Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______TO _______
Commission file number: 0-50773
Genesis Electronics Group, Inc.
(Name of registrant as specified in its charter)
Nevada 41-2137356
(State or other jurisdiction of (I.R.S. Employers
incorporation or organization) Identification No.)
5555 Hollywood Blvd, Suite 303, Hollywood, FL 33021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 272-1200
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered.
Not applicable
Securities registered under Section 12(g) of the Act:
Common stock, par value $0.001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [x] No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [x] No
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to
2
Rule 405 of Regulation S-T (section 232.406 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
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]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [x]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked prices
of such common equity, as of the last business day of the registrant's
most recently completed second fiscal quarter. $7,904,708 on June 30,
2010.
Indicated the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
170,906,906 shares of common stock are issued and outstanding as of
April 15, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
Page No.
Part I
Item 1. Business 4
Item 1A. Risk Factors 10
Item 1B. Unresolved Staff Comments 10
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. (Removed and Reserved) 11
Part II
Item 5. Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities. 12
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation 15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure. 53
Item 9A Controls and Procedures. 53
Item 9B. Other Information. 55
Part III
Item 10. Directors, Executive Officers and Corporate
Governance 56
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 60
Item 13. Certain Relationships and Related Transactions,
and Director Independence 61
Item 14. Principal Accountant Fees and Services. 61
Part IV
Item 15. Exhibits, Financial Statement Schedules. 63
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PART I
ITEM 1. 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.
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
--------------------
The registrant's business consist 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
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(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. The Pricester.com Shopping Portal
represented less than 10% of the Pricester.com division.
As soon as our first solar-powered product, a charger for a brand-name
iphone, 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 operation with other hand-held and
portable electronic devices. The registrant has already formed an
ongoing partnership with a Taiwan-based manufacturer and strides have
been made in product and packaging development, procurement of safety
and transport certifications, prototype production and setting up for
planned mass-production. There are no written agreements between the
parties.
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, the inconvenience and sometimes unavailability,
of re-charging by plugging into a wall outlet, management is of the
opinion that there is a need for a more sustainable source for
charging. Genesis Electronics' fully-functional early prototypes have
met with 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.
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As consumer access to the Internet has become more widespread and
continues to grow, management is of the opinion that websites have
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 an 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 access to international shopping available anywhere on the
Internet from a single source. The website, www.copiaworld.com, is
already 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.
Our Products & Services
-----------------------
Overview: 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 the registrant, is engaged in the development and
marketing of solutions. Battery life and charging technology
reliability are currently being examined by Genesis Electronics,
especially 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 developed a patent-based solar energy
technology that makes a constant and reliable charge always available
to cell phones or smart phone batteries.
Our board of directors feels that the potential for its patented
technology and the products and applications that may be developed in
the future can represent significant revenue for the registrant. The
registrant has no definite timeline for the development of these
products and applications. 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. The registrant has verbal commitments for
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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
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.com'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. At this time, Pricester.com 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.com'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.
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The market for affordable business websites is large and still
expanding. Pricester.com'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.
3. Copia World: Copia World, www.copiaworld.com, a division of
Pricester.com, is an online shopping portal of international scope, a
more comprehensive, consumer-friendly, single-source of retailers and
select service providers on an international level.
Copia World 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 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).
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.
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 there is potential for
Copia World 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, the registrant 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:
Payroll & Taxes $6,400
Rent 1,580
Electric 300
Telecommunications (Phones & Servers) 1,500
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Accounting services 2,500
Insurance 300
Legal 1,500
-------
$14,080
=======
REVENUE STREAMS
The registrant 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 increase
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 $28,351 for the year ended December
31, 2010.
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
Insurance
---------
We have in force workman's comp and general liability insurance.
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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.
ITEM 1A. RISK FACTORS.
Not applicable to smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. 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 terminated in March 2011. In March 2011, we have renewed
and signed a 2 years lease agreement which will expire in March 2013.
We believe that this facility 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.
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ITEM 3. LEGAL PROCEEDINGS.
The registrant is not involved in any legal proceedings at this date.
ITEM 4. (REMOVED AND RESERVED)
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Item 5(a)
a) Market Information. The registrant began trading publicly on
the NASD Over the Counter Bulletin Board in June 2006 under the symbol
"PRCC". On December 15, 2009, the registrant began trading under the
symbol "GEGI".
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.
Quarter Ended High Bid Low Bid
3/31/10 $0.17 $0.03
6/30/10 $0.19 $0.07
9/30/10 $0.10 $0.05
12/31/10 $0.09 $0.03
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
b) Holders. The approximate number of record holders of the
registrant is 254.
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.
e) Performance graph. Not applicable.
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f) Sale of unregistered securities. For the year ended December
31, 2010, the registrant received net proceeds of $211,255 and
subscription receivable of $54,000 from the sale of 5,737,834 shares of
the registrant's common stock.
For the year ended December 31, 2010, the registrant collected
subscription receivable of $77,717. During the year ended December 31,
2010, the registrant applied $20,000 against subscription receivable
for services rendered by one of our employees. Additionally, as of
December 31, 2010, management has determined that $25,000 of the
subscription receivable was deemed uncollectible and accordingly, has
been recognized as bad debt expense for the year ended December 31,
2010.
In February 2010, the registrant issued 250,000 shares of common stock
for public relation services rendered. The registrant 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
registrant recorded stock-based consulting expense of $10,000 during
the nine months ended September 30, 2010.
In May 2010, the registrant entered into a Securities Purchase
Agreement with Tangiers Investors, LP. The registrant 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
registrant's common stock during the pricing period as quoted by
Bloomberg, LP on the Over-the-Counter Bulletin Board. The registrant
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
registrant's common stock. The registrant agrees to pay the Investor a
commitment fee of 3,000,000 shares of the registrant's common stock
pursuant to the Securities Purchase Agreement. The registrant valued
these common shares at the fair value on the date of grant at $0.10 per
share or $300,000 and has been recorded as deferred offering cost. At
the time of the completion of the sale to the investor, these deferred
costs will be charged against the capital raised.
In July 2010, in connection with a consulting agreement, the registrant
issued 350,000 shares of common stock for Public relations and
marketing services until September 15, 2010. The registrant valued
these common shares at the fair value on the date of grant at $.08 per
share or $28,000. The registrant did not extend the term of this
agreement after September 15, 2010.
In July 2010, the registrant issued in aggregate 2,000,000 shares of
common stock to Ed Dillon, the registrant's CEO and an officer of the
registrant in connection with the payment of their accrued salaries
during fiscal year 2009 pursuant to the amended employment agreements.
The registrant valued these common shares at the fair market value on
the date of grant at $.04 per share or $80,000.
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In November 2010, the registrant issued in aggregate 4,000,000 shares
of common stock to Ed Dillon, the registrant's CEO and an officer of
the registrant in connection with their employment agreements. The
registrant valued these common shares at the fair market value on the
date of grant at $.065 per share or $260,000 and has been recorded as
stock-based compensation.
In November 2010, the registrant issued in aggregate 300,000 shares of
common stock to three officers of the registrant for services rendered.
In November 2010, the registrant issued 50,000 shares of common stock
to an officer of the registrant for legal services rendered. The
registrant valued these common shares at the fair market value on the
date of grant at $.065 per share or $3,250 and has been recorded as
legal fees.
In November 2010, the registrant entered into an amended agreement in
connection with a license agreement. The registrant issued 500,000
shares of common stock pursuant to the amended license agreement.
All of the above common shares were sold to sophisticated investors
pursuant to an exemption from registration under Section 4(2) of the
Securities Act.
Item 5(b) Use of Proceeds. Not applicable.
Item 5(c) Purchases of Equity Securities by the issuer and affiliated
purchasers. None.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable to smaller reporting companies.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS 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. 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.
GOING CONCERN
-------------
As reflected in the accompanying consolidated financial statements, we
had an accumulated deficit of approximately $9 million, a working
capital deficit of $967,214, had net losses for the year ended December
31, 2010 of $828,234 and cash used in operations during the year ended
December 31, 2010 of $340,581. While we are attempting to increase
sales, it has not been significant enough to support the registrant's
daily operations. We will attempt to raise additional funds by way of
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a public or private offering. While we believe in the viability of our
strategy to improve sales volume and in our ability to raise additional
funds, there can be no assurances to that effect. Our limited
financial resources have prevented us from aggressively advertising our
products and services to achieve consumer recognition. Our ability to
continue as a going concern is dependent on our ability to further
implement our business plan and generate increased revenues.
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
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.
The following policies reflect specific criteria for the various
revenues streams of the Company:
We earn revenue primarily from website design, transaction fees,
hosting fees and sales of solar-powered consumer products.
- 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.
- Revenues from the sale of solar-powered consumer products are
recognized upon delivery of the product to the customer.
17
Web hosting fees received in advance are reflected as deferred revenue
on the accompanying consolidated balance sheet.
We apply ASC 605-25: Multiple Element Arrangements, to account for
revenue arrangements with multiple deliverables. ASC 605-25 addresses
certain aspects of accounting by a vendor for arrangements under which
the vendor will perform multiple revenue-generating activities. When an
arrangement involves multiple elements, the entire fee from the
arrangement is allocated to each respective element based on its
relative fair value and recognized when revenue recognition criteria
for each element are met. Fair value for each element is established
based on the sales price charged when the same element is sold
separately.
In December 2004, the Financial Accounting Standards Board, or FASB,
issued FASB ASC Topic 718: Compensation - Stock Compensation. 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
---------------------
Year ended December 31, 2010 compared to year ended December 31, 2009
Net sales for the year ended December 31, 2010 were $28,351 as compared
to net sales of $78,797 for the year ended December 31, 2009, a
decrease of $50,446 or approximately 64%. 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
can be no assurances that we will continue to recognize similar net
revenue in future periods or that we will ever report profitable
operations. The following table provides comparative data regarding the
source of our net sales in each of these periods:
18
Year Ended Year Ended
December 31, 2010 December 31, 2009
----------------- -----------------
$ % of Total $ % of Total
------- --------- ------ ----------
Website 26,512 94% 78,797 100%
Solar powered products 1,839 6% - -
------ ---- ------ ----
Total 28,351 100% 78,797 100%
====== ==== ====== ====
Total operating expenses for the year ended December 31, 2010 were
$809,731, an increase of $319,652, or approximately 65%, from total
operating expenses for the year ended December 31, 2009 of $490,079.
This increase is primarily attributable to:
- a decrease of $6,208, or approximately 28%, in cost of sales.
Cost of sales for website services includes domain hosting fees and
internet cost. Cost of sales for the solar powered products includes
product and delivery cost relating to the delivery of such solar
powered products. This decrease is primarily related to the decrease
in sales of our website services due to the non renewal of subscribers
who had completed their annual hosting commitments. The following table
provides information on the cost of sales as a percentage of net sales
for the year ended December 31, 2010 and 2009:
Year Ended
December 31,
-----------
2010 2009
---- ----
Cost of Sales as a Percentage of Net Sales
Website 55% 28%
Solar powered products 2% -
---- ----
Total 57% 28%
- an increase of $34,114, or approximately 68%, in professional
fees incurred in connection with our SEC filings. This increase is
primarily related to increase in legal fees in connection with the
preparation of our registration statement, general business counsel,
and litigation matters,
- a decrease of $9,225, or approximately 14%, in consulting fees.
- an increase of $168,013, or 74%, in compensation expense to
$394,895 for the year ended December 31, 2010 as compared to $226,882
for the year ended December 31, 2009. Compensation expense which
includes salaries and stock based compensations to our employees. The
increase represents non-cash expenses of $299,500 during fiscal 2010
related to stock-based compensation expense which includes
approximately $130,000 attributable to shares issued to our chief
executive officer and $149,500 to our officers as compared to non-cash
expenses of approximately $147,000 during fiscal 2009. The increase is
also primarily attributable to increases in compensation levels of
certain of our employees,
19
- an increase of $132,958, or approximately 105%, in other
selling, general and administrative expenses as a result of increase in
amortization expense related to a license agreement of $94,750 and
office expense attributable to our subsidiary Genesis Electronics Inc.
We reported a loss from operations of $781,380 for year ended December
31, 2010 as compared to a loss from operations of $411,282 for the year
ended December 31, 2009.
Total other expense for the year ended December 31, 2010 were $46,854,
a decrease of $153,598, from total other expense for year ended
December 31, 2009 of $200,452.
- Interest expense consists primarily of interest recognized in
connection with the amortization of debt discount, and interest on our
promissory notes. The decrease 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 year ended December 31, 2009. We have recognized non-
recurring interest expense of $196,000 in connection with this
settlement in 2009 offset by an increase in amortization of debt
discount and deferred financing cost of $41,168 during the year ended
December 31, 2010.
We reported a net loss of $828,234 or (0.01) per share for the year
ended December 31, 2010 as compared to a net loss of $611,734 or
$(0.00) per share for the year ended December 31, 2009.
Liquidity and Capital Resources
-------------------------------
During the year ended December 31, 2010, we received net proceeds of
$211,255 and subscription receivable of $54,000 from the sale of our
common stock. For the year ended December 31, 2010, we collected
subscription receivable of $77,717. These funds were used for working
capital purposes.
Net cash used in operating activities for the year ended December 31,
2010 amounted to $340,581 and was primarily attributable to our net
losses of $828,234 offset by depreciation of $695, amortization of
license agreement of $103,458, stock based expense of $320,750,
amortization of debt discount of $21,168, amortization of deferred
financing cost of $20,000, non-cash expense of $20,000 applied against
subscription receivable, bad debt expense from stock subscription
receivable of $25,000 and add back of changes in assets and liabilities
of $22,161. Net cash used in operating activities for the year ended
December 31, 2009 amounted to $221,146 and was primarily attributable
to our net losses of $611,734 offset by depreciation of $676,
amortization of license agreement of $8,708 stock based expense of
$84,690, interest expense of $196,000 in connection with the settlement
of a related party loan and changes in assets and liabilities of
$100,514.
20
Net cash flows used in investing activities was $10,000 for the year
ended December 31, 2009 as compared to $0 for the year ended December
31, 2010. The decrease was primarily attributed to the payment on
license agreement of $10,000 in December 2009.
Net cash flows provided by financing activities was $279,997 for the
year ended December 31, 2010 as compared to net cash provided by
financing activities of $294,896 for the year ended December 31, 2009,
a decrease of $14,899. For the year ended December 31, 2010, we
received proceeds from the sale of common stock and collection of
subscription receivable of $288,972 and $20,000 from the issuance of a
convertible debt, and an offset by payments on related party advances
of $28,975. 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.
We reported a net decrease in cash for the year ended December 31, 2010
of $60,584 as compared to a net increase in cash of $63,750 for the
year ended December 31, 2009. At December 31, 2010, we had cash on
hand of $5,485.
Contractual Obligations and Off-Balance Sheet Arrangements
-----------------------------------------------------------
Contractual Obligations
The following tables summarize our contractual obligations as of
December 31, 2010.
Payments Due by Period
--------------------------------------------------------
Less than 3-5 5 Years
Total 1 Year 1-3 Years Years +
----- --------- --------- ----- -------
Contractual Obligations:
Notes payable $ 15,647 $ 15,647 $ - $ - $ -
Loans payable 40,000 40,000 - - -
Secured convertible
debenture 40,000 40,000 - - -
Convertible debt 931,919 931,919 - - -
Loans payable - related
party 11,510 11,510 - - -
Accrued interest 24,737 24,737 - - -
Operating lease 4,158 4,158 - - -
---------- -------- -------- -------- --------
Total Contractual
Obligations: $1,067,971 $1,067,971 $ - $ - $ -
21
License Agreement
----------------
During November 2009, we licensed the use of certain patents from a
third party. This license agreement will aid us as we further our
business plan. In November 2009, we entered into a license agreement
with Johns Hopkins University Applied Physics Lab for a limited
exclusive license to JHU/APL's Integrated Power Source patents. The
patents are for the solar powered cell phone and iPod chargers. During
fiscal 2009 and 2010, the Company paid $40,000 and issued 2 million
shares of the Company's common stock. We valued these common shares at
the fair market value on the date of grant at $.022 per share or
$44,000. In November 2010, we entered into an amendment agreement in
connection with this license agreement. Pursuant to the amended license
agreement, the Company additionally paid $25,000 and issued 500,000
shares of the Company's common stock in November 2010. We valued these
common shares at the fair market value on the date of grant at $.075
per share or $37,500.
Future license payments under the amended license agreement are as
follows:
Due March 24, 2011 $25,000
Due August 24, 2011 $25,000
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
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. 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 issued the Investor a
commitment fee of 3,000,000 shares of our common stock pursuant to the
Securities Purchase Agreement.
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
22
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, 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.
Additionally, in December 2010, we issued a 9% Secured Convertible
Debenture for $20,000 to Tangiers Investors, LP. This debenture matures
on September 15, 2011. 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 $0.05 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. In March 2011, we entered into
an amendment agreement with the debenture holder whereby this debenture
shall be convertible at a fixed conversion price $0.005 per share.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCOURSES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
CONTENTS
Report of Independent Registered Public Accounting Firm 24
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 2010 and 2009 25
Consolidated Statements of Operations For the Years Ended
December 31, 2010 and 2009 26
Consolidated Statements of Changes in Stockholders' Deficit
- For the Years Ended December 31, 2010 and 2009 27
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 2010 and 2009 29
Notes to Consolidated Financial Statements 31
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Genesis Electronics Group, Inc.
Hollywood, Florida
We have audited the accompanying consolidated balance sheets of
Genesis Electronics Group, Inc. and Subsidiary as of December 31, 2010
and 2009, and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for the years then
ended. These consolidated financial statements are 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
Auditing Standards Board (United States) and in accordance with the
auditing 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 consolidated
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 purpose 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 statements referred to
above present fairly, in all material respects, the financial position
of Genesis Electronics Group, Inc. and Subsidiary as of December 31,
2010 and 2009, and the results of its operations and its cash flows for
the years then 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 9 to the financial statements, the Company has an
accumulated deficit, has net losses and cash used in operations for the
year ended December 31, 2010. 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 9. The consolidated
financial statement does not include any adjustments that might result
from the outcome of this uncertainty.
/s/Malcolm L. Pollard, Inc.
Erie, Pennsylvania
April 12, 2011
25
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Year ended
----------
December 31, 2010 December 31, 2009
----------------- -----------------
ASSETS
Current Assets:
Cash $ 5,485 $ 66,069
Inventory 1,257 -
Prepaid expense and other
current asset 3,160 14,160
Deferred offering cost 300,000 -
----------- -----------
Total current assets 309,902 80,229
Property and Equipment, net - 695
License agreement, net 84,334 200,292
----------- -----------
Total assets $ 394,236 $ 281,216
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued
expenses $ 206,872 $ 264,857
Accrued payable on license
agreement 50,000 155,000
Secured convertible debentures,
net of debt discount 21,168 -
Convertible debt 931,919 931,919
Note payable 15,647 15,647
Loans payable 40,000 40,000
Due to related party 11,510 40,485
Deferred revenue - 176
----------- -----------
Total current liabilities 1,277,116 1,448,084
----------- -----------
Stockholders' Deficit:
Common stock, $0.001 par value,
300,000,000 authorized,
168,831,906 and 152,644,072
issued and outstanding, at
December 31, 2010 and December
31, 2009, respectively 168,832 152,644
Additional paid-in capital 7,907,153 6,879,836
Accumulated deficit (8,953,865) (8,125,631)
Subscription receivable (5,000) (73,717)
----------- -----------
Total stockholders' deficit (882,880) (1,166,868)
----------- -----------
Total liabilities and stockholders'
deficit $ 394,236 $ 281,216
=========== ===========
See notes to consolidated financial statements.
26
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
------------------
2010 2009
---- ----
Net Sales $ 28,351 $ 78,797
----------- -----------
Operating expenses:
Cost of sales 16,150 22,358
Professional fees 84,163 50,049
Consulting fees 54,555 63,780
Compensation 394,895 226,882
Other selling, general and administrative 259,968 127,010
----------- -----------
Total operating expenses 809,731 490,079
----------- -----------
Loss from operations (781,380) (411,282)
----------- -----------
Other income (expenses):
Interest expense (46,854) (200,452)
----------- -----------
Total other income (expenses) (46,854) (200,452)
----------- -----------
Loss before provision for income taxes (828,234) (611,734)
Provision for income taxes - -
----------- -----------
Net loss $ (828,234) $ (611,734)
=========== ===========
Net loss per common share
- basic and diluted $ (0.01) $ -
Weighted average number of shares
0utstanding - basic and diluted 159,669,655 135,405,327
=========== ===========
See notes to consolidated financial statements.
27
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
Common Stock,
$.001 Par Value
--------------- Additional
Number of Paid-in
Shares Amount Capital
---------- ---------- ----------
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
Sale of common stock 5,737,834 5,738 259,517
Common stock issued for services 4,950,000 4,950 315,800
Common stock issued for accrued services 2,000,000 2,000 78,000
Common stock issued in connection with stock
purchase agreement 3,000,000 3,000 297,000
Common stock issued in connection with a
license agreement 500,000 500 37,000
Beneficial conversion on secured convertible
debenture - - 40,000
Net loss for the period - - -
----------- --------- ----------
Balance, December 31, 2010 168,831,906 $ 168,832 $7,907,153
=========== ========= ==========
See notes to audited consolidated financial statements.
28
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONTINUED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
Total
Accumulated Subscription Stockholders'
Deficit Receivable Deficit
---------- ---------- ----------
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 (611,734) - (611,734)
----------- --------- -----------
Balance, December 31, 2009 $ 8,125,631 $ (73,717) $(1,166,868)
Sale of common stock - 68,717 333,972
Common stock issued for services - - 320,750
Common stock issued for accrued services - - 80,000
Common stock issued in connection with
stock purchase agreement - - 300,000
Common stock issued in connection with a
license agreement - - 37,500
Beneficial conversion on secured
convertible debenture - - 40,000
Net loss for the period (828,234) - (828,234)
----------- --------- -----------
Balance, December 31, 2010 $(8,953,865) $ (5,000) $ (882,880)
=========== ========= ===========
See notes to consolidated financial statements.
29
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
------------------
2010 2009
---- ----
Cash flows from operating activities:
Net loss $ (828,234) $(611,734)
---------- ---------
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation 695 676
Amortization of license agreement 103,458 8,708
Common stock issued for services 320,750 4,690
Amortization of debt discount 21,168 -
Amortization of deferred financing cost 20,000 -
Services performed applied against
subscription receivable 20,000 -
Bad debt expense from stock subscription
receivable 25,000 -
Interest expense for the settlement
of a related party loan - 196,000
Changes in assets and liabilities:
Prepaid expenses and other 11,000 (11,000)
Accounts payable and accrued expenses 22,015 112,020
Deferred revenues (176) (506)
---------- ---------
Total adjustments 487,653 390,588
Net cash used in operating activities (340,581) (221,146)
---------- ---------
Cash flows from investing activities:
Payment on license agreement - (10,000)
---------- ---------
Net cash used in investing activities - (10,000)
---------- ---------
Cash flows from financial activities:
Proceeds from sale of common stock 288,972 283,796
Proceeds from convertible debt 20,000 -
Proceeds from related parties - 18,000
Payments on related party advances (28,975) (6,900)
---------- ---------
Net cash provided by financing activities 279,997 294,896
---------- ---------
Net increase (decrease) in cash (60,584) 63,750
Cash - beginning of the year 66,069 2,319
---------- ---------
Cash - end of the year $ 5,485 $ 66,069
========== =========
30
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
CONTINUED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
------------------
2010 2009
---- ----
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ - $ -
========== ==========
Income taxes $ - $ -
========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITEIS:
Secured convertible debenture issued in
connection with Securities Purchase
Agreement $ 20,000 $ -
========== ==========
Common stock issued for settlement
of loans $ - $ 49,000
========== ==========
Common stock issued as deferred offering
Cost $ 300,000 $ -
========== ==========
Common stock issued in connection
with license agreement $ - $ 44,000
========== ==========
Accrued payable incurred for
license agreement $ - $ 155,000
========== ==========
Common stock issued in connection with
accrued payable on license agreement $ 37,500 $ -
========== ==========
Common stock issued in connection with
accrued salaries $ 80,000 $ -
========== ==========
See notes to consolidated financial statements
31
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
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. and its wholly-owned subsidiary.
All significant inter-company balances and transactions have been
eliminated.
FASB 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.
32
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
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 approximately $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 statements of the Subsidiary, Genesis
Electronics, Inc.
33
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 assumptions used to calculate stock-based compensation and debt
discount, and the useful life of property and equipment.
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.
34
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 December 31,
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. The
carrying amount of the convertible debentures at December 31, 2010,
approximate their respective fair value based on the Company's
incremental borrowing rate.
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.
35
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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, 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 year ended December 31, 2010 and 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, 2010 and 2009, there were options and warrants to
36
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
purchase 2,025,000 shares of common stock and 99,191,900 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,
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.
37
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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.
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 Company applies ASC 605-25: Multiple Element Arrangements,
to account for revenue arrangements with multiple deliverables. ASC
605-25 addresses certain aspects of accounting by a vendor for
arrangements under which the vendor will perform multiple revenue-
generating activities. When an arrangement involves multiple elements,
the entire fee from the arrangement is allocated to each respective
element based on its relative fair value and recognized when revenue
recognition criteria for each element are met. Fair value for each
element is established based on the sales price charged when the same
element is sold separately.
The following policies reflect specific criteria for the various
revenues streams of the Company:
The Company earns revenue primarily from website design, transaction
fees, hosting fees and sales of solar-powered consumer products.
- 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
38
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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.
- Revenues from the sale of solar-powered consumer products are
recognized upon delivery of the product to the customer.
Web hosting fees received in advance are reflected as deferred revenue
on the accompanying consolidated balance sheet.
Deferred Offering Cost
The Company defers as other current assets the direct incremental costs
of raising capital until such time as the offering is completed. At
the time of the completion of the offering, the costs are charged
against the capital raised. Should the offering be terminated,
deferred offering costs are charged to operations during the period in
which the offering is terminated.
Reclassification
Certain amounts in the 2009 consolidated financial statements have been
reclassified to conform to the 2010 presentation. Such
reclassifications had no effect on the reported net loss.
Recently Issued Accounting Pronouncements
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. ASC Topic 810-10 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
consolidated results of operations and financial condition.
In January 2010, the FASB issued 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's interim and annual reporting beginning
after December 15, 2009, with one new disclosure effective after
December 15, 2010.
39
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
In July 2010, the FASB issued ASU No. 2010-20, "Receivables (Topic
310): Disclosures about the Credit Quality of Financing Receivables and
the Allowance for Credit Losses". ASU 2010-20 requires additional
disclosures about the credit quality of a company's loans and the
allowance for loan losses held against those loans. Companies will need
to disaggregate new and existing disclosures based on how it develops
its allowance for loan losses and how it manages credit exposures.
Additional disclosure is also required about the credit quality
indicators of loans by class at the end of the reporting period, the
aging of past due loans, information about troubled debt
restructurings, and significant purchases and sales of loans during the
reporting period by class. The new guidance is effective for interim
and annual periods beginning after December 15, 2010. Management
anticipates that the adoption of these additional disclosures will not
have a material effect on the Company's financial position or results
of operations.
Other accounting standards that have been issued or proposed by the
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, 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 (16,870)
--------
$ -
========
40
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 2 - PROPERTY AND EQUIPMENT (Continued)
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 year ended December 31, 2010 and 2009, depreciation expense
amounted to $695 and $676, respectively.
NOTE 3 - LICENSE AGREEMENT
During November 2009, the Company licensed the use of certain patents
from a third party. This license agreement will aid the Company as it
furthers its business plan. The patents are for the solar powered cell
phone and iPod chargers (see Note 11).
At December 31, 2010, license agreement consisted of the following:
Useful Life
(Years)
-----------
License agreement 2 $ 196,500
Less accumulated amortization (112,166)
---------
$84,334
=========
At December 31, 2009, license agreement consisted of the following:
Useful Life
(Years)
-----------
License agreement 2 $ 209,000
Less accumulated amortization (8,708)
---------
$ 200,292
=========
41
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 3 - LICENSE (Continued)
For the year ended December 31, 2010 and 2009, amortization expense
amounted to $103,458 and $8,708, respectively. Accrued payable related
to this license agreement as of December 31, 2010 and 2009 amounted to
$50,000 and $155,000, respectively.
NOTE 4 - LOANS PAYABLE
On May 22, 2008, in connection with the acquisition of Genesis, 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, 2010, loans payable and related accrued interest amounted to
$40,000 and $14,771, respectively. As of December 31, 2009, loans
payable and related accrued interest amounted to $40,000 and $11,571,
respectively.
NOTE 5 - 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 December 31, 2010 and 2009, the Company owed this related
party $11,510 and $40,485, respectively.
NOTE 6 - NOTE PAYABLE
On May 22, 2008, in connection with the acquisition of Genesis, 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, 2010,
note payable and related accrued interest amounted to $15,647 and
$8,732, respectively. As of December 31, 2009, note payable and related
accrued interest amounted to $15,647 and $7,480, respectively.
NOTE 7 - CONVERTIBLE DEBT
On May 22, 2008, in connection with the acquisition of Genesis, 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
42
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 7 - CONVERTIBLE DEBT
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 December 31, 2010 and 2009, convertible debt amounted to $931,919.
NOTE 8 - 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 10). This debenture matures on December
23, 2010. The Company did not receive the cash proceeds from such
issuance of this debenture and accordingly, the Company recorded
deferred financing cost of $20,000 and will be amortized over the term
of the note. Such deferred financing cost of $20,000 was included in
other current assets.
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 connection
with this convertible debenture, the Company recorded deferred
financing cost of $20,000 and will be amortized over the term of the
note.
Additionally, in December 2010, the Company issued a 9% Secured
Convertible Debenture for $20,000 to Tangiers Investors, LP. This
debenture matures on September 15, 2011. 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
$0.05 per share or a price of 70% of the average of the two lowest
43
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 8 - SECURED CONVERTIBLE DEBENTURE (Continued)
volume weighted average price determined on the then current trading
market for ten trading days prior to conversion at the option of the
holder. In March 2011, the Company entered into an amendment agreement
with the debenture holder whereby this 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 $40,000 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
Hedging Activities" and related interpretations.
The Company concluded that since these convertible debts currently have
a fixed conversion price of $0.005, the convertible debts are not
considered a derivative.
At December 31, 2010, convertible debentures consisted of the
following:
December 31, 2010
-----------------
Secured convertible debenture $ 40,000
Less: debt discount (18,832)
--------
Secured convertible debenture - net $ 21,168
As of December 31, 2010, amortization of debt discount and deferred
financing cost amounted to $21,168 and $20,000, respectively, and are
included in interest expense. As of December 31, 2010, accrued interest
on these debentures amounted to $1,234.
NOTE 9 - 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 $8,953,865, had net losses,
negative working capital and negative cash flows from operations for
44
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 9 - GOING CONCERN (Continued)
the year ended December 31, 2010 of $828,234, $967,214 and $340,581
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,
2010, the Company received proceeds from the sale of stock of $288,972
and received proceeds from an issuance of convertible debt of $20,000.
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'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.
NOTE 10 - STOCKHOLDERS' DEFICIT
Common Stock
For the year ended December 31, 2009, the Company received net proceeds
of $223,379 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.
45
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 10 - STOCKHOLDERS' DEFICIT (Continued)
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 $.031
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 $.031 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
$.022 per share or $44,000 and has been capitalized as reflected in the
accompanying consolidated balance sheet as license agreement.
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.
For the year ended December 31, 2010, the Company received net proceeds
of $211,255 and subscription receivable of $54,000 from the sale of
5,737,834 shares of the Company's common stock.
For the year ended December 31, 2010, the Company collected
subscription receivable of $77,717. During the year ended December 31,
2010, the Company applied $20,000 against subscription receivable for
services rendered by one of our employees. Additionally, as of December
31, 2010, management has determined that $25,000 of the subscription
receivable was deemed uncollectible and accordingly, has been
recognized as bad debt expense for the year ended December 31, 2010.
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 nine
months ended September 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
46
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 10 - STOCKHOLDERS' DEFICIT (Continued)
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 the fair value on the date of grant at $0.10 per share
or $300,000 and has been recorded as deferred offering cost. At the
time of the completion of the sale to the investor, these deferred
costs will be charged against the capital raised.
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 did not extend the term of this agreement after
September 15, 2010.
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 the payment of their accrued salaries during fiscal
year 2009 pursuant to the amended employment agreements. The Company
valued these common shares at the fair market value on the date of
grant at $.04 per share or $80,000.
In November 2010, the Company issued in aggregate 4,000,000 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 $.065
per share or $260,000 and has been recorded as stock-based
compensation.
In November 2010, the Company issued in aggregate 300,000 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 $.065 per share or $19,500 and has been recorded as
stock-based compensation.
In November 2010, the Company issued 50,000 shares of common stock to
an officer of the Company for legal services rendered. The Company
valued these common shares at the fair market value on the date of
grant at $.065 per share or $3,250 and has been recorded as legal fees.
In November 2010, the Company entered into an amended agreement in
connection with a license agreement. The Company issued 500,000 shares
of common stock pursuant to the amended license agreement. The Company
47
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 10 - STOCKHOLDERS' DEFICIT (Continued)
valued these common shares at the fair market value on the date of
grant at $.075 per share or $37,500 and has been capitalized as
reflected in the accompanying consolidated balance sheet as license
agreement (see Note 11).
Stock Options
A summary of the stock options as of December 31, 2010 and 2009 and
changes during the periods are presented below:
Year Ended December 31, Year Ended December 31,
2010 2009
---------------------- ----------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
---------------------- ----------------------
Balance at beginning of year 2,025,000 $ 0.40 2,025,000 $ 0.40
Granted - - - -
Exercised - - - -
Cancelled - - - -
--------- ------ ---------- ------
Balance at end of year 2,025,000 $ 0.40 2,025,000 $ 0.40
========= ====== ========== ======
Options exercisable at end
of year 2,025,000 $ 0.40 2,025,000 $ 0.40
========= ====== ========== ======
Weighted average fair value
of options granted during
the year $ - $ -
The following table summarizes the Company's stock option outstanding at
December 31, 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
48
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 11 - COMMITMENTS
Operating Leases
In October 2010, the Company has signed a 6 months lease agreement
which will expire in March 2011. 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, 2011 $ 4,158
---------
Total $ 4,158
=========
Rent expense, including common area charges and sales taxes, for the
years ended December 31, 2010 and 2009 was $20,151 and $12,891,
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. In
October 2008, this agreement was amended whereby the chief executive
officer shall received 2,000,000 restricted shares of common stock
during each fiscal year instead of 1,000,000 shares which took effect
in fiscal 2009.
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. In
October 2008, this agreement was amended whereby the officer of the
Company shall received 2,000,000 restricted shares of common stock
during each fiscal year instead of 1,000,000 shares which took effect
in fiscal 2009.
License Agreement
During November 2009, the Company licensed the use of certain patents
from a third party. This license agreement will aid the Company as it
furthers its business plan. 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
49
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 10 - STOCKHOLDERS' DEFICIT (Continued)
to JHU/APL's Integrated Power Source patents. The patents are for the
solar powered cell phone and iPod chargers. During fiscal 2009 and
2010, the Company paid $40,000 and issued 2 million shares of the
Company's common stock. The Company valued these common shares at the
fair market value on the date of grant at $.022 per share or $44,000.
In November 2010, the Company entered into an amendment agreement in
connection with this license agreement. Pursuant to the amended license
agreement, the Company additionally paid $25,000 and issued 500,000
shares of the Company's common stock in November 2010. The Company
valued these common shares at the fair market value on the date of
grant at $.075 per share or $37,500.
Future license payments under the amended license agreement are as
follows:
Due March 24, 2011 $25,000
Due August 24, 2011 $25,000
The Company has capitalized the patent license for a total of $196,500
and is amortizing them over the term of this license agreement. The
Company has recognized $103,458 and $8,708 of amortization expense
during the year ended December 31, 2010 and 2009, respectively. Accrued
payable related to this license agreement as of December 31, 2010 and
2009 amounted to $50,000 and $155,000 respectively.
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 12 - INCOME TAXES
The Company accounts for income taxes under ASC Topic 740: Income Taxes
which require 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. ASC Topic 740 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 $5.2 million
at December 31, 2010 expiring through the year 2029. Internal Revenue
50
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 12 - INCOME TAXES (Continued)
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:
2010 2009
-------------------------------
Computed "expected" benefit $(281,600) $ (196,189)
State tax benefit, net of federal
effect (33,129) (23,081)
Other permanent differences 147,029 74,480
Increase in valuation allowance 167,700 144,790
--------- -----------
$ - $ -
========= ===========
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:
2010
----------
Deferred tax assets:
Net operating loss carryforward $ 1,974,691
Less: Valuation allowance (1,974,691)
-----------
-
===========
The valuation allowance at December 31, 2010 was $1,974,691. The
increase during fiscal 2010 was $167,700.
NOTE 13 - REPORTABLE SEGMENT
ASC Topic 280 requires use of the "management approach" model for
segment reporting. The management approach model is based on the way a
company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company. During the years ended December 31, 2010 and 2009, the Company
operated in two reportable business segments - (1) the Website segment
and (2) the Solar powered consumer products segment. The Company's
reportable segments are strategic business units that offer different
51
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 13 - REPORTABLE SEGMENT (Continued)
products and services. The Company's reportable segments, although
integral to the success of the others, offer distinctly different
products and services.
Condensed information with respect to these reportable business
segments for the years ended December 31, 2010 and 2009 is as follows:
For the Years Ended
December 31,
2010 2009
---- ----
Revenues:
Website $ 26,512 $ 78,797
Solar powered products 1,839 -
--------- ----------
28,351 78,797
--------- ----------
Depreciation and amortization:
Website 695 676
Solar powered products 103,458 8,708
--------- ----------
104,153 9,384
--------- ----------
Interest expense:
Website 42,402 196,000
Solar powered products 4,452 4,452
--------- ----------
46,854 200,452
--------- ----------
Net loss:
Website 693,475 589,223
Solar powered products 134,759 22,511
--------- ----------
$ 828,234 $ 611,734
========= ==========
NOTE 14 - SUBSEQUENT EVENTS
In January 2011, the Company received net proceeds of $1,000 and
subscription receivable of $3,000 from the sale of 75,000 shares of the
Company's common stock.
In February 2011, in connection with a consulting agreement, the
Company issued in aggregate 2,000,000 shares of common stock for public
relations and marketing services until June 2, 2011. The Company
valued these common shares at the fair value on the date of grant at
$.04 per share or $80,000.
52
GENESIS ELECTRONICS GROUP, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 and 2009
NOTE 10 - STOCKHOLDERS' DEFICIT (Continued)
In March 2011, the Company has signed a 2 years lease agreement which
will expire in March 2013. 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. The monthly base rent including sales tax and common area
maintenance amounts to approximately $711.
53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
----------------------------------
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of December 31, 2010, the end of the year covered by this report,
our management concluded its evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures.
Disclosure controls and procedures refer to controls and other
procedures designed to ensure that information required to be disclosed
in the reports we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC and that such
information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to
apply its judgment in evaluating and implementing possible controls and
procedures.
Our management does not expect that our disclosure controls and
procedures will prevent all error and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system's objectives will be met.
Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have
been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. The design of any system of
54
controls is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.
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, Edward Dillon, our
chief executive officer and Nelson Stark, 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, 2010.
Management's Report on Internal Control over Financial Reporting
----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act. Our management is also
required to assess and report on the effectiveness of our internal
control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002. Management assessed the effectiveness of
our internal control over financial reporting as of December 31, 2010.
In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control - Integrated Framework. During our assessment of
the effectiveness of internal control over financial reporting as of
December 31, 2010, management identified material weaknesses related to
(i) our internal audit functions and (ii) the absence of an Audit
Committee as of December 31, 2010, and (iii) a lack of segregation of
duties within accounting functions. Therefore, our internal controls
over financial reporting were not effective as of December 31, 2010.
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.
55
A material weakness (within the meaning of PCAOB Auditing Standard No.
5) is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely
basis. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control over financial reporting that is less
severe than a material weakness, yet important enough to merit
attention by those responsible for oversight of the company's financial
reporting.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and procedures may
deteriorate.
Auditor Attestation
-------------------
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation
by our registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit us to provide only
management's report in this annual report.
Changes in Internal Control over Financial Reporting
----------------------------------------------------
There have been no changes in our internal control over financial
reporting during the quarter ended December 31, 2010 that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
56
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
---------------------------------
The executive officers and directors are:
Name Age Position
Edward C. Dillon 74 CEO, Director
Nelson Stark 57 CFO, Director
Raymond Purdon 42 Chairman of the Board
Howard Neu 61 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 the registrant since June 4, 2004 to
April 6, 2006. He was also responsible for shareholder relations and
investments. From January 2004 to February 4, 2006, Mr. Dillon served
as executive vice president for the registrant and he was also
responsible for shareholder relations and investments. From January
2004 to February 4, 2009, Mr. Dillon served as executive vice
president. From September 2004 to February 4, 2009, Mr. Dillon also
served as a director of the registrant. 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. Management is of the opinion that Mr. Dillon's strong
management and investor relations experience qualifies him to serve as
a director.
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 the registrant since June 4, 2004. Mr. Stark served as
vice president of marketing and operations of the registrant from
September 2003 until February 4, 2006. 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
57
of 2003. Management is of the opinion that Mr. Stark's strong
educational background and marketing, management and administrative
experience qualifies him to serve as a director.
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
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. Management is of the opinion that Mr. Purdon's extensive
background in the securities industry qualifies him to serve as a
director.
HOWARD NEU. Since 1975, Mr. New has been a sole practitioner
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 daughters, four grandchildren and a 17 year old
stepson. Management is of the opinion that Mr. Neu's experience in
the legal and accounting fields qualifies him to serve as a director.
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.
Management is in the process of reviewing and adopting a code of ethics
and intends to complete the adoption of a code of ethics in the next
quarter.
58
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.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation recorded by us in each
of the last two completed fiscal years for our principal executive
officer, our two most highly compensated other executive officers who
served as such at the end of the fiscal year and up to two additional
individuals for whom disclosure would have been provided if such
persons had been serving as executive officers at the end of the fiscal
year.
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 2010 $ - $ - $130,000 - $ - $ - $ - $130,000
2009 $40,000 $ - $31,000 - $ - $ - $ - $71,000
Nelson Stark (2)
Chief Financial
Officer 2010 $13,200 $ - $6,500 $ - $ - $ - $ - $19,700
2009 $7,500 $ - $1,550 $ - $ - $ - $ - $9,050
(1) Mr. Dillon has served as our president and CEO since April 2006.
Mr. Dillon's fiscal 2010 compensation included stock awards of
2,000,000 shares of our common stock which were valued at $130,000. Mr.
Dillon's fiscal 2009 compensation included stock awards of 1,000,000
shares of our common stock which were valued at $31,000. Accrued but
unpaid compensation due to Mr. Dillon during fiscal 2009 amounted to
$40,000 which is included in the above table.
(2) Mr. Stark has served as our CFO since April 2006. In addition to
his salary, Mr. Stark's fiscal 2010 compensation included stock awards
of 100,000 shares of our common stock which were valued at $6,500.
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 $1,550.
59
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth the outstanding stock options to the
registrant's chief executive officer:
Option Awards
Outstanding Equity Awards at December 31, 2010
Equity Equity
Incentive Incentive
Plan Plan
Awards: Awards:
Number of Number of
Number of Securities Securities
Securities Underlying Underlying
Underlying Unexercised Unexercised Option Option
Unexercised Unearned Unearned Exercise Expiration
options Options Options in Price Date
Name (#) (#) (#) ($) ($)
---------------- ---------- ------------ -------- ------- -----------
Edward C. Dillon 1,000,000 $.40 One year after
Exec. Vice Pres. effective
registration
Outstanding Equity Awards at December 31, 2010
Equity
Incentive
Equity Plan Awards:
Incentive Market or
Market Value Plan Awards: Payout
of Shares Number of Value of
Number of or Units Unearned Unearned
Shares or of Shares Shares, Shares,
Units of or Units Units or Units or
Stock of Stock Other Rights Other Rights
that have that have that have that have
not vested not vested not vested not vested
Name (#) ($) (#) ($)
---------------- ---------- ------------ -------- ------------
Edward C. Dillon - - 1,000,000 $400,000
Exec. Vice Pres.
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 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. In October 2008, this
agreement was amended whereby the chief executive officer shall
received 2,000,000 restricted shares of common stock during each fiscal
year instead of 1,000,000 shares which took effect in fiscal 2009.
60
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. In October 2008, this agreement was amended
whereby the officer shall received 2,000,000 restricted shares of
common stock during each fiscal year instead of 1,000,000 shares which
took effect in fiscal 2009.
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
There are currently 170,906,906 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 April 15,
2011, holds of record or is known by management to own beneficially
more than 5.0% of the common shares, including any shares that may be
beneficially acquired within 60 days and, in addition, by all directors
and officers of the registrant individually and as a group.
Directors and Officers
Percentage of
Number & Class Outstanding
Name and Address of Shares Common Shares
Edward C. Dillon(1) 23,232,500 13.59%
3850 Washington St. Apt. 910
Hollywood, FL 33021
Raymond Purdon(1) 21,250,000 12.43%
25 Fox Hill Drive
Little Silver, NJ 07739
Nelson Stark(1) 344,000 0.20%
5130 SW 40th Avenue, Apt. 3B
Fort Lauderdale, FL 33314
Howard Neu(1) 2,696,000 1.58%
1152 N. University Drive #201
Pembroke Pines, FL 33024
(1)As of April 15, 2011, there are no shares that can be
beneficially acquired within 60 days.
61
Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or
sole or shared investment power (including the power to dispose or
direct the disposition) with respect to a security whether through a
contract, arrangement, understanding, relationship or otherwise.
Unless otherwise indicated, each person indicated above has sole power
to vote, or dispose or direct the disposition of all shares
beneficially owned, subject to applicable unity property laws.
All of the directors would be deemed to be promoters of the registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
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.
Edward Dillon, chief executive officer of Genesis Electronics Group,
Inc. advanced funds to us for working capital purposes. The advances
are non-interest bearing and are payable on demand. At December 31,
2010 and 2009, we owed Mr. Dillon $11,510 and $40,485, respectively.
During fiscal 2010, Mr. Dillon advanced a total of $0 and during fiscal
2009, Mr. Dillon advanced a total of $18,000 to us. We paid Mr. Dillon
a total of $ $28,975 and $6,900 during fiscal 2010 and 2009,
respectively.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the fees billed by our principal
independent accountants for each of our last two fiscal years for the
categories of services indicated. Malcolm, please provide info.
Year Ended December 31,
Category 2010 2009
---- ----
Audit Fees (1) $ 12,500 $ 12,750
Audit Related Fees (2) 3,400 5,250
Tax Fees (3) - -
All Other Fees (4) - -
(1) Consists of fees billed for the audit of our annual financial
statements, review of our Form 10-K/10-KSB and services that are
normally provided by the accountant in connection with year end
statutory and regulatory filings or engagements.
(2) Consists of fees billed for the review of our quarterly financial
statements, review of our forms 10-Q/10-QSB and 8-K and services that
are normally provided by the accountant in connection with non year end
statutory and regulatory filings on engagements.
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(3) Consists of professional services rendered by a company aligned
with our principal accountant for tax compliance, tax advice and tax
planning.
(4) The services provided by our accountants within this category
consisted of advice and other services relating to SEC matters,
registration statement review, accounting issues and client
conferences.
Our board of directors has adopted a procedure for pre-approval of all
fees charged by our independent auditors. Under the procedure, the
board approves the engagement letter with respect to audit, tax and
review services. Other fees are subject to pre-approval by the board,
or, in the period between meetings, by a designated member of board.
Any such approval by the designated member is disclosed to the entire
board at the next meeting. The audit and tax fees paid to the auditors
with respect to fiscal year 2010 were pre-approved by the entire board
of directors.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:
Exhibit No. Description
31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive
officer
32.2 Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial
officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
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
---------------------------
April 14, 2011 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 April 14, 2011
--------------------
Edward C. Dillon
/s/Nelson Stark CFO/Director April 14, 2011
-------------------- Principal Accounting Officer
Nelson Stark
/s/Raymond Purdon Director April 14, 2011
--------------------
Raymond Purdon
/s/Howard Neu Director April 14, 2011
---------------------
Howard Neu
