Global Arena Holding, Inc. - Annual Report: 2015 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

[X]  15, ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2015

 OR

[ ]  15, 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 Company in its charter)

Delaware		33-0931599
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification)

850 Third Avenue, Suite 16C, New York, NY 10022

(Address of principal executive offices, including zip code)

Registrant's Telephone number, including area code:  (212) 508-4700

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [x]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes [  ] No [x]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.406 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the part 90 days.

Yes [x] No[  ]

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained hereof, and will not be contained, to will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [  ]

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  

Large accelerated filer   [  ]		Accelerated filer                     [  ]
Non-accelerated filer     [  ]		Smaller Reporting Company  [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [x]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The market value of the registrant’s voting $.001 par value common stock held by non-affiliates of the registrant was approximately $5,523,836.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant's only class of common stock, as of May 6, 2016 was 55,709,983 shares of its $.001 par value common stock.

No documents are incorporated into the text by reference.

2

Global Arena Holding, Inc.

Form 10-K

For the Fiscal Year Ended December 31, 2015

Table of Contents

3

Table of Contents

PART I

ITEM 1.   BUSINESS

Global Arena Holding Inc. (“GAHI or the Company”), a Delaware corporation, is organized as a holding company, specializing in financial services and technology software companies. GAHI became a public company on May 18, 2011 when it successfully completed a reverse merger with China Stationary and Office Supply, Inc. (CSOF), an OTC Bulletin Board company.

Reverse Merger Transaction

On January 19, 2011, China Stationery and Office Supply, Inc. (“China Stationery”) entered into an Agreement and Plan of Merger with GAHI. Upon the terms and subject to the conditions of the Merger Agreement, at the effective date of the Merger, the Company merged with and into China Stationery, with China Stationery continuing as the surviving corporation with the new name of Global Arena Holding, Inc.

The approval of China Stationery’s board of directors and the affirmative vote of the holders of a majority of the outstanding common stock entitled to vote were obtained in order to approve and adopt the Merger Agreement. China Stationery’s sole director approved the Merger Agreement and the transactions contemplated by the Merger Agreement, at a meeting of their board of directors on January 19, 2011.

At the effective date of the Merger on May 18, 2011, each share of GAHI’s common stock, was cancelled and converted automatically into 1.5 common shares of China Stationery for an aggregate of 18,000,000 common shares of China Stationery and was recorded as a recapitalization of China Stationery in the form of a reverse merger.

The consolidated financial statements are issued under the name of Global Arena Holding, Inc. (formerly, China Stationery, the legal acquirer), but are a continuation of the consolidated financial statements of the Company and its subsidiaries.

On May 20, 2015, the registrant incorporated a new wholly owned entity in the State of Delaware called “GAHI Acquisition Corp.”  This entity was incorporated to be the merger subsidiary for the acquisition of BTC.

On May 20, 2015, the registrant entered into an agreement and plan of merger with BTC.  Under this agreement, BTC will merge with GAHI Acquisition Corp., and GAHI Acquisition Corp. will be the surviving corporation.  As consideration for the merger, the registrant will reserve a number of shares equal to 1/3 the total issued and outstanding of the Company to be issued to BTC shareholders.

4

Table of Contents

On October 20, 2015, the parties agreed to extend the closing date of the merger to December 15, 2015.

On October 20, 2015, the registrant paid $125,000 in cash and authorized the issuance to Nikolaos Spanos of 1,377,398 of its common shares and 1,993,911 warrants to purchase its common shares at the exercise price of $.10 per common share with an exercise period of three years.  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 (10) percent of the outstanding equity in BTC.  The securities are being issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933.

Global Election Services, Inc.

On February 25, 2015, Global Election Services, Inc., a wholly owned subsidiary was incorporated under the laws of the State of Delaware. GES provides comprehensive technology-enabled election services primarily for organized labor associations.  The key employees were previously employed by Election Service Solutions, LLC.

GES believes the proposed acquisition of the Blockchain Technologies Corporation may give it a strategic advantage based on the provisional patent application filed by BTC with the United States Patent and Trademark office which provides for the use of a Blockchain data base to enhance and support secure electronic voting and election results.

The Company has a term sheet in place for the asset purchase of ESS assets for the sum of $400,000.The proceeds will be used to buy only the assets of the company and pay off all existing debts/loans with the remaining dollars to be deployed into GES for operations and expansion. Their current clients include United States and International labor unions, Residential Organizations, Co-Op and Condominiums, Private Colleges and Universities and Trade Organizations.

The ESS asset acquisition will give us the ability to expand into the following areas:

Alumni Associations – The ESS team formally ran elections for Alumni organizations for over 25 years with memberships from 5,000 to 200,000. Previous clients include; Brown, Dartmouth, LaGuardia, Penn State and Yale.

Pension and Retirement Groups – The ESS team formally ran elections for Pension and Retirement groups for over 25 years with memberships from 300,000. Previous clients include; Hawaii Employees, Louisiana State, Maryland State, Pennsylvania School Employees Retirement System (PSERS).

5

Table of Contents

Credit Unions – The ESS team formerly ran elections for Credit Unions for over 25 years with memberships from 100,000 to 500,000. Previous clients include; Vystar Federal Credit Union, Visions VCU, Vermont State FCU, United Nations FCU, Telhio FCU, Hudson Valley FCU, Desert School FCU and State Department FCU.

Professional Trade Associations – The ESS team formerly ran elections for Professional Trade Associations for over 25 years with memberships from 30,000 to 50,000. Previous clients include; National Association of School Psychologists, Nat’l Assoc. of Retired Federal Employees, American Mansa Assoc., Infections Disease Society of America, American Pharmacists Assoc., and Assoc. for Career and Technical Education.

Awards and Contests – The ESS team ran the Country Music Awards in 2006, 2007 and 2008 as well as Blockbuster Awards for several years. These awards are all online voting so we will have the ability to effectively reengage in that field.

Arbitration Division - GES plans to establish a labor arbitration division, with the assets and relationships of ESS. Prior to 1960, arbitration was principally available as a result of the efforts of the War Labor Board during World War II, but was not legally enforceable. The Supreme Court, in a series of decisions referred to as the Stell Workers Trillogy enforced arbitration provisions in labor contracts and, thus, spawned the broad use of arbitration in labor agreements. In 1970, the Supreme Court decided a case generally referred to as Boys Market, which established that the agreement to arbitrate was the quid pro quo for the no strike clause and, thereby, eliminated a substantial amount of labor strife by making the no-strike clause enforceable against unions so long as employers were willing to arbitrate. As a result, arbitration clauses have gained substantial value to both parties as a rapid and inexpensive method for the resolution of “garden variety” contract disputes and also as a cathartic process which relieves ship level tensions without “self help” or other disruptive actions by employees or their labor organizations.

Unlike arbitrators generally, labor arbitrators are professionals who practice labor law. Some teach or have similar “neutral” occupations. On the whole, the population of acceptable labor arbitrators devote full time to their practices. The American Arbitration Association emerged as the principal provider of the service on a national basis. In order to effectuate this, they successfully empanelled as many acceptable arbitrators as possible and established a tribunal to administer the disputes. Administration consists of receiving a Demand for Arbitration, acknowledging receipt, transmitting a copy of the Demand to the other party or parties and then circulating to the parties, lists of potential arbitrators for them to review and strike peremptorily arbitrators they deem acceptable. Usually, it is requested that they do not strike all of the arbitrators and number the remaining arbitrators in order of preference. The administering agency then selects a mutually acceptable arbitrator and begins the process of scheduling a hearing. In today’s world, scheduling hearings with top quality arbitrators in extremely time consuming and it is not unusual for parties to wait six months or more for a hearing date (Which I believe is snob appeal and sells).

6

Table of Contents

In addition, the practice of labor arbitration has driven the date rate of arbitrators, in some cases, to $1,000.00 per day. Most arbitrators hear a case in one day, but charge a second day for “study”, which really means preparation of the Award. Accordingly, arbitration has lost both its speed and its characteristic inexpensiveness.

There is a clear need and a strong desire amongst both management and organized labor for an alternative to AAA arbitration, which would be quicker and less expensive. While it is important that the arbitrators be acceptable to the parties, experience suggests that newer arbitrators who have not yet developed a strong following will generally be more available and less expensive that the small club of well established arbitrators who have been in practice for a number of years. However, with the appropriate introduction, new arbitrators can prove themselves equally acceptable and effective for the parties. All available arbitrators will agree to be listed with an agency that is actively promoting their use. Moreover, some unions and employers can be convinced to agree to a “closed panel”, all of who are deemed acceptable and who hear cases on a rotating basis. These approaches result in much quicker turnaround from demand to hearing. Similarly, the use of newer arbitrators or arbitrators who are not in the same level of demand will also result in reduced costs to the parties.

In situations where there is a large backlog of grievances, a grievance mediation system under which an arbitrator/mediator sits with the parties, listens to the presentation without reviewing all of the evidence and indicates what an arbitrator might rule. This is then followed by an attempt to have the parties compose their differences in a mediated settlement. In the State of Ohio, a system was used where cases that did not reach a successful mediated solution were then referred to a rotating panel for almost immediate hearing before a different arbitrator. This system could be very beneficial to the Teamsters and other unions with large grievance backlogs. AAA does not use this approach.

In order to establish an effective tribunal, we would first have to recruit and empanel a variety of arbitrators, some of whom would be novices with appropriate neutrality, but little experience, some journeymen who would be the newer arbitrators who have emerged in the last five to ten years and who have practices but who are not at the “world class” level of the more senior arbitrators and, if possible, a few senior arbitrators so that the panel would have overall balance. Each arbitrator provides us with a “panel sheet” which is essentially a biography listing their background and the types of cases they have arbitrated. Arbitrators are arranged in geographical groups determined by the areas in which they practice.

7

Table of Contents

The development of the necessary demand forms and other administrative paperwork such as form letters is relatively simple, but perhaps we should consider an Internet filing methodology, which would allow both unions and employers to file grievances over the Internet to expedite selection. It should also be possible to use the Internet for scheduling purposes, all of which should result in a dramatic reduction in administrative costs and shortening of the time for setting hearings. This would be a major talking point.

GES management would further suggest that we build a future arbitrator corps by attempting to identify individuals who because of current employment or other involvements, might not be qualified to serve as neutral arbitrators, but are fully capable of serving as effective mediators. Mediators do not require the same level of independence and neutrality as arbitrators in that they do not make decisions that are binding to the parties. By recruiting persons now to serve as mediators who may have active employment, we would be building a future class of novice arbitrators to replenish the panel.

It is interesting to note that both the Federal Mediation and Coalition Service, and most state mediation services, provide arbitration services but have never successfully competed with the AAA either because the parties are unaware that the services are available or, in the case of state agencies, because the state employs arbitrators who are not acceptable to the parties.

An appropriately organized private arbitration agency at Election Services Corporation administers its case load by handling all incoming correspondence, the selection process and the scheduling process and then monitoring the hearing and transmitting the Award of the arbitrator to the parties. Usually, the agency acts as a collection agent for its administrative fees and the arbitrator’s fees. A fair administrative coast would be approximately $300 - $400 per case solely for administration. This fee is paid half by the union and half by the Company. The arbitrator’s fees probably range between $350 at the very minimum up to $800.

Under appropriate agreements, it may be possible to negotiate special arrangements to handle large backlogs of cases or to give volume discounts on the administration, particularly if the system is as paperless as possible. The administration of a tribunal is likely to initially require one or two people to perform the clerical work, which could also be subcontracted. The printed materials are relatively modest in cost (it could be included in the labor brochure we are planning). Other than forms, all that is required is a set of arbitration rules for standard arbitrations and, possible rules for grievance mediation and for expedited arbitration.

8

Table of Contents

Arbitration services are a natural companion service to election services inasmuch as provided election services will often yield the opportunity to offer arbitration. Often providing arbitration can open the door for election services. There is a natural congruity to offering both types of labor management services. In addition, many elections either require the use of an election arbitrator to resolve eligibility and related issue during the course of the election and having a panel or arbitrators available for that purpose adds value to the election service.

AAA was solely an arbitration company and the election division was formed because of their relationships with labor.

GES plans to expand its Organized Labor business and increase its market growth conducting elections and Interactive Meetings, Trade Associations, Professional and Membership organizations, Alumni Associations and Residential Organizations. Over 650 Teamster Locals will need assistance to handle their Delegate elections starting in April 2015. A marketing plan will lead to increasing its current 100 plus clients to hopefully 200 during a voting span of four months.

GES management believes this plan and financing will deliver further profitability and growth in 2015 and beyond by making technical, operational, sales and marketing improvements. Additional investment will enable GES to greatly enhance it’s user functionality and service levels, strengthen its value proposition and lower its cost structure enabling GES to increase conversion rates in all competitive sales situations and build a stronger case for the benefits of outsourcing to prospects that currently manage elections in-house. GES believes it is well positioned to become the national and dominant full-service supplier in the election planning and management market. The inclusion of Ralph Gerchak, a recently retired District Director of the New York City Office of Labor Management Standards will also increase the prestige of GES across the United States. Also, with the addition of an Arbitration Division, we can lure away election clients form American Arbitration Association who would have us handle their elections without fear of reprisals at arbitration hearings.  

GES provides comprehensive technology-enabled election services. The company helps private organizations manage elections, strengthen corporate governance, increase member participation and reduce costs. The team has the unique ability to integrate multiple methods of voting; paper ballots, Internet voting, telephone voting or any combination of these methods. Many of the GES senior staff have been supervising elections since 1981, having managed over 7,000 elections involving more than 40,000,000 voters – none of which have been overturned. Through their relationships and strong reputation in the industry, GES has an impressive customer list of over 100 labor unions and has previously done business with credit unions.

 

9

Table of Contents

Today’s election officials take on tremendous responsibility in managing all aspects of the voting process from selecting products to ensuring fair elections and every phase in between. In an industry that is constantly evolving, these tasks become more challenging every day. GES exists to provide full-service election solutions to clients while offering the experience, support, security and capacity needed to meet ever-changing client needs now and in the future.

GES helps provide organizations manage elections, strengthen corporate governance, increase member participation and reduce costs. GES believes it is unique in its ability to integrate multiple methods of voting; customers can hold elections via paper ballots, Internet voting, telephone voting or any combination of these methods. The company has a dedicated and seasoned team, which has managed over 7,000 elections involving more than 40,000,000 voters, none of which have been overturned.

 

Cash collections vary slightly by product, but generally GES collects 35% of booked projects on the date the contract was signed, 55% sixty days prior to the mailing date (the mailing date is typically one month before the election), and the remaining 10% upon the completion of the election – including any overages. Clients do not receive Certification of Results until the bill is paid in full.

GES believes it has valuable assets for growing market share in an election marketplace, which is large and substantially untapped. Our Management team has:

•

A trusted reputation in the marketplace based on having not one of the 7,000 elections this team has managed over the last thirty-three years, overturned.

•

Worked effectively with the United States Justice Department and the United States Department of Labor (OLMS) to conduct, organize and run elections, which have been certified as fair by various State and Federal Agencies.

•

Conducted hundreds of seminars at Union Conventions on “How to get elected” and “How to stay in office”.

•

Conducted elections at National Labor Conventions such as the International Brotherhood of Electrical Workers (IBEW), International Longshore and Warehouse Union, National Association of Laborers, and New Democratic Party of Canada Convention.

•

Conducted elections in over 42 States and United States Territories.

•

Conducted Internet elections for the National Air Traffic Controllers, Audio Engineering Society, Transport Workers Union Local 252 and Actors’ Equity Association that identified increased participation and lowered postage costs.

10

Table of Contents

•

Unique capabilities to plan and manage complex elections across multiple vertical industries that involve multiple methods of voting.

•

The ability to retain existing clients and competitively compete for and win new, large Tier 1 clients, further validating the company’s market share and growth potential.

•

Strong client relationships that provide significant opportunity for revenue growth and new product and services sales.

Market and Competitive Landscape of GES

The by-laws of almost all of GES target customers must hold annual or bi-annual elections for some combination of officers/directors/trustees in addition to bylaw, dues increase, strike votes, assessment, and conversion Delegate votes. GES   also assists some unions in surveying the union membership so organized labor union officials better understand their membership. Historically, this work has been done in-house. Today, GES   is experiencing a very positive reception as a result of the market switching to outsourced services because of the dramatic savings clients can gain as well as by their rapidly growing sensitivity to the need for independent third party election certification. In addition, many labor unions are being audited by the Department of Labor, Office of Labor Management Standards, which can result in elections being re-run and more importantly, reviewing the books and records of the targeted local union.

Current voting systems are predominantly paper-based, typically requiring a series of time-consuming manual processes, such as identifying eligible voters through database management and processing, tabulating and reporting election results. The effort to promote electronic elections is being led by three international organizations: The Internal Foundation for Election Systems, the International Institute for Democracy and Electoral Assistance, and the United Nations Department of Economic and Social Affairs.

GES continues to see significant opportunity for improvements in overall gross margins as customers continue to migrate from paper-based elections to hybrid or more Internet-based elections. This recent trend is attributable primarily to identified operational and workflow inefficiencies and can be reversed with a combination of new leadership, project cost tracking, technology investments and operational reform, and improved print/mail partnering arrangements as described in this plan.

Although competition is increasing, GES believes there is no competitor with the organization, breadth and depth to service the diverse needs of the election services market. Competitors are either vertically of regionally focused or biased towards their unique strengths. The majority of competitors are small regional players who lack resources to compete nationally with the exception of American Arbitration Association,

11

Table of Contents

an arbitration firm that services exclusively labor unions. Other competitors are more regional in scope (e.g. True Ballot and Votenet – Washington DC; Merriman River, Midwest; Integrity Voting, Election Trust, Seattle, California Election Company and Ballotpoint, West Coast) and either family or owner operator entities. There is a small subset of Internet firms pushing ASP or exclusively electronic based elections (e.g. Election America and everyonecounts.com).

The Paper Process

1.

Ballots Returned to Post Office, Sorted by Date

2.

Retrieved from Post Office unopened

3.

Mail Sack Opened

4.

Physical Count

5.

Identify Who Voted, Check Signature and Bar Code

6.

Identify Challenged Ballots, Eligibility Duplicates

7.

Segregate Challenge Ballots

8.

Open Outer Envelope, Extract SBE

9.

Segregate Outer Envelope

10.

Open SBE Extract Ballot

11.

Segregate SBE

12.

Process Secret Ballot, High Speed Scanning

13.

Preliminary Results

14.

Process Challenges as Needed

Internet Voting

-

Increases participation with highly mobile work forces, large, geographically dispersed groups and those in areas of declining public transportation as well as those with an extended workday.

-

Supports the Americans with Disabilities Act

-

Reduction in costs including printing and mailing as well as return postage.

-

There is a strong member preference

-

Reduces spoiled ballots, no over votes.

The Web Process logically mirrors the Paper Process.

1.

Secure Website Encryption

2.

On-Line Encrypted Storage

3.

Mail Sack Opened

4.

Automated Count

5.

Who Voted; Pin / Password Affirmation

6.

Identify Challenged Ballots, Eligibility Duplicates

7.

Segregate Challenges; Separate Storage Table

12

Table of Contents

8.

Receive Decrypt Key

9.

Break Voter / Ballot Linkage

10.

Separate Ballot Table

11.

Voter Table

12.

Tabulation Function

13.

Preliminary Results

14.

Process Challenges as Needed

Principles of Secret Ballot, which has been established and validated over decades.

-

One vote per member

-

Identify who voted, but not how; no identifying mark on ballot

-

Provides for Challenge Ballots

-

Provides for Duplicate / Replacement

-

Provide for Verification / Recount

Secret Mail Ballot

-

Personalized ballet mailed to all members

-

Three Envelope System; Outbound, Return Envelope with Signature and Bar Code, Secret Ballot Envelope and Completed Ballot

-

Returned Ballots held at Post Office, unopened

-

Processing when Election Committee authorizes

-

Identify Voters by Bar Code Reader

-

Segregate Challenges

-

Identify Replacements / Duplicates which counts

-

Open and Process

GES’s system is intentionally designed to mirror time-proven DOL secret ballot procedures.

Critical Requirements

-

24 x 7 x 365 Availability

-

Absolute Security, Absolute Secrecy

-

Auditability; Ballot Entries and System Activity

-

Double Entry Credentials; Member Number and Unique Random Password created by GES

-

Complete Integration with Paper Processes; One Member = One Vote, Which Ballot Counts

-

Honor Time Proven DOL Processes

-

Simple to Understand

13

Table of Contents

Secure Voting Infrastructure

-

Fully Redundant; Hardware and Utilities

-

No Single Point Failure

-

Monitored Continuously

-

Symantec “Surveillance”

-

Duplicate vote attempts are flagged for resolution before tabulation

Auditability

-

Voter ID is time stamped when the vote is received

-

Duplicates or Replacements have a separate pin.

-

Ballot Selections (Vote String) available for any or all ballots

-

Audits must always show a one-to-one match between the consumed serial numbers (Voted List) and stored ballots.

Security

-

True Secret Ballot Capability (Title IV)

-

One Person = One Vote

-

Intrusion Detection Systems

-

Hardened Commercial Hosting Site

-

Restricted Personnel Access to Data

-

Comprehensive Event History

-

Restricted Personnel Access to Paper Returns

-

Complete Auditability at all stages

-

Observers Welcomed

GES Future Growth

Owning a printing and mailing union facility in the New York Area will substantially increase profitability when conducting mail ballot elections, especially since more than 600 Teamster affiliated Locals throughout the United States will be required to conduct supervised elections commencing in 2015 whereby the IBT Election Supervisor has previously permitted all mailings to be conducted in the New York area.

Currently GES is supported by its touch screen, Internet and scanned voting by a third party. Acquiring an in-house operation will allow GES to expand its operation by implementing up-to-date technology and in-house support therefore increasing our potential client list.

14

Table of Contents

Maralin Falik, President – GES

Maralin Falik has more than thirty-three years experience in election administration, helping manage and conduct over seven thousand elections. Most of her professional career (1981-1999) was spent at the Honest Ballet Association, a not-for-profit organization founded by Theodore Roosevelt, where she was Executive Director.

Because of her extensive experience in providing complete election management solutions to key private sector clients, including labor unions, associations and cooperatives/condominiums, she has been named chairperson of GES Mediation and Arbitration Division.

Her perfect record reflects the quality of her work when defending challenges elections before the Department of Labor and the courts. Ms. Failk has also testified as an “election expert” to the courts and various oversight groups.

Discontinued Operations and Inactive Business

Global Arena Commodities Corporation

Global Arena Commodities Corporation (“GACOM”), a New York corporation, became a member of the NFA in July 2009. GACOM’s NFA registration number is 0409315. GACOM is owned 100% by GAHI, and the day-to-day management of the business and affairs of GACOM was the responsibility of its CEO, Robert Cain, who had over 20 years of financial trading experience to the position. GACOM was focused on providing commodity brokerage facilities to professional traders, commodity trading advisors, commodity pool operators as well as offering managed futures accounts to institutional and individual investors.

In July 2011, GACOM completed its clearing agreement with Interactive Brokers.  As a registered introducing broker, Interactive Brokers provides GACOM clients with services in the core functions of order execution, operational clearing, regulatory reporting and settlement.  

GACOM does not hold any funds or securities for its customers.  GACOM uses the services of its clearing agent on a fully-disclosed basis.  GACOM clears all of its transactions through Interactive Brokers, a securities clearing firm that is a division of Interactive Brokers Group Inc.  GACOM clearing agent processes all securities transactions and maintains customer accounts for us on a fee basis.

GACOM ceased all operations in 2014 and the Company closed GACOM in the first six months of 2015, in line with its current business plan, as addressed in the Growth Strategy section.

15

Table of Contents

Lillybell Entertainment

Lillybell Entertainment LLC (“LB”), a Delaware limited liability company, is an entertainment finance company.  GAHC owns 66-2/3% of LB’s equity interests; Kathryn Weisbeck, the Chief Executive Officer of LB, owns the remaining 33-1/3% of LB’s equity interests.  LB has sponsored the formation of Lillybell Art Fund LP, which is an unregistered investment vehicle focused on investing in art and entertainment-related investments.  The general partner of Lillybell Art Fund LP, which is a single purpose entity formed solely to serve as the general partner of Lillybell Art Fund LP, is an affiliate of LB.  

Ms. Weisbeck has been involved in the entertainment industry for the past 25 years. Beginning on the talent side, Ms. Weisbeck studied theatre, dance and voice and in 2003 graduated with honors from Loyola Marymount University in Los Angeles earning a BA in Dance and a BA in Individualized Study: Musical Theatre.

From there she became involved in the production and finance side of the industry when she formed Lillybell Entertainment LLC. She now works with other professionals in the art community to bring investment opportunities to her clients as well as promote the creation of art and entertainment projects.

Effective on April 1, 2015, the Company and each of the minority shareholders of Lillybell entered into purchase agreements for the sale of the Company’s 66.67% interests in Lillybell for $1.

MGA International Brokerage LLC (“MGA”)

On January 29, 2013, we acquired 66.67% of the aggregate outstanding member interests of MGA, in exchange for an option to purchase 300,000 shares of the Company’s common shares.  Each option is exercisable into one share of common stock of the Company at an exercise price of $0.25 per common share.  The exercise period was for one year from the agreement date. The option has expired.

MGA is a full service insurance broker; Marc Goldin, the Managing Director, owns the remaining 33.3%. MGA provides a broad array of insurance and risk management products and services.

Effective on April 1, 2015, the Company and each of the minority shareholders of MGA entered into purchase agreements for the sale of the Company’s 66.67% interests in MGA for $1.

16

Table of Contents

Global Arena Investment Management

Global Arena Investment Management LLC is a New York limited liability company and a New York investment adviser. GAIM formally served as the investment manager to Global Arena Macro Fund, LP, a Delaware limited partnership.  The Fund was formed to invest all of its assets in Global Arena Master Fund, Ltd. a Cayman Islands exempted company incorporated with limited liability known as a Master Fund, through a “master-feeder” fund structure.  There are currently no assets in these funds.  The Fund is a shareholder of the Master Fund together with another existing entity, Global Arena Macro Fund, Ltd., a Cayman Islands exempted company incorporated with limited liability known as the Offershore Feeder.  Where the Offshore Feeder was formed for investment by non-U.S. persons and U.S. tax-exempt entities, the Fund was formed for investment by U.S. taxable investors. GAIM has been inactive since May 2015.

Growth Strategy for the Company

Going forward, Management plans to also focus on other investments with a specific interest in finance, technology and real estate.

In addition, the Company plans the following for 2016:

Seek the assistance of experienced consultants in hiring portfolio managers and develop potential strategies.

Continue to make asset purchases of companies synergistic to our core business.

Seek opportunities for co-managing investment funds both locally and internationally.

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 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.

Employees

The Company currently employs four personnel, including a salaried chief executive officer, compliance officer, controller and a director of investor relations and/or marketing.

17

Table of Contents

ITEM 1A.  RISK FACTORS

Not applicable to a smaller reporting company.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.  PROPERTIES

The Company's moved to its new main office located at 850 Third Avenue, Suite 16C, New York, New York 10022 from its former office at 1500 Broadway, 5th Floor, New York, New York 10036.  These premises consist of approximately 3,000 square feet and are shared with its subsidiaries.  The Company has a lease for office space that ends in May, with the option to extend the lease on an as needed basis.   During the year ended December 31, 2015 and 2014, GAHI was charged approximately $161,400 and $145,000, respectively, for its office spaces.

ITEM 3.  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 September 30, 2015 and December 31, 2014.  

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.

18

Table of Contents

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.

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.

19

Table of Contents

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable

20

Table of Contents

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

    Item 5(a)

a)  Market Information.  The Company began trading publicly on the NASD Over the Counter Bulletin Board on July 19, 2006.  We began trading under the symbol GAHC on May 27, 2011, and now trade under the symbol “GAHC.OB”.

The following table sets forth the range of high and low bid quotations for our common stock.  The quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions.

Quarter Ended		High Bid		Low Bid
3/31/15		0.30		0.13
6/30/15		0.31		0.11
9/30/15		0.13		0.05
12/31/15		0.17		0.02
3/31/14		0.51		0.20
6/30/14		0.24		0.10
9/30/14		0.15		0.10
12/31/14		0.45		0.01

b)  Holders.  At May 6, 2016, there were approximately 344 shareholders of record of our common stock.

c)  Dividends.  Holders of our common stock are entitled to receive such dividends as may be declared by our board of directors.  No dividends on our common stock have ever been paid, and we do not anticipate that dividends will be paid on our common stock in the foreseeable future.

d)  Securities authorized for issuance under equity compensation plans.  

Stock options plan

On June 27, 2011, the Board of Directors adopted a Stock Awards Plan (“Plan”).   The purpose of the Plan is to attract, retain and motivate employees, directors and persons affiliated with the Company and to provide such participants with additional incentive and reward opportunities.  The awards may be in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, phantom stock awards, or any combination of the foregoing. The total number of shares of stock reserved and available for distribution under the Plan increased

21

Table of Contents

to 3,000,000 from 1,750,000, pursuant to a December 2012 proxy vote by holders of a majority of the shares of GAHI.   On July 17, 2012, the Board of Directors approved the issuance of non-qualified stock options for the purchase of an aggregate of 1,725,000 shares of common stock under the Plan to certain employees, officers and directors.  The options are exercisable at $0.45 per common share and expire three years after their issuance.  The options are to vest over a two-to-three-year period with a fair value of approximately $500,000 at the grant date to be recognized over the vesting period.

On December 27, 2012, GAHI granted to an employee, an option to purchase 350,000 shares of common stock. The option is exercisable at $0.45 per common share and expired on July 17, 2015.  The option vested 50% in July 2013 and 100% in July 2014 with a fair value of approximately $58,000 at the grant date that was recognized over the vesting period.

Other options

On January 29, 2013, in connection with the acquisition of MGA, the Company issued an option to purchase 300,000 shares of common stock exercisable at $0.25 per common share, which expired on January 28, 2014.  The Company intends to extend the option for another year and expired in January 2015. The options vested on the grant date, with a fair value of approximately $34,000 at the grant date recognized in the year ended December 31, 2014.

 

 

 

 

22

Table of Contents

The Company will issue new shares of common stock upon the exercise of outstanding stock options.  The following is a summary of stock option activity:

e)  Performance graph.  Not applicable.

f)  Sale of unregistered securities.  

Common Shares

On March 13, 2015, the Company issued a six (6) month unsecured convertible promissory note in the principal amount of $100,000 at a stated interest rate of 12% per annum and a conversion price $0.25. The Company also issued 714,286 common shares of its treasury stock. In addition, the Company granted warrants to purchase 400,000 shares of common stock at an exercise price of $0.25 per share.

23

Table of Contents

On June 18, 2015, the Company entered into a consulting agreement with Complete Advisory Partners, LLC.  As consideration for this agreement, the Company has started the process of issuing 50,000 common shares to Complete Advisory.  

On November 10, 2015, half of the $100,000 loan from FireRock Capital was converted into 833,334 shares of common stock. The balance of this loan plus accrued interest $9,214 was converted into additional 1,153,561 common shares

On May 22, 2015 and June 12, 2015, Capitoline and Apollo converted a portion of their loans of $93,379 and $75,000 into 1,308,623 and 1,339,285 shares of common stock, respectively.

On October 20, 2015, the Company paid $125,000 in cash and issued to Nikolaos Spanos, 1,377,398 of its common stock and 1,993,911 warrants to purchase its common shares at the exercise price of $0.10 per common share exercisable for three years.  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.  The securities were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933.

From February to April, 2016, the Company issued five convertible promissory notes with Union Capital, LLC in the aggregate principal amount of $292,500 at a stated interest rate of 8% per annum.  The conversion price is 50% of the lowest trading price for the 20 prior trading days. On March 22, 2016, one of the five convertible promissory notes converted $3,000 principal amount and $0.66 interest into 370,452 shares common stock at the conversion price of $0.0081. $51,000 of the proceeds was used to pay off the Capitoline note based on the settlement agreement.

These shares were exempt from registration under Section 4(a)(2) of the Securities Act.  The shares were issued to sophisticated investors.  They had access to the type of information normally provided in a prospectus for a registered securities offering, and they have agreed not to resell or distribute the securities to the public.

Warrants

On November 11, 2014, the Company entered into a consulting agreement with a consultant for the identification, analysis and due diligence of investment opportunities in either the technology or digital media business. In consideration for the services to be provided, the Company granted the consultant 2,500,000 warrants to acquire 2,500,000 the Company’s common stock at 0.25 per share and expire on November 11, 2017. The warrants vested immediately upon signing the independent contractor agreement with a fair value of approximately $374,000 at the grant date recognized in the year ended December 31, 2014.

24

Table of Contents

On March 13, 2014, the Company issued a three-year warrant to purchase 500,000 shares of common stock at $0.25 per share to a consultant pursuant to a consulting agreement. The warrant was fully vested when issued.  The fair value of approximately $252,800 at the grant date was recognized during the year ended December 31, 2014. Weighted average assumptions used to estimate the fair value of warrants on the date of grant are as follows:  

The following tables summarize the warrants activities:

     Item 5(b) Use of Proceeds.  Not applicable.

25

Table of Contents

    Item 5(c) Purchases of Equity Securities by the issuer and affiliated purchasers.  Not applicable.

ITEM 6.  SELECTED FINANCIAL DATA

Not applicable to a smaller reporting company.

ITEM 7.  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 Annual report on Form 10-K (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.

26

Table of Contents

The financial statements of the Company and subsidiaries include the accounts of the Company and its wholly-owned subsidiaries and majority owned subsidiaries, GAIM, GACOM, Lillybell, MGA and GES from February 25, 2015, its incorporation date, and GAHI Acquisition Corporation from May 20, 2015, its incorporation date. The operations of GACC are included in the prior quarter have been reflected as discontinued operations since GACC was sold on August 5, 2014.  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 FASB ASC 605-10-S99.  The Company earns revenues through various services it provides to its clients.  Advisory fees are on a contractual basis with the fee stipulated in the contract and are recognized based on the terms of the contract during the period the service is provided. Insurance commissions are recognized at the later of the billing or the effective date of the related insurance policies, net of an allowance for estimated policy cancellations.

Election services income is recognized at the presentation of the certification of the election results. The payments received in advance are recorded as deferred revenue on the balance sheet.

Goodwill

In accordance with FASB ASC 805 “Business Combinations”, the Company recognized at the acquisition date and measured at their fair values, the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired company.  Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations and is not amortized in accordance with FASB ASC 350, “Intangibles – Goodwill and Other”. ASC 350 addresses the amortization of intangible assets with defined lives and the impairment testing and recognition for goodwill and indefinite-lived intangible assets. The Company is required to evaluate the carrying value of its goodwill for potential impairment on an annual basis or more frequently if indicators arise. While the Company may use a variety of methods to estimate fair value for impairment testing, its primary methods are discounted cash flows and a market based analysis. When appropriate, the carrying value of these assets is reduced to fair value.   

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 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 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, if any, and as a reduction to the

27

Table of Contents

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 is 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 FASB ASC 470-50-40-12 and 40-15 through 16 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 pursuant to FASB ASC 470-50-40/55.

Derivative Financial Instruments

In connection with the issuance of certain warrants that include price protection reset or anti-dilution provisions, the Company determined that these provision features are embedded derivative instruments pursuant to FASB ASC 815 “Derivatives and Hedging.” These embedded derivatives are adjusted to fair value at each balance sheet date with the change recognized in operations.

Stock-Based Compensation - The fair value of stock options and stock warrants issued to third party consultants and to employees, officers and directors is recorded in accordance with the measurement and recognition criteria of FASB ASC 505-50, “Equity-Based Payments to Non-Employees” and FASB ASC 718, “Compensation – Stock Based Compensation,” respectively.

The options and warrants are valued using the Black-Scholes valuation method. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables.  These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected stock option and warrant exercise behaviors.

Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options and warrants.

28

Table of Contents

Recent 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.  

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

29

Table of Contents

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 December 31, 2015, the Company has an accumulated deficit of $17,225,172 and a working capital deficiency of $4,244,659.  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 year ended December 31, 2015, the Company recorded a net loss of $4,286,658.  We recorded an accretion of debt discount of $1,606,606 and debt modification expense of $36,400.  We recorded a debt extinguishment of $177,571 and stock-based compensation of $216,152.  We recorded a loss on the sale of subsidiaries of $33,900 and a change in fair value of derivative liability of $178,800.  We had a decrease in prepaid expenses of $97,935 and a decrease in rent deposits of $9,200.  We had an increase in deposit for proposed acquisition of $20,000, an increase in deferred revenue of $387,410, and an increase in accounts payable and accrued expenses of $495,144.  As a result, we had net cash used in operating activities of $1,067,540 for the year ended December 31, 2015.

For the year ended December 31, 2014, the Company recorded a net loss of $784,535.  We recorded depreciation and amortization of $3,286 and an accretion of debt discount of $904,403.  We recorded stock-based compensation of $878,310, a change in fair value of derivative liability of $1,172,114, and a gain on the sale of GACC of $1,660,900.  We had a decrease in due from clearing organization of $362,189, a decrease in advances to registered representatives and employees of $100,385, and a decrease in deposits with clearing organizations of $50,003.  We had a decrease in prepaid expenses of $13,981an increase in other assets of $16,504, an increase in rent deposit of $19,700, and a decrease in commission payable of $553,728.  We had an increase in accounts payable and accrued expenses of $271,704 and net assets disposed of GACC of $339,100.  As a result, we had net cash used in operating activities of $1,962,320 for the year ended December 31, 2014.

For the year ended December 31, 2015, we received $24,463 as repayment of advances from related parties and paid $125,000 as payment for proposed acquisition.  As a result, we had net cash used in investing activities of $100,537 for the period.

For the year ended December 31, 2014, we paid $7,300 on a related party advance and received $2,000,000 as proceeds from the sale of GACC.  As a result, we had net cash provided by investing activities of $1,992,700 for the period.

30

Table of Contents

For the year ended December 31, 2015, we received $564,000 as proceeds from promissory notes.  We repaid convertible promissory notes of $72,500 and received $670,000 as proceeds from the issuance of common stock.  As a result, we had net cash provided by financing activities of $1,161,500 for the period.

For the year ended December 31, 2014, we received $1,464,987 as proceeds from promissory notes and repaid convertible promissory notes of $1,904,000.  As a result, we had net cash used in financing activities of $439,013 for the period.

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 have included a “going concern” modification in their auditors’ report dated April 15, 2015.  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 Year Ended December 31, 2015 compared to the Year Ended December 31, 2014

Revenues from continuing operations for the year ended December 31, 2015 consisted of commissions and other revenue of $961,610 compared to $28,416 for the prior year ended December 31, 2014, an increase of $933,194 due to increased activity.

Salaries and benefits and stock-based compensation from continuing operations totaled $782,112 for the year ended December 31, 2015 compared to $1,375,822 for the prior year ended December 31, 2014, a decrease of $593,710 due to the reduced number of employees principally in the commodities group and certain warrants issued for consulting services which were fully amortized.

31

Table of Contents

Professional fees from continuing operations for the year ended December 31, 2015 amounted to $790,666 compared to $645,436 for the prior year ended December 31, 2014, an increase of $145,230 due to the increase of consulting fees.

For the year ended December 31, 2015, we had occupancy expenses from continuing operations of $161,408, business development expenses of $280,266, and office and other expenses of $758,398, totaling $1,200,072. Comparatively, for the year ended December 31, 2014, we had occupancy expenses of $100,244, business development expenses of $382,982, and office and other expenses of $156,459 totaling $639,685.  Increase in these expenses was $560,387 principally due to the increase in office expenses as a result of our move to our new location and printing and production expenses from GES operations.

Total operating expenses for the year ended December 31, 2015 were $2,772,850 compared to $2,660,943 for the year ended December 31, 2014, an increase of $111,907 principally due to an increase in office expenses and printing and production expenses as discussed above.

Income from discontinued operations for the year ended December 31, 2014 amounted to $1,832,598 due to the gain on the sale of GACC.  GACC was sold on August 5, 2014 and resulted in a gain on disposition of $1,660,900 for the year ended December 31, 2014.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

32

Table of Contents

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Global Arena Holding, Inc. and Subsidiaries

Index to the Financial Statements

		Page
Report of Independent Registered Public Accounting Firm		34
Consolidated Balance Sheets at December 31, 2015 and 2014		35
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014		37
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2015 and 2014		38
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014		39
Notes to Consolidated Financial Statements		41

33

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Global Arena Holding Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Global Arena Holding Inc. and Subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders’ deficiency, and cash flows for each of the years in the two year period ended December 31, 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Global Arena Holding Inc. and Subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the years in the two year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements as of and for the years ended December 31, 2015 and 2014 have been prepared assuming the Company will continue as a going concern. As more fully described in Note 1 to the financial statements, the Company has suffered recurring losses since inception, experiences a deficiency of cash flow from operations, sold its principal operating business, is currently in default of certain outstanding notes, and has a stockholders’ deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Our opinion is not modified with respect to this matter.

Flushing, NY

May 6, 2016

34

Table of Contents

GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND 2014

(Continued on next page)

35

Table of Contents

GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND 2014

(Continued from previous page)

See notes to consolidated financial statements

36

Table of Contents

GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

See notes to consolidated financial statements.

37

Table of Contents

GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

See notes to consolidated financial statements.

38

Table of Contents

GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

(Continued on next page)

39

Table of Contents

GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

(Continued from previous page)

See notes to consolidated financial statements.

40

Table of Contents

GLOBAL ARENA HOLDING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

1.  ORGANIZATION

Organization

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.

Sale of Global Arena Capital Corp.

Global Arena Capital Corp. (“GACC”) was the wholly owned subsidiary through August 5, 2014 and was a full service financial services company. GACC was a broker-dealer registered with the Securities and Exchange Commission (“SEC”).  The Company was also a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corp (“SIPC”). GACC was engaged in the securities business, which comprised several classes of securities transactions such as equities, corporate and municipal bonds, mutual funds, insurance and options, all of which they executed as risk-less principal and agency transactions.

41

Table of Contents

On August 5, 2014, GAHI entered into an Agreement with PMC Capital, LLC (“PMC Capital”) and Barbara Desiderio pursuant to which GAHI sold its 100% interest in GACC to PMC Capital, subject to the approval from FINRA.  The cash consideration for the sale was $2,000,000 and the forgiveness of the intercompany amounts payable by GAHI and its subsidiaries to GACC of approximately $1,331,000.

The results of operations through August 5, 2014 and the related gain on the sale of GACC have been reported as discontinued operations.

Revenue and operating expenses of the discontinued operations for the period ended August 7, 2014 are as follows:

			For the Period Ended
			August 7, 2014
Revenues
Commissions and other			$18,455,830
Operating expenses
Commissions			15,481,994
Salaries and benefits			571,631
Occupancy			61,255
Business development			25,387
Professional fees			477,589
Clearing and operations			881,268
Regulatory fees			64,135
Settlement of litigation			650,000
Office and other			64,228
Total operating expenses			18,277,487
Income from operations			178,343
Income taxes			6,645
Income from discontinued operations			$     171,698

Sale of Lillybell Entertainment LLC (“Lillybell”) and MGA International Brokerage LLC (“MGA”)

Effective on April 1, 2015, the Company and each of the minority shareholders of Lillybell and MGA entered into purchase agreements for the sale of the Company’s 66.67% interests in Lillybell and MGA to each of them for $1.  The related loss of approximately $38,000 was included in the accompanying statement of operations for the year ended December 31, 2015.  In accordance with SEC Regulation S-X Rule 3-05,

42

Table of Contents

Lillybell and MGA combined were not significant subsidiaries as of the disposal date.  Therefore, no pro forma financial information related to the disposal is required to be presented in accordance with SEC Regulation S-X Rule 11-01.

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 GACC 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 December 31, 2015. 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 they believe could be beneficial to the Company’s operations. Subsequent to December 31, 2015, the Company raised an additional $382,222 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 (see Note 16).

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.

43

Table of Contents

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Presentation

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, GACOM, and Lillybell and MGA through April 1, 2015, the date of sale. The operations of GACC are included through August 5, 2014, the date of sale and have been reflected as discontinued operations for the periods presented.  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.

Customer security transactions and the related commission income and expenses were recorded as of the trade date.  GACC generally acted as an agent in executing customer orders to buy or sell listed and over-the-counter securities in which it did not make a market, and charged commissions based on the services the Company provided to its customers.

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 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.  Actual results could differ from those estimates.

44

Table of Contents

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.

Goodwill

In accordance with FASB ASC 805 “Business Combinations” (“ASC 805”), the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree were recognized at the acquisition date and measured at their fair values as of that date.  Goodwill represents the excess of purchase price over the fair value of net assets acquired in a business combination and is not amortized in accordance with FASB ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”). ASC 350 addresses the amortization of intangible assets with defined lives and the impairment testing and recognition for goodwill and indefinite-lived intangible assets. The Company was required to evaluate the carrying value of its goodwill for potential impairment on an annual basis or more frequently if indicators arise. During the year ended December 31, 2015, the goodwill recognized in the purchase of MGA was recognized in the loss on the sale of subsidiaries.

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.  

45

Table of Contents

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 (“ECF’s”) in accordance with the FASB ASC 470-50-40-12 and 40-15-16 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 pursuant to FASB ASC 470-50-40/55.

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 December 31, 2015.

Debt Modifications and Extinguishment

In accordance with ASC 470-50-40-10, when the present value of the cash flows under the modified debt instrument was less than ten percent from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the amendment to the note as a debt modification. If the change in the present value of cash flow under debt instrument changed by ten percent or more, it is treated as debt extinguishment.

Derivative Financial Instruments

In connection with the issuance of certain warrants that include price protection, reset or anti-dilution provisions, the Company determined that these provision features are embedded derivative instruments pursuant to FASB ASC 815 “Derivatives and Hedging.”  These embedded derivatives are adjusted to fair value at each balance sheet date with the change recognized in operations.

46

Table of Contents

Advertising Costs

Advertising costs are expensed as incurred.  Advertising costs, which are included in business development expenses, were $285,500 for the year ended December 31, 2015. There were no advertising costs for the year ended December 31, 2014. The Company entered into a market development and communications management consulting agreement with Ajene Watson LLC in August 2015. Ajene Watson assists the Company in strategic development, market development, investor relations (IR), market reputation (PR), and social media marketing management services.

Stock-Based Compensation

The fair value of stock warrants and stock options issued to third party consultants and to employees, officers and directors are recorded in accordance with the measurement and recognition criteria of FASB ASC 505-50, “Equity-Based Payments to Non-Employees” and FASB ASC 718, “Compensation – Stock Based Compensation,” respectively.

The options and warrants are valued using the Black-Scholes valuation model. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables.  These subjective variables include, but are not limited to the Company’s expected stock price volatility over the expected term of the awards, and actual and projected stock option and warrant exercise behaviors.

Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options and warrants.

Noncontrolling Interests

The Company accounted for its less than 100% interest in consolidated subsidiaries in accordance with FASB ASC 810, “Consolidation,” and accordingly the Company presented noncontrolling interests as a component of equity in its consolidated balance sheets and reported the noncontrolling interests’ share of net income or loss under the heading “net income (loss) attributable to noncontrolling interests” in the consolidated statements of operations. With the sale of Lillybell and MGA, there are no longer any noncontrolling interests.

47

Table of Contents

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  Deferred taxes are also recognized for operating losses that are available to offset future taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.  As of December 31, 2015 and 2014, the Company had deferred tax assets of approximately $6,243,000 and $4,626,000, respectively, for net operating loss carryforwards, which were fully reserved by a valuation allowance due to the significant uncertainty with respect to their future realization.

The Company follows the provisions of FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken in income tax returns.  FASB ASC 740-10-25 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions.

Reclassifications

Certain amounts in the prior periods’ financial statements have been reclassified for comparative purposes to conform to the presentation principally related to discontinued operations in the financial statements.  These reclassifications had no effect on previously reported net losses.

3.  RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires 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. This guidance is effective for annual reporting periods beginning after December 15, 2016,

48

Table of Contents

including interim periods within that reporting period. Companies are permitted to adopt this new rule following either a full or modified retrospective approach. Early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14 delaying the effective date for adoption. This update is now effective for annual and interim periods beginning after December 15, 2017, which will require us to adopt these provisions in the first quarter of fiscal year 2018. Early adoption is permitted. This update permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the impact the guidance will have on our consolidated financial statements.

In June 2014, FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. This accounting standard update is not expected to have a material impact on the Company’s financial statements.

In August 2014, the FASB issued authoritative guidance that requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and requires additional disclosures if certain criteria are met. This guidance is effective for fiscal periods ending after December 15, 2016, with early adoption permitted. The adoption of this guidance is not expected to impact our consolidated financial statements or related disclosures.

In January 2015, the FASB issued Accounting Standards Update ("ASU") ASU 2015-01 – Income Statement – Extraordinary and Unusual Items (Subtopic 225-20). This ASU addressed the simplification of income statement presentation by eliminating the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This accounting standard update is not expected to have an effect on the Company’s consolidated financial statements.

49

Table of Contents

In February 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-02—Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. This accounting standard updates is not expected to have an effect on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, simplifying the Presentation of Debt Issuance Costs. The new standard will require debt issuance costs to be presented on the balance sheet as a direct reduction of the carrying value of the associated debt liability, consistent with the presentation of debt discounts. Currently, debt issuance costs are presented as a deferred asset. The recognition and measurement requirements will not change as a result of this guidance. The standard is effective for the annual reporting periods beginning after December 15, 2015 and will be applied on a retrospective basis. This amendment will not have a material impact on the Company’s financial statements.

In September 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-16: Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. ASU 2015-16 is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. This accounting standard update is not expected to have a material impact on the Company’s financial statements.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. This accounting standard update is not expected to have a material impact on the Company’s financial statements.

50

Table of Contents

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. This accounting standard update is not expected to have a material impact on the Company’s financial statements.

4.  NET INCOME (LOSS) PER SHARE

The Company computes net income (loss) per common share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”).  Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares of common stock outstanding during the period.  

Diluted net loss per common share for the years ended 2015 and 2014 excluded the dilutive effect of common stock equivalents. In accordance with ASR 260, if their inclusion would be antidilutive to the income from continuing operations, they are to be excluded and the number of shares utilized shall be used in reporting all other diluted per share amounts. As the Company has losses from continuing operations for these periods, no common stock equivalents were utilized in the per share calculations. The Company’s common stock equivalents were excluded in the computation of diluted net (loss) per share since their inclusion would be anti-dilutive. Total shares issuable upon the exercise of all outstanding stock options, warrants and conversion of convertible promissory notes and their related accrued interest for the years ended December 31, 2015 and 2014 were as follows:

		2015		2014
Warrants		64,586,931		35,911,846
Convertible debt and accrued interest		29,168,520		6,768,237
Stock options		3,000,000		2,375,000
Total common stock equivalents		96,755,451		45,055,083

51

Table of Contents

5.  DERIVATIVE FINANCIAL INSTRUMENTS

In December, 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 warrants, which were to expire on December 31, 2014, were extended to March 31, 2016. 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.  As of December 31, 2015 and December 31, 2014 the shares of common stock that the holder was entitled to purchase under the warrant were 12,451,937 and 5,399,742, respectively. The addition of 7,052,195 shares was due to the anti-dilution provisions of the warrant caused by the issuance of additional debt with warrants and the modifications of convertible debt and warrants during the year ended December 31, 2015. The Company uses the Black-Scholes valuation method to value the derivative instruments at inception and on subsequent valuation dates. Weighted average assumptions used to estimate fair values are as follows:

		December 31, 2015	December 31, 2014	December 31, 2013
Expected volatility		211.02%	491%	316%
Risk free interest rate		0.16%	0.67%	0.13%
Expected life (years)		0.25	1.25	1.00

For the years ended December 31, 2015 and 2014, the Company recognized a change in this derivative liability of $178,800 and $1,136,400, respectively, in other income (expense).

In November, 2013, the Company repurchased 714,286 shares of its common stock and 25% of membership interests in GAIM, which was previously sold to FireRock in 2012, by issuing a convertible note in the amount of $250,000, which was originally due on December 31, 2013 and extended to and paid on January 6, 2014. The holder of the note was entitled to convert all or a portion of the convertible note plus any unpaid interest into shares of common stock at a lesser of $0.35 per share or 10% discount to the market value the day prior to the date of conversion. The Company determined that the variable embedded conversion option to be a derivative instrument.  This derivative was adjusted to fair value at each balance sheet with the changes in fair value recognized in operations prior to its extinguishment in January 2014. For the years ended December 31, 2015 and 2014, the Company recognized a change in this derivative liability of $0 and $35,714, respectively in other income (expense).

52

Table of Contents

On December 11, 2015, The Company sold units which include shares of common stock and warrants to purchase common stock. As a result of the sale of these units, the Company does not have adequate authorized shares available for its convertible debt and its outstanding warrants and options. Accordingly, certain warrants issued with the units were required to be shown as a derivative liability when issued. The total value of these warrants was $410,208, of which $319,808 were shown in its shareholders’ equity and $90,400 was shown as a derivative liability. The liability of these warrants is required to be adjusted to the fair value at each balance sheet date. As of December 31, 2015, the liability related to these warrants was $410,208. The fair value of the warrants at December 31, 2015 was determined by using the Black-Scholes valuation method. The inputs used to value the warrants were the same utilized as the other derivative liability.

6.  FAIR VALUE MEASUREMENTS

FASB ASC 820 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).  In accordance with FASB ASC 820, the following summarizes the fair value hierarchy:

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the company has the ability to access.

Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company’s assessment of the significance of particular inputs to these fair measurements requires judgment and considers factors specific to each asset or liability.

Cash, accounts receivable, prepaid expenses, 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.

53

Table of Contents

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.

 

Derivative financial instruments – The fair value of liabilities for warrants with dilutive price reset or anti-dilution provisions and for certain embedded conversion options are determined utilizing the Black-Scholes valuation method.

The following table presents the Company’s assets and liabilities required to be reflected within the fair value hierarchy as of December 31, 2015 and 2014.

54

Table of Contents

The following table presents the Level 3 reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs for the derivative warrants:

Balance, December 31, 2013		$   3,105,867
Proceeds from promissory notes		1,464,987
Repayment of promissory notes		(1,904,000)
Net change of debt discount		137,985
Cancellation of derivative liability included in other (income) expenses		(35,714)
Change in fair value included in other (income) expenses		(1,136,400)
Balance, December 31, 2014		1,632,725

Proceeds from promissory notes		564,000
Repayment of promissory notes		(72,500)
Promissory note issued for consulting services		188,000
Accrued interest added to debt		129,323
Legal expense added to debt		1,500
Conversion of promissory notes		(306,491)
Net accretion of debt discount		288,707
Change in fair value included in other expenses		179,800
Balance, December 31, 2015		$ 2,605,064

7.  STOCK OPTIONS

Stock Option Plan

In June, 2011, the Board of Directors adopted a Stock Awards Plan (“Plan”).  The purpose of the Plan is to attract, retain and motivate employees, directors and persons affiliated with the Company and to provide such participants with additional incentive and reward opportunities.  The awards may be in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, phantom stock awards, or any combination of the foregoing. The total number of shares of stock reserved for issuance under the Plan is 3,000,000.  On July 17, 2012, the Board of Directors approved the issuance of non-qualified stock options for the purchase of an aggregate of 1,725,000 shares of common stock under the Plan to certain employees, officers and directors. The options were exercisable at $0.45 per common share and expired three years after their issuance. In July 2015, the options expired unexercised.

55

Table of Contents

Weighted average assumptions used to estimate the fair value of stock options on the date of grant are as follows:

		July 17, 2012
Expected dividend yield		$ 0
Expected stock price volatility		130%
Risk free interest rate		0.32%
Expected life (years)		3 years

The stock-based compensation related to the outstanding options, included in stock compensation expense in the consolidated statements of operations, was $6,152 and $140,867 for the years ended December 31, 2015 and 2014, respectively.

On December 27, 2012, GAHI granted to an employee, an option to purchase 350,000 shares of common stock. The option was exercisable at $0.45 per common share and expired on July 17, 2015.  The option vested 50% in July 2013 and 100% in July 2014 with a fair value of approximately $58,000 at the grant date which was recognized over the vesting period. The options granted to this employee became fully vested in March 2014 upon his departure from the Company in accordance with an arrangement with the Company. Weighted average assumptions used to estimate the fair value of stock options on the date of grant were as follows:

		December 27, 2012
Expected dividend yield		$ 0
Expected stock price volatility		140%
Risk free interest rate		0.25%
Expected life (years)		2.5 years

The stock-based compensation related to this option, included in stock compensation expense in the consolidated statements of operations, was $0 and $20,492 for the years ended December 31, 2015 and 2014, respectively.

On August 5, 2015, the Company granted stock options to purchase 1,000,000 shares for five years of the Company common stock pursuant to and in accordance with the terms of the Company’s 2011 Stock Award Plan to each of Kathryn Weisbeck (director of investor relations), Anthony Crisci, (CFO) and John Matthews (CEO and Chairman). The option was fully vested when issued with a fair value of approximately $210,000 at the grant date. Weighted average assumptions used to estimate the fair value of stock options on the date of grant are as follows:

56

Table of Contents

		August 5, 2015
Expected dividend yield		$ 0
Expected stock price volatility		340.76%
Risk free interest rate		1.65%
Expected life (years)		5 year

The stock-based compensation related to this option, included in stock compensation expense in the consolidated statements of operations, was $210,000 and $0 for the years ended December 31, 2015 and 2014, respectively.

 Other Options

On January 29, 2013, in connection with the acquisition of MGA, the Company issued an option to purchase 300,000 shares of common stock exercisable at $0.25 per common share, which expired on January 28, 2014. The option was extended for another year and expired in January 2015. The options vested on the grant date, with a fair value of approximately $34,000 which was recognized as goodwill.

Weighted average assumptions used to estimate the fair value of stock options on the date of grant are as follows:

		January 29, 2013
Expected dividend yield		$ 0
Expected stock price volatility		120%
Risk free interest rate		0.15%
Expected life (years)		1 year

57

Table of Contents

The following is a summary of stock option activity:

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. There were no options exercised during the years ended December 31, 2015 and 2014.

As of December 31, 2015, there are no unrecognized compensation costs.

58

Table of Contents

8.  CONVERTIBLE PROMISSORY NOTES

	December 31,	December 31,
	2015	2014
Convertible promissory notes with interest at 12% per annum, convertible into common shares at a fixed price ranging from $0.02 to $0.10 per share. Maturity dates range from April 30, 2016 to November 11, 2018, net of unamortized discount of $363,754 and $677,584, respectively. (A)	$ 898,747	$    570,816
Convertible promissory notes with interest at 12% per annum, convertible into common shares at a fixed price ranging from $0.06 to $0.14 per share. These convertible promissory notes are currently in default. (default as of December 31, 2015) (A)	280,000	-
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 December 31, 2015 (the conversion price would be $0.025 per share), and at a fixed price of $0.35 per share as of December 31, 2014. (B)	335,117	150,509
Convertible promissory notes with interest at 8% per annum, convertible into common shares at a fixed price of $0.30 per share. The maturity date is April 30, 2016. (C)	250,000	250,000
	1,763,864	971,325
Less current portion:	(1,550,829)	(858,225)
Long-term portion:	$      213,035	$      113,100

(A)  On November 23, 2015, the Company issued a convertible promissory note in the principal amount of $50,000 at a stated interest of 12% per annum. The conversion price is $0.06. In addition, the Company granted warrants to purchase 833,333 shares of common stock at an exercise price of $0.10 per share.  The warrants have a life of 3 years and were fully vested on the date of the grant.  The debt discount was comprised of $23,105 for the relative fair value of the warrants and $26,895 for the beneficial conversion feature of the notes.

59

Table of Contents

 In August 2015, the Company agreed with eight debt holders to extend their loans for $675,000 to September 15, 2015, October 15, 2015, and December 31, 2015, for consideration that lowered the conversion price of the debt and the warrants excise price to $0.14. In addition, one of these debt holders was also granted warrants to purchase 775,000 shares of common stock.  This note was in default as of December 31, 2015.  In October 2015, the Company repaid the $25,000 loan matured on September 15, 2015.  On October 28, 2015, six convertible promissory notes of total $500,000 were extended to December 15, 2015, for consideration that lowered the conversion price of the debt to $0.06 and the warrants exercise price to $0.10.  An additional $137,418 debt discount was recorded at the date of modification. On December 15, 2015, the six notes above were extended to March 31, 2016, for consideration that lowered the A warrant exercise price to $0.07 and B warrant exercise price to $0.09.  Subsequently, on March 25, 2016, the six notes were extended to June 30, 2016 and the exercise price for A warrant and B warrant was lowered to $0.02 and $0.03, respectively.

In January and March 2015, the Company issued two convertible promissory notes in the principal aggregate amount of $175,000 at a stated interest rate of 12% per annum. The conversion price is $0.25. In addition, the Company granted warrants to purchase 1,330,000 shares of common stock at an exercise price of $0.25 per share.  The warrants have a life of 3 years and were fully exercisable on the date of the grant. In addition, the warrant agreements have a cashless exercise provision.  The debt discount was comprised of $79,274 for the relative fair value of the warrants and $64,554 for the beneficial conversion feature of the notes. The Company also reissued 714,286 common shares of its treasury stock to one of the debt holders. The convertible promissory note for $75,000 was to mature on August 30, 2015 and the $100,000 note was to mature on September 13, 2015. In April 2015, the $100,000 loan was amended and the maturity date was changed to June 15, 2015. The loan was subsequently extended to September 15, 2015. In addition, the conversion price of the debt and the exercise price of their warrants were both lowered to $0.14. An additional $22,000 debt discount was recorded at the date of modification. The holders of the notes are entitled to convert all or a portion of the convertible notes plus any unpaid interest, at the lender’s sole option, into shares of common stock. On November 10, 2015, half of the $100,000 loan was converted into 833,334 shares of common stock. The balance of this loan plus accrued interest $9,214 was converted into additional 1,153,561 common shares. On November 12, 2015, the convertible promissory note for $75,000 was extended to December 1, 2015. In addition, the conversion price of the debt was lowered to $0.06 and the exercise price of the warrants was lowered to $0.12. An additional $30,428 was recorded at the date of modification. This note was in default as of December 31, 2015. On April 4, 2016, this note was extended to April 30, 2016 with both the conversion price of the debt and the warrant exercise price lowered to $0.03.

60

Table of Contents

In April, May, and June 2015, the Company issued four convertible promissory notes in the aggregate principal amount of $115,000 at a stated interest rate of 12% per annum. The conversion price is $0.25. In addition, the Company granted warrants to purchase 1,431,000 shares of common stock at an exercise price of $0.25 per share.  The warrants have a life of 3 years and were fully vested on the date of the grant.  In addition, the warrant agreements have a cashless exercise provision.  The debt discount was comprised of $84,351 for the relative fair value of the warrants and $29,271 for the beneficial conversion feature of the notes. The convertible promissory note for $25,000 matured on June 30, 2015. The loan was subsequently extended to September 15, 2015. In addition, the conversion price of the debt and the exercise price of the warrants were both lowered to $0.14. An additional $2,900 debt discount was recorded at the date of modification. This loan was repaid on October 14, 2015. Another convertible promissory note for $25,000 matured on July 30, 2015. It was subsequently extended to October 15, 2015 with the conversion price of the debt and the warrant excise price lowered to $0.14. This convertible promissory note was not repaid on October 15, 2015 and an additional $700 discount was recorded at the date of modification.  On December 2, 2015, this convertible promissory note was extended to December 15, 2015. In additional, the debt conversion price and the warrant exercise price were lowered to $0.06 and $0.10, respectively, and an additional 416,666 restricted common shares were issued. As a result, an additional $1,000 debt discount was recorded at the modification date.  Subsequently, on March 29, 2016, this note was extended to April 30, 2016 and the debt conversion price and warrants exercise price was lowered to $0.02 and $0.04, respectively.  Also, a warrant eligible to purchase 416,666 common shares was issued on the same amendment date.  Two convertible promissory notes in the aggregate amount of $65,000 matured on August 30, 2015.  On October 28, 2015, the convertible promissory note of $15,000 was extended to November 30, 2015 with the conversion price of the debt lowered to $0.06. An additional $2,903 debt discount was recorded at the date of modification. Subsequently, on March 28, 2016, this note was extended to June 30, 2016 with lowering both the debt conversion price and the warrants exercise price to $0.02.  In addition, the warrants in the units of this note lowered to $0.02.  On November 19, 2015, the other $50,000 convertible promissory note was extended to December 15, 2015 with the debt conversion price modified to $0.06 and warrants excise price modified to $0.10.  An additional 6,822 debt discount was recorded at the debt of modification. Subsequently, on April 4, 2016, this note was extended to May 15, 2016 with the debt conversion price down to $0.02 and warrant exercise price decreased to $0.03. On November 23, 2015, another convertible promissory note of $25,000 was issued to the same loan holder with interest at 12% per annum. The conversion price is $0.02. In addition, the Company granted warrants to purchase 833,333 shares of common stock at an exercise price of $0.03 per share.  The warrants have a life of 3 years and were fully vested on the date of the grant.  The debt discount was comprised of $18,177 for the relative fair value of the warrants and $6,823 for the beneficial conversion feature of the notes.

61

Table of Contents

In August 2015, the Company issued a convertible promissory note to an existing debt holder for $62,500 with interest at 12% per annum. The new loan combined with the original loan of $37,500 plus accrued interest of $2,500 matured on February 12, 2016 with a conversion price of $0.14.  In addition, the Company granted warrants to purchase 2,269,643 shares of common stock at an exercise price of $0.14. The warrants have a life of 3 years and were fully exercisable on the date of the grant.  On April 4, 2016, this note was extended to April 30, 2016. The conversion price of the debt was lowered to $0.02 and the warrant exercise price was lowered to $0.04. In additional, the borrower agrees that all expired warrants held by the lender are extended for three years.

On August 13, 2015, the Company agreed with a debt holder to extend the convertible promissory debt of $25,000 to September 15, 2015 in considering both the conversion price and exercise price lowered to $0.14.  On December 2, 2015 another extension to December 15, 2015 proceeded for this note with the debt conversion price lowered to $0.06 and the warrants exercise price lowered to $0.10.An additional $2,000 debt discount was recorded at the date of modification. This note was in default as of December 31, 2015.

On August 4, 2015, the Company agreed with a debt holder to extend the convertible promissory debt of $75,000 to September 15, 2015. Subsequently, on April 11, 2015, this note was extended to June 30, 2016 with the conversion price lowered to $0.03 and the warrant exercise price lowered to $0.04.

(B)    A note for $400,000, which matured on October 22, 2014, was repaid $100,000 in August 2014, $50,000 in September 2014 and $100,000 in December 2014. The remaining balance of $150,000 was not repaid on its due date of October 22, 2014. On November 11, 2014, the Company extended the maturity date of this note to December 15, 2014. On April 13, 2015, the lender agreed to another extension to extend the maturity date to May 15, 2015. On January 5, 2015, the Company issued a convertible promissory note for $188,000, convertible at $0.35 per common share, for consulting services, which matured on May 15, 2015.

On May 21, 2015, the two above notes were assigned to Capitoline Ventures II, LLC (“Capitoline”) $293,299 and Apollo $175,000 and were combined into a new convertible promissory note in the principal amount of $468,299 due on November 21, 2015. This includes accrued interest of approximately $30,000 plus a penalty for nonpayment of $100,000 charged in January 2015. 50% of the warrants issued with the original debt for 800,000 shares, were also transferred to Capitoline. The conversion price for the combined loan is the lower of $0.25 or 50% of the lowest trade price during the 20 trading days prior to when the holder requests conversion. The note for each of them has a limitation on conversion equal to 9.99% of the Company’s outstanding common stock. The debt discount was comprised of $96,493 for the relative fair value of the warrants and $371,806 for the beneficial conversion feature of the notes.

62

Table of Contents

From May through December, Capitoline and Apollo converted a portion of their loans of $89,281 and $129,900 into 5,055,351 and 5,357,590 shares of common stock, respectively. The additional shares received due to the lower conversion price valued at $124,275 and the conversion costs of $4,380, were recorded as additional interest expense. The remaining balance of this note was $204,018 for Capitoline $45,100 for Apollo as of December 31, 2015.

In June 2015, the Company issued three convertible promissory notes to Apollo and Capitoline in the principal aggregate amount of $120,500 with interest at 12% per annum. The conversion price is the lower of $0.25 or 50% of the lowest trade price during the 20 trading days prior to the conversion date. In addition, the Company granted warrants to purchase 1,240,000 shares of common stock at an exercise price of $0.25. The warrants have a life of 3 years and were fully exercisable on the date of the grant.  In addition, the warrant agreements have a cashless exercise provision.  The debt discount was comprised of $64,113 for the relative fair value of the warrants and $54,887 for the beneficial conversion feature of the notes. The $16,500 note that matured on August 18, 2015 was repaid. The convertible promissory note for $104,000 matures on May 20, 2016. On August 17, 2015, the two loan holders agreed to not exercise their rights and remedies with respect to the existing defaults as of the same date through and including August 31, 2015. Each of these lenders was paid a forbearance fee of $15,000. In addition, the conversion price of the outstanding convertible notes for one of the loan holders was reduced to the lower of $0.14 or 50% of the lowest trading price in the twenty days prior to the notice of conversion, and for the other loan holder the lower of $0.08 or 50% of the lowest trading price in the twenty days prior to the notice of conversion; the exercise price of all of these lenders warrants was also lowered to $0.14. The Company repaid $16,000 in November 2015.

On February 10, 2016, the Company entered a settlement agreement with Capitoline about the Capitoline portion of the $468,299 note and the $52,000 note. Per agreement, $180,000 is to be paid before February 15, 2016 and $160,395 to be paid before May 1, 2016, which includes approximately $50,000 payout fee.  Among the $180,000 payment, $111,000 was repaid from January through April.  On February 23, 2016, Capitoline converted a portion of his loans of $24,530 into 2,608,758 shares of common stock. On April 12, 2016, the loan holder agreed to waive any prior payment default during 2015, and up until the settlement on February 10, 2016, for the principal of the borrowed funds.

On March 11, 2016, the Apollo portion of the $468,299 note was assigned to Union Capital, LLC in the principal amount of $46,792 due on March 11, 2017. This includes accrued interest of approximately $951. On the same date, the remaining balance of the Apollo $52,000 note was assigned to Union Capital, LLC in the principal amount of $43,208 due on March 11, 2017. This includes accrued interest of approximately $3,120. On April 11, 2016, the loan holder agreed to waive any prior payment default during 2015, and up until the sale of our note on March 11, 2016, for the principal of the borrowed funds.

63

Table of Contents

In July 2015, the Company issued a convertible promissory note to Apollo Capital Corp. (“Apollo”) in the principal aggregate amount of $15,000 with interest at 12% per annum with a conversion price at the lower of $0.25 or a 50% discount from the lowest trade price within 20 trading days prior to the conversion date. The note was to mature on January 28, 2016. The principal amount of this loan was subsequently repaid in October 2015.

(C)   In November 2014, the Company extended the maturity date of this note to December 31, 2014 in exchange for (1) a new warrant to purchase 500,000 shares of common stock at an exercise price at $0.25 per share with a five year life; and (2) an extension of all existing warrants for another five years and the lowering of the warrants exercise price to $0.25. The above two amendments were recorded, net of a discount of $102,000.  In April 2015, the Company extended total $250,000 EAM note to May 15, 2015 and further extended to September 15, 2015. This note was not repaid and is in default as of December 31, 2015.  On February 2, 2016, the Company extended the maturity date to March 31, 2016, for consideration that lowered the conversion price of the debt to $0.10 and the warrants excise price to $0.14.  Subsequently, on March 28, 2016, the loan was extended to April 30, 2016 with the debt conversion price lowered to $0.02 and the warrants exercise price lowered to $0.05.

The Company recorded approximately $1,328,429 and $904,000 of interest expense pursuant to the amortization of the note discounts for the year ended December 31, 2015 and 2014, respectively.

The intrinsic value for the convertible feature of outstanding convertible promissory notes was approximately $0.05 and $0 as of December 31, 2015 and 2014, respectively.

64

Table of Contents

9.  WARRANTS

On April 30, 2013, the Company, Daniel D. Rubino, Robert M. Pickus, and George C. Dolatly (collectively, the “GCA Principals”) and GCA Ventures, LLC (“GCA”) entered into a management and investor rights agreement.  Pursuant to the agreement, the Company will receive financial and management consulting services from GCA and the GCA Principals in return for warrants to purchase 2,500,000 common shares, at an exercise price of $0.25 per share, which were issued in three separate tranches. The first tranche of one million warrants were issued concurrently with the signing and vested immediately. The second tranche of $750,000 warrants were vested six months after the date of the agreement. The third tranche of 750,000 warrants were vested one year after the date of the agreement. Each tranche of warrants is to expire seven years after issuance. The fair value of approximately $891,500 at the grant date was recognized over the vesting period. Weighted average assumptions used to estimate the fair value of warrants on the date of grant are as follows:  

		April 30, 2013
Expected dividend yield		$ -
Expected stock price volatility		190%
Risk free interest rate		1.11%
Expected life (years)		7 years

The stock-based compensation related to this option, included in stock compensation expense in the consolidated statements of operations, was $0 and $89,150 for the years ended December 31, 2015 and 2014, respectively.

On March 13, 2014, the Company issued a three-year warrant to purchase 500,000 shares of common stock at $0.25 per share to a consultant pursuant to a consulting agreement. The warrant was fully vested when issued.  The fair value of approximately $252,800 at the grant date was recognized during the year ended December 31, 2014. Weighted average assumptions used to estimate the fair value of warrants on the date of grant are as follows:  

		March 13, 2014
Expected dividend yield		$ -
Expected stock price volatility		288%
Risk free interest rate		0.74%
Expected life (years)		3 years

65

Table of Contents

The following tables summarize the warrant activities:

10. INVESTMENT

On October 20, 2015, the Company paid $125,000 in cash and issued to Nikolaos Spanos, 1,377,398 of its common stock and 1,993,911 warrants to purchase its common shares at the exercise price of $0.10 per common share exercisable for three years.  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.  The securities are being issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933.

66

Table of Contents

11.  SALE OF UNITS

Between August and October, 2015, the Company received a total of $670,000 from various investors for the subscription of investment units at $0.12 per unit. Each unit contains two common shares, one A warrant and one B warrant. On December 11, 2015, the Company issued a total of 11,166,664 common shares, 5,583,332 A warrants and 5,583,332 B warrants to these investors.   Each A warrant is exercisable into one common share of the Company at $0.10 per common share with an exercise period of three years.  Each B warrant is exercisable into one common share of the Company at $0.12 per common share with an exercise period of three years.

12.  RELATED PARTIES

In December 2014, the Company loaned $7,300 with interest at 3% to one of its potential acquisitions, Elections Services Solutions, LLC (“ESS”), which was repaid in full in March 2015. The chairman of the Board of ESS is the father of the Company’s Chief Executive Officer.

The Receivable from related parties represents advances to Broad Sword Holdings, LLC. owned by the Chief Executive Officer of the Company. These advances are non-interest bearing and payable on demand.  As of December 31, 2015 and 2014, the receivable was approximately $0 and $24,463, respectively.

13. LEASES

In November 2014, the Company entered into to a lease agreement at a monthly rental of $10,700, which expired on May 31, 2015. The Company is currently under a month to month rent arrangement. For the years ended December 31, 2015 and 2014, the Company was charged approximately $161,000 and $100,000, respectively, for continuing and discontinued operation.  The Company’s continuing operations reduced its space after the sale of GACC. Accordingly, the Company did not allocate the rent previously charged to the discontinued operations back to continuing operations in the consolidated statements of operations.

In October 2015, the Company entered into a new lease agreement at a monthly rental of $5,250, which expires on September 30, 2016. The future minimum payment obligations are $63,000.

67

Table of Contents

14. INCOME TAXES

As of December 31, 2015 and 2014, the Company had approximately $15,615,000 and $11,576,000, respectively, of Federal net operating loss carryforwards available to offset future taxable income.  These net operating losses which, if not utilized, begin expiring in 2029. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss carryforwards may be subject to an annual limitation in the event of a change of control.

Deferred income taxes reflect the net tax effects of net operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.  

 FASB ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized.  A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates, the length of carryback and carryforward periods, and expectations of future profits, etc.  The Company believes that significant uncertainty exists with respect to the future realization of the deferred tax assets and has therefore established a full valuation allowance as of December 31, 2015 and 2014.  The change in the deferred tax valuation allowance increased by approximately $1,617,000 and $839,000 during the years ended December 31, 2015 and 2014, respectively.

The components of deferred tax assets (liabilities) at December 31, 2015 and 2014 are as follows:

		2015		2014
Net operating losses	$	6,243,000	$	4,626,000
Less valuation allowance		(6,243,000)		(4,626,000)
Net deferred tax assets	$	-	$	-

68

Table of Contents

For the years ended December 31, 2015 and 2014, the income tax provision (benefit) consists of the following:

		2015		2014
Deferred:
Federal	$	(1,375,000)	$	(713,000)
State and local		(242,000)		(126,000)
Change in valuation allowance		1,617,000		839,000
Income tax provision	$	-	$	-

The Company evaluated the provisions of FASB ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.  FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.  Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.”  A liability is recognized (or amount of net operating loss carryforward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of FASB ASC 740. Interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “interest expense, net” in the statement of operations.  Penalties would be recognized as a component of “general and administrative expenses.”  No interest or penalties were recorded during the years ended December 31, 2015 and 2014.  As of December 31, 2015 and 2014, no liability for unrecognized tax benefits was required to be reported.

The Company files income tax returns in the United States and in New York State and City.  The Company is no longer subject to Federal, state and local income tax examinations by the tax authorities for tax years prior to 2012.

69

Table of Contents

The reconciliation between the statutory federal income tax rate (34%) and the Company’s effective rate for the years ended December 31, 2015 and 2014 is as follows:

		2015		2014
Federal statutory rate		(34%)		(34%)
State and local tax, net of federal benefit		(6%)		(6%)
Non-deductible meals and entertainment		1%		1%
Valuation allowance		39%		39%
Effective rate		0%		0%

15.  COMMITMENTS AND CONTINGENCIES

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

On October 10, 2013, GACOM settled a complaint with the National Futures Association for a fine of $50,000 for certain noncompliance with Commodity Futures Trading Commission regulations.  The fine has not been paid and is included in accounts payable and accrued expenses at December 31, 2015 and 2014.  

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.

70

Table of Contents

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.

71

Table of Contents

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. 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.

16.  SUBSEQUENT EVENTS

From February through April 2015, the Company extended due date for its expired and expiring loans. (See Note 8)

From February to April, 2016, the Company issued five convertible promissory notes with Union Capital, LLC in the aggregate principal amount of $292,500 at a stated interest rate of 8% per annum.  The conversion price is 50% of the lowest trading price for the 20 prior trading days. On March 22, 2016, one of the five convertible promissory notes converted $3,000 principal amount and $0.66 interest into 370,452 shares common stock at the conversion price of $0.0081. $51,000 of this proceeds was used to pay off the Capitoline note based on the settlement agreement.

On March 30, 2016, the Company issued a convertible promissory note in the principal aggregate amount of $250,000 at a 10% original issue discount with a one-time interest charge of 12%.  The consideration is $225,000 payable by wire and $25,000 was paid at closing.  The convertible promissory note is to mature on March 30, 2018.

72

Table of Contents

On March 16, 2016, the Company issued a convertible promissory note in the principal aggregate amount of $20,000 at a stated interest rate of 12% per annum. The conversion price is $0.02. In addition, the Company granted warrants to purchase 666,666 shares of common stock at an exercise price of $0.03 per share.  The warrants have a life of 3 years and were fully vested on the date of the grant. The convertible promissory note is to mature on May 16, 2016.

On March 11, 2016, the Company issued a compromise promissory note with Apollo in the principal amount of $44,722 at a stated interest rate of 12% compounded daily on the unpaid principal balance and 22% default interest. The convertible promissory note is to mature on September 26, 2016.

In March 2016, an action was commenced by a group of individuals against GES, a subsidiary of the Company, which asserts claims for monies arising out of nonpayment for services rendered, and seeks to recover money in an aggregate amount of $540, plus 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 number of outstanding shares and shares issuable for convertible debt, options and warrants as of December 31, 2015 exceeded the authorized number of shares by approximately 47,383,660 shares, and the shareholders approved an amendment to the Company’s articles of incorporation to increase the amount of authorized common shares from 100,000,000 to 1,000,000,000 on April 28, 2016. In addition, the shareholders 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.

73

Table of Contents

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A.  CONTROLS AND PROCEDURES

Controls and Procedures.

During the year ended December 31, 2015, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and principal 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 December 31, 2015. Based on this evaluation, our chief executive officer and principal financial officers have concluded such controls and procedures were not effective as of December 31, 2015 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.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.  In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified material weaknesses in our internal control over financial reporting as follows. 

·

The relatively small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system.

·

Our internal financial staff lack expertise in identifying and addressing complex accounting issued under U.S. Generally Accepted Accounting Principles.

74

Table of Contents

Upon receiving adequate financing, the Company plans to increase its controls in these areas by hiring more employees in financial reporting, and establishing an audit committee.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of any system of controls is also based in part on certain assumptions regarding the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Given these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.

Important 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.

ITEM 9B.  OTHER INFORMATION

None

75

Table of Contents

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following persons listed below have been retained to provide services as director until the qualification and election of his successor.  All holders of common stock will have the right to vote for directors.

The board of directors has primary responsibility for adopting and reviewing implementation of the business plan of the Company, supervising the development business plan, review of the officers' performance of specific business functions.  The board is responsible for monitoring management, and from time to time, to revise the strategic and operational plans of the Company.  A director shall be elected by the shareholders to serve until the next annual meeting of shareholders, or until his or her death, or resignation and his or her successor is elected.  

The Executive Officers and Directors are: