THE SECURITIES  EVIDENCED BY THIS NOTE AND THE UNDERLYING  CONVERSION STOCK HAVE
NOT  BEEN  REGISTERED  UNDER  THE  SECURITIES  ACT OF  1933,  AS  AMENDED.  SUCH
SECURITIES  MAY NOT BE SOLD OR  OTHERWISE  TRANSFERRED  EXCEPT IN A  TRANSACTION
WHICH, IN THE OPINION OF SECURITIES COUNSEL REASONABLY  SATISFACTORY TO GENESIS,
IS EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL SECURITIES LAWS OR PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT THEREUNDER.

                             GENESIS FINANCIAL, INC.

                                CONVERTIBLE NOTE

$200,000                     January 25, 2002                Spokane, Washington

         FOR VALUE RECEIVED,  Genesis Financial,  Inc., a Washington Corporation
with offices at 200 North  Mullan Road,  Suite 217,  Spokane,  Washington  99206
("GENESIS") promises to pay to the order of TEMPORARY FINANCIAL SERVICES,  INC.,
a Washington  corporation  with  offices at 200 North  Mullan  Road,  Suite 213,
Spokane,  Washington  99206  ("TFS"),  the principal sum of  $200,000.00  United
States Currency,  together with interest thereon accruing from and after January
25, 2002, as specified in this Convertible Note (the "Note").

This NOTE is issued upon the following  terms, to which TFS assents and GENESIS,
for itself and its successors, agrees as follows:

1.       Interest Rate. This NOTE shall bear interest at the rate of Six Percent
         (6%) per  annum.  Simple  interest  shall  accrue  on this  NOTE  until
         maturity. In the event this NOTE is not paid on the maturity date, this
         NOTE shall  thereafter  bear interest  until paid at the rate of Twelve
         Percent (12%) per annum.

2.       Maturity.  The entire  outstanding unpaid principal and all accrued but
         unpaid  interest  shall be due and  payable at  maturity  on January 1,
         2004; by cash, cashier's check, or wire transfer in lawful money of the
         United  States  at  TFS's  address  or at such  other  place as TFS may
         designate in writing ten days before maturity.

3.       Transfer.  This NOTE is  non-transferable  without  the  prior  written
         consent  of TFS.  Upon an  approved  transfer,  any NOTE  executed  and
         delivered  to the  transferee  shall  bear  the  following  restrictive
         legend:

                  "The securities  evidenced by this  certificate  have not been
                  registered under the Securities Act of 1933, as amended.  Such
                  securities may not be sold or otherwise  transferred except in
                  a  transaction  which,  in the opinion of  securities  counsel
                  reasonably   satisfactory   to   GENESIS,   is   exempt   from
                  registration  under  applicable  federal  securities  laws  or
                  pursuant to an effective Registration Statement thereunder.

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<PAGE>

4.       NOTE  Holder Not  Shareholder.  This NOTE does not confer  upon TFS any
         right to vote or  consent  or to  receive  notice as a  shareholder  of
         GENESIS by virtue of TFS'  ownership of the NOTE.  This  provision does
         not affect rights of TFS as a shareholder of GENESIS through  ownership
         of GENESIS common shares.

5.       Conversion  Rights.  TFS,  in its sole  discretion  at any  time  after
         January 1, 2003, and prior to maturity,  may convert it, in whole only,
         into the face amount equivalent of 200,000 fully paid and nonassessable
         shares of the  Common  Stock of  GENESIS  (the  "Common  Stock")  at an
         equivalent  price of One Dollar ($1.00) per share of Common Stock.  The
         shares  issuable  pursuant to this  conversion  feature  are  hereafter
         referred to as "Conversion Stock."

         The  conversion  of the  NOTE  shall  be on  the  following  terms  and
conditions:

         (a)      In the event TFS notifies GENESIS of its intention to convert,
                  GENESIS  may, at its sole  election,  pay accrued  interest in
                  cash or may convert the accrued interest into Conversion Stock
                  at the  rate of one  share  for each one  dollar  of  interest
                  accrued  to the date of  conversion,  rounded  to the  nearest
                  whole dollar.

         (b)      In order to convert this NOTE into Conversion Stock, TFS shall
                  surrender,  at the principal office of GENESIS, this NOTE duly
                  endorsed to GENESIS and give  written  notice to GENESIS  that
                  TFS  elects to  convert  this NOTE.  TFS shall  thereafter  be
                  treated  for  all  purposes  as  the  record   holder  of  the
                  Conversion  Stock  into  which  this NOTE is  convertible.  As
                  promptly  as  possible  thereafter,  GENESIS  shall  issue and
                  deliver to TFS certificates  representing the number of shares
                  of Conversion  Stock into which this NOTE has been  converted.
                  Thereupon,  this  NOTE  shall be deemed  to be  satisfied  and
                  discharged,  and the shares of Conversion Stock shall be fully
                  paid and  nonassessable.  Each  certificate  representing  the
                  shares of common stock into which this NOTE has been converted
                  shall bear the  restrictive  legend set forth in  Paragraph  3
                  herein.

         (c)      No  conversion  shall  be  made by  GENESIS  while  its  stock
                  transfer books are closed. Any request for conversion received
                  while  the stock  transfer  books  are  closed  shall be given
                  effect as soon as the stock transfer books are reopened.

         (d)      The Board of Directors of the Corporation shall have the right
                  from  time to time to adopt  specific  rules of  procedure  to
                  carry out the full  intent of the  Conversion  provisions  set
                  forth herein and to do all reasonable acts necessary  thereto,
                  provided  that such  rules  and acts  shall  not  violate  the
                  specific terms of this debt instrument.

6.       Adjustment  in Number of  Shares.  The  number of shares of  Conversion
         Stock issuable upon  conversion of this NOTE will be adjusted from time
         to time to reflect changes in the  capitalization of GENESIS.  When the
         number of shares of Common  Stock of GENESIS

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<PAGE>

         outstanding  at any given time is changed to reflect a stock  dividend,
         merger,  recapitalization,  or other similar  adjustment  is made,  the
         number of shares of Conversion  Stock  issuable on  conversion  will be
         adjusted up or down to give economic  affect to the conversion  rights.
         For example, if the conversion rights entitle the holder of the NOTE to
         200,000  shares on January 1 and on January 2 GENESIS  issues a one for
         one stock  dividend,  the NOTE would  thereafter  be  convertible  into
         400,000 shares.

7.       Notices.  So long as this NOTE is outstanding,  Genesis will notify TFS
         or  the  NOTE  holder,  as the  case  may  be,  of  any  change  in the
         capitalization of GENESIS that would or could require an adjustment, in
         accordance  with  Paragraph  6, in the  number of shares of  Conversion
         Stock into which the NOTE may be converted.

8.       Events of Default.  The  following  events shall  constitute  events of
         default  under  this NOTE and shall  entitle  TFS to the  remedies  set
         forth.

         a.       This NOTE shall be in default  upon the  failure of GENESIS to
                  pay any interest or principal  payment in accordance  with the
                  terms of this NOTE.

         b.       This NOTE shall be in default in the event:  GENESIS files any
                  petition  under any  section of the United  States  Bankruptcy
                  Act; any petition is filed  against  GENESIS  under the United
                  States  Bankruptcy  Act;  GENESIS  is  adjudged  bankrupt;  or
                  GENESIS  makes any general  assignment  or trust deed or trust
                  mortgage for the benefit of creditors;  or takes  advantage of
                  any  other  insolvency  act;  or  if  any  receiver,  trustee,
                  conservator,  custodian,  or similar  officer is appointed for
                  GENESIS.

         c.       This NOTE shall be in default if GENESIS is  declared to be in
                  default under any senior credit facility.

9.       Remedies on Default.  From and after the date of any default,  the NOTE
         may be  accelerated  and TFS may demand  payment  of the entire  unpaid
         balance and all accrued but unpaid interest.  Upon a default,  it shall
         not be necessary for the NOTE holder to declare the NOTE due.

10.      Prepayment.  This NOTE be prepaid  at any time  after  January 1, 2003.
         Upon notification of prepayment, TFS shall have thirty days in which to
         elect to  convert  the  NOTE to  Conversion  Stock,  or to  accept  the
         prepayment amount.

11.      Costs of Collection. If TFS undertakes collection of this NOTE, GENESIS
         agrees  to  pay  all  costs  of  collection,   including  a  reasonable
         attorney's  fee.  GENESIS  waives  presentment  for payment,  notice of
         non-payment,  protest and demand, and notice of protest,  of demand and
         of dishonor, and the benefit of any exemption laws.

<PAGE>

12.      Notices.  Any  notice to  GENESIS  provided  in this  NOTE  shall be in
         writing and shall be given and  effective  upon (1) actual  delivery to
         GENESIS or (2) mailing such notice by first-class U.S. mail,  addressed
         to GENESIS at the address listed above or such other address as GENESIS
         may designate or (3) by facsimile  transmission  directed to GENESIS at
         GENESIS's then current facsimile number.  Any notice to TFS provided in
         this NOTE shall be in writing and shall be given and effective upon (1)
         actual  delivery to TFS or (2) mailing such notice by first-class  U.S.
         mail, addressed to TFS at TFS's address aforesaid or such other address
         as TFS  may  designate  by  notice  to  GENESIS  or  (3)  by  facsimile
         transmission directed to TFS at TFS's then current facsimile number. If
         notice is sent to either party by facsimile transmission,  the original
         hard copy shall be forwarded to the party  entitled  thereto within ten
         (10) days of facsimile transmission.

13.      Miscellaneous.  This NOTE is to be construed and enforced in accordance
         with the laws of the State of Washington.  Jurisdiction for enforcement
         and collection of the NOTE shall be the State of Washington,  and venue
         shall be Spokane County, Washington.

                                    GENESIS:

                                    By: ___/s/Michael A. Kirk______
                                             Michael A. Kirk, President

ATTEST:

__/s/ Brad E. Herr_____________
Brad E. Herr, Secretary


Accepted by TFS this _25th__ day of January, 2002.

__/s/ John R. Coghlan________________
John R. Coghlan, President


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