UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

FORM 10-Q

_________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2019 

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

_________________

GENESYS INDUSTRIES, INC.

_________________

 

Florida	333-213387	30-0852686
(State or Other Jurisdiction	(Commission	(I.R.S. Employer
of Incorporation or Organization)	File Number)	Identification No.)

1914 24^th Ave E Palmetto, Florida 34221
(Address of Principal Executive Offices) (Zip Code)

941-722-3600
(Registrant’s telephone number, including area code)

_________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒  No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Large accelerated filer ☐

 

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 in Rule 12b-2 of the Act).

Yes ☐  No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of February 12, 2020, the issuer had 18,100,000 shares of its common stock issued and outstanding. 

 

TABLE OF CONTENTS

PART I
Item 1.	Condensed Unaudited Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mining Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
	Signatures	19

 

 

 PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

GENESYS INDUSTRIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

December 31, 2019

 

 

Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2019 (Unaudited)	4
Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2019 and 2018 (Unaudited)	5
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended December 31, 2019 and 2018 (Unaudited)	6
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2019 and 2018 (Unaudited)	7
Notes to the Condensed Consolidated Financial Statements (Unaudited)	8

 

 

 

 

GENESYS INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
			December 31, 2019				June 30, 2019
ASSETS			(Unaudited)
Current assets:
Cash		$	116,990			$	170,205
Accounts receivable			85,524				52,811
Inventory			1,217
Total current assets			203,731				223,016
Website development, net			—				—
Machinery and equipment, net			296,810				163,028
Real property & plant, net			232,965				239,377
Total Assets		$	733,506			$	625,421
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities		$	41,697			$	25,137
Accrued interest, related party			8,219				5,463
Accrued compensation			4,743				3,642
Line of credit – current portion			36,168				42,071
Loans payable– current portion			53,863				24,329
Due to related party			122,729				102,129
Income tax accrual			—				38,484
Total current liabilities			267,419				241,255
Long term liabilities:
Line of credit			89,655				101,192
Loans payable			231,904				184,556
Total liabilities			588,978				527,003
Commitments and contingencies			—				—
Stockholders' equity (deficit):
Class B Preferred stock, $0.001 par value, 25,000,000 shares authorized, 10,000,000 and 10,000,000 issued and outstanding, respectively			10,000				10,000
Common stock, $0.001 par value, 100,000,000 shares authorized; 18,100,000 and 17,870,000 shares issued and outstanding, respectively			18,100				17,870
Additional paid-in capital			183,900				101,130
Accumulated deficit			(67,472	)			(30,582	)
Total stockholders' equity			144,528				98,418
Total Liabilities and Stockholders' Equity		$	733,506			$	625,421

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GENESYS INDUSTRIES, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
		For the Three Months Ended December 31,								For the Six Months Ended December 31,
		2019				2018				2019				2018
Revenue		$	133,923			$	248,204			$	274,874			$	433,445
Cost of revenue			75,326				116,277				168,804				235,654
Gross Margin			58,597				131,927				106,070				197,791
Operating Expenses:
Professional fees			14,800				7,100				19,805				10,600
Payroll expense			21,991				13,792				28,780				21,420
General & administrative expenses			21,026				15,275				39,478				38,360
Total operating expenses			57,817				36,167				88,063				70,380
Income from operations			780				95,760				18,007				127,411
Other expense:
Interest expense			(7,953	)			(10,746	)			(14,897	)			(13,780	)
Loss on issuance of common stock			(40,000	)			—				(40,000	)			—
Total other expense			(47,953	)			(10,746	)			(54,897	)			(13,780	)
Income (loss) before income taxes			(47,173	)			85,014				(36,890	)			113,631
Provision for income taxes			2,802				(19,952	)			2,802				(25,962	)
Net Income (Loss)		$	(44,371	)		$	65,062			$	(34,088	)		$	87,669
Net Income (Loss) Per Common Share, basic & diluted		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00
Weighted Common Shares Outstanding, basic & diluted			17,967,446				17,870,000				18,026,630				17,870,000

  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GENESYS INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

 

For the Six Months Ended December 31, 2018
		Common Shares				Common Stock				Preferred Shares				Preferred				Paid in Capital				Accumulated Deficit				Total
Balance, June 30, 2018			17,870,000			$	17,870				10,000,000			$	10,000			$	101,130			$	(133,325	)		$	(4,325	)
Net income			—				—				—				—				—				22,607				22,607
Balance, September 30, 2018			17,870,000				17,870				10,000,000				10,000				101,130				(110,718	)			18,282
Net income			—				—				—				—				—				65,062				65,062
Balance, December 31, 2018			17,870,000			$	17,870				10,000,000			$	10,000			$	101,130			$	(45,656	)		$	83,344

 

For the Six Months Ended December 31, 2019
		Common Shares				Common Stock				Preferred Shares				Preferred				Paid in Capital				Accumulated Deficit				Total
Balance, June 30, 2019			17,870,000			$	17,870				10,000,000			$	10,000			$	101,130			$	(30,582	)		$	98,418
Common stock issued for services			130,000				130				—				—				12,870				—				13,000
Net income			—				—				—				—				—				7,481				7,481
Balance, September 30, 2019			18,000,000				18,000				10,000,000				10,000				114,000				(23,101	)			118,899
Common stock issued for services			100,000				100				—				—				69,900				—				70,000
Net income			—				—				—				—				—				(44,371	)			(44,371	)
Balance, December 31, 2019			18,100,000			$	18,100				10,000,000			$	10,000			$	183,900			$	(67,472	)		$	144,528

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

GENESYS INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		For the Six Months Ended December 31,
		2019				2018
Cash flows from operating activities:
Net Loss		$	(36,890	)		$	(87,669	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization expense			—				—
Depreciation expense			31,516				19,953
Provision for income taxes			(38,484	)			—
Stock compensation expense			43,000				—
Loss on issuance of common stock			40,000				—
Changes in operating assets and liabilities:
Accounts receivable			(32,713	)			13,588
Inventory			(1,217	)			(1,757	)
Accounts payable and accruals			17,663				(2,429	)
Accrued interest, related party			2,755				1,681
Net cash provided by operating activities			25,630				118,705
Cash flows from investing activities:
Purchase of property and equipment			(158,886	)			—
Net cash used in investing activities			(158,886	)			—
Cash flows from financing activities:
Advances / payments - related party			20,600				(1,388	)
Proceeds from loan payable			108,147				—
Payments on line of credit			(17,441	)			(16,114	)
Principal payment on mortgage			(5,055	)			(4,990	)
Principal payment on loan payable			(26,211	)			(2,400	)
Net cash provided (used) by financing activities			80,040				(24,892	)
Net (decrease) increase in cash			(53,216	)			93,813
Cash, beginning of period			170,206				17,866
Cash, end of period		$	116,990			$	111,679
Supplemental disclosure of cash flow information:
Cash paid for interest		$	7,559			$	11,237
Cash paid for taxes		$	—			$	—

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

GENESYS INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

(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 December 31, 2019 and for the related periods presented have been made. The results for the six months ended December 31, 2019 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, 2019, 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 six months ended December 31, 2019.

 

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 six months ended December 31, 2019, the Company recognized $63,605 and $162,683 of sales from its two largest customers, representing 22.4%, and 57.4%, respectively, of total sales.

 

During the six months ended December 31, 2018, the Company recognized $132,022, $98,473 and $129,436 from its three largest customers, representing 30%, 23% and 30% 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 December 31, 2019, 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 December 31, 2019, the Company has an accumulated deficit of only $67,472 and for the six months ended December 31, 2019 we had a net loss of $34,088 and received cash from operations of $25,630. 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:

 

		December 31, 2019				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 six months ended December 31, 2019 and 2018 was $0 and $0, respectively.

 

Property, Plant and equipment stated at cost, less accumulated depreciation consisted of the following:

         

		December 31, 2019				June 30, 2019
Leasehold Improvements		$	72,820			$	62,261
Machinery and Equipment			280,278				136,365
Furniture			4,414				—
Real Property & Plant			256,443				256,443
Less: accumulated depreciation			(84,180	)			(52,664	)
Fixed assets, net		$	529,775			$	402,405

 

Depreciation expense

 

Depreciation expense for the six months ended December 31, 2019 and 2018 was $31,516 and $19,953, 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 December 31, 2019 and June 30, 2019, the balance on the loan is $125,824 and $143,263, respectively.

 

Future minimum payments of principal and interest for the fiscal years ended are as follows:

 

Fiscal Year		Amount
2020		$	21,035
2021			42,071
2022			42,071
2023			31,150
Total		$	136,327

 

 

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 December 31, 2019, and June 30, 2019, the balance on the loan is $181,600 and $186,655, respectively.

 

Future minimum payments of principal and interest for the fiscal years ended are as follows:

 

Fiscal Year		Amount
2020		$	7,473
2021			17,935
2022			17,935
2023			17,935
2024			140,996
Total		$	202,274

 

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 December 31, 2019 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 December 31, 2019 the balance on the loan is $66,166.

 

Future minimum payments of principal and interest for the fiscal years ended are as follows:

 

Fiscal Year		Amount
2020		$	8,275
2021			16,549
2022			16,549
2023			7,232
Total		$	67,576

 

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 December 31, 2019 the balance on the loan is $38,000.

 

Future minimum payments of principal and interest for the fiscal years ended are as follows:

 

Fiscal Year		Amount
2020		$	7,249
2021			14,499
2022			14,499
2023			7,240
Total		$	43,487

 

 

NOTE 7 - STOCKHOLDERS’ EQUITY

Common stock

 

Common stock includes 100,000,000 shares authorized at a par value of $0.001.

 

During the six months ended December 31, 2019, 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 six months ended December 31, 2019, 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 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 December 31, 2019 and June 30, 2019, the Company owed $122,729 and $102,129 of principal and $8,219 and $5,463 of accrued interest on the LOC, respectively.

  

NOTE 9 - 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. Other than the following.

 

On January 2, 2020, the Company executed a 10% fixed 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.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our unaudited financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

 

Forward Looking Statements

 

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:

 

•

our future operating results;

•

our business prospects;

•

our contractual arrangements and relationships with third parties;

•

the dependence of our future success on the general economy;

•

our possible future financings; and

•

the adequacy of our cash resources and working capital.

 

These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

Cautionary Statement:

 

Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases and in oral statements made with the approval of an authorized executive officer that are not historical or current facts are “forward-looking statements.” These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. These risks and uncertainties are described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, as well as other filings the Company makes with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made and are not predictions of actual future results. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 

Plan of Operations

 

Genesys Industries is a diversified multi-industry manufacturer of complex metal components and products. We serve all general industrial markets such as Aerospace, Automotive, Construction, Commercial, Food Processing, Industrial, Maritime, Medical, Railroad, Oil and Gas, Packaging, Telecom, Textiles, Pulp Paper, 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.

 

Results of Operation for the Three Months Ended December 31, 2019 and 2018

 

Revenues

For the three months ended December 31, 2019, we earned revenue of $133,923 compared to $248,204 for the three months ended December 31, 2018; a decrease of $114,281 or 46%. During the current period we ceased doing business with one of our former primary customers due to them becoming a credit risk.

 

 

Cost of Revenue

For the three months ended December 31, 2019, cost of revenue was $75,326, compared to $116,277 for the three months ended December 31, 2018; a decrease of $40,951 or 35.2%. Cost of revenue has decreased in conjunction with the decrease in revenue. Our cost of revenue consists of direct material, labor and overhead expenses.

 

Professional fees

Professional fees were $14,800 for the three months ended December 31, 2019 compared to $7,100 for the three months ended December 31, 2018; an increase of $7,700 or 108.5%. Professional fees consist of accounting, audit and legal fees. The increase in fees in the current year is due to an increase in audit and accounting fees.

 

Payroll expense

Payroll expense was $21,991 for the three months ended December 31, 2019 compared to $13,792 for the three months ended December 31, 2018, an increase of $8,199 or 59.4%. The increase can be attributed to an increase of our administrative staff.

 

General & administrative expenses

General & administrative expenses (“G&A”) were $21,026 for the three months ended December 31, 2019, compared to $15,275 for the three months ended December 31, 2018; an increase of $5,751 or 37.6%. In the current period our G&A expense was decreased when we recognized a credit of $38,484 for the prior period accrual for income tax. This decrease was offset by a $30,000 non-cash expense for stock compensation.

  

Other expense

Interest expense for the three months ended December 31, 2019 was $7,953 compared to $10,746 for the three months ended December 31, 2018, a decrease of $2,793 or 26%.

 

We had a $40,000 loss on the issuance of common stock when 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.

 

Net Loss

Net loss for the three months ended December 31, 2019 was $44,372, after a $2,802 credit to the provision for income taxes, compared to net income of $65,062, after a $19,952 provision for income taxes, for the three months ended December 31, 2018. The change from net income in the prior period to a net loss in the current period can be attributed to the loss of one of our larger customers as well as our non-cash expense for stock compensation.

 

Results of Operation for the Six Months Ended December 31, 2019 and 2018

 

Revenues

For the six months ended December 31, 2019, we earned revenue of $274,874 compared to $433,445 for the six months ended December 31, 2018; a decrease of $158,571 or 36.6%. During the current period we ceased doing business with one of our former primary customers due to them becoming a credit risk.

 

Cost of Revenue

For the six months ended December 31, 2019, cost of revenue was $168,804, compared to $235,654 for the six months ended December 31, 2018; a decrease of $66,850 or 28.4%. Cost of revenue has decreased in conjunction with the decrease in revenue. Our cost of revenue consists of direct material, labor and overhead expenses.

 

Professional fees

Professional fees were $19,805 for the six months ended December 31, 2019 compared to $10,600 for the six months ended December 31, 2018; an increase of $9,205 or 86.8%. Professional fees consist of accounting, audit and legal fees. The increase in fees in the current year is due to an increase in audit and accounting fees.

 

Payroll expense

Payroll expense was $28,780 for the six months ended December 31, 2019 compared to $21,420 for the six months ended December 31, 2018, an increase of $7,360 or 34.4%. The increase can be attributed to an increase of our administrative staff.

 

General & administrative expenses

General & administrative expenses (“G&A”) were $39,478 for the six months ended December 31, 2019, compared to $38,360 for the six months ended December 31, 2018; an increase of $1,118 or 2.9%. In the current period our G&A expense was decreased when we recognized a credit of $38,484 for the prior period accrual for income tax. This decrease was offset by a $43,000 non-cash expense for stock compensation.

 

 

Other expense

Interest expense for the six months ended December 31, 2019 was $14,897 compared to $13,780 for the six months ended December 31, 2018. Interest expense has increased due to the addition of our related party loan, line of credit, mortgage and equipment loans.

 

We had a $40,000 loss on the issuance of common stock when 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.

 

Net Loss

Net loss for the six months ended December 31, 2019 was $34,088, after a $2,802 credit to the provision for income taxes, compared to net income of $87,669, after a $25,962 provision for income taxes, for the six months ended December 31, 2018. The change from net income in the prior period to a net loss in the current period can be attributed to the loss of one of our larger customers as well as our non-cash expense for stock compensation.

 

Liquidity and Capital Resources

 

As reflected in the accompanying financial statements, the Company has an accumulated deficit of only $67,472 at December 31, 2019, had a net loss of $34,088, after a $2,802 credit to the provision for income taxes, and had net cash provided by operating activities of $25,630 for the six months ended December 31, 2019. 

 

Net cash used in investing activities for the six months ended December 31, 2019 and 2018 was $158,886 and $0, respectively, for the purchase of property and equipment.

 

Net cash received from financing activities for the six months ended December 31, 2019 was $80,040 compared to $24,892 used by financing activities in the prior year.

 

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 December 31, 2019 the balance on the loan is $125,824.

 

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 December 31, 2019 the balance on the loan is $181,600.

 

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 December 31, 2019 the balance on the loan is $66,166.

 

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 December 31, 2019, the Company owed $122,729 of principal and $8,219 of accrued interest on the LOC.

 

 

We believe that our principal difficulty in our inability to successfully implement our plan in full force and attain profits has been the lack of available capital to operate and expand our business. We believe that because our shareholders can’t deposit their shares and clear shares with certain broker dealers and clearing firms due to extreme FINRA and SEC regulatory burden, it has caused us to not be able to raise capital since we do not have an active trading market for our common stock.  As of the date of this filing we have no other commitment from any investor or investment-banking firm to provide us with the necessary funding and there can be no assurances we will obtain such funding in the future.  Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future. To such end, our auditor has indicated in its report on our financial statements for the year ended June 30, 2019.

 

Critical Accounting Estimates and Policies

 

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 the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Note 1 to the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, contingencies and taxes.  Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.

 

We are subject to various loss contingencies arising in the ordinary course of business.  We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies.  An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.  We regularly evaluate current information available to us to determine whether such accruals should be adjusted.

 

We recognize deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.  Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not that this deferred tax asset will be realized.

 

Off-Balance Sheet Arrangements 

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

 

Recent 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 our financial position or results of operations.

 

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. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, they concluded that our disclosure controls and procedures were effective for the quarterly period ended December 31, 2019.

 

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.

 

 

Changes in Internal Controls

 

Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in the Company's internal controls over financial reporting during the quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

  

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There are not presently any material pending legal proceedings to which the Company is a party or as to which any of our property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

 

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

ITEM 4. MINING SAFETY DISCLOSURES

 

Not applicable.

ITEM 5. OTHER INFORMATION.

 

None.

 

 

ITEM 6. EXHIBITS

 

Part I Exhibits

 

No.	Description
31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).
32.1	Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

 

Part II Exhibits

 

No.	Description
101. INS	XBRL Instance Document
101. SCH	XBRL Taxonomy Extension Schema Document
101. CAL	XBRL Taxonomy Calculation Linkbase Document
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document
101. LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		Genesys Indsutries, Inc.
February 14, 2019	By:	/s/ Shefali Vibhakar
	Name:	Ms. Shefali Vibhakar
	Title:	Chief Executive Officer, Predisent and Treasurer
		(Principal Executive, Financial and Accounting Officer)