CARDIFF INTERNATIONAL, INC.
Pro Forma Combined Statement of Operations
For
the year ended December 31, 2015
|
|
CDIF and subsidiaries
|
|
|
F.D.R
Enterprises
|
|
|
Refreshment Concept LLC
|
|
|
Repicci’s Franchise Group
|
|
|
Pro forma adjustment
|
|
|
Pro forma
combined total
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
168,621
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
168,621
|
|
Sales of pizza
|
|
|
1,210,880
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,210,880
|
|
Sales of ice cream
|
|
|
–
|
|
|
|
239,411
|
|
|
|
466,364
|
|
|
|
392,590
|
|
|
|
(94,866
|
)
|
|
|
1,003,499
|
|
Other
|
|
|
10,100
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10,100
|
|
Total revenue
|
|
|
1,389,601
|
|
|
|
239,411
|
|
|
|
466,364
|
|
|
|
392,590
|
|
|
|
–
|
|
|
|
2,393,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental business
|
|
|
134,912
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
134,912
|
|
Pizza restaurants
|
|
|
862,818
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
862,818
|
|
Ice cream stores
|
|
|
–
|
|
|
|
167,070
|
|
|
|
420,668
|
|
|
|
261,526
|
|
|
|
(48,060
|
)
|
|
|
801,204
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total cost of sales
|
|
|
997,730
|
|
|
|
167,070
|
|
|
|
420,668
|
|
|
|
261,526
|
|
|
|
–
|
|
|
|
1,798,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
|
391,871
|
|
|
|
72,341
|
|
|
|
45,696
|
|
|
|
131,064
|
|
|
|
–
|
|
|
|
594,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
4,302,247
|
|
|
|
53,439
|
|
|
|
91,155
|
|
|
|
111,996
|
|
|
|
–
|
|
|
|
4,558,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAIN (LOSS) FROM OPERATIONS
|
|
|
(3,910,376
|
)
|
|
|
18,902
|
|
|
|
(45,459
|
)
|
|
|
19,068
|
|
|
|
–
|
|
|
|
(3,964,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of debt
|
|
|
10,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
10,000
|
|
(Loss) gain on disposal of fixed asset
|
|
|
12,007
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
12,007
|
|
Amortization of debt discounts
|
|
|
(22,200
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(22,200
|
)
|
Change in value of derivative liability
|
|
|
(1,756
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,756
|
)
|
Interest expense
|
|
|
(32,096
|
)
|
|
|
(216
|
)
|
|
|
(14,673
|
)
|
|
|
(2,288
|
)
|
|
|
|
|
|
|
(49,273
|
)
|
Total other income (expenses)
|
|
|
(34,045
|
)
|
|
|
(216
|
)
|
|
|
(14,673
|
)
|
|
|
(2,288
|
)
|
|
|
–
|
|
|
|
(51,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FOR THE PERIOD
|
|
|
(3,944,421
|
)
|
|
|
18,686
|
|
|
|
(60,132
|
)
|
|
|
16,780
|
|
|
|
(46,806
|
)
|
|
|
(4,015,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
$
|
(0.52
|
)
|
|
|
**
|
|
|
|
**
|
|
|
|
**
|
|
|
$
|
–
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,644,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** Less than $.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. PLANT AND EQUIPMENT, NET
Plant and equipment, net as of December 31,
2016 and 2015 was $736,672 and $540,024, respectively, consisting of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Furniture, fixture and equipment
|
|
|
903,249
|
|
|
|
261,882
|
|
Leasehold improvements
|
|
|
672,159
|
|
|
|
635,972
|
|
|
|
|
1,575,408
|
|
|
|
897,854
|
|
Less: accumulated depreciation
|
|
|
(838,736
|
)
|
|
|
(357,830
|
)
|
Plant and equipment, net
|
|
|
736,672
|
|
|
|
540,024
|
|
During the years ended December 31, 2016 and
2015, depreciation expense was $174,859 and $84,752, respectively.
During the year ended December 31, 2016, the
Company disposed fixed asset for cash payment of $31,637, resulting in loss of $5,151 from disposal of fixed assets. And the Company
purchased a vehicle for $3,974 and other fixed assets for $14,691.
During the year ended December 31, 2015, the
Company disposed 2 smart cars for cash payment of $30,902, resulting in gain of $12,007 from disposal of fixed assets.
4. LAND
As of December 31, 2016 and 2015, 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.
5. ACCRUED EXPENSES
As of December 31, 2016 and 2015, the Company
had accrued expenses of $1,717,725 and $1,087,304, respectively, consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Accrued salaries
|
|
|
670,381
|
|
|
|
364,835
|
|
Accrued salaries – related party
|
|
|
742,500
|
|
|
|
502,500
|
|
Lease payable – related party
|
|
|
25,250
|
|
|
|
–
|
|
Accrued expenses - other
|
|
|
279,594
|
|
|
|
219,969
|
|
Total
|
|
|
1,717,725
|
|
|
|
1,087,304
|
|
6. 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. As of December 31, 2016 and 2015,
the Company had $84,540 and $81,905 due to Daniel Thompson.
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, 2016, the Company had lease
payable of $25,250 to the related party.
As of December 31, 2016, the Company also had
$378,037 due to the prior owner of Refreshment Concepts LLC, which was planned to be paid off by the issuance of common shares
of the Company at the price of $.20 per share.
In addition, the Company has an employment
agreement, renewed May 15, 2014, with Daniel Thompson whereby the Company changed Daniel Thompson’s compensation to $20,000
per month from $25,000. Accordingly, a total salary of $240,000 and $240,000 were accrued and reflected as an expense to Daniel
Thompson during the years ended December 31, 2016 and 2015, respectively. The accrued salaries payable to Daniel Thompson was $742,500
and $502,500 as of December 31, 2016 and 2015, 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. A total salary of $60,000 and $180,000 were accrued and reflected as an expense
during the years ended December 31, 2016 and 2015, respectively. The total balance due to Mr. Levy for accrued salaries at December
31, 2016 and 2015 were $240,000 and $180,000, respectively.
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. A total salary of $60,000 were accrued and reflected as an expense during the year ended December 31, 2016. The total balance
due to Mr. Roberts for accrued salaries at December 31, 2016 were $60,000.
The Company had an employment agreement with
the Chief Executive Officer, Mr. Cunningham, whereby the Company provided for compensation of $15,000 per month. A total salary
of $180,000 and $180,000 were accrued and reflected as an expense during the years ended December 31, 2016 and 2015, respectively.
The total balance due to Mr. Cunningham for accrued salaries at December 31, 2016 and 2015 were $360,000 and $180,000, respectively.
During the third quarter of 2016, the Company
issued 1,000,000 shares of common stock to Mr. Cunningham as bonus. 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 $0.22 per share. Accordingly,
the Company calculated the stock based compensation of $220,000 at its fair value and included it in the consolidated statements
of operations for the year ended December 31, 2016.
During the fourth quarter of 2016, the Company
issued total 6,000,000 shares of common stock to Mr. Thompson and Mr. Cunningham, or 3,000,000 shares each, 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 $0.12 per share. Accordingly, the Company calculated the stock based compensation of $720,000 at its fair
value and included it in the consolidated statements of operations for the year ended December 31, 2016.
Notes Payable – Related Party
The Company has entered into several loan agreements
with related parties (see below; Footnote 7, Notes Payable – Related Party; and Footnote 8, Convertible Notes Payable –
Related Party).
7. NOTES PAYABLE
Notes payable at December 31, 2016 and 2015
are summarized as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Notes Payable – Unrelated Party
|
|
$
|
259,320
|
|
|
$
|
60,811
|
|
Notes Payable – Related Party
|
|
|
166,695
|
|
|
|
119,500
|
|
Discount on notes
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
426,015
|
|
|
$
|
180,311
|
|
Current portion
|
|
|
(426,015
|
)
|
|
|
(180,311
|
)
|
Long-term portion
|
|
$
|
–
|
|
|
$
|
–
|
|
Notes Payable – Unrelated Party
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,
2016, the Company is in default on this debenture. The balance of the note was $10,989 and $10,989 at December 31, 2016 and 2015,
respectively.
As of December 31, 2016, the Company had lease
payable of $170,852 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 balance of $77,479 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.
Notes Payable – Related Party
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 $50,000 at December 31, 2016 and 2015, 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 $50,000 at December 31, 2016 and 2015, respectively.
On August 4, 2015, the Company entered into
a Promissory Note agreement (“Note 3”) 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 3, and the principal and any unpaid interest will
be due upon maturity. The Company repaid $10,500 to the related party in 2016, therefore, the balance of Note 3 was $9,000 at December
31, 2016.
As of December 31, 2016, the Company also had
note payable of $57,695 to the prior owner of Repicci’s Group, which was planned to be paid off by the issuance of common
shares of the Company at the price of $.20 per share.
The following is a schedule showing the future
minimum loan payments in the future 5 years.
Year ending December 31,
|
|
|
|
2016
|
|
$
|
426,015
|
|
2017
|
|
|
–
|
|
2018
|
|
|
–
|
|
2019
|
|
|
–
|
|
2020
|
|
|
–
|
|
Total
|
|
$
|
426,015
|
|
8. 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, 2016 and 2015 are summarized as
follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Convertible Notes Payable – Unrelated Party
|
|
$
|
179,285
|
|
|
$
|
29,700
|
|
Convertible Notes Payable – Related Party
|
|
|
165,000
|
|
|
|
165,000
|
|
Discount on notes
|
|
|
(21,833
|
)
|
|
|
–
|
|
Total - Current
|
|
$
|
322,452
|
|
|
$
|
194,700
|
|
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. The Company is currently in default on Note 4.
On August 17, 2015, a portion of principal of $1,500 was converted into 300,000 shares of Common Stock of the Company upon the
request of the holder. During the year ended 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. The balance of the note was $2,785 and
$7,500 at December 31, 2016 and 2015, respectively.
On May 6, 2015, the Company entered into a 10% convertible promissory note (“Note 5”) with an unrelated entity in the
amount of $12,200. Note 5 bore interest at ten percent per year, matured on September 3, 2015, and was unsecured. Note 5 was convertible
into Common Shares of the Company at the conversion ratio of 50% discount to market at the lowest traded price within 20 business
days prior to “Notice of Conversion”. This gives rise to derivative liability accounting related to this Note since
the conversion ratio is considered floorless.
Accordingly, Note 5 has been evaluated with
respect to the terms and conditions of the conversion features contained in Note 5 to determine whether they represent embedded
or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained
in Note 5 for $12,200 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 Black-Scholes valuation model at the inception date of Note 5 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. On March 8, 2016, the Company entered into an addendum to Note 5 to change the conversion
price to $0.005 per share. As a result, the embedded derivative liability of $12,217 at March 8, 2016 was reclassified as additional
paid-in capital.
The table below sets forth the assumptions
for Black-Scholes valuation model on May 6, 2015 (inception) and December 31, 2015, and March 8, 2016, respectively. For the year
ended December 31, 2016, the Company decreased the derivative liability of $13,948 at December 31, 2015 by $1,731, resulting in
a derivative liability of $12,217 at March 8, 2016.
Reporting
Date
|
Fair
Value
|
Term
(Years)
|
Assumed
Conversion
Price
|
Market
Price on
Issuance
Date
|
Volatility
Percentage
|
Risk-
free
Rate
|
5/6/2015
|
$22,495
|
0.33
|
$0.83
|
$1.69
|
507%
|
0.0002
|
12/31/2015
|
$13,948
|
0.003
|
$0.04
|
$0.08
|
533%
|
0.0014
|
3/8/2016
|
$12,217
|
0.003
|
$0.03
|
$0.05
|
569%
|
0.0027
|
The Company is currently in default on Note
5. During the year ended December 31, 2016, the note holders converted $12,200 unpaid principal and $1,140 accrued interest payable
into 2,668,000 shares of common stock at a conversion price of $0.005 per share. As of December 31, 2016, the principal and accrued
interest of Note 5 were paid in full. The Company recorded interest expense related to Note 5 in amount of $341 and $799 during
the years ended December 31, 2016 and 2015, respectively.
The Notes
|
|
|
|
Proceeds
|
|
$
|
12,200
|
|
Less derivative liabilities on initial recognition
|
|
|
(12,200
|
)
|
Value of the Notes on initial recognition
|
|
|
–
|
|
Add accumulated accretion expense
|
|
|
12,200
|
|
Conversion during year ended December 31, 2016
|
|
|
(12,200
|
)
|
Balance as of December 31, 2016
|
|
$
|
–
|
|
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 bore interest
at eight percent per year, matured on November 26, 2015, and was unsecured. Note 6 was convertible into Common Shares of the Company
at the conversion ratio of 50% discount to market at the conversion date. However, if the closing bid price of the Company’s
Common Shares falls below $0.10 per share, the conversion price will be changed to $0.01 per share and remain intact from that
point forward. Since the Company’s common stock was $0.075 per share at December 31, 2015, the conversion feature contained
in Note 6 no longer meets the requirements for liability classification under ASC 815. As a result, the embedded derivative liability
of $10,008 at December 31, 2015 was reclassified as additional paid-in capital.
The table below sets forth the assumptions
for Black-Scholes valuation model on July 29, 2015 (inception) and December 31, 2015, respectively. For the period ended December
31, 2015, the Company had initial loss of $8,041 due to derivative liabilities, and decreased the derivative liability of $18,041
by $8,033, resulting in a derivative liability of $10,008 at December 31, 2015. The derivative liabilities is reclassified as additional
paid in capital due to the conversion price become fixed price as of January 1, 2016.
Reporting
Date
|
Fair
Value
|
Term
(Years)
|
Assumed
Conversion
Price
|
Market
Price
on Issuance
Date
|
Volatility
Percentage
|
Risk-free
Rate
|
7/29/2015
|
$18,041
|
0.33
|
$0.30
|
$0.60
|
513%
|
0.0006
|
12/31/2015
|
$10,008
|
0.003
|
$0.038
|
$0.075
|
533%
|
0.0014
|
The Company is currently in default on Note
6 and bears default interest at ten percent per year. As of December 31, 2016, the carrying values of Note 6 were $10,000 and the
debt discount was $0. The Company recorded interest expense related to Note 6 in amount of $1,000 and $359 during the years ended
December 31, 2016 and 2015, respectively. The accrued interest of Note 6 was $1,359 and $359 as of December 31, 2016 and 2015,
respectively.
The Notes
|
|
|
|
Proceeds
|
|
$
|
10,000
|
|
Less derivative liabilities on initial recognition
|
|
|
(10,000
|
)
|
Value of the Notes on initial recognition
|
|
|
0
|
|
Add accumulated accretion expense
|
|
|
10,000
|
|
Balance as of December 31, 2016
|
|
$
|
10,000
|
|
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.
However, Note 7 is not converted after 6 months of the effective date of this Note. When Note 7 was entitled to be converted after
August 9, 2016 up to December 31, 2016, $0.03 should be the conversion price. This does not give rise to derivative liability accounting
related to Note 7 since the conversion ratio is not considered floorless. However, the Company has determined that there is a beneficial
conversion feature since the conversion price was lower than the market price. As a result, Note 7 was discounted in the amount
of $17,500 and amortized over the remaining life of this Note due to the intrinsic value of the beneficial conversion option. During
the year ended December 31, 2016, the Company recorded interest expense related to Note 7 in amount of $2,345 and amortization
of debt discounts in amount of $14,000. This resulted in an unamortized debt discount of $3,500 as of December 31, 2016.
On October 28, 2016, the Company received $25,000
cash pursuant to the terms of Note 7, matured on October 28, 2017 (“Note 7-1”). Note 7-1 is not converted after 6 months
of the effective date of this Note, which is April 28, 2017. Neither derivative liability accounting nor beneficial conversion
feature will be considered before Note 7-1 is entitled for conversion. During the year ended December 31, 2016, the Company recorded
interest expense related to Note 7-1 in amount of $658.
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. However, Note 8 is not converted after 6 months
of the effective date of this Note. When Note 8 was entitled to be converted after September 8, 2016 up to December 31, 2016, $0.03
should be the conversion price. This does not give rise to derivative liability accounting related to Note 8 since the conversion
ratio is not considered floorless. However, the Company has determined that there is a beneficial conversion feature since the
conversion price was lower than the market price. As a result, Note 8 was discounted in the amount of $50,000 and amortized over
the remaining life of this Note due to the intrinsic value of the beneficial conversion option. During the year ended December
31, 2016, the Company recorded interest expense related to Note 8 in amount of $6,208 and amortization of debt discounts in amount
of $31,667. This resulted in an unamortized debt discount of $18,333 as of December 31, 2016.
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. However, Note 9 is not
converted after 6 months of the effective date of this Note, which is March 12, 2017. Neither derivative liability accounting nor
beneficial conversion feature will be considered before Note 9 is entitled for conversion. During the year ended December 31, 2016,
the Company recorded interest expense related to Note 9 in amount of $2,444.
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, 2016 and 2015, respectively. The Company recorded
interest expense related to Debenture 1 in amount of $18,000 and $18,000 during the years ended December 31, 2016 and 2015, 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 is in default
on Debenture 2. The balance of Debenture 2 was $15,000 and $15,000 at December 31, 2016 and 2015, respectively. The Company recorded
interest expense related to Debenture 1 in amount of $1,800 and $1,800 during the years ended December 31, 2016 and 2015, respectively.
The following is a schedule showing the future
minimum loan payments in the future 5 years.
Year ending December 31,
|
|
|
|
2016
|
|
$
|
177,785
|
|
2017
|
|
$
|
344,285
|
|
9. DERIVATIVE LIABILITIES
There was no derivative liabilities as of December
31, 2016.
As of December 31, 2015, the Company’s
derivative liabilities are embedded derivatives associated with the Company’s convertible note payable (see Footnote 8).
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 Footnote 8 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 measured the fair value of the
derivative liabilities as $40,536 on the inception date, and remeasured the fair value as $23,956 on December 31, 2015, of which
$10,008 was reclassified as additional paid-in capital due to the change in conversion price from discounted market price to fixed
price. The Company recorded the change of fair value of $1,756 in the statements of operations for the year ended December 31,
2015.
10. 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 2016 and 2015. As of December 31, 2016 and 2015, 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 $41,783 and $38,902, respectively.
11. NET LOSS PER SHARE
Basic net loss per share is computed
using the weighted average number of common shares outstanding during the years. There were no dilutive earnings per share
for the years ended December 31, 2016 and 2015 due to net loss during the years.
The following table sets forth the computation
of basic net loss per share for the years indicated:
|
|
For the years ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(2,254,492
|
)
|
|
$
|
(3,944,421
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
13,600,570
|
|
|
|
7,644,291
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.52
|
)
|
12. CAPITAL STOCK
Series A Preferred Stock
As of December 31, 2016 and 2015, 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, 2016 and 2015, 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 4,386,031 and 4,978,028 shares of preferred stock are issued and outstanding, respectively.
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, 2015, 325,862
shares of Series “B” Preferred Stock were converted into 1,610,206 shares of Common Stock of the Company per the preferred
shareholder’s instruction.
During the year ended December 31, 2015, the
Company issued 33,197 shares of Series “B” Preferred stock and 3 shares of Series “C” Preferred Stock to
several investors for total cash payment of $82,500 pursuant to the executed subscription agreements.
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.
Series C Preferred Stock
As of December 31, 2016 and 2015, 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 118 and 113 shares are issued and outstanding, respectively. 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, 2015, the
Company sold 4 shares of Series C to various investors at a price of $2.50 per share and 1 share at a price of $4.00 per share,
or totaled $14 in cash.
Blank Check Preferred Stock
As of December 31, 2016 and 2015, the Company
has designated 100,000,000 shares of Blank Check Preferred Stock, of which 1,094,019 and 1,094,019 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 98,905,981 as of December 31, 2016.
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.
There was no change in Series D Preferred Stock
in 2016 and 2015.
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.
There was no change in Series E Preferred Stock
in 2016 and 2015.
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 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 year ended December 31, 2015, the
Company issued 6,249 shares of Series “F-1” Preferred stock and 1 share of Series “C” Preferred Stock to
an investor for total cash payment of $25,000 pursuant to the executed subscription agreement.
During the year ended December 31, 2015, the
Company issued 9,999 shares of Series “F-1” Preferred stock and 1 share of Series “C” Preferred Stock to
an investor for total cash payment of $25,000 pursuant to the executed subscription agreement.
There was no change in Series F and Series
F-1 Preferred Stock in 2016.
Series H Preferred 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) as set forth below. 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. The 4,859,379
shares of Series H Preferred Stock were issued subsequently to the date of this report. Accordingly, the Company recorded Series
H Preferred Stock to be issued of $728,907 in the consolidated balance sheet as of December 31, 2016.
Common Stock
2015
On April 15, 2015, the Company entered into
three consulting service agreements with three Consultants for marketing, management and financial strategies in exchange for 1,500,000
shares of Common Stock of 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 $1.78 per share. Accordingly, the Company calculated the stock
based compensation of $2,670,000 at its fair value and included it in the consolidated statements of operations for the year ended
December 31, 2015.
On June 3, 2015, the Company entered into a
consulting service agreement with a Consultant for marketing, management and financial strategies in exchange for 150,000 shares
of Common Stock of 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 $0.84 per share. Accordingly, the Company calculated the stock based
compensation of $126,000 at its fair value and included it in the consolidated statements of operations for the year ended December
31, 2015.
On September 1, 2015, the Company entered into
a consulting service agreement with a Consultant for marketing, management and financial strategies in exchange for 500,000 shares
of Common Stock of 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 $0.42 per share. Accordingly, the Company calculated the stock based
compensation of $210,000 at its fair value and included $209,800 in the consolidated statements of operations for the year ended
December 31, 2015 due to the receipt of $200 cash from the Consultant.
On October 8, 2015, the Company entered into
a consulting service agreement with a Consultant for marketing, management and financial strategies in exchange for 362,000 shares
of Common Stock of 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 $0.36 per share. Accordingly, the Company calculated the stock based
compensation of $130,320 at its fair value and included it in the consolidated statements of operations for the year ended December
31, 2015.
During the year ended December 31, 2015, the
Company issued 250,000 shares of Common Stock to five investors for total cash payment of $25,000, or $0.10 per share, pursuant
to the executed subscription agreements.
2016
During the year ended December 31, 2016, the
Company issued 90,000 shares of Common Stock to an investor for total cash payment of $4,500 pursuant to the executed subscription
agreements, which was collected in 2015 and recorded as common stock to be issued as of December 31, 2015. The balance of common
stock to be issued was $500 as of December 31, 2016.
During the year ended December 31, 2016, the
Company issued total 1,159,116 shares of Common Stock to investors for total cash payment of $136,500 pursuant to the executed
subscription agreements.
During the year ended December 31, 2016, the
Company issued 3,673,000 shares of common stock for the conversion of unpaid convertible notes principal and accrued interest in
amount of $15,915 and $2,450, respectively, at a price of $0.005 per share.
During the year ended December 31, 2016, the
Company issued 200,000 shares of common stock for the conversion of unpaid convertible notes principal $6,000, at a price of $0.03
per share.
During the year ended December 31, 2016, the
Company issued 25,599 shares of common stock to a Consultant 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 $0.0475 per share. Accordingly,
the Company calculated the stock based compensation of $1,216 at its fair value and included it in the consolidated statements
of operations for the year ended December 31, 2016.
During the year ended December 31, 2016, the
Company issued 387,990 shares of common stock to a Consultant 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 $0.09 per
share. Accordingly, the Company calculated the stock based compensation of $34,919 at its fair value and included it in the consolidated
statements of operations for the year ended December 31, 2016.
During the year ended December 31, 2016, the
Company issued 1,000,000 shares of common stock to Mr. Cunningham, Company’s Chief Executive Officer, as bonus. 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 $0.22 per share. Accordingly, the Company calculated the stock based compensation of $220,000 at its fair
value and included it in the consolidated statements of operations for the year ended December 31, 2016.
During the year ended December 31, 2016, the
Company issued 66,667 shares of common stock to a consultant 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 $0.22 per share. Accordingly,
the Company calculated the stock based compensation of $14,667 at its fair value and included it in the consolidated statements
of operations for the year ended December 31, 2016.
During the year ended December 31, 2016, the
Company issued total 6,000,000 shares of common stock to Mr. Thompson and Mr. Cunningham, or 3,000,000 shares each, 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 $0.12 per share. Accordingly, the Company calculated the stock based compensation of $720,000
at its fair value and included it in the consolidated statements of operations for the year ended December 31, 2016.
During the year ended December 31, 2016, the
Company issued 248,333 shares of common stock to two consultants 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 $0.12 per
share. Accordingly, the Company calculated the stock based compensation of $29,800 at its fair value and included it in the consolidated
statements of operations for the year ended December 31, 2016.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company had operating leases of $160,840
and $255,535 for the years ended December 31, 2016 and 2015, respectively, consisting of the followings.
|
|
For the years ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
83,309
|
|
|
$
|
155,666
|
|
Lot
|
|
|
62,364
|
|
|
|
62,255
|
|
Office
|
|
|
14,835
|
|
|
|
33,620
|
|
Equipment Rentals
|
|
|
332
|
|
|
|
3,994
|
|
Total
|
|
$
|
160,840
|
|
|
$
|
255,535
|
|
14. INCOME TAXES
At December 31, 2016, the Company had federal
and state net operating loss carry forwards of approximately $45,500,000 that expire in various years through the year 2036.
Due to operating losses, there is no provision
for current federal or state income taxes for the years ended December 31, 2016 and 2015.
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, 2016 and 2015 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating
to approximately $17,745,000 and $16,770,000, respectively, less a valuation allowance in the amount of approximately $17,745,000
and $16,770,000, respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset
by a valuation allowance in both 2016 and 2015. The valuation allowance increased by approximately $975,000 for the year ended
December 31, 2016.
The Company’s total deferred tax asset
as of December 31, 2016 and 2015 is as follows:
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
$
|
17,745,000
|
|
|
$
|
16,770,000
|
|
Valuation allowance
|
|
|
(17,745,000
|
)
|
|
|
(16,770,000
|
)
|
|
|
|
|
|
|
|
|
|
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, 2016 and 2015 is as follows:
|
|
2016
|
|
|
2015
|
|
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%
|
|
15. SEGMENT REPORTING
The Company has three 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), and (3) “Repicci’s Italian Ice” franchised
stores.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, 2016 was 48, five of which are “mobile” unites.
The Company obligates itself to each franchisee
to perform the following services:
|
1.
|
Designate an exclusive territory;
|
|
2.
|
Provide guidance and approval for selection and location of site;
|
|
3.
|
Provide initial training of franchisee and employees;
|
|
4.
|
Provide a company manual and other training aids.
|
The Company has developed a new “Mobile
Franchise Opportunity”. The total investment for the new opportunity ranges from $155,600 to $165,000, as follows: $125,000
for a new Mercedes Sprinter Van, customized for the franchisee, $25,000 for the franchise fee, the balance for product. The Company’s
obligation is as above, except for Item #3, training is specific to the new opportunity.
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.
|
|
For the year ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Revenues:
|
|
|
|
|
|
|
We Three
|
|
$
|
152,120
|
|
|
$
|
168,621
|
|
Romeo’s NY Pizza
|
|
|
603,787
|
|
|
|
1,210,880
|
|
Repicci’s Group
|
|
|
369,416
|
|
|
|
–
|
|
Others
|
|
|
24,928
|
|
|
|
10,100
|
|
Consolidated revenues
|
|
$
|
1,150,251
|
|
|
$
|
1,389,601
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
145,795
|
|
|
$
|
134,912
|
|
Romeo’s NY Pizza
|
|
|
404,481
|
|
|
|
862,818
|
|
Repicci’s Group
|
|
|
246,797
|
|
|
|
–
|
|
Others
|
|
|
–
|
|
|
|
–
|
|
Consolidated cost of sales
|
|
$
|
797,073
|
|
|
$
|
997,730
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
(16,201
|
)
|
|
$
|
14,216
|
|
Romeo’s NY Pizza
|
|
|
(32,594
|
)
|
|
|
14,667
|
|
Repicci’s Group
|
|
|
(229,985
|
)
|
|
|
–
|
|
Others
|
|
|
(1,975,712
|
)
|
|
|
(3,973,304
|
)
|
Consolidated loss before taxes
|
|
$
|
(2,254,492
|
)
|
|
$
|
(3,944,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Assets:
|
|
|
|
|
|
|
We Three
|
|
$
|
216,433
|
|
|
$
|
243,134
|
|
Romeo’s NY Pizza
|
|
|
19,241
|
|
|
|
76,386
|
|
Repicci’s Group
|
|
|
411,606
|
|
|
|
–
|
|
Others
|
|
|
1,824,729
|
|
|
|
892,959
|
|
Combined assets
|
|
$
|
2,472,009
|
|
|
$
|
1,212,479
|
|
16. MATERIAL ACQUISITION
As previously disclosed on June 30, 2016, the
Company completed the acquisition of Titancare, LLC. The acquisition became effective (the “Effective day”) on June
27, 2016, a Pennsylvania At Home Care franchise. The acquisition is subject to Franchisor approval and the completion of an independent
audit.
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.
Pending Franchisor approval and the completion
of the independent audit, CDIF will issue approximately 977,247 shares of CDIF Preferred “G” Shares to Titancare shareholders
as Stock Consideration in the Acquisition. Based on the price of CDIF’s Common stock as of June 27 and 29, 2016 at $0.17
per share, the acquisition consideration represents an approximate value of $166,132. The LLC has filed to convert to a Pennsylvania
Corporation.
As of December 31, 2016, the shares are not
issued.
As previously disclosed 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, a Pennsylvania At Home Care franchise. The acquisition is subject to Franchisor approval and the completion of
an independent audit.
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.
Pending Franchisor approval and the completion
of the independent audit, CDIF will 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.
As of December 31, 2016, the shares are not
issued.
17. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company
has analyzed its operations subsequent to December 31, 2016 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.
Stock issuance:
Subsequent to December 31, 2016, the 4,859,379
shares of Series H Preferred Stock were issued pursuant to the acquisition agreement with Repicci’s Group.
Subsequent to December 31, 2016, the 2,184,075
shares of Common Stock were issued pursuant to the acquisition agreement with Repicci’s Group.
Subsequent to December 31, 2016, 977,400 shares
were issued for debt conversion.
Subsequent to December 31, 2016, 100,000 shares
were issued for cash of $10,000.
Subsequent to December 31, 2016, 4,323,610
shares were issued for Series B Preferred Stock conversion.
Subsequent to December 31, 2016, 250,000 shares
were issued for services rendered.
Notes payable:
On January 27, 2017, the Company entered into
a 15% convertible line of credit with an unrelated entity in the amount up to $250,000. The Company received total $115,000 cash
pursuant to the terms of this Note as of the date of this Report.
On April 6, 2017, the Company entered into
a 15% convertible promissory note with an unrelated entity in the amount of $50,000. The Company received $50,000 cash pursuant
to the terms of this Note as of the date of this Report.