U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 0-28077
 GENELINK, INC.
  PENNSYLVANIA
    
    23-2795613(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)317 Wekiva Springs Road, #200
    
    32779Longwood, Florida
    
    (Zip Code)(Address of principal executive offices)
  Registrants telephone number, including area code
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer  o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  Number of Shares of Common Stock 
Outstanding on November 12, 2008
    
    91,765,025




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PagePART I. FINANCIAL INFORMATIONITEM 1 Financial Statements.Consolidated Balance Sheets at September 30, 2008
(unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Income for the three months
and nine months ended September 30, 2008 and 2007
(unaudited)
    
    
    4-5Consolidated Statements of Cash Flows for the nine months
ended September 30, 2008 and 2007 (unaudited)
    
    
    6-7Notes to Interim Consolidated Financial Statements
    
    
    8-11
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GENELINK, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)September 30, 2008
    
    December 31, 2007ASSETSCash and cash equivalents
    
    $
    634,602
    
    
    $
    972,371Accounts receivable
    
    
    534,118
    
    
    
    35,327Inventory
    
    
    545,285
    
    
    
    3,646Prepaid expenses
    
    
    1,408,124
    
    
    
    11,273Total current assets
    
    
    3,122,129
    
    
    
    1,022,617Property and equipment
    
    
    271,046
    
    
    
    38,476Other assets
    
    
    378,785
    
    
    
    322,731Total assets
    
    $
    3,771,960
    
    
    $
    1,383,824LIABILITIESCurrent LiabilitiesCurrent maturity of capital lease obligation
    
    $
    51,557
    
    
    $
    0Accounts payable and accrued expenses
    
    
    1,442,398
    
    
    
    439,399Accrued compensation
    
    
    90,000
    
    
    
    144,168Deferred revenue
    
    
    2,615,910
    
    
    
    100,922Loans payable to officers
    
    
    18,000
    
    
    
    18,000Total current liabilities
    
    
    4,217,865
    
    
    
    702,489Convertible
secured promissory notes payable, net of issuance of debt and stock conversion discounts
    
    
    0
    
    
    
    487,968Total liabilities
    
    
    4,217,865
    
    
    
    1,190,457SHAREHOLDERS EQUITY (DEFICIENCY)Common stock, $.01 par value, 125,000,000 shares authorized as
of September 30, 2008 and December 31, 2007, respectively;
96,026,291 shares and 66,673,591 shares issued as of September
30, 2008 and December 31, 2007 respectively; 91,667,122 shares
and 66,267,422 shares outstanding as of September 30, 2008 and
December 31, 2007, respectively
    
    
    960,263
    
    
    
    666,736Additional paid in capital
    
    
    11,594,728
    
    
    
    8,277,692Stock warrants
    
    
    2,308,359
    
    
    
    4,245,692Accumulated deficit
    
    
    (14,757,020
    )
    
    
    (12,681,698
    )Treasury stock, 4,359,169 shares and 406,169 shares as of
September 30, 2008 and December 31, 2007 respectively, at cost
    
    
    (552,235
    )
    
    
    (315,055
    )Total shareholders equity (deficiency)
    
    
    (445,905
    )
    
    
    193,367Total liabilities and shareholders equity (deficiency)
    
    $
    3,771,960
    
    
    $
    1,383,824
 The accompanying notes are an integral part of the consolidated financial statements
 3




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GENELINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three months ended September 30,
    
    2008
    
    2007REVENUE
    
    $
    1,829,669
    
    
    $
    26,150COST OF GOODS SOLD
    
    
    425,706
    
    
    
    11,608GROSS PROFIT
    
    
    1,403,963
    
    
    
    14,542EXPENSESSelling, general and administrative
    
    
    1,889,655
    
    
    
    509,267OPERATING LOSS
    
    
    (485,692
    )
    
    
    (494,725
    )OTHER EXPENSESAmortization and depreciation
    
    
    26,449
    
    
    
    14,175Interest expense
    
    
    1,331
    
    
    
    41,84727,780
    
    
    
    56,022NET LOSS BEFORE PROVISION FOR INCOME TAXES
    
    
    (513,472
    )
    
    
    (550,747
    )PROVISIONS FOR INCOME TAXES
    
    
    
    
    
    
    NET LOSS
    
    $
    (513,472
    )
    
    $
    (550,747
    )NET LOSS PER SHARE BASIC AND DILUTED
    
    $
    (0.005
    )
    
    $
    (0.01
    )Weighted average common shares and diluted
potential common shares
    
    
    96,026,291
    
    
    
    45,307,320
 .
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GENELINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Nine months ended September 30,
    
    2008
    
    2007REVENUE
    
    $
    1,982,629
    
    
    $
    85,216COST OF GOODS SOLD
    
    
    565,483
    
    
    
    57,478GROSS PROFIT
    
    
    1,417,146
    
    
    
    27,738EXPENSESSelling, general and administrative
    
    
    3,134,490
    
    
    
    991,442Research and development
    
    
    12,951
    
    
    
    03,147,441
    
    
    
    991,442OPERATING LOSS
    
    
    (1,730,295
    )
    
    
    (963,704
    )OTHER EXPENSESDebt conversion costs
    
    
    229,025
    
    
    
    0Amortization and depreciation
    
    
    63,510
    
    
    
    42,522Interest expense
    
    
    52,491
    
    
    
    129,510345,026
    
    
    
    172,032NET LOSS
BEFORE PROVISION FOR INCOME TAXES
    
    
    (2,075,321
    )
    
    
    (1,135,736
    )PROVISION FOR INCOME TAXES
    
    
    0
    
    
    
    0NET LOSS
    
    $
    (2,075,321
    )
    
    $
    (1,135,736
    )NET LOSS PER SHARE BASIC AND DILUTED
    
    
    (0.03
    )
    
    $
    (0.02
    )Weighted average common shares and diluted
potential common shares
    
    
    74,972,909
    
    
    
    43,890,272
  5




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GENELINK, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended September 30,
    
    2008
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (2,075,321
    )
    
    $
    (1,135,736
    )Adjustments to reconcile net loss to net cash used
by operating activitiesDepreciation and amortization
    
    
    63,510
    
    
    
    42,522Amortization of discounts on loans payable
    
    
    240,844
    
    
    
    55,352Fair value of options and warrants granted
    
    
    84,200
    
    
    
    363,400Changes in operating assets and liabilitiesAccounts receivable
    
    
    (498,791
    )
    
    
    242Inventory
    
    
    (541,639
    )
    
    
    1,616Prepaid expenses
    
    
    (1,396,851
    )
    
    
    3,148Deposits
    
    
    (43,765
    )
    
    
    0Accounts payable and accrued expenses
    
    
    1,156,228
    
    
    
    91,792Deferred revenue
    
    
    2,514,988
    
    
    
    (12,216
    )Escrow payable
    
    
    0
    
    
    
    350,000Accrued compensation
    
    
    (54,168
    )
    
    
    96,462Net cash used in operating activities
    
    
    (550,765
    )
    
    
    (143,418
    )CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (216,188
    )
    
    
    (6,633
    )Patent acquisition costs
    
    
    (30,783
    )
    
    
    (37,759
    )Net cash used in investing activities
    
    
    (246,971
    )
    
    
    (44,392
    )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital lease obligation
    
    
    (9,843
    )
    
    
    0Proceeds from loans and note payable
    
    
    0
    
    
    
    432,875Purchase of treasury stock
    
    
    (237,180
    )
    
    
    0Proceeds from exercise of stock warrants
    
    
    706,990
    
    
    
    0Net cash provided by financing activities
    
    
    459,967
    
    
    
    432,875
  6




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GENELINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended September 30,
    
    2008
    
    2007NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    $
    (337,769
    )
    
    $
    245,065Cash and cash equivalents, beginning of period
    
    
    972,371
    
    
    
    149,695Cash and cash equivalents, end of period
    
    $
    634,602
    
    
    
    394,760SUPPLEMENTARY CASH FLOW INFORMATIONCash paid for interest
    
    
    0
    
    
    $
    1,165Non-cash financing transactionsEquipment acquired under capital lease
    
    $
    61,400
    
    
    $
    0Stock warrants granted for services
    
    $
    84,200
    
    
    $
    317,975Common stock
and stock warrants granted for fundraising
    
    $
    0
    
    
    $
    12,938Conversion of notes payable and accrued interest to common stock
    
    $
    882,041
    
    
    $
    0
  7




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GENELINK, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    ORGANIZATIONGeneLink, Inc. (the Company) and its subsidiaries, GeneWize Life Sciences, Inc. (GeneWize)
and Dermagenetics, Inc., operate in Florida. The Company was organized under the laws of
the Commonwealth of Pennsylvania. GeneWize and Dermagenetics, Inc. were organized under the
laws of the State of Delaware. The Company is the successor to a Delaware corporation
organized under the same name on September 21, 1994. The Companys offices are located in
Longwood, Florida.The Company 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 Institute of Health Genome Project.The Company has developed proprietary SNP-based genetic profiles (named GeneLink
Nutragenetic Profile  and Dermagenetics ® profiles. These profiles provide a means of
predicting an individuals inherent genetic capacity to combat such conditions as oxidative
stress and other important 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. The Company received a U.S. patent in 2007 for its proprietary
method for assessing skin health in humans.The Company has also developed and received a skin patent on a DNA Collection Kit® for the
collection of DNA specimens for clients. The kit is classified as a non-medical devise.2.
    
    BASIS OF PRESENTATIONThe accompanying unaudited consolidated financial statements have been prepared by the
Company in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X
relating to interim financial statements. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Annual Report on Form 10-KSB of GeneLink, Inc.
and Subsidiaries for the year ended December 31, 2007.In the opinion of management, all adjustments (consisting of normal recurring accruals)
necessary to present fairly the information set forth in the accompanying consolidated
financial statements have been included. The results reported in these consolidated
financial statements for the three-month period and nine-month period ended September 30,
2008 should not be regarded as necessarily indicative of results that may be expected for
the year ended December 31, 2008.
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GENELINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    REVENUE RECOGNITIONRevenue from genetic testing services is recognized when there is persuasive evidence of an
arrangement, service has been rendered, the sales price is determinable and collectability
is reasonably assured. Service is deemed to be rendered when the results have been reported
to the individual who ordered the test. To the extent that tests have been prepaid but
results have not yet been reported, recognition of all related revenue is deferred.Revenue from product sales is recognized when there is persuasive evidence of an
arrangement, delivery has occurred and title and risk of loss have transferred to the
customer, the sales price is determinable and collectability is reasonably assured. The
Company has no consignment sales. Product revenue is reduced for allowances and
adjustments, including returns, discontinued items, discounts, trade promotions and slotting
fees.Revenue from distributor sales and marketing kits is recognized when there is persuasive
evidence of an arrangement, delivery has occurred and title and risk of loss have
transferred to the customer, the sales price is determinable and collectability is
reasonably assured. To the extent that kits have been received from distributors but the
related products or services have not been fully delivered, recognition of all related
revenue is deferred.4.
    
    RELATED PARTY TRANSACTIONS, STOCKHOLDERS EQUITY TRANSACTIONS, AND CONVERTIBLE SECURED
PROMISSORY NOTESOn July 28, 2008, an officer was granted options to acquire 1,883,333 shares of the
Companys Common Stock at an exercise price of $0.50 per share. The options have a term of
10 years and a fair value based on the Companys lattice valuation model of $0.50 per share.
The options vest as follows:
 Date
    
    Vesting7/28/2011
    
    
    516,6667/28/2012
    
    
    516,6677/28/2013
    
    
    516,667Upon the Common Stock being listed on the
NASDAQ National Market or a national
Stock exchange

    
    333,333
 In June 2008, 1,562,500 warrants were exercised in cashless exercises in which the Company
held back 425,564 warrants as payment for the exercise prices and issued 1,136,936 shares of
Common Stock in connection with such exercises.In June 2008, the holders of all of the outstanding convertible secured promissory notes
(the Notes) issued by the company converted the Notes into shares of the Companys Common
Stock at a conversion price of $0.05 per share. The Notes were issued in consideration for
certain loans provided to the Company by third parties between May 12, 2006 and June 6,
2007. $882,041 in principal and accrued interest of Notes were converted into 17,640,813
shares of Common Stock.
 9




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GENELINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Effective May 9, 2008 through June 12, 2008, pursuant to a tender offer undertaken by the
Company, holders of warrants, not including warrants issued to officers and directors of the
Company in June 2007 and September 2007, were entitled to exercise their warrants at reduced
exercise prices as follows:
 Number of
    
    Original Exercise Price
    
    RevisedExisting Warrants
    
    of Existing Warrants
    
    Exercise Price7,346,577
    
    $0.075-$0.10
    
    $0.054,872,704
    
    $0.20-$0.25
    
    $0.062,755,500
    
    $0.40-$0.50
    
    $0.082,246,250
    
    $0.60-$1.00
    
    $0.09
 A total of 10,574,951 warrants were exercised in the tender offer for cash proceeds of
$706,990.Pursuant to an Order of Settlement dated May 13, 2008 (the Settlement), the Company and
John R. DePhillipo settled all issues, claims and counterclaims each party may have with
respect to the Action entitled, John R. DePhillipo v. GeneLink, Inc.(Superior Court of New
Jersey Law Division: Atlantic County, Docket No. ATL-L-7479-05). Under the Settlement, the
Company acquired 3,953,000 shares from Mr. DePhillipo and his family and paid Mr. DePhillipo
and his family $0.06 per share, resulting in a purchase price of $237,180. Additionally,
under the Settlement the Company paid Mr. DePhillipo $220,000. As part of the Settlement,
the Company and Mr. DePhillipo delivered general releases to each other.On August 12, 2008, in an Action filed in the Philadelphia Court of Common Pleas,
DePhillipo, et.al. v. GeneLink t/a GeneLink Biosciences, Inc., et. al., Philadelphia
County Court of Common Pleas, August Term 2008 No. 1128, Mr. DePhillipo and Maria
DePhillipo, his spouse, filed suit against the Company, GeneWize and certain of their
officers, directors and advisors. Mr. and Mrs. DePhillipo allege, among other things, that
the Company fraudulently and negligently induced Mr. DePhillipo to enter into the Settlement
and to cause Mr. and Mrs. DePhillipo to sell their shares of common stock of the Company to
the Company, that certain of the Companys advisors and officers conspired to fraudulently
induce Mr. DePhillipo to enter into the Settlement and to cause Mr. and Mrs. DePhillipo to
sell their shares of common stock of the Company to the Company, that the Company and
counsel to the Company fraudulently and negligently misrepresented the financial condition
of the Company to induce Mr. DePhillipo to enter into the Settlement and to cause Mr. and
Mrs. DePhillipo sell their shares of common stock of the Company to the Company, and that
the Company failed to timely disclose information concerning the formation and operation of
GeneWize. Mr. and Mrs. DePhillipo seek approximately $20 million in damages based upon an
alleged value of GeneLink common stock of $5.00 per share. They also seek rescission of the
Settlement and thus the return of the 3,953,000 shares of common stock of the Company sold
by them to the Company pursuant to the Settlement.
 10




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GENELINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The Company and its Board of Directors deny the claims set forth in the Action, are
vigorously defending the baseless claims made by Mr. and Mrs. DePhillipo and are considering
additional appropriate actions to take after further investigation and consultation with
counsel. On October 1, 2008, all defendants filed Preliminary Objections, also referred to
as Motions to Dismiss, seeking the dismissal of all claims.5.
    
    COMMITMENTSIn July 2008, GeneWize committed to the purchase of $1,969,746 of raw ingredients from its
primary vendor to be used in GeneWizes custom formulated nutritional supplements.
Shipments are contracted to occur through December 2008. Through September 30, 2008,
$252,000 of the order was fulfilled and invoiced.
 11




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    LIQUIDITY AND CAPITAL RESOURCES
   12




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13




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COMPARISON OF THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 TO THE THREE MONTHS AND
NINE MONTHS ENDED SEPTEMBER 30, 2007
 Financial Condition
   Current Year Performance and Earnings Outlook
  14




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.
   15




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GeneWize Life Sciences, Inc. Pre-Launch and Post-Launch Activities
    State and Federal Regulation
      16




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Federal Trade Commission Regulations
  FDA Regulation of Nutritional Supplements
  Privacy Protection and HIPAA
  17




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FACTORS AFFECTING THE COMPANYS BUSINESS AND PROSPECTS
   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  PART II. OTHER INFORMATION
 LEGAL PROCEEDINGS
   18




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John R. DePhillipo v. Robert P.
Ricciardi
 John R. DePhillipo v. GeneLink, Inc.,
  DePhillipo, et.al. v. GeneLink t/a GeneLink
Biosciences, Inc., et. al.
 19




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Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  DEFAULTS UPON SENIOR SECURITIES
  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  OTHER INFORMATION
  EXHIBITS AND REPORTS ON FORM 8-K.
 Exhibit No.
    
    Description31.1
    
    Certificate of the Acting Chief
Executive Officer and Acting
Chief Financial Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
  20




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GENELINK, INC.(Registrant)Date: November 13, 2008
    
    By:
    
    /s/ Monte E. Taylor, Jr.Monte E. Taylor, Jr., Chief ExecutiveOfficer and Chief Financial Officer
 21