ITEM 7 – MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial statements and accompanying notes and other financial information appearing elsewhere in this annual
report on Form 10-K.
Overview
In 2014, GLFH developed new battery technology primarily designed to operate automation and measurement computers in remote oil field locations. Such technology provides an environmentally friendly, inherently
safe, internally temperature regulated, uninterruptible power supply for oil and gas well location automation and measurement equipment. Throughout 2014 this battery system proved effective in rigorous field-testing and was placed in to marketable
production, now known as LiFePO4 battery systems.
During initial production, GLFH developed a private label, unique, user interface driven, real-time battery state of charge and asset tracking system that is internally integrated within the Company’s line of LiFePO4 battery systems.
The system communicates the current battery performance, and operates as a Cloud driven database to collect and collate individual client information and uses unique ESN numeric identifiers to reference each client’s specific asset performance
and inventory. Asset-tracking utilizes a combination of CDMA technologies coupled with satellite geo-location referencing to accurately monitor and track the battery system in the event of theft.
Early third quarter 2014, GLFH began shipping its patent pending battery systems to a multi-state distributor in Shreveport, Louisiana. The battery system saw rapid acceptance within the industry, thus increasing oil and gas demand through the
remainder of 2014.
In 2015, GLFH began researching the use of this battery technology outside of the oil and gas industry. In conjunction with alternative markets, GLFH successfully tested a proof-of-concept model for use in zero emission recreational vehicles such
as golf carts and an off-road UTV gas/electric hybrid platform. Additionally, GLFH sought additional product lines to its battery systems to increase revenue while establishing a synergy among products such that each product line could add value to
the other.
GLFH acquired DayLight Pump, LLC, a chemical injection pump manufacturing company, in early 2015 and all operations and manufacturing were relocated to Shreveport, Louisiana. Following slight enhancements to the DayLight Pump design, and following
rigorous field-testing, DayLight Pumps, as we know them today were manufactured and placed into final production. As planned, these chemical injection stations incorporate the GLFH LiFePO4 battery systems, at various levels. DayLight Pumps with
GLFH LiFePO4 battery systems were introduced into the commercial market mid-2015.
GLFH realized growth in overall product sales in 2015 for reasons threefold: 1.) Increased market acceptance of our products, 2.) Embedding the battery technology within our chemical injection pump systems which not only serves to further validate
product viability but also assisted in expanding beyond automation and measurement to the production sector of the petroleum industry, 3.) Introduction of our technology outside the petroleum industry in to additional markets. 2015 goals were met
regarding zero emissions vehicle testing, the successful acquisition of Daylight Pump, LLC, as well as the initial design of a second-generation battery management system. Chemical injection pumps and accessories showed significant increase gross
revenue, as desired and the company was able to branch out of the oil and gas market to the United States Armed Forces in the testing of GLFH LiFePO4 battery systems for use in automated range targeting systems. Armed Forces testing was completed
mid-year 2015 with two facilities performing simultaneous field-testing which ultimately proved successful. Third quarter 2015 saw the first shipment of GLFH LiFePO4 battery systems to Fort Campbell. Such a milestone is of note as it represents a
first not only for GLFH, but also the acceptance and usage of the LiFePO4 chemistry by the United States Government.
2015 also proved successful in that a solidified distribution network was established with a number of national and long-standing regional distribution partners opening the GLFH product line to nationwide distribution. Promptly following the
establishment of the distribution network, hands-on product training sessions were conducted personally with each distribution hub while initial stocking orders were placed and shipped across the nation.
Since the Company’s inception, the Company has accomplished key milestones outlined in its 2014-2015 statement of work. A majority of the monies spent to date have been for initial financing actives related to creating a public company,
product development, including research and field-testing as well as for the purchase of inventory and ordinary day-to-day operations. We anticipate that in 2016, the Company will increase profitability, and that cash flow will be such as to allow
for the production of additional inventory items to reduce lead-times for product sales, continued market growth and the development of those products desired within our market sectors which may add to the synergies already enjoyed.
Liquidity and Capital Resources
“Liquidity” refers to our ability to generate adequate amounts of cash to meet our funding needs. We believe we have adequate capital resources and liquidity from our operations to maintain current operations during 2016, but continue to
be dependent on sales of common stock to fund operations until we achieve a positive cash flow.
We do not currently have material commitments for capital expenditures and do not anticipate entering into any such commitments
during the next twelve months. Our current commitments consist primarily of lease obligations for office space, computer equipment, and office equipment.
At December 31, 2015, we had current assets of $1,115,793 comprised of cash of $47,333, trade receivables of $107,760, prepaid expenses of $10,083 and inventory of $950,617. Our current liabilities were $195,771 in current
maturities of long term debt, $351,296 in accounts payable and accrued expenses, and $125,000 in a convertible promissory note payable, net of discount, resulting in working capital of $443,726.
Net cash used in operating activities was $1,347,371 for the year ended December 31, 2015, from a net loss of $1,599,316, increase in inventory of $753,824, accounts receivable of $107,424 and prepaid expenses of $10,083 offset
by decrease in accounts receivable from related party of $113,170, increase in payables of $193,705, increase in payables to related parties of $123,282, depreciation and amortization of $24,390, common shares issued for services of
$261,352, employee options expense of $295,553, loss on sale of assets of $5,317 and amortization of discount of $106,507.
Cash used in investing activities in fiscal 2015 was $228,376 of which $73,076 was used for the purchase of equipment, offset by $5,000 in proceeds from sale of equipment and a $160,300 cash investment in Daylight Pumps.
Net cash provided by financing activities was $1,528,412, consisting of $1,512,200 for the sale of stock, proceeds from notes payable of $267,573, borrowings on finance contracts of $20,596, offset by $133,152 in principal
payments, $125,000 in payments on convertible promissory notes, and $13,805 in payments on finance contracts. Since inception, we have used our common stock to raise money for the research and development of our intended products, for
corporate expenses, and for current operations.
Deficit accumulated since inception is $2,209,834. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our management and stockholders, the continued issuance of equity to
new stockholders, and our ability to achieve and maintain profitable operations.
We did not have any material commitments at December 31, 2015.
Our ability to continue as a going concern is dependent on our ability to raise additional capital and attained profitable operations. Since its inception, we have been funded by sales of company stock, and funds contributed by related parties
through capital investment and borrowing funds. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further
financing.
Plan of Operation
During the next twelve months, we intend on providing engineering services, developing new proprietary technology, implementing this technology in new products, and commercializing new and existing products. We will also be providing services and
training necessary for the implementation of these products to our distributors. We believe we have sufficient funding for the development of our products and the execution of our business model over the next twelve months, which includes the
on-going costs associated with maintaining a fully compliant reporting status with regulatory agencies.
Results of Activities
For the Year Ended December 31, 2015
Results of Operations
We are a recently organized company and have incurred $2,468,764 in expenses from inception (March 14, 2013) through December 31, 2015. For the years ended December 31, 2015 and 2014 we incurred $1,813,022 and $519,360, respectively, in
general and administrative expenses, payroll expenses, professional fees, and engineering research and development.
Revenues:
Our revenues were $1,290,284 for the year ended December 31, 2015 compared to $280,063 in 2014. Of the $1,290,284 of revenue recorded during 2015, $613,446 were to third parties and $676,838 were to related parties. All of the
sales attributable to the $280,063 were to related parties. The increase is from the Company implementing operations for the entire period and from the acquisition of Daylight Pumps. Chemical injection sales represented over 50% of the 2015 year
to date gross revenue.
Cost of Revenues:
Our cost of revenue was $958,604 for the year ended December 31, 2015, compared to $213,660 in 2014. Costs were cost of materials and manufacturing supplies with the increase due to implementation of operations.
Operating Expenses
:
Operating expenses for the year ended December 31, 2015, and December 31, 2014, were $1,813,022 and $519,360, respectively. Expenses increased as the Company incurred engineering and other professional expenses in preparation for the
manufacturing of batteries compared to 2014 when the Company had compliance costs and research and development.
Net Operating Loss and Net Loss:
Net operating loss for the year ended December 31, 2015 and 2014 was $1,481,342 and $452,957 respectively. The Company realized a higher net loss because of an increase in administrative expenses and professional fees due to the increased
activity of the company along with share based employee compensation, increased employee compensation and shares issued for legal services rendered.
Net loss for the year ended December 31, 2015 and 2014 was $1,599,316 and $474,023 respectively. The Company realized a higher net loss because of increased interest and amortization expense relating to a convertible promissory note, share
based employee compensation, increased employee compensation and shares issued for legal services rendered.
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. You have no assurance that we will achieve any
additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and Development activities.
Off-Balance Sheet Arrangements
We have no 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 are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on
historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other
new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Galenfeha, Inc.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Stockholders
Galenfeha, Inc.
Ft. Worth, Texas
We have audited the accompanying consolidated balance sheet of
Galenfeha, Inc. and its subsidiary (collectively, the Company) as of December
31, 2015, and the related consolidated statements of operations, stockholders
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Galenfeha,
Inc. and its subsidiary as of December 31, 2015, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the Company has
incurred net losses and net cash used in operations since inception. These
factors raise substantial doubt about its ability to continue as a going
concern. Managements plans regarding those matters also are described in Note
2. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
March 30, 2016
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Galenfeha, Inc.
We have audited the accompanying balance sheets of Galenfeha,
Inc. as of December 31, 2014 and 2013 and the related statements of operations,
stockholders deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Galenfeha,
Inc. as of December 31, 2014 and 2013 and the results of its operations and cash
flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has limited operations and has no
established source of revenue. This raises substantial doubt about its ability
to continue as a going concern. Managements plan in regard to these matters is
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Kyle L. Tingle, CPA, LLC
April 15, 2015
Las Vegas, Nevada
Galenfeha, Inc.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2015 and 2014
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
$
|
47,333
|
|
$
|
94,668
|
|
Accounts receivable
|
|
107,424
|
|
|
-
|
|
Accounts receivable from
related parties
|
|
336
|
|
|
113,506
|
|
Inventory
|
|
950,617
|
|
|
138,380
|
|
Prepaid expenses
|
|
10,083
|
|
|
-
|
|
Total current assets
|
|
1,115,793
|
|
|
346,554
|
|
FIXED ASSETS, net of accumulated
depreciation of $21,419
and $7,452, respectively
|
|
187,386
|
|
|
185,105
|
|
OTHER ASSETS
|
|
|
|
|
|
|
Goodwill
|
|
389,839
|
|
|
-
|
|
Customer list net of accumulated amortization of $5,928 and $0, respectively
|
|
16,870
|
|
|
-
|
|
Deposit on acquisition
|
|
-
|
|
|
66,000
|
|
Deposits
|
|
1,000
|
|
|
1,000
|
|
Total other assets
|
|
407,709
|
|
|
67,000
|
|
TOTAL ASSETS
|
$
|
1,710,888
|
|
$
|
598,659
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
|
228,014
|
|
$
|
34,309
|
|
Accounts payable to
related parties
|
|
123,282
|
|
|
-
|
|
Current maturities of long term debt
|
|
195,771
|
|
|
4,741
|
|
Related party
convertible promissory note, net of unamortized
discounts of $0 and
$106,057, respectively
|
|
125,000
|
|
|
143,493
|
|
Due to officer
|
|
-
|
|
|
24,316
|
|
Total current
liabilities
|
|
672,067
|
|
|
206,859
|
|
LONG TERM DEBT
|
|
-
|
|
|
14,518
|
|
Total liabilities
|
|
672,067
|
|
|
221,377
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
Authorized: 500,000,000 common
shares, $0.001 par value,
86,126,100 issued and
outstanding at December 31, 2015 and
77,812,000 issued
and outstanding at December 31, 2014
|
|
86,126
|
|
|
77,812
|
|
Additional paid-in capital
|
|
3,162,529
|
|
|
909,988
|
|
Accumulated deficit
|
|
(2,209,834
|
)
|
|
(610,518
|
)
|
Total stockholders equity
|
|
1,038,821
|
|
|
377,282
|
|
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
|
$
|
1,710,888
|
|
$
|
598,659
|
|
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements
Galenfeha, Inc.
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended December 31, 2015 and 2014
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Revenues:
|
|
|
|
|
|
|
Third Parties
|
$
|
613,446
|
|
$
|
-
|
|
Related Parties
|
|
676,838
|
|
|
280,063
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
958,604
|
|
|
213,660
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
331,680
|
|
|
66,403
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
General and administrative
|
|
509,913
|
|
|
175,466
|
|
Payroll expenses
|
|
904,935
|
|
|
231,228
|
|
Professional fees
|
|
194,002
|
|
|
45,948
|
|
Engineering research and
development
|
|
174,465
|
|
|
58,848
|
|
Depreciation and amortization expense
|
|
24,390
|
|
|
7,717
|
|
Loss on sale of fixed assets
|
|
5,317
|
|
|
153
|
|
Total operating
expenses
|
|
1,813,022
|
|
|
519,360
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
(1,481,342
|
)
|
|
(452,957
|
)
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
Interest income
|
|
44
|
|
|
63
|
|
Miscellaneous income
|
|
-
|
|
|
200
|
|
Interest expense
|
|
(118,018
|
)
|
|
(21,329
|
)
|
Total other
(expense)
|
|
(117,974
|
)
|
|
(21,066
|
)
|
|
|
|
|
|
|
|
Net loss
|
$
|
(1,599,316
|
)
|
$
|
(474,023
|
)
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
Weighted average number of
common shares outstanding, basic and diluted
|
|
85,415,212
|
|
|
70,206,685
|
|
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements
Galenfeha, Inc.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS EQUITY
For the Years Ended December 31, 2015 and
2014
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2013
|
|
52,152,000
|
|
$
|
52,152
|
|
$
|
171,648
|
|
$
|
(136,495
|
)
|
$
|
87,305
|
|
Common shares issued for cash
|
|
25,660,000
|
|
|
25,660
|
|
|
613,340
|
|
|
-
|
|
|
639,000
|
|
Beneficial conversion feature
of convertible promissory note
|
|
-
|
|
|
-
|
|
|
125,000
|
|
|
-
|
|
|
125,000
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(474,023
|
)
|
|
(474,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2014
|
|
77,812,000
|
|
|
77,812
|
|
|
909,988
|
|
|
(610,518
|
)
|
|
377,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash
|
|
16,122,000
|
|
|
16,122
|
|
|
1,496,078
|
|
|
-
|
|
|
1,512,200
|
|
Common shares issued for
acquisition of subsidiary
|
|
767,000
|
|
|
767
|
|
|
190,983
|
|
|
-
|
|
|
191,750
|
|
Options expense
|
|
-
|
|
|
-
|
|
|
295,553
|
|
|
-
|
|
|
295,553
|
|
Common shares returned and
cancelled
|
|
(9,224,900
|
)
|
|
(9,225
|
)
|
|
9,225
|
|
|
-
|
|
|
-
|
|
Common shares issued for services
|
|
650,000
|
|
|
650
|
|
|
260,702
|
|
|
-
|
|
|
261,352
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,599,316
|
)
|
|
(1,599,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2015
|
|
86,126,100
|
|
$
|
86,126
|
|
$
|
3,162,529
|
|
$
|
(2,209,834
|
)
|
$
|
1,038,821
|
|
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements
Galenfeha, Inc.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Years Ended December 31, 2015 and 2014
|
|
Year Ended
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
$
|
(1,599,316
|
)
|
$
|
(474,023
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
24,390
|
|
|
7,717
|
|
Common shares issued for services
|
|
261,352
|
|
|
-
|
|
Options expense
|
|
295,553
|
|
|
-
|
|
Loss on sale of fixed assets
|
|
5,317
|
|
|
153
|
|
Amortization of
debt discounts
|
|
106,507
|
|
|
18,493
|
|
Changes in Operating Assets and Liabilities:
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
(107,424
|
)
|
|
-
|
|
Decrease (increase) in accounts receivable from related party
|
|
113,170
|
|
|
(113,506
|
)
|
Increase in inventory
|
|
(753,824
|
)
|
|
(138,380
|
)
|
Increase in prepaid expenses and other assets
|
|
(10,083
|
)
|
|
(750
|
)
|
Increase in accounts payable and accrued liabilities
|
|
193,705
|
|
|
29,129
|
|
Increase in accounts payable to related parties
|
|
123,282
|
|
|
-
|
|
Net cash used in investing activities
|
|
(1,347,371
|
)
|
|
(671,167
|
)
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
Purchase of
fixed assets
|
|
(73,076
|
)
|
|
(187,916
|
)
|
Proceeds from sale of fixed
assets
|
|
5,000
|
|
|
5,000
|
|
Cash paid for
acquisition of subsidiary
|
|
(160,300
|
)
|
|
(66,000
|
)
|
Net cash used in financing activities
|
|
(228,376
|
)
|
|
(248,916
|
)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from
notes payable
|
|
267,573
|
|
|
20,000
|
|
Payments on notes payable
|
|
(133,152
|
)
|
|
(740
|
)
|
Proceeds from
related party convertible promissory note
|
|
-
|
|
|
250,000
|
|
Payments on related party
convertible promissory note
|
|
(125,000
|
)
|
|
-
|
|
Borrowings on
finance contracts
|
|
20,596
|
|
|
-
|
|
Payments on finance contracts
|
|
(13,805
|
)
|
|
-
|
|
Net advance from
officer
|
|
-
|
|
|
33,011
|
|
Proceeds from sale of common
stock
|
|
1,512,200
|
|
|
639,000
|
|
Net cash provided by
financing activities
|
|
1,528,412
|
|
|
941,271
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN
CASH
|
|
(47,335
|
)
|
|
21,188
|
|
CASH AT BEGINNING OF PERIOD
|
|
94,668
|
|
|
73,480
|
|
CASH AT END OF PERIOD
|
$
|
47,333
|
|
$
|
94,668
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
Interest expense
|
$
|
2,402
|
|
$
|
273
|
|
Income taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
Return and
cancellation of common stock
|
$
|
9,225
|
|
$
|
-
|
|
Common stock issued for
acquisition of subsidiary
|
|
191,750
|
|
|
-
|
|
Note payable
issued for acquisition of subsidiary
|
|
53,000
|
|
|
-
|
|
Deposit used for acquisition of
subsidiary
|
|
66,000
|
|
|
-
|
|
Assumption of
liabilities by an officer for disposal of fixed assets
|
|
42,016
|
|
|
-
|
|
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements
Galenfeha, Inc.
Notes to Consolidated Financial
Statements
December 31, 2015 and 2014
NOTE 1 - NATURE OF BUSINESS
Galenfeha, Inc. was incorporated in the State of Nevada on
March 14, 2013, as a for-profit company with a fiscal year end of December 31.
Our business office is located at 420 Throckmorton Street, Suite 200, Ft. Worth,
Texas 76102. We are an engineering company who provides engineering services and
alternative power products. Since our inception, we have been providing
contractual engineering services, implementing our new products and proprietary
technology across multiple disciplines.
On March 21, 2015 the Company completed its acquisition of
Daylight Pumps, LLC (Daylight) for stock and cash. Daylight will continue to
operate under its current name. Daylight produces injections pumps to the oil
and gas industry.
Our revenue stream comes from our contractual engineering
services and products we develop and manufacture for natural gas producers, and
various industries primarily in the states of Texas and Louisiana. Our
engineering services and products reduce our customers cost associated with
current energy production, including carbon footprint, hazardous waste, and
other non-sustainable aspects of producing energy with current technologies.
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 net losses and net cash used in operations since inception. These
conditions raise substantial doubt about the Companys ability to continue as a
going concern. The Companys ability to continue as a going concern is dependent
upon the Companys ability to achieve a level of profitability. The Company
intends on financing its future development activities and its working capital
needs largely from the sale of public equity securities with some additional
funding from other traditional financing sources, including term notes until
such time that funds provided by operations are sufficient to fund working
capital requirements. The financial statements of the Company do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Financial Statements and related disclosures have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The Financial Statements have been prepared using the
accrual basis of accounting in accordance with Generally Accepted Accounting
Principles (GAAP) of the United States (See Note 2 regarding the assumption
that the Company is a going concern). Certain prior period amounts have been
reclassified to conform to current period presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Daylight Pumps, Inc.. 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
The Company recognizes revenue for sales and billing for
freight charges upon delivery of the product to the customer at a fixed and
determinable price with a reasonable assurance of collection, passage of title
to the customer as indicated by shipping terms and fulfillment of all
significant obligations, pursuant to the guidance provided by Accounting
Standards Codification (ASC) Topic 605.
For sales to all customers, including manufacturer
representatives, distributors or their third-party customers, these criteria are
met at the time product is delivered. When other significant obligations remain
after products are delivered, revenue is recognized only after such obligations
are fulfilled. In addition, judgments are required in evaluating the credit
worthiness of our customers. Credit is not extended to customers and revenue is
not recognized until we have determined that collectability is reasonably
assured. The Company estimates customer product returns based on historical
return patterns and reduces sales and cost of sales accordingly.
During the year ended December 31, 2015, 52% of sales were to a
single related party customer. In addition, one other third party customer
contributed to 13% of total revenue in 2015.
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 December 31, 2015 and December 31, 2014 was $47,333 and
$94,668, 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 December 31, 2015 and December 31,
2014, the balance of the allowance for doubtful accounts was $0 and $0,
respectively.
As of December 31, 2015, accounts receivable from one third
party customer comprised 81% of accounts receivable, while another third-party
customer comprised 12% of accounts receivable.
INVENTORIES
Inventories are stated at the lower of cost, determined on a
first-in, first-out basis (FIFO), or market, including direct material costs
and direct and indirect manufacturing costs. Inventory consists of the following
amounts as of December 31, 2015 and 2014.
|
|
2014
|
|
|
2015
|
|
Raw Materials
|
$
|
138,380
|
|
$
|
311,673
|
|
Work In Process
|
|
-
|
|
|
-
|
|
Finished Goods
|
|
-
|
|
|
638,944
|
|
|
|
|
|
|
-
|
|
Total Inventory
|
$
|
138,380
|
|
$
|
950,617
|
|
PROPERTY AND INTANGIBLE ASSETS
Property, plant and equipment is recorded at cost. Depreciation
is computed using the straight-line method over estimated useful lives of three
to ten years for furniture, fixtures, and equipment and forty years for
improvements. Total depreciation and amortization expense related to property
and equipment was $24,390 and $7,717 for the years ended December 31, 2015 and
2014. Expenditures for repairs and maintenance are charged to expense as
incurred. Intangible asset consisted of a customer list acquired in the Daylight
Pumps acquisition. Amortization is computed using the straight-line method over
the estimated useful life of three years. Total amortization expense related to
intangible asset was $5,928 and total depreciation expense related to property and equipment was $18,462 for the year ended December 31, 2015.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews and evaluates long-lived assets for
impairment when events or changes in circumstances indicate the related carrying
amounts may not be recoverable. An impairment loss is recognized when estimated
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. When impairment is identified, the
carrying amount of the asset is reduced to its estimated fair value. Assets to
be disposed of are recorded at the lower of net book value or fair market value
less cost to sell at the date management commits to a plan of disposal. There
were no impairments to long-lived assets for the Companys years ended December
31, 2015 or 2014.
GOODWILL
Goodwill is carried at cost and is not amortized. The Company
tests goodwill for impairment on an annual basis at the end of each fiscal year,
relying on a number of factors including operating results, business plans,
economic projections, anticipated future cash flows, and marketplace date.
Company management uses its judgment in assessing whether goodwill has become
impaired between annual impairment tests according to specifications set forth
in ASC 350. The Company completed an evaluation of goodwill at December 31, 2015
and 2014 and determined that there was no impairment.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, predominately internal labor
costs and costs of materials, are charged to expense when incurred.
ADVERITISING EXPENSES
Advertising expenses are expensed as incurred. The Company
expensed advertising costs of $93,112 and $4,779 for the years ended December
31, 2015 and 2014, respectively.
SHIPPING AND HANDLING CHARGES
The Company incurs costs related to shipping and handling of
its manufactured products. These costs are expensed as incurred as a component
of cost of sales. Shipping and handling charges related to the receipt of raw
materials are also incurred, which are recorded as a cost of the related
inventory.
DEFERRED INCOME TAXES AND VALUATION ALLOWANCE
The Company accounts for income taxes under FASB ASC 740 Topic
Income Taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period the enactment occurs.
A valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future
operations. No deferred tax assets were recognized at December 31, 2015 and
2014.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share is calculated in accordance with
FASB ASC 260 topic, Earnings Per Share. The weighted-average number of common
shares outstanding during each period is used to compute basic earning or loss
per share. Diluted earnings or loss per share is computed using the weighted
average number of shares and diluted potential common shares outstanding.
Dilutive potential common shares are additional common shares assumed to be
exercised.
Basic net income (loss) per common share is based on the
weighted average number of shares of common stock outstanding at December 31,
2015 and 2014. As of December 31, 2015 and 2014, the Company had no dilutive
potential common shares.
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).
SHARE-BASED EXPENSES
FASB ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing
or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights.
Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is
required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment
transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the
earlier of performance commitment date or performance completion date.
Share-based expenses (including options and common stock) for the years ending December 31, 2015 and 2014 were $556,905 and $0, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-10, “Development Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including
an Amendment to Variable Interest Entities Guidance in Topic 810, "Consolidation” (“ASU 2014-10”). The amendments in ASU 2014-10 remove the definition of a development stage entity from the Master Glossary of the
Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from accounting principles generally accepted in the United States of America (“U.S.
GAAP”). In addition, the amendments eliminate the requirements for development stage entities to: (i) present inception-to-date information in the statements of income, cash flows, and shareholder equity; (ii) label the financial statements as
those of a development stage entity; (iii) disclose a description of the development stage activities in which the entity is engaged; and (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years
it had been in the development stage. The presentation and disclosure requirements in ASC Topic 915, "Development Stage Entities" are no longer required for interim and annual reporting periods beginning after December 15, 2014. The revised
consolidation standards will take effect in annual periods beginning after December 15, 2015, however, early adoption is permitted. The Company has elected to early adopt the provisions of ASU 2014-10 for this audited condensed consolidated
financial statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The new standard
provides guidance as to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's financial statements. The Company has elected to
early adopt the provisions of ASU 2014-15 for these audited financial statements.
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of
authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company’s present or future
financial statements.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is recorded using the straight-line method over the
estimated useful lives of the related assets, ranging from three to forty years.
A summary is as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Manufacturing assets
|
$
|
168,015
|
|
$
|
120,835
|
|
Vehicles
|
|
-
|
|
|
56,828
|
|
Furniture and equipment
|
|
19,318
|
|
|
8,614
|
|
Improvements
|
|
21,472
|
|
|
6,280
|
|
|
|
208,805
|
|
|
192,557
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
(21,419
|
)
|
|
(7,452
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
$
|
187,386
|
|
$
|
185,105
|
|
Depreciation expense related to property and equipment was
$18,462 and $7,717 for the years ended December 31, 2015 and 2014, respectively.
During the year ended December 31, 2015, James Ketner, former
Chairman of the Board, purchased a GMC Truck and a Chrysler automobile from the
company in exchange for the settlement of an officer loan in the amount of
$24,316, a cash payment of $5,000 and the assumption of the note payable to
Chrysler Capital in the amount of $17,700. These transactions resulted in a loss
on the disposal of fixed assets of $5,317.
NOTE 5 NOTES PAYABLE
The Company issued a convertible promissory note to a related
party in 2014 for $250,000. The Company accounts for convertible notes payable
in accordance with the guidelines established by the Financial Accounting
Standards Boards (FASB) Accounting Standards Codification (ASC) Topic
470-20, Debt with Conversion and Other Options. The Beneficial Conversion
Feature ("BCF") of a convertible note is normally characterized as the
convertible portion or feature of certain notes payable that provide a rate of
conversion that is below market value or in-the-money when issued. The Company
records a BCF related to the issuance of a convertible note when issued and also
records the estimated fair value of any warrants issued with those convertible
notes. Beneficial conversion features that are contingent upon the occurrence of
a future event are recorded when the contingency is resolved.
The BCF of a convertible note is measured by allocating a
portion of the note's proceeds to the warrants, if applicable, and as a discount
on the carrying amount of the convertible note equal to the intrinsic value of
the conversion feature, both of which are credited to additional
paid-in-capital. The value of the proceeds received from a convertible note is
then allocated between the conversion features and warrants and the debt on an
allocated fair value basis. The allocated fair value is recorded in the
financial statements as a debt discount (premium) from the face amount of the
note and such discount is amortized over the expected term of the convertible
note (or to the conversion date of the note, if sooner) and is charged to
interest expense.
The intrinsic value of the beneficial conversion feature was
determined to be $125,000 and the discount is being amortized over the one year
life of the promissory note. As of December 31, 2015, $125,000 of the discount
has been amortized as interest expense. Interest amortized for the years ended
December 31, 2015 and 2014 was $106,507 and $18,493, respectively. The Company
repaid $125,000 under this note during the year ended December 31, 2015 and the
outstanding balance was $125,000 as of December 31, 2015.
Interest expense accrued on the convertible promissory note was
$11,699 and $2,589 for the years ended December 31, 2015 and 2014, respectively.
The note matured on November 7, 2015 and is currently past due. The note is unsecured, bears interest at 7% per annum and is convertible into common stock at $0.50 per share.
In 2015, the Company financed inventory purchased from Daylight Pumps in
the related business combination in the amount of $53,000 which is payable to
Warren T. Robertson. The note has an interest rate of 0.00%, payable in four
payments of $13,250, by the end of each quarter, beginning April 1, 2105. The
Company repaid $53,000 under this note during the year ended December 31, 2015
and the outstanding balance was $0 as of December 31, 2015.
In 2015, the Company incurred a loan of $13,875 relating to commercial
general liability insurance. The note has an interest rate of 8.00%, payable in
payments of $1,439 for 10 months. Additionally the Company incurred a loan of
$6,721 relating to workers compensation, commercial property, and commercial
automobile insurance. The note has an interest rate of 0.00%, payable in
payments of $1,703 for two months and $663 for five months. The outstanding
balance on these finance agreements was $6,791 as of December 31, 2015.
The Company incurred a loan of $78,593 on August 28, 2015 that
is secured by customer purchase orders. The loan has an interest rate of 4.75%
payable in four payment of $19,843 with the first payment due on December 28,
2015. Since the prior customer purchase orders had been fulfilled and paid, the
loan of $78,593 was repaid by second loan of $88,980 on December 28, 2015 which
was secured by current customer purchase orders. The second loan of $88,980 has
an interest rate of $4.75% and is payable in one principal payment of $88,980
plus accrued interest on April 28, 2016. The outstanding balance on this loan
was $88,980 as of December 31, 2015.
During 2015, the Company made payments of $1,559 towards an outstanding note payable to Chrysler Capital in the amount of $19,259 as of December 31, 2014. The remaining balance of $17,700 was assumed by James Ketner, former Chairman of the Board (see Note 4).
The Company also took out a line of credit of $100,000 on
August 5, 2015 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. Additionally, the line of credit is
secured by a deposit account held at the Grantors institution which had a cash
balance of $11,499 as of December 31, 2015. Interest only payments were made
during the year ended December 31, 2015. The outstanding balance on this line
was $100,000 as of December 31, 2015.
The current maturities and five year debt schedule for the
notes and convertible notes is as follows:
2016
|
$
|
320,771
|
|
2017
|
|
-
|
|
2018
|
|
-
|
|
2019
|
|
-
|
|
Total current notes payable
|
$
|
320,771
|
|
NOTE 6 - SHAREHOLDERS EQUITY
COMMON STOCK
The authorized common stock of the Company consists of
500,000,000 shares with a par value of $0.001.
On February 17, 2015, the Company sold 1,350,000 shares of its
common stock to one private investor at a price of $0.10 per share, for a total
of $135,000. Between February 2 and April 27, 2015, the Company sold 10,272,000
shares of common stock to 117 private investors at a fixed price of $0.10 per
share, or an aggregate sale price of $1,027,200. On September 18, 2015, the
Company sold 2,000,000 shares of its common stock to an entity controlled by
former Board Chairman James Ketner at a price of $0.05 per share, for a total of
$100,000. On September 24, 2015, the Company sold 2,500,000 shares of common
stock to Galenfeha President/CEO Lucien Marioneaux, Jr. at a fixed price of
$0.10 per share, for a total of $250,000. These purchases were made pursuant to
the board resolution ratified on August 28, 2015 for affiliate stock purchase.
In October 2014, the Company entered into an agreement for the
issuance of 1,000,000 common shares for CAD/CAM Engineering Design Services for
GLFH1200 series battery development. The shares vest in equal installments of
250,000 each year following the date of the agreement. On May 1, 2015, the
Company issued 250,000 shares under this award. During the year ended December
31, 2015, $141,352 was expensed under this award and $58,573 remains to be
expensed over the remaining service period.
On July 1, 2015, the Company issued 400,000 shares of common
stock for legal services rendered valued at $120,000. The $120,000 was expensed
during the year ended December 31, 2015.
Following the passing of Director Richard G. Owston on June 20,
2015, 5,124,900 shares of common stock were returned to the Companys treasurer
and cancelled, pursuant to the lockup agreement signed by all Directors and
filed with the SEC on October 25, 2013.
During the year ended December 31, 2015, the Company issued
767,000 common shares for the acquisition of its subsidiary, valued at $191,750
(see Note 8).
Following the tendered resignation of James Ketner, Chairman of
the Board on December 31, 2015, 4,100,000 shares of common stock were returned
to the Companys treasurer and cancelled, pursuant to the lockup agreement
signed by all Directors and filed with the SEC on October 25, 2014.
During 2014 the Company sold 25,660,000 shares to seventy-nine
private investors. The Company sold 25,160,000 of those shares to seventy-eight
private investors at a price of $.025 per share, or an aggregate sale price of
$629,000. The Company sold 500,000 of the shares to one private investor at a
price of $.020 per share, or an aggregate sale price of $10,000.
On October 7, 2013, the Company subscribed 900,000 shares of
common stock at $0.025 per share for total proceeds of $22,500. The shares were
issued on March 27, 2014.
OPTIONS
During the year ended December 31, 2015, the Company granted an
aggregate of 2,050,000 options to a military sales representative and three
employees. Col. Ashton Naylor (Ret) received 100,000 options exercisable at
$0.25 per share, Chris Watkins received 750,000 options exercisable at $0.25 per
share, Jeff Roach received 1,000,000 options exercisable at $0.20 per share, and
Brian Nallin received 200,000 options exercisable at $0.20 per share. These
options expire on April 1, 2016; June 11, 2020, February 1, 2017, and December
31, 2017 respectively. The options granted to Brian Nallin vest immediately and
the other options vest in equal tranches over periods ranging from 2 to 5 years.
The aggregate fair value of the option grants was determined to be $430,839
using the Black-Scholes Option Pricing Model and the following assumptions:
volatilities between 218% and 396%, risk free rates between .27% and 1.74%,
expected terms between 1 and 5 years and zero expected dividends. The fair value
of the award is being expensed over the vesting periods. $295,553 was expensed
during the year ended December 31, 2015 and $135,286 will be expensed over the
remaining vesting period.
As of December 31, 2015, there were 2,050,000 options
outstanding of which 925,000 were exercisable. The range of exercise prices and
remaining weighted average life of the options outstanding at December 31, 2015
were $0.20 to $0.25 and 2.37 years, respectively. The aggregate intrinsic value
of the outstanding options at December 31, 2015 was $0.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company entered into two lease agreement for office and
research/warehouse facilities in Louisiana. The office lease is $10,200 per year
for 24 months beginning May 1, 2014. The research/warehouse facility lease is
$2,600 per month for 24 months beginning on November 1, 2014.
The Company also entered into a lease agreement for facilities
in Arkansas. This lease is for $750 per month, payable in quarterly payment of
$2,250, due at the first of each quarter. This lease has no term. The lease was
terminated during the second quarter of 2015.
Additionally, 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 also month to month.
Year
Ended
|
|
Amount
|
|
2016
|
|
29,400
|
|
2017
|
|
-
|
|
2018
|
|
-
|
|
2019
|
|
-
|
|
2020
|
|
-
|
|
|
$
|
29,400
|
|
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 Companys financial
position or results of operations.
NOTE 8 BUSINESS COMBINATION
On March 21, 2015, the Company completed its acquisition of
Daylight Pumps, LLC, a corporation organized under the laws of Arkansas. The
acquisition was for the business process and inventory assets. Consideration was
$226,300 in cash (of which $66,000 was paid as a deposit in 2014), a note
payable of $53,000 and 767,700 common shares of stock. Upon evaluation of the
inventory and customer list, it was determined fair market values were $58,413
and $22,798, respectively, with the balance considered additional goodwill in
the transaction. The stock consideration was determined at the price of $0.25 as
traded on March 21, 2015. The acquisition was reported as follows:
|
|
March 21, 2015
|
|
Inventory assets
|
$
|
58,413
|
|
Customer list
|
|
22,798
|
|
|
|
81,211
|
|
|
|
|
|
Cash for consideration
|
|
226,300
|
|
Note payable
|
|
53,000
|
|
Fair value of stock for consideration
|
|
191,750
|
|
Total Consideration
|
|
471,050
|
|
|
|
|
|
Goodwill
|
$
|
389,839
|
|
We have not included unaudited pro forma results of operations
data for the year ended December 31, 2015 and 2014 as if the Company and the
entity described above had been combined on January 1, 2014, because historical
financial information of Daylight Pumps, LLC prior to the date of acquisition
was not available.
NOTE 9 RELATED PARTY TRANSACTIONS
On November 1, 2014, the Company entered into a Convertible
Promissory Note Agreement with Ray Moore Sr., a related party, in the amount of
$250,000. The note bears an interest rate of 7% per annum until paid in full.
Repayment of the loan is due on or before November 7, 2015. The lender shall
have the right to convert this indebtedness to equity shares of Galenfeha at the
rate of one share per $.50 of indebtedness for a total of 500,000 shares upon
the expiration date, or at any time the Lender desired for the relieve of
indebtedness of Maker. As of December 31, 2015, the principal and interest due
on the note is $136,699 (the accrued interest of $11,699 is presented as
accounts payable to related parties in the consolidated balance sheet).
Falcon Resources, LLC & MarionAv, LLC are two companies
owned by Board Member, Trey Moore, and CEO/President, Lucien Marioneaux, Jr.,
respectively. These related party entities provide flight services to employees
and directors of the Company. The total amount paid for flight services to
Falcon Resources, LLC and MarionAv, LLC for the year ended December 31, 2015
totaled $18,838 and $2,343, respectively. The outstanding payable balance to Falcon and MarionAv was $3,511 and $1,388, respectively, as of December 31, 2015.
As of December 31, 2013, the Company had advanced funds to Mr.
Ketner of $8,695. During 2014, Mr. Ketner reimbursed the Company for the $8,695
and advanced the Company $24,316. Mr. Ketner has not requested repayment of the
advance. On June 5, 2015 James Ketner, former Chairman of the Board, purchased a
GMC Truck back from the company for gross proceeds of $5,000. Additionally, on
June 30, 2015 Mr. Ketner purchased back a Chrysler automobile from the company
in exchange for an officer loan in the amount of $24,316 and assumption of the
note payable to Chrysler Capital in the amount of $17,700. These transactions
resulted in a loss on the disposal of fixed assets of $5,317.
Galenfeha sells a portion of its finished goods to Fleaux
Services, LLC, a company owned by Board Member, Trey Moore. During the year
ended December 31, 2015, sales to the related company totaled $670,838. As of
December 31, 2015, the Company had outstanding receivables from the related
party company of $336. As of December 31, 2015, the Company had an outstanding
accounts payable balance to Fleaux Services, LLC totaling $28,744. During the
year ended December 31, 2015, the Company purchased $25,500 of engineering
research & development services rendered and $9,359 of shop supplies form
Fleaux Services, LLC.
Galenfeha purchases component parts used in the assembly of
inventory items from River Cities Machine, LLC, a company owned by
CEO/President, Lucien Marioneaux, Jr. During the year ended December 31, 2015
purchases from the related company totaled $202,258; of which $76,441 was shown
as an outstanding accounts payable balance to related parties as of December 31,
2015. In addition, during 2015, the Company generated revenue of $6,000 from Lucien Marioneaux, Jr.
Other outstanding accounts payable balances to related parties
totaled $6,398 as of December 31, 2015. The amounts are unsecured, due on demand
and bear no interest.
Beginning in July of 2015, the Company agreed to pay a
consulting fee of $8,000 per month to KTNR, Inc., a related party entity owed by
the former Chairman of the Board, James Ketner. Total consulting fees paid
during the year ended December 31, 2015 totaled $56,000. The consulting
agreement with KTNR, Inc. terminated on December 31, 2015 when James Ketner,
former Chairman of the Board, tendered his resignation.
On September 18, 2015, the Company sold 2,000,000 shares of its
common stock to an entity former Board Chairman, James Ketner, controls at a
price of $0.05 per share, for a total of $100,000. On September 24, 2015, the
Company sold 2,500,000 shares of common stock to Galenfeha President/CEO Lucien
Marioneaux, Jr. at a fixed price of $0.10 per share, for a total of $250,000.
These purchases were made pursuant to the board resolution ratified on August
28, 2015 for affiliate stock purchase. As of December 31, 2015, the Company had an outstanding payable to Lucien Marioneaux of $1,500.
NOTE 10 INCOME TAX
We did not provide any current or deferred U.S. federal income
tax provision or benefit for any of the periods presented because we have
experienced operating losses since inception. When it is more likely than not
that a tax asset cannot be realized through future income the Company must allow
for this future tax benefit. We provided a full valuation allowance on the net
deferred tax asset, consisting of net operating loss carry forward, because
management has determined that it is more likely than not that we will not earn
income sufficient to realize the deferred tax assets during the carry forward
period.
The Company has not taken a tax position that, if challenged,
would have a material effect on the financial statements for the period March
14, 2013 (date of inception) through December 31, 2015 applicable under FASB ASC
740. We did not recognize any adjustment to the liability for uncertain tax
position and therefore did not record any adjustment to the beginning balance of
accumulated deficit on the consolidated balance sheet. The Company is in the
process of filing appropriate returns for the Company.
The component of the Companys deferred tax assets as of
December 31, 2015 and 2014 are as follows:
|
|
2015
|
|
|
2014
|
|
Net operating loss carry
forward
|
$
|
541,247
|
|
$
|
213,681
|
|
Valuation allowance
|
$
|
(541,247
|
)
|
|
(213,681
|
)
|
Net deferred tax asset
|
$
|
-
|
|
$
|
-
|
|
The approximate net operating loss carry forward was
approximately $1,550,000 as of December 31, 2015 and will start to expire in
2033. The Company did not pay any income taxes during 2015 or 2014.
NOTE 11 SUBSEQUENT EVENTS
On January 15, 2016 the Companys line of credit was increased
from $100,000 to $200,000. The Company withdrew an additional $70,000 in funds
from the line of credit and paid loan origination and documentation fees of
$1,000 at closing to bring the total outstanding line of credit balance to
$171,000 as of January 15, 2016. Under the terms of the new agreement the loan
is a fixed rate (4.75%) revolving line of credit loan to the Company for
$200,000 due on January 15, 2017.
The Company issued a convertible promissory note in February of 2016 for $275,000. The consideration is $250,000 with a $25,000 prorated original issue discount. The maturity date shall be two years from the date of each payment of consideration. A one-time interest charge of six percent shall be applied on the issuance date to the original principal amount. Interest hereunder shall be paid on the maturity date. Conversion price shall equal 70% of the lowest trade occurring during the 25 consecutive trading days immediately preceding the applicable conversion date on which the holder elects to convert all or part of this note.
The Company issued another convertible promissory note in March of 2016 for $500,000. The consideration is $450,000 with a $50,000 original issue discount. The principal sum due to the investor shall be based on the consideration actually paid by the investor as well as any other interest or fees such that the issuer is only required to repay the amount funded and the issuer is not required to repay any unfunded portion of the note. The maturity date is two years from the effective date. The conversion price is 60% of the lowest price in the 25 trading days previous to the conversion. The issuer may repay this note at any time on or before 90 days from the effective date. If the issuer repays a payment of consideration on or before 90 days from the effective date, the interest rate on that payment shall be zero percent. If the issuer does not repay on or before 90 days from the notes effective date, a on-time interest charge of 12% shall be applied to the principal sum.