The accompanying
notes are an integral part of these unaudited financial statements
The accompanying notes are an integral part of these
unaudited financial statements
The accompanying
notes are an integral part of these unaudited financial statements
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial
information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited
condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the
opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results
are not necessarily indicative of results for a full year.
The unaudited condensed consolidated financial
statements and related disclosures have been prepared with the presumption that users of the interim financial information have
read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly,
these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and the related notes for the years ended December 31, 2016 and 2015 thereto contained in the Annual Report on Form
10-K for the year ended December 31, 2016.
Organization and Nature of Operations
Legacy Card Company
(“Legacy”) was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from
a California Limited Liability Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff
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, and
income-producing commercial real estate properties, all designed to pay a dividend to the
Company’s shareholders. The reason for this strategy was to protect the Company’s shareholders by acquiring businesses with little to no debt, seeking support with both financing and management that
had the ability to offer a return to investors. 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 March 31, 2017, the Company had completed the acquisition of seven businesses: We Three, LLC; Romeo’s NY
Pizza; Edge View Properties, Inc.; FDR Enterprises, Inc.; Refreshment Concepts, LLC; and Repicci’s Franchise Group,
LLC. In addition, there are three acquisitions: Titancare, LLC, York County In Home Care, Inc., Ride Today Acceptance, LLC
pending as of the date of this report.
Description of Business
Cardiff is a holding company that adopted
a new business model known as "Collaborative Governance.” To date, the Company is not aware of any other domestic holding
company using the same business philosophy or governing policies.
To date, Cardiff consists of the following whole-owned subsidiaries:
We Three, LLC (Affordable Housing Initiative) acquired
on May 15, 2014;
Romeo’s NY Pizza acquired on June 30, 2014;
Edge View Properties, Inc acquired on July 16, 2014;
FDR Enterprises, Inc. acquired on August 10, 2016;
Refreshment Concepts, LLC acquired on August 10, 2016;
Repicci’s Franchise Group, LLC acquired on August
10, 2016.
Going Concern
The accompanying consolidated financial
statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization
of assets and liabilities and commitments in the normal course of business. The Company 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 March 31, 2017, the Company had
shareholders’ deficit of $2,123,648. 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, 2016 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.
2. RESTATEMENT OF FINANCIAL STATEMENTS
(1)
On July 26, 2017, the Company’s Board of Directors approved to unwind the Acquisition Agreement with Consulting Services
Support Corporation (CSSC Corp) and its subsidiaries Decision Technology Corporation and CSSC Services and Solutions, Incorporation
(collectively referred to as “CSSC Group”), which was entered into on March 10, 2017. Upon rescission of the contract,
CSSC Corp shall keep their finance business and the Company does not have to issue the stock. The contract between CSSC Corp
and the Company is rendered a nullity. The Company believes the termination and revocation of this Acquisition is in the best interest
of the Company’s Shareholders.
Accordingly, all the financial statements
as of March 31, 2017 and for the three months ended March 31, 2017 are restated.
(2)
In addition, on July 27, 2017 the Company identified errors related to understatement of derivative liabilities as of March 31,
2017, and change in the fair value of the derivative liability for the three months ended March 31, 2017. The facts underlying
the Company’s original conclusion is that there were no derivative liabilities incurred when the convertible promissory notes
in total amount of $61,500 were entitled to be converted at the conversion price of $0.03 per share, which was considered as a
floor. In fact the variable conversion price of such convertible promissory notes triggered derivative liabilities of the Company
and tainted the convertible notes with fixed conversion price.
The following table sets forth all the
accounts in the original amounts and restated amounts, respectively.
As of March 31, 2017
|
|
March 31, 2017
|
|
|
Adjustments
|
|
|
|
|
March 31, 2017
|
|
|
|
Original
|
|
|
|
|
|
|
|
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
485,824
|
|
|
$
|
(321,717
|
)
|
|
(1)
|
|
$
|
164,107
|
|
Accounts receivable, net
|
|
|
478,738
|
|
|
|
(418,504
|
)
|
|
(1)
|
|
|
60,234
|
|
Inventory
|
|
|
42,229
|
|
|
|
–
|
|
|
|
|
|
42,229
|
|
Prepaid and other
|
|
|
57,632
|
|
|
|
(18,442
|
)
|
|
(1)
|
|
|
39,190
|
|
Total current assets
|
|
|
1,064,423
|
|
|
|
(758,663
|
)
|
|
|
|
|
305,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $870,583
|
|
|
756,940
|
|
|
|
(45,074
|
)
|
|
(1)
|
|
|
711,866
|
|
Land
|
|
|
603,000
|
|
|
|
–
|
|
|
|
|
|
603,000
|
|
Intangible assets
|
|
|
185,320
|
|
|
|
(173,053
|
)
|
|
(1)
|
|
|
12,267
|
|
Deposits
|
|
|
59,976
|
|
|
|
(53,026
|
)
|
|
(1)
|
|
|
6,950
|
|
Due from related party
|
|
|
283
|
|
|
|
–
|
|
|
|
|
|
283
|
|
Goodwill
|
|
|
2,835,304
|
|
|
|
(1,902,775
|
)
|
|
(1)
|
|
|
932,529
|
|
Total Assets
|
|
$
|
5,505,246
|
|
|
$
|
(2,932,591
|
)
|
|
|
|
$
|
2,572,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
605,993
|
|
|
$
|
(489,736
|
)
|
|
(1)
|
|
$
|
116,257
|
|
Accrued expenses
|
|
|
685,996
|
|
|
|
(184,108
|
)
|
|
(1)
|
|
|
501,888
|
|
Accrued expenses - related parties
|
|
|
1,403,069
|
|
|
|
(80,319
|
)
|
|
(1)
|
|
|
1,322,750
|
|
Interest payable
|
|
|
252,949
|
|
|
|
–
|
|
|
|
|
|
252,949
|
|
Accrued payroll taxes
|
|
|
42,402
|
|
|
|
–
|
|
|
|
|
|
42,402
|
|
Due to officers and shareholders
|
|
|
95,540
|
|
|
|
–
|
|
|
|
|
|
95,540
|
|
Line of credit
|
|
|
18,781
|
|
|
|
–
|
|
|
|
|
|
18,781
|
|
Common stock to be issued
|
|
|
500
|
|
|
|
–
|
|
|
|
|
|
500
|
|
Series J preferred shares to be issued
|
|
|
2,066,687
|
|
|
|
(2,066,687
|
)
|
|
(1)
|
|
|
–
|
|
Series I preferred shares to be issued
|
|
|
10,000
|
|
|
|
–
|
|
|
|
|
|
10,000
|
|
Series H preferred shares to be issued
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
–
|
|
Notes payable, unrelated party
|
|
|
292,532
|
|
|
|
(50,000
|
)
|
|
(1)
|
|
|
242,532
|
|
Notes payable - related party
|
|
|
142,345
|
|
|
|
–
|
|
|
|
|
|
142,345
|
|
Convertible notes payable, net of debt discounts of $71,556 and $21,833, respectively
|
|
|
293,944
|
|
|
|
–
|
|
|
|
|
|
293,944
|
|
Convertible notes payable - related party
|
|
|
165,000
|
|
|
|
–
|
|
|
|
|
|
165,000
|
|
Derivative Liability
|
|
|
–
|
|
|
|
1,469,471
|
|
|
(2)
|
|
|
1,469,471
|
|
Tax payable
|
|
|
92,232
|
|
|
|
(70,288
|
)
|
|
(1)
|
|
|
21,944
|
|
Total current liabilities
|
|
|
6,167,970
|
|
|
|
(1,471,667
|
)
|
|
|
|
|
4,696,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
–
|
|
Preferred Stock Series B, D, E, F, F-1, H
|
|
|
8,924
|
|
|
|
–
|
|
|
|
|
|
8,924
|
|
Series C preferred
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
–
|
|
Common stock; 200,000,000 shares authorized with $0.001 par value; 36,089,183 and 25,223,578 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
|
|
|
36,089
|
|
|
|
–
|
|
|
|
|
|
36,089
|
|
Additional paid-in capital
|
|
|
45,309,339
|
|
|
|
(1,490,264
|
)
|
|
(1)(2)
|
|
|
43,819,075
|
|
Retained deficit
|
|
|
(46,017,076
|
)
|
|
|
29,340
|
|
|
(1)(2)
|
|
|
(45,987,736
|
)
|
Total shareholders' equity (deficiency)
|
|
|
(662,724
|
)
|
|
|
(1,460,924
|
)
|
|
|
|
|
(2,123,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity (deficiency)
|
|
$
|
5,505,246
|
|
|
$
|
(2,932,591
|
)
|
|
|
|
$
|
2,572,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2017
Statement of Operations
|
|
Original
|
|
|
Adjustments
|
|
|
|
|
Restated
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
46,010
|
|
|
$
|
–
|
|
|
|
|
$
|
46,010
|
|
Sales of pizza
|
|
|
134,237
|
|
|
|
–
|
|
|
|
|
|
134,237
|
|
Sales of ice cream
|
|
|
260,653
|
|
|
|
–
|
|
|
|
|
|
260,653
|
|
Financial services income
|
|
|
269,417
|
|
|
|
(269,417
|
)
|
|
(1)
|
|
|
–
|
|
Other
|
|
|
3,745
|
|
|
|
–
|
|
|
|
|
|
3,745
|
|
Total revenue
|
|
|
714,062
|
|
|
|
(269,417
|
)
|
|
|
|
|
444,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental business
|
|
|
33,621
|
|
|
|
–
|
|
|
|
|
|
33,621
|
|
Pizza restaurants
|
|
|
94,303
|
|
|
|
–
|
|
|
|
|
|
94,303
|
|
Ice cream stores
|
|
|
151,305
|
|
|
|
–
|
|
|
|
|
|
151,305
|
|
Financial services
|
|
|
200,761
|
|
|
|
(200,761
|
)
|
|
(1)
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
–
|
|
Total cost of sales
|
|
|
479,990
|
|
|
|
(200,761
|
)
|
|
|
|
|
279,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN
|
|
|
234,072
|
|
|
|
(68,656
|
)
|
|
|
|
|
165,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
687,944
|
|
|
|
(77,203
|
)
|
|
(1)
|
|
|
610,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAIN (LOSS) FROM OPERATIONS
|
|
|
(453,872
|
)
|
|
|
8,547
|
|
|
|
|
|
(445,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from extinguishment of debt
|
|
|
(45,933
|
)
|
|
|
–
|
|
|
|
|
|
(45,933
|
)
|
Change in value of derivative liability
|
|
|
–
|
|
|
|
20,793
|
|
|
(2)
|
|
|
20,793
|
|
Interest expense
|
|
|
(25,637
|
)
|
|
|
–
|
|
|
|
|
|
(25,637
|
)
|
Amortization of debt discounts
|
|
|
(30,277
|
)
|
|
|
–
|
|
|
|
|
|
(30,277
|
)
|
(Loss) from disposal of fixed assets
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
–
|
|
Total other income (expenses)
|
|
|
(101,847
|
)
|
|
|
20,793
|
|
|
|
|
|
(81,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) FOR THE PERIOD
|
|
|
(555,719
|
)
|
|
|
29,340
|
|
|
|
|
|
(526,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-BASIC
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES - BASIC AND DILUTED
|
|
|
30,153,144
|
|
|
|
|
|
|
|
|
|
30,153,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flow
|
|
Original
|
|
|
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) from continuing operations
|
|
$
|
(555,719
|
)
|
|
$
|
29,340
|
|
(1)(2)
|
$
|
(526,379
|
)
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
48,260
|
|
|
|
(4,575
|
)
|
(1)
|
|
43,685
|
|
Loss on extinguishment of debt
|
|
|
45,933
|
|
|
|
–
|
|
|
|
45,933
|
|
Amortization of loan discount
|
|
|
30,277
|
|
|
|
–
|
|
|
|
30,277
|
|
Change in value of derivative liability
|
|
|
–
|
|
|
|
(20,793
|
)
|
(2)
|
|
(20,793
|
)
|
Stock based compensation
|
|
|
58,750
|
|
|
|
–
|
|
|
|
58,750
|
|
Warrants expenses
|
|
|
47,000
|
|
|
|
–
|
|
|
|
47,000
|
|
Convertible note issued for services rendered
|
|
|
80,000
|
|
|
|
–
|
|
|
|
80,000
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(113,825
|
)
|
|
|
85,599
|
|
(1)
|
|
(28,226
|
)
|
Inventory
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Deposits
|
|
|
(5,422
|
)
|
|
|
–
|
|
|
|
(5,422
|
)
|
Prepaids and other
|
|
|
13,436
|
|
|
|
(15,636
|
)
|
(1)
|
|
(2,200
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
120,870
|
|
|
|
(70,514
|
)
|
(1)
|
|
50,356
|
|
Accrued expenses
|
|
|
45,653
|
|
|
|
2,260
|
|
(1)
|
|
47,913
|
|
Interest payable
|
|
|
21,599
|
|
|
|
–
|
|
|
|
21,599
|
|
Tax payable
|
|
|
(1,500
|
)
|
|
|
–
|
|
|
|
(1,500
|
)
|
Accrued payroll taxes
|
|
|
619
|
|
|
|
–
|
|
|
|
619
|
|
Accrued officers' salaries
|
|
|
135,000
|
|
|
|
–
|
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(29,069
|
)
|
|
|
5,681
|
|
|
|
(23,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(7,298
|
)
|
|
|
257
|
|
(1)
|
|
(7,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(7,298
|
)
|
|
|
257
|
|
|
|
(7,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from related party
|
|
|
(283
|
)
|
|
|
–
|
|
|
|
(283
|
)
|
Due to related party
|
|
|
4,878
|
|
|
|
–
|
|
|
|
4,878
|
|
Proceeds from sales of stock
|
|
|
20,000
|
|
|
|
–
|
|
|
|
20,000
|
|
Proceeds from convertible notes payable
|
|
|
115,000
|
|
|
|
–
|
|
|
|
115,000
|
|
(Repayments to) notes payable - related party
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Proceeds from line of credit
|
|
|
8,781
|
|
|
|
–
|
|
|
|
8,781
|
|
(Repayments to) proceeds from notes payable
|
|
|
(16,788
|
)
|
|
|
–
|
|
|
|
(16,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
131,588
|
|
|
|
–
|
|
|
|
131,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
95,221
|
|
|
|
5,938
|
|
(1)(2)
|
|
101,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
390,603
|
|
|
|
(327,655
|
)
|
(1)
|
|
62,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
485,824
|
|
|
$
|
(321,717
|
)
|
(1)
|
$
|
164,107
|
|
3. FIXED ASSETS
Plant and equipment, net as of March 31,
2017 and December 31, 2016 was $711,866 and $748,109, respectively, consisting of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Furniture, fixture and equipment
|
|
$
|
950,315
|
|
|
$
|
903,249
|
|
Leasehold improvements
|
|
|
632,134
|
|
|
|
672,159
|
|
|
|
|
1,582,449
|
|
|
|
1,575,408
|
|
Less: accumulated depreciation
|
|
|
(870,583
|
)
|
|
|
(827,299
|
)
|
Plant and equipment, net
|
|
$
|
711,866
|
|
|
$
|
748,109
|
|
During the three months ended March 31,
2017 and 2016, depreciation and amortization expense was $43,685 and $17,958, respectively. See Note 4 for additional information
regarding amortization.
4. INTANGIBLE ASSETS
As of March 31, 2017 and December 31,
2016, net intangible assets was $12,267 and $12,668 respectively, due to the franchise fee paid by Repicci’s Group.
5. ACCRUED EXPENSES
As of March 31, 2017 and December 31, 2016,
the Company had accrued expenses of $1,824,638 and $1,717,725, respectively, consisted of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Accrued salaries
|
|
$
|
248,031
|
|
|
$
|
250,381
|
|
Accrued salaries – related party
|
|
|
1,297,500
|
|
|
|
1,162,500
|
|
Lease payable – related party
|
|
|
25,250
|
|
|
|
25,250
|
|
Accrued expenses - other
|
|
|
253,857
|
|
|
|
279,594
|
|
Total
|
|
$
|
1,824,638
|
|
|
$
|
1,717,725
|
|
6. RELATED PARTY TRANSACTIONS
Due to Officers and Officer Compensation
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 March 31, 2017 and December 31, 2016,
the Company had lease payable of $25,250 to the related party.
On January 24, 2017, the Company issued
2,010,490 shares of Common Stock to settle $402,098 due to the prior owner of Refreshment Concepts LLC, pursuant to the Acquisition
Agreement, dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s
Common Stock on the grant date, at a price of approximately $0.24 per share, resulting in loss from extinguishment of debt
in amount of $80,420. As of March 31, 2017 and December 31, 2016, in addition to the lease payable of $25,250, the outstanding
balance due to the same prior owner was $33,345 and $57,695, respectively.
On January 24, 2017, the Company issued
173,585 shares of Common Stock to settle $34,717 due to the prior owner of Repicci’s Franchise Group LLC, pursuant to the
Acquisition Agreement, dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s
Common Stock on the grant date, at a price of approximately $0.24 per share, resulting in loss from extinguishment of debt
in amount of $6,943. As of March 31, 2017 and December 31, 2016, the outstanding balance due to the same prior owner was $1,000
and $40,550, respectively.
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 March 31, 2017 and December
31, 2016, the Company had $94,540 and $84,540 due to Daniel Thompson, respectively.
In addition, the Board of Directors of
the Company approved to increase Daniel Thompson’s compensation to $25,000 per month from $20,000 effective January 1, 2017.
Accordingly, a total salary of $75,000 and $60,000 were accrued and reflected as an expense to Daniel Thompson during the three
months ended March 31, 2017 and 2016, respectively. The accrued salaries payable to Daniel Thompson was $817,500 and $742,500 as
of March 31, 2017 and December 31, 2016, 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 $0 and $30,000 were accrued and reflected as an
expense during the three months ended March 31, 2017 and 2016, respectively. The total balance due to Mr. Levy for accrued salaries
at March 31, 2017 and December 31, 2016 were $240,000 and $240,000, 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 $30,000 and $0 were accrued and reflected as an expense during the three months ended March 31, 2017
and 2016, respectively. The total balance due to Mr. Roberts for accrued salaries at March 31, 2017 and December 31, 2016 were
$80,000 and $60,000, respectively.
The Board of Directors of the Company approved
to increase Chief Executive Officer, Mr. Cunningham’s compensation to $25,000 per month from $15,000 effective January 1,
2017. A total salary of $75,000 and $45,000 were accrued and reflected as an expense during the three months ended March 31, 2017
and 2016, respectively. The total balance due to Mr. Cunningham for accrued salaries at March 31, 2017 and December 31, 2016 were
$400,000 and $360,000, respectively.
Notes Payable – Related Party
The Company has entered into several loan
agreements with related parties (see below; Footnote 8, Notes Payable – Related Party; and Footnote 8, Convertible Notes
Payable – Related Party).
7. NOTES PAYABLE
Notes payable at March 31, 2017 and December
31, 2016 are summarized as follows:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Notes Payable – Unrelated Party
|
|
$
|
242,532
|
|
|
$
|
259,320
|
|
Notes Payable – Related Party
|
|
|
142,345
|
|
|
|
166,695
|
|
Discount on notes
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
384,877
|
|
|
$
|
426,015
|
|
Current portion
|
|
|
(384,877
|
)
|
|
|
(426,015
|
)
|
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 March 31,
2017, the Company is in default on this debenture. The balance of the note was $10,989 and $10,989 at March 31, 2017 and December
31, 2016, respectively.
As of March 31, 2017, the Company had lease
payable of $160,229 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 $71,314 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 March 31, 2017 and December 31, 2016, respectively. Note 1 is currently
in default.
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 March 31, 2017 and December 31, 2016, respectively. Note 2 is currently
in default.
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 as of March 31, 2017
and
December 31, 2016, respectively. Note 3 is currently in default.
As of March 31, 2017 and December 31, 2016,
the Company also had note payable of $33,345 and $57,695, respectively, to the prior owner of Repicci’s Group.
The following is a schedule showing the
future minimum loan payments in the future 5 years.
Year ending December 31,
|
|
|
|
|
|
2017
|
|
|
$
|
384,877
|
|
|
2018
|
|
|
|
0
|
|
|
2019
|
|
|
|
0
|
|
|
2020
|
|
|
|
0
|
|
|
2021
|
|
|
|
0
|
|
|
Total
|
|
|
$
|
384,877
|
|
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 March 31, 2017 and December 31, 2016 are
summarized as follows:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Convertible Notes Payable – Unrelated Party
|
|
$
|
365,500
|
|
|
$
|
179,285
|
|
Convertible Notes Payable – Related Party
|
|
|
165,000
|
|
|
|
165,000
|
|
Discount on Convertible Notes Payable - Unrelated Party
|
|
|
(71,556
|
)
|
|
|
(21,833
|
)
|
Total - Current
|
|
$
|
458,944
|
|
|
$
|
322,452
|
|
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. During
the three months ended March 31, 2017, the note holder converted $2,785 principal, $1,000 processing cost reimbursement and $102
accrued interest into 777,400 shares of common stock at a conversion price of $0.005 per share. The balance of Note 4 was $2,785
as of December 31, 2016, which was paid in full as of March 31, 2017.
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 three
months ended March 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
|
|
As of March 31, 2017, the principal and
accrued interest of Note 5 were paid in full.
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 March 31, 2017, 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 $250 and $200 during the three months
ended March 31, 2017 and 2016, respectively. The accrued interest of Note 6 was $1,609 and $1,359 as of March 31, 2017 and December
31, 2016, respectively.
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.
The Company determined that the conversion features contained in Note 7 carrying value represents a freestanding derivative instrument
that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial
instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial
instrument of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and
will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are
recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified
into additional paid in capital upon conversion.
The table below sets forth the assumptions
for Binomial-Lattice valuation model on December 31, 2016 and March 31, 2017, respectively.
Reporting Date
|
|
Fair Value
|
|
|
Term (Years)
|
|
|
Assumed Conversion Price
|
|
|
Market Price on Issuance Date
|
|
|
Volatility Percentage
|
|
|
Risk-free Rate
|
|
12/31/2016
|
|
$
|
74,750
|
|
|
|
0.11
|
|
|
$
|
0.03
|
|
|
$
|
0.2250
|
|
|
|
221%
|
|
|
|
0.0062
|
|
3/31/2017
|
|
$
|
56,236
|
|
|
|
0.35
|
|
|
$
|
0.03
|
|
|
$
|
0.1767
|
|
|
|
173%
|
|
|
|
0.0091
|
|
Note 7 is currently in default and principal
of $6,000 was converted into 200,000 shares of common stock at the end of 2016. During the three months ended March 31, 2017, the
Company recorded interest expense, late fee and default interest related to Note 7 in total amount of $1,294 and amortization of
debt discounts in amount of $3,500. There was no unamortized debt discount related Note 7 as of March 31, 2017.
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 convertible
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 three months ended March 31, 2017,
the Company recorded interest expense related to Note 7-1 in amount of $938.
On March 8, 2016, the Company entered into
a 15% convertible promissory note in the principal of $50,000 (“Note 8”) with an unrelated entity for services rendered.
Note 8 is matured on March 8, 2017, and unsecured. This Note is convertible into common shares of the Company at the conversion
ratio of $0.03 or 50% discount of the lowest closing price on the primary trading market on which Company's common stock is quoted
for the last five trading days prior to the conversion date, whichever is lower. The Company determined that the conversion features
contained in Note 8 carrying value represents a freestanding derivative instrument that meets the requirements for liability classification
under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s
balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using
the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date.
Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense
at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.
On February 16, 2017, a portion of principal
of $6,000 was converted into 200,000 shares of common stock.
The table below sets forth the assumptions
for Binomial-Lattice valuation model on December 31, 2016, February 16, 2017 and March 31, 2017, respectively.
Reporting Date
|
|
Fair Value
|
|
|
Term (Years)
|
|
|
Assumed Conversion Price
|
|
|
Market Price on Issuance Date
|
|
|
Volatility Percentage
|
|
|
Risk-free Rate
|
|
12/31/2016
|
|
$
|
325,001
|
|
|
|
0.18
|
|
|
$
|
0.03
|
|
|
$
|
0.2250
|
|
|
|
221%
|
|
|
|
0.0062
|
|
2/16/2017
|
|
$
|
62,000
|
|
|
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.3400
|
|
|
|
173%
|
|
|
|
0.0051
|
|
3/31/2017
|
|
$
|
215,164
|
|
|
|
0.35
|
|
|
$
|
0.03
|
|
|
$
|
0.1767
|
|
|
|
173%
|
|
|
|
0.0091
|
|
Note 8 was in default with principal balance
of $44,000 as of March 31, 2017. During the three months ended March 31, 2017, the Company recorded late fee and default interest
related to Note 8 in total amount of $6,608 and amortization of debt discounts in amount of $18,333. There was no unamortized debt
discount related Note 8 as of March 31, 2017.
On September 12, 2016, the Company entered
into a 10% convertible promissory note in the principal of $80,000 (“Note 9”) with an unrelated entity for services
rendered. Note 9 is matured on September 12, 2017, and unsecured. This Note is convertible into common shares of the Company at
the conversion ratio of $0.03 or 50% discount of the lowest closing bid price on the primary trading market on which Company's
common stock is quoted for the last five trading days prior to the conversion date, whichever is lower. The Company determined
that the conversion features contained in Note 9 carrying value represents a freestanding derivative instrument that meets the
requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in
the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so
again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional
paid in capital upon conversion.
The table below sets forth the assumptions
for Binomial-Lattice valuation model on March 31, 2017.
Reporting Date
|
|
Fair Value
|
|
|
Term (Years)
|
|
|
Assumed Conversion Price
|
|
|
Market Price on Issuance Date
|
|
|
Volatility Percentage
|
|
|
Risk-free Rate
|
|
3/31/2017
|
|
$
|
391,208
|
|
|
|
0.45
|
|
|
$
|
0.03
|
|
|
$
|
0.1767
|
|
|
|
173%
|
|
|
|
0.0091
|
|
As a result, Note 9 was discounted in the
amount of $80,000 and amortized over the remaining life of this Note. During the three months ended March 31, 2017, the Company
recorded interest expenses related to Note 9 in amount of $2,000 and amortization of debt discounts in amount of $8,444. This resulted
in an unamortized debt discount of $71,556 as of March 31, 2017.
On January 24, 2017, the Company entered
into a 10% convertible promissory note in the principal of $80,000 (“Note 10”) with an unrelated entity for services
rendered. Note 10 is matured on January 24, 2018, and unsecured. This Note is convertible into common shares of the Company at
the conversion ratio of $0.25 or 50% discount of the lowest closing bid price on the primary trading market on which Company's
common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower. However, Note 10 is not
convertible after 6 months of the effective date of this Note, which is July 24, 2017. Neither derivative liability accounting
nor beneficial conversion feature will be considered before Note 10 is entitled for conversion. During the three months ended March
31, 2017, the Company recorded interest expense related to Note 10 in amount of $1,467.
On January 24, 2017, the Company entered
into a 15% convertible line of credit (“Note 11”) with an unrelated entity in the amount up to $250,000. On January
27, 2017, the Company received $50,000 cash for the line of credit, matured on January 27, 2018, and unsecured. Note 11 is convertible
into common shares of the Company at the conversion ratio of $0.25 or 50% discount of the lowest closing price on the primary trading
market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower.
However, Note 11 is not convertible after 6 months of the effective date of this Note, which is July 27, 2017. Neither derivative
liability accounting nor beneficial conversion feature will be considered before Note 11 is entitled for conversion. During the
three months ended March 31, 2017, the Company recorded interest expense related to Note 11 in amount of $1,313.
On February 21, 2017, the Company received
$25,000 cash pursuant to the terms of Note 11, matured on February 21, 2018 (“Note 11-1”). Note 11-1 is not convertible
after 6 months of the effective date of this Note, which is August 21, 2017. Neither derivative liability accounting nor beneficial
conversion feature will be considered before Note 11-1 is entitled for conversion. During the three months ended March 31, 2017,
the Company recorded interest expense related to Note 11-1 in amount of $396.
On March 16, 2017, the Company received
$40,000 cash pursuant to the terms of Note 11, matured on March 16, 2018 (“Note 11-2”). Note 11-2 is not convertible
after 6 months of the effective date of this Note, which is September 16, 2017. Neither derivative liability accounting nor beneficial
conversion feature will be considered before Note 11-2 is entitled for conversion. During the three months ended March 31, 2017,
the Company recorded interest expense related to Note 11-2 in amount of $250.
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 March 31, 2017 and December 31, 2016, respectively.
The Company recorded interest expense related to Debenture 1 in amount of $4,500 and $4,500 during the three months ended March
31, 2017 and 2016, respectively.
On March 11, 2009, the Company entered
into an unsecured Convertible Debenture (“Debenture 2”) with a shareholder in the amount of $15,000. Debenture 2 was
convertible into Common Shares of the Company at $0.03 per share at the option of the holder. Debenture 2 bore interest at 12%
per year, matured on March 11, 2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. The Company
is in default on Debenture 2. The balance of Debenture 2 was $15,000 and $15,000 at March 31 and December 31, 2016, respectively.
The Company recorded interest expense related to Debenture 1 in amount of $450 and $450 during the three months ended March 31,
2017 and 2016, respectively.
Resulting from the tainted issue by the
derivative financial instrument of the convertible notes, The Company determined that the conversion features contained in Debenture
1 and Debenture 2 carrying value represents an embedded derivative instrument that meets the requirements for liability classification
under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s
balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using
the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date.
Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense
at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.
The table below sets forth the assumptions
for Binomial-Lattice valuation model on December 31, 2016 and March 31, 2017, respectively.
Reporting Date
|
|
Fair Value
|
|
|
Term (Years)
|
|
|
Assumed Conversion Price
|
|
|
Market Price on Issuance Date
|
|
|
Volatility Percentage
|
|
|
Risk-free Rate
|
|
12/31/2016
|
|
$
|
1,072,513
|
|
|
|
0.50
|
|
|
$
|
0.03
|
|
|
$
|
0.2250
|
|
|
|
221%
|
|
|
|
0.0062
|
|
3/31/2017
|
|
$
|
806,863
|
|
|
|
0.35
|
|
|
$
|
0.03
|
|
|
$
|
0.1767
|
|
|
|
173%
|
|
|
|
0.0091
|
|
The following is a schedule showing the
future minimum loan payments in the future 5 years.
Year ending December 31,
|
|
|
|
|
|
2017
|
|
|
$
|
335,500
|
|
|
2018
|
|
|
$
|
195,000
|
|
9. FAIR VALUE MEASUREMENT
The Company adopted the provisions of
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10
defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels
of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active
markets for identical assets or liabilities.
Level 2 – Observable inputs other
than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or
can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs to
the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
All items required to be recorded or measured
on a recurring basis are based upon level 3 inputs.
To the extent that valuation is based
on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined
based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was
no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.
The carrying value of the Company’s
cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable),
and other current assets and liabilities approximate fair value because of their short-term maturity.
As of March 31, 2017 and December 31,
2016, the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative
liabilities as level 3 and values its derivatives using the methods discussed in note 9. While the Company believes that its valuation
methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at
the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note
9 are that of volatility and market price of the underlying common stock of the Company.
As of March 31, 2017 and December 31,
2016, the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of March
31, 2017, in the amount of $1,469,471 has a level 3 classification.
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2017:
|
|
Debt Derivative
|
|
|
Balance, December 31, 2016
|
|
$
|
–
|
|
Total (gains) losses
|
|
|
|
|
Initial fair value of debt derivative at note issuance
|
|
|
1,472,264
|
|
Mark-to-market at March 31, 2017:
|
|
|
(2,793
|
)
|
Transfers out of Level 3 upon conversion or payoff of notes payable
|
|
|
–
|
|
Balance, March 31, 2017
|
|
$
|
1,469,471
|
|
Net gain for the period included in earnings relating to the liabilities held during the period ended March 31, 2017
|
|
$
|
20,793
|
|
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the period ended March
31, 2017, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of the related
derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable
inputs used in the fair value measurement of each of the Company’s derivative instruments.
10. LINE OF CREDIT
On December 28, 2016, the Company entered
into an unsecured Business Line of Credit Agreement with Fundation Group LLC (“Fundation”), pursuant to which the
Company was allowed to take a draw from Fundation up to $20,000 from time to time. The Line of Credit bears interest at a rate
of 11.49% per annum, subject to increase or decrease with 90 days notice. There was an initial closing fee of $500 and a 2% draw
fee on subsequent draws. Monthly principal and interest payments are due and the line is due in full in 18 months from the latest
draw. The outstanding principal and interest will be amortized over 18 months. As of March 31, 2017 and December 31, 2016, the
Company had balance of $18,781 and $10,000, respectively.
11. 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 March 31, 2017 and December 31, 2016, 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 $42,402 and $41,783, respectively.
12. 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 three months ended March 31, 2017 and 2016 due to net loss during the periods.
The following table sets forth the computation
of basic net loss per share for the periods indicated:
|
|
For the three months ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(526,379
|
)
|
|
$
|
(203,862
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - Basic and Diluted
|
|
|
30,153,144
|
|
|
|
9,528,026
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings (loss) per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
This does not include the potential dilutive
effect if all exercisable warrants were exercised or conversions of convertible notes and convertible preferred stock as described
below:
Principal conversion
|
|
|
7,028,696
|
|
Interest conversion
|
|
|
8,356,189
|
|
Warrants
|
|
|
200,000
|
|
Preferred Stock conversion
|
|
|
359,196,019
|
|
Total
|
|
|
367,752,208
|
|
13. CAPITAL STOCK
During the three months ended March 31,
2017, the Company filed Amended Articles of Incorporation with the Secretary of State of Florida to amend the rights and privileges
for series of Preferred Stock, and to authorize the issuance of Series I, F1, G1, H1, J1 and K1 Preferred Stock, which was effective
on April 26, 2017.
Series A Preferred Stock
The Company has designated four shares
of preferred stock as Series A Preferred Stock (“Series A”), with a par value of $.0001 per share, of which one share
of preferred stock was issued and outstanding as of March 31, 2017. Series A is authorized to have four shares which do not bear
dividends and converts to common shares at four times the sum of: all shares of Common Stock issued and outstanding at time of
conversion plus all shares of Series B Preferred Stock issued and outstanding at time of conversion divided by the number of issued
Class A shares at the time of conversion, and have voting rights four times the sum of: all shares of Common Stock issued and outstanding
at time of voting plus all shares of Series B Preferred Stocks issued and outstanding at time of voting divided by the number of
Class A shares issued at the time of voting.
Series B Preferred Stock
The Company has designated 3,000,000 shares
of preferred stock as Series B Preferred Stock (“Series B”), with a par value $0.001 and $2.50 price per share, of
which 3,003,202 shares of Series B preferred stock were issued and outstanding as of March 31, 2017. Shares of Series B are anti-dilutive
to reverse splits. The conversion rate of shares of Series B, however, would increase proportionately in the case of forward splits,
and may not be diluted by a reverse split following a forward split. Series B is awarded “Voting Right” at the ratio
of 1 vote per share owned. Each one share of Series B converts to 5 shares of Common Stock. The price of each share of Series B
may be changed either through a majority vote of the Board of Directors through a resolution at a meeting of the Board of Directors,
or through a resolution passed at an Action Without Meeting of the unanimous Board of Directors, until such time as a listed secondary
and/or listed public market develops for the shares.
During the three months ended March 31,
2017, 1,406,829 shares of Series B Preferred Stock were converted into 7,034,145 shares of Common Stock of the Company per the
preferred shareholder’s instruction.
On March 31, 2017, the Company issued 24,000
shares of Series B Preferred Stock to settle legal expenses of $60,000. Based on the price of $.9075 per share for the Series B
Preferred Stock, which was determined by the market price of common stock at $.1815 per share on the issuance date multiplied by
the conversion ratio of 1:5, the fair value of the stock issuance of Series B Preferred Stock was $21,780, resulting in gain from
extinguishment of debt in amount of $38,220.
During the three months ended March 31,
2016, 72,718 shares of Series B Preferred Stock were converted into 363,589 shares of Common Stock of the Company per the preferred
shareholder’s instruction.
Series C Preferred Stock
The Company has designated 500 shares of
preferred stock as Series C Preferred Stock (“Series C”), with a par value of $.001 per share, of which 117 shares
were issued and outstanding as of March 31, 2017. Shares of Series C are non-dilutive to reverse splits. The conversion rate of
shares of Series C, however, would increase proportionately in the case of forward splits, and may not be diluted by a reverse
split following a forward split. Each one share of Series C converts to 100,000 shares of Common Stock. Each share of Series C
shall have one vote for any election or other vote placed before the shareholders of the Company. The price of each share of Series
C may be changed either through a majority vote of the Board of Directors through a resolution at a meeting of the Board of Directors,
or through a resolution passed at an Action Without Meeting of the unanimous Board of Directors, until such time as a listed secondary
and/or listed public market develops for the shares. Shares of Series C may not be converted into shares of Common Stock for a
period of: a) six months after purchase, if the Company voluntarily or involuntarily files public reports pursuant to Section 12
or 15 of the Securities Exchange Act of 1934; or b) 12 months if the Company does not file such public reports.
During the three months ended March 31,
2017, 1 share of Series C Preferred Stock were converted into 100,000 shares of Common Stock of the Company per the preferred shareholder’s
instruction.
Blank Check Preferred Stock
As of March 31, 2017, the Company has designated
100,000,000 shares of Blank Check Preferred Stock, of which 5,921,401 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 94,078,599 as of March 31, 2017.
Series D Preferred Stock
The Company has designated 800,000 shares
of preferred stock as Series D Preferred Stock (“Series D”), with a par value of $.001 per share, of which 400,000
shares were issued and outstanding as of March 31, 2017. Series D is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series D converts to 5 shares of Common Stock.
On June 30, 2014, the Company completed
the acquisition of Romeo’s NY Pizza. The Company issued 400,000 shares of Series D Preferred Stock (“Series D”)
as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $1,000,000
valuation. Shares of Series D are anti-dilutive to reverse splits. The conversion rate of shares of Series D, however, would increase
proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share
of Series D shall have voting rights equal to one vote of Common Stock. With respect to all matters upon which stockholders are
entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series D shall
vote together with the holders of Common Stock, without regard to class, except as to those matters on which separate class voting
is required by applicable law or the Corporation’s Certificate of Incorporation or Bylaws. The initial price of each share
of Series D shall be $2.50.
There was no change in Series D Preferred
Stock during the three months ended March 31, 2017 and 2016.
Series E Preferred Stock
The Company has designated 1,000,000 shares
of preferred stock as Series E Preferred Stock (“Series E”), with a par value of $.001 per share, of which 241,199
shares were issued and outstanding as of March 31, 2017. Series E is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series E converts to 5 shares of Common Stock.
On July 11, 2014, the Company completed
the acquisition of Edge View Properties, Inc. The Company issued 241,199 shares of Series E Preferred Stock (“Series E”)
as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $603,000
valuation. Shares of Series E are anti-dilutive to reverse splits. The conversion rate of shares of Series E, however, would increase
proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share
of Series E shall have voting rights equal to one vote of Common Stock. With respect to all matters upon which stockholders are
entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series E shall
vote together with the holders of Common Stock, without regard to class, except as to those matters on which separate class voting
is required by applicable law or the Corporation’s Certificate of Incorporation or Bylaws. The initial price of each share
of Series E shall be $2.50.
There was no change in Series E Preferred
Stock during the three months ended March 31, 2017 and 2016.
Series F Preferred Stock
The Company has designated 800,000 shares
of preferred stock as Series F Preferred Stock (“Series F”), with a par value of $.001 per share, of which 280,069
shares were issued and outstanding as of March 31, 2017. Series F is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series F converts to 5 shares of Common Stock.
The Company has designated 800,000 shares
of preferred stock as Series F1 Preferred Stock (“Series F1”), with a par value of $.001 per share, of which 140,754
shares were issued and outstanding as of March 31, 2017. Series F1 is “non-Voting stock”. Each one share of Series
F1 converts to 5 shares of Common Stock.
On May 15, 2014, the Company completed
the acquisition of We Three, LLC (d/b/a Affordable Housing Initiative) (“AHI”). The Company issued 280,069 shares of
Series F Preferred Stock (“Series F”) as consideration for this acquisition. The fair value of We Three LLC was $1,000,000
(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 three months ended March 31,
2017, 31,997 share of Series F1 Preferred Stock were converted into 159,985 shares of Common Stock of the Company per the preferred
shareholder’s instruction.
There was no change in Series F and F1
Preferred Stock during the three months ended March 31, 2016.
Series G Preferred Stock
The Company has designated 20,000,000 shares
of preferred stock as Series G Preferred Stock (“Series G”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series G is awarded “Voting Right” at the ratio of 1 vote per share
owned. Each one share of Series G converts to 1.25 shares of Common Stock.
The Company has designated 10,000,000 shares
of preferred stock as Series G1 Preferred Stock (“Series G1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series G1 is “non-Voting stock”. Each one share of Series G1 converts
to 1.25 shares of Common Stock.
There was no change in Series G and G1
Preferred Stock during the three months ended March 31, 2017 and 2016.
Series H Preferred Stock
The Company has designated 4,859,379 shares
of preferred stock as Series H Preferred Stock (“Series H”), with a par value of $.001 per share, of which 4,859,379
shares were issued and outstanding as of March 31, 2017. Series H is awarded “Voting Right” at the ratio of 1 vote
per share owned. Each one share of Series H converts to 1.25 shares of Common Stock.
The Company has designated 3,000,000 shares
of preferred stock as Series H1 Preferred Stock (“Series H1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series H1 is “non-Voting stock”. Each one share of Series H1 converts
to 1.25 shares of Common Stock.
On August 10, 2016, the Company completed
the acquisitions of FDR Enterprises, Inc.; Refreshment Concepts, LLC; and Repicci’s Franchise Group, LLC. (collectively referred
to as “Repicci’s Group”). Pursuant to the acquisition agreement, the Company agreed to issue 4,859,379 shares
of Series H Preferred Stock as consideration for the acquisition of Repicci’s Group. The combined book value of Repicci’s
Group was $(203,622). Based on the price of $.15 per share for the Series H Preferred Stock, which was determined by the market
price of common stock at $.12 per share on the acquisition date multiplied by the conversion ratio of 1:1.25, the fair value of
the stock issuance of Series H Preferred Stock was $728,907, resulting in the goodwill of $932,529. The 4,859,379 shares of Series
H Preferred Stock were issued during the three months ended March 31, 2017.
There was no change in Series H and H1
Preferred Stock during the three months ended March 31, 2016.
Series I Preferred Stock
The Company has designated 20,000,000 shares
of preferred stock as Series I Preferred Stock (“Series I”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series H is awarded “Voting Right” at the ratio of 1 vote per share
owned. Each one share of Series I converts to 1.50 shares of Common Stock.
During the three months ended March 31,
2017, one investor submitted a subscription agreement to the Company regarding the purchase of 29,412 shares of the Company’s
Series I Preferred Stock by cash payment of $10,000, which was collected during the first quarter of 2017. The transaction was
independently negotiated between the Company and the investor. The proceeds from the subscription agreement mitigated the Company’s
cash pressure in short term.
The 29,412 shares of Series I Preferred
Stock was not issued as of March 31, 2017. Accordingly, the Company recorded Series I preferred shares to be issued in amount of
$10,000 as of March 31, 2017.
Series J Preferred Stock
The Company has designated 10,000,000 shares
of preferred stock as Series J Preferred Stock (“Series J”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series J is awarded “Voting Right” at the ratio of 1 vote per share
owned. Each one share of Series J converts to 1.25 shares of Common Stock.
The Company has designated 7,500,000 shares
of preferred stock as Series J1 Preferred Stock (“Series J1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series J1 is “non-Voting stock”. Each one share of Series J1 converts
to 1.25 shares of Common Stock.
There was no change in Series J and J1
Preferred Stock during the three months ended March 31, 2017 and 2016.
Series K Preferred Stock
The Company has designated 9,607,840 shares
of preferred stock as Series K Preferred Stock (“Series K”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series K is awarded “Voting Right” at the ratio of 1 vote per share
owned. Each one share of Series K converts to 1.25 shares of Common Stock.
The Company has designated 35,000,000 shares
of preferred stock as Series K1 Preferred Stock (“Series K1”), with a par value of $.001 per share, of which 0 share
was issued and outstanding as of March 31, 2017. Series K1 is “non-Voting stock”. Each one share of Series K1 converts
to 1.25 shares of Common Stock.
There was no change in Series K and K1
Preferred Stock during the three months ended March 31, 2017 and 2016.
Common Stock
During the three months ended March
31, 2017, the Company issued 250,000 shares of Common Stock to a consultant for consulting services related to marketing and
business development. The fair value of this stock issuance was determined by the fair value of the Company’s Common
Stock on the grant date, at a price of approximately $.235 per share. Accordingly, the Company recognized stock based
compensation of $58,750 to the consolidated statements of operations for the three months ended March 31, 2017.
During the three months ended March 31,
2017, the note holder converted $2,785 principal, $1,000 processing cost reimbursement and $102 accrued interest into 777,400 shares
of common stock at a conversion price of $0.005 per share.
During the three months ended March 31,
2017, the note holder converted $6,000 principal into 200,000 shares of common stock at a conversion price of $0.03 per share.
On January 24, 2017, the Company issued
173,585 shares of Common Stock to settle $34,717 due to the prior owner of Repicci’s Franchise Group LLC, pursuant to the
Acquisition Agreement, dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s
Common Stock on the grant date, at a price of approximately $0.24 per share, resulting in loss from extinguishment of debt
in amount of $6,943.
On January 24, 2017, the Company issued
2,010,490 shares of Common Stock to settle $402,098 due to the prior owner of Refreshment Concepts LLC, pursuant to the Acquisition
Agreement, dated August 10, 2016. The fair value of this stock issuance was determined by the fair value of the Company’s
Common Stock on the grant date, at a price of approximately $0.24 per share, resulting in loss from extinguishment of debt
in amount of $80,420.
On March 20, 2017, the Company issued 60,000
shares of Common Stock to settle consulting fees of $15,000. The fair value of this stock issuance was determined by the fair value
of the Company’s Common Stock on the grant date, at a price of approximately $0.1965 per share, resulting in gain from
extinguishment of debt in amount of $3,210.
During the three months ended March 31,
2017, one investor submitted a subscription agreement to the Company regarding the purchase of 100,000 shares of Common Stock
by cash payment of $10,000. The transaction was independently negotiated between the Company and the investor. The proceeds from
the subscription agreement mitigated the Company’s cash pressure in short term.
14. WARRANTS
Pursuant to a consulting agreement with
an unrelated party, dated February 10, 2017, the Company agreed to grant total 800,000 warrants to a consultant for consulting
services related to marketing and business development. The initial allotment of 200,000 warrants were granted during the three
months ended March 31, 2017. The fair value of these warrants was measured using the Black-Scholes valuation model at the grant
date. The table below sets forth the assumptions for Black-Scholes valuation model on February 10, 2017.
Reporting Date
|
|
Fair Value
|
|
|
Term (Years)
|
|
|
Exercise Price
|
|
|
Market Price on Grant Date
|
|
|
Volatility Percentage
|
|
|
Risk-free Rate
|
|
2/10/2017
|
|
$
|
47,000
|
|
|
|
3
|
|
|
$
|
0.50
|
|
|
$
|
0.235
|
|
|
|
535%
|
|
|
|
0.0147
|
|
Accordingly, the Company recorded warrant
expenses of $47,000 during the three months ended March 31, 2017.
The following tables summarize all warrant
outstanding as of March 31, 2017, and the related changes during this period.
|
|
Number of Warrants
|
|
|
Weighted
Average Exercise Price
|
|
Stock Warrants
|
|
|
|
|
|
|
|
|
Balance at January 1, 2017
|
|
|
0
|
|
|
$
|
0
|
|
Granted
|
|
|
200,000
|
|
|
|
0.50
|
|
Exercised
|
|
|
0
|
|
|
|
0
|
|
Expired
|
|
|
0
|
|
|
$
|
0
|
|
Balance at March 31, 2017
|
|
|
200,000
|
|
|
|
0.50
|
|
Warrants Exercisable at March 31, 2017
|
|
|
200,000
|
|
|
$
|
0.50
|
|
15. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company had operating leases of $58,708
and $76,500 for the three months ended March 31, 2017 and 2016, respectively, consisting of the followings.
|
|
For the three months ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Restaurants
|
|
$
|
33,800
|
|
|
$
|
35,536
|
|
Lot
|
|
|
17,381
|
|
|
|
11,324
|
|
Office
|
|
|
7,527
|
|
|
|
29,308
|
|
Equipment Rentals
|
|
|
0
|
|
|
|
332
|
|
Total
|
|
$
|
58,708
|
|
|
$
|
76,500
|
|
16. SEGMENT REPORTING
The Company has four 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.
|
|
For the three months ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
Revenues:
|
|
|
|
|
|
|
We Three
|
|
$
|
46,010
|
|
|
$
|
40,613
|
|
Romeo’s NY Pizza
|
|
|
134,237
|
|
|
|
214,593
|
|
Repicci’s Group
|
|
|
260,653
|
|
|
|
–
|
|
Others
|
|
|
3,745
|
|
|
|
18,090
|
|
Consolidated revenues
|
|
$
|
444,645
|
|
|
$
|
273,296
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
33,621
|
|
|
$
|
29,970
|
|
Romeo’s NY Pizza
|
|
|
94,303
|
|
|
|
106,903
|
|
Repicci’s Group
|
|
|
151,305
|
|
|
|
–
|
|
Others
|
|
|
–
|
|
|
|
–
|
|
Consolidated cost of sales
|
|
$
|
279,229
|
|
|
$
|
136,873
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
15,043
|
|
|
$
|
32,383
|
|
Romeo’s NY Pizza
|
|
|
(38,954
|
)
|
|
|
2,349
|
|
Repicci’s Group
|
|
|
37,598
|
|
|
|
–
|
|
Others
|
|
|
(540,066
|
)
|
|
|
(238,594
|
)
|
Consolidated loss before taxes
|
|
$
|
(526,379
|
)
|
|
$
|
(203,862
|
)
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31, 2016
|
|
|
December 31, 2016
|
|
Assets:
|
|
|
|
|
|
|
We Three
|
|
$
|
231,476
|
|
|
$
|
216,433
|
|
Romeo’s NY Pizza
|
|
|
(6,757
|
)
|
|
|
19,241
|
|
Repicci’s Group
|
|
|
519,508
|
|
|
|
411,606
|
|
Others
|
|
|
1,828,428
|
|
|
|
1,824,729
|
|
Combined assets
|
|
$
|
2,572,655
|
|
|
$
|
2,472,009
|
|
16. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the
Company has analyzed its operations subsequent to March 31, 2017 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.
Notes payable:
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.
On April 21, 2017, the
Company entered into a Securities Purchase Agreement with an unrelated entity, pursuant to which the purchasers agreed to pay
the Company an aggregate of up to $600,000 for an aggregate of up to 660,000 in Principal Amount of Notes. The first tranche of
$330,000 was closed simultaneously (“Note 13-1”). Note 13-1 is convertible into common shares of the Company at the
conversion ratio of 60% of the lowest trading price on the primary trading market on which Company's common stock is quoted for
the last ten trading days prior to the conversion date. In addition, in connection with this Securities Purchase Agreement, the
Company granted purchasers 2,357,143 warrants with exercise price of $0.14 per share (“Warrants A”), 1,885,715 warrants
with exercise price of $0.175 per share (“Warrants B”) and 1,571,429 warrants with exercise price of $0.21 per share
(“Warrants C”). Warrants A, B and C are exercisable on the grant date and expire in three years, each of which represents
100% of the Principal Amount at the Closing divided by the respective exercise price.