U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended August 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File No. 000-49817
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GENOSYS, INC.
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(Name of Small Business Issuer in its Charter)
UTAH 87-0671592
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(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5063 N. Riverpark Way
Provo, Utah 84604
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 319-2324
Check whether the Registrant (1) filed all reports required to be filed
by Sections 13 or 15(d) of the Exchange Act during the past 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.
(1) Yes X (2) Yes X
Indicate by check mark whether the Registrant is a shell company (as
defined by Rule 12B-2 of the Exchange Act) No X
Issuers Involved in Bankruptcy Proceedings
During the past Five Years
Not Applicable.
Check whether the Registrant 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.
Applicable Only to Corporate Issuers
State the number of shares outstanding of each of the Registrant's
classes of common equity, as of the latest practicable date: August 31, 2006 -
45,668,031 shares of common voting stock.
Documents Incorporated by Reference
None.
Transitional Small Business Issuer Format: No X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed Financial Statements of the Company required to be filed with
this 10-QSB Quarterly Report were prepared by management and commence on the
following page, together with related Notes. In the opinion of management,
the Condensed Financial Statements fairly present the financial condition of
the Company.
GENOSYS, INC.
[A Development Stage Company]
Condensed Consolidated Financial Statements
August 31, 2006
GENOSYS, INC.
[A Development Stage Company]
Condensed Consolidated Balance Sheet
August 31, 2006
(Unaudited)
August 31, November 30,
2006 2005
(unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents $ 1,182,225 $ 2,008,545
Prepaid expenses $ 115,608 $ -
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Total Current Assets 1,297,833 2,008,545
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Property, Plant & Equipment (Net of accumulated
depreciation) 90,630 20,475
Other Assets
Intangible asset 297 297
Prepaid expenses Long Term 6,654 2,102
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Total Other Assets 6,951 2,399
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Total Assets $ 1,395,414 $ 2,031,419
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current Liabilities
Accounts Payable $ 171 $ 6,060
Accrued Liabilities 58,152 2,500
Taxes payable - 100
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Total Current Liabilities 58,323 8,660
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Total Liabilities $ 58,323 $ 8,660
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Stockholders' Equity
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
45,668,031 and 45,218,031, respectively 45,668 45,218
Paid-in capital 2,525,414 2,255,864
Accumulated deficit (77,924) (77,924)
Deficit accumulated during development stage (1,156,067) (200,399)
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Total Stockholders' Equity 1,337,091 2,022,759
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Total Liabilities and Stockholders' Equity $ 1,395,414 $ 2,031,419
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See accompanying notes to the financial statements
F-1
GENOSYS, INC.
[A Development Stage Company]
Condensed Consolidated Statements of Operations
For the three and nine month periods ended August 31, 2006 and 2005
and from the beginning of the development stage to August 31, 2006
(Unaudited)
From
Beginning of
Development
For the Three For the Nine Stage(June30,2005)
Months Ended Months Ended to August 31,
August 31, August 31,
2006 2005 2006 2005 2006
Revenues $ - $ - $ - $ - $ -
Cost of Sales - - - - -
-------- -------- --------- -------- ----------
Gross Margin - - - - -
Research and development 141,974 - 416,652 - 416,652
General and Administrative 116,662 22,521 586,268 22,521 855,688
-------- -------- --------- --------- ----------
Total Expenses 258,636 22,521 1,002,920 22,521 1,272,340
-------- -------- --------- --------- ----------
Income (Loss) from
operations (258,636) (22,521)(1,002,920) (22,521) (1,272,340)
Interest Income 13,721 - 47,251 - 47,251
Interest Expense - - - - -
-------- -------- --------- --------- -----------
Income (Loss) Before
Income Taxes (244,915) (22,521) (955,669) (22,521) (1,225,089)
Provision for Income taxes - - - - 100
-------- -------- --------- --------- -----------
Income (Loss) from
Continuing Operations (244,915) (22,521) (955,669) (22,521) (1,225,189)
-------- -------- --------- --------- -----------
Discontinued Operations
Gain(Loss)from discontinued
Operations, net of tax - (215) - (2,131) (2,131)
Gain on Disposal of
Discontinued Operations,
net of tax - - - - 71,253
-------- -------- --------- --------- -----------
Net Gain (Loss) from
Discontinued operations - (215) - - 69,122
-------- -------- --------- --------- -----------
Net Income (Loss) $ (244,915) $(22,772) $(955,669)$ (24,652)$(1,156,067)
======== ======== ========= ========= ===========
Gain(Loss)per share from
continuing Operations $ (0.01) $ (0.00) $ ( 0.02)$ (0.00)$ (0.03)
Gain(Loss)per share from
Discontinued Operations $ - $ - $ - $ - $ 0.00
Net Income(Loss)per
share $ (0.01) $ (0.01) $ (0.02)$ (0.01)$ (0.03)
Weighted Average Shares
Outstanding 45,668,031 10,943,597 45,566,206 4,454,310 44,344,094
========== ========== ========== ========= ==========
See accompanying notes to the financial statements
F-2
GENOSYS, INC.
[A Development Stage Company]
Condensed Consolidated Statements of Cash Flows
For the nine month periods ended August 31, 2006 and 2005
and from the beginning of the development stage to August 31, 2006
(Unaudited)
From
Beginning of
Development Stage
(June 30, 2005)
For the Nine Months Ended to August 31,
August 31,
2006 2005 2006
Cash Flows from Operating
Activities
Net Loss $ (955,669) $ (24,652) $(1,156,067)
Adjustments to reconcile net
(loss) to net cash provided
by operating activities:
Depreciation and amortization 4,664 - 5,079
Gain on the disposal of
discontinued operations - - (71,253)
Stock issued for services 270,000 - 270,000
(Increase)/decrease in
prepaid expenses (120,160) - (122,137)
Increase/(decrease) in
accounts payable (5,889) - 171
Increase/(decrease) in
accrued liabilities 55,552 - 58,152
Increase/(decrease) in
cash from discontinued
operations - (22,377) (6,020)
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Net Cash From Operating
Activities (751,502) (47,029) (1,022,075)
Cash Flows from Investing
Activities
Purchase of equipment (48,928) - (69,565)
Purchase of computers (13,639) - (13,639)
Purchase of leasehold
Improvements (4,767) - (4,767)
Purchase of furniture (7,484) - (7,484)
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Cash Flows from Investing
Activities (74,818) - (95,455)
Cash Flows from Financing
Activities
Sale of stock - - 2,271,604
Cash from discontinued
operations - 3,323 (19,777)
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Cash Flows from Financing
Activities - 3,323 2,251,827
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Net Increase (Decrease) in
Cash (826,320) (43,706) 1,134,297
Beginning Cash Balance 2,008,545 47,928 47,928
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Ending Cash Balance $1,182,225 $ 4,222 $ 1,182,225
========== =========== ===========
Supplemental Disclosure Information
Cash paid during year for
interest $ 0 $ 0 $ 0
Cash paid during year for
income taxes $ 100 $ 0 $ 100
Stock issued for services $ 270,000 $ 0 $ 270,000
See accompanying notes to the financial statements
F-3
GENOSYS, INC.
[A Development Stage Company]
Notes to Condensed Consolidated Financial Statements
August 31, 2006
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The interim financial statements reflect all adjustments,
consisting of normal recurring adjustments, which, in the opinion
of management, are necessary to present a fair statement of the results for
the period.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
NOTE 2 - 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. It is the intent of the
Company to develop business opportunities by actively marketing and developing
portable, medical gas generators. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 3 - PREPAID EXPENSES
On January 25, 2006, the Company entered into a Research and Advisory Service
Agreement with IriSys, Inc. IriSys, is to provide contract services in the
development of nitric oxide tablets that will be used in conjunction with the
Company's generators. In accordance with this agreement, the Company has made
advanced payments of $326,725. The Company expenses these payments as
services are provided in accordance with the agreement terms. For the three
and nine months ended August 31, 2006, the Company expensed $116,852 and
$349,725 respectively for these services. The Agreement requires that the
Company pay an additional $42,675 during the year as work progresses.
On May 12, 2006, the Company entered into an Office Lease Agreement with
Riverwoods Medical Art Center, L.C. In accordance with this agreement the
Company has made a deposit payment of $79,849 which will be applied to the
first year's rent on a monthly basis. The Company estimates a commencement
date of October 1, 2006. As such, the amount of one months payments amounting
to $6,654, has been classified as a long term, other asset.
F-4
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation.
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Phase I:
We are currently in Phase 1, which is expected to last 12 Months and not to
exceed $2,270,000. In January of 2006, we contacted with IriSys, Inc., a
pharmaceutical formulation development laboratory, to improve the formulation
and delivery of nitric oxide generating tablets. As part of the formulation
agreement, these tablets are being designed to be produced under FDA, Good
Laboratory Practices guidelines. At the end of the third quarter, the
formulation of the nitric oxide tablet was substantially complete. During the
fourth quarter, we will continue to modify the tablet to maximize gas yields.
We will also design packaging and test to determine the shelf life of the
tablet. Management anticipates that this process will be completed during the
fourth quarter, and that the tablets will be able to be produced to the
required specifications.
In addition, to the formulation of the nitric oxide producing tablets, the
Company also intends to contract with a local manufacturer to produce
production models of our generators capable of using these tablets for the
production of nitric oxide. This will be done in preparation for entry into
the commercial laboratory market and for use in feasibility studies,
preliminary animal safety studies and efficacy trials to be conducted within
FDA guidelines. The Company has been in discussions with several
manufacturers, but has not yet entered into any manufacturing agreements for
the production of the nitric oxide generators.
Also during the first phase the feasibility studies, animal safety studies
and efficacy trials will be used to determine the acceptable dose ranges for
treatment of tuberculosis (TB). These steps will be taken in preparation and
submission of an application to the FDA for and Investigational New Drug
Number (IND No.).
The Company has also entered into an agreement with a patent attorney to
protect the proprietary and intellectual property with applicable applications
as the above processes and designs are developed.
On May 12, 2006, the Company entered into a lease agreement for its corporate
headquarters. The lease agreement is for five year term beginning the first
month of occupancy. Construction is anticipated to be completed by October 1,
2006.
Phase II:
During Phase II, the Company anticipates that it will begin human clinical
trials for TB with our newly designed generators and formulated tablets.
Coinciding with the clinical trials, the initial production improvements and
Canadian Electrical Safety Association and Underwriters Laboratories
Electrical Safety (USA), approvals for the generator will also be completed
in order to facilitate multiple unit production. We will then contract with an
FDA approved, manufacturer, to build the first production runs of commercial
laboratory generators. These will be used for laboratory sales as well as for
clinical trials. We will initiate and train a limited number of sales and
service personnel in order to facilitate transition to a distributor.
We will continue laboratory generator sales and examine non-human spin-off
opportunities for use of our product. During this phase, we will conduct and
complete contracted clinical trials for TB and submit to FDA for approval.
Concurrently, we will prepare the testing protocol and application for FDA
approval for submission and processing. It is estimated that the total time
involved from the initiation of Phase I to the receipt of the FDA approval for
the tablets and the device will be approximately four to five years.
Phase III: In anticipation of receipt of approval, we will expand staff and
facilities consistent with an orderly transition; train clinicians and
distributors; manufacture and sell tablets and generators for TB; minimize
costs of manufacturing and increase profits; and examine off-label uses for
generators. Following receipt of FDA approval of the generator and tablet for
attenuation of TB, we will begin actively manufacturing, marketing and
distributing the products. It is currently not possible to accurately predict
the time and costs of this phase.
Our plan of operation for the next 12 months is to finalize the formulation of
the nitric oxide producing tablet, contract with a manufacture for the nitric
oxide generator and complete the preparation and submission of the U.S. FDA
Investigational New Drug Application ("IND") to support the generation of
Nitric Oxide for use in treatment of human diseases.
A Gap Analysis for the U.S. IND, meaning a Non-clinical Assessment, a Clinical
Assessment and Chemistry, Manufacturing and Controls Assessment ("CMC"),
preparation for attendance at a Pre-IND meeting with the FDA and the U.S.
IND, with the aid and assistance of contracted consultants
A Clinical Program and Study Design(s), meaning clinical experts will be
utilized for assessment as well as attendance at a Pre-IND meeting.
Our ability to carry out our plan depends entirely upon our ability to obtain
additional substantial equity, debt financing or royalties. We can not assure
that we will receive this financing. If we do not receive such funding, we
will not be able to proceed with our intended business plans.
Funding.
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During the fourth quarter of 2005, we conducted a private offering of
3,964,031 shares of our common stock that are "restricted securities" as
defined in Rule 144 to "accredited investors" only pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of
Regulation D promulgated thereunder, at an offering price of $0.60 per share
to raise approximately $2,378,382, to fund the commencement of our Plan of
Operation. Substantial additional funds will still be required if we are to
reach our goals that are outlined above. We currently have no arrangements or
understandings that will assure that we can successfully complete future
offerings, and no assurance can be given that we will be able to do so.
Without additional funding, we may not commence our planned business
operations.
Assumptions.
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Our projections are based upon the following assumptions, among others:
* a slow-growth economy, without a major world recession;
* that there are no unforeseen changes in technology that make our products
obsolete;
* access to substantial equity capital and financing sufficient;
* FDA approval of our TB generator;
* that WHO will remain positive in its support for eradication of TB; and
* that our FDA approved device for TB will be sold and prescribed off-label
for numerous diseases.
Forward-looking Statement.
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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 limitation, (I) our ability to
raise capital, and (ii) statements preceded by, followed by or that include
the words "may", "would", "could", "should", "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, regulatory and technical factors affecting our
operations, products, services and prices.
Accordingly, results actually achieved may differ materially from expected
results in these statements. Forward-looking statements speak only as of the
date they are made. We do not undertake, and specifically disclaim, any
obligation to update any forward-looking statements to reflect events or
circumstances occurring after the date of such statements.
Item 3. Controls and Procedures.
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
President and Secretary, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on this evaluation, our
President and Secretary 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 President and
Secretary, 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
President and Secretary 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 has materially affected our internal
controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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.
None; not applicable.
Item 6. Exhibits.
31.1 302 Certification of John W. R. Miller
31.2 302 Certification of Christine Melanie Woodruff Jones
32 Section 906 Certification.
*Incorporated herein by reference.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENOSYS, INC.
Date: 10/9/2006 By /s/John W. R. Miller
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John W. R. Miller, Director
and President
Date: 10/9/2006 By /s/Christine Melanie Woodruff
--------- Jones
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Christine Melanie Woodruff Jones,
Director, Secretary/Treasurer