SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


[x]     Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended June 30, 2017

-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  000-49819


Global Arena Holding, Inc.

 (Exact name of registrant as specified in its charter)


 

 

 

Delaware

 

33-0931599

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)


208 East 51 st Street, Suite 112

New York, NY

 

10022

(Address of principal executive offices)

 

(Zip Code)


(646) 801-6146

 (Registrant's telephone number, including area code)


Indicate by check mark whether the issuer (1) 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 the 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 has 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 [ ]




1



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerate filer, or a small reporting company as defined by Rule 12b-2 of the Exchange Act):


Large accelerated filer        [  ]

 

Non-accelerated filer             [  ]

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]


The number of outstanding shares of the registrant's common stock,

August 14, 2017:  Common Stock  -  460,669,732


 

 

 

 

 

 

 



 

2



GLOBAL ARENA HOLDING, INC.

FORM 10-Q

For the three and six months ended June 30, 2017

INDEX


PART 1 – FINANCIAL INFORMATION

 

 

 

 

 

Page

Item 1.  Financial Statements (Unaudited)

 

5

Item 2.  Management's Discussion and Analysis of

  Financial Condition and Results of Operations

 

22

Item 3.  Quantitative and Qualitative Disclosure

  About Market Risk

 

29

Item 4.  Controls and Procedures

 

29


PART II – OTHER INFORMATION



 

 

 

Item 1.  Legal Proceedings

 

31

Item 1A.  Risk Factors

 

33

Item 2.  Unregistered Sales of Equity Securities and

  Use of Proceeds

 

33

Item 3.  Defaults upon Senior Securities

 

33

Item 4.  Mine Safety Disclosures

 

33

Item 5.  Other Information

 

33

Item 6.  Exhibits

 

33

 

 

 

SIGNATURES

 

34





3



PART I – FINANCIAL INFORMATION

 

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934.  These statements are based on management’s beliefs and assumptions, and on information currently available to management.  Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider,” or similar expressions are used.

 

Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties, and assumptions.  Our future results and shareholder values may differ materially from those expressed in these forward-looking statements.  Readers are cautioned not to put undue reliance on any forward-looking statements.



 

 

 

 

 

 

 

 

 



 

4



GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

2017

 

2016

 

 

 

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

Current Assets:

 

 

 

 

 

 

 Cash  

 

$

15,059

$

14,227

 

 

 Total current assets

 

15,059

 

14,227

 

 

 

 

 

 

 

 

Deposit for proposed acquisition

 

126,650

 

41,650

Investment

 

 

284,270

 

284,270

Other assets

 

 

3,346

 

3,346

 

 TOTAL ASSETS

$

429,325

$

343,493

 

 

 

 

 

 

 

 

 LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 Current Liabilities:

 

 

 

 

 

 Accounts payable and accrued expenses

$

1,702,697

$

1,377,207

 

 Convertible promissory notes payable, in default

 

1,776,192

 

1,366,815

 

 Convertible promissory notes payable,  

 

 

 

 

 

    net of debt discount of $253,290 and $201,628

 

476,836

 

599,738

 

 Promissory notes payable, in default

 

230,000

 

230,000

 

 Deferred revenue

 

11,750

 

10,000

 

 Derivative liability

 

8,589,215

 

2,010,181

 

 

 Total current liabilities

 

12,786,690

 

5,593,941

 

 

 

 

 

 

 

 

Convertible promissory notes payable,

 

 

 

 

   net of debt discount of $137,185 and $187,100

 

362,815

 

313,468

 

 TOTAL LIABILITIES

 

13,149,505

 

5,907,409

 

 

 

 

 

 

 

 

 STOCKHOLDERS' DEFICIT

 

 

 

 

 

 Preferred stock, $0.0001 par value; 10,000,000 shares authorized;

 

 

 

 

 

 

 none issued and outstanding

 

-

 

-

 

 Common stock, $0.001 par value; 1,000,000,000 shares authorized;

 

 

 

 

 

 

 450,415,723 and 314,350,165 shares issued and outstanding

 

450,416

 

314,350

 

 Additional paid-in capital

 

13,755,413

 

13,374,487

 

 Accumulated deficit

 

(26,926,009)

 

(19,252,753)

 

 

 Total stockholders' deficit

 

(12,720,180)

 

(5,563,916)

 

 TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

429,325

$

343,493


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



5



GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Services

$

275,300

$

322,502

$

352,800

$

989,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Salaries and benefits

-

 

60,377

 

175,296

 

122,107

 

Occupancy

 

1,545

 

15,822

 

2,629

 

29,211

 

Business development

85,256

 

90,465

 

154,371

 

200,604

 

Professional fees

341,298

 

128,359

 

541,444

 

252,888

 

Office and other

54,626

 

107,257

 

85,174

 

372,826

 

     Total operating expenses

482,725

 

402,280

 

958,914

 

977,636

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

(207,425)

 

(79,778)

 

(606,114)

 

11,398

 

 

 

 

 

 

 

 

 

 

Other expenses:

 

 

 

 

 

 

 

 

Interest expense and financing costs

(696,176)

 

(453,881)

 

(3,532,389)

 

(1,211,606)

 

Change in fair value of derivative liability

(4,582,722)

 

(2,171,537)

 

(3,534,753)

 

(2,001,198)

 

     Total operating expenses

(5,278,898)

 

(2,625,418)

 

(7,067,142)

 

(3,212,804)

 

 

 

 

 

 

 

 

 

 

Loss before provision for taxes

(5,486,323)

 

(2,705,196)

 

(7,673,256)

 

(3,201,406)

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

Net loss

 $

(5,486,323)

$

(2,705,196)

$

(7,673,256)

$

(3,201,406)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

375,981,516

 

66,188,813

 

355,487,679

 

59,530,738

 

 

 

 

 

 

 

 

 

 

Loss per share - basic and diluted

 $

(0.01)

$

(0.04)

$

(0.02)

$

(0.05)

 

 

 $

(0.01)

$

(0.04)

$

(0.02)

$

(0.05)


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



6



GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016

(UNAUDITED)

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

$

(7,673,256)

$

(3,201,406)

 

Adjustments to reconcile net loss to

 

 

 

 

 

   net cash used in operating activities:

 

 

 

 

 

 

 

Amortization of debt discount

 

348,450

 

268,636

 

 

 

Change in fair value of derivative liability

 

3,534,753

 

2,001,198

 

 

 

Non-cash financing costs

 

2,979,652

 

547,659

 

 

 

Convertible promissory notes payable issued for penalty interest

34,213

 

194,137

 

 

 

Common stock issued for services

 

60,000

 

-

 

 

 

Debt modification expense

 

-

 

61,845

 

 

Change in current assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses

 

-

 

20,220

 

 

 

Deferred revenue

 

1,750

 

(378,410)

 

 

 

Accounts payable and accrued expenses

 

347,770

 

134,385

 

Net cash used in operating activities

 

(366,668)

 

(351,736)

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Payment of deposit for acquisition

 

(85,000)

 

(10,000)

 

 

Purchase of other assets

 

-

 

(698)

 

Net cash used in investing activities

 

(85,000)

 

(10,698)

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from convertible promissory notes payable

567,500

 

307,500

 

 

Proceeds from the issuance of common stock

 

 

 

130,000

 

 

Repayment of convertible promissory notes payable

 

(115,000)

 

(111,000)

 

Net cash provided by financing activities

 

452,500

 

326,500

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

832

 

(35,934)

 

 

 

 

 

 

 

 

CASH, BEGINNING BALANCE

 

14,227

 

48,400

CASH, ENDING BALANCE

$

15,059

$

12,466

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

Interest

$

-

$

-

 

Income taxes

$

-

$

-

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

Allocated value of warrants and beneficial conversion features related to debt

$

3,321,954

$

999,913

 

Debt converted to common stock

$

179,319

$

41,025

 

Accrued interest added to debt

$

-

$

10,900


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



7



GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

(UNAUDITED)


NOTE 1 - ORGANIZATION


Organization and Business


Global Arena Holding, Inc. (formerly, “Global Arena Holding Subsidiary Corp.”) (“GAHI”), was formed in February 2009, in the state of Delaware.  GAHI and its subsidiaries (the “Company”) was previously a financial services firm and currently is focusing on the following businesses through these subsidiaries:


On February 25, 2015, Global Election Services, Inc. (“GES”), a wholly owned subsidiary was incorporated in the State of Delaware. GES provides comprehensive technology-enabled election services primarily for organized labor associations.


On May 20, 2015, the Company incorporated a wholly owned subsidiary in the State of Delaware called “GAHI Acquisition Corp.”  This entity is to be the merger subsidiary for the potential acquisition of Blockchain Technologies Corp.


Global Arena Investment Management LLC (“GAIM”), a wholly owned subsidiary, provided investment advisory services to its clients.  GAIM was formally registered with the SEC as an investment advisor. This subsidiary is currently inactive.


Global Arena Commodities Corporation (“GACOM”), which is 100% owned by GAHI, ceased all operations in 2014 and the Company plans to close GACOM in 2016.


Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the financial condition of the Company and its operating results for the respective periods. The condensed consolidated balance sheet at December 31, 2016 has been derived from the Company's audited consolidated financial statements. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission. The results for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.




8



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 and cash flow deficits from its continuing operations since inception and has had to continually borrow to continue operating. In addition, with the sale of Global Arena Capital Corp. in August 2014, which was the Company’s principal operating business, the Company’s continuing operations are insufficient to support its ongoing activities. In addition, certain of the Company’s debt went into default and required extensions and adjustments to previously issued warrants and conversion prices.  Certain debt continues to be in default as of June 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The continued operations of the Company are dependent upon its ability to raise additional capital, obtain additional financing and/or acquire or develop a business that generates sufficient positive cash flows from operations.  In May, 2015, the Company entered into an agreement and plan of merger with Blockchain Technologies Corporation (“BTC”), which holds provisional patents and intellectual property for creating a new 3D Blockchain technology. In October, 2015, the Company acquired 10% of the outstanding equity in BTC. The management of the Company is also in negotiations with other companies it believes could be beneficial to the Company’s operations. The Company continues to raise funds from the issuance of additional convertible promissory note. Management is hopeful that with its new focus on business acquisitions and their ability to raise additional funds that the Company should be able to continue as a going concern.


The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation


The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of GAHI and its wholly-owned and majority owned subsidiaries, GES, GAHI Acquisition Corp., GAIM, and GACOM.  All significant intercompany accounts and transactions have been eliminated in consolidation.  


Basic and Diluted Earnings (Loss) Per Share


Earnings per share is calculated in accordance with the ASC 260-10, Earnings Per Share. Basic earnings-per-share is based upon the weighted average number of common shares outstanding. Diluted earnings-per-share is based on the assumption that all dilutive convertible notes, stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price 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.



9




 

June 30,

 

2017

 

2016

Options

3,000,000

 

3,000,000

Warrants

318,281,532

 

78,670,263

Convertible notes

400,695,398

 

461,761,670

Total

721,976,930

 

543,431,933

 

 

 

 


Management Estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Significant estimates reflected in the consolidated financial statements include, but are not limited to, share-based compensation, and assumptions used in valuing derivative liabilities. Actual results could differ from those estimates.


Cash and Cash Equivalents


The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.  


Convertible Debt


Convertible debt is accounted for under FASB ASC 470, Debt – Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital.  The Company calculates the fair value of warrants issued with the convertible instruments using the Black-Scholes valuation method, using the same assumptions used for valuing stock options, except that the contractual life of the warrant is used.  


Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis.  The allocated fair value of the BCF and warrants are recorded as a debt discount and is accreted over the expected term of the convertible debt as interest expense.  


The Company accounts for modifications of its embedded conversion features in accordance with the ASC which requires the modification of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent recognition of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment.




10



Derivative Financial Instruments

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company uses the Black-Scholes-Merton model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.  


Revenue Recognition


The Company’s revenue recognition policies comply with SEC revenue recognition rules and the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-10-S99. The Company earns revenues through various services it provides to its clients. GES’s income is recognized at the presentation date of the certification of the election results. The payments received in advance are recorded as deferred revenue on the balance sheet. Should an election not proceed, all non-refundable deferred revenue will be recognized as revenue.


Share-Based Compensation


The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates .


Fair Value of Financial Instruments


FASB ASC 820, Fair Value Measurement defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability.  The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.




11



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 receivable, cash overdraft, accounts payable and accrued expenses and deferred revenue – The carrying amounts reported in the consolidated balance sheets for these items are a reasonable estimate of fair value due to their short term nature.


Promissory notes payable and convertible promissory notes payable – Promissory notes payable and convertible promissory notes payable are recorded at amortized cost.  The carrying amount approximates their fair value.


The Company uses Level 2 inputs for its valuation methodology for the beneficial conversion feature and warrant derivative liabilities as their fair values were determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.




12



The following table presents the Company’s assets and liabilities required to be reflected within the fair value hierarchy as of June 30, 2017 and December 31, 2016.


 

 

Fair Value

 

Fair Value Measurements at

 

 

As of

 

June 30, 2017

Description

 

June 30, 2017

 

Using Fair Value Hierarchy

 

 

 

 

Level 1

 

Level 2

 

Level 3

Beneficial conversion feature

$

6,148,215

$

-

$

6,148,215

$

-

Warrant derivative  

 

2,441,000

 

 

 

2,441,000

 

 

 

 

 

 

 

 

 

 

 

Total

$

8,589,215

$

-

$

8,589,215

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

Fair Value Measurements at

 

 

As of

 

December 31, 2016

Description

 

December 31, 2016

 

Using Fair Value Hierarchy

 

 

 

 

Level 1

 

Level 2

 

Level 3

Beneficial conversion feature

$

1,752,681

$

-

$

1,752,681

$

-

Warrant derivative  

 

257,500

 

 

 

257,500

 

 

 

 

 

 

 

 

 

 

 

Total

$

2,010,181

$

-

$

2,010,181

$

-

 

 

 

 

 

 

 

 

 

Income Taxes


The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes . ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial statements.




13



Recently Issued Accounting Pronouncements


In January 2017, the FASB issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business . The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.


In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.

 

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory , which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted.  The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.


In August 2016, the FASB issued ASU 2016-15 , Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.


In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting . ASU 2016-09, which amends several aspects of accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016, with early adoption permitted.  This adoption of this accounting standard update had no impact on the Company’s consolidated financial statements.


In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its consolidated financial statements.



14




In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern , which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements.  ASU 2014-15 requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern.  ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter.  This adoption of this accounting standard update had no impact on the Company’s consolidated financial statements.


In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers .  ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition.  ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract.  The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017.   Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein.  Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.  The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's consolidated financial statements.


Other recent accounting pronouncements issued by the FASB and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.


NOTE 3 - INVESTMENT


On October 20, 2015, the Company paid $125,000 in cash and issued to Nikolaos Spanos, 1,377,398 of its common stock (valued at $68,870) and 1,993,911 warrants to purchase its common shares at the exercise price of $0.10 per common share exercisable for three years (valued at $90,400).  The common shares and warrants are being issued for the purchase of 1,000,000 common shares of Blockchain Technologies Corporation (“BTC”).  Said common shares represent ten percent (10%) of the outstanding equity in BTC.  This investment is accounted for under the cost method.


NOTE 4 - PROMISSORY NOTES PAYABLE


In March 2014, the Company issued two promissory notes for a total of $230,000. The interest rate is the short-term applicable federal rate as determined by the Internal Revenue Service for the calendar month plus 10%. These two promissory notes were expired on September 14, 2015 and are in default as of June 30, 2017 and December 31, 2016.




15



NOTE 5 - CONVERTIBLE PROMISSORY NOTES PAYABLE


Convertible promissory notes payable at June 30, 2017 and December 31, 2016 consist of the following:


 

 

June 30, 2017

 

December 31, 2016

Convertible promissory notes with interest at 12% per annum, convertible into common shares at a fixed price ranging from $0.02 to $0.14 per share. Maturity dates range from through November 13, 2018. ($1,010,000 and $995,000 in default at June 30, 2017 and December 31, 2016)

$

1,560,000

$

1,505,000

Convertible promissory notes with interest at 12% per annum, convertible into common shares at a price ranging from $0.08 to $0.14 or a 50% discount from the lowest trade price in the 20 trading days prior to conversion (as of June 30, 2017 the conversion price would be $0.0023 per share) ($448,692 and $79,315 is in default at June 30, 2017 and December 31, 2016)

 

834,818

 

729,749

Convertible promissory notes with interest at 8% per annum, convertible into common shares at a fixed price of $0.02 per share. The maturity date is April 30, 2016.  At June 30, 2017 and December 31, 2016, this note is in default.

 

205,000

 

230,000

Convertible promissory notes with interest at 12% per annum, convertible into 3% of the common shares of GES. The maturity date range from September 20, 20167 to October 15, 2017. ($112,500 and $62,500 is in default at June 30, 2017 and December 31, 2016)

 

406,500

 

406,500

Total convertible promissory notes payable

 

3,006,318

 

2,871,249

Unamortized debt discount

 

(390,475)

 

(388,728)

Convertible promissory notes payable, net discount

 

2,615,843

 

2,482,521

Less notes receivable collateralized by convertible promissory notes payable

 

0

 

(202,500)

 

 

2,615,843

 

2,280,021

Less current portion

 

(2,253,028)

 

(1,966,553)

Long-term portion

$

362,815

$

313,468

 

 

 

 

 




16



During the year ended December 31, 2016, the Company issued six convertible promissory notes payable totaling $405,000 to one investor for which the Company received $202,500 in cash and notes receivable from the same investor totaling $202,500.  Since the notes receivable were issued to the Company as payment for certain convertible promissory notes payable, the Company has not presented these notes receivable as an asset, but as an offset to the convertible promissory notes payable balance. During the six months ended June 30, 2017, the Company issued nine additional convertible promissory notes payable to investors for gross proceeds of $567,500.


A rollfoward of the convertible promissory notes payable from December 31, 2016 to June 30, 2017 is below:


Convertible promissory notes payable, December 31, 2016

$

2,280,021

Issued for cash

 

567,500

Issued for penalty interest

 

34,213

Issued for original issue discount

 

7,895

Repayment for cash

 

(115,000)

Conversion to common stock

 

(157,039)

Debt discount related to new convertible promissory notes

 

(350,197)

Amortization of debt discounts

 

348,450

Convertible promissory notes payable, June 30, 2017

$

2,615,843


NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS


On December 31, 2012, in connection with an extension of the maturity date of certain convertible notes which were due on May 31, 2012, the Company issued the holder a warrant to purchase shares of common stock of the Company not exceeding 9.99% of the issued and outstanding shares and potential issuable shares related to outstanding options, warrants and convertible debt of the Company. The Company determined that the anti-dilution provision feature of the warrants to be an embedded derivative instrument.  This derivative is adjusted to fair value at each balance sheet with the changes in fair value recognized in operations.   In addition, certain of the Company’s convertible promissory notes payable are convertible into shares of the Company’s common stock at a percentage of the market price on the date of conversion.  The Company has determined that the variable conversion rate is an embedded derivative instrument. The Company uses the Black-Scholes valuation method to value the derivative instruments at inception and on subsequent valuation dates. Weighted average assumptions used to estimate fair values are as follows:


 

 

June 30, 2017

 

December 31, 2016

Risk-free interest rate

 

1.24%

 

0.59%

Expected life of the options (Years)

 

0.46

 

0.14

Expected volatility

 

366%

 

375%

Expected dividend yield

 

0%

 

0%

 

 

 

 

 

Fair Value

$

8,589,215

$

2,010,181

 

 

 

 

 




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A rollfoward of the derivative liability from December 31, 2016 to June 30, 2017 is below:


Derivative liabilities, December 31, 2016

$

2,010,181

Conversion features related to new convertible promissory notes

3,044,281

Change in fair value of derivative liabilities

 

3,534,753

Derivative liabilities, June 30, 2017

$

8,589,215


For the six months ended June 30, 2017 and 2016, the Company recognized a change in this derivative liability of ($3,534,753) and ($2,001,198), respectively, in other income (expense).


NOTE 7- STOCKHOLDERS’ DEFICIT


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 six months ended June 30, 2017, the Company issued 125,539,242 shares of common stock for convertible promissory notes payable of $157,039 and accrued interest of $22,280.  In addition, the Company issued 10,526,316 shares of common stock for services rendered valued at $30,000.  The value was determined based on the Company’s closing price on the date of grant.


Option Activity


A summary of the option activity is presented below:


 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

Number of

 

Exercise

 

Contractual

 

Intrinsic

 

 

Options

 

Price ($)

 

Life (in years)

 

Value ($)

Outstanding, December 31, 2016

 

3,000,000

 

0.07

 

3.63

 

-

Granted

 

-

 

 

 

 

 

 

Exercised

 

-

 

 

 

 

 

 

Forfeited/Canceled

 

-

 

 

 

 

 

 

Outstanding, June 30, 2017

 

3,000,000

 

0.07

 

3.13

 

-

Exercisable, June 30, 2017

 

3,000,000

 

0.07

 

3.13

 

-




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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

 

0.08

 

2.17

 

2,140

Granted

 

212,499,999

 

0.0021

 

 

 

 

Exercised

 

-

 

 

 

 

 

 

Forfeited/Canceled

 

(4,367,945)

 

0.28

 

 

 

 

Outstanding, June 30, 2017

 

318,281,532

 

0.02

 

2.36

 

4,781,895

Exercisable, June 30, 2017

 

318,281,532

 

0.02

 

2.36

 

4,781,895


During the six months ended June 30, 2017, the Company issued a total of 172,500,000 warrants in connection with a new convertible notes. The fair values of the warrants were determined using the Black-Scholes option pricing model with the following assumptions:

·

Expected life of 3.0 years

·

Volatility of 366% - 371%;

·

Dividend yield of 0%;

·

Risk free interest rate of 0.71% 1.62%


NOTE 8 - COMMITMENTS AND CONTINGENCIES


The Company may be involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.


On October 10, 2013, GACOM settled a complaint with the National Futures Association for a fine of $50,000 for certain noncompliance with Commodity Futures Trading Commission regulations.  The fine has not been paid and is included in accounts payable and accrued expenses at June 30, 2017 and December 31, 2016.   


Named directors, officers, employees and/or registered representatives of GACC have been called before FINRA for on-the-record interviews in connection with certain FINRA inquiries. GACC has responded to multiple requests for documents and FINRA has taken on-the-record testimony. On October 27, 2014, FINRA indicated that it might recommend enforcement proceedings against GACC, our chairman John Matthews and Brian Joseph Hagerman, the former president and chief compliance officer of GACC. FINRA’s action is commonly referred to as a “Wells Notice” and is a preliminary determination by FINRA staff to recommend disciplinary action against GACC and these individuals.  FINRA is not proposing disciplinary action against the Company.  The allegations are against GACC and these individuals and assert that there were violations of Sections 17(a)(2) and 5 of the Securities Act of 1933 (“Securities Act”); NASD Rules 3010 and 3040; and FINRA Rules 2010, 5122(b)(2) and 5122(b)(1)(B).  GACC and Messrs. Matthews and Hagerman are responding to this Wells Notice and believe that they have meritorious arguments.



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On April 10, 2014, the Legal Section of FINRA formally notified GACC that it had made a preliminary determination to recommend that disciplinary action be brought against GACC for (1) failing to buy and sell corporate bonds at prices that were fair; and (2) failing to have in place a supervisory system that was reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules.  GACC has responded and intends to contest this matter.


On February 11, 2015, John S. Matthews was advised by the staff of FINRA’s Department of Enforcement (the “Staff”) that they intended to recommend that FINRA commence a disciplinary action against Mr. Matthews, in his former capacity as an executive of GACC for a violation of FINRA Rules 2010 and 8210 by failing to provide information to the Staff in what the Staff considered to be a timely manner. Mr. Matthews provided additional materials to FINRA subsequent to the February 11, 2015 notice and submitted a response to the Staff’s allegations on February 25, 2015, disputing the proposed charges against him. Mr. Matthews has at all times cooperated with the Staff’s inquiries and continues to do so.


On December 1, 2015, John S. Matthews, the chief executive officer and director, signed a "Letter of Acceptance, Waiver and Consent ("AWC") with FINRA consenting to the entry of findings by FINRA, without admitting or denying any wrongdoing, that he did not provide any written disclosures to, or receive any written approval from, his member firm prior to selling promissory notes issued by the Company, some of the investors were not qualified purchasers as defined in Section 2(a)(51)(A) of the Investment Company Act, and the sales were not exempt from the requirements of FINRA Rule 5122, and he willfully failed to disclose an unsatisfied $25,590 federal tax lien within 30 days.   The AWC was accepted by FINRA on December 2, 2015.


As a result of the AWC, Mr. Matthews is subject to a six-month suspension from association with any FINRA member, and a fine of $25,000.  As such, Mr. Matthews is statutorily disqualified with respect to association with a FINRA member.


As a result of the AWC, the registrant is statutorily disqualified from relying in the future on certain exemptions from registration of its securities promulgated under Rule 506 of the Securities Act of 1933 (the "Act") for the length of the suspension as long as Mr. Matthews remains an officer and/or director and/or holder of 10% or more of the voting securities of the registrant.


On November 5, 2015, one of the Company’s prior attorneys commenced an action against GAHI, seeking payment of $27,518 in unpaid legal fees. This amount is included in accounts payable. At this time, management is unable to determine what the ultimate outcome of these proceedings will be and whether there will be a material impact on the Company’s operations or the consolidated financial statements.


On December 23, 2014, one of the Company’s prior attorneys commenced an action against GACC, GAHI, and PMC Capital seeking payment of $150,019 in unpaid legal fees. This amount is included in accounts payable. At this time, management is unable to determine what the ultimate outcome of these proceedings will be and whether there will be a material impact on the Company’s operations or the consolidated financial statements.




20



On July 2, 2014, an action was commenced by a group of individuals against GACC, the Company, and the chief executive officer of the Company, which asserts claims for minimum wage and overtime violations under New York State Labor Law, and seeks damages in an amount to be determined at trial, plus interest, attorneys’ fees and costs. At this time, the Company is unable to determine the ultimate outcome of the demand or whether it will result in a formal proceeding or action against the Company or any of its officers.


The Company and certain of its officers were named in connection with a demand for repayment of $695,000 by PMC LLC, in a letter dated October 16, 2014 relating to the Stock Purchase Agreement by and among GAHI and PMC Capital, LLC and Barbara Desiderio, dated as of August 5, 2014. The demand seeks repayment for expenditures made by GACC prior to the sale and the failure to meet certain minimum requirements in the Stock Purchase Agreement. At this time, the Company is unable to determine the ultimate outcome of the demand or whether it will result in a formal proceeding or action against the Company or any of its officers.


NOTE 9– SUBSEQUENT EVENTS


Subsequent to June 30, 2017, the Company issued 10,254,09 shares of common stock in connection with the conversion of convertible promissory notes payable and accrued interest totaling $3,076.


On August 10, 2017, the Company commenced arbitration proceedings with Herrick, Feinstein LLP regarding a billing dispute.


 

 

 

 

 

 

 

 



 

21



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward-looking Statements


Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operation, as well as in certain other parts of this Quarterly Report on Form 10-Q (as well as information included in oral statements or other written statements made or to be made by the Company) that look forward in time, are forward-looking statements made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, expectations, predictions, and assumptions and other statements that are other than statements of historical facts. Although The Company believes such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct.  Such forward-looking statements are subject to, and are qualified by, known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by those statements. These risks, uncertainties and other factors include, but are not limited to the Company’s ability to estimate the impact of competition and of industry consolidation and risks, uncertainties and other factors set forth in the Company’s filings with the Securities and Exchange Commission, including without limitation to this Annual Report on Form 10-K.


GAHI undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.


Critical Accounting Policies


The Company’s financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management's applications of accounting policies. Critical accounting policies for the Company include revenue recognition, valuation of convertible promissory notes and related warrants, stock and stock option compensation, estimates, and derivative financial instruments.




22



The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of GAHI and its wholly-owned and majority owned subsidiaries, GES, GAHI Acquisition Corp., GAIM, and GACOM.  All significant intercompany accounts and transactions have been eliminated in consolidation.  


Revenue Recognition


The Company’s revenue recognition policies comply with SEC revenue recognition rules and the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-10-S99. The Company earns revenues through various services it provides to its clients. GES’s income is recognized at the presentation date of the certification of the election results. The payments received in advance are recorded as deferred revenue on the balance sheet. Should an election not proceed, all non-refundable deferred revenue will be recognized as revenue.


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.  




23



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.


Derivative Financial Instruments

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company uses the Black-Scholes-Merton model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.  


Share-Based Compensation


The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates .




24



R ecent Accounting Pronouncements


Recent accounting pronouncements issued by the FASB and the SEC did not have, are not believed by management to have, a material impact, or are currently evaluating the potential impact of updated authoritative guidance on the Company’s present or future consolidated financial statements.


Trends and Uncertainties


The Company currently has minimal revenues and operations and is investigating potential businesses and companies for acquisition to create and/or acquire a sustainable business. Our ability to acquire or create a sustainable business may be adversely affected by our current financial conditions, availability of capital and/ or loans, general economic conditions which can be cyclical in nature along with prolonged recessionary periods, and other economic and political situations.  


The Company has generated recurring losses and cash flow deficits from its operations since inception and has had to continually borrow to continue operations. These matters 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 generate positive cash flows from operations.  As further described in “Liquidity and Capital Resources”, management believes that it will be successful in obtaining additional financing, from which the proceeds will be primarily used to execute its new operating plans. The Company plans to use its available cash and new financing to develop and execute its new business plan and hopefully create and maintain a self-sustaining business.  However, the Company can give no assurances that it will be successful in achieving its plans or if financing will be available or, if available, on terms acceptable to the Company, or at all.  Should the Company not be successful in obtaining the necessary financing to fund its operations, and ultimately achieve adequate profitability and cash flows from operations, the Company would need to curtail certain or all of its operating activities.  


There are no trends, events or uncertainties that have had or are reasonably expected to have a material impact on the net sales or revenues or income from continuing operations. There are no significant elements of income or loss that do not arise from our continuing operations except for the fair value change on derivative financial instruments and settlement on arbitration.  




25



The rapid advances in computing and telecommunications technology over the past several decades have brought with them increasingly sophisticated methods of delivering financial services through electronic channels. Along with these advances, though, have come risks regarding the integrity and privacy of data, and these risks apply to financial institutions, probably more than any other industry, falling into the general classification of cybersecurity. While it is not possible for anyone to give an absolute guarantee that data will not be compromised, when applicable, the Company shall utilize third-party service providers to secure the Company’s financial and personal data; the Company believes that third-party service providers provide reasonable assurance that the financial and personal data that they hold are secure.


Liquidity and Capital Resources


As of June 30, 2017, the Company has an accumulated deficit of $26,926,009 and a working capital deficit of $12,771,631.  Our ability to continue as a going concern depends upon whether we can ultimately attain profitable operations, generate sufficient cash flow to meet our obligations, and obtain additional financing as needed.


For the six months ended June 30, 2017, the Company recorded a net loss of $7,673,256.  We recorded an amortization of debt discount of $348,450.  We recorded a financing costs associated with the issuance convertible promissory notes payable of $2,979,652 and took a charge to earnings of $34,213 for penalty interest on certain convertible promissory notes payable. We recorded a loss for the change in fair value of derivative liability of $3,534,753.  We had an increase in accounts payable and accrued expenses of $347,770 and an increase in deferred revenue of $1,750.  As a result, we had net cash used in operating activities of $366,668 for the six months ended June 30, 2017.


For the six months ended June 30, 2017, we paid an additional $85,000 as payment for proposed acquisition.  As a result, we had net cash used in investing activities of $85,000 for the period.


For the six months ended June 30, 2017, we received $567,500 as proceeds from the issuance of convertible promissory notes payable.  We repaid convertible promissory notes of $115,000.  As a result, we had net cash provided by financing activities of $452,500 for the period.




26



Management believes that it will be able to continue its operations and further advance its acquisition plans. However, management cannot give assurances that such plans will materialize and be successful in the near term or on terms advantageous to the Company, or at all. Should the Company not be successful in its new business plans or obtain additional financing, the Company would need to curtail certain or all of its operating activities.


The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors for the years ended December 31, 2016 and 2015 have included a “going concern” modification in their auditors’ reports.  A “going concern” modification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot presently be determined.


The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve our operating results


Results of Operations for the Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016


Revenues for the three months ended June 30, 2017 were $275,300 compared to $322,502 for the three months ended June 30, 20176, a decrease of $47,202.  The decrease is due to a slowdown in our election services business.


Salaries and benefits and stock-based compensation totaled $0 for the three months ended June 30, 2017 compared to $60,377 for the three months ended June 30, 2016, a decrease of $60,377 due to us hiring outside consultants rather than salaried employees.


Professional fees for the three months ended June 30, 2017 amounted to $341,298 compared to $128,359 for the three months ended June 30, 2016, an increase of $212,939.  The increase is due to us hiring outside consultants rather than salaried employees and additional legal and accounting fees.




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For the three months ended June 30, 2017, we had occupancy expenses of $1,545, business development expenses of $85,256, and office and other expenses of $54,626, totaling $141,427. Comparatively, for the three months ended June 30, 2016, we had occupancy expenses of $15,822, business development expenses of $90,465, and office and other expenses of $107,257 totaling $213,544.  Decrease in these expenses was $72,117 principally due to a decrease in office and other expenses due to management focusing on reducing costs.


Total operating expenses for the three months ended June 30, 2017 were $482,725 compared to $402,280 for the three months ended June 30, 2016, an increase of $80,445 principally due to reasons discussed above.


Results of Operations for the Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016


Revenues for the six months ended June 30, 2017 were $352,800 compared to $989,034 for the six months ended June 30, 20176, a decrease of $636,234.  The decrease is due to a slowdown in our election services business beginning in the third quarter of 2016.


Salaries and benefits and stock-based compensation totaled $175,296 for the six months ended June 30, 2017 compared to $122,107 for the six months ended June 30, 2016, an increase of $53,189 due to compensation accrued put not paid to our CEO and another employee.


Professional fees for the six months ended June 30, 2017 amounted to $541,444 compared to $252,888 for the six months ended June 30, 2016, an increase of $288,556.  The increase is due to us hiring outside consultants rather than salaried employees and additional legal and accounting fees.


For the six months ended June 30, 2017, we had occupancy expenses of $2,629, business development expenses of $154,371, and office and other expenses of $85,171, totaling $242,174. Comparatively, for the six months ended June 30, 2016, we had occupancy expenses of $29,211, business development expenses of $200,604, and office and other expenses of $372,826 totaling $602,641.  Decrease in these expenses was $360,467 principally due to a decrease in office and other expenses due to management focusing on reducing costs.




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Total operating expenses for the six months ended June 30, 2017 were $958,914 compared to $977,636 for the six months ended June 30, 2016, a decrease of $18,722 principally due to reasons discussed above.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk


Not applicable for smaller reporting companies.


Item 4.  Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of June 30, 2017.  


We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Based on this evaluation, our chief executive officer and chief financial officer have concluded such controls and procedures to be not effective as of June 30, 2017 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.




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Evaluation of Changes in Internal Control over Financial Reporting


Our chief executive officer and chief financial officer have evaluated changes in our internal controls over financial reporting that occurred during the six months ended June 30, 2017.  Based on that evaluation, our chief executive officer and chief financial officer, or those persons performing similar functions, did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


I mportant Considerations


The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.


Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.




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PART II - OTHER INFORMATION


Item 1.   Legal Proceedings  


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 June 30, 2017 and December 31, 2016.  


Named directors, officers, employees and/or registered representatives of GACC have been called before FINRA for on-the-record interviews in connection with certain FINRA inquiries. GACC has responded to multiple requests for documents and FINRA has taken on-the-record testimony. On October 27, 2014, FINRA indicated that it might recommend enforcement proceedings against GACC, our chairman John Matthews and Brian Joseph Hagerman, the former president and chief compliance officer of GACC. FINRA’s action is commonly referred to as a “Wells Notice” and is a preliminary determination by FINRA staff to recommend disciplinary action against GACC and these individuals.  FINRA is not proposing disciplinary action against the Company.  The allegations are against GACC and these individuals and assert that there were violations of Sections 17(a)(2) and 5 of the Securities Act of 1933 (“Securities Act”); NASD Rules 3010 and 3040; and FINRA Rules 2010, 5122(b)(2) and 5122(b)(1)(B).  GACC and Messrs. Matthews and Hagerman are responding to this Wells Notice and believe that they have meritorious arguments. On October 30, 2015, John Matthews submitted a Letter of Acceptance, Waiver and Consent (“AWC”) to FINRA for purposes of proposing a settlement.

 

On February 11, 2015, John S. Matthews was advised by the staff of FINRA’s Department of Enforcement (the “Staff”) that they intended to recommend that FINRA commence a disciplinary action against Mr. Matthews, in his former capacity as an executive of GACC for a violation of FINRA Rules 2010 and 8210 by failing to provide information to the Staff in what the Staff considered to be a timely manner. Mr. Matthews provided additional materials to FINRA subsequent to the February 11, 2015 notice and submitted a response to the Staff’s allegations on February 25, 2015, disputing the proposed charges against him. Mr. Matthews has at all times cooperated with the Staff’s inquiries and continues to do so. On October 30, 2015, John Matthews submitted a Letter of Acceptance, Waiver and Consent (“AWC”) to FINRA for purposes of proposing a settlement.




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On April 10, 2014, the Legal Section of FINRA formally notified GACC that it had made a preliminary determination to recommend that disciplinary action be brought against GACC for (1) failing to buy and sell corporate bonds at prices that were fair; and (2) failing to have in place a supervisory system that was reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules.  GACC has responded and intends to contest this matter. On October 30, 2015, John Matthews submitted a Letter of Acceptance, Waiver and Consent (“AWC”) to FINRA for purposes of proposing a settlement.


On December 23, 2014, one of the Company’s prior attorneys commenced an action against GACC, GAHI, and PMC Capital seeking payment of $150,019 in unpaid legal fees. This amount is included in accounts payable. At this time, management is unable to determine what the ultimate outcome of these proceedings will be and whether there will be a material impact on the Company’s operations or the consolidated financial statements.


On July 2, 2014, an action was commenced by a group of individuals against GACC, the Company, and the chief executive officer of the Company, which asserts claims for minimum wage and overtime violations under New York State Labor Law, and seeks damages in an amount to be determined at trial, plus interest, attorneys’ fees and costs. Pursuant to a stipulation, the time for defendants to answer, move or otherwise respond to the Complaint was extended to and including June 1, 2015.


The Company and certain of its officers were named in connection with a demand for repayment of $695,000 by PMC LLC, in a letter dated October 16, 2014 relating to the Stock Purchase Agreement by and among GAHI and PMC Capital, LLC and Barbara Desiderio, dated as of August 5, 2014. The demand seeks repayment for expenditures made by GACC prior to the sale and the failure to meet certain minimum requirements in the Stock Purchase Agreement. At this time, the Company is unable to determine the ultimate outcome of the demand or whether it will result in a formal proceeding or action against the Company or any of its officers.


On December 1, 2016, an action was commenced by an individual against GES, the Company, and the chief executive officer of the Company, which asserts claims for violation of the Fair Labor Standards Act, and overtime violations under New York State Labor Law, and seeks damages in an amount to be determined at trial, plus interest, attorneys’ fees and costs. At this time, the Company is unable to determine the ultimate outcome of the demand or whether it will result in a formal proceeding or action against the Company or any of its officers.


On August 10, 2017, the Company commenced arbitration proceedings with Herrick, Feinstein LLP regarding a billing dispute.




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Item 1A.  Risk Factors


Not applicable for smaller reporting company


Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds


During the three months ended June 30, 2017, the Company issued 96,847,220 shares of common stock for convertible promissory notes payable of $164,811.  In addition, the Company issued 10,526,316 shares of common stock for services rendered by members of the board of directors.


The above shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.


Item 3.   Defaults Upon Senior Securities  


The Company is currently in default on $1,776,192 of convertible promissory notes payable and $230,000 of promissory notes.


Item 4.  Mine Safety Disclosures

Not applicable


Item 5.   Other Information  

None


Item 6.   Exhibits

Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of

  2002

Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of

  2002

101.INS**   XBRL Instance Document

101.SCH**   XBRL Taxonomy Extension Schema Document

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**   XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**   XBRL Taxonomy Extension Label Linkbase Document

101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document


*  Filed herewith

**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. To be filed by amendment.




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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.


Dated: August 14, 2017


Global Arena Holding, Inc.



/s/John Matthews

   John Matthews

   Chief Executive Officer

   Chief Financial Officer

 

 

 

 

 

 

 

 

 



 

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