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
September 30, 2016
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
(Registrants 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]
|
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 November 15, 2016, there were 96,666,100 shares of the
registrants common stock outstanding, each with a par value of $0.001.
TABLE OF CONTENTS
|
FORM 10-Q
|
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016
|
2
Galenfeha, Inc.
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
(Unaudited)
|
F-1
Galenfeha, Inc.
|
CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
$
|
313,817
|
|
$
|
47,333
|
|
Accounts receivable
|
|
9,475
|
|
|
107,424
|
|
Accounts
receivable from related parties
|
|
20,121
|
|
|
336
|
|
Inventory
|
|
708,700
|
|
|
950,617
|
|
Prepaid
inventory
|
|
57,811
|
|
|
-
|
|
Prepaid expenses
|
|
9,045
|
|
|
10,083
|
|
Total current
assets
|
|
1,118,969
|
|
|
1,115,793
|
|
FIXED ASSETS, net of accumulated
depreciation of $36,245
and $21,419, respectively
|
|
172,560
|
|
|
187,386
|
|
OTHER ASSETS
|
|
|
|
|
|
|
Goodwill
|
|
389,839
|
|
|
389,839
|
|
Customer
list, net of accumulated amortization
of $11,628 and $5,928, respectively
|
|
11,170
|
|
|
16,870
|
|
Deposits
|
|
1,000
|
|
|
1,000
|
|
Total other
assets
|
|
402,009
|
|
|
407,709
|
|
TOTAL ASSETS
|
$
|
1,693,538
|
|
$
|
1,710,888
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
94,983
|
|
$
|
228,014
|
|
Accounts
payable to related parties
|
|
15,926
|
|
|
123,282
|
|
Deferred revenue
|
|
115,629
|
|
|
-
|
|
Current
maturities of long term debt
|
|
350,000
|
|
|
95,771
|
|
Convertible note,
net of unamortized discounts of $59,858
and $0, respectively
|
|
67,642
|
|
|
-
|
|
Note
payable - insurance finance
|
|
12,644
|
|
|
-
|
|
Line of credit
|
|
85,469
|
|
|
100,000
|
|
Related party convertible
note, net of unamortized discounts
of $0
|
|
125,000
|
|
|
125,000
|
|
Related party short term
debts
|
|
100,000
|
|
|
-
|
|
Derivative liabilities
|
|
277,062
|
|
|
-
|
|
Total current liabilities
|
|
1,244,355
|
|
|
672,067
|
|
LONG TERM DEBT
|
|
|
|
|
|
|
Convertible
notes, net of unamortized discount of $89,982
and $0, respectively
|
|
9,298
|
|
|
-
|
|
Total
liabilities
|
|
1,253,653
|
|
|
672,067
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
Authorized: 500,000,000
common shares, $0.001 par value,
91,816,100 and 86,126,100 issued and
outstanding at September
30, 2016 and December 31, 2015, respectively
|
|
91,816
|
|
|
86,126
|
|
Additional paid-in capital
|
|
3,310,890
|
|
|
3,162,529
|
|
Accumulated deficit
|
|
(2,962,821
|
)
|
|
(2,209,834
|
)
|
Total stockholders equity
|
|
439,885
|
|
|
1,038,821
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
$
|
1,693,538
|
|
$
|
1,710,888
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-2
Galenfeha, Inc.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
For the Three
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Parties
|
$
|
292,649
|
|
$
|
249,681 $
|
|
|
664,060 $
|
|
|
279,258
|
|
Related Parties
|
|
29,360
|
|
|
25,838
|
|
|
65,744
|
|
|
555,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
243,493
|
|
|
216,141
|
|
|
535,657
|
|
|
521,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
78,516
|
|
|
59,378
|
|
|
194,147
|
|
|
313,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
126,514
|
|
|
182,926
|
|
|
284,114
|
|
|
340,708
|
|
Payroll expenses
|
|
99,605
|
|
|
353,904
|
|
|
316,345
|
|
|
624,392
|
|
Professional fees
|
|
12,050
|
|
|
135,099
|
|
|
48,721
|
|
|
165,728
|
|
Engineering research and
development
|
|
(16,322
|
)
|
|
107,955
|
|
|
(37,535
|
)
|
|
207,031
|
|
Depreciation and amortization expense
|
|
6,842
|
|
|
4,257
|
|
|
20,526
|
|
|
14,061
|
|
Total operating expenses
|
|
228,689
|
|
|
784,141
|
|
|
632,171
|
|
|
1,351,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
(150,173
|
)
|
|
(724,763
|
)
|
|
(438,024
|
)
|
|
(1,038,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of assets
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,317
|
)
|
Interest income
|
|
-
|
|
|
-
|
|
|
6
|
|
|
40
|
|
Miscellaneous income
|
|
19,893
|
|
|
-
|
|
|
22,575
|
|
|
-
|
|
Interest expense
|
|
(155,568
|
)
|
|
(34,363
|
)
|
|
(222,883
|
)
|
|
(102,770
|
)
|
Gain (loss) on derivative instruments
|
|
534,230
|
|
|
-
|
|
|
(114,661
|
)
|
|
-
|
|
Total other (expense)
|
|
398,555
|
|
|
(34,363
|
)
|
|
(314,963
|
)
|
|
(108,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
248,382
|
|
$
|
(759,126
|
)
|
$
|
(752,987
|
)
|
$
|
(1,146,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share,
basic
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
Weighted average number of common shares
outstanding, basic
|
|
86,869,035
|
|
|
86,150,013
|
|
|
86,375,553
|
|
|
83,808,979
|
|
Net income (loss) per share,
diluted
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
Weighted average number of common shares
outstanding, diluted
|
|
99,783,063
|
|
|
86,150,013
|
|
|
86,375,553
|
|
|
83,808,979
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-3
Galenfeha, Inc.
|
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2015
|
|
86,126,100
|
|
|
86,126
|
|
|
3,162,529
|
|
|
(2,209,834
|
)
|
|
1,038,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclass of conversion option
to derivative liabilities
|
|
-
|
|
|
-
|
|
|
(6,175
|
)
|
|
-
|
|
|
(6,175
|
)
|
Options expense
|
|
-
|
|
|
-
|
|
|
54,402
|
|
|
-
|
|
|
54,402
|
|
Stock issued under
convertible debenture
|
|
5,440,000
|
|
|
5,440
|
|
|
39,878
|
|
|
-
|
|
|
45,318
|
|
Derivative liability extinguished on
conversion
|
|
-
|
|
|
-
|
|
|
112,468
|
|
|
-
|
|
|
112,468
|
|
Common shares issued under
services contracts
|
|
250,000
|
|
|
250
|
|
|
8,500
|
|
|
-
|
|
|
8,750
|
|
Revaluation of common shares issued for
services
|
|
-
|
|
|
-
|
|
|
(33,967
|
)
|
|
-
|
|
|
(33,967
|
)
|
Non-vested options returned
and cancelled
|
|
-
|
|
|
-
|
|
|
(26,745
|
)
|
|
-
|
|
|
(26,745
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(752,987
|
)
|
|
(752,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2016
|
|
91,816,100
|
|
$
|
91,816
|
|
$
|
3,310,890
|
|
$
|
(2,962,821
|
)
|
$
|
439,885
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-4
Galenfeha, Inc.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
$
|
(752,987
|
)
|
$
|
(1,146,699
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
20,526
|
|
|
14,061
|
|
Non-vested
options forfeited
|
|
(26,745
|
)
|
|
-
|
|
Common shares issued for
services
|
|
(25,217
|
)
|
|
296,281
|
|
Options expense
|
|
54,402
|
|
|
227,241
|
|
Loss on disposal of assets
|
|
-
|
|
|
5,317
|
|
Loss on
derivative instruments
|
|
114,661
|
|
|
-
|
|
Amortization of debt discounts
on convertible notes
|
|
204,505
|
|
|
93,493
|
|
Changes in
Operating Assets and Liabilities:
|
|
|
|
|
|
|
(Increase)
Decrease in accounts receivable
|
|
97,949
|
|
|
29,537
|
|
(Increase) Decrease in accounts receivable from related party
|
|
(19,785
|
)
|
|
-
|
|
(Increase)
Decrease in inventory
|
|
241,917
|
|
|
(469,771
|
)
|
(Increase) Decrease in prepaid expenses and other assets
|
|
(56,773
|
)
|
|
(125,787
|
)
|
Increase
(Decrease) in accounts payable and accrued liabilities
|
|
(133,031
|
)
|
|
67,927
|
|
Increase (Decrease) in accounts payable to related parties
|
|
(107,356
|
)
|
|
-
|
|
Increase
(Decrease) in deferred revenue
|
|
115,629
|
|
|
-
|
|
Net cash used in operating
activities
|
|
(272,305
|
)
|
|
(1,008,400
|
)
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from sale of assets
|
|
-
|
|
|
5,000
|
|
Purchase of fixed
assets
|
|
-
|
|
|
(59,366
|
)
|
Cash paid for acquisition of subsidiary
|
|
-
|
|
|
(160,300
|
)
|
Net cash used in financing
activities
|
|
-
|
|
|
(214,666
|
)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from line of credit/notes
payable
|
|
439,168
|
|
|
199,189
|
|
Payments on notes
payable
|
|
(269,073
|
)
|
|
(38,258
|
)
|
Proceeds from convertible debentures,
net of original issue discounts
|
|
268,694
|
|
|
-
|
|
Proceeds from related
party convertible promissory note
|
|
100,000
|
|
|
-
|
|
Payment on convertible promissory notes
|
|
-
|
|
|
(125,000
|
)
|
Proceeds from sale of
common stock
|
|
-
|
|
|
1,512,200
|
|
Net cash provided by financing activities
|
|
538,789
|
|
|
1,548,131
|
|
|
|
|
|
|
|
|
INCREASE IN CASH
|
|
266,484
|
|
|
325,065
|
|
CASH AT BEGINNING OF PERIOD
|
|
47,333
|
|
|
94,668
|
|
CASH AT END OF PERIOD
|
$
|
313,817
|
|
$
|
419,733
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
Interest expense
|
$
|
5,600
|
|
$
|
1,078
|
|
Income taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
NONCASH INVESTING AND
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Treasury stock returned to Company
pursuant to lockup agreement
|
$
|
-
|
|
$
|
5,125
|
|
Assumption of
liabilities by an officer for disposal of fixed assets
|
|
-
|
|
|
42,016
|
|
Common stock issued for acquisition of
subsidiary
|
|
-
|
|
|
191,750
|
|
Debt discount due to
derivative liabilities
|
|
268,694
|
|
|
-
|
|
Note payable issued for acquisition of
subsidiary
|
|
-
|
|
|
53,000
|
|
Common stock issued for
debt conversion
|
|
45,318
|
|
|
-
|
|
Reclass of conversion option from equity to
derivative liabilities
|
|
6,175
|
|
|
-
|
|
Derivative liability
extinguished on conversion
|
|
112,468
|
|
|
-
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-5
Galenfeha, Inc.
|
Notes to Unaudited Consolidated Financial
Statements
|
September 30, 2016
|
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 September 30, 2016,
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
Companys December 31, 2015 audited financial statements included in its Form
10-K filed with the Securities and Exchange Commission. The results of
operations for the period ended September 30, 2016 and the same period last year
are not necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
The accompanying 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
CONCENTRATIONS
During the nine months ended September 30, 2016, 9% of sales
were to a single related party customer. In addition, two other third party
customers contributed to 56% of total revenue for nine months ended September
30, 2016. For the nine months ended September 30, 2015, 67% of sales were to a
single related party customer. During the three months ended September 30, 2016,
9% of sales were to a single related party customer. In addition, one other
third party customer contributed to 53% of total revenue for three months ended
September 30, 2016. For the three months ended September 30, 2016, 9% of sales
were to a single related party customer. In addition, one other third party
customer contributed to 59% of total revenue for three months ended September
30, 2015.
As of September 30, 2016, accounts receivable from one related
party customer comprised 68% of total accounts receivable before it netted with
accounts payable due to the same related party and accounts receivable from one
third party customer comprised 31% of accounts receivable. 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.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share is computed on the basis of
the weighted average number of common shares outstanding during each year.
Diluted net income (loss) per share is computed similar to basic net income
(loss) per share except that the denominator is increased to include the number
of additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
In periods where losses are reported, the weighted-average number of common
stock outstanding excludes common stock equivalents, because their inclusion
would be anti-dilutive.
During fiscal year 2015 and for the nine months ended September
30, 2016, all common stock equivalents were excluded as they would have been
anti-dilutive the dilutive. For the three months ended September 30, 2016, the
dilutive effect of the outstanding common stock options was 9,266,366 shares and
convertible debt was 22,185,176 shares with a reduction to net income of
$512,471.
F-6
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 September 30, 2016 and December 31, 2015.
|
|
September 30,
2016
|
|
|
December 31, 2015
|
|
Raw Materials
|
$
|
267,741
|
|
$
|
311,673
|
|
Work In Process
|
|
-
|
|
|
-
|
|
Finished Goods
|
|
440,959
|
|
|
638,944
|
|
|
|
|
|
|
-
|
|
Total Inventory
|
$
|
708,700
|
|
$
|
950,617
|
|
FAIR VALUE ACCOUNTING
As required by the Fair Value Measurements and Disclosures
Topic of the FASB ASC, 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 following table sets forth by level with the fair value
hierarchy the Companys assets and liabilities measured at fair value as of
September 30, 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
|
|
$
|
|
|
$
|
277,062
|
|
$
|
277,062
|
|
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:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Manufacturing assets
|
$
|
168,015
|
|
$
|
168,015
|
|
Vehicles
|
|
-
|
|
|
-
|
|
Furniture and equipment
|
|
19,318
|
|
|
19,318
|
|
Improvements
|
|
21,472
|
|
|
21,472
|
|
|
|
208,805
|
|
|
208,805
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
(36,245
|
)
|
|
(21,419
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
$
|
172,560
|
|
$
|
187,386
|
|
Depreciation expense related to property and equipment was
$14,826 and $14,061 for the nine months ended September 30, 2016 and 2015,
respectively and $4,942 and $4,257 for the three months ended September 30, 2016
and 2015, respectively.
F-7
NOTE 5 NOTES PAYABLE
On May 12, 2016, the Company incurred a loan of $5,625 relating
to the renewal of their commercial general liability insurance. The note has an
interest rate of 8.00%, payable in payments of $583 for 10 months. Additionally
in May of 2016, the Company incurred a loan of $5,746 relating to the renewal of
their workers compensation, commercial property, and commercial automobile
insurance. The loan balance increased by $6,798 on September 27, 2016 due to an
additional workers compensation assessment after auditing the prior payroll
period. The note has an interest rate of 0.00%, payable in payments of $936,
$1,223, $599, and $7.669 in months one, two, three and four, respectively, and
$509 per month for the remaining four months. The outstanding balance on these
finance agreements was $12,644 and $6,791, as of September 30, 2016 and December
31, 2015, respectively.
In August 2015, the Company incurred a loan of $78,593 that is
secured by a customer purchase order. 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 a 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 $0 and $88,980 as of September 30, 2016 and December 31, 2015,
respectively.
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. 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.
Additionally, the line of credit is secured by a deposit
account held at the Grantors institution which had a cash balance of $45 and
$11,499 as of September 30, 2016 and December 31, 2015, respectively. The
outstanding balance on the line of credit was $85,469 and $100,000 as of
September 30, 2016 and December 31, 2015, respectively.
On August 23, 2016, the Company entered into a Promissory Note
Agreement with Kevin L. Wilson, in the amount of $350,000. The note bears an
interest rate of 11 ½ % per annum from the date until the principal is paid in
full. This note may be prepaid in whole or in part, without penalty. All
outstanding principal, interest and fees shall be due and payable on or before
August 23, 2017. As of September 30, 2016, the principal and interest due on the
note is $354,190 (the accrued interest of $4,190 is presented as accounts
payable in the consolidated balance sheet).
The current maturities and five year debt schedule for the
notes is as follows:
2016
|
$
|
-
|
|
2017
|
|
435,469
|
|
2018
|
|
-
|
|
2019
|
|
-
|
|
2020
|
|
-
|
|
Total current notes payable
|
$
|
435,469
|
|
NOTE 6 CONVERTIBLE LOANS
At September 30, 2016 and December 31, 2015, convertible loans
consisted on the following:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
February 2016 Note
|
$
|
-
|
|
|
-
|
|
March 2016 Note
|
|
99,280
|
|
|
-
|
|
April 2016 Note
|
|
75,000
|
|
|
-
|
|
May 2016 Note
|
|
52,500
|
|
|
-
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
226,780
|
|
|
-
|
|
|
|
|
|
|
|
|
Less: Unamortized debt discounts
|
|
(149,840
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Total convertible loans, net
|
|
76,940
|
|
|
-
|
|
Less: current portion of
convertible loans
|
|
(67,642
|
)
|
|
-
|
|
Long-term convertible loans, net
|
$
|
9,298
|
|
|
-
|
|
F-8
February 2016 Note
Effective February 29, 2016 the Company entered into a
Convertible Promissory Note (Vista Note) with Vista Capital Investments, LLC
pursuant to which the Company issued Vista Capital Investments, LLC a
convertible note in the amount of $275,000 with an original issue discount in
the amount of $25,000. The principal amount due Vista Capital Investments, LLC
is based on the consideration paid. The maturity date is two years from the
effective date of each payment. On February 29, 2016 the Company received
consideration of $75,000 for which an original issue discount of $7,500 was
recorded. In addition, the Company recognized a discount of $5,625 on fees paid
upon entering into this agreement and recognized accrued interest under the
Vista Note totaling $16,500. There were no additional borrowings under the Vista
Note during the nine months ended September 30, 2016. The Vista Note carries an
interest rate of 6% which shall be applied on the issuance date to the original
principal amount.
The Vista Note provides Vista Capital Investments, LLC the
right at any time, to convert the outstanding balance (including accrued and
unpaid interest) into shares of the Companys common stock at 70% of the lowest
trade price in the 25 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. As a result of the derivatives calculation (see Note
8) an additional discount of $72,775 was recorded. On September 1, 2016 Vista
converted $9,951 of the Vista Convertible Note into a total of 790,000 shares of
Common Stock at a fair value of $0.01260 per share. On September 28, 2016 Vista
converted $10,200 of the Vista Convertible Note into a total of 2,000,000 shares
of Common Stock at a fair value of $0.0051 per share. See Note 9.
Amortization of the debt discount totaled $102,400 for the nine
months ended September 30, 2016. There was no remaining principal balance or
accrued interest due under the Vista Note at September 30, 2016.
March 2016 Note
Effective March 2, 2016 the Company entered into a Convertible
Promissory Note (JMJ Note) with JMJ Financial pursuant to which the Company
issued JMJ Financial a convertible note in the amount of $500,000 with an
original issue discount in the amount of $50,000. The principal amount due JMJ
is based on the consideration paid. The maturity date is two years from the
effective date of each payment. On March 2, 2016 the Company received
consideration of $100,000 for which an original issue discount of $10,000 was
recorded. In addition, the Company recognized a discount of $7,500 on fees paid
upon entering into this agreement. There were no additional borrowings under the
JMJ Note during the nine months ended September 30, 2016. If the Company doesnt
repay the JMJ Note on or before 90 days from the effective date the Company may
not make further payments on this JMJ Note prior to the maturity date and a
one-time interest charge of 12% will be applied to the principal amount. Since
no payments were made on the note on or before 90 days from the effective date
of the note, accrued interest due was recorded in the amount of $13,200 on June
1, 2016.
The JMJ Note provides JMJ Financial the right at any time, to
convert the outstanding balance (including accrued and unpaid interest) into
shares of the Companys common stock at 60% of the lowest trade price in the 25
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.
As a result of the derivatives calculation (see Note 8) an additional discount
of $92,500 was recorded. On September 12, 2016 JMJ converted $8,820 of the JMJ
Convertible Note into a total of 700,000 shares of Common Stock at a fair value
of $0.01260 per share. On September 21, 2016 JMJ converted $9,000 of the JMJ
Convertible Note into a total of 750,000 shares of Common Stock at a fair value
of $0.01200 per share. On September 28, 2016 JMJ converted $7,344 of the JMJ
Convertible Note into a total of 1,200,000 shares of Common Stock at a fair
value of $0.006120 per share. See Note 9.
Amortization of the debt discount totaled $34,462 for the nine
months ended September 30, 2016. The principal balance due, net of the amortized
discount under the JMJ Note was $9,298 at September 30, 2016.
April 2016 Note
Effective April 22, 2016 the Company entered into a Convertible
Promissory Note (Auctus Note) with Auctus Fund, LLC pursuant to which the
Company issued Auctus Fund, LLC a convertible note in the amount of $75,000. The
maturity date is January 22, 2017. On April 22, 2016 the Company received
consideration of $75,000. In addition, the Company recognized a discount of
$6,750 on fees paid upon entering into this agreement. The Auctus Note carries
an interest rate of 10% which shall be applied on the issuance date to the
original principal amount. Interest paid under the Auctus Note totaled $5,625 at
September 30, 2016.
F-9
The Auctus Note provides Auctus Fund, LLC the right at any
time, to convert the outstanding balance (including accrued and unpaid interest)
into shares of the Companys common stock at 60% of the lowest trade price in
the 25 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. As a result of the derivatives calculation (see Note 8) an
additional discount of $62,625 was recorded. Amortization of the debt discount
totaled $43,909 for the nine months ended September 30, 2016. The principal
balance due, net of the amortized discount under the Auctus Note was $43,909 at
September 30, 2016.
May 2016 Note
Effective April 18, 2016 the Company entered into a Convertible
Promissory Note (Adar Note) with Adar Bays, LLC pursuant to which the Company
issued Adar Bays, LLC a convertible note in the amount of $52,500 with an
original issue discount in the amount of $2,500. The maturity date is April 18,
2017. On May 12, 2016 the Company received consideration of $50,000 for which an
original issue discount of $2,500 was recorded. In addition, the Company
recognized a discount of $6,250 on fees paid upon entering into this agreement.
The Adar Note carries an interest rate of 8% which shall be applied on the
issuance date to the original principal amount. Accrued interest due under the
Adar Note totaled $4,200 at September 30, 2016.
The Adar Note provides Adar Bays, LLC the right at any time, to
convert the outstanding balance (including accrued and unpaid interest) into
shares of the Companys common stock at 60% of the lowest trade price in the 20
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.
As a result of the derivatives calculation (see Note 8) an additional discount
of $39,550 was recorded. Amortization of the debt discount totaled $23,733 for
the nine months ended September 30, 2016. The principal balance due, net of the
amortized discount under the Adar Note was $23,733 at September 30, 2016.
NOTE 7 CONVERTIBLE LOANS RELATED PARTY
The Company issued a convertible promissory note to a related
party in 2014 for $250,000 (see Note 12). The note is convertible into common
stock of the Company at $0.50 per share. The intrinsic value of the beneficial
conversion feature was determined to be $125,000 at the commitment date and the
discount is being amortized over the one year life of the promissory note. As of
September 30, 2016, $125,000 of the discount has been amortized as interest
expense. Interest amortized for the nine months ended September 30, 2016 and
2015 was $0 and $61,986, respectively. The Company repaid $125,000 under this
note during the twelve months ended December 31, 2015 and the outstanding
balance was $125,000 as of September 30, 2016.
This conversion option was accounted for as a derivative
liability during the nine months ended September 30, 2016 resulting in a
reclassification of the fair value of the derivative liability of $6,175 from
equity (see Note 8).
NOTE 8 DERIVATIVE LIABILITY
During the nine months ended September 30, 2016, 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 Companys derivative
liabilities for the nine months ended September 30, 2016 is as follows:
December 31, 2015 fair value
|
$
|
-
|
|
Additions recognized as derivative loss
at inception
|
|
429,817
|
|
Additions recognized as
note discount at inception
|
|
268,694
|
|
Derivative liability extinguished on
conversion
|
|
(112,468
|
)
|
Reclass from equity to
derivative liability
|
|
6,175
|
|
Fair value mark to market adjustment
|
|
(315,156
|
)
|
September 30, 2016 fair value
|
$
|
277,062
|
|
The loss on the change in fair value of derivative liabilities
for the three months ending March 31, 2016 totaled $114,661 and the gain on the
change in fair value of derivative liabilities for the three months ending
September 30, 2016 totaled $534,230.
F-10
The fair value at the issuance and remeasurement dates for the
convertible debt treated as derivative liabilities are based upon the following
estimates and assumptions made by management for the nine months ended September
30, 2016:
Exercise prices
|
|
See Notes 6 and 7
|
|
Expected dividends
|
|
0%
|
|
Expected volatility
|
|
188%-400%
|
|
Expected term
|
|
See Notes 6 and 7
|
|
Discount rate
|
|
.29%-.85%
|
|
NOTE 9 - SHAREHOLDERS EQUITY
COMMON STOCK
The authorized common stock of the Company consists of
500,000,000 shares with a par value of $0.001.
As of September 30, 2016 and December 31, 2015, 91,816,100 and
86,126,100 shares of the Companys common stock were issued and outstanding.
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. Since inception through
September 30, 2016, $118,311 was expensed under this award and $0 remains to be
expensed over the remaining service period. This nonemployee award is valued
upon completion of services. This nonemployee signed an agreement effective July
22, 2016 between them and the Company acknowledging that the Company does not
anticipate the need for any additional engineering contract services resulting
in the return of non-vested options back to the Company. This resulted in a
reduction to engineering research and development expense of $23,311 for the
three months ended September 30, 2016.
In July 2016, the Company entered into an agreement for the
issuance of 1,000,000 common shares for consulting services. The shares are to
be transferred in four quarterly installments of two hundred fifty thousand
shares on or before the fifth day of the following months: August 2016, October
2016, January 2017, and April 2017. On August 5, 2016, the Company issued
250,000 shares under this award. Since inception through September 30, 2016,
$14,188 was expensed under this award and $4,312 remains to be expensed over the
remaining service period. A total of ($25,217) expense, net of revaluation of prior period, was recorded for common stock issued for services for the nine months ended September 30, 2016.
On September 1, 2016 Vista converted $9,954 of the February
2016 Vista Convertible Note into a total of 790,000 shares of Common Stock at a
fair value of $0.01260 per share. See Note 6.
On September 12, 2016 JMJ converted $8,820 of the March 2016
JMJ Convertible Note into a total of 700,000 shares of Common Stock at a fair
value of $0.01260 per share. See Note 6.
On September 21, 2016 JMJ converted $9,000 of the March 2016
JMJ Convertible Note into a total of 750,000 shares of Common Stock at a fair
value of $0.01200 per share. See Note 6.
On September 28, 2016 JMJ converted $7,344 of the March 2016JMJ
Convertible Note into a total of 1,200,000 shares of Common Stock at a fair
value of $0.006120 per share. See Note 6.
On September 28, 2016 Vista converted $10,200 of the February
2016 Vista Convertible Note into a total of 2,000,000 shares of Common Stock at
a fair value of $0.0051 per share. See Note 6.
NOTE 10 - 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, $24,703 was expensed during the three months ended March 31,
2016, $18,741 was expensed during the three months ended June 30, 2016, and
$10,958 was expensed during the three months ended September 30, 2016. Jeff
Roach and Brian Nallin both voluntarily terminated employment with the Company
on February 12, 2016 resulting in Jeff returning non-vested options back to the
Company. This resulted in a reversal of prior period share based compensation
and option expense of $26,745 during the nine months ended September 30, 2016.
As of September 30, 2016, $63,707 remains to be expensed over the remaining
vesting period.
F-11
As of September 30, 2016, there were 1,700,000 options
outstanding of which 1,250,000 were exercisable. The range of exercise prices
and remaining weighted average life of the options outstanding at September 30,
2016 were $0.20 to $0.25 and 2.06 years, respectively. The aggregate intrinsic
value of the outstanding options at September 30, 2016 was $0.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company entered into a lease agreement for office and
research facilities in Louisiana. One lease is for $10,200 per year for 24
months beginning May 1, 2014. Beginning in May of 2016 this lease became month
to month and is $850 per month. The second lease is $2,600 per month for 24
months beginning on November 1, 2014.
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
|
$
|
18,200
|
|
2017
|
|
-
|
|
2018
|
|
-
|
|
2019
|
|
-
|
|
2020
|
|
-
|
|
|
$
|
18,200
|
|
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.
On September 15, 2016, the Company entered into a Cooperative
Endeavor and Joint Marketing Agreement with T&L Consolidated, LLC whereby
T&L Consolidated, LLC was engaged to locate and identify interested parties
to the Company and assist with brokering the sale of the timer and Daylight Pump
division to such third parties. Upon a sale of Daylight Pumps to a customer
identified by T&L, the parties agree to the following distribution of the
sales proceeds. The first $650,000 shall be paid to the Galenfeha, thereafter
the next $650,000 shall be paid to T&L, and anything in excess of $1,300,000
shall be split equally between the Company and T&L.
Galenfeha entered into an Independent Sales Contract with
Electromax Power Solutions, LLC (EPS) with an initial two year term beginning
October 2016 and ending October 2018. This contract shall automatically renew on
the two year anniversary for an additional one year term. EPS shall facilitate
sales of Galenfeha products, affiliated products, and equipment to customers.
Galenfeha shall pay EPS 20% of all new initial and sustained revenue derived by
EPSs efforts, involvement, sales, and any other activities brought forth by EPS
to Galenfeha. Net sales revenue shall be measured as the product sales price
less cost of goods sold according to generally accepted accounting
principles.
NOTE 12 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 September 30, 2016, 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).
On May 12, 2016, the Company entered into a Promissory Note
Agreement with Diane Moore, a related party, in the amount of $100,000. The note
bears an interest rate of 5% per annum until the balance is paid in full.
Repayment of the loan is due on or before December 31, 2016. As of September 30,
2016, the principal and interest due on the note is $101,846 (the accrued
interest of $1,846 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 and MarionAv, LLC for the nine months ending September 30, 2016
totaled $6,600 and $5,050, respectively. As of September 30, 2016, the
Company had outstanding accounts payable balances to Falcon Resources, LLC
totaling $0 and MarionAv, LLC totaling $0.
F-12
Galenfeha sells a portion of its finished goods to Fleaux
Services, LLC, a company owned by Board Member, Trey Moore. During the three and
nine months ended September 30, 2016, sales to the related company totaled
$28,553 and $64,936, respectively. As of September 30, 2016, the Company had
outstanding receivables from the related party company of $20,121. As of
September 30, 2016, the Company had an outstanding accounts payable balance to
Fleaux Services, LLC totaling $37. During the nine months ended September 30,
2016, the Company paid Fleaux Services, LLC $17,033 for inventory and shop
supply purchases.
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 nine months ended September 30,
2016 purchases from the related company totaled $960. As of September 30, 2016,
the Company had zero outstanding payables to River Cities Machine, LLC.
Galenfeha agreed to pay Lucien Marioneaux, Jr., former
President & CEO, an auto allowance of $1,500 per month. For the nine months
ending September 30, 2016, the Company paid a total of $13,500 to Mr.
Marioneaux.
NOTE 13 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 Companys financial
results.
NOTE 14 SUBSEQUENT EVENTS
On October 5, 2016 JMJ converted $7,800 of the March 2016 JMJ
Convertible Note into a total of 1,300,000 shares of Common Stock at a fair
value of $0.006000 per share.
On October 18, 2016 JMJ converted $9,000 of the March 2016 JMJ
Convertible Note into a total of 1,500,000 shares of Common Stock at a fair
value of $0.006000 per share.
On October 26, 2016, the Company extended an offer to Mr. James
Ketner for the position of interim Chairman of the Board, and Interim CEO. Mr.
Ketner accepted this offer on October 27, 2016 and his position became effective
immediately. Mr. Marioneaux will step down as the Companys President and CEO
effective immediately. The new Board of Directors and executive officer
structure is as follows:
James Ketner Interim Chairman/Interim CEO
LaNell Armour
Director/Secretary/Treasurer
Trey Moore Director
Lucien Marioneaux,
Jr. Director
As of October 31, 2016, the Auctus Note issued on April 22,
2016 had been paid in full and extinguished. There is no common stock remaining
to be converted.
As of November 2, 2016, the Adar Note issued on April 18, 2016
had been paid in full and extinguished. No common stock was converted under this
note, and there is no common stock remaining to be converted.
As of November 4, 2016, the JMJ Note issued on March 2, 2016
had been paid in full and extinguished. The cash payoff amount was $90,000 and
JMJ is to be issued 1,800,000 shares as requested and held in reserve on October
25, 2016. There is no common stock remaining to be converted.
On November 4, 2016, Mr. James Ketner, Galenfehas Interim
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 interests, and can be repaid by the Company when funds become
available. The note can be renegotiated between Galenfeha and Mr. Ketner if both
parties agree to the terms.
As of November 4, 2016, the Company had terminated and
extinguished all of the convertible notes the Company entered into during the
first and second quarters of 2016.
F-13
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and related notes
included in this report and those in our Form 10-K filed with the Securities and
Exchange Commission on March 30, 2016. 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.
Background Overview
Galenfeha incorporated in the
State of Nevada on March 14, 2013, as a for-profit company with a fiscal year
end of December 31. Our executive office is located at 420 Throckmorton Street,
Suite 200, Ft. Worth Texas 76102, and the Companys manufacturing facility is
located at 9204 Linwood Avenue, Suite 104, Shreveport, LA. 71106. Our Telephone
numbers are Toll free
1-800-280-2404
, International
1-817-945-6448
, and our facsimile number is
817-887-1455
. Our
email address is
info@galenfeha.com
and our website address is
www.galenfeha.com
.
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 Companys 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 clients 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 Companys 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.
3
Liquidity
Assets
At September 30, 2016, we had total assets of $1,693,538, of
which $313,817 was in cash.
Results of Operations for the Three Months ending September
30, 2016
Revenues
Revenues for the three months ended September 30, 2016 and 2015
were $322,009, and $275,518, respectively. Of the $322,009; $292,649 were to
third parties and $29,360 were to related parties. Of the $275,518; $249,681
were to third parties and $25,838 were to related parties. The increase is from
the Company reaching out and servicing other industries like the military
instead of completely reliance on the oil and gas industry for batter and pump
sales. Additionally the Company is now much less reliant on sales from related
parties as these sales only represent around 10% of the total revenue
figures.
Cost of Revenues
Cost of Revenues for the three months ended September 30, 2016
and 2015 were $243,493 and $216,141, respectively. Costs were cost of materials
and manufacturing supplies with the increase due to increase of sales compared
with the prior period. Gross profit percentages were very similar to the prior
period presented.
Operating Expense
Total operating expenses for the three months ended September
30, 2016 and 2015 were $228,689 and $784,141, respectively. Expenses decreased
as the Company has decreased its managerial/higher wage workforce and lowered
overhead costs because of the downturn in the oil and gas industry. Furthermore
the Company issued stock options and awards for consulting services and legal
services rendered during the three months ending September 30, 2015. The
accounting treatment of these stock awards and options increased expenses by
$428,522 in the three months ending September 30, 2015.
Net Operating Profit (Loss) and Net Profit (Loss)
Net operating profit (loss) for the three months ended
September 30, 2016 and 2015 was ($150,173) and ($724,763) respectively. The
Company realized a lower net loss because of reduced payroll costs and
corresponding share based compensation relating to employee stock options,
reduced option expense for initial research and development engineering
services, reduced expenses due to shares subscribed for legal services rendered
and lower advertising costs.
Net profit (loss) for the three months ended September 30, 2016
and 2015 was $248,382 and ($759,126) respectively. The Company realized a net
profit compared to the prior period because of fair market value adjustments on
the payoff of certain derivative contracts associated with procuring additional
financing.
Results of Operations for the Nine Months ending September
30, 2016
Revenues
Revenues for the nine months ended September 30, 2016 and 2015
were $729,804, and $835,005, respectively. Of the $729,804; $664,060 were to
third parties and $65,744 were to related parties. Of the $835,005; $279,258
were to third parties and $555,747 were to related parties. The decrease is in
revenue from the Company loosing distribution contracts with oil and gas supply
companies due to lack of demand in the oil and gas industry. However, the
Company is reaching out and servicing other industries like the military instead
of completely reliance on the oil and gas industry for batter and pump sales.
Sales from third parties increased significantly compared to the prior year
because of less dependence on related parties of the Company.
4
Cost of Revenues
Cost of Revenues for the nine months ended September 30, 2016
and 2015 were $535,657 and $521,737, respectively. Costs were cost of materials
and manufacturing supplies with the increase due to sales returns to oil &
gas supply companies and better control of inventory counts compared to the
prior period.
Operating Expense
Total operating expenses for the nine months ended September
30, 2016 and 2015 were $632,171 and $1,351,920, respectively. Expenses decreased
as the Company has decreased its managerial/higher wage workforce and lowered
overhead costs because of the downturn in the oil and gas industry. Furthermore
the Company issued stock options and awards for consulting services and legal
services rendered during the nine months ending September 30, 2015. The
accounting treatment of these stock awards and options increased expenses by
$523,522 in the nine months ending September 30, 2015.
Net Operating Profit (Loss) and Net Profit (Loss)
Net operating profit (loss) for the nine months ended September
30, 2016 and 2015 was ($438,024) and ($1,038,652) respectively. The Company
realized a lower net loss because of reduced payroll costs and corresponding
share based compensation relating to employee stock options, reduced option
expense for initial research and development engineering services, reduced
expenses due to shares subscribed for legal services rendered and lower
advertising costs.
Net profit (loss) for the nine months ended September 30, 2016
and 2015 was ($752,987) and ($1,146,999) respectively. The Company realized a
lower net loss because of lower operating costs compared to the prior
period.
Equity Distribution
Since our incorporation, we have raised capital through private
sales of our common equity. As of September 30, 2016, we have issued 91,816,100
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 Companys internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
5
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, 2015, filed with the SEC on
March 30, 2016. 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: November 14, 2016
|
By:
|
/s/
James Ketner
|
|
Name:
|
James Ketner
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Financial Officer, Principal
|
|
|
Accounting Officer)
|
6
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