UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUAND TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
000-55178
(Commission File Number)
GALENFEHA, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 46-2283393 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
420 Throckmorton Street, Suite 200
Ft. Worth,
Texas 76102
(Address of principal executive offices)
(800) 280-2404
(Registrant’s telephone
number, including area code)
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in rule 405 of the Securities Act.
Yes
[ ] No [X]
Indicate by check mark whether the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
[ ] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]
No [ ]
Indicate by check mark whether the registrant 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).
Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. 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 [ ] | Emerging Growth Company [X] |
| Non Accelerated Filer [X] | Smaller Reporting Company [X] |
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
No [X]
Aggregate market value of the voting stock held by non-affiliates: $7,686,875 as based on the closing price of the stock on June 30, 2018. The voting stock held by non-affiliates on that date consisted of 61,250,000 shares of common stock.
As of May 20, 2019, there were 95,944,216 shares of the registrant’s common stock outstanding, each with a par value of $0.001.
TABLE OF CONTENTS
FORM 10-K
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2018
USE OF PRONOUNS AND OTHER WORDS
The pronouns “we”, “us”, “our” and the equivalent used in this annual report mean Galenfeha, Inc. In the notes to our financial statements, the “Company” means Galenfeha, Inc. The pronoun “you” means the reader of this annual report.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although our management believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation that our objectives and plans will be achieved.
PART I
ITEM 1 – DESCRIPTION OF BUSINESS
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 entered into a Definitive Agreement to acquire Fleaux Solutions, LLC for a cash purchase of $1.00. On January 29, 2018, Galenfeha’s President and CEO filed with the commission on Form 4, disclosing the sale of 3,000,000 shares of preferred Series B stock to an affiliate of Fleaux Solutions, LLC, and to an affiliate of Fleaux Services of Louisiana, LLC. These shares will be moved into the 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 Galenfeha’s public trading market. All future sales of company securities by affiliates will adhere to rules and regulations of the Commission.
On February 1, 2018; the Company announced that the Fleaux Solutions Division secured a $650,000 bank line of credit, as well as an additional $300,000 from a private investor. Fleaux Solutions is engaged in the business of sewer rehabilitation with local government and municipality contracts.
On May 1, 2018, the Company signed a letter of intent to acquire all of the membership interest in Fleaux Services of Louisiana, LLC, a leading oil and gas measurement company, for $18,000,000. The acquisition is contingent on Galenfeha’s ability to raise the funds, and the Company has engaged Wall Street firm Paulson Investment Company, LLC as the lead placement agent for financing the transaction. The Company was unable to secure funding for this transaction in the proscribed amount of time, and therefore this transaction is no longer pending.
On May 3, 2018, the Company’s President and CEO, Mr. James Ketner, resigned his position as President and CEO.
On May 3, 2018, Mr. Trey Moore assumed the position of President/CEO of Galenfeha, Inc.
On May 3, 2018, the Company decided to eliminate the preferred stock structure in order to make the Company’s capital structure less complicated for potential investors funding the Fleaux Services transaction. All preferred shares will move 1:1 into the common. After further review, the company changed its position on this move, and will keep all preferred stock in place until otherwise disclosed.
On July 10, 2018, the company wrote a convertible promissory note for $133,000, of which the company received proceeds of $130,000. The note is due on July 10, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.
On August 22, 2018, the company wrote a convertible promissory note for $53,000, of which the company received proceeds of $50,000. The note is due on August 22, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.
A condensed version of our 2019 Statement of Work is as follows:
| 1. |
Explore investments both private and public | |
| 2. |
Develop new technologies for engineering, manufacturers, and product life cycles | |
| 3. |
Formulate applications for new technologies recently developed | |
| 4. |
Commercialize new technology and products |
ITEM 1A – RISK FACTORS
Not applicable to smaller reporting companies.
Although information for this item is not required, the company chooses to provide the following disclosures:
CAUTIONARY NOTE TO INVESTORS: Investing in our securities, whether open market purchases or private transactions, comes with the high risk that you could lose your entire investment. Our independent registered public accountant has issued an audit opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern. We have a limited history of operations, and have to date incurred losses since the company’s inception. We recently sold all divisions of our commercialized products, but retain royalties from some of these product lines.
Since our inception on March 14, 2013, through December 31, 2018, we have not been profitable; have a cumulative net loss of $3,801,735; and have only generated significant revenues from operations beginning in 2018 following the acquisition of Fleaux Solutions. There is a substantial risk that we may never generate enough revenues to become profitable, and might have to discontinue operations, resulting in the loss of your entire investment.
ITEM 1B – UNRESOLVED STAFF COMMENTS
We have no unresolved comments with the staff at the commission.
ITEM 2 – DESCRIPTION OF PROPERTIES
We do not own any real property.
We lease our headquarters office space in Ft. Worth, Texas with an unrelated third party. Rent payments currently totaling $109 per month commence on January 1, 2016. The Company also rents office space for $950 per month on a month to month basis. Fleaux Solutions rents office space in Shreveport, Louisiana from an unrelated third party beginning August 1, 2017. The Company pays rent of $7,000 per month currently, with payments increasing to $8,000 per month in 2019. The lease ends in August 2020. Fleaux Solutions also pays $1,000 per month on a month to month basis for yard space in Shreveport, Louisiana.
ITEM 3 – LEGAL PROCEEDINGS
We are not engaged in any legal or administrative proceeding and believe none are threatened against us.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 – MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the OTC Pink exchange, under the symbol “GLFH”. On May 20, 2019, the last sale price for our common stock on the OTC Pink Exchange was $.0197 per share. The following table sets forth the high and low sales prices per share of our common stock during each calendar quarter for the years ended December 31, 2018 and 2017:
| 2018 | 2017 | |||||||||||
| Quarter Ended | High | Low | High | Low | ||||||||
| March 31 | $ | 0.273 | $ | 0.01 | $ | 0.13 | $ | 0.04 | ||||
| June 30 | 0.26 | 0.09 | 0.09 | 0.02 | ||||||||
| September 30 | 0.14 | 0.039 | 0.06 | 0.012 | ||||||||
| December 31 | 0.095 | 0.04 | 0.04 | 0.01 | ||||||||
Holders of Common Stock
According to a Non-Objecting Beneficial Owner (NOBO) list and our most recent transfer agent shareholder list, as of May 20, 2019 we had approximately 1,300 stockholders of record.
Dividends
To date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends is within the discretion of our board of directors and will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Directors.
Equity Compensation Plans
On October 17, 2013, we filed on form S-8, an employee stock compensation plan. This S-8 registration statement registers 100,000,000 shares of common stock which includes 45,000,000 shares of common stock that may be resold by Directors originally purchased at par value upon our formation that are covered by the “Affiliate Resale Restriction Agreement” and are released to each Director upon completion of the terms of the agreement as compensation for services completed, and 5,000,000 shares that may be resold by employees originally issued to them as compensation for services rendered, and 55,000,000 shares not yet issued for compensation of services.
In October 2013, we entered into an agreement with the Directors called “Employee Resale Restriction Agreement”. In short, this plan prevents our directors from terminating his/her position, and keep stock they acquired upon our formation. Details of the agreement can be found on Form 8-K filed with the Securities and Exchange Commission on October 25, 2013.
Recent Sales of Unregistered Securities
The Company made no private sales of common stock in the twelve months ending December 31, 2018.
ITEM 6 – SELECTED FINANCIAL DATA
Pursuant to Item 301(c) of Regulation S-K, we are not required to provide selected financial data.
ITEM 7 – MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements and accompanying notes and other financial information appearing elsewhere in this annual report on Form 10-K.
Overview
On January 29, 2018, the Company entered into a Definitive Agreement to acquire Fleaux Solutions, LLC for a cash purchase of $1.00. On January 29, 2018, Galenfeha’s President and CEO filed with the commission on Form 4, disclosing the sale of 3,000,000 shares of preferred Series B stock to an affiliate of Fleaux Solutions, LLC, and to an affiliate of Fleaux Services of Louisiana, LLC. These shares will be moved into the 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 Galenfeha’s public trading market. All future sales of company securities by affiliates will adhere to rules and regulations of the Commission.
On February 1, 2018; the Company announced that the Fleaux Solutions Division secured a $650,000 bank line of credit, as well as an additional $300,000 from a private investor. Fleaux Solutions is engaged in the business of sewer rehabilitation with local government and municipality contracts.
On July 10, 2018, the company wrote a convertible promissory note for $133,000, of which the company received proceeds of $130,000. The note is due on July 10, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.
On August 22, 2018, the company wrote a convertible promissory note for $53,000, of which the company received proceeds of $50,000. The note is due on August 22, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.
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 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 $636,323 and $67,367 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 consolidated financial statements, a black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods.
Net cash used provided by operating activities was $91,562 for the year ended December 31, 2018, from a net income of $233,165, depreciation expense of $193,563, other non-cash charges totaling $2,604 related to unrealized and realized losses on sales of investments, amortization of debt discount and gains on derivative instruments, partially offset by a change in accounts receivable of $281,429, inventory of $164,978, due from related party of $14,000 and an increase in accounts payable and accrued expenses of $95,980.
Net cash used in investing activities for the year ended December 31, 2018 was $58,111, consisting of $96,069 in net purchases of investments, purchases of equipment of $16,610 and $913 in repurchases and cancellation of shares.
Net cash used in financing activities was $181,165, consisting of proceeds from lines of credit of $845,177, proceeds from convertible debentures of $180,000, and proceeds from related parties of $650,000. These were offset by $1,000,656 in principal payments on lines of credit and notes payable, $453,061 in payments on loans from related parties, $21,840 in payments on convertible notes, and $18,455 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.
Deficit accumulated since inception is $3,839,522. 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 attained 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.
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 December 31, 2018 (Successor). In the accompanying consolidated financial statements, a black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these two periods.
For the Years Ended December 31, 2018 and 2017
Results of Operations
Revenues
Our revenues were $3,747,746 for the year ended December 31, 2018 compared to $1,938,529 in 2017. The 93% increase in revenue recorded during 2018 was attributable to significant growth in Cosmic service lateral lining contracts, manhole rehabilitation services and CCTV services.
Cost of Revenues
Our cost of revenue was $1,169,316 for the year ended December 31, 2018, compared to $412,795 in 2017. The increase in cost of revenue is primarily due to the increased costs of services additional contracts as described above.
Operating Expenses
Operating expenses for the year ended December 31, 2018, and 2017, were $2,256,479 and $1,728,400, respectively. The increase in operating expenses was primarily attributable to increase payroll and other general and administrative expenses from the explanation of the Fleaux Solutions business during 2018, and increased professional fees.
Operating Income
Income from operations for the year ended December 31, 2018 was $321,951 compared to an operating loss of $202,666 for the year ended December 31, 2017. The increase in 2018 was due to the significant revenue growth discussed above.
Other expense
Other Expense for the year ended December 31, 2018 consisted of a $102,604 gain on derivative instruments, interest expense of $136,890, unrealized losses on trading securities of $40,040 and realized losses on investments of $21,959. These were partially offset by miscellaneous income of $15,902 primarily related to royalty income from battery sales to a related party. For the year ended December 31, 2017, interest expense was $114,090.
Net Income
Net income for the year ended December 31, 2018 was $241,568 compared to net loss of $316,756 for the year ended December 31, 2017.
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
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.
Off-Balance Sheet Arrangements
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.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to Item 305(e) of Regulation S-K, we are not required to provide quantitative and qualitative disclosure.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Galenfeha, Inc.
Index to Consolidated Financial
Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Galenfeha, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Galenfeha, Inc. and its subsidiary (collectively the “Company”) as of December 31, 2018 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the period from January 29, 2018 through December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We have also audited the accompanying balance sheet of Fleaux Solutions, LLC (the “Predecessor”) as of December 31, 2017 and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the period from January 1, 2018 through January 31, 2018 and for the year ended December 31, 2017, and the related notes (collectively referred to as the “Predecessor financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and the results of their operations and their cash flows for the period from January 29, 2018 through December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor financial statements present fairly, in all material respects, the financial position of the Predecessor as of December 31, 2017 and the results of its operations and its cash flows for the period from January 1, 2018 through January 31, 2018 and for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a net capital deficiency and limited cash flows from operation that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2015
Houston, Texas
May 21, 2019
| Galenfeha, Inc. |
| Consolidated Balance Sheets |
| December 31, 2018 | December 31, 2017 | |||||
| (Successor) | (Predecessor) | |||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 181,645 | $ | 348 | ||
| Marketable securities | 108,150 | - | ||||
| Accounts receivable | 815,266 | 533,837 | ||||
| Inventory | 164,978 | - | ||||
| Due from related parties | - | 14,000 | ||||
| Total current assets | 1,270,039 | 548,185 | ||||
| Property and equipment, net of accumulated depreciation | 733,379 | 858,481 | ||||
| Goodwill | 286,497 | - | ||||
| TOTAL ASSETS | $ | 2,289,915 | $ | 1,406,666 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||
| CURRENT LIABILITIES | ||||||
| Accounts payable and accrued liabilities | $ | 492,805 | $ | 308,969 | ||
| Lines of credit payable | 639,841 | 173,561 | ||||
| Note payable | 316,546 | 454,997 | ||||
| Convertible notes payable, net of discount | 182,507 | - | ||||
| Short-term non-secured debt | 60,000 | 404,509 | ||||
| Due to officer and related parties | 327,144 | 36,867 | ||||
| Total current liabilities | 2,018,843 | 1,378,903 | ||||
| Long term notes payable | 294,565 | 471,924 | ||||
| Total liabilities | 2,313,408 | 1,850,827 | ||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||
| Preferred stock Preferred A shares: Authorized: 20,000,000 shares, $0.001 par value, 7,300,000 issued and outstanding as of December 31, 2018 |
7,300 | - | ||||
| Preferred B shares: Authorized: 30,000,000
shares, $0.001 Par value, 27,347,563 issued and outstanding as of December 31, 2018 |
27,348 | - | ||||
| Common stock Authorized: 150,000,000 common shares, $0.001 par value, 72,300,000 issued and outstanding as of December 31, 2018 |
72,300 | - | ||||
| Additional paid-in capital | 3,709,081 | - | ||||
| Member contributions (draws) | - | (70,040 | ) | |||
| Accumulated deficit | (3,839,522 | ) | (374,121 | ) | ||
| Total stockholders’ equity (deficit) | (23,493 | ) | (444,161 | ) | ||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 2,289,915 | $ | 1,406,666 |
The accompanying notes are an integral part of these consolidated financial statements.
Galenfeha, Inc.
Consolidated Statements of
Operations
| January 29, 2018- | January 1, 2018- | Year Ended | |||||||
| December 31, 2018 | January 28, 2018 | December 31, 2017 | |||||||
| (Successor) | (Predecessor) | (Predecessor) | |||||||
| Revenues | $ | 3,335,330 | $ | 412,416 | $ | 1,938,529 | |||
| Less: Cost of Sales | 1,123,690 | 45,626 | 412,795 | ||||||
| Operating Expenses: | |||||||||
| General and administrative | 716,914 | 107,031 | 727,470 | ||||||
| Payroll expenses | 996,149 | 64,672 | 658,724 | ||||||
| Professional fees | 177,775 | 375 | 96,992 | ||||||
| Depreciation and amortization expense | 165,932 | 27,631 | 245,214 | ||||||
| Total operating expenses | 2,056,770 | 199,709 | 1,728,400 | ||||||
| Income (loss) from operations | 154,870 | 167,081 | (202,666 | ) | |||||
| Other (expense) income: | |||||||||
| Miscellaneous income | 15,902 | - | - | ||||||
| Realized loss on sale of investments | (21,959 | ) | - | - | |||||
| Unrealized loss on investments | (40,040 | ) | - | - | |||||
| Interest expense | (126,921 | ) | (9,969 | ) | (114,090 | ) | |||
| Gain on derivative instruments | 102,604 | - | - | ||||||
| Total other (expense) | (70,414 | ) | (9,969 | ) | (114,090 | ) | |||
| Net income (loss) | $ | 84,456 | $ | 157,112 | $ | (316,756 | ) | ||
| Net income per share, basis and diluted | $ | 0.00 | |||||||
| Weighted average number of common shares outstanding, basic and diluted | 72,078,099 |
The accompanying notes are an integral part of these consolidated financial statements.
Galenfeha, Inc.
Consolidated Statements of Equity (Deficit)
| Member | Preferred Series A | Preferred Series B | Common Stock | Additional | Total | |||||||||||||||||||||||||
| Contributions | Paid-in | Accumulated | Equity | |||||||||||||||||||||||||||
| (draws) | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||
| Balance - December 31, 2016 (Predecessor) | $ | 7,500 | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | (57,365 | ) | $ | (49,865 | ) | |||||||||||
| . | ||||||||||||||||||||||||||||||
| Member contributions (draws), net | (77,540 | ) | - | - | - | - | - | - | - | - | (77,540 | ) | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (316,756 | ) | (316,756 | ) | ||||||||||||||||||
| Balance - December 31, 2017 (Predecessor) | (70,040 | ) | - | - | - | - | - | - | - | (374,121 | ) | (444,161 | ) | |||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | 157,112 | 157,112 | ||||||||||||||||||||
| Balance - January 28, 2018 (Predecessor) | (70,040 | ) | - | - | - | - | - | - | - | (217,009 | ) | (287,049 | ) | |||||||||||||||||
| Balance - January 29, 2018 (Successor) | $ | - | 7,300,000 | $ | 7,300 | 27,347,563 | $ | 27,348 | 70,399,716 | $ | 70,399 | $ | 3,643,537 | $ | (3,923,978 | ) | $ | (175,394 | ) | |||||||||||
| Conversion debt to shares | - | - | - | - | - | 1,923,077 | 1,923 | 10,497 | - | 12,420 | ||||||||||||||||||||
| Repurchase and cancellation of common shares | - | - | - | - | - | (22,793 | ) | (22 | ) | (891 | ) | - | (913 | ) | ||||||||||||||||
| Derivative liability extinguished on conversion | - | - | - | - | - | - | - | 55,938 | - | 55,938 | ||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | - | 84,456 | 84,456 | ||||||||||||||||||||
| Balance - December 31, 2018 (Successor) | $ | - | 7,300,000 | $ | 7,300 | 27,347,563 | $ | 27,348 | 72,300,000 | $ | 72,300 | $ | 3,709,081 | $ | (3,839,522 | ) | $ | (23,493 | ) | |||||||||||
Galenfeha, Inc.
Consolidated Statements of Cash
Flows
| January 29, 2018- | January 1, 2018- | Year Ended | |||||||
| December 31, 2018 | January 28,2018 | December 31, 2017 | |||||||
| (Successor) | (Predecessor) | (Predecessor) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
| Net income (loss) | $ | 84,456 | $ | 157,112 | $ | (316,756 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||
| Depreciation and amortization | 165,932 | 27,631 | 245,214 | ||||||
| Gain on derivative instruments | (102,604 | ) | - | - | |||||
| Amortization for debt discounts on notes payable and convertible notes | 33,463 | - | - | ||||||
| Realized losses on investments | 21,959 | - | - | ||||||
| Unrealized losses on investments | 40,040 | - | - | ||||||
| Changes in operating assets and liabilities: | |||||||||
| Accounts receivable | 3,163 | (284,592 | ) | (533,837 | ) | ||||
| Due from related party | (4,000 | ) | 18,000 | (14,000 | ) | ||||
| Inventory | (164,978 | ) | - | - | |||||
| Prepaid expenses and other current assets | - | - | 10,183 | ||||||
| Accounts payable and accrued liabilities | 60,050 | 35,930 | 295,575 | ||||||
| Net cash provided by (used in) operating activities | 137,481 | (45,919 | ) | (313,621 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
| Repurchase and cancellation of common shares | (913 | ) | - | - | |||||
| Sale and purchases of investments, net | (96,069 | ) | - | - | |||||
| Purchase of property and equipment | (16,610 | ) | - | (125,485 | ) | ||||
| Cash assumed in acquisition of subsidiary | 171,703 | - | - | ||||||
| Net cash provided by (used in) investing activities | 58,111 | - | (125,485 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
| Proceeds from lines of credit | 218,030 | 627,147 | 1,118,868 | ||||||
| Payments on lines of credit | - | (378,897 | ) | (945,307 | ) | ||||
| Proceeds from other loans payable | - | - | 515,000 | ||||||
| Payments on non-secured debt | (305,948 | ) | - | (110,491 | ) | ||||
| Payments on notes payable | (288,396 | ) | (27,415 | ) | (174,932 | ) | |||
| Proceeds on liabilities due to officer and related parties | 615,000 | 35,000 | 69,692 | ||||||
| Payments on liabilities due to officer and related parties | (414,500 | ) | (38,561 | ) | (44,157 | ) | |||
| Proceeds on convertible notes payable | 180,000 | - | - | ||||||
| Principal payments on convertible debenture contracts | (21,840 | ) | - | - | |||||
| Payments on margin loan | (18,455 | ) | - | - | |||||
| Member draws | - | - | (77,540 | ) | |||||
| Net cash provided by (used in) financing activities | (36,109 | ) | 217,274 | 351,133 | |||||
| CHANGE IN CASH AND CASH EQUIVALENTS | 159,483 | 171,355 | (87,973 | ) | |||||
| Cash and cash equivalents at beginning of period | 22,162 | 348 | 88,321 | ||||||
| Cash and cash equivalents at end of period | $ | 181,645 | $ | 171,703 | $ | 348 | |||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |||||||||
| Cash paid for : | |||||||||
| Interest | $ | 95,405 | $ | 7,725 | $ | 77,045 | |||
| Income Taxes | $ | - | $ | - | $ | - | |||
| Non-Cash Transactions | |||||||||
| Common stock issued for debt conversion | $ | 12,420 | $ | - | $ | - | |||
| Derivative liability extinguished on conversion | $ | 55,938 | $ | - | $ | - | |||
| Fixed assets purchased through accounts payable | $ | - | $ | 51,853 | $ | - | |||
| Fixed assets purchased through notes payable | $ | - | $ | - | $ | 794,251 |
The accompanying notes are an integral part of these consolidated financial statements
Galenfeha, Inc.
Notes to Consolidated Financial
Statements
December 31, 2018 and 2017
NOTE 1 – 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 $1. In addition, the Company assumed $2,155,331 of scheduled liabilities.
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)
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:
Successor — relates to the combined entities financial periods and balance sheets succeeding the Acquisition; and 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. 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 |
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, 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 as of December 31, 2017 (Predecessor) and the period from January 1, 2018 through January 29, 2018 (Predecessor). 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 as of December 31, 2017 (Predecessor) and for the period from January 1, 2018 through January 28, 2018 (Predecessor)
The table below summarizes the impact on the affected periods:
| As of December 31, 2017 | |||||||||
| Consolidated Balance Sheet | (Predecessor) | ||||||||
| As Previously | Adjustment | As Adjusted | |||||||
| Reported | |||||||||
| Accounts receivable | $ | 537,337 | $ | (3,500 | ) | $ | 533,837 | ||
| Due from related parties | 12,000 | 2,000 | 14,000 | ||||||
| Inventory | 30,000 | (30,000 | ) | - | |||||
| Total current assets | 579,685 | (31,500 | ) | 548,185 | |||||
| Property and equipment, net of accumulated depreciation | 887,340 | (28,859 | ) | 858,481 | |||||
| Total Assets | 1,467,025 | (60,359 | ) | 1,406,666 | |||||
| Accounts payable and accrued liabilities | 237,613 | 71,356 | 308,969 | ||||||
| Note payable | 482,983 | 27,986 | 454,997 | ||||||
| Total current liabilities | 1,335,533 | 43,370 | 1,378,903 | ||||||
| Total liabilities | 1,807,457 | 43,370 | 1,850,827 | ||||||
| Accumulated deficit | (270,392 | ) | (103,729 | ) | (374,121 | ) | |||
| Total Stockholder’s equity (deficit) | (340,432 | ) | (103,729 | ) | (444,161 | ) | |||
| Total Liabilities and stockholders’ Equity (deficit) | 1,467,025 | (60,359 | ) | 1,406,666 | |||||
| January 1, 2018-January 28, 2018 | |||||||||
| Consolidated Statement of Operations | (Predecessor) | ||||||||
| As Previously | Adjustment | As Adjusted | |||||||
| Reported | |||||||||
| General and administrative | $ | 146,273 | $ | (39,242 | ) | $ | 107,031 | ||
| Payroll expenses | 66,910 | (2,238 | ) | 64,672 | |||||
| Depreciation and amortization | 20,355 | 7,276 | 27,631 | ||||||
| Total operating expenses | 233,913 | (34,204 | ) | 199,709 | |||||
| Income from operations | 132,877 | (34,204 | ) | 167,081 | |||||
| Rental income-related party | 3,000 | (3,000 | ) | - | |||||
| Interest expense | (7,725 | ) | (2,244 | ) | (9,969 | ) | |||
| Total other (expense) | (4,725 | ) | (5,244 | ) | (9,969 | ) | |||
| Net income | 128,152 | 28,960 | 157,112 | ||||||
| January 1, 2018-January 28, 2018 | |||||||||
| Consolidated Statement of Cash Flows | (Predecessor) | ||||||||
| As Previously | Adjustment | As Adjusted | |||||||
| Reported | |||||||||
| Cash Flows from Operating Activities | |||||||||
| Net income | $ | 128,152 | $ | 28,960 | $ | 157,112 | |||
| Depreciation and amortization | 20,355 | 7,276 | 27,631 | ||||||
| Due from related party | 17,000 | (1,000 | ) | 18,000 | |||||
| Accounts payable and accrued liabilities | 78,565 | (42,635 | ) | 35,930 | |||||
| Net cash used in operating activities | (40,520 | ) | (5,399 | ) | (45,919 | ) | |||
| Cash Flows from Financing Activities | |||||||||
| Payments on notes payable | (32,814 | ) | 5,399 | (27,415 | ) | ||||
| Net cash provided by financing activities | 211,875 | 5,399 | 217,274 | ||||||
NOTE 2 - GOING CONCERN
The accompanying 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. 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
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.
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.
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. Payment terms between invoicing and when payment is due are less than one year. As of December 31, 2018, 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 December 31, 2018 and 2017 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.
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:
| January 29, 2018- | Year Ended | ||||||||
| December 31, | January 1, 2018- | December 31, | |||||||
| 2018 | January 28, 2018 | 2017 | |||||||
| (Successor) | (Predecessor) | (Predecessor) | |||||||
| Pre and Post CCTV | $ | 693,183 | $ | 26,816 $ | 374,769 | ||||
| Point Repairs | 233,046 | - | 228,225 | ||||||
| Manhole Rehabilitation | 481,200 | 256,300 | 407,709 | ||||||
| Service Lateral Reconnect | 445,615 | 31,700 | 379,035 | ||||||
| Cosmic Service Lateral Lining | 1,482,286 | 97,600 | 548,791 | ||||||
| Total Revenue | $ | 3,335,330 | $ | 412,416 | $ | 1,938,529 |
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 period from January 29, 2018 through December 31, 2018 (Successor); $2,456,846 or 74% of our total revenue came from one customer and $634,816 or 19% came from one other customer.
For the period from January 1, 2018 through January 29, 2018 (Predecessor); $256,334 or 62% of our total revenue came from one customer and $136,937 or 33% came from one other customer. For the year ended December, 2017 (Predecessor); $898,014 or 46% of our total revenue came from one customer, $380,413 or 20% came from one customer, $347,622 or 18% came from one other customer and $198,656 or 10% came from one other customer.
CASH AND CASH EQUIVALENTS
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 December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the balance of the allowance for doubtful accounts was $0, respectively.
As of December 31, 2018 (Successor), $564,884 or 69% was from a single customer, and $155,159 or 19% was from another single customer. As of December 31, 2017 (Predecessor), $355,975 or 67% was from a single customer, and $119,201 or 22% was from another single customer.
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 three to ten years for furniture, fixtures, and equipment and forty years for improvements. Total depreciation expense related to property and equipment was $165,932 for the period from January 29, 2018 to December 31, 2018 (Successor), $27,631 for the period from January 1, 2018 to January 28, 2018 (Predecessor) and $245,214 for the year ended December 31, 2017 (Predecessor). 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.
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 $0 for the period from January 29, 2018 to December 31, 2018 (Successor), $0 for the period from January 1, 2018 to January 28, 2018 (Predecessor) and $8,324 for the year ended December 31, 2017 (Predecessor), respectively.
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. No deferred tax assets were recognized at December 31, 2018 (Successor).
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 COMMON SHARE
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 period from January 29, 2018 through December 31, 2018 (Successor).
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 December 31, 2018 (Successor) or December 31, 2017 (Predecessor) other than marketable securities (see note 5).
SHARE-BASED EXPENSES
FASB ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights.
Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non- employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In preparing the financial statements, management considered all new pronouncements through the date of the report.
In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this standard as of January 1, 2018. The adoption of this standard did not have a significant impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 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, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company adopted this standard on January 1, 2019, using the modified retrospective approach. The Company will recognized right of use assets and liabilities for any lease agreement with a lease term of greater than 12 months. The Company elected the package of practical expedients for transition, and the practical expedient to not recognize short term leases on the balance sheet.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This ASU applies to all entities that are required to present a statement of cash flows under Topic 230. The amendments provide guidance on eight specific cash flow issues and includes clarification on how these items should be classified in the statement of cash flows and is designed to help eliminate diversity in practice as to where items are classified in the cash flow statement. Furthermore, in November 2016, the FASB issued additional guidance on this Topic that
requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with earlier application permitted for all entities. The Company adopted this standard as of January 1, 2018. The adoption of this standard did not have a significant impact on the Company’s financial statements.
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.
Effective January 1, 2018, the Company adopted the provisions of ASU 2017-01 – “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides revised guidance to determine when an acquisition meets the definition of a business or alternatively should be accounted for as an asset acquisition. ASU 2017-01 requires that, when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset or group of similar identifiable assets does not meet the definition of a business and therefore is required to be accounted for as an asset acquisition. Transaction costs will continue to be capitalized for asset acquisitions and expensed as incurred for business combinations. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or results of operations.
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 $1. In addition, the Company assumed $2,155,331 of scheduled liabilities.
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, accountants 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 | $ | 171,703 | |
| Accounts receivable | 814,429 | ||
| Property and equipment | 882,703 | ||
| Goodwill | 286,497 | ||
| Total Assets Acquired | 2,155,332 | ||
| Assumption of scheduled liabilities | 2,155,331 | ||
| Net Assets Acquired | $ | 1 |
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.
Revenues and Net Income of Fleaux Solutions since the acquisition date included in the consolidated statements of operations are $3,335,330 and $127,903, respectively. There were no transaction costs incurred in connection with closing of the acquisition.
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.
| December 31, 2018 | December 31, 2017 | |||||
| (Successor) | (Predecessor) | |||||
| Manufacturing assets | $ | 354,278 | $ | 285,815 | ||
| Vehicles and trailers | 271,686 | 271,686 | ||||
| Computer software | 3,885 | 3,885 | ||||
| Capitalized leased equipment | 557,152 | 557,152 | ||||
| 1,187,001 | 1,118,538 | |||||
| Less accumulated depreciation | (453,622 | ) | (260,057 | ) | ||
| Property and equipment, net | $ | 733,379 | $ | 858,481 |
Depreciation expense related to property and equipment was $165,932, $27,631 and $245,214 for the period from January 29, 2018 through December 31, 2018 (Successor), the period from January 1, 2018 through January 28, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor), respectively.
NOTE 6 – INVESTMENTS
Marketable securities are accounted for on a specific identification basis. As of December 31, 2018, the Company held marketable securities with an aggregate fair value of $108,150. As of December 31, 2018, 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 Company recognized unrealized losses of $(40,040) for the period from January 29, 2018 through December 31, 2018 (Successor). The Company recognized realized losses of $(21,959) for the period from January 29, 2018 through December 31, 2018 (Successor).
The Company's assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 at 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 December 31, 2018 | $ | 108,150 | $ | - | $ | - | $ | 108,150 |
Margin loans- (Successor)
From January 29, 2018 through December 31, 2018, the Company raised a total of $18,455 from a margin loan associated with its brokerage account and repaid $18,455 during the same period. As of December 31, 2018, the company has a $0 balance in this margin loan account.
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 $173,561 as of December 31, 2017 (Predecessor). This line of credit was paid in full as of January 29, 2018.
The Company secured a line of credit (LOC #0221) of $500,000 on January 29, 2018 which is payable on demand. The line of credit is secured by all present and future inventory, all present and future accounts receivable, other receivables, contract rights, instruments, documents, notes, and all other similar obligation and indebtedness that may now and in the future be owed to the Company, and all general intangibles. The loan is also secured by a personal guarantee executed by the members of Fleaux Solutions, LLC including Michael Trey Moore, Christopher Ryan Marlowe, Ray S. Moore, Jr., and Frank Neal Richard. The balance on the line of credit was $321,061 on January 29, 2018. On December 31, 2018 (Successor), the balance due under the line of credit was $491,061. On February 4, 2019, the Company extended the maturity date of this line of credit to April 1, 2019. On April 9, 2019, the Company extended the maturity date of this line of credit to June 1, 2019.
The Company secured a second line of credit (LOC #0248) of $150,000 on January 29, 2018 which is payable and due on February 1, 2019. The line of credit is secured by all present and future inventory, all present and future accounts receivable, other receivables, contract rights, instruments, documents, notes, and all other similar obligation and indebtedness that may now and in the future be owed to the Company, and all general intangibles. The interest rate under this loan is the “Prime Rate” designated in the “Money Rates” section of the Wall Street Journal (the “Index”). The index currently is 5.500% per annum. Interest on the unpaid principal balance of this line will be calculated using a rate of 1.000 percentage points over the Index, resulting in an initial rate of 6.500% per annum. The Company withdrew $100,000 in funds from the line of credit on January 29, 2018 and paid loan origination and documentation of fees of $750 to bring the total outstanding line of credit balance to $100,750 on January 29, 2018. On December 31, 2018 (Successor), the balance due under the line of credit was $148,781. On February 4, 2019, the Company extended the maturity date of this line of credit to April 1, 2019. On April 9, 2019, the Company extended the maturity date of this line of credit to June 1, 2019.
Additionally, both lines of credit are secured by deposit accounts held at the Grantor’s institution which had cash balances of $179,987 and $0 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.
During the year ended December 31, 2018 a shareholder advanced the Company $300,000 on an unsecured, interest free basis which is due on demand. The Company also agreed to pay closing costs of $9,777, which were recorded as a debt discount and amortized during the period from January 29, 2018 through December 31, 2018 (Successor). The Company repaid $50,000 on these advances during the year ended December 31, 2018 bringing the balance to $259,777. The Company repaid an additional $25,000 in February 2019.
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 $197,500. The loan is unsecured and doesn’t carry an interest rate but does charge the Company an initial loan fee of $17,500, bringing the initial balance due under the loan to equal $215,000. The balance due under the loan was $60,000 and $215,000 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.
The Company assumed the debt of a Payment Rights Purchase and Sale Agreement executed between Fleaux Solutions, LLC & Everest Business Funding on October 12, 2017. The proceeds received under the loan totaled $200,000. This loan doesn’t carry an interest rate but does charge the Company an initial loan fee of $46,000. The loan is secured by credit card sales. Payments are drafted each business banking day from the Company’s bank account in the amount of $807 until the entire principal balance of $246,000 is paid in full. The outstanding balance on this note was $0 and $189,509 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.
The Company assumed the debt of a Cosmic Equipment loan in the amount of $142,598 between Fleaux Solutions, LLC and Business First Bank. The loan has an interest rate of 5.50% payable in thirty-six payments of $4,311 with the first payment due on January 20, 2018 and the final payment due December 20, 2020. This loan is secured with the 2016 Chevrolet DRW Express asset owned by the Company. The loan is also secured by a personal guarantee executed by the members of Fleaux Solutions, LLC including Michael Trey Moore, Christopher Ryan Marlowe, and Ray S. Moore, Jr. The outstanding balance on this loan was $97,716 and $142,598 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.
The Company assumed the debt of a loan in the amount of $65,000 between Fleaux Solutions, LLC and KDC Pipeline, which is controlled by a friend of an officer of Fleaux Solutions. The loan is unsecured, non-interest bearing, and payable on demand. The outstanding balance on this loan was $60,000 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.
The Company assumed the debt of two secured automobile loans of $53,311 a piece relating to the purchase of two Chevrolet Trucks executed between Fleaux Solutions, LLC & General Motors Financial on March 29, 2017. Both notes carry an interest rate of 7.75%, payable in payments of $928 for 72 months. The outstanding balance on each note was $40,888 and $47,918 as of December 31, 2018 and December 31, 2017, respectively.
The Company assumed the debt of a secured automobile loan in the amount of $53,075 between Fleaux Solutions, LLC & TD Auto Finance executed on September 28, 2017. The note has an interest rate of 5.89%, payable in payments of $1,021 for 60 months. The outstanding balance on this note was $42,158 and $50,864 as of December 31, 2018 and December 31, 2017, respectively.
The Company assumed the debt of a secured JET trailer loan in the amount of $43,618 between Fleaux Solutions, LLC & Western Equipment Finance executed on May 4, 2017. The note has an interest rate of 7.75%, payable in payments of $1,105 for 36 months, with $3,838 payable in advance. The outstanding balance on this note was $18,785 and $32,045 as of December 31, 2018 and December 31, 2017, respectively.
The Company assumed the debt of a secured excavator equipment loan in the amount of $66,788 between Fleaux Solutions, LLC & Takeuchi Financial Services executed on August 23, 2017. The note has an interest rate of 0.00%, payable in payments of $1,113 for 60 months. The outstanding balance on this note was $50,091 and $63,449 as of December 31, 2018 and December 31, 2017, respectively.
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 48 months and requires monthly payments of $1,063, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $60,415. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $43,610 and $49,408, respectively.
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 48 months and requires monthly payments of $2,118, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $122,188. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $86,617 and $105,623, respectively.
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 36 months and requires monthly payments of $888, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $31,236. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $20,912 and $26,262, respectively.
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 24 months and requires monthly payments of $986, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $25,175. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $11,938 and $20,016, respectively.
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 12 months and requires monthly payments of $17,770, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $215,136. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $35,364 and $187,538, respectively.
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 36 months and requires monthly payments of $2,645, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $102,503. The equipment purchased under this capital lease was acquired from Osprey Oil & Gas, a related party Company with common ownership between the owners of Fleaux Solutions, LLC. As of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $62,442 and $89,547, respectively.
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, convertible notes payable, short-term non-secured debt and amounts due to officer and related parties:
| 2019 | $ | 1,343,084 | |
| 2020 | 204,675 | ||
| 2021 | 44,028 | ||
| 2022 | 38,554 | ||
| 2023 and thereafter | 7,308 | ||
| Total current notes payable | $ | 1,637,649 |
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 $40,000. In addition, the Company paid legal fees of $3,000 associated with the entering into this agreement and thus recognized a liability of $43,000 associated with the Power Up Note One. The Company recognized a discount of $3,000 on fees paid upon entering into this agreement. There were no additional borrowings under the Power Up Note One during the twelve months ended December 31, 2017. The Power Up Note carries an interest rate of 12% per annum from the Issue Date until the principal amount becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on the Power Up Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid. Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. Since no payments were made on this note on or before 180 days from the effective date of the note, accrued interest due was recorded in the amount of $4,029 on December 10, 2017. Interest paid under the Power Up Note One totaled $0 at December 31, 2017. The note was declared in default on November 20, 2017 with a default penalty of $21,500 added onto the principal. The default penalty was accounted for as interest expense as of December 31, 2017.
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 60% of the lowest trade price in the 15 trading days previous to the conversion, additional discounts may apply in the case that conversion shares are not deliverable or if the shares are ineligible. Power Up Lending Group, Ltd. shall have the right to convert at any time during the period beginning on the date which is one hundred eighty days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, each in respect of the remaining outstanding principal amount of this Note. As a result of the derivatives calculation (see Note 9) an additional discount of $53,471 was recorded. On December 13, 2017, Power Up Lending converted $8,000 of the Power Up Note One into a total of 740,741 shares of Common Stock at a fair value of $0.0108 per share. On December 20, 2017, Power Up Lending converted $13,000 of the Power Lending Note One into a total of 2,166,667 shares of Common Stock at a fair value of $0.006 per share. On January 16, 2018, Power Up Lending converted $15,000 of the Power Up Note One into a total of 2,500,000 shares of Common Stock at a fair value of $0.006 per share. On January 29, 2018, Power Up Lending converted $15,000 of the Power Lending Note One into a total of 1,923,077 shares of Common Stock at a fair value of $0.0078 per share. On January 31, 2018, Power Up Lending converted $12,240 of the Power Up Note One into a total of 1,569,231 shares of Common Stock at a fair value of $0.0078 per share. On February 5, 2018, Power Up Lending converted $2,580 of the Power Lending Note One into a total of 492,308 shares of Common Stock at a fair value of $0.0078 per share.
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 $33,000. The maturity date is March 20, 2018.
On July 5, 2017 the Company received consideration of $30,000. In addition, the Company paid legal fees of $3,000 associated with the entering into this agreement and thus recognized a liability of $33,000 associated with the Power Up Note Two. The Company recognized a discount of $3,000 on fees paid upon entering into this agreement. There were no additional borrowings under the Power Up Note Two during the twelve months ended December 31, 2017. The Power Up Note Two carries an interest rate of 12% per annum from the Issue Date until the principal amount becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on the Power Up Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid. Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. The Company recognized accrued interest due under the Power Up Note Two totaling $2,800.
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 60% of the lowest trade price in the 15 trading days previous to the conversion, additional discounts may apply in the case that conversion shares are not deliverable or if the shares are ineligible. Power Up Lending Group, Ltd. shall have the right to convert at any time during the period beginning on the date which is one hundred eighty days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, each in respect of the remaining outstanding principal amount of this Note. As a result of the derivatives calculation (see Note 8) an additional discount of $27,200 was recorded. On February 5, 2018, Power Up Lending converted $11,160 of the Power Lending Note One into a total of 1,430,769 shares of Common Stock at a fair value of $0.0078 per share. On February 8, 2018, the Company paid Power Up Lending $40,000 which extinguished any remaining balance due under the July 2017 note.
The principal balance due under the Power Up Note Two was $33,000 at December 31, 2017.
July 2018 Note
On July 10, 2018, the company wrote a convertible promissory note for $133,000, of which the company received proceeds of $130,000. The note is due on July 10, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.
August 2018 Note
On August 22, 2018, the company wrote a convertible promissory note for $53,000, of which the company received proceeds of $50,000. The note is due on August 22, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.
The July and August 2018 notes were considered for derivative liability treatment. The Company concluded that no derivates existed as of the issuance date or December 31, 2018.
Amortization of the costs associated with these notes totaled $2,507 for the year ended December 31, 2018.
NOTE 9 – DERIVATIVE LIABILITY
During the year ended December 31, 2018, 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 years ended December 31, 2018 and 2017 is as follows:
| January 29, 2018 | $ | 158,542 | |
| Derivative liability extinguished on conversion | (55,938 | ) | |
| Fair value mark – to market adjustment | (102,604 | ) | |
| December 31, 2018 fair value | $ | - |
The gain on the change in fair value of derivative liabilities for the period from January 29, 2018 through December 31, 2018 totaled $102,604.
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 year ended December 31, 2018 (Successor):
| Exercise prices | See Note 8 | ||
| Expected dividends | 0% | ||
| Expected volatility | 87%-400% | ||
| Expected term | See Note 8 | ||
| Discount rate | 29%-1.39% |
NOTE 10 - SHAREHOLDERS’ EQUITY
PREFERRED STOCK
The authorized stock of the Company consists of 20,000,000 preferred A shares and 30,000,000 preferred B shares with a par value of $0.001.
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.
During 2016, four officers and directors of the Company exchanged 27,347,563 common shares for 27,347,563 Series B preferred shares. During the first quarter of 2017, one officer and one director exchanged 7,568,537 common shares for 7,568,537 Series A preferred shares. During the second quarter of 2017, one officer converted 818,537 of preferred stock Series A back to same number of common stock. During the third quarter of 2017, one related party exchanged 550,000 common shares for 550,000 shares of preferred stock Series A.
As of December 31, 2018, 7,300,000 shares of the Company’s preferred stock Series A were issued and outstanding. As of December 31, 2018, 27,347,563 shares of the Company’s preferred stock Series B were issued and outstanding.
COMMON STOCK
The authorized stock of the Company consists of 150,000,000 common shares with a par value of $0.001. As of December 31, 2018, 72,300,000 shares of the Company’s common stock were issued and outstanding.
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.
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 $15,000 of the June 2017 Power Up Lending Note One into a total of 2,500,000 shares of Common Stock at a fair value of $0.006 per share.
On January 29, 2018, Power Up Lending converted $15,000 of the June 2017 Power Up Lending Note One into a total of 1,923,077 shares of Common Stock at a fair value of $0.0078 per share.
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 $12,240 of the June 2017 Power Up Lending Note One into a total of 1,569,231 shares of Common Stock at a fair value of $0.0078 per share.
On February 5, 2018, Power Up Lending converted $2,580 of the June 2017 Power Up Lending Note One into a total of 492,308 shares of Common Stock at a fair value of $0.0078 per share.
On February 5, 2018, Power Up Lending converted $11,160 of the July 2017 Power Up Lending Note One into a total of 1,430,769 shares of Common Stock at a fair value of $0.0078 per share
On February 15, 2018, the Company bought back 22,793 shares of common stock through a brokerage account for a total price of $913. These shares have been cancelled and are available to be issued.
On January 29, 2018, a Director of the company sold 3,000,000 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.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company assumed two lease agreements with respect to the acquisition of Fleaux Solutions, LLC for office/warehouse facilities and yard storage in Louisiana. The office/warehouse lease is for 36 months beginning August 1, 2017. The rent due under the office/warehouse facility lease is as follows:
| August 2017 – January 2018 (Months One Through Six) | $5,000 per month |
| February 2018 – July 2018 (Months Seven Through Twelve) | $6,000 per month |
| August 2018 – January 2019 (Months Thirteen Through Eighteen) | $7,000 per month |
| February 2019 – July 2020 (Months Nineteen Through Thirty-Six) | $8,000 per month |
Future minimum lease payments are as follows:
| Year Ended | Amount | ||
| 2019 | $ | 95,000 | |
| 2020 | 56,000 | ||
| 2021 | - | ||
| 2022 | - | ||
| 2023 | - | ||
| $ | 151,000 |
The yard storage lease is $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 $4,000, $2,000 and $14,000 during the period from January 1, 2018 through January 28, 2019 and the year ended December 31, 2017. The income was recognized as a component of selling, general and administrative expenses. The Predecessor received cash payment of $20,000 from Fleaux Services in January 2018.
Additionally, the Company leases 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 leases are month to month.
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 $100,000 in exchange for a note that has a fixed repayment of $110,000. The note is unsecured, bears no interest, and can be repaid by the Company when the funds become available. The note can be renegotiated between Galenfeha and Mr. Ketner if both parties agree to the terms. There were no principal repayments on the note for the twelve months ending December 31, 2016, and the principal balance due under the note as of December 31, 2016 was $110,000. Principal repayments made under the note for the twelve months ending December 31, 2017 totaled $84,000, and the principal balance due under the note as of December 31, 2017 (Predecessor) was $26,000. On January 29, 2018, Mr. Ketner advanced the Company an additional $20,000 under the terms of this note for a fixed repayment of $21,000, bringing the total balance due under the terms of this note to $47,000 as of January 29, 2018. Principal repayments made under the note for the period from January 29, 2018 through December 31, 2018 (Successor) totaled $47,000, and the principal balance due under the note as of December 31, 2018 (Successor) was $0.
The Company subleases a portion of its office space to Fleaux Services of Louisana, LLC, a related party. The Company recognized rental income of $4,000, $2,000 and $14,000 for the period from January 29, 2018 through December 31, 2018 (Successor), the period from January 1, 2018 though January 28, 2018 (Predecessor) and for the year ended December 31, 2017 (Predecessor), respectively. As of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the Company was owed $0 and $14,000, respectively, by Fleaux Services.
During the year ended December 31, 2017 the Predecessor received advances from officers of $69,692, and made repayments of $44,157. As of December 31, 2017, the Company owed these officers $36,867. The Predecessor received an additional $35,000 from one officer during the period from January 1, 2018 thorough January 28, 2018 (Predecessor). During the period from January 29, 2018 through December 31, 2018, the Company received proceeds of $615,000 from officers and related parties of the Company, and made payments of $414,500. The Company incurred origination fees of $9,777 related to one of these loans, which was recorded as debt discount and fully amortized during the period from January 29, 2018 to December 31, 2018 (Successor). As of December 31, 2018, the Company owed $327,144 to these related parties.
On January 29, 2018, the CEO in a private transaction, sold 1,000,000 shares of preferred stock Series B to David Leimbrook, the Chief Financial Officer of Fleaux Services, LLC and an additional 2,000,000 shares of preferred stock Series B to Christopher Ryan Marlowe, the Chief Operating Officer of Fleaux Services, LLC and an affiliate of Fleaux Solutions, LLC. The private shares were sold for cash consideration of $30,000.
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
During the period from January 29, 2018 through December 31, 2018 (Successor), the Company received $15,000 in royalty income from Fleaux Services, LLC relating to the sale of Galenfeha-style batteries. Mr. Trey Moore is the President/CEO of Fleaux Services and Fleaux Solutions, and also is a Director of Galenfeha, Inc. The royalty income is included in miscelleanous income in the consolidated statements of operations.
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 – INCOME TAX
We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced cumulative operating losses since inception. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forward, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the period March 14, 2013 (date of inception) through December 31, 2018 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the consolidated balance sheet. The Company is in the process of filing appropriate returns for the Company.
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.
The component of the Company’s deferred tax assets as of December 31, 2018 and 2017 are as follows:
| December 31, | December 31, | |||||
| 2018 | 2017 | |||||
| Deferred tax asset | $ | 393,000 | $ | - | ||
| Valuation allowance | (393,000 | ) | - | |||
| Net deferred tax asset | $ | - | $ | - |
The approximate net operating loss carry forward was approximately $1,872,000 as of December 31, 2018 and will start to expire in 2033. The Company did not pay any income taxes during 2018 or 2017.
NOTE 15 – SUBSEQUENT EVENTS
During the first quarter of 2019, a total of 15,347,563 shares of Preferred B stock were exchanged into common shares, and a total of 12,000,000 shares of Preferred B stock were exchanged into shares of Preferred A stock. The following table outlines the holdings of officers after exchanging either all or some of their preferred series of stock for common stock.:
| Name and Address of | Amount and Nature of | ||
| Title of Class | Beneficial Owner | Beneficial Ownership | Percent of Class |
| Common | Lucien Marioneaux, Jr. | 12,205,963 | 12.7% |
| Common | Trey Moore | 800,000 | Less than 1% |
| Common | LaNell Armour | 2,341,600 | 2.4% |
| Officers and Directors as a Group | 15,447,563 | 16.1% | |
| (4 persons) | |||
| Preferred – Series A | Trey Moore | 9,000,000 | 46.6% |
| Preferred – Series A | Ryan Marlowe | 2,000,000 | 10.4% |
| Preferred – Series A | James Ketner | 6,750,000 | 35.05% |
| Officers and Directors as a Group | 17,750,000 | 92.0% | |
| (4 persons) |
Subsequent to December 31, 2018, the Company issued 8,296,653 shares of common stock pursuant to conversion of debt related to the conversion of $133,000 in principal of the July 2018 convertible note with PowerUp Lending.
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) during the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are not effective, due to the deficiencies in our internal control over financial reporting described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of the assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting during the year ended December 31, 2018. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. (2013) Based on our assessment, as of December 31, 2018, our management has concluded that our internal controls over financial reporting were not operating effectively. Management has identified the following material weaknesses in our internal control over financial reporting as of December 31, 2018:
| 1. |
We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over our financial statements. Currently the Board of Directors acts in the capacity of the Audit Committee, consisting of two members, one member who is not independent of management and lacks sufficient financial expertise for overseeing financial reporting responsibilities. | |
| 2. |
Insufficient documentation of financial statement preparation and review procedures - We employ policies and procedures in reconciliation of the financial statements and the financial information based on which the financial statements are prepared, however, the controls and policies we employ are not sufficiently documented. | |
| 3. |
We did not maintain proper segregation of duties for the preparation of our financial statements – During the year ended December 31, 2018 the majority of the preparation of financial statements was carried out by one person. This has resulted in several deficiencies including: |
| a. |
Significant, non-standard journal entries were prepared and approved by the same person, without being checked or approved by any other personnel. | |
| b. |
Lack of control over preparation of financial statements, and proper application of accounting policies. |
| 4. |
We lack sufficient information technology controls and procedures – As of December 31, 2018, we lacked a proper data backup procedure, and while backup did take place in actuality, we believe that it was not regulated by methodical and consistent activities and monitoring. |
The foregoing material weaknesses identified in our internal control over financial reporting were identified by our external consultants responsible for the preparation of our financial reporting package. The aforementioned material weaknesses did not impact our financial reporting or result in a material misstatement of our financial statements.
As of December 31, 2018 we have not taken action to correct the material weaknesses identified in our internal control over financial reporting. Once we have sufficient personnel available our Board of Directors, in connection with the aforementioned weaknesses, will implement the following remediation measures:
| 1. | Our Board of Directors will nominate an audit committee and audit committee financial expert. |
| 2. |
We will appoint additional personnel to assist with the preparation of our financial statements; which will allow for proper segregation of duties, as well as additional manpower for proper documentation. |
| 3. |
We will engage in a thorough review and restatement of our information technology control procedures, in addition to procurement of all hardware and software that will enable us to maintain proper backups, access, control etc. |
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. We are not required to provide an attestation report by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during the last quarter of our fiscal year ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B – OTHER INFORMATION
None
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The board of directors elects our executive officers annually. A majority vote of the directors who are in office is required to fill vacancies. Our directors are elected for the term of one year, and hold office until his successor is elected and qualified, or until his earlier resignation or removal. Our officers are appointed by our board of directors and hold office until removed by the board. Our directors and executive officers are as follows:
| Name | Age | Position | Director since: |
| James Ketner | 53 | President/CEO/Chief Financial
Officer/Director |
January 1, 2017 |
| Lucien Marioneaux | 47 | Director and Former President/CEO/Chief Financial |
Inception |
| Trey Moore | 48 | Director | Inception |
| LaNell Armour | 54 | Director/Secretary/Treasurer | Inception |
James Ketner – Chairman/Chief Executive Office - Mr. Ketner has over 28 years of experience as a Director and Chief Executive Officer of public and non-public corporations. Much of his professional career has been spent as a contract consulting engineer for Fortune 500 multinational companies, building a successful track record in directing public companies, securities law, domestic and international regulatory agencies, operations streamlining, maximizing productivity, and directing companies to achieve record profitability through increased efficiency and productivity with state of the art technology. Mr. Ketner is a resourceful decision-maker who combines strong leadership and organizational skills with the ability to direct programs throughout the design and manufacturing processes, utilizing his extensive experience and expertise in high tech engineering and manufacturing environments. Mr. Ketner began his career as a Numeric Control programmer at General Dynamics. In 1991, Mr. Ketner embarked on his own as a consultant, and has since done contractual consulting work for General Dynamics, Pratt and Whitney, Boeing, Lockheed, Daimler Chrysler, Fiat, Honda Research and Development, Rockwell, Sikorsky Aircraft, Embraer SP, and Dassault/Falcon Jet. Mr. Ketner has traveled extensively and is well versed in conducting business in North and South America.
LaNell Armour – Director/Secretary/Treasurer – Ms. Armour has had a twenty-five year career in public relations, communications, and education. Her experience in public relations will provide a firm foundation for her primary responsibilities in investor relations and corporate communications. Ms. Armour was a senior faculty member at the Music Institute of North Texas from August 2010 to August 2014. She joined Dallas Chamber Music in 2010 as General Manager, and was named Executive Director on June 1, 2012 and continued to serve until May 2013. Prior to Dallas Chamber Music, Ms. Armour spent eight years, from 2001 through 2008 as the Public Relations Manager for the world-renowned Chicago Symphony Orchestra as Public Relations Manager. From 1999 to 2001, Ms. Armour served as the Public Relations Manager for the Ravinia Festival in Highland Park, Illinois. Ms. Armour became a writer, then editor at “Clavier” magazine in Chicago from 1996 through 1999. Ms. Armour earned a Bachelor of Music degree in Piano Performance with a minor in English from The University of Tennessee.
Trey Moore – Director – Mr. Moore has over 24 years of experience as a senior level executive in the oil and gas industries. He worked as the Manager of the Eastern Division of J-W Measurement Company, where he contributed to increasing revenues from 6M to 140M over the course of 13 years. He also managed the operations of Eagle Oil, an oil and gas operator in Texas and Louisiana. Mr. Moore is the co-founder and Chief Executive Officer of Fleaux Services of Louisiana. His successful track record of executing new business strategies and developing new technologies, along with his vast experience, has given Mr. Moore an expansive understanding of the needs for better engineered products and services. Considered to be one of the most proficient, driven individuals in the Industry, Mr. Moore is also a veteran of the United States Marine Corps.
Lucien Marioneaux, Jr. – Director – Mr. Marioneaux has enjoyed a 15-year legal career throughout the state of Louisiana. He previously held the position of Senior Director of Security, Risk Management and Regulatory Compliance for L’Auberge du Lac Casino Resort, directing all operations within those departments. Mr. Marioneaux is active in the Louisiana Bar Association, the Shreveport Bar Association, the DeSoto Parish Bar Association, the Louisiana Casino Association and the Louisiana District Attorney’s Association, He has served as co-chair of the Southwest Chamber of Commerce’s Governmental Affairs Committee and was a visiting professor for McNeese State University, where he taught “The Legal Environment of Business.” Board Meeting Attendance: During fiscal 2018, our board of directors did not hold any meetings.
Board Committees
We do not have standing audit, nominating and compensation committees. We believe our board is sufficiently small that the entire board can consider matters that would otherwise be considered by such committees.
Stockholder Nominations and Communications
Our board of directors does not have a policy governing nominations of directors by stockholders. We do not have a process by which stockholders may communicate with the board of directors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Officers, directors, and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us, all reports under Section 16(a) required to be filed by our officers and directors and greater than ten percent beneficial owners were timely filed as the date of this filing.
ITEM 11 – EXECUTIVE COMPENSATION
Executive Compensation
We do not have employment or executive compensation agreements with our executive officers. Our board of directors approves annual compensation which is subject to change. The cash compensation amounts set forth in the following table reflects the amounts approved and actually paid.
Summary Compensation Table
| year | Salary($) | Total($) | |||||||
| KTNR, Inc. | 2018 | 42,000 | 42,000 | ||||||
| KTNR, Inc. | 2016 | 8,000 | 8,000 | ||||||
| LaNell Armour, | 2016 | 32,500 | 32,500 | ||||||
| Secretary/Treasurer | |||||||||
| LaNell Armour, | |||||||||
| Secretary/Treasurer | 2017 | 5,000 | 5,000 |
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial shareholdings of our directors, officers and our directors and executive officers as a group and persons who beneficially hold five percent or more of our common stock, as of December 31, 2018, with the computation being based upon 34,647,563 shares of preferred stock outstanding and 72,300,000 shares of common stock being outstanding. Each person has sole voting and investment power with respect to the shares of common stock shown and all ownership is of record and beneficial. The address of our directors and officers is our address.
| Title of Class | Name and Address | Amount and Nature of | Percent of Class |
| of Beneficial | Beneficial Ownership | ||
| Owner | |||
| Preferred – Series B | Lucien Marioneaux, Jr. | 12,205,963 | 44.6% |
| Preferred – Series B | Trey Moore | 9,800,000 | 35.8% |
| Preferred – Series B | LaNell Armour | 2,341,600 | 8.6% |
| Preferred – Series B | James Ketner | 3,000,000 | 11% |
| Preferred – Series A | James Ketner | 6,750,000 | 92.5% |
| Officers and Directors as a Group (4 persons) |
34,097,563 | 98.4% |
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
On November 4, 2016, Mr. James Ketner, Galenfeha’s Chairman and CEO made a cash contribution to the Company in the amount of $100,000 in exchange for a note that has a fixed repayment of $110,000. The note is unsecured, bears no interest, and can be repaid by the Company when the funds become available. The note can be renegotiated between Galenfeha and Mr. Ketner if both parties agree to the terms. There were no principal repayments on the note for the twelve months ending December 31, 2016, and the principal balance due under the note as of December 31, 2016 was $110,000. Principal repayments made under the note for the twelve months ending December 31, 2017 totaled $84,000, and the principal balance due under the note as of December 31, 2017 (Predecessor) was $26,000. On January 29, 2018, Mr. Ketner advanced the Company an additional $20,000 under the terms of this note for a fixed repayment of $21,000, bringing the total balance due under the terms of this note to $47,000 as of January 29, 2018. Principal repayments made under the note for the period from January 29, 2018 through December 31, 2018 (Successor) totaled $47,000, and the principal balance due under the note as of December 31, 2018 (Successor) was $0.
The Company subleases a portion of its office space to Fleaux Services of Louisana, LLC, a related party. The Company recognized rental income of $4,000, $2,000 and $14,000 for the period from January 29, 2018 through December 31, 2018 (Successor), the period from January 1, 2018 though January 28, 2018 (Predecessor) and for the year ended December 31, 2017 (Predecessor), respectively. As of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the Company was owed $0 and $14,000, respectively, by Fleaux Services.
During the year ended December 31, 2017 the Predecessor received advances from officers of $69,692, and made repayments of $44,157. As of December 31, 2017, the Company owed these officers $36,867. The Predecessor received an additional $35,000 from one officer during the period from January 1, 2018 thorough January 28, 2018 (Predecessor). During the period from January 29, 2018 through December 31, 2018, the Company received proceeds of $615,000 from officers and related parties of the Company, and made payments of $414,500. The Company incurred origination fees of $9,777 related to one of these loans, which was recorded as debt discount and fully amortized during the period from January 29, 2018 to December 31, 2018 (Successor). As of December 31, 2018, the Company owed $327,144 to these related parties. The Company repaid an additional $25,000 in February 2019.
During the period from January 29, 2018 through December 31, 2018 (Successor), the Company received $15,000 in royalty income from Fleaux Services, LLC relating to the sale of Galenfeha-style batteries. Mr. Trey Moore is the President/CEO of Fleaux Services and Fleaux Solutions, and also is a Director of Galenfeha, Inc.
The Predecessor subleased a portion of the office space to Fleaux Services of Louisiana, LLC, a related party. The Predecessor recognized rental income of $4,000, $2,000 and $14,000 during the period from January 29, 2018 through December 31, 2018 (Successor) January 1, 2018 through January 28, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor). The income was recognized as a component of selling, general and administrative expenses. The Predecessor received cash payment of $20,000 from Fleaux Services in January 2018.
ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth amounts we have been billed with respect to 2018 and 2017 for certain services provided by our independent accountant.
| Service | 2018 | 2017 | ||||
| Audit | $ | 35,700 | $ | 44,298 | ||
| Audit-related fees | $ | - | - | |||
| Tax compliance, tax advice and tax planning | $ | - | - | |||
| All other services | $ | - | 13,849 |
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
*Previously filed and incorporated by reference. The following documents are included herein:
| 101.INS ** XBRL Instance Document |
| 101.SCH** XBRL Taxonomy Extension Schema Document |
| 101.CAL ** XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF ** XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB** XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE ** XBRL Taxonomy Extension Presentation Linkbase Document |
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of annual report 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 Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 21st day of May 2019.
GALENFEHA, INC.
/s/ Trey Moore
Trey Moore
President/Chief Executive Officer, Principal Financial Officer,
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
| Signature | Title | Date |
| /s/ James Ketner | ||
| James Ketner | Chairman | May 21, 2019 |
| /s/ Trey Moore | Director, President and Chief Executive Officer | |
| Trey Moore | (Principal Financial Officer, Principal Accounting Officer) | May 21, 2019 |
| /s/ LaNell Armour | ||
| LaNell Armour | Secretary/Treasurer/Director | May 21, 2019 |
| /s/ Lucien Marioneaux, Jr. | ||
| Lucien Marioneaux, Jr. | Director | May 21, 2019 |