UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended August 31, 2009

or

[   ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for

the transition period from ________________ to __________________.

Commission File Number 000-49817

GENOSYS, INC.

(Exact Name of Small Business Issuer as specified in its Charter)

280 West Riverpark Dr., Provo, UT 84604

(Address of principal executive offices, including zip code)

(801) 623-4751

(Registrant’s telephone number, including area code)

Indicate by check whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ  No ¨    

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):      

Large Accelerated Filer  ¨

Accelerated Filer                       ¨

Non-Accelerated Filer     ¨

Smaller reporting company      þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes ¨  No þ

Applicable Only to Corporate Issuers:

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1:  Financial Statements

Condensed Consolidated Balance Sheets

As of August 31, 2009, and November 30, 2008

  3

Condensed Consolidated Statements of Operations

For the three and nine months ended August 31, 2009 and 2008 and for the

period of the development stage (June 30, 2005) through August 31, 2009

 4

Condensed Consolidated Statements of Cash Flows

For the nine months ended August 31, 2009 and 2008 and for the period

of the development stage (June 30, 2005) through August 31, 2009

  5

Notes to Condensed Consolidated Financial Statements

  6

Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 4T:  Controls and Procedures

14

PART II – OTHER INFORMATION

Item 2: Unregistered Sale of Equity Securities and Use of Proceeds

15

Item 5:  Other Information

16

Item 6:  Exhibits

17

Signatures

18

2

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements.

GENOSYS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

3

GENOSYS, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

4

GENOSYS, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

5

GENOSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)

Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements of GeNOsys, Inc. (the “Company”), have been prepared without audit, pursuant to the rules and regulations of the Security and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows as of the dates and for the periods presented herein have been made.  

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s November 30, 2008 Annual Report on Form 10-K. The results of operations for the three and nine months ended August 31, 2009, are not necessarily indicative of the operating results that may be expected for the year ending November 30, 2009. The Company’s significant accounting policies are set forth in Note 1 to the consolidated financial statements in the November 30, 2008 Annual Report on Form 10-K.

The Company’s working capital requirements for the foreseeable future will vary based upon a number of factors, including the costs to complete development work, the cost of bringing its products to commercial viability, the timing of the market launches of its products and the level of sales after introduction into the market place.  As of August 31, 2009, the Company had accounts payable and accrued liabilities totaling $1,185,468.  At August 31, 2009, the Company had cash and cash equivalents of $20,501.  Management knows that existing cash and cash equivalents will be insufficient to meet the Company’s cash requirements during the next 12 months, and is actively engaged in efforts to raise additional funds.  However, there is no assurance that additional funding will be available on acceptable terms, if at all.  These circumstances raise substantial doubt about the ability of the Company to continue to operate.

(2)

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, GeNOsys, Inc., a Nevada corporation.  All significant intercompany accounts and transactions have been eliminated in consolidation.

(3)

Recent Accounting Pronouncements

FAS 141(R) – In December 2007, the FASB issued FAS 141(R), “Business Combination” [“FAS 141(R)”], which replaces FAS No. 141.  FAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquire and the goodwill acquired.  FAS 141(R) also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination.  FAS 141(R) is effective for fiscal years beginning after December 15, 2008.  The adoption of FAS 141(R) will have an impact on accounting for business combination once adopted, but the effect is dependent upon acquisitions at that time.

FAS 157 – In September 2006, the Financial Accounting Standards Board (“FASB”) issued FAS No. 157, “Fair Value Measurements”.  FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new fair value measurements.  However, for some entities, the application of the statement will change current practice.  FAS 157 was effective December 1, 2008, except for nonfinancial assets and liabilities, which are effective December 1, 2009.  The Company adopted SFAS 157 on December 1, 2008 for financial assets and liabilities carried at fair value on a recurring basis.  The adoption of FAS

157 had no material impact on the Company’s consolidated financial statements.  

6

FAS 160 – In December 2007, the FASB issued FAS No. 160 “Non-controlling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51” (“FAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated.  The Statement also establishes reporting requirements that provide sufficient disclosure that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners.  FAS 160 was effective for fiscal years beginning after December 15, 2008.  The adoption of FAS 160 will have an impact on business combination once adopted, but the effect is dependent upon acquisitions at that time.  

FAS 161 – In March 2008 the Financial Accounting Standard Board (“FASB”) released Statement of Financial Accounting Standards No 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”).  FAS 161requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.  The application of FAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years.  The adoption of FAS 161 had no material impact on the Company’s consolidated financial statements.

SFAS 163 – In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60 (“SFAS 163”).  SFAS 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claim liabilities.  The Statement also required expanded disclosures about financial guarantee insurance contracts.  SFAS 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company does not expect that the adoption of SFAS 163 will have a material impact on its financial statements.

SFAS 165 – In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”).  SFAS 165 establishes standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued.  Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained.  An entity is to apply the requirements to interim or annual financial periods ending after June 15, 2009.  We adopted the provisions of SFAS 165 for the quarter ended August 31, 2009 and have evaluated any subsequent events through October 13, the date the financials are issued.  

SFAS 166 – In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140.  SFAS 166 requires entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets.  The statement eliminates the concept of a qualifying special-purpose entity, changes the requirements for the de-recognition of financial assets, and calls upon sellers of the assets to make additional disclosures about them.  SFAS 166 is effective occurring on or after November 15, 2009.  The Company does not expect the adoption of SFAS 166 will have a material impact on its financial statements.

SFAS 167 – In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R).  SFAS 167 amends Interpretation No. 46(R) to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity.  SFAS 167 is effective for an entity’s first fiscal period that begins after November 15, 2009.  The Company does not expect the adoption of SFAS 167 will have a material impact on its financial statements.

SFAS 168 – In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162.  SFAS 168 establishes a new hierarchy of GAAP sources for non-governmental entities under the FASB Accounting Standards Codification and will supersede all accounting standards in U.S. GAAP, aside from those issued by the

7

Securities Exchange Commission.  SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The Company does not expect the adoption of SFAS 167 will have a material impact on its financial statements.

The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operations, financial position or cash flows.  Based on that review, it believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.

(4)

Stock-Based Compensation

On March 23, 2007, the GeNOsys, Inc. 2007 Stock Option Plan (“Stock Plan”) was approved by the Board of Directors and became effective on that date, subject to the Stock Plan being approved by the stockholders at the annual meeting.  The Stock Plan provides that 3,000,000 shares of the Company’s authorized but unissued common stock be reserved pursuant to the terms and conditions of the plan.  On June 27, 2007, the annual meeting of stockholders was held, at which time the stockholders approved the Stock Plan.  The Stock Plan allows the Company, under the direction of the Compensation Committee, to make broad-based grants of stock options, any of which may or may not require the satisfaction of performance objectives, to employees, consultants and non-employee directors.   In June and July 2007, the Board of Directors approved stock option grants to purchase 1,100,000 shares of common stock to certain employees, directors and consultants, resulting in a non-cash charge of $574,321.  In November 2007, the Board of Directors approved an additional grant of 100,000 options to an employee resulting in a non-cash charge of $57,737.  In December 2007, the Board of Directors approved an additional grant of 600,000 options to a consultant resulting in a non-cash charge of $271,598.  In December 2008, the Board of Directors approved the grant of 900,000 options to a certain employee and a director of the Company resulting in a non-cash charge of $151,900.  All of these non-cash charges are being expensed ratably over the shorter of the vesting period or the requisite service period of the stock option grants.    

A summary of the status of the Company’s option plan as of December 1, 2008, and changes during the nine months ended August 31, 2009, is presented below:

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The following table summarizes information about stock options outstanding at August 31, 2009:

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model.   The use of this valuation model requires the use of accounting judgment and financial estimates, including estimates of the expected term employees will retain their vested options before exercising them, the estimated volatility of our stock price, and the number of options that will be forfeited prior to the completion of their vesting requirements.  Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in our statements of operations.  The following are the weighted-average assumptions used for grants:  (i) Grants made in June, July and November, 2007 -  average risk-free interest rate of 5.25%; expected lives of 10 years; expected dividend yield of zero percent; expected volatility of 61.47% to 68.88%; (ii) The grant made in December, 2007 - risk-free interest rate of 3.89%; expected life of 6.5 years; expected dividend yield of zero percent; expected volatility of 62.75%; and (iii) The grant made in December 2008 - risk-free interest rate of 1.87%; expected life of 6.25 years; expected dividend yield of zero percent; expected volatility of 112.14%.  For the three and nine-month periods ended August 31, 2009 the Company recognized stock based compensation expense of $65,461 and $192,885, respectively.  For the three and nine month periods ended August 31, 2008, the Company recognized stock based compensation expense of $94,116 and $281,616, respectively.  As of August 31, 2009, total stock based compensation related to non-vested awards not yet recognized was $402,803 with a weighted average recognition period of 7.84 years.  As of August 31, 2008, total stock based compensation related to non-vested awards not yet recognized was $483,301 with a weighted average recognition period of 9.09 years.

The weighted-weighted average grant-date fair value of options granted during the nine month period ended August 31, 2009, was $0.17.

(5)

Going Concern

The Company has accumulated losses since inception and has not yet been able to generate profits from operations.  Operating capital has been raised through the sale of common stock.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management plans include further development and production of portable, medical gas generators.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(6)

Prepaid Expenses

Prepaid expenses consist primarily of payments made for consulting and professional fees which are expected to be utilized within the next 90 to 120 days.

(7)

Basic and Diluted Net Loss Per Common Share

Both basic and diluted net loss per share for the three and nine month periods ending August 31, 2009 and 2008 are based on the net operating loss for the period divided by the weighted average number of common shares outstanding for the period.  The Company’s common stock equivalents at period end were anti-dilutive and therefore excluded from the computation.

9

(8)

Common Stock

On December 31, 2008, the Company approved the issuance of 1,000,000 shares of the Company’s restricted common stock to Smith Consulting Services for services rendered.  The closing price of the stock on December 31, 2008 was $0.20 per share, resulting in a $200,000 non-cash charge which was fully recognized in the three month period ended February 28, 2009.

On March 6, 2009, the Board of Directors approved the issuance of 200,000 shares of the Company’s restricted common stock in a private placement to an accredited investor.  Net proceeds of $20,000 were received from this private placement transaction.

(9)

Related Party Transaction

The Company has issued convertible notes payable to officers for funds provided to the Company.  The notes bear interest at the rate of five percent per annum and, at the election of the holder, may be converted into shares of the Company’s restricted common stock at the lower of the market rate on the date notice of conversion is given or 125% of the closing price of the common stock on the date the note was issued.

(10)

Subsequent Events

The Company has adopted SFAS 165, which requires an entity to evaluate subsequent events through the date that the financial statements are issued or are available to be issued and disclose in the notes the date through which the entity has evaluated subsequent events and whether the financial statements are issued or were available to be issued on the disclosed date.  SFAS 165 defines two types of subsequent events, as follows:  the first type consists of events or transactions that provide additional evidence about conditions that existed at the date the balance sheet (that is, recognized subsequent events), and the second type consists of events that did not exist at the date of the balance sheet but arose after that date (that is, nonrecognized subsequent events).

The Company has evaluated subsequent events through October 15, 2009, the date the financial statements are issued, and has concluded that no recognized or nonrecognized events have occurred since the quarter ended August 31, 2009.

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Item 2.  Management’s Discussion and Analysis or Plan of Operation

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements included in our Form 10-K Annual Report for the year ended November 30, 2008, and notes thereto.

Overview

We are a medical research and development company that is specializing in pharmaceutical, bio-technical and medical gas generating systems.  The primary gas our systems will generate is nitric oxide, along with other various combinations of beneficial medical gases suitable for the treatment of human diseases.

Nitric oxide gas is produced and sold commercially by major gas companies as a specialty gas mixture and calibration gas.  Nitrogen dioxide is present in all nitric oxide gas currently produced; that limits the size of the dose

of nitric oxide gas that can be administered to humans and animals.

We have developed a proprietary compound formulation that will be utilized to produce nitric oxide gas in our desktop and portable generators.  Management believes that with further formulation of our proprietary compound, we can make or filter nitric oxide gas with less toxic amounts of nitrogen dioxide, and that this process can produce nitric oxide gas in ample quantities for any current or prospective use, and at a substantially reduced price compared with all other currently available technologies.

Our current generator model is capable of delivering sufficient quantities of nitric oxide gas for individual laboratory desktop use. We will continue to further develop this and other generators and compound formulation for high production quantities and consistency.  The product must have a known shelf life and be available in various configurations to produce known concentrations and known volumes of gas.  Packaging is another developmental process that will need to be addressed. Management plans to rely on outside contractors to achieve these objectives.

We estimate that non-clinical laboratory sales could take place prior to the receipt of United States Food and Drug Administration (“FDA”) approval.  Management anticipates that selling our generator into the market as laboratory equipment prior to receipt of final FDA approval will pave the way for sales of our medical generator and proprietary tablets, but expected financial contributions from non-medical generator and tablet sales will be too late to help offset the substantial costs of the FDA approval process for human medical uses.  We expect that contributions will be able to support our manufacturing and set-up costs and contribute to the overall profitability of our Company in due time, but we believe that they will also require financing.  We anticipate entering the non-clinical laboratory market in the next 12 months.

All human medical uses of nitric oxide gas require FDA approval, and the approval of similar international agencies.  Approval can be a long and expensive process, with no assurance that any such approval will ever be granted.  Management hopes to reduce time to regulatory approval by certain strategic approaches that are proprietary.

Our objectives are to establish GeNOsys (generated nitric oxide systems) as the premier nitric oxide generating pharmaceutical company, and to manufacture and sell medical grade nitric oxide generators and tablets for use in the relief of human diseases, offer value added services such as custom generators adapted for the treatment of various diseases, hire staff both currently identified and unidentified to implement our business model, and to gain FDA approval of our generating system.

Results of Operations

The following table presents our results of operations for the three and nine months ended August 31, 2009 and 2008:

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For the Three Months Ended August 31, 2009 and 2008

During the three-month period ended August 31, 2009, we had a net loss of $359,921.  This compares to a net loss of $332,349 for the comparable period ended August 31, 2008.  Net loss per common share for these periods was $(.01) and $(.01), respectively.  

Research and development (“R&D”) expenses were $178,149 and $146,541, respectively, for the three-month periods ended August 31, 2009 and 2008.   The increase in R&D expenditures results primarily from increased consulting fees, offset in part by increases and decreases in a number of other expense categories.  As the documentation preparation and regulatory work for FDA approval intensifies, R&D expenses are expected to further increase.

General and administrative expenses were $113,672 and $91,624, respectively, for the three-month periods ended August 31, 2009, and 2008.  The increase results primarily from increased consulting and legal fees, offset in part by smaller increases and decreases in a number of other expense categories.  General and administrative expenses are expected to continue to increase in the remaining periods in this fiscal year as expenses are incurred  to bring our products to market.

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Non-cash stock based compensation charges of $65,461 were recognized for the three month period ended August 31, 2009.  This compares to a charge of $94,116 for the same period in 2008.  The reduction is due to a number of stock option grants which became fully vested in 2008.  As the expense is recorded over the vesting period, there were no 2009 charges relating to those option grants that became fully vested in 2008.

Total other expense was $2,639 for the three month period ended August 31, 2009.  This compares to total other income of $47 for the three month period ended August 31, 2008.  The charge in 2009 is for interest charges accrued on notes payable.  The earnings in 2008 were from interest earned on funds held in a savings account.  

For the Nine Months Ended August 31, 2009 and 2008

During the nine-month period ended August 31, 2009, we had a net loss of $1,149,663.  This compares to a net loss of $970,224 for the nine-month period ended August 31, 2008.  Net loss per common share was $(.02) for each of these periods.  

R&D expenses were $384,006 and $400,369, respectively, for the nine-month periods ended August 31, 2009 and 2008.   The decrease in R&D expenditures results primarily from reduced consulting fees and travel expenses.  As the documentation preparation and regulatory work for FDA approval intensifies, R&D expenses are expected to increase through the balance of 2009.

General and administrative expenses were $566,165 and $290,503, respectively, for the nine-month periods ended August 31, 2009, and 2008, an increase of $275,662.  Consulting charges in 2009 are $300,000 higher than in 2008, with $200,000 of the increase attributable to the non-cash charge taken for the issuance of common stock for consulting services.  The remaining expense categories show a net decrease in 2009 as compared to 2008.  General and administrative expenses are expected to continue to increase in the remaining period in this fiscal year as expenses are incurred in raising the additional capital required to bring our products to market.

Non-cash stock based compensation charges of $192,885 were made for the nine month period ended August 31, 2009.  This compares to a charge of $281,616 recognized for the nine months ended August 31, 2008.  The reduction is due to a number of stock option grants which became fully vested in 2008.  As the expense is recorded over the vesting period, there were no 2009 charges relating to those option grants that became fully vested in 2008.

Total other expense was $6,507 for the nine-month period ended August 31, 2009 compared to other income of $2,379 for the nine month period ended August 31, 2008.  The 2009 charge results from interest charges accrued on notes payable.  The 2008 earnings were from interest earned on funds in a savings account

Financial Position

We had $20,501 in cash and cash equivalents as of August 31, 2009, representing an increase of $16,133 from the $4,368 in cash as of November 30, 2008.  Working capital as of August 31, 2009, was a deficit of $1,123,802 compared to a deficit of $394,885 as of November 30, 2008. The increase in cash results from funds loaned to the company by officers.  The increased working capital deficit was primarily due to increases in notes payable and accrued liabilities.

Liquidity and Capital Resources

To date, we have financed our operations principally through private placements of our equity securities and loans from related parties.  Net cash of $226,322 was used for operating activities during the nine months ended August 31, 2009.  This is a decrease of $210,763 as compared to the $437,085 used during the same period ended August 31, 2008.  Also, during the nine months ended August 31, 2009, net cash of $31,450 was used for the purchase of intangible assets.  This compares with $28,564 used for the purchase of intangible assets and equipment

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for the same period ended August 31, 2008.   As of August 31, 2009, our current liabilities totaled $1,185,468, and we had a working capital deficit of $1,123,802.  As of August 31, 2009, we had no long-term debt obligations.  

Our working capital requirements for the foreseeable future will vary based upon a number of factors, including the costs to complete development work, the cost of bringing our nitric oxide generator and nitric oxide tablets to commercial viability, the costs associated with obtaining FDA approval, the timing of the market launches of our products and the level of sales of those products when introduced into the market place.  As of August 31, 2009, we had accounts payable and accrued liabilities totaling $1,185,468.  At August 31, 2009, we had cash and cash equivalents of $20,501.  We know that existing cash and cash equivalents will be insufficient to execute our business plan, or to meet our cash requirements during the next 12 months, and we are currently actively working to raise additional funds.  However, there can be no assurance that additional funding will be available on acceptable terms, if at all.  If we fail to obtain additional financing we will have no choice but to suspend development activity.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.  Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to our goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may”, “would”, “could”, “expects”, “projects”, “anticipates”, “believes”, “estimates”, “plans”, “intends”, “targets” or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our Company’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following:  general economic or industry conditions, nationally and/or in the communities in which we conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, and regulatory and technical factors affecting our operations, products, services and prices.

Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

Item 4T.  Controls and Procedures

As of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that information required to be disclosed is recorded, processed, summarized and reported within the specified periods, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure of material information required to be included in our periodic reports filed with the Securities and Exchange Commission.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives. However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.  

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report.

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PART II — OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Our Chief Executive Officer, Mr. John W.R. Miller, has been providing funds to the Company on an as needed basis to enable the Company to continue to operate.  The Company has issued to Mr. Miller convertible notes baring an interest rate of 5 percent per annum.  The notes may be converted to common stock, at the election of Mr. Miller, at the lower of 125% of the closing price per share of the Company’s common stock on the date the note was issued or the closing price of the stock on the date of conversion.  The Company may elect to automatically convert the notes to stock upon the closing and receipt of $500,000 or more in funding, using the same conversion calculation as earlier described.

Following is a table detailing the notes that have been issued during the Company’s current fiscal year:

Assuming the above notes are converted at the current closing price for our common stock ($0.15 per share on October 13, 2009) 1,949,979 shares of the Company’s restricted common stock would be issued to Mr. Miller.

We issued all of these securities to Mr. Miller as an “accredited investor.” We believe that the offer and sale of these securities is exempt from the registration requirements of the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and from various similar state exemptions.  

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Item 5.  Other Information.

None.

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Item 6.  Exhibits.

(a)

Exhibit Index

EXHIBIT INDEX

Exhibit No.              Description of Exhibit                           

3.1

Articles of Incorporation (Incorporated by reference to our Registration Statement on Form 10-SB filed May 14, 2002).

3.2

By-laws (Incorporated by reference to our Registration Statement on Form 10-SB filed May 14, 2002).

3.3

Amendment to the Articles of Incorporation dated September 12, 2005 (Incorporated by reference to Exhibit 3.3 of our Form 10-KSB, dated November 30, 2005).

3.4

Amendment to the By-Laws dated June 18th, 2004 (Incorporated by reference to Exhibit 3.4 of our Form 10-KSB, dated November 30, 2005).

14

Code of Ethics (Incorporated by reference to Exhibit 14 of our Form 10-KSB, dated November 30, 2005).

21

Subsidiaries (Incorporated by reference to Exhibit 21 of our Form 10-KSB, dated November 30, 2005).

Registration statement on Form 10-SB filed May 14, 2002, as amended on September 10, 2002, November 19, 2002 and December 9, 2002*

Annual Report on Form 10KSB for the year ended November 30, 2005 and filed on March 7, 2006*

Annual Report on Form 10KSB for the year ended November 30, 2006 and filed on March 15, 2007*

Current Report on Form 8-K dated January 22, 2008 and filed February 12, 2008*

Annual Report on form 10-KSB for the year ended November 30, 2007 and filed on February 28, 2008*

Annual Report on form 10-KSB for the year ended November 30, 2008 and filed on March 16, 2009*

*   Referenced for additional information.

31.1

Certification of John W. R. Miller under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Keith L. Merrell under Section 302 of the Sarbanes-Oxley Act of 2002.

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Certification of John W.R. Miller and Keith L. Merrell pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

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