Liabilities
The Company's liabilities increased by $1,393,839 due to payables created from operations of GeneWize and its related impact on GeneLink's DNA testing operations. In addition to general payables, accrued expenses include commissions payable of $128,664 and $150,000 in guarantee expenses accrued for an event contract. The Company also has recognized deferred royalty revenue of $163,033 from its contract with Solgar. Offsetting the increase in operating liabilities was the retirement through conversion of $487,968 of long term convertible debt.
Equity
The Company raised additional funds through two efforts during the year. In April 2008 the Company made an offer of a reduced warrant exercise price to warrant holders to incentivise cash exercises and provide funding to meet the cash required to complete the Settlement with our former CEO. Additionally, at the end of the year, the Company pursued a private placement of shares which, through December 31, 2008 had raised an additional $853,500 and resulted in the issuance of 8,535,000 additional shares at $.10. Private placement efforts continue into 2009 with an additional $565,000 in private-placement stock sales and $1,200,000 in convertible debt raised in 2009 through the date of this filing.
Revenues
The Company saw its nominal licensing and testing revenues continue in 2008, but the dramatic increase in revenues, from $97,744 in 2007 to $6,377,443 in 2008, is attributable to the launch of GeneWize. Initial sales generated by GeneWize were very strong, driven by the unique offering of a personalized and customized product providing genetically-guided nutrition. By the August 2008 launch date over 5,000 affiliates had signed on.
The growth in GeneWize revenues slowed substantially when, shortly after the August 2008 launch, (a) our former CEO filed a complaint against the Company seeking to undo the Settlement and seeking approximately $20,000,000, and
(b) California and New York imposed more stringent requirements regarding our DNA testing. The complaint filed by our former CEO, initiated nine days after the launch conference, created substantial concern in the distribution channel and disrupted momentum from the conference. In addition to the litigation, the noted regulatory requirements all but shut down the critical California and New York markets while we worked on getting compliant under the newly promulgated rules. Additionally, the huge initial response overwhelmed our initial lab capacity. As a result, DNA testing and the commensurate beginning of recurring revenues from monthly resales was delayed.

While we recognized substantial revenues in the fourth quarter of 2008, $2,453,434 represented gross deferred revenues from the third quarter of 2008 which were realized in the fourth quarter of 2008 as we caught up in testing and shipping product. Gross revenues in GeneWize from recurring sales for the year totaled $808,921.
Cost of Goods Sold
Cost of Good Sold also increased dramatically, from $70,809 in 2007 to $1,812,488 in 2008, with the launch of GeneWize and its proprietary nutritional supplement. Costs include laboratory costs, LifeMap ingredients, processing, packaging and outbound shipping related to the products. Expenses
Expenses increased due to the launch of our GeneWize subsidiary. The most significant expense item is customer acquisition and sales commissions paid to sales affiliates totaling $3,106,062. Overall commissions were approximately 49% of GeneWize's sales for 2008. This number is higher than we expect going forward due to the fact that most of the sales in this initial period included a 'first order' bonus commission. As recurring and subsequent sales build, the impact of first-order commissions will be reduced as it is averaged with the normal commissions from recurring revenues. Additionally, in 2008 the Company moved its headquarters to a new leased facility in Longwood, Florida, hired 29 additional staff for management and customer service, began leasing and customizing proprietary software for infrastructure and incurred significant conference and event costs, all leading to increases in selling, general and administrative costs. Furthermore, the Company incurred significant legal costs in 2008 in defending itself from litigation brought against it by its former CEO. Losses
The Company continued to incur an operating loss, largely related to startup and early-stages costs related to the launch of GeneWize and its sales, marketing and operating costs. In addition to general operating losses, the Company incurred significant legal costs in 2008 in defending itself from litigation brought against it by its former CEO. The Company incurred $229,025 of Other Expenses that were financing-related, resulting from converting debt issued in the prior year. Losses increased from $1,560,624 in 2007 to $2,603,509 in 2008. Of those losses, $363,400 and $384,081 respectively, resulted from non-cash charges relating to the granting of options and warrants in those years.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 2007 TO FISCAL YEAR ENDED DECEMBER 31, 2006.
Assets. The Company's assets increased from $548,481 at December 31, 2006 to $1,383,824 at December 31, 2007, an increase of $835,343. This increase was primarily due to an increase in cash and cash equivalents from $149,695 at December 31, 2006 to $972,371 at December 31, 2007, an increase of $822,676. This increase of cash resulted from the sale of common stock and warrants by the Company in November 2007 in the amount of $1,431,398, less fees and costs incurred in connection with such offering.

Liabilities. The Company's liabilities decreased from $1,407,784 at December 31, 2006 to $1,190,457 at December 31, 2007, a decrease of $217,327. This decrease in liabilities was primarily due to a decrease in accrued compensation from $710,323 at December 31, 2006 to $144,168 at December 31, 2007, a decrease of $566,155, relating to a decrease in $662,617 of accrued compensation owed to an officer and director of the Company. This decrease in liabilities was partially offset by an increase in convertible secured promissory notes payable, net of debt issuance and stock conversion discounts, from $298,390 at December 31, 2006 to $487,968 at December 31, 2007, an increase of $189,578, as Company issued $380,000 principal amount of convertible secured promissory notes in 2007 and note holders converted $229,253 of notes into common stock of the Company in 2007; and an increase in accounts payable and accrued expenses from $365,590 at December 31, 2006 to $439,399 at December 31, 2007, an increase of $73,809. The $487,968 and $298,390 amount of convertible secured notes payable reflected on the balance sheets as of December 31, 2007 and 2006, respectively, are net of debt issuance costs and stock conversion discounts. The outstanding amount of convertible secured notes payable as of December 31, 2007 and 2006 was $832,269 and $827,890, respectively.
Losses. The Company incurred an operating loss of $1,265,487 for the fiscal year ended December 31, 2007, as compared to an operating loss of $793,576 for the fiscal year ended December 31, 2006, an increase of $471,911. This increase in operating losses was primarily due to the incurring of $363,400 of expenses in connection with grants of options and warrants to officers and directors during the year ended December 31, 2007; an increase in professional fees from $173,590 for the year ended December 31, 2006 to $346,148 for the year ended December 31, 2007, an increase of $172,558, which increase relates to costs incurred in connection with the litigation brought against the Company by its former chief executive officer; and the decrease in gross profits from $110,253 for the year ended December 31, 2006 to $26,935 for the year ended December 31, 2007. Revenues. The Company's total operating revenues for the fiscal year ended December 31, 2007 were $97,744 as compared to $175,674 for the fiscal year ended December 31, 2006, a decrease of $77,930. The Company saw licensing and testing revenues continue in 2008, but the dramatic increase in revenues, from $97,744 in 2007 to $6,377,443 in 2008, came from the launch of GeneWize. Initial sales in the GeneWize subsidiary were very strong, driven by the unique offering of a mass-customization model providing genetically-guided nutrition. By the August 2008 launch date over 5,000 affiliates had signed on. Expenses. Total expenses for fiscal year ended December 31, 2007 were $1,658,368, as compared to $969,250 for the fiscal year ended December 31, 2006, an increase of $689,118. Selling, general and administrative expenses increased from $476,539 for the year ended December 31, 2006 to $1,268,022 for the year ended December 31, 2007, an increase of $791,483. This increase in selling, general and administrative expenses is primarily due to the incurring of $363,400 of expenses in connection with grants of options and warrants to officers and directors during the year ended December 31, 2007, and an increase in professional fees from $173,590 for the year ended December 31, 2006 to $346,148 for the year ended December 31, 2007, an increase of $172,558, which increase relates to costs incurred in connection with the litigation brought against the Company by its former chief executive officer.

Segment Operating Results
The following table sets forth the net revenues, operating expenses and pre-tax
earnings of our segments for the year ended December 31, 2008:

                                  GeneLink        Dermagenetics       GeneWize Life
                                    Inc.              Inc.           Sciences, Inc.
      Net Revenues              $    291,206     $        29,738     $     6,056,499

      Operating expenses           1,973,028              40,113           6,980,049

      Other income                    12,238                   -                   -

      Pre-tax earnings (loss)     (1,669,584 )           (10,375 )          (923,550 )

The following table sets forth the net revenues, operating expenses and pre-tax earnings of our segments for the year ended December 31, 2007:

                                          GeneLink        Dermagenetics
                                            Inc.              Inc.
              Net Revenues              $     30,458     $        67,286

              Operating expenses           1,479,300             190,648

              Other income                    10,956                 624

              Pre-tax earnings (loss)     (1,437,886 )          (122,738 )

Liquidity and Capital Resources
For 2008, the Company's primary liquidity requirement was the funding of the Company's sales and marketing efforts, funding improvements in the Company's infrastructure and the payment of past obligations of the Company. While the Company has been successful at raising needed funds during the year, the complaint filed in August 2008 by our former CEO against the Company has had a negative impact, both direct and indirect, on the Company's ability to raise capital. The direct impact reflects concerns by investors and potential investors over the Company's future in the face of a $20,000,000 complaint. In addition, those concerns in the general public market impacted our stock price. The negative pressure on our stock price influenced the offering price on subsequent private offerings and created greater dilution from the offerings as well.
Subsequent to year end, in January 2009 the Company sold an additional 5,650,000 shares of restricted Common Stock of the Company at a purchase price of $0.10 per share pursuant to a continued Confidential Private Offering Memorandum, and received an aggregate gross amount of $565,000.

On February 26, 2009, the Company issued to an accredited investor $1,000,000 principal amount of Convertible Notes and issued 1,500,000 Warrants to acquire shares of Common Stock at an exercise price of $0.11 per share in connection therewith. The Warrants are exercisable on or after August 26, 2009 and on or before February 26, 2014. In March 2009, the Company issued an additional $200,000 of notes and issued 300,000 additional warrants in connection therewith. The Convertible Notes mature on February 26, 2014 and bear interest at the rate of 8% per year through February 26, 2011 and thereafter bear interest at the rate of 10% per year. The Convertible Notes may not be prepaid without the approval of the holders of the Convertible Notes. The Convertible Notes are convertible at the option of the holders of the Convertible Notes upon the earlier to occur of (a) August 26, 2009 or (b) the adoption and filing of an amendment to increase the capitalization of the Company to at least 175,000,000 shares of Common Stock (the "Initial Conversion Date"). Additionally, the Convertible Notes are exercisable at the option of the holders of the Convertible Notes at any time upon the occurrence of a Change in Control Event (as defined in the Convertible Notes). A mandatory conversion of the Convertible Notes will occur if after the Initial Conversion Date the closing price of the Common Stock of the Company is at least $0.50 per share for 30 consecutive trading days. The conversion price for the Convertible Notes is $0.10 per share, subject to adjustment in the event of a stock split, combination, reclassification, reorganization or similar event. Cash and Cash Equivalents
On December 31, 2008, the Company's cash and cash equivalents amounted to $435,197 as compared to $972,371 at December 31, 2007, a decrease of $537,174. This decrease resulted from a net use of cash from operations due to early stage operations of GeneWize. During 2008, the Company's operating activities utilized $1,450,900 as compared to utilizing $705,086 in 2007, an increase of $745,814. Cash utilized during these periods resulted from the Company's net losses for such periods, payment of litigation expenses and the Settlement, and the payment of accounts payable.
Investing activities utilized $281,408 in 2008, as compared to utilizing $90,827 in 2007. Financing activities provided $1,195,134 in 2008, as compared to $1,618,589 in 2007, primarily through the issuance of 8,535,000 of shares of common stock, less $46,580 of cash costs associated with such issuances and the exercise of warrants whose net proceeds provided $706,989.
The Company believes that it needs approximately $2.5 million of working capital to fund the Company's sales and marketing efforts and infrastructure improvement and to pay existing obligations for the balance of 2009. In 2009, through the date of this filing, the Company has raised approximately $1.8 million of this amount. If the Company cannot obtain the balance of this required financing, it is unlikely that the Company will be able to fully implement its business plan.

Critical Accounting Policies
Stock options:
The Financial Accounting Standards Board has issued SFAS No. 123R, which defines a fair value based method of accounting for an employee stock option and similar equity instruments and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also temporarily allowed an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25). Entities electing to remain with the accounting in APB 25 must make proforma disclosures of net income (loss) and, if presented, earnings (loss) per share, as if the fair value based method of accounting defined in SFAS 123R had been adopted. As required, the Company has adopted SFAS No. 123R for the years ended December 31, 2008 and 2007. Intangible assets and amortization of patents:
Legal and professional fees and expenses in connection with the filing of patent and trademark applications have been capitalized and are amortized over fifteen years on a straight-line basis. The Company has filed for and has patents pending in the USA and foreign countries on its method of DNA gathering. The Company has a registered trademark for its names, logos, and other proprietary products and "branding" terms. The Company also filed for and has patents pending on its three proprietary genetic indicator tests and has received a patent in Australia regarding its Oxidative Stress Profile. Revenue and cost recognition:
GeneLink receives separate fees for the kits and for lab services. Upon entering into a distribution arrangement with GeneLink, a distributor will order kits at a price negotiated between GeneLink and the distributor. Upon the distributor receiving from a customer of such distributor an order for the underlying genetically guided skin care or nutrition product that the distributor is selling, a sample of the customer's DNA will be obtained and the kit will be sent to the lab for analysis. At that time the distributor will be charged an agreed upon price for the lab services. This is in addition to the price of the kits.
The price for each of the kits and the lab services come about through arms-length negotiations between GeneLink and its distributors and are based upon the costs incurred by GeneLink for the kits and the lab services. Upon termination of a distribution arrangement, GeneLink is not required to repurchase any kits remaining in the possession of the distributor. Typically, only a small number of kits are purchased at any time. The distributor has some period after the end of the distribution arrangement to sell off any remaining kits. If it does, GeneLink will provide the lab services for each kit sold. Revenue 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. Consistent with its return policy, the Company recognizes revenues from the sales of products immediately upon shipment and transfer of title. It offers no returns but allows for refunds on a genetically customized product for the first 90 days after an initial order as a 'trial' period. No refunds are offered on genetic assessments, marketing materials, non-customized products or on customized products beyond 90 days of initial order unless it constitutes the correction of a billing error.
Allowance for sales returns and allowances:
The Company predominantly sells customized products and ships on an as-requested basis. As a consequence of customization, there is no resulting finished product inventory at the Company or any affiliate or distributor location for which to accrue returns allowance. The Company did maintain an inventory for sale of some marketing and sales materials for separate resale, but the amounts were immaterial. The Company does provide a refund policy, only on customized product, for up to 90 days.
The Company analyzes sales returns in accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists. The Company is able to make reasonable and reliable estimates based on its history. The Company also monitors the buying patterns of the end-users of its products based on sales data received. The Company reviews its estimated product allowances based on historical refunds of its customers. The Company believes that this analysis creates appropriate estimates of expected future returns.
Accounts receivable:
Accounts receivable include amounts due from credit card service partners, including any holdbacks or reserves, and to a lesser degree trade accounts receivable. A provision may be made for estimated bad trade debts based on management's estimate of the amount of possible credit losses in the Company's existing trade accounts receivable. As of December 31, 2008 and 2007, the Company has not recorded any reserve for bad debts from trade or credit receivables.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Evaluation of liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering among other factors, the progress of each case, our experience and the experience of others in similar cases, and the opinions and views of legal counsel. Given the inherent difficulty of predicting the outcome of our litigation matters, particularly in cases in which claimants seek substantial or indeterminate damages, we cannot estimate losses or ranges of losses for cases where there is only a reasonable possibility that a loss may have been incurred. See "Legal Proceedings" in Part I, Item 3 of the Annual Report on Form 10-K for information on our judicial, regulatory and arbitration procedures.