NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
NOTE 1 - ORGANIZATION
Organization and Business
Global Arena Holding, Inc. (formerly, “Global Arena Holding Subsidiary Corp.”) (“GAHI”), was formed in February 2009, in the state of Delaware. GAHI and its subsidiaries (the “Company”) was previously a financial services firm and currently is focusing on the following businesses through these subsidiaries:
On February 25, 2015, Global Election Services, Inc. (“GES”), a wholly owned subsidiary was incorporated in the State of Delaware. GES provides comprehensive technology-enabled election services primarily for organized labor associations.
On May 20, 2015, the Company incorporated a wholly owned subsidiary in the State of Delaware called “GAHI Acquisition Corp.” This entity was to be the merger subsidiary for the potential acquisition of Blockchain Technologies Corp. (See Note 9) The Board of Directors is currently reviewing potential opportunities, for this entity.
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates the continuation of the Company as a going concern. The Company has generated recurring losses from operations and cash flow deficits from its operations since inception and has had to continually borrow to continue operating. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The continued operations of the Company are dependent upon its ability to raise additional capital, obtain additional financing and/or acquire or develop a business that generates sufficient positive cash flows from operations. In May, 2015, the Company entered into an agreement and plan of merger with Blockchain Technologies Corporation (“BTC”), which holds provisional patents and intellectual property for creating a new Elections Blockchain technology. In October, 2015, the Company acquired 10% of the outstanding equity in BTC. The management of the Company is also in negotiations with other companies it believes could be beneficial to the Company’s operations. The Company continues to raise funds from the issuance of additional convertible promissory note. Management is hopeful that with its new focus on business acquisitions and their ability to raise additional funds that the Company should be able to continue as a going concern.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of GAHI and its wholly-owned and majority owned subsidiaries, GES and GAHI Acquisition Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
31
Basic and Diluted Earnings (Loss) Per Share
Earnings per share is calculated in accordance with the ASC 260-10,
Earnings Per Share.
Basic earnings-per-share is based upon the weighted average number of common shares outstanding. Diluted earnings-per-share is based on the assumption that all dilutive convertible notes, stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive.
|
December 31,
|
|
2018
|
|
2017
|
Options
|
48,000,000
|
|
48,000,000
|
Warrants
|
466,276,590
|
|
337,392,015
|
Convertible notes
|
2,305,126,959
|
|
331,182,784
|
Total
|
2,819,403,549
|
|
716,574,799
|
Management Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates reflected in the consolidated financial statements include, but are not limited to, share-based compensation, and assumptions used in valuing derivative liabilities. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Convertible Debt
Convertible debt is accounted for under FASB ASC 470,
Debt – Debt with Conversion and Other Options.
The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants issued with the convertible instruments using the Black-Scholes valuation method, using the same assumptions used for valuing stock options, except that the contractual life of the warrant is used.
Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis. The allocated fair value of the BCF and warrants are recorded as a debt discount and is accreted over the expected term of the convertible debt as interest expense.
The Company accounts for modifications of its embedded conversion features in accordance with the ASC which requires the modification of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent recognition of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment.
32
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives pursuant to ASC 815,
Derivatives and Hedging
. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company uses the Black-Scholes-Merton model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Revenue Recognition
Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
("
Topic 606
"), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the "modified retrospective" transition method for open contracts for the implementation of
Topic 606.
As
sales are and have been primarily from election services, and the Company has no significant post-delivery obligations, this new standard did not
result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under
Topic 605, Revenue Recognition
.
Revenue from election services are recognized under
Topic 606
in a manner that reasonably reflects the delivery of its services to customers in return for expected consideration and includes the following elements:
executed contracts with the Company’s customers that it believes are legally enforceable;
identification of performance obligations in the respective contract;
determination of the transaction price for each performance obligation in the respective contract;
allocation the transaction price to each performance obligation; and
recognition of revenue only when the Company satisfies each performance obligation.
Revenue is recognized when the Company completes its obligations under the contracts with its customers and revenue is generally recognized at the presentation date of the certification of the election results. The payments received in advance are recorded as deferred revenue on the balance sheet. Should an election not proceed, all non-refundable deferred revenue will be recognized as revenue.
:
Share-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic of the ASC, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates
.
33
Fair Value of Financial Instruments
FASB ASC 820,
Fair Value Measurement
defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.
Fair Value Measurements
The Company applies the provisions of ASC 820-10,
Fair Value Measurements and Disclosures.
ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Cash, accounts payable and accrued expenses and deferred revenue
– The carrying amounts reported in the consolidated balance sheets for these items are a reasonable estimate of fair value due to their short term nature.
Promissory notes payable and convertible promissory notes payable
– Promissory notes payable and convertible promissory notes payable are recorded at amortized cost. The carrying amount approximates their fair value.
The Company uses Level 2 inputs for its valuation methodology for the beneficial conversion feature and warrant derivative liabilities as their fair values were determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.
The following table presents the Company’s assets and liabilities required to be reflected within the fair value hierarchy as of December 31, 2018 and 2017.
|
|
Fair Value
|
|
Fair Value Measurements at
|
|
|
As of
|
|
December 31, 2018
|
Description
|
|
December 31, 2018
|
|
Using Fair Value Hierarchy
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Beneficial conversion feature
|
$
|
1,269,238
|
$
|
-
|
$
|
1,269,238
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,269,238
|
$
|
-
|
$
|
1,269,238
|
$
|
-
|
|
|
|
|
|
|
|
|
|
34
|
|
Fair Value
|
|
Fair Value Measurements at
|
|
|
As of
|
|
December 31, 2017
|
Description
|
|
December 31, 2017
|
|
Using Fair Value Hierarchy
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Beneficial conversion feature
|
$
|
12,303,572
|
$
|
-
|
$
|
12,303,572
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
12,303,572
|
$
|
-
|
$
|
12,303,572
|
$
|
-
|
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial statements.
Reclassifications
Certain prior period amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the net loss or stockholders’ deficit.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The adoption of this ASU did not have an impact on its financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash,
which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of this ASU did not have an impact on its financial statements.
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The
35
adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15
, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of this ASU did not have an impact on its financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company adopted this ASU beginning on January 1, 2018 and used the modified prospective method of adoption. The adoption of this ASU did not have a material impact on the Company’s financial statements and disclosures.
Other recent accounting pronouncements issued by the FASB and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
NOTE 3 - INVESTMENT
On October 20, 2015, the Company paid $125,000 in cash and issued to Nikolaos Spanos, 1,377,398 of its common stock (valued at $68,870) and 1,993,911 warrants to purchase its common shares at the exercise price of $0.10 per common share exercisable for three years (valued at $90,400). The common shares and warrants are being issued for the purchase of 1,000,000 common shares of Blockchain Technologies Corporation (“BTC”). Said common shares represent ten percent (10%) of the outstanding equity in BTC. This investment is accounted for under the cost method.
NOTE 4 - PROMISSORY NOTES PAYABLE
In March 2014, the Company issued two promissory notes for a total of $230,000. The interest rate is the short-term applicable federal rate as determined by the Internal Revenue Service for the calendar month plus 10%. These two promissory notes are due on June 30, 2019, as amended.
36
NOTE 5 - CONVERTIBLE PROMISSORY NOTES PAYABLE
Convertible promissory notes payable at December 31, 2018 and 2017 consist of the following:
|
|
2018
|
|
2017
|
Convertible promissory notes with interest at 12% per
annum, convertible into common shares at a fixed price
ranging from $0.01 to $0.25 per share. Maturity dates
through December 31, 2019, as amended.
|
$
|
1,939,000
|
$
|
1,552,500
|
Convertible promissory notes with interest at 12% per
annum, convertible into common shares at a price
ranging from $0.08 to $0.14 or a 50% to 60% discount
from the lowest trade price in the 20-25 trading days
prior to conversion (as of December 31, 2018 the
conversion price would be $0.001 to $0.008 per share).
Maturity dates through December 31, 2019, as amended.
|
|
1,717,701
|
|
808,157
|
Convertible promissory notes with interest at 8% per
annum, convertible into common shares at a fixed price
of $0.02 per share. The maturity date is September 30,
2019, as amended.
|
|
213,572
|
|
205,000
|
Convertible promissory notes with interest at 12% per
annum, convertible into 3% of the common shares of
GES. The maturity dates through December 31, 2019, as
amended.
|
|
591,500
|
|
406,500
|
Total convertible promissory notes payable
|
|
4,461,773
|
|
2,972,157
|
Unamortized debt discount
|
|
(297,608)
|
|
(760,942)
|
Convertible promissory notes payable, net discount
|
|
4,164,165
|
|
2,211,215
|
Less notes receivable collateralized by convertible
promissory notes payable
|
|
(525,000)
|
|
(32,000)
|
|
|
3,639,165
|
|
2,179,215
|
Less current portion
|
|
(3,639,165)
|
|
(2,179,215)
|
Long-term portion
|
$
|
-
|
$
|
-
|
|
|
|
|
|
During the year ended December 31, 2018, the Company issued convertible promissory notes payable totaling $982,000 to one investor for which the Company received $335,000 in cash and notes receivable from the same investor totaling $575,000. During the year ended December 31, 2018, the Company received $50,000 from a note receivable. These convertible promissory notes payable also contained an original issue discount of $72,000. Since the notes receivable were issued to the Company as payment for certain convertible promissory notes payable, the Company has not presented these notes receivable as an
37
asset, but as an offset to the convertible promissory notes payable balance as the investor has the right of offset.
A rollforward of the convertible promissory notes payable from December 31, 2016 to December 31, 2018 is below:
Convertible promissory notes payable, December 31, 2016
|
$
|
2,280,021
|
Issued for cash
|
|
1,174,500
|
Issued for penalty interest
|
|
138,321
|
Issued for original issue discount
|
|
47,895
|
Repayment for cash
|
|
(363,000)
|
Conversion to common stock
|
|
(726,308)
|
Debt discount related to new convertible promissory notes
|
|
(1,029,197)
|
Amortization of debt discounts
|
|
656,983
|
Convertible promissory notes payable, December 31, 2017
|
|
2,179,215
|
Issued for cash
|
|
1,109,000
|
Issued for penalty interest
|
|
392,676
|
Issued for original issue discount
|
|
72,000
|
Repayment for cash
|
|
(22,500)
|
Conversion to common stock
|
|
(554,560)
|
Debt discount related to new convertible promissory notes
|
|
(1,523,542)
|
Amortization of debt discounts
|
|
1,986,876
|
Convertible promissory notes payable, December 31, 2018
|
$
|
3,639,165
|
NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS
Certain of the Company’s convertible promissory notes payable are convertible into shares of the Company’s common stock at a percentage of the market price on the date of conversion. The Company has determined that the variable conversion rate is an embedded derivative instrument. The Company uses the Black-Scholes valuation method to value the derivative instruments at inception and on subsequent valuation dates. Weighted average assumptions used to estimate fair values are as follows:
|
|
December 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
Risk-free interest rate
|
|
2.51%
|
|
1.76%
|
Expected life of the options (Years)
|
|
0.43
|
|
0.12
|
Expected volatility
|
|
314%
|
|
479%
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
|
|
|
|
Fair Value
|
$
|
1,269,238
|
$
|
12,303,572
|
A rollforward of the derivative liability from December 31, 2016 to December 31, 2018 is below:
Derivative liabilities, December 31, 2016
|
$
|
2,010,181
|
Conversion features related to new convertible promissory notes
|
4,690,388
|
Change in fair value of derivative liabilities
|
|
5,603,003
|
Derivative liabilities, December 31, 2017
|
|
12,303,572
|
Conversion features related to new convertible promissory notes
|
1,756,637
|
Change in fair value of derivative liabilities
|
|
(12,790,971)
|
Derivative liabilities, December 31, 2018
|
$
|
1,269,238
|
38
NOTE 7- STOCKHOLDERS’ DEFICIT
Series B Preferred Stock
Pursuant to the Company’s Certificate of Incorporation, the Company has authorized 2,000,000 shares of $0.001 par value Preferred Stock. The Company has designated 250,000 of the 2,000,000 shares as Series B Preferred Stock. The Series B Preferred stockholders are entitled to a cumulative stock dividend, up to a maximum of 10% additional common stock upon the conversion after one year. The Series B Preferred Stock may be converted into common shares, at any time, at the option of the holder. The conversion price shall be the greater of $0.01 or 90% of the lowest closing price during the five most recent trading days prior to conversion. The number of common shares to be issued shall be the number of Series B Preferred shares times $10 per shares divided by the conversion price.
During the year ended December 31, 2017, the Company sold 90,000 shares of Series B Preferred Stock for cash proceeds of $900,000. During the year ended December 31, 2018, 30,000 of these preferred shares were converted into 30,743,885 shares of common stock
Common Stock
On April 28, 2016 the stockholders approved an amendment to the Company’s articles of incorporation to increase the number of authorized common shares from 100,000,000 to 1,000,000,000. In addition, the stockholders also approved an amendment to the Company’s Stock Awards Plan, originally filed June 27, 2011, which will increase the number of shares authorized to be issued under the Plan from 3,000,000 shares to 7,460 ,000 shares.
During the year ended December 31, 2018, the Company issued 200,004,307 shares of common stock for convertible promissory notes payable of $554,560 and accrued interest of $105,925. Also, the Company issued 64,160,521 shares of stock for settlements of $293,219. The shares were valued based on the market price on the grant date. In addition, the Company issued 30,743,885 shares of common stock for the conversion of 30,000 shares of Series B Preferred Stock.
Option Activity
A summary of the option activity is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Price ($)
|
|
Life (in years)
|
|
Value ($)
|
Outstanding, December 31, 2016
|
|
3,000,000
|
|
0.07
|
|
3.63
|
|
-
|
Granted
|
|
45,000,000
|
|
0.02
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
-
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
48,000,000
|
|
0.03
|
|
4.80
|
|
549,000
|
Granted
|
|
-
|
|
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
-
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
48,000,000
|
|
0.03
|
|
3.80
|
|
-
|
Exercisable, December 31, 2018
|
|
48,000,000
|
|
0.03
|
|
3.80
|
|
-
|
39
Warrant Activity
A summary of warrant activity is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
Warrants
|
|
Price ($)
|
|
Life (in years)
|
|
Value ($)
|
Outstanding, December 31, 2016
|
|
110,149,478
|
|
0.080
|
|
2.17
|
|
2,140
|
Granted
|
|
241,759,782
|
|
0.006
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
(14,517,245)
|
|
0.220
|
|
|
|
|
Outstanding, December 31, 2017
|
|
337,392,015
|
|
0.020
|
|
2.08
|
|
8,634,053
|
Granted
|
|
161,493,143
|
|
0.016
|
|
|
|
|
Exercised
|
|
-
|
|
|
|
|
|
|
Forfeited/Canceled
|
|
(32,608,568)
|
|
0.100
|
|
|
|
|
Outstanding, December 31, 2018
|
|
466,276,590
|
|
0.013
|
|
1.95
|
|
14,560
|
Exercisable, December 31, 2018
|
|
466,276,590
|
|
0.013
|
|
1.95
|
|
14,560
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2018, the Company issued a total of 157,993,143 warrants in connection with a new convertible promissory note payable. The fair values of the warrants were determined using the Black-Scholes option pricing model with the following assumptions:
Expected life of 3-5 years
Volatility of 314% - 337%;
Dividend yield of 0%;
Risk free interest rate of 2.06% - 2.74%
During the year ended December 31, 2018, the Company issued 3,500,000 warrants to a consultant for services rendered valued at $14,603. The fair values of the warrants were determined using the Black-Scholes option pricing model with the following assumptions:
Expected life of 3 years
Volatility of 328%;
Dividend yield of 0%;
Risk free interest rate of 2.68%
NOTE 8 – INCOME TAXES
As of December 31, 2018, the Company had approximately $18,700,000 of federal net operating loss carryforwards available to offset future taxable income. These net operating losses which, if not utilized, begin expiring in 2029. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss carryforwards may be subject to an annual limitation in the event of a change of control.
Deferred income taxes reflect the net tax effects of net operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management
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considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
FASB ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates, the length of carryback and carryforward periods, and expectations of future profits, etc. The Company believes that significant uncertainty exists with respect to the future realization of the deferred tax assets and has therefore established a full valuation allowance as of December 31, 2018 and 2017. The change in the deferred tax valuation allowance increased (decreased) by approximately $676,000 and $(2,119,000) during the years ended December 31, 2018 and 2017, respectively. The decrease in 2017 was a result of a reduction of federal income tax rate from 34% to 21% offset additional operating losses and in 2017. The increase in 2018 was a result of additional net operating losses.
The components of deferred tax assets (liabilities) at December 31, 2018 and 2017 are as follows:
|
|
2018
|
|
2017
|
Deferred income tax asset
|
|
|
|
|
Net operating loss carryforwards
|
$
|
5,284,000
|
$
|
4,608,000
|
Less: valuation allowance
|
|
(5,284,000)
|
|
(4,608,000)
|
Net deferred tax asset
|
$
|
-
|
$
|
-
|
The Company evaluated the provisions of FASB ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carryforward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of FASB ASC 740. Interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “interest expense, net” in the statement of operations. Penalties would be recognized as a component of “general and administrative expenses.” No interest or penalties were recorded during the years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, no liability for unrecognized tax benefits was required to be reported.
The Company files income tax returns in the United States and in New York State and City. The Company is no longer subject to Federal, state and local income tax examinations by the tax authorities for tax years prior to 2014.
The reconciliation between the statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2018 and 2017 is as follows:
|
|
2018
|
|
2017
|
|
|
|
|
|
Federal statutory rates
|
|
21.0%
|
|
(34.0%)
|
State income taxes, net of federal benefit
|
|
6.0%
|
|
(6.0%)
|
Non-deductible expenses
|
|
(32.8%)
|
|
34.4%
|
Valuation allowance against net deferred tax assets
|
|
5.8%
|
|
5.6%
|
Effective rate
|
|
0.0%
|
|
0.0%
|
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NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company may be involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.
On October 10, 2013, GACOM settled a complaint with the National Futures Association for a fine of $50,000 for certain noncompliance with Commodity Futures Trading Commission regulations. The fine has not been paid and is included in accounts payable and accrued expenses at December 31, 2018 and December 31, 2017. The Company is currently attempting to adjudicate and settle this fine.
On November 5, 2015, one of the Company’s prior attorneys commenced an action against GAHI, seeking payment of $27,518 in unpaid legal fees. This amount is included in accounts payable. On June 22, 2017, the Company made a $5,000 payment adding to the previous payments totaling $22,518 in 2016. The Company made a final payment and the matter has been discharged.
On December 26, 2017, the Company entered into a settlement agreement with a prior attorney with regards to outstanding legal fees owed. Pursuant to this settlement agreement, the Company paid $25,000 on January 5, 2018, and $ 25,000 on February 5, 2018, and was required to pay an additional $200,000 during 2018. The $ 200,000 settlement is in default, and is carried in the accounts payable, however the Company is in the process of settling the outstanding balance.
NOTE 10– AGREEMENTS
On June 28, 2018, the Company entered into an application development and services agreement with Synectic Advisors. Under the terms of the agreement Synectic Advisors will connect the election software programs to the Blockchain. Under the terms of the agreement, the Company will pay $85,000, 4.99% of the Company’s common stock, upon approval of the corporate actions at the 2019 annual meeting, and a 6% net revenue participation. On August 2, 2018 the Company made a $20,000 payment and work is ongoing.
NOTE 11– SUBSEQUENT EVENTS
On May 13, 2019, the Company entered into a joint venture agreement with Voting Portals, LLC (VP), a Florida limited liability company. Pursuant to this agreement, the joint venture will be making use of the VP online e-voting web portal solutions and proprietary e-voting software programs to service and fulfill GES’s clients’ online elections and other e-voting events pursuant to the terms of the agreement, as well as any other ventures and relationships agreed to pursuant to the goals of the agreement. The Agreement was amended and as part of this agreement, the Company will be issuing 10,000,000 common shares to VP for services rendered, upon approval of the corporate actions at the 2019 annual meeting. VP will own 100% of the rights to the software, while GES will be responsible for all administrative and other election procedures. The closing of this transaction will occur upon the approval of certain corporate actions at the 2019 annual meeting.
On May 13, 2019, the Company amended the master services agreement with HCAS Technologies (the “MSA”), Under the MSA, the Company will be acquiring information technology services and management from HCAS Technologies, as well as retaining Mr. Magdiel Rodriguez to act as Chief Information Officer. Pursuant to this Amended MSA, the Company will issue a total of 30,000,000 warrants to purchase the Company’s common shares at a price of $0.005 as consideration for the services of HCAS and Mr. Magdiel. The closing of this transaction will occur upon the approval of certain corporate actions at the 2019 annual meeting.
42
On May 10, 2019, the Company entered into an asset purchase agreement with Election Services Solutions, LLC (the “APA”). Under the APA, the Company will purchase 100% of the assets of Election Services Solutions, LLC. The Company will pay $550,000, of which $501,150 has already been paid, and issue 20,000,000 common shares to purchase these assets under this APA. The closing of this transaction will occur upon the approval of certain corporate actions at the 2019 annual meeting.
Subsequent to December 31, 2018, the Company issued promissory notes totaling $107,500.
43