Attached files

file filename
EX-32 - 906 CERTIFICATION - GeNOsys, Inc.ex32.htm
EX-31 - 302 CERTIFICATION OF KEITH L. MERRELL - GeNOsys, Inc.ex312.htm
EX-31 - 302 CERTIFICATION OF JOHN W. R. MILLER - GeNOsys, Inc.ex311.htm

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 February 28, 2011


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)



Utah

87-0671592

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)


86 N. University Ave., Suite 400, Provo, UT 84601

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                                                                          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




1




Applicable Only to Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years:


Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


Not applicable.


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.


Class

Outstanding as of April 10, 2011

Common Stock, $0.001 par value

66,715,059 shares





2




TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION


Item 1:  Financial Statements


Condensed Consolidated Balance Sheets

As of February 28, 2011, and November 30, 2010

  

  4


Condensed Consolidated Statements of Operations

For the three months ended February 28, 2011 and 2010 and for the period

of the development stage (June 30, 2005) through February 28, 2011

 

 

  5


Condensed Consolidated Statements of Cash Flows

For the three months ended February 28, 2011 and 2010 and for the period

of the development stage (June 30, 2005) through February 28, 2011

  6


Notes to Condensed Consolidated Financial Statements

  7


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

10


Item 4:  Controls and Procedures

 

13


PART II – OTHER INFORMATION


Item 1:  Legal Proceedings

14


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

14


Item 5:  Other Information

14


Item 6:  Exhibits

14


Signatures

15




3




PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements.




GENOSYS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS



ASSETS

 

February 28,

2011

(Unaudited)

 

November 30,

2010

(Audited)

Current assets:

 

 

 

 

Cash and cash equivalents

$

2,847

$

27,167

Prepaid expenses

 

2,164

 

2,271

Total current assets

 

5,011

 

29,438

Property and equipment, net of accumulated depreciation  of $170,381 and $162,283, respectively

 

27,574

 

35,672

Patents, net of amortization of $36,844 and $32,948, respectively

 

97,022

 

93,619

TOTAL ASSETS

$

129,607

$

158,729

 

             LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

98,307

$

69,538

Accounts payable, Related party

 

7,628

 

7,628

Accrued liabilities

 

268,935

 

236,142

Accrued liabilities, Related party

 

513,688

 

504,969

Loans payable, Related party

 

473,815

 

457,363

Total current liabilities

 

1,362,373

 

1,275,640

Total liabilities

 

1,362,373

 

1,275,640

Stockholders’ deficit:

 

 

 

 

Common stock, $.001 par value; 100,000,000 shares authorized, 66,165,059 and 62,882,242 shares issued and outstanding at February 28, 2011 and November 30, 2010, respectively

 

66,165

 

62,882

Additional paid-in capital

 

5,370,143

 

5,284,815

Accumulated deficit

 

(77,924)

 

(77,924)

Deficit accumulated in the development stage

 

(6,591,150)

 

(6,386,684)

Total stockholders’ deficit

 

(1,232,766)

 

(1,116,911)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

129,607

$

158,729







See accompanying notes to condensed consolidated financial statements.



4




GENOSYS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

For the Three Months Ended

 

From Beginning of Development Stage (June 30, 2005) to February 28, 2011

 

February 28,

2011

 

February 28,

2010

 

 

 

 

 

 

 

 

Revenues

$

-

$

-

   $

-

 

 

 

 

 

 

 

 

 

Cost of Sales

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

Gross margin

 

-

 

-

 

-

 

Operating expenses:

 

 

 

 

 

 

 

Research and development  

 

76,917

 

206,794

 

3,438,664

 

General and administrative

 

121,655

 

146,342

 

3,252,011

 

(Gain) Loss on disposal of asset

 

-

 

-

 

6,554

 


Total operating expenses

 

198,572

 

353,136

6,697,229

 


Net income (loss) from operations

 

(198,572)

 

(353,136)

 

(6,697,229)

 


Other income (expense):

 

 

 

 

 

 

 

Interest income

 

-

 

-

 

82,206

 

Interest expense

 

(5,894)

 

(6,709)

 

(44,749)

 

Other income (expense)

 

-

 

-

 

100

 


Total other income (expense), net

 

(5,894)

 

(6,709)

 

37,557

 

 

 

 

 

 

 

 

 

Net income (loss) before income taxes

 

(204,466)

 

(359,845)

 

(6,659,672)

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

-

 

-

 

600  

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

(204,466)

 

(359,845)

 

(6,660,272)

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax   

 

-

 

-

 

(2,131)

 

Gain on disposal of discontinued operations, net of tax

 

 

 


-

 

71,253

 

-

 

 

 

 

 

 

 

 

Net income (loss)

$

(204,466)

$

(359,845)

   $

(6,591,150)

 

Basic and diluted loss per share from continuing operations


$


(0.01)


$


(0.01)


   $


(0.14)

 

Basic and diluted loss per share from discontinued operations

$

-

$

-

   $

-

 

Basic and diluted net loss per share

$

(0.01)

$

(0.01)

   $

(0.14)

 

Basic and diluted weighted average number of common shares outstanding

 

64,579,206

 

47,704,552


47,556,028

 



See accompanying notes to condensed consolidated financial statements.




5




GENOSYS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

For the Three Months Ended

February 28, 2011

 

For the Three Months Ended February 28, 2010

 

From Beginning of Development Stage (June 30, 2005) to February 28, 2011

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(204,466)

   $

(359,845)

$

(6,591,150)

 

Gain on disposal of discontinued operations

 

-

 

-

 

(71,253)

 

Loss from discontinued operations

 

-

 

-

 

2,131

 

Loss from continuing operations

 

(204,466)

 

(359,845)

 

(6,660,272)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

11,995

 

11,856

 

221,898

 

Loss on disposal of  property and equipment

 

-

 

-

 

6,554

 

Stock-based compensation

 

22,955

 

71,082

 

1,046,368

 

Stock issued for services

 

55,656

 

10,000

 

633,692

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

(Increase) Decrease in prepaid expenses

 

107

 

106

 

(2,038)

 

(Increase) Decrease in inventory

 

-

 

(1,470)

 

-

 

Increase (Decrease) in accounts payable

 

28,769

 

5,273

 

98,305

 

Increase (Decrease) in accounts payable - Related party

 

-

 

-

 

7,628

 

Increase (Decrease) in accrued liabilities

 

32,792

 

36,947

 

533,698

 

Increase (Decrease) in accrued liabilities – Related party

 

8 ,719

 

64,957

 

562,741

 

Net cash From Continuing Operating Activities

 

(43,473)

 

(161,094)

 

(3,551,426)

 

Net Cash from Discontinued Operations

 

-

 

-

 

(8,151)

 

Net Cash from Operating Activities

 

(43,473)

 

(161,094)

 

(3,559,577)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of intangible assets

 

(7,300)

 

(909)

 

(133,570)

 

Purchase of equipment

 

-

 

-

 

(218,926)

 

Net Cash from Investing Activities

 

(7,300)

 

(909)

 

(352,496)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Issuance of common stock for cash

 

10,000

 

-

 

3,006,953

 

Proceeds from loans payable – Related party

 

16,453

 

170,267

 

905,791

 

    Payments on loans payable – Related Party

 

-

 

-

 

(25,975)

 

              Net Cash Provided from Continuing Financing Activities

 

26,453

 

170,267

 

3,886,769

 

Net Cash from Discontinued Operations

 

-

 

-

 

(19,777)

 

Net Cash from Financing Activities

 

26,453

 

170,267

 

3,866,992

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash

 

(24,320)

 

8,264

 

(45,081)

 

Cash at beginning of period

 

27,167

 

28,115

 

47,928

 


Cash at end of the period


$


2,847


   $


36,379

$

2,847


 

 

 

 

 

 

 

 

Supplemental Disclosure Information

 

 

 

 

 

 

 

Cash paid for interest

$

-

   $

-

$

750

 

Cash paid for income/franchise  taxes

 

-

 

-

 

600

 

Non-cash Financing Activities:

 

 

 

 

 

 

Stock issued for debt and accrued compensation

 

-

 

-

 

719,817      

See accompanying notes to condensed consolidated financial statements.



6




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, 2010 Annual Report on Form 10-K. The results of operations for the three months ended February 28, 2011, are not necessarily indicative of the operating results that may be expected for the year ending November 30, 2011. The Company’s significant accounting policies are set forth in Note 1 to the consolidated financial statements in the November 30, 2010 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 February 28, 2011, the Company had accounts payable and accrued liabilities totaling $1,362,373.  At February 28, 2011, the Company had cash and cash equivalents $2,847.  Management knows that existing cash and cash equivalents will not be sufficient 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 GeNOsys, Inc. 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


There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the period ended February 29, 2011, or which are expected to impact future periods, which were not already disclosed in prior periods.


(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.  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 and December 2007, the Board of Directors approved addition grants of 700,000 options to an employee and a director, resulting in a non-cash charge of $329,335.  In December 2008, the Board of Directors approved an option grant to purchase 900,000 shares of common stock to a certain employee and a director of the Company resulting in a non-cash charge of $151,900.  During 2010 our directors approved the grant of 588,542 stock option grants to a certain employee, resulting in a non-cash charge of $32,054.  In 2010, 200,000 of the previously granted stock options were forfeited. The charges are being expensed ratably over the shorter of the vesting period or the requisite service period of the stock option grants.



7





A summary of the status of the Company’s option plans as of December 1, 2010, and changes during the three months ended February 28, 2011, is presented below:


 



Shares

Wtd. Avg.
Exercise Prices

Wtd. Avg.
Remaining
Contractual
Life

 

Intrinsic Value

Outstanding at November 30, 2010

3,088,542

       $  .42

6.35 years

 

Granted

-

 

 

 

Forfeited

-

  

 

 

Outstanding at February 28,   

   2011


3,088,542


       $ .42


6.35 years


-

Exercisable at February 28,

   2011

2,855,198

          .44


6.36 years


-

Non-vested at February 28,

   2011

233,344

          .27


6.33 years


-


The following table summarizes information about stock options outstanding at February 28, 2011:

 

 

Options Outstanding

Options Exercisable



Range of
Exercise Prices

Number
Outstanding as
of February 28, 2011

Wtd. Avg.
Remaining
Contractual
Life


Wtd. Avg.
Exercise
Price

Number
Exercisable as
of February 28, 2011


Wtd. Avg.
Exercise
Price

 

 

 

 

 

 

$

     .04

   156,250

   6.33 years

$         .04

   156,250

$        .04

$

     .05

   250,000

   6.33 years

$         .05

     250,000

$        .05

$

     .06

   104,167

   6.33 years

$         .06

  104,167

$        .06

$

     .08

  78,125

   6.33 years

$         .08

  78,125

$        .08

$

     .20

   900,000

   6.32 years

$         .20

    700,000

$        .20

$

     .66

900,000

   6.34 years

$         .66

 866,656

$        .66

$

     .71

100,000

   6.72 years

$         .71

 100,000

$        .71

  $        .72

600,000

6.32 years

$         .72

600,000

$        .72


3,088,542

 

.42    

2,855,198

.44       



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 warrants before exercising them, the estimated volatility of our stock price, and the number of warrants 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 weighted-average assumptions used for grants:  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%.  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%.  The grant made in December 2008: risk-free interest rate of 3.89%; expected life of 6.25 years; expected dividend yield of zero percent; expected volatility of 112.14%.  The grant made in 2010:  risk-free interest rate of 3.04%; estimated life of 6.5 years; expected dividend yield of zero percent; expected volatility of 171.08%.  For the three month periods ended February 28, 2011 and 2010, the Company recognized stock based compensation expense of $22,955 and $71,082, respectively.  As of February 28, 2011, total stock based compensation related to non-vested awards not yet recognized was $41,239 with a weighted average recognition period of 6.33 years.  As of February 28, 2010, total stock based compensation related to non-vested awards not yet recognized was $271,878 with a weighted average recognition period of 7.32 years.




8




(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 periods ending February 28, 2011 and 2010 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.


(8)

Related Party Transaction


The Company has issued convertible notes payable to an officer for funds provided to the Company.  The notes were issued December 4, 2009 through February 18, 2011, and currently total $473,815.  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.


(9)

Issuance of Stock:


Stock issued through Private Placement:


In January 2011 the Company sold 500,000 shares of its restricted common stock to an accredited investor through a private placement.  Net proceeds received by the Company were $10,000.


Stock issued for Services:


In January 2011 the Company issued 2,782,817 shares of restricted stock for services.  Of the total, 1,500,000 shares were issued to directors of the Company and 1,282,817 shares were issued to consultants.  These shares are fully vested and non-forfeitable.  The Company valued these share issuances at $55,656 which it expensed during the current period.  The valuation was based on the closing price of $0.02 per share on the date of grant.  


(10)

Commitments and Contingencies


The Company is making payments of $7,500 per month under an agreement reached to retire the amount owed to Riverwoods Medical Arts for the offices which it vacated.  At February 28, 2011, there is a balance of approximately $86,000 owing under this agreement.


(11)

Subsequent Events


In April 2011 the Company sold 550,000 shares of restricted common stock to accredited investors through a private placement.  Total net proceeds of $27,500 were received from these transactions.








9




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, 2010, and notes thereto.


Overview


Nitric Oxide Gas for Inhalation


We are a medical research and development company specializing in pharmaceutical, bio-technical and medical gas generating systems.  The primary gas our systems will generate is medical grade nitric oxide, along with other various combinations of beneficial medical gases suitable for the treatment of human conditions and diseases. The gases also have other potential uses, such as the treatment of animals by veterinarians and the sterilization of equipment and devices.


     

Non-medical grade 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.  Its presence limits the size of the dose of nitric oxide gas that can be administered for prospective uses in both humans and animals.


     

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


     

Our current generator models are capable of delivering sufficient quantities of nitric oxide gas for individual laboratory desktop use. We are continuing to further develop our generators and our proprietary 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 volumes of gas.  Packaging is another critical developmental process that we are addressing. Management plans to rely on outside contractors to achieve these objectives.


     

We estimate that non-clinical laboratory sales could take place earlier than United States Food and Drug Administration (“FDA”) approval. Management anticipates that selling our desktop generator earlier into the market as laboratory equipment will pave the way for sales of our medical generators and proprietary tablets and compounds, but expected financial contributions from non-medical generator and tablet sales will not be sufficient to fund the substantial costs of the FDA approval process for human medical uses.  We expect that contributions from laboratory sales will be able to cover all or part of our manufacturing and set-up costs and contribute to our overall profitability in due time, but believe that we will also require additional funding, which we are currently working to secure.  


     

All human medical uses of nitric oxide gas require FDA approval prior to initiating sales in the United States, and the approval of similar international agencies in their respective countries.  Approval can be a long and expensive process, with no assurance that any such approval can or will ever be obtained.  Management hopes to reduce the time for 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 and compounds for use in the relief of human diseases;


·

offer value added services such as custom generators adapted for the treatment of various diseases;




10




·

hire staff both currently identified and unidentified to implement our business model; and  


·

obtain FDA approval of our generating systems.

         

     Nitric Oxide Producing Topical Products


We have developed a group of nitric oxide producing products for topical use.  Patent applications have been filed for these products, which will be available as a cream, gel or wash, depending on the desired application and use.


There are significant markets for topical nitric oxide producing products, including use on non-healing wounds (diabetic ulcers, etc.) and skin care (acne, rashes, abrasions, etc.).  For use on non-healing wounds, nitric oxide producing topical products will, with their vasodilator properties, support blood flow to the wound area and support collagen growth, with their anti-inflammatory properties they will reduce inflammation in the wound area, and with their antibacterial properties, support the body in clearing the wound area of infection.  We are currently working with a wound care clinic to finalize the procedures for use on non-healing wounds.  It is anticipated that revenues will be generated from these topical nitric oxide producing products no later than the third quarter of 2011.


Results of Operations


The following table presents our results of operations for the three months ended February 28, 2011, and February 28, 2010:


 

 

 

For the Three Months

 

 

 

Ended

 

 

 

February 28, 2011

 

February 28, 2010

 

 

 

 

 

 

Revenues

 

$

-

   $

-

 

 

 

 

 

 

Cost of sales

 

 

-

 

-

 

 

 

 

 

 

Gross margin

 

 

-

 

-

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

    Research and development

 

 

76,917

 

206,794

General and administrative

 

 

121,655

 

146,342

 

 

 

 

 

 

        Total operating expenses

 

 

198,572

 

353,136

 

 

 

 

 

 

Net income (loss) from operations

 

 

(198,572)

 

(353,136)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

    Interest expense

 

 

(5,894)

 

(6,709)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(204,466)

   $

(359,845)

 

 

 

 

 

 


For the Three Months Ended February 28, 2011 and 2010


During the three-month period ended February 28, 2011, we had a net loss of $204,466.  This compares to a net loss of $359,845 for the comparable period ended February 28, 2010.  Net loss per common share for these periods was $(.01) and $(.01), respectively.  


Research and development (“R&D”) expenses for the three months ended February 28, 2011 were $76,917, a $129,877 reduction from the $206,794 recorded for the three month period ended February 28, 2010.   The decrease in research and development expenditures results primarily from a $90,038 decrease in consulting and advisory board fees, a $19,732 reduction in stock-based compensation, and a $12,000 reduction in travel costs.  As



11




the clinical trials, documentation, preparation and regulatory work for FDA approval intensifies, R&D expenses will increase from the expense level seen in this three-month period.


General and administrative (“G&A”) expenses were $121,655 and $146,342, respectively, for the three-month periods ended February 28, 2011 and 2010.  The decrease of $24,687 resulted primarily from a reduction of $28,395 in stock-based compensation, $9,774 in office rent, and $15,027 in professional fees, offset by a $30,000 non-cash charge in director fees.  We expect that general and administrative expenses in future periods will increase from those experienced for the current quarter.


Total other expense was $5,894 in the three-month period ended February 28, 2011 compared to other expense of $6,709 for the three-month period ended February 28, 2010.  Other expense is comprised entirely of interest accrued on notes payable.


Financial Position


We had $2,847 in cash and cash equivalents as of February 28, 2011, representing a decrease of $24,320 from November 30, 2010.  Working capital as of February 28, 2011, was a deficit of $1,357,362 compared to a deficit of $1,246,202 as of November 30, 2010. This increase in the working capital deficit was primarily due to the decrease in cash combined with an increase in accounts payable and accrued liabilities.


Liquidity and Capital Resources


To date, we have financed our operations principally through private placements of our equity securities. Net cash of $43,473 was used for operating activities during the three months ended February 28, 2011.  This is a decrease of $117,621 as compared to the $161,094 used during the same period ended February 28, 2010.  Also, during the three months ended February 28, 2011, net cash of $7,300 was used for the purchase of intangible assets. This compares with $909 used for the purchase of intangible assets for the same period ended February 28, 2010.   As of February 28, 2011, our current liabilities totaled $1,362,373, and we had a working capital deficit of $1,357,362.  As of February 28, 2011, 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 producing materials 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 February 28, 2011, we had accounts payable and accrued liabilities totaling $1,362,373.  At February 28, 2011, we had cash and cash equivalents of $2,847.  We know that existing cash and cash equivalents will not be sufficient 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 favorable terms, if at all.  If we fail to obtain additional funding when needed, our business and financial condition may be adversely affected.


Critical Accounting Policies


Recent Accounting Pronouncements.


There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the period ended February 29, 2011, or which are expected to impact future periods, which were not already disclosed in prior periods.


Inflation


We do not expect the impact of inflation on our operations to be significant for the next twelve months.


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,



12




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 4.  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/Principal 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/Principal 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/Principal 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/Principal 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.









[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



13




PART II — OTHER INFORMATION


Item 1.  Legal Proceedings.


               None.

 

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


None.


Item 5.  Other Information.


None.


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*


Annual Report on form 10-KSB for the year ended November 30, 2009 and filed on March 1, 2010*


Annual Report on form 10-KSB for the year ended November 30, 2010 and filed on March 15, 2011*



*   Referenced for additional information.




14




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.


32

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.








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.










Date: April 14, 2011

GENOSYS, INC.




By     /s/ John W.R. Miller                                _

John W.R. Miller

President, Chief Executive Officer, Director

       (Principal Executive Officer)





Date: April 14, 2011




By     /s/ Keith L. Merrell                                   _

Keith L. Merrell

Chief Financial Officer and Treasurer

       (Principal Financial Officer)



15