UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ____________ to ____________
Commission File Number
(Exact name of registrant as specified in its charter)
|
|
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| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip code)
(Registrant’s telephone number, including area code)
420 Throckmorton Street, Suite 200
Fort Worth, Texas 76102
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
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period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant submitted electronically
and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | |
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Smaller Reporting Company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 18, 2024, there were shares of the registrant’s common stock outstanding, each with a par value of $0.001.
TABLE OF CONTENTS
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
Galenfeha, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
F- 1
Galenfeha, Inc.
Consolidated Balance Sheets
(Unaudited)
| March 31, 2019 | December 31, 2018 | |||||||
| (Successor) | (Successor) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ |
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$ |
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| Marketable securities |
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| Accounts receivable |
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| Inventory |
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| Total current assets |
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| Property and equipment, net of accumulated depreciation |
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| Right of use assets, operating leases |
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| Goodwill |
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| TOTAL ASSETS | $ |
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$ |
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||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued liabilities | $ |
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$ |
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||||
| Lines of credit payable |
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|
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| Note payable |
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| Convertible notes payable, net of discount |
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| Short-term non-secured debt |
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| Due to officer and related parties |
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| Right of use liabilities, operating leases, current portion |
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| Right of use liabilities, finance leases, current portion |
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| Derivative liabilities |
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| Total current liabilities |
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| Right of use liabilities, operating leases |
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|||||||
| Right of use liabilities, finance leases |
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|||||||
| Long term notes payable |
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||||||
| Total liabilities |
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| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
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Preferred stock
Preferred A shares: Authorized: shares, $ par value, and issued and outstanding as of March 31, 2019 and December 31, 2018, respectively |
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|
||||||
| Preferred B shares: Authorized: shares, $ Par value, and issued and outstanding as of March 31, 2019 and December 31, 2018, respectively |
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|||||||
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Common stock
Authorized: common shares, $ par value, and issued and outstanding as of March 31, 2019 and December 31, 2018, respectively |
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||||||
| Additional paid-in capital |
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|
||||||
| Accumulated deficit |
(
|
) |
(
|
) | ||||
| Total stockholders’ equity (deficit) |
|
(
|
) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ |
|
$ |
|
||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F- 2
Galenfeha, Inc.
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | January 29, 2018- | January 1, 2018- | ||||||||||
| March 31, 2019 | March 31, 2018 | January 28, 2018 | ||||||||||
| (Successor) | (Successor) | (Predecessor) | ||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
||||||
| Less: Cost of Sales |
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|
|||||||||
| Operating Expenses: | ||||||||||||
| General and administrative |
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|||||||||
| Payroll expenses |
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|||||||||
| Professional fees |
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|||||||||
| Depreciation and amortization expense |
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|
|||||||||
| Total operating expenses |
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|
|||||||||
| Income (loss) from operations |
(
|
) |
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|
||||||||
| Other (expense) income: | ||||||||||||
| Miscellaneous income (expense) |
(
|
) |
|
|||||||||
| Realized loss on sale of investments |
(
|
) |
(
|
) | ||||||||
| Unrealized gain (loss) on investments |
|
(
|
) | |||||||||
| Interest expense |
(
|
) |
(
|
) |
(
|
) | ||||||
| Gain (loss) on derivative instruments |
(
|
) |
|
|||||||||
| Total other (expense) income |
(
|
) |
|
(
|
) | |||||||
| Net income (loss) | $ |
(
|
) | $ |
|
$ |
|
|||||
| Net income (loss) per share, basis and diluted | $ | ) | $ | |||||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F- 3
Galenfeha, Inc.
Consolidated Statements of Equity (Deficit)
(Unaudited)
| Member | Additional | Total | ||||||||||||||||||||||||||||||||||||||
| Contributions | Preferred Series A | Preferred Series B | Common Stock | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||||||||||||
| (draws) | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||||||||
| Balance - December 31, 2017 (Predecessor) | $ |
(
|
) | $ | $ | $ | $ | $ |
(
|
) | $ |
(
|
) | |||||||||||||||||||||||||||
| Net income | - | - | - |
|
|
|||||||||||||||||||||||||||||||||||
| Balance - January 28, 2018 (Predecessor) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||
| Balance - January 29, 2018 (Successor) | $ |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | ||||||||||||||||||||||
| Conversion debt to shares | - | - |
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|
|
|
||||||||||||||||||||||||||||||||||
| Repurchase and cancellation of common shares | - | - |
(
|
) |
(
|
) |
(
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) |
(
|
) | ||||||||||||||||||||||||||||||
| Derivative liability extinguished on conversion | - | - | - |
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|
|||||||||||||||||||||||||||||||||||
| Net income | - | - | - |
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|
|||||||||||||||||||||||||||||||||||
| Balance - March 31, 2018 (Successor) | $ |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||||||||||||||
| Balance – December 31, 2018 (Successor) | $ |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | ||||||||||||||||||||||
| Conversion debt to shares | - | - |
|
|
|
|
||||||||||||||||||||||||||||||||||
| Derivative liability extinguished on conversion | - | - | - |
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|
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| Preferred Series B converted to common stock | - |
(
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) |
(
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) |
|
|
|||||||||||||||||||||||||||||||||
| Preferred Series B converted to Preferred Series A |
|
|
(
|
) |
(
|
) | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||||||
| Balance - March 31, 2019 (Successor) | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||||||||||||||||
F- 4
Galenfeha, Inc.
Consolidated Statements of Cash Flows
(unaudited)
| Three Months Ended | January 29, 2018- | January 1, 2018- | ||||||||||
| March 31, 2019 | March 31, 2018 | January 28,2018 | ||||||||||
| (Successor) | (Successor) | (Predecessor) | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net income (loss) | $ |
(
|
) | $ |
|
$ |
|
|||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization |
|
|
|
|||||||||
| (Gain) Loss on derivative instruments |
|
(
|
) | |||||||||
| Amortization for debt discounts on notes payable and convertible notes |
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| Amortization of right of use assets, operating leases |
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| Bad debt expense |
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| Realized losses on investments |
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|
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| Unrealized (gains) losses on investments |
(
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) |
|
|||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable |
(
|
) |
|
(
|
) | |||||||
| Due from related party |
(
|
) |
|
|||||||||
| Inventory |
|
(
|
) | |||||||||
| Prepaid expenses and other current assets |
(
|
) | ||||||||||
| Accounts payable and accrued liabilities |
|
(
|
) |
|
||||||||
| Right of use liabilities, operating leases |
(
|
) | ||||||||||
| Net cash provided by (used in) operating activities |
(
|
) |
|
(
|
) | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Repurchase and cancellation of common shares |
(
|
) | ||||||||||
| Sale and purchases of investments, net |
|
|
||||||||||
| Cash assumed in acquisition of subsidiary |
|
|||||||||||
| Net cash provided by (used in) investing activities |
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|
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| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds from lines of credit |
|
|
|
|||||||||
| Payments on lines of credit |
(
|
) |
(
|
) | ||||||||
| Payments on other loans payable |
(
|
) | ||||||||||
| Payments on notes payable and capital leases |
(
|
) |
(
|
) |
(
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) | ||||||
| Proceeds on liabilities due to officer and related parties |
|
|
|
|||||||||
| Payments on liabilities due to officer and related parties |
(
|
) |
(
|
) |
(
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) | ||||||
| Principal payments on convertible debenture contracts |
(
|
) | ||||||||||
| Payments on margin loan |
(
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) | ||||||||||
| Net cash provided by (used in) financing activities |
(
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) |
|
|
||||||||
| CHANGE IN CASH AND CASH EQUIVALENTS |
(
|
) |
|
|
||||||||
| Cash and cash equivalents at beginning of period |
|
|
|
|||||||||
| Cash and cash equivalents at end of period | $ |
|
$ |
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$ |
|
||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||||||
| Cash paid for : | ||||||||||||
| Interest | $ |
|
$ |
|
$ |
|
||||||
| Income Taxes | $ | $ | $ | |||||||||
| Non-Cash Transactions | ||||||||||||
| Common stock issued for debt conversion | $ |
|
$ |
|
$ | |||||||
| Derivative liability extinguished on conversion | $ |
|
$ |
|
$ | |||||||
| Debt discount from issuance of new derivative liabilities | $ |
|
$ | $ |
|
|||||||
| Initial recognition of ROU assets and liabilities due to adoption of ASC 842 | $ |
|
$ | $ | ||||||||
| Finance leases reclassified out of notes payable | $ |
|
$ | $ | ||||||||
| Preferred Series B shares converted into common shares | $ |
|
$ | $ | ||||||||
| Preferred Series B shares converted into Preferred Series A shares | $ |
|
$ | $ | ||||||||
| Fixed assets purchased through accounts and notes payable | $ |
|
$ | $ | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
F- 5
Galenfeha, Inc.
Notes to Consolidated Financial Statements
March 31, 2019
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Galenfeha was incorporated on March 14, 2013 in the state of Nevada. Our corporate office is located at 420 Throckmorton Street, Suite 200, Ft. Worth Texas 76102, and our telephone number is 1-817-945-6448. Our website is www.galenfeha.com.
On January 29, 2018, the Company acquired substantially all of the operating assets of Fleaux Solutions, LLC, a Louisiana Limited Liability Company (the "Acquisition") a Company with common officers and directors. There was no common majority ownership between the Company and Fleaux Solutions, LLC. Fleaux Solutions, LLC is engaged in the business of water, utility, and sewage construction. Upon the closing of the Acquisition, the Company received substantially all of the operating assets of Fleaux Solutions, LLC, consisting of cash on hand, inventory, accounts receivable, and fixed assets. There are common directors/officers of Fleaux Solutions, LLC with Galenfeha, Inc. and no common majority control.
The purchase price of the operating assets of
Fleaux Solutions, LLC was a cash payment of $
The Company accounted for its acquisition of the operating assets of Fleaux Solutions, LLC using the acquisition method of accounting. Fleaux Solutions cash on hand, inventories, accounts receivable, and fixed assets acquired and liabilities assumed were recorded based upon their estimated fair values as of the closing date of the Acquisition. The excess of purchase price over the value of the net assets acquired was recorded as goodwill. (See Note 4)
A condensed version of our 2019 Statement of Work is as follows:
| 1. | Explore investments both private and public |
| 2. | Develop new technologies for product development, engineering, and manufacturers |
| 3. | Formulate applications for new products recently developed |
| 4. | Commercialize new technology and products |
BASIS OF PRESENTATION
The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States (See Note 2 regarding the assumption that the Company is a “going concern”). Certain prior period amounts have been reclassified to conform to current period presentation.
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2019, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these unaudited interim financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2018 audited financial statements included in its Form 10-K filed with the Securities and Exchange Commission. The results of operations for the period ended March 31, 2019 are not necessarily indicative of the operating results for the full year.
F- 6
The basis of presentation is not consistent between the successor and predecessor entities and the financial statements are not presented on a comparable basis. As a result, the accompanying consolidated statements of operations, cash flows and comprehensive income (loss) are presented for two different reporting entities:
The term “Successor” relates to the combined entities financial periods and balance sheets succeeding the Acquisition; the term “Predecessor” relates to the financial of Fleaux Solutions, LLC periods preceding the Acquisition (prior to January 29, 2018).
Unless otherwise indicated, the “Company” as used throughout the remainder of the notes, refers to both the Successor and Predecessor.
Correction of Previously Reported Interim Information
During the audit of the Company’s consolidated financial statements for the year ended December 31, 2018, the Company identified errors related to the Predecessor’s inventory accounting, accounts receivable, derivatives depreciation of property and equipment, accounting for capital and operating leases and unrecorded liabilities.
This resulted in adjustments to the previously reported amounts in the unaudited financial statements of the Company for the period from January 29, 2018 through March 31, 2018 (Successor). In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and SAB 108), the Company evaluated these errors and, based on an analysis of quantitative and qualitative factors, determined that the errors were immaterial to the prior reporting periods affected. Therefore, as permitted by SAB 108, the Company corrected, in the current filing, previously reported unaudited results of the Company for the period from January 29, 2018 through March 31, 2018 (Successor)
The table below summarizes the impact on the affected periods:
| January 29, 2018 through March 31, 2018 | ||||||||||||
| Consolidated Statement of Operations | (Successor) | |||||||||||
| As Previously | ||||||||||||
| Reported | Adjustment | As Adjusted | ||||||||||
| Cost of sales | $ |
|
$ |
(
|
) | $ |
|
|||||
| General and administrative |
|
(
|
) |
|
||||||||
| Payroll expenses |
|
(
|
) |
|
||||||||
| Professional fees |
|
(
|
) |
|
||||||||
| Depreciation and amortization |
|
|
|
|||||||||
| Total operating expenses |
|
(
|
) |
|
||||||||
| Income from operations |
|
|
|
|||||||||
| Rental income-related party |
|
(
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) | |||||||||
| Miscellaneous income |
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|
|
|||||||||
| Realized gain (loss) on sale of investments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Unrealized gain (loss) on investments |
(
|
) |
(
|
) |
(
|
) | ||||||
| Gain (loss) on derivative instruments |
(
|
) |
|
|
||||||||
| Interest expense |
(
|
) |
(
|
) |
(
|
) | ||||||
| Total other income (expense) |
(
|
) |
|
|
||||||||
| Net income (loss) |
(
|
) |
|
|
||||||||
|
Net income (loss) per share |
$ |
(
|
) | $ |
|
$ |
|
|||||
| Weighted average number of common shares outstanding |
|
|
|
|||||||||
F- 7
| January 29, 2018 through March 31, 2018 | ||||||||||||
| Consolidated Statement of Cash Flows | (Successor) | |||||||||||
| As Previously | ||||||||||||
| Reported | Adjustment | As Adjusted | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net income (loss) | $ |
(
|
) | $ |
|
$ |
|
|||||
| Amortization of debt discount |
|
|
|
|||||||||
| Realized losses on sale of investments |
|
|
|
|||||||||
| Unrealized losses on investments |
|
|
|
|||||||||
| (Gain) loss on derivative instruments |
|
(
|
) |
(
|
) | |||||||
| Depreciation and amortization |
|
|
|
|||||||||
| Accounts receivable |
|
|
|
|||||||||
| Due from related party |
(
|
) |
(
|
) |
(
|
) | ||||||
| Prepaid expenses and other current assets |
(
|
) |
(
|
) |
(
|
) | ||||||
| Accounts payable and accrued liabilities |
(
|
) |
(
|
) |
(
|
) | ||||||
| Net cash used in operating activities |
|
(
|
) |
|
||||||||
| Cash Flows from Investing Activities | ||||||||||||
| Sales and purchases of investments, net |
|
(
|
) |
|
||||||||
| Net cash provided by investing activities |
|
(
|
) |
|
||||||||
| Cash Flows from Financing Activities | ||||||||||||
| Payments on notes payable |
(
|
) |
|
(
|
) | |||||||
| Proceeds on liabilities due to officer and related parties |
|
|
||||||||||
| Proceeds from other loans payable |
|
(
|
) | |||||||||
| Net cash provided by financing activities |
|
|
|
|||||||||
NOTE 2 - GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a working capital deficit and limited cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the accompanying unaudited interim consolidated financial statements are issued. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to achieve a level of profitability. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fleaux Solutions, LLC. All significant inter-company accounts and transactions have been eliminated.
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. These estimates and assumptions also affect the reported amounts of revenues, costs, and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
F- 8
REVENUE RECOGNITION
Prior to January 1, 2018, the Company recognized revenue when all of the following conditions were satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of its fees is reasonably assured. pursuant to the guidance provided by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605.
On January 1, 2018, The Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers. The Company primarily earns revenue from services related to sewage and waste water construction projects. Revenue is recognized when control of the services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for the services.
Revenue is recognized based on the following five step model:
| ● | Identification of the contract with a customer | |
| ● | Identification of the performance obligations in the contract | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the performance obligations in the contract | |
| ● | Recognition of revenue when, or as, the Company satisfies a performance obligation |
Performance Obligations
Revenues are recognized when all the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has received the benefit of the services. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with a customer. If collectability is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer. For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost-plus margin approach when one is not available. Historically the Company’s contracts have not had multiple performance obligations. The large majority of the Company’s performance obligations are recognized at a point in time as services are provided.
Incidental items that are immaterial in the context of the contract are recognized as expense. The payment terms between invoicing and when payment is due are less than one year. As of March 31, 2019, none of the Company’s contracts contained a significant financing component.
The Company elected the practical expedient to not adjust the amount of revenue to be recognized under a contract with an end user for the effects of time value of money when the timing difference between receipt of payment and recognition of revenue is less than one year.
Contract Liabilities
At a given point in time, the Company may have collected payment for future services to be provided. These transactions are deferred until the services are provided and control transfers to the customer, and the performance obligation is considered complete. At March 31, 2019 and December 31, 2018 there was no revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.
F- 9
Contract Costs
Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included within cost of goods and services.
Critical Accounting Estimates
Estimates may be used to determine the amount consideration in contracts, the standalone selling price among separate performance obligations and the measure of progress for contracts where revenue is recognized over time. The Company reviews and updates these estimates regularly.
Disaggregation of Revenue
The following table presents our revenues disaggregated by revenue source:
| Three Months Ended | January 29, 2018- | January 1, 2018- | ||||||||||
| March 31, 2019 | March 31, 2018 | January 28, 2018 | ||||||||||
| (Successor) | (Successor) | (Predecessor) | ||||||||||
| Pre and Post CCTV | $ |
|
$ |
|
$ |
|
||||||
| Point Repairs |
|
|
||||||||||
| Manhole Rehabilitation |
|
|
|
|||||||||
| Service Lateral Reconnect |
|
|
|
|||||||||
| Cosmic Service Lateral Lining |
|
|
|
|||||||||
| Total Revenue | $ |
|
$ |
|
$ |
|
||||||
Pre and Post CCTV consists of cleaning wastewater lines. Point Repairs consists of an excavator used to find a marked deviated in existing wastewater pipe and repairs and then made to the line. Manhole Rehabilitation consists of lining the manhole interiors, internal sealing of the joint area, and reconstructing manhole benches and channels. Service Lateral Reconnect consists of an excavator used to dig where a service needs reconnecting to the main pipe and the repairs are then made to that line.
Concentrations
For the three months ended March 31, 2019 (Successor);
one customer accounted for $
For the period from January 29, 2018 through March
31, 2018 (Successor); $
For the period from January 1, 2018 through January
29, 2018 (Predecessor); $
F- 10
CASH AND CASH E Q UIVALENTS
All cash, other than held in escrow, is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Temporary cash investments with an original maturity of three months or less are considered to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable represents the uncollected portion of amounts recorded
as revenues. Management performs periodic analyses to evaluate all outstanding accounts receivable to estimate an allowance for doubtful
accounts that may not be collectible, based on the best facts available to management. Management considers historical collection patterns,
accounts receivable aging trends and specific identification of disputed invoices in its analyses. After all reasonable attempts to collect
a receivable have failed, the receivable is directly written off. As of March 31, 2019 and December 31, 2018 (Successor), the balance
of the allowance for doubtful accounts was $
As of March 31, 2019 (Successor), $
INVENTORIES
Inventories are stated at the lower of cost, using an average cost method, or net realizable value.
MARKETABLE SECURITIES
The Company reports investments in marketable securities at fair value on a recurring basis in accordance with ASC 820. Realized and unrealized gains and losses on equity securities are included in net income (loss). Equity securities are periodically reviewed for impairment using both quantitative and qualitative criteria.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of two to ten years for furniture, fixtures, and equipment and forty years for improvements. Expenditures for repairs and maintenance are charged to expense as incurred.
LONG-LIVED ASSETS
The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal. There were no impairment losses recognized in any period presented.
GOODWILL
Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. In accordance with ASC 350, Goodwill and Other Intangible Assets , goodwill and other intangibles with indefinite useful lives are not amortized but tested for impairment annually or more frequently when events or circumstances indicates that the carrying value of a reporting unit more likely than not exceeds its fair value. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach.
F- 11
The first step involves comparing the fair value of a company's reporting units to their carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded. The Company performed a qualitative assessment and determined no impairment of goodwill was necessary during 2018.
The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized is the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.
ADVERTISING EXPENSES
Advertising expenses are expensed as incurred. The Company expensed
advertising costs of $
DEFERRED INCOME TAXES AND VALUATION ALLOWANCE
The Company accounts for income taxes under FASB ASC 740 Topic “Income
Taxes.” Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets
if it is more likely than not that the Company will not realize tax assets through future operations.
The Predecessor was organized as a limited liability company and is taxed as a partnership for U.S. income tax purposes. As such the Predecessor is not subject to U.S. income taxes.
Net income (loss) per share is calculated in accordance with FASB ASC 260 topic, “Earnings Per Share.” The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised.
Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding for the three months ended March 31, 2019, and the period from January 29, 2018 through March 31, 2018 (Successor).
F- 12
FAIR VALUE ACCOUNTING
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC 820, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company utilized level 3 inputs to estimate the fair value of its derivative instruments using the Black-Scholes Option Pricing Model. There were no outstanding assets or liabilities measured on a recurring basis at March 31, 2019 or December 31, 2018 (Successor) other than marketable securities and derivative liabilities (see note 6 and note 9).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In preparing the financial statements, management considered all new pronouncements through the date of the report.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, The Company adopted this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients.
On adoption, the Company recognized additional operating liabilities of $139,048, with a Right of Use assets of $121,048 and reducing deferred rent by $18,000 based on the present value of the remaining minimum rental payments under current leasing standards for its existing operating leases. The Company’s existing capital leases under ASC 840 are classified as finance leases under ASC 842, with a total finance liability of $260,137 at adoption. See Note 14 for additional information on leases.
The new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities. The Company also made an accounting policy election to combine lease and non-lease components of operating leases for all asset classes.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The Company adopted the provisions of the guidance on January 1, 2019 with no material impact on the Company’s consolidated financial statements and disclosures.
F- 13
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
NOTE 4 – ACQUISITION OF FLEAUX SOLUTIONS, LLC- RELATED PARTY
On January 29, 2018, the Galenfeha Inc. acquired substantially all of the operating assets of Fleaux Solutions, LLC, a Louisiana Limited Liability Company (the "Acquisition"), a Company with common officers and directors. There was no common majority ownership between the Company and Fleaux Solutions, LLC. Fleaux Solutions, LLC is engaged in the business of water, utility, and sewage construction. Upon the closing of the Acquisition, the Company received substantially all of the operating assets of Fleaux Solutions, LLC, consisting of cash on hand, inventory, accounts receivable, and fixed assets. There are common directors/officers with Galenfeha, Inc. and no common “majority” control.
The purchase price of the operating assets of
Fleaux Solutions, LLC was a cash payment of $
The Company accounted for its acquisition of the operating assets of Fleaux Solutions, LLC using the acquisition method of accounting. Fleaux Solutions cash on hand, inventories, accounts receivable, and fixed assets acquired and liabilities assumed were recorded based upon their estimated fair values as of the closing date of the Acquisition. The excess of purchase price over the value of the net assets acquired was recorded as goodwill.
The following table summarizes the estimated fair values of the tangible and intangible assets acquired as of the date of acquisition:
| January 29, 2018 | ||||
| Cash on hand | $ |
|
||
| Accounts receivable |
|
|||
| Property and equipment |
|
|||
| Goodwill |
|
|||
| Total Assets Acquired |
|
|||
| Assumption of scheduled liabilities |
|
|||
| Net Assets Acquired | $ |
|
||
Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with applicable accounting standards, goodwill is not amortized but instead is tested for impairment at least annually or more frequently if certain indicators are present. The Company performed a qualitative assessment and determined there was no impairment of goodwill.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from three to forty years.
| March 31, 2019 | December 31, 2018 | |||||||
| (Successor) | (Successor) | |||||||
| Manufacturing assets | $ |
|
$ |
|
||||
| Vehicles and trailers |
|
|
||||||
| Computer software |
|
|
||||||
| Capitalized leased equipment |
|
|
||||||
|
|
|
|||||||
| Less accumulated depreciation |
(
|
) |
(
|
) | ||||
| Property and equipment, net | $ |
|
$ |
|
||||
F- 14
Depreciation expense related to property and equipment
was $
NOTE 6 – INVESTMENTS
Marketable securities are accounted for on a
specific identification basis. As of March 31, 2019, all of our marketable securities were invested in publicly traded equity holdings.
Marketable securities were classified as current based on the percentage of the equity controlled by the Company as well as our intended
use of the assets. The Successor recognized unrealized gain (loss) of $
The Company's assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 at March 31, 2019 and December 31, 2018, was as follows:
| Quoted Prices in | Significant | |||||||||||||||
| Active Markets for | Other | Significant | ||||||||||||||
| Identical Assets | Observable | Unobservable | ||||||||||||||
| and Liabilities | Inputs | Inputs | Total | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
| Assets | ||||||||||||||||
| Marketable Securities as of March 31, 2019 | $ |
|
$ | $ | $ |
|
||||||||||
| Assets | ||||||||||||||||
| Marketable Securities as of December 31, 2018 | $ |
|
$ | $ | $ |
|
||||||||||
NOTE 7 – NOTES PAYABLE AND CAPITAL LEASES
The Predecessor secured a line of credit with
Gibsland Bank Trust on March 22, 2017. The line of credit was secured with fixed assets financed. The balance on the line of credit
was $
The Company secured a line of credit (LOC
#0221) of $
F- 15
The Company secured a second line of credit (LOC
#0248) of $
Additionally, both lines of credit are secured
by deposit accounts held at the Grantor’s institution which had cash balances of $
On February 13, 2019, the Company secured an excavator
equipment loan in the amount of $
Notes Payable (Predecessor)
The Company assumed the debt of a loan payable
executed between Fleaux Solutions, LLC and Gerald W. Norder on May 2, 2017. The proceeds received under the loan totaled $
The Company assumed the debt of a Cosmic Equipment
loan in the amount of $
The Company assumed the debt of a loan in the
amount of $
The Company assumed the debt of two secured automobile
loans of $
The Company assumed the debt of a secured automobile
loan in the amount of $
The Company assumed the debt of a secured JET
trailer loan in the amount of $
F- 16
The Company assumed the debt of a secured excavator
equipment loan in the amount of $
Obligations under Capital Leases (Predecessor)
In October of 2016, the Predecessor entered into
a lease agreement for the purchase of a 1997 Ford Van, used in the day to day operation of Fleaux Solutions, LLC. The lease is for
In October of 2016, the Predecessor entered into
a lease agreement for the purchase of a 1998 Ford Van, used in the day to day operation of Fleaux Solutions, LLC. The lease is for
In February of 2017, the Predecessor entered into
a lease agreement for the purchase of a 2001 Sterling Tractor Truck, used in the day to day operation of Fleaux Solutions, LLC. The lease
is for
In February of 2017, the Predecessor entered into
a lease agreement for the purchase of a 2014 Chevy Truck, used in the day to day operation of Fleaux Solutions, LLC. The lease is for
In March of 2017, the Predecessor entered into
a lease agreement for the purchase of a 1997 Ford E350, used in the day to day operation of Fleaux Solutions, LLC. The lease is for
In March of 2017, the Predecessor entered into
a lease agreement for the purchase of a Dozer, Excavator, Tractor, and Backhoe, used in the day to day operation of Fleaux Solutions,
LLC. The lease is for
F- 17
The current maturities and five year debt schedule for the notes is as follows and includes all lines of credit payable, notes payable, capital leases, short-term non-secured debt and amounts due to officer and related parties:
| 2019 | $ |
|
||
| 2020 |
|
|||
| 2021 |
|
|||
| 2022 |
|
|||
| 2023 |
|
|||
| Total notes payable | $ |
|
Margin loans- (Successor)
From January 29, 2018 through March 31, 2018, the
Company raised a total of $
NOTE 8 – CONVERTIBLE LOANS
Prior to the Acquisition date of January 29, 2018, Galenfeha had the below unsecured convertible notes:
June 2017 Note
Effective June 8, 2017 the Company entered into a Convertible Promissory Note (“Power Up Note One”) with Power Up Lending Group, Ltd. pursuant to which the Company issued Power Up Lending Group, Ltd. a convertible note in the amount of $43,000. The maturity date is March 20, 2018.
On June 8, 2017 the Company received consideration
of $
The Power Up Note provides Power Up Lending Group,
Ltd. the right, to convert the outstanding balance (including accrued and unpaid interest) into shares of the Company’s common stock
at
F- 18
July 2017 Note
Effective July 5, 2017 the Company entered into
a Convertible Promissory Note (“Power Up Note Two”) with Power Up Lending Group, Ltd. pursuant to which the Company issued
Power Up Lending Group, Ltd. a convertible note in the amount of $
On July 5, 2017 the Company received consideration
of $
The Power Up Note Two provides Power Up Lending
Group, Ltd. the right, to convert the outstanding balance (including accrued and unpaid interest) into shares of the Company’s
common stock at
July 2018 Note
On July 10, 2018, the company wrote a convertible
promissory note for $
August 2018 Note
On August 22, 2018, the company wrote a convertible
promissory note for $
As a result of the derivatives calculation (see
Note 9) an additional discount of $
F- 19
NOTE 9 – DERIVATIVE LIABILITY
During the three months ended March 31, 2019, the Company identified conversion features embedded within its convertible debt. The Company has determined that the conversion feature of the Notes represents an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Therefore, the fair value of the derivative instruments have been recorded as liabilities on the balance sheet with the corresponding amount recorded as discounts to the Notes. Such discounts will be accreted from the issuance date to the maturity date of the Notes. The change in the fair value of the derivative liabilities will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. The fair values of the embedded derivative liabilities were determined using the Black-Scholes valuation model on the issuance dates with the assumptions in the table below.
The change in fair value of the Company’s derivative liabilities for the three months ended March 31, 2019 (Successor) is as follows:
| December 31, 2018 fair value | $ | |||
| Fair value on the date of issuance recorded as a debt discount |
|
|||
| Fair value on the date of issuance recorded as a loss on derivatives |
|
|||
| Derivative liability extinguished on conversion |
(
|
) | ||
| Fair value mark – to market adjustment |
|
|||
| March 31, 2019 fair value | $ |
|
The loss on the change in fair value of derivative
liabilities for the three months ended March 31, 2019 was $
The fair value at the issuance and re-measurement dates for the convertible debt treated as derivative liabilities are based upon the following estimates and assumptions made by management for the three months ended March 31, 2019 (Successor):
| Exercise prices | See Note 8 | ||
| Expected dividends |
|
||
| Expected volatility |
|
||
| Expected term |
|
||
| Discount rate |
|
NOTE 10 - SHAREHOLDERS’ EQUITY
PREFERRED STOCK
The authorized stock of the Company consists of preferred A shares and preferred B shares with a par value of $ .
On December 20, 2016, shareholders of the company approved an amendment to the Bylaws for the creation of preferred stock. The preferred class of stock will consist of two (2) series, Series A, and Series B. All affiliates of the company who purchased stock during the formation of the company and who purchased stock for financing activities at prices below market will move their common shares into the Series B preferred stock, effective immediately. The Series B votes 1:1; is subject to all splits the same as common; converts back to common 1:1; and cannot be converted back to common for resale in the open market until a 30 day VWAP (volume weighted average price) of $.45 cents has been met in the Company’s public trading market. All future sales of company securities by affiliates will adhere to rules and regulations of the Commission.
Affiliates who purchased stock at offering prices that were current at the time of purchase, and affiliates who make open market purchases and are directly responsible for a merger/acquisition that brings retained earnings to the company, can convert these common shares 1:1 into Series A preferred stock. Series A votes 1:1; converts back to common 1:1; is not subject to splits in order to facilitate mergers, acquisitions, or meeting the requirements of a listed exchange; and cannot be converted back to common for resale in the open market until a 30 day VWAP of $3.50 per share has been met in the Company’s public trading market. All future sales of company securities by affiliates will adhere to rules and regulations of the Commission.
F- 20
During 2016, four officers and directors of the Company exchanged common shares for Series B preferred shares. During the first quarter of 2017, one officer and one director exchanged common shares for Series A preferred shares. During the second quarter of 2017, one officer converted of preferred stock Series A back to same number of common stock. During the third quarter of 2017, one related party exchanged common shares for shares of preferred stock Series A.
During the period ended March 31, 2019, a total of shares of the Company’s preferred stock Series B were converted into shares of preferred stock Series A.
During the period ended March 31, 2019, a total of 15,347,563 shares of the Company’s preferred stock Series B were converted into 15,347,563 shares of common stock.
As of March 31, 2019, shares of the Company’s preferred stock Series A were issued and outstanding.
As of March 31, 2019, shares of the Company’s preferred stock Series B were issued and outstanding.
COMMON STOCK
The authorized stock of the Company consists of common shares with a par value of $ . As of March 31, 2019 and December 31, 2018, and shares of the Company’s common stock were issued and outstanding, respectively.
On January 29, 2018, the Company entered into
a Definitive Agreement to acquire Fleaux Solutions, LLC, a Company with common director and shareholders for a cash purchase of $
Prior to the Acquisition date of January 29, 2018, Galenfeha had issued the below shares during the period January 1, 2018 through January 29, 2018.
On January 16, 2018, Power Up Lending converted
$
On January 29, 2018, Power Up Lending converted
$
The Company (Successor) issued the below shares during the period from January 29, 2018 through September 30, 2018.
On January 31, 2018, Power Up Lending converted
$
On February 5, 2018, Power Up Lending converted
$
On February 5, 2018, Power Up Lending converted
$
On February 15, 2018, the Company bought back
shares of common stock through a brokerage account for a total price of $
F- 21
On January 29, 2018, a Director of the company sold shares of preferred stock Series B to two affiliates of Fleaux Solutions, LLC and to an affiliate of Fleaux Services, LLC. These shares will be moved into preferred stock Series A.
During the period ended March 31, 2019, a total
of
shares of the Company’s common stock was issued for conversion of debt of $
NOTE 11 - CONTINGENCIES
From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
NOTE 12 – RELATED PARTY TRANSACTIONS
On November 4, 2016, Mr. James Ketner, Galenfeha’s
Chairman and CEO made a cash contribution to the Company in the amount of $
The Company subleases a portion of its office
space to Fleaux Services of Louisiana, LLC, a related party. The Company recognized rental income of $
The Predecessor received $
On January 29, 2018, the CEO in a private transaction,
sold
F- 22
On January 29, 2018, the Company entered into a Definitive Agreement to acquire Fleaux Solutions, LLC, a Company with common director and shareholders for a cash purchase of $1.00. Fleaux Solutions at the time of acquisition was owned by Director Trey Moore, President/CEO of Fleaux Services, LLC, Christopher Ryan Marlowe, Chief Operating Officer of Fleaux Services, LLC, and Ray Moore Jr., brother of Trey Moore. See Note 4.
NOTE 13 – UNCERTAIN TAX POSITIONS
The predecessor received a letter on May 17, 2016 from the Caddo-Shreveport Sales and Use Tax Commission informing them of a parish sales and use tax audit scheduled to begin on June 28, 2016. The audit period covered is January 1, 2013 through May 31, 2016. The audit is currently under way and no judgments or assessments have been issued. Management is of the opinion that this audit will not result in any material change in the Company’s financial results.
NOTE 14 – LEASES
The Company has operating and finance leases for administrative offices, motor vehicles and certain machinery and equipment. The Company’s leases have remaining lease terms of 1 year to 2 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability. The Company's lease agreements do not contain any material restrictive covenants.
At adoption of ASC 842, the Company recognized
right of use assets and liabilities for operating leases of $
The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31, 2019:
| Lease Position | March 31, 2019 | |||
| Operating Leases | ||||
| Operating lease right-of-use assets | $ |
|
||
| Right of use liability operating lease short term | $ |
|
||
| Right of use liability operating lease long term |
|
|||
| Total operating lease liabilities | $ |
|
||
| Finance Leases | ||||
| Equipment | $ |
|
||
| Accumulated depreciation |
(
|
) | ||
| Property and equipment, net | $ |
|
||
| Right of use liabilities – finance leases short term |
|
|||
| Right of use liabilities – finance leases long term |
|
|||
| Total finance lease liabilities | $ |
|
||
The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.
F- 23
| Lease Term and Discount Rate | March 31, 2019 | |||
| Weighted-average remaining lease term (years) | ||||
| Operating leases |
|
|||
| Finance leases |
|
|||
| Weighted-average discount rate | ||||
| Operating leases |
|
% | ||
| Finance leases |
|
% | ||
The following table provides the Company’s undiscounted cash payment obligations for its operating and finance lease liabilities with initial terms of more than twelve months at March 31, 2019:
| Operating Leases | Finance Leases | |||||||
| 2019 | $ |
|
$ |
|
||||
| 2020 |
|
|
||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 and thereafter | ||||||||
| Total future undiscounted lease payments | $ |
|
$ |
|
||||
| Less: Interest |
(
|
) |
(
|
) | ||||
| Present value of lease liabilities | $ |
|
$ |
|
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At March 31, 2019, the Company had no additional leases which had not yet commenced.
The Company also rents yard storage for $1,000
per month or $12,000 per year beginning on March 1, 2017. The terms of the yard storage lease are month to month. The Predecessor subleased
a portion of the office space to Fleaux Services of Louisiana, LLC, a related party. The Predecessor recognized rental income of $
Additionally, the Company rents space in Fort Worth, Texas for corporate facilities for $109 monthly or $1,308 per year, and additional office space for $950 per month. The terms of both agreements are month to month.
NOTE 15 – SUBSEQUENT EVENTS
Effective June 1, 2019, the Company sold the Fleaux
Solutions, LLC business back to the previous owners in exchange for $
On July 10, 2019, LaNell Armour resigned from the Company’s Board of Directors.
On August 30, 2019, the Company cancelled
On November 18, 2019, the Company cancelled
On March 11, 2020, the Company cancelled
F- 24
On October 1, 2019, the Company’s former
CEO and Chairman James Ketner loaned the Company $
On October 10, 2019, The Company cancelled
On December 18, 2019, the Company paid $
On November 30, 2020, James Ketner resigned from all positions with the Company but remained as a Director.
On December 13, 2020, the Company agreed to settle
the $
On December 18, 2020, the Board of Directors of the Company appointed Ryan C. Tyszkow as Director and CEO.
On December 31, 2020, the Company appointed Darrell L. Peterson as a Director and the Company’s CFO.
On January 31, 2021, the Company amended its Series B preferred stock designation to reduce the authorized shares to and cancelled previously outstanding shares. The Series B voting provision was also modified to be four votes for every one share of Series B Preferred Stock outstanding. The Company also designated a new Series C Preferred Stock, with one share authorized and issued to Ryan Tyszkow in exchange for his pledge to provide working capital loans or guarantees of at least $350,000 to the Company. The Series C Preferred Stock is entitled to vote one share more than one half of all votes entitled to be cast by the Company’s existing capital stock outstanding. Once all such loans or guarantees are no longer outstanding, the Series C Preferred Stock shall be cancelled. The Series C has no dividend rights.
On June 25, 2021, the Company issued shares of common stock for services including to Tyszkow.
On September 20, 2021, the Company issued a total of , including 2,000,000 to Ryan Tyszkow and 1,500,000 to Darrell L. Petterson.
On October 18, 2021, James Ketner resigned as a Director of the Company.
On November 20, 2021, Ryan Tyszkow resigned as CEO and Director of the Company, and the Company appointed Darrell Peterson as CEO.
In April 2022, a total of shares of common stock, including 3,250,000 share held by Ryan Tyszkow and 1,250,000 held by Darrell L. Peterson were cancelled.
On August 24, 2023, Mr. Peterson resigned as CEO, CFO and Director of the Company.
On August 24, 2023,
On February 1, 2024, Mr. Tracy Anderson, the sole Office/Director, stepped down as Chief Executive Officer and Chief Financial Officer. Mr. Anderson appointed M. Travis Cockerman as Chief Executive Officer and Archie Lowe as Senior Vice-President and Acting Chief Financial Officer. Tracy Anderson appointed Travis Cockerman, Archie Lowe and Don Mock as Company Directors. Mr. Anderson remains the Executive Chairman of the Company. On May 6, 2024, The Board of Directors elected Mr. Archie as its Chief Financial Officer.
On July 24, 2024, the Board of Directors of the
Company voted to change the Company’s name to New Green Hemp, Inc. and change the trading symbol to NGHI. The Board also voted to
cancel all shares of Series B and C Preferred stock outstanding and increased the authorized shares to be
shares of common
and
shares of Preferred Stock. Mr. Anderson, the holder of Series B and C Preferred Stock received
shares of Common
stock in exchange for all shares of Series B and C Preferred stock. The Company also authorized a
On September 8, 2024, all outstanding shares of Series B Preferred Stock and the 1 share of Series C Preferred stock were converted into shares of common stock.
F- 25
ITEM 2 – MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this report and those in our Form 10-K filed with the Securities and Exchange Commission on May 22, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to, those described under “Risk Factors” included in Part II, Item IA of this report.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these unaudited interim financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2018 audited financial statements included in its Form 10-K filed with the Securities and Exchange Commission. The results of operations for the period ended March 31, 2019 and the same period last year are not necessarily indicative of the operating results for the full years.
Overview
On January 29, 2018, the Company entered into a Definitive Agreement to acquire Fleaux Solutions, LLC for a cash purchase of $1.00, with the Company assuming all liabilities of the business. On June 1, 2019, the Company agreed to sell the business back to the former owners for $70,000 cash in exchange for all equity interest of Fleaux Solutions, LLC.
On August 24, 2023, Darrell Peterson and New Green Holdings, Inc. a Florida C-Corporation (“New Green”) entered into an agreement whereby New Green paid $35,000 to Mr. Peterson to acquire 16,300,000 shares of Series A, 12,700,000 shares of Series B and 1 share of Series C Preferred stock held by Mr. Peterson, resulting in New Green being the controlled shareholder of the Company.
Following the New Green transaction, the Company intends to pursue the business of hemp cultivation and sales, focusing on developing hemp products infused with various items.
Plan of Operation
A condensed version of our 2019 Statement of Work is as follows:
| 1. | Explore investments both private and public | |
| 2. | Develop new technologies for product development, engineering, and manufacturers | |
| 3. | Formulate applications for new products recently developed | |
| 4. | Commercialize new technology and products |
Results of Activities
To provide a meaningful presentation and comparison of our results of operations, our discussion combines the period of January 1, 2018 through January 28, 2018 (Predecessor) with the period of January 29, 2018 through March 31, 2018 (Successor). In the accompanying unaudited consolidated financial statements, a black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods.
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For the Three Months Ended March 31, 2019 and 2018
Results of Operations
Revenues
Our revenues were $1,007,082 for the period ended March 31, 2019 compared to $1,120,542 in 2018. The 10% decrease in revenue recorded during 2019 was attributable to a decrease in manhole rehabilitation services and CCTV. However, there was a significant growth in Cosmic service lateral lining contracts during 2019.
Cost of Revenues
Our cost of revenue was $264,433 for the three months ended March 31, 2019, compared to $252,021 in 2018. The increase in the cost of revenue is primarily due to the increased costs of services related to the additional contracts as described above.
Operating Expenses
Operating expenses for the three months ended March 31, 2019, and 2018, were $761,747 and $549,303, respectively. The increase in operating expenses was primarily attributable to increase payroll and other general and administrative expenses from the acquisition of the Fleaux Solutions business during 2018 and increased professional fees.
Operating Income
Loss from operations for the three months ended March 31, 2019 was $19,098 compared to an operating income of $319,218 in 2018. The decrease in 2019 was due to the decrease in revenue growth and increased operating expenses discussed above.
Other income/expense
Total other expense for the three months ended March 31, 2019 was $233,647 compared to total other income of $8,966 in 2018. Other Expense for the three months ended March 31, 2019, consisted of a $77,272 loss on derivative instruments, interest expense of $177,285, unrealized gain on trading securities of $33,295 and realized losses on investments of $10,994. Other Expense for 2018 consisted of interest expense of $76,803, unrealized loss on trading securities of $9,912 and realized losses on investments of $7,590. These were offset by a $102,604 gain on derivative instruments and miscellaneous income of $667 primarily related to royalty income from battery sales to a related party.
Net Income/Loss
Net loss for the period ended March 31, 2019 was $252,745 compared to net income of $328,184 for 2018.
Liquidity and Capital Resources
“Liquidity” refers to our ability to generate adequate amounts of cash to meet our funding needs. We believe we have adequate capital resources and liquidity from our operations to maintain current operations during 2019 but continue to be dependent on sales of common stock and bank financing to fund operations until we achieve a positive cash flow.
We do not currently have material commitments for capital expenditures and do not anticipate entering into any such commitments during the next twelve months.
At March 31, 2019, we had current assets of $1,264,336 comprised of cash and cash equivalents of $20,644 and marketable securities of $102,000, accounts receivable of $983,941 and inventory of $157,751. Our current liabilities were $2,039,656, comprised of $485,379 in accounts payable and accrued expenses, line of credit balances of $640,418, convertible notes payable of $11,409, right of use liabilities totaling $250,977, derivative liabilities of $90,727, and other short term debt totaling $208,602 and $352,144 in amounts due to related parties, resulting in a working capital deficit of ($775,320).
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At December 31, 2018, we had current assets of $1,270,039 comprised of cash and cash equivalents of $181,645 and marketable securities of $108,150, accounts receivable of $815,266 and inventory of $164,978. Our current liabilities were $2,018,843, comprised of $492,805 in accounts payable and accrued expenses, line of credit balances of $639,841, convertible notes payable of $182,507, other short-term debt totaling $376,546 and $327,144 in amounts due to related parties, resulting in working capital deficit of ($748,804).
To provide a meaningful presentation and comparison of our results of operations, our discussion combines the period of January 1, 2018, through January 28, 2018 (Predecessor) with the period of January 29, 2018 through December 31, 2018 (Successor). In the accompanying unaudited consolidated financial statements, a black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods.
Deficit accumulated since inception is $4,092,267. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our management and stockholders, the continued issuance of equity to new stockholders, and our ability to achieve and maintain profitable operations.
Our ability to continue as a going concern is dependent on our ability to raise additional capital and attain profitable operations. Since its inception, we have been funded by sales of company stock, and funds contributed by related parties through capital investment and borrowing funds. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. You have no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and Development activities.
Summary of Cash Flows
Cashflow from operating activities
Net cash used in operating activities was $166,308 for the three months ended March 31, 2019 from net loss of $252,745, changes in accounts receivable of $313,333, and right of use liabilities of $19,679, offset by changes in inventory of $7,227, accounts payable and accrued expenses of $10,125, and non-cash charges totaling $402,097 related to depreciation expense, unrealized and realized losses on sales of investments, amortization of debt discount and gains on derivative instruments. Net cash used in operating activities was $10,572 for the period in 2018 from changes in accounts receivable of $222,201, inventory of $60,000, prepaid expenses and other current assets of $93,686, accounts payable and accrued expenses of 5,138, offset by change in due from related party of $14,000, net income of $328,184, and non-cash charges totaling $28,269 related to depreciation expense, unrealized and realized losses on sales of investments, amortization of debt discount and gains on derivative instruments.
Cashflow from investing activities
Net cash provided by investing activities for the period ended March 31, 2019, was $28,451, consisting of net sale of investments. Net cash provided by investing activities for the period in 2018 was $201,208, consisting of net sale of investments of $30,418, $913 in repurchases and cancellation of shares, and $171,703 in cash assumed as part of the acquisition.
5
Cashflow from financing activities
Net cash used in financing activities for the period ended March 31, 2019 was $23,144, consisting of $705,144 in principal payments on lines of credit and notes payable, $25,000 in payments on loans from related parties, offset by proceeds from lines of credit of $657,000, and proceeds from related parties of $50,000. Net cash provided by financing activities for the period in 2018 was $315,552, consisting of proceeds from lines of credit of $735,177, proceeds from related parties of $335,000. These were offset by $651,521 in principal payments on lines of credit, notes payable and capital leases, $67,061 in payments on loans from related parties, $21,840 in payments on convertible notes, and $14,203 in payments on margin loans. Since inception, we have used our common stock to raise money for the research and development of our intended products, for corporate expenses, and for current operations.
Off-Balance Sheet Arrangements
As of March 31, 2019, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of period covered by this report, the Company carried out an evaluation, with the participation of the Company's Chief Executive Officer and Principal Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls over financial reporting.
No changes were made to the Company's internal controls in the quarterly period covered by this report that have materially affected, or are reasonably likely materially to affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 1A. Risk Factors
A description of the risks associated with our business, financial condition and results of operations is set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on May 22, 2019. These factors continue to be meaningful for your evaluation of the Company and we urge you to review and consider the risk factors presented in the Annual Report on Form 10-K. We believe there have been no changes that constitute material changes from these risk factors.
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITEIES
None
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
(a) Exhibits:
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Galenfeha, Inc. | |||
| Date: November 19, 2024 | By: | /s/ Matthew T. Cockerham | |
| Name: | Matthew T. Cockerham | ||
|
President and Chief Executive Officer (Principal Executive Officer) |
|||
| Galenfeha, Inc. | |||
| Date: November 19, 2024 | By: | /s/ Archie Lowe | |
| Name: | Archie Lowe | ||
|
Chief Financial Officer (Principal Financial0 Officer and Principal Accounting Officer) |
|||
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