Attached files
As filed with the Securities and Exchange Commission on Oct. 11, 2010
Registration No. 333-118993
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GENESIS ELECTRONICS GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada 7389 41-2137356
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
5555 Hollywood Blvd, Suite 303
Hollywood, FL 33021
(954) 272-1200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
IncSmart.biz,Inc.
4421 Edward Avenue
Las Vegas, NV 89108
702-403-8432
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this registration statement becomes
effective.
Approximate Date of Commencement of Proposed Sale to the Public: from
time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
2
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company:
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [x]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF AMOUNT PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE BEING MAXIMUM MAXIMUM REGISTRATION
REGISTERED REGISTERED OFFER PRICE AGGREGATE FEE
PER SHARE OFFER PRICE
Common stock, $0.001 33,282,272(1) $.05 $1,664,114 $118.65
par value ---------- ---------- -------
Total 33,282,272 $.05 $1,664,114 $118.65
(1) These shares are being registered pursuant to a Securities
Purchase Agreement dated as of May 10, 2010 between Genesis Electronics
Group, Inc. and Tangiers Investors, LP.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
this registration statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
3
SUBJECT TO COMPLETION
DATED October 11, 2010
PROSPECTUS
GENESIS ELECTRONICS GROUP, INC.
33,282,272 Shares of Common Stock
This prospectus (the "Prospectus") relates to the resale of 33,282,272
shares of our common stock, par value of $0.001, by certain individuals
and entities who beneficially own shares of our common stock. We are
not selling any shares of our common stock in this offering and
therefore we will not receive any proceeds from this offering. However,
the Company will receive proceeds from the sale of our common stock
under the Securities Purchase Agreement which was entered into between
the Company and Tangiers Investors, LP, ("Tangiers"), the selling
stockholder. We agreed to allow Tangiers to retain 15% of the proceeds
raised under the Securities Purchase Agreement, which is more fully
described below.
The shares of our common stock are currently traded on the Over-the-
Counter-Bulletin Board. Our stock will be offered for sale by the
selling stockholder at prices established on the Over-the-Counter
Bulletin Board during the term of this offering. The stock prices may
be different than prevailing market prices or at privately negotiated
prices. September 30, 2010, the last reported sale price of our common
stock was $0.05 per share. Our common stock is quoted on the Over-the-
Counter-Bulletin Board under the symbol "GEGI." The market price of our
stock will fluctuate based on the demand for the shares of our common
stock.
On May 10, 2010, we entered into a Securities Purchase Agreement with
Tangiers. Pursuant to the Securities Purchase Agreement the Company
may, at its discretion, periodically sell to Tangiers shares of its
common stock for a total purchase price of up to $5,000,000. For each
share of common stock purchased under the Securities Purchase
Agreement, Tangiers will pay us 85% of the lowest volume weighted
average price of the Company's common stock as quoted by Bloomberg, LP
on the Over-the-Counter Bulletin Board or other principal market on
which the Company's common stock is traded for the five days
immediately following the notice date. The price paid by Tangiers for
the Company's stock shall be determined as of the date of each
individual request for an advance under the Securities Purchase
Agreement. Tangiers' obligation to purchase shares of the Company's
common stock under the Securities Purchase Agreement is subject to
certain conditions, including the Company obtaining an effective
registration statement for shares of the Company's common stock sold
under the Securities Purchase Agreement and is limited to $100,000 per
ten consecutive trading days after the advance notice is provided to
Tangiers. The Securities Purchase Agreement shall terminate and
Tangiers shall have no further obligation to make advances under the
Securities Purchase Agreement at the earlier of the passing of 24
months after the date that the Securities and Exchange Commission
declares the Company's registration statement effective or the Company
receives advances from Tangiers equal to the $5,000,000. Pursuant to
the Securities Purchase Agreement, Tangiers received 3,000,000 shares
of our common stock as a one-time commitment fee.
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On September 30, 2010, the Company executed an Amendment to its
Securities Purchase Agreement that deleted Section 7(j) of the
Securities Purchase Agreement in its entirety. That Section provided
that the Company would transfer to Tangiers shares equal to two times
the Maximum Advance Amount as defined under the Securities Purchase
Agreement (the "Deposit Shares"). In addition, at all times, during
the term of the Securities Purchase Agreement, Tangiers would have had
in its possession, shares of the Company's Common Stock equal to two
times the Maximum Advance Amount. In the event the Deposit Shares
would have decreased to an amount, less than two times the Maximum
Advance Amount, then the Company would have had to issue additional
shares to Tangiers in an amount that would increase the Deposit Shares
held by Tangiers to two times the Maximum Advance Amount. This Section
would have also allowed Tangiers to decline to issue any advances to
the Company if they were not in possession of at least two times the
Maximum Advance Amount.
With the exception of Tangiers, who is an "underwriter" within the
meaning of the Securities Act of 1933, no other underwriter or person
has been engaged to facilitate the sale of shares of our common stock
in this offering. This offering will terminate twenty-four months after
the accompanying registration statement is declared effective by the
Securities and Exchange Commission. None of the proceeds from the sale
of our common stock by the selling stockholders will be placed in
escrow, trust or any similar account.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT FACTORS YOU SHOULD CONSIDER
BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THE OFFER OR SALE IS NOT PERMITTED.
The date of this Prospectus is October 11, 2010
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TABLE OF CONTENTS
Prospectus Summary 6
Risk Factors 9
Forward Looking Statements 18
The Offering 18
Use of Proceeds 20
Determination of Offering Price 21
Dilution 21
Selling Shareholders 21
Plan of Distribution 24
Legal Proceedings 26
Directors, Executive Officers, Promoters and Control Persons 27
Security Ownership of Certain Beneficial Owners
and Management 32
Description of Securities to be Registered 33
Disclosure of Commission Position on Indemnification
for Securities Act liabilities 35
Experts 35
Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure 35
Validity of Securities 35
Description of Business 36
Management's Discussion and Analysis or Plan of Operation 44
Certain Relationships and Related Transactions and Director
Independence 54
Market for Common Equity and Related Stock holder Matters 54
Executive Compensation 56
Financial Statements 60
6
GENERAL
As used in this Prospectus, references to "the Company," "Genesis "we",
"our," "ours" and "us" refer to Genesis Electronics Group, Inc., unless
otherwise indicated. In addition, any references to our "financial
statements" are to our consolidated financial statements except as the
context otherwise requires.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. This summary does not contain all the information that
you should consider before investing in the common stock. You should
carefully read the entire Prospectus, including "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements, before making an
investment decision.
Corporate Background and Our Business
The Company was originally incorporated in the State of Nevada on March
19, 1998 under the name Business Advantage No. 22, Inc. Business
Advantage No. 22, Inc. entered into an Agreement and Plan of
Reorganization with Pricester.com, Inc., a Florida Corporation to merge
Pricester into Business Advantage No. 22, Inc. On June 4, 2004, in
anticipation of the merger, the name of Business Advantage No. 22, Inc.
was changed to Pricester.com, Inc.
On February 9, 2005, pursuant to Articles of Merger, shareholders of
Pricester received 21,262,250 common shares of Business Advantage No.
22, Inc. on a basis of a one for one exchange for their common shares.
Pricester.com, Inc., formerly Business Advantage No. 22, Inc., was the
surviving corporation. The articles of merger were filed with the
states of Nevada and Florida. The number of common shares held by
Pricester before the merger was 1,044,620. Pursuant to Articles of
Amendment filed on February 24, 2009, Pricester's name was changed to
Genesis Electronics Group, Inc.
Genesis's business consists of
- Genesis Electronics: the development and eventual manufacturing
and marketing of solar-powered consumer products, based on patented
technology either owned by Genesis or licensed from Johns Hopkins
University Applied Physics Laboratories,
- Pricester.com: the sales of cost-effective websites and related
Internet services primarily to the small business sector, and
- Copia World, a Division of Pricester.com: the development and
marketing of an international shopping portal. We have yet to generate
substantial revenue because we are still in the developmental and pre-
production stages with our solar products, although substantial headway
has been made with successfully operating prototypes designed to comply
with the standards of a major brand-name manufacturer, and our website
and international shopping portal businesses have not yet reached
sufficient volume to be self-supporting.
7
The Company's corporate headquarters and telephone number are 5555
Hollywood Blvd., Suite 303, Hollywood, FL 33021 (954) 272-1200. The
Company's website is located at www.genesiselectronicsgroup.com
Going Concern
The accompanying unaudited consolidated financial statements are
prepared assuming the Company will continue as a going concern. Going
concern contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length
of time. The Company was in the development stage through December 31,
2005 and has an accumulated deficit of $8,270,470, had net losses,
negative working capital and negative cash flows from operations for
the six months ended June 30, 2010 of $179,547, $1,094,469 and $181,794
respectively. While the Company is attempting to increase revenues,
the growth has not been significant enough to support the Company's
daily operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. For the six months ended June 30,
2010, the Company sold 3,502,834 common shares for net proceeds of
$123,755 and subscription receivable of $40,000. For the six months
ended June 30, 2010 the Company collected subscription receivable of
$63,842.
Management is attempting to raise additional funds under the equity
line of credit provided by Tangiers. While the Company believes in the
viability of its strategy to increase sales volume and in its ability
to raise additional funds, there can be no assurances to that effect.
The Company shareholders have continued to advance funds to the Company
but there can be no assurance that future advances from Tangiers or
from shareholders will be sufficient to sustain the Company.
The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve
consumer recognition. These financial statements do not include any
adjustments relating to the recoverability and classifications of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
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Summary of the Offering
Securities Being
Offered Up to 33,282,272 shares of common stock in
Genesis Electronic Group, Inc.
Initial Offering Price The selling shareholders will sell our shares
at prices established on the Over-the-Counter
Bulletin Board during the term of this
offering, at prices different than prevailing
market prices or at privately negotiated
prices.
Terms of the Offering The selling shareholders will determine the
terms relative to the sale of the common stock
offered in this Prospectus.
Termination of the
Offering The offering will conclude when all of
the 33,282,272 shares of common stock have been
sold or at a time when the Company, in its sole
discretion, decides to terminate the
registration of the shares.
Tangiers, as an underwriter, cannot avail
itself of the provisions of Rule 144 in order
to resell the shares of common stock issued to
it under the Securities Purchase Agreement.
Risk Factors The securities offered hereby involve a high
degree of risk and should not be purchased by
investors who cannot afford the loss of their
entire investment. See "Risk Factors."
Common Stock Issued
Before Offering 162,256,906 shares of our common stock are
issued and outstanding as of the date of this
prospectus.
Common Stock Issued
After Offering(1) 195,539,178 shares of our common stock will be
issued and outstanding following this offering
Use of Proceeds We will not receive any proceeds from the sale
of the common stock by the selling
shareholders.
(1) Assumes the issuance to Tangiers of all shares being registered
under the Securities Purchase Agreement.
9
RISK FACTORS
The shares of our common stock being offered for resale by the selling
security holder are highly speculative in nature, involve a high degree
of risk and should be purchased only by persons who can afford to lose
the entire amount invested in the common stock. Before purchasing any
of the shares of common stock, you should carefully consider the
following factors relating to our business and prospects. If any of the
following risks actually occurs, our business, financial condition or
operating results could be materially adversely affected. In such case,
the trading price of our common stock could decline and you may lose
all or part of your investment.
Risks related to our Securities Purchase Agreement
EXISTING STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR
SALE OF SHARES UNDER THE SECURITIES PURCHASE AGREEMENT.
The sale of shares pursuant to the Securities Purchase Agreement will
have a dilutive impact on our stockholders. As a result, the market
price of our common stock could decline significantly as we sell shares
pursuant to the Securities Purchase Agreement. In addition, for any
particular advance, we will need to issue a greater number of shares of
common stock under the Securities Purchase Agreement as our stock price
declines. If our stock price is lower, then our existing stockholders
would experience greater dilution.
THE INVESTOR UNDER THE SECURITIES PURCHASE AGREEMENT WILL PAY LESS THAN
THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK
The common stock to be issued under the Securities Purchase Agreement
will be issued at 85% of the lowest daily volume weighted average price
of our common stock during the five consecutive trading days
immediately following the date we send an advance notice to the
investor and is subject to further reduction provided in the Securities
Purchase Agreement. These discounted sales could also cause the price
of our common stock to decline. As a result, as the price of our common
stock declines we will be required to issue more shares to Tangiers in
order to obtain the financing we require under the Securities Purchase
Agreement. As Tangiers sells our stock into the market the stock price
may decrease due to additional shares in the market, which could allow
Tangiers to receive even greater amounts of common stock, sales of
which would further depress our stock price.
THE SALE OF OUR STOCK UNDER THE SECURITIES PURCHASE AGREEMENT COULD
ENCOURAGE SHORT SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE
FURTHER DECLINE OF OUR STOCK PRICE.
The significant downward pressure on the price of our common stock
caused by the sale of material amounts of common stock under the
Securities Purchase Agreement could encourage short sales by third
parties. Such an event could place further downward pressure on the
price of our common stock.
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WE MAY BE LIMITED IN THE AMOUNT WE CAN RAISE UNDER THE SECURITIES
PURCHASE AGREEMENT BECAUSE OF CONCERNS ABOUT SELLING MORE SHARES INTO
THE MARKET THAN THE MARKET CAN ABSORB WITHOUT A SIGNIFICANT PRICE
ADJUSTMENT.
The Company intends to exert its best efforts to avoid a significant
downward pressure on the price of its common stock by refraining from
placing more shares into the market than the market can absorb. This
potential adverse impact on the stock price may limit our willingness
to use the Securities Purchase Agreement. Until there is a greater
trading volume, it seems unlikely that we will be able to access the
maximum amount we can draw without an adverse impact on the stock price
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE SECURITIES
PURCHASE AGREEMENT WHEN NEEDED.
The commitment amount of the Securities Purchase Agreement is
$5,000,000. After estimated fees and offering costs, we will receive
net proceeds of approximately $4,950,000. At our current share price of
$0.05 per share we will sell our stock to Tangiers at 85% of the market
price per share, which equates to a share price of $0.0425. If our
current share price remains at $0.05 we will need to register
117,647,058 shares of our common stock in order to obtain the full
$5,000,000 available to us under the Securities Purchase Agreement. The
total amount of 33,282,272 shares of our common stock that we are
registering under this registration statement will be issued to
Tangiers in order to obtain the funds available to us under the
Securities Purchase Agreement. Which means we will be required to file
another registration statement if we intend to obtain the full amount
of funds available to us under the Securities Purchase Agreement. If we
issue to Tangiers all 33,282,272 shares of our common stock we will
register, we will only be able to receive approximately $1,364,497in
net proceeds after paying expenses related to this registration
statement of approximately $50,000.
Our ability to raise funds under the Securities Purchase Agreement is
also limited by a number of factors, including the fact that the
maximum advance amount is capped at $100,000 as well as the fact that
we are not permitted to submit any request for an advance within 10
trading days of a prior request. Also the Company may only draw an
amount equal to the average daily trading volume in dollar amount
during the 10 trading days preceding the advance date. As such,
although sufficient funds are made available to the Company under the
Securities Purchase Agreement, such funds may not be readily available
when needed by the Company.
THE SECURITIES PURCHASE AGREEMENT RESTRICTS OUR ABILITY TO ENGAGE IN
ALTERNATIVE FINANCINGS.
The structure of transactions under the Securities Purchase Agreement
will result in the Company being deemed to be involved in a near
continuous indirect primary public offering of our securities. As long
as we are deemed to be engaged in a public offering, our ability to
engage in a private placement will be limited because of integration
concerns and therefore limits our ability to obtain additional funding
11
if necessary. If we do not obtain the necessary funds required to
maintain the operations of the business and to settle our liabilities
in a timely manner, the business will inevitably suffer.
THE COMPANY MUST MAINTAIN A LISTING ON THE OVER-THE -COUNTER BULLETIN
BOARD TO MAINTAIN ITS FINANCING UNDER THE SECURITIES PURCHASE
AGREEMENT.
If for any reason the Company is unable to maintain its listing on the
Over-the-Counter Bulletin Board, then the Company will be unable to
receive financing under the Securities Purchase Agreement. The loss of
the listing would therefore mean that the Company could not access the
capital it would expect to receive from Tangiers under the Securities
Purchase Agreement.
WE WILL NOT BE ABLE TO USE THE SECURITIES PURCHASE AGREEMENT IF THE
SHARES TO BE ISSUED IN CONNECTION WITH AN ADVANCE WOULD RESULT IN
TANGIERS OWNING MORE THAN 9.9% OF OUR OUTSTANDING COMMON STOCK.
Under the terms of the Securities Purchase Agreement, we may not
request advances if the shares to be issued in connection with such
advances would result in Tangiers and its affiliates owning more than
9.9% of our outstanding common stock. We are permitted under the terms
of the Securities Purchase Agreement to make limited draws on the
Securities Purchase Agreement so long as Tangiers beneficial ownership
of our common stock remains lower than 9.9%. A possibility exists that
Tangiers and its affiliates may own more than 9.9% of our outstanding
common stock (whether through open market purchases, retention of
shares issued under the Securities Purchase Agreement, or otherwise) at
a time when we would otherwise plan to obtain an advance under the
Securities Purchase Agreement. As such, by operation of the provisions
of the Securities Purchase Agreement, the Company may be prohibited
from procuring additional funding when necessary due to these
provisions discussed above.
Risks Related To Our Business
OUR WEAK FINANCIAL CONDITION HAS RAISED, AND WILL LIKELY CONTINUE TO
RAISE, SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO CONTINUE AS A "GOING
CONCERN." WE HAVE EXPERIENCED HISTORICAL LOSSES. WE MAY HAVE TO CEASE
OPERATIONS IF WE DO NOT GENERATE MEANINGFUL REVENUE AND ACHIEVE
PROFITABILITY AND INVESTORS MAY LOSE THEIR INVESTMENT.
The accompanying unaudited consolidated financial statements are
prepared assuming the Company will continue as a going concern. Going
concern contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length
of time. The Company was in the development stage through December 31,
2005 and has an accumulated deficit of $8,270,470, had net losses,
negative working capital and negative cash flows from operations for
the six months ended June 30, 2010 of $179,547, $1,094,469 and $181,794
respectively. While the Company is attempting to increase revenues,
the growth has not been significant enough to support the Company's
daily operations. These factors raise substantial doubt about the
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Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. For the six months ended June 30,
2010, the Company sold 3,502,834 common shares for net proceeds of
$123,755 and subscription receivable of $40,000. For the six months
ended June 30, 2010 the Company collected subscription receivable of
$63,842.
Management is attempting to raise additional funds under the equity
line of credit provided by Tangiers. While the Company believes in the
viability of its strategy to increase sales volume and in its ability
to raise additional funds, there can be no assurances to that effect.
The Company shareholders have continued to advance funds to the Company
but there can be no assurance that future advances from Tangiers or
from shareholders will be sufficient to sustain the Company.
The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve
consumer recognition. These financial statements do not include any
adjustments relating to the recoverability and classifications of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
OUR BUSINESS IS CAPITAL INTENSIVE AND ADDITIONAL FINANCING MAY NOT BE
AVAILABLE, AS SUCH, ESPECIALLY IN LIGHT OF OUR HISTORICAL LOSSES, WE
MAY HAVE TO CEASE OPERATIONS AND INVESTORS MAY LOSE THEIR INVESTMENT.
Our operations are capital intensive and our growth and ongoing
operations will consume a substantial portion of our available working
capital. We have engaged in numerous financing activities over the past
few years but have been unable to utilize the funds raised to achieve
positive financial results.
Furthermore, we will require additional capital in order to fund our
operations and research projects, and we do not have any commitments
for additional financing. Additional funding, if required, may not be
available, or if available, may not be available upon favorable terms.
Insufficient funds will prevent, or delay, us from implementing our
business strategy. Due to our small revenue base and low level of
working capital, we have been unable to aggressively pursue our product
development strategy to date. We will require significant additional
financing and/or a strategic alliance with a well-funded development
partner to undertake our business plan. Failure to receive additional
funding or enter into a strategic alliance could limit our growth,
13
limit our likelihood of profitability and worsen our financial
condition and may correspondingly decrease the market price of our
common stock, or may cause us to cease operations all together.
OUR CONTINUED SALE OF EQUITY SECURITIES WILL DILUTE EXISTING
SHAREHOLDERS AND MAY DECREASE THE MARKET PRICE FOR OUR COMMON STOCK.
Given our limited revenues and prospect for revenues for the 2010
fiscal year, we will require additional financing which will require
the issuance of additional equity securities. We expect to continue our
efforts to acquire further financing in the future to fund additional
marketing efforts, product development expenses, programming and
administrative expenses, which will result in future dilution to
existing outstanding shareholders.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE
LOSS OF A KEY EXECUTIVE COULD SEVERELY IMPACT OUR OPERATIONS, CAUSE
DELAY AND ADD EXPENSE TO OUR OPERATION.
The execution of our present business plan depends on the continued
services of our executive officers. We do not currently maintain key-
man insurance on their lives. The loss of any of their services would
be detrimental to our business, financial condition and results of
operations. We may not retain or replace the services of our key
officers.
WE HAVE ELECTED NOT TO VOLUNTARILY ADOPT VARIOUS CORPORATE GOVERNANCE
MEASURES, WHICH MAY RESULT IN SHAREHOLDERS HAVING LIMITED PROTECTIONS
AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND
SIMILAR MATTERS.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002,
has resulted in the adoption of various corporate governance measures
designed to promote the integrity of the corporate management and the
securities markets. We have not yet adopted these corporate governance
measures and, since our securities are not yet listed on a national
securities exchange or NASDAQ, we are not required to do so. However,
to the extent we seek to have our common stock listed on a national
securities exchange or NASDAQ, such requirements will require us to
make changes to our current corporate governance practices, which
changes may be costly and time consuming. Furthermore, the absence of
such practices with respect to our Company may leave our shareholders
without protections against interested director transactions, conflicts
of interest and similar matters. As an example of one Sarbanes-Oxley
requirement, currently none of the members of our board of directors
are considered to be "independent" for purposes of Sarbanes-Oxley. We
may not be able to attract a sufficient number of directors in the
future to satisfy this requirement if it becomes applicable to us.
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WE MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS
OVER FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS
ATTESTED TO BY OUR INDEPENDENT AUDITORS.
Management conducted its evaluation of disclosure controls and
procedures under the supervision of our chief executive officer and our
chief financial officer. Based on that evaluation, our Chief Executive
Officer, and our Chief Financial Officer concluded that because of the
material weaknesses in internal control over financial reporting
described below, our disclosure controls and procedures were not
effective as of December 31, 2009.
Management has determined that our internal audit function is
significantly deficient due to insufficient qualified resources to
perform internal audit functions. Finally, management determined that
the lack of an Audit Committee of our Board of Directors also
contributed to insufficient oversight of our accounting and audit
functions.
Due to our size and nature, segregation of all conflicting duties may
not always be possible and may not be economically feasible. However,
to the extent possible, we will implement procedures to assure that the
initiation of transactions, the custody of assets and the recording of
transactions will be performed by separate individuals.
We believe that the foregoing steps will remediate the material
weaknesses identified above, and we will continue to monitor the
effectiveness of these steps and make any changes that our management
deems appropriate. Due to the nature of these material weaknesses in
our internal control over financial reporting, there is more than a
remote likelihood that misstatements which could be material to our
annual or interim financial statements could occur that would not be
prevented or detected. However, in the event we are unable to remediate
our material weakness it could have a significant negative impact on
our financial reporting and business operations
FAILURE OF OUR INTERNAL SYSTEMS MAY CAUSE SYSTEM DISRUPTIONS, REDUCE
LEVELS OF CUSTOMER SERVICE, AND OTHERWISE DAMAGE OUR OPERATIONS WHICH
COULD LEAD TO LOST SALES AND MAY INCREASE OUR OVERHEAD WHICH WOULD ADD
EXPENSE AND DELAY OUR OPERATIONS.
We use internally developed systems to operate our service and for
transaction processing, including billing and collections processing.
We must continually improve these systems in order to meet the level of
use. Furthermore, in the future, we may add features and functionality
to our products and services using internally developed or third party
licensed technologies. Our inability to:
- add software and hardware;
- develop and upgrade existing technology, transaction processing
systems and network infrastructure to meet increased volume through our
processing systems; or
- provide new features or functionality may cause system
disruptions, slower response times, reductions in levels of customer
service, decreased quality of the user's experience, and delays in
15
reporting accurate financial information. Any such failure could result
in a loss of business and worsen our financial condition and may
correspondingly decrease the market price of our common stock.
Risks Related To Our Intellectual Property
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, THEREBY PERMITTING
COMPETITORS TO DEVELOP THE SAME OR SIMILAR PRODUCTS AND TECHNOLOGIES TO
OURS, WHICH COULD ADD EXPENSE AND DELAY OPERATIONS.
Our future results and ability to compete will be dependent, in large
part, upon the marketing and sales of our developed proprietary
products and technologies, the development of future proprietary
products and technologies and the commercialization of our products. We
intend to rely primarily upon copyright, trade secret and trademark
laws to protect the proprietary components of our systems. While we
have filed U.S. patent applications covering certain of our systems,
the patent applications may not result in the issuance patent.
Additionally, if granted, any patent may be successfully challenged and
will not provided us with meaningful proprietary protections or that we
may not have the financial resources to mount sustained patent defense.
We could also incur substantial costs in asserting our intellectual
property or proprietary rights against others or if others assert their
rights against us. The failure to successfully protect our intellectual
property and proprietary rights could enable others to duplicate or
claim our rights products and systems which may result in decreases in
our results of operations, liquidity and cash flows. Any such decreases
may correspondingly decrease the market price of our common stock.
Risks Related To Industries In Which We Operate
WE FACE SEVERE COMPETITION FROM VARIOUS COMPANIES, MANY OF WHOM HAVE
GREATER RESOURCES THAN WE DO, WHICH COULD CAUSE US TO LOSE SALES ADD
EXPENSE AND DELAY OUR OPERATIONS.
We may be unable to effectively compete in the marketplaces in which we
operate.
Most of these competitors have a longer operating history than we do
and many of them have substantially greater financial and other
resources than we do. As a result, we will likely encounter greater
difficulty in implementing our business plans than will our
competitors. The introduction of similar or superior products by
current or future competitors may result in decreases in our results of
operations, liquidity and cash flows. Any such decreases may
correspondingly decrease the market price of our common stock.
16
Risk Related To Our Securities And Capital Structure
TRADING IN OUR COMMON STOCK MAY BE LIMITED, SO OUR SHAREHOLDERS MAY NOT
BE ABLE TO SELL AS MUCH STOCK AS THEY WANT AT PREVAILING PRICES.
We expect shares of the common stock to be traded on the OTCBB. If
limited trading in the common stock exists, it may be difficult for our
shareholders to sell in the public market at any given time at
prevailing prices. Also, the sale of a large block of our common stock
at any time could depress the price of our common stock to a greater
degree than a company that typically has higher volume of trading of
securities.
THE LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE POSSIBLE
VOLATILITY IN OUR STOCK PRICE WHICH MAY CAUSE YOU TO LOSE SOME OR ALL
OF YOUR INVESTMENT.
There has only been a limited public market for our common stock and an
active trading market in our common stock may not be maintained. The
OTCBB is an unorganized, inter-dealer, over-the-counter market that
provides significantly less liquidity than NASDAQ, and quotes for
stocks included on the OTCBB are not listed in the financial sections
of newspapers, as are those for the NASDAQ Stock Market. In addition,
the stock market in recent years has experienced extreme price and
volume fluctuations that have particularly affected the market prices
of many smaller companies. The trading price of our common stock is
expected to be subject to significant fluctuations in response to
variations in quarterly operating results, changes in analysts'
earnings estimates, announcements of innovations by us or our
competitors, general conditions in the industry in which we operate and
other factors. These fluctuations, as well as general economic and
market conditions, may decrease the market price of our common stock.
THE MARKET PRICE FOR OUR COMMON STOCK MAY BE SUBJECT TO EXTREME
VOLATILITY, WHICH MAY CAUSE YOU TO LOSE SOME OR ALL OF YOUR INVESTMENT.
The market for securities of high-technology companies, including
companies such as ours that participate in emerging markets, has
historically been more volatile than the market for stocks in general.
As a result, the price of our common stock may be subject to wide
fluctuations in response to factors some of which are beyond our
control, including, without limitation, the following:
- Quarter-to-quarter variations in our operating results;
- Our announcement of material events;
- Price fluctuations in sympathy to others engaged in our
industry; and,
- The effects of media coverage of our business.
PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON
MARKETABILITY OF THE COMPANY'S SECURITIES, WHICH MAY CAUSE YOU TO LOSE
SOME OR ALL OF YOUR INVESTMENT.
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a
market price (as defined) of less than $5.00 per share or an exercise
17
price of less than $5.00 per share, subject to certain exceptions. As a
result, our common stock is subject to rules that impose additional
sales practice requirements on broker-dealers who sell such securities
to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities
and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a risk disclosure document mandated by the
Securities and Exchange Commission relating to the penny stock market.
The broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed
control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of
broker-dealers to sell our securities and may affect the ability of
investors to sell our securities and the price at which such purchasers
can sell any such securities.
Our shareholders should be aware that, according to the Securities and
Exchange Commission, the market for penny stocks has suffered in recent
years from patterns of fraud and abuse. Such patterns include:
- Control of the market for the security by one or a few broker-
dealers that are often related to the promoter or issuer;
- Manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases;
- "Boiler room" practices involving high pressure sales tactics
and unrealistic price projections by inexperienced sales persons;
- Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
- The wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent
investor losses.
Our management is aware of the abuses that have occurred historically
in the penny stock market.
WE HAVE NO HISTORY OF PAYING DIVIDENDS ON OUR COMMON STOCK.
We have never paid any cash dividends on our shares of common stock and
do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We plan to retain any future earnings to finance
growth. If we decide to pay dividends to the holders of the common
stock, such dividends may not be paid on a timely basis.
18
IT IS NOT POSSIBLE TO FORESEE ALL RISKS WHICH MAY AFFECT US. MOREOVER,
WE CANNOT PREDICT WHETHER WE WILL SUCCESSFULLY EFFECTUATE OUR CURRENT
BUSINESS PLAN. EACH PROSPECTIVE PURCHASER IS ENCOURAGED TO CAREFULLY
ANALYZE THE RISKS AND MERITS OF AN INVESTMENT IN THE SHARES AND SHOULD
TAKE INTO CONSIDERATION WHEN MAKING SUCH ANALYSIS, AMONG OTHERS, THE
RISK FACTORS DISCUSSED ABOVE.
FORWARD LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain certain forward-looking statements and are based on
the beliefs of our management as well as assumptions made by and
information currently available to our management. Statements that are
not based on historical facts, which can be identified by the use of
such words as "likely," "will," "suggests," "target," "may," "would,"
"could," "anticipate," "believe," "estimate," "expect," "intend,"
"plan," "predict," and similar expressions and their variants, are
forward-looking. Such statements reflect our judgment as of the date of
this prospectus and they involve many risks and uncertainties,
including those described under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." These risks and uncertainties could cause
actual results to differ materially from those predicted in any
forward-looking statements. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of these forward-
looking statements. We undertake no obligation to update forward-
looking statements.
THE OFFERING
This offering relates to the sale of our common stock by selling
stockholders, who intend to sell up to 33,282,272 shares of our common
stock which are subject to issuance under the Securities Purchase
Agreement, dated May 10, 2010. Pursuant to the Securities Purchase
Agreement the Company may, at its discretion, periodically sell to
Tangiers shares of its common stock for a total purchase price of up to
$5,000,000. For each share of common stock purchased under the
Securities Purchase Agreement, Tangiers will pay us 85% of the lowest
volume weighted average price of the Company's common stock as quoted
by Bloomberg, LP on the Over-the-Counter Bulletin Board or other
principal market on which the Company's common stock is traded for the
five days immediately following the notice date. The price paid by
Tangiers for the Company's stock shall be determined as of the date of
each individual request for an advance under the Securities Purchase
Agreement. Tangiers' obligation to purchase shares of the Company's
common stock under the Securities Purchase Agreement is subject to
certain conditions, including the Company obtaining an effective
registration statement for shares of the Company's common stock sold
under the Securities Purchase Agreement and is limited to $100,000 per
ten consecutive trading days after the advance notice is provided to
Tangiers. The Securities Purchase Agreement shall terminate and
19
Tangiers shall have no further obligation to make advances under the
Securities Purchase Agreement at the earlier of the passing of 24
months after the date that the Securities and Exchange Commission
declares the Company's registration statement effective or the Company
receives advances from Tangiers equal to the $5,000,000. Pursuant to
the Securities Purchase Agreement, Tangiers received 3,000,000 shares
of our common stock as a one-time commitment fee. On September 30,
2010 the Company executed an Amendment to its Securities Purchase
Agreement that deleted Section 7(j) of the Securities Purchase
Agreement in its entirety. That Section provided that the Company would
transfer to Tangiers shares equal to two times the Maximum Advance
Amount as defined under the Securities Purchase Agreement (the "Deposit
Shares"). In addition, at all times, during the term of the Securities
Purchase Agreement, Tangiers would have had in its possession, shares
of the Company's Common Stock equal to two times the Maximum Advance
Amount. In the event the Deposit Shares would have decreased to an
amount, less than two times the Maximum Advance Amount, then the
Company would have had to issue additional shares to Tangiers in an
amount that would increase the Deposit Shares held by Tangiers to two
times the Maximum Advance Amount. This Section would have also allowed
Tangiers to decline to issue any advances to the Company if they were
not in possession of at least two times the Maximum Advance Amount.
The commitment amount of the Securities Purchase Agreement is
$5,000,000. After estimated fees and offering costs, we will receive
net proceeds of approximately $4,950,000 provided we are able to
continue to maintain a sufficient number of shares authorized for
issuance under the Securities Purchase Agreement and are able to
register those shares for issuance to Tangiers. We will be required to
file another registration statement if we intend to obtain the full
amount of funds available to us under the Securities Purchase
Agreement. If we issue to Tangiers all 33,282,272 shares of our common
stock we will only be able to receive approximately $1,364,497 in net
proceeds after paying expenses related to this registration statement
of approximately $50,000.
Tangiers intends to sell any shares purchased under the Securities
Purchase Agreement at the then prevailing market price. These sales of
our common stock in the public market could lower the market price of
our common stock. In the event that the market price of our common
stock decreases, we would not be able to draw down the remaining
balance available under the Securities Purchase Agreement with the
number of shares being registered in the accompanying registration
statement.
Under the terms of the Securities Purchase Agreement, Tangiers is
prohibited from engaging in short sales of our stock. Short selling is
the act of borrowing a security from a broker and selling it, with the
understanding that it must later be bought back (hopefully at a lower
price) and returned to the broker. Short selling is a technique used by
investors who try to profit from the falling price of a stock. Among
other things, this Prospectus relates to the shares of our common stock
to be issued under the Securities Purchase Agreement. There are
substantial risks to investors as a result of the issuance of shares of
20
our common stock under the Securities Purchase Agreement. These risks
include dilution of our shareholders, significant declines in our stock
price and our inability to draw sufficient funds when needed.
There is an inverse relationship between our stock price and the number
of shares to be issued under the Securities Purchase Agreement. That
is, as our stock price declines, we would be required to issue a
greater number of shares under the Securities Purchase Agreement for a
given advance.
USE OF PROCEEDS
This Prospectus relates to shares of our common stock that may be
offered and sold from time to time by the selling stockholders. There
will be no proceeds to us from the sale of shares of our common stock
in this offering. The selling stockholders will receive all such
proceeds.
However, we will receive proceeds from the sale of shares of our common
stock to Tangiers under the Securities Purchase Agreement. Tangiers
will purchase our shares of common stock under the Securities Purchase
Agreement at a 15% discount to the current market price. The purchase
price of the shares purchased under the Securities Purchase Agreement
will be equal to 85% of the volume weighted average price of our common
stock on the Over-the-Counter Bulletin Board for the five (5)
consecutive trading days immediately following the notice date.
Pursuant to the Securities Purchase Agreement, we cannot draw more than
$100,000 every 10 trading days.
For illustrative purposes only, we have set forth below our intended
use of proceeds for the range of net proceeds indicated below to be
received under the Securities Purchase Agreement. The table assumes
estimated offering expenses of $50,000. The figures below are estimates
only, and may be changed due to various factors, including the timing
of the receipt of the proceeds.
Gross proceeds: $ 1,414,497 $ 5,000,000
Net proceeds: $ 1,364,497 $ 4,950,000
Number of shares that would have to
be issued under the Securities
Purchase Agreement at an assumed
offering price equal to $0.0425
(which is 85% of an assumed market
price of $0.05) 33,282,272 117,647,058
USE OF PROCEEDS
General Working Capital $ 1,364,497 $ 4,950,000
Total $ 1,364,497 $ 4,950,000
21
The Securities Purchase Agreement allows us to use our proceeds for
general corporate purposes, which includes any general business purpose
that the Company deems appropriate, including acquisitions related to
the Company's business. We have chosen to pursue the Securities
Purchase Agreement funding because it will make a large amount of cash
available to us with the advantage of allowing us to decide when, and
how much, we will draw from this financing. We will be in control of
the draw down amounts and hope to be able to draw down from the
Securities Purchase Agreement whenever the Company deems that such
funds are needed. Our objective will be to draw down on the Securities
Purchase Agreement funding during periods of positive results for us
and during stages when our stock price is rising, in order to control
and minimize, as much as possible, the potential dilution for our
current and future stockholders. It may not be possible for us to
always meet our objective; therefore, we will continue to identify
alternative sources of financing, as we always have, including
additional private placements of our stock.
DETERMINATION OF OFFERING PRICE
The shares of our common stock are being offered for sale by the
selling stockholders at prices established on the Over-the-Counter
Bulletin Board during the term of this offering, at prices different
than prevailing market prices or at privately negotiated prices.
DILUTION
At our current assumed offering price of $0.0425, which is the 85% of
the assumed market price of $0.05 per share, we will need to issue
117,647,058 shares in order to obtain the full $5,000,000 under the
Securities Purchase Agreement. The issuance of the 117,647,058 shares
to Tangiers pursuant to the Securities Purchase Agreement will have a
dilutive impact on our stockholders. For any particular advance, we
will need to issue a greater number of shares of common stock under the
Securities Purchase Agreement which would expose our existing
stockholders to greater dilution.
SELLING SHAREHOLDERS
The following table presents information regarding the selling
shareholders. A description of our relationship to the selling
shareholders' and how the selling shareholders acquired the shares to
be sold in this offering is detailed in the information immediately
following this table.
22
Percentage of
Outstanding
Shares that Shares that Shares Being
Percentage of Could Be May Be(2) Registered to Percentage of
Outstanding Issued to Draw Acquired be Acquired Outstanding
Shares Shares Down Under Under the Under the Shares
Beneficially Beneficially the Securities Securities Securities Shares to be Beneficially
Selling Owned before Owned before Purchase Purchase Purchase Sold in the Owned after
Stockholder Offering Offering Agreement Agreement Agreement(3) Offering Offering
----------- ------------ ------------ -------------- ----------- ------------- ------------ ------------
Tangiers 3,000,000 1.92% 33,282,272 53,475,936 30% 33,282,272 1.92%
--------- ----- ---------- ---------- --- ---------- -----
Total 3,000,000 1.92% 33,282,272 53,475,936 30% 33,282,272 1.92%
(1) Applicable percentage of ownership is based on 162,256,906 shares
of our common stock outstanding as of September 30, 2010. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock are deemed to
be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Note that affiliates are
subject to Rule 144 and Insider trading regulations - percentage
computation is for form purposes only.
(2) Represents the number of shares of our common stock that would
need to be issued to Tangiers at an assumed offering price of $0.0425
to draw down the entire $5 million available under the Securities
Purchase Agreement.
(3) The number of shares being registered equals less than 30% of the
outstanding shares after deducting the shares held by affiliates of the
Company.
Shares Acquired In Financing Transactions
Tangiers. Tangiers is the investor under the Securities Purchase
Agreement. All investment decisions of, and control of, Tangiers are
held by Robert Papiri and Michael Sobeck its managing partners.
Tangiers Capital, LLC, makes the investment decisions on behalf of and
controls Tangiers. Tangiers acquired all shares being registered in
this offering in a financing transaction with us. This transaction is
explained below:
Securities Purchase Agreement. On May 10, 2010 we entered into a
Securities Purchase Agreement with Tangiers. Pursuant to the
Securities Purchase Agreement the Company may, at its discretion,
periodically sell to Tangiers shares of its common stock for a total
purchase price of up to $5,000,000. For each share of common stock
purchased under the Securities Purchase Agreement, Tangiers will
pay us 85% of the lowest volume weighted average price of the
Company's common stock as quoted by Bloomberg, LP on the Over-the-
Counter Bulletin Board or other principal market on which the Company's
23
common stock is traded for the five days immediately following the
notice date. The price paid by Tangiers for the Company's stock shall
be determined as of the date of each individual request for an advance
under the Securities Purchase Agreement. Tangiers' obligation to
purchase shares of the Company's common stock under the Securities
Purchase Agreement is subject to certain conditions, including the
Company obtaining an effective registration statement for shares of the
Company's common stock sold under the Securities Purchase Agreement and
is limited to $100,000 per ten consecutive trading days after the
advance notice is provided to Tangiers. The Securities Purchase
Agreement shall terminate and Tangiers shall have no further obligation
to make advances under the Securities Purchase Agreement at the earlier
of the passing of 24 months after the date that the Securities and
Exchange Commission declares the Company's registration statement
effective or the Company receives advances from Tangiers equal to the
$5,000,000. Pursuant to the Securities Purchase Agreement, Tangiers
will received a one-time commitment of 3,000,000 shares of the
Company's common stock. On September 30, 2010 the Company executed an
Amendment to its Securities Purchase Agreement that deleted Section
7(j) of the Securities Purchase Agreement in its entirety. That Section
provided that the Company would transfer to Tangiers shares equal to
two times the Maximum Advance Amount as defined under the Securities
Purchase Agreement (the "Deposit Shares"). In addition, at all times,
during the term of the Securities Purchase Agreement, Tangiers would
have had in its possession, shares of the Company's Common Stock equal
to two times the Maximum Advance Amount. In the event the Deposit
Shares would have decreased to an amount, less than two times the
Maximum Advance Amount, then the Company would have had to issue
additional shares to Tangiers in an amount that would increase the
Deposit Shares held by Tangiers to two times the Maximum Advance
Amount. This Section would have also allowed Tangiers to decline to
issue any advances to the Company if they were not in possession of at
least two times the Maximum Advance Amount.
There are certain risks related to sales by Tangiers, including:
- The outstanding shares will be issued based on a discount to the
market rate. As a result, the lower the stock price is around the time
Tangiers is issued shares, the greater chance that Tangiers gets more
shares. This could result in substantial dilution to the interests of
other holders of common stock.
- To the extent Tangiers sells our common stock, our common stock
price may decrease due to the additional shares in the market. This
could allow Tangiers to sell greater amounts of common stock, the sales
of which would further depress the stock price.
- The significant downward pressure on the price of our common
stock as Tangiers sells material amounts of our common stock could
encourage short sales by Tangiers or others. This could place further
downward pressure on the price of our common stock.
24
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution
of our common stock owned by the selling stockholders may be sold or
transferred directly to purchasers by the selling stockholders as
principals or through one or more underwriters, brokers, dealers or
agents from time to time in one or more transactions (which may involve
crosses or block transactions) (i) on the over-the-counter market or in
any other market on which the price of our shares of common stock are
quoted or (ii) in transactions otherwise than on the over-the-counter
market. Any of such transactions may be effected at market prices
prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at
negotiated or fixed prices, in each case as determined by the selling
stockholders or by agreement between the selling stockholders and
underwriters, brokers, dealers or agents, or purchasers. If the selling
stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such
underwriters, brokers, dealers or agents may receive compensation in
the form of discounts, concessions or commissions from the selling
stockholders or commissions from purchasers of common stock for whom
they may act as agent (which discounts, concessions or commissions as
to particular underwriters, brokers, dealers or agents may be in excess
of those customary in the types of transactions involved).
Tangiers is an "underwriter" within the meaning of the Securities Act
of 1933 in connection with the sale of common stock under the
Securities Purchase Agreement. Tangiers will pay us 85% of, or a 15%
discount to, the volume weighted average price of our common stock on
the Over-the-Counter Bulletin Board or other principal trading market
on which our common stock is traded for the five (5) consecutive
trading days immediately following the advance date. In addition,
pursuant to the Securities Purchase Agreement, Tangiers will receive a
one-time commitment fee equal to $500,000 of the Company's common stock
divided by the lowest volume weighted average price of the Company's
common stock during the 10 business days immediately following the date
of the Securities Purchase Agreement, as quoted by Bloomberg, LP.
The commitment amount of the Securities Purchase Agreement is
$5,000,000. After estimated fees and offering costs, we will receive
net proceeds of approximately $4,950,000. At our current share price
of $0.05 per share, we will sell our stock to Tangiers at 85% of the
market price per share which equates to a share price of $0.0425. If
our current share price remains at $0.05 we will need to register
117,647,058 shares of our common stock in order to obtain the full
$5,000,000 available to us under the Securities Purchase Agreement. The
total amount of 33,282,272 shares of our common stock that we are
registering under this registration statement will be issued to
Tangiers in order to obtain the funds available to us under the
Securities Purchase Agreement. Which means we will be required to file
another registration statement if we intend to obtain the full amount
of funds available to us under the Securities Purchase Agreement. If we
issue to Tangiers all 33,282,272 shares of our common stock we will
25
register, we will only be able to receive approximately $ 1,364,497 in
net proceeds after paying expenses related to this registration
statement of approximately $50,000.
The dollar amount of the equity line was based on a number of
considerations which include
(i) the Company's capital requirements;
(ii) the Company's then share price and then number of shares
outstanding; and
(iii) Tangiers' ability to purchase shares in an amount required to
provide capital to the Company.
Under the Securities Purchase Agreement, Tangiers contractually agrees
not to engage in any short sales of our stock and to our knowledge
Tangiers has not engaged in any short sales or any other hedging
activities related to our stock.
Tangiers was formed is a Delaware limited partnership. Tangiers is a
domestic hedge fund in the business of investing in and financing
public companies. Tangiers does not intend to make a market in our
stock or to otherwise engage in stabilizing or other transactions
intended to help support the stock price. Prospective investors should
take these factors into consideration before purchasing our common
stock.
Under the securities laws of certain states, the shares of our common
stock may be sold in such states only through registered or licensed
brokers or dealers. The selling stockholders are advised to ensure that
any underwriters, brokers, dealers or agents effecting transactions on
behalf of the selling stockholders are registered to sell securities in
all fifty states. In addition, in certain states the shares of our
common stock may not be sold unless the shares have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
We will pay all of the expenses incident to the registration, offering
and sale of the shares of our common stock to the public hereunder
other than commissions, fees and discounts of underwriters, brokers,
dealers and agents. If any of these other expenses exists, we expect
the selling stockholders to pay these expenses. We have agreed to
indemnify Tangiers and its controlling persons against certain
liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $50,000. The offering expenses are estimated as follows:
a SEC registration fee of $100.83 accounting fees of $14,800 and legal
fees of $35,000. We will not receive any proceeds from the sale of any
of the shares of our common stock by the selling stockholders. However,
we will receive proceeds from the sale of our common stock under the
Securities Purchase Agreement.
The selling stockholders are subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and its regulations,
including, Regulation M. Under Registration M, the selling stockholders
or their agents may not bid for, purchase, or attempt to induce any
person to bid for or purchase, shares of our common stock while such
26
selling stockholders are distributing shares covered by this
prospectus. Pursuant to the requirements of Regulation S-K and as
stated in Part II of this Registration Statement, the Company must file
a post-effective amendment to the accompanying Registration Statement
once informed of a material change from the information set forth with
respect to the Plan of Distribution.
OTC Bulletin Board Considerations
The OTC Bulletin Board is separate and distinct from the NASDAQ stock
market. NASDAQ has no business relationship with issuers of securities
quoted on the OTC Bulletin Board. The SEC's order handling rules, which
apply to NASDAQ-listed securities, do not apply to securities quoted on
the OTC Bulletin Board.
Although the NASDAQ stock market has rigorous listing standards to
ensure the high quality of its issuers, and can delist issuers for not
meeting those standards, the OTC Bulletin Board has no listing
standards. Rather, it is the market maker who chooses to quote a
security on the system, files the application, and is obligated to
comply with keeping information about the issuer in its files. The
FINRA cannot deny an application by a market maker to quote the stock
of a company. The only requirement for inclusion in the OTC Bulletin
Board is that the issuer be current in its reporting requirements with
the SEC.
Investors must contact a broker-dealer to trade OTC Bulletin Board
securities. Investors do not have direct access to the bulletin board
service. For bulletin board securities, there only has to be one market
maker.
Bulletin board transactions are conducted almost entirely manually.
Because there are no automated systems for negotiating trades on the
bulletin board, they are conducted via telephone. In times of heavy
market volume, the limitations of this process may result in a
significant increase in the time it takes to execute investor orders.
Therefore, when investors place market orders - an order to buy or sell
a specific number of shares at the current market price - it is
possible for the price of a stock to go up or down significantly during
the lapse of time between placing a market order and getting execution.
Because bulletin board stocks are usually not followed by analysts,
there may be lower trading volume than for NASDAQ-listed securities.
LEGAL PROCEEDINGS
The Company is not a party to any litigation.
27
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Executive Officers and Directors are:
Name Age Position
Edward C. Dillon 74 CEO, Director
Nelson Stark 56 CFO, Director
Raymond Purdon 44 Chairman of the Board
Lee Taylor 60 Director
Howard Neu 59 Director
Resumes
EDWARD C. DILLON. Mr. Dillon has been chief executive officer since
April 6, 2006 to present. Mr. Dillon has been chief financial officer
and executive vice president of Pricester Nevada since June 4, 2004 to
April 6, 2006. Mr. Dillon remains a director of Pricester Nevada. He
is also responsible for shareholder relations and investments. From
January 2004 to the merger with Pricester Nevada, Mr. Dillon served as
executive vice president for Pricester Florida and he was also
responsible for shareholder relations and investments. From September
2004 to present, Mr. Dillon also serves as a director. In April 2003,
Mr. Dillon accepted a position as Contract Manager Consultant to the
Florida Turnpike for Jacobs Engineering a Fortune 500 Company. April
1996 to April 2002, Mr. Dillon retired to Florida for golf and
relaxation. In May 1968, Edward Dillon opened Bayshore Steel
Construction in New Jersey where he served as President and CEO until
1996. Bayshore Steel contracted to erect office buildings, shopping
centers and 20,000,000 sq. ft of warehouse space in central New Jersey.
From 1957 to 1968 he was employed as a Construction Supervisor for a
family owned steel business.
NELSON STARK. Mr. Stark has been chief financial officer from April 6,
2006 to present. Mr. Stark has been vice president of marketing and
operations of Pricester Nevada since June 4, 2004. Mr. Stark served as
vice president of marketing and operations of Pricester Florida from
September 2003 until the merger with Pricester Nevada. He has a
Doctorate in International Business from Nova Southeastern University
in Ft. Lauderdale, Florida. He received his Degree in May 1997. His
areas of specialization are strategic and international marketing. He
started his career with the Australian Trade Commission in Miami as
their Marketing Manager in September of 1987 until November 1988. He
then became the Marketing Manager for M. & J. Import-Export
International in New York from January 1989 until October 1997. He was
appointed Center Director for Embry-Riddle Aeronautical University's
Ft. Lauderdale Campus from November 1997 to October 1999. He was then
appointed Vice President of Marketing for Softrain U.S.A. from January
2000 until June of 2003.
RAYMOND PURDON Mr. Purdon has over 17 years of experience in the
securities industry, including trading, investment banking, retail and
institutional sales. He is the founder and has been the principal of
Grandview Capital Partners since its launch in October 2006 and is
responsible for the firm's proprietary trading, due diligence and
investments. Ray oversees Pricester's merger and acquisition
28
committee. From July 2003 - October 2006, Mr. Purdon was a senior vice
president and branch manager of GunnAllen Financial. Mr. Purdon
graduated in 1991 from Seton Hall University with a Bachelor of Arts
degree.
LEE TAYLOR. Mr. Taylor has a broad background in sales and marketing
management, within both B2B and B2C environments. He has held
executive level and senior management positions with corporations
including Interval International, Gannett, Inc., TBS International,
Tricom Pictures and Lens Express. Lee is responsible for sales
development and training, initiation of marketing programs, and
coordination with design and technical areas within the company. Mr.
Taylor graduated from the State University of New York at Binghamton in
1971.
HOWARD NEU. Has been a practicing attorney for 35 years specializing in
Domain Defense Litigation, commercial litigation, and appeals. He is
also a Certified Public Accountant, has taught Taxation of Deferred
Compensation at the University of Miami School of Law as well as
courses in accounting and business law for the Miami Education
Consortium. He has also lectured for the Florida Bar Continuing Legal
Education program. He received his B.B.A. degree from the University
of Miami after attending the University of Florida for 3 years, and his
Juris Doctor degree from the University of Miami Law School. He was
elected to 3 terms as Mayor of the City of North Miami, Florida, has
served as Municipal Judge, Councilman, and has been elected President
of the North Dade Bar Association, The Greater North Miami Chamber of
Commerce, the Dade County League of Cities and various other State and
National organizations. In his career, he has done considerable SEC
work, successful Business Plans and Private Placement Memoranda. He is
married and has 3 beautiful daughters, four grandchildren and a 17 year
old stepson. He presently represents Domain King/Webfather Rick
Schwartz, Iwindomains Win and Mahoney, Damir Kruzicevik, Shepherd Sal
Sarid and a number of domain developers. He has also previously
represented John Zuccarini.
Involvement In Certain Legal Proceedings
None of our officers, directors, promoters or control persons or person
nominated to become a director or officer, have been involved in the
past ten years in any of the following:
a) A petition under the Federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or
similar officer was appointed by a court for the business or property
of such person, or any partnership in which he was a general partner at
or within two years before the time of such filing, or any corporation
or business association of which he was an executive officer at or
within two years before the time of such filing;
b) Convicted in a criminal proceeding or is a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
29
c) The subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from, or otherwise limiting,
the following activities:
i. Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor
broker, leverage transaction merchant, any other person regulated
by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank,
savings and loan association or insurance company, or engaging in
or continuing any conduct or practice in connection with such
activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase
or sale of any security or commodity or in connection with any
violation of Federal or State securities laws or Federal
commodities laws;
d) The subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the
right of such person to engage in any activity described in paragraph
(f)(3)(i) of this section, or to be associated with persons engaged in
any such activity;
e) Found by a court of competent jurisdiction in a civil action or by
the Commission to have violated any Federal or State securities law,
and the judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended, or vacated;
f) Found by a court of competent jurisdiction in a civil action or by
the Commodity Futures Trading Commission to have violated any Federal
commodities law, and the judgment in such civil action or finding by
the Commodity Futures Trading Commission has not been subsequently
reversed, suspended or vacated;
g) The subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or
regulation; or
ii. Any law or regulation respecting financial institutions or
insurance companies including, but not limited to, a temporary or
permanent injunction, order of disgorgement or restitution, civil
money penalty or temporary or permanent cease-and-desist order,
or removal or prohibition order; or
iii. Any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
30
h) The subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act (15
U.S.C. 78c(a)(26))), any registered entity (as defined in Section
1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any
equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a
member.
Section 16(a) Beneficial Ownership Reporting Compliance
To the registrant's knowledge, no director, officer or beneficial owner
of more than ten percent of any class of equity securities of the
registrant failed to file on a timely basis reports required by Section
16(a) of the Exchange Act during 2009.
Code of Ethics Policy
We have not yet adopted a code of ethics that applies to our principal
executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.
Corporate Governance
We have no change in any state law or other procedures by which
security holders may recommend nominees to our board of directors. In
addition to having no nominating committee for this purpose, we
currently have no specific audit committee and no audit committee
financial expert. Based on the fact that our current business affairs
are simple, any such committees are excessive and beyond the scope of
our business and needs.
Directors
Directors hold office for five, three, or two -year terms. Officers are
elected by the board of directors and serve at the discretion of the
board.
There are no family relationships among our directors and executive
officers.
Meetings of Our Board of Directors
Our board of directors a total of 18 meetings during the most recently
completed fiscal year end. Various matters were approved by either
majority or unanimous consent, which in each case was signed by each of
the members of the Board then serving and attending the meeting in
person or via teleconference.
Committees of the Board
We do not currently have a compensation committee, executive committee,
or stock plan committee.
31
Audit Committee
We do not have a separately-designated standing audit committee. The
entire Board of Directors performs the functions of an audit committee,
but no written charter governs the actions of the Board when performing
the functions of what would generally be performed by an audit
committee. The Board approves the selection of our independent
accountants and meets and interacts with the independent accountants to
discuss issues related to financial reporting. In addition, the Board
reviews the scope and results of the audit with the independent
accountants, reviews with management and the independent accountants
our annual operating results, considers the adequacy of our internal
accounting procedures and considers other auditing and accounting
matters including fees to be paid to the independent auditor and the
performance of the independent auditor.
Nomination Committee
Our Board of Directors does not maintain a nominating committee. As a
result, no written charter governs the director nomination process. Our
size and the size of our Board, at this time, do not require a separate
nominating committee.
When evaluating director nominees, our directors consider the following
factors:
- The appropriate size of our Board of Directors;
- Our needs with respect to the particular talents and experience
of our directors;
- The knowledge, skills and experience of nominees, including
experience in finance, administration or public service, in light of
prevailing business conditions and the knowledge, skills and experience
already possessed by other members of the Board;
- Experience in political affairs;
- Experience with accounting rules and practices; and
- The desire to balance the benefit of continuity with the periodic
injection of the fresh perspective provided by new Board members.
Our goal is to assemble a Board that brings together a variety of
perspectives and skills derived from high quality business and
professional experience. In doing so, the Board will also consider
candidates with appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for
director nominees, although the Board may also consider such other
factors as it may deem are in our best interests as well as our
stockholders. In addition, the Board identifies nominees by first
evaluating the current members of the Board willing to continue in
service. Current members of the Board with skills and experience that
are relevant to our business and who are willing to continue in service
32
are considered for re-nomination. If any member of the Board does not
wish to continue in service or if the Board decides not to re-nominate
a member for re-election, the Board then identifies the desired skills
and experience of a new nominee in light of the criteria above. Current
members of the Board are polled for suggestions as to individuals
meeting the criteria described above. The Board may also engage in
research to identify qualified individuals. To date, we have not
engaged third parties to identify or evaluate or assist in identifying
potential nominees, although we reserve the right in the future to
retain a third party search firm, if necessary. The Board does not
typically consider shareholder nominees because it believes that its
current nomination process is sufficient to identify directors who
serve our best interests.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 2010 certain
information as to shares of our common stock owned by (i) each person
known by us to beneficially own more than 5% of our outstanding common
stock, (ii) each of our directors, and (iii) all of our executive
officers and directors as a group:
There are currently 162,256,906 common shares outstanding. The
following tabulates holdings of common shares and other securities of
the registrant by each person who, subject to the above, at June 9,
2010, holds of record or is known by management to own beneficially
more than 5.0% of the common shares and, in addition, by all directors
and officers of the registrant individually and as a group.
33
Directors and Officers
Percentage of
Number & Class Outstanding
Name and Address of Shares Common Shares
---------------- -------------- --------------
Edward C. Dillon(1) 21,232,500 13.09%
3850 Washington St. Apt. 910
Hollywood, FL 33021
Raymond Purdon 18,250,000 11.65%
25 Fox Hill Drive
Little Silver, NJ 07739
Lee Taylor 328,500 0.20%
10919 SW 135th Court Circle
Miami, FL 33186
Nelson Stark(2) 244,000 0.15%
5130 SW 40th Avenue, Apt. 3B
Fort Lauderdale, FL 33314
Howard Neu 2,496,000 1.54%
1152 N. University Drive #201
Pembroke Pines, FL 33024
(1)Mr. Dillon paid a weighted average of $.173 for the common shares
he currently owns.
(2)Nelson Stark received his common shares for services valued at
$.086 per common share.
Applicable percentage of ownership is based on 162,256,906 shares of
our common stock outstanding as of September 30, 2010. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock are deemed to
be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Note that affiliates are
subject to Rule 144 and Insider trading regulations - percentage
computation is for form purposes only.
DESCRIPTION OF SECURITIES TO BE REGISTERED
General
The following description of our capital stock and the provisions of
our Articles of Incorporation and By-Laws, each as amended, is only a
summary.
34
Common Stock
We have 300,000,000 common shares with a par value of $0.001 per share
of common stock authorized, of which 162,256,906 shares were
outstanding as of September 30, 2010.
Voting Rights
Holders of common stock have the right to cast one vote for each share
of stock in his or her own name on the books of the corporation,
whether represented in person or by proxy, on all matters submitted to
a vote of holders of common stock, including the election of
directors. There is no right to cumulative voting in the election of
directors. Except where a greater requirement is provided by statute
or by the Articles of Incorporation, or by the Bylaws, the presence, in
person or by proxy duly authorized, of the holder or holders of a
majority of the outstanding shares of the our common voting stock shall
constitute a quorum for the transaction of business. The vote by the
holders of a majority of such outstanding shares is also required to
effect certain fundamental corporate changes such as liquidation,
merger or amendment of the Company's Articles of Incorporation.
Dividends
Holders of the registrant's common stock are entitled to receive such
dividends as may be declared by its board of directors. No dividends
on the registrant's common stock have ever been paid, and the
registrant does not anticipate that dividends will be paid on the
common stock in the foreseeable future.
Anti-Takeover Effects Of Provisions Of The Articles Of Incorporation
Authorized And Unissued Stock
The authorized but unissued shares of our common stock are available
for future issuance without our stockholders' approval. These
additional shares may be utilized for a variety of corporate purposes
including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive
plans. The issuance of such shares may also be used to deter a
potential takeover of the Company that may otherwise be beneficial to
stockholders by diluting the shares held by a potential suitor or
issuing shares to a stockholder that will vote in accordance with the
Company's Board of Directors' desires. A takeover may be beneficial to
stockholders because, among other reasons, a potential suitor may offer
stockholders a premium for their shares of stock compared to the then-
existing market price.
The existence of authorized but unissued and unreserved shares of
preferred stock may enable the Board of Directors to issue shares to
persons friendly to current management which would render more
difficult or discourage an attempt to obtain control of the Company by
means of a proxy contest, tender offer, merger or otherwise, and
thereby protect the continuity of our management.
35
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our Articles of Incorporation include an indemnification provision
under which we have agreed to indemnify our directors and officers of
from and against certain claims arising from or related to future acts
or omissions as a director or officer of the Company. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. If a claim for indemnification
against such liabilities (other than the payment by us of expenses
incurred or paid by a director, officer or controlling person of
Genesis Electronics Group, Inc. in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered)
we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against
public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
EXPERTS
The audited financial statements included in this prospectus and
elsewhere in the registration statement for the fiscal years ended
December 31, 2009 and December 31, 2008 have been audited by Larry
O'Donnell & Co., CPA P.C Certified Public Accountants. The reports from
Larry O'Donnell & Co., CPA P.C Certified Public Accountants are
included in this prospectus in reliance upon the authority of this firm
as experts in accounting and auditing.
No expert or counsel named in this prospectus as having prepared or
certified any part of this prospectus or having given an opinion upon
the validity of the securities being registered or upon other legal
matters in connection with the registration or offering of the common
stock was employed on a contingency basis or had, or is to receive, in
connection with the offering, a substantial interest, directly or
indirectly, in the registrant or any of its parents or subsidiaries.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
VALIDITY OF SECURITIES
The opinion regarding validity of the shares offered herein has been
provided by the law offices of Jody M. Walker, Attorney at Law and has
been filed with the Registration Statement.
36
DESCRIPTION OF BUSINESS
Overview
The registrant was originally incorporated in the State of Nevada on
March 19, 1998 under the name Business Advantage No. 22, Inc. Due to
non-filing of annual reports, the corporate charter of Business
Advantage No. 22, Inc. was revoked. In June 2004, Business Advantage
No. 22, Inc. was reinstated. On June 4, 2004, Business Advantage No.
22, Inc. entered into an Agreement and Plan of Reorganization with
Pricester.com, Inc., a Florida Corporation to merge Pricester Florida
into Business Advantage No. 22, Inc. On June 4, 2004, in anticipation
of the merger, the name of Business Advantage No. 22, Inc. was changed
to Pricester.com, Inc.
On February 9, 2005, pursuant to Articles of Merger, shareholders of
Pricester Florida received 21,262,250 common shares of Business
Advantage No. 22, Inc. on a basis of a one for one exchange for their
common shares. Pricester.com, Inc., formerly Business Advantage No.
22, Inc., was the surviving corporation. The articles of merger were
filed with the states of Nevada and Florida. The number of common
shares held by Pricester Nevada before the merger was 1,044,620.
Pricester Nevada was the acquirer for legal purposes and Pricester
Florida was the acquirer for accounting purposes. The transaction was
accounted for as a reverse acquisition.
Prior to the merger with Pricester Florida on February 9, 2005,
Pricester Nevada had no significant operations and had no control over
the operations of Pricester Florida.
Pursuant to Articles of Amendment filed on February 24, 2009, the name
of the registrant was changed to Genesis Electronics Group, Inc.
Going Concern
The accompanying unaudited consolidated financial statements are
prepared assuming the Company will continue as a going concern. Going
concern contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length
of time. The Company was in the development stage through December 31,
2005 and has an accumulated deficit of $8,270,470, had net losses,
negative working capital and negative cash flows from operations for
the six months ended June 30, 2010 of $179,547, $1,094,469 and $181,794
respectively. While the Company is attempting to increase revenues,
the growth has not been significant enough to support the Company's
daily operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. For the six months ended June 30,
2010, the Company sold 3,502,834 common shares for net proceeds of
$123,755 and subscription receivable of $40,000. For the six months
ended June 30, 2010 the Company collected subscription receivable of
$63,842.
37
Management is attempting to raise additional funds under the equity
line of credit provided by Tangiers. While the Company believes in the
viability of its strategy to increase sales volume and in its ability
to raise additional funds, there can be no assurances to that effect.
The Company shareholders have continued to advance funds to the Company
but there can be no assurance that future advances from Tangiers or
from shareholders will be sufficient to sustain the Company.
The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve
consumer recognition. These financial statements do not include any
adjustments relating to the recoverability and classifications of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
Subsidiary
On May 22, 2008, we completed a share exchange with Genesis
Electronics, Inc., a Delaware corporation. Pursuant to the Acquisition
Agreement, we acquired all of the outstanding common shares of Genesis
Electronics, Inc. and it became our wholly-owned subsidiary.
Genesis Electronics, Inc. was originally formed in Delaware on October
22, 2001 and is engaged on the development of solar and alternative
energy applications for consumer devices such as mobile phones.
Corporate Operations
Genesis Electronics Group, Inc. business consists of:
(1) Genesis Electronics: the development and eventual manufacturing
and marketing of solar-powered consumer products, based on patented
technology either owned by Genesis or licensed from Johns Hopkins
University Applied Physics Laboratories,
(2) Pricester.com: the sales of cost-effective websites and related
Internet services primarily to the small business sector, and
(3) Copia World, a Division of Pricester.com: the development and
marketing of an international shopping portal. We have yet to generate
substantial revenue because we are still in the developmental and pre-
production stages with our solar products, although substantial headway
has been made with successfully operating prototypes designed to comply
with the standards of a major brand-name manufacturer, and our website
and international shopping portal businesses have not yet reached
sufficient volume to be self-supporting.
We have suspended operation of the Pricester.com Shopping Portal, which
enabled users to build their own websites and sell and auction their
goods directly through the portal.
Concerning Genesis Electronics' business, once our first solar-powered
product (a charger for a popular, brand-name smart phone) is fully
compliant with all necessary and elected technical criteria, we will be
able to move ahead with manufacturing and marketing the product, as
well as the development and marketing of similar products designed for
38
operation with other hand-held and portable electronic devices.
Genesis has already formed a strong and active partnership with a
Taiwan-based manufacturer and significant strides have been made in
product and packaging development, procurement of safety and transport
certifications, prototype production and setting up for planned mass-
production.
With the worldwide proliferation of cell phones, "smart phones",
notebook computers, and so many other portable electronic devices, the
widespread and growing problem of inadequate charging life from
traditional batteries and the inconvenience (and sometimes
unavailability) of re-charging by plugging into a wall outlet, the
offering of a more sustainable source for charging is a needed and
should be a welcomed addition. Genesis Electronics' fully-functional
early prototypes have met with virtually unanimous positive reception
from prospective distributors, sales organizations and large scale
retailers from both concept and operational standpoints.
Concerning Pricester.com's business, we have developed a technological
framework that overcomes prohibitive cost factors and exponentially
increases the ease with which small business owners can effectively
enter the e-commerce community and credibly compete for customers
online.
We have created streamlined processes that permit an economy for the
construction of professionally designed, customized, full-functioned e-
commerce or informational websites, and for hosting large numbers of
such websites. Our services are marketed to the small business sector,
where the cost of website design and development has been a barrier to
achieving an Internet presence.
As consumer access to the Internet has become more widespread and
continues to grow, a website has emerged as an essential tool for small
businesses. Small companies and professional practices alike
understand the value of a website for establishing credibility and
competing for clients and sales.
Concerning Copia World's business, we have launched a unique
international shopping portal, now populated with direct website links
to over 7,000 stores covering 15 shopping categories in 25 countries.
In addition, the portal also includes a robust travel booking engine in
affiliation with a prominent online provider for airfare, hotel
accommodations and car rental. Copia World offers consumers and
travelers one of the most comprehensive compendiums of access to
international shopping available anywhere on the Internet from a single
source. The website, www.copiaworld.com, is already very highly ranked
by Google and other major search engines for search terms such as
"international shopping mall" and "international shopping". Revenue is
planned to be derived from paid advertising, gradually replacing PPC
ads and potential partnerships with synergistic companies such as
international hotel chains and major credit card providers.
39
Our Products & Services
The registrant is in the developmental stage of producing and marketing
solar-powered consumer products. The registrant also provides services
that allow small businesses to have a cost-effective Internet presence
with the website features that consumers want and expect. Additionally,
the registrant has built and operates an online international shopping
portal, useful for travel planning and online purchasing on a global
scale.
1. Genesis Electronics: Genesis Electronics, a wholly-owned
subsidiary of Genesis Electronics Group, is engaged in the development
and marketing of solutions. We're living in an age of electronics, and
the advanced mobile communications tools that this exploding technology
has made available. However, battery life and charging technology has
not kept pace. A prime example, and one currently being addressed by
Genesis, is the cell phone. Once an expensive and rarely seen device
used by a mere handful of senior executives and professionals, the cell
phone has become the standard communications tool for voice
communications.
However, as handy and useful as the cell phone is, there is one major
obstacle to its reliability-the limited ability to stay charged and
functional. Critical conversations are prematurely aborted, business
communication ends, important information doesn't get through. This is
a real problem; we've all experienced it, and a simple, workable and
affordable solution is needed.
The problem becomes exponentially pronounced with today's more power-
hungry "smart phones", where the usage is expanded beyond simple voice
communications to Internet access, games, video viewing, audio-visual
recording and thousands of downloadable applications.
Genesis Electronics has a solution; a patent-based technology that
makes a constant and reliable charge always available to your cell
phone or "smart" phone battery. This is accomplished with solar
energy-a timely, ecologically-friendly solution, using renewable
energy.
Our board of directors feels that the potential for its patented
technology and the products and applications that will be forthcoming
can represent significant revenue for the corporation. The technology
can be adapted to any mobile electronic device, including cell phones,
"smart" phones, mp3 players, notebook and laptop computers, digital
cameras, etc. Additionally, applications for use with electronic
devices employed by the military are being investigated. Production
and distribution channels are already in place for "smart phone"
application with companies such as Comm Tec, Inc., a Taiwan-based
manufacturer.
2. Pricester.com: Pricester.com, a division of Genesis Electronics
Group, provides website design services, primarily geared to the needs
and budgets of small businesses. Closely related Internet and website
services also provided by Pricester include: website hosting, domain
registration, Internet search engine and directory submission, Internet
40
marketing services (e.g., webpage optimization, pay-per- click campaign
development, etc.), website maintenance, design-related services such
as logo creation, and advanced shopping cart and design options for
highly customized websites.
While virtually all major retailers and service providers have company
websites, the smaller owner-operated businesses-collectively, the
largest component of the entire economy-still only have a relatively
minor presence on the Internet. There are over 23 million small
businesses in the U.S., including businesses with less than 5 employees
and those filing 1040 Schedule C returns (Source: U.S. Department of
Commerce) and millions still without a web presence to sell and promote
their products and services. According to a 2009 report by Ad-Ology
Research, an authoritative source used by over 2,000 advertising
agencies, media properties and corporate marketing departments, a full
46% of small businesses do not have a website.
Our website design technology permits the professional customization of
websites at extremely low cost. The savings are passed along to the
business owner, resulting in perhaps the lowest net cost customized
website package available on the market today! Competitors offering
similar services are operating within a far more labor intensive
environment and cannot compete with Pricester's pricing strategy.
Clients receive a customized multi-page website designed for free and
agree to pay just a competitive Internet hosting fee and a nominal set-
up charge. Small businesses find the deal irresistible, recognizing
that they've found a true low-cost alternative to the traditionally
cost-prohibitive barriers to developing and hosting a website.
At this time, the Pricester creates the majority of its sales by
generating small business leads using outbound automated telemarketing,
and then following up by telephone. A number of sales are also the
result of client referrals and repeat clients. Almost all sales are
consummated over the phone.
Concurrently, the registrant is endeavoring to develop strategic
partnerships with other companies and organizations that have an
interest in the same small business target market. Pricester.com
delivers a product that is appealing and important to small business
owners. Therefore, logical targets for strategic partnerships are
larger corporations, such as mid to large banks, merchant service
providers, communications companies, appropriate retail chains and
business organizations that actively and competitively seek to acquire
and retain small businesses as their customers or members. Pricester's
website service is positioned as a valuable addition to the partner's
existing product or service, providing more market differentiation and
a competitive edge.
The market for affordable business websites is large and still
expanding. Pricester's services are specifically geared to address
this demand from the small business sector. Additional funding is
required to expand marketing efforts in order to reach and further
penetrate the market.
41
3. Copia World: Copia World, www.copiaworld.com, a division of
Pricester.com, is an online shopping portal of international scope.
We're living in an increasingly global community. Interest in travel,
consumer goods and certain services from other countries is exploding.
With the vast amount of information available on the Internet, there
was a glaring need for a more comprehensive, consumer-friendly, single-
source of retailers and select service providers on an international
level-the registrant is meeting that challenge with Copia World.
Copia World is a unique international shopping "mall" that provides
travelers and consumers with fast access to retailers and businesses
worldwide. Currently, the portal includes 25 countries spanning six
continents, with 15 major shopping categories including a powerful
travel reservation engine and over 7,000 store listings. Copia World
features ease of use and direct links to all listed business websites.
Copia World has already achieved extremely high major search engine
ranking for relevant terms such as "international shopping mall"
(recently ranked #1 on Google and #4 on Bing, in both cases out of over
24 million matches) and "international shopping" (consistently a top 5
rank on Google).
Visitors can shop for clothing in London, wines or jewelry in Paris,
hand-crafted items from Mexico, furs in Moscow, view real estate in
Saudi Arabia, peruse the department stores in Brazil, see the offerings
from shopping malls in Israel, compare banks in Germany-it's all there
and much more! Whether planning a trip, shopping online, or just
relaxing for an "armchair tour" of the world's retailers, Copia World
is an exceptional resource that's simple to use and enjoy-there's
nothing quite like it.
The portal currently displays affiliate ads and is moving towards
generating added revenues through subscription advertising from listed
companies. The board of directors feels that the potential for Copia
World is enormous as the portal continues to grow in population and
enhanced features are added. Additionally, corporate partners for
Copia World are being sought.
COSTS OF OPERATION
In order to operate the above businesses, continue to develop our
products and provide our services, Genesis Electronics Group currently
employs personnel for management, technical development and
coordination, customer support, technical support, Internet marketing
and web design and contract for sales personnel. Our regular monthly
expenses are approximately $14,080, broken down as follows:
41
Payroll & Taxes $ 6,400
Rent 1,580
Electric 300
Telecommunications (Phones & Servers) 1,500
Accounting services 2,500
Insurance 300
Legal 1,500
--------
$14,080
--------
REVENUE STREAMS
Genesis Electronics Group has not generated significant revenues.
Currently, revenue is generated solely through the Pricester.com
division, as Genesis Electronics and Copia World are still in their
early stages. During 2006, Pricester.com commenced selling Website
design services and hosting plans. As the number of clients increases
and budgeting permits adequate marketing expenditures our revenues
should increase significantly with collected setup fees and monthly
hosting fees.
Our revenues have been generated by website sales, hosting fees and
miscellaneous service fees totaling $78,797 for the year ended December
31, 2009.
In order to successfully expand our number of clients for our website
development and hosting services, we must employ significant monetary
resources.
Intellectual Property and Proprietary Rights
We protect our intellectual property through existing laws and
regulations and by contractual restrictions. We attempt to protect our
technology and trade secrets through the use of: confidentiality and
non-disclosure agreements, trademarks, patents, and by other security
measures.
The registrant owns a patent for a "Solar rechargeable battery" (U.S.
patent 6,586,906) and licenses two additional patents from Johns
Hopkins University Applied Physics Laboratories for an "Integrated
Power Source" (U.S. Patents 5,644,207 and 6,608,464).Trademarks have
been filed under Pricester.com and Pricester Store "e-commerce for
all". The Copia World spinning globe icon is trademarked.
Marketing Strategies
We intend to establish a national market presence, and where
appropriate an international presence, using the following approaches
in order to gain brand awareness and sales for all of our businesses:
public relations and advertising campaigns using television, radio,
press releases, Internet marketing, and targeted newspapers and
magazines
42
Insurance
We have in force workman's comp and general liability insurance.
Competition
Genesis Electronics competes with other manufacturers of solar powered
and traditionally powered charging devices. Pricester.com competes
with many website design and Internet hosting companies. Copia World
competes with established shopping and travel websites. In all cases,
many of these competitors may have advantages in expertise, brand
recognition, available financial and other resources, and other
factors.
In order to compete effectively, we will need to expend significant
capital, internal engineering resources, or acquire other technologies
and companies to provide or enhance our capabilities.
Government Regulation
We are subject to general business regulations and laws, as well as
regulations and laws directly applicable to the production and
transport of electronic devices (applicable to Genesis Electronics),
and the Internet (applicable to Pricester.com and Copia World). As we
continue to expand the scope of our product and service offerings, the
application of existing laws and regulations relating to issues such as
consumer protection, content regulation, quality of products and
services, and intellectual property ownership and infringement can be
unclear. In addition, we will also be subject to new laws and
regulations directly applicable to our activities. Any existing or new
legislation applicable to us could expose us to substantial liability,
including significant expenses necessary to comply with such laws and
regulations.
Reports to Security Holders
We are subject to the informational requirements of the Securities
Exchange Act of 1934. Accordingly, we file annual, quarterly and other
reports and information with the Securities and Exchange Commission.
You may read and copy these reports, statements, or other information
we file at the SEC's public reference room which is located at 100 F
Street, NE Washington, DC 20549. Our filings are also available to the
public from commercial document retrieval services and the Internet
worldwide website maintained by the U.S. Securities and Exchange
Commission at www.sec.gov.
Properties
We lease an office facility from 234 Hollywood, LLC pursuant to a lease
that began in October 2009. The office facility is located at 5555
Hollywood Blvd. Suite # 303 Hollywood, FL 33021. The facility
consists of 1,000 square feet for the minimum lease payments of $1,117
per month and terminates in March 2010. We believe that this facility
43
is sufficient for our current needs. The office lease agreement has
certain escalation clauses and renewal options. If we exercise the
option to renew, the base rent shall increase by 3% per each lease
year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
Through December 31, 2005, we were a developmental stage e-commerce
company. We currently operate an e-commerce website that enables any
business to establish a fully functional online retail presence. Our
website, Pricester.com, is an Internet marketplace which allows vendors
to host their website with product and service listings and allows
consumers to search for listed products and services.
On May 22, 2008, we completed a merger with Genesis Electronics, Inc.,
a Delaware corporation. Genesis was originally formed in Delaware on
October 22, 2001 and is engaged on the development of solar and
alternative energy applications for consumer devices such as mobile
phones.
Until its acquisition of Genesis, our business was solely focused on
our internet shopping portal, and building and hosting websites for the
small business sector. While we are still engaged in this business,
our primary focus has now shifted towards the further development and
marketing of the above described products.
PLAN OF OPERATIONS
We have only received minimal revenues. We do not have sufficient cash
on hand to meet funding requirements for the next twelve months.
Although we eventually intend to primarily fund general operations and
our marketing program with revenues received from the sale of the
Pricester Custom Designed Websites, hosting and transaction fees, our
revenues are not increasing at a rate sufficient to cover our monthly
expenses in the near future. We will have to seek alternative funding
through debt or equity financing in the next twelve months that could
result in increased dilution to the shareholders. In May 2010, we
entered into a Securities Purchase Agreement with Tangiers Investors,
LP ("Investor"). We have agreed to issue and sell to the investor
pursuant to the terms of this agreement for an aggregate purchase price
of up to $5,000,000. The purchase price shall be set at 85% of the
lowest volume weighted average price of our common stock during the
pricing period as quoted by Bloomberg, LP on the Over-the-Counter
Bulletin Board.
GOING CONCERN
The accompanying unaudited consolidated financial statements are
prepared assuming the Company will continue as a going concern. Going
concern contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length
45
of time. The Company was in the development stage through December 31,
2005 and has an accumulated deficit of $8,270,470, had net losses,
negative working capital and negative cash flows from operations for
the six months ended June 30, 2010 of $179,547, $1,094,469 and $181,794
respectively. While the Company is attempting to increase revenues,
the growth has not been significant enough to support the Company's
daily operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. For the six months ended June 30,
2010, the Company sold 3,502,834 common shares for net proceeds of
$123,755 and subscription receivable of $40,000. For the six months
ended June 30, 2010 the Company collected subscription receivable of
$63,842.
Management is attempting to raise additional funds under the equity
line of credit provided by Tangiers. While the Company believes in the
viability of its strategy to increase sales volume and in its ability
to raise additional funds, there can be no assurances to that effect.
The Company shareholders have continued to advance funds to the Company
but there can be no assurance that future advances from Tangiers or
from shareholders will be sufficient to sustain the Company.
The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve
consumer recognition. These financial statements do not include any
adjustments relating to the recoverability and classifications of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United
States. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. These estimates and assumptions are
affected by management's applications of accounting policies. Critical
accounting policies for the registrant include the useful life of
property and equipment and web development costs.
Computer equipment and furniture is stated at cost less accumulated
depreciation. Depreciation is computed over the assets' estimated
useful lives (five to seven years) using straight line methods of
accounting. Maintenance costs are charged to expense as incurred while
upgrades and enhancements that result in additional functionality are
capitalized.
We review the carrying value of intangibles and other long-lived assets
for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by
comparison of its carrying amount to the undiscounted cash flows that
46
the asset or asset group is expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the property, if any,
exceeds its fair market value.
We have three primary revenue sources: website design, transaction
fees, and hosting fees.
- Website design revenue is recognized as earned when the website
is complete, control is transferred and the customer has accepted its
website, usually within seven days of the order.
- Transaction fee income comprises fees charged for use of credit
cards or other forms of payment in the purchase of items sold on the
customers' websites. The transaction fee income is recognized as earned
when funds transfers (via credit card or other forms of payments)
between the buyer and seller has been authorized.
- Revenues from website hosting fees are recognized when earned.
Web hosting fees received in advance are reflected as deferred revenue
on the accompanying balance sheet.
In December 2004, the Financial Accounting Standards Board, or FASB,
issued FASB ASC Topic 718: Compensation - Stock Compensation ("ASC
718"). Under ASC 718, companies are required to measure the
compensation costs of share-based compensation arrangements based on
the grant-date fair value and recognize the costs in the financial
statements over the period during which employees are required to
provide services. Share-based compensation arrangements include stock
options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. Companies may
elect to apply this statement either prospectively, or on a modified
version of retrospective application under which financial statements
for prior periods are adjusted on a basis consistent with the pro forma
disclosures required for those periods under ASC 718. Upon adoption of
ASC 718, the Company elected to value employee stock options using the
Black-Scholes option valuation method that uses assumptions that relate
to the expected volatility of the Company's common stock, the expected
dividend yield of our stock, the expected life of the options and the
risk free interest rate. Such compensation amounts, if any, are
amortized over the respective vesting periods or period of service of
the option grant.
RESULTS OF OPERATIONS
Six months ended June 30, 2010 compared to six months ended June 30,
2009
Net sales for the six months ended June 30, 2010 were $16,017 as
compared to net sales of $54,661 for the six months ended June 30,
2009, a decrease of $38,644 or approximately 71%. We are continuing to
create customer awareness for our products. The decrease in revenues
is primarily attributable to the non renewal of subscribers who had
completed their annual hosting commitment during fiscal 2009. There
47
can be no assurances that we will continue to recognize similar net
revenue in future periods or that we will ever report profitable
operations.
Total operating expenses for the six months ended June 30, 2010 were
$188,593, an increase of $43,780, or approximately 30%, from total
operating expenses for the six months ended June 30, 2009 of $144,813.
This decrease is primarily attributable to:
- an increase of $6,609, or approximately 29%, in professional
fees incurred in connection with our SEC filings. This increase is
primarily related to increase in legal fees in connection with general
business counsel and litigation matters,
- a slight increase of $160, or approximately 1%, in consulting
fees.
- an increase of $10,618, or 27%, in compensation expense to
$50,160 for the six months ended June 30, 2010 as compared to $39,542
for the six months ended June 30, 2009. The increase is attributable
to increases in compensation levels of certain of our employees,
- an increase of $26,393, or approximately 41%, in other selling,
general and administrative expenses as a result of increase in license
fee expense related to a license agreement entered in November 2009 and
office expense attributable to our subsidiary Genesis Electronics Inc.
We reported a loss from operations of $172,576 for six months ended
June 30, 2010 as compared to a loss from operations of $90,152 for the
six months ended June 30, 2009.
Total other expense for the six months ended June 30, 2010 were $6,971,
a decrease of $191,255, from total other expense for six months ended
June 30, 2009 of $198,226.
- Interest expense consists primarily of interest recognized in
connection with the amortization of debt discount, and interest on our
promissory notes. The decrease of $191,255 in interest expense is
primarily attributable to the issuance of 4,900,000 shares of common
stock to one of our officers in connection with a settlement of related
party loans during the six months ended June 30, 2009. We have
recognized non-recurring interest expense of $196,000 in connection
with this settlement in 2009.
We reported a net loss of $179,547 or (0.00) per share for the six
months ended June 30, 2010 as compared to a net loss of $288,378 or
$(0.00) per share for the six months ended June 30, 2009.
Three months ended June 30, 2010 compared to three months ended June
30, 2009
Net sales for the three months ended June 30, 2010 were $8,355 as
compared to net sales of $24,117 for the three months ended June 30,
2009, a decrease of $15,762 or approximately 65%. We are continuing to
create customer awareness for our products. The decrease in revenues
is primarily attributable to the non renewal of subscribers who had
48
completed their annual hosting commitment during fiscal 2009. There
can be no assurances that we will continue to recognize similar net
revenue in future periods or that we will ever report profitable
operations.
Total operating expenses for the three months ended June 30, 2010 were
$95,110, an increase of $8,585, or approximately 10%, from total
operating expenses for the three months ended June 30, 2009 of $86,525.
This decrease is primarily attributable to:
- a slight increase of $76, or approximately 1%, in professional
fees incurred in connection with our SEC filings,
- a decrease of $6,319, or approximately 76%, in consulting fees,
- an increase of $8,510, or 41%, in compensation expense to
$29,520 for the three months ended June 30, 2010 as compared to $21,010
for the three months ended June 30, 2009. The increase is attributable
to increases in compensation levels of certain of our employees an
increase of $6,318, or approximately 16%, in other selling, general and
administrative expenses as a result of increase in license fee expense
related to a license agreement entered in November 2009 and office
expense attributable to our subsidiary Genesis Electronics Inc.
We reported a loss from operations of $86,755 for three months ended
June 30, 2010 as compared to a loss from operations of $62,408 for the
three months ended June 30, 2009.
Total other expense for the three months ended June 30, 2010 were
$5,858, a decrease of $191,255, from total other expense for six months
ended June 30, 2009 of $197,113.
- Interest expense consists primarily of interest recognized in
connection with the amortization of debt discount, and interest on our
promissory notes. The decrease of $191,255 in interest expense is
primarily attributable to the issuance of 4,900,000 shares of common
stock to one of our officers in connection with a settlement of related
party loans during the six months ended June 30, 2009. We have
recognized non-recurring interest expense of $196,000 in connection
with this settlement in 2009.
We reported a net loss of $92,613 or (0.00) per share for the three
months ended June 30, 2010 as compared to a net loss of $259,521 or
$(0.00) per share for the three months ended June 30, 2009.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2010, we received net proceeds of
$123,755 and subscription receivable of $40,000 from the sale of our
common stock. For the six months ended June 30, 2010, we collected
subscription receivable of $63,842. These funds were used for working
capital purposes.
49
Net cash used in operating activities for the six months ended June 30,
2010 amounted to $181,794 and was primarily attributable to our net
losses of $179,547 offset by depreciation of $336, stock based expense
of $10,000, amortization of debt discount of $4,493 and offset by
changes in assets and liabilities of $15,963 Net cash used in operating
activities for the six months ended June 30, 2009 amounted to $92,489
and was primarily attributable to our net losses of $288,378 offset by
depreciation of $337, interest expense of $196,000 in connection with
the settlement of a related party loan and changes in assets and
liabilities of $448.
Net cash flows provided by financing activities was $163,797 for the
six months ended June 30, 2010 as compared to net cash provided by
financing activities of $168,979 for the six months ended June 30,
2009, a decrease of $5,182. For the six months ended June 30, 2010, we
received proceeds from the sale of common stock and collection of
subscription receivable of $187,597 and an offset by payments on
related party advances of $23,800. For the six months ended June 30,
2009, we received proceeds from the sale of common stock and collection
of subscription receivable of $171,779 offset by payments on related
party advances of $2,800.
We reported a net decrease in cash for the six months ended June 30,
2010 of $16,884 as compared to a net increase in cash of $76,490 for
the six months ended June 30, 2009. At June 30, 2010, we had cash on
hand of $49,185.
During the year ended December 31, 2009, we received net proceeds of
$283,796 and subscription receivable of $108,984 from the sale of our
common stock. For the year ended December 31, 2009, we collected
subscription receivable of $60,417. These funds were used for working
capital purposes.
Net cash used in operating activities for the year ended December 31,
2009 amounted to $231,146 and was primarily attributable to our net
losses of $577,026 offset by depreciation of $676, stock based expense
of $128,690, interest expense of $196,000 in connection with the
settlement of a related party loan and changes in assets and
liabilities of $20,514. Net cash used in operating activities for the
year ended December 31, 2008 amounted to $254,743 and was primarily
attributable to our net losses of $3,076,697 offset by stock based
compensation of $341,214, amortization of prepaid expense in connection
with deferred compensation of $187,585, depreciation of $2,524,
impairment expense of $1,717,602, interest expense of $1,049,717 in
connection with the settlement agreement and add back of gain on
settlement of debt of $469,284 and changes in assets and liabilities of
$7,404.
Net cash flows provided by financing activities was $294,896 for the
year ended December 31, 2009 as compared to net cash provided by
financing activities of $256,212 for the year ended December 31, 2008,
an increase of $38,684. For the year ended December 31, 2009, we
received proceeds from the sale of common stock and collection of
subscription receivable of $283,796, proceeds from a related party of
$18,000, offset by payments on related party advances of $6,900. Net
50
cash flows provided by financing activities was $256,212 for the year
ended December 31, 2008. For the year ended December 31, 2008, we
received proceeds from the sale of common stock of $340,812, proceeds
from related parties of $8,000 and offset by payments on related party
advances of $92,600.
We reported a net increase in cash for the year ended December 31, 2009
of $63,750 as compared to a net increase in cash of $1,469 for the year
ended December 31, 2008. At December 31, 2009, we had cash on hand of
$66,069.
Contractual Obligations and Off-Balance Sheet Arrangements
----------------------------------------------------------
Contractual Obligations
The following tables summarize our contractual obligations as of June 30, 2010.
Payments Due by Period
--------------------------------------------------------
Less than 3-5 5 Years
Total 1 Year 1-3 Years Years +
----- --------- --------- ----- -------
Contractual Obligations:
Notes payable $ 15,647 $ - $ - $ - $ -
Loans payable 40,000 - - - -
Secured convertible
Debenture 20,000 - - - -
Convertible debt 931,919 - - - -
Loans payable - related
party 16,685 - - - -
---------- -------- -------- -------- --------
Total Contractual
Obligations: $1,024,251 $ - $ - $ - $ -
License Agreement
In November 2009, we entered into a license agreement with Johns
Hopkins University Applied Physics Lab whereby the Company will have a
limited exclusive license to JHU/APL's Integrated Power Source patents.
The patents are for the solar powered cell phone and iPod chargers. We
have paid $10,000 and issued 2 million shares of the Company's common
stock upon execution of this agreement. Future license payments under
the license agreement are as follows:
Due March 1, 2010 $10,000
Due June 1, 2010 $10,000
Due September 1, 2010 $10,000
Due upon the one year anniversary of the license $125,000
Should we elect not to execute the option to an exclusive license for
the patents in advance of the one year anniversary of execution of
license agreement, the $125,000 second year anniversary execution fee
payment will be reduced to $36,000.
51
We shall also pay minimum annual royalty payments as defined in the
license agreement. The royalty is 6% on net sales of the product sold
using the technology under these patents. In addition, we shall pay
sales milestone payments as set forth in this license agreement. We may
terminate this agreement and the license granted herein, for any
reason, upon giving JHU/APL sixty days written notice.
Securities Purchase Agreement
In May 2010, we entered into a Securities Purchase Agreement with
Tangiers Investors, LP. We have agreed to issue and sell to the
Tangiers pursuant to the terms of this agreement for an aggregate
purchase price of up to $5,000,000. The purchase price shall be set at
85% of the lowest volume weighted average price of our common stock
during the pricing period as quoted by Bloomberg, LP on the Over-the-
Counter Bulletin Board. We shall prepare and file a Registration
Statement with the Securities and Exchange Commission and shall cause
such Registration statement to be declared effective prior to the first
sale to the investor of our common stock. We agree to pay Tangiers a
commitment fee of 3,000,000 shares of our common stock pursuant to the
Securities Purchase Agreement. On August 5, 2010, we entered into an
amendment agreement with the debenture holder whereby the debenture
shall be convertible at a fixed conversion price $0.005 per share. On
September 16, 2010 the Company executed an Amendment to its Securities
Purchase Agreement that deleted Section 7(j) of the Securities Purchase
Agreement in its entirety. That Section provided that the Company would
transfer to Tangiers shares equal to two times the Maximum Advance
Amount as defined under the Securities Purchase Agreement (the "Deposit
Shares"). In addition, at all times, during the term of the Securities
Purchase Agreement, Tangiers would have had in its possession, shares
of the Company's Common Stock equal to two times the Maximum Advance
Amount. In the event the Deposit Shares would have decreased to an
amount, less than two times the Maximum Advance Amount, then the
Company would have had to issue additional shares to Tangiers in an
amount that would increase the Deposit Shares held by Tangiers to two
times the Maximum Advance Amount. This Section would have also allowed
Tangiers to decline to issue any advances to the Company if they were
not in possession of at least two times the Maximum Advance Amount.
Secured Convertible Debenture
In May 2010, we issued a 9% Secured Convertible Debenture for $20,000
to Tangiers Investors, LP. This debenture matures on December 23, 2010.
We may prepay any portion of the principal amount at 150% of such
amount along with the accrued interest. This debenture including
interest shall be convertible into shares of our common stock at the
lower of $0.01 per share or a price of 70% of the average of the two
lowest volume weighted average price determined on the then current
trading market for ten trading days prior to conversion at the option
of the holder.
52
Off-balance Sheet Arrangements
We have not entered into any other financial guarantees or other
commitments to guarantee the payment obligations of any third parties.
We have not entered into any derivative contracts that are indexed to
our shares and classified as shareholder's equity or that are not
reflected in our consolidated financial statements. Furthermore, we do
not have any retained or contingent interest in assets transferred to
an unconsolidated entity that serves as credit, liquidity or market
risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market
risk or credit support to us or engages in leasing, hedging or research
and development services with us.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued Accounting Standards Update No. 2009-01,
"Generally Accepted Accounting Principles" (ASC Topic 105) which
establishes the FASB Accounting Standards Codification as the official
single source of authoritative U.S. generally accepted accounting
principles. All existing accounting standards are superseded. All other
accounting guidance not included in the Codification will be considered
non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission guidance organized using the same
topical structure in separate sections within the Codification.
Following the Codification, the Board will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues Task
Force Abstracts. Instead, it will issue Accounting Standards Updates
which will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on
the changes to the Codification.
The Codification is not intended to change GAAP, but it will change the
way GAAP is organized and presented. The Codification is effective for
our third-quarter 2009 financial statements and the principal impact on
our financial statements is limited to disclosures as all future
references to authoritative accounting literature will be referenced in
accordance with the Codification.
In May 2009, the FASB issued (ASC Topic 855), "Subsequent Events". This
guidance is intended to establish general standards of accounting for
and disclosure of events that occur after the balance sheet date but
before financial statements are issued or available to be issued. It is
effective for interim and annual reporting periods ending after June
15, 2009. The adoption of this guidance did not have a material impact
on our consolidated financial statements.
In June 2009, the FASB issued ASC Topic 810-10, "Amendments to FASB
Interpretation No. 46(R)". This updated guidance requires a qualitative
approach to identifying a controlling financial interest in a variable
interest entity, and requires ongoing assessment of whether an entity
is a VIE and whether an interest in a VIE makes the holder the primary
53
beneficiary of the VIE. It is effective for annual reporting periods
beginning after November 15, 2009. The adoption of ASC Topic 810-10 did
not have a material impact on the results of operations and financial
condition.
In October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable
Revenue Arrangements." This ASU establishes the accounting and
reporting guidance for arrangements including multiple revenue-
generating activities. This ASU provides amendments to the criteria for
separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. The amendments in
this ASU also establish a selling price hierarchy for determining the
selling price of a deliverable. Significantly enhanced disclosures are
also required to provide information about a vendor's multiple-
deliverable revenue arrangements, including information about the
nature and terms, significant deliverables, and its performance within
arrangements. The amendments also require providing information about
the significant judgments made and changes to those judgments and about
how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after June 15,
2010. Early application is permitted. The Company is currently
evaluating this new ASU.
In October 2009, the FASB issued ASU No. 2010-14, "Certain Revenue
Arrangements That Include Software Elements." This ASU changes the
accounting model for revenue arrangements that include both tangible
products and software elements that are "essential to the
functionality," and scopes these products out of current software
revenue guidance. The new guidance will include factors to help
companies determine what software elements are considered "essential to
the functionality." The amendments will now subject software-enabled
products to other revenue guidance and disclosure requirements, such as
guidance surrounding revenue arrangements with multiple-deliverables.
The amendments in this ASU are effective prospectively for revenue
arrangements entered into or materially modified in the fiscal years
beginning on or after June 15, 2010. Early application is permitted.
The Company is currently evaluating this new ASU.
In January 2010, the FASB issued Accounting Standards Update ("ASU")
No. 2010-06, "Improving Disclosures about Fair Value Measurements" an
amendment to ASC Topic 820, "Fair Value Measurements and
Disclosures." This amendment requires an entity to: (i) disclose
separately the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and describe the reasons for the
transfers and (ii) present separate information for Level 3 activity
pertaining to gross purchases, sales, issuances, and settlements. ASU
No. 2010-06 is effective for the Company for interim and annual
reporting beginning after December 15, 2009, with one new disclosure
effective after December 15, 2010. The adoption of ASU No. 2010-06 did
not have a material impact on the results of operations and financial
condition.
54
In February 2010, the FASB issued Accounting Standards Update 2010-09,
Amendments to Certain Recognition and Disclosure Requirements ("ASU
2010-09"). ASU 2010-09 amends the guidance issued in ASC 855,
Subsequent Events, by not requiring SEC filers to disclose the date
through which an entity has evaluated subsequent events. ASU 2010-09
was effective upon issuance. There was not a material impact from the
adoption of this guidance on our consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB
that do not require adoption until a future date are not expected to
have a material impact on the consolidated financial statements upon
adoption.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE
During fiscal year 2009, an officer of the Company advanced funds to
the Company for working capital purposes. The advances are non-interest
bearing and are payable on demand. At June 30, 2010 and December 31,
2009, the Company owed this related party $27,185 and $40,485,
respectively.
Director Independence
Our board of directors are not independent as such term is defined by a
national securities exchange or an inter-dealer quotation system.
During the fiscal year ended December 31, 2009, there were no
transactions with related persons other than as described in the
section above entitled "Item 11. Executive Compensation.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is currently quoted on the OTC Bulletin Board
("OTCBB"), which is sponsored by FINRA. The OTCBB is a network of
security dealers who buy and sell stock. The dealers are connected by a
computer network that provides information on current "bids" and
"asks", as well as volume information. Our shares are quoted on the
OTCBB under the symbol "GEGI"
a) Market Information. The registrant began trading publicly on
the NASD Over the Counter Bulletin Board in June 2006 under the symbol
"PRCC".
The following table sets forth the range of high and low bid quotations
for the registrant's common stock as reported on the NASD Bulletin
Board. The quotations represent inter-dealer prices without retail
markup, markdown or commission, and may not necessarily represent
actual transactions.
55
Quarter Ended High Bid Low Bid
3/31/08 $0.32 $0.28
6/30/08 $0.19 $0.18
9/30/08 $0.042 $0.042
12/31/08 $0.04 $0.035
3/31/09 $0.18 $0.003
6/30/09 $0.097 $0.008
9/30/09 $0.05 $0.02
12/31/09 $0.04 $0.02
3/31/10 $0.17 $0.15
6/30/10 $0.16 $0.07
b) Holders. The approximate number of record holders of the
registrant is 370.
56
c) Dividends. Holders of the registrant's common stock are
entitled to receive such dividends as may be declared by its board of
directors. No dividends on the registrant's common stock have ever bee
paid, and the registrant does not anticipate that dividends will be
paid on the common stock in the foreseeable future.
d) Securities authorized for issuance under equity compensation
plans. No securities are authorized for issuance by the registrant
under equity compensation plans.
EXECUTIVE COMPENSATION
Overview
The following is a discussion of our program for compensating our named
executive officers and directors. Currently, we do not have a
compensation committee, and as such, our board of directors is
responsible for determining the compensation of our named executive
officers.
Compensation Program Objectives and Philosophy
The primary goals of our policy of executive compensation are to
attract and retain the most talented and dedicated executives possible,
to assure that our executives are compensated effectively in a manner
consistent with our strategy and competitive practice and to align
executives compensation with the achievement of our short- and long-
term business objectives.
The board of directors considers a variety of factors in determining
compensation of executives, including their particular background and
circumstances, such as their training and prior relevant work
experience, their success in attracting and retaining savvy and
technically proficient managers and employees, increasing our revenues,
broadening our product line offerings, managing our costs and otherwise
helping to lead our Company through a period of rapid growth.
In the near future, we expect that our board of directors will form a
compensation committee charged with the oversight of executive
compensation plans, policies and programs of our Company and with the
full authority to determine and approve the compensation of our chief
executive officer and make recommendations with respect to the
compensation of our other executive officers. We expect that our
compensation committee will continue to follow the general approach to
executive compensation that we have followed to date, rewarding
superior individual and company performance with commensurate cash
compensation.
Employment Contracts and Termination of Employment and Change-in
Control Arrangements.
The registrant entered into an employment agreement on January 14, 2008
with Edward C. Dillon, its chief executive officer which expires in
January 2013. The employment agreement calls for an issuance of
500,000 free trading shares of our common stock. Additionally, based
57
on this agreement, the registrant shall issue 1,000,000 restricted
shares of common stock during each fiscal year of the term of this
agreement.
The registrant entered into an employment agreement on January 14, 2008
with Raymond Purdon, an officer of the registrant which expires in
January 2013. The employment agreement calls for an issuance of
500,000 free trading shares of the registrant's common stock.
Additionally, based on this agreement, the registrant shall issue
1,000,000 restricted shares of common stock during each fiscal year of
the term of this agreement.
Directors' Compensation.
We do not have any standard arrangements by which directors are
compensated for any services provided as a director. No cash has been
paid to the directors in their capacity as such.
Retirement Benefits
Currently, we do not provide any company sponsored retirement benefits
to any employee, including the named executive officers.
Perquisites
We have historically, provided only modest perquisites to our named
executive officers. We do not view perquisites as a significant element
of our compensation structure, but do believe that perquisites can be
useful in attracting, motivating and retaining the executive talent for
which we compete. It is expected that our historical practices
regarding perquisites will continue and will be subject to periodic
review by our by our board of directors.
Summary Compensation Table
The following table summarizes all compensation recorded by us in each
of the last two completed fiscal years for our principal executive
officer, each other executive officer serving as such whose annual
compensation exceeded $100,000 and up to two additional individuals for
whom disclosure would have been made in this table but for the fact
that the individual was not serving as an executive officer of our
company at December 31, 2009.
For definitional purposes in this annual report these individuals are
sometimes referred to as the "named executive officers." The value
attributable to any option awards is computed in accordance with ASC
Topic 718.
58
SUMMARY COMPENSATION TABLE
--------------------------
NONQUALIFIED
NON-EQUITY DEFERRED ALL
NAME AND STOCK OPTION INCENTIVE PLAN COMPENSATION OTHER
PRINCIPAL SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
POSITION YEAR ($) ($) ($) ($) ($) ($) ($) ($)
----------- ---- ------- ------ ------ ------- -------------- ------------ ------------ -------
Edward C Dillon(1)
Chief Executive
Officer
2009 0 $ - $31,000 - $ - $ - $ - $31,000
2008 0 $ - $137,600 - $ - $ - $ - $137,600
Nelson Stark (2)
Chief Financial
Officer
2009 $7,500 $ - $1,550 $ - $ - $ - $ - $9,050
2008 $7,500 $ - $200 $ - $ - $ - $ - $7,700
(1) Mr. Dillon has served as our president and CEO since April 2006.
Mr. Dillon's fiscal 2009 compensation included stock awards of
1,000,000 shares of our common stock which were valued at $31,000.
Mr. Dillon's fiscal 2008 compensation included stock awards of
18,500,000 shares of our common stock which were valued at $137,600.
(2) Mr. Stark has served as our CFO since April 2006. In addition to
his salary, Mr. Stark's fiscal 2009 compensation included stock awards
of 50,000 shares of our common stock which were valued at $1,550. In
addition to his salary, Mr. Stark's fiscal 2008 compensation included
stock awards of 100,000 shares of our common stock which were valued at
$200.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth the outstanding stock options to the
registrant's sole executive officer:
59
Option Awards
Outstanding Equity Awards at December 31, 2009
Equity Equity
Incentive Incentive
Plan Plan
Awards: Awards:
Number of Number of
Number of Securities Securities
Securities Underlying Underlying
Underlying Unexercised Unexercised Option Option
Unexercised Unearned Unearned Exercise Expiration
options Options Options in Price Date
Name (#) (#) (#) ($) ($)
---------------- ---------- ------------ -------- ------- -----------
Edward C. Dillon 1,000,000 $.40 One year after the
Exec. Vice Pres. effective date of
the registration
Option Awards (Continued)
Outstanding Equity Awards at December 31, 2009
Equity
Incentive
Equity Plan Awards:
Incentive Market or
Market Value Plan Awards: Payout
Number of Shares Number of Value of
Number of or Units Unearned Unearned
Shares or of Shares Shares, Shares,
Units of or Units Units or Units or
Stock of Stock Other Rights Other Rights
that have that have that have that have
not vested not vested not vested not vested
Name (#) ($) (#) ($)
---------------- ---------- ------------ -------- ------------
Edward C. Dillon - - 1,000,000 $0
Exec. Vice Pres.
60
Unaudited Financial Statements:
Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2010 and 2009
Consolidated Statements of Cash Flows for Three and Six Months Ended
June 30, 2010 and 2009
Notes to Financial Statements
Audited Financial Statements:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2009 and 2008;
Consolidated Statements of Operations for the years ended December 31,
2009 and 2008;
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 2009 and 2008;
Consolidated Statements of Cash Flows for the years ended December 31,
2009 and 2008;
Notes to Financial Statements
61
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Year ended
June 30, 2010 December 31, 2009
------------- -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash $ 49,185 $ 66,069
Prepaid expense and other
current asset 34,160 14,160
----------- -----------
Total current assets 83,345 80,229
PROPERTY AND EQUIPMENT, net 359 695
----------- -----------
Total assets $ 83,704 $ 80,924
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 168,962 $ 184,857
Secured convertible debenture,
net of debt discount 4,493 -
Convertible debt 931,919 931,919
Note payable 15,647 15,647
Loans payable 40,000 40,000
Due to related party 16,685 40,485
Deferred revenue 108 176
----------- -----------
Total current liabilities 1,177,814 1,213,084
----------- -----------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value,
300,000,000 authorized,
159,396,906 and 152,644,072
issued and outstanding, at June
30, 2010 and December 31, 2009,
respectively 159,397 152,644
Additional paid-in capital 7,066,838 6,879,836
Accumulated deficit (8,270,470) (8,090,923)
Subscription receivable (49,875) (73,717)
----------- -----------
Total stockholders' deficit (1,094,110) (1,132,160)
----------- -----------
Total liabilities and stockholders'
deficit $ 83,704 $ 80,924
=========== ===========
See notes to unaudited consolidated financial statements.
62
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2010 2009 2010 2009
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------------
Net Sales $ 8,355 $ 24,117 $ 16,017 $ 54,661
---------- ---------- ---------- ----------
Operating expenses:
Professional fees 18,631 18,555 29,664 23,055
Consulting fees 2,020 8,339 18,400 18,240
Compensation 29,520 21,010 50,160 39,542
Other selling, general
and administrative 44,939 38,621 90,369 63,976
---------- ---------- ---------- ----------
Total operating
expenses 95,110 86,525 188,593 144,813
---------- ---------- ---------- ----------
Loss from operations (86,755) (62,408) (172,576) (90,152)
---------- ---------- ---------- ----------
Other income (expenses):
Interest expense (5,858) (197,113) (6,971) (198,226)
---------- ---------- ---------- ----------
Total other income
(expenses) (5,858) (197,113) (6,971) (198,226)
---------- ---------- ---------- ----------
Loss before provision for
income taxes (92,613) (259,521) (179,547) (288,378)
---------- ---------- ---------- ----------
Provision for income taxes - - - -
---------- ---------- ---------- ----------
Net loss $ (92,613) $ (259,521) $ (179,547) $ (288,378)
========== ========== ========== ==========
Net loss per common share
- basic and diluted $ - $ - $ - $ -
========== ========== ========== ==========
Weighted average number
of shares outstanding
- basic and diluted 158,084,352 136,387,928 155,583,217 125,444,427
=========== =========== =========== ===========
See notes to unaudited consolidated financial statements.
63
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
------------------------
2010 2009
------------------------
(Unaudited) (Unaudited)
--------- ---------
Cash flows from operating activities:
Net loss $(179,547) $(288,378)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation 336 337
Bad debts - -
Common stock issued for services 10,000 -
Amortization of debt discount 4,493 -
Interest expense for the settlement of a
related party loan - 196,000
Changes in assets and liabilities:
Accounts receivable - 10,909
Prepaid expenses and other - (11,000)
Accounts payable and accrued expenses (15,895) -
Deferred revenues (68) (357)
--------- ---------
Total adjustments (1,134) 195,889
--------- ---------
Net cash used in operating activities (180,681) (92,489)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock 187,597 171,779
Payments on related party advances (23,800) (2,800)
--------- ---------
Net cash provided by financing activities 163,797 168,979
--------- ---------
Net increase (decrease) in cash (16,884) 76,490
Cash - beginning of the period 66,069 2,319
--------- ---------
Cash - end of the period $ 49,185 $ 78,809
========= =========
64
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ - $ -
========= =========
Income taxes $ - $ -
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Secured convertible debenture issued in
connection with Securities Purchase
Agreement $ 20,000 $ -
========= =========
Common stock issued for settlement of loans $ - $ 49,000
========= =========
See notes to unaudited consolidated financial statements.
65
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-
Q. Accordingly, the consolidated financial statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal
recurring nature. These consolidated financial statements should be
read in conjunction with the financial statements for the year ended
December 31, 2009 and notes thereto contained in the Report on Form 10-
K of Genesis Electronic Group, Inc. and Subsidiary ("our Company" or
the "Company") as filed with the Securities and Exchange Commission
(the "Commission"). The results of operations for the six months ended
June 30, 2010 are not necessarily indicative of the results for the
full fiscal year ending December 31, 2010.
The unaudited consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United
States of America ("US GAAP"). The unaudited consolidated statements
include the accounts of Genesis Electronics Group, Inc. and its wholly-
owned subsidiary. All significant inter-company balances and
transactions have been eliminated.
ASB Accounting Standards Codification
The issuance by the FASB of the Accounting Standards CodificationTM (the
"Codification") on July 1, 2009 (effective for interim or annual
reporting periods ending after September 15, 2009), changes the way
that GAAP is referenced. Beginning on that date, the Codification
officially became the single source of authoritative nongovernmental
GAAP; however, SEC registrants must also consider rules, regulations,
and interpretive guidance issued by the SEC or its staff. The change
affects the way the Company refers to GAAP in financial statements and
in its accounting policies. All existing standards that were used to
create the Codification became superseded. Instead, references to
standards consist solely of the number used in the Codification's
structural organization.
Organization
Genesis Electronics Group, Inc. formerly Pricester.com, Inc. was
incorporated under the name Pricester, Inc. on April 19, 2001 in the
State of Florida. Pursuant to Articles of Amendment filed on February
24, 2009, the name of the registrant was changed to Genesis Electronics
Group, Inc.
On February 11, 2005, Pricester.Com (the "Company") merged into
Pricester.com, Inc, ("BA22") a public non-reporting company (that was
initially incorporated in Nevada in March 1998 as Business Advantage
#22, Inc). BA22 acquired 100% of the Company's outstanding common stock
66
by issuing one share of its common stock for each share of the
Company's then outstanding common stock of 21,262,250 shares. The
acquisition was treated as a recapitalization for accounting purposes.
Through December 31, 2005, the Company was a developmental stage e-
commerce company. The Company currently operates an e-commerce website
that enables any business to establish a fully functional online retail
presence. Pricester.com is an Internet marketplace which allows
vendors to host their website with product and service listings and
allows consumers to search for listed products and services.
In May 2008, the Company obtained through a vote of majority of its
shareholders the approval to increase the authorized common shares from
50,000,000 to 300,000,000 shares of common stock at $0.001 par value.
On May 22, 2008, the Company completed a share exchange with Genesis
Electronics, Inc., a Delaware corporation ("Genesis") which is
described below.
The share exchange is being accounted for as a purchase method
acquisition pursuant to FASB ASC 805 "Business Combinations".
Accordingly, the purchase price was allocated to the fair value of the
assets acquired and the liabilities assumed. The Company is the
acquirer for accounting purposes and Genesis is the acquired company.
Genesis was originally formed in Delaware on October 22, 2001 and is
engaged on the development of solar and alternative energy applications
for consumer devices such as mobile phones.
In November 2008, the Company obtained through a vote of majority of
its shareholders the approval to change the Company's name to Genesis
Electronics Group, Inc. In February 2009, the Company filed an
amendment to its Articles of Incorporation with the Secretary of State
of Nevada. The Company changed its name to Genesis Electronics Group,
Inc.
Acquisition of Genesis
On May 22, 2008, the Company entered into an Agreement and Plan of
Share Exchange (the "Acquisition Agreement") by and among the Company,
Genesis Electronics, Inc. ("Genesis") and the Genesis Stockholders.
Upon closing of the merger transaction contemplated under the
Acquisition Agreement (the "Acquisition"), on May 22, 2008 the Company
acquired all of the outstanding common shares of Genesis and Genesis
became a wholly-owned subsidiary of the Company.
The share exchange consideration included the issuance of 1,907,370
shares of the Company's stock valued at $0.03 per share. The total
purchase price was common stock valued at $57,144.
The Company accounted for the acquisition utilizing the purchase method
of accounting in accordance with FASB ASC 805 "Business Combinations".
The Company is the acquirer for accounting purposes and Genesis is the
67
acquired company. Accordingly, the Company applied push-down
accounting and adjusted to fair value all of the assets and liabilities
directly on the financial statements of the Subsidiary, Genesis
Electronics, Inc.
The net purchase price, including acquisition costs paid by the
Company, was allocated to the liabilities assumed on the records of the
Company as follows:
Goodwill $ 1,717,602
Liabilities assumed (1,660,458)
-----------
Net purchase price $ 57,144
===========
Since the Company has minimal revenues, has incurred losses and cash
used in operations, the Company deemed the acquired goodwill to be
impaired and wrote-off the goodwill on the acquisition date.
Accordingly, during fiscal year 2008, the Company recorded an
impairment of goodwill of $1,717,602 on the accompanying statement of
operations.
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 revenue
and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates in 2010 and 2009 include
the valuation of stock-based compensation, and the useful life of
property, equipment, website development.
Cash and Cash Equivalents
For purposes of the unaudited consolidated statements of cash flows,
the Company considers all highly liquid instruments purchased with a
maturity of three months or less and money market accounts to be cash
equivalents.
Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted FASB ASC 820, "Fair
Value Measurements and Disclosures" ("ASC 820"), for assets and
liabilities measured at fair value on a recurring basis. ASC 820
establishes a common definition for fair value to be applied to
existing generally accepted accounting principles that require the use
of fair value measurements, establishes a framework for measuring fair
value and expands disclosure about such fair value measurements. The
adoption of ASC 820 did not have an impact on the Company's financial
position or operating results, but did expand certain disclosures.
68
ASC 820 defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally,
ASC 820 requires the use of valuation techniques that maximize the use
of observable inputs and minimize the use of unobservable inputs. These
inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active
markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that
are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market
data, which require the use of the reporting entity's own assumptions.
Cash and cash equivalents include money market securities that are
considered to be highly liquid and easily tradable as of June 30, 2010
and 2009. These securities are valued using inputs observable in active
markets for identical securities and are therefore classified as
Level 1 within our fair value hierarchy.
In addition, FASB ASC 825-10-25 Fair Value Option was effective for
January 1, 2008. ASC 825-10-25 expands opportunities to use fair value
measurements in financial reporting and permits entities to choose to
measure many financial instruments and certain other items at fair
value. The Company did not elect the fair value options for any of its
qualifying financial instruments.
The carrying amounts reported in the consolidated balance sheet for
cash, accounts payable, accrued expenses, loans payable, notes payable,
due to related parties and deferred revenue approximate their fair
market value based on the short-term maturity of these instruments.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line method over the
estimated economic lives of the assets, which are from five to seven
years. Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred.
Website Development
Costs that the Company has incurred in connection with developing the
Company's websites are capitalized and amortized using the straight-
line method over expected useful lives of three years.
Impairment of Long-lived Assets
Long-Lived Assets of the Company are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of assets may
not be recoverable, pursuant to guidance established in ASC 360-10-35-
15, "Impairment or Disposal of Long-Lived Assets". The Company
69
recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The
amount of impairment is measured as the difference between the asset's
estimated fair value and its book value. The Company did not consider
it necessary to record any impairment charges during the six months
ended June 30, 2010 and 2009.
Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board, or FASB,
issued FASB ASC Topic 718: Compensation - Stock Compensation ("ASC
718"). Under ASC 718, companies are required to measure the
compensation costs of share-based compensation arrangements based on
the grant-date fair value and recognize the costs in the financial
statements over the period during which employees are required to
provide services. Share-based compensation arrangements include stock
options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. Companies may
elect to apply this statement either prospectively, or on a modified
version of retrospective application under which financial statements
for prior periods are adjusted on a basis consistent with the pro forma
disclosures required for those periods under ASC 718. Upon adoption of
ASC 718, the Company elected to value employee stock options using the
Black-Scholes option valuation method that uses assumptions that relate
to the expected volatility of the Company's common stock, the expected
dividend yield of our stock, the expected life of the options and the
risk free interest rate. Such compensation amounts, if any, are
amortized over the respective vesting periods or period of service of
the option grant. For the six months ended June 30, 2010, the Company
did not grant any stock options to employees.
Net Loss per Common Share
Net loss per common share are calculated in accordance with ASC Topic
260: Earnings Per Share. Basic loss per share is computed by dividing
net loss by the weighted average number of shares of common stock
outstanding during the period. The computation of diluted net earnings
per share does not include dilutive common stock equivalents in the
weighted average shares outstanding as they would be anti-dilutive. As
of June 30, 2010 and 2009, there were options and warrants to purchase
2,025,000 shares of common stock and 4,000,000 shares equivalent
issuable pursuant to embedded conversion features which could
potentially dilute future earnings per share.
Income Taxes
Income taxes are accounted for under the asset and liability method as
prescribed by ASC Topic 740: Income Taxes. Deferred income tax assets
and liabilities are computed for differences between the carrying
amounts of assets and liabilities for financial statement and tax
purposes. Deferred income tax assets are required to be reduced by a
valuation allowance when it is determined that it is more likely than
not that all or a portion of a deferred tax asset will not be realized.
In determining the necessity and amount of a valuation allowance,
70
management considers current and past performance, the operating market
environment, tax planning strategies and the length of tax benefit
carryforward periods.
Pursuant to ASC Topic 740-10: Income Taxes related to the accounting
for uncertainty in income taxes, the evaluation of a tax position is a
two-step process. The first step is to determine whether it is more
likely than not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigation based on
the technical merits of that position. The second step is to measure a
tax position that meets the more-likely-than-not threshold to determine
the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is
greater than 50% likelihood of being realized upon ultimate settlement.
Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent
period in which the threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not criteria should
be de-recognized in the first subsequent financial reporting period in
which the threshold is no longer met. The accounting standard also
provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosures, and
transition. The adoption had no effect on the Company's consolidated
financial statements.
Research and Development
Research and development costs, if any, are expensed as incurred.
Related Parties
Parties are considered to be related to the Company if the parties
that, directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with the
Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners
of the Company and its management and other parties with which the
Company may deal if one party controls or can significantly influence
the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its
own separate interests. The Company discloses all related party
transactions. All transactions shall be recorded at fair value of the
goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on
behalf of the related party in excess of the cost is reflected as a
distribution to related party.
Subsequent Events
For purposes of determining whether a post-balance sheet event should
be evaluated to determine whether it has an effect on the financial
statements for the period ending June 30, 2010, subsequent events were
71
evaluated by the Company as of August 12, 2010, the date on which the
unaudited consolidated financial statements at and for the period ended
June 30, 2010, were available to be issued.
Revenue Recognition
The Company follows the guidance of the FASB ASC 605-10-S99 "Revenue
Recognition Overall - SEC Materials. The Company records revenue when
persuasive evidence of an arrangement exists, services have been
rendered or product delivery has occurred, the sales price to the
customer is fixed or determinable, and collectibility is reasonably
assured. The following policies reflect specific criteria for the
various revenues streams of the Company:
The Company has three primary revenue sources: website design,
transaction fees, and hosting fees.
- Website design revenue is recognized as earned when the website
is complete, control is transferred and the customer has accepted its
website, usually within seven days of the order.
- Transaction fee income comprises fees charged for use of credit
cards or other forms of payment in the purchase of items sold on the
customers' websites. The transaction fee income is recognized as earned
when funds transfers (via credit card or other forms of payments)
between the buyer and seller has been authorized.
- Revenues from website hosting fees are recognized when earned.
Web hosting fees received in advance are reflected as deferred revenue
on the accompanying balance sheet.
Recently Issued Accounting Pronouncements
In June 2009, the FASB issued Accounting Standards Update No. 2009-01,
"Generally Accepted Accounting Principles" (ASC Topic 105) which
establishes the FASB Accounting Standards Codification ("the
Codification" or "ASC") as the official single source of authoritative
U.S. generally accepted accounting principles ("GAAP"). All existing
accounting standards are superseded. All other accounting guidance not
included in the Codification will be considered non-authoritative. The
Codification also includes all relevant Securities and Exchange
Commission ("SEC") guidance organized using the same topical structure
in separate sections within the Codification.
Following the Codification, the Board will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues Task
Force Abstracts. Instead, it will issue Accounting Standards Updates
("ASU") which will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on
the changes to the Codification.
The Codification is not intended to change GAAP, but it will change the
way GAAP is organized and presented. The Codification is effective for
our third-quarter 2009 financial statements and the principal impact on
72
our financial statements is limited to disclosures as all future
references to authoritative accounting literature will be referenced in
accordance with the Codification.
In May 2009, the FASB issued (ASC Topic 855), "Subsequent Events" (ASC
Topic 855). This guidance is intended to establish general standards of
accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or available to
be issued. It is effective for interim and annual reporting periods
ending after June 15, 2009. The adoption of this guidance did not have
a material impact on our consolidated financial statements.
In June 2009, the FASB issued ASC Topic 810-10, "Amendments to FASB
Interpretation No. 46(R)". This updated guidance requires a qualitative
approach to identifying a controlling financial interest in a variable
interest entity (VIE), and requires ongoing assessment of whether an
entity is a VIE and whether an interest in a VIE makes the holder the
primary beneficiary of the VIE. It is effective for annual reporting
periods beginning after November 15, 2009. The adoption of ASC Topic
810-10 did not have a material impact on the results of operations and
financial condition.
In October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable
Revenue Arrangements." This ASU establishes the accounting and
reporting guidance for arrangements including multiple revenue-
generating activities. This ASU provides amendments to the criteria for
separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. The amendments in
this ASU also establish a selling price hierarchy for determining the
selling price of a deliverable. Significantly enhanced disclosures are
also required to provide information about a vendor's multiple-
deliverable revenue arrangements, including information about the
nature and terms, significant deliverables, and its performance within
arrangements. The amendments also require providing information about
the significant judgments made and changes to those judgments and about
how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after June 15,
2010. Early application is permitted. The Company is currently
evaluating this new ASU.
In October 2009, the FASB issued ASU No. 2010-14, "Certain Revenue
Arrangements That Include Software Elements." This ASU changes the
accounting model for revenue arrangements that include both tangible
products and software elements that are "essential to the
functionality," and scopes these products out of current software
revenue guidance. The new guidance will include factors to help
companies determine what software elements are considered "essential to
the functionality." The amendments will now subject software-enabled
products to other revenue guidance and disclosure requirements, such as
guidance surrounding revenue arrangements with multiple-deliverables.
The amendments in this ASU are effective prospectively for revenue
73
arrangements entered into or materially modified in the fiscal years
beginning on or after June 15, 2010. Early application is permitted.
The Company is currently evaluating this new ASU.
In January 2010, the FASB issued Accounting Standards Update ("ASU")
No. 2010-06, "Improving Disclosures about Fair Value Measurements" an
amendment to ASC Topic 820, "Fair Value Measurements and
Disclosures." This amendment requires an entity to: (i) disclose
separately the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and describe the reasons for the
transfers and (ii) present separate information for Level 3 activity
pertaining to gross purchases, sales, issuances, and settlements. ASU
No. 2010-06 is effective for the Company for interim and annual
reporting beginning after December 15, 2009, with one new disclosure
effective after December 15, 2010. The adoption of ASU No. 2010-06 did
not have a material impact on the results of operations and financial
condition.
In February 2010, the FASB issued Accounting Standards Update 2010-09,
Amendments to Certain Recognition and Disclosure Requirements ("ASU
2010-09"). ASU 2010-09 amends the guidance issued in ASC 855,
Subsequent Events, by not requiring SEC filers to disclose the date
through which an entity has evaluated subsequent events. ASU 2010-09
was effective upon issuance. There was not a material impact from the
adoption of this guidance on our consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB
that do not require adoption until a future date are not expected to
have a material impact on the consolidated financial statements upon
adoption.
NOTE 2 - PROPERTY AND EQUIPMENT
At June 30, 2010, property and equipment consist of the following:
Useful Life
(Years)
-----------
Computer equipment and software 5 $ 12,542
Office furniture and fixtures and
equipment 7 4,328
--------
16,870
Less accumulated depreciation (16,511)
--------
$ 359
========
74
At December 31, 2009, property and equipment consist of the following:
Useful Life
(Years)
-----------
Computer equipment and software 5 $ 12,542
Office furniture and fixtures and
equipment 7 4,328
--------
16,870
Less accumulated depreciation (16,175)
--------
$ 695
========
For the six months ended June 30, 2010 and 2009, depreciation expense
amounted to $336 and $337, respectively.
NOTE 3 - LOANS PAYABLE
On May 22, 2008, in connection with the acquisition, the Company
assumed loans payable from certain third parties. These loans bear 8%
interest per annum and are payable on demand. As of June 30, 2010,
loans payable and related accrued interest amounted to $40,000 and
$13,171, respectively. As of December 31, 2009, loans payable and
related accrued interest amounted to $40,000 and $11,571, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
An officer of the Company advance funds to the Company for working
capital purposes. The advances are non-interest bearing and are payable
on demand. At June 30, 2010 and December 31, 2009, the Company owed
this related party $16,685 and $40,485, respectively.
NOTE 5 - NOTE PAYABLE
On May 22, 2008, in connection with the acquisition, the Company
assumed a note payable from a third party. These loans bear 8% interest
per annum and is payable on demand. As of June 30, 2010, note payable
and related accrued interest amounted to $15,647 and $8,106,
respectively. As of December 31, 2009, note payable and related accrued
interest amounted to $15,647 and $7,480, respectively.
NOTE 6 - CONVERTIBLE DEBT
On May 22, 2008, in connection with the acquisition, the Company
assumed certain debts from a third party, Corporate Debt Solutions
("Corporate Debt") amounting to $1,049,717. Corporate Debt assumed a
total of $1,049,717 of promissory notes issued by two former officers
of Genesis and a certain third party. These promissory notes were
issued to the Company's subsidiary, Genesis. Immediately following the
closing of the acquisition agreement, on May 23, 2008, the Company
entered into a settlement agreement with Corporate Debt Solutions
("Corporate Debt"). Pursuant to the settlement agreement, the Company
shall issue shares of common stock and deliver to Corporate Debt, to
75
satisfy the principal and interest due and owing through the issuance
of freely trading securities of up to 100,000,000 shares. The parties
have agreed that Corporate Debt shall have no ownership rights to the
Settlement Shares not yet issued until it has affirmed to the Company
that it releases the Company for the proportionate amount of claims
represented by each issuance. The said requested number of shares of
common stock is not to exceed 4.99% of the outstanding stock of the
Company at any one time. In connection with this settlement agreement,
the Company recorded and deemed such debt as a convertible liability
with a fixed conversion price of $0.01. Accordingly, the Company
recognized a total debt discount of $1,049,717 due to a beneficial
conversion feature and such debt discount was immediately amortized to
interest expense during fiscal year 2008.
In June 2008, the Company issued 2,223,456 shares in connection with
the conversion of this convertible debt. The fair value of such shares
issued amounted to approximately $23,346.
Between July 2008 and August 2008, the Company issued 8,995,374 shares
in connection with the conversion of this convertible debt. The fair
value of such shares issued amounted to approximately $94,452.
At June 30, 2010 and December 31, 2009, convertible debt amounted to
$931,919.
NOTE 7 - SECURED CONVERTIBLE DEBENTURE
In May 2010, the Company issued a 9% Secured Convertible Debenture for
$20,000 to Tangiers Investors, LP in connection with the Securities
Purchase agreement (see Note 9). This debenture matures on December 23,
2010. The Company may prepay any portion of the principal amount at
150% of such amount along with the accrued interest. This debenture
including interest shall be convertible into shares of the Company's
common stock at the lower of $0.01 per share or a price of 70% of the
average of the two lowest volume weighted average price determined on
the then current trading market for ten trading days prior to
conversion at the option of the holder. On August 5, 2010, the Company
entered into an amendment agreement with the debenture holder whereby
the debenture shall be convertible at a fixed conversion price $0.005
per share.
In accordance with ASC 470-20-25, the convertible debentures were
considered to have an embedded beneficial conversion feature (BCF)
because the effective conversion price was less than the fair value of
the Company's common stock. These convertible debentures were fully
convertible at the issuance date, therefore the portion of proceeds
allocated to the convertible debentures of $20,000 was determined to be
the value of the beneficial conversion feature and was recorded as a
debt discount and is being amortized over the term of this debenture.
Additionally, the Company evaluated whether or not the convertible debt
contains embedded conversion options, which meet the definition of
derivatives under ASC 815-15 "Accounting for Derivative Instruments and
76
Hedging Activities" and related interpretations. The Company concluded
that since the convertible debt currently has a fixed conversion price
of $0.005, the convertible debt is not a derivative.
At June 30, 2010, convertible debenture consisted of the following:
June 30, 2010
-------------
Secured convertible debenture $ 20,000
Less: debt discount (15,507)
--------
Secured convertible debenture - net $ 4,493
As of June 30, 2010, amortization of debt discount amounted to $4,493
and is included in interest expense. As of June 30, 2010, accrued
interest on this debenture amounted to $251.
NOTE 8 - GOING CONCERN
The accompanying unaudited consolidated financial statements are
prepared assuming the Company will continue as a going concern. Going
concern contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length
of time. The Company was in the development stage through December 31,
2005 and has an accumulated deficit of $8,270,470, had net losses,
negative working capital and negative cash flows from operations for
the six months ended June 30, 2010 of $179,547, $1,094,469 and $181,794
respectively. While the Company is attempting to increase revenues,
the growth has not been significant enough to support the Company's
daily operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. For the six months ended June 30,
2010, the Company sold 3,502,834 common shares for net proceeds of
$123,755 and subscription receivable of $40,000. For the six months
ended June 30, 2010 the Company collected subscription receivable of
$63,842.
Management is attempting to raise additional funds by way of a public
or private offering. While the Company believes in the viability of
its strategy to increase sales volume and in its ability to raise
additional funds, there can be no assurances to that effect. The
Company shareholders have continued to advance funds to the Company but
there can be no assurance that future advances will be made available.
The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve
consumer recognition. These financial statements do not include any
adjustments relating to the recoverability and classifications of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
77
NOTE 9 - STOCKHOLDERS' DEFICIT
Common Stock
For the six months ended June 30, 2010, the Company received net
proceeds of $123,755 and subscription receivable of $40,000 from the
sale of 3,502,834 shares of the Company's common stock.
For the six months ended June 30, 2010, the Company collected
subscription receivable of $63,842.
In February 2010, the Company issued 250,000 shares of common stock for
public relation services rendered. The Company valued these common
shares at the fair value on the date of grant at $.04 per share or
$10,000. In connection with issuance of these shares, the Company
recorded stock-based consulting expense of $10,000 during the six
months ended June 30, 2010.
In May 2010, the Company entered into a Securities Purchase Agreement
with Tangiers Investors, LP ("Investor"). The Company has agreed to
issue and sell to the investor pursuant to the terms of this agreement
for an aggregate purchase price of up to $5,000,000. The purchase price
shall be set at 85% of the lowest volume weighted average price of the
Company's common stock during the pricing period as quoted by
Bloomberg, LP on the Over-the-Counter Bulletin Board. The Company shall
prepare and file a Registration Statement with the Securities and
Exchange Commission and shall cause such Registration statement to be
declared effective prior to the first sale to the investor of the
Company's common stock. The Company agrees to pay the Investor a
commitment fee of 3,000,000 shares of the Company's common stock
pursuant to the Securities Purchase Agreement. The Company valued these
common shares at par value and has been allocated against additional
paid in capital.
Stock Options
A summary of the stock options as of June 30, 2010 and changes during
the periods is presented below:
Weighted Average
Number of Options Exercise Price
----------------- ----------------
Balance at beginning of year 2,025,000 $ 0.40
Granted - -
Exercised - -
Cancelled - -
--------- -------
Balance at end of period 2,025,000 $ 0.40
========= =======
Options exercisable at end of
period 2,025,000 $ 0.40
========= =======
78
The following table summarizes the Company's stock option outstanding
at June 30, 2010:
OPTIONS OUTSTANDING AND EXERCISABLE
-----------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE
EXERCISE PRICE NUMBER LIFE PRICE
-------------- ------ --------- --------
$ 0.40 2,025,000 1 year after 0.40
effective
registration
NOTE 10 - SUBSEQUENT EVENTS
In July 2010, the Company received net proceeds of approximately $6,000
from the sale of 100,000 shares of the Company's common stock.
In July 2010, in connection with a consulting agreement, the Company
issued 350,000 shares of common stock for Public relations and
marketing services until September 15, 2010. The Company valued these
common shares at the fair value on the date of grant at $.08 per share
or $28,000. The Company may extend the term of this agreement until
December 1, 2010 in exchange for an additional 300,000 shares of common
stock.
In July 2010, the Company issued in aggregate 2,000,000 shares of
common stock to the Company's CEO and an officer of the Company in
connection with their employment agreements. The Company valued these
common shares at the fair market value on the date of grant at $.08 per
share or $160,000 and has been recorded as stock-based compensation.
On August 5, 2010, in connection with the Secured Convertible Debenture
dated in May 2010, the Company entered into an amendment agreement with
the debenture holder whereby the debenture shall be convertible at a
fixed conversion price of $0.005 per share.
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Genesis Electronics Group, Inc.
Hollywood, Florida
We have audited the accompanying consolidated balance sheet of Genesis
Electronics Group, Inc. and Subsidiary as of December 31, 2009 and
2008, and the related consolidated statement of operations, changes in
stockholders' deficit and cash flow for the years ended. This
consolidated financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of
expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining on a test basis, evidence
supporting the amount and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statement referred to above
present fairly, in all material respects, the financial position of
Genesis Electronics Group, Inc. and Subsidiary as of as of December 31,
2009 and 2008, and the result of their operations and their cash flow
for the year ended, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 8 to the financial statements, the Company has an
accumulated deficit of $8,090,923 and has net losses and cash used in
operations of $577,026 and $231,146, respectively, for the year ended
December 31, 2009. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regards to these
matters are also described in Note 8. The consolidated financial
statement does not include any adjustments that might result from the
outcome of this uncertainty.
/s/Larry O'Donnell & Co., CPA P.C
Certified Public Accountants
Aurora, Colorado
March 30, 2010
80
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Year ended
----------
December 31, 2009 December 31, 2008
----------------- -----------------
ASSETS
Current Assets:
Cash $ 66,069 $ 2,319
Prepaid expense and other
current asset 14,160 3,160
----------- -----------
Total current assets 80,229 5,479
Property and Equipment, net 695 1,371
----------- -----------
Total assets $ 80,924 $ 6,850
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued
expenses $ 184,857 $ 152,837
Convertible debt 931,919 931,919
Note payable 15,647 15,647
Loans payable 40,000 40,000
Due to related parties 40,485 78,385
Deferred revenue 176 682
----------- -----------
Total current liabilities 1,213,084 1,219,470
----------- -----------
Stockholders' Deficit:
Common stock, $0.001 par value,
300,000,000 authorized,
152,644,072 and 106,602,989
issued and outstanding, at
December 31, 2009 and December
31, 2008, respectively 152,644 106,603
Additional paid-in capital 6,879,836 6,219,824
Accumulated deficit (8,090,923) (7,513,897)
Subscription receivable (73,717) (25,150)
----------- -----------
Total stockholders' deficit (1,132,160) (1,212,620)
----------- -----------
Total liabilities and stockholders'
deficit $ 80,924 $ 6,850
=========== ===========
See notes to audited consolidated financial statements.
81
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
------------------
2009 2008
---- ----
Net Sales $ 78,797 $ 111,518
----------- -----------
Operating expenses:
Professional fees 50,049 30,925
Consulting fees 63,780 255,389
Compensation 146,882 434,295
Other selling, general and administrative 194,660 166,155
----------- -----------
Total operating expenses 455,371 886,764
----------- -----------
Loss from operations (376,574) (775,246)
----------- -----------
Other income (expenses):
Other expense - (75)
Gain on settlement of debt - 469,284
Impairment expense - (1,717,602)
Interest expense (200,452) (1,053,058)
----------- -----------
Total other income (expenses) (200,452) (2,301,451)
----------- -----------
Loss before provision for income taxes (577,026) (3,076,697)
Provision for income taxes - -
----------- -----------
Net loss $ (577,026) $(3,076,697)
=========== ===========
Net loss per common share
- basic and diluted $ - $ (0.05)
Weighted average number of shares
0utstanding - basic and diluted 135,405,327 56,810,124
=========== ===========
See notes to audited consolidated financial statements.
82
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Common Stock,
$.001 Par Value
--------------- Additional
Number of Paid-in
Shares Amount Capital
---------- ---------- ----------
Balance, December 31, 2007 28,948,873 28,949 $4,287,378
Sale of common stock 25,361,916 25,362 340,600
Common stock issued for services 37,600,000 37,600 295,950
Cancellation of common stock issued
previously for services (3,100,000) (3,100) (7,130)
Common stock issued as a replacement
for issuance of stock options in
connection with a consulting agreement 1,000,000 1,000 (55,902)
Common stock issued for prepaid services 3,600,000 3,600 97,767
Common stock issued for settlement of
related party loans 66,000 66 31,734
Common stock issued for convertible debt 11,218,830 11,218 106,580
Common stock issued in connection with the
merger agreement 1,907,370 1,908 55,236
Beneficial conversion on convertible debt - - 1,049,717
Stock warrants issued for services - - 17,894
Net loss for the period - - -
----------- --------- ----------
Balance December 31, 2008 106,602,989 $ 106,603 $6,219,824
Sale of common stock 36,486,083 36,486 295,877
Common stock issued for services 2,655,000 2,655 82,035
Common stock issued for settlement of
related party loans 4,900,000 4,900 240,100
Common stock issued in connection with a
license agreement 2,000,000 2,000 42,000
Net loss for the period - - -
----------- --------- ----------
Balance, December 31, 2009 152,644,072 $ 152,644 $6,879,836
=========== ========= ==========
See notes to audited consolidated financial statements.
83
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONTINUED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Total
Accumulated Deferred Stockholders'
Deficit Compensation Deficit
---------- ---------- ----------
Balance, December 31, 2007 $(4,437,200) $ - $ (120,873)
Sale of common stock - (25,150) 340,812
Common stock issued for services - - 333,550
Cancellation of common stock issued
previously for services - - (10,230)
Common stock issued as a replacement
for issuance of stock options in
connection with a consulting agreement - - (54,902)
Common stock issued for prepaid services - - 101,367
Common stock issued for settlement of
related party loans - - 31,800
Common stock issued for convertible debt - - 117,798
Common stock issued in connection with the
merger agreement - - 57,144
Beneficial conversion on convertible debt - - 1,049,717
Stock warrants issued for services - - 17,894
Net loss for the period (3,076,697) - (3,076,697)
----------- ---------- -----------
Balance December 31, 2008 (7,513,897) (25,150) (1,212,620)
Sale of common stock - (48,567) 283,796
Common stock issued for services - - 84,690
Common stock issued for settlement of
related party loans - - 245,000
Common stock issued in connection with a
license agreement - - 44,000
Net loss for the period (577,026) - (577,026)
----------- --------- -----------
Balance, December 31, 2009 $ 8,090,923 $ (73,717) $(1,132,160)
=========== ========== ===========
See notes to audited consolidated financial statements.
84
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
------------------
2009 2008
---- ----
Cash flows from operating activities:
Net loss $ (577,026) $(3,076,697)
----------- -----------
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation 676 2,524
Common stock issued for services 84,690 323,320
Common stock issued in connection with
a license agreement 44,000 -
Stock warrants issued for services - 17,894
Amortization of prepaid expense in
connection with deferred compensation - 187,585
Gain on settlement of debt - (469,284)
Interest expense for the settlement of a
Related party loan 196,000 -
Interest expense in connection with the
settlement agreement - 1,049,717
Impairment of goodwill - 1,717,602
Changes in assets and liabilities:
Prepaid expenses and other (11,000) -
Accounts payable and accrued expenses 32,020 (6,394)
Deferred revenues (506) (1,010)
---------- ----------
Total adjustments 345,880 2,821,954
Net cash used in operating activities (231,146) (254,743)
---------- ----------
Cash flows from financial activities:
Proceeds from sale of common stock 283,796 340,812
Proceeds from related parties 18,000 8,000
Payments on related party advances (6,900) (92,600)
---------- ----------
Net cash provided by financing activities 294,896 256,212
---------- ----------
Net increase in cash 63,750 1,469
Cash - beginning of the year 2,319 850
---------- ----------
Cash - end of the year $ 66,069 $ 2,319
========== ==========
85
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONTINUED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
------------------
2009 2008
---- ----
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ - $ -
========== ==========
Income taxes $ - $ -
========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITEIS:
Common stock issued for future services $ - $ 101,367
========== ==========
Common stock issued for settlement
of loans $ 49,000 $ 149,598
========== ==========
See notes to audited consolidated financial statements
86
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of
America ("US GAAP"). The consolidated statements include the accounts
of Genesis Electronics Group, Inc. formerly Pricester.com, Inc. and its
wholly-owned subsidiary. All significant inter-company balances and
transactions have been eliminated.
ASB Accounting Standards Codification
The issuance by the FASB of the Accounting Standards CodificationTM
(the "Codification") on July 1, 2009 (effective for interim or annual
reporting periods ending after September 15, 2009), changes the way
that GAAP is referenced. Beginning on that date, the Codification
officially became the single source of authoritative nongovernmental
GAAP; however, SEC registrants must also consider rules, regulations,
and interpretive guidance issued by the SEC or its staff. The change
affects the way the Company refers to GAAP in financial statements and
in its accounting policies. All existing standards that were used to
create the Codification became superseded. Instead, references to
standards consist solely of the number used in the Codification's
structural organization.
Organization
Genesis Electronics Group, Inc. formerly Pricester.com, Inc. was
incorporated under the name Pricester, Inc. on April 19, 2001 in the
State of Florida. Pursuant to Articles of Amendment filed on February
24, 2009, the name of the registrant was changed to Genesis Electronics
Group, Inc.
On February 11, 2005, Pricester.Com (the "Company") merged into
Pricester.com, Inc, ("BA22") a public non-reporting company (that was
initially incorporated in Nevada in March 1998 as Business Advantage
#22, Inc). BA22 acquired 100% of the Company's outstanding common stock
by issuing one share of its common stock for each share of the
Company's then outstanding common stock of 21,262,250 shares. The
acquisition was treated as a recapitalization for accounting purposes.
Through December 31, 2005, the Company was a developmental stage e-
commerce company. The Company currently operates an e-commerce website
that enables any business to establish a fully functional online retail
presence. Pricester.com is an Internet marketplace which allows vendors
to host their website with product and service listings and allows
consumers to search for listed products and services.
87
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
In May 2008, the Company obtained through a vote of majority of its
shareholders the approval to increase the authorized common shares from
50,000,000 to 300,000,000 shares of common stock at $0.001 par value.
On May 22, 2008, the Company completed a share exchange with Genesis
Electronics, Inc., a Delaware corporation ("Genesis") which is
described below.
The share exchange is being accounted for as a purchase method
acquisition pursuant to FASB ASC 805 "Business Combinations".
Accordingly, the purchase price was allocated to the fair value of the
assets acquired and the liabilities assumed. The Company is the
acquirer for accounting purposes and Genesis is the acquired company.
Genesis was originally formed in Delaware on October 22, 2001 and is
engaged on the development of solar and alternative energy applications
for consumer devices such as mobile phones.
In November 2008, the Company obtained through a vote of majority of
its shareholders the approval to change the Company's name to Genesis
Electronics Group, Inc. In February 2009, the Company filed an
amendment to its Articles of Incorporation with the Secretary of State
of Nevada. The Company changed its name to Genesis Electronics Group,
Inc.
Acquisition of Genesis
On May 22, 2008, the Company entered into an Agreement and Plan of
Share Exchange (the "Acquisition Agreement") by and among the Company,
Genesis Electronics, Inc. ("Genesis") and the Genesis Stockholders.
Upon closing of the merger transaction contemplated under the
Acquisition Agreement (the "Acquisition"), on May 22, 2008 the Company
acquired all of the outstanding common shares of Genesis and Genesis
became a wholly-owned subsidiary of the Company.
The share exchange consideration included the issuance of 1,907,370
shares of the Company's stock valued at $0.03 per share. The total
purchase price was common stock valued at $57,144.
The Company accounted for the acquisition utilizing the purchase method
of accounting in accordance with FASB ASC 805, "Business Combinations".
The Company is the acquirer for accounting purposes and Genesis is the
acquired company. Accordingly, the Company applied push-down
accounting and adjusted to fair value all of the assets and liabilities
directly on the financial
88
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
statements of the Subsidiary, Genesis Electronics, Inc. The net
purchase price, including acquisition costs paid by the Company, was
allocated to the liabilities assumed on the records of the Company as
follows:
Goodwill $ 1,717,602
Liabilities assumed (1,660,458)
-----------
Net purchase price $ 57,144
===========
Since the Company has minimal revenues, has incurred losses and cash
used in operations, the Company deemed the acquired goodwill to be
impaired and wrote-off the goodwill on the acquisition date.
Accordingly, during fiscal year 2008, the Company recorded an
impairment of goodwill of $1,717,602 on the accompanying statement of
operations.
Unaudited pro forma results of operations data as if the Company and
Genesis had occurred are as follows:
The Company and The Company and
Genesis Genesis
For the Year For the Year
Ended ended
December 31, 2009 December 31, 2008
----------------- -----------------
Pro forma revenues $ 78,797 $ 111,518
Pro forma loss from operations $ (376,574) $ (917,827)
Pro forma net loss $ (577,026) $(3,245,084)
Pro forma loss per share $ (0.00) $ (0.06)
Pro forma diluted loss per share $ (0.00) $ (0.06)
Pro forma data does not purport to be indicative of the results that
would have been obtained had these events actually occurred and is not
intended to be a projection of future results.
Reclassification
Certain amounts in the 2008 consolidated financial statements have been
reclassified to conform to the 2009 presentation. Such
reclassifications had no effect on the reported net loss.
89
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 revenue
and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates in 2009 and 2008 include
the valuation of stock-based compensation, and the useful life of
property, equipment, website development and valuation of beneficial
conversion feature in connection with convertible debt.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of
three months or less and money market accounts to be cash equivalents.
Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted FASB ASC 820, "Fair
Value Measurements and Disclosures" ("ASC 820"), for assets and
liabilities measured at fair value on a recurring basis. ASC 820
establishes a common definition for fair value to be applied to
existing generally accepted accounting principles that require the use
of fair value measurements, establishes a framework for measuring fair
value and expands disclosure about such fair value measurements. The
adoption of ASC 820 did not have an impact on the Company's financial
position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC
820 requires the use of valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. These
inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active
markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that
are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market
data, which require the use of the reporting entity's own assumptions.
90
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Cash and cash equivalents include money market securities that are
considered to be highly liquid and easily tradable as of December 31,
2009 and 2008, respectively. These securities are valued using inputs
observable in active markets for identical securities and are therefore
classified as Level 1 within our fair value hierarchy.
In addition, FASB ASC 825-10-25 Fair Value Option was effective for
January 1, 2008. ASC 825-10-25 expands opportunities to use fair value
measurements in financial reporting and permits entities to choose to
measure many financial instruments and certain other items at fair
value. The Company did not elect the fair value options for any of its
qualifying financial instruments.
The carrying amounts reported in the consolidated balance sheet for
cash, accounts payable, accrued expenses, loans payable, notes payable,
due to related parties and deferred revenue approximate their fair
market value based on the short-term maturity of these instruments.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line method over the
estimated economic lives of the assets, which are from five to seven
years. Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred.
Website Development
Costs that the Company has incurred in connection with developing the
Company's websites are capitalized and amortized using the straight-
line method over expected useful lives of three years.
Impairment of Long-lived Assets
Long-Lived Assets of the Company are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of assets may
not be recoverable, pursuant to guidance established in ASC 360-10-35-
15, "Impairment or Disposal of Long-Lived Assets". The Company
recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The
amount of impairment is measured as the difference between the asset's
estimated fair value and its book value. The Company did not consider
it necessary to record any impairment charges during the year ended
December 31, 2009. For the year ended December 31, 2008, the Company
recorded an impairment of goodwill of $1,717,602 on the accompanying
statement of operations.
91
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board, or FASB,
issued FASB ASC Topic 718: Compensation - Stock Compensation ("ASC
718"). Under ASC 718, companies are required to measure the
compensation costs of share-based compensation arrangements based on
the grant-date fair value and recognize the costs in the financial
statements over the period during which employees are required to
provide services. Share-based compensation arrangements include stock
options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. Companies may
elect to apply this statement either prospectively, or on a modified
version of retrospective application under which financial statements
for prior periods are adjusted on a basis consistent with the pro forma
disclosures required for those periods under ASC 718. Upon adoption of
ASC 718, the Company elected to value employee stock options using the
Black-Scholes option valuation method that uses assumptions that relate
to the expected volatility of the Company's common stock, the expected
dividend yield of our stock, the expected life of the options and the
risk free interest rate. Such compensation amounts, if any, are
amortized over the respective vesting periods or period of service of
the option grant. For the year ended December 31, 2009, the Company did
not grant any stock options to employees.
Net Loss per Common Share
Net loss per common share are calculated in accordance with ASC Topic
260: Earnings Per Share. Basic loss per share is computed by dividing
net loss by the weighted average number of shares of common stock
outstanding during the period. The computation of diluted net earnings
per share does not include dilutive common stock equivalents in the
weighted average shares outstanding as they would be anti-dilutive. As
of December 31, 2009 and 2008, there were options and warrants to
purchase 2,025,000 shares of common stock which could potentially
dilute future earnings per share.
Income Taxes
Income taxes are accounted for under the asset and liability method as
prescribed by ASC Topic 740: Income Taxes. Deferred income tax assets
and liabilities are computed for differences between the carrying
amounts of assets and liabilities for financial statement and tax
purposes. Deferred income tax assets are required to be reduced by a
valuation allowance when it is determined that it is more likely than
not that all or a portion of a deferred tax asset will not be realized.
In determining the necessity and amount of a valuation allowance,
92
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
management considers current and past performance, the operating market
environment, tax planning strategies and the length of tax benefit
carryforward periods.
Pursuant to ASC Topic 740-10: Income Taxes related to the accounting
for uncertainty in income taxes, the evaluation of a tax position is a
two-step process. The first step is to determine whether it is more
likely than not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigation based on
the technical merits of that position. The second step is to measure a
tax position that meets the more-likely-than-not threshold to determine
the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is
greater than 50% likelihood of being realized upon ultimate settlement.
Tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent
period in which the threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not criteria should
be de-recognized in the first subsequent financial reporting period in
which the threshold is no longer met. The accounting standard also
provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosures, and transition.
The adoption had no effect on the Company's consolidated financial
statements.
Research and Development
Research and development costs, if any, are expensed as incurred.
Related Parties
Parties are considered to be related to the Company if the parties
that, directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with the
Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners
of the Company and its management and other parties with which the
Company may deal if one party controls or can significantly influence
the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its
own separate interests. The Company discloses all related party
transactions. All transactions shall be recorded at fair value of the
goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on
behalf of the related party in excess of the cost is reflected as a
distribution to related party.
93
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Subsequent Events
For purposes of determining whether a post-balance sheet event should
be evaluated to determine whether it has an effect on the financial
statements for the period ending December 31, 2009, subsequent events
were evaluated by the Company as of April 15, 2010, the date on which
the audited consolidated financial statements at and for the period
ended December 31, 2009, were available to be issued.
Revenue Recognition
The Company follows the guidance of the FASB ASC 605-10-S99 "Revenue
Recognition Overall - SEC Materials. The Company records revenue when
persuasive evidence of an arrangement exists, services have been
rendered or product delivery has occurred, the sales price to the
customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the
various revenues streams of the Company:
The Company has three primary revenue sources: website design,
transaction fees, and hosting fees.
- Website design revenue is recognized as earned when the website
is complete, control is transferred and the customer has accepted its
website, usually within seven days of the order.
- Transaction fee income comprises fees charged for use of credit
cards or other forms of payment in the purchase of items sold on the
customers' websites. The transaction fee income is recognized as earned
when funds transfers (via credit card or other forms of payments)
between the buyer and seller has been authorized.
- Revenues from website hosting fees are recognized when earned.
Web hosting fees received in advance are reflected as deferred revenue
on the accompanying balance sheet.
Recent accounting pronouncements
In June 2009, the FASB issued Accounting Standards Update No. 2009-01,
"Generally Accepted Accounting Principles" (ASC Topic 105) which
establishes the FASB Accounting Standards Codification ("the
Codification" or "ASC") as the official single source of authoritative
U.S. generally accepted accounting principles ("GAAP"). All existing
accounting standards are superseded. All other accounting guidance not
included in the Codification will be considered non-authoritative. The
Codification also includes all relevant Securities and Exchange
Commission ("SEC") guidance organized using the same topical structure
in separate sections within the Codification.
94
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Following the Codification, the Board will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues Task
Force Abstracts. Instead, it will issue Accounting Standards Updates
("ASU") which will serve to update the Codification, provide background
information about the guidance and provide the basis for conclusions on
the changes to the Codification.
The Codification is not intended to change GAAP, but it will change the
way GAAP is organized and presented. The Codification is effective for
our third-quarter 2009 financial statements and the principal impact on
our financial statements is limited to disclosures as all future
references to authoritative accounting literature will be referenced in
accordance with the Codification.
In April 2009, the FASB issued ASC Topic 320-10-65, "Recognition and
Presentation of Other-Than-Temporary Impairments". This update provides
guidance for allocation of charges for other-than-temporary impairments
between earnings and other comprehensive income. It also revises
subsequent accounting for other-than-temporary impairments and expands
required disclosure. The update was effective for interim and annual
periods ending after June 15, 2009. The adoption of ASC Topic 320-10-65
did not have a material impact on the results of operations and
financial condition.
In April 2009, the FASB issued ASC Topic 320-10-65, "Interim
Disclosures About Fair Value of Financial Instruments". This update
requires fair value disclosures for financial instruments that are not
currently reflected on the balance sheet at fair value on a quarterly
basis and is effective for interim periods ending after June 15, 2009.
The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and notes
payable. At December 31, 2009 and 2008 the carrying value of the
Companies financial instruments approximated fair value, due to their
short term nature.
In May 2009, the FASB issued (ASC Topic 855), "Subsequent Events" (ASC
Topic 855). This guidance is intended to establish general standards of
accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or available to
be issued. It is effective for interim and annual reporting periods
ending after June 15, 2009. The adoption of this guidance did not have
a material impact on our consolidated financial statements.
95
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
In June 2009, the FASB issued ASC Topic 810-10, "Amendments to FASB
Interpretation No. 46(R)". This updated guidance requires a qualitative
approach to identifying a controlling financial interest in a variable
interest entity (VIE), and requires ongoing assessment of whether an
entity is a VIE and whether an interest in a VIE makes the holder the
primary beneficiary of the VIE. It is effective for annual reporting
periods beginning after November 15, 2009. The adoption of ASC Topic
810-10 did not have a material impact on the results of operations and
financial condition.
In October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable
Revenue Arrangements." This ASU establishes the accounting and
reporting guidance for arrangements including multiple revenue-
generating activities. This ASU provides amendments to the criteria for
separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. The amendments in
this ASU also establish a selling price hierarchy for determining the
selling price of a deliverable. Significantly enhanced disclosures are
also required to provide information about a vendor's multiple-
deliverable revenue arrangements, including information about the
nature and terms, significant deliverables, and its performance within
arrangements. The amendments also require providing information about
the significant judgments made and changes to those judgments and about
how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after June 15,
2010. Early application is permitted. The Company is currently
evaluating this new ASU.
In October 2009, the FASB issued ASU No. 2009-14, "Certain Revenue
Arrangements That Include Software Elements." This ASU changes the
accounting model for revenue arrangements that include both tangible
products and software elements that are "essential to the
functionality," and scopes these products out of current software
revenue guidance. The new guidance will include factors to help
companies determine what software elements are considered "essential to
the functionality." The amendments will now subject software-enabled
products to other revenue guidance and disclosure requirements, such as
guidance surrounding revenue arrangements with multiple-deliverables.
The amendments in this ASU are effective prospectively for revenue
arrangements entered into or materially modified in the fiscal years
beginning on or after June 15, 2010. Early application is permitted.
The Company is currently evaluating this new ASU.
96
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Other accounting standards that have been issued or proposed by FASB
that do not require adoption until a future date are not expected to
have a material impact on the consolidated financial statements upon
adoption.
NOTE 2 - PROPERTY AND EQUIPMENT
At December 31, 2009, property and equipment consist of the following:
Useful Life
(Years)
-----------
Computer equipment and software 5 $ 12,542
Office furniture and fixtures and
equipment 7 4,328
---------
16,870
Less accumulated depreciation (16,175)
--------
$ 695
========
At December 31, 2008, property and equipment consist of the following:
Useful Life
(Years)
-----------
Computer equipment and software 5 $ 12,542
Office furniture and fixtures and
equipment 7 4,328
---------
16,870
Less accumulated depreciation (15,499)
--------
$ 1,371
For the years ended December 31, 2009 and 2008, depreciation expense
amounted to $676 and $1,893, respectively.
NOTE 3 - LOANS PAYABLE
On May 22, 2008, in connection with the acquisition, the Company
assumed loans payable from certain third parties. These loans bear 8%
interest per annum and are payable on demand. As of December 31, 2009,
loans payable and related accrued interest amounted to $40,000 and
$11,571, respectively. As of December 31, 2008, loans payable and
related accrued interest amounted to $40,000 and $8,371, respectively.
97
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 4 - RELATED PARTY TRANSACTIONS
During fiscal 2009 and 2008, certain officers of the Company advanced
funds to the Company for working capital purposes. The advances are
non-interest bearing and are payable on demand. At December 31, 2009
and December 31, 2008, the Company owed these related parties $40,485
and $78,385, respectively.
In May 2009, the Company issued 4,900,000 shares of common stock to an
officer of the Company in connection with a settlement of related party
loans of $49,000. The Company valued these common shares at the fair
market value on the date of grant at $0.05 per share or $245,000. The
Company has recognized interest expense of $196,000 in connection with
this settlement.
NOTE 5 - INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" "SFAS 109".
SFAS 109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the
financial statements and the tax basis of assets and liabilities, and
for the expected future tax benefit to be derived from tax losses and
tax credit carryforwards. SFAS 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has a net operating
loss carryforward for tax purposes totaling approximately $4.4 million
at December 31, 2009 expiring through the year 2029. Internal Revenue
Code Section 382 places a limitation on the amount of taxable income
that can be offset by carryforwards after a change in control
(generally greater than a 50 percent change in ownership).
Temporary differences, which give rise to a net deferred tax asset, are
as follows:
2009 2008
-------------------------------
Computed "expected" benefit $(196,189) $(1,046,077
State tax benefit, net of federal
effect (23,081) (123,068)
Other permanent differences 74,480 1,058,381
Increase in valuation allowance 144,790 110,764
-------------------------------
$ - $ -
===============================
Deferred tax assets and liabilities are provided for significant income
and expense items recognized in different years for tax and financial
reporting purposes. Temporary differences, which give rise to a net
deferred tax asset is as follows:
98
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 5 - INCOME TAXES
2009
----------
Deferred tax assets:
Net operating loss carryforward $ 1,806,991
Less: Valuation allowance (1,806,991)
----------
-
==========
The valuation allowance at December 31, 2009 was $1,806,991. The
increase during fiscal 2009 was $144,790.
NOTE 6 - NOTE PAYABLE
On May 22, 2008, in connection with the acquisition, the Company
assumed a note payable from a third party. These loans bear 8% interest
per annum and is payable on demand. As of December 31, 2009, note
payable and related accrued interest amounted to $15,647 and $7,480,
respectively. As of December 31, 2008, note payable and related accrued
interest amounted to $15,647 and $6,228, respectively.
NOTE 7 - CONVERTIBLE DEBT
On May 22, 2008, in connection with the acquisition, the Company
assumed certain debts from a third party, Corporate Debt Solutions
("Corporate Debt") amounting to $1,049,717. Corporate Debt assumed a
total of $1,049,717 of promissory notes issued by two former officers
of Genesis and a certain third party. These promissory notes were
issued to the Company's subsidiary, Genesis. Immediately following the
closing of the acquisition agreement, on May 23, 2008, the Company
entered into a settlement agreement with Corporate Debt Solutions
("Corporate Debt"). Pursuant to the settlement agreement, the Company
shall issue shares of common stock and deliver to Corporate Debt, to
satisfy the principal and interest due and owing through the issuance
of freely trading securities of up to 100,000,000 shares. The parties
have agreed that Corporate Debt shall have no ownership rights to the
Settlement Shares not yet issued until it has affirmed to the Company
that it releases the Company for the proportionate amount of claims
represented by each issuance. The said requested number of shares of
common stock is not to exceed 4.99% of the outstanding stock of the
Company at any one time. In connection with this settlement agreement,
the Company recorded and deemed such debt as a convertible liability
with a fixed conversion price of $0.01. Accordingly, the Company
recognized a total debt discount of $1,049,717 due to a beneficial
conversion feature and such debt discount was immediately amortized to
interest expense during fiscal year 2008.
99
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 7 - CONVERTIBLE DEBT (continued)
In June 2008, the Company issued 2,223,456 shares in connection with
the conversion of this convertible debt. The fair value of such shares
issued amounted to approximately $23,346.
Between July 2008 and August 2008, the Company issued 8,995,374 shares
in connection with the conversion of this convertible debt. The fair
value of such shares issued amounted to approximately $94,452.
At December 31, 2009 and December 31, 2008, convertible debt amounted
to $931,919.
NOTE 8 - GOING CONCERN
The accompanying audited consolidated financial statements are prepared
assuming the Company will continue as a going concern. Going concern
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business over a reasonable length
of time. The Company was in the development stage through December 31,
2005 and has an accumulated deficit of $8,090,923, had net losses,
negative working capital and negative cash flows from operations for
the year ended December 31, 2009 of $577,026, $1,132,855 and $231,146
respectively. While the Company is attempting to increase revenues,
the growth has not been significant enough to support the Company's
daily operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. For the year ended December 31,
2009, the Company sold 36,486,083 common shares for net proceeds of
$283,796 and subscription receivable of $108,984. For the year ended
December 31, 2009 the Company collected subscription receivable of
$60,417.
Management is attempting to raise additional funds by way of a public
or private offering. While the Company believes in the viability of
its strategy to increase sales volume and in its ability to raise
additional funds, there can be no assurances to that effect. The
Company shareholders have continued to advance funds to the Company but
there can be no assurance that future advances will be made available.
The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve
consumer recognition. These financial statements do not include any
adjustments relating to the recoverability and classifications of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
100
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 9 - STOCKHOLDERS' DEFICIT
Common Stock
During the year ended December 31, 2008, the Company received net
proceeds of $340,812 and subscription receivable of $25,150 from the
sale of 25,361,916 shares of the Company's common stock.
In January 2008, the Company issued 66,000 shares of common stock to
officers of the Company in connection with a settlement of related
party loans of $31,800.
In January 2008, in connection with a three month consulting agreement,
the Company issued 800,000 shares of common stock for investor
relations services. The Company valued these common shares at the fair
market value on the date of grant at $.07 per share or $56,000. In
connection with issuance of these shares, the Company recorded stock-
based consulting expense of $56,000 during the year ended December 31,
2008.
In January 2008, the Company issued in aggregate 3,000,000 shares of
common stock to the Company's CEO and an officer of the Company in
connection with employment agreements dated January 14, 2008. The
Company valued these common shares at the fair market value on the date
of grant at $.07 per share or $210,000 and has been recorded as stock-
based compensation.
In February 2008, in connection with a twelve month consulting
agreement, the Company issued 500,000 shares of common stock for
corporate advisory services. The Company valued these common shares at
the fair market value on the date of grant at $.18 per share or
$90,000. In connection with issuance of these shares, during the year
ended December 31, 2008, the Company recorded stock-based consulting
expense of $90,000.
In February 2008, the Company amended a consulting agreement entered
into on June 28, 2007, whereby the consultant will no longer receive
the 1,000,000 options to purchase the Company's common stock but
instead shall receive 1,000,000 shares of the Company's common stock.
The Company valued these common shares at the fair market value on the
date of grant at $.10 per share or $100,000. The Company has recognized
stock-based consulting expense of $80,668 during fiscal 2007, in
connection with this agreement. Accordingly, as a result of this
amended agreement, the Company has recognized stock-based consulting
expense of $19,332 and has reversed the unamortized portion of $54,902
in prepaid expense related to the valuation of the stock options during
the year ended December 31, 2008.
101
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 9 - STOCKHOLDERS' DEFICIT (continued)
In June 2008, in connection with a consulting agreement, the Company
issued 3,100,000 shares of common stock for investor relations
services. The Company valued these common shares at the fair market
value on the date of grant at $.04 per share or $136,400. In connection
with issuance of these shares, the Company recorded stock-based
consulting expense of $11,367 and prepaid expense of $125,033 to be
amortized over the balance of the service period. In September 2008,
the Company terminated this agreement and accordingly cancelled the
3,100,000 shares of common stock. In connection with the return of the
3,100,000 shares of common stock, the Company reduced stock-based
compensation expense by approximately $10,230 based on the fair market
value of the common stock on the date of cancellation of $0.003 per
share and has reversed the unamortized portion of $125,033 in prepaid
expense related to the valuation of the stock options during the year
ended December 31, 2008.
In June 2008, the Company issued 2,223,456 shares in connection with
the conversion of this convertible debt. The fair value of such shares
issued amounted to approximately $23,346.
Between July 2008 and August 2008, the Company issued 8,995,374 shares
in connection with the conversion of this convertible debt. The fair
value of such shares issued amounted to approximately $94,452.
In August 2008, the Company issued 250,000 shares of common stock for
corporate advisory services rendered. The Company valued these common
shares at the fair market value on the date of grant at $.0065 per
share or $1,625. In connection with issuance of these shares, the
Company recorded stock-based consulting expense of $1,625 during the
year ended December 31, 2008.
In August 2008, the Company issued 150,000 shares of common stock for
investor relation services rendered. The Company valued these common
shares at the fair market value on the date of grant at $.0035 per
share or $525. In connection with issuance of these shares, the Company
recorded stock-based consulting expense of $525 during the year ended
December 31, 2008.
In November 2008, the Company issued in aggregate 30,000,000 shares of
common stock to the Company's CEO and an officer of the Company for
services rendered. The Company valued these common shares at the fair
market value on the date of grant at $.002 per share or $60,000 and has
been recorded as stock-based compensation.
In November 2008, the Company issued in aggregate 400,000 shares of
common stock to certain employees of the Company for services rendered.
The Company valued these common shares at the fair market value on the
date of grant at $.002 per share or $800 and has been recorded as
stock-based compensation.
102
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 9 - STOCKHOLDERS' DEFICIT (continued)
Between October and November 2008, the Company issued in aggregate
3,000,000 shares of common stock to the Company's CEO and an officer of
the Company pursuant to amended employment agreements. The Company
valued these common shares at the fair market value on the date of
grant ranging from $0.001 to $.002 per share or $4,600 and has been
recorded as stock-based compensation.
During fiscal 2008, in connection with the Merger Agreement, the
Company issued 1,907,370, shares of common stock valued at $0.03 per
share or $57,144. The Company valued these common shares at the fair
market value on the date of grant.
For the year ended December 31, 2009, the Company received net proceeds
of $283,796 and subscription receivable of $$108,984 from the sale of
36,486,083 shares of the Company's common stock.
For the year ended December 31, 2009, the Company collected
subscription receivable of $60,417.
In May 2009, the Company issued 4,900,000 shares of common stock to an
officer of the Company in connection with a settlement of related party
loans of $49,000. The Company valued these common shares at the fair
market value on the date of grant at $0.05 per share or $245,000. The
Company has recognized interest expense of $196,000 in connection with
this settlement.
Between August 2009 and September 2009, the Company issued an aggregate
of 200,000 shares of common stock for technical advisory services
rendered. The Company valued these common shares at the fair value on
the date of grant ranging approximately from $.03 to $.05 per share or
$8,090. In connection with issuance of these shares, the Company
recorded stock-based consulting expense of $8,090 during the year ended
December 31, 2009.
In October 2009, the Company issued in aggregate 2,000,000 shares of
common stock to the Company's CEO and an officer of the Company in
connection with their employment agreements. The Company valued these
common shares at the fair market value on the date of grant at $.03 per
share or $62,000 and has been recorded as stock-based compensation.
In October 2009, the Company issued in aggregate 150,000 shares of
common stock to three officers of the Company for services rendered.
The Company valued these common shares at the fair market value on the
date of grant at $.03 per share or $4,650 and has been recorded as
stock-based compensation.
103
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
In November 2009, the Company issued 2,000,000 shares of common stock
in connection with a license agreement. The Company valued these
common shares at the fair market value on the date of grant ranging at
$.02 per share or $44,000 and has been recorded as license fee.
Between November and December 2009, the Company issued in aggregate
305,000 shares of common stock to consultants for services rendered.
The Company valued these common shares at the fair market value on the
date of grant ranging from $.03 to $.04 per share or $9,950 and has
been recorded as stock-based consulting.
Stock Options
A summary of the stock options as of December 31, 2009 and changes
during the periods is presented below:
Weighted
Average
Number of Exercise
Options Price
--------- --------
Balance at beginning of year 2,025,000 $ 0.40
Granted - -
Exercised - -
Cancelled - -
--------- -------
Balance at end of year 2,025,000 $ 0.40
========= =======
Options exercisable at end of year 2,025,000 $ 0.40
========= =======
The following table summarizes the Company's stock option outstanding
at December 31, 2009:
Options Outstanding and Exercisable
-----------------------------------
Weighted Weighted
Average Average
Range of Remaining Exercise
Exercise Price Number Life Price
-------------- ------ --------- -------
$0.40 2,025,000 1 year after 0.40
effective
registration
104
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 and 2008
NOTE 10 - COMMITMENTS
Operating Leases
In October 2009, the Company has signed a 6 months lease agreement
which will expire in March 2010. The office lease agreement has certain
escalation clauses and renewal options. If the Company exercises the
option to renew, the base rent shall increase by 3% per each lease
year. Future minimum rental payments required under the operating lease
are as follows:
Period Ended December 31, 2010 $ 3,350
---------
Total $ 3,350
=========
Rent expense, including common area charges and sales taxes, for the
years ended December 31, 2009 and 2008 was $12,891 and $19,373,
respectively.
Employment Contracts
The Company entered into an employment agreement on January 14, 2008
with its chief executive officer which expires in January 2013. The
employment agreement calls for an issuance of 500,000 free trading
shares of the Company's common stock. Additionally, based on this
agreement, the Company shall issue 1,000,000 restricted shares of
common stock during each fiscal year of the term of this agreement.
The Company entered into an employment agreement on January 14, 2008
with an officer of the Company which expires in January 2013. The
employment agreement calls for an issuance of 500,000 free trading
shares of the Company's common stock. Additionally, based on this
agreement, the Company shall issue 1,000,000 restricted shares of
common stock during each fiscal year of the term of this agreement.
License Agreement
In November 2009, the Company entered into a license agreement with
Johns Hopkins University Applied Physics Lab ("JHU/APL") whereby the
Company will have a limited exclusive license to JHU/APL's Integrated
Power Source patents. The patents are for the solar powered cell phone
and iPod chargers. The Company has paid $10,000 and issued 2 million
shares of the Company's common stock upon execution of this agreement.
Future license payments under the license agreement are as follows:
Due March 1, 2010 $10,000
Due June 1, 2010 $10,000
Due September 1, 2010 $10,000
Due upon the one year anniversary of the license $125,000
105
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 10 - COMMITMENTS (continued)
Should the Company elect not to execute the option to an exclusive
license for the patents in advance of the one year anniversary of
execution of license agreement, the $125,000 second year anniversary
execution fee payment will be reduced to $36,000.
The Company shall also pay minimum annual royalty payments as defined
in the license agreement. The royalty is 6% on net sales of the product
sold using the technology under these patents. In addition, the Company
shall pay sales milestone payments as set forth in this license
agreement. The Company may terminate this agreement and the license
granted herein, for any reason, upon giving JHU/APL sixty days written
notice.
NOTE 11 - SUBSEQUENT EVENTS
Between January 2010 and March 2010, the Company issued 597,384 shares
of the Company's common stock for net proceeds of approximately
$18,005.
In February 2010, the Company issued 250,000 shares of common stock for
public and investor relations services rendered. The Company valued
these common shares at the fair value on the date of grant at $0.04 per
share or $10,000.
In April 2010, the Company received net proceeds of approximately
$30,000 from the sale of 585,000 shares of the Company's common stock.
In April 2010, the Company collected subscription receivable of
$40,250.
106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses of this offering in connection with the issuance
and distribution of the securities being registered, all of which are
to be paid by the Registrant, are as follows:
Registration Fee $ 154.25
Legal Fees and Expenses $ 35,000.00
Accounting Fees and Expenses $ 14,800.00
-----------
Total $ 49,954.25
Item 14. Indemnification of Directors and Officers
Our Articles of Incorporation include an indemnification provision
under which we have agreed to indemnify our directors and officers from
and against certain claims arising from or related to future acts or
omissions as a director or officer of the Company. Insofar as
indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing, or otherwise, we have been
advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
During the past three years the Company has had the following
unregistered sales of its securities:
2010
Between January 2010 and March 2010, the Company issued 597,384 shares
of the Company's common stock for net proceeds of approximately
$18,005.
In February 2010, the Company issued 250,000 shares of common stock for
public relation services rendered. The Company valued these common
shares at the fair value on the date of grant at $.04 per share or
$10,000. In connection with issuance of these shares, the Company
recorded stock-based consulting expense of $10,000 during the three
months ended March 31, 2010.
For the three months ended March 31, 2010, the Company received net
proceeds of $94,005 and subscription receivable of $40,000 from the
sale of 2,917,834 shares of the Company's common stock.
For the three months ended March 31, 2010, the Company collected
subscription receivable of $15,192.
107
In April 2010, the Company received net proceeds of approximately
$30,000 from the sale of 585,000 shares of the Company's common stock.
In May 2010, the Company entered into a Securities Purchase Agreement
with Tangiers Investors, LP ("Investor"). The Company has agreed to
issue and sell to the investor pursuant to the terms of this agreement
for an aggregate purchase price of up to $5,000,000. The purchase price
shall be set at 85% of the lowest volume weighted average price of the
Company's common stock during the pricing period as quoted by
Bloomberg, LP on the Over-the-Counter Bulletin Board. The Company shall
prepare and file a Registration Statement with the Securities and
Exchange Commission and shall cause such Registration statement to be
declared effective prior to the first sale to the investor of the
Company's common stock. The Company agrees to pay the Investor a
commitment fee of 3,000,000 shares of the Company's common stock
pursuant to the Securities Purchase Agreement.
In May 2010, the Company issued a 9% Secured Convertible Debenture for
$20,000 to Tangiers Investors, LP. This debenture matures on December
23, 2010. The Company may prepay any portion of the principal amount at
150% of such amount along with the accrued interest. This debenture
including interest shall be convertible into shares of the Company's
common stock at the lower of $0.01 per share or a price of 70% of the
average of the two lowest volume weighted average price determined on
the then current trading market for ten trading days prior to
conversion at the option of the holder.
For the six months ended June 30, 2010, we received net proceeds of
$123,755 and subscription receivable of $40,000 from the sale of
3,502,834 common shares.
In July 2010, in connection with a consulting agreement, we issued
350,000 shares of common stock for public relations and marketing
services until September 15, 2010.
In July 2010, we issued in aggregate 2,000,000 shares of common stock
to our CEO and officer of the Company in connection with their
employment agreements.
2009
For the year ended December 31, 2009, the Company received net proceeds
of $283,796 and subscription receivable of $108,984 from the sale of
36,486,083 shares of the Company's common stock.
In May 2009, the Company issued 4,900,000 shares of common stock to an
officer of the Company in connection with a settlement of related party
loans of $49,000. The Company valued these common shares at the fair
market value on the date of grant at $0.05 per share or $245,000. The
Company has recognized interest expense of $196,000 in connection with
this settlement.
Between August 2009 and September 2009, the Company issued an aggregate
of 200,000 shares of common stock for technical advisory services
rendered. The Company valued these common shares at the fair value on
the date of grant ranging approximately from $.03 to $.05 per share or
108
$8,090. In connection with issuance of these shares, the Company
recorded stock-based consulting expense of $8,090 during the year ended
December 31, 2009.
In October 2009, the Company issued in aggregate 2,000,000 shares of
common stock to the Company's CEO and an officer of the Company in
connection with their employment agreements. The Company valued these
common shares at the fair market value on the date of grant at $.03 per
share or $62,000 and has been recorded as stock-based compensation.
In October 2009, the Company issued in aggregate 150,000 shares of
common stock to three officers of the Company for services rendered.
The Company valued these common shares at the fair market value on the
date of grant at $.03 per share or $4,650 and has been recorded as
stock-based compensation.
In November 2009, the Company issued 2,000,000 shares of common stock
in connection with a license agreement. The Company valued these
common shares at the fair market value on the date of grant ranging at
$.02 per share or $44,000 and has been recorded as license fee.
Between November and December 2009, the Company issued in aggregate
305,000 shares of common stock to consultants for services rendered.
The Company valued these common shares at the fair market value on the
date of grant ranging from $.03 to $.04 per share or $9,950 and has
been recorded as stock-based consulting.
2008
During the year ended December 31, 2008, the Company received net
proceeds of $340,812 and subscription receivable of $25,150 from the
sale of 25,361,916 shares of the Company's common stock.
In January 2008, the Company issued 66,000 shares of common stock to
officers of the Company in connection with a settlement of related
party loans of $31,800.
In January 2008, in connection with a three month consulting agreement,
the Company issued 800,000 shares of common stock for investor
relations services. The Company valued these common shares at the fair
market value on the date of grant at $.07 per share or $56,000. In
connection with issuance of these shares, the Company recorded stock-
based consulting expense of $56,000 during the year ended December 31,
2008.
In January 2008, the Company issued in aggregate 3,000,000 shares of
common stock to the Company's CEO and an officer of the Company in
connection with employment agreements dated January 14, 2008. The
Company valued these common shares at the fair market value on the date
of grant at $.07 per share or $210,000 and has been recorded as stock-
based compensation.
In February 2008, in connection with a twelve month consulting
agreement, the Company issued 500,000 shares of common stock for
corporate advisory services. The Company valued these common shares at
109
the fair market value on the date of grant at $.18 per share or
$90,000. In connection with issuance of these shares, during the year
ended December 31, 2008, the Company recorded stock-based consulting
expense of $90,000.
In February 2008, the Company amended a consulting agreement entered
into on June 28, 2007, whereby the consultant will no longer receive
the 1,000,000 options to purchase the Company's common stock but
instead shall receive 1,000,000 shares of the Company's common stock.
The Company valued these common shares at the fair market value on the
date of grant at $.10 per share or $100,000. The Company has recognized
stock-based consulting expense of $80,668 during fiscal 2007, in
connection with this agreement. Accordingly, as a result of this
amended agreement, the Company has recognized stock-based consulting
expense of $19,332 and has reversed the unamortized portion of $54,902
in prepaid expense related to the valuation of the stock options during
the year ended December 31, 2008.
On May 22, 2008, in connection with the acquisition, the Company
assumed certain debts from a third party, Corporate Debt Solutions
("Corporate Debt") amounting to $1,049,717. Corporate Debt assumed a
total of $1,049,717 of promissory notes issued by two former officers
of Genesis and a certain third party. These promissory notes were
issued to the Company's subsidiary, Genesis. Immediately following the
closing of the acquisition agreement, on May 23, 2008, the Company
entered into a settlement agreement with Corporate Debt Solutions
("Corporate Debt"). Pursuant to the settlement agreement, the Company
shall issue shares of common stock and deliver to Corporate Debt, to
satisfy the principal and interest due and owing through the issuance
of freely trading securities of up to 100,000,000 shares. The parties
have agreed that Corporate Debt shall have no ownership rights to the
Settlement Shares not yet issued until it has affirmed to the Company
that it releases the Company for the proportionate amount of claims
represented by each issuance. The said requested number of shares of
common stock is not to exceed 4.99% of the outstanding stock of the
Company at any one time. In connection with this settlement agreement,
the Company recorded and deemed such debt as a convertible liability
with a fixed conversion price of $0.01. Accordingly, the Company
recognized a total debt discount of $1,049,717 due to a beneficial
conversion feature and such debt discount was immediately amortized to
interest expense during fiscal year 2008.
In June 2008, the Company issued 2,223,456 shares in connection with
the conversion of this convertible debt. The fair value of such shares
issued amounted to approximately $23,346. Between July 2008 and August
2008, the Company issued 8,995,374 shares in connection with the
conversion of this convertible debt. The fair value of such shares
issued amounted to approximately $94,452. At March 31, 2010 and
December 31, 2009, convertible debt amounted to $931,919
In June 2008, in connection with a consulting agreement, the Company
issued 3,100,000 shares of common stock for investor relations
services. The Company valued these common shares at the fair market
value on the date of grant at $.04 per share or $136,400. In connection
110
with issuance of these shares, the Company recorded stock-based
consulting expense of $11,367 and prepaid expense of $125,033 to be
amortized over the balance of the service period. In September 2008,
the Company terminated this agreement and accordingly cancelled the
3,100,000 shares of common stock. In connection with the return of the
3,100,000 shares of common stock, the Company reduced stock-based
compensation expense by approximately $10,230 based on the fair market
value of the common stock on the date of cancellation of $0.003 per
share and has reversed the unamortized portion of $125,033 in prepaid
expense related to the valuation of the stock options during the year
ended December 31, 2008.
In June 2008, the Company issued 2,223,456 shares in connection with
the conversion of this convertible debt. The fair value of such shares
issued amounted to approximately $23,346.
Between July 2008 and August 2008, the Company issued 8,995,374 shares
in connection with the conversion of this convertible debt. The fair
value of such shares issued amounted to approximately $94,452.
In August 2008, the Company issued 250,000 shares of common stock for
corporate advisory services rendered. The Company valued these common
shares at the fair market value on the date of grant at $.0065 per
share or $1,625. In connection with issuance of these shares, the
Company recorded stock-based consulting expense of $1,625 during the
year ended December 31, 2008.
In August 2008, the Company issued 150,000 shares of common stock for
investor relation services rendered. The Company valued these common
shares at the fair market value on the date of grant at $.0035 per
share or $525. In connection with issuance of these shares, the Company
recorded stock-based consulting expense of $525 during the year ended
December 31, 2008.
In November 2008, the Company issued in aggregate 30,000,000 shares of
common stock to the Company's CEO and an officer of the Company for
services rendered. The Company valued these common shares at the fair
market value on the date of grant at $.002 per share or $60,000 and has
been recorded as stock-based compensation.
In November 2008, the Company issued in aggregate 400,000 shares of
common stock to certain employees of the Company for services rendered.
The Company valued these common shares at the fair market value on the
date of grant at $.002 per share or $800 and has been recorded as
stock-based compensation.
Between October and November 2008, the Company issued in aggregate
3,000,000 shares of common stock to the Company's CEO and an officer of
the Company pursuant to amended employment agreements. The Company
valued these common shares at the fair market value on the date of
grant ranging from $0.001 to $.002 per share or $4,600 and has been
recorded as stock-based compensation.
111
During fiscal 2008, in connection with the Merger Agreement, the
Company issued 1,907,370, shares of common stock valued at $0.03 per
share or $57,144. The Company valued these common shares at the fair
market value on the date of grant.
In instances described above where we issued securities in reliance
upon Regulation D, we relied upon Rule 506 of Regulation D of the
Securities Act. These stockholders who received the securities in such
instances made representations that (a) the stockholder is acquiring
the securities for his, her or its own account for investment and not
for the account of any other person and not with a view to or for
distribution, assignment or resale in connection with any distribution
within the meaning of the Securities Act, (b) the stockholder agrees
not to sell or otherwise transfer the purchased shares unless they are
registered under the Securities Act and any applicable state securities
laws, or an exemption or exemptions from such registration are
available, (c) the stockholder has knowledge and experience in
financial and business matters such that he, she or it is capable of
evaluating the merits and risks of an investment in us, (d) the
stockholder had access to all of our documents, records, and books
pertaining to the investment and was provided the opportunity to ask
questions and receive answers regarding the terms and conditions of the
offering and to obtain any additional information which we possessed or
were able to acquire without unreasonable effort and expense, and (e)
the stockholder has no need for the liquidity in its investment in us
and could afford the complete loss of such investment. Management made
the determination that the investors in instances where we relied on
Regulation D are accredited investors (as defined in Regulation D)
based upon management's inquiry into their sophistication and net
worth. In addition, there was no general solicitation or advertising
for securities issued in reliance upon Regulation D.
In instances described above where we indicate that we relied upon
Section 4(2) of the Securities Act in issuing securities, our reliance
was based upon the following factors: (a) the issuance of the
securities was an isolated private transaction by us which did not
involve a public offering; (b) there were only a limited number of
offerees; (c) there were no subsequent or contemporaneous public
offerings of the securities by us; (d) the securities were not broken
down into smaller denominations; and (e) the negotiations for the sale
of the stock took place directly between the offeree and us.
Item 16. Exhibits
EXHIBIT DESCRIPTION
3.0 Articles of Incorporation, as amended Incorporated
by reference to the Registration Statement on Form
S-1/A filed April 23, 2008
3.1 Certificate of Amendment Incorporated by reference
to the Company's 8K filed on October 22, 2009
112
3.2 Bylaws, as amended Incorporated by reference to the
Registration Statement on Form S-1/A filed April
23, 2008
5.1 Opinion of Legal Counsel
10 Securities Purchase Agreement, dated May 10, 2010
between the Company and Tangiers Investors, LP
incorporated by reference to Form 8-K filed on
May 14, 2010
10.1 Registration Right Agreement dated November 16,
2009 May 10, 2010 between the Company and Tangiers
Investors, LP incorporated by reference to Form 8-K
filed on May 14, 2010
10.2 Amendment to Securities Purchase Agreement dated
September 30, 2010 between the Company and Tangiers
Investors, LP
23.1 Auditor's Consent
23.2 Consent of Legal Counsel(included in Exhibit 5.1)
Item 17.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment of the Registration Statement) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
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(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) For the purpose of determining liability under the Securities Act
of 1933 to any purchaser, if the registrant is subject to Rule 430C,
each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to the purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(B) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described under Item 14 above or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
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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.
Genesis Electronics Group, Inc.
By: /s/ Edward C. Dillon
--------------------
October 11, 2010 Edward C. Dillon
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Capacity Date
/s/Edward C. Dillon CEO/Director October 11, 2010
-----------------------
Edward C. Dillon
/s/Nelson Stark CFO/Director October 11, 2010
----------------------- Principal Accounting Officer
Nelson Stark
/s/Raymond Purdon Director October 11, 2010
-----------------------
Raymond Purdon
/s/Lee Taylor Director October 11, 2010
Lee Taylor
/s/Howard Neu Director October 11, 2010
-----------------------
Howard Neu