NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 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, 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 September 30, 2018 and for the related periods presented have been made. The results for the
three months ended September 30, 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, 2018, 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.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Genesys Industries,
LLC, and been prepared in conformity with accounting principles generally accepted in the United States of America. All significant
intercompany transactions and balances have been eliminated.
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 September 30, 2018, the Company had $9,298 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
Revenue
is recognized goods are shipped or services performed and is recognized in an amount that reflects the consideration that an entity
expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded
reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following
five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination
of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction
price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts
when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it
transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company
reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations
are distinct.
The company recognizes revenue when all performance obligations are completed,
and the risk of loss is transferred to the customer upon shipment.
During
the three months ended September 30, 2018, the Company recognized $103,665 in sales from one customer. This represents 55.9% of
total sales.
Right
of Return
The
Company’s only obligation is to replace product proven to be defective. Claims must be made within ten days of receipt of
such product. As of September 30, 2018, there have been no claims of defective products made.
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 just recently begun to recognize revenue and has an accumulated
deficit of $110,718 as of September 30, 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 additional 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 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.
Property,
Plant and equipment stated at cost, less accumulated depreciation consisted of the following:
|
|
September 30, 2018
|
|
June 30,
2018
|
Leasehold Improvements
|
|
$
|
15,893
|
|
|
$
|
15,893
|
|
Machinery and Equipment
|
|
|
124,970
|
|
|
|
124,970
|
|
Real Property & Plant
|
|
|
256,443
|
|
|
|
256,443
|
|
Less: accumulated depreciation
|
|
|
(21,635
|
)
|
|
|
(11,784
|
)
|
Fixed assets, net
|
|
$
|
375,671
|
|
|
$
|
385,522
|
|
Depreciation
expense
Depreciation
expense for the three months ended September 30, 2018 and 2017 was $9,852 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%. 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. As of September 30, 2018, and September 30,
2018, the balance on the loan is $166,835 and $177,353, respectively.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2019
|
|
|
$
|
30,572
|
|
2020
|
|
|
|
40,762
|
|
2021
|
|
|
|
40,762
|
|
2022
|
|
|
|
40,762
|
|
Thereafter
|
|
|
|
37,357
|
|
Total
|
|
|
$
|
190,215
|
|
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-years, 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 September 30, 2018, and June
30, 2018 the balance on the loan is $194,437 and $197,571, respectively.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2019
|
|
|
$
|
13,425
|
|
2020
|
|
|
|
17,935
|
|
2021
|
|
|
|
17,935
|
|
2022
|
|
|
|
17,935
|
|
Thereafter
|
|
|
|
158,931
|
|
Total
|
|
|
$
|
226,161
|
|
In
April 2018 the Company purchased equipment to be used in their operations for a total acquisition price of $32,792. The equipment
was purchased with a combination of cash and loan financing. The Company obtained a loan for $27,500 from their primary bank.
The loan, dated May 7, 2018, matures on May 7, 2023, bears interest at 6% per annum and requires monthly payments of interest
and principal of $532.84. As of September 30, 2018, and June 30, 2018, the balance on the loan is $25,511 and $27,109, respectively.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2019
|
|
$
|
4,796
|
|
2020
|
|
|
6,394
|
|
2021
|
|
|
6,394
|
|
2022
|
|
|
6,394
|
|
Thereafter
|
|
|
2,664
|
|
Total
|
|
$
|
26,642
|
|
NOTE
7 - STOCKHOLDERS’ EQUITY
Common
stock
Common
stock includes 100,000,000 shares authorized at a par value of $0.001.
During
the year ended June 30, 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 November 5, 2017. The LOC bears interest at 5% per annum and is due on demand. As of September 30, 2018, and
June 30, 2018, the Company owed $65,911 and $67,299 of principal and $2,549 and $1,718 of accrued interest, respectively on the
LOC.
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 was to be used by the Company for plant and offices. Monthly
rent of $7,500 was to be paid on the first of each month. No payment was due for the first four months of the lease. A $7,500
deposit was required and was loaned to the Company by TCP. The $7,500 was added to the balance due under the line of credit with
TCP but has since been returned. As of June 30, 2018, the Company has incurred $25,000 of rent expense. TCP determined that it
is in the best interest of the Company to contribute the $25,000 of rented space to the Company; which has been credited to paid
in capital, and to cancel the lease agreement.
NOTE
10 – CORRECTION OF AN ERROR
During
the quarter ended March 31, 2018, the Company utilized $310,000 of its LOC with TCP in exchange for certain machinery and equipment.
As a result of the purchase the March 31, 2018 balance sheet included $304,833 (net of $5,167 of depreciation) of machinery equipment
and a loan of $310,000 due to a related party. The Company was subsequently unable to establish the book value of the equipment
per GAAP requirements. As a result, an adjustment was made to carry the equipment over at no cost and the loan was debited to
additional paid in capital. TCP then forgave the loan resulting in a credit to additional paid in capital. On December 28, 2018,
the Company filed an 8-K for non-reliance on previously issued financial statements.
NOTE
11 - 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 January 22, 2019 and has determined that it does not have any material subsequent events
to disclose in these financial statements.