NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018
(Unaudited)
NOTE
1 - NATURE OF OPERATIONS
Genesys
Industries, Inc. (the “Company”), was incorporated on December 9, 2014 under the laws of the State of Florida.
Genesys Industries is a diversified multi-industry manufacturer of complex metal components and products. We serve all general
industrial markets such as Aerospace, Automotive, Commercial, Food Processing, Firearms, Industrial, Maritime, Medical, Railroad,
Oil and Gas, Packaging, Telecom, Textiles, Robotics, Space Travel, Transportation and many more. We are a vertically integrated
precision CNC manufacturing and fabrication company with core emphasis on product design, engineering and precision manufacturing
of complex components and products.
On
February 5, 2018, the Company formed Genesys Industries, LLC as a wholly owned subsidiary in the state of Missouri.
The
Company’s headquarters are in Palmetto, Florida. The Company has adopted its fiscal year end to be June 30.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results
of operations, and cash flows at March 31, 2018 and for the related periods presented have been made. The results for the nine
months ended March 31, 2018 are not necessarily indicative of the results of operations for the full year. These financial statements
and related footnotes should be read in conjunction with the consolidated financial statements and footnotes thereto included
in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017, filed with the Securities and Exchange Commission
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 the reported amounts of revenues and expenses during the reporting period. Significant
estimates include the estimated useful lives of property and equipment. Actual results could differ from those estimates.
Inventories
Inventories
are valued at the lower of cost or market. Management compares the cost of inventories with the market value and allowance is
made for writing down their inventories to market value, if lower. As of March 31, 2018, the Company had $36,203 of parts and
raw material inventory to be used in its manufacturing process.
Property,
Plant and Equipment
Property
and equipment are carried at the lower of cost or net realizable value. Major betterments that extend the useful lives of assets
are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Accounts
Receivable
Revenues
that have been recognized but not yet received are recorded as accounts receivable. Losses on receivables will be recognized when
it is more likely than not that a receivable will not be collected. An allowance for estimated uncollectible amounts will be recognized
to reduce the amount of receivables to its net realizable value. The allowance for uncollectible amounts is evaluated quarterly.
Revenue
Recognition
The
Company follows paragraph 605-15-25 of the FASB Accounting Standards Codification for revenue recognition when the right of return
exists. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue
realized or realizable and earned when all of the following criteria are met: (i) The seller's price to the buyer is substantially
fixed or determinable at the date of sale, (ii) The buyer has paid the seller, or the buyer is obligated to pay the seller and
the obligation is not contingent on resale of the product. If the buyer does not pay at time of sale and the buyer's obligation
to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met., (iii) The
buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product,
(iv) The buyer acquiring the product for resale has economic substance apart from that provided by the seller. This condition
relates primarily to buyers that exist on paper, that is, buyers that have little or no physical facilities or employees. It prevents
entities from recognizing sales revenue on transactions with parties that the sellers have established primarily for the purpose
of recognizing such sales revenue, (v) The seller does not have significant obligations for future performance to directly bring
about resale of the product by the buyer, and (vi) The amount of future returns can be reasonably estimated if necessary.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Genesys Industries,
LLC, and have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant
intercompany transactions and balances have been eliminated.
Reclassifications
Certain
reclassifications have been made to the prior period financial information to conform to the presentation used in the financial
statements for the three and nine months ended March 31, 2018.
Recently
issued accounting pronouncements
The
Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact
on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE
3 - GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As
reflected in the accompanying financial statements, the Company has had minimal revenue, has an accumulated deficit of $105,576
and net cash used in operations of $87,268 for the nine months ended March 31, 2018. These conditions raise substantial doubt
about its ability to continue as a going concern.
While
the Company is attempting to execute its growth strategy, the Company’s cash position may not be sufficient to support the
Company’s daily operations without significant financing. While the Company believes in the viability of its strategy to
produce sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and
generate sufficient volume revenues. The financial statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its
business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
NOTE
4 – PROPERTY, PLANT & EQUIPMENT
Long
lived assets, including property and equipment and certain intangible assets to be held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.
Impairment losses are recognized if expected future cash flows of the related assets are less than their carrying values. Measurement
of an impairment loss is based on the fair value of the asset. Long-lived assets and certain identifiable intangibles to be disposed
of are reported at the lower of carrying amount or fair value less cost to sell.
Property
and Equipment and intangible assets are first recorded at cost. Depreciation and/or amortization is computed using the straight-line
method over the estimated useful lives of the various classes of assets between three and five years. Leasehold improvements are
being depreciated over ten years, and the building over twenty years.
Maintenance
and repair expenses, as incurred, are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts.
Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain
or loss on the disposition included as income.
Intangible
assets stated at cost, less accumulated amortization consisted of the following:
|
|
March 31,
2018
|
|
June 30,
2017
|
Website development
|
|
$
|
1,850
|
|
|
$
|
1,850
|
|
Less: accumulated amortization
|
|
|
(1,799
|
)
|
|
|
(1,336
|
)
|
Website development, net
|
|
$
|
51
|
|
|
$
|
514
|
|
Amortization
expense
Amortization
expense for the nine months ended March 31, 2018 and 2017 was $463 and $463, respectively.
Property,
Plant and equipment stated at cost, less accumulated depreciation consisted of the following:
|
|
March 31,
2018
|
|
June 30,
2017
|
Leasehold Improvements
|
|
$
|
15,893
|
|
|
$
|
—
|
|
Machinery and Equipment
|
|
|
399,977
|
|
|
|
—
|
|
Real Property & Plant
|
|
|
256,443
|
|
|
|
—
|
|
Less: accumulated depreciation
|
|
|
(8,298
|
)
|
|
|
—
|
|
Fixed assets, net
|
|
$
|
664,015
|
|
|
$
|
—
|
|
Depreciation
expense
Depreciation
expense for the nine months ended March 31, 2018 and 2017 was $8,298 and $0, respectively.
NOTE
5 – LINES OF CREDIT
The
Company has established a line of credit with a commercial bank in the amount of $50,000. This is a revolving business line of
credit (BLOC) and bears a fixed interest rate of 7%. As of March 31, 2018 the balance was $0.00. The company has also established
a corporate business credit card for use in travel related purposes. That line of credit is established at $20,000. The company
has also established a renewable Bank Term Loan Facility in the approximate amount of $200,000 with a fixed interest rate of 5%.
Total
consolidated revolving credit available under all credit arrangements is approximately $270,000. On March 9, 2018, the Company
obtained a $180,000 loan against the bank term loan. The loan has a term of five years and requires interest only payments of
$600 until May 26, 2018, thereafter payments of principal and interest of $3,396.82.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2018
|
|
$
|
(3,397
|
)
|
2019
|
|
|
40,762
|
|
2020
|
|
|
40,762
|
|
2021
|
|
|
40,762
|
|
2022
|
|
|
40,762
|
|
Thereafter
|
|
|
37,357
|
|
Total
|
|
$
|
203,802
|
|
NOTE
6 – LOAN PAYABLE
On
February 28, 2018, the Company purchased certain real property and approximately 2 acres of land in Missouri. The total acquisition
cost including all closing costs and fees was $256,443. The purchase price was partially financed with a $200,000 loan from the
company’s primary bank. The loan has a term of 5-year, at an interest rate of 4.09% and requires monthly payments of interest
and principal of $1,494.59 with a final payment of approximately $148,063 due March 1, 2023. As of March 31, 2018, the balance
on the loan is $199,200.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2018
|
|
$
|
4,484
|
|
2019
|
|
|
17,935
|
|
2020
|
|
|
17,935
|
|
2021
|
|
|
17,935
|
|
2022
|
|
|
17,935
|
|
Thereafter
|
|
|
158,931
|
|
Total
|
|
$
|
235,155
|
|
NOTE
7 - STOCKHOLDERS’ EQUITY
Common stock
Common
stock includes 100,000,000 shares authorized at a par value of $0.001.
Between
January 24, 2017 and March 31, 2017, the Company sold 545,000 shares of common stock at $0.10 a share under the terms of its most
recent effective registered stock offering. As of March 31, 2017, $10,000 had not yet been collected therefore has been debited
to stock subscription receivable. The funds were collected on April 3, 2017.
During
the nine months ended March 31, 2018, the Company sold 325,000 shares of common stock from its effective registered stock offering
for total cash proceeds of $32,500.
Preferred
stock
Preferred
stock includes 25,000,000 shares of authorized at a par value of $0.001. Preferred stock includes 25,000,000 shares of Class B
authorized at a par value of $0.001. The Preferred Stock constitutes a convertible stock in which (1) one Preferred Share is convertible
into (5) five Common Shares. The Preferred Stock holders are entitled to vote on any matters on which the common stock holders
are entitled to vote.
NOTE
8 - RELATED PARTY TRANSACTIONS
On
November 5, 2017, to fund its working capital requirements the Company obtained a Special Line of Credit (“LOC”)
also recognized as a Blanket Secured Promissory Note for the total draw down amount of up to $500,000, from Twiga Capital Partners,
LLC (“TCP”), an entity controlled by the Company’s sole officer and largest stockholder, Shefali Vibhakar. This
Note is secured by all of the assets of the Company in accordance with the Security Agreement by and between the Company and the
Holder dated as of Nov 5th, 2017. The LOC bears interest at 5% per annum and is due on demand. As of December 31, 2017, the Company
owed $37,748 of principal and $243 of accrued interest on the LOC. During the nine months ended March 31, 2018, the Company utilized
$310,000 of its LOC to purchase property and equipment from TCP and borrowed another $30,000 for operating expenses. As of March
31, 2018, the Company owed $377,748 of principal and $2,196 of accrued interest on the LOC.
As
of December 31, 2017, and June 30, 2017, the Company owed $37,748 and $6,190, respectively in loans payable to its President &
CEO. The loans were received to pay for certain operating expenses. They were unsecured, non-interest bearing and due on demand.
On November 15, 2017, this note was assigned to TCP. The note has become part of the outstanding balance due under the newly established
line of credit.
NOTE
9 – COMMITMENTS – RELATED PARTY
On
November 1, 2017, the Company entered into a lease agreement with TCP to lease certain premises located in Florida to be effective
from November 1, 2017 to November 1, 2027. The 8,000 square feet premises will be used by the Company for plant and offices. Monthly
rent of $7,500 is to be paid on the first of each month. No payment is due for the first four months of the lease. A $7,500 deposit
is required and was loaned to the Company by TCP. The $7,500 has been added to the balance due under the line of credit with TCP.
As of March 31, 2018, the Company has incurred $25,000 of rent expense. TCP determined that it is in the best interest of the
Company to temporarily contribute the rented space to the Company; therefore, the $25,000 has been credited to paid in capital.
The Company is currently in default on this agreement.
Future
minimum rental payments are as follows:
Years ending June 30,
|
|
|
2018
|
|
$
|
30,000
|
|
2019
|
|
|
90,000
|
|
2020
|
|
|
90,000
|
|
2021
|
|
|
90,000
|
|
2022
|
|
|
90,000
|
|
Thereafter
|
|
|
450,000
|
|
Total
|
|
$
|
840,000
|
|
Per
the terms of the lease the Company is required to maintain rent and general liability insurance. As of March 31, 2018, the Company
has acquired a policy to satisfy this lease requirement.
NOTE
10 - SUBSEQUENT EVENTS
In
accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial
statements were available to be issued on April 27, 2018 and has determined that it does not have any material subsequent events
to disclose in these financial statements.