; over exposure to the sun, environmental pollution, stress and other toxins. In addition, AC-11 has demonstrated effectiveness as an inhibitor of pro-inflammatory agents and as an immune system enhancer.

AC-11 is a bioactive form of the medicinal herb known as Uncaria tomentosa which is indigenous to the Amazon rainforest and other tropical areas of South and Central America. AC-11 is manufactured using our specialized equipment and patented process by the Centroflora Group of Sao Paulo, Brazil, to deliver a unique alkaloid free, water soluble extract, standardized to an 8% carboxyl alkyl ester concentration. This facility complies with worldwide, voluntary standards for quality management and Good Manufacturing Practices .

In October of 2007 we discontinued our direct to consumer sales of Activar AC-11 oral nutritional supplements through our Internet website www.AC-11.com . The decision to cease sales through this channel was influenced by the exclusive rights we granted to Solgar Herb and Vitamin to market AC-11 supplements to the retail market. We have no plans to re-introduce the Activar AC-11 oral supplement through our Internet site in the near future.

We sell AC-11 as a bulk ingredient to companies in the nutraceutical , cosmeceutical , skin care and hair care industries. Although we have executed bulk ingredient supply and trademark license agreements with customers such as Itochu Corporation (Tokyo, Japan), Solgar Herb and Vitamin Company and Life Extension, we continue to be highly dependent on a small base of customers that purchase bulk AC-11 as an ingredient and as such, these customers make purchases from us only when required to do so in connection with their manufacturing cycle and market demand. We rely on independent commissioned sales people, consultants and management to introduce us to prospective marketing partners and customers.

We have developed a line of proprietary topical skin care products which contain AC-11 as an active ingredient. C onsist ing of a day cream, night cream and eye cream the products are designed to repair damage to the skin due to multiple causes including; exposure to ultraviolet rays, stress and pollution while enhancing skin elasticity, and reducing wrinkles and other visible signs of aging. Our products are marketed to appeal to a targeted demographic audience which includes women ages 30 and over. These skin care products are manufactured for us by Celmark, a division of Garden State Nutritional .

We are currently in discussions with wholesale marketing companies who may distribute our manufactured skin care products to the retail consumer. Also, through our partner Itochu Corporation Tokyo and on a direct basis, we are exploring strategies to license our technology and trademark (AC-11®) for use in a variety of skin care products containing our patented ingredient. We plan to seek other wholesale channels of distribution for bulk AC-11 , manufactured skin care skin care products and our technology to distribution networks both domestically and in international markets.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, we evaluate our estimates, including those related to collection of accounts receivable, inventory obsolescence, sales returns and non-monetary transactions such as stock based compensation, impairment of intangible assets and derivative liabilities related to convertible notes payable. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Actual results may differ from these estimates.

We have identified the following critical accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations.

Accounts Receivable and Bad Debt Expense

Accounts receivable are reported at their outstanding unpaid principal balances net of an allowance for doubtful accounts. We estimate bad debt expense based upon past experience related to specific customers' ability to pay and current economic conditions. At March 31, 2008, our allowance for doubtful accounts was approximately $27,000.

Inventory

Our inventories are stated at the lower of cost, determined by the average cost method, or market. Our inventories consist of raw materials that we purchase from a sole supplier in Brazil and our proprietary compound known as AC-11 which is manufactured in Brazil. We periodically review our inventories for evidence of spoilage and/or obsolescence and we remove these items from inventory at their carrying value. During 2007, we incurred inventory write-offs of approximately $174,000 as follows: (i) $162,000 of obsolete inventory which consisted of finished skin care products; (ii) $12,000 of bulk AC-11 which was damaged. An inventory valuation allowance is established when we determine that quantities of inventory items on hand may exceed projected demand prior to the expiration date of such inventory items. At December 31, 2007, we recorded an inventory allowance of approximately $161,000 related to the book value of finished goods that we determined may not be sold prior to their respective expiration dates. At March 31, 2008, our inventory valuation allowance is $1,233,000.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the rights and risks of ownership have passed to the customer, the price is fixed and determinable, and collection of the resulting receivable is reasonably assured. For arrangements that include customer acceptance provisions, revenue is not recognized until the terms of acceptance are met.

We estimate an allowance for product returns at the time of shipment based on historical experience. In 2007, product returns were negligible. We monitor our estimates on an ongoing basis and we may revise our allowance for product returns to reflect recent experience. To date, we have not made any significant changes in our allowance for returns. Products returned as a result of damage incurred during shipment are replaced at our cost. We do not estimate an allowance for returns due to damage as historically the level of returns has been negligible. For our bulk sales of AC-11, our standard return policy provides for a reimbursement of the full purchase price for any bulk AC-11 that does not conform with the stated specifications. We must receive notification of a return request within 30 days from the date that the customer accepts delivery

Intangibles

We account for long-lived assets and certain identified intangible assets such as patents and trademarks in accordance with Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Management reviews these long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. We monitor our projections of expected future net cash flows on an ongoing basis. If we determine that our projections require revision due to specific events such as a delayed product launch or a change in our product mix, or changes in economic conditions, we may incur additional write-offs. We did not incur an impairment charge in 2007 or during the three months ended March 31, 2008.

Derivative Instrument Liabilities related to Convertible Notes and Warrants

In connection with the sale of convertible notes and warrants on August 31, 2005, October 17, 2005, February 17, 2006, September 15, 2006, February 14, 2007 and January 31, 2008, we determined that in accordance with EITF No. 00-19, "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company's Own Stock," and SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," that the conversion feature of the convertible notes represents an embedded derivative. As such, we are required to estimate the fair value of the embedded derivative and the warrants at of the end of each reporting period and these values are recorded as liabilities. We estimate fair value using the Black-Scholes option pricing model. This model requires us to make estimates such as the expected holding period, the expected future volatility of our common stock and the risk-free rate of return over the holding period. These estimates directly affect the reported amounts of the derivative instrument liabilities.

Employee Stock Options and Stock Based Compensation

We account for stock-based compensation in accordance with the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

RESULTS OF OPERATIONS

For the three months ended March 31, 2008 compared to the three months ended March 31, 2007.

Net Sales

Our net sales are derived primarily from the sale of AC-11 as a bulk ingredient to other companies in the nutritional supplement and cosmeceutical industries who utilize it in their own proprietary products. During 2007, we also sold our line of proprietary skin care products which contain AC-11 as a core ingredient to domestic and international distributors. Currently we do not sell our skin care products direct to consumers. In October 2007, we discontinued our direct to consumer sales of our Activar AC-11 oral nutritional supplements through our Internet website. The decision to cease sales through this channel was influenced by the exclusive rights we granted to Solgar Herb and Vitamin to market their own proprietary AC-11 supplements to the retail market. We have no plans to re-introduce the Activar AC-11 oral supplement through our Internet site in the near future.

Net sales for the three months ended March 31, 2008 were $195,424 compared to net sales of approximately $117,569 for the three months ended March 31, 2008, an increase of $77,855 or 66.2%. Our net sales by product category are summarized in the following table:

	Three Months Ended March 31,				$			%
	2008		2007		Inc/(Dec)			Inc/(Dec)
Activar AC-11	$	16,200	$	8,858	$	7,342			82.9	%
Bulk AC-11		158,625		102,096		56,529			55.4	%
Skin Care Products		—		6,000		(6,000	)		(100.0	)%
License Fee		19,980		—		19,980			NA
Other		619		615		4			0.00	%
Net Sales	$	195,424	$	117,569	$	77,855			66.2	%

Sales of bulk AC-11 increased $56,529 for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. This increase was primarily due to a sale made to a new customer in 2008.

In July 2007, we sold a two-year exclusive trademark license in exchange for an upfront fee of $159,840. We recorded the upfront license fee as deferred income and we will amortize it to revenue in equal monthly amounts of $6,660 over the two-year period of the license. During year three months ended March 31, 2008, we recorded license fee revenue of $19,980. The balance of deferred income at March 31, 2008 was $99,900.

Cost of Sales

Cost of sales includes direct and indirect costs associated with manufacturing AC-11 and our line of nutritional supplement and skin care products that contain AC-11 as an ingredient. Cost of sales was $88,718 and $43,836 for the three months ended March 31, 2008 and 2007, respectively. Gross profit as a percentage of net sales was 54.6% for the three months ended March 31, 2008 compared to 62.7% for the comparable period in 2007. The decrease in gross profit percentage was due primarily to a sale made to a new customer which carried a lower price than sales made to existing customers.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses include salaries, employee benefits, marketing and advertising costs, professional fees related to scientific research, legal and accounting fees, rent and other office related expenses. Also included in SG&A are various non-cash expenses such as depreciation, amortization of intangible assets including patents and other intellectual property, and stock-based compensation.

The table below highlights the major components of our SG&A expenses:

	Three Months Ended March 31,				$			%
	2008		2007		Inc/(Dec)			Inc/(Dec)
Employee compensation and benefits	$	44,789	$	58,991	$	(14,202	)		(24.1	)%
Marketing, advertising and promotion		62,708		62,948		(240	)		(0.4	)%
Research and development		—		4,564		(4,564	)		(100.0	)%
Consulting and other professional services		21,800		16,129		5,671			35.2	%
Legal and accounting		62,145		110,969		(48,824	)		(44.0	)%
General and administrative		30,748		57,367		(26,619	)		(46.4	)%
Occupancy		15,975		30,646		(14,671	)		(47.9	)%
Depreciation and amortization		51,438		60,048		(8,610	)		(14.3	)%
Total SG&A	$	289,603	$	401,662	$	(112,059	)		(27.9	)%

In total, SG&A expenses decreased $112,059 or 27.9% from $401,662 for the year ended March 31, 2008 to $289,603 for the three months ended March 31, 2008. Areas where we achieved significant cost savings are as follows:

Employee compensation expense decreased $14,202 or 24.1% in 2008 compared to 2007. This decrease is due to a reduction in the number of full-time employees from two in 2007 to one in 2008.

Legal and accounting expenses decreased $48,824 or 44.0% in 2008 compared to 2007. This decrease is due primarily to a reduction in legal fees related to the maintenance of our patent portfolio.

General and administrative expenses decreased $26,619 or 46.4% in 2008 compared to 2007. This decrease was due to a reduction in insurance costs and travel and entertainment expenses.

Occupancy costs decreased $14,671 or 47.9% in 2008 compared to 2007 due to the relocation of our office from New York City to Lyndhurst, New Jersey.

Interest Expense

Interest expense for the three months ended March 31, 2008 was $509,177 compared to $1,324,554 in the comparable period in 2007. Of the total in 2008, $417,125 was non-cash interest expense resulting from the accounting treatment of our convertible notes. The remaining $92,052 was interest due under the convertible notes and was included in accrued expenses at March 31, 2008. This amount was due and payable on April 1, 2008. As of May 20, 2008, we have not paid such amount to the holders of our convertible notes. The failure to pay interest constitutes an event of default under the convertible note agreements by and between us and our note holders however, as of May 20, 2008, we have not received and notice of default from the note holders. In the event we receive a notice a notice of default and we are unable to timely cure the default, we would be required to pay additional interest to the note holders on the unpaid principal balance at the default rate of 15% until the default is cured.

Net Change in Value of Common Stock Warrants and Embedded Derivative Liability

We are required to measure the fair value of the warrants and the embedded conversion feature related to our convertible notes on the date of each reporting period. The effect of this re-measurement is to adjust the carrying value of the liabilities related to the warrants and the embedded conversion feature. Accordingly, during the three months ended March 31, 2008, we recorded non-cash other expense of $2,968,161 related to the increase in the fair value of the warrants and embedded derivative liabilities.

Net Loss

Net loss for the three months ended March 31, 2008 was $3,660,235 or $0.06 per share, compared to a net loss of $890,672 or $0.08 per share for the three months ended March 31, 2007. The increase in net loss was due primarily to the non-cash expense we incurred related to the change in the fair value of the derivate liability related to the embedded conversion feature of our convertible notes.

LIQUIDITY AND CAPITAL RESOURCES

Based upon our recurring losses from operations, an accumulated deficit of $29,483,095 as of March 31, 2008, our current rate of cash consumption and the uncertainty of liquidity related initiatives described below, there is substantial doubt as to our ability to continue as a going concern. Future losses are likely to continue unless we successfully implement our business plan. At March 31, 2008, we had cash of $4,335 and a net working capital deficit of $9,497,536. We have callable secured convertible notes in the principal amounts of $1,050,464, $1,350,000 and $1,350,000 that are due and payable on August 31, 2008, October 19, 2008, and February 17, 2009, respectively. We do not anticipate having the necessary cash available to repay these amounts when due.

On April 1, 2008, we were required to pay $92,052 of interest which was due under our convertible notes. This interest was for the period from January 1, 2008 through March 31, 2008. As of May 20, 2008, we have not paid such amount to the holders of our convertible notes. The failure to pay interest constitutes an event of default under the convertible note agreements by and between us and our note holders however, as of May 20, 2008, we have not received and notice of default from the note holders. In the event we receive a notice a notice of default and we are unable to timely cure the default, we would be required to pay additional interest to the note holders at the default rate of 15% on the unpaid principal balance and until the default is cured.

On January 31, 2008, we entered into three (3) callable secured convertible notes with our existing note holders for the purpose of capitalizing interest owed under all previously executed notes dated August 31, 2005, October 19, 2005, February 14, 2006, September 15, 2006 and February 12, 2007. The aggregate principal amount of the three notes is $584,062 which was equal to the aggregate amount of interest owed to the note holders as of December 31, 2007. We did not receive any funds in connection with entering into these notes. The notes carry an interest rate of 2% and a maturity date of January 31, 2011 and are convertible into shares of our common stock at 60% (the “Applicable Percentage”) multiplied by the average of the three lowest intra-day trading prices for our common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion date. The full principal amount of the notes is due upon the occurrence of an event of default. Interest on the notes is paid quarterly in arrears.

On April 15, 2008, we entered into a Securities Purchase Agreement with our four existing note holders for the sale of $155,000 in callable secured convertible notes and warrants to purchase 10,000,000 shares of our common stock. The notes bear interest at 8% and mature on April 15, 2011. We are not required to make any principal payments during the term of the notes. The notes are convertible into shares of our common stock at the note holders' option, at the lower of (i) $0.10 per share or (ii) 45% (the “Applicable Percentage”) multiplied by the average of the three lowest intra-day trading prices for our common stock as quoted on the Over-the-Counter Bulletin Board for the 20 trading days preceding the conversion date. The full principal amount of the notes is due upon the occurrence of an event of default. Interest on the notes is paid quarterly in arrears.

The warrants are exercisable for a period of seven years from the date of issuance and have an exercise price of $0.001 per share. In addition, the conversion price of the notes and the exercise price of the warrants will be adjusted in the event that we issue common stock at a price below the fixed conversion price of $0.001, with the exception of any shares of common stock issued in connection with the notes. We have the right to prepay the entire outstanding balance of the notes under certain circumstances at premiums ranging from 35% to 50%. We also have the right to prepay a portion of the notes each month in an amount equal to 104% of the then outstanding principal balance divided by 36, plus one month’s interest.

In connection with entering into the notes on April 15, 2008, we also amended all previously executed notes with our existing note holders to increase the discount to market that the note holders reduce the Applicable Percentage under such notes from 60% to 45%. The aforementioned notes were entered into on August 31, 2005, October 19, 2005, February 14, 2006, September 15, 2006, February 12, 2007 and January 31, 2008.

As a result of this sale of additional notes, at April 30, 2008, we have an aggregate of $5,254,526 of callable secured convertible notes outstanding, which may hinder our ability to raise additional debt or equity capital. In addition, we have granted a security interest in substantially all of our assets to the holders of the notes. If we were required to repay all or a portion of the outstanding balance of the notes in cash due to the occurrence of an event of default, we would be required to raise additional funds in the event that we do not have sufficient cash available. There can be no assurance that any additional financing will be available when needed, on commercially reasonable terms or at all. If we were to seek asset based financing, we would need the approval of the existing note holders which we may not receive. Any additional equity financing may involve substantial dilution to our then existing shareholders. Consequently, if we were unable to repay the notes, the note holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.

We plan to seek other channels of wholesale distribution for our nutritional supplement product, bulk AC-11 and proprietary skin care products such as multi-level marketing organizations and other distribution networks both domestically and in certain international markets. Future sales generated from our products will depend on numerous factors including the degree to which consumers' perceive that these products offer superior benefits compared to other more established brands. If consumers do not believe that our products offer benefits commensurate with the purchase price, our sales may suffer.

We maintain high levels of inventory relative to our historical product sales. We intend to aggressively market our existing inventory of bulk AC-11 in order to convert this inventory into cash. The shelf life of our bulk AC-11 is approximately three years from the date of processing. In October 2006, we began testing certain lots of our existing inventory of bulk AC-11 using established and accepted protocols to determine the stability of the active ingredient and its microbiology profile. We contracted with an independent laboratory to perform these tests. Based on the results of this testing, we extended the shelf life of these specific lots for an additional 24 month period. As a result, the earliest expiration date for our inventory of bulk AC-11 is December 2008. In the event that future lots are retested and the test results indicate that the active ingredient and/or microbiology profile do not meet our specifications, we will be required to write-off the value of this inventory. We are unable to predict the likelihood at this time of future write-offs related to our bulk inventory however at December 31, 2007, we incurred an allowance for inventory obsolescence of approximately $174,000 to reflect the uncertainty of being able to sell our existing inventory prior to its expiration.

Given our limited cash on hand, we have taken steps to decrease the amount of cash required to fund our existing operations. We estimate that we will require approximately $900,000 over the next twelve months or $75,000 per month to fund our existing operations. These costs include (i) compensation and healthcare benefits for our full-time employee, (ii) compensation for consultants who we deem critical to our business, (iii) general office expenses including rent and utilities, (iv) insurance, (v) outside legal and accounting services and, (vi) order fulfillment operations.

We currently do not have the required cash on hand and therefore, we will be relying on product sales to augment our existing cash. In addition, this estimated “burn-rate” does not include costs related to (i) marketing and advertising our products, (ii) cash needed to satisfy existing accounts payable, (iii) research and new product development and; (iv) interest payable under our notes.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable

Item 4T. Controls and Procedures.

a) Evaluation of Disclosure Controls and Procedures: As of March 31, 2008, an evaluation was carried out under the supervision and with the participation of Daniel Zwiren, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures. The system of disclosure controls and procedures was designed to be effective at a reasonable assurance level. Based on that evaluation, Mr. Zwiren has concluded that our disclosure controls and procedures are effective at the reasonable assurance level to timely alert him of information required to be disclosed by us in reports that we file or submit under the Securities Act of 1934. During the quarter ended March 31, 2008, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

b) Changes in internal controls: There were no changes in internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Item 6. Exhibits.

Exhibit No.		Title

31.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

Dated: September 10, 2008