Genosys 10QSB 2008 Q2 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10QSB

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended May 31, 2008

[  ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for

the transition period from ________________ to __________________.

Commission File Number 000-49817

GENOSYS, INC.

(Exact Name of Small Business Issuer as specified in its Charter)

Utah	87-0671592
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

280 West Riverpark Dr., Provo, UT 84604

(Address of principal executive offices, including zip code)

(801) 623-4751

(Registrant’s telephone number, including area code)

Check whether the Issuer (1) 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 Issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ  No¨    

Indicate by check mark whether the Issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes¨  Noþ

Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years

Not applicable.

Check whether the Issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Not applicable.

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Applicable Only to Corporate Issuers

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

Class	Outstanding as of July 14, 2008
Common Stock, $0.001 par value	46,120,276 shares

Documents Incorporated by Reference:  See Part II, Item 6.

Transitional Small Business Issuer Format:  Yes [   ]  No [X]

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TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1:  Financial Statements

Condensed Consolidated Balance Sheets

As of May 31, 2008, and November 30, 2007

 4

Condensed Consolidated Statements of Operations

For the three and six months ended May 31, 2008, and May 31, 2007  

  5

Condensed Consolidated Statements of Cash Flows

For the three and six months ended May 31, 2008, and May 31, 2007

  6

Notes to Condensed Consolidated Financial Statements

  7

Item 2:  Management’s Discussion and Analysis or Plan of Operation

  9

Item 3:  Controls and Procedures

13

PART II – OTHER INFORMATION

Item 1:  Legal Proceedings

14

Item 2:  Unregistered Sale of Equity Securities and Use of Proceeds

14

Item 3:  Defaults upon Senior Securities

14

Item 4:  Submission of Matters to a Vote of Security Holders

14

Item 5:  Other Information

14

Item 6:  Exhibits

14

Signatures

16

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PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements.

GENOSYS, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS		May 31, 2008 (Unaudited)		November 30, 2007 (Audited)
Current assets:
Cash and cash equivalents	$	21,288	$	280,105
Prepaid expenses		41,182		3,872
Total current assets		62,470		283,977
Property and equipment, net of accumulated depreciation  and amortization of $77,091 and $54,457, respectively		129,763		151,376
Patents, net of amortization of $6,334 and $3,237, respectively		63,635			39,189
TOTAL ASSETS	$	255,868	$		474,542
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	56,726	$		13,151
Accounts payable, Related party		-			13,340
Accrued liabilities		90,336			14,307
Taxes payable		-			100
Total current liabilities		147,062			40,898
Total liabilities		147,062			40,898
Stockholders’ equity:
Common stock, $.001 par value; 100,000,000 shares authorized, 46,120,276 and 45,881,600 shares issued and outstanding at May 31, 2008 and November 30, 2007, respectively		46,120			45,882
Additional paid-in capital		3,126,237			2,813,440
Accumulated deficit		(77,924)			(77,924)
Deficit accumulated in the development stage		(2,985,627)			(2,347,754)
Total stockholders’ equity		108,806			433,644
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	255,868	$		474,542

See accompanying notes to condensed consolidated financial statements.

4

GENOSYS, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

										From Beginning of
										Development Stage
		For the Three Months				For the Six Months				(June 30, 2005)
		Ended May 31,				Ended May 31,				To May 31,
		2008		2007		2008		2007		2008
Revenues	$	-	$	-	$	-	$	-	$	-
Cost of sales		-		-		-		-		-
Gross margin		-		-		-		-		-
Operating expenses:
Research and development		156,832		110,823		330,702		198,923		1,550,159
General and administrative		141,793		116,695		309,504		232,489		1,586,127
Total operating expenses		298,625		227,518		640,206		431,412		3,136,286
Net income (loss) from operations		(298,625)		(227,518)		(640,206)		(431,412)		(3,136,286)
Other income (expense):
Interest income		375		5,696		2,332		14,171		82,150
Gain (loss) on disposal of asset		-		-		-		(414)		(414)
Other income (expense)		-		-		-		100		100
Total other income (expense), net		375		5,696		2,332		13,857		81,836
Net income (loss) before income taxes		(298,250)		(221,822)		(637,874)		(417,555)		(3,054,450)
Provision (benefit) for income tax		-		-		-		-		300
Income (loss) from continuing
operations		(298,250)		(221,822)		(637,874)		(417,555)		(3,054,750)
Discontinued operations:
Loss from discontinued
operations, net of tax		-		-		-		-		(2,131)
Gain on disposal of discontinued
operations, net of tax		-		-		-		-		71,253
Net income (loss)	$	(298,250)	$	(221,822)	$	(637,874)	$	(417,555)	$	(2,985,628)
Basic and diluted loss per share
from continuing operations	$	(.01)	$	(.01)	$	(.01)	$	(.01)	$	(.07)
Basic and diluted loss per share
from discontinued operations	$	-	$	-	$	-	$	-	$	-
Basic and diluted loss per share	$	(.01)	$	(.01)	$	(.01)	$	(.01)	$	(.07)
Basic and diluted weighted average number of common shares outstanding		45,962,015		45,668,031		45,921,474		45,668,031		45,194,972

See accompanying notes to condensed consolidated financial statements.

5

GENOSYS, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		For the Six Months Ended May 31, 2008		For the Six Months Ended May 31, 2007		From Beginning of Development Stage (June 30, 2005) to May 31, 2008
Cash flows from operating activities:
Net loss	$	(637,874)	$	(417,555)	$	(2,985,628)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		25,731		21,586		83,912
Gain on the disposal of discontinued    operations		-		-		(71,253)
Loss on disposal of equipment		-		414		414
Stock-based compensation		187,500		-		326,240
Decrease in cash from discontinued operations		-		-		(6,020)
Stock issued for services		8,536		-		278,536
Changes in operating assets and liabilities:
(Increase) Decrease in prepaid expenses		(37,310)		45,231		(41,056)
Increase (Decrease) in accounts payable		43,575		27,905		56,725
Increase (Decrease) in related party liabilities		(13,340)		25,000		-
Increase (Decrease) in accrued liabilities		75,929		(44,432)		90,136
Increase (Decrease) in tax payable		-		-		200
Net cash used in operating activities		(347,253)		(341,851)		(2,267,794)
Cash flows from investing activities:
Purchase of intangible assets		(27,543)		(20,710)		(69,672)
Purchase of equipment		(1,021)		(18,200)		(207,501)
Net cash provided by (used in) investing     activities		(28,564)		(38,910)		(277,173)
Cash flows from financing activities:
Issuance of common stock for cash		117,000		-		2,538,104
Cash from discontinued operations		-		-		(19,777)
Net cash provided by financing activities		117,000		-		2,518,327
Net increase (decrease) in cash		(258,817)		(380,761)		(26,640)
Cash at beginning of the period		280,105		904,715		47,928
Cash at end of the period	$	21,288	$	523,954	$	21,288
Supplemental Disclosure Information
Cash paid during the year for:
Interest	$	-	$	-	$	750
Income/franchise  taxes		-		-		200
Stock issued for services		-		-		270,000

See accompanying notes to condensed consolidated financial statements.

6

GENOSYS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)

Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Security and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows as of the dates and for the periods presented herein have been made.  

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s November 30, 2007 Annual Report on Form 10-KSB. The results of operations for the three and six months ended May 31, 2008, are not necessarily indicative of the operating results that may be expected for the year ending November 30, 2008. The Company’s significant accounting policies are set forth in Note 1 to the consolidated financial statements in the November 30, 2007 Annual Report on Form 10-KSB.

The Company’s working capital requirements for the foreseeable future will vary based upon a number of factors, including the costs to complete development work, the cost of bringing its products to commercial viability, the timing of the market launches of its products and the level of sales after introduction into the market place.  As of May 31, 2008, the Company had accounts payable and accrued liabilities totaling $147,062.  At May 31, 2008, the Company had cash and cash equivalents $21,288.  Management believes that existing cash and cash equivalents will not be sufficient to meet the Company’s cash requirements during the next 12 months, and is actively engaged in efforts to raise additional funds.  However, there is no assurance that additional funding will be available on favorable terms, if at all.  If the Company fails to obtain additional funding when needed, the Company’s business and financial condition may be adver sely affected.

(2)

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of GeNOsys, Inc. and its wholly-owned subsidiary, GeNOsys, Inc., a Nevada corporation.  All significant intercompany accounts and transactions have been eliminated in consolidation.

(3)

Recent Accounting Pronouncements

FASB 162 – In May 2008 the Financial Accounting Standard Board (“FASB”) released Statement of Financial Accounting Standards No 162, The Hierarchy of Generally Accepted Accounting Principles (“FASB 162”).  FASB 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the “GAAP hierarchy”).  FASB believes that the GAAP hierarchy should be directed to entities because it is the entity, not its auditor,  that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.  Accordingly, FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued this Statement to achie ve that result.  FASB 162 becomes effective 60 days following the SEC’s approval of the Public Accounting Oversight Board amendment to AU Section 411.  

The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operations, financial position or cash flows.  Based on that review, it believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.

(4)

Stock-Based Compensation

On March 23, 2007, the GeNOsys, Inc. 2007 Stock Option Plan (“Stock Plan”) was approved by the Board

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of Directors and became effective on that date, subject to the Stock Plan being approved by the stockholders at the annual meeting.  The Stock Plan provides that 3,000,000 shares of the Company’s authorized but unissued common stock be reserved pursuant to the terms and conditions of the plan.  On June 27, 2007, the annual meeting of stockholders was held, at which time the stockholders approved the Stock Plan.  The Stock Plan allows the Company, under the direction of the Compensation Committee, to make broad-based grants of stock options, any of which may or may not require the satisfaction of performance objectives, to employees, consultants and non-employee directors.   In June and July 2007, the Board of Directors approved stock option grants to purchase 1,100,000 shares of common stock to certain employees, directors and consultants, resulting in a non-cash charge of $574,321.  In November 2007, the Board of Directors ap proved an additional grant of 100,000 options to an employee resulting in a non-cash charge of $57,737.  In December 2007, the Board of Directors approved an additional grant of 600,000 options to a consultant resulting in a non-cash charge of $271,598.  All of these non-cash charges are being expensed ratably over the shorter of the vesting period or the requisite service period of the stock option grants.    

A summary of the status of the Company’s option plans as of December 1, 2007, and changes during the three months ended May 31, 2008, is presented below:

	Shares		Wtd. Avg. Exercise Prices		Wtd. Avg. Remaining Contractual Life			Intrinsic Value
Outstanding at beginning of year		1,200,000		$.66		9.43 years
Granted		600,000		.72		9.73 years
Forfeited		-		-
Outstanding at May 31, 2008		1,800,000		$ .68		9.34 years	.09
Exercisable at May 31, 2008		275,000		.66		9.34 years	.09
Non-vested at May 31, 2008		1,525,000		.66		9.34 years	.09

The following table summarizes information about stock options outstanding at May 31, 2008:

		Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding as of May 31, 2008		Wtd. Avg. Remaining Contractual Life	Wtd. Avg. Exercise Price	Number Exercisable as of May 31, 2008		Wtd. Avg. Exercise Price
$      .66	1,100,000		9.12 years	$         .66	250,000		$        .66
$      .71	100,000		9.48 years	$         .71	25,000		$        .71
$      .72	600,000		9.73 years	$         .72	-		$        .72
	1,800,000			$         .68	275,000		$         .68

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model.   The use of this valuation model requires the use of accounting judgment and financial estimates, including estimates of the expected term employees will retain their vested warrants before exercising them, the estimated volatility of our stock price, and the number of warrants that will be forfeited prior to the completion of their vesting requirements.  Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in our statements of operations.  The following weighted-average assumptions used for grants in fiscal year 2007: average risk-free interest rate of 5.25%; expected lives of 10 years; expected dividend yield of zero percent; expected volatility of 68.88%.  The assumptions used f or the December 3, 2007 grant were:  average risk-free interest rate of 3.89%; expected live of 6.50 years; expected dividend yield of zero percent; expected volatility of 62.75%.  For the three and six month period ended May 31, 2008 the Company recognized stock based compensation expense of $187,500.  There were no stock based compensation expenses in the comparable periods in 2007.  As of May 31, 2008, total stock based compensation related to nonvested awards not yet recognized was $483,301 with a weighted average recognition period of 9.34 years.

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(5)

Going Concern

The Company has accumulated losses since inception and has not yet been able to generate profits from operations.  Operating capital has been raised through the sale of common stock.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management plans include further development and production of portable, medical gas generators.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(6)

Prepaid Expenses

Prepaid expenses consist primarily of payments made for consulting and professional fees which will be utilized within the next 90 to 120 days.

(7)

Basic and Diluted Net Loss Per Common Share

Both basic and diluted net loss per share for the periods ending May 31, 2008 and 2007 are based on the net operating loss for the period divided by the weighted average number of common shares outstanding for the period.  The Company’s common stock equivalents at period end were anti-dilutive and therefore excluded from the computation.

(8)

Common Stock

During the months of April and May, 2008, the Company issued 210,000 shares of common stock for cash proceeds of $105,000.  

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

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements included in our Form 10-KSB Annual Report for the year ended November 30, 2007, and notes thereto.

Overview

We are a medical research and development company that is specializing in pharmaceutical, bio-technical and medical gas generating systems.  The primary gas our systems will generate is nitric oxide, along with other various combinations of beneficial medical gases suitable for the treatment of human diseases.

Nitric oxide gas is produced and sold commercially by major gas companies as a specialty gas mixture and calibration gas.  Nitrogen dioxide is present in all nitric oxide gas currently produced; that limits the size of the dose

of nitric oxide gas that can be administered to humans and animals.

We have developed a proprietary compound formulation that will be utilized to produce nitric oxide gas in our desktop and portable generators.  Management believes that with further formulation of our proprietary compound, we can make or filter nitric oxide gas with less toxic amounts of nitrogen dioxide, and that this process can produce nitric oxide gas in ample quantities for any current or prospective use, and at a substantially reduced price compared with all other currently available technologies.

Our current generator model is capable of delivering sufficient quantities of nitric oxide gas for individual laboratory desktop use. We will continue to further develop this and other generators and compound formulation for high production quantities and consistency.  The product must have a known shelf life and be available in various configurations to produce known concentrations and known volumes of gas.  Packaging is another developmental process that will need to be addressed. Management plans to rely on outside contractors to achieve these objectives.

We estimate that non-clinical laboratory sales could take place prior to the receipt of United States Food and Drug Administration (“FDA”) approval.  Management anticipates that selling our generator into the market as laboratory equipment prior to receipt of final FDA approval will pave the way for sales of our medical generator and proprietary tablets, but expected financial contributions from non-medical generator and tablet sales will be too late

9

to help offset the substantial costs of the FDA approval process for human medical uses.  We expect that contributions will be able to support our manufacturing and set-up costs and contribute to the overall profitability of our Company in due time, but we believe that they will also require financing.  We anticipate entering the non-clinical laboratory market in the next 18 months.

All human medical uses of nitric oxide gas require FDA approval, and the approval of similar international agencies.  Approval can be a long and expensive process, with no assurance that any such approval will ever be granted.  Management hopes to reduce time to regulatory approval by certain strategic approaches that are proprietary.

Our objectives are to establish GeNOsys (generated nitric oxide systems) as the premier nitric oxide generating pharmaceutical company, and to manufacture and sell medical grade nitric oxide generators and tablets for use in the relief of human diseases, offer value added services such as custom generators adapted for the treatment of various diseases, hire staff both currently identified and unidentified to implement our business model, and to gain FDA approval of our generating system.

Results of Operations

The following table presents our results of operations for the three and six-month periods ended May 31, 2008 and 2007:

		For the Three Months				For the Six Months
		Ended May 31,				Ended May 31,
		2008		2007		2008		2007
Revenues	$	-	$	-	$	-	$	-
Cost of sales		-		-		-		-
Gross margin		-		-		-		-
Operating expenses:
Research and development		156,832		110,823		330,702		198,923
General and administrative		141,793		116,695		309,504		232,489
Total operating expenses		298,625		227,518		640,206		431,412
Net income (loss) from operations		(298,625)		(227,518)		(640,206)		(431,412)
Other income (expense):
Interest income		375		5,696		2,332		14,171
Gain (loss) on disposal of asset		-		-		-		(414)
Other income (expense)		-		-		-		100
Total other income (expense), net		375		5,696		2,332		13,857
Net income (loss) before income taxes		(298,250)		(221,822)		(637,874)		(417,555)
Provision (benefit) for income tax		-		-		-		-
Income (loss) from continuing operations		(298,250)		(221,822)		(637,874)		(417,555)
Discontinued operations:
Loss from discontinued operations,				-		-		-
net of tax		-

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Gain on disposal of discontinued						-
operations, net of tax		-		-				-
Net income (loss)	$	(298,250)	$	(221,822)	$	(637,874)	$	(417,555)

Basic and diluted loss per share $ (.01) $ (.01) $ (.01) $ (.01)

For the Three Months Ended May 31, 2008 and 2007

During the three-month period ended May 31, 2008, we had a net loss of $298,250.  This compares to a net loss of $221,822 for the comparable period ended May 31, 2007.  Net loss per common share for these periods was $(.01) and $(.01), respectively.  

Research and development (“R&D”) expenses were $156,832 and $110,823, respectively, for the three-month periods ended May 31, 2008,

 and 2007.   The increase in research and development expenditures results from consulting fees and advisory board fees, for additional work on both the nitric oxide generator and the tablet formulation, and for non-cash stock-based compensation charges.  As the documentation preparation and regulatory work for FDA approval intensifies, R&D expenses are expected to grow.

General and administrative expenses were $141,793 and $116,695, respectively, for the three-month periods ended May 31, 2008, and 2007.  The increase results from the non-cash stock-based compensation charge.  Excluding that charge, general and administrative expenses would have decreased in 2008 as compared to 2007.  General and administrative expenses are expected to continue to increase in the remaining periods in this fiscal year as expenses are incurred in raising the additional capital needed to bring our products to market.

Total other income was $375 and $5,696 for the three-month periods ended May 31, 2008, and 2007.  This was primarily for interest on funds held in savings accounts.  The decrease results from decreased deposited funds on which interest is earned.  Cash funds have been declining due to investing in patents and equipment and to fund our operating loss.

For the Six Months Ended May 31, 2008 and 2007

During the six-month period ended May 31, 2008, we had a net loss of $637,874.  This compares to a net loss of $417,555 for the comparable period ended May 31, 2007.  Net loss per common share for these periods was $(.01) and $(.01), respectively.  

Research and development (“R&D”) expenses were $330,702 and $198,923, respectively, for the six-month periods ended May 31, 2008 and 2007.   The increase in research and development expenditures results from consulting fees and advisory board fees, for additional work on both the nitric oxide generator and the tablet formulation, and for non-cash stock-based compensation charges.  As the documentation preparation and regulatory work for FDA approval intensifies, R&D expenses are expected to grow.

General and administrative expenses were $309,504 and $232,489, respectively, for the six-month periods ended May 31, 2008, and 2007.  The increase results from the non-cash stock-based compensation charge.  Excluding that charge, general and administrative expenses would have decreased in 2008 as compared to 2007.  General and administrative expenses are expected to continue to increase in the remaining periods in this fiscal year as expenses are incurred in raising the additional capital needed to bring our products to market.

Total other income was $2,332 and $13,857 for the six-month periods ended May 31, 2008, and 2007.  This was primarily for interest on funds held in savings accounts.  The decrease results from decreased deposited funds on which interest is earned.  Cash funds have been declining due to investing in patents and equipment and to fund our operating loss.

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Financial Position

We had $21,288 in cash and cash equivalents as of May 31, 2008, representing a decrease of $258,817 from November 30, 2007.  Working capital as of May 31, 2008, was $(84,592) compared to $243,079 as of November 30, 2007. This decrease in cash and working capital was primarily due to cash and cash equivalents used to fund our operating loss for the period.

Liquidity and Capital Resources

To date, we have financed our operations principally through private placements of our equity securities.  Net cash of $347,253 was used for operating activities during the six months ended May 31, 2008.  This is an increase of $5,402 as compared to the $341,851 used during the same period ended May 31, 2007.  Also, during the six months ended May 31, 2008, net cash of $28,564 was used for the purchase of intangible assets and equipment.  This compares with $38,910 used for the purchase of intangible assets and equipment for the same period ended May 31, 2007.  As of May 31, 2008, our current liabilities totaled $147,062, and we had working capital of $(84,592).  As of May 31, 2008, we had no long-term debt obligations.  

Our working capital requirements for the foreseeable future will vary based upon a number of factors, including the costs to complete development work, the cost of bringing our nitric oxide generator and nitric oxide tablets to commercial viability, the costs associated with obtaining FDA approval, the timing of the market launches of our products and the level of sales of those products when introduced into the market place.  As of May 31, 2008, we had accounts payable and accrued liabilities totaling $147,062.  At May 31, 2008, we had cash and cash equivalents of $21,288.  We believe that existing cash and cash equivalents will not be sufficient to execute our business plan, or to meet our cash requirements during the next 12 months, and we are currently actively working to raise additional funds.  However, there can be no assurance that additional funding will be available on favorable terms, if at all.  If we fail to obt ain additional funding when needed, our business and financial condition may be adversely affected.

Critical Accounting Policies

Recent Accounting Pronouncements.

FASB 162 – In May 2008 the Financial Accounting Standard Board (“FASB”) released Statement of Financial Accounting Standards No 162, The Hierarchy of Generally Accepted Accounting Principles (“FASB 162”).  FASB 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the “GAAP hierarchy”).  FASB believes that the GAAP hierarchy should be directed to entities because it is the entity, not its auditor,  that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.  Accordingly, FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued this Statement to achie ve that result.  FASB 162 becomes effective 60 days following the SEC’s approval of the Public Accounting Oversight Board amendment to AU Section 411.  

We have reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operation, financial position or cash flows.  Based on that review, we believe that none of these pronouncements will have a significant effect on our current or future earnings or operations.

Inflation

We do not expect the impact of inflation on our operations to be significant for the next 12 months.

Forward-Looking Statements

This Form 10-QSB contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.  Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to our goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business, including, without

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limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may”, “would”, “could”, “expects”, “projects”, “anticipates”, “believes”, “estimates”, “plans”, “intends”, “targets” or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our Company’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following:  general economic or industry conditions, nationally and/or in the communities in which we conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, and regulatory and technical factors affecting our operations, products, services and prices.

Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

Item 3A(T).  Controls and Procedures

(a)

Management’s Annual Report on Internal Control Over Financial Reporting.

As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that information required to be disclosed is recorded, processed, summarized and reported within the specified periods, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure of material information required to be included in our periodic Securities and Exchange Commission reports.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives.  However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.  In addition, we reviewed our internal controls over financial reporting, and there have been no changes in our internal controls or in other factors in the last fiscal quarter that have materially affected our internal controls over financial reporting.

(b)

Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report.

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PART II — OTHER INFORMATION

Item 1.  Legal Proceedings.

None.

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

In April and May 2008, we sold 210,000 shares of common stock through a private placement, which provided net proceeds of $105,000.  

We issued all of these securities to persons who were either “accredited investors,” or “sophisticated investors” who, by reason of education, business acumen, experience or other factors, were fully capable of evaluating the risks and merits of an investment in our Company; and each had prior access to all material information about us prior to the grant and purchase.  We believe that the offer and sale of these securities were exempt from the registration requirements of the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and Rule 506 of Regulation D of the Securities and Exchange Commission and from various similar state exemptions.

Use of Proceeds of Registered Securities

None; not applicable.

Purchases of Equity Securities by Us and Affiliated Purchasers

None; not applicable.

Item 3.  Defaults Upon Senior Securities.

None; not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.

None; not applicable.

Item 5.  Other Information.

(a)

 None; not applicable.

(b)

Nominating Committee

During the quarterly period ended February 29, 2008, there were no changes in the procedures by which security holders may recommend nominees to our Board of Directors.

Item 6.  Exhibits.

(a)

Exhibit Index

EXHIBIT INDEX

Exhibit No.              Description of Exhibit                           

3.1

Articles of Incorporation (Incorporated by reference to our Registration Statement on Form 10-SB filed May 14, 2002).

3.2

By-laws (Incorporated by reference to our Registration Statement on Form 10-SB filed May 14, 2002).

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3.3

Amendment to the Articles of Incorporation dated September 12, 2005 (Incorporated by reference to Exhibit 3.3 of our Form 10-KSB, dated November 30, 2005).

3.4

Amendment to the By-Laws dated June 18th, 2004 (Incorporated by reference to Exhibit 3.4 of our Form 10-KSB, dated November 30, 2005).

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Code of Ethics (Incorporated by reference to Exhibit 14 of our Form 10-KSB, dated November 30, 2005).

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Subsidiaries (Incorporated by reference to Exhibit 21 of our Form 10-KSB, dated November 30, 2005).

Registration statement on Form 10-SB filed May 14, 2002, as amended on September 10, 2002, November 19, 2002 and December 9, 2002*

Annual Report on Form 10KSB for the year ended November 30, 2005 and filed on March 7, 2006*

Annual Report on Form 10KSB for the year ended November 30, 2006 and filed on March 15, 2007*

Current Report on Form 8-K dated January 22, 2008 and filed February 12, 2008*

Annual Report on Form 10KSB for the year ended November 30, 2007 and filed on February 28, 2008*

*   Incorporated herein by reference.

31.1 Certification of John W. R. Miller under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Keith L. Merrell under Section 302 of the Sarbanes-Oxley Act of 2002.

32   Certification of John W.R. Miller and Keith L. Merrell pursuant to 18 U.S.C. Section 1350, as Adopted

pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.

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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 hereunto duly authorized.

Date: July 15, 2008	GENOSYS, INC. By    /s/ John W.R. Miller                                _ John W.R. Miller Chief Executive Officer and Director        (Principal Executive Officer)
Date: July 15, 2008	By    /s/ Keith L. Merrell                                   _ Keith L. Merrell Chief Financial Officer and Treasurer        (Principal Financial Officer)

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