NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2020
(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 March 31, 2020 and for the related periods presented have been made. The results for the nine
months ended March 31, 2020 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, 2020, 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.
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, 2020.
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.
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.
Website
development
Website
development is carried at cost. Major betterments that would extend the useful life are capitalized. Normal maintenance and repairs
are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated amortization are removed
from the accounts and any resulting gain or loss is recognized in operations. Website development costs are being amortized on
a straight-line basis over three years.
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 nine months ended March 31,
2020, the Company recognized $273,803 and $79,090 of sales from its two largest customers, representing 62.5%, and 18%, respectively,
of total sales.
During
the nine months ended March 31,
2019, the Company recognized $195,631, $136,858, and $129,436 from its three largest customers, representing 31%, 22% and 21%
of total sales, respectively.
Right
of Return
From
time to time, the company in the normal course of business encounters product returns. The company policy is to identify
the reason of return and to either replace product, rework product or cancel the order at the request of the customer. As of March
31, 2020, and June 30, 2019, there were no substantial claims for rework or replacement in the normal course of business.
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 unaudited consolidated 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 unaudited accompanying consolidated financial statements, the Company has experienced
a significant increase in revenue since commencing it operations in 2018. As of March 31, 2020, the Company has an accumulated
deficit of $203,004 and for the nine months ended March 31, 2020. We had a net loss of $172,422 and received cash from operations
of $42,366. For the nine months ended March 31, 2020, a portion of our net loss consisted of $177,500 of non-cash expense related
to the issuance of stock and convertible debt. Although the Company’s financial position is steadily improving our operations
are still relatively new, circumstances may still occur that would raise substantial doubt about the Company’s ability to
continue as a going concern.
While
the Company is successfully executing its growth strategy, its cash position may not still 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 consolidated 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, 2020
|
|
June 30, 2019
|
Website development
|
|
$
|
1,850
|
|
|
$
|
1,850
|
|
Less: accumulated amortization
|
|
|
(1,850
|
)
|
|
|
(1,850
|
)
|
Website development, net
|
|
$
|
—
|
|
|
$
|
—
|
|
Amortization
expense
Amortization
expense for the nine months ended March 31, 2020 and 2019 was $0 and $0, respectively.
Property,
Plant and equipment stated at cost, less accumulated depreciation consisted of the following:
|
|
March 31, 2020
|
|
June 30, 2019
|
Leasehold Improvements
|
|
$
|
86,820
|
|
|
$
|
62,261
|
|
Machinery and Equipment
|
|
|
334,482
|
|
|
|
136,365
|
|
Furniture
|
|
|
4,414
|
|
|
|
—
|
|
Real Property & Plant
|
|
|
256,443
|
|
|
|
256,443
|
|
Less: accumulated depreciation
|
|
|
(102,218
|
)
|
|
|
(52,664
|
)
|
Fixed assets, net
|
|
$
|
579,941
|
|
|
$
|
402,405
|
|
Depreciation
expense
Depreciation
expense for the nine months ended March 31, 2020 and 2019 was $49,553 and $30,056, 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 required interest only payments of
$600 until May 26, 2018, thereafter payments of principal and interest of $3,396.82. As of March 31, 2020 and June 30, 2019, the
balance on the loan is $116,857 and $143,263, respectively.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
10,518
|
|
2021
|
|
|
42,071
|
|
2022
|
|
|
42,071
|
|
2023
|
|
|
31,150
|
|
Total
|
|
$
|
125,810
|
|
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 March 31, 2020, and June 30, 2019,
the balance on the loan is $178,985 and $186,655, respectively.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
2,989
|
|
2021
|
|
|
17,935
|
|
2022
|
|
|
17,935
|
|
2023
|
|
|
17,935
|
|
2024
|
|
|
140,996
|
|
Total
|
|
$
|
197,790
|
|
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. During the quarter ended December 31, 2019, this loan was repaid in full. As of March 31, 2020 and June
30, 2019, the balance on the loan is $0 and $22,230, respectively.
In
September 2019 the Company purchased equipment to be used in their operations for a total acquisition price of $87,000. The equipment
was purchased with a combination of cash and loan financing. The Company obtained a loan for $70,147. The loan, dated August 12,
2019, matures on August 12, 2024, bears interest at 6.6% per annum and requires monthly payments of interest and principal of
$1,379.09. As of March 31, 2020 the balance on the loan is $63,117.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
4,137
|
|
2021
|
|
|
16,549
|
|
2022
|
|
|
16,549
|
|
2023
|
|
|
7,232
|
|
Total
|
|
$
|
44,467
|
|
On
December 18, 2019, the Company received a $38,000 loan disbursement from American Express. The loan bears interest at 8.98% per
annum, is to be paid in full by December 23, 2022 and requires monthly payments of interest and principal of $1,208.23. As of
March 31, 2020 the balance on the loan is $35,207.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
3,625
|
|
2021
|
|
|
14,499
|
|
2022
|
|
|
14,499
|
|
2023
|
|
|
7,240
|
|
Total
|
|
$
|
39,863
|
|
On
March 27, 2020, the Company received a $37,000 loan disbursement from American Express. The loan bears interest at 8.98% per annum,
is to be paid in full by April 1, 2023 and requires monthly payments of interest and principal of $1,176.43. As of March 31, 2020
the balance on the loan is $37,000.
Future
minimum payments of principal and interest for the fiscal years ended are as follows:
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
2,353
|
|
2021
|
|
|
14,117
|
|
2022
|
|
|
14,117
|
|
2023
|
|
|
11,764
|
|
Total
|
|
$
|
42,351
|
|
NOTE
7 – CONVERTIBLE DEBT
On
January 2, 2020, the Company executed a 10% convertible promissory note in which it agreed to borrow up to $300,000. The note
is convertible at a price per share equal to the lower of (a) the Fixed Conversion Price
(which is fixed at a price equal to $0.30); or (b) 80% of the lowest trading price of the Company’s common stock during
the 5 consecutive trading days prior to the date on which lender elects to convert all or part of the Note. The initial
deposit of $125,000 was made on January 15, 2020 and included a $25,000 OID. As required by ASC 470-20-30-6 the company
recognized and measured the embedded beneficial conversion feature at the commitment date of $200,000 which was credited to paid
in capital, a $150,000 debt discount and a $75,000 loss on the issuance of convertible debt. As of March 31, 2020, $62,500 of
the debt discount has been amortized to interest expense.
NOTE
8 - STOCKHOLDERS’ EQUITY
Common
stock
Common
stock includes 100,000,000 shares authorized at a par value of $0.001.
During
the nine months ended March 31, 2020, the Company granted 130,000 shares of common stock for services to two individuals. The
shares were valued at $0.10, for total non-cash expense of $13,000.
During
the nine months ended March 31, 2020, the Company granted 100,000 shares of common stock for services. The shares were valued
at $0.11, for total non-cash expense of $16,500. The expense is being amortized over the six-month term of the agreement; $3,889
of expense was recognized as of March 31, 2020. As of March 31, 2020, the shares have not yet been issued by the transfer agent
and have been credited to common stock to be issued.
During
the nine months ended March 31, 2020, the Company granted 100,000 shares of common stock for services valued at $30,000. The shares
were valued at $0.70, the closing stock price on the date of grant, for total non-cash expense of $70,000. $40,000 of which was
recorded as a loss on the issuance of common stock.
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 Stockholders are entitled to vote on any matters on which the common stock holders
are entitled to vote.
NOTE
9 - 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 March 31, 2020 and June
30, 2019, the Company owed $122,729 and $102,129 of principal and $9,749 and $5,463 of accrued interest on the LOC, respectively.
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 and has determined that it does not have any material subsequent events to disclose in
these financial statements.