UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2018
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number
001-10346
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
Fort Worth,
Texas 76102
(Address of principal executive offices) (Zip code)
(800) 280-2404
(Registrant’s telephone
number, including area code)
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports 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 [X] No [ ]
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 [
]
|
|
|
Non-Accelerated Filer [ ]
|
Smaller Reporting Company [X]
|
Emerging Growth Company [ ]
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to
Section 7(a)(2)(B) of the Securities Act. [ ]
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
As of May 24, 2018, there were 72,300,000 shares of the
registrant’s common stock outstanding, each with a par value of $0.001.
TABLE OF CONTENTS
FORM 10-Q
FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2018
Galenfeha, Inc.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
|
|
|
|
|
Page
|
|
|
|
|
Consolidated
Balance Sheets as of March 31, 2018 (Successor) and December 31, 2017 (
Predecessor) (Unaudited)
|
F-2
|
|
|
|
|
Consolidated
Statements of Operations for the period from January 29, 2018 through
March 31, 2018 (Successor) and January 1, 2018 through January 28, 2018
(Predecessor) and the three month period ended March 31, 2017(Predecessor)
(Unaudited)
|
F-3
|
|
|
|
|
Consolidated
Statements of Cash Flows for the period from January 29, 2018 through
March 31, 2018 (Successor) and January 1, 2018 through January 28, 2018
(Predecessor) and the three month periods ended March 31, 2017
(Predecessor) (Unaudited)
|
F-4
|
|
|
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
F-5
|
Galenfeha, Inc.
CONSOLIDATED
BALANCE
SHEETS
(Unaudited)
|
|
March 31, 2018
(Successor)
|
|
|
|
December 31, 2017
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
356,995
|
|
|
$
|
348
|
|
|
Marketable securities
|
|
26,160
|
|
|
|
-
|
|
|
Accounts receivable
|
|
759,538
|
|
|
|
537,337
|
|
|
Supplies
|
|
90,000
|
|
|
|
30,000
|
|
|
Prepaid supplies
|
|
62,769
|
|
|
|
-
|
|
|
Due from related parties
|
|
1,000
|
|
|
|
12,000
|
|
|
Total current assets
|
|
1,296,462
|
|
|
|
579,685
|
|
|
Property and equipment, net of accumulated
depreciation
|
|
878,127
|
|
|
|
887,340
|
|
|
Goodwill
|
|
212,279
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
2,386,868
|
|
|
$
|
1,467,025
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY(DEFICIT)
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
|
379,726
|
|
|
$
|
237,613
|
|
|
Lines of credit payable
|
|
529,841
|
|
|
|
173,561
|
|
|
Note payable
|
|
332,662
|
|
|
|
482,983
|
|
|
Short-term non-secured debt
|
|
565,600
|
|
|
|
404,509
|
|
|
Due to officer and related parties
|
|
88,367
|
|
|
|
36,867
|
|
|
Total current liabilities
|
|
1,896,196
|
|
|
|
1,335,533
|
|
|
|
|
|
|
|
|
|
|
|
Long term notes payable
|
|
428,068
|
|
|
|
471,924
|
|
|
Total liabilities
|
|
2,324,264
|
|
|
|
1,807,457
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
Preferred A shares: Authorized: 20,000,000 shares, $0.001
par value, 7,300,000 issued and outstanding
|
|
7,300
|
|
|
|
-
|
|
Preferred B shares: Authorized: 30,000,000 shares, $0.001
Par value, 27,347,563 issued and outstanding
|
|
27,348
|
|
|
|
-
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
Authorized: 150,000,000 common shares, $0.001 par
value,
|
|
|
|
|
|
|
|
|
72,300,000 issued and outstanding
|
|
72,300
|
|
|
|
-
|
|
|
Additional paid-in capital
|
|
3,709,081
|
|
|
|
-
|
|
|
Member contributions (draws)
|
|
-
|
|
|
|
(70,040
|
)
|
|
Accumulated deficit
|
|
(3,753,425
|
)
|
|
|
(270,392
|
)
|
|
Total stockholders’ equity (deficit)
|
|
62,604
|
|
|
|
(340,432
|
)
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
(DEFICIT)
|
$
|
2,386,868
|
|
|
$
|
1,467,025
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Galenfeha, Inc.
CONSOLIDATED
STATEMENTS OF
OPERATIONS
(Unaudited)
|
|
|
January 29, 2018 -
March 31, 2018
(Successor)
|
|
|
|
January 1, 2018 –
January 28, 2018
(Predecessor)
|
|
|
Three Months Ended
March 31, 2017
(
Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
708,126
|
|
|
$
|
412,416
|
|
$
|
96,750
|
|
|
Less: Cost of Sales
|
|
219,423
|
|
|
|
45,626
|
|
|
9,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
92,464
|
|
|
|
146,273
|
|
|
147,050
|
|
|
Payroll expenses
|
|
197,939
|
|
|
|
67,285
|
|
|
-
|
|
|
Professional fees
|
|
29,320
|
|
|
|
-
|
|
|
-
|
|
|
Depreciation and amortization expense
|
|
40,710
|
|
|
|
20,355
|
|
|
64,367
|
|
|
Total operating expenses
|
|
360,433
|
|
|
|
233,913
|
|
|
211,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
128,270
|
|
|
|
132,877
|
|
|
(123,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income
|
|
36
|
|
|
|
-
|
|
|
32,511
|
|
|
Rental income- related party
|
|
6,000
|
|
|
|
3,000
|
|
|
-
|
|
|
Realized gain (loss) on sale of investments
|
|
(762
|
)
|
|
|
-
|
|
|
-
|
|
|
Unrealized gain (loss) on trading securities
|
|
(3,030
|
)
|
|
|
-
|
|
|
-
|
|
|
Interest expense
|
|
(63,836
|
)
|
|
|
(7,725
|
)
|
|
(3,399
|
)
|
|
Loss on derivative instruments
|
|
(105,284
|
)
|
|
|
-
|
|
|
-
|
|
|
Total other (expense)
|
|
(166,876
|
)
|
|
|
(4,725
|
)
|
|
29,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(38,606
|
)
|
|
$
|
128,152
|
|
$
|
(94,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basis and diluted
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding, basic and diluted
|
|
69,937,803
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Galenfeha, Inc.
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
(Unaudited)
|
|
January 29,
2018 –
March
31, 2018
|
|
|
|
January 1, 2018
–
January 28,
2018
|
|
|
Three Months
Ended
March 31, 2017
|
|
|
|
|
(Successor)
|
|
|
|
(Predecessor)
|
|
|
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(38,606
|
)
|
|
$
|
128,152
|
|
$
|
(94,742
|
)
|
|
Adjustments to reconcile net loss to net cash used in
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
40,710
|
|
|
|
20,355
|
|
|
64,367
|
|
|
Loss on derivative instruments
|
|
105,284
|
|
|
|
-
|
|
|
-
|
|
|
Amortization of debt discounts on convertible notes
|
|
30,925
|
|
|
|
-
|
|
|
-
|
|
|
Realized losses on investments
|
|
762
|
|
|
|
-
|
|
|
-
|
|
|
Unrealized losses on investments
|
|
3,030
|
|
|
|
-
|
|
|
-
|
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Decrease in accounts receivable
|
|
57,391
|
|
|
|
(284,592
|
)
|
|
(96,750
|
)
|
|
(Increase) Decrease in due from
related party
|
|
(1,000
|
)
|
|
|
17,000
|
|
|
-
|
|
|
(Increase) in supplies
|
|
(60,000
|
)
|
|
|
-
|
|
|
|
|
|
(Increase) Decrease in prepaid
supplies and other assets
|
|
(62,769
|
)
|
|
|
-
|
|
|
-
|
|
|
Increase (Decrease) in
accounts payable and accrued liabilities
|
|
(30,225
|
)
|
|
|
78,565
|
|
|
44,062
|
|
|
Net cash (used in)/provided by operating activities
|
|
45,502
|
|
|
|
(40,520
|
)
|
|
(83,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
purchases of investments, net
|
|
36,765
|
|
|
|
-
|
|
|
-
|
|
|
Repurchase and cancellation of shares
|
|
(913
|
)
|
|
|
-
|
|
|
-
|
|
|
Purchase of
fixed assets
|
|
-
|
|
|
|
-
|
|
|
(301,727
|
)
|
|
Cash assumed in acquisition of subsidiary
|
|
171,703
|
|
|
|
-
|
|
|
-
|
|
|
Net cash (used in)
provided by financing activities
|
|
207,555
|
|
|
|
-
|
|
|
(301,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
-
|
|
|
Proceeds from lines of credit
|
|
108,030
|
|
|
|
627,147
|
|
|
78,141
|
|
|
Payments on
lines of credit
|
|
-
|
|
|
|
(378,897
|
)
|
|
-
|
|
|
Proceeds from other loans payable
|
|
300,000
|
|
|
|
|
|
|
100,000
|
|
|
Payments on
other loans payable
|
|
(100,348
|
)
|
|
|
(38,561
|
)
|
|
-
|
|
|
Proceeds from notes payable
|
|
-
|
|
|
|
-
|
|
|
221,855
|
|
|
Payments on
notes payable
|
|
(161,363
|
)
|
|
|
(32,814
|
)
|
|
(18,477
|
)
|
|
Proceeds on liabilities due to officer and related
parties
|
|
-
|
|
|
|
35,000
|
|
|
34,693
|
|
|
Payments on
liabilities due to officer and related parties
|
|
(28,500
|
)
|
|
|
-
|
|
|
(28,092
|
)
|
|
Principal payments on convertible debenture
contracts
|
|
(21,840
|
)
|
|
|
-
|
|
|
-
|
|
|
Payments on
margin loan
|
|
(14,203
|
)
|
|
|
-
|
|
|
-
|
|
|
Member draws
|
|
-
|
|
|
|
-
|
|
|
(77,540
|
)
|
|
Net cash provided
by financing activities
|
|
81,776
|
|
|
|
211,875
|
|
|
310,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH
|
|
334,833
|
|
|
|
171,355
|
|
|
(74,210
|
)
|
|
CASH AT BEGINNING OF PERIOD
|
|
22,162
|
|
|
|
348
|
|
|
88,321
|
|
|
CASH AT END OF
PERIOD
|
$
|
356,995
|
|
|
|
171,703
|
|
$
|
14,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$
|
69,238
|
|
|
|
7,725
|
|
$
|
3,399
|
|
|
Income taxes
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCASH INVESTING
AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion
|
|
12,240
|
|
|
|
-
|
|
|
-
|
|
|
Derivative
liability extinguished on conversion
|
|
55,938
|
|
|
|
-
|
|
|
-
|
|
|
Fixed assets purchased through accounts payable
|
|
-
|
|
|
|
51,853
|
|
|
-
|
|
|
Fixed assets purchased through notes payable
|
|
|
|
|
|
|
|
|
516,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
Galenfeha, Inc.
Notes to Unaudited Consolidated
Financial Statements
March 31, 2018
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and cash flows at March 31, 2018, and
for all periods presented herein, have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted. It is
suggested that these unaudited interim financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company’s December 31, 2017 audited financial statements included in its Form
10-K filed with the Securities and Exchange Commission. The results of
operations for the period ended March 31, 2018 and the same period last year are
not necessarily indicative of the operating results for the full years.
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 $1.00
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
footnote #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.
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 incurred reoccurring net losses and has an accumulated deficit. 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.
The accompanying financial statements have been presented on a
comparative basis. For periods after the acquisition of Fleaux Solutions, LLC
(see Note 4), the Company is referred to as the Successor and its results of
operations combines the operations of Fleaux Solutions, LLC and those of
Galenfeha, Inc. For periods prior to the acquisition of Fleaux Solutions, the
Company is referred to as the Predecessor and its results of operations include
only the Fleaux Solutions, LLC operations. A black line separates the
Predecessor and Successor financial statements to highlight the lack of
comparability between these two periods.
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
Revenues are recognized when control of the promised goods or
services is transferred to the Company’s customers, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those
goods or services, pursuant to the guidance provided by Accounting Standards
Codification (“ASC”) Topic 606.
Services revenues are generated from sub-contractor services
provided to contractors for infrastructure water-line repair. The Company
recognizes revenue for these services at a point in time as the customer
receives and consumes the benefits of the service as they are being performed
and the Company has a right to payment for performance completed to date. The
Company recognizes revenue upon invoicing and completion of service for the
contractor and recognizes expenses as incurred.
Successor: For the period from January 29, 2018 through March
31, 2018; $642,507 and 91% of our total revenue came from one customer.
Predecessor: For the period from January 1, 2018 through
January 29, 2018; $256,334 or 62% of our total revenue came from one customer
and $136,937 or 33% came from one other customer.
Predecessor- For the three months ending March 31, 2017;
$96,750 and 100% of our total revenue came from one customer.
The following table presents our revenues disaggregated by
revenue source.
Sources of Revenue
|
For the Period from
January
29, 2018
through March 31,
2018 (Successor)
|
For the Period
from January
1,
2018 through
January 29, 2018
(Predecessor)
|
Three Months Ending
March 31,
2017
(Predecessor)
|
|
Pre and Post CCTV
|
163,699
|
26,816
|
51,978
|
|
Point Repairs
|
44,060
|
-
|
-
|
|
Manhole Rehabilitation
|
157,941
|
256,300
|
44,772
|
|
Service Lateral Reconnect
|
82,001
|
31,700
|
-
|
|
Cosmic Service Lateral Lining
|
260,425
|
97,600
|
-
|
Pre and Post CCTV consists of cleaning wastewater lines.
Manhole Rehabilitation consists of lining the manhole
interiors, internal sealing of the joint area, and reconstructing manhole
benches and channels.
Point Repairs consists of an excavator used to fid at a marked deviated in existing wastewater pipe and repairs and then made to the line.
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.
Cosmic Service Lateral Lining uses our exclusive material to robotically insert into an existing service line where UV light then cures the material creating a bonded connection between the mainline and the service line.
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. Cash at March 31, 2018 (Successor) and December 31, 2017 (Predecessor) was $356,995 and $348, respectively.
ACCOUNTS RECEIVABLE
Accounts receivable represents the uncollected portion of amounts recorded as revenues. Management performs periodic analyses to evaluate all outstanding accounts receivable to estimate an allowance for doubtful accounts that may not be collectible,
based on the best facts available to management. Management considers historical collection patterns, accounts receivable aging trends and specific identification of disputed invoices in its analyses. After all reasonable attempts to collect a
receivable have failed, the receivable is directly written off. As of March 31, 2018 and December 31, 2017, the balance of the allowance for doubtful accounts was $0 (Successor) and $0 (Predecessor), respectively.
As of December 31, 2017; $119,201 or 22% of our Accounts Receivable was from one customer and another $359,474 or 67% was from another single customer. As of March 31, 2018; $652,852 or 86% of our total accounts receivable was from a
single customer.
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 142,
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 there was no impairment of goodwill
recognized 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.
LONG-LIVED ASSETS
The Company's long-lived assets consisted of property and equipment and customer relationships and are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, Property, Plant, and Equipment. The Company tests for
impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Through March 31, 2017, the Company had not experienced impairment losses on
its long-lived assets
as management determined that there were no indicators that a carrying amount of the asset may not be recoverable.
COST OF SALES
Cost of services mainly consisted of raw material costs, direct labor and certain overhead allocated costs. Costs are recognized when the related revenue is recorded.
ADVERTISING EXPENSES
Advertising, promotional and selling expenses consisted of sales salaries, tap handles, media advertising costs, sales and marketing expenses, and promotional activity expenses and are recognized when incurred in the accompanying statement of
operations.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consisted of office supplies, rent and utility expenses, meals, travel and entertainment expenses, and other general and administrative overhead costs. Expenses are recognized when incurred.
FAIR VALUE ACCOUNTING
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC 820, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable
inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2
Quoted prices in markets that are not active, or inputs that are observable,
either directly or indirectly, for substantially the full term of the asset or liability;
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by
little or no market activity).
The Company utilized level 3 inputs to estimate the fair value of its derivative instruments using the Black-Scholes Option Pricing Model. There were no outstanding assets or liabilities measured on a recurring basis at March 31, 2018 (Successor).
NOTE 4 – ACQUISITION OF FLEAUX SOLUTIONS, LLC- RELATED PARTY
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 with Galenfeha, Inc. and no common “majority” control.
The purchase price of the operating assets of Fleaux Solutions, LLC was a cash payment of $1.00. In addition, the Company assumed $2,149,749 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:
|
Net Assets Acquired
|
|
January 29, 2018
|
|
Cash on hand
|
$
|
171,703
|
|
Inventories
|
|
30,000
|
|
Accounts receivable
|
|
816,929
|
|
Property and equipment, net
|
|
918,838
|
|
Assumption of scheduled liabilities
|
|
(2,149,749)
|
|
|
|
(212,279)
|
|
Goodwill
|
$
|
(212,279)
|
Goodwill is the excess of the purchase price over the fair
value of the underlying net tangible and identifiable intangible assets. In
accordance with applicable accounting standards, goodwill is not amortized but
instead is tested for impairment at least annually or more frequently if certain
indicators are present. The Company performed a qualitative assessment and
determined there was no impairment of goodwill.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is recorded using the straight-line method over the
estimated useful lives of the related assets, ranging from one to forty years. A
summary is as follows:
|
|
March 31, 2018
(Successor)
|
|
|
December 31, 2017
(Predecessor)
|
|
Manufacturing assets
|
$
|
$ 337,668
|
|
$
|
$ 285,815
|
|
Vehicles and trailers
|
|
271,686
|
|
|
271,686
|
|
Computer software
|
|
3,885
|
|
|
3,885
|
|
Capitalized leased equipment
|
|
598,119
|
|
|
598,119
|
|
|
|
1,211,358
|
|
|
1,159,505
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
(333,231)
|
|
|
(272,165)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
$
|
$ 878,127
|
|
$
|
$ 887,340
|
Depreciation expense related to property and equipment was
$40,710, $20,355 and $64,347 for the period January 29, 2018 through March 31,
2018 (Successor), January 1, 2018 through January 28, 2018 (Predecessor), and
the three months ended March 31, 2017 (Predecessor), respectively.
NOTE 6 – INVESTMENTS
Marketable securities are accounted for on a specific
identification basis. As of March 31, 2018, we held available for sale
marketable securities with an aggregate fair value of $26,160. As of March 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 $3,030 for the period
from January 29, 2018 through March 31, 2018 (Successor). The Company recognized
realized loss of $762 for the period from January 29, 2018 through March 31,
2018.
The Company's assets measured at fair value on a recurring
basis subject to the disclosure requirements of ASC 820 at March 31, 2018, was
as follows:
|
Quoted Prices in Active
Markets for Identical
Assets and Liabilities
(Level 1)
|
Significant Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Balance as of
March 31, 2018
|
|
Assets
|
|
|
|
|
|
Marketable securities
|
$26,160
|
-
|
-
|
$26,160
|
Margin loans- (Predecessor)
During the twelve months ended December 31, 2017, the Company raised a total of $49,805 from margin loan associate with its brokerage account and repaid $49,805 during the same period. As of December 31, 2017, the company has a $0
balance in this margin loan account.
Margin loans- (Successor)
From January 29, 2018 through March 31, 2018, the Company raised a total of $18,455 from margin loan associate with its brokerage account and repaid $14,203 during the same period. As of March 31, 2018, the company has a $4,252 balance
in this margin loan account.
NOTE 7 – NOTES PAYABLE AND CAPITAL LEASES
The Company secured a line of credit with Gibsland Bank & Trust on March 22, 2017. The line of credit was secured with fixed assets financed. 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 Company withdrew $168,521 in funds from the line of credit on January 29, 2018 and paid loan origination and
documentation of fees of $2,540 to bring the total outstanding line of credit balance to $171,061 on January 29, 2018. On January 31, 2018, the Company withdrew an additional $250,000 in funds from the line of credit and made payments of
$100,000 on the line of credit bringing the balance due under the line of credit to $321,061. On March 22, 2018, the Company withdrew an additional $60,000 in funds from the line of credit bringing the balancer due under the line of
credit to $381,061 as of March 31, 2018 (Successor).
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 4.500% 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 5.500% 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. The Company withdrew an additional $33,031 and $15,000 from the line of credit on February 22, 2018 and March 2, 2018, respectively, bringing
the total balance due under the line of credit to $148,781 as of March 31, 2018 (Successor).
Additionally, both lines of credit are secured by deposit accounts held at the Grantor’s institution which had cash balances of $348,726 and $0 as of March 31, 2018 (Successor) and December 31, 2017 (Predecessor) , respectively.
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 Company made principal repayments of $86,454 to this loan during the three months ending March 31, 2018,
bringing the total balance due of the loan to $128,546 and $215,000 as of March 31, 2018 and December 31, 2017, 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 $137,054 and $189,509 as of March 31, 2018 and December 31, 2017, 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 5.500% 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 $131,568 and $142,598 as of March 31, 2018 and December 31, 2017.
The Company assumed the debt of a loan in the amount of $65,000 between Fleaux Solutions, LLC and KDC Pipeline. The loan is unsecured, non-interest bearing, and payable on demand. The outstanding balance on this loan was $65,000 as of March
31, 2018 and December 31, 2017.
The Company assumed the debt of two secured automobile loans of $53,311.01 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 $46,050 and $47,918 as of March 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 5.69%, payable in payments of $1,021 for
60 months. The outstanding balance on this note was $48,520 and $50,864 as of March 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 0.00%, payable in payments of $1,105
for 36 months, with $3,838 payable in advance. The outstanding balance on this note was $28,730 and $32,045 as of March 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 $60,110 and $63,449 as of March 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 Predecessor paid an advance payment on the equipment lease of $15,250. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $63,487. As of March 31,
2018 and December 31, 2017, the outstanding balance under this capital lease was $48,621 and $50,523, 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 Predecessor paid an advance payment on the equipment lease of $15,250. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $124,702. As of March 31,
2018 and December 31, 2017, the outstanding balance under this capital lease was $96,981 and $106,376, 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 Predecessor paid an advance payment on the equipment lease of $250. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $35,134. As of
March 31, 2018 and December 31, 2017, the outstanding balance under this capital lease was $25,506 and $28,758, 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 Predecessor paid an advance payment on the equipment lease of $250. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $28,258. As of March 31,
2018 and December 31, 2017, the outstanding balance under this capital lease was $16,881 and $21,571, 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 Predecessor paid an advance payment on the equipment lease of $250. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $240,433. As of March 31,
2018 and December 31, 2017, the outstanding balance under this capital lease was $66,852 and $205,977, 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 Predecessor paid an advance payment on the equipment lease of $3,190. The lease is secured by the underlying leased asset.
This arrangement was accounted for as a capital lease and
capitalized the asset at $106,105. 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 March 31,
2018 and December 31, 2017, the outstanding balance under this capital lease was
$79,860 and $91,909, respectively.
The current maturities and five year debt schedule for the
notes is as follows:
|
|
|
|
|
|
2018
|
$
|
1,466,331
|
|
|
2019
|
|
184,525
|
|
|
2020
|
|
203,792
|
|
|
2021
|
|
44,028
|
|
|
2022 and thereafter
|
|
45,863
|
|
|
Total current notes payable
|
$
|
1,944,539
|
|
|
|
|
|
|
NOTE 8 – CONVERTIBLE LOANS
As of February 8, 2018, the Company had terminated and
extinguished all of the convertible notes the Company entered into during the
second and third quarters of 2017 prior to the acquisition of Fleaux Solutions,
LLC. (see Note #10)
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 or three
months ending March 31, 2018. 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 has been 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.
Amortization of the debt discount totaled $47,351 for the three
months ended March 31, 2018 and $17,149 for the twelve months ended December 31,
2017. The principal balance due under the Power Up Lending Note One was $0 and
$43,500 at March 31, 2018 and December 31, 2017, respectively.
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 or three
months ended March 31, 2018. 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.
Amortization of the interest expense and costs associated with
this note totaled $28,976 for the three months ended March 31, 2018 and $4,024
for the twelve months ended December 31, 2017. The principal balance due under
the Power Up Note Two was $0 and $33,000 at March 31, 2018 (Successor) and
December 31, 2017, respectively.
NOTE 9 – DERIVATIVE LIABILITY
During the period from January 29, 2018 through March 31, 2018
(Successor) , 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 period from January 29, 2018 through March 31, 2018 is as
follows:
|
January 29, 2018
|
$
|
49,346
|
|
|
Derivative
liability extinguished on conversion
|
|
(55,938
|
)
|
|
Loss on change in fair value of derivative
|
|
105,284
|
|
|
March 31, 2018
(Successor)
|
$
|
-
|
|
The gain (loss) on the change in fair value of derivative liabilities for the period from January 29, 2019 through March 31, 2018 and totaled $(105,284).
The fair value at the issuance and re-measurement dates for the
convertible debt treated as derivative liabilities are based upon the following
estimates and assumptions made by management for the three months ended March
31, 2018 and the year ended December 31, 2017:
|
Exercise prices
|
See Note 8
|
|
Expected dividends
|
0%
|
|
Expected volatility
|
87%-463%
|
|
Expected term
|
See Note 8
|
|
Discount rate
|
.29%-1.51%
|
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.
As of March 31, 2018 and December 31, 2017; 7,300,000 shares of
the Company’s preferred stock Series A was issued and outstanding.
As of March 31, 2018 and December 31, 2017; 27,347,563 shares
of the Company’s preferred stock Series B was 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 March 31, 2018 72,300,000 shares
of the Company’s common stock were issued and outstanding
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. See Note 8.
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. See Note 8.
The Company (Successor) issued the below shares during the
period from January 29, 2018 through March 31, 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. See Note 8.
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. See Note 8.
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 See Note 8.
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.
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
|
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 Company leases space in Fort Worth, Texas for corporate
facilities for $99 monthly or $1,188 per year. The terms of this lease are month
to month.
|
Year Ended
|
|
Amount
|
|
|
2018
|
$
|
76,000
|
|
|
2019
|
|
95,000
|
|
|
2020
|
|
56,000
|
|
|
2021
|
|
-
|
|
|
2022
|
|
-
|
|
|
|
$
|
227,000
|
|
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 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. 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 three months ending March 31, 2018 totaled $17,000, and
the principal balance due under the note as of March 31, 2018 (Successor) was
$30,000.
On March 9, 2017, the Company entered into an agreement with
Fleaux Services, LLC for the sale of the Company’s Daylight Pumps division,
which includes, but in not limited to, all inventory located at 9204 Linwood
Avenue, Suite 104 and 105, Shreveport, LA 7116, as well as all usage rights for
the name “Daylight Pump.” The sale is for cash consideration of $25,000, and
Fleaux Services, LLC will assume the responsibility of a promissory note held by
Kevin L. Wilson in the amount of $350,000 and all accrued interest due since the
date of issuance on August 23, 2016. The sale will include all future pump
sales, future purchase orders resulting from previous negotiations, and all
intellectual property related to Daylight Pumps. A gain on the sale of the
Daylight Pumps division of $52,291 was recognized as a capital transaction
during 2017.
During the twelve months ending December 31, 2017 the Company
received royalty payment of $10,000 from Fleaux Services, LLC relating to the
sale of Galenfeha-style batteries. The Company didn’t receive any royalty
payments from Fleaux Services, LLC relating to the sale of Galenfeha-style
batteries during the three months ending March 31, 2018. Mr. Trey Moore is the
President/CEO of Fleaux Services, and also is a Director of Galenfeha, Inc.
On August 4, 2017, David Leimbrook, the Chief Financial Officer
of Fleaux Services, LLC, had 550,000 shares of common stock originally purchased
in the open market transferred from common stock to preferred stock Series
A.
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 footnote #4)
The Company assumed a lease agreement executed on July 1, 2017
between Fleaux Solutions, LLC and Fleaux Services, LLC. The lease agreement
provides for Fleaux Services, LLC to pay Fleaux Solutions, LLC rent income of
$2,000 per month commencing on July 1, 2017 and ending on June 30, 2018 for use
of equipment and supplies owned by Fleaux Solutions, LLC. Fleaux Services, LLC
paid the Company rental income of $20,000 on January 2, 2018 relating to $12,000
of rent owed from 2017 and $8,000 as a prepayment towards rental income due for
the three months ending March 31, 2018. The remaining $1,000 due under the lease
agreement for the three months ended March 31, 2018 is shown as a receivable,
“Due from Related Parties.” Mr. Trey Moore is the
President/CEO of Fleaux Services, and also is a Director of Galenfeha, Inc.
From time to time, Ray Moore Jr. and Christopher Ryan Marlowe, management and members of Fleaux Solutions, LLC will loan Fleaux Solutions, LLC money and/or pay for expenses with respect to Fleaux Solutions, LLC out of their personal funds and the
Company will reimburse them for such. These loans don’t carry an interest rate and are payable on demand. The total outstanding amount due to Ray Moore Jr. and Christopher Ryan Marlowe was $58,367 as of March 31, 2018.
NOTE 13 – UNCERTAIN TAX POSITIONS
Prior to the Acquisition date of January 29, 2018, Galenfeha had the following uncertain tax positions:
The Company 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 – SUBSEQUENT EVENTS
On May 1
st
, 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 USD. 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. Fleaux Services was created from, and is based on, a simple
concept—Service for the Customer, and the Employees are Assets. Fleaux Services has built a sales and support team with an industry reputation of making sure that the customer is taken care of with quality parts and service. Fleaux Services is
a company committed to Oil and Gas industry innovative solutions with a creative vision of complete system automation through hardware and software products..
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. At the time of this report, none of these shares have been moved to the common.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and related notes
included in this report and those in our Form 10-K filed with the Securities and
Exchange Commission on March 26, 2018. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in such forward-looking statements as a result
of certain factors, including but not limited to, those described under “Risk
Factors” included in Part II, Item IA of this report.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted. It is
suggested that these unaudited interim financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company’s December 31, 2017 audited financial statements included in its Form
10-K filed with the Securities and Exchange Commission. The results of
operations for the period ended March 31, 2018 and the same period last year are
not necessarily indicative of the operating results for the full years.
Background Overview
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.
The company generates revenue by receiving royalties from
products we developed, providing engineering, regulatory, and business
consulting services across numerous disciplines, such as energy, aerospace,
automotive, and medical, and by making investments in companies that our
management team feels to be undervalued. With the recent acquisition of Fleaux
Solutions, LLC, the company also generates revenues and earnings through
government contracts.
A condensed version of our 2018 Statement of Work is as
follows:
|
1.
|
Acquire Private Companies with Positive Cash
Flow
|
|
2.
|
Explore investments both private and public
(Ongoing)
|
|
3.
|
Develop new technologies (Ongoing)
|
|
4.
|
Formulate applications for new technologies
|
|
5.
|
Commercialize new technology and
products
|
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.
For the year ending December 31, 2017, the company had limited
revenues, and limited operations.
On January 21, 2017 Galenfeha entered into a non-binding Letter
of Intent to purchase Additive Manufacturing, LLC for a cash purchase of
$14,000,000. This acquisition attempt was terminated during the second quarter
of 2017.
On January 23, 2017, the Company announced on Form 8-K filed
with the commission that the company entered into an agreement to sell its
entire Daylight Pump inventory to SouthVestBDC, LLC for a cash selling price of
$400,000. A majority of the proceeds of this sale were to be used to repay a
note secured by the pump inventory with Kevin L. Wilson on August 23, 2016 for
$350,000 plus accrued interest.
On March 9, 2017, the Company sold its entire Daylight Pump
inventory to Fleaux Services, LLC. The sale was for a cash consideration of
$25,000 USD; and Fleaux Services, LLC will assume responsibility of a promissory
note held by Kevin L. Wilson in the amount of $350,000 and all accrued interest
this note had accumulated since issuance on August 23, 2016.
In June and July of 2017, the Company entered into two
Convertible Promissory Notes with Power Up Lending Group, Ltd. At the time of
this report, both of these notes have been paid in full and extinguished, and
there is no common stock remaining to be converted.
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 $500,000 from a private investor. Fleaux Solutions is engaged in the
business of sewer rehabilitation with local government and municipality
contracts.
On May 1
st
, 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.
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. At the time of this report, none
of these shares have been moved into the common.
Liquidity
Assets
At March 31, 2018 (Successor), we had total assets of
$2,386,868, of which $356,995 was in cash.
Results of Operations for the Three Months ending March 31,
2018
The following discussion represents a comparison of our results
of operations for the three months ended March 31, 2018 and 2017. For periods
after the acquisition of Fleaux Solutions, LLC (since January 29, 2018), the
Company is referred to as the “Successor” and our results of operations combines
the operations of Galenfeha, Inc. and Fleaux Solutions, LLC. For periods prior
to the acquisition of Fleaux Solutions, LLC, the Company is referred to as the
“Predecessor” and out results of operations include that of Fleaux Solutions,
LLC.
To provide a meaningful presentation and comparison of our
results of operations, our discussion combines the period of January 1, 2018
through January 28, 2018 (Predecessor) with the period of January 29, 2018
through March 31, 2018 (Successor). In the accompanying unaudited interim
consolidated financial statements, a black line separates the Predecessor and
Successor financial statements to highlight the lack of comparability between
these two periods.
The results of operations for the interim periods shown in the
accompanying unaudited interim consolidated financial statements, including the
periods shown as Predecessor and Successor, are not necessarily indicative of
operating results for the entire period.
Revenues
Revenues for the three months ended March 31, 2018 and 2017
were $1,120,542 (Successor), and $96,750 (Predecessor), respectively. The
Company’s increase in revenue year over year is due to the most recent
acquisition of Fleaux Solutions, LLC. First quarter revenues were above
expectations as we do not begin billing against our 2018 contracts until
mid-second quarter, and we secured additional work outside our previous
agreements.
Cost of Revenues
Cost of Revenues for the three months ended March 31, 2018 and
2017 were $265,049 and $9,187, respectively. Costs were cost of materials and
manufacturing supplies with the increase attributable to the increase in
revenues. As a percentage of sales, cost of goods sold increased by 14%. This
increase is due to the start-up of Fleaux Solutions, LLC.
Operating Expenses
Total operating expenses for the three months ended March 31,
2018 and 2017 were $594,346 and $211,417, respectively.
Net Operating Income (Loss) and Net Loss
Net operating income (loss) for the three months ended March
31, 2018 and 2017 was $261,147 and $(123,854) respectively. The Company realized
a loss during the three months ended March 31, 2017 due to the start-up of
Fleaux Solutions, LLC
Net income (loss) for the three months ended March 31, 2018 and
2017 was $89,546 and $(94,742) respectively.
Equity Distribution
Since our incorporation, we have raised capital through private
sales of our common equity. As of March 31, 2018 we have issued 72,300,000
shares of our common stock to various shareholders.
Off-Balance Sheet Arrangements
We have no significant 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 is
material to investors.
Item 3. Quantitative & Qualitative Disclosures about
Market Risks
Not applicable.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of period covered by this report, the Company
carried out an evaluation, with the participation of the Company's Chief
Executive Officer and Principal Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures pursuant to Securities Exchange Act
Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer
and Principal Financial Officer concluded that the Company's disclosure controls
and procedures were not effective in ensuring that information required to be
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls over financial reporting.
No changes were made to the Company's internal controls in the
quarterly period covered by this report that have materially affected, or are
reasonably likely materially to affect, the Company’s internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 1A. Risk Factors
A description of the risks associated with our business,
financial condition and results of operations is set forth in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on
March 31, 2017. These factors continue to be meaningful for your evaluation of
the Company and we urge you to review and consider the risk factors presented in
the Annual Report on Form 10-K. We believe there have been no changes that
constitute material changes from these risk factors.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITEIES
None
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS
(a) Exhibits:
** XBRL (Extensible Business Reporting Language) information is
furnished and not filed or a part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is
deemed not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and otherwise is not subject to liability under these
sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Galenfeha, Inc.
|
Date: May 24, 2018
|
By:
|
/s/
Trey Moore
|
|
|
Name:
|
Trey Moore
|
|
|
|
President and Chief Executive Officer
|
|
|
|
(Principal Financial Officer, Principal
|
|
|
|
Accounting Officer)
|
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Galenfeha (PK) (USOTC:GLFH)
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From Feb 2024 to Feb 2025
