GLFH Galenfeha Inc (PK)

Galenfeha, Inc.
Consolidated Statements of Cash Flows

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

Galenfeha, Inc.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017

NOTE 1 – BASIS OF PRESENTATION

Galenfeha was incorporated on March 14, 2013 in the state of Nevada. Our corporate office is located at 420 Throckmorton Street, Suite 200, Ft. Worth Texas 76102, and our telephone number is 1-817-945-6448. Our website is www.galenfeha.com.

On January 29, 2018, the Company acquired substantially all of the operating assets of Fleaux Solutions, LLC, a Louisiana Limited Liability Company (the "Acquisition") a Company with common officers and directors. There was no common majority ownership between the Company and Fleaux Solutions, LLC. Fleaux Solutions, LLC is engaged in the business of water, utility, and sewage construction. Upon the closing of the Acquisition, the Company received substantially all of the operating assets of Fleaux Solutions, LLC, consisting of cash on hand, inventory, accounts receivable, and fixed assets. There are common directors/officers of Fleaux Solutions, LLC with Galenfeha, Inc. and no common majority control.

The purchase price of the operating assets of Fleaux Solutions, LLC was a cash payment of $1. In addition, the Company assumed $2,155,331 of scheduled liabilities.

The Company accounted for its acquisition of the operating assets of Fleaux Solutions, LLC using the acquisition method of accounting. Fleaux Solutions cash on hand, inventories, accounts receivable, and fixed assets acquired and liabilities assumed were recorded based upon their estimated fair values as of the closing date of the Acquisition. The excess of purchase price over the value of the net assets acquired was recorded as goodwill. (See Note 4)

The basis of presentation is not consistent between the successor and predecessor entities and the financial statements are not presented on a comparable basis. As a result, the accompanying consolidated statements of operations, cash flows and comprehensive income (loss) are presented for two different reporting entities:

Successor — relates to the combined entities financial periods and balance sheets succeeding the Acquisition; and Predecessor — relates to the financial of Fleaux Solutions, LLC periods preceding the Acquisition (prior to January 29, 2018).

Unless otherwise indicated, the “Company” as used throughout the remainder of the notes, refers to both the Successor and Predecessor. A condensed version of our 2019 Statement of Work is as follows:

Correction of Previously Reported Interim Information

During the audit of the Company’s consolidated financial statements for the year ended December 31, 2018, the Company identified errors related to the Predecessor’s inventory accounting, accounts receivable, depreciation of property and equipment, accounting for capital and operating leases and unrecorded liabilities.

This resulted in adjustments to the previously reported amounts in the unaudited financial statements of the Company as of December 31, 2017 (Predecessor) and the period from January 1, 2018 through January 29, 2018 (Predecessor). In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and SAB 108), the Company evaluated these errors and, based on an analysis of quantitative and qualitative factors, determined that the errors were immaterial to the prior reporting periods affected. Therefore, as permitted by SAB 108, the Company corrected, in the current filing, previously reported unaudited results of the Company as of December 31, 2017 (Predecessor) and for the period from January 1, 2018 through January 28, 2018 (Predecessor)

The table below summarizes the impact on the affected periods:

NOTE 2 - GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a working capital deficit and limited cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to achieve a level of profitability. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States (See Note 2 regarding the assumption that the Company is a “going concern”). Certain prior period amounts have been reclassified to conform to current period presentation.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fleaux Solutions, LLC. All significant inter-company accounts and transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions also affect the reported amounts of revenues, costs, and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.

REVENUE RECOGNITION

Prior to January 1, 2018, the Company recognized revenue when all of the following conditions were satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of its fees is reasonably assured. pursuant to the guidance provided by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605.

On January 1, 2018, The Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers. The Company primarily earns revenue from services related to sewage and waste water construction projects. Revenue is recognized when control of the services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for the services.

Revenue is recognized based on the following five step model:

Performance Obligations

Revenues are recognized when all the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has received the benefit of the services. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with a customer. If collectability is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer. For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. Historically the Company’s contracts have not had multiple performance obligations. The large majority of the Company’s performance obligations are recognized at a point in time as services are provided.

Incidental items that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment is due are less than one year. As of December 31, 2018, none of the Company’s contracts contained a significant financing component.

The Company elected the practical expedient to not adjust the amount of revenue to be recognized under a contract with an end user for the effects of time value of money when the timing difference between receipt of payment and recognition of revenue is less than one year.

Contract Liabilities

At a given point in time, the Company may have collected payment for future services to be provided. These transactions are deferred until the services are provided and control transfers to the customer, and the performance obligation is considered complete. At December 31, 2018 and 2017 there was no revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

Contract Costs

Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included within cost of goods and services.

Critical Accounting Estimates

Estimates may be used to determine the amount consideration in contracts, the standalone selling price among separate performance obligations and the measure of progress for contracts where revenue is recognized over time. The Company reviews and updates these estimates regularly.

Pre and Post CCTV consists of cleaning wastewater lines. Point Repairs consists of an excavator used to find a marked deviated in existing wastewater pipe and repairs and then made to the line. Manhole Rehabilitation consists of lining the manhole interiors, internal sealing of the joint area, and reconstructing manhole benches and channels. Service Lateral Reconnect consists of an excavator used to dig where a service needs reconnecting to the main pipe and the repairs are then made to that line.

Concentrations

For the period from January 29, 2018 through December 31, 2018 (Successor); $2,456,846 or 74% of our total revenue came from one customer and $634,816 or 19% came from one other customer.

For the period from January 1, 2018 through January 29, 2018 (Predecessor); $256,334 or 62% of our total revenue came from one customer and $136,937 or 33% came from one other customer. For the year ended December, 2017 (Predecessor); $898,014 or 46% of our total revenue came from one customer, $380,413 or 20% came from one customer, $347,622 or 18% came from one other customer and $198,656 or 10% came from one other customer.

CASH AND CASH E Q UIVALENTS

All cash, other than held in escrow, is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Temporary cash investments with an original maturity of three months or less are considered to be cash equivalents.

ACCOUNTS RECEIVABLE

Accounts receivable represents the uncollected portion of amounts recorded as revenues. Management performs periodic analyses to evaluate all outstanding accounts receivable to estimate an allowance for doubtful accounts that may not be collectible, based on the best facts available to management. Management considers historical collection patterns, accounts receivable aging trends and specific identification of disputed invoices in its analyses. After all reasonable attempts to collect a receivable have failed, the receivable is directly written off. As of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the balance of the allowance for doubtful accounts was $0, respectively.

As of December 31, 2018 (Successor), $564,884 or 69% was from a single customer, and $155,159 or 19% was from another single customer. As of December 31, 2017 (Predecessor), $355,975 or 67% was from a single customer, and $119,201 or 22% was from another single customer.

INVENTORIES

Inventories are stated at the lower of cost, using an average cost method, or net realizable value.

MARKETABLE SECURITIES

The Company reports investments in marketable securities at fair value on a recurring basis in accordance with ASC 820. Realized and unrealized gains and losses on equity securities are included in net income (loss). Equity securities are periodically reviewed for impairment using both quantitative and qualitative criteria.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of three to ten years for furniture, fixtures, and equipment and forty years for improvements. Total depreciation expense related to property and equipment was $165,932 for the period from January 29, 2018 to December 31, 2018 (Successor), $27,631 for the period from January 1, 2018 to January 28, 2018 (Predecessor) and $245,214 for the year ended December 31, 2017 (Predecessor). Expenditures for repairs and maintenance are charged to expense as incurred.

LONG-LIVED ASSETS

The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate the related carrying amounts may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. When impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal. There were no impairment losses recognized in any period presented.

GOODWILL

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. In accordance with ASC 350, Goodwill and Other Intangible Assets , goodwill and other intangibles with indefinite useful lives are not amortized but tested for impairment annually or more frequently when events or circumstances indicates that the carrying value of a reporting unit more likely than not exceeds its fair value. The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach.

The first step involves comparing the fair value of a company's reporting units to their carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded. The Company performed a qualitative assessment and determined no impairment of goodwill was necessary during 2018.

The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized is the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.

ADVERTISING EXPENSES

Advertising expenses are expensed as incurred. The Company expensed advertising costs of $0 for the period from January 29, 2018 to December 31, 2018 (Successor), $0 for the period from January 1, 2018 to January 28, 2018 (Predecessor) and $8,324 for the year ended December 31, 2017 (Predecessor), respectively.

DEFERRED INCOME TAXES AND VALUATION ALLOWANCE

The Company accounts for income taxes under FASB ASC 740 Topic “Income Taxes.” Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets were recognized at December 31, 2018 (Successor).

The Predecessor was organized as a limited liability company and is taxed as a partnership for U.S. income tax purposes. As such the Predecessor is not subject to U.S. income taxes.

NET INCOME (LOSS ) PER COMMON SHARE

Net income (loss) per share is calculated in accordance with FASB ASC 260 topic, “Earnings Per Share.” The weighted-average number of common shares outstanding during each period is used to compute basic earning or loss per share. Diluted earnings or loss per share is computed using the weighted average number of shares and diluted potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised.

Basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding for the period from January 29, 2018 through December 31, 2018 (Successor).

FAIR VALUE ACCOUNTING

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC 820, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The Company utilized level 3 inputs to estimate the fair value of its derivative instruments using the Black-Scholes Option Pricing Model. There were no outstanding assets or liabilities measured on a recurring basis at December 31, 2018 (Successor) or December 31, 2017 (Predecessor) other than marketable securities (see note 5).

SHARE-BASED EXPENSES

FASB ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights.

Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non- employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In preparing the financial statements, management considered all new pronouncements through the date of the report.

In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted this standard as of January 1, 2018. The adoption of this standard did not have a significant impact on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company adopted this standard on January 1, 2019, using the modified retrospective approach. The Company will recognized right of use assets and liabilities for any lease agreement with a lease term of greater than 12 months. The Company elected the package of practical expedients for transition, and the practical expedient to not recognize short term leases on the balance sheet.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This ASU applies to all entities that are required to present a statement of cash flows under Topic 230. The amendments provide guidance on eight specific cash flow issues and includes clarification on how these items should be classified in the statement of cash flows and is designed to help eliminate diversity in practice as to where items are classified in the cash flow statement. Furthermore, in November 2016, the FASB issued additional guidance on this Topic that

requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with earlier application permitted for all entities. The Company adopted this standard as of January 1, 2018. The adoption of this standard did not have a significant impact on the Company’s financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The Company adopted the provisions of the guidance on January 1, 2019 with no material impact on the Company’s consolidated financial statements and disclosures.

Effective January 1, 2018, the Company adopted the provisions of ASU 2017-01 – “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides revised guidance to determine when an acquisition meets the definition of a business or alternatively should be accounted for as an asset acquisition. ASU 2017-01 requires that, when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset or group of similar identifiable assets does not meet the definition of a business and therefore is required to be accounted for as an asset acquisition. Transaction costs will continue to be capitalized for asset acquisitions and expensed as incurred for business combinations. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or results of operations.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

NOTE 4 – ACQUISITION OF FLEAUX SOLUTIONS, LLC- RELATED PARTY

On January 29, 2018, the Galenfeha Inc. acquired substantially all of the operating assets of Fleaux Solutions, LLC, a Louisiana Limited Liability Company (the "Acquisition"), a Company with common officers and directors. There was no common majority ownership between the Company and Fleaux Solutions, LLC. Fleaux Solutions, LLC is engaged in the business of water, utility, and sewage construction. Upon the closing of the Acquisition, the Company received substantially all of the operating assets of Fleaux Solutions, LLC, consisting of cash on hand, inventory, accounts receivable, and fixed assets. There are common directors/officers with Galenfeha, Inc. and no common “majority” control.

The purchase price of the operating assets of Fleaux Solutions, LLC was a cash payment of $1. In addition, the Company assumed $2,155,331 of scheduled liabilities.

The Company accounted for its acquisition of the operating assets of Fleaux Solutions, LLC using the acquisition method of accounting. Fleaux Solutions cash on hand, inventories, accountants receivable, and fixed assets acquired and liabilities assumed were recorded based upon their estimated fair values as of the closing date of the Acquisition. The excess of purchase price over the value of the net assets acquired was recorded as goodwill.

The following table summarizes the estimated fair values of the tangible and intangible assets acquired as of the date of acquisition:

Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with applicable accounting standards, goodwill is not amortized but instead is tested for impairment at least annually or more frequently if certain indicators are present. The Company performed a qualitative assessment and determined there was no impairment of goodwill.

Revenues and Net Income of Fleaux Solutions since the acquisition date included in the consolidated statements of operations are $3,335,330 and $127,903, respectively. There were no transaction costs incurred in connection with closing of the acquisition.

Depreciation expense related to property and equipment was $165,932, $27,631 and $245,214 for the period from January 29, 2018 through December 31, 2018 (Successor), the period from January 1, 2018 through January 28, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor), respectively.

NOTE 6 – INVESTMENTS

Marketable securities are accounted for on a specific identification basis. As of December 31, 2018, the Company held marketable securities with an aggregate fair value of $108,150. As of December 31, 2018, all of our marketable securities were invested in publicly traded equity holdings. Marketable securities were classified as current based on the percentage of the equity controlled by the Company as well as our intended use of the assets. The Company recognized unrealized losses of $(40,040) for the period from January 29, 2018 through December 31, 2018 (Successor). The Company recognized realized losses of $(21,959) for the period from January 29, 2018 through December 31, 2018 (Successor).

The Company's assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 at December 31, 2018, was as follows:

Margin loans- (Successor)

From January 29, 2018 through December 31, 2018, the Company raised a total of $18,455 from a margin loan associated with its brokerage account and repaid $18,455 during the same period. As of December 31, 2018, the company has a $0 balance in this margin loan account.

NOTE 7 – NOTES PAYABLE AND CAPITAL LEASES

The Predecessor secured a line of credit with Gibsland Bank & Trust on March 22, 2017. The line of credit was secured with fixed assets financed. The balance on the line of credit was $173,561 as of December 31, 2017 (Predecessor). This line of credit was paid in full as of January 29, 2018.

The Company secured a line of credit (LOC #0221) of $500,000 on January 29, 2018 which is payable on demand. The line of credit is secured by all present and future inventory, all present and future accounts receivable, other receivables, contract rights, instruments, documents, notes, and all other similar obligation and indebtedness that may now and in the future be owed to the Company, and all general intangibles. The loan is also secured by a personal guarantee executed by the members of Fleaux Solutions, LLC including Michael Trey Moore, Christopher Ryan Marlowe, Ray S. Moore, Jr., and Frank Neal Richard. The balance on the line of credit was $321,061 on January 29, 2018. On December 31, 2018 (Successor), the balance due under the line of credit was $491,061. On February 4, 2019, the Company extended the maturity date of this line of credit to April 1, 2019. On April 9, 2019, the Company extended the maturity date of this line of credit to June 1, 2019.

The Company secured a second line of credit (LOC #0248) of $150,000 on January 29, 2018 which is payable and due on February 1, 2019. The line of credit is secured by all present and future inventory, all present and future accounts receivable, other receivables, contract rights, instruments, documents, notes, and all other similar obligation and indebtedness that may now and in the future be owed to the Company, and all general intangibles. The interest rate under this loan is the “Prime Rate” designated in the “Money Rates” section of the Wall Street Journal (the “Index”). The index currently is 5.500% per annum. Interest on the unpaid principal balance of this line will be calculated using a rate of 1.000 percentage points over the Index, resulting in an initial rate of 6.500% per annum. The Company withdrew $100,000 in funds from the line of credit on January 29, 2018 and paid loan origination and documentation of fees of $750 to bring the total outstanding line of credit balance to $100,750 on January 29, 2018. On December 31, 2018 (Successor), the balance due under the line of credit was $148,781. On February 4, 2019, the Company extended the maturity date of this line of credit to April 1, 2019. On April 9, 2019, the Company extended the maturity date of this line of credit to June 1, 2019.

Additionally, both lines of credit are secured by deposit accounts held at the Grantor’s institution which had cash balances of $179,987 and $0 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.

During the year ended December 31, 2018 a shareholder advanced the Company $300,000 on an unsecured, interest free basis which is due on demand. The Company also agreed to pay closing costs of $9,777, which were recorded as a debt discount and amortized during the period from January 29, 2018 through December 31, 2018 (Successor). The Company repaid $50,000 on these advances during the year ended December 31, 2018 bringing the balance to $259,777. The Company repaid an additional $25,000 in February 2019.

Notes Payable (Predecessor)

The Company assumed the debt of a loan payable executed between Fleaux Solutions, LLC and Gerald W. Norder on May 2, 2017. The proceeds received under the loan totaled $197,500. The loan is unsecured and doesn’t carry an interest rate but does charge the Company an initial loan fee of $17,500, bringing the initial balance due under the loan to equal $215,000. The balance due under the loan was $60,000 and $215,000 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.

The Company assumed the debt of a Payment Rights Purchase and Sale Agreement executed between Fleaux Solutions, LLC & Everest Business Funding on October 12, 2017. The proceeds received under the loan totaled $200,000. This loan doesn’t carry an interest rate but does charge the Company an initial loan fee of $46,000. The loan is secured by credit card sales. Payments are drafted each business banking day from the Company’s bank account in the amount of $807 until the entire principal balance of $246,000 is paid in full. The outstanding balance on this note was $0 and $189,509 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.

The Company assumed the debt of a Cosmic Equipment loan in the amount of $142,598 between Fleaux Solutions, LLC and Business First Bank. The loan has an interest rate of 5.50% payable in thirty-six payments of $4,311 with the first payment due on January 20, 2018 and the final payment due December 20, 2020. This loan is secured with the 2016 Chevrolet DRW Express asset owned by the Company. The loan is also secured by a personal guarantee executed by the members of Fleaux Solutions, LLC including Michael Trey Moore, Christopher Ryan Marlowe, and Ray S. Moore, Jr. The outstanding balance on this loan was $97,716 and $142,598 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.

The Company assumed the debt of a loan in the amount of $65,000 between Fleaux Solutions, LLC and KDC Pipeline, which is controlled by a friend of an officer of Fleaux Solutions. The loan is unsecured, non-interest bearing, and payable on demand. The outstanding balance on this loan was $60,000 as of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), respectively.

The Company assumed the debt of two secured automobile loans of $53,311 a piece relating to the purchase of two Chevrolet Trucks executed between Fleaux Solutions, LLC & General Motors Financial on March 29, 2017. Both notes carry an interest rate of 7.75%, payable in payments of $928 for 72 months. The outstanding balance on each note was $40,888 and $47,918 as of December 31, 2018 and December 31, 2017, respectively.

The Company assumed the debt of a secured automobile loan in the amount of $53,075 between Fleaux Solutions, LLC & TD Auto Finance executed on September 28, 2017. The note has an interest rate of 5.89%, payable in payments of $1,021 for 60 months. The outstanding balance on this note was $42,158 and $50,864 as of December 31, 2018 and December 31, 2017, respectively.

The Company assumed the debt of a secured JET trailer loan in the amount of $43,618 between Fleaux Solutions, LLC & Western Equipment Finance executed on May 4, 2017. The note has an interest rate of 7.75%, payable in payments of $1,105 for 36 months, with $3,838 payable in advance. The outstanding balance on this note was $18,785 and $32,045 as of December 31, 2018 and December 31, 2017, respectively.

The Company assumed the debt of a secured excavator equipment loan in the amount of $66,788 between Fleaux Solutions, LLC & Takeuchi Financial Services executed on August 23, 2017. The note has an interest rate of 0.00%, payable in payments of $1,113 for 60 months. The outstanding balance on this note was $50,091 and $63,449 as of December 31, 2018 and December 31, 2017, respectively.

Obligations under Capital Leases (Predecessor)

In October of 2016, the Predecessor entered into a lease agreement for the purchase of a 1997 Ford Van, used in the day to day operation of Fleaux Solutions, LLC. The lease is for 48 months and requires monthly payments of $1,063, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $60,415. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $43,610 and $49,408, respectively.

In October of 2016, the Predecessor entered into a lease agreement for the purchase of a 1998 Ford Van, used in the day to day operation of Fleaux Solutions, LLC. The lease is for 48 months and requires monthly payments of $2,118, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $122,188. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $86,617 and $105,623, respectively.

In February of 2017, the Predecessor entered into a lease agreement for the purchase of a 2001 Sterling Tractor Truck, used in the day to day operation of Fleaux Solutions, LLC. The lease is for 36 months and requires monthly payments of $888, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $31,236. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $20,912 and $26,262, respectively.

In February of 2017, the Predecessor entered into a lease agreement for the purchase of a 2014 Chevy Truck, used in the day to day operation of Fleaux Solutions, LLC. The lease is for 24 months and requires monthly payments of $986, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $25,175. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $11,938 and $20,016, respectively.

In March of 2017, the Predecessor entered into a lease agreement for the purchase of a 1997 Ford E350, used in the day to day operation of Fleaux Solutions, LLC. The lease is for 12 months and requires monthly payments of $17,770, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $215,136. As of December 31 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $35,364 and $187,538, respectively.

In March of 2017, the Predecessor entered into a lease agreement for the purchase of a Dozer, Excavator, Tractor, and Backhoe, used in the day to day operation of Fleaux Solutions, LLC. The lease is for 36 months and requires monthly payments of $2,645, plus sales tax. The lease is secured by the underlying leased asset. This arrangement was accounted for as a capital lease and capitalized the asset at $102,503. The equipment purchased under this capital lease was acquired from Osprey Oil & Gas, a related party Company with common ownership between the owners of Fleaux Solutions, LLC. As of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the outstanding balance under this capital lease was $62,442 and $89,547, respectively.

The current maturities and five year debt schedule for the notes is as follows and includes all lines of credit payable, notes payable, capital leases, convertible notes payable, short-term non-secured debt and amounts due to officer and related parties:

NOTE 8 – CONVERTIBLE LOANS

Prior to the Acquisition date of January 29, 2018, Galenfeha had the below unsecured convertible notes:

June 2017 Note

Effective June 8, 2017 the Company entered into a Convertible Promissory Note (“Power Up Note One”) with Power Up Lending Group, Ltd. pursuant to which the Company issued Power Up Lending Group, Ltd. a convertible note in the amount of $43,000. The maturity date is March 20, 2018.

On June 8, 2017 the Company received consideration of $40,000. In addition, the Company paid legal fees of $3,000 associated with the entering into this agreement and thus recognized a liability of $43,000 associated with the Power Up Note One. The Company recognized a discount of $3,000 on fees paid upon entering into this agreement. There were no additional borrowings under the Power Up Note One during the twelve months ended December 31, 2017. The Power Up Note carries an interest rate of 12% per annum from the Issue Date until the principal amount becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on the Power Up Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid. Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. Since no payments were made on this note on or before 180 days from the effective date of the note, accrued interest due was recorded in the amount of $4,029 on December 10, 2017. Interest paid under the Power Up Note One totaled $0 at December 31, 2017. The note was declared in default on November 20, 2017 with a default penalty of $21,500 added onto the principal. The default penalty was accounted for as interest expense as of December 31, 2017.

The Power Up Note provides Power Up Lending Group, Ltd. the right, to convert the outstanding balance (including accrued and unpaid interest) into shares of the Company’s common stock at 60% of the lowest trade price in the 15 trading days previous to the conversion, additional discounts may apply in the case that conversion shares are not deliverable or if the shares are ineligible. Power Up Lending Group, Ltd. shall have the right to convert at any time during the period beginning on the date which is one hundred eighty days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, each in respect of the remaining outstanding principal amount of this Note. As a result of the derivatives calculation (see Note 9) an additional discount of $53,471 was recorded. On December 13, 2017, Power Up Lending converted $8,000 of the Power Up Note One into a total of 740,741 shares of Common Stock at a fair value of $0.0108 per share. On December 20, 2017, Power Up Lending converted $13,000 of the Power Lending Note One into a total of 2,166,667 shares of Common Stock at a fair value of $0.006 per share. On January 16, 2018, Power Up Lending converted $15,000 of the Power Up Note One into a total of 2,500,000 shares of Common Stock at a fair value of $0.006 per share. On January 29, 2018, Power Up Lending converted $15,000 of the Power Lending Note One into a total of 1,923,077 shares of Common Stock at a fair value of $0.0078 per share. On January 31, 2018, Power Up Lending converted $12,240 of the Power Up Note One into a total of 1,569,231 shares of Common Stock at a fair value of $0.0078 per share. On February 5, 2018, Power Up Lending converted $2,580 of the Power Lending Note One into a total of 492,308 shares of Common Stock at a fair value of $0.0078 per share.

July 2017 Note

Effective July 5, 2017 the Company entered into a Convertible Promissory Note (“Power Up Note Two”) with Power Up Lending Group, Ltd. pursuant to which the Company issued Power Up Lending Group, Ltd. a convertible note in the amount of $33,000. The maturity date is March 20, 2018.

On July 5, 2017 the Company received consideration of $30,000. In addition, the Company paid legal fees of $3,000 associated with the entering into this agreement and thus recognized a liability of $33,000 associated with the Power Up Note Two. The Company recognized a discount of $3,000 on fees paid upon entering into this agreement. There were no additional borrowings under the Power Up Note Two during the twelve months ended December 31, 2017. The Power Up Note Two carries an interest rate of 12% per annum from the Issue Date until the principal amount becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on the Power Up Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid. Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. The Company recognized accrued interest due under the Power Up Note Two totaling $2,800.

The Power Up Note Two provides Power Up Lending Group, Ltd. the right, to convert the outstanding balance (including accrued and unpaid interest) into shares of the Company’s common stock at 60% of the lowest trade price in the 15 trading days previous to the conversion, additional discounts may apply in the case that conversion shares are not deliverable or if the shares are ineligible. Power Up Lending Group, Ltd. shall have the right to convert at any time during the period beginning on the date which is one hundred eighty days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount, each in respect of the remaining outstanding principal amount of this Note. As a result of the derivatives calculation (see Note 8) an additional discount of $27,200 was recorded. On February 5, 2018, Power Up Lending converted $11,160 of the Power Lending Note One into a total of 1,430,769 shares of Common Stock at a fair value of $0.0078 per share. On February 8, 2018, the Company paid Power Up Lending $40,000 which extinguished any remaining balance due under the July 2017 note.

The principal balance due under the Power Up Note Two was $33,000 at December 31, 2017.

July 2018 Note

On July 10, 2018, the company wrote a convertible promissory note for $133,000, of which the company received proceeds of $130,000. The note is due on July 10, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.

August 2018 Note

On August 22, 2018, the company wrote a convertible promissory note for $53,000, of which the company received proceeds of $50,000. The note is due on August 22, 2019 with an interest rate of 12% per annum, and with a conversion option into common stock after 180 days following the date of funding. The conversion discount is 35% determined on the basis of the lowest closing bid price for the common stock during the prior ten trading day period. The original issuance discount of $3,000 was recorded as a debt discount and is being amortized over the life of the note.

The July and August 2018 notes were considered for derivative liability treatment. The Company concluded that no derivates existed as of the issuance date or December 31, 2018.

Amortization of the costs associated with these notes totaled $2,507 for the year ended December 31, 2018.

NOTE 9 – DERIVATIVE LIABILITY

During the year ended December 31, 2018, the Company identified conversion features embedded within its convertible debt. The Company has determined that the conversion feature of the Notes represents an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Therefore, the fair value of the derivative instruments have been recorded as liabilities on the balance sheet with the corresponding amount recorded as discounts to the Notes. Such discounts will be accreted from the issuance date to the maturity date of the Notes. The change in the fair value of the derivative liabilities will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. The fair values of the embedded derivative liabilities were determined using the Black-Scholes valuation model on the issuance dates with the assumptions in the table below.

The change in fair value of the Company’s derivative liabilities for the years ended December 31, 2018 and 2017 is as follows:

The gain on the change in fair value of derivative liabilities for the period from January 29, 2018 through December 31, 2018 totaled $102,604.

The fair value at the issuance and re-measurement dates for the convertible debt treated as derivative liabilities are based upon the following estimates and assumptions made by management for the year ended December 31, 2018 (Successor):

NOTE 10 - SHAREHOLDERS’ EQUITY

PREFERRED STOCK

The authorized stock of the Company consists of 20,000,000 preferred A shares and 30,000,000 preferred B shares with a par value of $0.001.

On December 20, 2016, shareholders of the company approved an amendment to the Bylaws for the creation of preferred stock. The preferred class of stock will consist of two (2) series, Series A, and Series B. All affiliates of the company who purchased stock during the formation of the company and who purchased stock for financing activities at prices below market will move their common shares into the Series B preferred stock, effective immediately. The Series B votes 1:1; is subject to all splits the same as common; converts back to common 1:1; and cannot be converted back to common for resale in the open market until a 30 day VWAP (volume weighted average price) of $.45 cents has been met in the Company’s public trading market. All future sales of company securities by affiliates will adhere to rules and regulations of the Commission.

Affiliates who purchased stock at offering prices that were current at the time of purchase, and affiliates who make open market purchases and are directly responsible for a merger/acquisition that brings retained earnings to the company, can convert these common shares 1:1 into Series A preferred stock. Series A votes 1:1; converts back to common 1:1; is not subject to splits in order to facilitate mergers, acquisitions, or meeting the requirements of a listed exchange; and cannot be converted back to common for resale in the open market until a 30 day VWAP of $3.50 per share has been met in the Company’s public trading market. All future sales of company securities by affiliates will adhere to rules and regulations of the Commission.

During 2016, four officers and directors of the Company exchanged 27,347,563 common shares for 27,347,563 Series B preferred shares. During the first quarter of 2017, one officer and one director exchanged 7,568,537 common shares for 7,568,537 Series A preferred shares. During the second quarter of 2017, one officer converted 818,537 of preferred stock Series A back to same number of common stock. During the third quarter of 2017, one related party exchanged 550,000 common shares for 550,000 shares of preferred stock Series A.

As of December 31, 2018, 7,300,000 shares of the Company’s preferred stock Series A were issued and outstanding. As of December 31, 2018, 27,347,563 shares of the Company’s preferred stock Series B were issued and outstanding.

COMMON STOCK

The authorized stock of the Company consists of 150,000,000 common shares with a par value of $0.001. As of December 31, 2018, 72,300,000 shares of the Company’s common stock were issued and outstanding.

On January 29, 2018, the Company entered into a Definitive Agreement to acquire Fleaux Solutions, LLC, a Company with common director and shareholders for a cash purchase of $1.00.

Prior to the Acquisition date of January 29, 2018, Galenfeha had issued the below shares during the period January 1, 2018 through January 29, 2018.

On January 16, 2018, Power Up Lending converted $15,000 of the June 2017 Power Up Lending Note One into a total of 2,500,000 shares of Common Stock at a fair value of $0.006 per share.

On January 29, 2018, Power Up Lending converted $15,000 of the June 2017 Power Up Lending Note One into a total of 1,923,077 shares of Common Stock at a fair value of $0.0078 per share.

The Company (Successor) issued the below shares during the period from January 29, 2018 through September 30, 2018.

On January 31, 2018, Power Up Lending converted $12,240 of the June 2017 Power Up Lending Note One into a total of 1,569,231 shares of Common Stock at a fair value of $0.0078 per share.

On February 5, 2018, Power Up Lending converted $2,580 of the June 2017 Power Up Lending Note One into a total of 492,308 shares of Common Stock at a fair value of $0.0078 per share.

On February 5, 2018, Power Up Lending converted $11,160 of the July 2017 Power Up Lending Note One into a total of 1,430,769 shares of Common Stock at a fair value of $0.0078 per share

On February 15, 2018, the Company bought back 22,793 shares of common stock through a brokerage account for a total price of $913. These shares have been cancelled and are available to be issued.

On January 29, 2018, a Director of the company sold 3,000,000 shares of preferred stock Series B to two affiliates of Fleaux Solutions, LLC and to an affiliate of Fleaux Services, LLC. These shares will be moved into preferred stock Series A.

The yard storage lease is $1,000 per month or $12,000 per year beginning on March 1, 2017. The terms of the yard storage lease are month to month. The Predecessor subleased a portion of the office space to Fleaux Services of Louisiana, LLC, a related party. The Predecessor recognized rental income of $4,000, $2,000 and $14,000 during the period from January 1, 2018 through January 28, 2019 and the year ended December 31, 2017. The income was recognized as a component of selling, general and administrative expenses. The Predecessor received cash payment of $20,000 from Fleaux Services in January 2018.

Additionally, the Company leases space in Fort Worth, Texas for corporate facilities for $109 monthly or $1,308 per year, and additional office space for $950 per month. The terms of both leases are month to month.

From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.

NOTE 12 – RELATED PARTY TRANSACTIONS

On November 4, 2016, Mr. James Ketner, Galenfeha’s Chairman and CEO made a cash contribution to the Company in the amount of $100,000 in exchange for a note that has a fixed repayment of $110,000. The note is unsecured, bears no interest, and can be repaid by the Company when the funds become available. The note can be renegotiated between Galenfeha and Mr. Ketner if both parties agree to the terms. There were no principal repayments on the note for the twelve months ending December 31, 2016, and the principal balance due under the note as of December 31, 2016 was $110,000. Principal repayments made under the note for the twelve months ending December 31, 2017 totaled $84,000, and the principal balance due under the note as of December 31, 2017 (Predecessor) was $26,000. On January 29, 2018, Mr. Ketner advanced the Company an additional $20,000 under the terms of this note for a fixed repayment of $21,000, bringing the total balance due under the terms of this note to $47,000 as of January 29, 2018. Principal repayments made under the note for the period from January 29, 2018 through December 31, 2018 (Successor) totaled $47,000, and the principal balance due under the note as of December 31, 2018 (Successor) was $0.

The Company subleases a portion of its office space to Fleaux Services of Louisana, LLC, a related party. The Company recognized rental income of $4,000, $2,000 and $14,000 for the period from January 29, 2018 through December 31, 2018 (Successor), the period from January 1, 2018 though January 28, 2018 (Predecessor) and for the year ended December 31, 2017 (Predecessor), respectively. As of December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the Company was owed $0 and $14,000, respectively, by Fleaux Services.

During the year ended December 31, 2017 the Predecessor received advances from officers of $69,692, and made repayments of $44,157. As of December 31, 2017, the Company owed these officers $36,867. The Predecessor received an additional $35,000 from one officer during the period from January 1, 2018 thorough January 28, 2018 (Predecessor). During the period from January 29, 2018 through December 31, 2018, the Company received proceeds of $615,000 from officers and related parties of the Company, and made payments of $414,500. The Company incurred origination fees of $9,777 related to one of these loans, which was recorded as debt discount and fully amortized during the period from January 29, 2018 to December 31, 2018 (Successor). As of December 31, 2018, the Company owed $327,144 to these related parties.

On January 29, 2018, the CEO in a private transaction, sold 1,000,000 shares of preferred stock Series B to David Leimbrook, the Chief Financial Officer of Fleaux Services, LLC and an additional 2,000,000 shares of preferred stock Series B to Christopher Ryan Marlowe, the Chief Operating Officer of Fleaux Services, LLC and an affiliate of Fleaux Solutions, LLC. The private shares were sold for cash consideration of $30,000.

On January 29, 2018, the Company entered into a Definitive Agreement to acquire Fleaux Solutions, LLC, a Company with common director and shareholders for a cash purchase of $1.00. Fleaux Solutions at the time of acquisition was owned by Director Trey Moore, President/CEO of Fleaux Services, LLC, Christopher Ryan Marlowe, Chief Operating Officer of Fleaux Services, LLC, and Ray Moore Jr., brother of Trey Moore. See Note 4

During the period from January 29, 2018 through December 31, 2018 (Successor), the Company received $15,000 in royalty income from Fleaux Services, LLC relating to the sale of Galenfeha-style batteries. Mr. Trey Moore is the President/CEO of Fleaux Services and Fleaux Solutions, and also is a Director of Galenfeha, Inc. The royalty income is included in miscelleanous income in the consolidated statements of operations.

NOTE 13 – UNCERTAIN TAX POSITIONS

The predecessor received a letter on May 17, 2016 from the Caddo-Shreveport Sales and Use Tax Commission informing them of a parish sales and use tax audit scheduled to begin on June 28, 2016. The audit period covered is January 1, 2013 through May 31, 2016. The audit is currently under way and no judgments or assessments have been issued. Management is of the opinion that this audit will not result in any material change in the Company’s financial results.

NOTE 14 – INCOME TAX

We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced cumulative operating losses since inception. When it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forward, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.

The Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the period March 14, 2013 (date of inception) through December 31, 2018 applicable under FASB ASC 740. We did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated deficit on the consolidated balance sheet. The Company is in the process of filing appropriate returns for the Company.

The Predecessor was organized as a limited liability company and is taxed as a partnership for U.S. income tax purposes. As such the Predecessor is not subject to U.S. income taxes.

The component of the Company’s deferred tax assets as of December 31, 2018 and 2017 are as follows:

The approximate net operating loss carry forward was approximately $1,872,000 as of December 31, 2018 and will start to expire in 2033. The Company did not pay any income taxes during 2018 or 2017.

Subsequent to December 31, 2018, the Company issued 8,296,653 shares of common stock pursuant to conversion of debt related to the conversion of $133,000 in principal of the July 2018 convertible note with PowerUp Lending.