GeneLink (GNLKQ) 10-Q 2009 Q3 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

OR

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

For the transition period from                    to                    

Commission File No. 000-30518

GENELINK, INC.

(Exact name of registrant specified in its charter)

PENNSYLVANIA	23-2795613
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
317 Wekiva Springs Road, #200 Longwood, Florida	32779
(Address of principal executive offices)	(Zip Code)

(800) 558-4363

Registrant’s telephone number, including area code

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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
		(Do not check if a smaller reporting company)

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Number of Shares of Common Stock
Outstanding on November 10, 2009 110,712,025

	Page
PART I. FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheets at September 30, 2009 (unaudited) and December 31, 2008		3
Consolidated Statements of Income (unaudited) for the three months and nine months ended September 30, 2009 and 2008		4
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2009 and 2008		5-6
Notes to Consolidated Financial Statements		7-10
EX-31.1
EX-32.1

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GENELINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30, 2009			December 31, 2008
ASSETS
Current Assets
Cash and cash equivalents	$	425,905		$	435,197
Accounts receivable		422,737			713,565
Inventory		516,275			739,515
Prepaid expenses		161,089			53,688
Total current assets		1,526,006			1,941,965
Property and equipment		324,621			281,984
Other assets		285,709			321,277
Total assets	$	2,136,336		$	2,545,226
LIABILITIES
Current maturity of long-term debt	$	0		$	60,269
Accounts payable and accrued expenses		1,157,400			2,034,322
Accrued compensation		204,380			218,664
Deferred revenue		397,285			161,727
Loans payable		18,000			18,000
Total current liabilities		1,777,065			2,492,982
Convertible promissory notes payable, net of issuance of debt and stock conversion discounts		878,708			0
Total liabilities		2,655,773			2,492,982
SHAREHOLDERS’ EQUITY (DEFICIENCY)
Common stock, $.01 par value, 250,000,000 shares and 125,000,000 shares authorized as of September 30, 2009 and December 31, 2008, respectively; 114,801,291 shares and 104,561,291 shares issued as of September 30, 2009 and December 31, 2008 respectively; 110,442,132 shares and 100,202,132 shares outstanding as of September 30, 2009 and December 31, 2008, respectively		1,148,013			1,045,613
Additional paid in capital		12,969,784			12,235,833
Stock warrants		3,314,868			2,608,240
Accumulated deficit		(17,399,867	)		(15,285,207	)
Treasury stock, 4,359,159 shares as of September 30, 2009 and December 31, 2008, at cost		(552,235	)		(552,235	)
Total shareholders’ equity (deficiency)		(519,437	)		52,244
Total liabilities and shareholders’ equity (deficiency)	$	2,136,336		$	2,545,226

The accompanying notes are an integral part of the consolidated financial statements

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GENELINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	For The			For The			For The			For The
	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2009			2008			2009			2008
REVENUE	$	2,134,504		$	1,829,669		$	6,219,719		$	1,982,629
COST OF GOODS SOLD		869,328			425,706			2,731,635			565,483
GROSS PROFIT		1,265,176			1,403,963			3,488,084			1,417,146
EXPENSES
Selling, general and administrative		1,950,054			1,889,655			5,397,609			3,134,490
Research and development		26,705			0			26,705			12,951
		1,976,759			1,889,655			5,424,314			3,147,441
OPERATING LOSS		(711,583	)		(485,692	)		(1,936,230	)		(1,730,295	)
OTHER INCOME (EXPENSES)
Debt conversion costs		0			0			0			(229,025	)
Amortization and depreciation		(33,411	)		(26,449	)		(89,359	)		(63,510	)
Interest income (expense)		(38,800	)		(1,331	)		(89,071	)		(52,491	)
		(72,211	)		(27,780	)		(178,430	)		(345,026	)
NET LOSS BEFORE PROVISION FOR INCOME TAXES		(783,794	)		(513,472	)		(2,114,660	)		(2,075,321	)
PROVISION FOR INCOME TAXES		0			0			0			0
NET LOSS	$	(783,794	)	$	(513,472	)	$	(2,114,660	)	$	(2,075,321	)
NET LOSS PER SHARE, BASIC & DILUTED	$	(0.006	)	$	(0.005	)	$	(0.02	)	$	(0.03	)
Weighted average common shares and diluted potential common shares		113,575,791			96,026,291			108,786,513			74,972,909

The accompanying notes are an integral part of the consolidated financial statements

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GENELINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Nine months ended September 30	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,114,660	)	$	(2,075,321	)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization		89,359			63,510
Amortization of discounts on loans payable		34,048			240,844
Common stock issued for services		15,000			0
Fair value of options granted for services		277,117			84,200
Changes in operating assets and liabilities
Accounts receivable		290,828			(498,791	)
Inventory		223,240			(541,639	)
Prepaid expenses		(107,401	)		(1,396,851	)
Deposits		0			(43,765	)
Other assets		16,408			0
Accounts payable and accrued expenses		(876,922	)		1,156,228
Accrued compensation		(14,284	)		(54,168	)
Deferred revenue		235,558			2,514,988
Net cash used in operating activities		(1,931,709	)		(550,765	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(112,284	)		(216,188	)
Patent acquisition costs		(550	)		(30,783	)
Net cash used in investing activities		(112,834	)		(246,971	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans and notes payable		1,250,000			0
Proceeds from issuance of common stock and warrants, net		1,014,000			0
Principal payments on capital lease obligation		(36,177	)		(9,843	)
Principal payments on note payable		(24,092	)		0
Commissions paid for fundraising costs		(168,480	)		0
Purchase of treasury stock		0			(237,180	)
Proceeds from exercise of stock warrants		0			706,990
Net cash provided by financing activities		2,035,251			459,967

The accompanying notes are an integral part of the consolidated financial statements

5

GENELINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Nine months ended September 30	2009			2008
NET DECREASE IN CASH AND CASH EQUIVALENTS		(9,292	)	$	(337,769	)
Cash and cash equivalents, beginning of period		435,197			972,371
Cash and cash equivalents, end of period	$	425,905		$	634,602
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	5,926		$	0
Non-cash investing and financing transactions:
Equipment acquired under capital lease	$	0		$	61,400
Stock warrants granted for services	$	51,500		$	84,200
Stock warrants granted for fundraising	$	223,653		$	0
Conversion of notes payable and accrued interest to common stock	$	0		$	882,041
Common stock issued for services	$	15,000		$	0

The accompanying notes are an integral part of the consolidated financial statements

6

GENELINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 —DESCRIPTION OF ORGANIZATION

Organization

GeneLink, Inc. (the Company) and its subsidiaries, GeneWize Life Sciences, Inc. and Dermagenetics, Inc., operate in Florida. The Company was organized under the laws of the Commonwealth of Pennsylvania, whereas Dermagenetics, Inc. and GeneWize Life Sciences, Inc. were organized under the laws of the State of Delaware. The Company is the successor to a Delaware corporation organized under the same name on September 21, 1994. The Company’s offices are located in Longwood, Florida.

The Company’s scientific foundation developed as a result of discoveries in the field of human molecular genetics. Research supported by the National Institute of Health, including the Human Genome Project, as well as academic, commercial research and research by the scientists on GeneLink’s Scientific Advisory Board, enabled the identification of an increasing number of connections between genes, SNP’s (single-nucleotide polymorphisms) and the specific function of enzymes and receptors relating to nutrition and skin health.

The Company has developed proprietary SNP-based genetic profiles (named GeneLink Nutragenetic Profile ™ and Dermagenetics^® profiles). These profiles provide a means of predicting an individual’s inherent genetic capacity to combat such conditions as oxidative stress and other important areas of physiologic health. The profiles, for example, can measure a person’s potential to efficiently control oxygen free radical damage, eliminate hydrogen peroxide, protect and repair oxidized phospholipids and destroy harmful environmental compounds. The Company’s profile assessment enables nutritional and skin care companies and health care professionals to recommend a specific and targeted regime of antioxidant vitamins, nutrients or skin care formulations that have been specifically designed to compensate for predicted deficiencies and to help provide individuals the best of health and appearance.

The Company’s laboratory assessments are performed under contract in leading genomics laboratories and have been independently validated by the laboratories. In early 2009, the Company expanded its international network of qualified laboratories with the addition of a highly automated United States based clinical laboratory whose credentials include College of American Pathologists “CAP” accreditation, CLIA certification, and State of California licensure. The enhanced laboratory capabilities will allow the Company to accommodate the increased demand for genetic testing and improve turnaround time.

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The Company has developed and received a patent on a DNA Collection Kit^® for the collection of DNA specimens of clients. The kit is classified as a non-medical device.

On December 12, 2007, the Company formed a new wholly owned subsidiary, GeneWize Life Sciences, Inc., to operate its direct sales efforts. GeneWize is the first direct selling company to focus exclusively on marketing nutritional supplements and skin care products specifically tailored to an individual’s genetic makeup.

GeneWize’s product offering in 2008 and first three quarters of 2009 consisted of its foundational LifeMap Nutrition^TM System. The LifeMap Nutrition^TMSystem is the first comprehensive system of personalized (mass customized) nutritional supplement manufacturing based on genetic testing that measures single nucleotide polymorphisms (“SNPs”) in DNA. GeneLink’s patented and patent pending assessments, such as GeneLink Healthy Aging Assessment^TMand Oxidative Stress, form the foundation. Genetic test results drive a proprietary algorithm that generates a nutritional report linked to an individual “titration matrix.” In order help compensate for any anticipated need for additional supplementation, “genetically selected ingredients” and nutrients (SNPboosts^TM, or “snip boosts”) are titrated and blended into the individual nutritional formulation. Thus, each customer’s product is individually customized and manufactured just for that customer.

GeneWize, as a direct selling company, offers customers the opportunity to participate in selling and distributing the products to others and receive compensation for doing so. These independent marketing affiliates must agree to comply with the Company’s policies related to sales and distribution of product, particularly as it relates to product claims or, in the case of recruiting other affiliates, income potential. In return for creating sales and complying with appropriate policies and regulations, GeneWize provides commissions and incentives. It also provides internet ordering sites, business management tools, marketing materials, training and events in support of these affiliates.

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2 —BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of GeneLink, Inc. and Subsidiaries for the year ended December 31, 2008.

In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information set forth in the accompanying consolidated financial statements have been included. The results reported in these consolidated financial statements for the nine-month period ended September 30, 2009 should not be regarded as necessarily indicative of results that may be expected for the year ended December 31, 2009.

3 —STOCKHOLDERS’ EQUITY TRANSACTIONS AND CONVERTIBLE SECURED PROMISSORY NOTES

During the nine months ended September 30, 2009, the Company sold 10,140,000 shares of restricted Common Stock of the Company at a purchase price of $0.10 per share pursuant to a Confidential Private Offering Memorandum, and received an aggregate gross amount of $1,014,000. The Company granted 375,000 Warrants to acquire shares of Common Stock at an exercise price of $0.11 to investors in connection with the purchase.

During the nine months ended September 30, 2009, the Company issued $1,250,000 principal amount of Convertible Notes and issued 1,875,000 Warrants to acquire shares of Common Stock at an exercise price of $0.11 per share in connection therewith. The Warrants are exercisable on or after August 26, 2009 and on or before February 26, 2014. Of the $1,250,000 total proceeds, $175,341 was allocated to the warrants and $150,000 was allocated to the conversion feature.

The Convertible Notes mature on February 26, 2014 and bear interest at the rate of 8% per year through February 26, 2011 and thereafter bear interest at the rate of 10% per year. The Convertible Notes may not be prepaid without the approval of the holders of the Convertible Notes.

The Convertible Notes are convertible at the option of the holders of the Convertible Notes. A mandatory conversion of the Convertible Notes will occur if after the Initial Conversion Date the closing price of the Common Stock of the Company is at least $0.50 per share for 30 consecutive trading days.

The conversion price for the Convertible Notes is $0.10 per share, subject to adjustment in the event of a stock split, combination, reclassification, reorganization or similar event.

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During the nine months ended September 30, 2009, the Company issued Common Stock valued at $15,000 and paid $10,000 as advances on commissions for investment banking services.

In connection with the convertible secured promissory notes and shares of Common Stock issued, the Company paid cash commissions of $168,480 and granted 527,045 Warrants to acquire shares of Common Stock at exercise prices of $0.10 and $0.11 per share, to First Equity Capital Securities, Inc., as the agent for the offering, which has been recorded as a reduction of the proceeds in accordance with AICPA Technical Practice Aid 4110.01. First Equity Capital Securities, Inc. is owned and controlled by Kenneth R. Levine, a holder of more than five percent of the outstanding common stock of the Company.

During the nine months ended September 30, 2009, the Company granted 1,425,000 Warrants to acquire shares of Common Stock at exercise prices of $0.12 and $0.16 per share for services provided.

On June 1, 2009, the shareholders of the Company approved an amendment to the Company’s Articles of Incorporation to increase the authorized capital of the Company from 125,000,000 shares of Common Stock, $0.01 par value, to 250,000,000 shares of Common Stock, $0.01 par value, and adopted the Company’s 2009 Stock Option Plan.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements in this Report that relate to future results and events are based on the Company’s current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties. For a discussion of factors affecting the Company’s business and prospects, see “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting the Company’s Business and Prospects.”

Operating results for the nine-month period ended September 30, 2009 are not necessarily indicative of the results that may be expected for the full fiscal year.

GENERAL

The Company has created a breakthrough methodology for SNP (single nucleotide polymorphism) based genetic profiling (patents issued and pending) and the Company is marketing and/or licensing these proprietary assessments to companies that manufacture or market to the nutraceutical, personal care and skin care industries, as well as developing our own proprietary products for sale based on its profiling system.

The Company’s expansion into the bioscience field with its innovative genetic profiles help companies create and deliver more effective products — personalized wellness and “quality of life” products tailored to their customer’s individual needs — based on the science of genetics, thereby allowing the consumer and/or their health care provider to determine what vitamin/nutritional supplements, skin-care products, and health care or weight loss regimens are best for their individual needs.

The Company also does business through wholly-owned subsidiaries. GeneWize Life Sciences, Inc. (“GeneWize”) provides genetically customized products and services to the nutrition and skincare markets. GeneWize formally launched its products and services in August 2008 and distributes its products through a network marketing system, which is a form of direct selling.

OVERVIEW

During the first nine months of 2009, the Company continued to develop its sales, marketing and operations to support its position as a leader in the genetically customized nutritional and personal care businesses. Nearly all of the $6,219,719 of revenues realized in the first three quarters of 2009 were through its GeneWize subsidiary launched August 2008. On September 16, 2009, GeneWize made a strategic shift in its core product pricing structure to enhance customer acquisition and margins, as discussed more thoroughly below.

New customer and affiliate additions in the quarter ended September 30, 2009 totaled 2,395 compared to the total of 2,342 for the three months ended June 30, 2009, an increase of 2%.Of those, 1,613 enrolled as independent sales affiliates, in the quarter ended September 30, 2009, compared to 1,395 in the quarter ended June 30, 2009, an increase of 16%. Nearly half of the independent sales affiliate enrollments during quarter ended September 30, 2009 occurred in the month of September 2009. Recurring orders rose 2% for the quarter ended September 30, 2009 to 13,641, up from 13,365 in the quarter ended June 30, 2009.

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GeneWize hosted its annual Recognition Celebration on August 6-8, 2009 in Orlando, FL. Over 250 affiliates and guests joined in training and heard plans for a new genetically customized skin care solution, LifeMapMe™ (made exclusively)Skin Serum. This skin care solution follows on GeneLink’s experience in providing customized skincare through the spa channel since 2004. In addition to this new product, GeneWize announced new sales and marketing tools for affiliates, including the introduction of LifeMap Magazine and new web tools for affiliates which will include new training, sales and video tools.

On September 16, 2009, GeneWize combined the launch of LifeMapMe™ (made exclusively)Skin Serum and new sales and marketing tools with a strategic shift in pricing of its core offerings. The formulation of LifeMapMe™ (made exclusively)Custom Nutrition, newly enhanced to include the enzyme CoQ10 and digestive enzymes, was priced at $129 per month, as was the LifeMapMe™ (made exclusively)Skin Serum (nutrition customers already on a monthly autoship program were grandfathered in at the earlier price of $99 per month.)

With the increase in monthly pricing also came a lowering of first-order pricing. First-order pricing was also set at $129 as a strategic lowering of cost-of-entry pricing and pricing simplification. DNA Assessments were included free with the first order with a commitment and payment of at least 3 subsequent autoship orders.

GeneWize and the Company believe that the new strategy of lower entry pricing and premium monthly pricing will strengthen the company significantly, enhancing both customer acquisition and margins. In the year since its launch in August 2008, the nutrition product has proven to have strong customer retention. Increases in margin from the monthly price increase will more than offset the reduction in initial sales pricing over the life of a customer. Because, this pricing change took place very late in the most recently completed quarter, its impact on revenues and margins did not have a material impact during the quarter ended September 30, 2009.

LIQUIDITY AND CAPITAL RESOURCES

For the three-month and nine-month periods ended September 30, 2009, the Company’s primary liquidity requirements have been the funding of its sales and marketing efforts and the payment of staff compensation, operating expenses and accounts payable.

Cash and cash equivalents at September 30, 2009 amounted to $425,905 as compared to $435,197 at December 31, 2008, a decrease of $9,292. During the first nine months of 2009, the Company’s operating activities utilized $1,931,709, as compared to $550,765 for the first nine months of 2008, an increase of $1,380,944. Cash utilized during these periods partially funded the paying down of accounts payable, the Company’s operating losses for such periods, and the costs of defending the litigation brought against the Company by its former Chief Executive Officer and President.

Financing activities provided $2,035,251 in net proceeds for the nine month period ended September 30, 2009 as compared to $459,967 in net proceeds for the nine month period ended September 30, 2008, an increase of $1,575,284. Financing activities during the nine month ended September 30, 2009 primarily consisted of the issuance of $1,014,000 of restricted common stock and $1,250,000 of convertible promissory notes, less costs associated with such offerings.

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The Company will require approximately $2,000,000 of additional funds to further implement its sales and marketing strategy, for research and development and for other working capital needs. If the Company is not able to secure such additional required funding, it will continue to realize negative cash flow and losses and may not be able to continue operations.

COMPARISON OF THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 TO THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008

Financial Condition

Assets of the Company decreased from $2,545,226 at December 31, 2008 to $2,136,336 at September 30, 2009, a decrease of $408,890. This decrease was primarily due to a decrease in accounts receivable from $713,565 at December 31, 2008 to $422,737 at September 30, 2009, a decrease of $290,828, and a decrease in inventory from $739,515 at December 31, 2008 to $516,275 at September 30, 2009, a decrease of $233,240. The reduction in accounts receivable represents a reduction in the Company’s credit card reserve held by its merchant services provider. Inventory reductions reflect a normal drawdown for costs of good sold.

Liabilities increased from $2,492,982 at December 31, 2008 to $2,655,773 at September 30, 2009, an increase of $162,791. This increase in liabilities was primarily due to an increase in convertible secured promissory notes payable, net of issuance of debt and stock conversion discounts, from $0 at December 31, 2009 to $878,708 at December 30, 2009, and an increase in deferred revenue from $161,727 at December 31, 2008 to $397,285, an increase of $235,558, as partially offset by a decrease in accounts payable and accrued expenses from $2,034,322 at December 31, 2008 to $1,157,400 at September 30, 2009, a decrease of $876,922. The $878,708 amount of convertible promissory notes payable reflected on the September 30, 2009 balance sheet is net of debt issuance costs and stock conversion discounts. As of September 30, 2009, $1,250,000 principal amount of convertible secured promissory notes were outstanding. See Note 3 to the Financial Statements for more information. The increase in deferred revenues was primarily due to shipping holdups resulting from supplier delays on the newly designed packaging implemented with the September 16, 2009 branding and pricing changes. Shipping has resumed and turnaround was back to standard shortly after the end of the quarter ended September 30, 2009.

Results of Operations

Revenues. Total revenues for the three months ended September 30, 2009 were $2,134,504 as compared to $1,829,669 for the three months ended September 30, 2008, an increase of $304,835, and for the nine months ended September 30, 2009 were $6,219,719 as compared to $1,982,629 for the nine months ended September 30, 2008, an increase of $4,237,090. Revenues during the nine months ended September 30, 2009 were up dramatically from 2008 due to the August 2008 launch of GeneWize Life Sciences and its LifeMap Products.

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Gross Profit. Gross profit decreased from $1,403,963 for the three months ended September 30, 2008 to $1,265,176 for the three months ended September 30, 2009 and increased from $1,417,146 for the nine months ended September 30, 2008 to $3,488,084 for the nine months ended September 30, 2009. Gross profit margin decreased from 76.7% and 71.5% for the three months and nine months ended September 30, 2008, respectively, to 59.3% and 55.4% for the three months and nine ended September 30, 2009, respectively. Gross profit margins decreased due to sales in 2008 of a high volume of high-margin pre-launch affiliate business packages.

Expenses. Expenses for the three months ended September 30, 2009 were $2,048,970 as compared to $1,917,435 for the three months ended September 30, 2008, an increase of $131,535, and for the nine months ended September 30, 2009 were $5,602,774 as compared to $3,492,467 for the nine months ended September 30, 2008, an increase of $2,110,307. The increases in expenses over 2008 for the nine months ended September 30, 2009 primarily resulted from $2,285,857 of sales commission expenses earned by sales affiliates during the nine months ended September 30, 2009, representing 37% of revenues during such period, as compared to $906,661 of sales commission expenses earned during the nine months ended September 30, 2008. Non-cash expenses for the three months ended September 30, 2009 includes $88,167 expenses related to option grants, most of which were issued in prior years which vested in the current period.

Operating Losses. The Company incurred an operating loss of $711,583 for the three months ended September 30, 2009, as compared to an operating loss of $485,692 for the three months ended September 30, 2008, an increase of $225,891, and an operating loss of $1,936,230 for the nine months ended September 30, 2009, as compared to an operating loss of $1,730,295 for the nine months ended September 30, 2008, an increase of $205,935. The loss for the three months ended September 30, 2009 includes $172,151 of net expenses from GeneWize’s annual Recognition Celebration and $88,167 of non-cash expenses related to option grants, most of which were issued in prior years which vested in the current period.

Net Losses. The Company incurred a net loss of $783,794 for the three months ended September 30, 2009 as compared to a net loss of $513,472 for the three months ended September 30, 2008, an increase of $270,322, and a net loss of $2,114,660 for the nine months ended September 30, 2009 as compared to $2,075,321 for the nine months ended September 30, 2008, an increase of $39,339.

FACTORS AFFECTING THE COMPANY’S BUSINESS AND PROSPECTS

Statements included in this Report on Form 10-Q, including within the Management’s Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature, are intended to be and are hereby identified as “forward looking statements” for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements due to several factors. The Company undertakes no obligation to publicly release any revisions to these forward looking statements or reflect events or circumstances after the date hereof.

There are a number of factors that affect the Company’s business and the result of its operations. These factors include general economic and business conditions; the success of the GeneLink’s recent launch of its direct selling efforts; the level of acceptance of the Company’s products and services; the rate and commercial applicability of advancements and discoveries in the genetics field; and the Company’s ability to enter into strategic alliances with companies in the genetics industry.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

Item 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s Chief Executive Officer (who is currently acting as both the Company’s principal executive officer and principal financial officer) has concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)), that such disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the three months ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

By Order and Opinion dated May 5, 2009 and received on May 8, 2009, the Court of Common Pleas of Pennsylvania, Philadelphia County, dismissed an action brought by the Company’s former Chief Executive Officer, President and Chief Financial Officer, John DePhillipo, and Mr. DePhillipo’s wife, Maria DePhillipo (the “Action”) in August 2008. In the Action, the DePhillipos alleged that the Company, as well as its subsidiary GeneWize, Inc. and several of the Company’s directors, officers and representatives, defrauded them into settling a lawsuit previously commenced by Mr. DePhillipo against the Company in the Superior Court of New Jersey, Atlantic County (the “New Jersey Action”). In the Action, the DePhillipos sought the return of 3,953,000 shares of the Company’s common stock sold to the Company pursuant to the settlement, allegedly worth approximately $20 million based upon an alleged value of $5.00 per share.

Via its Order and Opinion, the Court dismissed the Action, concluding that the DePhillipos’ claims were not viable. The Court also determined that it lacked jurisdiction over the Company’s counsel in the New Jersey Action as well as the Company’s advisors.

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The DePhillipos filed a Notice of Appeal with respect to the Order and Opinion on May 14, 2009. On October 14, 2009, the DePhillipos filed the Brief for Appellants with the Superior Court of Pennsylvania. The Company continues to assert that all of the DePhillipos’ allegations are entirely without merit and will file its responsive brief with the Superior Court in November 2009.

In October 2005, the Company terminated the employment of Mr. DePhillipo. In 2005, Mr. DePhillipo commenced the New Jersey Action, alleging that his termination by the Company “for cause” was improper and therefore he was entitled to severance pay. The Company filed counterclaims against Mr. DePhillipo for breach of fiduciary duty, conversion, negligent misrepresentation, unjust enrichment and fraud while Mr. DePhillipo served as the Company’s Chief Executive Officer, President and Chief Financial Officer. The counterclaims sought recovery in excess of that sought by Mr. DePhillipo.

On May 13, 2008, the Company and Mr. DePhillipo reached a settlement in the New Jersey Action pursuant to which the Company and Mr. DePhillipo settled all issues, claims and counterclaims pending in that action. Under such settlement, the Company acquired 3,953,000 shares of the Company’s common stock from Mr. DePhillipo and his family, paying Mr. DePhillipo and his family $0.06 for each such share and resulting in a purchase price of $237,180. The Company also paid Mr. DePhillipo $220,000. As part of the settlement, the Company and Mr. DePhillipo exchanged general releases.

In September 2009, the Company brought action against two prior law firms, alleging that their failure to timely provide legal services and make or authorize required filings caused the Company to lose valuable Japanese and U.S. patent rights.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In July and August 2009, the Company sold an aggregate of $396,500.00 of shares of Common Stock of the Company at a price of $0.10 per share. The offering price per share was $0.10. A total of 3,965,000 shares of Common Stock of the Company were issued to the investors who acquired these shares in the quarter ended September 30, 2009. The Company also paid a total of $27,860 and issued warrants to acquire 348,250 shares of Common Stock to First Equity Capital Securities, Inc. in connection with the sale of these Units Kenneth R. Levine, a holder of more than five percent of the Equity Securities of the Company is an officer and owner of First Equity Capital Securities.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS

Exhibit No.		Description
	31.1	Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* * * * * *

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

	GENELINK, INC. (Registrant)
Date: November 12, 2009	By:	/s/ Monte E. Taylor, Jr.
		Monte E. Taylor, Jr., Chief Executive Officer and Chief Financial Officer

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