NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
NOTE 1 - ORGANIZATION
Organization and Business
Global Arena Holding, Inc. (formerly, “Global Arena Holding Subsidiary Corp.”) (“GAHI”), was formed in February 2009, in the state of Delaware. GAHI and its subsidiaries (the “Company”) was previously a financial services firm and currently is focusing on the following businesses through these subsidiaries:
On February 25, 2015, Global Election Services, Inc. (“GES”), a wholly owned subsidiary was incorporated in the State of Delaware. GES provides comprehensive technology-enabled election services primarily for organized labor associations.
On May 20, 2015, the Company incorporated a wholly owned subsidiary in the State of Delaware called “GAHI Acquisition Corp.” This entity is to be the merger subsidiary for the potential acquisition of Blockchain Technologies Corp.
Global Arena Investment Management LLC (“GAIM”), a wholly owned subsidiary, provided investment advisory services to its clients. GAIM was formally registered with the SEC as an investment advisor. This subsidiary is currently inactive. The Company plans to close GAIM in 2017.
Global Arena Commodities Corporation (“GACOM”), which is 100% owned by GAHI, ceased all operations in 2014 and the Company plans to close GACOM in 2017.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the financial condition of the Company and its operating results for the respective periods. The condensed consolidated balance sheet at December 31, 2016 has been derived from the Company's audited consolidated financial statements. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission. The results for the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
Going Concern
8
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates the continuation of the Company as a going concern. The Company has generated recurring losses and cash flow deficits from its continuing operations since inception and has had to continually borrow to continue operating. In addition, with the sale of Global Arena Capital Corp. in August 2014, which was the Company’s principal operating business, the Company’s continuing operations are insufficient to support its ongoing activities. In addition, certain of the Company’s debt went into default and required extensions and adjustments to previously issued warrants and conversion prices. Certain debt continues to be in default as of September 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The continued operations of the Company are dependent upon its ability to raise additional capital, obtain additional financing and/or acquire or develop a business that generates sufficient positive cash flows from operations. In May, 2015, the Company entered into an agreement and plan of merger with Blockchain Technologies Corporation (“BTC”), which holds provisional patents and intellectual property for creating a new Blockchain technology. In October, 2015, the Company acquired 10% of the outstanding equity in BTC. The management of the Company is also in negotiations with other companies it believes could be beneficial to the Company’s operations. The Company continues to raise funds from the issuance of additional convertible promissory note. Management is hopeful that with its new focus on business acquisitions and their ability to raise additional funds that the Company should be able to continue as a going concern.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of GAHI and its wholly-owned and majority owned subsidiaries, GES, GAHI Acquisition Corp., GAIM, and GACOM. All significant intercompany accounts and transactions have been eliminated in consolidation.
Basic and Diluted Earnings (Loss) Per Share
Earnings per share is calculated in accordance with the ASC 260-10, Earnings Per Share. Basic earnings-per-share is based upon the weighted average number of common shares outstanding. Diluted earnings-per-share is based on the assumption that all dilutive convertible notes, stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price
9
during the period. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive.
|
September 30,
|
|
2017
|
|
2016
|
|
|
|
|
Options
|
3,000,000
|
|
3,000,000
|
Warrants
|
325,464,864
|
|
78,670,263
|
Convertible notes
|
409,475,548
|
|
461,761,670
|
Total
|
737,940,412
|
|
543,431,933
|
Management 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 certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates reflected in the consolidated financial statements include, but are not limited to, share-based compensation, and assumptions used in valuing derivative liabilities. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Convertible Debt
Convertible debt is accounted for under FASB ASC 470, Debt – Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants issued with the convertible instruments using the Black-Scholes valuation method, using the same assumptions used for valuing stock options, except that the contractual life of the warrant is used.
Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis. The allocated fair value of the BCF and warrants are recorded as a debt discount and is accreted over the expected term of the convertible debt as interest expense.
The Company accounts for modifications of its embedded conversion features in accordance with the ASC which requires the modification of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent recognition of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment.
10
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company uses the Black-Scholes-Merton model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Revenue Recognition
The Company’s revenue recognition policies comply with SEC revenue recognition rules and the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-10-S99. The Company earns revenues through various services it provides to its clients. GES’s income is recognized at the presentation date of the certification of the election results. The payments received in advance are recorded as deferred revenue on the balance sheet. Should an election not proceed, all non-refundable deferred revenue will be recognized as revenue.
Share-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates.
Fair Value of Financial Instruments
FASB ASC 820,
Fair Value Measurement
defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
Fair Value Measurements
11
The Company applies the provisions of ASC 820-10,
Fair Value Measurements and Disclosures.
ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
|
·
|
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
·
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Cash, accounts receivable, cash overdraft, accounts payable and accrued expenses and deferred revenue
– The carrying amounts reported in the consolidated balance sheets for these items are a reasonable estimate of fair value due to their short term nature.
Promissory notes payable and convertible promissory notes payable
– Promissory notes payable and convertible promissory notes payable are recorded at amortized cost. The carrying amount approximates their fair value.
The Company uses Level 2 inputs for its valuation methodology for the beneficial conversion feature and warrant derivative liabilities as their fair values were determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
The following table presents the Company’s assets and liabilities required to be reflected within the fair value hierarchy as of September 30, 2017 and December 31, 2016.
|
|
Fair Value
|
|
Fair Value Measurements at
|
|
|
As of
|
|
September 30, 2017
|
Description
|
|
September 30, 2017
|
|
Using Fair Value Hierarchy
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature
|
$
|
4,867,496
|
$
|
-
|
$
|
4,867,496
|
$
|
-
|
Warrant derivative
|
|
1,864,800
|
|
|
|
1,864,800
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
6,732,296
|
$
|
-
|
$
|
6,732,296
|
$
|
-
|
|
|
Fair Value
|
|
Fair Value Measurements at
|
|
|
As of
|
|
December 31, 2016
|
Description
|
|
December 31, 2016
|
|
Using Fair Value Hierarchy
|
12
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature
|
$
|
1,752,681
|
$
|
-
|
$
|
1,752,681
|
$
|
-
|
Warrant derivative
|
|
257,500
|
|
|
|
257,500
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,010,181
|
$
|
-
|
$
|
2,010,181
|
$
|
-
|
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for
13
interim and annual periods beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09, which amends several aspects of accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. This adoption of this accounting standard update had no impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. This adoption of this accounting standard update had no impact on the Company’s consolidated financial statements.
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's consolidated financial statements.
14
Other recent accounting pronouncements issued by the FASB and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
NOTE 3 - INVESTMENT
On October 20, 2015, the Company paid $125,000 in cash and issued to Nikolaos Spanos, 1,377,398 of its common stock (valued at $68,870) and 1,993,911 warrants to purchase its common shares at the exercise price of $0.10 per common share exercisable for three years (valued at $90,400). The common shares and warrants are being issued for the purchase of 1,000,000 common shares of Blockchain Technologies Corporation (“BTC”). Said common shares represent ten percent (10%) of the outstanding equity in BTC. This investment is accounted for under the cost method.
NOTE 4 - PROMISSORY NOTES PAYABLE
In March 2014, the Company issued two promissory notes for a total of $230,000. The interest rate is the short-term applicable federal rate as determined by the Internal Revenue Service for the calendar month plus 10%. These two promissory notes were expired on September 14, 2015 and are in default as of September 30, 2017 and December 31, 2016.
NOTE 5 - CONVERTIBLE PROMISSORY NOTES PAYABLE
Convertible promissory notes payable at September 30, 2017 and December 31, 2016 consist of the following:
|
September 30,
|
December 31,
|
|
2017
|
2016
|
|
|
|
Convertible promissory notes with interest at 12% per annum, convertible into common shares at a fixed price ranging from $0.02 to $0.14 per share. Maturity dates range from through November 13, 2018. ($1,010,000 and $995,000 in default at September 30, 2017 and December 31, 2016)
|
$1,560,000
|
$1,505,000
|
Convertible promissory notes with interest at 12% per annum, convertible into common shares at a price ranging from $0.08 to $0.14 or a 50% discount from the lowest trade price in the 20 trading days prior to conversion (as of September 30, 2017 the conversion price would be $0.0023 per share) ($367,741 and $79,315 is in default at September 30, 2017 and December 31, 2016)
|
644,792
|
729,749
|
15
Convertible promissory notes with interest at 8% per annum, convertible into common shares at a fixed price of $0.02 per share. The maturity date is April 30, 2016. At September 30, 2017 and December 31, 2016, this note is in default.
|
205,000
|
230,000
|
Convertible promissory notes with interest at 12% per annum, convertible into 3% of the common shares of GES. The maturity date range from September 20, 20167 to October 15, 2017. ($112,500 and $137,500 is in default at September 30, 2017 and December 31, 2016)
|
406,500
|
406,500
|
Total convertible promissory notes payable
|
2,816,292
|
2,871,249
|
Unamortized debt discount
|
(320,906)
|
(388,728)
|
Convertible promissory notes payable, net discount
|
2,495,386
|
2,482,521
|
Less notes receivable collateralized by convertible promissory notes payable
|
(32,000)
|
(202,500)
|
|
2,463,386
|
2,280,021
|
Less current portion
|
(2,075,379)
|
(1,966,553)
|
Long-term portion
|
$ 388,007
|
$ 313,468
|
During the nine months ended September 30, 2017, the Company issued two convertible promissory notes payable totaling $64,000 to one investor for which the Company received $32,000 in cash and notes receivable from the same investor totaling $32,000. During the year ended December 31, 2016, the Company issued six convertible promissory notes payable totaling $405,000 to one investor for which the Company received $202,500 in cash and notes receivable from the same investor totaling $202,500. Since the notes receivable were issued to the Company as payment for certain convertible promissory notes payable, the Company has not presented these notes receivable as an asset, but as an offset to the convertible promissory notes payable balance.
A rollfoward of the convertible promissory notes payable from December 31, 2016 to September 30, 2017 is below:
Convertible promissory notes payable, December 31, 2016
|
$
|
2,280,021
|
Issued for cash
|
|
599,500
|
Issued for penalty interest
|
|
42,139
|
Issued for original issue discount
|
|
7,895
|
Repayment for cash
|
|
(140,000)
|
Conversion to common stock
|
|
(393,991)
|
Debt discount related to new convertible promissory notes
|
|
(414,197)
|
Amortization of debt discount
|
|
482,019
|
Convertible promissory notes payable, September 30, 2017
|
$
|
2,463,386
|
NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS
16
On December 31, 2012, in connection with an extension of the maturity date of certain convertible notes which were due on May 31, 2012, the Company issued the holder a warrant to purchase shares of common stock of the Company not exceeding 9.99% of the issued and outstanding shares and potential issuable shares related to outstanding options, warrants and convertible debt of the Company. The Company determined that the anti-dilution provision feature of the warrants to be an embedded derivative instrument. This derivative is adjusted to fair value at each balance sheet with the changes in fair value recognized in operations. In addition, certain of the Company’s convertible promissory notes payable are convertible into shares of the Company’s common stock at a percentage of the market price on the date of conversion. The Company has determined that the variable conversion rate is an embedded derivative instrument. The Company uses the Black-Scholes valuation method to value the derivative instruments at inception and on subsequent valuation dates. Weighted average assumptions used to estimate fair values are as follows:
|
|
September 30,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Risk-free interest rate
|
|
1.31%
|
|
0.59%
|
Expected life of the options (Years)
|
|
0.26
|
|
0.14
|
Expected volatility
|
|
356%
|
|
375%
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
|
|
|
|
Fair Value
|
$
|
6,732,296
|
$
|
2,010,181
|
A rollfoward of the derivative liability from December 31, 2016 to September 30, 2017 is below:
Derivative liabilities, December 31, 2016
|
$
|
2,010,181
|
Conversion features related to new convertible promissory notes
|
3,197,837
|
Change in fair value of derivative liabilities
|
|
1,524,278
|
Derivative liabilities, September 30, 2017
|
$
|
6,732,296
|
For the nine months ended September 30, 2017 and 2016, the Company recognized a change in this derivative liability of ($1,524,278) and $593,095, respectively, in other income (expense).
NOTE 7- STOCKHOLDERS’ DEFICIT
Series B Preferred Stock
Pursuant to the Company’s Certificate of Incorporation, the Company has authorized 2,000,000 shares of $0.001 par value Preferred Stock. The Company has designated 250,000 of the 2,000,000 shares as Series B Preferred Stock. The Series B Preferred stockholders are entitled to a cumulative stock dividend, up to a maximum of 10% additional common stock upon the conversion after one year. The Series B Preferred Stock may be converted into common shares, at any time, at the option of the holder. The conversion price shall be the greater of $0.01 or 90% of the lowest closing price during the five most recent trading days prior to conversion. The number of common shares to be issued shall be the number of Series B Preferred shares times $10 per shares divided by the conversion price.
During the nine months ended September 30, 2017, the Company sold 90,000 shares of Series B Preferred Stock for cash proceeds of $900,000.
17
Common Stock
On April 28, 2016 the stockholders approved an amendment to the Company’s articles of incorporation to increase the number of authorized common shares from 100,000,000 to 1,000,000,000. In addition, the stockholders also approved an amendment to the Company’s Stock Awards Plan, originally filed June 27, 2011, which will increase the number of shares authorized to be issued under the Plan from 3,000,000 shares to 7,460 ,000 shares.
During the nine months ended September 30, 2017, the Company issued 220,916,253 shares of common stock for convertible promissory notes payable of $393,991 and accrued interest of $32,985. In addition, the Company issued 10,526,316 shares of common stock for services rendered valued at $30,000. The value was determined based on the Company’s closing price on the date of grant.
Option Activity
A summary of the option activity is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Price ($)
|
|
Life (in years)
|
|
Value ($)
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
3,000,000
|
|
0.07
|
|
3.63
|
|
-
|
Granted
|
|
-
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
-
|
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
3,000,000
|
|
0.07
|
|
2.88
|
|
-
|
Exercisable, September 30, 2017
|
|
3,000,000
|
|
0.07
|
|
2.88
|
|
-
|
Warrant Activity
A summary of warrant activity is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
Warrants
|
|
Price ($)
|
|
Life (in years)
|
|
Value ($)
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
110,149,478
|
|
0.080
|
|
2.17
|
|
2,140
|
Granted
|
|
216,449,999
|
|
0.002
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
(4,634,613)
|
|
0.310
|
|
|
|
|
Outstanding, September 30, 2017
|
|
325,464,864
|
|
0.024
|
|
2.12
|
|
3,205,600
|
Exercisable, September 30, 2017
|
|
325,464,864
|
|
0.024
|
|
2.12
|
|
3,205,600
|
18
During the nine months ended September 30, 2017, the Company issued a total of 172,500,000 warrants in connection with a new convertible notes. The fair values of the warrants were determined using the Black-Scholes option pricing model with the following assumptions:
•
Expected life of 3.0 years
•
Volatility of 366% - 371%;
•
Dividend yield of 0%;
•
Risk free interest rate of 0.71% – 1.62%
During the nine months ended September 30, 2017, the Company issued a total of 7,000,000 warrants to two consultants for services rendered valued at $153,132. The fair values of the warrants were determined using the Black-Scholes option pricing model with the following assumptions:
•
Expected life of 3.0 years
•
Volatility of 366%;
•
Dividend yield of 0%;
•
Risk free interest rate of 1.57%
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company may be involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.
On October 10, 2013, GACOM settled a complaint with the National Futures Association for a fine of $50,000 for certain noncompliance with Commodity Futures Trading Commission regulations. The fine has not been paid and is included in accounts payable and accrued expenses at September 30, 2017 and December 31, 2016.
Named directors, officers, employees and/or registered representatives of GACC have been called before FINRA for on-the-record interviews in connection with certain FINRA inquiries. GACC has responded to multiple requests for documents and FINRA has taken on-the-record testimony. On October 27, 2014, FINRA indicated that it might recommend enforcement proceedings against GACC, our chairman John Matthews and Brian Joseph Hagerman, the former president and chief compliance officer of GACC. FINRA’s action is commonly referred to as a “Wells Notice” and is a preliminary determination by FINRA staff to recommend disciplinary action against GACC and these individuals. FINRA is not proposing disciplinary action against the Company. The allegations are against GACC and these individuals and assert that there were violations of Sections 17(a)(2) and 5 of the Securities Act of 1933 (“Securities Act”); NASD Rules 3010 and 3040; and FINRA Rules 2010, 5122(b)(2) and 5122(b)(1)(B). GACC and Messrs. Matthews and Hagerman are responding to this Wells Notice and believe that they have meritorious arguments.
On April 10, 2014, the Legal Section of FINRA formally notified GACC that it had made a preliminary determination to recommend that disciplinary action be brought against GACC for (1) failing to buy and sell corporate bonds at prices that were fair; and (2) failing to have in place a supervisory system that was reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules. GACC has responded and intends to contest this matter.
19
On February 11, 2015, John S. Matthews was advised by the staff of FINRA’s Department of Enforcement (the “Staff”) that they intended to recommend that FINRA commence a disciplinary action against Mr. Matthews, in his former capacity as an executive of GACC for a violation of FINRA Rules 2010 and 8210 by failing to provide information to the Staff in what the Staff considered to be a timely manner. Mr. Matthews provided additional materials to FINRA subsequent to the February 11, 2015 notice and submitted a response to the Staff’s allegations on February 25, 2015, disputing the proposed charges against him. Mr. Matthews has at all times cooperated with the Staff’s inquiries and continues to do so.
On December 1, 2015, John S. Matthews, the chief executive officer and director, signed a "Letter of Acceptance, Waiver and Consent ("AWC") with FINRA consenting to the entry of findings by FINRA, without admitting or denying any wrongdoing, that he did not provide any written disclosures to, or receive any written approval from, his member firm prior to selling promissory notes issued by the Company, some of the investors were not qualified purchasers as defined in Section 2(a)(51)(A) of the Investment Company Act, and the sales were not exempt from the requirements of FINRA Rule 5122, and he willfully failed to disclose an unsatisfied $25,590 federal tax lien within 30 days. The AWC was accepted by FINRA on December 2, 2015.
As a result of the AWC, Mr. Matthews is subject to a six-month suspension from association with any FINRA member, and a fine of $25,000. As such, Mr. Matthews is statutorily disqualified with respect to association with a FINRA member.
As a result of the AWC, the registrant is statutorily disqualified from relying in the future on certain exemptions from registration of its securities promulgated under Rule 506 of the Securities Act of 1933 (the "Act") for the length of the suspension as long as Mr. Matthews remains an officer and/or director and/or holder of 10% or more of the voting securities of the registrant.
On December 23, 2014, one of the Company’s prior attorneys commenced an action against GACC, GAHI, and PMC Capital seeking payment of $150,019 in unpaid legal fees. This amount is included in accounts payable. At this time, management is unable to determine what the ultimate outcome of these proceedings will be and whether there will be a material impact on the Company’s operations or the consolidated financial statements.
On July 2, 2014, an action was commenced by a group of individuals against GACC, the Company, and the chief executive officer of the Company, which asserts claims for minimum wage and overtime violations under New York State Labor Law, and seeks damages in an amount to be determined at trial, plus interest, attorneys’ fees and costs. At this time, the Company is unable to determine the ultimate outcome of the demand or whether it will result in a formal proceeding or action against the Company or any of its officers.
The Company and certain of its officers were named in connection with a demand for repayment of $695,000 by PMC LLC, in a letter dated October 16, 2014 relating to the Stock Purchase Agreement by and among GAHI and PMC Capital, LLC and Barbara Desiderio, dated as of August 5, 2014. The demand seeks repayment for expenditures made by GACC prior to the sale and the failure to meet certain minimum requirements in the Stock Purchase Agreement. At this time, the Company is unable to determine the ultimate outcome of the demand or whether it will result in a formal proceeding or action against the Company or any of its officers.
20
On November 5, 2015, one of the Company’s prior attorneys commenced an action against GAHI, seeking payment of $27,518 in unpaid legal fees. This amount is included in accounts payable. At this time, management is unable to determine what the ultimate outcome of these proceedings will be and whether there will be a material impact on the Company’s operations or the consolidated financial statements.
On February 16, 2016, the New York District Court entered an Order and Protective Decree pursuant to the provisions of the Securities Investor Protection Act, placing Global Arena Capital Corporation, our former subsidiary, in liquidation and appointing the Securities Investor Protection Corporation as trustee during the liquidation. The case was then removed to the New York Bankruptcy Court. GAHI and its subsidiaries are not a party to the liquidation.
On December 1, 2016, an action was commenced by an individual against GES, the Company, and the chief executive officer of the Company, which asserts claims for violation of the Fair Labor Standards Act, and overtime violations under New York State Labor Law, and seeks damages in an amount to be determined at trial, plus interest, attorneys’ fees and costs. At this time, the Company is unable to determine the ultimate outcome of the demand or whether it will result in a formal proceeding or action against the Company or any of its officers.
On July 28, 2017, Mr. Matthews received a letter notifying him of an arbitration award against him in connection to Global Arena Capital Corp., a former subsidiary of the Company. An appeal to this decision was timely filed on August 25, 2017.
NOTE 9– SUBSEQUENT EVENTS
Subsequent to September 30, 2017, the Company issued 29,559,674 shares of common stock in connection with the conversion of convertible promissory notes payable and accrued interest totaling $89,709.
On October 12, 2017, one of the Company’s prior attorneys commenced an action against GAHI seeking payment of $284,576 in unpaid legal fees. This amount is included in accounts payable. At this time, management is unable to determine what the ultimate outcome of these proceedings will be and whether there will be a material impact on the Company’s operations or the consolidated financial statements.
21