UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from ________ to __________
Commission file number: 333-86347
GENESIS TECHNOLOGY GROUP, INC.
------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-1130026
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7900 GLADES ROAD, SUITE 420
BOCA RATON, FLORIDA 33434
---------------------------
(Address of principal executive offices)
(561) 988-9880
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At February 15, 2006, there were
71,496,966 outstanding shares of common stock, $.001 par value per share.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x]
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This quarterly report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the
Securities and Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995, as amended. These forward-looking statements are
subject to risks and uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from the
results, performance or achievements expressed or implied by the forward-looking
statements. You should not unduly rely on these statements. Forward-looking
statements can be identified by the fact that they do not relate strictly to
historical or current facts. They use words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," "project," "contemplate,"
"would," "should," "could," or "may." With respect to any forward-looking
statement that includes a statement of its underlying assumptions or bases, we
believe such assumptions or bases to be reasonable and have formed them in good
faith, assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending on the circumstances. When, in any forward-looking statement, we
express an expectation or belief as to future results, that expectation or
belief is expressed in good faith and is believed to have a reasonable basis,
but there can be no assurance that the stated expectation or belief will result
or be achieved or accomplished. All subsequent written and oral forward-looking
statements attributable to us, or anyone acting on our behalf, are expressly
qualified in their entirety by the cautionary statements.
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED DECEMBER 31, 2005
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet
December 31, 2005 (Unaudited)................................. 3
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended December 31, 2005 and 2004......... 4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended December 31, 2005 and 2004......... 5
Notes to Consolidated Financial Statements.............................. 6-13
Item 2 - Management's Discussion and Analysis or Plan of Operation..... 14-21
Item 3 - Controls and Procedures....................................... 22
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................................. 22
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds... 22
Item 3 - Default upon Senior Securities ............................... 22
Item 4 - Submission of Matters to a Vote of Security Holders........... 22
Item 5 - Other Information............................................. 22
Item 6 - Exhibits...................................................... 22
Signatures............................................................. 23
-2-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2005
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 36,315
Marketable equity securities, at market ...................................... 178,867
Assets from discontinued operations .......................................... 1,019,974
------------
Total Current Assets ....................................................... 1,235,156
PROPERTY AND EQUIPMENT - Net ................................................... 21,764
OTHER ASSETS:
Other assets ................................................................. 67,161
------------
Total Assets ............................................................... $ 1,324,081
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ........................................ $ 62,825
Deferred revenue ............................................................. 8,333
Liabilities of discontinued operations ....................................... 951,550
------------
Total Current Liabilities .................................................. 1,022,708
------------
MINORITY INTEREST .............................................................. 10,053
------------
SHAREHOLDERS' EQUITY:
Preferred stock ($.001 Par Value; 20,000,000 Shares Authorized)
Convertible preferred stock Series A ($.001 Par Value;
218,000 Shares Authorized; 85,900 shares issued and outstanding) ........... 86
Common stock ($.001 Par Value; 200,000,000 Shares Authorized;
70,490,097 shares issued and outstanding) .................................. 70,490
Additional paid-in capital ................................................... 20,158,311
Accumulated deficit .......................................................... (19,613,044)
Less: Deferred compensation .................................................. (146,041)
Less: Subscription receivable ................................................ (15,840)
Accumulated other comprehensive loss ......................................... (162,642)
------------
Total Shareholders' Equity ................................................. 291,320
------------
Total Liabilities and Shareholders' Equity ............................... $ 1,324,081
============
See notes to consolidated financial statements
-3-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
December 31,
------------------------------
2005 2004
------------ ------------
(Unaudited) (Unaudited)
NET REVENUES .................................................. $ 5,000 $ 122,767
------------ ------------
OPERATING EXPENSES:
Consulting .................................................. - 35,530
Salaries and non-cash compensation .......................... 194,162 496,818
Severance expense ........................................... - 332,533
Selling, general and administrative ......................... 77,080 301,110
------------ ------------
Total Operating Expenses .................................. 271,242 1,165,991
------------ ------------
LOSS FROM OPERATIONS .......................................... (266,242) (1,043,224)
------------ ------------
OTHER INCOME:
Gain from sale of marketable securities ..................... 40,457 -
Interest income ............................................. 38 2,909
------------ ------------
Total Other Income ........................................ 40,495 2,909
------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS ........................... (225,747) (1,040,315)
DISCONTINUED OPERATIONS:
Gain (loss) from discontinued operations .................... 2,624 (104,401)
------------ ------------
NET LOSS ...................................................... $ (223,123) $ (1,144,716)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Loss from continuing operations ............................. $ (0.00) $ (0.02)
Loss from discontinued operations ........................... 0.00 (0.00)
------------ ------------
Net loss per common share ................................... $ (0.00) $ (0.02)
============ ============
Weighted Common Shares Outstanding - Basic and Diluted ...... 69,765,010 56,457,293
============ ============
See notes to consolidated financial statements
-4-
GENESIS TECHNOLOGY GROUP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
December 31,
--------------------------
2005 2004
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations ............................... $ (225,747) $(1,040,315)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................................... 1,792 2,506
Gain on sale of marketable securities ........................... (40,457) -
Common stock issued and forgiveness of subscription for severance - 88,125
Severance expense ............................................... - 121,608
Stock-based compensation and consulting ......................... 193,792 340,577
Marketable securities received for services ..................... - (114,000)
Marketable securities distributed for settlement ................ - 22,800
Changes in assets and liabilities:
Prepaid and other current assets ................................ - 20,706
Other assets .................................................... 4,249 -
Accounts payable and accrued expenses ........................... 8,649 (72,248)
Deferred revenue ................................................ (5,000) (12,500)
----------- -----------
Net cash used in continuing operations activities ................. (62,722) (642,741)
----------- -----------
Gain (loss) from discontinued operations .......................... 2,624 (104,401)
Adjustments to reconcile gain (loss) from discontinued
operations to net cash used in discontinued operating activities:
Net (increase) decrease in assets of discontinued operations .... 311,913 (320,345)
Net decrease in liabilities of discontinued operations .......... (315,705) (78,400)
----------- -----------
Net cash used in discontinued operations .......................... (1,168) (503,146)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ............................... (63,890) (1,145,887)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities ....................... 81,151 -
----------- -----------
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES ..................... 81,151 -
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ........................... - 20,983
----------- -----------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES ..................... - 20,983
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES IN CASH ............................. 1,167 -
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ 18,428 (1,124,904)
CASH AND CASH EQUIVALENTS - beginning of year ....................... 17,887 1,436,188
----------- -----------
CASH AND CASH EQUIVALENTS - end of period ........................... $ 36,315 $ 311,284
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest ........................................................ $ - $ -
=========== ===========
Income taxes .................................................... $ - $ -
=========== ===========
Non-cash investing and financing activities:
Common stock issued for deferred compensation ................... $ - $ 888,750
=========== ===========
See notes to consolidated financial statements.
-5-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Genesis Technology Group, Inc. (the "Company" or "Genesis") is a business
development and marketing firm that specializes in providing leadership and
commerce opportunities to small and mid-sized companies in the United States and
China. The Company provides and procures development projects that require
marketing, manufacturing, finance, and product deployment expertise for
companies in the United States and China. The Company's core competency is
sourcing merger and acquisitions opportunities for both its contract clients and
the Company.
On November 15, 2001, the Company entered into a Stock Purchase Agreement with
Shanghai Chorry Technology Development Co., Limited ("Chorry") and Chorry's
shareholder and acquired an 80% interest in Chorry. Chorry was formerly known as
Shanghai Zhaoli Technology Development Company Ltd. Chorry is a Chinese company
with principal offices in Shanghai, China. On November 2, 2005, the Company
entered into a stock purchase agreement with Dragon Ventures (OTC: DRGV), a
Nevada public corporation, for the sale of Chorry. The Company closed on this
transaction on February 15, 2006 (See Note 2 - Discontinued Operations).
Accordingly, Chorry is reported as a discontinued operation, and prior periods
have been restated in the Company's financial statements and related footnotes
to conform to this presentation.
Effective September 8, 2004, the Company acquired 60% of the common stock of
Extrema LLC ("Extrema"), a Miami-based computer hardware wholesaler. On May 1,
2005, the shareholders of Extrema unanimously agreed to discontinue the
operations of Extrema because of (a) the disappointing performance of Extrema
including continuing operating losses; (b) the Company's lack of ability to
obtain working capital loans to finance the purchase of inventory and to finance
accounts receivable (See Note 2); and (c) the Company's decision to consolidate
all trading and sourcing activities into its new subsidiary, GHK, located in
Hong Kong.
Effective June 20, 2005, the Company formally established Genesis Equity
Partners LLC ("GEP") in which it owns 75%, and the balance of 25% is owned by
China West LLC. In the fall of 2006, GEP signed a contract with The Jin Ma Group
Company, Ltd., a real estate development company in Western China, to globalize
its operations in the areas of real estate, construction, and hospitality. To be
known as Gold Horse International, Inc., GEP will receive a significant equity
position in Gold Horse and ongoing consulting fees for coordination and
oversight of its U.S. business activities.
-6-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). The accompanying consolidated financial statements for the interim
periods are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
periods presented. The consolidated financial statements include the accounts of
the Company and its wholly and partially owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. These consolidated
financial statements should be read in conjunction with the financial statements
for the year ended September 30, 2005 and notes thereto contained on Form 10-KSB
of the Company as filed with the Securities and Exchange Commission. The results
of operations for the three months ended December 31, 2005 are not necessarily
indicative of the results for the full fiscal year ending September 30, 2006.
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 2006 and
2005 include the valuation of stock-based compensation, and the useful life of
property and equipment.
NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss by weighted average number
of shares of common stock outstanding during each period. Diluted loss per share
is computed by dividing net loss by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Diluted loss per common share is not presented
because it is anti-dilutive. As of December 31, 2005, there were options and
warrants to purchase 13,651,784 shares of common stock and 3,702,586 shares
issuable upon conversion of preferred stock which could potentially dilute
future earnings per share.
FOREIGN CURRENCY TRANSLATION
Transactions and balances originally denominated in U.S. dollars are presented
at their original amounts. Transactions and balances in other currencies are
converted into U.S. dollars in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation," and are included in
determining net income or loss.
-7-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FOREIGN CURRENCY TRANSLATION (CONTINUED)
For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues and
expenses are translated at weighted average exchange rates for the period to
approximate translation at the exchange rates prevailing at the dates those
elements are recognized in the financial statements. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive loss. As
of December 31, 2005, the exchange rate for the Chinese Renminbi (RMB) was $1 US
for 8.0734 RMB.
The functional and reporting currency is the U.S. dollar. The functional
currency of the Company's Chinese subsidiaries is the local currency. The
financial statements of the subsidiaries are translated into United States
dollars using year-end rates of exchange for assets and liabilities, and average
rates of exchange for the period for revenues, costs, and expenses. Net gains
and losses resulting from foreign exchange transactions are included in the
consolidated statements of operations and were not material during the periods
presented because the Chinese dollar (RMB) fluctuates with the United States
dollar. The cumulative translation adjustment and effect of exchange rate
changes on cash at December 31, 2005 was not material.
On July 21, 2005, China allowed the Chinese RMB to fluctuate ending its
decade-old valuation peg to the U.S. dollar. The new RMB rate reflects an
approximately 2% increase in value against the U.S. dollar. Historically, the
Chinese government has benchmarked the RMB exchange ratio against the U.S.
dollar, thereby mitigating the associated foreign currency exchange rate
fluctuation risk. The Company does not believe that its foreign currency
exchange rate fluctuation risk is significant.
STOCK-BASED COMPENSATION
Effective October 1, 2005, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS
No. 123R establishes the financial accounting and reporting standards for
stock-based compensation plans. As required by SFAS No. 123R, the Company
recognized the cost resulting from all stock-based payment transactions
including shares issued under its stock option plans in the financial
statements. As a result of adopting SFAS No. 123R, the Company's net loss for
the three months ended December 31, 2005 was $15,816 higher than if we had
continued to account for stock-based compensation under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations ("APB Opinion No. 25").
Prior to October 1, 2005, the Company accounted for stock-based employee
compensation plans (including shares issued under its stock option plans) in
accordance with APB Opinion No. 25 and followed the pro forma net income, pro
forma income per share, and stock-based compensation plan disclosure
requirements set forth in the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123").
-8-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
The following table sets forth the computation of basic and diluted income per
share for the three months ended December 31, 2004 and illustrates the effect on
net loss and loss per share as if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation:
2004
----
Net loss as reported ......................... $(1,144,716)
Less: stock-based employee compensation
included in reported net loss .............. 32,452
Add: stock-based employee compensation
expense determined under fair-value based
method, net of related tax effect .......... (57,655)
-----------
Pro forma net loss ........................... $(1,169,919)
===========
Basic loss per share:
As reported ........................... $ (.02)
===========
Pro forma ............................. $ (.02)
===========
MARKETABLE EQUITY SECURITIES
Marketable equity securities consist of investments in equity of publicly traded
and non-public domestic and foreign companies and are stated at market value
based on the most recently traded price of these securities at December 31,
2005. All marketable securities are classified as available for sale at December
31, 2005. Unrealized gains and losses, determined by the difference between
historical purchase price and the market value at each balance sheet date, are
recorded as a component of Accumulated Other Comprehensive Income in
Stockholders' Equity. Realized gains and losses are determined by the difference
between historical purchase price and gross proceeds received when the
marketable securities are sold. Restricted marketable equity securities are
shown as long-term assets. For the purpose of computing realized gains and
losses, cost is identified on a specific identification basis. For marketable
securities for which there is an other-than-temporary impairment, an impairment
loss is recognized as a realized loss.
-9-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005
(Unaudited)
NOTE 2 - DISCONTINUED OPERATIONS
Effective September 8, 2004, the Company acquired 60% of the common stock of
Extrema LLC ("Extrema"), a Miami-based computer hardware wholesaler with a
22-year history. The Company accounted for this acquisition using the purchase
method of accounting in accordance with SFAS No. 141. In fiscal 2004, in
connection with the acquisition, the Company issued 1,369,697 shares of common
stock to the seller. The value of the 1,369,697 common shares issued of $.16 per
share or $219,151 was determined based on the average market price of the
Company's common shares over the 5-day period before and after the acquisition
date of September 8, 2004 and paid cash of $63,500. Additionally, in connection
with the acquisition, the seller retained accounts receivable in the amount of
approximately $106,000 which was applied to the purchase price. The purchase
price exceeded the fair value of net assets acquired by $395,062. The Company
applied $150,000 of the excess to customer lists based on the present value of
future cash flows of pending sales orders, which was being amortized over a 36
month period and $15,000 to the fair market value of property and equipment
acquired. The remaining excess of $293,562 was applied to goodwill. As described
in Note 1, on May 1, 2005, the shareholders of Extrema unanimously agreed to
discontinue the operations of Extrema. Extrema is reported as a discontinued
operation and prior periods have been restated in the Company's financial
statements and related footnotes to conform to this presentation.
As a material subsequent event, on November 2, 2005, the Company entered into a
stock purchase agreement with Dragon Ventures (Pink sheets symbol: DRGV), a
Nevada public corporation, for the sale of its majority-owned subsidiary Chorry.
The Company closed on this transaction on February 15, 2006. The agreement
includes the following provisions:
(1) The Company delivered 100% of its shares in Chorry, representing its
80% ownership of that subsidiary, to DRGV.
(2) DRGV paid to the Company $500,000 in DRGV's common stock at a price
calculated at the average closing price for the 10 days prior to the
closing date.
(3) For the year ended September 30, 2005, the Company and DRGV shall
equally divide the cost of the audit of Chorry.
Accordingly, Chorry is reported as a discontinued operation, and prior periods
have been restated in the Company's financial statements and related footnotes
to conform to this presentation.
-10-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005
(Unaudited)
NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED)
The assets and liabilities of Extrema and Chorry are presented in the balance
sheet under the captions "Assets of discontinued operation" and "Liabilities of
discontinued operation". The approximate carrying amounts of the major classes
of these assets and liabilities as of December 31, 2005 are summarized as
follows:
Assets:
-------
Cash ......................................... $ 267,000
Accounts receivable .......................... 35,000
Inventory .................................... 298,000
Other assets ................................. 420,000
----------
Assets of discontinued operation ............. $1,020,000
==========
Liabilities:
------------
Loan payable ................................. $ 124,000
Accounts payable and accrued expenses ........ 210,000
Due to related party ......................... 585,000
Minority interest ............................ 33,000
----------
Liabilities of discontinued operation ........ $ 952,000
==========
The following table sets forth for the three months ended December 31, 2005 and
2004 indicated selected financial data of the Company's discontinued operations.
2005 2004
---- ----
Revenues ..................................... $ 7,398,000 $ 6,929,000
Cost of sales ................................ 7,259,000 6,776,000
----------- -----------
Gross profit ................................. 139,000 153,000
Operating and other non-operating expenses ... 136,000 257,000
----------- -----------
Gain (loss) from discontinued operations ..... 3,000 (104,000)
Loss from disposal of discontinued operations - -
----------- -----------
Total gain (loss) from discontinued operations $ 3,000 $ (104,000)
=========== ===========
-11-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005
(Unaudited)
NOTE 3 - STOCKHOLDERS' EQUITY
COMMON STOCK
On November 30, 2005, in connection with the exercise of stock options, the
Company issued 528,000 shares of common stock to an employee for a subscription
receivable of $15,840 due in March 2006.
On December 9, 2005, Series A preferred stockholders' converted 11,600 share of
Series A Preferred Stock into 500,000 shares of common stock.
For the three months ended December 31 2005, the Company recorded stock-based
compensation of $167,416 from the amortization of deferred compensation.
STOCK OPTIONS AND WARRANTS
On November 30, 2005, the Company granted 528,000 stock options to an employee
at an exercise price of $.03 per share. These options were immediately exercised
for a subscription receivable of $15,840. The Company accounts for stock options
issued to employees in accordance with the provisions of SFAS 123R and related
interpretations. The fair value of this option grant was estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions dividend yield of -0- percent; expected volatility
of 54 percent; risk-free interest rate of 3.75 percent and an expected holding
periods of 3.00 years. In connection with these options, the Company recorded
stock-based compensation expense of $26,376.
A summary of the stock options and warrants as of December 31, 2005 and changes
during the period is presented below:
Weighted
Number of Average
Options and Exercise
Warrants Price
----------- --------
Stock options and warrants
Balance at beginning of year ................. 15,309,216 $0.095
Granted ...................................... 528,000 0.030
Exercised .................................... (528,000) 0.030
Forfeited .................................... (1,657,432) 0.268
----------- ------
Balance at December 31, 2005 ................. 13,651,784 $0.075
=========== ======
Options exercisable at end of period ......... 13,651,784 $0.075
=========== ======
Weighted average fair value of options
granted during the period .................... $ 0.03
-12-
GENESIS TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005
(Unaudited)
NOTE 3 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes information about employee stock options and
consultant warrants outstanding at December 31, 2005:
Options and Warrants Outstanding Options and Warrants Exercisable
------------------------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price December 31, 2005 Life Price December 31, 2005 Price
---------- ----------------- ----------- -------- ----------------- --------
$0.28-0.34 751,034 2.00 Years $ 0.31 751,034 $ 0.31
0.12-0.15 540,000 2.60 Years 0.14 540,000 0.14
0.05-0.10 6,892,000 2.50 Years 0.07 6,892,000 0.07
0.03-.041 5,468,750 2.25 Years 0.04 5,468,750 0.04
----------------- -------- ----------------- --------
13,651,784 $ 0.075 13,651,784 $ 0.075
================= ======== ================= ========
NOTE 4 - GOING CONCERN
The accompanying consolidated financial statements are prepared assuming the
Company will continue as a going concern. During the three months ended December
31, 2005, the Company incurred net losses of $223,123 and had negative cash
flows from operations in the amount of $63,890. While the Company is attempting
to increase sales and cash flows and reduce costs, the growth has not been
significant enough to support the Company's daily operations. While the Company
believes in the viability of its strategy to improve 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. The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its business plan,
generate increased revenues, reduce costs or merge with a profitable company.
Additionally, the Company has marketable securities with a market value of
$178,867 at December 31, 2005 which it plans on selling to obtain cash for
working capital purposes. The consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern. Management believes that the actions presently being taken to
further implement its business plan and generate additional revenues provide the
opportunity for the Company to continue as a going concern.
NOTE 5 - SUBSEQUENT EVENTS
In January 2006, the Company issued 1,006,869 shares of common stock to its
chief financial officer for services rendered. The Company valued these common
shares at the fair market value on the dates of grant of $.05 per share or
$50,343 based on the trading price of common shares. Accordingly, the Company
recorded stock-based compensation expense of $35,343 and reduced accounts
payable by $15,000.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following analysis of our consolidated financial condition and
results of operations for the three months ended December 31, 2005 and 2004,
should be read in conjunction with the consolidated financial statements,
including footnotes, and other information presented in our Form 10-KSB as filed
with the Securities and Exchange Commission.
OVERVIEW
We are a business development and marketing firm that specializes in
proving leadership and commerce opportunities to small and mid-sized companies
in the United States and China. We provide and procure development projects that
require marketing, manufacturing, finance, and product deployment expertise. Our
core competency is sourcing merger and acquisitions opportunities for both our
contract clients and Genesis respectfully. The majority of our commercial
proceedings involve China in a significant capacity. Historically our clients
range from global 1000 companies, emerging high-growth organizations, to
venture-backed start-ups. Genesis, and through its subsidiaries, creates and
fosters a unique framework for business collaboration between companies and
organization in United States and China.
Genesis and The YaSheng Group, Ltd. ("YaSheng") signed a Letter of
Intent dated December 13, 2005. YaSheng is a Chinese biotech/agribusiness
conglomerate in Gansu Province, China with annual revenues exceeding USD 665
million, profits exceeding USD 83 million, and assets exceeding USD 1.3 billion.
The merger would consist of a YaSheng subsidiary merging into GTEC, and the
succeeding entity possibly having a majority ownership by YaSheng. The
anticipated merger candidate has revenues of approximately $40,000,000 annually
and is cash flow positive. A final merger agreement would require the approval
of the GTEC Board of Directors and Shareholders. We are actively seeking
acquisitions or business opportunities to, among other things, increase revenues
and improve stockholder value, which businesses or lines of business may or may
not relate to the current core business of the Company.
Genesis Equity Partners, LLC, signed a contract with The Jin Ma Group
Company, Ltd., a real estate development company in Western China, to globalize
its operations in the areas of real estate, construction, and hospitality. To be
known as Gold Horse International, Inc., the three divisions reportedly grossed
over $20 million in revenues, almost $2 million in net profits in 2005, plus net
assets exceeding $10 million. Genesis Equity Partners will receive a significant
equity position in Gold Horse and ongoing consulting fees for coordination and
oversight of its U.S. business activities.
We intend to continue to pursue acquisitions that we believe could
complement or expand our business, or augment our market coverage. We seek
companies or product lines that we believe have consistent historical cash flow
and brand growth potential and can be purchased at a reasonable price. We also
may acquire businesses that we feel could provide us with important
relationships or otherwise offer us growth opportunities. We plan to fund our
future acquisitions through bank financing, seller debt or equity financing and
public or private equity financing. Although we are actively seeking
acquisitions that will expand our existing products or add new lines of
business, as of the date of this we have no agreements with respect to any such
acquisitions, and there can be no assurance that we will be able to identify and
acquire such businesses or obtain necessary financing on favorable terms. While
we are seeking acquisitions that we believe would improve our financial results,
a completed acquisition may not provide the anticipated financial results, thus
leading to continuing net losses. Even if we achieve profitability, we may not
be able to sustain or increase profitability on a quarterly or annual basis.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
On November 15, 2001, we entered into a Stock Purchase Agreement with
Shanghai Chorry Technology Development Co., Limited ("Chorry") and Chorry's
shareholder and acquired an 80% interest in Chorry. Chorry was formerly known as
Shanghai Zhaoli Technology Development Company Ltd. Chorry is a Chinese company
with principal offices in Shanghai, China. On November 2, 2005, the Company
entered into a stock purchase agreement with Dragon Ventures (OTC: DRGV), a
Nevada public corporation, for the sale of Chorry. The Company closed on this
transaction on February 13, 2006. Accordingly, Chorry is reported as a
discontinued operation, and prior periods have been restated in the Company's
financial statements and related footnotes to conform to this presentation.
In June 2005, we formally established Genesis Equity Partners, LLC
(GEP) in which we own 75% and the balance (25%) is owned by China West, LLC.
China West is a private limited liability partnership in which neither the
Company nor anyone affiliated with it holds any ownership interest. We formed
GEP to assist Chinese and Western companies in formulating strategies to
increase equity value, targeting western stock exchanges as a source of capital
and shareholder support. Our partnership specializes in assisting private
companies in the People's Republic of China seeking direct public offering
opportunities in the United States. Management anticipates higher profitability
from GEP and by pursuing a qualified merger candidate in China, a plan that has
been actively pursued during 2005 with promising results.
On May 1, 2005, the shareholders of Extrema unanimously agreed to
discontinue the operations of Extrema because of (a) the disappointing
performance of Extrema including continuing operating losses; (b) the Company's
lack of ability to obtain working capital loans to finance the purchase of
inventory and to finance accounts receivable; and (c) the Company's decision to
consolidate all trading and sourcing activities into its new subsidiary located
in Hong Kong, GHK. Our 60% owned subsidiary, Extrema LLC, ceased U.S. operations
which will contribute to the costs savings. For the periods discussed, Extrema
is reported as a discontinued operation, and prior periods have been restated in
the Company's financial statements and related footnotes to conform to this
presentation.
In October of 2005, Genesis established the Genesis Distance Learning
Division (GDLD) to implement the China Vocational Education Satellite Network's
(CVE) global distance learning program. With a curriculum covering medical,
management, engineering, spirituality, marketing, accounting, business and
finance, and more, CVE will create global classrooms through distance learning
programs that target a registered student body numbering in the millions. As of
November 2005, the World Bank Group had invested $4.6 million in the China
Vocational Education Satellite Network. Genesis is also a contract partner to
the China Vocation Education Satellite Network. To date, we have not recognized
any revenues or incurred any expenses in the division.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Effective June 20, 2005, we formally established Genesis Equity
Partners LLC ("GEP") in which we own 75% and the balance of 25% is owned by
China West LLC. In the fall of 2006, GEP signed a contract with The Jin Ma Group
Company, Ltd., a real estate development company in Western China, to globalize
its operations in the areas of real estate, construction, and hospitality. To be
known as Gold Horse International, Inc., the three divisions reportedly grossed
over $20 million in revenues, almost $2 million in net profits in 2005, plus net
assets exceeding $10 million. GEP will receive a significant equity position in
Gold Horse and ongoing consulting fees for coordination and oversight of its
U.S. business activities. We intend to repeat this strategy and secure similar
contracts with other qualified Chinese companies. Presently, we have five such
candidates in the due diligence phase. Previously, Genesis benefited from such a
merger and acquisition program by earning a significant equity position in
Sunwin Pharmaceuticals (OTCBB: SUWN), Dragon Capital Corporation (OTC: DRGV),
Dragon International (OTCBB: DRGG), Telecom Telecommunications (OTCBB: TCOM),
and Innova Holdings (OTCBB: IVHG).
We believe that as we further develop our consulting services segment,
more opportunities to expand our operations through acquisitions will also be
presented to us. It is critical to our long-term business model to both increase
our revenues from the consulting services segment of our existing business, as
well as to diversify our revenue base. By virtue of the nature of our consulting
services and the professional experience of our management and directors, we
interact with a number of both U.S. and Chinese companies. Through this
broadening of our relationship base, we believe that we will be able to not only
provide better services to our client companies, but we will have certain
advantages over other companies our size when it comes to identifying and
closing acquisitions.
The fee-based structure of our consulting services division is such
that if our client company is successful in its particular venture, we can earn
additional fees. These fees could range from a flat cash fee, to a fee which
includes a combination of equity in our client and a success fee payable upon
the completion of transactions such as acquisitions, formations of joint
ventures, or licensing or selling technologies in China, to a solely performance
based fee upon the completion of the project. We do not intend to operate as an
investment company or become subject to the Investment Company Act of 1940.
However, in order to materially grow our business we will need to raise
additional working capital. Capital will typically be needed not only for the
acquisition of additional companies, but also for the effective integration,
operation and expansion of these businesses. There are no assurances we will be
able to raise additional capital. If we are unable to secure additional capital
as need, this inability will in all likelihood hamper or restrict our ability to
acquire and integrate additional companies and to otherwise increase our
revenues in future periods.
We are engaged in a series of discussions for the purpose of entering
into technology and sales alliances or possible acquisitions. Such discussions
are ongoing and the Company anticipates that these negotiations will lead to the
consummation of several critical contracts, agreements and/or alliances in the
foreseeable future that will provide the Company with the ability to increase
revenues and attain profitability through fiscal year 2006 and thereafter.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates based on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
A summary of significant accounting policies is included in Note 1 to
the audited consolidated financial statements included in this Form 10-KSB.
Management believes that the application of these policies on a consistent basis
enables us to provide useful and reliable financial information about the
company's operating results and financial condition.
Accounting for Stock Based Compensation - Effective October 1, 2005, we
adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
Share Based Payment ("SFAS No. 123R"). SFAS No. 123R establishes the financial
accounting and reporting standards for stock-based compensation plans. As
required by SFAS No. 123R, the Company recognized the cost resulting from all
stock-based payment transactions including shares issued under its stock option
plans in the financial statements. As a result of adopting SFAS No. 123R, our
net loss for the three months ended December 31, 2005 was $15,816 higher than if
we had continued to account for stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
its related interpretations ("APB Opinion No. 25"). We expect the adoption of
SFAS No. 123R to have a negative impact on our operations.
Marketable equity securities consist of investments in equity of
publicly traded and non-public domestic companies and are stated at market value
based on the most recently traded price of these securities at December 31,
2005. All marketable securities are classified as available for sale at December
31, 2005. Unrealized gains and losses, determined by the difference between
historical purchase price and the market value at each balance sheet date, are
recorded as a component of Accumulated Other Comprehensive Income in
Stockholders' Equity. Realized gains and losses are determined by the difference
between historical purchase price and gross proceeds received when the
marketable securities are sold. Realized gains or losses on the sale or exchange
of equity securities and declines in value judged to be other than temporary are
recorded in gains (losses) on equity securities, net. Marketable equity
securities are presumed to be impaired if the fair value is less than the cost
basis continuously for three consecutive quarters, absent evidence to the
contrary.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2005 COMPARED THE
THREE MONTHS ENDED DECEMBER 31, 2004
REVENUES
For the three months ended December 31, 2005, we had consolidated
revenues of $5,000 as compared to $122,767 for the three months ended December
31, 2004, a decrease of $117,767 or 96%. During the three months ended December
31, 2005, we spent a substantial amount of time with discussions with potential
candidates for acquisition, and the sale of our Chorry subsidiary. This
diversion of time had a negative effect on our consulting revenues. However, we
entered into contracts with clients in China with enormous potential for
significant revenues and profit. We expect our revenues to increase during
fiscal 2006 as we modified our model, changed management, and reduced our cost
tremendously.
OPERATING EXPENSES
For the three months ended December 31, 2005, operating expenses which
include consulting fees, rent, salaries and non-cash compensation, severance
expense, professional fees and other selling, general and administrative, were
$271,242 compared to $1,165,991 for the three months ended December 31, 2004, a
decrease of $894,749 or 77%.
The decrease in operating expenses was primarily attributable to the following:
* Our consulting expense decreased to $0 for the three months ended
December 31, 2005 from $35,530 for the three months ended December 31, 2004, a
decrease of $35,530 or 100%. The decrease was due to a decline in the use of
consultants and a change in our business model and the sectors of our focus.
* Salaries and stock-based compensation expense decreased to $194,162
for the three months ended December 31, 2005 from $496,818 for three months
ended December 31, 2004, a decrease of $302,656 or 61%. The decrease in salaries
and stock-based compensation expense was attributable to a decrease in the
recording of stock-based compensation in connection with the granting of common
stock and stock options to officers, employees, and directors and the
amortization of deferred compensation. Additionally, we had a decrease of
approximately $156,000 attributable to a decrease in staff in our US and China
business development offices and a decrease in cash payment paid to executives
under employment agreements due to the issuance of common shares in lieu of
cash. Additionally, at December 31, 2005, we had deferred compensation of
$146,041, which will be amortized into expense during fiscal 2006.
* During the three months ended December 31, 2004, we recorded
severance expense of $332,533 related to a severance and separation agreement we
signed with a former officer/director of the Company. In connection with this
agreement, we paid cash of $100,000, issued common shares with a value of
$61,875, reduced a subscription receivable of $26,250, distributed marketable
securities with a value of $22,800, and incurred severance expense of $121,608
related to the distribution of the net assets of Yastock.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
o Other selling, general and administrative expenses decreased to
$77,080 for the three months ended December 31, 2005 from $301,110 for the three
months ended December 31, 2004, a decrease of $224,030 or 74%. Other selling,
general and administrative expenses included the following:
2005 2004
---- ----
Professional fees ....................... $ 33,833 $ 97,978
Rent .................................... 11,100 23,382
Travel and entertainment ................ 14,040 35,212
Other selling, general and administrative 18,107 144,538
-------- --------
Total .............................. $ 77,080 $301,110
======== ========
In fiscal 2005, professional fees decreased by $64,145 or 66% due to a
decrease in legal fees of $17,151 related to general corporate matters and
acquisition activity, a decrease in accounting and auditing fees of
approximately $47,000. In connection with the sale of Chorry, the acquirer
agreed to pay 50% of the audit fees related to the audit of Chorry for fiscal
2005. Additionally, in the 2004 period, we incurred auditing fees of
approximately $15,000 in connection with the audit of an acquisition.
Rent expense decreased to $11,100 for the three months ended December
31, 2005 from $23,382 for three months ended December 31, 2004, a decrease of
$12,282. The decrease in rent was attributable to the relocation of our offices
to a smaller, less expensive office facility, the closing of our office in
Shanghai, China.
During the three months ended December 31, 2005, travel related
expenses decreased by $21,172 or 60% as compared to the 2004 period and was
attributable to a decrease in the number of staff traveling to China.
Other selling, general and administrative expenses include office
expenses and supplies, telephone and communications, and other expenses. For the
three months ended December 31, 2005, other selling, general and administrative
expenses amounted to $18,107 compared to $144,538 during the three months ended
December 31, 2004, a decrease of $126,431 or 87%. The decrease was attributable
to the closing of our Shanghai office, the reduction in marketing activities,
and cost cutting measures.
GAIN FROM SALE OF MARKETABLE SECURITIES
For the three months ended December 31, 2005, we recorded a gain from
the sale of marketable securities of $40,457 compared to a $0 for the three
months ended December 31, 2004.
GAIN (LOSS) FROM DISCONTINUED OPERATIONS
For the three months ended December 31, 2005, we recorded a gain from
discontinued operations of $2,624 associated with the discontinuation of our
Chorry which was sold on February 13, 2006. For the three months ended December
31, 2004, we recorded a loss from discontinued operations of $104,401 due to the
closure of our Extrema subsidiary and the discontinuation of our Chorry
subsidiary.
-19-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
On November 2, 2005, we entered into a stock purchase agreement with
Dragon Ventures (OTC: DRGV), a Nevada public corporation, for the sale of our
majority-owned subsidiary Chorry. The agreement includes the following
provisions:
1. We will deliver 100% of our shares in Chorry, representing our 80%
ownership of that subsidiary, to DRGV.
2. DRGV will pay to us $500,000 in DRGV's common stock at a price
calculated at the average closing price for the 10 days prior to the
closing date.
3. For the three months ended December 31, 2005, the Company and DRGV
shall equally divide the cost of the audit of Chorry.
We closed on this transaction on February 15, 2006. Accordingly, Chorry
is reported as a discontinued operation, and prior periods have been restated in
our financial statements and related footnotes to conform to this presentation.
OVERALL
We reported a net loss for the three months ended December 31, 2005 of
$223,123 compared to a net loss for the three months ended December 31, 2004 of
$1,144,716. This translates to an overall per-share loss available to
shareholders of $.00 for the three months ended December 31, 2005 compared to
per-share loss of $.02 for three months ended December 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2005, we had a cash balance of $36,315 and working
capital of $212,448. During the three months ended December 31, 2005, we
received cash amounting to approximately $81,000 from the sale of marketable
equity securities. We will continue to sell marketable equity securities to
obtain cash for working capital purposes. We are presently meeting our current
obligations from cash proceeds received from the sale of marketable equity
securities. However, due to insufficient cash generated from operations, we
currently do not internally generate cash sufficient to pay all of our incurred
expenses and other liabilities. As a result, we are may be dependent on investor
capital and loans to meet our expenses and obligations. Although investor funds
and proceeds from sales of marketable equity securities have allowed us to meet
our obligations in the recent past, there can be no assurances that our present
methods of generating cash flow will be sufficient to meet future obligations.
Historically, we have, from time to time, been able to raise additional capital
from sales of our capital stock, but there can be no assurances that we will be
able to raise additional capital in this manner.
Net cash used in operations was $63,890 for the three months ended
December 31, 2005 as compared to net cash used in operations of $1,145,887 for
the three months ended December 31, 2004. For the three months ended December
31, 2005, we used cash to fund our loss of $(223,123) and recorded a gain from
the sale of marketable securities of $40,457 offset by non-cash items such as
stock-based compensation of $193,792 and depreciation and amortization expense
of $1,792, as well as changes in assets and liabilities of $7,898. For the three
months ended December 31, 2004, we used cash to fund our net loss of
$(1,144,716) offset by non-cash items such as stock-based compensation of
$340,577, depreciation expenses of $2,506 and severance expense of $232,533 as
well as other non-cash items and changes in assets and liabilities of
$(576,787).
-20-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Net cash provided by investing activities for the three months ended
December 31, 2005 was $81,151 as compared to net cash provided by investing
activities for the three months ended December 31, 2004 of $0. For the three
months ended December 31, 2005, we received cash from the sale of marketable
securities of $81,151.
Net cash provided by financing activities was $0 for the three months
ended December 31, 2005 as compared to net cash provided by financing activities
of $20,983 for the three months ended December 31, 2004. For the three months
ended December 31, 2004, net cash provided by financing activities related to
proceeds received from the exercise of stock options of $20,983.
We currently have no material commitments for capital expenditures.
Our future growth is dependent on our ability to raise capital for
expansion, and to seek additional revenue sources. If we decide to pursue any
acquisition opportunities or other expansion opportunities, we may need to raise
additional capital, although there can be no assurance such capital-raising
activities would be successful. There are no assurances that such capital will
be available to us when needed or upon terms and conditions which are acceptable
to us. If we are able to secure additional working capital through the sale of
equity securities, the ownership interests of our current stockholders will be
diluted. If we raise additional working capital through the issuance of debt or
additional dividend paying securities our future interest and dividend expenses
will increase. If we are unable to secure additional working capital as needed,
our ability to grow our sales, meet our operating and financing obligations as
they become due and continue our business and operations could be in jeopardy
and we could be forced to limit or cease our operations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements:
In May 2005, FASB issued FASB Statement 154, "Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No.
3" ("FAS 154"). FAS 154 changes the requirements for the accounting for and
reporting of a change in accounting principle. The provisions of FAS 154
require, unless impracticable, retrospective application to prior periods'
financial statements of (1) all voluntary changes in principles and (2) changes
required by a new accounting pronouncement, if a specific transition is not
provided. FAS 154 also requires that a change in depreciation, amortization, or
depletion method for long-lived, non-financial assets be accounted for as a
change in accounting estimate, which requires prospective application of the new
method. FAS 154 is effective for all accounting changes made in fiscal years
beginning after December 15, 2005.
-21-
ITEM 3. CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this report. Based on
this evaluation, our principal executive officer and principal financial officer
have concluded that our controls and procedures are effective.
There was no change in our internal controls over financial reporting
(as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934) that has materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
Exhibit
Number Description
------- -----------
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Certification pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
-22-
SIGNATURES
In accorance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
GENESIS TECHNOLOGY GROUP, INC.
February 21, 2006 By: /s/ Gary Wolfson
--------------------
Gary Wolfson
Chief Executive Officer
February 21, 2006 By: /s/ Adam Wasserman
----------------------
Adam Wasserman
Chief Financial and Accounting Officer
-23-