ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
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Caution
Regarding Forward-Looking Information
All
statements contained in this Form 10-QSB, other than statements of historical
facts, that address future activities, events or developments are
forward-looking statements, including, but not limited to, statements containing
the words "believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project," and similar expressions . All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including any statements of the plans, strategies and objectives of management
for future operations; any statements concerning proposed new developments;
any
statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing.
These statements are based on certain assumptions and analyses made by us in
light of our experience and our assessment of historical trends, current
conditions and expected future developments as well as other factors we believe
are appropriate under the circumstances. However, whether actual results will
conform to the expectations and predictions of management is subject to a number
of risks and uncertainties described under “Risk Factors” beginning on page 18
below and in the “Risk Factors” section of our Form 10-KSB for the fiscal year
ended December 31, 2006 that may cause actual results to differ
materially.
Consequently,
all of the forward-looking statements made in this Form 10-QSB are qualified
by
these cautionary statements and there can be no assurance that the actual
results anticipated by management will be realized or, even if substantially
realized, that they will have the expected consequences to or effects on our
business operations. Readers are cautioned not to place undue reliance on such
forward-looking statements as they speak only of the Company's views as of
the
date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Results
of Operations
Genesis
Holdings, Inc. was incorporated on May 25, 1999 in the state of Nevada. The
Company is a holding company for subsidiary acquisitions.
Genesis
Land Development, LLC was formed on September 8, 2003 in the state of Texas,
and
has been engaged in the business of developing vacant land into single family
residential lots. On July 1, 2006, the Company, which was formerly known as
AABB, Inc., acquired all of the membership interests of Genesis Land
Development, LLC, pursuant to a merger agreement dated as of July 1, 2006,
among
AABB, Inc., AABB Acquisitions Sub, Inc., certain shareholders and Genesis Land
Development, LLC. The Company acquired 100% of the ownership interests of
Genesis Land Development, LLC from the sole member of the LLC for 19,000,000
shares of the Company’s common stock. Genesis Land Development, LLC merged into
AABB Acquisition Sub, Inc., a Nevada corporation that changed its name
post-merger to Genesis Land, Inc.
For
accounting purposes, the acquisition was treated as a recapitalization rather
than a business combination. After the merger, AABB, Inc. changed its name
to
Genesis Holdings, Inc. The Company was considered a development stage company
prior to its acquisition of Genesis Land Development, LLC.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
are
based upon our financial statements, which have been prepared in accordance
with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and
expenses. In consultation with our Board of Directors, we have identified
several accounting principles that we believe are key to an understanding of
our
financial statements. These important accounting policies require management's
most difficult, subjective judgments.
Basis
of Consolidation
The
consolidated financial statements include the accounts of Genesis Holdings,
Inc.
and its 100% ownership interest in Genesis Land, Inc.
All
material inter-company accounts and transactions have been
eliminated.
Inventory
of Fully Developed Residential Lots Held For Sale
The
inventory of fully developed residential lots held for sale is carried at the
lower of cost or market. The cost of the lots is approximately $27,000 per
lot
and the market value is estimated at $44,124 per lot as determined by the Option
Agreement with Wall Homes, Inc.
Cost
includes land, construction costs including hard and soft costs, capitalized
interest, capitalized property taxes and loan costs.
Sales
and Profit Recognition
In
accordance with Statement of Financial Accounting Standard No. 66, “Accounting
for Sales of Real Estate,” development land sales will be recognized at closing
when sufficient down payments have been obtained, possession and other
attributes of ownership have been transferred to the buyer and the Company
has
no significant continuing involvement.
The
costs
of acquiring and developing land are accumulated and will be charged to cost
of
sales as the related inventories are sold.
Long-Lived
Assets
Statement
of Financial Accounting Standards No. 144. “Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,” requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the historical cost carrying value of an asset
may
no longer be appropriate. The Company assesses recoverability of the carrying
value of an asset by estimating the future net cash flows expected to result
from the asset, including eventual disposition. If the future net cash flows
are
less than the carrying value of the asset, an impairment loss is recorded equal
to the difference between the asset’s carrying value and fair value. This
standard did not have a material effect on the Company’s results of operations,
cash flows or financial position.
Disclosures
About Fair Value of Financial Instruments
The
Company estimates that the fair value of financial instruments at September
30,
2007 as defined in FASB 107, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Marketable
Securities
Marketable
securities, all of which are classified as available-for-sale, are stated at
fair value based on market quotes. Unrealized gains and losses, net of deferred
taxes, are recorded as a component of other comprehensive income.
We
expect
that the majority of marketable securities will be sold within one year,
regardless of maturity date. We primarily invest in high-credit-quality debt
instruments with an active resale market and money market funds to ensure
liquidity and the ability to readily convert these investments into cash to
fund
current operations, or satisfy other cash requirements as needed. Accordingly,
we have classified all marketable securities as current assets in the
accompanying balance sheet.
Stock
Issued for Non-Cash Transactions
It
is the
Company’s policy to value stock issued for non-cash transactions, such as
services, at the fair market value of the goods or services received or the
consideration granted, whichever is more readily determinable, at the date
the
transaction is negotiated.
There
were 1,800,000 shares of common stock issued during 2006 for consulting
services, which were valued at $15,000.
Income
Taxes
Provisions
for income taxes are based on taxes payable or refundable for the current year
and deferred taxes on temporary differences between the amount of taxable income
and pretax financial income and between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax assets
and
liabilities are included in the financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed in FASB
Statement No. 109, Accounting for Income Taxes. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Net
Income Per Share
The
Company adopted Statement of Financial Accounting Standards No. 128 that
requires the reporting of both basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding for
the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or
converted into common stock. In accordance with FASB 128, any anti-dilutive
effects on net earnings per share are excluded.
SELECTED
FINANCIAL INFORMATION
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
09/30/2007
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|
09/30/2006
|
|
09/30/2007
|
|
09/30/2006
|
|
Statement
of
Operations
Data:
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
43,336
|
|
$
|
816,335
|
|
$
|
1,134,855
|
|
$
|
2,251,855
|
|
Income
(loss) from operations
|
|
|
(
6,821
|
)
|
|
202,987
|
|
|
314,028
|
|
|
606,771
|
|
Income
(loss) from operations before corporation income and Texas franchise
taxes
(benefit)
|
|
$
|
(
4,779
|
)
|
$
|
196,183
|
|
$
|
277,841
|
|
$
|
544,462
|
|
Net
income
|
|
$
|
22,270
|
|
$
|
136,183
|
|
$
|
196,239
|
|
$
|
484,462
|
|
Net
income per share - basic and diluted
|
|
$
|
0.00
|
|
$
|
0.01
|
|
$
|
0.01
|
|
$
|
0.02
|
|
Balance
Sheet Data:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
$
|
1,647,996
|
|
$
|
1,579,030
|
|
Total
liabilities
|
|
|
|
|
|
|
|
|
390,779
|
|
|
491,737
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
$
|
1,257,217
|
|
$
|
1,087,293
|
|
Results
of Operations
Nine
months ended September 30, 2007 compared to nine months ended September 30,
2006
Revenues.
Revenues
from operations decreased $1,117,000 for the nine months ended September 30,
2007 as compared to the nine months ended September 30, 2006 as summarized
below:
Nine
months ended September 30, 2007
Sold
27 lots at $42,032 per lot
|
|
$
|
1,134,855
|
|
|
|
|
|
|
Nine
months ended September 30, 2006
Sold
56 lots at $40,212 per lot
|
|
|
2,251,855
|
|
|
|
|
|
|
Decrease
in revenue
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|
$
|
1,117,000
|
|
Cost
of Sales.
The
cost
of sales decreased for the nine months ended September 30, 2007 as compared
to
the nine months ended September 30, 2006 due to the decrease in the number
of
lots sold as follows:
Nine
months ended September 30, 2007
Cost
of lots sold - 27 lots @ $26,653 per lot
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|
$
|
719,643
|
|
|
|
|
|
|
Nine
months ended September 30, 2006
Cost
of lots sold - 56 lots @ $26,959 per lot
|
|
|
1,509,715
|
|
|
|
|
|
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Decrease
in revenue
|
|
$
|
790,072
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|
General
and Administrative Expenses.
General
and administrative expenses decreased by $34,185 to $101,184 for the nine months
ended September 30, 2007 as compared to $135,369 for the nine months ended
September 30, 2006, a 25% decrease.
Accounting
and legal expenses increased by $9,103 to $62,912 for the nine months ended
September 30, 2007, as compared to $53,809 for the nine months ended September
30, 2006, a 17% increase. This is due to required filings with the Securities
and Exchange Commission.
Property
taxes decreased by $30,034 to $28,898 for the nine months ended September 30,
2007, as compared to $58,932 for the nine months ended September 30, 2006,
a 51%
decrease. This is due to owning fewer lots in 2007 as compared to
2006.
Other
expenses decreased by $13,254 to $9,374 for the nine months ended September
30,
2007, as compared to $22,628 for the nine months ended September 30, 2006,
a 41%
increase. This is mainly due to landscaping, repairs and maintenance expenses
of
$11,362 incurred during the nine months ended September 30, 2006 but not
incurred during the nine months ended September 30, 2007.
Results
of Operations
Three
months ended September 30, 2007 compared to three months ended September 30,
2006
Revenues.
Revenues
from operations decreased by $772,999 for the three months ended September
30,
2007 as compared to the three months ended September 30, 2006 and is summarized
below:
Three
months ended September 30, 2007
Sold
1 lot at $43,336 per lot
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|
$
|
43,336
|
|
|
|
|
|
|
Three
months ended September 30, 2006
Sold
20 lots at $40,817 per lot
|
|
|
816,335
|
|
|
|
|
|
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Decrease
in revenue
|
|
$
|
772,999
|
|
Cost
of Sales.
The
cost
of sales decreased by $520,866 for the three months ended September 30, 2007
as
compared to the three months ended September 30, 2006 and is summarized below:
Three
months ended September 30, 2007
Sold
1 lot at $27,183 per lot
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|
$
|
27,183
|
|
|
|
|
|
|
Three
months ended September 30, 2006
Sold
20 lots at $27,402 per lot
|
|
|
548,049
|
|
|
|
|
|
|
Decrease
in revenue
|
|
$
|
520,866
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|
General
and Administrative Expenses.
General
and administrative expenses decreased by $42,325 to $22,974 for the three months
ended September 30, 2007 as compared to $65,299 for the three months ended
September 30, 2006, a 65% decrease.
Accounting
and legal expenses decreased by $11,535 to $21,127 for the three months ended
September 30, 2007, as compared to $32,662 for the three months ended September
30, 2006, a 35% decrease. This is due to filings with the Securities and
Exchange Commission in the prior year.
Property
taxes decreased by $11,923 to $0 for the three months ended September 30, 2007,
as compared to $11,923 for the three months ended September 30, 2006, a 100%
decrease. This is due to owning fewer lots in 2007 as compared to
2006.
Other
expenses decreased by $18,867 to $1,847 for the three months ended September
30,
2007, as compared to $20,714 for the three months ended September 30, 2006.
This
is mainly due to landscaping, repairs and maintenance expenses of $8,472 for
the
three months ended September 30, 2006 but not incurred during the three months
ended September 30, 2007.
Liquidity
and Capital Resources.
We
currently have no material commitments for capital expenditures and have no
fixed expenses.
To
date
we have financed our operations with cash from our operating activities and
the
following loans:
On
October 1, 2005, the Company received a land development loan for $3,625,000
from Texas Bank. The loan bore interest at 8.25%, and was paid off during
2006.
On
October 13, 2004, the Company received a $417,000 note from Texas Bank. The
loan
bore interest at 8.25% and was paid off during 2006.
During
2005, the Company entered into seven notes payable dated from January 28, 2005
through April 29, 2005 payable to Larry Don Bankston. The loans bore interest
at
7%, and were paid off during April 2007.
Working
capital is summarized and compared as follows:
|
|
|
|
September
30,
|
|
|
|
|
|
|
|
2006
|
|
Current
assets
|
|
|
|
|
$
|
1,647,996
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|
$
|
3,037,023
|
|
Current
liabilities
|
|
|
|
|
|
390,779
|
|
|
2,449,910
|
|
Working
capital
|
|
|
|
|
$
|
1,257,217
|
|
$
|
587,113
|
|
Our
net
cash provided by operations was $1,210,575 for the nine months ended September
30, 2007. Net income for the nine months ended September 30, 2007 was $196,239,
and included an unrealized gain on marketable securities of $21,492 and deferred
income taxes of $15,000. We also had cash provided to us by a decrease in an
investment in fully developed residential lots held for sale of $718,682,
prepaid expenses of $4,018, corporation and Texas franchise taxes payable of
$28,610, collection of accounts receivable in the amount of $82,603, and 173,000
deposits received for future sales of lots. These were offset by a decrease
in
accounts payable and accrued expenses of $29,119.
Our
net
cash provided by operations for the nine months ended September 30, 2006
consisted of net income of $484,462, and included consulting services paid
with
common stock of $15,000 and expenses paid by a stockholder in the amount of
$718
donated to the Company. We also had cash provided by a decrease in an investment
in fully developed residential lots held for sale of $1,507,498, an increase
in
accounts payable and accrued expenses of $1,204, and an increase in corporation
and Texas franchise taxes payable of $60,000.
Our
net
cash used by investing activities was $926,032 for the nine months ended
September 30, 2007. It was for investments in marketable
securities.
There
was
no net cash used or provided from investing activities for the nine months
ended
September 30, 2006.
Our
net
cash used by financing activities was $266,622 for the nine months ended
September 30, 2007. It was for the repayment of notes payable and accrued
interest to Larry Don Bankston.
Our
net
cash used by financing activities was $2,019,377 for the nine months ended
September 30, 2006, which was for the repayment of land development loans
payable, net of proceeds from notes payable and accrual interest to Larry Don
Bankston.
Risk
Factors
You
should consider the following discussion of risks as well as other information
regarding our operations. The risks and uncertainties described below are not
the only ones. Additional risks and uncertainties not presently known to us
or
that we currently deem immaterial also may impair our business operations.
For a
more detailed discussion of the risks facing us, you should review the "Risk
Factors" section contained in our Form 10-KSB for the fiscal year ended December
31, 2006.
Risks
Related to Our Business
·
|
We
plan to sell the remaining lots in Bankston Meadows in the near future
and
upon sale of the final lots we will have no source of additional
revenue
to pay our ongoing expenses.
|
·
|
Management
may not run the company in a profitable
manner.
|
·
|
We
may not be able to locate and acquire suitable companies for our
future
acquisitions and any failure to acquire suitable companies may result
in
losses to us and our investors.
|
·
|
We
have a limited operating history in real estate development and therefore,
predicting our future performance is
difficult.
|
·
|
We
may not have access to sufficient capital to pursue our acquisition
strategies and therefore may be unable to achieve our planned future
growth.
|
·
|
We
depend on key management personnel and the loss of any of them would
seriously disrupt our operations.
|
·
|
We
have not yet identified any specific target businesses to acquire
through
a purchase or merger or any specific areas of real estate development
that
we intend to pursue and we may acquire businesses that our shareholders
do
not approve of.
|
·
|
We
have not conducted research to determine whether there is demand
in the
market for a business combination with us and, if not, we may not
be able
to acquire suitable businesses.
|
·
|
Our
lack of diversification subjects our investors to a greater risk
of
losses.
|
·
|
Control
of the Company may change and any new management may not successfully
run
our business.
|
·
|
We
currently have only one officer and two directors each of whom have
other
employment obligations.
|
·
|
Investors
may not be able to review the terms of potential business combinations
and
any combination could result in
losses.
|
·
|
We
are subject to currently unforeseeable risks associated with our
potential
business combinations, any of which could result in
losses.
|
·
|
Leveraged
transactions may encumber our assets and reduce any returns to
investors.
|
·
|
Our
business will be negatively affected if we do not keep pace with
the
latest real estate development trends and consumer
preferences.
|
·
|
Management
has limited experience with
real
estate development
and may not manage current or future projects
successfully.
|
·
|
We
may not be able to manage rapid growth and acquisition of substantial
new
opportunities effectively
.
|
·
|
Our
ownership of real estate may result in losses if demand for property
declines.
|
·
|
Our
real estate activities will be subject to vigorous competition from
other
properties and other real estate investors, which may reduce our
earnings.
|
·
|
Development
costs are difficult to estimate and if costs exceed our budget we
may lose
money on the sale of a property.
|
·
|
The
U.S. real estate market is cyclical, and is experiencing a downturn,
which
may increase the difficulty of selling our future
property.
|
·
|
Many
real estate costs are fixe
d
and must be paid even if the property is not generating
revenue.
|
·
|
There
is no assured market for properties and we may be unable to sell
a
property in a timely manner, which would reduce our
earnings.
|
·
|
We
are subject to zoning and environmental controls
that may restrict the use of our property
.
|
·
|
We
are subject to potential uninsured losses
that may require substantial payments that would reduce our cash
reserves
or result in losses.
|
·
|
As
a developer of residential property, we are subject to risks affecting
the
homebuilding industry, any of which may reduce the sales price of
our
property.
|
·
|
Our
inability to make secured debt payments could result in the loss
of any
mortgaged property
.
|
·
|
Rising
interest rates could adversely affect our cash flow
.
|
Risks
Related to Our Shares
·
|
There
is no market for our common stock and shareholders may be unable
to sell
their shares.
|
·
|
If
publicly traded, our stock price could be very
volatile.
|
·
|
Our
controlling shareholder may exert considerable influence over elections
and other decisions.
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