Summary of GENELINK INC - Yahoo! Finance

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 three-month period ended March 31, 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
The first quarter of 2009, the Company continued to develop its foundations as a leader in the genetically customized nutritional and personal care solutions. Nearly all of the $1,972,038 of revenues realized in the first quarter of 2009 were through GeneWize. During the quarter ended March 31, 2009, GeneWize added 1,674 new independent sales affiliates and 727 additional non-affiliate customers.
The Company continued to invest in systems and products through GeneWize. In February 2009, GeneWize began shipping its new LifeMap Essentials product, a non-customized nutritional preparation for customers genetically customized LifeMap Nutritional System solution. Additionally, in March, 2009, GeneWize launched GeneWize Academy, a sophisticated video/audio/interactive on-line educational resource. The Company believes that GeneWize Academy will assure a high level of education and consistency across the GeneWize sales channel, and will result in the best service and quality to customers as the Company grows.

In addition to new products, GeneWize went through a major redesign and enhancement of its sales and marketing materials provided to independent marketing affiliates. The content, as well as the look-and-feel, continue to be rolled out to other materials and web tools to enhance the sales and marketing of those affiliates.
GeneWize also continued to invest in its infrastructure to support future growth. In particular, sales and distribution information systems continued to improve reporting for affiliates. Investment in systems has enabled the Company to improve in sales force management and better leverage administrative staffing costs.
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended March 31, 2009, the Company's primary liquidity requirements have been the funding of its sales and marketing efforts, the payment of compensation to officers and consultants and the payment of accounts payable.
Cash and cash equivalents at March 31, 2009 amounted to $676,251 as compared to $435,197 at December 31, 2008, an increase of $241,054. During the first three months of 2009, the Company's operating activities utilized $1,376,383, as compared to $434,139 for the first three months of 2008, an increase of $942,244. Cash utilized during these periods partially funded the paying down of accounts payable, the Company's operating losses for such periods, and, during the first three months of 2008, the costs of defending the litigation brought against the Company by its former Chief Executive Officer and President.
Investing activities utilized $8,964 for the three months ended March 31, 2009 as compared to utilizing $54,566 for the three months ended March 31, 2008, a decrease of $45,602. Financing activities provided $1,626,401 for the three month period ended March 31, 2009 as compared to $0 for the three months ended March 31, 2008, through the issuance of $565,000 of stock and $1,200,000 of convertible promissory notes, less costs associated with such offerings.
The Company will require approximately $1,500,000 of additional funds in 2009 to further implement its sales and marketing strategy for the balance of 2009 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 THREE MONTHS ENDED MARCH 31, 2009 TO THREE MONTHS ENDED MARCH 31, 2008
Financial Condition
Assets of the Company increased from $2,545,226 at December 31, 2008 to $2,742,591 at March 31, 2009, an increase of $197,365. This increase was primarily due to an increase in cash from $435,197 at December 31, 2008 to $676,251 at March 31, 2009, an increase of $241,054, as partially offset by a decrease in accounts receivable from $713,565 at December 31, 2008 to $588,088 at March 31, 2009, a decrease of $125,477.
Liabilities of the Company decreased from $2,492,982 at December 31, 2008 to $2,348,417 at March 31, 2009, a decrease of $144,565. This decrease in liabilities primarily

resulted from a decrease in accounts payable from $2,034,322 at December 31, 2008 to $1,115,747 at March 31, 2009, a decrease of $918,575, as the Company used a portion of the $1,626,401 of net financing proceeds it received in the three months ended March 31, 2009 to pay down accounts payable, as partially offset by an increase convertible promissory notes payable, net of issuance of debt and conversion discounts, from $0 at December 31, 2008 to $818,308 at March 31, 2009. The $818,308 amount of convertible promissory notes payable reflected on the March 31, 2009 balance sheet is net of debt issuance costs and stock conversion discounts. As of March 31, 2009, $1,200,000 principal amount of convertible secured promissory notes were outstanding. See Note 3 to the financial statements for more information. Results of Operations
Revenues. Total revenues for the three months ended March 31, 2009 were $1,972,038 as compared to $26,424 for the three months ended March 31, 2007, an increase of $1,945,614. Sales were up dramatically due to the launch in 2008 of GeneWize Life Sciences and its LifeMap Nutrition System products.
Gross Profit. Gross profit increased from $1,109 for the three months ended March 31, 2008 to $1,047,264 for the three months ended March 31, 2009, an increase of $1,046,155. Gross profit margin increased from 4.2% to 53.1%, also due to GeneWize's LifeMap Nutrition System product launch. Gross profit margin for the three months ended March 31, 2009 was less than the gross profit margin in 2008 and was lower than anticipated due to (i) a substantial shift in product sales mix which yielded a lower gross profit margin and (ii) higher than expected product costs incurred during the three months ended March 31, 2009 related to orders received in 2008 and held due to various state testing regulations.
Expenses. Total expenses for the three months ended March 31, 2009 were $1,557,493 as compared to $449,359 for the three months ended March 31, 2008, an increase of $1,108,134. The increase in expenses primarily resulted from sales commission expenses paid to sales affiliates totaling $733,025 for the three months ended March 31, 2009, representing 37% of the Company's sales for the three months ended March 31, 2009. Compensation expenses also increased by $188,027 during the three months ended March 31, 2009 as the Company added management and operational staff. Technology and systems-related costs increased by $117,035, from $2,475 for the three months ended March 31, 2008 to $119,510 for the three months ended March 31, 2009.
Operating Losses. The Company incurred an operating loss of $470,474 for the three months ended March 31, 2009 as compared to an operating loss of $401,498 for the three months ended March 31, 2008, an increase of $68,976.
Net Losses. The Company incurred a net loss of $510,229 for the three months ended March 31, 2009 as compared to a net loss of $448,250 for the three months ended March 31, 2008, an increase of $61,979. Factors Affecting the Company's Business and Prospects 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 level of acceptance of the Company's products and services; the rate and commercial applicability of advancements and discoveries in the genetics field; the Company's ability to enter into strategic

alliances with companies in the genetics, pharmaceutical and nutrition industries; the ability of the Company to raise the financing necessary to fund its business and marketing plan, fund its research and development to pay salaries to its officers and employees and to pay its accounts payable; and the ability of the Company to support its independent sales representatives.