1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 International, Inc. (“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 undervalued, niche companies
with high growth potential, income-producing commercial real estate properties, and high return investments, 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 profitable small- to minimum-sized businesses with little to no debt, seeking support with both financing and management
that had the ability to offer a return to investors. The plan is to establish new classes of preferred stock to streamline voting
rights, negate debt, and acquire new businesses. By December of 2013, the Company had negated more than 90% of all its debt; by
July of 2014, the Company had completed the acquisition of three businesses: We Three, LLC; Romeo’s NY Pizza; and Edge View
Properties, Inc. The Company delayed the filing of its Annual Report on Form 10-K (“Form 10-K”) for the year ended
December 31, 2014 due to difficulty obtaining information from another acquisition, which was subsequently unwound.
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. The Company’s business footprint is to acquire strong companies
that meet the following criteria: (1) in business for a minimum of two years; (2) profitable; (3) good management team; (4) little
to no debt; and (5) assets of a minimum of $1,000,000. Cardiff continues to practice all business ethics under the Securities Exchange
Act of 1934
(“1934 Act”) and acknowledges that there are more than 43 successful
Business Development Companies subject to the Investment Company Act of 1940 (“1940 Act”), all of which may be considered
competition to Cardiff and that are established and available to the public for investment. These companies offer experienced management,
dividends and financial security.
To date, Cardiff consists of three subsidiaries:
We Three, LLC; Romeo’s NY Pizza; and Edge View Properties, Inc.
The consolidated financial statements include
the accounts of Cardiff International, Inc., and its wholly-owned subsidiaries: We Three, LLC; Romeo’s NY Pizza; and Edge
View Properties, Inc. 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.
The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
In general, the Company recognizes 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.
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 December
31, 2014 consolidated balance sheet. There are no contingent rentals included in income in the accompanying statements of operations.
With the exception of the month-to-month leases, revenue is recognized on a straight-line basis and amortized into income on a
monthly basis, over the lease term.
Revenue from restaurant sales is 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.
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.
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 the year ended December 31, 2014, goodwill of $1,707,153 resulted
from the business acquisitions in 2014 was impaired in full.
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. There has been no impairment charge
for the periods presented.
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. During the year ended December 31, 2014, the convertible notes principal and accrued interest
totaled $32,010 were converted into 2,496 shares of Common Stock of the Company at the options of the noteholder. The Company used
a Black-Scholes pricing model to determine the appropriate fair value of $132,981 at the conversion date. The Company adjusted
its derivative liability to its fair value, and reflected the increase (decrease) in fair value of $35,590 for the year ended December
31, 2014 as Other Expenses on the Consolidated Statements of Operations. The derivative liability of $132,981 was reclassified
as additional paid-in capital at the conversion.
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:
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, 2014 and 2013.
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.
If the Company is a newly formed corporation
or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement
memorandum (based on sales to third parties), or weekly or monthly price observations would generally be more appropriate than
the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked
quotes and lack of consistent trading in the market.
The fair value of share options and similar
instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions
for inputs are as follows:
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.
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”).
Pursuant to ASC Section 505-50-30, 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. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share
prices established in the Company’s most recent private placement memorandum, or weekly or monthly price observations
would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated
due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value
of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation
model. The ranges of assumptions for inputs are as follows:
Pursuant to ASC paragraph 505-50-25-7, if
fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for
goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of
the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been
reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is
entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be
characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and
circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a
receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the
grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in
order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the
equity instruments.
The transferability (or lack thereof) of the
equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity
instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance
on the determination of the measurement date for transactions that are within the scope of this Subtopic.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an
entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period
of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any
measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash
for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A
recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty
has the right to exercise expires unexercised.
Pursuant to ASC paragraph 505-50-30-S99-1,
if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity
instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are
not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should
be recorded.
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:
During the years ended December 31, 2014 and
2013, depreciation and amortization expense was $39,992 and $155, respectively.
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, 2015 and 2014, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2015 and
2014, the Company did not have any significant unrecognized uncertain tax positions.
Upon filing Articles of Domestication with
the state of Florida on August 22, 2014, the Board authorized and approved a reverse stock split of one for twenty five thousand
(1:25,000) of the Corporation's total issued, outstanding and authorized shares of Common Stock (“Stock Split”).
The change in domicile was effectuated on September
2, 2014, under the laws of the state of Florida. The Stock Split was effectuated on September 12, 2014, upon filing the appropriate
documentation with the Financial Industry Regulatory Authority, Inc. (“FINRA”).
The Stock Split decreased the Corporation's
total issued and outstanding shares of Common Stock from 2,516,819,560 to 100,673 and the total authorized shares of Common Stock
from 3,000,000,000 to 120,000 shares of Common Stock. The Common Stock remained at $0.00001 par value. On September 15, 2014, the
Company increased the authorized shares of Common Stock to 5,000,000 and increased the par value to $0.001.
On April 7, 2015, the Board of Directors of
Cardiff International, Inc., a Florida corporation (the “Corporation”) authorized Fifty Million (50,000,000) shares
of Common Stock, par value of $0.001. This increase was authorized for a) upcoming acquisitions; b) increased growth; c) to maintain
control (the “Control Block”); d) compensate employees. In the event shares are issued, they will be issued as “restricted
shares.”
The following table sets forth the computation
of basic and diluted earnings per common share for the years ended December 31, 2014 and 2013. During a period of net loss, all
potentially dilutive securities are anti-dilutive. Accordingly, for the year ended December 31, 2014, 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:
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 is in the development stage and, as such, 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, 2014, the Company had shareholders’
deficit of $158,698. 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, 2014 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.
The Company has evaluated all of the recent
accounting pronouncements through the filing date of these financial statements and believes that none of them will have a material
effect on the Company’s consolidated financial statements.
On June 10, 2014, the FASB issued update ASU
2014-10 (“Topic 915”). Among other things, the amendments in this update removed the definition of development stage
entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US
GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information
on the statements of income, cash flows and shareholders’ equity; (2) label the financial statements as those of a development
stage entity; (3) disclose a description of the development stage activities in which the entity is engaged; and (4) disclose in
the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.
The amendments are effective for annual reporting periods beginning after December 31, 2014, and interim reporting periods beginning
after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the
financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled
the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective
financial statements.
2. ACQUISITIONS
The Company completed the acquisition of We
Three, LLC (d/b/a Affordable Housing Initiative) (“AHI”). The acquisition became effective on May 15, 2014. The Company
issued 280,069 shares of Series F Preferred Stock as consideration for this acquisition. The fair value of We Three LLC was $1,000,000
as set forth below. 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.
On September 30, 2014, the Company completed
the acquisition of Romeo’s NY Pizza. The Company issued 400,000 shares of Series D Preferred Stock as consideration for this
acquisition. Based on the price of $2.50 per share for the Series D Preferred Stock, the acquisition consideration represents a
$1,000,000 valuation.
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 as consideration for this
acquisition. Based upon the price of $2.50 per share for the Series E Preferred Stock, the acquisition consideration represents
a $603,000 valuation.
The Series E Preferred Stock were adjusted
as a result of the authorization and declaration of a special distribution with a conversion rate of 1 to 5 Common Stock ("Special
Conversion"). The Special Conversion right is granted as a result of a Lock-Up/Leak-Out clause designated by Cardiff pursuant
to the terms of this acquisition.
The results of the operations for the acquired
entities have been included in the consolidated financial statements since the date of the acquisitions. The following table presents
the unaudited pro forma results of continuing operations for the year ended December 31, 2014, 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 years presented or the results which may occur in the future.
CARDIFF INTERNATIONAL, INC.
Pro Forma Condensed Combined Statement of Operations
For
the year ended December 31, 2014
|
|
|
|
CDIF
|
|
|
|
We Three
|
|
|
|
Romeo's NY Pizza
|
|
|
|
Edge View
|
|
|
|
Pro forma adjustment
|
|
|
|
Pro forma
combined total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
$
|
–
|
|
|
$
|
83,977
|
|
|
$
|
1,643,072
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,727,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
–
|
|
|
|
45,775
|
|
|
|
163,096
|
|
|
|
–
|
|
|
|
–
|
|
|
|
208,871
|
|
|
Food and beverage
|
|
|
–
|
|
|
|
–
|
|
|
|
464,301
|
|
|
|
–
|
|
|
|
–
|
|
|
|
464,301
|
|
|
Labor
|
|
|
–
|
|
|
|
755
|
|
|
|
590,798
|
|
|
|
–
|
|
|
|
–
|
|
|
|
591,553
|
|
|
Total cost of sales
|
|
|
–
|
|
|
|
46,530
|
|
|
|
1,218,195
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,264,725
|
|
|
Gross profit
|
|
|
–
|
|
|
|
37,447
|
|
|
|
424,877
|
|
|
|
–
|
|
|
|
–
|
|
|
|
462,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, general and administrative
|
|
|
536,944
|
|
|
|
47,894
|
|
|
|
97,506
|
|
|
|
284
|
|
|
|
–
|
|
|
|
682,629
|
|
|
Occupancy costs
|
|
|
49,182
|
|
|
|
–
|
|
|
|
279,682
|
|
|
|
3,111
|
|
|
|
–
|
|
|
|
331,975
|
|
|
Depreciation
|
|
|
–
|
|
|
|
7,269
|
|
|
|
68,877
|
|
|
|
33
|
|
|
|
–
|
|
|
|
76,179
|
|
|
Professional fees
|
|
|
102,319
|
|
|
|
7,500
|
|
|
|
20,930
|
|
|
|
2,034
|
|
|
|
–
|
|
|
|
132,782
|
|
|
Total operating expenses:
|
|
|
688,445
|
|
|
|
62,662
|
|
|
|
466,996
|
|
|
|
5,462
|
|
|
|
–
|
|
|
|
1,223,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
|
(688,445
|
)
|
|
|
(25,215
|
)
|
|
|
(42,118
|
)
|
|
|
(5,462
|
)
|
|
|
–
|
|
|
|
(761,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors' and officers' stock compensation
|
|
|
(11,682,560
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(11,682,560
|
)
|
|
Non-employee stock compensation
|
|
|
(30,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(30,000
|
)
|
|
Impairment loss on goodwill
|
|
|
(1,707,153
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,707,153
|
)
|
|
Gain on debt conversion
|
|
|
822,080
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
822,080
|
|
|
Gain on investment in We Three
|
|
|
299,826
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
299,826
|
|
|
Change in value of derivative liability
|
|
|
(35,590
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(35,590
|
)
|
|
Interest income (expense)
|
|
|
(60,255
|
)
|
|
|
–
|
|
|
|
(621
|
)
|
|
|
(610
|
)
|
|
|
–
|
|
|
|
(61,486
|
)
|
|
Other income (expense)
|
|
|
–
|
|
|
|
–
|
|
|
|
5,049
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,049
|
|
|
Total other income (expenses)
|
|
|
(12,393,652
|
)
|
|
|
–
|
|
|
|
4,429
|
|
|
|
(610
|
)
|
|
|
–
|
|
|
|
(12,389,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes
|
|
|
(13,082,097
|
)
|
|
|
(25,215
|
)
|
|
|
(37,690
|
)
|
|
|
(6,072
|
)
|
|
|
–
|
|
|
|
(13,151,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (benefit)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(13,082,097
|
)
|
|
$
|
(25,215
|
)
|
|
$
|
(37,690
|
)
|
|
$
|
(6,072
|
)
|
|
$
|
–
|
|
|
$
|
(13,151,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,152,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. LAND
As of December 31, 2014, 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 be depreciated.
4. ACCRUED EXPENSES
As of December 31, 2014 and 2013, the Company
had accrued expenses of $626,330 and $814,265, respectively, consisted of the following:
|
|
|
December 31, 2014
|
|
December 31, 2013
|
|
|
|
|
|
|
|
Accrued salaries
|
|
$
|
450,000
|
|
|
$
|
49,500
|
|
|
Accrued expenses - other
|
|
|
176,330
|
|
|
|
764,765
|
|
|
Total
|
|
$
|
626,330
|
|
|
$
|
814,265
|
|
5. 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 loans are due 24 months after the launch
of the Legacy Tuition Card (or prior to such date) at an annual interest rate of six percent. In addition, the Company has an employment
agreement, renewed May 15, 2014, with Daniel Thompson whereby the Company provides for compensation of $20,000 per month.
As the Chairman of the Board of Directors (“Board”).
Mr. Thompson’s compensation had previously been $25,000 per month as President and Chief Executive Officer (“CEO”).
A total salary of $262,500 was reflected as an expense for Mr. Thompson during the year ended December 31, 2014.
During the year ended December 31, 2104, Mr.
Thompson paid expenses on behalf of the Company totaling $100,000 reflected as rent and other expenses.
A total salary of $262,500 and $205,500 was
reflected as an expense to Daniel Thompson during the years ended December 31, 2014 and 2013, respectively.
During the year ended December 31, 2013, Mr.
Thompson exchanged his accrued salary of $300,000 and advances and interest for 187,377 shares of Series B Preferred Stock with
an aggregate value of $468,443. During the year ended December 31, 2013, the Company issued 1,880,848,703 shares of its Common
Stock to Mr. Thompson for services as the Company’s Chief Executive Officer with an aggregate value of $2,257,018.
The total balance due to Daniel Thompson for
accrued salaries, advances, and accrued interest, at December 31, 2014 and December 31, 2013, was $362,500 and $0, respectively.
Effective May 15, 2014 the Company agreed
to change Daniel Thompson’s compensation to $20,000 per month from $25,000.
The Company has an employment agreement with
a former President, Ms. Roberton, whereby the Company provides for compensation of $25,000 per month beginning May 15, 2014. A
total salary of $187,500 was reflected as an expense during the year ended December 31, 2014. The total balance due to the President
for accrued salaries at December 31, 2014 and December 31, 2013, was $187,500 and $0, respectively, (See Separation Agreement and
resolution) agreement.
The Company had an employment agreement with
the former President whereby the Company provided for compensation of $15,000 per month. A total salary of $67,500 and $180,000
was accrued and reflected as an expense during each of the years ended December 31, 2014 and 2013, respectively. During the year
end December 31, 2013, the President exchanged his accrued salary for 155,800 shares of Series B Preferred Stock with an aggregate
value of $389,500. The total balance due to the former President for accrued salaries at December 31, 2014 and 2013, was $0 and
$0, respectively.
The total balance due others for accrued salaries
at December 31, 2014 and December 31, 2013, was $0 and $49,500, respectively.
On October 10, 2014, the Company appointed
Kathleen Robertson, the Company's CEO, and Jason Levy, the Company's Chief Operating Officer to the Board. In conjunction with
the appointment, 1,500,000 shares of Common Stock, was issued to both Ms. Roberton and Mr. Levy, and 1,427,200 shares of Common
Stock was issued to Mr. Thompson as Chairman.
During the year end December 31, 2013, a former
President, Joseph Di Leonardo, exchanged his accrued salary, advances and other interests for 155,800 shares of Series B Preferred
Stock with an aggregate value of $389,500.
The total balance due to the President and
Chairman positions for accrued salaries at December 31, 2014 and December 31, 2013, was $450,000 and $0, respectively.
Notes Payable – Related Party
The Company has entered into several loan agreements
with related parties (see above; Note 6, Notes Payable – Related Party; and Note 7, Convertible Notes Payable – Related
Party).
6. NOTES PAYABLE
Notes payable at December 31, 2014 and 2013
are summarized as follows:
|
|
|
December 31, 2014
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable – Unrelated Party
|
|
$
|
129,032
|
|
|
$
|
50,000
|
|
|
Notes Payable – Related Party
|
|
|
100,000
|
|
|
|
125,000
|
|
|
Discount on notes
|
|
|
–
|
|
|
|
(50,075
|
)
|
|
Total
|
|
$
|
229,032
|
|
|
$
|
124,925
|
|
|
Current portion
|
|
|
(129,032
|
)
|
|
|
(50,000
|
)
|
|
Long-term portion
|
|
$
|
100,000
|
|
|
$
|
74,925
|
|
Notes Payable – Unrelated Party
Legacy Investors, LLC
On August 5, 2004, the Company entered into
a loan agreement with Legacy Investors, LLC, a Florida limited liability company. The initial loan amount of $1,000,000 (the “Initial
Loan Amount”) was made by Legacy Investors, LLC upon the satisfaction of the post-closing covenant, comprised of a convertible
debenture in the amount of $500,000 and an initial debenture for the amount of $500,000. The convertible debenture and initial
debentures bore interest at 10.00% per year and matured in August 2006. The indebtedness was convertible into Series B Preferred
Stock and one share of Series C Preferred Stock.
On December 5, 2013, the remaining balance
of the note and related accrued interest was converted into 480,186 shares of Series B Preferred Stock and one share of Series
C Preferred Stock. The balance on the note payable was $0 at each of the years ended December 31, 2014 and 2013, respectively.
The Company was in default on this loan agreement until the conversion in December 2013.
Maricopa Equity Management Corporation
On October 27, 2005, the Company entered into
a loan agreement in the amount of $100,000 with Maricopa Equity Management Corporation. The loan bore interest at 8% per annum
and became due at the closing of the merger with Cardiff. In connection with the loan, the Company issued 100,000 shares of Common
Stock in 2005.
On December 5, 2013, the remaining balance
of the note and related accrued interest was converted into 57,600 shares of Series B Preferred Stock and 1 share of Series C Preferred
Stock. The balance on the loan was $0 at each of the years ended December 31, 2014 and 2013, respectively.
International Card Establishment, Inc.
The Company entered into an agreement with
International Card Establishment, Inc. (“ICE”) on April 19, 2007, whereby ICE will be the exclusive provider for the
rewards and loyalty programs related to merchant contributions to a 529 College Savings Plan. ICE failed to deliver on its obligations
to the Company, and subsequently discontinued operations in 2014, releasing the Company from all agreements, notes, or obligations
in connection with ICE. In conjunction with other business activities, the Company issued 1,500,000 warrants to purchase its Common
Stock, exercisable at $0.20 per share, which expired June 2, 2014. As a result of the warrants issued, the Company recorded $13,639
in debt discount during 2009, which is now reversed and a gain recorded for the extinguishment of the $50,000 note that was received
as an advance in the second quarter of 2008.
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. As of December 31, 2012, the warrants had not been exercised. As of December 31,
2014, the Company is in default on this debenture. The balance of the note was $10,989 and $10,000 at December 31, 2014 and 2013,
respectively.
On March 10, 2011, the Company entered into
a promissory note agreement with a shareholder for $25,000. The note bears interest at eight percent per year and matures on March
10, 2015. Interest is payable annually on the anniversary of the note, and the principal and any unpaid interest are due upon maturity.
In conjunction with the note, the Company issued 1,250,000 shares of its Common Stock to the lender. As a result of the issuance
of these shares, the Company recorded a debt discount of $25,000 during 2011. On December 5, 2013, the remaining balance of the
note and related accrued interest was converted into 10,320 shares of Series B Preferred Stock and one share of Series C Preferred
Stock. The balance of the note, net of discount, was $0 and $0 at December 31, 2014 and 2013, respectively.
Notes Payable – Related Party
On March 10, 2011, the Company entered into
a Promissory Note agreement with a shareholder for $25,000. The Note bears interest at 8% per year and matures on March 10, 2015.
Interest is payable annually on the anniversary of the Note, and the principal and any unpaid interest will be due upon maturity.
In conjunction with the Note, the Company issued 1,250,000 shares of its common stock to the lender. As a result of the issuance
of these shares, the Company recorded a debt discount of $25,000 during 2011. The balance of the note, net of discount was $0 and
$18,850 at December 31, 2014 and 2013, respectively.
On September 7, 2011, the Company entered into
a Promissory Note agreement (“Note 1”) 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 1, and the principal and any unpaid interest will
be due upon maturity. In conjunction with Note 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 1, the Company recorded a $50,000 debt discount during 2011. The balance of Note
1, net of debt discount, was $50,000 and $26,870 at December 31, 2014 and December 31, 2013, respectively.
On November 17, 2011, the Company entered into
a Promissory Note agreement (“Note 2”) 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 2, and the principal and any unpaid interest will
be due upon maturity. In conjunction with Note 2, 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 2, the Company recorded a $50,000 debt discount during 2011. The balance of Note
2, net of debt discount, was $50,000 and $29,205 at December 31, 2014 and December 31, 2013, respectively.
The following is a schedule showing the future
minimum loan payments in the future 5 years.
|
Year ending December 31,
|
|
|
|
|
|
2014
|
|
$
|
129,032
|
|
|
2015
|
|
|
0
|
|
|
2016
|
|
|
100,000
|
|
|
2017
|
|
|
0
|
|
|
2018
|
|
|
0
|
|
|
Total
|
|
$
|
229,032
|
|
7. 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.
Convertible notes at December 31, 2014 and December 31, 2013 are
summarized as follows:
|
|
|
|
2014
|
|
|
|
2013
|
|
|
Unrelated Party
|
|
$
|
9,000
|
|
|
$
|
30,750
|
|
|
Related Party
|
|
|
165,000
|
|
|
|
165,000
|
|
|
Total - Current
|
|
$
|
174,000
|
|
|
$
|
195,750
|
|
Convertible Notes Payable – Unrelated Party
On August 10, 2012, the Company entered into
an unsecured Convertible Promissory Note agreement (“Note 3”) with an unrelated party for $15,000 and $7,500. Note
3 bore interest at eight percent per year and matured on May 4, 2013. Note 3 and any accrued and outstanding interest was convertible
into the Company’s Common Shares at a discount of 45% of the lowest three (3) Trading Prices for the Common Stock during
the ten (10) Trading Day period ended on the latest complete Trading Day prior to the Conversion Date. The balance of Note 3 was
$0 and $22,500 at December 31, 2014 and December 31, 2013, respectively.
On December 3, 2012, the Company entered into
an unsecured Convertible Promissory Note agreement (“Note 4”) with an unrelated party for $8,250. Note 4 bore interest
at eight percent per year and matured on September 5, 2013. Note 4 and any accrued and outstanding interest was convertible into
the Company’s Common Shares at a discount of 45% of the lowest three (3) Trading Prices for the Common Stock during the ten
(10) Trading Day period ended on the latest complete Trading Day prior to the Conversion Date. The balance of Note 4 was $0 and
$8,250 at December 31, 2014 and December 31, 2013, respectively.
During the year ended December 31, 2014, the
principal and accrued interest of Note 3 and Note 4 in total amount of $32,010 was converted into 2,496 shares of common stock
of the Company per the requests from the noteholders.
On April 17, 2014, the Company entered into
an unsecured Convertible Note (“Note 5”) in the amount of $9,000. Note 5 was convertible into Common Shares of the
Company at $0.005 per share at the option of the holder. Note 5 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. The balance of Note 5 was $9,000 and $0 at December
31, 2014 and December 31, 2013, respectively.
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 is in default on Debenture 1, and the warrants have not been
exercised. The balance of Debenture 1 was $150,000 and $150,000 at December 31, 2014 and December 31, 2013, 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 balance of Debenture 2
was $15,000 and $15,000 at December 31, 2014 and December 31, 2013, respectively.
The following is a schedule showing the future
minimum loan payments in the future 5 years.
|
Year ending December 31,
|
|
|
|
|
|
2014
|
|
$
|
174,000
|
|
|
2015
|
|
|
0
|
|
|
2016
|
|
|
0
|
|
|
2017
|
|
|
0
|
|
|
2018
|
|
|
0
|
|
|
Total
|
|
$
|
174,000
|
|
8. DERIVATIVE LIABILITY
In April 2008, the FASB issued a pronouncement
that provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity
can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement
on accounting for derivatives. This pronouncement was effective for financial statements issued for fiscal years beginning after
December 15, 2008. The adoption of these requirements can affect the accounting for warrants and many convertible instruments with
provisions that protect holders from a decline in the stock price (or “down-round” provisions). For example, warrants
with such provisions will no longer be recorded in equity. Down-round provisions reduce the exercise price of a warrant or convertible
instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues
new warrants or convertible instruments that have a lower exercise price.
The Company evaluated whether convertible debt
and warrants to acquire stock of the Company contain provisions that protect holders from declines in the stock price or otherwise
could result in modification of the exercise price under the respective convertible debt and warrant agreements. The Company determined
that the notes and the conversion features of certain notes contained such provisions and recorded such instruments as derivative
liabilities upon issuance. In addition, in periods prior to July 1, 2012, the Company did not have enough authorized shares to
issue common shares resulting in the potential exercise or conversion of its issued and outstanding options, warrants or convertible
notes. Accordingly, these instruments were reflected as derivative liabilities as of June 30, 2012 and prior. In July 2012, the
Company was successful in increasing the number of authorized shares in the corporate treasury effectively eliminating the majority
of the derivative liability.
Derivative liabilities were valued using the
weighted-average Black-Scholes-Merton option pricing model, with the following assumptions:
|
|
|
December 31, 2014
|
|
December 31, 2013
|
|
Conversion feature:
|
|
|
|
|
|
Risk-free interest rate
|
|
0.05%
|
|
0.01 % to 0.27%
|
|
Expected volatility
|
|
540%
|
|
100%
|
|
Expected life (in years)
|
|
0.003 years
|
|
0 – 2 years
|
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
|
|
|
|
|
|
Fair Value:
|
|
|
|
|
|
Conversion feature
|
|
$132,981
|
|
$97,391
|
|
Warrants
|
|
–
|
|
–
|
|
Total
|
|
$0
|
|
$97,391
|
The risk-free interest rate was based on rates
established by the Federal Reserve Bank. The expected volatility was based on the Company’s historical volatility, and the
expected life of the instruments is determined by the expiration date of the instrument. The expected dividend yield is based on
the fact that the Company has not paid dividends to common stockholders in the past and does not expect to pay dividends to common
stockholders in the future.
During the year ended December 31, 2014, the
principal and accrued interest of Note 3 and Note 4 in total amount of $32,010 was converted into 2,496 shares of common stock
of the Company per the requests from the noteholders. The Company determined the appropriate fair value of $132,981 at the conversion
date. The Company adjusted its derivative liability to its fair value, and reflected the increase (decrease) in fair value of $35,590
for the year ended December 31, 2014 as Other Expenses on the Consolidated Statements of Operations. The derivative liability of
$132,981 was reclassified as additional paid-in capital at the conversion. As a result, the derivative liabilities as of December
31, 2014 was $0.
9. PAYROLL TAXES
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 2014. As of December 31, 2014 and 2013, 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 $38,400 and $412,623, respectively.
10. CAPITAL STOCK
Reverse Stock Split:
In August 2014, the Board of Directors approved
new Articles of Incorporation per the effectuated domicile change which authorized four classes of Preferred Stock: 4 Series A
shares authorized, 5,000,000 Series B shares authorized, 250 Series C shares and 100,000,000 Blank Check Preferred shares authorized.
The principal features of the Company's capital
stock are as follows:
In August 2014, the Board of Directors approved
an amendment to the Company’s Articles of Incorporation to amend Series B Preferred Stock Authorized & Designations,
Rights & Privileges and to authorize three additional classes of Preferred Stock. After this action, the Company has five classes
of Common Stock and Preferred Stock.
Series A Preferred Stock
As of December 31, 2014 and 2013, 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 is issued and outstanding. 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
As of December 31, 2014 and amended from December
31, 2013, the Company has designated 5,000,000 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 5,270,693 shares of preferred stock are issued and outstanding. 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. Each one share of Series B
shall have no voting rights. 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, 2014, the
Company sold 81,993 shares of Series B to various investors at a price of $2.50 per share, or totaled $204,983 in cash.
During the year ended December 31, 2014, the
Company issued 600,000 shares of Series B preferred stock to officers for services rendered. The fair value of this stock issuance
was determined by the private placement price of $2.5 per share in the arms-length transactions. Accordingly, the Company recognized
stock based compensation of $1,500,000 to employees.
During the year ended December 31, 2014, the
Company issued 11,999 shares of Series B preferred stock and 1 share of Series C preferred stock to certain consultants for marketing
services rendered. The fair value of this stock issuance was determined by the private placement price of $2.5 per share in the
arms-length transactions. Accordingly, the Company recognized stock based compensation of $30,000 to non-employees.
Series C Preferred Stock
As of December 31, 2014 and amended from December
31, 2013, the Company has designated 250 shares of preferred stock as Series C Preferred Stock (“Series C”), with a
par value of $.00001 per share, of which 113 shares are issued and outstanding. 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 year ended December 31, 2014, the
Company sold 33 shares of Series C to various investors at a price of $2.50 per share, or totaled $83 in cash.
Blank Check Preferred Stock
As of December 31, 2014 and amended from December
31, 2013, the Company has designated 100,000,000 shares of Blank Check Preferred Stock, of which 1,041,200 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 Blank Check Preferred Stock is 98,958,800 as of December 31, 2014.
Series D Preferred 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.
Series E Preferred 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.
Series F Preferred 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
(see Note 2). 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 F1 Preferred Stock (Series F1”), 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.
Common Stock
2014
In September 2014, the Board of Directors approved
increasing the number of authorized shares of Common Stock from 250,000 to 5,000,000, par value of $0.001.
On August 22, 2014, the Company effectuated
a Reverse Stock Split of its outstanding and authorized shares of Common Stock at a ratio of one for twenty five thousand (1:25,000).
As a result of the Reverse Stock Split, the Company’s authorized shares of Common Stock were decreased from 5,000,000,000
to 250,000 shares and it authorized four-- classes of Preferred Stock. Upon the effectiveness of the Reverse Stock Split, which
occurred on September 12, 2014, the Company’s issued, outstanding and authorized shares of Common Stock was decreased from
2,516,819,560 to 100,673 issued and outstanding shares and 250,000 authorized shares, all with a par value of $0.00001. Accordingly,
all share and per share information has been restated to retroactively show the effect of the Reverse Stock Split.
During the year ended December 31, 2014, the
Company issued 4,427,200 shares of common stock to officers for services rendered. The fair value of the common stock issuance
was determined by the fair value of our common stock on the grant date, at a price of approximately $2.3 per share. Accordingly,
the Company recognized stock based compensation of $10,182,560 to employees.
During the year ended December 31, 2014, the
Company issued 417,896 shares of common stock for note conversion in amount of $36,930 per the requests from the noteholders.
2013
In October 2013, the Board of Directors approved
increasing the number of authorized shares of Common Stock from 250,000,000 to 3,000,000,000 and authorized two2 classes of Preferred
Stock.
During the year ended December 31, 2013, the
Company issued 17,895 shares of Common Stock for $4,110 in cash and conversion of debt of $33,600.
11. STOCK OPTIONS AND WARRANTS
Employee Stock Options
The following table summarizes the changes
in the options outstanding at December 31, 2014, and the related prices for the shares of the Company’s Common Stock issued
to employees of the Company under a non-qualified employee stock option plan:
|
Range of
Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Aver
a
ge
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
100
|
|
|
$
|
0.10
|
|
|
|
8.24
|
|
|
|
100
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
8.24
|
|
|
|
100
|
|
|
|
|
|
A summary of the Company’s stock awards
for options as of December 31, 2014 and changes for the year ended December 31, 2014 is presented below:
|
|
|
Stock
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, December 31, 2013
|
|
|
100
|
|
|
$
|
0.10
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
Expired/Cancelled
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding, December 31, 2014
|
|
|
100
|
|
|
$
|
0.10
|
|
|
Exercisable, December 31, 2014
|
|
|
100
|
|
|
$
|
0.10
|
|
Weighted-average fair value of stock options
granted to employees during the year ended December 31, 2014 and 2013, respectively, and the weighted-average significant assumptions
used to determine those fair values, using a Black-Scholes-Merton (“Black-Scholes”) option pricing model are as follows:
|
|
|
December 31, 2014
|
|
|
December 31, 2013
|
|
|
Significant assumptions (weighted-average):
|
|
|
|
|
|
|
|
Risk-free interest rate at grant date
|
|
|
0.31 to 1.71%
|
|
|
|
0.31 to 1.71%
|
|
|
Expected stock price volatility
|
|
|
100%
|
|
|
|
100%
|
|
|
Expected dividend payout
|
|
|
–
|
|
|
|
–
|
|
|
Expected option life (in years)
|
|
|
5.00
|
|
|
|
5.00
|
|
|
Expected forfeiture rate
|
|
|
0%
|
|
|
|
0%
|
|
|
Fair value per share of options granted
|
|
$
|
0.17
|
|
|
$
|
0.17
|
|
The expected life of awards granted represents
the period of time that they are expected to be outstanding. The Company has no historical experience with which to establish a
basis for determining an expected life of these awards. Therefore, the Company only gave consideration to the contractual terms
and did not consider the vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures significant to the expected
life of the option awards.
The Company estimates the volatility of its
Common Stock based on the calculated historical volatility of similar entities in industry, in size, and in financial leverage,
whose share prices are publicly available. The Company bases the risk-free interest rate used in the Black-Scholes-Merton option
valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term
equal to the expected life of the award. The Company has not paid any cash dividends on its Common Stock and does not anticipate
paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton
option valuation model.
There were no options exercised during the
period ended December 31, 2014 or 2013.
Total stock-based compensation expense in connection
with options granted to employees recognized in the Consolidated Statements of Operations for the years ended December 31, 2014
and 2013 was $0 and $0, respectively, net of tax effect. Total stock-based compensation expense in connection with options granted
to non-employees recognized in the Consolidated Statements of Operations for the years ended December 31, 2014 and 2013 was $0
and $0, respectively, net of tax effect. Additionally, none of the options outstanding and unvested as of December 31, 2014 had
any intrinsic value.
Warrants
The following table summarizes the changes
in the warrants outstanding at December 31, 2014, and the related prices for the shares of the Company’s Common Stock issued
to non-employees of the Company. These warrants were issued in lieu of cash compensation for services performed or financing expenses
and in connection with the private placements.
|
Range of
Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01 - $0.15
|
|
|
|
187
|
|
|
$
|
0.13
|
|
|
|
1.23
|
|
|
|
187
|
|
|
$
|
0.13
|
|
|
$
|
0.20
|
|
|
|
202
|
|
|
$
|
0.20
|
|
|
|
0.68
|
|
|
|
202
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
0.94
|
|
|
|
389
|
|
|
|
|
|
A summary of the Company’s stock awards
for warrants as of December 31, 2014 and changes for the period ended December 31, 2014 is presented below:
|
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding, December 31, 2013
|
|
|
674
|
|
|
|
0.12
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
Expired/Cancelled
|
|
|
(285
|
)
|
|
|
0.05
|
|
|
Outstanding, December 31, 2014
|
|
|
389
|
|
|
|
0.17
|
|
|
Exercisable, December 31, 2014
|
|
|
389
|
|
|
|
0.17
|
|
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
There was no rent expense for the years ended
December 31, 2014 and 2013 as such office space was contributed at no cost by Daniel Thompson, the imputed effects of which are
immaterial to the consolidated financial statements taken as a whole.
13. INCOME TAXES
At December 31, 2014, the Company had
federal and state net operating loss carry forwards of approximately $39,000,000 that expire in various years through the
year 2034.
Due to operating losses, there is no provision
for current federal or state income taxes for the year ended December 31, 2014 and 2013.
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, 2014 and 2013 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating
to approximately $15,210,000 and $10,140,000, respectively, less a valuation allowance in the amount of approximately $15,210,000
and $10,140,000, respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset
by a valuation allowance in both 2014 and 2013. The valuation allowance increased by approximately $5,070,000 for the year ended
December 31, 2014.
The Company’s total deferred tax asset
as of December 31, 2014 and 2013 is as follows:
|
|
|
December 31,
2014
|
|
December 31,
2013
|
|
Deferred tax assets
|
|
$
|
15,210,000
|
|
|
$
|
10,140,000
|
|
|
Valuation allowance
|
|
|
(15,210,000
|
)
|
|
|
(10,140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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, 2014 and 2013 is as follows:
|
|
|
2014
|
|
2013
|
|
Income tax computed at the federal statutory rate
|
|
|
34%
|
|
|
|
34%
|
|
|
Income tax computed at the state statutory rate
|
|
|
5%
|
|
|
|
5%
|
|
|
Valuation allowance
|
|
|
(39%
|
)
|
|
|
(39%
|
)
|
|
Total deferred tax asset
|
|
|
0%
|
|
|
|
0%
|
|
14. SEGMENT REPORTING
The Company has two
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), and (2) Company-owned Pizza Restaurants (Romeo’s NY Pizza). 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 two
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.
Corporate administration
and other assets primarily include the deferred tax asset, cash and short-term investments, as well as furniture and fixtures located
at the corporate office and trademarks and other intangible assets. All assets are located within the United States.
Summarized in the following
tables are net sales and operating revenues, depreciation and amortization expense, income from continuing operations before taxes,
capital expenditures and assets for the Company's reportable segments as of and for the fiscal year ended December 31, 2014:
|
|
|
December 31,
|
|
|
|
2014
|
|
Revenues:
|
|
|
|
|
|
We Three
|
|
$
|
56,870
|
|
|
Romeo’s NY Pizza
|
|
|
833,531
|
|
|
Others
|
|
|
0
|
|
|
Consolidated revenues
|
|
$
|
890,401
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
We Three
|
|
$
|
5,521
|
|
|
Romeo’s NY Pizza
|
|
|
34,439
|
|
|
Others
|
|
|
33
|
|
|
Consolidated depreciation
|
|
$
|
39,992
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
|
|
|
We Three
|
|
$
|
(21,373
|
)
|
|
Romeo’s NY Pizza
|
|
|
(22,156
|
)
|
|
Others
|
|
|
(13,088,168
|
)
|
|
Consolidated loss before taxes
|
|
$
|
(13,131,697
|
)
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
We Three
|
|
$
|
169,417
|
|
|
Romeo’s NY Pizza
|
|
|
159,039
|
|
|
Others
|
|
|
922,400
|
|
|
Combined assets
|
|
$
|
1,250,856
|
|
15. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company
has analyzed its operations subsequent to December 31, 2014 to the date these consolidated financial statements were issued, and
has determined that it does not have any material subsequent events to disclose in these financial statements other than those
specified below.
On June 30, 2016, the Company completed the
acquisition of Titancare, LLC. The acquisition became effective (the "Effective day") on June 27, 2016.
In connection with the closing of the acquisition,
at the Effective Time, each outstanding class of preferred shares of Titan, par value $0.17 per share ("Titan Preferred Class
Stock"), was converted into $0.17 preferred shares (the "Stock Consideration") of the Company’s Preferred
Class “G” Stock, par value $0.001 per share ("CDIF Preferred “G” Stock"). The preferred share
Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred Titan stockholders
at $0.17 per share with a conversion rate of 1 to 1.3 Common Stock payable to Titan shareholders of record as of the close of business
on June 27, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the
sale of certain interests in assets of Titan to certain parties designated the Company, which closed on June 27, 2016 (the "Asset
Sale"). Pursuant to the terms of the Acquisition.
The Company issued approximately 977.247 shares
of CDIF Preferred “G” Shares as Stock Consideration in the Acquisition. Based on the price of the Company’s Preferred
“G” Class of stock on June 27, 2016. The acquisition consideration (based on the value of $0.17 in CDIF Preferred Stock,
represents approximately $166,132. The LLC has filed to convert to a Pennsylvania Corporation. An amended 8-K will be filed with
audited financials by September 7, 2016.
Second Acquisition:
On June 29, 2016, the Company completed the
acquisition of York County In Home Care, Inc. The acquisition became effective (the "Effective day") on June 27, 2016.
In connection with the closing of the acquisition,
at the Effective Time, each outstanding class of preferred shares of York, par value $0.17 per share ("York Preferred Class
Stock"), was converted into $0.17 preferred shares (the "Stock Consideration") of the Company’s Preferred
Class “G” Stock, par value $0.001 per share ("CDIF Preferred “G” Stock"). The preferred share
Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred York stockholders
at $0.17 per share with a conversion rate of 1 to 1.3 Common Stock payable to York shareholders of record as of the close of business
on June 29, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the
sale of certain interests in assets of York to certain parties designated by the Company, which closed on June 29, 2016 (the "Asset
Sale"). Pursuant to the terms of the Acquisition.
The Company issued approximately 8,235,294
shares of CDIF Preferred “G” Shares as Stock Consideration in the Acquisition. Based on the price of the Company’s
Preferred “G” Class of stock on June 29, 2016. The acquisition consideration (based on the value of $0.17 in CDIF Preferred
Stock, represents approximately $1,400,000.00. An amended 8-K will be filed with audited financials by September 9, 2016.