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EX-32 - CERTIFICATION - GENESIS FINANCIAL INC | ex322.htm |
EX-32 - CERTIFICATION - GENESIS FINANCIAL INC | ex321.htm |
EX-31 - CERTIFICATION - GENESIS FINANCIAL INC | ex312.htm |
EX-31 - CERTIFICATION - GENESIS FINANCIAL INC | ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ending September 30, 2017
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number: 333-103331
Genesis Financial, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Wyoming | 03-0377717 |
(State of Incorporation) | (IRS Employer Identification No.) |
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3773 West Fifth Avenue, Suite 301 Post Falls, ID. | 83854 |
(Address of principal executive offices) | (Zip Code) |
Issuers telephone number: (208) 457-9442
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X] 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 [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and "emerging growth company" in Rule 12b-2 of the Exchange:
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [X] |
Emerging growth company [ ] |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ON TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by the court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 26, 2017 there were 17,594,992 shares of common stock issued and outstanding.
1
Table of Contents
PART I FINANCIAL INFORMATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
Item 3. Defaults upon Senior Securities.
Item 4. Mine Safety Disclosures.
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GENESIS FINANCIAL, INC. |
| |||||
Condensed Balance Sheets |
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| September 30, |
| December 31, |
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| 2017 |
| 2016 |
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| ASSETS |
| (Unaudited) |
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|
|
CURRENT ASSETS: |
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|
|
| |
| Cash and cash equivalents | $ | 2,534 | $ | 10,639 |
|
| Interest and other receivables |
| - |
| 16,748 |
|
| Investments in real estate limited liability companies |
| 109,356 |
| 104,940 |
|
| Loans held for sale |
| 325,756 |
| 347,755 |
|
| Real estate owned |
| - |
| 14,999 |
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| Total current assets |
| 437,646 |
| 495,081 |
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NON-CURRENT ASSETS: |
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|
|
|
| |
| Long-term investments |
| 362,619 |
| 362,619 |
|
| Real estate leasehold interest, net of accumulated amortization of $80,848 and $70,527, respectively |
| 93,000 |
| 204,423 |
|
| Rental property, net of accumulated depreciation of $-0- and $4,733, respectively |
| - |
| 121,895 |
|
| Office equipment, net of accumulated depreciation of $7,283 and $6,865, respectively |
| 650 |
| 1,067 |
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| Total non-current assets |
| 456,269 |
| 690,004 |
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| Total assets | $ | 893,915 | $ | 1,185,085 |
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| LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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| |
| Line of credit, related party | $ | 950,000 | $ | 950,000 |
|
| Line of credit, bank |
| 177,500 |
| 180,000 |
|
| Note payable |
| - |
| 28,385 |
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| Other current liabilities |
| 10,000 |
| 1,115 |
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| Total current liabilities |
| 1,137,500 |
| 1,159,500 |
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LONG-TERM LIABILITIES |
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|
|
|
| |
| Convertible note payable to officer |
| - |
| - |
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COMMITMENT AND CONTINGENCIES (Note 6) |
| - |
| - |
| |
STOCKHOLDERS EQUITY: |
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| |
| Series B Preferred stock, $1.00 par value: 2,290,000 authorized, |
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| none issued and outstanding, respectively |
| - |
| - |
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| Common stock, $.001 par value, 100,000,000 authorized, |
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| 17,594,992 and 17,200,653 issued and outstanding, respectively |
| 17,595 |
| 17,201 |
|
| Additional paid-in capital |
| 8,636,357 |
| 8,598,531 |
|
| Accumulated deficit |
| (8,897,537) |
| (8,590,147) |
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| Total stockholders equity |
| (243,585) |
| 25,585 |
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| Total liabilities and stockholders' equity | $ | 893,915 | $ | 1,185,085 |
|
See accompanying notes to condensed financial statements.
3
GENESIS FINANCIAL, INC. Condensed Statements of Operations and Comprehensive Income (Loss) (Unaudited) | |||||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
REVENUE: |
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| |
| Interest, processing fees and other income | $ | 4,643 | $ | 11,673 | $ | 27,073 | $ | 34,526 |
| Rental income |
| 1,200 |
| 6,000 |
| 11,925 |
| 16,528 |
| Net revenues |
| 5,843 |
| 17,673 |
| 38,998 |
| 51,054 |
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EXPENSES: |
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|
| |
| Fair value adjustment |
| 20,000 |
| 44,761 |
| 20,000 |
| 44,761 |
| Loss on impairment of real estate lease hold interest |
| - |
| - |
| 101,102 |
| - |
| Loss (income) on investment in real estate LLC |
| - |
| 4,097 |
| 376 |
| (265,638) |
| Loss on sale of available for sale security |
| - |
| - |
| - |
| 497,787 |
| Loss on sale of rental property to related party |
| 17,670 |
| - |
| 17,328 |
| - |
| (Gain) on sale of loan |
| - |
| - |
| - |
| (21,258) |
| Salaries |
| 9,000 |
| 10,250 |
| 27,000 |
| 35,750 |
| Interest expense, related party |
| - |
| 6,142 |
| 18,219 |
| 8,297 |
| Interest expense, other |
| 2,257 |
| 83 |
| 6,710 |
| 2,452 |
| Financing expense, related party |
| - |
| - |
| - |
| 29,000 |
| Depreciation |
| 139 |
| 877 |
| 995 |
| 2,630 |
| Amortization |
| - |
| 5,161 |
| 10,321 |
| 15,482 |
| Rental property expense |
| 1,273 |
| 2,437 |
| 4,637 |
| 13,508 |
| Office occupancy and other |
| 42,919 |
| 43,031 |
| 139,700 |
| 147,403 |
| Total operating expenses |
| 93,259 |
| 116,839 |
| 346,387 |
| 510,174 |
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NET LOSS |
| (87,416) |
| (99,166) |
| (307,390) |
| (459,120) | |
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COMPREHENSIVE INCOME (LOSS): |
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| |
| Unrealized loss on available for sale securities |
| - |
| - |
| - |
| (24,357) |
| Reclassification of unrealized loss on available for sale security |
| - |
| - |
| - |
| 497,787 |
| Total other comprehensive income (loss) |
| - |
| - |
| - |
| 473,430 |
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COMPREHENSIVE INCOME (LOSS) | $ | (87,416) | $ | (99,166) | $ | (307,390) | $ | 14,310 | |
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BASIC AND DILUTED EARNINGS (LOSS) PER SHARE | $ | (0.00) | $ | (0.01) | $ | (0.02) | $ | (0.03) | |
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WEIGHTED AVERAGE SHARES: |
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| |
| BASIC AND DILUTED |
| 17,594,992 |
| 17,067,003 |
| 17,432,030 |
| 16,897,568 |
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See accompanying notes to condensed financial statements.
4
GENESIS FINANCIAL, INC. Condensed Statements of Cash Flows (Unaudited) | |||||
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| Nine Months Ended September 30, | ||
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| 2017 |
| 2016 |
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CASH FLOWS FROM OPERATING ACTIVITIES | $ | (103,945) | $ | (373,614) | |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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| |
| Proceeds from sale of rental properties |
| 107,585 |
| - |
| Proceeds from sale of real estate owned |
| 19,140 |
| - |
| Proceeds from sale of real estate limited liability company |
| - |
| 389,934 |
| Proceeds from sale of investment available for sale security |
| - |
| 2,213 |
| Net cash provided (used) by investing activities |
| 126,725 |
| 392,147 |
|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES: |
|
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|
| |
| Borrowings from line of credit from bank, net |
| 20,000 |
| 139,714 |
| (Repayment) from line of credit from bank, net |
| (22,500) |
| (175,000) |
| Borrowings (repayment) of note payable |
| (28,385) |
| 724 |
| Net cash provided (used) by financing activities |
| (30,885) |
| (34,562) |
|
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT |
| (8,106) |
| (16,029) | |
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 10,639 |
| 31,301 | |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 2,534 | $ | 15,272 | |
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NONCASH TRANSACTIONS |
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| |
| Convertible note payable to officer converted to common stock | $ | - | $ | 250,000 |
| Loans held for sale converted to REO |
| - |
| 88,117 |
| Investment in real estate limited liability company exchanged for reduction of line of credit with related party |
| - |
| 300,000 |
| Loans held for sale exchanged for reduction in line of credit with related party |
| - |
| 10,000 |
| REO converted to rental property |
| - |
| 69,761 |
| Common stock issued for interest owing on line of credit with affiliate company |
| 18,219 |
| - |
| Common stock issued to Directors for services | $ | 20,000 | $ | - |
See accompanying notes to condensed financial statements.
5
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
Genesis Financial, Inc. (the Company or GFI) was incorporated in Washington State on January 24, 2002 and on January 26, 2016 we moved our corporate domicile to the State of Wyoming. The Company is primarily engaged in the business of purchasing and selling real estate receivable loans and periodically providing bridge capital funding. Loans consist of real estate loans and mortgage notes collateralized by primarily first position liens on residential and commercial real estate. The loans collateralized by real estate are typically non-conventional either because they are originated as a result of seller financing, or the underlying property is non-conventional.
The Company invests in loans using investor funds, equity funds and funds generated from external borrowings including a line of credit facility from a related party.
The financial statements of GFI, presented in this Form 10Q are unaudited and reflect, in the opinion of Management, a fair presentation of operations for the three and nine month periods ended September 30, 2017 and September 30, 2016. All adjustments of a normal recurring nature and necessary for a fair presentation of the results for the periods covered have been made. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10K for the year ended December 31, 2016 as filed with Securities and Exchange Commission.
The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Summary of Significant Accounting Policies:
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Significant estimates used herein include those relating to managements estimate of fair value of loans held for sales, real estate owned, and long-term investments. It is reasonably possible that actual results could differ from those and other estimates used in preparing these financial statements and such differences could be material.
Fair value measurements - The following information for each class of assets and liabilities that are measured at fair value is disclosed:
1.
the fair value measurement;
2.
the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3);
3.
for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following:
a.
total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earnings are reported in the statement of operations;
b.
the amount of these gains or losses attributable to the change in unrealized gains or losses relating to those assets or liabilities still held at the reporting period date and a description of where those unrealized gains or losses are reported;
c.
purchases, sales, issuances, and settlements (net); and
d.
transfers into and/or out of Level 3.
4.
the amount of the total gains or losses for the period in (3)(a) included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of operations; and
6
5.
in annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period.
Real estate leasehold interest Leasehold interests in real estate are stated at cost unless circumstances indicate that cost cannot be recovered, in which case, an adjustment to the carrying value of the property is made to reduce it to its estimated fair value. Project costs clearly associated with the development of the leasehold interest are capitalized. As portions of the leasehold interest are rented, depreciation expense is recognized over the term of the leasehold interest. Rental income received on the interests is recognized in the period earned.
Loans held for sale Loans held for sale are initially recorded at the lower of cost or fair value. Loans held for sale are re-measured at fair value on a recurring basis. Fair value for these loans is determined by assessing the probability of borrower default using historical payment performance and available cash flows to the borrower, then projecting the amount and timing of cash flows, including collateral liquidation if repayment weaknesses exist. The Company considers any valuation inputs related to loans held for sale to be Level 3 inputs. Interest on loans held for sale is included in interest income during the period held for sale. Typically, the Company attempts to sell loans three to twelve months after acquisition. It is the policy of the Company not to hold any loans for investment purposes.
Real estate owned Real estate owned (REO) (acquired through a loan default) is recorded at fair value on a non-recurring basis. Upon transfer of a loan held for sale to REO, properties are recorded at amounts which are equal to fair value of the properties based on the following inputs: (1) appraisal provided by a certified appraiser, (2) BPO (Brokers Pricing Opinion) provided by a qualified real estate broker, (3) site inspection by qualified management of the Company, or (4) a combination of all of the above. Periodically, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on the same inputs. The Company considers any valuation inputs related to REO to be Level 3 inputs. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed to operations.
Income tax Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets, subject to a valuation allowance, are recognized for future benefits of net operating losses being carried forward. The Company effective tax rate for 2017 is expected to be 0%.
Earnings per share Basic earnings per common share have been computed on the basis of the weighted-average number of common shares outstanding during the period presented. Diluted earnings per common share are computed on the basis of the number of shares that are currently outstanding plus the number of shares that would be issued pursuant to outstanding warrants, stock options and common stock issuable on conversion of preferred stock unless such shares are deemed to be anti-dilutive such as when a net loss is present. The dilutive effect of convertible debt and outstanding securities, in periods of future income, would be as follows as of September 30, 2017 and September 30, 2016;
| September 30, | ||
| 2017 |
| 2016 |
Stock options | - |
| 261,000 |
Convertible preferred stock | - |
| - |
Convertible debt | - |
| - |
Total possible dilution | - |
| 261,000 |
Reclassifications Certain reclassifications have been made to conform prior periods data to the current presentation. These reclassifications have no effect on the reported results of operations or stockholders equity.
7
NOTE 2 LOANS HELD FOR SALE:
The Company's fair value of loans held for sale consisted of the following:
|
| September 30, 2017 |
| December 31, 2016 |
Residential | $ | 99,072 | $ | 120,912 |
Commercial |
| 226,684 |
| 226,843 |
Loans held for sale - Total | $ | 325,756 | $ | 347,755 |
The following table presents a reconciliation of loans held for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2017 and 2016:
|
| September 30, | ||
|
| 2017 |
| 2016 |
Beginning Balance | $ | 347,755 | $ | 503,890 |
New loans |
| - |
| 166,079 |
Principal payments received |
| (1,999) |
| (14,355) |
Proceeds on sale of loans |
| - |
| (120,000) |
Gain on sale of loans |
| - |
| 21,258 |
Converted to rental property |
| - |
| (88,117) |
Loan exchanged for reduction in line of credit, related party |
| - |
| (10,000) |
Fair value adjustment |
| (20,000) |
| - |
Repossession expenses |
| - |
| 4,765 |
Ending Balance | $ | 325,756 | $ | 463,520 |
During the quarter ended September 30, 2017, the Company booked a fair value adjustment of ($20,000) based on inability to foreclose on a property in Texas. In 2016, the Company sold two loans with a basis of $103,742 for $125,000 for a gain of $21,258.
NOTE 3- REAL ESTATE OWNED:
The Company's fair value of REO consisted of the following:
|
| September 30, 2017 |
| December 31, 2016 |
Residential | $ | - | $ | - |
Land |
| - |
| 14,999 |
Commercial |
| - |
| - |
Total | $ | - | $ | 14,999 |
The following table presents the change in balance sheet carrying values associated with REO for the nine months ended September 30, 2017 and 2016:
|
| September 30, | ||
|
| 2017 |
| 2016 |
Beginning Balance | $ | 14,999 | $ | 27,451 |
REO transferred from loans held for sale |
| - |
| 88,117 |
Proceeds from sales of REO |
| (19,140) |
| - |
Gain on sale of REO |
| 4,141 |
| - |
REO converted to rental property |
| - |
| (69,761) |
Fair value adjustment |
| - |
| (20,000) |
Net change in holding costs |
| - |
| (416) |
Ending Balance | $ | -0- | $ | 25,391 |
8
During the nine months ended September 30, 2017, by board action, the Company sold two REO's with a basis of $14,999 for $19,140 for a gain of $4,141 to a related party (See Note 8).
NOTE 4 OTHER ASSETS:
Long term investments:
Flyback Energy, Inc.:
In December 2015, the Company reduced the carrying value of its Flyback Energy common shares to $0.067 per share, or $212,619, and recorded an impairment change of $1,037,381 based on the last known common share sale. We believe that Flyback Energy, Inc. is a development stage company being financed by outside sources of capital. Flyback is in the stages of developing a prototype efficiency generator. At this time, Flyback is not guaranteed future financing.
Digi Outdoor Media, Inc.:
In 2014, the Company loaned Placer Creek Mining Company (Placer) now known as Digi Outdoor Media, Inc, $150,000. The loan interest rate was 5.0% and the Company had an option to convert any or all of the amount due into an equity private placement of Placer. The Placer transaction has been treated as a related party transaction. (See Note 8: Michael Lavigne)
On February 24, 2015, the Company converted the loan into 300,000 shares of common stock of Digi Outdoor Media, Inc. (Digi), the successor in interest to Placer. The Company determined that the fair value of the shares received on the conversion to be $150,000 based upon the loan balance of $150,000 because Digi was not publicly traded and has had no recent cash sale of its common stock. The fair value was determined using Level 2 inputs under the fair value hierarchy.
Digi is a startup company in the business of manufacturing and leasing outdoor advertising signs. Digi has experienced some permitting delays in its initial phase of product leasing and installation in the Washington, D.C. area and it is not known when these issues will be settled.
Investments in Available for Sale Securities:
Ambient Water Corporation (Formerly AWG International Water Corp.):
The Company purchased 109,906 shares of the AWG International Water Corp, a Nevada corporation, (AWGI) common stock for $500,000 ($250,000 each in 2010 and 2011). In July 2012, AWGI was acquired by MIP Solutions, Inc. in a share exchange transaction (the "Acquisition"). In connection with the Acquisition, the Companys 109,906 shares of AWGI common stock were converted into 7,380,433 shares of AWG International Water Corp (formerly MIP Solutions, Inc.).
On May 19, 2016, by board action the Company sold its interest in Ambient Water Corporation to John R. Coghlan (see Note 8) for $0.0003 per share, the fair value of the stock on the day of sale for proceeds of $2,213, resulting in a recognized loss of $497,787.
Investments in Real Estate Limited Liability Companies:
At the end of 2012, the Company acquired investments in two Washington state real estate limited liability companies for $225,000. During the quarter ended March 31, 2016 one limited liability company was sold for $399,934 resulting in a gain of $139,821. During the quarter ended June 30, 2016, by board action the Company exchanged its 9.1756% interest in the other limited liability company to Coghlan Family Corporation CFC (see Note 8) for $300,000, resulting in a gain on sale of $131,625. The transaction was made by reducing the balance payable to CFCs revolving line of credit. As required by the operating agreement of Wenatchee Riverview, LLC, CFC offer was disclosed to all other LLC members permitting one or more members to participate or bid higher for the interest. No other members submitted an offer and the Board of Directors of the Wenatchee Riverview, LLC approved the sale.
In 2013, the Company contributed its investment in one real estate owned property with a basis of $51,600 to a newly formed limited liability company in exchange for a 12.9% interest in the new company. As of September 30, 2017 the Company holds a 13.1% interest in this company.
9
In 2014, the Company contributed its investment in one real estate owned property with a basis of $47,925 to a newly formed limited liability company in exchange for 31.95% interest in the new company. As of September 30, 2017 the Company still holds a 31.95% interest in this company.
These companies are 100% controlled and managed by Genesis Finance Corporation and John Coghlan, related parties. (See Note 8)
Investments are accounted for using the equity method. During the three months ended September 30, 2017 and 2016, the Company recorded (income) loss of $-0- and $4,097, and for the nine months ended September 30, 2017 and 2016, the Company recorded a (income) loss of $376 and ($265,638), respectively. During the nine months ended September 30, 2017 and 2016, the Company advanced $4,792.50 and $-0- for property taxes and interest owing. Losses generally represent our portion of this real estate companys loss for the same period.
Rental Property:
At the end of 2013, the Company foreclosed on a loan previously held for sale in Lebanon, Oregon through the bankruptcy courts, and is accounting for the companys carrying value of $85,534 as a rental property. The property was subsequently leased on a three year lease agreement for $1,500 per month. During the three months ended September 30, 2017 and 2016, the company recognized $-0- and $4,500 in rental income. During the nine months ended September 30, 2017 and 2016, the company recognized $3,000 and $13,500 in rental income. This is a commercial building being depreciated over thirty-nine (39) years. The company recorded depreciation of $-0- and $2,630 for the nine months ended September 30, 2017 and 2016. On March 8, 2017, by board action the Company sold this property to Coghlan Family Corporation (see Note 8) for $77,585, resulting in a gain on sale of $342. The purpose of the sale was to generate working capital for the Company.
In September 2016, the Company foreclosed on a loan previously held for sale in Lewiston, Idaho through the bankruptcy courts, the property is being operated as Emperor of India restaurant. The property was placed into real estate owned during the quarter ended June 30, 2016. It was held at a net carrying value of $69,761. The restaurant was subsequently leased on a two year lease agreement for $1,200 per month with an option to purchase for $45,000 less a $400 monthly credit toward the option price. During the three and nine month ended September 30, 2017 the company recognized $1,200 and $1,500 in rental income, respectively. Fair value of the property was determined to be $45,000 on the date of transfer based on appraisal and contract terms of the lease. In July the Company sent out a notice of default and decided to sell the interest to a related party. On July 17, 2017, by board action the Company sold a commercial rental property to Coghlan Family Corporation (see Note 8) for $30,000 resulting in a loss of ($17,670), respectively.
Real Estate Leasehold Interest:
On May 31, 2013, the Company completed the acquisition of a real property leasehold interest in approximately 63 acres with fifty (50) RV/residential lots located in Dunn County, North Dakota, (the "Halliday Project"). Total consideration for the leasehold interest was $619,250. The Company may place recreational vehicles, mobile homes, or construct cabins on the lots and offer them for rent or lease. In 2015, the Company purchased two trailer for $30,000. For the three months ended September 30, 2017 and 2016, the Company recorded amortization of $-0- and $5,161, respectively and had none and four lots leased with rental income of $-0-, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded amortization of $-0- and $15,482, respectively and had none and four lots leased and had rental income of $-0- and $1,528, respectively.
For the nine months ended September 30, 2017, the Companys carrying value of the property had a fair value estimated at $63,000 (not including travel trailers). The Company booked a fair value adjustment of ($101,102). We based the estimate on the discounted cash flows generated by the property.
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NOTE 5 LINES OF CREDIT:
GFI has a $250,000 line of credit with Riverbank. At September 30, 2017 and December 31, 2016 the balance owing was $177,500 and $180,000, respectively. The line of credit had a term of twelve months, and an origination fee of 1/2%, or $1,250. Accrued interest is paid monthly. The Riverbank line of credit is senior to the Coghlan Family Corporation, Inc. (CFC) line of credit and is collateralized by the assets of GFI. On December 7, 2016 the line of credit was extended to December 1, 2017 at which time the loan renewed at a four and a half (4.5%) percent interest rate with a renewal fee of ½%, or $1,250. At September 30, 2017 the interest rate was 5.25%. The Riverbank line prohibits the CFC line from being paid down below the amount owed to Riverbank during the loan term. The line is payable on demand and is personally guaranteed by John R. and Wendy B. Coghlan, related parties of the Company.
The Company has a $2,500,000 Warehouse Line of Credit Promissory Note Agreement with the CFC. At September 30, 2017 and December 31, 2016 the balance owing was $950,000. CFC is an affiliated company controlled by John R. Coghlan and Wendy B. Coghlan. At the time the agreement was made the default interest rate was twelve (12%) percent. Interest was payable monthly. The line had a term of 12 months and an origination fee of 1/2% or $12,500. The credit line is collateralized by all of GFIs assets and is subordinate to the Riverbank line of credit. The line of credit agreement requires that the Company maintain a debt to equity ratio of no greater than 3.0. Because of the economic conditions, CFC agreed to waive the interest and origination fees starting October 1, 2010 and also agreed to waive the 3.0 debt to equity ratio requirement as well as the 12% default rate. (See 8-K filed February 8, 2016)
In 2016, the Company, by board action authorization, exchanged two assets for a $310,000 principal reduction in the CFC Warehouse Line of Credit. The Company (1) exchanged a loan held for sale with a cost basis of $10,000 and (2) exchanged its 9.1756% interest in a limited liability company valued at $300,000.
Effective August 1, 2016, the company amended the CFC Warehouse Line of Credit Promissory Note Agreement to four (4%) percent interest to be paid monthly in common stock. In addition, the Company issued 50,000 shares of its common stock valued at $5,000 as a loan renewal fee. Effective July 1, 2017 CFC agreed to waive the interest and origination fees until December 31, 2017, or earlier if the Epoint Capital Stock Exchange Agreement fails to close.
For the nine months ended September 30, 2017 and the year ended December 31, 2016 the company issued 194,339 and 126,782 shares of the company common stock were issued at the public market bid price for a value of $18,219 and $15,407 in interest for the same period.
NOTE 6 NOTES PAYABLE
Convertible Note Payable to Officer:
On December 15, 2010, the Company entered into a convertible note agreement with John R. Coghlan, a related party (see Note 8). The note accrues interest at eight (8%) percent per annum with interest and balance initially due on December 15, 2012. The note is convertible at any time by Mr. Coghlan into one (1) share of the Companys Series B Preferred stock for every $1.00 outstanding of the note payable and related accrued interest. In connection with the issuance of this note, the Company recognized a beneficial conversion feature of $128,750 that resulted in a discount to the note payable. The discount was amortized into earnings over the initial term of the note and was fully amortized at December 31, 2012. The note is collateralized by the Company's agreement to issue 290,000 shares of the Companys Series B Preferred stock.
On February 8, 2016, Mr. Coghlan elected to convert his note into shares of the Companys common stock. The note was originally convertible into 250,000 shares of Series "B", or 625,000 shares of common stock equivalents, at the option of Mr. Coghlan. However, Mr. Coghlan agreed to accept 725,000 common shares in lieu of full payment. The 100,000 additional common shares represents a financing cost to the Company and as such, financing expense of $29,000 was recognized in the quarter ended March 31, 2016.
Note Payable:
In 2013, the Company assumed a note payable totaling $62,699 relating to a loan it had made in 2005. When the Company funded the loan in 2005, it sold 100% of its interest to various investors. During 2013, the Company began foreclosure proceedings on behalf of the investors because the borrower was delinquent on payments. During the proceedings, it was determined that the Company had failed to obtain first position in the underlying property
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and that a separate creditor was in first position. To uphold its agreement with the investors, the Company assumed the balance of the note with the creditor and recognized a loss for the entire amount in 2013. The term of the assumed note is 9.5% until paid in full and monthly payments are $830. On August 30, 2017, the Company paid the note in full.
NOTE 7 EQUITY
Series B Preferred Stock
On November 11, 2010 the Company filed Articles of Amendment to the Amended and Restated Articles of Incorporation creating 2,290,000 shares of Series B Preferred Stock. The designated Series B Preferred Stock consisted of 2,000,000 shares with a par value $1.00; is non-dividend bearing, and was convertible to Common Stock at $.40 per share subject to any recapitalization. The Company subsequently amended the share amount to 2,290,000. The holders of the Preferred Stock were entitled to receive, prior and in preference to any Distributions of any assets of the Corporation to the holders of the Common Stock.
On May 18, 2015, the Company by majority consent of Preferred Shareholder agreed to convert all of the outstanding shares of Series B Preferred to common stock. On June 26, 2015, 1,649,500 shares of Series B Preferred were converted into 4,123,750 common shares.
As of September 30, 2017 and December 31, 2016, no shares of Series B Preferred Stock are issued, outstanding or obligated.
Common Stock
Effective August 1, 2016 the terms of the amended Warehouse Line of Credit changed to issuing stock for the interest due on the line of credit monthly. For the year ended December 31, 2016, 126,782 shares of common stock were issued for interest and 50,000 shares of common stock were issued for renewal fee for a value of $20,407, respectively. For the nine months ended September 30, 2017, 194,339 shares of common stock were issued for interest for a value of $18,219, respectively. As of July 1, 2017 the interest and fee have been waived. (See Note 5)
On April 19, 2017, the Company issued 200,000 shares of common stock as director compensation valued at Ten Cents per share.
NOTE 8 RELATED-PARTY TRANSACTIONS:
Related parties are defined as Officers, Directors, and/or those Shareholders owning or controlling more than 5% of the common stock of GFI, or any entities that are owned or controlled by Officers, Directors, and/or those Shareholders owning or controlling more than 5% of the common stock of GFI.
Coghlan Family Corporation, Coghlan, LLC and West 3773 Fifth, LLC are controlled by John R. Coghlan, a Company director, CFO and majority shareholder. Coghlan Family Corporation is owned 100% by Coghlan, LLC, which is owned by the Coghlan family members. John R. and Wendy Coghlan (husband and wife) collectively own 35.65% of Coghlan, LLC and are co-managers. West 3773 Fifth, LLC is owned 100% by John and Wendy Coghlan (husband and wife). John R. Coghlan has managing agreement with the real estate limited liability companies. Michael Lavigne is an officer of Digi Out Door Media, Inc. Mr. Lavigne is an officer and director of GFI. Clint Lohman is a director of GFI. Virginia Walters is an officer and director of GFI.
In addition to transactions described in Notes 2, 3, 4, 5 and 6, the Company had the following related party transactions for the quarters ended September 30, 2017 and year ended December 31, 2016.
John R. Coghlan, Officer and Director
On February 8, 2016, John R. Coghlan converted his $250,000 note for 725,000 shares of common stock. The note was originally convertible into 250,000 shares of Series "B", or 625,000 shares of common stock equivalents, at the option of Mr. Coghlan. However, Mr. Coghlan agreed to accept 725,000 common shares in lieu of full payment. The 100,000 additional common shares represents a financing cost to the Company and as such, financing expense of $29,000 was recognized in the quarter ended March 31, 2016.
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On May 19, 2016, by board action the Company sold 7,380,433 common shares of Ambient Water Corporation for $2,213 or $0.0003 per share the fair value on that date to John R Coghlan.
On November 2, 2016, John R. Coghlan purchased 315,333 common shares of Genesis Financial Inc. from Michael Kirk, a former officer of the company for $29,872.
On November 21, 2016, John R. Coghlan terminated his stock options agreement with the Company.
On December 7, 2016, John R. and Wendy Coghlan personally guaranteed our Riverbank line of credit.
On April 19, 2017, the Company issued 50,000 shares of common stock for as director compensation valued at Ten Cents per share.
As of September 30, 2017, the Company continues a managing agreement for the investment in real estate limited liability companies. The agreement is stated in the operating agreement of each limited liability companies.
Coghlan Family Corporation CFC
On May 18, 2016, by board action the Company exchanged its 9.1756% interest in Wenatchee Riverview, LLC to CFC for a $300,000 reduction in the line of credit with CFC, a gain of $131,417 was realized by the Company.
On May 19, 2016, by board action the Company exchanged a loan held for sale for a $10,000 reduction in the line of credit with CFC.
Effective August 1, 2016 the terms of the amended Warehouse Line of Credit changed to issuing stock for the interest due on the line of credit monthly. The table below shows the issue dates, number of shares issued and amount of interest being paid. As of July 1, 2017 interest is waived. (See Note 5)
Issue date | Shares Issued | Interest Amount |
June 30, 2017 | 37,740 | $3,019 |
May 31, 2017 | 39,041 | $3,123 |
April 30, 2017 | 37,740 | $3,019 |
March 31, 2017 | 39,041 | $3,123 |
February 28, 2017 | 23,425 | $2,811 |
January 31, 2017 | 17,352 | $3,123 |
1st & 2nd Quarter 2017 Totals | 194,339 | $18,219 |
December 31, 2016 | 17,352 | $3,123 |
November 30, 2016 | 16,773 | $3,019 |
October 31, 2016 | 31,233 | $3,123 |
September 30, 2016 | 30,192 | $3,019 |
August 31, 2016 | 31,233 | $3,123 |
2016 Total | 126,782 | $15,407 |
On August 1, 2016, CFC amended the Warehouse Line of Credit and 50,000 shares of common stock were issued. (See Note 5)
March 8, 2017, by board action the Company sold a rental property for $77,585, resulting in a gain on sale of $342. The Company also sold two REO with a basis of $14,999 for $19,140 for a gain of $4,141.
July 17, 2017, by board action the Company sold a rental property for $30,000, resulting in a loss of ($17,670).
Coghlan, LLC
There was no activity for the years ended December 31, 2016 and for the Nine months ended September 30, 2017.
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West 3773 Fifth, LLC
As of September 30, 2017, the Company continued a month-to-month tenancy with monthly rent is $1,250.
Michael Lavigne, Secretary and Director
On April 19, 2017, the Company issued 50,000 shares of common stock as director compensation valued at Ten Cents per share.
In 2015, the Company converted the Placer Creek Mining Company loan of $150,000 to 300,000 shares of Digi Outdoor Media, Inc., the successor to Placer Creek Mining Company (See Note 4).
Clint Lohman, Director
On April 19, 2017, the Company issued 50,000 shares of common stock as director compensation valued at Ten Cents per share.
Virginia Walters, Treasurer and Director
On April 19, 2017, the Company issued 50,000 shares of common stock as director compensation valued at Ten Cents per share.
NOTE 9 SUBSQUENT EVENTS:
The Company has analyzed its operation subsequent to September 30, 2017 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
When used in this Form 10-Q and in our future filings with the Securities and Exchange Commission, the words or phrases will likely result, management expects, or we expect, will continue, is anticipated, estimated or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made. These statements are subject to risks and uncertainties, some of which are described below. Actual results may differ materially from historical earnings and those presently anticipated or projected. We have no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect anticipated events or circumstances occurring after the date of such statements.
Background
Genesis Financial, Inc. is engaged in the business of buying and selling seller financed real estate loans ("loans"), and originating commercial real estate hard money loans and providing startup capital funding. We purchase loans at a discount and hold them for sale for a relatively short period to provide seasoning and value appreciation. After the holding period, we sell the loans. We expect to derive operating revenues from resales of loans at a profit, and from interest income derived from loans during the holding period. We originate commercial real estate loans and sell the loan, or participations in those loans, to accredited private investors. From time to time, we also consider other forms of cash flow instruments when warranted. Genesis has also invested in two private companies with a view toward diversifying its investment portfolio.
Additional details about our business are set forth in our Annual Report on Form 10-K for the year ending December 31, 2016. The following discussion should be read in conjunction with the financial information included elsewhere in this Quarterly Report on Form 10-Q.
The purpose of this section is to discuss and analyze our financial condition, liquidity and capital resources and results of operations. You should read this analysis in conjunction with the financial statements and notes that appear elsewhere in this Quarterly Report on Form 10-Q. This section contains certain "forward-looking statements" within the meaning of federal securities laws that involve risks and uncertainties, including statements regarding our plans, objectives, goals, strategies and financial performance. The Companys actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under "Disclosure Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q.
PLAN OF OPERATIONS.
On September 8, 2017, Genesis Financial, Inc. (the "Company") entered into a Capital Stock Exchange Agreement (the Exchange Agreement) with EPOINT Payment Corp., a Delaware corporation ("EPOINT"). The anticipated target closing date is no later than December 31, 2017, or such earlier date as may be determined by the parties. During the fourth quarter, the Company will proceed to perform its obligations under the Exchange Agreement. For additional details please review the Exchange Agreement filed on our Current Report filed on September 11, 2017.
Over the course of the next three months, we will continue to concentrate on resolving delinquencies and repossession situations. We are not capitalized at a level that allows holding of significant amounts of loans and as a result, we will continue to work toward short term turnover.
We plan to reduce the number of loan purchase transactions. We intend to focus our efforts on real estate development lending transactions both as a lender or as a participant which we believe will improve our cash flow.
After the fourth quarter, following the acquisition of EPOINT, the Company will focus its business efforts on financial services delivering a range of products and services including but not limited to, micro credit advances, mobile phone device financing, money transfers, mobile wallet and prepaid debit cards, bill payments, mobile top up, check processing, insurance and travel.
RESULTS OF OPERATIONS.
Quarter ended September 30, 2017 compared to quarter ended September 30, 2016.
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Revenues
Total revenues for the quarter ending September 30, 2017 were $5,843 compared to $17,673 for the same quarter ending September 30, 2016. The majority of the revenue for the quarters ended September 30, 2017 and 2016 was from rental, interest and loan fee income. The decrease in revenue was the result of reduction rental income due to the decline in oil prices that impacted our rental property in North Dakota and the reduction in accrued interest.
Net loss from operations was ($87,416) and ($99,166), respectively, for the quarters ending September 30, 2017 and 2016. The net operating loss was due to the decrease in revenue.
Of the loans held for sale at September 30, 2017, $219,022 were in payment default. We believe the defaults and repossessions are directly related to the national real estate market collapse.
General and Administrative Expenses
General and administrative expenses (G&A) for the quarters ended September 30, 2017 and 2016 were $51,919 and $53,282, respectively. G&A primarily consists of management and professional fees for legal and auditing. The changes for the fiscal quarters ended September 30, 2017 and 2016 were ($1,363) and $1,356, respectively. The primary reason for the decrease in 2017 was due to reduction in salary.
Interest Expense
For the quarters ending September 30, 2017 and 2016, interest expense amounted to $2,257 and $6,225, respectively. The reduction is the result of converting a note to common stock.
Interest expense was incurred on borrowings under lines of credit with Riverbank, an unaffiliated lender, and the convertible note payable with John R. Coghlan, an affiliated person, now converted and the line of credit with Coghlan Family Corporation, an affiliated company.
We are currently operating under a primary $250,000 line of credit with Riverbank, an unaffiliated lender, with an interest rate 5.25%. The line of credit also included a one-half percent origination fee. The line of credit was extended to December 1, 2017. As of September 30, 2017 and December 31, 2016, the balances were $177,500 and $180,000, respectively.
We also are currently operating under a secondary $2,500,000 line of credit with Coghlan Family Corporation, an affiliated company. On August 1, 2016, the company amended the CFC Warehouse Line of Credit Promissory Note Agreement to four (4%) percent interest to be paid monthly in common stock. In addition, the Company issued 50,000 shares of its common stock valued at $5,000 as a loan renewal fee. Effective July 1, 2017 CFC agreed to waive the interest and origination fees.
For the quarter ended September 30, 2017 and 2016 the company issued none and 61,425 shares of the company common stock were issued for a value of $-0- and $6,142 in interest for the same period.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016.
Revenues
Total revenues for the nine months ending September 30, 2017 were $38,998 compared to $51,054 for the same period ending September 30, 2016. The majority of the revenue for the nine months ended September 30, 2017 and 2016 was from rental, interest and loan fee income. The decrease in revenue was the result of reduction rental income due to the decline in oil prices that impacted our rental property in North Dakota.
Net loss from operations was ($307,390) and ($459,120), respectively, for the nine months ending September 30, 2017 and 2016. The decrease was due to a loss on impairment of real estate lease hold interest of $101,102 in 2017 compared to realized loss on sale of securities for $497,787 and a gain on investments in real estate LLC of $265,638 in 2016.
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General and Administrative Expenses
General and administrative expenses (G&A) for the nine months ended September 30, 2017 and 2016 were $166,700 and $183,154, respectively. G&A primarily consists of management and professional fees for legal and auditing. The changes for the nine months ended September 30, 2017 and 2016 were ($16,454) and $19,668, respectively.
Interest Expense
For the nine months ending September 30, 2017 and 2016, interest expense amounted to $24,929 and $10,749, respectively. The reason for the interest increase was the suspension of the interest waiver on the CFC line of credit (see Note 5).
LIQUIDITY AND CAPITAL RESOURCES.
At September 30, 2017 and December 31, 2016, we had cash available of $2,533 and $10,639, respectively, and $72,500 and $70,000 were available under our bank line of credit. Management considers the capital resources to be adequate to meet the current operating needs of the Company for the next twelve months.
Genesis is currently operating under a primary $250,000 line of credit with Riverbank, an unaffiliated lender, with a variable interest rate equal to the prime rate index rate (as published in the Wall Street Journal) plus 1%, with a floor of four and one-half percent. The line of credit also included a one-half percent origination fee. The line of credit expires December 1, 2017. The line is payable on demand and is personally guaranteed by John and Wendy Coghlan. At September 30, 2017 the balance was $177,500.
At September 30, 2017, the Company had a $2,500,000 Line of Credit Agreement with the Coghlan Family Corporation, Inc. (CFC) with a balance of $950,000. CFC is an affiliated company controlled by a director and principal shareholder of the Company. The interest rate on the line is a variable interest rate equal to the prime rate index (as published in the Wall Street Journal) plus 1%. The line has a term of 12 months and an origination fee of 1/2% or $12,500. The credit line is collateralized by all of Genesis assets but is subordinate to the RiverBank line of credit. The line of credit agreement requires that the Company maintain a debt to equity ratio of no greater than 3.0. Borrowings under the line are personally guaranteed by an officer of the Company. Because of the weak economic conditions, effective January 1, 2012, CFC had agreed to (1) extend the due date to January 1, 2016, waive all interest beginning October 1, 2010, (2) waive the 12% default rate, (3) waive the financial covenants and (4) waive the commitment fee. In February 2016 the maturity date was extended and on August 1, 2016, the company amended the Warehouse Line of Credit Promissory Note Agreement to four (4%) percent interest to be paid monthly in common stock. In addition, the Company issued 50,000 shares of its common stock valued at $5,000 as a loan renewal fee. Effective July 1, 2017, CFC has waived the interest and commitment fee.
Our capital resources have been adequate to fund our operations at a reasonable level during the quarter covered by this Quarterly Report. We have paid close attention to our contract purchases and loans and maintained our funding requirements within our available resources. We receive interest and principal reductions (typically monthly) on contracts and loans which we hold in inventory. We would require an increase in our capital base to grow the company, and become profitable.
For the Nine months ending September 30, 2017 and 2016, our net cash flows provided by (used by) operating activities were ($103,949) and ($373,614), respectively. The reason for the increase in 2016 was the realized loss on available for sale security.
For the period ended September 30, 2017 and 2016 the cash flows used by investing activities was $126,725 and $392,147, respectively. The reason for the decrease in 2017 compared to 2016 was the Company sold fewer assets in 2017.
During these periods our net cash provided by (used by) financing activities was ($30,885) and ($34,562), respectively. The reason for the decrease for the period ended September 30, 2017 was Note payable being paid in full compared to repayment of the line of credit with the bank in 2016.
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The Companys principal sources of cash are from interest, loan fees, rental income, asset sales, related party loans, unaffiliated party loans, funding agreements and common stock private placements. The Company anticipates that our primary uses of cash will need to be supplemented in order to meet the demands upon its current operations, and the need for additional funds to finance ongoing acquisitions of seller financed real estate receivables and originations of commercial real estate hard money loans, and the expense of the litigating of delinquent contracts and loans, and the maintenance and resale costs of repossessed properties.
OFF-BALANCE SHEET ARRANGEMENTS.
The Company has no off-balance sheet arrangements.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS.
Please see Note 1 of our consolidated financial statements that describes the impact, if any, from the adoption of Recent Accounting Pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to Smaller Reporting Companies
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the SEC), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. 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.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Principal Financial Officer (Chairman of the Board), of the effectiveness of the design and operation of our disclosure controls and procedures.
Based upon that evaluation, management concluded that our disclosure controls and procedures are effective as of September 30, 2017 to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial Officer (Chairman of the Board), as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls over financial reporting identified in connection with the requisite evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Limitations
Our management, including our Chief Executive Officer and Principal Financial Officer (Chairman of the Board), does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Presently, we are not subject to any material legal proceedings which might have an adverse impact on our financial statements. In the normal course of business, the Company is the initiator of legal proceedings associated with judicial real estate foreclosures and title insurance matters related to our loan portfolio collateral interests.
Item 1A. Risk Factors
Not Applicable to Smaller Reporting Companies.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
(a)
Exhibits
|
|
Exhibit No. | Description |
|
|
2.0 | Capital Stock Exchange Agreement dated September 8, 2017 filed on Current Report Form 8-K September 11, 2017 |
10.1 | Amendment to Warehouse Line of Credit Promissory Note dated August 1, 2016 |
|
|
31.1 | CEO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
31.2 | CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
32.1 | CEO Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
32.2 | CEO Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
101 | The following materials from Genesis Financial, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flow, and (iv) Notes to consolidated Financial Statements. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: October 31, 2017
Genesis Financial, Inc.
(Registrant)
/s/ John R. Coghlan
________________________
By: John R. Coghlan
Title: President, Chief Executive Officer
Chief Financial Officer (Principal Accounting Officer)
/s/ Virginia Walters
________________________
By: Virginia Walters
Title: Treasurer and Director
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