10-Q: Galenfeha Inc. Reports First Quarter 2019 Results, Revenue Declines Amidst Increased Operating Expenses

Galenfeha Inc.'s first quarter 2019 results show a decrease in revenue and a net loss, impacted by increased operating expenses and other financial factors.

Summary

• Galenfeha Inc. reported a net loss of $252,745 for the quarter ended March 31, 2019, compared to a net income of $171,072 for the same period in 2018.
• The company's revenue decreased by 10% to $1,007,082 in Q1 2019 from $1,120,542 in Q1 2018, primarily due to a decline in manhole rehabilitation and CCTV services.
• Operating expenses increased to $761,747 in Q1 2019 from $549,303 in Q1 2018, driven by higher payroll, general and administrative costs, and professional fees.
• The company experienced a loss from operations of $19,098 in Q1 2019, a significant decrease from the operating income of $319,218 in Q1 2018.
• Total other expenses were $233,647 in Q1 2019, which included a $77,272 loss on derivative instruments and $177,285 in interest expense.
• The company's working capital deficit was $775,320 as of March 31, 2019, compared to a deficit of $748,804 at the end of 2018.
• The company's cash and cash equivalents decreased to $20,644 as of March 31, 2019, from $181,645 at the end of 2018.

Sentiment

Score: 3

Explanation: The document presents a negative financial picture with declining revenue, increased expenses, and a net loss. The company's going concern status and reliance on equity sales further contribute to a low sentiment score.

Positives

• There was a significant growth in Cosmic service lateral lining contracts during 2019.
• The company's accounts receivable was $983,941 as of March 31, 2019.
• The company's inventory was $157,751 as of March 31, 2019.

Negatives

• The company experienced a net loss of $252,745 for the quarter.
• Revenue decreased by 10% compared to the same period last year.
• Operating expenses increased significantly, leading to an operating loss.
• The company incurred a substantial loss on derivative instruments.
• The company's cash position significantly decreased.
• The company has a working capital deficit of $775,320.

Risks

• The company has a working capital deficit and limited cash flows from operations, raising substantial doubt about its ability to continue as a going concern.
• The company is dependent on sales of common stock and bank financing to fund operations until it achieves positive cash flow.
• The company's ability to meet its financial liabilities is dependent on continued financial support from management and stockholders.
• The company's auditors have expressed substantial doubt about its ability to continue as a going concern without further financing.
• The company's disclosure controls and procedures were not effective in ensuring that information required to be disclosed was recorded, processed, summarized and reported correctly.

Future Outlook

The company intends to pursue the business of hemp cultivation and sales, focusing on developing hemp products infused with various items. The company will continue to rely on equity sales of its common shares to fund operations.

Management Comments

• Management believes that there are no current litigation matters that would have a material effect on the Companys financial position or results of operations.
• Management is of the opinion that the tax audit will not result in any material change in the Companys financial results.

Industry Context

The company's shift towards hemp cultivation and sales reflects a broader trend in the market towards alternative agricultural products and the growing interest in hemp-based products. The company's previous focus on water, utility, and sewage construction is not aligned with current industry trends.

Comparison to Industry Standards

• The company's revenue decline of 10% is concerning, as many companies in the construction and infrastructure sector have seen growth due to increased government spending and infrastructure projects.
• The increase in operating expenses is also a negative sign, as it indicates that the company is not managing its costs effectively. This is in contrast to many companies in the sector that have been able to maintain or reduce their operating expenses.
• The company's net loss of $252,745 is significantly worse than the industry average, as many companies in the sector are profitable.
• The company's working capital deficit of $775,320 is also a major concern, as it indicates that the company may not have enough cash to meet its short-term obligations. This is in contrast to many companies in the sector that have a positive working capital balance.
• The company's reliance on equity sales to fund operations is also a concern, as it indicates that the company is not generating enough cash from its operations to sustain itself. This is in contrast to many companies in the sector that are able to fund their operations from their own cash flow.

Management Changes

Corporate Governance

Related Party Transactions

• The Company subleases a portion of its office space to Fleaux Services of Louisiana, LLC, a related party.
• The Company received proceeds of $300,000 from officers and related parties of the Company and made payments of $ 28,500 during the period from January 29, 2018 through March 31, 2018.
• During the three months ended March 31, 2019, the Company borrowed an additional $ 50,000 and repaid $ 25,000 in February 2019 from 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.
• 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.

Stakeholder Impact

• Shareholders will experience dilution due to the company's reliance on equity sales to fund operations.
• Employees may be impacted by the company's financial instability and potential restructuring.
• Customers may be affected by the company's shift in business focus from construction to hemp cultivation.
• Suppliers and creditors may face increased risk due to the company's working capital deficit and going concern status.

Next Steps

• The company intends to pursue the business of hemp cultivation and sales.
• The company will continue to rely on equity sales of its common shares to fund operations.

Key Dates

Keywords

financial results, quarterly report, revenue, net loss, operating expenses, derivative instruments, working capital, going concern, capital resources, sewage construction, water utility, CCTV, manhole rehabilitation, service lateral lining