Global Arena Holding, Inc. - Quarter Report: 2021 June (Form 10-Q)

The Company, GAHI, and GES do not trade crypto currency, nor participate in Initial Coin Offerings.

On June 15, 2019, GES entered into a Term Sheet to create a joint venture with TrueVote, Inc. TrueVote, Inc. is building a comprehensive end-to-end, de-centralized, completely digital voting system. This will be based on traditional, proven database methodologies, and layered with a "checksum" that's posted on the Blockchain, proving all data is immutable and unalterable. This design will ensure that every vote is transparently counted and verifiable. The Company is currently renegotiating this contract. Under the terms of the current agreement, GES will invest $50,000 into a 24 Month Debenture and issue a three year warrant exercisable at $0.01 for 4,500,000 common shares of Global Arena Holding Inc., (“GAHC”). GAHC will receive three million (3,000,000) common shares of TrueVote, representing 30% of TrueVote Inc. TrueVote, Inc. is building a comprehensive end-to-end, de-centralized, completely digital voting system. This will be based on traditional, proven database methodologies, and layered with a "checksum" that's posted on the Blockchain, proving all data is immutable and unalterable. This design will ensure that every vote is transparently counted and verifiable. Upon the closing of the agreement, GES will have invested $50,000 into a 24 Month Debenture and will have issued a three year warrant exercisable at $0.01 for 4,500,000 common shares of the Company, and the Company will receive three 3,000,000 common shares of TrueVote Inc. as part of the joint venture between the companies. The Company, on December 17, 2019 paid $40,000 to True Vote. Company will pay an additional $10,000 and a three year warrant exercisable at $0.01 for 4,500,000 common shares of the Company, in the 1^st quarter of 2021. The closing of this transaction will occur upon the approval of certain corporate actions at the 2021 annual meeting.

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the financial condition of the Company and its operating results for the respective periods. The condensed consolidated balance sheet at December 31, 2020 has been derived from the Company's audited consolidated financial statements. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission. The results for the six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.

Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates the continuation of the Company as a going concern. The Company has generated recurring losses from operations and cash flow deficits from its operations since inception and has had to continually borrow to continue operating. In addition, certain of the Company’s debt is in default as of June 30, 2021. 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. The Company continues to raise funds from the issuance of additional convertible promissory note. Management is hopeful that with their ability to raise additional funds that the Company should be able to continue as a going concern.

NOTE 3– ACQUISITION DEPOSITS

On May 10, 2019, the Company entered into an asset purchase agreement with Election Services Solutions, LLC (the “APA”). Under the APA, the Company will purchase 100% of the assets of Election Services Solutions, LLC. The Company will pay $550,000, and issue 20,000,000 common shares to purchase these assets under this APA. The closing of this transaction will occur upon the approval of certain corporate actions at the 2021 annual meeting.

On November 19, 2019, the Company incorporated a new wholly owned entity in the State of Delaware called Tidewater Energy Group Inc. The Board of Directors appointed John S. Matthews and Jason Old as Board members. The Company was formed to explore opportunities in the oil, gas, mineral and energy business. Tidewater Energy Group Inc. has 40,000,000 common shares authorized; par value $0.001. There are currently 10,000,000 common shares issued and outstanding of which the Company holds 5,100,000 common shares (51%). The Company invested $50,000 into Tidewater Energy Group Inc. for general capital and administrative expenses in January 2020.

A rollforward of the convertible promissory notes payable from December 31, 2020 to June 30, 2021 is below:

On March 15, 2021, the Company entered into a note settlement agreement with an investor whereby the investor agreed to settle certain convertible notes and accrued interest for the payment of $25,000 and 75,000,000 shares of the Company’s common stock. The Company recognized a gain on settlement of debt of $509,080 as a result of this transactions.

Series B Preferred Stock

Pursuant to the Company’s Certificate of Incorporation, the Company has authorized 2,000,000 shares of $0.001 par value Preferred Stock.  The Company has designated 250,000 of the 2,000,000 shares as Series B Preferred Stock. The Series B Preferred Stock dividend is cumulative and accruing at the rate of ten percent (10%) per annum. The dividend shall be paid in common stock of the Company at the current market price. No dividend may be paid on common shares so long as the Series B Preferred Stock dividend is outstanding. Each Series B preferred share, valued at $10 per Series B preferred share, shall be convertible into a number of common shares at the previous average of the 5 Trading day closing price as reported by OTC Pink, equal to a value of $11.5. The conversion right is only available when the common shares are trading at above $.006. At any time prior to the second anniversary of issuance, the Company may redeem, in whole or in part, the Series B Preferred Stock at an amount equal to 115% of purchase price on not less than thirty (30) days nor more than sixty (60) days’ written notice. 

During the year ended December 31, 2017, the Company sold 90,000 shares of Series B Preferred Stock for cash proceeds of $900,000.  During the year ended December 31, 2018, 30,000 of these preferred shares were converted into 30,743,885 shares of common stock.  During the year ended December 31, 2020, 10,798 of these preferred shares were converted into 36,519,609 shares of common stock.

The exercise price for options outstanding at June 30, 2021 is as follows:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

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

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

Current GES Corporate Operations

GES has developed and deployed proprietary Registration software, which was designed specifically to authenticate and register voters. This proprietary software functions as a data storage and retrieval registration system by cross-referencing eligibility status within a control voter database. In a mail ballot election, the voter’s ID barcode, QR code, or signature on the Business Reply Envelope, can be scanned and the status of that voter is identified. If the voter is not eligible to vote or another ballot for that individual has already been registered in the system, that ballot is marked VOID and removed from the count. In an in-person election, the voter provides their name for look-up in the system. If they have not voted, a signature box pops up on the screen, the voter signs an electronic signature pad and the digital signature is captured next to their name. If a voter tries to vote more than once, an alert will pop up indicating that the voter has already registered, and the voter will not receive an additional ballot. Because we account for every single ballot, the system has multiple reporting options, which include the list of valid envelopes and list of voters whose ballot was void, detailing the reason. Once the voter is authenticated, the identifiers are removed to ensure a secret vote and the ballot is scanned for tabulation.

GES developed proprietary Scanning and Tabulation election software. This software features advanced OMR/OCR/Barcode scanning and tabulation system featuring de-skewing, de-speckling and image correction. The computer hardware was designed to run without Internet or Wi-Fi access and is hard wired, ensuring complete security. The system allows for triple-auditing capabilities, which are; electronically generated tabulation results, .jpeg imaging and storage, and the original physical ballot. This advancement gives GES the ability to tabulate elections faster and more efficiently. As experts in paper/mail ballot elections, GES began deploying this system in our elections in the third quarter of 2017 and it has been operating flawlessly.

In 2020, GES developed, built and implemented a propriety online election voting solution that is compliant with Title IV of the United States Department of Labor Office of Labor-Management Standards.

GES built the platform on one of the most secure global infrastructures Amazon Web Services (AWS) which is a comprehensive, evolving platform provided by Amazon that includes a mixture of infrastructure as a service (IaaS) platform as a service and packaged software (PaaS), and software as a service offerings (SaaS).

The platform enables GES to protect individual client data, including the ability to encrypt it, move it, and manage retention (if required). All data flowing across the global network interconnects with the GES secured data center and is automatically encrypted at the physical layer before it leaves our secured facilities. Additional encryption layers exist as well.

GES controls where our client data is stored, who can access it, and what resources your organization is utilizing at any given moment. Fine-grain identity and access controls combined with continuous monitoring for near real-time security information ensures that the right resources have the right access at all times, wherever your information is stored.

GES encryption software uses AES 256 with a cryptographic key using a RSA elliptic curve of 4096, which is used to encrypt the communication of the client and the GES server, as well all client data hosted in the server. A six-digit security code, delivered to the voter’s email address provided by the client, must be validated by the prospective voter in order to authenticate the identity of the voter before the voter may access the ballot. After validating the voter, the voter then votes anonymously, so that the identity of the voter and the ballot cast can never be matched.

The GES voting platform verifies that the users does not use the back and forward browser button, a safe mechanism against tampering. Distributed denial of service DDoS protection tools help secure websites and applications and prevent DDoS attacks, which bombard websites with traffic traditionally delivered via “botnets" that are created by networked endpoints connected via malware. The DDoS software protection provides always-on detection and automatic inline mitigations that minimize application downtime and latency.

Management believes there is a unique opportunity in conducting United States and Foreign Government Elections. GES’ senior Management teams’ primary business for 40 years has been mail/absentee ballot elections. The market for GES conducting paper/mail ballot elections grew exponentially in January of 2017, when first President Barack Obama, and then President Donald Trump designated U.S. Elections “Critical Infrastructure”. The effect of these Executive Orders was to refocus the Department of Homeland Security, and the Elections Assistance Commission to reenergize compliance on U.S. Government elections, and assist by making available resources such as intelligence, funding, training and best practices in election software and hardware, for all 50 States.

On March 23, 2018, President Trump signed the Consolidated Appropriations Act of 2018 into law, which included $380 million in Help America Vote Act (HAVA) grants for states to make election security improvements. Among the authorized uses of the grant funds is the replacement of voting equipment, specifically equipment that does not produce a paper record or that is determined to be at the end of its useful life. Recent published examples are:

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On December 20, 2019, President Trump signed the Consolidated Appropriations Act of 2020 into law. The Act includes $425 million in new HAVA funds made available.

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In 2019, Hawaii (SB 166) allocated $789,598 for the purpose of a vote counting system contract.

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In 2019, Georgia issued a $150 million bond package for the replacement of voting equipment statewide. The state also appropriated $12,840,000 from the General Fund for the purpose of financing projects and facilities for the Office of Secretary of State.

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In 2019, Wyoming appropriated $7.5 million into an election readiness account (HB 21). The state's $3 million HAVA allocation will also be placed in this account, the majority of which will go toward replacing outdated voting equipment statewide.

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In 2019, North Dakota enacted SB 2002, which included a one-time appropriation for voting equipment and electronic poll books statewide. The total amount of $11.2 million included $8.2 million in state funds and $3 million in HAVA funds.

The opportunity for mail/absentee ballots became a page one story in 2020 due to the Coronavirus Pandemic. Subsequent accusations of voter fraud, compounded by President Trump declaring the 2020 U.S. election voting as rigged and fraudulent, has led to almost 40% of the U.S. Electorate believing the 2020 election was fraudulent.

On October 23, 2019, the Brennan Center has estimated that the national cost for some of the most critical election security measures to be approximately $ 2.2 Billion dollars over the next five years.

Every state has a vote by mail process right now. Voters may request an Absentee Mail Ballot from their County Board of Elections or a Vote by Mail ballot is sent. In either case, our proprietary registration and tabulation software has an immediate need. In the 2016 U.S. Presidential election, approximately 33 Million ballots were cast by mail making up about 25% of the votes. Most individuals think only of the Presidential election every four years as the Election. In reality, municipal Board of Elections throughout the U.S. are conducting elections annually for such elected positions as; Governor, Mayor, City Council, State Assembly, State Senate, Members of U.S. Congress (House every 2 years, Senate every 6) Civil and Criminal Justices, Sheriffs, School Boards, Village Trustees, etc. In short, most State and local municipal Board of Elections are in the market purchasing software and hardware every year.

In the U.S. there are 3,007 counties, 64 parishes, 19 organized boroughs, 11 census areas, 41 independent cities, and the District of Columbia, all of whom must buy updated Election Machines and Software. Each municipal county individually purchases election voting machines under the guidance of their own State’s Secretary of State.

The United States Government, through the Elections Assistance Commission, certifies election software and hardware for use in U.S. Government Elections. On February 10, 2021 the U.S. Election Assistance Commission (EAC) announced the adoption of the Voluntary Voting System Guidelines (VVSG) 2.0. These guidelines have been formulated to improve cyber security, accessibility and usability requirements in the U.S. voting process.

Election Software Developers and Manufactures may also qualify by meeting individual requirements for individual States in the United States.

GES has begun undertaking the following six step benchmarks to qualify for the updated U.S. certification and is also considering individual State certifications;

Step 1 - Voting System Testing, Testing current developed systems to U.S. Federal 2.0 Standards

Step 2 - Technical Data Package Review; Reviews submitted documents against documentation requirements of outside agencies, published standards, or U.S. specifications

Step 3 - Physical Configuration Audit; Examines the documentation of the system against the actual submitted system

Step 4 - System Integration Testing; Executes tests on all components of a system configured as if the system was deployed

Step 5 - Functional Configuration Audit; Examines submitted test data and conducts additional testing to verify submitted system hardware and software described in the documents submitted to the Elections Assistance Commission and the Department of Homeland Security

Step 6 - Security Testing; Performs vulnerability assessments and penetration analysis to assess system vulnerabilities

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 administrating elections. Along with these advances, though, have come risks regarding the integrity and privacy of data, and these risks apply to election companies, falling into the general classification of cybersecurity. While it is not possible for anyone to give an absolute guarantee that data will not be compromised, when applicable, the Company shall utilize third-party service providers to secure the Company’s financial and personal data; the Company believes that third-party service providers provide reasonable assurance that the financial and personal data that they hold are secure.

Liquidity and Capital Resources

As of June 30, 2021, the Company has an accumulated deficit of $29,003,016 and a working capital deficit of $7,946,573. Our ability to continue as a going concern depends upon whether we can ultimately attain profitable operations, generate sufficient cash flow to meet our obligations, and obtain additional financing as needed.

For the six months ended June 30, 2021, the Company recorded net loss of $318,327. We recorded an amortization of debt discount of $150,455, a change in fair value of derivative liability of $202,274 and a gain on settlement of debt of $509,080. We had a decrease in accounts payable and accrued expenses of $28,694 and a decrease in deferred revenue of $173,223. We also had an increase in accrued expenses of 378,031. As a result, we had net cash used in operating activities of $(298,564) for the six months ended June 30, 2021.

For the six months ended June 30, 2021, we received $276,500 as proceeds from the issuance of convertible promissory notes payable resulting in net cash provided by financing activities of $276,500.

As of June 30, 2020, the Company has an accumulated deficit of $28,684,689 and a working capital deficit of $8,417,037. Our ability to continue as a going concern depends upon whether we can ultimately attain profitable operations, generate sufficient cash flow to meet our obligations, and obtain additional financing as needed.

For the six months ended June 30, 2020, the Company recorded a net loss of $1,798,527. We recorded an amortization of debt discount of $198,330. We recorded a gain from the change in fair value of derivative liability of $660,060.

We had common stock issued for services of $277,721. We had an increase in accounts payable of $5,827, a decrease in accrued expenses of $413,961 and a decrease in deferred revenue of $7,400. As a result, we had net cash used in operating activities of $246,882 for the six months ended June 30, 2020.

For the six months ended June 30, 2020, we received $290,000 as proceeds from the issuance of convertible promissory notes payable and repaid $32,500 of such convertible notes.

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

The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. Our auditors for the years ended December 31, 2020 and 2019 have included a “going concern” modification in their auditors’ reports. A “going concern” modification may make it more difficult for us to raise funds when needed. The outcome of this uncertainty cannot presently be determined.

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

Results of Operations for the Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

Revenues for the three months ended June 30, 2021 were $350,676 compared to $232,237 for the three months ended June 30, 2020, an increase of $118,439. The majority of our clients hold elections on a three year cycle. This increase in revenues is due primarily to more elections held during the three month period in 2021 and the result of revenue from new customer.

Salaries and benefits totaled $117,713 for the three months ended June 30, 2021 compared to $395,433 for the three months ended June 30, 2020. This decrease was due to stock-based compensation in 2020. There was no stock-based compensation in 2021.

Professional fees for the three months ended June 30, 2021 totaled $168,669 compared to $46,080 for the three months ended June, 2020, an increase of $122,589. This increase is primarily due to higher audit fees during the three months ended June 30, 2021.

For the three months ended June 30, 2021, we incurred marketing and advertising expenses of $0 compared to the $1,058 in the three months ended June 30, 2020. We incurred software development expenses of $17,877 in 2021 compared to $5,382 in 2020, we incurred printing costs of $80,455 in 2021 compared to $76,779 in 2020, and we incurred general and administrative expenses of $158,978 in 2021 compared to $37,406 in 2020. The increase in general and administrative expenses was mainly due to increase in costs due to the increase in revenue.

Total operating expenses for the three months ended June 30, 2021 were $543,692 compared to $562,138 for the three months ended June 30, 2020, a decrease of $18,446 principally due to reasons discussed above.

Results of Operations for the Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

Revenues for the six months ended June 30, 2021 were $585,261 compared to $340,666 for the six months ended June 30, 2021 increase of $244,595. The majority of our clients hold elections on a three year cycle. This increase in revenues is due primarily to more elections held during the six month period in 2021 and the result of revenue from new customer.

Salaries and benefits totaled $234,425 for the six months ended June 30, 2021 compared to $513,146 for the six months ended June 30, 2020. This decrease was due to stock-based compensation in 2020. There was no stock-based compensation in 2021.

Professional fees for the six months ended June 30, 2021 totaled $222,601 compared to $93,572 for the six months ended June 30, 2020, an increase of $129,029. This increase is primarily due to higher audit fees during the six months ended June 30, 2021

For the six months ended June 30, 2021, we incurred marketing and advertising expenses of $0 compared to the $2,116 in the six months ended June 30, 2020. We incurred software development expenses of $21,729 in 2021 compared to $70,667 in 2020, we incurred printing costs of $142,089 in 2021 compared to $125,615 in 2020, and

we incurred general and administrative expenses of $198,926 in 2021 compared to $194,564 in 2020. The increase in general and administrative expenses was primarily due to increase in costs due to the increase in revenue.

Total operating expenses for the six months ended June 30, 2021 were $820,770 compared to $999,680 for the six months ended June 30, 2020, a decrease of $160,464 principally due to reasons discussed above.

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.

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 and Tidewater Energy Group, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes revenue in accordance with FASB ASC 606, Revenue From Contracts with Customers. The Company earns revenues through various services it provides to its clients. GES’s income is recognized at the presentation date of the certification of the election results. The payments received in advance are recorded as deferred revenue on the balance sheet. Should an election not proceed, all non-refundable deferred revenue will be recognized as revenue.

Convertible Debt

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

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

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

Derivative Financial Instruments

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

Share-Based Compensation

The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluation the impact this ASU will have on its consolidated financial statements.

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of June 30, 2021.

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Based on this evaluation, our chief executive officer and chief financial officer have concluded such controls and procedures to be not effective as of June 30, 2021 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.

Evaluation of Changes in Internal Control over Financial Reporting

Our chief executive officer and chief financial officer have evaluated changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2021. Based on that evaluation, our chief executive officer and chief financial officer, or those persons performing similar functions, did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

On December 26, 2017, the Company entered into a settlement agreement with a prior attorney with regards to outstanding legal fees owed. Pursuant to this settlement agreement, the Company paid $25,000 on January 5, 2018, and $25,000 on February 5, 2018, and was required to pay an additional $200,000 during 2018. On December 14, 2020, parties amended the settlement agreement to state that the Company shall pay the prior attorney Two Hundred Nineteen Thousand, Five Hundred and Seventy Six Dollars and thirty nine cents ($219,576.39). The amount due shall be paid to the prior attorney in payments of Five Thousand Dollars per month for a period of thirty four (34) months. On January 27, 2020, the Company made a payment of $ 5000.00 and subsequently on April 12, 2020 the Company made a payment of $ 15,000.

On October 16, 2020, the Company’s subsidiary, Tidewater Energy Group Corp. was named as a defendant in a lawsuit filed in District Court in and For Tulsa County, State of Oklahoma, CJ-2020-3172. On January 13, 2021 the plaintiffs added the Company to the lawsuit. The plaintiffs are seeking damages, disgorgement and specific performance relief relating to a Purchase and Sale Agreement to purchase all of the membership interests in Foster Energy. The Company has obtained counsel to dispute the charges. On March 18, 2021, the Company filed a motion to dismiss and brief in support. The Company asserted that the plaintiffs’ claims are entirely without merit as the Company was not a party to the Purchase and Sale Agreement or the related non-disclosure agreement. Tidewater concurrently filed a motion to dismiss based on legal remedies available to Tidewater.

Item 1A. Risk Factors

Not Applicable

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

None.

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

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following is a complete list of exhibits filed as part of the Quarterly Report on Form 10-Q, some of which are incorporated herein by reference from the reports, registration statements and other filings of the issuer with the Securities and Exchange Commission, as referenced below:

Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002