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U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-KSB/A
 ANNUAL REPORT FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2006
 COMMISSION FILE NO. 0-28077
 GENELINK, INC.
  PENNSYLVANIA
    
    23-2795613(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employee
Identification No.)Newport Financial Center113 Town Square Place, #313Jersey City, NJ
    
    07310(Address of principal executive offices)
    
    (Zip Code)
   
  
  þ o
 þ
 o þ
    Number of Shares of Common Stock Outstanding on February 28, 2007
    
    44,104,055
 o þ




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TABLE OF CONTENTS
 PageITEM 1.
    
    DESCRIPTION OF BUSINESS
    
    
    1ITEM 2.
    
    PROPERTIES
    
    
    12ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    13ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    14ITEM 5.
    
    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    14ITEM 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    17ITEM 7.
    
    FINANCIAL STATEMENTS
    
    
    22ITEM 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    45ITEM 8A.
    
    CONTROLS AND PROCEDURES
    
    
    45ITEM 9.
    
    DIRECTORS AND EXECUTIVE OFFICERS
    
    
    46ITEM 10.
    
    EXECUTIVE COMPENSATION
    
    
    52ITEM 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    53ITEM 12.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    55ITEM 13.
    
    EXHIBITS, LIST AND REPORTS ON FORM 8-K
    
    
    55ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    56Certification of Chief Executive Officer and Chief Financial OfficerCertification pursuant to U.S.C. Section 1350
  EXPLANATORY NOTE
    -1-




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ITEM 1. DESCRIPTION OF BUSINESS.
 GENERAL
      TM
  -1-




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Oxidative Stress Profiles
     Oxidative Stress for Skin Health and Skin Aging Profile
   -2-




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Other SNP Profiles Developed by GeneLink
     DNA Banking
  -3-




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Affiliates
      -4-




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Intellectual Property
  ®
    Competition
   -5-




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Government Regulation
  Employees and Labor Relations
  Number ofCategory
    
    Employees and ConsultantsSales and Marketing
    
    
    3General and Administration, including Customer Service
    
    
    5Research and Development
    
    
    6
 RISK FACTORS
  IF OUR FORMER CHIEF EXECUTIVE OFFICER PREVAILS WITH RESPECT TO HIS LITIGATION AGAINST THE
COMPANY, THE COMPANY MAY NOT BE ABLE TO PAY ANY JUDGMENT AND COULD BE FORCED TO CEASE ITS
OPERATIONS.
  -6-




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IF THIS COMPANY DEFAULTS ON ITS OBLIGATIONS WITH RESPECT TO ITS SECURED OR UNSECURED DEBT, ITS
LENDERS AND CREDITORS COULD FORECLOSE UPON THE COMPANYS ASSETS.
   THE COMPANY NEEDS TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE, TO CONTINUE ITS
OPERATIONS.
    
    
    the successful commercialization of the Companys existing products and services;
    
    progress in the Companys product development efforts;
    
    progress with regulatory affairs activities;
 -7-




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
    
    the growth and success of effective sales and marketing activities;
    
    the cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; and
    
    the development of strategic alliances for the marketing of the Companys products.
  EXPECTED FUTURE DILUTION TO SHAREHOLDERS.
  THE COMPANY HAS A HISTORY OF LOSSES AND EXPECT CONTINUED LOSSES FOR THE FORESEEABLE FUTURE.
  -8-




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IF ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION BECOME WIDESPREAD, WE MAY
HAVE LESS DEMAND FOR THE COMPANYS PRODUCTS.
  THE COMPANY HAS LIMITED SALES AND MARKETING EXPERIENCE.
  THE COMPANYS INDUSTRY IS HIGHLY COMPETITIVE AND IT MAY NOT HAVE THE RESOURCES REQUIRED TO
SUCCESSFULLY COMPETE.
  
    
    biotechnology, pharmaceutical, chemical and other companies;
    
    academic and scientific institutions;
    
    governmental agencies; and
    
    public and private research organizations.
  -9-




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THE MARKET FOR THE COMPANYS PRODUCTS AND SERVICES IS UNPROVEN.
  IF THE COMPANY IS UNSUCCESSFUL IN ESTABLISHING STRATEGIC ALLIANCES, ITS ABILITY TO DEVELOP AND
MARKET PRODUCTS AND SERVICES MAY BE DAMAGED.
  THE COMPANY HAS SIGNIFICANT FIXED OPERATING COSTS AND THE COMPANYS OPERATING RESULTS ARE SUBJECT
TO FLUCTUATIONS.
  VOLATILITY OF COMMON STOCK PRICE AND THIN TRADING MARKET.
  THE COMPANY MAY NOT BE ABLE TO ATTRACT AND RETAIN PROFESSIONAL STAFF.
  -10-




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THE COMPANY IS DEPENDENT ON KEY PERSONNEL.
  THE COMPANYS BUSINESS COULD BE ADVERSELY AFFECTED IF IT IS UNABLE TO PROTECT ITS PROPRIETARY
TECHNOLOGY OR SOMEONE CLAIMS THAT THE COMPANY IS INFRINGING ON THEIR PROPRIETARY TECHNOLOGY.
    -11-




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CONCENTRATION OF OWNERSHIP OF THE COMPANYS COMMON STOCK AMONG THE COMPANYS EXISTING EXECUTIVE
OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING
SIGNIFICANT CORPORATE DECISIONS.
  
    
    delaying, deferring or preventing a change in control of the Company;
    
    impeding a merger, consolidation, takeover or other business combination involving
the Company; or
    
    discouraging a potential acquirer from making a tender offer or otherwise attempting
to obtain control of the Company.
 THE COMPANYS ARTICLES OF INCORPORATION AND BYLAWS COULD DELAY OR DISCOURAGE A TAKEOVER ATTEMPT.
  
    
    provide that only the board of directors or president may call special meetings of
the shareholders; and
    
    establish certain advance notice procedures for nominations of candidates for
election as directors and for shareholder proposals to be considered at shareholders
meetings.
 
 ITEM 2. PROPERTIES
  -12-




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ITEM 3. LEGAL PROCEEDINGS
  John R. DePhillipo v. Robert P. Ricciardi
 John R. DePhillipo v. GeneLink, Inc.,
   -13-




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  PART II
 
 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
  2006
    
    High
    
    Low1st Quarter
    
    $
    0.13
    
    
    $
    0.052nd Quarter
    
    
    0.09
    
    
    
    0.043rd Quarter
    
    
    0.06
    
    
    
    0.034th Quarter
    
    
    0.07
    
    
    
    0.04
 2005
    
    High
    
    Low1st Quarter
    
    $
    0.32
    
    
    $
    0.192nd Quarter
    
    
    0.26
    
    
    
    0.123rd Quarter
    
    
    0.22
    
    
    
    0.124th Quarter
    
    
    0.17
    
    
    
    0.06
  -14-




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EQUITY COMPENSATION PLAN INFORMATION
 Number ofsecurities remainingavailable for futureNumber of
    
    
    
    
    
    issuance undersecurities to be
    
    
    
    
    
    equityissued upon exercise
    
    Weighted-average
    
    compensation plansof outstanding
    
    exercise price of
    
    (excluding securitiesoptions, warrants
    
    outstanding options
    
    reflected in columnand rights
    
    warrants and rights
    
    (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity
compensation
plans approved
by security
holders
    
    
    0
    
    
    
    
    
    
    
    6,000,000Equity
compensation
plans not
approved
by security
holders
    
    
    0
    
    
    
    
    
    
    
    0Total
    
    
    0
    
    
    
    
    
    
    
    6,000,000
 RECENT SALES OF UNREGISTERED SECURITIES.
    -15-




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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS
 Critical Accounting Policies
 Stock options:
  Amortization of patents:
  Revenue and cost recognition:
   -17-




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Use of Estimates:
   Results of Operations
     -18-




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GeneLink
    
    DermageneticsInc.
    
    Inc.Net Revenues
    
    $
    57,333
    
    
    $
    118,641Operating expenses
    
    
    765,815
    
    
    
    196,445Other income
    
    
    2,011
    
    
    
    697Pre-tax earnings (loss)
    
    
    (500,264
    )
    
    
    (77,407
    )
  GeneLink
    
    DermageneticsInc.
    
    Inc.Net Revenues
    
    $
    108,053
    
    
    $
    288,870Operating expenses
    
    
    1,242,348
    
    
    
    435,732Other income
    
    
    
    
    
    
    Pre-tax earnings (loss)
    
    
    (1,134,295
    )
    
    
    (146,862
    )
 -19-




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Liquidity and Capital Resources
      -21-




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ITEM 7. FINANCIAL STATEMENTS
 INDEX TO FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    23Financial StatementsConsolidated Balance Sheets
    
    
    24-25Consolidated Statements of Operations
    
    
    26Consolidated Statements of Changes in Stockholders Equity (Deficiency)
    
    
    27Consolidated Statements of Cash Flows
    
    
    28-29Notes to Consolidated Financial Statements
    
    
    30-44
 -22-




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 -23-




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GENELINK, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
 2006
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    149,695
    
    
    $
    15,275Accounts receivable
    
    
    32,185
    
    
    
    32,651Inventory
    
    
    5,772
    
    
    
    3,261Prepaid expenses
    
    
    14,421
    
    
    
    37,435Total current assets
    
    
    202,073
    
    
    
    88,622PROPERTY AND EQUIPMENT
    
    
    131,645
    
    
    
    147,519OTHER ASSETS
    
    
    380,675
    
    
    
    209,135Total assets
    
    $
    714,393
    
    
    $
    445,276
  24




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GENELINK, INC. AND SUBSIDIARY
 LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)
December 31, 2006 and 2005
 2006
    
    
    2005CURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    365,590
    
    
    $
    429,165Accrued payroll taxes
    
    
    0
    
    
    
    7,454Accrued compensation
    
    
    725,804
    
    
    
    593,399Loans payable to officers
    
    
    18,000
    
    
    
    27,861Total current liabilities
    
    
    1,109,394
    
    
    
    1,057,879Convertible secured promissory notes payable
    
    
    622,890
    
    
    
    0Total liabilities
    
    
    1,732,284
    
    
    
    1,057,879STOCKHOLDERS EQUITY (DEFICIENCY)Common stock, par value $0.01 per share;
authorized: 75,000,000 shares as of December
31, 2006 and 2005 respectively; issued: 2006
41,739,000 shares and 2005 36,689,550 shares;
outstanding: 2006 41,332,831 shares and
2005 36,283,381 shares
    
    
    417,390
    
    
    
    366,896Additional paid in capital
    
    
    6,982,849
    
    
    
    6,910,160Stock warrants
    
    
    3,011,009
    
    
    
    2,961,809Accumulated deficit
    
    
    (11,114,084
    )
    
    
    (10,536,413
    )Treasury stock, 406,169 shares as of
December 31, 2006 and 2005, respectively, at cost
    
    
    (315,055
    )
    
    
    (315,055
    )Total stockholders equity (deficiency)
    
    
    (1,017,891
    )
    
    
    (612,603
    )Total liabilities and stockholders equity
(deficiency)
    
    $
    714,393
    
    
    $
    445,276
  25




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GENELINK, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2006 and 2005
 2006
    
    
    2005Revenues:
    
    $
    175,674
    
    
    $
    396,923Cost of goods sold:
    
    
    65,421
    
    
    
    229,395Gross profit
    
    
    110,253
    
    
    
    167,528Expenses:General and administrative
    
    
    476,539
    
    
    
    802,984Consulting
    
    
    179,449
    
    
    
    177,633Professional fees
    
    
    173,590
    
    
    
    222,475Advertising and promotion
    
    
    14,369
    
    
    
    209,370Amortization and depreciation
    
    
    52,892
    
    
    
    36,223896,839
    
    
    
    1,448,685Operating loss
    
    
    (786,586
    )
    
    
    (1,281,157
    )Other income:
    
    
    2,708
    
    
    
    0Loss before provision for income taxes
    
    
    (783,878
    )
    
    
    (1,281,157
    )Deferred income tax benefit
    
    
    206,207
    
    
    
    228,287Provision for income taxes:
    
    
    0
    
    
    
    0Net loss
    
    $
    (577,671
    )
    
    $
    (1,052,870
    )Loss per share, basic and diluted:
    
    $
    (0.01
    )
    
    $
    (0.03
    )Weighted average common shares and
diluted potential common shares
    
    
    38,861,637
    
    
    
    35,806,407
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GENELINK, INC. AND SUBSIDIARY
 
 Consolidated Statements of Changes in Stockholders Equity (Deficiency)
YEARS ENDED DECEMBER 31, 2006 AND 2005
 ADDITIONALCOMMON STOCK
    
    
    TREASURY
    
    
    PAID IN
    
    
    STOCK
    
    
    ACCUMULATEDSHARES
    
    
    AMOUNT
    
    
    STOCK
    
    
    CAPITAL
    
    
    WARRANTS
    
    
    DEFICIT
    
    
    TOTALBalance, December 31, 2004
    
    
    33,133,011
    
    
    $
    331,330
    
    
    $
    (315,055
    )
    
    $
    6,635,552
    
    
    $
    2,632,422
    
    
    $
    (9,483,543
    )
    
    $
    (199,294
    )Issuance of common stock and stock warrants related to loan conversion
    
    
    640,369
    
    
    
    6,404
    
    
    
    0
    
    
    
    44,826
    
    
    
    94,877
    
    
    
    0
    
    
    
    146,107Fair value of options granted for services
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    11,520
    
    
    
    0
    
    
    
    11,520Fundraising costs incurred
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (32,500
    )
    
    
    0
    
    
    
    0
    
    
    
    (32,500
    )Fair value of options granted for fundraising services
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (79,050
    )
    
    
    27,900
    
    
    
    0
    
    
    
    (51,150
    )Fair value of options granted for services
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    16,000
    
    
    
    0
    
    
    
    16,000Issuance of common stock related to loan agreement
    
    
    200,000
    
    
    
    2,000
    
    
    
    0
    
    
    
    400
    
    
    
    0
    
    
    
    0
    
    
    
    2,400Issuance of common stock and stock warrants for services
    
    
    466,170
    
    
    
    4,662
    
    
    
    0
    
    
    
    85,932
    
    
    
    6,590
    
    
    
    0
    
    
    
    97,184Issuance of common stock and stock warrants pursuant to
private placement offerings
    
    
    2,250,000
    
    
    
    22,500
    
    
    
    0
    
    
    
    255,000
    
    
    
    172,500
    
    
    
    0
    
    
    
    450,000Net loss
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (1,052,870
    )
    
    
    (1,052,870
    )3,556,539
    
    
    
    35,566
    
    
    
    0
    
    
    
    274,608
    
    
    
    329,387
    
    
    
    (1,052,870
    )
    
    
    (413,309
    )Balance, December 31, 2005
    
    
    36,689,550
    
    
    $
    366,896
    
    
    $
    (315,055
    )
    
    $
    6,910,160
    
    
    $
    2,961,809
    
    
    $
    (10,536,413
    )
    
    $
    (612,603
    )Issuance of common stock and stock warrants related to convertible
secured promissory notes
    
    $
    4,539,450
    
    
    
    45,394
    
    
    
    0
    
    
    
    160,063
    
    
    
    0
    
    
    
    0
    
    
    
    205,457Fair value of options granted for services
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Commissions paid for fundraising costs
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (129,550
    )
    
    
    0
    
    
    
    0
    
    
    
    (129,550
    )Issuance of common stock and stock warrants for fundraising services
    
    
    410,000
    
    
    
    4,100
    
    
    
    0
    
    
    
    18,850
    
    
    
    49,200
    
    
    
    0
    
    
    
    72,150Issuance of common stock and stock warrants for services
    
    
    100,000
    
    
    
    1,000
    
    
    
    0
    
    
    
    23,326
    
    
    
    0
    
    
    
    0
    
    
    
    24,326Net loss
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (577,671
    )
    
    
    (577,671
    )5,049,450
    
    
    
    50,494
    
    
    
    0
    
    
    
    72,689
    
    
    
    49,200
    
    
    
    (577,671
    )
    
    
    (405,288
    )Balance, December 31, 2006
    
    
    41,739,000
    
    
    $
    417,390
    
    
    $
    (315,055
    )
    
    $
    6,982,849
    
    
    $
    3,011,009
    
    
    $
    (11,114,084
    )
    
    $
    (1,017,939
    )
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GENELINK, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31, 2006 and 2005
 2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (577,671
    )
    
    $
    (1,052,870
    )Adjustments to reconcile net loss to net
cash used in operating activities:Depreciation and amortization
    
    
    52,892
    
    
    
    36,223Common stock issued for fundraising services
    
    
    72,150
    
    
    
    97,184Common stock issued for loan agreement
    
    
    0
    
    
    
    2,400Warrants issued for services
    
    
    0
    
    
    
    16,000Fair value of options granted for
consulting services
    
    
    0
    
    
    
    39,420(Increase) decrease in assets:Accounts receivable
    
    
    466
    
    
    
    (9,412
    )Inventory
    
    
    (2,511
    )
    
    
    16,430Prepaid expenses
    
    
    23,014
    
    
    
    35,287Deposits and trademark
    
    
    0
    
    
    
    18,748Increase (decrease) in liabilities:Accounts payable and accrued expenses
    
    
    (63,574
    )
    
    
    333,365Accrued payroll taxes
    
    
    (7,454
    )
    
    
    (14,509
    )Accrued compensation
    
    
    132,405
    
    
    
    160,462Net cash used in operating activities
    
    
    (345,957
    )
    
    
    (321,272
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (19,756
    )
    
    
    (72,473
    )Patent acquisition costs
    
    
    (22,890
    )
    
    
    (45,188
    )Net cash used in investing activities
    
    
    (42,646
    )
    
    
    (117,661
    )CASH FLOWS FROM FINANCING ACTIVITIESRepayments of loans and notes payable
    
    
    (19,861
    )
    
    
    (186,038
    )Proceeds from convertible secured promissory
notes payable
    
    
    466,977
    
    
    
    0Common stock issued for bridge loans conversion
    
    
    205,457
    
    
    
    0Common stock issued for loan conversion
    
    
    0
    
    
    
    146,107Commissions paid for fundraising costs
    
    
    (129,550
    )
    
    
    0Private placement fundraising costs
    
    
    0
    
    
    
    (111,550
    )Proceeds from issuance of common stock
    
    
    0
    
    
    
    450,000Net cash provided by financing
activities
    
    
    523,023
    
    
    
    298,519Net increase (decrease) in cash
    
    
    134,420
    
    
    
    (140,414
    )
  28




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GENELINK, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2006 and 2005
 2006
    
    
    2005Cash and cash equivalents:Beginning
    
    $
    15,275
    
    
    
    155,689Ending
    
    $
    149,695
    
    
    $
    15,275SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATIONCash payments for:Interest:
    
    $
    98,300
    
    
    $
    54,114Non-cash financing transactions:Common stock issued for services
    
    $
    96,476
    
    
    $
    97,184Refinancing of bridge loans payable
    
    $
    200,000
    
    
    $
    0Debt issuance costs related to
convertible secured promissory
notes
    
    $
    165,912
    
    
    $
    0
  29




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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Note 1.
    
    OrganizationGeneLink, Inc. (the Company) and its subsidiary, Dermagenetics, Inc., operate in New
Jersey. The Company was organized under the laws of the Commonwealth of Pennsylvania
and Dermagenetics, Inc. was 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 Jersey City, New Jersey.The Company was founded in response to the information being generated in the field of
human molecular genetics. Scientists are discovering an increasing number of
connections between genes and specific diseases or physical attributes and tendencies.
These findings are a direct result of the National Institutes of Health Genome Project.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.The Company has also developed proprietary SNP-based genetic profiles (named GeneLink
Nutragenetic ProfileTM 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 selected 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.In December 2004, the Company formed a wholly owned subsidiary, Dermagenetics, Inc.,
to service the custom skin care market. As of December 31, 2004 the subsidiary had no
significant operations. The subsidiary commenced full operations during the first
quarter of 2005.Note 2.
    
    Summary of Significant Accounting PoliciesPrinciples of consolidation:The consolidated financial statements include the accounts of the Company and its
Subsidiary, both of which are wholly owned. All significant intercompany accounts and
transactions have been eliminated in the consolidation.
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Use of estimates:The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ from
those estimates.Cash and cash equivalents:Highly liquid debt instruments purchased with a maturity of three months or less are
considered to be cash equivalents. At times, cash and cash equivalents may exceed
insured limits. The Company maintains certain cash balances with Merrill Lynch, which
is SIPC insured up to $500,000.Property and equipment:Property and equipment are stated at cost. Expenditures for maintenance and repairs
are charged against operations. Renewals and betterments that materially extend the
life of the assets are capitalized. Depreciation is computed using the straight-line
method over the estimated useful lives of 5 to 39 years of the related assets.Revenue and cost recognition:Revenues are recorded when the kits are sold for GeneLink, Inc.s products. The
Company receives a non-refundable fee for the DNA kits and provides DNA analysis
testing at that time, then stores the specimen for up to 75 years. If the client
requests the DNA specimen back at any time during the storage period, they will be
entitled to receive the specimen upon payment of an additional retrieval fee but will
not be entitled to any refund of the original storage fee. Direct costs related to
sale of kits include the purchase of kits, samples, and delivery expenses. The direct
costs of kits are recognized at time of sale to customers as opposed to the time of
purchase by GeneLink, Inc. from its vendors. Kits purchased by GeneLink, Inc. and not
yet sold remain in inventory. Revenues from the proprietary genetic indicator tests
are recognized partially when the kits are sold, and subsequently when they are
presented to the lab for testing.The Company formed a subsidiary known as Dermagenetics, Inc. which has created and
is distributing DNA UltraCustom skin cream, genetically designed to an individuals
needs, specifically to the Spa industry. Dermagenetics has been appearing at Spa
conventions and is currently selling the Companys DNA UltraCustom skin cream to Spas
in the United States. Revenues are recorded when the skin cream kits are sold for
Dermagenetics Inc.s products.
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Amortization of patents:Legal and professional fees and expenses in connection with the filing of patent and
trademark applications have been capitalized and are amortized over fifteen years on a
straight-line basis. The Company has filed for and has patents pending in the USA and
foreign countries on its method of DNA gathering. The Company also filed for and has
patents pending on its three proprietary genetic indicator tests. The Company has a
registered trademark for its name, logo, and the name DNA Collection Kit®. In March
2001, the Company reached a Notice of Allowance of Patent on its method of DNA
gathering, and has received trademark protection for its name, logo, and the name DNA
Collection Kit®.Inventory:Inventory consists of kits held for resale. Inventory is valued at the lower of cost
(using the first-in, first-out method) or market. The shelf life of the DNA kits is
estimated by the Company to be in excess of 30 years.Income taxes:The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires
the use of an asset and liability approach for financial accounting and reporting for
income taxes. Under this method, deferred tax assets and liabilities are recognized
based on the expected future tax consequences of temporary differences between the
financial statement carrying amounts and tax basis of assets and liabilities as
measured by the enacted tax rates that are expected to be in effect when taxes are
paid or recovered. In December 2005, the Company sold net operating losses through the
New Jersey Technology Business Tax Certified Transfer Program. See Note 5.Long lived assets:The Company reviews for the impairment of long-lived assets and certain identifiable
intangibles whenever events or changes indicate that the carrying amount of an asset
may not be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of an asset and its eventual disposition
are less than its carrying amount. The Company has not identified any such impairment
losses during the years ended December 31, 2005 and 2004.Per share data:Effective November 12, 1998, the Company adopted SFAS No. 128, Earnings Per Share.
The provisions of SFAS 128 establish standards for computing and presenting earnings
per share (EPS). This standard replaces the presentation of primary EPS with
a presentation of basic EPS. Additionally, it requires dual presentation of basic and
diluted EPS for all entities with complex capital structures
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 and requires a reconciliation of the numerator and denominator of the diluted EPS
computation. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into
common stock. Diluted EPS for 2005 and 2004 excludes any effect from such securities,
as their inclusion would be antidilutive.Stock options:The Financial Accounting Standards Board has issued SFAS No. 123R, which defines a
fair value based method of accounting for an employee stock option and similar equity
instruments and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, during 2005 it also allows an entity
to continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25). Entities
electing to remain with the accounting in APB 25 must make proforma disclosures of net
income (loss) and, if presented, earnings (loss) per share, as if the fair value based
method of accounting defined in SFAS 123R had been adopted. The Company has elected to
account for its stock-based compensation plans under APB 25 during 2005, but has
adopted SFAS 123R for options transactions during 2006 and forward.Recent accounting developments:In December 2004, the FASB issued a revision to SFAS No. 123, Accounting for
Stock-Based Compensation, SFAS No. 123-R, Share-Based Payment. SFAS No. 123-R focuses
primarily on transactions in which an entity exchanges its equity instruments for
employee services and generally establishes standards for the accounting for
transactions in which an entity obtains goods or services in share-based payment
transactions. SFAS No. 123-R is effective for the Company in 2006. Management is
currently evaluating the effect of adoption of SFAS No, 123-R and the effect on
financial condition, results of operations or cash flows is yet to be determined.Reclassifications:Certain amounts in the prior years financial statement have been reclassified to
conform with the current years presentation.
 Note 3.
    
    Property and EquipmentAs of December 31, 2006 and 2005, property and equipment consisted of the following:
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005Office furniture
    
    $
    1,154
    
    
    $
    1,154Office equipment
    
    
    57,494
    
    
    
    57,494Leasehold improvements
    
    
    85,420
    
    
    
    85,420Software
    
    
    96,079
    
    
    
    76,323240,147
    
    
    
    220,391Less accumulated depreciation
and amortization
    
    
    108,502
    
    
    
    72,872$
    131,645
    
    
    $
    147,519
 Depreciation and amortization expense was $36,170 and $21,471 for the years ended
December 31, 2006 and 2005, respectively.
 Note 4.
    
    Other AssetsAs of December 31, 2006 and 2005, other assets consisted of the following:
 2006
    
    
    2005Patents and trademarks
    
    $
    273,279
    
    
    $
    250,389Less accumulated
amortization
    
    
    58,516
    
    
    
    41,254$
    214,763
    
    
    $
    209,135
 Amortization expense was $16,722 and $14,752 for the years ended December 31, 2006 and
2005, respectively.The future estimated minimum amortization expense that will be charged to
operations as of December 31, 2005
is as follows:
 Year endingDecember 31,2007
    
    $
    16,7222008
    
    
    16,7222009
    
    
    16,7222010
    
    
    16,7222011
    
    
    16,722Thereafter
    
    
    131,153$
    214,763
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Note 5.
    
    Income TaxesAt December 31, 2006 and 2005, the Company had federal and state tax net operating
loss carry forwards of approximately $15,230,000 and $14,650,000, respectively. The
difference between the operating loss carry forwards on a tax basis and a book basis
is due principally to differences in depreciation, amortization, and treatment of
stock options. The federal carry forwards begin to expire in 2009 and the state carry
forwards began to expire in 2003.The Company had a net deferred tax asset of $1,955,000 and $1,880,000 at December 31,
2006 and 2005, respectively, primarily from net operating loss carry forwards. A
valuation allowance was recorded to reduce the net deferred tax asset to zero. The
deferred tax asset valuation allowance increased $75,000 for the year ended December
31, 2006 and $210,000 for the year ended December 31, 2005.During December 2006, the Company received proceeds from the sale of net operating
losses through the New Jersey Technology Business Tax Certified Transfer Program (the
Tax Transfer Program). Through the Tax Transfer Program, the Company sold $224,160 of
net operating loss benefits and received $206,207 of net proceeds from this sale.During December 2005, the Company received proceeds from the sale of net operating
losses through the New Jersey Technology Business Tax Certified Transfer Program (the
Tax Transfer Program). Through the Tax Transfer Program, the Company sold $265,450 of
net operating loss benefits and received $228,287 of net proceeds from this sale.
 Note 6.
    
    Stockholders Equity TransactionsCommon StockThe Company issued 510,000 and 466,170 shares of common stock for services rendered,
valued at $96,476 and $97,184 for the years ended December 31, 2006 and 2005,
respectively.During the year ended December 31, 2006, the Company issued $827,890 principal amount
of convertible secured promissory notes and issued 4,139,452 shares of restricted
Common Stock in connection with the issuance of the notes.During the year ended December 31, 2006, the Company issued stock in settlement of a
debt agreement. The Company issued 640,369 shares of common stock to settle $75,000 of
debt and interest accrued on the note.
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 During the year ended December 31, 2005, the Company issued 2,250,000 shares of common
stock and 1,500,000 warrants to purchase common stock for cash consideration of
$450,000. This is pursuant to the private placement offerings in 2005. Using the
Black-Scholes methodology, the warrants were valued at $300,000.Stock Options and WarrantsThe Financial Accounting Standards Board has issued SFAS No. 123R, which defines a fair
value based method of accounting for an employee stock option and similar equity
instruments and requires all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, during 2005 it also allows an entity
to continue to measure compensation cost for those plans using the method of accounting
prescribed by Accounting Principles Board Opinion No. 25 (APB 25).Entities electing to remain with the accounting in APB 25 made proforma disclosures of
net income (loss) and, if presented, earnings (loss) per share, as if the fair value
based method of accounting defined in SFAS 123R had been adopted. The Company has
elected to account for its stock-based compensation plans under APB 25 during 2005, but
has adopted SFAS 123R for options transactions during 2006 and forward.SFAS 123R requires the recognition of the fair value of stock at the dates stock
options are granted to employees at exercise prices equal to the fair market value of
our stock at the dates of grant. Generally, options are fully vested within three years
from the grant date and have a term of 10 years. Performance awards are granted to
officers and key employees are payable in shares of common stock. The number of
performance award shares actually issued, if any, varies depending on the achievement
of certain performance goals. In general, performance grants vest ratably over the
service period. The Company recognizes the stock-based compensation expense over the
requisite service period of the individual grantees, which generally equals the vesting
period. The Company provides newly issued shares and treasury stock to satisfy stock
option exercise and for the issuance of performance awards.Prior to January 1, 2005, the Company followed Accounting Principles Board (APB)
Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock options and performance awards.The Company has elected the modified prospective transition method for adopting SFAS
123R. Under this method, the provisions of SFAS 123R apply to all awards granted or
modified after the date of adoption. In addition, the unrecognized expense of awards
not yet vested at the date of adoption, determined under the original
provisions of SFAS 123, shall be recognized in net income in the periods after
adoption. The Company determined it did not need to recognize additional stock-based
compensation for the years ended December 31, 2006 and 2005.
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 During 2005, the Company relieved its Chief Executive Officer and President of his
duties and all outstanding options, both vested and unvested, were cancelled in
accordance with their terms.During the quarter ended March 31, 2005, the Company issued 200,000 options to acquire
common stock at $0.25 per share for fundraising. In addition, the Company issued
128,000 options to buy stock at $.040 per share for consulting services. These options
vest in equal monthly installments for 24 months beginning in February 2005. Consulting
expense of $0 and $11,520 were charged to the options for 2006 and 2005, respectively.In the quarter ending June 30, 2005, the Company issued 200,000 options to buy stock at
$0.50 per share for consulting services. The options vest in equal monthly installments
for 24 months beginning in May, 2005. Consulting expense related to this issuance was
$16,000.A summary of the status of the Companys stock options and warrants as of December 31,
2006 and 2005, and changes during the years ending of those dates are presented below:
 2006
    
    
    2005Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOptions/warrants outstanding
at beginning of year
    
    
    16,905,821
    
    
    $
    0.44
    
    
    
    20,818,937
    
    
    $
    0.51Granted
    
    
    1,640,000
    
    
    
    0.05
    
    
    
    3,010,704
    
    
    
    0.23Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (3,552,834
    )
    
    
    (0.49
    )
    
    
    (3,323,820
    )
    
    
    (0.31
    )Cancelled
    
    
    
    
    
    
    
    
    
    
    (3,600,000
    )
    
    
    (0.79
    )Options/warrants outstanding
at end of year
    
    
    14,992,987
    
    
    $
    0.38
    
    
    
    16,905,821
    
    
    $
    0.44Options/warrants exercisable
at end of year
    
    
    14,954,306
    
    
    
    
    
    
    
    16,703,149Weighted-average fair value
of options granted during
the year
    
    
    
    
    
    $
    0.04
    
    
    
    
    
    
    $
    0.11
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 The following table summarizes information about stock options and warrants
outstanding at December 31, 2006:
 Weighted-AverageNumber
    
    RemainingExercise
    
    Outstanding
    
    Contractual Life
    
    ExercisablePrice
    
    at 12/31/06
    
    (Years)
    
    Warrants0.05
    
    
    1,640,000
    
    
    
    4.61
    
    
    
    1,640,0000.20
    
    
    4,307,704
    
    
    
    3.07
    
    
    
    4,307,7040.25
    
    
    565,000
    
    
    
    2.71
    
    
    
    565,0000.40
    
    
    2,953,000
    
    
    
    1.54
    
    
    
    2,947,6590.45
    
    
    920,000
    
    
    
    1.12
    
    
    
    920,0000.50
    
    
    1,169,167
    
    
    
    1.49
    
    
    
    1,135,8270.60
    
    
    2,206,250
    
    
    
    1.89
    
    
    
    2,206,2500.75
    
    
    387,500
    
    
    
    0.77
    
    
    
    387,5001.00
    
    
    844,366
    
    
    
    0.44
    
    
    
    844,36614,922,987
    
    
    
    
    
    
    
    14,954,306
 Had compensation cost of GeneLink, Inc.s incentive stock options issued to
officers been determined based on the fair value of options at the dates of award
under the fair value method of SFAS 123, the Companys net loss and net loss per
common share would have been reduced to the proforma amounts indicated below:
 2006
    
    2005Net loss:As reported
    
    $
    (577,761
    )
    
    $
    (1,052,870
    )Additional stock-based compensation
    
    
    
    
    
    
    Proforma
    
    
    (577,761
    )
    
    $
    (1,052,870
    )Net loss per common share:As reported
    
    $
    (0.01
    )
    
    $
    (0.03
    )Additional stock-based compensation
    
    
    
    
    
    
    Proforma
    
    
    (0.01
    )
    
    
    (0.03
    )
 Significant assumptions used to calculate the fair value of all options issued for
services are as follows:
 Risk free interest rate of return
    
    
    7
    %Expected option life
    
    4-5.5 yrs.Expected dividends
    
    $
    0.00Expected volatility
    
    
    50
    %
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Private Placement OfferingsIn March 2005, the Company issued a confidential private offering memorandum of up to
2,000,000 shares at $.20 per unit and a warrant to acquire 1/2 share of common stock at
$.20 per share pursuant to Rule 506 of Regulation D of the Securities Act of 1933.
 Note 7.
    
    Net Loss Per ShareEarnings per share is calculated under the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128 Earnings Per Share.Basic EPS is calculated using the weighted average number of common shares outstanding
for the period and diluted EPS is computed using the weighted average number of common
shares and dilutive common equivalent shares outstanding. Given that the Company is in
a loss position, there is no difference between basic EPS and diluted EPS since the
common stock equivalents would be antidilutive.
 2006
    
    
    2005Net loss
    
    $
    (577,671
    )
    
    $
    (1,052,870
    )Weighted average number of common shares
outstanding for computing basic earning per share
    
    
    38,861,637
    
    
    
    35,806,407Dilutive effect of warrants and stock options after
application of the treasury stock method
    
    
    
    
    
    
    Weighted average number of common shares out-standing for computing diluted earnings per share
    
    
    38,861,637
    
    
    
    35,806,407Net loss per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.03
    )
 The following common stock equivalents are excluded from the earnings per share
calculation as their effect would have been antidulitive:
 Years Ended December 312006
    
    
    2005Warrants and stock options
    
    
    14,922,987
    
    
    
    16,905,821
 Note 8.
    
    AdvertisingThe Company expenses the production costs of advertising when incurred. Advertising
expense was $14,369 and $209,370 for the years ended December 31, 2006 and 2005,
respectively.
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Note 9.
    
    RentThe Company leases its offices in Jersey City, New Jersey.Note 10.
    
    Related Party Transactions and Convertible Secured Promissory NotesIn January 2006 the Company entered into an Exclusivity and Indemnity Agreement with
First Equity Capital Securities, Inc. (First Equity), pursuant to which the Company
granted First Equity the exclusive right to assist the Company in raising between
$200,000 and $2,000,000 in debt financing and agreed to indemnify First Equity from any
claims made as a result of First Equity providing services to or on behalf of the
Company. This exclusive arrangement continued through May 2006. Kenneth R. Levine, a
holder of greater than five percent (5%) of the Companys outstanding common stock, is
a principal and officer of First Equity.In May 2006, December 2006 and January 2007, pursuant to the terms of a Convertible
Secured Loan Agreement, dated as of May 12, 2006 (as amended and supplemented, the
Loan Agreement), the Company issued $877,890 principal amount of Notes.The Company issued to First Equity Capital Securities, Inc., as Administrative Agent
under the Loan Agreement, an aggregate of 435,000 shares of restricted Common Stock of
the Company and warrants to acquire 1,740,000 shares of restricted Common Stock of the
Company at an exercise price of $0.05 per share in connection with the issuance of the
Notes. The Company also paid First Equity Capital Securities, Inc. a placement fee of
$60,900, equal to 7% of all loans raised pursuant to the Loan Agreement. Kenneth R.
Levine, a holder of more than five percent of the equity securities of the Company, is
an officer and principal of First Equity Capital Securities, Inc. Mr. Levine purchased
$56,578.08 of Notes and received 282,890 shares of restricted Common Stock of the
Company in connection with the issuance of the Notes.Robert Hoekstra, a director of the Company, purchased and holds $50,789.04 principal
amount of Notes and Bernard L. Kasten, Jr., a director of the Company, purchased and
holds $116,578.08 principal amount of Notes.Short Term Loans PayableAs of December 31, 2006, the Company has various shareholders of the Company who
provided short term obligations, as follows:
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005Note payable, due July 27, 2005 with
interest at 6%. All interest and principal
due at maturity. Repayment terms extended
past due date by agreement.
    
    $
    
    
    
    $
    12,586Note payable, due January 1, 2005 with
interest at 6%. All interest and principal
due at maturity.
    
    
    
    
    
    
    Note payable, due July 28, 2005 with
interest at 6%. All interest and principal
due at maturity. Repayment terms
extended past due date by agreement.
    
    
    
    
    
    
    5,275Note payable, due no specific maturity with
no stated interest. All interest and principal
due at maturity.
    
    
    10,000
    
    
    
    10,000Note payable, no specific maturity with no stated
Interest. All interest and principal
due at maturity.
    
    
    8,000
    
    
    
    18,000
    
    
    
    27,681Less: Discount for warrants issued
    
    
    (
    )
    
    
    (
    )Total short term loans payable
    
    $
    18,000
    
    
    $
    27,861
 Employees and ConsultantsThe Company is dependent on the services of Monte E. Taylor, Jr., its Chief Executive
Officer. The Company is in the process of negotiating an employment agreement with Mr.
Taylor. A new agreement has not been signed. His current arrangement provides for
annual compensation of $90,000 per year.The Company has entered into a consulting agreement with Dr. Ricciardi (shareholder and
officer) dated February 24, 1998. The initial term of the agreement was five (5)
years. As of December 31, 2006 and 2005, $710,323 and $593,399, respectively was owed
to Dr. Ricciardi for services rendered under the consulting agreement.Convertible Secured Promissory Notes PayableAs of December 31, 2006, the Company has various shareholders of the Company who
provided convertible secured promissory note obligations, as follows:
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005Notes payable, due May 12, 2011 with interest at
12%. All interest and principal due at maturity.
All Company assets pledged as collateral.
    
    $
    827,890
    
    
    $
    827,890
    
    
    
    Less: Debt proceeds not received
    
    
    (205,000
    )
    
    
    Total short term loans payable
    
    $
    622,890
    
    
    
    
 In connection with issuance of the convertible secured promissory notes, the Company
has recognized debt issuance costs of $180,898 that are being amortized over the
term of the notes. As of December 31, 2006, the unamortized debt issuance costs are
$165,912 and are included in Other assets on the balance sheet.As of December 31, 2006, the Company has not received all proceeds from the notes
payable. Accordingly, the Company has reduced the balance sheet liability for the
convertible secured promissory notes by $205,000 at December 31, 2006.Note 11.
    
    Segment InformationThe Company distinguishes its two main operating segments by entity and the types of products they sell.The following table sets forth the net revenues, operating expenses and pre-tax earnings
of our segments for the year ended December 31, 2006 and 2005:
 GeneLink
    
    DermageneticsInc.
    
    Inc.2006Net Revenues
    
    $
    57,333
    
    
    $
    118,341Operating expenses
    
    
    765,815
    
    
    
    196,445Other income
    
    
    2,011
    
    
    
    697Pre-tax earnings (loss)
    
    
    (500,264
    )
    
    
    (77,407
    )2005Net Revenues
    
    $
    108,053
    
    
    $
    288,870Operating expenses
    
    
    1,242,348
    
    
    
    435,732Other income
    
    
    
    
    
    
    Pre-tax earnings (loss)
    
    
    (1,134,295
    )
    
    
    (146,862
    )
 42




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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Note 12.
    
    Going ConcernThe Companys financial statements are prepared using generally accepted accounting
principles applicable to a going concern, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. The Company incurred
a net operating loss of $577,671 and $1,052,870 for the years ended December 31, 2006
and 2005, respectively. The Company reported a deficit of $11,114,084 and $10,536,413
as of December 31, 2006 and 2005, respectively. The Company has announced marketing
plans to enhance sales and, as a result, management believes that they will be able to
generate sufficient revenue and cash flow for the Company to continue as a going
concern. Should the Company be unable to continue as a going concern, assets and
liabilities would require restatement on a liquidation basis that would differ
materially from the going concern basis.Note 13.
    
    Commitments and ContingenciesEffective October 14, 2005, the Company terminated the employment of John R.
DePhillipo, the Companys former Chief Executive Officer and Chief Financial Officer
and a former director of the Company. Mr. DePhillipo commenced two lawsuits allegedly
arising out of his termination by the Company.In an Action filed in the United States District Court for the Eastern District of
Pennsylvania John R. DePhillipo v. Robert P. Ricciardi, Civil Action No. 05-5906, Mr.
DePhillipo alleged that Dr. Ricciardi, a Director and Officer of the Company, (1)
caused Mr. DePhillipos employment with the Company to be wrongfully terminated and
therefore is personally liable for all severance owed Mr. DePhillipo, in the amount of
at least $75,000; (2) was personally liable for Mr. DePhillipos unpaid back salary of
$84,000 simply because Dr. Ricciardi is an officer and/or director of the Company; and
(3) acted sufficiently maliciously to justify punitive damages being assessed against
Dr. Ricciardi of $10,000,000. Under the terms of the Companys By-laws and
Pennsylvania law, the Company is obligated both to reimburse Dr. Ricciardi for his
costs of defending this action and is required to advance him the costs of the expense
of such a defense. Counsel for Dr. Ricciardi entered an answer to this action and
subsequently the action against Dr. Ricciardi was dismissed with prejudice in March
2006. There is thus no further contingent liability with regard to this matter.In a separate Action filed by Mr. DePhillipo against the Company in November 2005 in
the Superior Court of New Jersey, Law Division, Atlantic County, John R. DePhillipo v.
GeneLink, Inc.,Docket No. ATL-L-7479-05, Mr. DePhillipo has alleged that his
termination by the Company for cause was improper and therefore he is entitled to in
excess of $1,500,000 in severance pay under the terms of an employment agreement,
allegedly entered into effective January 1, 2005 (the Employment Agreement) and an
additional $84,000 in accrued and unpaid compensation. The Company has filed an Answer
denying the material allegations of the Complaint and asserting a number of affirmative
defenses. The Company believes
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GENELINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
 Mr. DePhillipos claims are without merit and intends to vigorously defend against
those claims. The Company has also filed counterclaims against Mr. DePhillipo for
breach of fiduciary duty, conversion, negligent misrepresentation and unjust enrichment
while Mr. DePhillipo served as the Companys Chief Executive Officer, President and
Chief Financial Officer. The counterclaims seek recovery in excess of that sought by
Mr. DePhillipo in the Complaint.The Company has received a notice of an alleged patent infringement from an Australian
bioscience company. It is the opinion of patent counsel that there is no infringement,
and that in the event there is an infringement, management believes it will not have a
material effect on the Companys business and financial position.Note 14.
    
    Subsequent EventsIn January 2007, the Company received $205,000 on account of the convertible secured
promissory notes receivable and sold an additional $50,000 of Notes and issued 275,000
shares in connection therewith. In January 2007, holders of Notes converted $121,131
of Notes into 2,422,625 shares of Common Stock at a conversion price of $0.05 per
share.Note 15.
    
    Quarterly Results of Operations (unaudited)Below is a summary of the quarterly results of operations for each quarter of the years ended
December 31, 2006 and 2005:
 First
    
    Second
    
    Third
    
    Fourth2006Sales
    
    $
    47,711
    
    
    $
    35,642
    
    
    $
    59,122
    
    
    $
    33,199Gross profit
    
    
    30,962
    
    
    
    14,556
    
    
    
    33,206
    
    
    
    (31,529
    )Net income (loss)
    
    
    (229,491
    )
    
    
    (255,928
    )
    
    
    (138,698
    )
    
    
    (46,456
    )Net income (loss) per
common share
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.008
    )
    
    
    (0.001
    )2005Sales
    
    $
    55,581
    
    
    $
    133,602
    
    
    $
    76,850
    
    
    $
    30,000Gross profit
    
    
    125,674
    
    
    
    76,126
    
    
    
    37,400
    
    
    
    (71,672
    )Net income (loss)
    
    
    (371,488
    )
    
    
    (361,123
    )
    
    
    (282,574
    )
    
    
    (37,685
    )Net income (loss) per
common share
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.008
    )
    
    
    (0.001
    )
 44




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ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 8A.  CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures
   Change In Internal Controls
  45




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PART
III
 
 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS.
  Name
    
    Age
    
    PositionMonte E. Taylor
    
    
    56
    
    
    Chief Executive Officer, Acting
Chief Financial Officer,
DirectorRobert P. Ricciardi, Ph.D.
    
    
    60
    
    
    Chairman, Secretary,
Chief Science Officer, DirectorDr. Bernard L. Kasten, Jr.
    
    
    60
    
    
    Executive Chairman of the Board,
DirectorRobert Hoekstra
    
    
    56
    
    
    DirectorJohn H. Souza
    
    
    44
    
    
    Director
   46




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st st th
   47




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Audit Committee
    Nominating Committee
  48




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Section 16(a) Beneficial Ownership Reporting Compliance.
  Code of Ethics
  Compensation of Directors and Meeting of Directors
  Communications with the Board of Directors
  Material Proceedings with Directors, Officers and Holders of More Than Five Percent of the
Common Stock of the Company; Resignation of Directors
  John R. DePhillipo v. GeneLink, Inc.,
 49




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REPORT FROM THE AUDIT COMMITTEE
   50




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##### Table of Contents



Robert Hoekstra
Dr. Bernard L. Kasten, Jr.
Robert P. Ricciardi, Ph.D.
John H. Souza
Monte E. Taylor, Jr. 51




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##### Table of Contents



ITEM 10. EXECUTIVE COMPENSATION
 SUMMARY COMPENSATION TABLE
 Name and Principal Position
    
    Year
    
    Salary ($)
    
    All Other Compensation ($)
    
    Total ($)Monte E.
Taylor, Jr. ChiefExecutive Officer(1)
    
    
    2006
    
    
    $
    90,000
    
    
    $
    22,486
    (2)
    
    $
    112,4862005
    
    
    $
    90,000
    
    
    $
    20,795
    (2)
    
    $
    110,796Robert P.
Ricciardi, Ph.D.,Chief Science Officer
    
    
    2006
    
    
    $
    116,924
    (3)
    
    
    
    
    
    $
    116,9242005
    
    
    $
    106,294
    (3)
    
    
    
    
    
    $
    106,294
 
 (1)
    
    Mr. Taylor was appointed Chief Executive Officer effective October 14, 2005.(2)
    
    Represents the cost of health insurance premiums provided from the Company.(3)
    
    This amount has accrued but has not been paid. As of December 31, 2006, the Company owed Dr.
Ricciardi an aggregate of $656,155 for compensation earned but not received. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
  DIRECTOR COMPENSATION
  Employment Agreements with Executive Officers
  52




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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 PRINCIPAL SHAREHOLDERS
    Number of Shares
    
    
    Approximate PercentageName
    
    Beneficially Owned
    
    
    Of Stock OutstandingJohn R. and Maria D. DePhillipo
    
    
    4,716,585
    (1)
    
    
    10.7%100 S. Thurlow AvenueMargate, New Jersey 08402Dr. Bernard L. Kasten, Jr.
    
    
    3,512,859
    (2)
    
    
    7.5%113 Pavonia Avenue, #313Jersey City, New Jersey 07310Kenneth R. Levine
    
    
    2,935,632
    (3)
    
    
    6.7%1776 BroadwaySuite 2000New York, New York 10019Robert Hoekstra
    
    
    2,784,696
    (4)
    
    
    6.1%113 Pavonia Avenue, #313Jersey City, New Jersey 07310Robert P. Ricciardi, Ph.D.
    
    
    2,710,000
    
    
    
    6.1%113 Pavonia Avenue, #313Jersey City, New Jersey 07310John H. Souza
    
    
    1,490,331
    (5)
    
    
    3.3%113 Pavonia Avenue, #313Jersey City, New Jersey 07310
 53




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##### Table of Contents



Number of Shares
    
    
    Approximate PercentageName
    
    Beneficially Owned
    
    
    Of Stock OutstandingMonte E. Taylor, Jr.
    
    
    27,750
    (6)
    
    
    *113 Pavonia Avenue, #313Jersey City, New Jersey 07310Directors and Officers as a
    
    
    10,525,636
    (2)(4)(5)(6)
    
    
    21.4%Group
 
 (1)
    
    Includes 3,235,885 shares of Common Stock held by John R. DePhillipo and 1,010,700 shares
of Common Stock held by Maria D. DePhillipo, his wife. Mr. DePhillipo disclaims beneficial
ownership of the shares held by Maria D. DePhillipo. Includes 470,000 shares of Common Stock held
by various family trusts for which Mrs. DePhillipo is the trustee, and each of Mr. and Mrs.
DePhillipo disclaim any beneficial ownership of those shares.(2)
    
    Includes 2,533,299 shares of Common Stock issuable upon the conversion of Notes. As of
February 28, 2007 Dr. Kasten held $126,664.92 of principal and accrued interest of Notes, which
convert into Common Stock at $0.05 per share.(3)
    
    Includes 435,000 shares of Common Stock held by First Equity Capital Securities, Inc., of which
Mr. Levine is a principal.(4)
    
    Includes 1,113,296 shares of Common Stock issuable upon the conversion of Notes. As of
February 28, 2007, Mr. Hoekstra held $55,664.79 of principal and accrued interest of Notes, which
convert into Common Stock at $0.05 per share. Includes currently exercisable warrants to acquire
270,455 shares of Common Stock. Includes 647,000 shares of Common Stock and warrants to exercise
500,000 shares of Common Stock held by a family trust for which Mr. Hoekstra is a trustee. Mr.
Hoekstra disclaims beneficial ownership of those shares and warrants.(5)
    
    Includes currently exercisable warrants to acquire 605,661 shares of Common Stock.(6)
    
    Include 16,000 shares held by Mr. Taylor and various family members in joint tenancy.(*)
    
    Less than 1%. 54




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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
 (1)
    
    Financial Statements. The financial statements required to be filed are
presented beginning on page 21.(2)
    
    Exhibits. The following Exhibits have been filed pursuant to Item 601 of
Regulation S-B.
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 55




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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  Fees for Independent Auditors for Fiscal Years 2006 and 2005
  2005
    
    
    2006Audit Fees
    
    $
    22,000
    
    
    $
    22,000Audit-Related Fees
    
    
    0
    
    
    
    0Tax Fees
    
    
    0
    
    
    
    0All Other Fees
    
    
    0
    
    
    
    0Total Fees
    
    $
    22,000
    
    
    $
    22,000
   56




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SIGNATURES
  GENELINK, INC.
RegistrantDate: October 15, 2007
    By:
    /s/ Monte E. Taylor, Jr.Monte E. Taylor, Jr.,Chief Executive Officer  Signatures
    
    Capacity
    
    Date/s/ Monte E. Taylor, Jr.

Monte E. Taylor
Chief Executive Officer
    
    Principal Executive
Officer, Principal
Financial Officer and
Director
    
    October 15, 2007/s/ Robert P. Ricciardi

Robert P. Ricciardi,
Ph.D.
Director
    
    Director
    
    October 15, 2007/s/ Bernard L. Kasten, Jr.

Dr. Bernard L. Kasten, Jr.
    
    Executive Chairman and Director
    
    October 15, 2007/s/ Robert Hoekstra

Robert Hoekstra
    
    Director
    
    October 15, 2007/s/ John H. Souza

John H. Souza
    
    Director
    
    October 15, 2007
 57