We are a reporting company and file
annual, quarterly and special reports, and other information with the Securities and Exchange Commission. Copies of the
reports and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street NE, Washington,
D.C. 20549. You can request copies of such documents by writing to the SEC and paying a fee for the copying cost. You may
obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a
web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.
This prospectus is part of a registration
statement on Form S-1 that we filed with the SEC. Certain information in the registration statement has been omitted from this
prospectus in accordance with the rules and regulations of the SEC. We have also filed exhibits and schedules with the registration
statement that are excluded from this prospectus. For further information you may:
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization and Nature of Operations
Legacy Card Company (“Legacy”)
was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability
Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff Lexington Corp. (“Cardiff”, the “Company”),
a publicly held corporation.
In the first quarter of 2013, it was decided
to restructure Cardiff into a holding company that adopted a new business model known as "Collaborative Governance,"
a form of governance enabling businesses to take advantage of the power of a public company. Cardiff began targeting the acquisition
of, niche companies with high growth potential,. The reason for this strategy was to protect the Company’s shareholders by
acquiring businesses with little to no debt, seeking support with both financing and management that had the ability to offer a
return to investors.
Description of Business
To date, Cardiff consists of the following wholly-owned subsidiaries:
We Three, LLC (Affordable Housing Initiative) acquired
on May 15, 2014;
Romeo’s NY Pizza acquired on June 30, 2014;
Edge View Properties, Inc. acquired on July 16, 2014;
FDR Enterprises, Inc. acquired on August 10, 2016;
Refreshment Concepts, LLC acquired on August 10, 2016;
Repicci’s Franchise Group, LLC acquired on August
10, 2016;
Red Rock Travel Group, was acquired July31, 2018
Platinum Tax Defenders, LLC was acquired July 31, 2018
Principles of Consolidation
The consolidated financial statements include
the accounts of Cardiff, and its wholly-owned subsidiaries: We Three, LLC; Romeo’s NY Pizza; Edge View Properties, Inc.;
FDR Enterprises, Inc.; Refreshment Concepts, LLC, Repicci’s Franchise Group, LLC, Red Rock Travel Group, and Platinum Tax
Defenders LLC. All significant intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts
may have been reclassified for consistency with the current period presentation. These reclassifications would have no material
effect on the reported financial results.
In June 2019, the Company closed Red
Rock Travel Group due to continuing losses in operations. The net assets and operations of Red Rock Travel Group have been
retrospectively reclassified and reflected as discontinued operations.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Management uses its historical records and knowledge of its business in making estimates. Accordingly, actual results could differ
from those estimates.
Change in Capital Structure
Om March 25, 2019 the Company announced
a 1:1500 reverse split of its Common stock, which has been given retrospective treatment in the consolidated financial statements.
Revenue Recognition
For the year-ended December 31, 2017, in
general, the Company recognized revenue on an accrual basis. Revenue is generally realized or realizable and earned when all of
the following criteria are met:
1) persuasive evidence of an arrangement exists between the
Company and our customer(s);
2) services have been rendered;
3) our price to our customer is fixed or determinable; and
4) collectability is reasonably assured.
Rental Income
The Company’s rental income is derived
from the mobile home leases. The expired leases are considered month-to-month leases. In accordance with section 605- 10-S99-1
of the FASB Accounting Standards Codification for revenue recognition, the cost of property held for leasing by major classes of
property according to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying
consolidated balance sheets as of December 31, 2017 and 2016. There are no contingent rentals included in income in the accompanying
statements of operations. With the exception of the month-to-month leases, revenue was recognized on a straight-line basis and
amortized into income on a monthly basis, over the lease term.
Restaurant Sales
Revenue from restaurant sales were recognized
when food and beverage products are sold. The Company reports revenue net of sales taxes collected from customers and remitted
to governmental taxing authorities.
On January 1, 2018, we adopted Topic 606
using the modified retrospective method which did not have a material impact to the opening balance of accumulated deficit.. Results
for reporting periods beginning after January 1, 2018 are presented under Topic 606
The Company applies a five-step approach
in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying
the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the
performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially
all of the Company’s revenue is recognized at the time control of the products transfers to the customer.
The Company generates revenue from our
subsidiaries primarily on a cash basis for sale of food items and monthly rentals of mobile homes. As allowed by a practical expedient
in Topic 606, the entity recognizes revenue in the amount to which the entity has a right to invoice. The term between invoicing
and when payment is due is not significant.
Our subsidiary Repicci, generates revenues
through franchise fees. Revenues from franchise fees are recognized in accordance with guidance Topic 606, as the reference objections
are satistied. The perinate franchise fees associated with the right to intellectual property is earned over the life of the franchise
agreement, which can be up to 15 years.
Our segmented revenue is disclosed more
fully in our financial statements, see footnote 10 for further details.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents. The Company has no cash equivalents.
Accounts Receivable
Accounts receivable is reported on the
balance sheet at gross amounts due to the Company. Management closely monitors outstanding accounts receivable and charges off
to expense any balances that are determined to be uncollectible. As of December 31, 2018 and 2017, the Company had accounts receivable
of $64,345 and $63,061, respectively. Accounts receivables are primarily generated from our subsidiaries in their normal course
of business.
Inventory
Inventory consists of finished goods purchased,
which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out (FIFO) method. The
Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of
any anticipated changes in future demand.
Property and Equipment
Property and equipment are carried at cost.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation and amortization of property and equipment is provided
using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
|
Classification
|
Useful Life
|
|
Equipment, furniture and fixtures
|
5 - 7 years
|
|
Leasehold improvements
|
10 years or lease term, if shorter
|
During the years ended December 31, 2018 and 2017, depreciation
and amortization expense was $80,165 and $227,959 ($108,039 is included in Cost of Goods Sold), respectively.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands are
not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment
testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation
for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal
projections of expected future cash flows and operating plans. The Company believe such assumptions are also comparable to those
that would be used by other marketplace participants. During years-ended December 31, 2018 and 2017, the company had Goodwill impairment
of $1,459,725 and $932,529, respectively, related to its acquisitions of FDR Enterprises, Inc.; Refreshment Concepts, LLC; and
Repicci’s Franchise Group, LLC. (collectively referred to as “Repicci’s Group”) and Red Rock Travel Group.
The Company based this decision on impairment testing off the underlying assets, expected cash flows, decreased asset value and
other factors.
Valuation of long-lived assets
In accordance with the provisions of Accounting
Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all
long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Valuation of Derivative Instruments
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 815-10, Derivatives and Hedging (“ASC 815-10”), requires
that embedded derivative instruments be bifurcated and assessed, along with freestanding derivative instruments such as convertible
promissory notes, on their issuance date to determine whether they would be considered a derivative liability and measured at their
fair value for accounting purposes. The Company evaluates all of it financial instruments, including stock purchase warrants, 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
revalued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option based simple derivative financial
instruments, the Company uses the Lattice Binomial option pricing model to value the derivative instruments at inception and subsequent
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is reassessed at the end of each reporting period.
Beneficial Conversion Feature
For conventional convertible debt where
the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
and related debt discount.
When the Company records a BCF, the relative
fair value of the BCF is recorded as a derivative liability with an offset against the face amount of the respective debt instrument
which is and amortized to interest expense over the life of the debt.
Fair Value Measurements
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon the
level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1)
market participant assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an
entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3). The three levels of the fair value hierarchy are described below:
Level Input Definition
|
Level 1
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
|
Level 2
|
Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date.
|
|
Level 3
|
Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
The following table presents certain investments
and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s Consolidated
Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2018 and 2017.
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of BCF Derivative Liability – December 31, 2018
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,870,625
|
|
|
$
|
1,870,625
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of BCF Derivative Liability – December 31, 2017
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,236,656
|
|
|
$
|
2,236,656
|
|
Stock-Based Compensation – Employees
The Company accounts for its stock based
compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement
principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant
to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine
the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which
it is probable that performance will occur.
Generally, all forms of share-based payments,
including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based
payments is recorded in general and administrative expense in the consolidated statements of operations.
Stock-Based Compensation – Non Employees
Equity Instruments Issued to Parties Other Than Employees
for Acquiring Goods or Services
The Company earky adopted ASU No 2018-07
for equity instruments issued to parties other than employees.
Income Taxes
Income taxes are determined in accordance
with ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted
income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the years ended December 31, 2018 and
2017 the Company did not have any interest and penalties associated with tax positions. As of December 31, 2018 and 2017, the Company
did not have any significant unrecognized uncertain tax positions.
Earnings (Loss) per Share
FASB ASC Subtopic 260, Earnings Per
Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available
to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include
the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been
issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares.
The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the
treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock
can result in a greater dilutive effect from potentially dilutive securities.
The following table sets forth the computation
of basic and diluted earnings per common share for the years ended December 31, 2018 and 2017. During a period of net loss, all
potentially dilutive securities are anti-dilutive. Accordingly, for the years ended December 31, 2018 and 2017 potentially dilutive
securities have been excluded from the computations since they would be anti-dilutive. However, these dilutive securities could
potentially dilute earnings per share in the future (weighted average reflected post 1500:1 reverse stock split):
|
|
|
For the years ended
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(6,265,251
|
)
|
|
$
|
(3,651,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
602,038
|
|
|
|
28,937
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) per share
|
|
$
|
(10.41
|
)
|
|
$
|
(126.20
|
)
|
This does not include the potential dilutive
effect if all exercisable warrants were exercised or conversions of convertible notes and convertible preferred stock as described
below as of December 31, 2018:
|
|
|
2018
|
|
|
2017
|
|
|
Principal and Interest conversion
|
|
|
3,133,104
|
|
|
|
41,660
|
|
|
Warrants
|
|
|
5,833
|
|
|
|
–
|
|
|
Preferred Stock conversion
|
|
|
350,167
|
|
|
|
209,650
|
|
|
Total
|
|
|
3,489,104
|
|
|
|
250,310
|
|
Going Concern
The accompanying consolidated financial
statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization
of assets and liabilities and commitments in the normal course of business. The Company has sustained operating losses since its
inception and has negative working capital and an accumulated deficit. These factors raise substantial doubts about the Company’s
ability to continue as a going concern. As of December 31, 2018, the Company has sustained recurring loses and accumulated a working
capital deficit. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company
is unable to continue as a going concern. As a result, the Company’s independent registered public accounting firm, in its
report on the Company’s December 31, 2018 consolidated financial statements, has raised substantial doubt about the Company’s
ability to continue as a going concern.
The ability of the Company to continue
as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash
infusions. Management has prospective investors and believes the raising of capital will allow the Company to fund its cashflow
shortfalls and pursue new acquisitions. There can be no assurance that the Company will be able to obtain sufficient capital from
debt or equity transactions or from operations in the necessary time frame or on terms acceptable to it. Should the Company be
unable to raise sufficient funds, it may be required to curtail its operating plans. In addition, increases in expenses may require
cost reductions. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all,
in the future. Should the Company not be able to raise sufficient funds, it may cause cessation of operations.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No.
2016-02,” Leases” (Topic 842) which includes a lessee accounting model that recognizes two types of leases -
finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and liabilities
for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising
from a lease by a lessee will depend on its classification as a finance or an operating lease. New disclosures to help investors
and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases are
also required. These disclosures include qualitative and quantitative requirements, providing information about the amounts recorded
in the financial statements. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting”, to provide clarity and reduce both (1) diversity in
practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change
to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions
of a share-based payment award require an entity to apply modification accounting in ASC 718. The amendments are effective for
fiscal years beginning after December 15, 2017 and should be applied prospectively to an award modified on or after the adoption
date. Early adoption is permitted, including adoption in an interim period.
Other pronouncements issued by the FASB or other authoritative
accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the
Company’s financial position, results of operations or cash flows.
Platinum Tax Defenders
On July 31, 2018, the Company completed
the acquisition of Platinum Tax Defenders. In connection with the closing of the acquisition, a Preferred “L” Class
of stock with a par value of $0.001 was established and issued. The Preferred “L” Class of stock rights and privileges
include voting rights, a conversion ratio of 1:1.25 and were distributed at the adjusted rate of $0.013 per share (pre-splt) for
a total of 98.307,692 representing a value of $1,278,000. These Preferred “L” shares have a lock-up/leak-out limiting
the sale of stock for 12 months after which conversions and sales are limited to 20% of their portfolio per year, pursuant to the
terms of the Acquisition Agreement. The preliminary purchase allocation of the net assets acquired is as follows:
|
|
|
Platinum Fair Value
|
|
|
Cash
|
|
$
|
138,906
|
|
|
Accounts receivable
|
|
|
105,669
|
|
|
Other assets
|
|
|
60,041
|
|
|
Property and equipment
|
|
|
6,010
|
|
|
Goodwill
|
|
|
2,092,048
|
|
|
Liabilities
|
|
|
(272,674
|
)
|
|
Total
|
|
$
|
2,130,000
|
|
Red Rock Travel Group
On July 31, 2018, the Company completed
the acquisition of Red Rock Travel Group. In connection with the closing of the acquisition, on July 30th, 2018 a Preferred
“K” Class of stock with a par value of $0.001 was established and issued. The Preferred “K” Class of stock
rights and privileges include voting rights, a conversion ratio of 1:1.25 and were distributed at the adjusted rate of $0.021 per
share (pre-splt) for a total of 8,200,562 representing a value of $175,000. These Preferred “K” shares have a lock-up/leak-out
limiting the sale of stock for 12 months after which conversions and sales are limited to 20% of their portfolio per year, pursuant
to the terms of the Forward Acquisition Agreement. The preliminary purchase allocation of the net assets acquired is as follows:
|
|
|
Red Rock Fair Value
|
|
Cash
|
|
$22,515
|
|
Intangible assets*
|
|
300,000
|
|
Property and equipment
|
|
55,286
|
|
Goodwill*
|
|
1,459,725
|
|
Liabilities
|
|
(1,662,526)
|
|
Total
|
|
$175,000
|
* Subsequent to the acquisition, the Company
determined that the intangible assets and goodwill should be fully impaired and written off.
The results of the operations for Platinum
and Red Rock have been included in the consolidated financial statements since the date of the acquisitions (July 31, 2018). The
following table presents the unaudited pro forma results of continuing operations for the years ended December 31, 2018 and 2017,
respectively, as if the acquisitions had been consummated at the beginning of the period presented. The pro forma results of continuing
operations are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the
acquisitions occurred at the beginning of the period presented or the results which may occur in the future.
|
|
|
Pro Forma 2018
|
|
|
Pro forma 2017
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
1,393,687
|
|
|
|
4,393,687
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FOR THE PERIOD
|
|
$
|
(7,211,221
|
)
|
|
$
|
(7,211,221
|
)
|
4. ACCRUED EXPENSES
As of December 31, 2018, and December 31,
2017, the Company had accrued expenses of $1,310,074 and $740,696, respectively, consisted of the following:
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
Accrued salaries – related party
|
|
$
|
747,000
|
|
|
|
470,000
|
|
|
Lease payable – related party
|
|
|
–
|
|
|
|
25,250
|
|
|
Accrued expenses – other
|
|
|
563,074
|
|
|
|
245,446
|
|
|
Total
|
|
$
|
1,310,074
|
|
|
|
740,696
|
|
|
5.
|
PLANT AND EQUIPMENT, NET
|
Plant and equipment, net as of December
31, 2018 and 2017 was $381,301 and $491,474, respectively, consisting of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Furniture, fixture and equipment
|
|
|
715,466
|
|
|
|
904,375
|
|
|
Leasehold improvements
|
|
|
161,166
|
|
|
|
672,159
|
|
|
Total
|
|
|
876,632
|
|
|
|
1,576,534
|
|
|
Less: accumulated depreciation
|
|
|
(495,331
|
)
|
|
|
(1,085,060
|
)
|
|
Plant and equipment, net
|
|
|
381,301
|
|
|
|
491,474
|
|
During the years ended December 31, 2018
and 2017, depreciation expense was $80,165 and $227,959, respectively. During the year end December 31, 2018 and 2017, the Company
accounts for depreciation as a separate item in the operational expense of $22,697 and $160,171, respectively and included $57,468
and $108,039, respectively in depreciation in cost of goods sold.
During
the December 31, 2018, the Company disposed fixed assets of $104,886
and related liabilities related to a company-owned franchise, resulting in net cash flow of $91,847 and a gain on sale of $874
from disposal. During the December 31, 2017, the Company disposed
fixed assets of $101,434, resulting in accelerated depreciation expense of $101,434 from disposal of fixed assets.
As of December 31, 2018 and 2017, the Company
had land of $603,000 located in Salmon, Idaho with area of approximately 30 acres, which was in connection with the acquisition
of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E Preferred Stock as consideration for
this acquisition. The land is currently vacant and is expected to be developed into residential community.
On December 28, 2016, the Company entered
into an unsecured Business Line of Credit Agreement with Fundation Group LLC (“Fundation”), pursuant to which the Company
was allowed to take a draw from Fundation up to $20,000 from time to time. The Line of Credit bears interest at a rate of 11.49%
per annum, subject to increase or decrease with 90 days notice. There was an initial closing fee of $500 and a 2% draw fee on subsequent
draws. Monthly principal and interest payments are due and the line is due in full in 18 months from the latest draw. The outstanding
principal and interest will be due in payments over 18 months.
As of December 31, 2018 and 2017, The Company
had balance of $1,999 and $15,498, respectively. During the year ended December 31, 2018, the Company made a cash payment
of $13,499. (Included in Note 10)
|
8.
|
RELATED PARTY TRANSACTIONS
|
Due to Officers and Officer Compensation
During
the year ended December 31, 2018, the Company borrowed $25,000
from a corporate officer, which was repaid. During the year ended December 31, 2017, the Company repaid a total of $91,791
to related parties.
Refreshment
Concepts, LLC leases its premises from its prior owner under a month-to-month lease at the rate of $1,500 per month. As of December
31, 2018 and December 31, 2017, the Company had lease payable of $-0- and $25,250, respectively to the related party, which is
reflected in accrued expenses – related party.
On
January 24, 2017, the Company issued 2,010,490 (pre-split) shares
of Common Stock to settle $482,518 due to the prior owner of Refreshment Concepts LLC, pursuant to the Acquisition Agreement,
dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock
on the grant date, at a price of approximately $0.24 per share (pre-splt), resulting in loss from extinguishment of debt in amount
of $80,420.
On January 24, 2017, the Company issued
173,585 shares of Common Stock to settle $41,660 due to the prior owner of Repicci’s Franchise Group LLC, pursuant to the
Acquisition Agreement, dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s
Common Stock on the grant date, at a price of approximately $0.24 per share, resulting in loss from extinguishment of debt
in amount of $6,943. As of December 31, 2017 and December 31, 2016, the outstanding balance due (included in accrued liabilities
to related parties on the financial statements) to the same prior owner was $0 and $40,550, respectively.
During the second quarter of 2017, the
prior owner of Repicci’s Franchise Group LLC submitted a subscription agreement to the Company regarding the purchase of
90,909 shares of the Company’s Series I Preferred Stock by cash payment of $10,000, which was collected during the second
quarter of 2017. The transaction was independently negotiated between the Company and the related party. The proceeds from the
subscription agreement mitigated the Company’s cash pressure in short term. The 90,909 shares of Series I Preferred Stock
were issued as of December 31, 2017.
During the second quarter of 2017, the
Company issued 906,907 shares of Common Stock to We three Inc., a related party, for services rendered. The fair value of this
stock issuance was determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately
$.0799 per share. Accordingly, the Company recognized stock based compensation of $72,462 to the consolidated statements of operations
for December 31, 2017.
The Company borrows funds from Daniel Thompson,
who is a Shareholder and Officer of the Company. The terms of repayment stipulate the unsecured loans are due 24 months after the
launch of the Legacy Tuition Card (or prior to such date) at an annual interest rate of 6 % per year. As of December 31, 2018 and
2017, the Company had $77,640 due (included in due to officers and shareholders on the financial statements) to Daniel Thompson,
respectively.
In addition, the Board of Directors of
the Company approved to increase Daniel Thompson’s compensation to $25,000 per month from $20,000 effective January 1, 2017.
Accordingly, a total salary of $300,000 and $300,000 were accrued and reflected as an expense to Daniel Thompson during the year
ended December 31, 2018 and 2017, respectively. During the year ended December 31, 2017, the Company issued 10,000,000 (pre-split
) shares of Common Stock for forgiveness of $800,000 in accrued salaries. The accrued salaries payable to Daniel Thompson was $317,500
and $117,500 as of December 31, 2018 and 2017, respectively.
The Company had an employment agreement
with a former Chief Operating Officer, Mr. Levy, whereby the Company provided for compensation of $15,000 per month in 2015 and
$10,000 per month in 2016. Mr. Levy resigned on June 7, 2016 at which time $160,000 was owed. During the year ended December
31, 2017, the Company issued 1,000,000 (pre -reverse 1500:1 stock split) shares of Common Stock for forgiveness of $80,000 in accrued
salaries. The total balance due to Mr. Levy for accrued salaries at December 31, 2018 was $80,000.
The Company had an employment agreement
with the Chief Operating Officer, Mr. Roberts, whereby the Company provided for compensation of $10,000 per month effective in
June 2016. The total balance due to Mr. Roberts for accrued salaries at December 31, 2018 and 2017 were $107,000 and $70,000, respectively.
In addition, the Company agreed to grant Mr. Roberts stock options for a minimum of 300,000 shares of the Company's common stock
at an exercise price of 50% of the current last ten (10) day stock average per share, and 600,000 shares of common stock as a key
officer employment incentive to be earned and vested on a pro rata basis at 25,000 shares per month for twenty-four (24) months.
The fair value of both 300,000 options and 600,000 shares were determined by the fair value of the Company’s Common Stock
on the grant date, at a price of approximately $0.226 per share. On August 8, 2017, Mr. Roberts accepted the offer from the
Company to issue 3,000,000 (pre-splt) common shares for forgiveness of all accrued expenses, options, and common stock granted
totaling $135,600 through June 2016. Additionally, the Company issued 1,000,000 ((pre-splt)) shares of Common Stock as a
bonus to Mr. Roberts for his past service to the Company. The fair value of this stock issuance was determined by the fair value
of the Company’s Common Stock on the grant date, at a price of approximately $.07 (pre-splt) per share. Accordingly,
the Company recognized stock based compensation of $70,000 to the consolidated statements of operations for the year ended December
31, 2017.
The Board of Directors of the Company approved
to increase Chief Executive Officer, Mr. Cunningham’s compensation to $25,000 per month from $15,000 effective January 1,
2017. A total salary of $300,000 and $300,000 were accrued and reflected as an expense during the year ended December 31, 2018
and 2017, respectively. During the year ended December 31, 2017, the Company issued 5,000,000 (pre -reverse 1500:1 stock split)
shares of Common Stock for forgiveness of $400,000 in accrued salaries. The total balance due to Mr. Cunningham for accrued salaries
at December 31, 2018 and 2017 were $322,500 and $122,500, respectively.
Notes Payable – Related Party
The Company has entered into several unsecured
loan agreements with related parties (see below; Footnote 11, Notes Payable – Related Party; and Footnote 12 Convertible
Notes Payable – Related Party).
|
9.
|
NOTES AND LOANS PAYABLE
|
Notes payable at December 31, 2018 and
2017 are summarized as follows:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Loans Payable Unrelated Party
|
|
$
|
665,488
|
|
|
$
|
215,979
|
|
|
Notes Payable – Unrelated Party
|
|
|
10,989
|
|
|
|
–
|
|
|
Notes Payable – Related Party
|
|
|
265,242
|
|
|
|
144,189
|
|
|
Total
|
|
|
941,719
|
|
|
|
360,168
|
|
|
Current portion
|
|
|
(941,719
|
)
|
|
|
(360,168
|
)
|
|
Long-term portion
|
|
$
|
–
|
|
|
$
|
–
|
|
As of December 31, 2018, the Company had
lease payable of $40,521 in connection with two capital leases on two Mercedes Sprinter Vans for the ice cream subsidiary and two
loans for auto loan for the vehicles used in the Pizza restaurants and Repicci’s Group and for daily operations. There are
purchase options at the end of all lease terms that are based on the fair market value of the vans at the time.
The balance of $624,967 in notes payable
and loans to unrelated party was due primarily by our new subsidiary Red Rock Travel Group, for funds received through various
loans.
Notes Payable – Unrelated Party
During the year end December 31, 2017,
the Company received $25,343 from third parties and repaid $68,684
On March 12, 2009, the Company entered
into an unsecured preferred debenture agreement (Note 5) with a shareholder for $20,000. The note bore interest at 12% per year
and matured on September 12, 2009. In conjunction with the preferred debenture, the Company issued 2,000,000 (pre-splt) warrants
to purchase its Common Stock, exercisable at $0.10 (pre-splt) per share and expired on March 12, 2014. As a result, of the warrants
issued, the Company recorded a $20,000 debt discount during 2009 which has been fully amortized. The Company assigned all of its
receivables from consumer activations of the rewards program as collateral on this debenture. On March 24, 2011, the Company amended
the note and the principal balance was reduced to $15,000. The Company was due to pay annual principal payments of $5,000 plus
accrued interest beginning March 12, 2012. On July 20, 2011, the Company repaid $5,000 of the note. No warrants had been exercised
before the expiration. As of December 31, 2018, the Company was in default on this debenture. The balance of the note was $10,989
and $10,989 at December 31, 2018 and December 31, 2017, respectively.
As of December 31, 2017, the Company had
lease payable of $140,317 in connection with 2 capital leases on 2 Mercedes Sprinter Vans for the ice cream section. There are
purchase options at the end of all lease terms that are based on the fair market value of the vans at the time. The leases are
not in default at the current time.
The balance of $64,673 in notes payable
to unrelated party was due to the auto loan for the vehicles used in the Pizza restaurants and Repicci’s Group and for daily
operations. The loans carry interest from 0% to 6% interest and are not currently in default.
Notes Payable – Related Party
During the year end December 31, 2018,
the Company received $174,955 from related parties. During the year end December 31, 2017, the Company received $46,176 from related
parties
On September 7, 2011, the Company entered
into an unsecured Promissory Note agreement (“Note 1”) with a related party for $50,000. Note 1 bears interest at 8%
per year and matured on September 7, 2016. Interest is payable annually on the anniversary of Note 1, and the principal and any
unpaid interest were due upon maturity. In conjunction with Note 1, the Company issued 2,500,000 shares (pre-split) of its Common
Stock to the lender. As a result of the shares issued in conjunction with Note 1, the Company recorded a $50,000 debt discount
during 2011. The balance of Note 1, net of debt discount, was $50,000 and $50,000 at December 31, 2018 and December 31, 2017 respectively.
Note 1 is currently in default.
On
November 17, 2011, the Company entered into an unsecured Promissory Note agreement (“Note 2”) with a related party
for $50,000. Note 2 bears interest at 8% per year and matured on November 17, 2016. Interest is payable annually on the anniversary
of Note 2, and the principal and any unpaid interest were due upon maturity. In conjunction with Note 2, the Company issued 2,500,000
shares (pre-split) of its Common Stock to the lender. As a result of the shares issued in conjunction with Note 2, the Company
recorded a $50,000 debt discount during 2011. The balance of Note 2, net of debt discount, was $50,000 and $50,000 at December
31, 2018 and December 31, 2017, respectively. Note 2 is currently
in default.
On
August 4, 2015, the Company entered into an unsecured Promissory Note agreement (“Note 4 ”)
with a related party for $19,500. Note 3 bears interest at
6% per year and matures on December 31, 2016. Interest is payable annually on the anniversary of Note 4, and the principal and
any unpaid interest were due upon maturity. The principal balance of Note 4 $-0- as of December 31, 2017.
As of December 31, 2018 the Company also
had an unsecured note payable of $50,747 and to the prior owner of Red Rock. The note is due on demand and carries no interest.
As
of December 31, 2018 the Company also had an unsecured note payable
of $165,242 and to the prior owner of Platinum Tax Defenders. The note is due on demand and carries no interest.
As of December 31, 2017, the Company also
had an unsecured note payable of $44,189, to the prior owner of Repicci’s Group. The note is due on demand and carries no
interest.
|
10.
|
CONVERTIBLE NOTES PAYABLE
|
Some of the Convertible Notes issued as
described below included an anti-dilution provision that allowed for the adjustment of the conversion price. The Company considered
the guidance provided by the FASB in “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” the
result of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined
that, as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were
not fixed amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith
are not considered indexed to the Company’s stock and characterized the value of the conversion feature of such notes as
derivative liabilities upon issuance.
During 2018, the company received $1,702,603 cash proceeds,
from convertible notes payable and repaid $-0- in cash. The company recorded amortization of debt discount of $950,736 related
to convertible notes, during the year end December 31, 2018. During 2017, the company received $687,200 cash proceeds, from convertible
notes payable and repaid $10,000 in cash. The company recorded amortization of debt discount of $573,605 related to convertible
notes, during the year end December 31, 2017
During the year ended December 31,
2018, the Company received conversion notices for $748,571 of convertible debt and $251,733 in interest, penalties and fees,
which were converted into 824,162,204 (pre reverse 1500:1 stock split) shares.
Convertible notes at December 31, 2018 and December 31, 2017
are summarized as follows:
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable – Unrelated Party
|
|
$
|
2,026,800
|
|
|
$
|
861,875
|
|
|
Convertible Notes Payable – Related Party
|
|
|
165,000
|
|
|
|
165,000
|
|
|
Discount on Convertible Notes Payable - Unrelated Party
|
|
|
(201,024
|
)
|
|
|
(245,494
|
)
|
|
Total
|
|
$
|
1,990,775
|
|
|
$
|
781,381
|
|
|
Current Portion
|
|
|
950,775
|
|
|
|
781,381
|
|
|
Long-Term Portion
|
|
$
|
1,040,000
|
|
|
$
|
–
|
|
For the year-ended December 31, 2017:
Convertible Notes Payable – Unrelated Party
On April 17, 2014, the Company entered
into an unsecured Convertible Note (“Note 4”) in the amount of $9,000. Note 4 was convertible into Common Shares of
the Company at $0.005 per share at the option of the holder. Note 4 bore interest at eight percent per year, matured on June 17,
2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. During the year end December 31, 2016,
the note holder converted $3,715 principal and $1,310 accrued interest payable into 1,005,000 shares of common stock at a conversion
price of $0.005 per share. And $3,000 of principal is forgiven by the note holder. In addition, the Company agreed to reimburse
the holder’s certificate processing cost by adding $1,000 to the principal for each note conversion pursuant to an addendum,
dated February 3, 2016. During the first quarter of 2017, the note holder converted $2,785 principal, $1,000 processing cost reimbursement
and $102 accrued interest into 777,400 shares of common stock at a conversion price of $0.005 per share. The balance of Note 4
was $2,785 as of December 31, 2016, which was paid in full as of December 31, 2017.
On July 29, 2015, the Company entered into
an 8% convertible promissory note (“Note 6”) with an unrelated entity in the amount of $10,000. Note 6 matured on November
26, 2015. The note is convertible into common shares of the Company at the conversion ratio of 50% discount to market or $0.01,
if the bid price falls below $0.10. Note 6 and accrued interest totaled $11,666 was paid in full by cash on May 1, 2017. The principal
balance on Note 6 at December 31, 2016 and 2017 was $10,000 and zero, respectively. The derivative liabilities was reclassified
as additional paid in capital due to the note being paid in cash as of June 30, 2017.
On February 9, 2016, the Company entered
into a 15% convertible line of credit (“Note 7”) with an unrelated entity in the amount up to $50,000. On February
9, 2016, the Company received $17,500 cash for the line of credit, matured on February 9, 2017, and unsecured. Note 7 is convertible
into common shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing price on the primary trading
market on which Company's common stock is quoted for the last five trading days prior to the conversion date, whichever is lower.
In January 2017, the Company determined that the conversion features contained in Note 7 carrying value represents a freestanding
derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the fair value of the
derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of
the derivative financial instrument of the convertible note was measured using the Binomial-Lattice valuation model as of January
2017 and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments
are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified
into additional paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities.
Note 7 principal of $6,000 was converted
into 200,000 shares of common stock at the end of 2016. During the year ended December 31, 2017, the Company recorded interest
expense, late fee of 5% and default interest of 20% related to Note 7 in total amount of $9,258 and amortization of debt discounts
in amount of $3,500. The balance of Note 7 was $11,500 with unamortized debt discount of $3,500 as of December 31, 2016, and without
unamortized debt discount as of December 31, 2017. Note 7, is currently in default and will incur a late fee of 5% and default
interest rate of 20%.
On October 28, 2016, the Company received
$25,000 cash pursuant to the terms of Note 7, matures on October 28, 2017 (“Note 7-1”). Note 7-1 was entitled to conversion
after April 28, 2017 which met the requirements for liability classification under ASC 815. See Footnote 10 for more information
on derivative liabilities.
During the year ended December 31, 2017,
the Company recorded interest expense related to Note 7-1 in amount of $11,454 and amortization of debt discount in amount of $18,333.
This resulted in an unamortized debt discount of $-0- as of December 31, 2017. The balance of Note 7-1 was $25,000 as of December
31, 2017 and December 31, 2016, respectively. Note 7-1 is currently in default and will incur a late fee of 5% and default interest
rate of 20%.
On March 8, 2016, the Company entered into
a 15% convertible promissory note in the principal of $50,000 (“Note 8”) with an unrelated entity for services rendered.
Note 8 is matured on March 8, 2017, and unsecured. This Note is convertible into common shares of the Company at the conversion
ratio of $0.03 or 50% discount of the lowest closing price on the primary trading market on which Company's common stock is quoted
for the last five trading days prior to the conversion date, whichever is lower. The Company determined that the conversion features
contained in Note 8 carrying value represents a freestanding derivative instrument that meets the requirements for liability classification
under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s
balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using
the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date.
Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense
at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion. See
Footnote 10 for more information on derivative liabilities.
On February 16, 2017, a portion of principal
of $6,000 was converted into 200,000 shares of common stock at a conversion price of $0.03 per share.
On April 13, 2017, a portion of principal
of $12,853, including $1,000 conversion cost reimbursement, plus accrued interest of $12,247 were converted into 836,667 shares
of common stock at a conversion price of $0.03 per share.
On May 4, 2017, a portion of principal
of $6,000, including $2,000 conversion cost reimbursement, plus accrued interest of $70 were converted into 202,333 shares of common
stock at a conversion price of $0.03 per share.
On July 6, 2017, a portion of principal
of $18,147, and $1,000 conversion cost reimbursement, were converted into 704,733 shares of common stock at a conversion price
of $0.03 per share.
Note 8 was in default with principal balance
of $12,294 as of December 31, 2017. During the year ended December 31, 2017, the Company recorded late fee and default interest
related to Note 8 in total amount of $8,748 and amortization of debt discounts in amount of $50,000 The balance of Note 8 was $50,000
with unamortized debt discount of $-0- as of December 31, 2016, and without unamortized debt discount as of December 31, 2017.
Note 8, is currently in default and will incur a late fee of 5% and default interest rate of 20%.
On September 12, 2016, the Company entered
into a 10% convertible promissory note in the principal of $80,000 (“Note 9”) with an unrelated entity for services
rendered. Note 9 is matured on September 12, 2017, and unsecured. This Note is convertible into common shares of the Company at
the conversion ratio of $0.03 or 50% discount of the lowest closing bid price on the primary trading market on which Company's
common stock is quoted for the last five trading days prior to the conversion date, whichever is lower. The Company determined
that the conversion features contained in Note 9 carrying value represents a freestanding derivative instrument that meets the
requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in
the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so
again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional
paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities. Note 9 is currently in default
and will incur a late fee of 5% and default interest rate of 20%.
As a result, Note 9 was discounted in the
amount of $80,000 and amortized over the remaining life of this Note. As of September 12, 2017, the note was in default. During
the year ended December 31, 2017, the Company recorded late fee and default interest related to Note 9 in total amount of $15,655
and amortization of debt discounts in amount of $80,000. The balance of Note 9 was $80,000 without unamortized debt discount as
of December 31, 2016, and $80,000 with unamortized debt discount of $0 as of December 31, 2017. Note 9 is currently in default
and will incur a late fee of 5% and default interest rate of 20%.
On January 24, 2017, the Company entered
into a 10% convertible promissory note in the principal of $80,000 (“Note 10”) with an unrelated entity for services
rendered. Note 10 is matured on January 24, 2018, and unsecured. This Note is convertible into common shares of the Company at
the conversion ratio of $0.25 or 50% discount of the lowest closing bid price on the primary trading market on which Company's
common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower. As of July 24, 2017 this
Note is convertible into common shares of the Company as described above. The Company determined that the conversion features contained
in Note 10 carrying value represents a freestanding derivative instrument that meets the requirements for liability classification
under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s
balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using
the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date.
Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense
at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion. See
Footnote 10 for more information on derivative liabilities.
On October 25, 2017, a portion of principal
of $15,000, plus $1,500 conversion cost reimbursement, were converted into 1,434,782 shares of common stock at a conversion price
of $0.0115 per share.
On November 6, 2017, a portion of principal
of $10,000, plus $1,500 conversion cost reimbursement, were converted into 1,212,121 shares of common stock at a conversion price
of $0.0825 per share.
As a result, Note 10 was discounted in
the amount of $80,000 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $35,555.56.. During the year ended December 31, 2017, the Company recorded
interest expense related to Note 10 in amount of $5,494. The balance of Note 10 was $55,000 with unamortized debt discount of $19,444
as of December 31, 2017. Note 10 is currently in default and will incur a late fee of 5% and default interest rate of 20%.
On January 24, 2017, the Company entered
into a 15% convertible line of credit (“Note 11”) with an unrelated entity in the amount up to $250,000. On January
24, 2017, the Company received $50,000 cash for the line of credit, is matured on January 24, 2018, and unsecured. Note 11 is convertible
into common shares of the Company at the conversion ratio of $0.25 or 50% discount of the lowest closing price on the primary trading
market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower.
However, Note 11 is convertible after 6 months of the effective date of this Note, which is July 27, 2017. The Company determined
that the conversion features contained in Note 10 carrying value represents a freestanding derivative instrument that meets the
requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in
the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so
again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional
paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities.
As a result, Note 11 was discounted in
the amount of $50,000 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $43,611. During the year ended December 31, 2017, the Company recorded interest
expense related to Note 11 in amount of $7,042. The balance of Note 11 was $50,000 with unamortized debt discount of $6,389 as
of December 31, 2017. Note 11 is currently in default and will incur a late fee of 5% and default interest rate of 20%.
On February 21, 2017, the Company received
$25,000 cash pursuant to the terms of Note 11, is matured on February 21, 2018 (“Note 11-1”). Note 11 is convertible
into common shares of the Company at the conversion ratio of $0.25 or 50% discount of the lowest closing price on the primary trading
market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower.
However, Note 11-1 is convertible after 6 months of the effective date of this Note, which is August 21, 2017. The Company determined
that the conversion features contained in Note 11-1 carrying value represents a freestanding derivative instrument that meets the
requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in
the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so
again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional
paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities.
As a result, Note 11-1 was discounted in
the amount of $25,000 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $18,833. The balance of Note 11-1 was $0 without debt discount as of December
31, 2016. During the year ended December 31, 2017, the Company recorded interest expense related to Note 11 in amount of $3,260.
The balance of Note 11-1 was $25,000 with unamortized debt discount of $6,667 as of December 31, 2017. Note 11-1 is currently
in default and will incur a late fee of 5% and default interest rate of 20%.
On March 16, 2017, the Company received
$40,000 cash pursuant to the terms of Note 11, is matured on March 16, 2018 (“Note 11-2”). Note 11-2 is convertible
into common shares of the Company at the conversion ratio of $0.25 or 50% discount of the lowest closing price on the primary trading
market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower.
However, Note 11-2 is convertible after 6 months of the effective date of this Note, which is September 16, 2017. The Company determined
that the conversion features contained in Note 11-2 carrying value represents a freestanding derivative instrument that meets the
requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in
the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so
again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional
paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities.
As a result, Note 11-2 was discounted in
the amount of $40,000 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $23,556. The balance of Note 11-2 was $0 without debt discount as of December
31, 2016. During the year ended December 31, 2017, the Company recorded interest expense related to Note 11-2 in amount of $3,260.
The balance of Note 11-2 was $40,000 with unamortized debt discount of $16,444 as of December 31, 2017. Note 11-2 is currently
in default and will incur a late fee of 5% and default interest rate of 20%.
On April 6, 2017, the Company entered into
a 15% convertible promissory note with an unrelated entity in the amount $50,000 (“Note 12”). Note 12 is matured on
April 6, 2018, and unsecured. This Note is convertible into common shares of the Company at the conversion ratio of $0.25 or 50%
of the lowest trading price on the primary trading market on which Company's common stock is quoted for the last ten trading days
prior to the conversion date, whichever is lower. However, Note 12 is convertible after 6 months of the effective date of this
Note, which is October 6, 2017. The Company determined that the conversion features contained in Note 12 carrying value represents
a freestanding derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the fair
value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability. The
fair value of the derivative financial instrument of the convertible note was measured using the Binomial-Lattice valuation model
at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value of
the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The
derivative liabilities will be reclassified into additional paid in capital upon conversion. See Footnote 10 for more information
on derivative liabilities.
On November 8, 2017, a portion of principal
of $6,503, plus $1,500 conversion cost reimbursement and $1,036 in interest, were converted into 1,095,636 shares of common stock
at a conversion price of $0.0825 per share.
As a result, Note 12 was discounted in
the amount of $50,000 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $30,392.. During the year ended December 31, 2017, the Company recorded interest
expense related to Note 12 in amount of $5,043. The balance of Note 12 was $43,478 with unamortized debt discount of $19,608 as
of December 31, 2017. Note 12 is currently in default and will incur a late fee of 5% and default interest rate of 20%.
On April 21, 2017, the Company entered
into a Securities Purchase Agreement with an unrelated entity, pursuant to which the purchasers agreed to pay the Company an aggregate
of up to $600,000 for an aggregate of up to 660,000 in Principal Amount of Notes. The first tranche of $330,000 was closed simultaneously
(“Note 13-1”). The proceeds of $300,000, net of $30,000 Original Issuance Discount, was received by the Company. Note
13-1 is convertible into common shares of the Company at the conversion ratio of 60% of the lowest trading price on the primary
trading market on which Company's common stock is quoted for the last ten trading days prior to the conversion date. The Company
determined that the conversion features contained in Note 13-1 carrying value represents a freestanding derivative instrument that
meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument
in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so
again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional
paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities.
On October 23 2017, a portion of principal
of $5,000, plus $250 in interest, were converted into 383,772 shares of common stock at a conversion price of $0.013680 per share.
On November 14, 2017, a portion of principal
of $7,500, plus $375 in interest, were converted into 795,455 shares of common stock at a conversion price of $0.00990 per share.
On December 7, 2017, a portion of principal
of $10,000, plus $500 in interest, were converted into 714,286 shares of common stock at a conversion price of $0.01470 per share.
On December 27, 2017, a portion of principal
of $20,000, plus $1,000 in interest, were converted into 1,125,402 shares of common stock at a conversion price of $0.013680 per
share.
In addition, in connection with this Securities
Purchase Agreement, the Company granted purchasers 2,357,143 warrants with exercise price of $0.14 per share (“Warrants A”),
1,885,715 warrants with exercise price of $0.175 per share (“Warrants B”) and 1,571,429 warrants with exercise price
of $0.21 per share (“Warrants C”). Warrants A, B and C are exercisable on the grant date and expire in three years,
each of which represents 100% of the Principal Amount at the Closing divided by the respective exercise price. The fair value
of these warrants was measured using the Black-Scholes valuation model at the grant date. Accordingly, the Company recorded warrant
expenses at the fair market value of $219,210 during the year ended December 31, 2017. See footnote 13 for more information.
As a result, Note 13-1 was discounted in
the amount of $330,000 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded interest expenses related to Note 13-1 in amount of $10,142 and amortization of debt discounts in amount of $293,375.
The balance of Note 13-1 was $287,500 with unamortized debt discount of $36,625 as of December 31, 2017. Note 13-1 is currently
in default.
On October 6, 2017, the Company entered
into a 12% convertible promissory note with an unrelated entity in the amount $82,500, which included an original issue discount
of $6,600, for net cash to the company of $75,900 (“Note 14”). Note 14 is matured on July 6, 2018, and unsecured. This
Note is convertible into common shares of the Company at the conversion ratio of 40% of the lowest trading price on the primary
trading market on which Company's common stock is quoted for the last ten trading days prior to the conversion date. Note 12 is
convertible after 9 months of the effective date of this Note, which is October 6, 2018. Neither derivative liability accounting
nor beneficial conversion feature will be considered before Note 14 is entitled for conversion. During the year ended December
31, 2017, the Company recorded interest expense related to Note 14 in amount of $2,365 and amortization of debt discounts in amount
of $2,079 for the original issue discount of $6,600. The balance of Note 14 was $82,500 unamortized debt discount of $4,521 on
the original issue discount as of December 31, 2017.
On November 2, 2017, the Company entered
into a 8% convertible promissory note with an unrelated entity in the amount $54,600, with original issue discount of $2,100 for
net cash to the company of $52,500 (“Note 15”). Note 15 is matured on November 2, 2018, and unsecured. This Note is
convertible into common shares of the Company at the conversion rate of 60% of the lowest trading price on the primary trading
market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower.
The Company determined that the conversion features contained in Note 15 carrying value represents a freestanding derivative instrument
that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial
instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial
instrument of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and
will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are
recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified
into additional paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities.
As a result, Note 15 was discounted in
the amount of $54,600 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $8,948. The balance of Note 15 was $0 without debt discount as of December
31, 2016. During the year ended December 31, 2017, the Company recorded interest expense related to Note 15 in amount of $716.
The balance of Note 15 was $54,600 with unamortized debt discount of $45,652 as of December 31, 2017.
On November 27, 2017, the Company entered
into a 12% convertible promissory note with an unrelated entity in the amount $53,800 (“Note 16”). Note 16 is matured
on November 27, 2018, and unsecured. This Note is convertible into common shares of the Company at the conversion ratio of 60%
of the lowest trading price on the primary trading market on which Company's common stock is quoted for the last 20 trading days
prior to the conversion date. Note 14 is convertible immediately. The Company determined that the conversion features contained
in Note 16 carrying value represents a freestanding derivative instrument that meets the requirements for liability classification
under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s
balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using
the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date.
Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense
at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion. See
Footnote 10 for more information on derivative liabilities.
As a result, Note 16 was discounted in
the amount of $53,800 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $5,081. The balance of Note 16 was $0 without debt discount as of December
31, 2016. During the year ended December 31, 2017, the Company recorded interest expense related to Note 16 in amount of $610.
The balance of Note 16 was $53,800 with unamortized debt discount of $48,719 as of December 31, 2017.
On December 14, 2017, the Company entered
into a 8% convertible promissory note with an unrelated entity in the amount $43,478, with original issue discount of $4,378 for
net cash to the company of $40,000 (“Note 17”). Note 17 is matured on December 14, 2018, and unsecured. This Note is
convertible into common shares of the Company at the conversion rate of 60% of the lowest trading price on the primary trading
market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower.
The Company determined that the conversion features contained in Note 17 carrying value represents a freestanding derivative instrument
that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial
instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial
instrument of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and
will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are
recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified
into additional paid in capital upon conversion. See Footnote 10 for more information on derivative liabilities.
As a result, Note 17 was discounted in
the amount of $43,478 and amortized over the remaining life of this Note. During the year ended December 31, 2017, the Company
recorded amortization of debt discounts in amount of $2,053. The balance of Note 17 was $0 without debt discount as of December
31, 2016. During the year ended December 31, 2017, the Company recorded interest expense related to Note 17 in amount of $164.
The balance of Note 15 was $43,378 with unamortized debt discount of $41,425 as of December 31, 2017.
Convertible Notes Payable – Related Party
On April 21, 2008, the Company entered
into an unsecured Convertible Debenture (“Debenture 1”) with a shareholder in the amount of $150,000. Debenture 1 was
convertible into Common Shares of the Company at $0.03 per share at the option of the holder no earlier than August 21, 2008. Debenture
1 bore interest at 12% per year, matured in August 2009, and was unsecured. All principal and unpaid accrued interest was due at
maturity. In conjunction with the Debenture 1, the Company also issued warrants to purchase 5,000,000 shares of the Company’s
Common Stock at $0.03 per share. The warrants expired on April 20, 2013. As a result, of issued warrants, the Company recorded
a $150,000 debt discount during 2008 which has been fully amortized. The Company was in default on Debenture 1, and no warrants
had been exercised before expiration. The balance of Debenture 1 was $150,000 and $150,000 at December 31, 2017 and December 31,
2016, respectively. The Company recorded interest expense related to Debenture 1 in amount of $18,000 and $18,000 during the year
ended December 31, 2017 and 2016, respectively.
On March 11, 2009, the Company entered
into an unsecured Convertible Debenture (“Debenture 2”) with a shareholder in the amount of $15,000. Debenture 2 was
convertible into Common Shares of the Company at $0.03 per share at the option of the holder. Debenture 2 bore interest at 12%
per year, matured on March 11, 2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. The Company
was in default on Debenture 2. The balance of Debenture 2 was $15,000 and $15,000 at December 31, 2017 and December 31, 2016, respectively.
The Company recorded interest expense related to Debenture 2 in amount of $1,800 and $1,800 during the years ended December 31,
2017 and 2016, respectively.
Resulting from the tainted issue by the
derivative financial instrument of the convertible notes, The Company determined that the conversion features contained in Debenture
1 and Debenture 2 carrying value represents an embedded derivative instrument that meets the requirements for liability classification
under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s
balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using
the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date.
Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense
at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion. See
Footnote 10 for more information on derivative liabilities.
As of December 31, 2017, the Company’s
derivative liabilities are embedded derivatives associated with the Company’s convertible notes payable. Due to the Notes’
conversion feature, the actual number of shares of common stock that would be required if a conversion of the note as described
in Note 9 was made through the issuance of the Company’s common stock cannot be predicted. As a result, the conversion feature
requires derivative accounting treatment and will be bifurcated from the note and “marked to market” each reporting
period through the statement of operations.
The Company used the Binomial-Lattice valuation
model to measure the fair value of the derivative liabilities as $2,236,656 on December 31, 2017 and will subsequently remeasure
the fair value at the end of each period and record the change of fair value in the consolidated statement of operation during
the corresponding period.
The valuation of the derivative liabilities
attached to the convertible debt was arrived at through the use of the Lattice Bi-nominal Option Pricing Model and the following
assumptions:
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
Volatility
|
|
|
111.09% - 220.65%
|
|
|
|
–
|
|
|
Risk-free interest rate
|
|
|
0.51% - 1.76%
|
|
|
|
–
|
|
|
Expected term
|
|
|
.02-1
|
|
|
|
–
|
|
For
the year-ended December 31, 2018, the Company has recorded derivative liabilities associated with convertible debt instruments,
as more fully discussed at Note 11.
|
Note #
|
*
|
Issuance
|
|
Maturity
|
Rate
|
|
|
12/31/2017
Principal
Balance
|
|
2018 Add Principal
|
|
2018 Principal
Conversions
|
|
Shares issued upon
conversion 2018
|
|
12/31/2018 Principal
Balance
|
|
Total
Interest
expense for Year Ended 12/31/2018
|
|
Accrued Interest
as of 12/31/2018
|
|
|
Conversion price
|
|
3
|
R
|
9/7/2011
|
|
9/7/2016
|
|
8%
|
|
|
50,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
50,000.00
|
|
|
4,055.56
|
|
|
24,055.56
|
|
|
Non-convertible
|
|
3-1
|
R
|
11/17/2011
|
|
11/17/2016
|
|
8%
|
|
|
50,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
50,000.00
|
|
|
4,055.56
|
|
|
24,055.56
|
|
|
Non-convertible
|
|
4
|
|
4/17/2014
|
|
6/17/2014
|
|
8%
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
$.005 per share
|
|
5
|
|
3/12/2009
|
|
3/12/2014
|
|
0%
|
|
|
10,989
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
10,989.00
|
|
|
–
|
|
|
–
|
|
|
Non-convertible
|
|
6
|
|
7/29/2015
|
|
11/26/2015
|
|
8%
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
50% of market, subject to change to $.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
R
|
8/21/2008
|
|
8/21/2009
|
|
12%
|
|
|
150,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
150,000.00
|
|
|
18,250.00
|
|
|
108,250.00
|
|
|
Short Term
|
|
2
|
R
|
3/11/2009
|
|
4/29/2014
|
|
12%
|
|
|
15,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
15,000.00
|
|
|
1,825.00
|
|
|
10,825.00
|
|
|
Short Term
|
|
7
|
|
2/9/2016
|
|
2/9/2017
|
|
15%
|
|
|
11,500
|
|
|
1,500.00
|
|
|
(4,515.00
|
)
|
|
1,200,000
|
|
|
8,485.00
|
|
|
1,871.32
|
|
|
714.93
|
|
|
$.03 per share or 50% of market
|
|
7-1
|
|
10/28/2016
|
|
10/28/2017
|
|
15%
|
|
|
25,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
25,000.00
|
|
|
6,319.44
|
|
|
5,320.63
|
|
|
$.03 per share or 50% of market
|
|
8
|
|
3/8/2016
|
|
3/8/2017
|
|
15%
|
|
|
10,000
|
|
|
1,500.00
|
|
|
(10,000.00
|
)
|
|
495,411
|
|
|
1,499.97
|
|
|
304.16
|
|
|
9,563.50
|
|
|
$.03 per share or 50% of market
|
|
9
|
|
9/12/2016
|
|
9/12/2017
|
|
10%
|
|
|
80,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
80,000.00
|
|
|
16,222.22
|
|
|
31,875.78
|
|
|
$.03 per share or 50% of market
|
|
10
|
|
1/24/2017
|
|
1/24/2018
|
|
10%
|
|
|
55,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
55,000.00
|
|
|
12,528.00
|
|
|
17,737.50
|
|
|
$.25 per share or 50% of market
|
|
11
|
|
1/27/2017
|
|
1/27/2018
|
|
15%
|
|
|
50,000
|
|
|
11,500.00
|
|
|
(58,802.00
|
)
|
|
44,810,143
|
|
|
2,698.00
|
|
|
8,079.61
|
|
|
(0.00
|
)
|
|
$.25 per share or 50% of market
|
|
11-1
|
|
2/21/2017
|
|
2/21/2018
|
|
15%
|
|
|
25,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
25,000.00
|
|
|
6,398.31
|
|
|
1,028.92
|
|
|
$.25 per share or 50% of market
|
|
11-2
|
|
3/16/2017
|
|
3/16/2018
|
|
15%
|
|
|
40,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
40,000.00
|
|
|
10,238.02
|
|
|
5,949.36
|
|
|
$.25 per share or 50% of market
|
|
12
|
|
4/6/2017
|
|
4/6/2018
|
|
15%
|
|
|
43,497
|
|
|
7,500.00
|
|
|
(19,000.00
|
)
|
|
19,286,260
|
|
|
31,997.00
|
|
|
10,573.79
|
|
|
6,770.88
|
|
|
$.25 per share or 50% of market
|
|
13-1
|
|
4/21/2017
|
|
4/21/2018
|
|
5%
|
|
|
287,500
|
|
|
–
|
|
|
(115,500.00
|
)
|
|
15,191,152
|
|
|
172,000.00
|
|
|
9,863.26
|
|
|
12,105.63
|
|
|
$.30 per share or 60% of the lowest trading price for 10 days
|
|
14
|
|
10/6/2017
|
|
7/6/2018
|
|
12%
|
|
|
82,500
|
|
|
5,112.65
|
|
|
(87,612.65
|
)
|
|
66,879,492
|
|
|
–
|
|
|
6,288.42
|
|
|
0.00
|
|
|
40% of the lowest trading price for 10 days
|
|
15
|
|
11/2/2017
|
|
11/2/2018
|
|
8%
|
|
|
54,600
|
|
|
–
|
|
|
(54,600.00
|
)
|
|
47,973,252
|
|
|
–
|
|
|
2,959.60
|
|
|
0.00
|
|
|
60% of the lowest trading price for 10 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
11/27/2017
|
|
11/27/2018
|
|
12%
|
|
|
53,800
|
|
|
115,917.00
|
|
|
(122,992.00)
|
|
|
176,451,571
|
|
|
–
|
|
|
105,034.90
|
|
|
0.00
|
|
|
60% of the lowest trading or bid (whichever is lower) price for 20 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
12/14/2017
|
|
12/14/2018
|
|
8%
|
|
|
43,478
|
|
|
–
|
|
|
(43,478.26)
|
|
|
8,248,054
|
|
|
–
|
|
|
1,979.02
|
|
|
0.00
|
|
|
60% of the lowest trading price for 10 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
1/19/2018
|
|
1/19/209
|
|
12%
|
|
|
–
|
|
|
83,500.00
|
|
|
–
|
|
|
–
|
|
|
83,500.00
|
|
|
10,159.17
|
|
|
10,159.17
|
|
|
60% of the lowest trading price for 20 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
2/21/2018
|
|
2/21/2019
|
|
8%
|
|
|
–
|
|
|
78,750.00
|
|
|
(78,750.00)
|
|
|
54,957,108
|
|
|
–
|
|
|
3,638.74
|
|
|
0
|
|
|
60% of the lowest trading price for 15 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
3/29/2018
|
|
3/29/2019
|
|
8%
|
|
|
–
|
|
|
100,000.00
|
|
|
(74,900.00
|
)
|
|
145,598,889
|
|
|
25,100.00
|
|
|
6,579.82
|
|
|
2,672.82
|
|
|
60% of the lowest trading price for 15 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
4/9/2018
|
|
4/9/2019
|
|
10%
|
|
|
–
|
|
|
147,000.00
|
|
|
(16,794.00
|
)
|
|
60,041,407
|
|
|
130,206.00
|
|
|
10,335.82
|
|
|
1,958.82
|
|
|
40% discount on the lowest trading price for previous 25 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
7/10/2018
|
|
1/10/2021
|
|
12%
|
|
|
–
|
|
|
1,040,000.00
|
|
|
–
|
|
|
–
|
|
|
1,040,000.00
|
|
|
63,786.67
|
|
|
63,786.67
|
|
|
$0.04/ share or 40% of the lowest bid price for prior 21 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
7/19/2018
|
|
12/31/2018
|
|
8%
|
|
|
–
|
|
|
43,478.26
|
|
|
(43,478.26
|
)
|
|
14,373,526
|
|
|
–
|
|
|
79.90
|
|
|
–
|
|
|
60% of the lowest trading price for 10 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
7/19/2018
|
|
12/31/2018
|
|
8%
|
|
|
–
|
|
|
43,478.26
|
|
|
(43,478.26)
|
|
|
67,478,054
|
|
|
–
|
|
|
972.00
|
|
|
(0.00
|
)
|
|
60% of the lowest trading price for 10 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
8/13/2018
|
|
2/13/2019
|
|
12%
|
|
|
–
|
|
|
126,560.00
|
|
|
(48,246.00)
|
|
|
101,177,885
|
|
|
78,314.00
|
|
|
6,068.14
|
|
|
1,724.14
|
|
|
$0.004/ share or 60% of the lowest trading price for prior 21 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
8/10/2017
|
|
1/27/2018
|
|
15%
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
20,000.00
|
|
|
1,533.33
|
|
|
1,533.33
|
|
|
$.25 per share or 50% of market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27-1-4
|
|
12/10/2018
|
|
12/10/2019
|
|
8%
|
|
|
–
|
|
|
108.000.00
|
|
|
–
|
|
|
–
|
|
|
108,000.00
|
|
|
504.00
|
|
|
504.00
|
|
|
60% of the lowest trading price for 10 days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
12/5/2018
|
|
12/5/2019
|
|
8%
|
|
|
–
|
|
|
100,000.00
|
|
|
–
|
|
|
–
|
|
|
100,000.00
|
|
|
466.67
|
|
|
466.67
|
|
|
55% of the lowest trading price for 15 days
|
|
|
Convertible
|
|
$
|
861,875
|
|
|
$
|
2,013,796
|
|
|
$
|
(822,146
|
)
|
|
|
824,162,204
|
|
|
$
|
2,026,800
|
|
|
$
|
302,784
|
|
|
$
|
173,873
|
|
|
|
|
Non-Convertible
|
|
$
|
10,989
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
10,989
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
SUMMARY
|
Related Party Convertible
|
|
$
|
165,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
165,000
|
|
|
$
|
20,075
|
|
|
$
|
119,075
|
|
|
|
|
Related Party Non-Convertible
|
|
$
|
100,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
100,000
|
|
|
$
|
8,111
|
|
|
$
|
48,111
|
|
|
|
|
Total
|
|
$
|
1,137,864
|
|
|
$
|
2,013,796
|
|
|
$
|
(822,146
|
)
|
|
|
824,162,204
|
|
|
$
|
2,302,789
|
|
|
$
|
330,970
|
|
|
$
|
341,059
|
|
|
* R = Related Party
|
11.
|
FAIR VALUE MEASUREMENT
|
The Company measures assets and liabilities
at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents
the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The Company adopted the provisions of Accounting
Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines
fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels
of inputs that may be used to measure fair value:
The following are the hierarchical levels
of inputs to measure fair value:
|
|
•
|
Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2 Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
•
|
Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses,
certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these
instruments.
The Company recognizes its derivative liabilities
as level 3 and values its derivatives using the methods discussed in note 12. While the Company believes that its valuation methods
are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions
to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting
date. The primary assumptions that would significantly affect the fair values using terms in the notes that are subject to volatility
and market price of the underlying common stock of the Company.
As of December 31, 2018 and December 31,
2017, the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of December
31, 2017, in the amount of $2, 236,656 has a level 3 classification.
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial liabilities for the year ended December 31, 2017:
|
Derivative Liability, December 31, 2016
|
|
–
|
|
|
Day 1 Loss
|
|
|
1,287,744
|
|
|
Discount from derivatives
|
|
|
535,878
|
|
|
Warrants reclassified to derivative liabilities
|
|
|
96,753
|
|
|
Tainting of Convertible notes
|
|
|
1,972,999
|
|
|
Resolution of derivative liability upon conversion
|
|
|
(405,443
|
)
|
|
(Gain) on Change in Fair Value
|
|
|
(1,251,275
|
)
|
|
|
|
|
|
|
|
Derivative Liability, December 31, 2017
|
|
|
2,236,656
|
|
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the year ended December
31, 2017, the Company’s stock price decreased from initial valuation and thus, the derivative liability also decreased. Generally,
as the stock price decreases for each of the related convertible notes that have an embedded derivative liability, the value of
the derivative liability decreases. Stock price is one of the significant unobservable inputs used in the fair value measurement
of each of the Company’s convertible notes with an embedded derivative liability.
The Company used the Binomial-Lattice valuation
model to measure the fair value of the derivative liabilities as $2,236,656 on December 31, 2017, and will subsequently remeasure
the fair value at the end of each period, and record the change of fair value in the consolidated statement of operation during
the corresponding period. The Company recorded a net change of derivative liability of $36,469 for the year ended December 31,
2017.
The derivative liability as of December
31, 2018, in the amount of $1,870,625 has a level 3 classification.
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial liabilities for the year ended December 31, 2018:
|
Derivative Liability, December 31,2017
|
|
|
2,236,656
|
|
|
Day 1 Loss
|
|
|
987,021
|
|
|
Discount from derivatives
|
|
|
775,790
|
|
|
Resolution of derivative liability upon conversion
|
|
|
(1,770,997
|
)
|
|
Mark to market adjustment
|
|
|
(357,845
|
)
|
|
Derivative Liability, December 31, 2018
|
|
|
1,870,625
|
|
The above tables also include derivative
liabilities related to warrants to purchase common stock of $3,795 at December 31, 2018. Net loss for the period included mark-to-market
adjustments relating to the liabilities held during the year ended December 31, 2018 in the amounts of $629,176.
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the year ended December
31, 2018, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of the related
derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable
inputs used in the fair value measurement of each of the Company’s derivative instruments.
The valuation of the derivative liabilities
attached to the convertible debt was arrived at through the use of the Lattice Bi-nominal Option Pricing Model and the following
assumptions:
|
|
|
|
For the period ended
|
|
|
|
|
|
December 31,
2018
|
|
|
|
December 31,
2017
|
|
|
Volatility
|
|
|
182.91%-636.13%
|
|
|
|
111.09% - 220.65%
|
|
|
Risk-free interest rate
|
|
|
2.13% -2.72%
|
|
|
|
0.51% - 1.76 %
|
|
|
Expected term
|
|
|
.04 - 5.14
|
|
|
|
.02-1.00
|
|
The Company previously reported that it
has failed to remit payroll tax payments since 2006, as required by various taxing authorities. Payroll taxes and estimated penalties
were accrued in recognition of accrued salaries subsequently settled via stock issue and other agreements that did not result in
reportable or taxable payroll transactions. These accruals were reversed for prior years, and a similar estimated accrual established
for 2018 and 2017. As of December 31, 2018 and December 31, 2017, the Company estimated the amount of taxes, interest, and penalties
that the Company could incur as a result of payroll related taxes and penalties to be $9,865 and $2,047, respectively.
2017
During the first quarter of 2017, the Company
filed Amended Articles of Incorporation with the Secretary of State of Florida to amend the rights and privileges for series of
Preferred Stock, and to authorize the issuance of Series I, F1, G1, H1, J1 and K1 Preferred Stock, which was effective on April
26, 2017.
Series A Preferred Stock
The Company has designated four shares
of preferred stock as Series A Preferred Stock (“Series A”), with a par value of $.0001 per share, of which one share
of preferred stock was issued and outstanding as of December 31, 2017 and December 31, 2016. Series A is authorized to have four
shares which do not bear dividends and converts to common shares at four times the sum of: all shares of Common Stock issued and
outstanding at time of conversion plus all shares of Series B Preferred Stock issued and outstanding at time of conversion divided
by the number of issued Class A shares at the time of conversion, and have voting rights four times the sum of: all shares of Common
Stock issued and outstanding at time of voting plus all shares of Series B Preferred Stocks issued and outstanding at time of voting
divided by the number of Class A shares issued at the time of voting.
Series B Preferred Stock
The Company has designated 3,000,000 shares
of preferred stock as Series B Preferred Stock (“Series B”), with a par value $0.001 and $2.50 price per share, of
which 2,798,205 shares of Series B preferred stock were issued and outstanding as of December 31, 2017. Shares of Series B are
anti-dilutive to reverse splits. The conversion rate of shares of Series B, however, would increase proportionately in the case
of forward splits, and may not be diluted by a reverse split following a forward split. Series B is awarded “Voting Right”
at the ratio of 1 vote per share owned. Each one share of Series B converts to 5 shares of Common Stock. The price of each share
of Series B may be changed either through a majority vote of the Board of Directors through a resolution at a meeting of the Board
of Directors, or through a resolution passed at an Action Without Meeting of the unanimous Board of Directors, until such time
as a listed secondary and/or listed public market develops for the shares.
During the year ended December 31, 2016,
591,997 shares of Series B Preferred Stock were converted into 2,959,985 shares of Common Stock of the Company per the preferred
shareholder’s instruction.
During the first quarter of 2017, 1,406,829
shares of Series B Preferred Stock were converted into 7,034,145 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
On March 30, 2017, the Company issued 24,000
shares of Series B Preferred Stock to settle legal expenses of $60,000. Based on the price of $.9075 per share for the Series B
Preferred Stock, which was determined by the market price of common stock at $.1815 per share on the issuance date multiplied by
the conversion ratio of 1:5, the fair value of the stock issuance of Series B Preferred Stock was $21,780, resulting in gain from
extinguishment of debt in amount of $38,220.
During the second quarter of 2017, 193,904
shares of Series B Preferred Stock were converted into 969,520 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
On June 27, 2017, the Company issued 15,906
shares of Series B Preferred Stock to 2 different consultants for services rendered. Based on the price of $.3995 per share for
the Series B Preferred Stock, which was determined by the market price of common stock at $.0799 per share on the issuance date
multiplied by the conversion ratio of 1:5, the fair value of the stock issuance of Series B Preferred Stock was $6,354, which was
recorded as stock based compensation during the six months ended June 30, 2017.
During the third quarter of 2017, 20,999
shares of Series B Preferred Stock were converted into 104,995 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
During the fourth quarter of 2017, 6,000
shares of Series B Preferred Stock were converted into 30,000 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
Series C Preferred Stock
The Company has designated 500 shares of
preferred stock as Series C Preferred Stock (“Series C”), with a par value of $.001 per share, of which 117 shares
were issued and outstanding as of December 31, 2017. Shares of Series C are non-dilutive to reverse splits. The conversion rate
of shares of Series C, however, would increase proportionately in the case of forward splits, and may not be diluted by a reverse
split following a forward split. Each one share of Series C converts to 100,000 shares of Common Stock. Each share of Series C
shall have one vote for any election or other vote placed before the shareholders of the Company. The price of each share of Series
C may be changed either through a majority vote of the Board of Directors through a resolution at a meeting of the Board of Directors,
or through a resolution passed at an Action Without Meeting of the unanimous Board of Directors, until such time as a listed secondary
and/or listed public market develops for the shares. Shares of Series C may not be converted into shares of Common Stock for a
period of: a) six months after purchase, if the Company voluntarily or involuntarily files public reports pursuant to Section 12
or 15 of the Securities Exchange Act of 1934; or b) 12 months if the Company does not file such public reports.
During the first quarter of 2017, 1 share
of Series C Preferred Stock were converted into 100,000 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
Blank Check Preferred Stock
As of December 31, 2017, the Company has
designated 100,000,000 shares of Blank Check Preferred Stock, of which 46,132,277 shares have been issued with Designations, Rights
& Privileges. The following Series have been assigned from the inventory of Blank Check Preferred Shares. The amount of undesignated
Blank Check Preferred Stock is 91,160,181 as of December 31, 2017.
Series D Preferred Stock
The Company has designated 800,000 shares
of preferred stock as Series D Preferred Stock (“Series D”), with a par value of $.001 per share, of which 400,000
shares were issued and outstanding as of December 31, 2017. Series D is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series D converts to 5 shares of Common Stock.
On June 30, 2014, the Company completed
the acquisition of Romeo’s NY Pizza. The Company issued 400,000 shares of Series D Preferred Stock (“Series D”)
as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $1,000,000
valuation. Shares of Series D are anti-dilutive to reverse splits. The conversion rate of shares of Series D, however, would increase
proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share
of Series D shall have voting rights equal to one vote of Common Stock. With respect to all matters upon which stockholders are
entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series D shall
vote together with the holders of Common Stock, without regard to class, except as to those matters on which separate class voting
is required by applicable law or the Corporation’s Certificate of Incorporation or Bylaws. The initial price of each share
of Series D shall be $2.50.
There was no change in Series D Preferred
Stock during the year ended December 31, 2017 and 2016.
Series E Preferred Stock
The Company has designated 1,000,000 shares
of preferred stock as Series E Preferred Stock (“Series E”), with a par value of $.001 per share, of which 241,199
shares were issued and outstanding as of December 31, 2017. Series E is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series E converts to 5 shares of Common Stock.
On July 11, 2014, the Company completed
the acquisition of Edge View Properties, Inc. The Company issued 241,199 shares of Series E Preferred Stock (“Series E”)
as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $603,000
valuation. Shares of Series E are anti-dilutive to reverse splits. The conversion rate of shares of Series E, however, would increase
proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share
of Series E shall have voting rights equal to one vote of Common Stock. With respect to all matters upon which stockholders are
entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series E shall
vote together with the holders of Common Stock, without regard to class, except as to those matters on which separate class voting
is required by applicable law or the Corporation’s Certificate of Incorporation or Bylaws. The initial price of each share
of Series E shall be $2.50.
There was no change in Series E Preferred
Stock during the year ended December 31, 2017 and 2016.
Series F Preferred Stock
The Company has designated 800,000 shares
of preferred stock as Series F Preferred Stock (“Series F”), with a par value of $.001 per share, of which 280,069
shares were issued and outstanding as of December 31, 2017. Series F is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series F converts to 5 shares of Common Stock.
There was no change in Series F Preferred
Stock during the year ended December 31, 2017 and 2016.
The Company has designated 800,000 shares
of preferred stock as Series F1 Preferred Stock (“Series F1”), with a par value of $.001 per share, of which 57,193
shares were issued and outstanding as of December 31, 2017. Series F1 is “non-Voting stock”. Each one share of Series
F1 converts to 5 shares of Common Stock.
On May 15, 2014, the Company completed
the acquisition of We Three, LLC (d/b/a Affordable Housing Initiative) (“AHI”). The Company issued 280,069 shares of
Series F Preferred Stock (“Series F”) as consideration for this acquisition. The fair value of We Three LLC was $1,000,000.
Based on the price of $2.50 per share for the Series F Preferred Stock, the fair value of the stock issuance of Series F Preferred
Stock was $700,174, resulting in the gain of $299,826 on investment in We Three, which was offset the goodwill impairment at the
end of 2014. In addition, the Company sold 156,503 shares of Series F-1 Preferred Stock (Series F-1”), to various investors
at a price of $2.50 per share, or totaled $391,248 in cash. Shares of Series F are anti-dilutive to reverse splits. The conversion
rate of shares of Series F, however, would increase proportionately in the case of forward splits, and may not be diluted by a
reverse split following a forward split. Each one share of Series F shall have voting rights equal to five votes of Common Stock.
With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent,
the holders of the outstanding shares of Series F shall vote together with the holders of Common Stock, without regard to class,
except as to those matters on which separate class voting is required by applicable law or the Corporation’s Certificate
of Incorporation or Bylaws. The initial price of each share of Series F shall be $2.50.
During the first quarter of 2017, 31,997
shares of Series F1 Preferred Stock were converted into 159,985 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
During the second quarter of 2017, 42,640
shares of Series F1 Preferred Stock were converted into 213,200 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
During the third quarter of 2017, 41,318
shares of Series F1 Preferred Stock were converted into 206,600 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
Series G Preferred Stock
The Company has designated 20,000,000 shares
of preferred stock as Series G Preferred Stock (“Series G”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of December 31, 2017. Series G is awarded “Voting Right” at the ratio of 1 vote per share
owned. Each one share of Series G converts to 1.25 shares of Common Stock.
The Company has designated 10,000,000 shares
of preferred stock as Series G1 Preferred Stock (“Series G1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of December 31, 2017. Series G1 is “non-Voting stock”. Each one share of Series G1 converts
to 1.25 shares of Common Stock.
There was no change in Series G and G1
Preferred Stock during the year ended December 31, 2017 and 2016.
Series H Preferred Stock
The Company has designated 4,859,379 shares
of preferred stock as Series H Preferred Stock (“Series H”), with a par value of $.001 per share, of which 4,859,379
shares were issued and outstanding as of December 31, 2017. Series H is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series H converts to 1.25 shares of Common Stock.
The Company has designated 3,000,000 shares
of preferred stock as Series H1 Preferred Stock (“Series H1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of December 31, 2017. Series H1 is “non-Voting stock”. Each one share of Series H1 converts
to 1.25 shares of Common Stock.
On August 10, 2016, the Company completed
the acquisitions of FDR Enterprises, Inc.; Refreshment Concepts, LLC; and Repicci’s Franchise Group, LLC. (collectively referred
to as “Repicci’s Group”). Pursuant to the acquisition agreement, the Company agreed to issue 4,859,379 shares
of Series H Preferred Stock as consideration for the acquisition of Repicci’s Group. The combined book value of Repicci’s
Group was $(203,622). Based on the price of $.15 per share for the Series H Preferred Stock, which was determined by the market
price of common stock at $.12 per share on the acquisition date multiplied by the conversion ratio of 1:1.25, the fair value of
the stock issuance of Series H Preferred Stock was $728,907, resulting in the goodwill of $932,529 which was offset with loss on
goodwill impairment during the quarter ended December 31, 2017. The 4,859,379 shares of Series H Preferred Stock were issued during
the first quarter of 2017.
There was no change in Series H and H1
Preferred Stock during the year ended December 31, 2016.
Series I Preferred Stock
The Company has designated 20,000,000 shares
of preferred stock as Series I Preferred Stock (“Series I”), with a par value of $.001 per share, of which 203,655
shares was issued and outstanding as of December 31, 2017. Series I is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series I converts to 1.50 shares of Common Stock.
During the first quarter of 2017, one investor
submitted a subscription agreement to the Company regarding the purchase of 29,412 shares of the Company’s Series I Preferred
Stock by cash payment of $10,000, which was collected during the first quarter of 2017. During the second quarter of 2017, the
same investor submitted a subscription agreement to the Company regarding the purchase of 83,334 shares of the Company’s
Series I Preferred Stock by cash payment of $10,000. The transactions were independently negotiated between the Company and the
investor. The proceeds from the subscription agreement mitigated the Company’s cash pressure in short term. The total 112,746
shares of Series I Preferred Stock were issued during the second quarter of 2017.
During the second quarter of 2017, a related
party submitted a subscription agreement to the Company regarding the purchase of 90,909 shares of the Company’s Series I
Preferred Stock by cash payment of $10,000, which was collected during the second quarter of 2017. The transaction was independently
negotiated between the Company and the related party. The proceeds from the subscription agreement mitigated the Company’s
cash pressure in short term.
During the year ended December 31, 2017,
564,538 shares of Series I Preferred Stock were converted into 626,220 shares of Common Stock of the Company per the preferred
shareholder’s instruction.
Series J Preferred Stock
The Company has designated 10,000,000 shares
of preferred stock as Series J Preferred Stock (“Series J”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of December 31, 2017. Series J is awarded “Voting Right” at the ratio of 1 vote per share
owned. Each one share of Series J converts to 1.25 shares of Common Stock.
The Company has designated 7,500,000 shares
of preferred stock as Series J1 Preferred Stock (“Series J1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of June 30, 2017. Series J1 is “non-Voting stock”. Each one share of Series J1 converts
to 1.25 shares of Common Stock.
There was no change in Series J and J1
Preferred Stock during the year ended December 31, 2017 and 2016.
Series K Preferred Stock
The Company has designated 9,607,840 shares
of preferred stock as Series K Preferred Stock (“Series K”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of December 31, 2017. Series K is awarded “Voting Right” at the ratio of 1 vote per share
owned. Each one share of Series K converts to 1.25 shares of Common Stock.
The Company has designated 35,000,000 shares
of preferred stock as Series K1 Preferred Stock (“Series K1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of December 31, 2017. Series K1 is “non-Voting stock”. Each one share of Series K1 converts
to 1.25 shares of Common Stock.
There was no change in Series K and K1
Preferred Stock during the year ended December 31, 2017
2018
Series B Preferred Stock
During the year ended December 31, 2018,
the holder of 33,999 shares of Series B Preferred Stock exercised the option to convert into 169,995 shares of Common Stock of
the Company. Pre-reverse.
Series C Preferred Stock
During the year ended December 31, 2018,
the Company issued 2 shares of Series C Preferred stock to the prior owners of Edgeview Properties for services provided to the
Company.
Series H Preferred Stock
During the year ended December 31, 2018,
the holder of 4,859,469 shares of Series H Preferred Stock exercised the option to convert into 6,074,223 shares of Common Stock
of the Company. Pre-reverse.
Series I Preferred Stock
During the year ended December 31, 2018,
the holder of 203,655 shares of Series I Preferred Stock exercised the option to convert into 305,483 shares of Common Stock of
the Company. Pre-reverse.
During the year ended December 31, 2018,
the Company agreed to issued 125,000,000 shares each as a bonus to Daniel Thompson and Alex Cunningham, for their efforts related
to the significant acquisitions that occurred during the year. These shares have not been issued, but are deemed effective on the
grant date of November 27, 2018 and an accrual for stock based compensation of 100,000
Series K Preferred Stock
During the year ended December 31, 2018,
the Company issued 8,200,562 shares of series K Preferred
Stock to the prior owners of Red Rock Travel Group. The fair market value of the shares on the date of issuances was $0.0201 per
share, at a total cost of $175,000.
Series K-1 Preferred Stock
During the year ended December 31, 2018,
the Company issued 1,447,457 shares of Series K-1 Preferred Stock in settlement of a note payable. The fair market value of the
shares were valued at the face amount of the note of $100,000.
Series L Preferred Stock
During the year ended December 31, 2018,
the Company issued 98,307,692 shares of Series L Preferred Stock to the prior owner of Platinum Tax Defenders. The fair market
value of the shares on the date of issuances was $0.013 per share, at a total cost of $1,278,000.
Common Stock (pre reverse
1500:1 stock split)
2017
On February 10, 2017, the Company entered
into a consulting agreement with an unrelated party, pursuant to which the Company agreed to issue total 800,000 shares to the
consultant in four allotments, or 200,000 shares each, for consulting services related to marketing and business development. During
the first quarter of 2017, 250,000 shares were issued. The fair value of this stock issuance was determined by the fair value of
the Company’s Common Stock on the grant date, at a price of approximately $.235 per share. During the second quarter of 2017,
the difference of 150,000 shares were not issued as of the date of the Report. The fair value of the 150,000 shares was $15,600,
or approximately $.104 per share. During the third quarter of 2017, the third installment of 200,000 shares were not issued as
of the date of the Report. The fair value of the 200,000 shares was $27,475, or approximately $.1099 per share. Accordingly, the
Company recognized stock based compensation of $101,825 to the consolidated statements of operations for the year ended December
31, 2017 and recorded $43,075 as accrued expenses in the consolidated balance sheet as of December 31, 2017.
During the first quarter of 2017, the note
holder converted $1,785 principal, $2,102 processing cost reimbursement and accrued interest into 777,400 shares of common stock
at a conversion price of $0.005 per share.
During the first quarter of 2017, the note
holder converted $6,000 principal into 200,000 shares of common stock at a conversion price of $0.03 per share.
On January 24, 2017, the Company issued
173,585 shares of Common Stock to settle $34,717 due to the prior owner of Repicci’s Franchise Group LLC, pursuant to the
Acquisition Agreement, dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s
Common Stock on the grant date, at a price of approximately $0.24 per share, resulting in loss from extinguishment of debt
in amount of $6,943.
On January 24, 2017, the Company issued
2,010,490 shares of Common Stock to settle $402,098 due to the prior owner of Refreshment Concepts LLC, pursuant to the Acquisition
Agreement, dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s
Common Stock on the grant date, at a price of approximately $0.24 per share, resulting in loss from extinguishment of debt
in amount of $80,420.
On March 20, 2017, the Company issued 60,000
shares of Common Stock to settle consulting fees of $15,000. The fair value of this stock issuance was determined by the fair value
of the Company’s Common Stock on the grant date, at a price of approximately $0.1965 per share, resulting in gain from
extinguishment of debt in amount of $3,210.
During the three months ended March 31,
2017, one investor submitted a subscription agreement to the Company regarding the purchase of 100,000 shares of Common Stock by
cash payment of $10,000. The transaction was independently negotiated between the Company and the investor. The proceeds from the
subscription agreement mitigated the Company’s cash pressure in short term.
On July 11, 2017 the Company’s Board
of Directors approved a resolution to increase the authorized common shares to 500,000,000 at par value $0.001.
During the second quarter of 2017, the
Company issued 100,000 shares of Common Stock to an attorney for legal services. The fair value of this stock issuance was determined
by the fair value of the Company’s Common Stock on the grant date, at a price of approximately $.1145 per share. Accordingly,
the Company recognized stock based compensation of $11,450 to the consolidated statements of operations for the year ended December
31, 2017.
During the second quarter of 2017, the
Company issued 906,907 shares of Common Stock to We Three, a related party, for services rendered. The fair value of this stock
issuance was determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately
$.0799 per share. Accordingly, the Company recognized stock based compensation of $90,691 to the consolidated statements of operations
for the year ended December, 2017.
During the second quarter of 2017, the
Company redeemed 500,000 shares from a shareholder for a cash payment of $2,500. The 500,000 shares were returned to the treasury
for cancellation and the $2,500 was recorded as accrued liabilities in the consolidated balance sheet as of December 31, 2017.
During the second quarter of 2017, the
note holders converted $18,853 principal, including $3,000 processing cost reimbursement, and $12,317 accrued interest into 1,039,000
shares of common stock at a conversion price of $0.03 per share.
During the second quarter of 2017, the
note holders converted $18,147 principal, including $2,995 in fees and accrued interest into 704,733 shares of common stock at
a conversion price of $0.03 per share.
On September 15, 2017, the Company issued
19,000,000 shares of Common Stock to settle $1,415,600 in accrued salaries to current and former officers of the Company. Additionally,
the Company issued 1,000,000 shares to a former employee as a one time bonus, valued at $70,000. The fair value of this stock issuance
was determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately $0.07 per share.
Accordingly, the Company reduced its accrued expenses by $1,415,600 and stock based compensation by $70,000. The difference in
the fair market value of the shares and the related expenses was recorded to additional paid in capital.
During the quarter ended December 31, 2017,
the Company issued 6,761,454 shares of common stock for the conversion of unpaid convertible notes principal and processing cost
reimbursement and interest in the amount of $81,664 at a prices ranging from $0.00825 to $0.01470 per share.
During the fourth quarter of 2017, 6,000
shares of Series B Preferred Stock were converted into 30,000 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
During the fourth quarter of 2017, the
company issued 1,508 shares of Common Stock for a correction of a prior period conversion of Series B Preferred Stock.
During the quarter ended September 30,
2017, the Company negotiated an agreement to cancel 500,000 shares previously issued to a third party consultant for services and
to issue 25,000 shares of common stock for services rendered. The fair value of this stock issuance was determined by the fair
value of the Company’s Common Stock on the grant date, at a price of approximately $0.0699 per share. Accordingly, the
Company calculated the stock based compensation of $1,748 at its fair value and included it in the consolidated statements of operations
for the year ended December 31, 2017 and reduced selling general and administrative expenses by $500.
During the quarter ended December 31, 2017,
the Company negotiated an agreement to cancel 500,000 shares previously issued to a third party consultant for services and to
issue 25,000 shares of common stock for services rendered. The fair value of this stock issuance was determined by the fair value
of the Company’s Common Stock on the grant date, at a price of approximately $0.050 per share. Accordingly, the Company
calculated the stock based compensation of $1,250 at its fair value and included it in the consolidated statements of operations
for the year ended December 31, 2017 and reduced selling general and administrative expenses by $500.
2018
See Note 11 for further issuance information
related to conversion of indebtedness to common stock.
During the year ended December 31, 2018,
the Company canceled 1,000,000 shares previously issued and issued 3,886,930 shares to third-party consultants. The fair market
value of the shares on the date of issuances was $0.0186 to $0.0247 per share, at a total cost of $86,751. The Company also issued
3,428,571 shares in settlement of $240,000 in liabilities owed to a former officer of the Company.
Pursuant to the same consulting agreement,
dated February 10, 2017, in addition to the 800,000 shares of common stock, the Company agreed to grant total 800,000 warrants
to the consultant for consulting services related to marketing and business development and are exercisable on the grant date and
expire in three years. The initial allotment of 200,000 warrants were granted during the first quarter of 2017. The second allotment
of 200,000 warrants were granted during the second quarter of 2017. The third allotment of 200,000 warrants were granted during
the third quarter of 2017. The fourth allotment of 200,000 warrants were granted during the fourth quarter of 2017.
The
Company determined that the warrants were tainted and therefore
the carrying value represents an embedded derivative instrument that meets the requirements for liability classification under
ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s balance
sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using the Black-Scholes
valuation model at the grant dates of the agreement(February 10, 2017, May 10, 2017, August 10, 2017 and December 10, 2017.) and
will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are
recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified
into additional paid in capital upon conversion.
|
|
|
Year Ended
December 31,
|
|
|
Initial Valuation
|
|
|
96,753
|
|
|
Ending Value
|
|
|
47,559
|
|
The table below sets forth the assumptions
for Black-Scholes valuation model on each initial date and December 31, 2017
|
|
|
Year Ended
December 31, 2017
|
|
|
Volatility
|
|
274% - 314%
|
|
|
Risk-free interest rate
|
|
0.147 - 0.198
|
|
|
Expected term
|
|
2.11 - 3.0
|
|
During the year ended December 31, 2018,
the Company entered into a note agreement for $1,040,000, as part of the note agreement the Company agreed to issue the noteholder
warrants exercisable for 4,000,000 shares of common stock with a term of eight years, at an exercise price of $0.04. The terms
also include a full-ratchet anti-dilution protection provision and therefore the Company has deemed them to be a derivative liability.
|
|
|
Year Ended
December 31, 2018
|
|
|
Initial Valuation
|
|
|
89,359
|
|
|
Ending Value
|
|
|
3,795
|
|
The table below sets forth the assumptions
for Black-Scholes valuation model on each initial date and December 31, 2018
|
|
|
Year Ended
December 31, 2018
|
|
|
Volatility
|
|
213% - 494%
|
|
|
Risk-free interest rate
|
|
0.147 - 0.269
|
|
|
Expected term
|
|
2.11 – 2.53
|
|
Accordingly, the Company recorded warrant
expenses of $133,123 during the year ended December 31, 2018.
On April 21, 2017, the Company entered
into a Securities Purchase Agreement with an unrelated entity, pursuant to which the purchasers agreed to pay the Company an aggregate
of up to $600,000 for an aggregate of up to 660,000 in Principal Amount of Notes. The first tranche of $330,000 was closed simultaneously
(“Note 13-1”). The proceeds of $300,000, net of $30,000 Original Issuance Discount, was received by the Company.
In addition, in connection with this Securities
Purchase Agreement, the Company granted purchasers 2,357,143 warrants with exercise price of $0.14 per share (“Warrants A”),
1,885,715 warrants with exercise price of $0.175 per share (“Warrants B”) and 1,571,429 warrants with exercise price
of $0.21 per share (“Warrants C”). Warrants A, B and C are exercisable on the grant date and expire in three years,
each of which represents 100% of the Principal Amount at the Closing divided by the respective exercise price.
The fair value of these warrants was measured
using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation
model on April 21, 2017.
Reporting
Date
|
Fair
Value
|
Term
(Years)
|
Exercise
Price
|
Market
Price on
Grant Date
|
Volatility
Percentage
|
Risk-free
Rate
|
|
4/21/2017
|
$814,000
|
3
|
$0.14 - $0.21
|
$0.14
|
676%
|
0.0177
|
Accordingly, the Company recorded warrant
expenses at the fair market value of $219,210 during the year ended December 31, 2017.
The following tables summarize all warrant
outstanding as of December 31, 2018, and the related changes during this period. The warrants expire three years from grant date,
which as of December 31, 2018 is 3.31 years. The intrinsic value of the warrants as of December 31, 2018 was $-0-.
|
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Stock Warrants
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
Balance at December 31, 2018
|
|
|
6,614,287
|
|
|
|
0.21
|
|
|
Warrants Exercisable at December 31, 2018
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
15. STOCK OPTIONS
The Company agreed to grant Mr. Roberts
stock options for a minimum of 300,000 shares of the Company's common stock at an exercise price of 50% of the current last ten
(10) day stock average per share, and 600,000 shares of common stock as a key officer employment incentive to be earned and vested
on a pro rata basis at 25,000 shares per month for twenty-four (24) months. The fair value of both 300,000 options and 600,000
shares were determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately $0.226
per share. Accordingly, the accrued expense was $135,600 as of December 31, 2017. On August 8, 2017, Mr. Roberts accepted the offer
from the Company to issue 3,000,000 common shares to supersede all his options and warrants in the employment agreement.
After the cancellation of the above transaction,
there were no stock options issued as of December 31, 2017 or as of December 31, 2018.
|
16.
|
COMMITMENTS AND CONTINGENCIES
|
Operating Leases
The Company had operating lease expense
of $242,567 and $176,062 for the year ended December 31, 2018 and 2017, respectively, consisting of
the followings.
|
|
|
For the year ended
|
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
72,121
|
|
|
$
|
71,750
|
|
|
Lot
|
|
|
73,782
|
|
|
|
35,350
|
|
|
Office
|
|
|
96,664
|
|
|
|
68,962
|
|
|
Equipment Rentals
|
|
|
–
|
|
|
|
–
|
|
|
Total
|
|
$
|
242,567
|
|
|
$
|
176,062
|
|
The Company has property leases that are
renewable on an annual basis, with no long term property leases.
We have an employment
agreement, renewed May 15, 2014, with the Chairman, Mr. Thompson amended on July 27, 2017 and effective on January 1, 2017, whereby
we provide for compensation of $25,000 per month.
We have an employment agreement with the
Chief Executive Officer, Mr. Cunningham, amended on July 27, 2017 and effective on January 1, 2017, whereby we provide for compensation
of $25,000 per month.
We have an employment agreement with the
Chief Operating Officer, Mr. Roberts, effective June 2016, whereby we provide for compensation of $10,000 per month.
There are no other stock option plans,
retirement, pension, or profit sharing plans for the benefit of our sole officer and director other than as described herein.
16. INCOME TAXES
At December 31, 2018, the Company had
federal and state net operating loss carry forwards of approximately $15,071,165 that expire in various years through the year
2038.
Due to operating losses, there is no provision
for current federal or state income taxes for the years ended December 31, 2018 and 2017.
Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amount used for federal and state income tax purposes.
The Company’s deferred tax asset
at December 31, 2018 and 2017 consists of net operating loss carry forwards calculated using federal and state effective tax rates
equating to approximately $3,815,102 and $3,815,102, respectively, less a valuation allowance in the amount of approximately $3,815,102
and $3,815,102, respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset
by a valuation allowance in both 2018 and 2017. The valuation allowance increased by approximately $811,314 for the year ended
December 31, 2018.
The Company’s total deferred tax
asset as of December 31, 2018 and 2017 is as follows:
|
|
|
2018
|
|
|
2017
|
|
|
Deferred tax assets
|
|
$
|
3,815,102
|
|
|
$
|
3,815,102
|
|
|
Valuation allowance
|
|
|
(3,815,102
|
)
|
|
|
(3,815,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
The reconciliation of income taxes computed at the federal and
state statutory income tax rate to total income taxes for the years ended December 31, 2018 and 2017 is as follows:
Repicci,
one of our operating segments, recorded income tax payable of $9,865 as of December 31, 2018 and $15,865 as of December 31, 2017.
On December 22, 2017, the U.S. Tax Cuts
and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump. The Tax Reform Act significantly revised
the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January
1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing
a repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation
be recognized in the period in which the law was enacted. The provisional amounts incorporate assumptions made based upon the Company’s
current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation
guidance.
The Company has six reportable operating
segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures
about Segments of an Enterprise and Related Information: (1) Mobile home lease (We Three), (2) Company-owned Pizza Restaurants
(Romeo’s NY Pizza), (3) “Repicci’s Italian Ice” franchised stores.(4) Travel related services (Red Rock
Travel Group, and (5) Tax resolution services (Platinum Tax Defenders). These segments are a result of differences in the nature
of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human
resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of
nonrecurring items.
The mobile home lease segment establishes
mobile home business as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage
payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, the Company
will provide a financial leasing option with "0" interest on the lease providing a "lease to own" option for
their family home.
The Company-owned Pizza Restaurant segment
includes sales and operating results for all Company-owned restaurants. Assets for this segment include equipment, furniture and
fixtures for the Company-owned restaurants.
Repicci’s Group offers franchisees
for the operation of “Repicci’s Italian Ice” franchises. These franchised stores specialize in the distribution
of nonfat frozen confections.
The number of franchise agreements in force
as of December 31, 2018 was forty-five (45), seven (7) new state of the art “mobile” units.
Platinum Tax Defenders provides tax resolution
services to individuals and companies that have federal and state tax liabilities. The company collects fees based on efforts to
negotiate and assist in the settlement of outstanding tax debts.
Red Rock Travel Group is a travel services
company that provides discounted travel packages. The packages are marketed in conjunction with interval ownership properties and
the company earns fees for scheduling the client visits and commissions on travel packages sold.
|
|
|
For the year ended
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
Revenues:
|
|
|
|
|
|
|
|
We Three
|
|
$
|
186,096
|
|
|
$
|
193,601
|
|
|
Romeo’s NY Pizza
|
|
|
602,866
|
|
|
|
592,445
|
|
|
Repicci's Group
|
|
|
538,156
|
|
|
|
835,968
|
|
|
Platinum Tax
|
|
|
899,748
|
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
|
|
3,754
|
|
|
Consolidated revenues
|
|
$
|
2,226,866
|
|
|
$
|
1,625,768
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
182,690
|
|
|
$
|
155,416
|
|
|
Romeo’s NY Pizza
|
|
|
446,880
|
|
|
|
429,779
|
|
|
Repicci's Group
|
|
|
503,478
|
|
|
|
846,714
|
|
|
Platinum Tax
|
|
|
337,986
|
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
Consolidated cost of sales
|
|
$
|
1,471,034
|
|
|
$
|
1,431,909
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
(1,468
|
)
|
|
$
|
(4,494
|
)
|
|
Romeo’s NY Pizza
|
|
|
28,336
|
|
|
|
(185,299
|
)
|
|
Repicci’s Group
|
|
|
(10,395
|
)
|
|
|
(111,302
|
)
|
|
Platinum Tax
|
|
|
(168,851
|
)
|
|
|
–
|
|
|
Others
|
|
|
(3,798,514
|
)
|
|
|
(3,350,900
|
)
|
|
Consolidated gain/(loss) before taxes
|
|
$
|
(3,950,892
|
)
|
|
$
|
(3,651,995
|
)
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
318,285
|
|
|
$
|
235,532
|
|
|
Romeo’s NY Pizza
|
|
|
108,908
|
|
|
|
158,551
|
|
|
Repicci’s Group
|
|
|
169,030
|
|
|
|
293,216
|
|
|
Platinum Tax
|
|
|
60,578
|
|
|
|
–
|
|
|
Others
|
|
|
2,676,140
|
|
|
|
631,762
|
|
|
Combined assets
|
|
$
|
3,332,941
|
|
|
$
|
1,319,061
|
|
The Company has restated its previously
issued Consolidated Statements of Operations for the years ended December 31, 2017 to correct for an error in its presentation
previously filed in error by our EDGAR filing agent. Changes to deposits of $10,000 was due to a correction identified. Changes
to accounts payable $13,500, accrued expenses $46,380 and accrued expenses – related parties $22,250 were are related to
reclassifications identified by the Company and an additional expense not previously recorded. Changes to notes payable-related
party $24,061, convertible notes payable – net $18,042 and derivative liability $(182,680) were the result of changes the
Company identified during the audit. Changes to sales of ice cream $(118,887), cost of sales for ice cream $75,501, depreciation
$(86,154) are related to the change in other income $108,234, for a reclass of certain event sales of ice cream and reclass of
depreciation expense from operating expense to cost of sales. Loss on disposal of assets $38,584 were related to the closure of
the Romeo’s stores, selling, general and administrative $3,495 were related to reclass of certain expenses identified by
the Company during our audit. Change in value of derivative liability $1,349,586 and amortization of debt discounts $23,170 were
to due revaluations by the Company for certain convertible debts. Changes in loss from extinguishment of $76 and interest expense
of $(76) related to reclass of certain expenses identified by the Company during our audit. All changes to cash flow are a result
of changes noted above for assets and statements of operations and reclassifications of certain accounts identified by the Company
during our audit.
|
|
|
December 31, 2017
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
68,986
|
|
|
|
(0
|
)
|
|
|
68,986
|
|
|
Accounts receivable-net
|
|
|
63,061
|
|
|
|
0
|
|
|
|
63,061
|
|
|
Inventory-net
|
|
|
46,928
|
|
|
|
–
|
|
|
|
46,928
|
|
|
Prepaid and other
|
|
|
11,631
|
|
|
|
(0
|
)
|
|
|
11,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
190,606
|
|
|
|
(0
|
)
|
|
|
190,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $1,030,232 and $838,736, respectively
|
|
|
491,473
|
|
|
|
1
|
|
|
|
491,474
|
|
|
Land
|
|
|
603,000
|
|
|
|
–
|
|
|
|
603,000
|
|
|
Intangible assets, net
|
|
|
15,561
|
|
|
|
–
|
|
|
|
15,561
|
|
|
Deposits
|
|
|
6,660
|
|
|
|
10,000
|
|
|
|
16,600
|
|
|
Due from related party
|
|
|
1,820
|
|
|
|
–
|
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
1,309,061
|
|
|
|
10,000
|
|
|
|
1,319,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
193,239
|
|
|
|
13,500
|
|
|
|
206,739
|
|
|
Accrued expenses
|
|
|
291,826
|
|
|
|
(46,380
|
)
|
|
|
245,446
|
|
|
Accrued expenses - related parties
|
|
|
472,750
|
|
|
|
22,500
|
|
|
|
495,250
|
|
|
Interest payable
|
|
|
312,192
|
|
|
|
–
|
|
|
|
312,192
|
|
|
Accrued payroll taxes
|
|
|
2,047
|
|
|
|
–
|
|
|
|
2,047
|
|
|
Due to officers and shareholders
|
|
|
77,640
|
|
|
|
–
|
|
|
|
77,640
|
|
|
Line of credit
|
|
|
15,498
|
|
|
|
–
|
|
|
|
15,498
|
|
|
Common stock to be issued
|
|
|
500
|
|
|
|
–
|
|
|
|
500
|
|
|
Series H preferred shares to be issued
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Notes payable, unrelated party
|
|
|
215,979
|
|
|
|
–
|
|
|
|
215,979
|
|
|
Notes payable - related party
|
|
|
120,128
|
|
|
|
24,061
|
|
|
|
144,189
|
|
|
Convertible notes payable, net of debt discounts of $263,536 and $21,833, respectively
|
|
|
598,339
|
|
|
|
18,042
|
|
|
|
616,381
|
|
|
Convertible notes payable - related party
|
|
|
165,000
|
|
|
|
–
|
|
|
|
165,000
|
|
|
Derivative Liability
|
|
|
2,419,337
|
|
|
|
(182,680
|
)
|
|
|
2,236,656
|
|
|
Income Tax payable
|
|
|
15,865
|
|
|
|
–
|
|
|
|
15,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,900,340
|
|
|
|
(150,958
|
)
|
|
|
4,749,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,900,340
|
|
|
|
(150,958
|
)
|
|
|
4,749,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
8,849
|
|
|
|
–
|
|
|
|
8,849
|
|
|
Common stock; 500,000,000 shares authorized with $0.001 par value; 64,414,091 and 25,223,578 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively
|
|
|
66,031
|
|
|
|
–
|
|
|
|
66,031
|
|
|
Additional paid-in capital
|
|
|
46,795,517
|
|
|
|
(1,187,366
|
)
|
|
|
45,608,151
|
|
|
Accumulated deficit
|
|
|
(50,461,676
|
)
|
|
|
1,348,324
|
|
|
|
(49,113,352
|
)
|
|
Total shareholders' deficiency
|
|
|
(3,591,279
|
)
|
|
|
160,958
|
|
|
|
(3,430,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' deficiency
|
|
$
|
1,309,061
|
|
|
$
|
10,000
|
|
|
$
|
1,319,061
|
|
|
|
|
December 31, 2017
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
193,601
|
|
|
|
|
|
|
|
193,601
|
|
|
Sales of pizza
|
|
|
592,445
|
|
|
|
|
|
|
|
592,445
|
|
|
Sales of ice cream
|
|
|
954,855
|
|
|
|
(480,309
|
)
|
|
|
474,546
|
|
|
Sales to franchisees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ice cream
|
|
|
–
|
|
|
|
131,487
|
|
|
|
131,487
|
|
|
Franchise fees
|
|
|
–
|
|
|
|
81,435
|
|
|
|
81,435
|
|
|
Royalty fees
|
|
|
–
|
|
|
|
19,500
|
|
|
|
19,500
|
|
|
Truck sales and build out
|
|
|
–
|
|
|
|
129,000
|
|
|
|
129,000
|
|
|
Other
|
|
|
3,754
|
|
|
|
–
|
|
|
|
3,754
|
|
|
Total revenue
|
|
|
1,744,655
|
|
|
|
(118,887
|
)
|
|
|
1,625,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES (Exclusive of depreciation not related to Cost of Sales, shown separately below)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental business
|
|
|
155,416
|
|
|
|
–
|
|
|
|
155,416
|
|
|
Pizza restaurants
|
|
|
429,779
|
|
|
|
–
|
|
|
|
429,779
|
|
|
Ice cream stores
|
|
|
771,213
|
|
|
|
75,500
|
|
|
|
846,714
|
|
|
Sales to franchisees
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Ice cream
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Franchise fees
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Royalty fees
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
Truck sales and build out
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Total cost of sales
|
|
|
1,356,408
|
|
|
|
75,501
|
|
|
|
1,431,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
|
388,247
|
|
|
|
(194,388
|
)
|
|
|
193,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
246,325
|
|
|
|
(86,154
|
)
|
|
|
160,171
|
|
|
Goodwill Impairment
|
|
|
932,529
|
|
|
|
–
|
|
|
|
932,529
|
|
|
Loss on disposal of assets
|
|
|
–
|
|
|
|
38,584
|
|
|
|
38,584
|
|
|
Selling, general and administrative
|
|
|
2,051,620
|
|
|
|
3,495
|
|
|
|
2,055,115
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
Total operating cost
|
|
|
3,230,474
|
|
|
|
(44,075
|
)
|
|
|
3,186,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) FROM OPERATIONS
|
|
|
(2,842,227
|
)
|
|
|
(150,313
|
)
|
|
|
(2,992,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
0
|
|
|
|
108,234
|
|
|
|
108,234
|
|
|
(Loss) Gain from extinguishment of debt
|
|
|
(46,009
|
)
|
|
|
76
|
|
|
|
(45,933
|
)
|
|
Change in value of derivative liability
|
|
|
(1,386,055
|
)
|
|
|
1,349,586
|
|
|
|
(36,469
|
)
|
|
Interest expense
|
|
|
(111,606
|
)
|
|
|
(76
|
)
|
|
|
(111,682
|
)
|
|
Amortization of debt discounts
|
|
|
(596,775
|
)
|
|
|
23,170
|
|
|
|
(573,605
|
)
|
|
Loss on disposal of assets
|
|
|
(17,647
|
)
|
|
|
17,647
|
|
|
|
–
|
|
|
Loss on Impairment of Goodwill
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
(2,158,092
|
)
|
|
|
1,498,637
|
|
|
|
(659,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) FOR THE PERIOD
|
|
$
|
(5,000,319
|
)
|
|
$
|
1,348,324
|
|
|
$
|
(3,651,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-BASIC AND DILUTED
|
|
$
|
(180.00
|
)
|
|
$
|
222.51
|
|
|
$
|
(164.30
|
)
|
|
|
|
December 31, 2017
|
|
|
Adjustment
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss)
|
|
$
|
(5,000,319
|
)
|
|
$
|
1,348,324
|
|
|
$
|
(3,651,995
|
)
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
268,211
|
|
|
|
(40,252
|
)
|
|
|
227,959
|
|
|
Loss from disposal of fixed assets
|
|
|
17,647
|
|
|
|
20,937
|
|
|
|
38,584
|
|
|
(Gain) from debt forgiveness
|
|
|
46,009
|
|
|
|
(46,009
|
)
|
|
|
–
|
|
|
Loss from impairment of goodwill
|
|
|
932,529
|
|
|
|
–
|
|
|
|
932,529
|
|
|
(Gain) on settlement of liabilities
|
|
|
–
|
|
|
|
(38,220
|
)
|
|
|
(38,220
|
)
|
|
Loss on settlement of note payable - related party
|
|
|
–
|
|
|
|
84,153
|
|
|
|
84,153
|
|
|
Amortization of loan discount
|
|
|
596,775
|
|
|
|
(23,170
|
)
|
|
|
573,605
|
|
|
Change in value of derivative liability
|
|
|
1,386,055
|
|
|
|
(1,349,586
|
)
|
|
|
36,469
|
|
|
Stock based compensation
|
|
|
402,994
|
|
|
|
(117,371
|
)
|
|
|
285,623
|
|
|
Warrants expense
|
|
|
98,573
|
|
|
|
(1,820
|
)
|
|
|
96,753
|
|
|
Convertible note issued for conversion cost reimbursement
|
|
|
9,500
|
|
|
|
(9,500
|
)
|
|
|
|
|
|
Convertible note issued for services rendered
|
|
|
80,000
|
|
|
|
–
|
|
|
|
80,000
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(31,053
|
)
|
|
|
–
|
|
|
|
(31,053
|
)
|
|
Inventory
|
|
|
(4,699
|
)
|
|
|
–
|
|
|
|
(4,699
|
)
|
|
Other assets
|
|
|
–
|
|
|
|
(15,072
|
)
|
|
|
(15,072
|
)
|
|
Deposits
|
|
|
(5,072
|
)
|
|
|
5,072
|
|
|
|
–
|
|
|
Prepaids and other current assets
|
|
|
25,359
|
|
|
|
–
|
|
|
|
25,359
|
|
|
Accounts payable
|
|
|
127,336
|
|
|
|
13,501
|
|
|
|
140,837
|
|
|
Accrued expenses
|
|
|
(347,629
|
)
|
|
|
195,368
|
|
|
|
(152,261
|
)
|
|
Interest payable
|
|
|
98,315
|
|
|
|
(17,575
|
)
|
|
|
80,740
|
|
|
Taxes payable
|
|
|
7,579
|
|
|
|
(15,158
|
)
|
|
|
(7,579
|
)
|
|
Accrued payroll taxes
|
|
|
(39,736
|
)
|
|
|
0
|
|
|
|
(39,736
|
)
|
|
Accrued officers' salaries
|
|
|
700,600
|
|
|
|
22,500
|
|
|
|
723,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(663,830
|
)
|
|
|
48,926
|
|
|
|
(614,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
|
(5,000
|
)
|
|
|
–
|
|
|
|
(5,000
|
)
|
|
Disposal of fixed assets
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
Purchase of fixed assets
|
|
|
(9,468
|
)
|
|
|
1,668
|
|
|
|
(7,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(14,468
|
)
|
|
|
1,668
|
|
|
|
(12,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Due to related party
|
|
|
(37,059
|
)
|
|
|
(54,732
|
)
|
|
|
(91,791
|
)
|
|
Proceeds from sales of stock
|
|
|
40,000
|
|
|
|
0
|
|
|
|
40,000
|
|
|
Shareholder contributions
|
|
|
24,061
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
705,177
|
|
|
|
(17,977
|
)
|
|
|
687,200
|
|
|
Proceeds from notes payable -related party
|
|
|
–
|
|
|
|
46,176
|
|
|
|
46,176
|
|
|
Proceeds from notes payable -3rd party
|
|
|
–
|
|
|
|
25,343
|
|
|
|
25,343
|
|
|
Proceeds from line of credit
|
|
|
5,498
|
|
|
|
11,343
|
|
|
|
16,841
|
|
|
Repayments to line of credit
|
|
|
–
|
|
|
|
(11,343
|
)
|
|
|
(11,343
|
)
|
|
(Repayments to) convertible notes payable
|
|
|
(43,341
|
)
|
|
|
(25,343
|
)
|
|
|
(68,684
|
)
|
|
(Repayments to) notes payable
|
|
|
(10,000
|
)
|
|
|
0
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
684,336
|
|
|
|
(50,594
|
)
|
|
|
633,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
6,038
|
|
|
|
–
|
|
|
|
6,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
62,948
|
|
|
|
–
|
|
|
|
62,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
68,986
|
|
|
$
|
–
|
|
|
$
|
68,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
Interest
|
|
$
|
–
|
|
|
$
|
30,866
|
|
|
$
|
30,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for settlement of accrued expense
|
|
$
|
1,415,600
|
|
|
$
|
–
|
|
|
$
|
1,415,600
|
|
|
Common stock issued upon conversion of notes payable
|
|
$
|
143,863
|
|
|
$
|
–
|
|
|
$
|
143,863
|
|
|
Common stock issued for settlement of note payable - related party
|
|
|
–
|
|
|
$
|
451,891
|
|
|
$
|
451,891
|
|
|
Conversion of preferred stock into common stock
|
|
$
|
9,171
|
|
|
$
|
(7,427
|
)
|
|
$
|
1,744
|
|
|
Common stock cancellation related to accrued liability
|
|
|
–
|
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
|
Series H Preferred Stock issued for prior year acquisition
|
|
$
|
728,907
|
|
|
$
|
–
|
|
|
$
|
728,907
|
|
|
Series B preferred shares issued for debt settlement
|
|
|
–
|
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
|
Debt discount from issuance of warrant
|
|
|
–
|
|
|
$
|
219,210
|
|
|
$
|
219,210
|
|
|
Derivative Resolution upon conversion
|
|
|
–
|
|
|
$
|
405,443
|
|
|
$
|
405,443
|
|
|
Reclassification to derivative liabilities from additional paid in capital
|
|
$
|
1,033,004
|
|
|
$
|
939,995
|
|
|
$
|
1,972,999
|
|
|
Debt discount from derivative liabilities
|
|
|
–
|
|
|
$
|
535,878
|
|
|
$
|
535,878
|
|
|
Cash carried over from acquisition
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
19. SUBSEQUENT EVENTS
As announced in our DEF 14C, filed December
24, 2018, we amended the authorized Preferred series “L” to 100,000,000 on March 5th, 2019 with the State of Florida;
stating shares are non-dilutive to a minimum of $1,278,000 in value. This minimum cannot be diluted due to actions taken
by the Company, its BOD and/or its shareholders. All newly issued Stock are subject to a lockup / leakout agreement. Liquidation
limited to 20% per year.
As announced in our DEF 14C, filed December 24, 2018, we amended the authorized Preferred series “L1”
to 100,000,000 on March 5th, 2019 with the State of Florida; stating shares are non-dilutive. Voting rights – NONE.
Converts to common stock at a ratio of 1 share preferred to 1.25 shares common. 12-month minimum holding period; thereafter liquidation
limited to 20% per year.
On March 5th, 2019 – we changed transfer agencies from Standard Registrar & Transfer to OnlineTransfer,
LLC.
Effective March 21st, Company completed a reverse split of 1500:1 for common shares.
Entered into an amended Promissory Note
agreement with Leonite Capital, LLC, for two additional $50,000 tranches to the Company.
Stock Issuances:
Subsequent to
December 31, 2018, 820,2322,075 (pre-split) shares were issued for debt conversion.
CARDIFF LEXINGTON CORPORATION
UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
TABLE OF CONTENTS
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
AS OF September
30, 2019 AND DECEMBER 31, 2018
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
144,971
|
|
|
$
|
158,676
|
|
|
Accounts receivable-net
|
|
|
226,039
|
|
|
|
64,345
|
|
|
Inventory
|
|
|
3,079
|
|
|
|
3,078
|
|
|
Prepaid and other
|
|
|
46,393
|
|
|
|
51,111
|
|
|
Total current assets
|
|
|
420,482
|
|
|
|
277,208
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $400,993 and $495,331, respectively
|
|
|
279,854
|
|
|
|
328,295
|
|
|
Land
|
|
|
603,000
|
|
|
|
603,000
|
|
|
Goodwill
|
|
|
3,749,963
|
|
|
|
–
|
|
|
Deposits
|
|
|
19,600
|
|
|
|
2,092,048
|
|
|
Right of use - assets
|
|
|
|
|
|
|
24,600
|
|
|
Right of use - assets
|
|
|
357,650
|
|
|
|
0
|
|
|
Other assets
|
|
|
30,494
|
|
|
|
7,790
|
|
|
Total assets
|
|
|
5,461,043
|
|
|
|
3,332,941
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expense
|
|
|
710,708
|
|
|
|
840,557
|
|
|
Accrued expenses - related parties
|
|
|
1,137,000
|
|
|
|
747,000
|
|
|
Interest payable
|
|
|
513,213
|
|
|
|
366,296
|
|
|
Right of use - liability
|
|
|
357,650
|
|
|
|
0
|
|
|
Due to officers and shareholders
|
|
|
175,266
|
|
|
|
137,817
|
|
|
Deferred Income
|
|
|
153,226
|
|
|
|
74,684
|
|
|
Line of credit
|
|
|
–
|
|
|
|
1,999
|
|
|
Common stock to be issued
|
|
|
500
|
|
|
|
500
|
|
|
Notes payable, unrelated party
|
|
|
597,629
|
|
|
|
190,571
|
|
|
Notes payable - related party
|
|
|
296,916
|
|
|
|
214,495
|
|
|
Convertible notes payable, net of debt discounts of $269,866 and $201,024, respectively
|
|
|
648,866
|
|
|
|
785,788
|
|
|
Net, liabilities of discontinued operations
|
|
|
2,152,199
|
|
|
|
1,743,837
|
|
|
Derivative Liability
|
|
|
7,351,185
|
|
|
|
1,870,624
|
|
|
Total current liabilities
|
|
|
14,094,358
|
|
|
|
7,139,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of current portion and net of debt discounts of $465,828 and $0, respectively
|
|
|
374,172
|
|
|
|
1,040,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
14,468,530
|
|
|
|
8,179,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficiency in Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
Preferred Stock all classes
|
|
|
–
|
|
|
|
|
|
|
Preferred Stock Series A - 4 Shares authorized, with par value of $0.0001, 1 and 1 share issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
–
|
|
|
|
–
|
|
|
Preferred Stock Series B - 10,000,000 shares authorized, with par value of $.001, 2,773,206 and 2,773,206 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
2,773
|
|
|
|
2,773
|
|
|
Preferred Stock Series C - 10,000 shares authorized, with par value of $.0.00001, 119 and 119 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
–
|
|
|
|
–
|
|
|
Preferred Stock Series D - 1,000,000 shares authorized, with par value of $.001, 400,000 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
400
|
|
|
|
400
|
|
|
Preferred Stock Series E - 2,000,000 shares authorized, with par value of $.001, 241,199 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
241
|
|
|
|
241
|
|
|
Preferred Stock Series F - 500,000 shares authorized, with par value of $.001, 280,069 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
280
|
|
|
|
280
|
|
|
Preferred Stock Series F -1- 500,000 shares authorized, with par value of $.001, 57,193 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
57
|
|
|
|
57
|
|
|
Preferred Stock Series G - 2,000,000 shares authorized, with par value of $.001, 18,571,428 and -0- shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
18,571
|
|
|
|
–
|
|
|
Preferred Stock Series H - 4,859,379 shares authorized, with par value of $.001, -0- and -0- shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
–
|
|
|
|
–
|
|
|
Preferred Stock Series H -1- 3,000,000 shares authorized, with par value of $.001, -0- shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
–
|
|
|
|
–
|
|
|
Preferred Stock Series I- 20,000,000 shares authorized, with par value of $.001, 195,000,000 and -0- shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
195,000
|
|
|
|
–
|
|
|
Preferred Stock Series J - 10,000,000 shares authorized, with par value of $.001, -0- shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
–
|
|
|
|
–
|
|
|
Preferred Stock Series J1- 7,500,000 shares authorized, with par value of $.001, -0- shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
–
|
|
|
|
–
|
|
|
Preferred Stock Series K - 10,937,500 shares authorized, with par value of $.001, 8,200,562 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
8,200
|
|
|
|
8,200
|
|
|
Preferred Stock Series K1 - 35,000,000 shares authorized, with par value of $.001, 1,447,157 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
1,447
|
|
|
|
1,447
|
|
|
Preferred Stock Series L - 100,000,000 shares authorized, with par value of $.001, 98,307,692 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
98,308
|
|
|
|
98,308
|
|
|
Preferred I Shares to be issued
|
|
|
–
|
|
|
|
200,000
|
|
|
Common stock; 7,500,000,000 shares authorized with $0.001 par value;524,346,331 and 602,826 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively (reflects post reverse stock split of 1500:1)
|
|
|
524,347
|
|
|
|
603
|
|
|
Additional paid-in capital
|
|
|
54,654,595
|
|
|
|
50,220,067
|
|
|
Accumulated deficit
|
|
|
(64,511,706
|
)
|
|
|
(55,378,603
|
)
|
|
Total deficiency in stockholders’ equity
|
|
|
(9,007,487
|
)
|
|
|
(4,846,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and deficiency in stockholders’ equity
|
|
$
|
5,461,043
|
|
|
$
|
3,332,941
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2018
(UNAUDITED)
|
|
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
39,199
|
|
|
$
|
44,740
|
|
|
$
|
135,577
|
|
|
$
|
143,403
|
|
|
Food and beverage
|
|
|
157,091
|
|
|
|
148,540
|
|
|
|
472,237
|
|
|
|
452,555
|
|
|
Sales of ice cream
|
|
|
–
|
|
|
|
68,079
|
|
|
|
–
|
|
|
|
275,468
|
|
|
Ice cream
|
|
|
42,959
|
|
|
|
76,475
|
|
|
|
137,802
|
|
|
|
169,550
|
|
|
Franchise fees
|
|
|
2,044
|
|
|
|
–
|
|
|
|
11,422
|
|
|
|
120,000
|
|
|
Royalty fees
|
|
|
11,198
|
|
|
|
7,350
|
|
|
|
28,737
|
|
|
|
13,650
|
|
|
Tax Services
|
|
|
1,288,116
|
|
|
|
229,124
|
|
|
|
2,816,644
|
|
|
|
229,124
|
|
|
Other
|
|
|
–
|
|
|
|
123,576
|
|
|
|
–
|
|
|
|
123,576
|
|
|
Total revenue
|
|
|
1,540,608
|
|
|
|
697,884
|
|
|
|
3,602,420
|
|
|
|
1,527,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental business
|
|
|
32,254
|
|
|
|
43,305
|
|
|
|
153,873
|
|
|
|
145,650
|
|
|
Food and beverage
|
|
|
175,357
|
|
|
|
111,814
|
|
|
|
524,717
|
|
|
|
324,661
|
|
|
Ice cream stores
|
|
|
–
|
|
|
|
154,572
|
|
|
|
–
|
|
|
|
435,302
|
|
|
Tax Services
|
|
|
372,642
|
|
|
|
155,475
|
|
|
|
958,641
|
|
|
|
155,475
|
|
|
Other
|
|
|
–
|
|
|
|
125,900
|
|
|
|
–
|
|
|
|
125,900
|
|
|
Total cost of sales
|
|
|
580,253
|
|
|
|
591,066
|
|
|
|
1,637,231
|
|
|
|
1,186,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
|
960,356
|
|
|
|
106,818
|
|
|
|
1,965,189
|
|
|
|
340,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
(1,945
|
)
|
|
|
(9,279
|
)
|
|
|
9,373
|
|
|
|
15,992
|
|
|
Selling, general and administrative
|
|
|
817,978
|
|
|
|
1,032,113
|
|
|
|
2,421,624
|
|
|
|
2,008,405
|
|
|
Total operating expenses
|
|
|
816,033
|
|
|
|
1,022,834
|
|
|
|
2,430,997
|
|
|
|
2,024,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
144,322
|
|
|
|
(916,016
|
)
|
|
|
(465,808
|
)
|
|
|
(1,684,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
33,644
|
|
|
|
84
|
|
|
|
136,460
|
|
|
|
1,664
|
|
|
Bad debt expense
|
|
|
–
|
|
|
|
(23,607
|
)
|
|
|
–
|
|
|
|
(23,607
|
)
|
|
Change in value of derivative liability
|
|
|
(2,340,167
|
)
|
|
|
(1,898,704
|
)
|
|
|
(6,635,549
|
)
|
|
|
(1,317,018
|
)
|
|
Gain/(loss) on sale of assets
|
|
|
–
|
|
|
|
(14,196
|
)
|
|
|
–
|
|
|
|
874
|
|
|
Interest expense
|
|
|
(49,352
|
)
|
|
|
(72,355
|
)
|
|
|
(220,179
|
)
|
|
|
(164,277
|
)
|
|
Conversion cost reimbursement
|
|
|
–
|
|
|
|
–
|
|
|
|
(13,520
|
)
|
|
|
–
|
|
|
Conversion cost penalty
|
|
|
(136,401
|
)
|
|
|
–
|
|
|
|
(668,897
|
)
|
|
|
–
|
|
|
Impairment of asset
|
|
|
–
|
|
|
|
(300,000
|
)
|
|
|
–
|
|
|
|
(300,000
|
)
|
|
Impairment on acquisition
|
|
|
–
|
|
|
|
(1,459,725
|
)
|
|
|
–
|
|
|
|
(1,459,725
|
)
|
|
Amortization of debt discounts
|
|
|
(302,846
|
)
|
|
|
(330,941
|
)
|
|
|
(825,206
|
)
|
|
|
(765,901
|
)
|
|
Total other income (expenses)
|
|
|
(2,795,122
|
)
|
|
|
(4,099,444
|
)
|
|
|
(8,226,891
|
)
|
|
|
(4,027,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Discontinued Operations
|
|
|
(339,659
|
)
|
|
|
–
|
|
|
|
(440,407
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) FOR THE PERIOD
|
|
$
|
(2,990,459
|
)
|
|
$
|
(5,015,460
|
)
|
|
$
|
(9,133,106
|
)
|
|
$
|
(5,712,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) PER COMMON SHARE - BASIC AND DILUTED FOR CONTINUED OPERATIONS
|
|
$
|
(0.01
|
)
|
|
$
|
(43.46
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(78.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) PER COMMON SHARE - BASIC AND DILUTED FOR DISCONTINUED OPERATIONS
|
|
$
|
(0.00
|
)*
|
|
$
|
–
|
|
|
$
|
(0.00
|
)*
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMONS HARES - BASIC AND DILUTED
|
|
|
275,203,293
|
|
|
|
115,404
|
|
|
|
144,871,780
|
|
|
|
72,839
|
|
* Less than $0.01
The accompanying notes are an integral part of these condensed consolidated financial statements
CARDIFF LEXINGTON CORP. (FORMERLY CARDIFF
INTERNATIONAL, INC.)
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS EQUITY
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER
30, 2019 AND SEPTEMBER 30, 2018
(UNAUDITED)
|
|
Preferred Stock
Series A
|
|
Preferred Stock
Series B, D, E, F, F-1, H, I
|
|
Preferred Shares
to be issued
|
|
Preferred Stock,
Series C
|
|
Common Stock
|
|
Additional Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
Balance December 31, 2017
|
|
–
|
|
$
|
–
|
|
|
8,839,303
|
|
$
|
8,849
|
|
|
–
|
|
$
|
–
|
|
|
117
|
|
$
|
–
|
|
|
44,808
|
|
$
|
45
|
|
$
|
45,674,137
|
|
$
|
(49,113,352
|
)
|
$
|
(3,430,321
|
)
|
|
Conversion of Series B Preferred Stock
|
|
–
|
|
|
–
|
|
|
(10,000
|
)
|
|
(10
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
33
|
|
|
0
|
|
|
10
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series H Preferred Stock
|
|
–
|
|
|
–
|
|
|
(2,546,259
|
)
|
|
(2,546
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,122
|
|
|
2
|
|
|
2,544
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services - Eurasian consulting agreement
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
247
|
|
|
0
|
|
|
11,074
|
|
|
–
|
|
|
11,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes payable
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
5,533
|
|
|
6
|
|
|
103,616
|
|
|
–
|
|
|
103,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified Derivative liabilities from Additional Paid in Capital
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
95,456
|
|
|
–
|
|
|
95,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(92,720
|
)
|
|
(92,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2018
|
|
–
|
|
$
|
–
|
|
|
6,283,044
|
|
$
|
6,292
|
|
|
–
|
|
$
|
–
|
|
|
117
|
|
$
|
–
|
|
|
52,744
|
|
$
|
53
|
|
$
|
45,886,835
|
|
$
|
(49,206,072
|
)
|
$
|
(3,312,890
|
)
|
|
Conversion of Series I Preferred Stock
|
|
–
|
|
|
–
|
|
|
(112,746
|
)
|
|
(113
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
113
|
|
|
0
|
|
|
113
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series I Preferred Stock
|
|
–
|
|
|
–
|
|
|
(90,909
|
)
|
|
(91
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
91
|
|
|
0
|
|
|
91
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series H Preferred Stock
|
|
–
|
|
|
–
|
|
|
(2,313,210
|
)
|
|
(2,313
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,928
|
|
|
2
|
|
|
2,311
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services - Eurasian consulting agreement
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
247
|
|
|
0
|
|
|
9,148
|
|
|
–
|
|
|
9,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services - Eurasian consulting agreement
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
317
|
|
|
0
|
|
|
8,857
|
|
|
–
|
|
|
8,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services - Greentree consulting agreement
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,780
|
|
|
2
|
|
|
57,670
|
|
|
–
|
|
|
57,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes payable
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,739
|
|
|
3
|
|
|
33,563
|
|
|
–
|
|
|
33,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified Derivative liabilities from Additional Paid in Capital
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
60,796
|
|
|
–
|
|
|
60,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(603,869
|
)
|
|
(603,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2018
|
|
–
|
|
$
|
–
|
|
|
3,776,179
|
|
$
|
3,776
|
|
|
–
|
|
$
|
–
|
|
|
117
|
|
$
|
–
|
|
|
59,958
|
|
$
|
60
|
|
$
|
46,059,384
|
|
$
|
(49,809,941
|
)
|
$
|
(3,746,721
|
)
|
|
Conversion of Series B Preferred Stock
|
|
–
|
|
|
–
|
|
|
(23,999
|
)
|
|
(24
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
80
|
|
|
0
|
|
|
24
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C Preferred Stock related to Edgeview
services 2018
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
720
|
|
|
–
|
|
|
720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series K Preferred Stock for acquisition
of Red Rock
|
|
–
|
|
|
–
|
|
|
8,200,562
|
|
|
8,201
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
166,799
|
|
|
–
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series K-1 Preferred Stock for investment
in Red Rock
|
|
–
|
|
|
–
|
|
|
1,447,157
|
|
|
1,447
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
98,553
|
|
|
–
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series L Preferred Stock for investment
in Platinum Tax Defender
|
|
–
|
|
|
–
|
|
|
98,307,692
|
|
|
98,308
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,179,692
|
|
|
–
|
|
|
1,278,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelation of previously issued cert to Jason Levy
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(667
|
)
|
|
(1
|
)
|
|
1
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to Jason Levy per agreement to resolve accrued payroll
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,286
|
|
|
2
|
|
|
239,998
|
|
|
–
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes payable
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
122,295
|
|
|
123
|
|
|
438,360
|
|
|
–
|
|
|
438,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified to Derivative liabilities from Additional Paid in Capital
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1,139,232
|
|
|
–
|
|
|
1,139,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction to balance reverse split partial rounding shares
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(789
|
)
|
|
(1
|
)
|
|
1
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
50,000
|
|
|
–
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(5,015,460
|
)
|
|
(5,015,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2018
|
|
–
|
|
$
|
–
|
|
|
111,697,592
|
|
$
|
111,708
|
|
|
–
|
|
$
|
–
|
|
|
119
|
|
$
|
–
|
|
|
183,163
|
|
$
|
184
|
|
$
|
46,372,769
|
|
$
|
(54,825,401
|
)
|
$
|
(5,340,742
|
)
|
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2019
|
|
Preferred Stock
Series A
|
|
Preferred Stock
Series B, D, E, F, F-1, H, I
|
|
Preferred Shares
to be issued
|
|
Preferred Stock,
Series C
|
|
Common Stock
|
|
Additional Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
Balance December 31, 2018
|
|
–
|
|
$
|
–
|
|
|
111,697,591
|
|
$
|
111,707
|
|
|
–
|
|
$
|
200,000
|
|
|
119
|
|
$
|
0
|
|
|
602,826
|
|
$
|
603
|
|
$
|
50,220,067
|
|
$
|
(55,378,603
|
)
|
$
|
(4,846,226
|
)
|
|
Issuance to balance reverse split partial rounding
shares
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(826
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of PF I shares as Bonus to Cunningham and Thompson
|
|
–
|
|
|
–
|
|
|
250,000,000
|
|
|
250,000
|
|
|
–
|
|
|
(200,000
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(50,000
|
)
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes payable
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
825,122
|
|
|
825
|
|
|
694,667
|
|
|
–
|
|
|
695,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(4,871,846
|
)
|
|
(4,871,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance. March 31, 2019
|
|
–
|
|
$
|
–
|
|
|
361,697,591
|
|
$
|
361,707
|
|
|
–
|
|
$
|
–
|
|
|
119
|
|
$
|
0
|
|
|
1,427,122
|
|
$
|
1,428
|
|
$
|
50,864,734
|
|
$
|
(60,250,449
|
)
|
$
|
(9,022,580
|
)
|
|
Issuance for Key Tax acquisition
|
|
–
|
|
|
–
|
|
|
18,571,428
|
|
|
18,571
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
500,000
|
|
|
500
|
|
|
1,280,929
|
|
|
–
|
|
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of PF1 to CS shares Cunningham and Thompson
|
|
–
|
|
|
–
|
|
|
(55,000,000
|
)
|
|
(55,000)
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
82,500,000
|
|
|
82,500
|
|
|
(27,500
|
)
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes payable
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
15,913,565
|
|
|
15,914
|
|
|
76,761
|
|
|
–
|
|
|
92,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified Derivative liabilities to Additional Paid in Capital
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
694,956
|
|
|
–
|
|
|
694,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(1,270,801
|
)
|
|
(1,270,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance. June 30,2019
|
|
–
|
|
$
|
–
|
|
|
325,269,019
|
|
$
|
325,277
|
|
|
–
|
|
$
|
–
|
|
|
119
|
|
$
|
0
|
|
|
100,340,687
|
|
$
|
100,342
|
|
$
|
52,889,881
|
|
$
|
(61,521,250
|
)
|
$
|
(8,205,750
|
)
|
|
Conversion of convertible notes payable
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
424,005,644
|
|
|
424,005
|
|
|
(261,935
|
)
|
|
–
|
|
|
162,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified Derivative liabilities to Additional Paid in Capital
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,026,650
|
|
|
–
|
|
|
2,026,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(2,990,459
|
)
|
|
(2,990,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance. September 30, 2019
|
|
–
|
|
$
|
–
|
|
|
325,269,019
|
|
$
|
325,278
|
|
|
–
|
|
$
|
–
|
|
|
119
|
|
$
|
0
|
|
|
524,346,331
|
|
$
|
524,348
|
|
$
|
54,656,595
|
|
$
|
(64,511,708
|
)
|
$
|
(9,007,488
|
)
|
CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2019 AND SEPTEMBER 30, 2018
(UNAUDITED)
|
|
|
2019
|
|
|
2018
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net (loss) from continuing operations
|
|
$
|
(9,133,106
|
)
|
|
$
|
(5,712,049
|
)
|
|
Adjustments
to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
53,549
|
|
|
|
59,730
|
|
|
Loss (gain) from disposal
of fixed assets
|
|
|
–
|
|
|
|
(874
|
)
|
|
Loss (gain) from impairment
of goodwill
|
|
|
–
|
|
|
|
1,459,725
|
|
|
Amortization of loan discount
|
|
|
825,206
|
|
|
|
765,901
|
|
|
Change in value of derivative
liability
|
|
|
6,635,549
|
|
|
|
1,317,018
|
|
|
Stock based compensation
|
|
|
–
|
|
|
|
87,472
|
|
|
Convertible note issued for
conversion cost reimbursement
|
|
|
13,520
|
|
|
|
18,880
|
|
|
Conversion cost penalty
|
|
|
668,897
|
|
|
|
–
|
|
|
Other Income
|
|
|
–
|
|
|
|
16,338
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(161,694
|
)
|
|
|
61,898
|
|
|
Inventory
|
|
|
–
|
|
|
|
43,849
|
|
|
Deposits
|
|
|
5,000
|
|
|
|
–
|
|
|
Prepaids and other
|
|
|
203
|
|
|
|
(35,288
|
)
|
|
Other assets
|
|
|
(22,704
|
)
|
|
|
345,274
|
|
|
Intangible assets
|
|
|
–
|
|
|
|
15,561
|
|
|
Increase(decrease) in:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(344,156
|
)
|
|
|
(74,993
|
)
|
|
Accrued expenses
|
|
|
390,000
|
|
|
|
135,910
|
|
|
Interest payable
|
|
|
146,917
|
|
|
|
169,896
|
|
|
Taxes payable
|
|
|
–
|
|
|
|
(4,500
|
)
|
|
Accrued payroll taxes
|
|
|
–
|
|
|
|
39,149
|
|
|
Accrued officers' salaries
|
|
|
37,450
|
|
|
|
290,000
|
|
|
Net, liabilities of discontinued
operations
|
|
|
1,459,052
|
|
|
|
–
|
|
|
Other
liabilities - deferred revenue
|
|
|
(882,813
|
)
|
|
|
112,893
|
|
|
Net
cash provided by (used in) operating activities - Continuing
|
|
|
(309,130
|
)
|
|
|
(888,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from Discontinued Operations - Operating
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
–
|
|
|
|
(852,000
|
)
|
|
Disposal
(Purchase) of fixed assets
|
|
|
–
|
|
|
|
91,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) investing activities - Continuing
|
|
|
–
|
|
|
|
(760,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from Discontinued Operations - Investing
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Due to related party
|
|
|
37,450
|
|
|
|
100,806
|
|
|
Proceeds from convertible
notes payable
|
|
|
193,500
|
|
|
|
890,605
|
|
|
Proceeds from notes payable
-related party
|
|
|
–
|
|
|
|
27,393
|
|
|
Proceeds from notes payable
|
|
|
410,000
|
|
|
|
–
|
|
|
Repayments of convertible
notes payable
|
|
|
(235,763
|
)
|
|
|
–
|
|
|
Repayments
of convertible notes payables interest
|
|
|
(67,394
|
)
|
|
|
607,329
|
|
|
Repayments
to line of credit
|
|
|
(1,999
|
)
|
|
|
(9,343
|
)
|
|
Net cash
provided by financing activities - Continuing
|
|
|
335,794
|
|
|
|
1,616,790
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from Discontinued Operations - Financing
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS
|
|
|
26,664
|
|
|
|
(31,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND
CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
118,307
|
|
|
|
230,407
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
144,971
|
|
|
$
|
198,834
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
67,394
|
|
|
$
|
73,858
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Common
stock issued upon conversion of notes payable
|
|
$
|
950,237
|
|
|
$
|
575,672
|
|
|
Common
stock issued for settlement of accrued expense
|
|
$
|
–
|
|
|
$
|
240,000
|
|
|
Issuance
of Preferred I and Common shares for acquisition
|
|
$
|
1,300,000
|
|
|
$
|
–
|
|
|
Conversion
of preferred stock to common stock
|
|
$
|
–
|
|
|
$
|
5,097
|
|
|
Derivative
resolution upon conversion
|
|
$
|
2,721,606
|
|
|
$
|
1,295,485
|
|
|
Goodwill
|
|
$
|
1,407,915
|
|
|
$
|
2,092,048
|
|
|
Debt
discount from derivative liabilities
|
|
$
|
258,000
|
|
|
$
|
675,792
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
CARDIFF LEXINGTON CORP.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Legacy Card Company (“Legacy”)
was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability
Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff Lexington Corp (formerly Cardiff International,
Inc.) (“Cardiff”, the “Company”), a publicly held corporation.
Organization and Nature of Operations
In the first quarter of 2013, management
decided to restructure Cardiff into a holding company that adopted a new business model known as "Collaborative Governance,"
a form of governance enabling businesses to take advantage of the power of a public company. Cardiff began targeting the acquisition
of undervalued, niche companies with high growth potential, and income-producing commercial real estate properties, all designed
to pay a dividend to the Company’s shareholders. The reason for this strategy was to protect the Company’s shareholders
by acquiring businesses with little to no debt, seeking support with both financing and management that had the ability to offer
a return to investors.
Description of Business
Cardiff is a holding company that adopted
a new business model known as "Collaborative Governance.” To date, the Company is not aware of any other domestic holding
company using the same business philosophy or governing policies.
At September 30, 2019, Cardiff consists of the
following wholly-owned subsidiaries:
We Three, LLC (Affordable Housing Initiative) acquired
on May 15, 2014;
Romeo’s NY Pizza acquired on June 30, 2014;
Edge View Properties, Inc. acquired on July 16, 2014;
Repicci’s Franchise Group, LLC acquired on August
10, 2016;
Platinum Tax Defenders, LLC was acquired July 31,
2018
JM Enterprises 1, Inc. (dba – Key Tax
Group) was acquired May 8, 2019
Principles of Consolidation
The consolidated financial statements
include the accounts of Cardiff, and its wholly-owned subsidiaries: We Three, LLC; Romeo’s NY Pizza; Edge View Properties,
Inc.; Repicci’s Franchise Group: Platinum Tax Defenders LLC; and JM Enterprises 1, Inc. (dba – Key Tax Group). Red
Rock Travel was discontinued effective June 30th, 2019.All significant intercompany accounts and transactions are eliminated
in consolidation. Certain prior period amounts may have been reclassified for consistency with the current period presentation.
These reclassifications would have no material effect on the reported financial results.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles in the United States of America (US GAAP) requires management to make
estimates and assumptions that affect certain reported amounts and disclosures. Management uses its historical records and knowledge
of its business in making estimates. Accordingly, actual results could differ from those estimates.
Revenue Recognition
On January 1, 2018, we adopted ASC 606,
Revenue from contracts with customers (“Topic 606”) using the modified retrospective method applied to those contracts
which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under
Topic 606.
There was no impact to the opening balance
of accumulated deficit or revenues for the year ended December 31, 2018, as a result of applying Topic 606.
The Company applies a five-step approach
in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying
the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the
performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially
all of the Company’s revenue is recognized at the time control of the products transfers to the customer.
The Company generates revenue from our
subsidiaries primarily from the sale of food items and monthly rentals of mobile homes. As allowed by a practical expedient
in Topic 606, the entity recognizes revenue in the amount to which the entity has a right to invoice. The term between invoicing
and when payment is due is not significant.
Our subsidiary Repicci, generates revenues
through franchise fees. Revenues from franchise fees are recognized in accordance with guidance Topic 606, as the fees are earned.
One-third of the revenues are recognized within 60 days and the balance are recognized over the life of the franchise agreement,
which can be up to 15 years.
Our tax resolution subsidiaries, generates
revenues through fees billed for efforts to resolve tax related issues that clients have with state and federal taxes. Revenues
from these fees are recognized in accordance with guidance Topic 606, as the fees are earned. Fees are typically earned within
60 days.
Our segmented revenue is disclosed more
fully in our financial statements, see Footnote 15 for further details.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable is reported on the
balance sheet at net amounts due to the Company. Management closely monitors outstanding accounts receivable and charges off to
expense any balances that are determined to be uncollectible. As of September 30, 2019 and December 31, 2018, the Company had
accounts receivable of $226,039 and $64,345, respectively. Accounts receivables are primarily generated from our subsidiaries
in their normal course of business. The Company had an allowance as of September 30, 2019 and December 31, 2018 of $36,079 and
$30,876, respectively.
Inventory
Inventory consists of finished goods purchased,
which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out (FIFO) method. The
Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of
any anticipated changes in future demand.
Property and Equipment
Property and equipment are carried at cost.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation and amortization of property and equipment is provided
using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
|
Classification
|
Useful Life
|
|
Equipment, furniture and fixtures
|
5 - 7 years
|
|
Leasehold improvements
|
10 years or lease term, if shorter
|
During the nine months ended
September 30, 2019 and the year ended December 31, 2018, depreciation and amortization expense was $53,549 ($44,177 is
included in Cost of Goods Sold) and $80,165 ($57,468 is included in Cost of Goods Sold), respectively.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands
are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment
testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation
for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal
projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those
that would be used by other marketplace participants. During the nine months ended September 31, 2019 and the year-ended December
31, 2018, the Company had goodwill impairment of $-0- and $1,459,725, respectively, related to its acquisitions of Red Rock Travel
Group. The Company based this decision on impairment testing off the underlying assets, expected cash flows, decreased asset value
and other factors.
Valuation of long-lived assets
In accordance with the provisions of Accounting
Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all
long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Valuation of Derivative Instruments
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 815-10, Derivatives and Hedging (“ASC 815-10”), requires
that embedded derivative instruments be bifurcated and assessed, along with freestanding derivative instruments such as convertible
promissory notes, on their issuance date to determine whether they would be considered a derivative liability and measured at their
fair value for accounting purposes. The Company evaluates all of it financial instruments, including stock purchase warrants, 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
revalued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option based simple derivative financial
instruments, the Company uses the Lattice Binomial option pricing model to value the derivative instruments at inception and subsequent
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is reassessed at the end of each reporting period.
Beneficial Conversion Feature
For conventional convertible debt where
the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
and related debt discount.
When the Company records a BCF, the relative
fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional
paid in capital) and amortized to interest expense over the life of the debt.
Fair Value Measurements
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon the
level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1)
market participant assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an
entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3). The three levels of the fair value hierarchy are described below:
Level Input Definition
|
Level 1
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
|
Level 2
|
Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date.
|
|
Level 3
|
Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
The following table presents certain investments
and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s Consolidated
Balance Sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2019 and December 31, 2018.
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of Derivative Liability –
September 30, 2019
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
7,351,185
|
|
|
$
|
7,351,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of Derivative Liability –
December 31, 2018
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,870,625
|
|
|
$
|
1,870,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation – Employees
The Company accounts for its stock based
compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement
principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant
to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine
the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on
which it is probable that performance will occur.
Generally, all forms of share-based payments,
including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based
payments is recorded in general and administrative expense in the statements of operations.
Stock-Based Compensation – Non Employees
Equity Instruments Issued to Parties Other Than Employees
for Acquiring Goods or Services
The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting
Standards Codification (“Sub-topic 505-50”).
Income Taxes
Income taxes are determined in accordance
with ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted
income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the nine month period ended September
30, 2019 and year ended December 31, 2018 the Company did record any interest and penalties associated with uncertain tax positions.
As of December 31, 2018, the Company did not have any significant unrecognized uncertain tax positions.
Earnings (Loss) per Share
FASB ASC Subtopic 260, Earnings Per
Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available
to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include
the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been
issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares.
The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the
treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock
can result in a greater dilutive effect from potentially dilutive securities.
The following table sets forth the
computation of basic and diluted earnings per common share for the nine months ended September 30, 2019 and the year ended
December 31, 2018. During a period of net loss, all potentially dilutive securities are anti-dilutive. Accordingly, for the three and
nine months ended September 31, 2019 and December 31, 2018 potentially dilutive securities have been excluded from the
computations since they would be anti-dilutive. However, these dilutive securities could potentially dilute earnings per
share in the future (weighted average reflected post 1500:1 reverse stock split for the December 31, 2018 period):
|
|
|
For the Nine months and year ended
|
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(9,133,106
|
)
|
|
$
|
(6,265,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
109,228,404
|
|
|
|
602,038
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.01
|
)
|
This does not include the potential dilutive
effect if all exercisable warrants were exercised or conversions of convertible notes and convertible preferred stock as described
below as of September 30, 2019:
|
Principal and Interest conversion
|
|
|
613,794,780
|
|
|
Warrants
|
|
|
8,749,287
|
|
|
Preferred Stock conversion
|
|
|
179,106,727
|
|
|
Total
|
|
|
801,650,794
|
|
Going Concern
The accompanying condensed consolidated
financial statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course of business. The Company has sustained operating losses
since its inception and has negative working capital and an accumulated deficit. These factors raise substantial doubts about
the Company’s ability to continue as a going concern. As of September 30, 2019, the Company had shareholders’ deficit
of $9,007,488. The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company
is unable to continue as a going concern. As a result, the Company’s independent registered public accounting firm, in its
report on the Company’s December 31, 2018 consolidated financial statements, has raised substantial doubt about the Company’s
ability to continue as a going concern.
The ability of the Company to continue
as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash
infusions. Management has prospective investors and believes the raising of capital will allow the Company to pursue new acquisitions.
There can be no assurance that the Company will be able to obtain sufficient capital from debt or equity transactions or from operations
in the necessary time frame or on terms acceptable to it. Should the Company be unable to raise sufficient funds, it may be required
to curtail its operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that
the Company will be able to operate profitably on a consistent basis, or at all, in the future. Should the Company not be able
to raise sufficient funds, it may cause cessation of operations.
Recently Issued Accounting Pronouncements
Adoption of ASU 2016-02, Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance
sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee,
a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information
about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows
arising from leases. For public companies, The Company adopted this standard on January 1, 2019 using the modified retrospective
method. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package
of practical expedients’, which permitted the Company not to reassess under the new standard its prior conclusions about
lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical
expedients.
The new standard also provides practical expedients for a company’s
ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease
term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”, to provide clarity
and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock
Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes
to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. The amendments
are effective for fiscal years beginning after December 15, 2017 and should be applied prospectively to an award modified on or
after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company adopted the standard
on January 1, 2018, which did not have a material impact on the financial statements.
We expect the adoption will have an immaterial
impact to our comparative net income or loss and as such comparative information has not been restated and continues to be reported
under the accounting standards in effect for those periods. We also expect the impact of the adoption of the new standard to be
immaterial to our net income or loss on an ongoing basis, due to the nature of our revenues.
Recent accounting pronouncements not
yet adopted
In June 2016, the FASB amended guidance
related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, which will be effective January 1, 2020. The guidance replaces the incurred loss
impairment methodology with an expected credit loss model for which a Group recognizes an allowance based on the estimate of expected
credit loss. The Company does not expect that the adoption of the standard to have an impact on the Company’s financial statements.
Other pronouncements issued by the FASB
or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to
be significant to the Company’s financial position, results of operations or cash flows.
2. DISCONTINUED OPERATIONS
In June 2019, the Company closed Red Rock
Travel Group due to continuing losses in operations. Refer to Note 13 for contingency matters related to discontinued operations.
3. ACQUISITIONS
JM Enterprise 1 (dba) Key Tax Group
JM
Enterprise 1, Inc. (d.b.a. Key Tax Group) and Cardiff Lexington Corporation as previously announced in May 2019 signed
a definitive merger agreement under which Key Tax Group became a wholly owned subsidiary effective May 8, 2019. In connection with
the closing of the acquisition, on May 8, 2019 a Preferred “G” Class of stock with a par value of $0.001 was issued.
The Preferred “G” Class of stock rights and privileges include voting rights, a conversion ratio of 1:1.25 and were
distributed at the adjusted rate of $0.07 per share for a total of 18,571,428 representing a value of $1,300,000. Additionally,
Cardiff issued 500,000 Common Shares with a par value of $0.001 to novate a convertible debt of $30,912.32. These Preferred “G”
shares have a lock-up/leak-out limiting the sale of stock for 12 months after which conversions and sales are limited to 20% of
their portfolio per year, pursuant to the terms of the Acquisition Agreement.
The preliminary purchase price allocation of the net assets
acquired are as follows:
|
|
|
|
Key Tax Fair Value
|
|
|
|
Cash
|
|
$
|
9,484
|
|
|
Accounts receivable
|
|
|
90,766
|
|
|
Other assets
|
|
|
250,000
|
|
|
Property and equipment
|
|
|
6,044
|
|
|
Goodwill
|
|
|
1,407,915
|
|
|
Liabilities
|
|
|
(464,209
|
)
|
|
Total
|
|
$
|
1,300,000
|
|
Additionally, Cardiff has allocated a Preferred
“G1” Class Series for potential investors – 10,000,000 shares authorized, par value $0.001 per share with the
following rights and privileges no - voting rights, converts to common stock at a ratio of 1 share preferred to 1.25 shares common.
Series G1 stock cannot be diluted due to actions taken by the Company, BOD and/or its shareholders.
4. ACCRUED EXPENSES
As of September 30, 2019, and December
31, 2018, the Company had accrued expenses of $1,992,672 and $1,310,074, respectively, consisted of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Accrued salaries – related party
|
|
$
|
1,132,909
|
|
|
$
|
747,000
|
|
|
Accrued expenses – other
|
|
|
859,763
|
|
|
|
563,074
|
|
|
Total
|
|
$
|
1,992,672
|
|
|
$
|
1,310,074.0
|
|
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net as of
September 30, 2019 and December 31, 2018 was $333,356 and $381,301, respectively, consisting of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Furniture, fixture and equipment
|
|
$
|
560,380
|
|
|
$
|
715,466
|
|
|
Leasehold improvements
|
|
|
136,069
|
|
|
|
161,166
|
|
|
Total
|
|
|
696,449
|
|
|
|
876,632
|
|
|
Less: accumulated depreciation
|
|
|
(416,595
|
)
|
|
|
(495,331
|
)
|
|
Plant and equipment, net
|
|
$
|
279,854
|
|
|
$
|
381,301
|
|
During the nine months ended September
30, 2019 and 2018, depreciation expense was $53,549 and $22,463, respectively. The Company accounts for depreciation as a separate
item in the operational expense of $9,373 and $8,335, respectively and included $44,177 and $14,128, respectively in depreciation
in cost of goods sold.
6. LAND
As of September 30, 2019 and December
31, 2018, the Company had land of $603,000 located in Salmon, Idaho with area of approximately 30 acres, which was in
connection with the acquisition of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E
Preferred Stock as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration
represents a $603,000 valuation. The land is currently vacant and is expected to be developed into residential community. The
value of the land is not subject to depreciation.
7. LINE OF CREDIT
On December 28, 2016, the Company entered
into an unsecured Business Line of Credit Agreement with Fundation Group LLC (“Fundation”), pursuant to which the Company
was allowed to take a draw from Fundation up to $20,000 from time to time. The Line of Credit bears interest at a rate of 11.49%
per annum, subject to increase or decrease with 90 days notice. There was an initial closing fee of $500 and a 2% draw fee on subsequent
draws. Monthly principal and interest payments are due and the line is due in full in 18 months from the latest draw. The outstanding
principal and interest will be due in payments over 18 months.
As of September 30, 2019 and December
31, 2018, The Company had balance of $-0- and $1,999, respectively. During the nine months ended September 30, 2019, total cash
advanced amounted to $-0- and cash payment made was $1,999.
8. RELATED PARTY TRANSACTIONS
Due to Officers and Officer Compensation
The Company borrows funds from Daniel Thompson,
who is a Shareholder and Officer of the Company. The terms of repayment stipulate the unsecured loans are due 24 months from issuance
or on demand, at an annual interest rate of six percent. As of September 30, 2019 and December 31, 2018, the Company had $137,816
and $77,640 due (included in due to officers and shareholders on the financial statements) to Daniel Thompson, respectively.
The accrued salaries payable to Daniel
Thompson was $477,500 and $317,500 as of September 30, 2019 and December 31, 2018, respectively.
The Company had an employment agreement
with the Chief Operating Officer, Mr. Roberts. The total balance due to Mr. Roberts for accrued salaries at September 30, 2019
and December 31, 2018 were $192,000 and $107,000, respectively.
The accrued salaries payable to Daniel
Mr. Cunningham the Company’s chief executive officer was $467,500 and $322,500 as of September 30, 2019 and December 31,
2018, respectively.
Notes Payable – Related Party
The Company has entered into several unsecured
loan agreements with related parties (see below; Footnote 9, Notes Payable – Related Party; and Footnote 10 Convertible Notes
Payable – Related Party).
Preferred Stock
During the year ended December 31, 2018, the Company agreed
to issue 125,000,000 preferred I shares each to Mr. Thompson and Mr. Cunningham, which were reflected as preferred shares to be
issued on the financial statements at a total cost of stock compensation of $200,000. During the nine months ended September 30,
2019, the shares were issued
9. NOTES PAYABLE
For the nine months ended September 30,
2019, the Company received $410,000 cash proceeds, from notes payable and repaid $-0- in cash.
Notes payable at September 30, 2019
and December 31, 2018 are summarized as follows:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Notes Payable – Unrelated Party
|
|
$
|
1,050,777
|
|
|
$
|
676,477
|
|
|
Notes Payable – Related Party
|
|
|
296,916
|
|
|
|
265,242
|
|
|
Total
|
|
|
1,347,693
|
|
|
|
941,719
|
|
|
Less Discontinued operations Notes Payable – Unrelated Party
|
|
|
(453,147
|
)
|
|
|
–
|
|
|
Current portion
|
|
$
|
894,546
|
|
|
$
|
(941,719
|
)
|
Notes Payable
On March 12, 2009, the Company entered
into a preferred debenture agreement with a shareholder for $20,000. The note bore interest at 12% per year and matured on September
12, 2009. In conjunction with the preferred debenture, the Company issued 2,000,000 warrants to purchase its Common Stock, exercisable
at $0.10 per share and expired on March 12, 2014. As a result of the warrants issued, the Company recorded a $20,000 debt discount
during 2009 which has been fully amortized. The Company assigned all of its receivables from consumer activations of the rewards
program as collateral on this debenture. On March 24, 2011, the Company amended the note and the principal balance was reduced
to $15,000. The Company was due to pay annual principal payments of $5,000 plus accrued interest beginning March 12, 2012. On July
20, 2011, the Company repaid $5,000 of the note. No warrants had been exercised before the expiration. As of September 30, 2019,
the Company is in default on this debenture. The principal balance of the note was $10,949 and $10,989 at September 30, 2019 and
December 31, 2018, respectively.
On September 7, 2011, the Company entered
into a Promissory Note agreement (“Note 3”) with a related party for $50,000. Note 1 bears interest at 8% per year
and matures on September 7, 2016. Interest is payable annually on the anniversary of Note 3, and the principal and any unpaid interest
will be due upon maturity. In conjunction with Note 3, the Company issued 2,500,000 shares of its Common Stock to the lender. As
a result of the shares issued in conjunction with Note 1, the Company recorded a $50,000 debt discount during 2011. The principal
balance of Note 3, net of debt discount, was $50,000 and $50,000 at September 30, 2019 and December 31, 2018, respectively. Note
3 is currently in default.
On November 17, 2011, the Company entered
into a Promissory Note agreement (“Note 3-1”) with a related party for $50,000. Note 2 bears interest at 8% per year
and matures on November 17, 2016. Interest is payable annually on the anniversary of Note 3-1, and the principal and any unpaid
interest will be due upon maturity. In conjunction with Note 3-1, the Company issued 2,500,000 shares of its Common Stock to the
lender. As a result of the shares issued in conjunction with Note 3-1, the Company recorded a $50,000 debt discount during 2011.
The principal balance of Note 3-1, net of debt discount, was $50,000 and $50,000 at September 30, 2019 and December 31, 2018, respectively.
Note 3-1 is currently in default.
As of September 30, 2019, the Company had
lease payables of $64,898 in connection with two capital leases on two Mercedes Sprinter Vans for the ice cream section and eight
auto loans related to our pizza business. There are purchase options at the end of all lease terms that are based on the fair market
value of the vans at the time. The company is in compliance with the lease terms.
Loans payable to unrelated party principal
of $11,783 was due to the auto loans for the vehicles used in the Pizza restaurants and Repicci’s Group and for daily operations.
The loans carry interest from 0% to 6% interest and the Company is in compliance.
The balance in notes payable principal
to unrelated parties of $453,147, were assumed in connection the acquisition of Red Rock Travel and a new one year notes payable
at 10% interest which are included in discontinued operations as of September 30, 2019.
The Company borrows funds from Officers
of our subsidiaries from time to time. The terms of repayment stipulate the unsecured loans are due demand, at no interest. As
of September 30, 2019 and December 31, 2018, the Company had $296,916 and $215,989 due respectively.
In September 2019 the Company entered into
a promissory note agreement for $410,000 that is due in 12 months at a rate of 10%. The principal balance of the note was $410,000
at September 30, 2019.
10. CONVERTIBLE NOTES PAYABLE
Certain of the Company’s issued Convertible
Notes include anti-dilution provisions that allow for the adjustment of the conversion price. The Company considered the guidance
provided by the FASB in “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” the result
of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that,
as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were not fixed
amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith are not considered
indexed to the Company’s stock and characterized the value of the conversion feature of such notes as derivative liabilities
upon issuance. The Company has recorded derivative liabilities associated with convertible debt instruments.
As of September 30, 2019, the Company
received $400,116 net cash proceeds, from convertible notes. The Company recorded amortization of debt discount of $509,586 and
$201,440 related to convertible notes, during the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively.
Convertible notes at September 30, 2019 and December 31,
2018 are summarized below:
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Convertible Notes Payable – Unrelated Party
|
|
$
|
1,991,607
|
|
|
$
|
2,191,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on Convertible Notes Payable - Unrelated Party
|
|
|
(735,694
|
)
|
|
|
(201,024
|
)
|
|
Total
|
|
$
|
1,255,913
|
|
|
$
|
1,990,775
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Portion
|
|
|
881,741
|
|
|
|
950,775
|
|
|
Long-Term Portion
|
|
$
|
374,172
|
|
|
$
|
1,040,000
|
|
|
Note
#
|
Issuance
|
Maturity
|
Rate
|
|
Default
|
12/31/2018 Principal
Balance
|
|
2019
Add Principal
|
|
2019
Principal Conversions
|
|
2019
Interest Converted
|
|
Shares
issued upon conversion 2019
|
|
2019
Principal Paid with Cash
|
|
2019
interest paid in Cash
|
|
9/30/19
Principal Balance
|
|
Total
Interest expense for Nine Months Ended 9/30/2019
|
|
Accrued
Interest as of 9/30/2019
|
|
Conversion
price
|
|
|
|
1
|
8/21/2008
|
8/21/2009
|
|
12%
|
|
Y
|
|
150,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
13,650
|
|
|
200,258
|
|
Short
Term
|
|
|
|
|
2
|
3/11/2009
|
4/29/2014
|
|
12%
|
|
Y
|
|
15,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
1,365
|
|
|
19,030
|
|
Short Term
|
|
|
|
|
7
|
2/9/2016
|
2/9/2017
|
|
20%
|
|
Y
|
|
8,485
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,485
|
|
|
1,287
|
|
|
7,069
|
|
$.03 per share or 50% of market
|
|
|
|
|
7-1
|
10/28/2016
|
10/28/2017
|
|
20%
|
|
Y
|
|
25,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
3,792
|
|
|
14,668
|
|
$.03 per share or 50% of market
|
|
|
|
|
8
|
3/8/2016
|
3/8/2017
|
|
20%
|
|
Y
|
|
1,500
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
227
|
|
|
2,915
|
|
$.03 per share or 50% of market
|
|
|
|
|
9
|
9/12/2016
|
9/12/2017
|
|
20%
|
|
Y
|
|
80,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
12,133
|
|
|
48,955
|
|
$.03 per share or 50% of market
|
|
|
|
|
10
|
1/24/2017
|
1/24/2018
|
|
20%
|
|
Y
|
|
55,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
8,342
|
|
|
29,618
|
|
$.25 per share or 50% of market
|
|
|
|
|
11
|
1/27/2017
|
1/27/2018
|
|
20%
|
|
Y
|
|
2,698
|
|
|
1,500
|
|
|
(4,198
|
)
|
|
(9,225
|
)
|
|
1,250,000
|
|
|
|
|
|
|
|
|
–
|
|
|
135
|
|
|
1,060
|
|
$.25 per share or 50% of market
|
|
|
|
|
11-1
|
2/21/2017
|
2/21/2018
|
|
20%
|
|
Y
|
|
25,000
|
|
|
6,856
|
|
|
(31,856
|
)
|
|
(2,504
|
)
|
|
48,749,769
|
|
|
|
|
|
|
|
|
–
|
|
|
1,641
|
|
|
8,425
|
|
$.25 per share or 50% of market
|
|
|
|
|
11-2
|
3/16/2017
|
3/16/2018
|
|
20%
|
|
Y
|
|
40,000
|
|
|
–
|
|
|
(7,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,463
|
|
|
5,681
|
|
|
20,038
|
|
$.25 per share or 50% of market
|
|
|
|
|
12
|
4/6/2017
|
4/6/2018
|
|
20%
|
|
Y
|
|
31,997
|
|
|
–
|
|
|
(31,997
|
)
|
|
(2,908
|
)
|
|
1,695,400
|
|
|
|
|
|
|
|
|
–
|
|
|
1,600
|
|
|
11,805
|
|
$.25 per share or 50% of market
|
|
|
|
|
13-1
|
4/21/2017
|
4/21/2018
|
|
18%
|
|
Y
|
|
172,000
|
|
|
|
|
|
(129,371
|
)
|
|
(3,861
|
)
|
|
3,969,066
|
|
|
|
|
|
|
|
|
42,629
|
|
|
6,833
|
|
|
23,847
|
|
$.30 per share or 60% of
the lowest trading price for 10 days
|
|
|
|
|
16
|
11/27/2017
|
11/27/2018
|
|
12%
|
|
Y
|
|
–
|
|
|
|
|
|
|
|
|
(119
|
)
|
|
26,630
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading
or bid (whichever is lower) price for 20 days
|
|
|
|
|
18
|
1/19/2018
|
1/19/2019
|
|
24%
|
|
Y
|
|
83,500
|
|
|
|
|
|
(35,428
|
)
|
|
–
|
|
|
358,333
|
|
|
(48,072
|
)
|
|
(13,857
|
)
|
|
–
|
|
|
4,359
|
|
|
0
|
|
60% of the lowest trading
price for 20 days
|
|
|
|
|
20
|
3/29/2018
|
3/29/2019
|
|
24%
|
|
Y
|
|
25,100
|
|
|
|
|
|
(25,100
|
)
|
|
–
|
|
|
112,844
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading
price for 15 days
|
|
|
|
|
21
|
4/9/2018
|
4/9/2019
|
|
10%
|
|
Y
|
|
130,206
|
|
|
|
|
|
(2,515
|
)
|
|
–
|
|
|
72,901
|
|
|
(127,691
|
)
|
|
(22,326
|
)
|
|
–
|
|
|
10,939
|
|
|
0
|
|
40% discount on the lowest
trading price for previous 25 days
|
|
|
|
|
22
|
7/10/2018
|
1/10/2021
|
|
12%
|
|
N
|
|
1,040,000
|
|
|
|
|
|
–
|
|
|
–
|
|
|
114,013,576
|
|
$
|
(200,000
|
)
|
$
|
(83,232
|
)
|
|
800,000
|
|
|
80,633
|
|
|
4,337
|
|
$0.04/ share or 40% of
the lowest bid price for prior 21 days
|
|
|
|
|
22.1
|
2/21/2019
|
1/10/2021
|
|
12%
|
|
N
|
|
–
|
|
|
56,616
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
56,616
|
|
|
5,152
|
|
|
5,152
|
|
|
|
|
|
|
23
|
7/19/2018
|
12/31/2018
|
|
8%
|
|
Y
|
|
–
|
|
|
|
|
|
|
|
|
(1,653
|
)
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading
price for 10 days
|
|
|
|
|
24
|
7/19/2018
|
12/31/2018
|
|
8%
|
|
Y
|
|
–
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading
price for 10 days
|
|
|
|
|
25
|
8/13/2018
|
2/13/2019
|
|
12%
|
|
Y
|
|
78,314
|
|
|
|
|
|
|
|
|
(3,367
|
)
|
|
|
|
|
|
|
|
|
|
|
78,314
|
|
|
9,515
|
|
|
12,218
|
|
$0.004/ share or 60% of
the lowest trading price for prior 21 days
|
|
|
|
|
26
|
8/10/2017
|
1/27/2018
|
|
15%
|
|
Y
|
|
20,000
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
2,783
|
|
|
4,871
|
|
$.25 per share or 50% of market
|
|
|
|
|
27-1-4
|
12/10/2018
|
12/10/2019
|
|
8%
|
|
N
|
|
108,000
|
|
|
|
|
|
(53,711
|
)
|
|
(3,076
|
)
|
|
141,439,120
|
|
|
|
|
|
|
|
|
–
|
|
|
4,344
|
|
|
1,517
|
|
60% of the lowest trading
price for 10 days
|
|
|
|
|
28
|
12/5/2018
|
12/5/2019
|
|
8%
|
|
N
|
|
100,000
|
|
|
|
|
|
(56,900
|
)
|
|
(2,852
|
)
|
|
125,027,981
|
|
|
–
|
|
|
–
|
|
|
43,100
|
|
|
4,544
|
|
|
1,977
|
|
55% of the lowest trading
price for 15 days
|
|
|
|
|
29
|
5/10/2019
|
5/10/2020
|
|
8%
|
|
N
|
|
–
|
|
|
150,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
150,000
|
|
|
6,100
|
|
|
6,100
|
|
55% of the lowest trading
price for 15 days
|
|
|
|
|
30
|
7/26/2019
|
7/26/2020
|
|
6%
|
|
N
|
|
|
|
|
73,500
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
73,500
|
|
|
797
|
|
|
797
|
|
62% of the lowest trading
price for 15 days
|
|
|
|
|
31
|
8/28/2019
|
8/28/2020
|
|
8%
|
|
N
|
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
868
|
|
|
868
|
|
60% of the lowest trading
price for 12 days
|
|
|
|
|
RR 1
|
5/22/2018
|
5/22/2019
|
|
20%
|
|
Y
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
6,067
|
|
|
10,222
|
|
75% of the lowest closing
ask price for the three prior trading days
|
|
|
|
|
RR 3.0 and 3.1
|
8/9/2018
|
8/9/2019
|
|
30%
|
|
N
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
22,750
|
|
|
34,750
|
|
70% of the lowest closing
ask price for the three prior trading days
|
|
|
|
|
RR 4
|
9/13/2018
|
9/13/2019
|
|
30%
|
|
N
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
11,375
|
|
|
15,917
|
|
70% of the lowest closing
ask price for the three prior trading days
|
|
|
|
|
RR 5
|
9/13/2018
|
9/13/2019
|
|
30%
|
|
N
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
11,375
|
|
|
15,917
|
|
70% of the lowest closing
ask price for the three prior trading days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable
|
|
|
|
|
$
|
2,431,800
|
|
$
|
408,472
|
|
$
|
(378,613
|
)
|
$
|
(29,565
|
)
|
$
|
436,715,620
|
|
$
|
(375,763
|
)
|
$
|
(119,414
|
)
|
$
|
1,991,607
|
|
$
|
238,287
|
|
$
|
502,331
|
|
|
|
|
|
|
|
Summary
|
Convertible Notes Payable
- Related Party
|
|
|
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
2,431,800
|
|
$
|
408,472
|
|
$
|
(378,613
|
)
|
$
|
(29,565
|
)
|
|
436,715,620
|
|
$
|
(375,763
|
)
|
$
|
(119,414
|
)
|
$
|
1,991,607
|
|
$
|
238,287
|
|
$
|
502,331
|
|
|
|
|
|
11. FAIR VALUE MEASUREMENT
The Company adopted the provisions of Accounting
Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines
fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels
of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active
markets for identical assets or liabilities.
Level 2 – Observable inputs other
than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or
can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs to
the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined
based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was
no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.
The carrying value of the Company’s
cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable),
and other current assets and liabilities approximate fair value because of their short-term maturity.
As of September 30, 2019 and December
31, 2018, the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative liabilities
as level 3 and values its derivatives using the methods discussed. While the Company believes that its valuation methods are appropriate
and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary
assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price
of the underlying common stock of the Company.
As of September 30, 2019 and December
31, 2018, the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of September
30, 2019, in the amount of $7,351,185 has a level 3 classification.
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial liabilities for the nine months ended September 31, 2019:
|
Derivative Liability, December 31,2018
|
|
$
|
1,870,625
|
|
|
Day 1 Loss
|
|
|
25,245,171
|
|
|
Derivatives Issued
|
|
|
1,566,616
|
|
|
Derivatives Settled
|
|
|
(2,721,605
|
)
|
|
Mark to market adjustments
|
|
|
(18,609,622
|
)
|
|
Derivative Liability, September 30, 2019
|
|
$
|
7,351,185
|
|
Net loss for the period included mark-to-market
adjustments relating to the liabilities held during the nine-month periods ended September 30, 2019 and 2018 in the amounts of
$(6,635,549) and a gain of $(1,317,018), respectively.
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the nine months ended
September 30, 2019, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of
the related derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant
unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.
The valuation of the derivative liabilities
attached to the convertible debt was arrived at through the use of the Lattice Bi-nominal Option Pricing Model and the following
assumptions:
|
|
|
|
For the period ended
|
|
|
|
|
|
September 30,
2019
|
|
|
|
December 31,
2018
|
|
|
Volatility
|
|
|
441.14%-884.42%
|
|
|
|
182.91%-636.13%
|
|
|
Risk-free interest rate
|
|
|
1.73%-2.14%
|
|
|
|
2.13% -2.72%
|
|
|
Expected term
|
|
|
.18 – 1.67
|
|
|
|
.04 - 5.14
|
|
12. CAPITAL STOCK
Series I Preferred Stock
During the three months ended September
30, 2019, the Company issued 250,000,000 shares of Series I Preferred Stock to officers of the Company, which were granted during
year ended December 31, 2018. See Note 8, for more details.
Common Stock
During the three months ended September
30, 2019, the Company issued 424,005,644 shares for conversion of convertible notes payable (see Footnote 10).
13. COMMITMENTS AND CONTINGENCIES
The Company has committed to continue negotiations
with Acela Biomedical once certain conditions have been met.
The Company has an employment agreement,
renewed May 15, 2014, with the Chairman, Mr. Thompson amended on January 1, 2017 through December 31, 2021, whereby we provide
for compensation of $25,000 per month.
The Company has an employment agreement
with the Chief Executive Officer, Mr. Cunningham, amended on January 1, 2017 through December 31, 2021, whereby we provide for
compensation of $25,000 per month.
The Company has an employment agreement
with the Chief Operating Officer, Mr. Roberts, effective June 2016 through December 31, 2019, whereby we provide for compensation
of $10,000 per month.
The Company has employment agreements
for Chief Executives of its subsidiaries Key Tax Group, and Platinum Tax Defenders.
The agreement for Key Tax Group Management
is a combined base salary of $208,000 annually, with additional annual bonuses and stock awards based on performance. Each agreement
has a 5 year term.
Platinum Tax Defenders Management has a
base salary of $20,000 per month, with additional annual bonuses and stock awards based on performance. The agreement has a 5 year
term.
The Company discontinued its operation
of Red Rock Travel Group in June 2019. The Company may be liable for any commitments and contingencies in connection with its operation.
There are no other stock option plans,
retirement, pension, or profit-sharing plans for the benefit of our sole officers and directors other than as described above.
Leases
The Company’s subsidiary
Key Tax Group has an operating lease for an office leased in Jacksonville Florida on a month to month agreement. Base monthly rent
is approximately $1,708 per month plus net operating expenses. A deposit equal to one-month rent was paid and the commencement
of the lease.
In addition, the Company’s
subsidiary Platinum Tax Defenders has an operating lease for an office sub-lease in Simi Valley, California with an initial term
of 38 months. Base monthly rent is approximately $4,000 per month plus net operating expenses. A deposit equal to one-month rent
was paid and the commencement of the lease. The lease can be extended for a two-year period at same amount of increase in the original
lease (3%), at the option of the original lessee. The lease contains variable lease payments for non-rental occupancy expenses.
These non-lease components were not included in the determination of the right of use asset and lease liability as part of the
transition to ASC 842 due to the practical expedients elected by the Company.
Additionally, the Company’s
subsidiary Romeo Pizza has an operating lease for its restaurant at Johns Creek, Georgia with an initial term of 65 months and
renewed on January 1, 2019 for an additional 120 months. Base monthly rent is approximately $4,629 per month plus net operating
expenses. A deposit of $6,000 was paid and the commencement of the lease. The current lease renewal does not currently contain
an extension provision. The lease contains variable lease payments for non-rental occupancy expenses. These non-lease components
were not included in the determination of the right of use asset and lease liability as part of the transition to ASC 842 due to
the practical expedients elected by the Company.
The Company utilizes the incremental
borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company
used an estimated incremental borrowing rate of 15% to estimate the present value of the right of use liability.
The Company has right-of-use
assets of $430,640, operating lease liabilities of $430,640 as of September 30, 2019. Operating lease expense for the nine months
ended September 30, 2019 was $153,429.
The following table provides
the maturities of lease liabilities at September 30, 2019:
|
Maturity of Lease Liabilities at September 30,
2019
|
|
|
|
|
2019
|
|
$
|
25,886,
|
|
|
2020
|
|
|
106,096
|
|
|
2021
|
|
|
108,705
|
|
|
2022
|
|
|
67,431
|
|
|
2023
|
|
|
60,124
|
|
|
2024 and thereafter
|
|
|
319,144
|
|
|
Total future undiscounted lease payments
|
|
|
687,386
|
|
|
Less: Interest
|
|
|
(287,428
|
)
|
|
Present value of lease liabilities
|
|
$
|
399,957
|
|
The Company’s other subsidiaries also
maintain short-term lease agreements for office space. Total rent expense for these rentals was $8,224 for the nine months
ended September 30, 2019. Total rent expense for the nine months ended September 30, 2018 was $71,274.
Pursuant to the same consulting agreement,
dated February 10, 2017, in addition to the 800,000 shares of common stock, the Company agreed to grant total 800,000 warrants
to the consultant for consulting services related to marketing and business development and are exercisable on the grant date and
expire in three years. The initial allotment of 200,000 warrants were granted during the first quarter of 2017. The second allotment
of 200,000 warrants were granted during the second quarter of 2017. The third allotment of 200,000 warrants were granted during
the third quarter of 2017. The fourth allotment of 200,000 warrants were granted during the fourth quarter of 2017.
The Company determined that the warrants
were tainted due to the variability of exercise price and therefore the carrying value represents an embedded derivative instrument
that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial
instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial
instrument of the warrants were measured using the Black-Scholes valuation model at the grant dates of the agreement (February
10, 2017, May 10, 2017, August 10, 2017 and December 10, 2017.) and will do so again on each subsequent balance sheet date. Any
changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at
each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital.
On April 21, 2017, the Company entered
into a Securities Purchase Agreement with an unrelated entity, pursuant to which the purchasers agreed to pay the Company an aggregate
of up to $600,000 for an aggregate of up to 660,000 in Principal Amount of Notes. The first tranche of $330,000 was closed simultaneously
(“Note 13-1”). The proceeds of $300,000, net of $30,000 Original Issuance Discount, was received by the Company.
In addition, in connection with this Securities
Purchase Agreement, the Company granted purchasers 2,357,143 warrants with exercise price of $0.14 per share (“Warrants A”),
1,885,715 warrants with exercise price of $0.175 per share (“Warrants B”) and 1,571,429 warrants with exercise price
of $0.21 per share (“Warrants C”). Warrants A, B and C are exercisable on the grant date and expire in three years,
each of which represents 100% of the Principal Amount at the Closing divided by the respective exercise price.
During the year ended December 31, 2018,
the Company entered into a note agreement for $1,040,000, as part of the note agreement the Company agreed to issue the noteholder
warrants exercisable for 4,000,000 shares of common stock with a term of eight years, at an exercise price of $0.04. The terms
also include a full-ratchet anti-dilution protection provision and therefore the Company has deemed them to be a derivative liability.
|
|
|
Year Ended
December 31, 2018
|
|
|
Initial Valuation
|
|
$
|
3,795
|
|
|
Ending Value September 30, 2019
|
|
$
|
15,243
|
|
The table below sets forth the assumptions
for Black-Scholes valuation model on each initial date and December 31, 2018
|
|
|
Nine Months Ended September 30, 2019
|
|
|
Volatility
|
|
|
213% - 13.26%
|
|
|
Risk-free interest rate
|
|
|
0.162 - 0.269
|
|
|
Expected term
|
|
|
0.36-6.78
|
|
Accordingly, the Company recorded warrant
expenses of $11,447during the nine months ended September 30, 2019.
The following tables summarize all warrant
outstanding as of September 30, 2019 and the related changes during this period. The warrants expire three years from grant date,
which as of September 30, 2019 is 3.06 years. The intrinsic value of the warrants as of September 30, 2019 was $-0-.
|
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Stock Warrants
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
Balance at September 30, 2019
|
|
|
6,614,287
|
|
|
|
0.21
|
|
|
Warrants Exercisable at September 30, 2019
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
15. SEGMENT REPORTING
The Company has five reportable operating
segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures
about Segments of an Enterprise and Related Information: (1) Mobile home lease (We Three), (2) Company-owned Pizza Restaurants
(Romeo’s NY Pizza), (3) “Repicci’s Italian Ice” franchised stores. (4) Tax resolution services (Platinum
Tax Defenders) and Key Tax Group. These segments are a result of differences in the nature of the products and services sold.
Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and
collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items.
The mobile home lease segment establishes
mobile home business as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage
payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, the Company
will provide a financial leasing option with "0" interest on the lease providing a "lease to own" option for
their family home.
The Company-owned Pizza Restaurant segment
includes sales and operating results for all Company-owned restaurants. Assets for this segment include equipment, furniture and
fixtures for the Company-owned restaurants.
Repicci’s Group offers franchisees
for the operation of “Repicci’s Italian Ice” franchises. These franchised stores specialize in the distribution
of nonfat frozen confections.
The number of franchise agreements in force
as of September 30, 2019 was forty-five (45), seven (7) new state of the art “mobile” units.
Platinum Tax Defenders and Key Tax Group
provides tax resolution services to individuals and companies that have federal and state tax liabilities. These companies collect
fees based on efforts to negotiate and assist in the settlement of outstanding tax debts.
Key Tax Group provides tax resolution services
to individuals and companies that have federal and state tax liabilities. The Company collects fees based on efforts to negotiate
and assist in the settlement of outstanding tax debts.
The Company discontinued its operation
of Red Rock Travel Group in June 2019. The Company may be liable for any commitments and contingencies in connection with its
operation.
|
For the three month period ended
|
|
|
|
September 30, 2019
|
|
|
|
|
September 30, 2018
|
|
|
Revenues:
|
|
|
|
|
Revenues:
|
|
|
|
|
We Three
|
|
$
|
82,699
|
|
|
We Three
|
|
$
|
44,740
|
|
|
Romeo’s NY Pizza
|
|
|
324,440
|
|
|
Romeo’s NY Pizza
|
|
|
148,540
|
|
|
Repicci's Group
|
|
|
145,335
|
|
|
Repicci's Group
|
|
|
151,904
|
|
|
Platinum Tax
|
|
|
1,599,601
|
|
|
Platinum Tax
|
|
|
229,124
|
|
|
Key Tax
|
|
|
589,816
|
|
|
Key Tax
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
|
Other
|
|
|
123,576
|
|
|
Consolidated revenues
|
|
$
|
2,741,891
|
|
|
Consolidated revenues
|
|
$
|
697,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
We Three
|
|
$
|
86,710
|
|
|
We Three
|
|
$
|
43,305
|
|
|
Romeo’s NY Pizza
|
|
|
238,363
|
|
|
Romeo’s NY Pizza
|
|
|
111,814
|
|
|
Repicci's Group
|
|
|
136,711
|
|
|
Repicci's Group
|
|
|
154,572
|
|
|
Platinum Tax
|
|
|
500,676
|
|
|
Platinum Tax
|
|
|
155,475
|
|
|
Key Tax
|
|
|
254,832
|
|
|
Key Tax
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
|
Other
|
|
|
125,900
|
|
|
Consolidated cost of sales
|
|
$
|
1,217,292
|
|
|
Consolidated cost of sales
|
|
$
|
591,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
We Three
|
|
$
|
(5,017
|
)
|
|
We Three
|
|
$
|
(23,281
|
)
|
|
Romeo’s NY Pizza
|
|
|
17,929
|
|
|
Romeo’s NY Pizza
|
|
|
3,325
|
|
|
Repicci’s Group
|
|
|
(19,253
|
)
|
|
Repicci’s Group
|
|
|
(213,683
|
)
|
|
Platinum Tax
|
|
|
107,947
|
|
|
Platinum Tax
|
|
|
(249,134
|
)
|
|
Key Tax
|
|
|
290,137
|
|
|
Key Tax
|
|
|
–
|
|
|
Others
|
|
|
(3,382,202
|
)
|
|
Others
|
|
|
(4,533,087
|
)
|
|
Consolidated gain/(loss) before taxes
|
|
$
|
(2,990,459
|
)
|
|
Consolidated gain/(loss) before taxes
|
|
$
|
(5,015,460
|
)
|
|
For the nine month period ended
|
|
|
|
September 30, 2019
|
|
|
|
|
September 30, 2018
|
|
|
Revenues:
|
|
|
|
|
Revenues:
|
|
|
|
|
We Three
|
|
$
|
135,577
|
|
|
We Three
|
|
$
|
143,403
|
|
|
Romeo’s NY Pizza
|
|
|
472,237
|
|
|
Romeo’s NY Pizza
|
|
|
452,555
|
|
|
Repicci's Group
|
|
|
177,962
|
|
|
Repicci's Group
|
|
|
578,668
|
|
|
Platinum Tax
|
|
|
2,226,828
|
|
|
Platinum Tax
|
|
|
229,124
|
|
|
Key Tax
|
|
|
589,816
|
|
|
Key Tax
|
|
|
–
|
|
|
Other
|
|
|
(0
|
)
|
|
Other
|
|
|
123,576
|
|
|
Consolidated revenues
|
|
$
|
3,602,420
|
|
|
Consolidated revenues
|
|
$
|
1,527,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
We Three
|
|
$
|
153,873
|
|
|
We Three
|
|
$
|
145,650
|
|
|
Romeo’s NY Pizza
|
|
|
348,386
|
|
|
Romeo’s NY Pizza
|
|
|
324,661
|
|
|
Repicci's Group
|
|
|
176,331
|
|
|
Repicci's Group
|
|
|
435,302
|
|
|
Platinum Tax
|
|
|
703,809
|
|
|
Platinum Tax
|
|
|
155,475
|
|
|
Key Tax
|
|
|
254,832
|
|
|
Key Tax
|
|
|
–
|
|
|
Other
|
|
|
1
|
|
|
Other
|
|
|
125,900
|
|
|
Consolidated cost of sales
|
|
$
|
1,637,231
|
|
|
Consolidated cost of sales
|
|
$
|
1,186,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
We Three
|
|
$
|
(25,123
|
)
|
|
We Three
|
|
$
|
(29,357
|
)
|
|
Romeo’s NY Pizza
|
|
|
22,727
|
|
|
Romeo’s NY Pizza
|
|
|
29,048
|
|
|
Repicci’s Group
|
|
|
(35,380
|
)
|
|
Repicci’s Group
|
|
|
(83,816
|
)
|
|
Platinum Tax
|
|
|
137,574
|
|
|
Platinum Tax
|
|
|
(249,134
|
)
|
|
Key Tax
|
|
|
290,137
|
|
|
Key Tax
|
|
|
–
|
|
|
Others
|
|
|
(9,523,041
|
)
|
|
Others
|
|
|
(5,378,790
|
)
|
Consolidated gain/(loss)
before taxes
|
|
$
|
(9,133,106
|
)
|
|
Consolidated gain/(loss) before taxes
|
|
$
|
(5,712,049
|
)
|
|
|
|
As of
|
|
|
|
|
As of
|
|
|
|
|
September 30, 2019
|
|
|
|
|
December 31, 2018
|
|
|
Assets:
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
We Three
|
|
$
|
293,162
|
|
|
We Three
|
|
$
|
314,003
|
|
|
Romeo’s NY Pizza
|
|
|
52,590
|
|
|
Romeo’s NY Pizza
|
|
|
121,339
|
|
|
Repicci’s Group
|
|
|
64,256
|
|
|
Repicci’s Group
|
|
|
258,649
|
|
|
Platinum Tax
|
|
|
94,461
|
|
|
Platinum Tax
|
|
|
108,569
|
|
|
Key Tax
|
|
|
167,502
|
|
|
Key Tax
|
|
|
–
|
|
|
Others
|
|
|
4,789,072
|
|
|
Others
|
|
|
2,676,437
|
|
|
Combined assets
|
|
$
|
5,461,043
|
|
|
Combined assets
|
|
$
|
3,478,997
|
|
16. SUBSEQUENT EVENTS
Stock Issuances:
Subsequent to September 30, 2019, the
Company issued 25,609,500 Common Shares for conversion of convertible notes payable.
PART II - INFORMATION NOT REQUIRED IN
PROSPECTUS