The accompanying notes are an integral part of these unaudited consolidated financial statements
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited consolidated financial statements
The accompanying notes are an integral part of these unaudited consolidated financial statements
NOTES TO 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, 2017 and 2016 thereto contained in the Annual Report on Form
10-K for the year ended December 31, 2017.
Organization and Nature of Operations
Legacy Card Company (“Legacy”)
was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability
Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff Lexington Corp. (“Cardiff”, the “Company”),
a publicly held corporation.
In the first quarter of 2013, it was decided
to restructure Cardiff into a holding company that adopted a new business model known as "Collaborative Governance,"
a form of governance enabling businesses to take advantage of the power of a public company. Cardiff began targeting the acquisition
of 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 the year end December 31, 2016,
the Company had completed the acquisition of six businesses.
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 wholly-owned subsidiaries:
We Three, LLC (Affordable Housing Initiative) acquired
on May 15, 2014;
Romeo’s NY Pizza acquired on June 30, 2014;
Edge View Properties, Inc. acquired on July 16, 2014;
FDR Enterprises, Inc. acquired on August 10, 2016;
Refreshment Concepts, LLC acquired on August 10, 2016;
Repicci’s Franchise Group, LLC acquired on August
10, 2016.
2.
BASIS OF PRESENTATION,
AND GOING CONCERN
Basis of Presentation
The accompanying unaudited interim
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America, pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures have been omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying consolidated financial statements include normal recurring adjustments that are necessary for a
fair presentation of the results for the interim periods presented. These consolidated financial statements should be read in
conjunction with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017
included in our Annual Report on Form 10-K. The results of operations for the three and six months ended June 30, 2018 are
not necessarily indicative of results to be expected for the full fiscal year or any other periods.
The preparation of the consolidated financial
statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and
judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures. Actual results may differ
from these estimates.
Revenue Recognition
Adoption of ASC Topic 606, "Revenue
from Contracts with Customers"
On January 1, 2018, we adopted Topic 606
using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for
reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and
continue to be reported in accordance with our historic accounting under Topic 605.
There was no impact to the opening balance
of accumulated deficit or revenues for the six months ended June 30, 2018, as a result of applying Topic 606.
The Company applies a five-step approach
in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying
the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the
performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially
all of the Company’s revenue is recognized at the time control of the products transfers to the customer.
The Company generates revenue from our
subsidiaries primarily on a cash basis for sale of food items and monthly rentals of mobile homes. As allowed by a practical expedient
in Topic 606, the entity recognizes revenue in the amount to which the entity has a right to invoice. The term between invoicing
and when payment is due is not significant.
Our segmented revenue is disclosed more fully in our financial statements, see footnote 9 for
further details.
Going Concern
The accompanying consolidated financial
statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization
of assets and liabilities and commitments in the normal course of business. The Company has sustained operating losses since its
inception and has negative working capital and an accumulated deficit. These factors raise substantial doubts about the Company’s
ability to continue as a going concern. As of June30, 2018, the Company had shareholders’ deficit of $3,746,720. 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, 2017 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.
Property and Equipment
Property and equipment are carried at cost.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation and amortization of property and equipment is provided
using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
|
Classification
|
Useful Life
|
Equipment, furniture and fixtures
|
|
5 - 7 years
|
Leasehold improvements
|
|
10 years or lease term, if shorter
|
During the six months ended June 30,
2018, the Company disposed fixed asset through sales of assets and transfer and sales of assets related to a franchise sale,
the related liabilities such as notes payable (see Note 3 for further details), resulting in net cash flow of $114,818 and a
gain on sale of assets $15,050 from disposal of fixed assets.
Fair Value
ASC 820 Fair Value Measurements and Disclosures
(“ASC 820”) defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair
value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels
of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices
that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven
valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated
by, third-party pricing services.
Level 3: Unobservable inputs to measure
fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable
inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost
and effort.
The following table sets forth a reconciliation
of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of Derivative Liability – December 31, 2017
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2,236,656
|
|
|
$
|
2,236,656
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of Derivative Liability – June 30, 2018
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,983,308
|
|
|
$
|
1,983,308
|
|
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU
No. 2016-02
,” Leases” (Topic 842)
which includes a lessee accounting model that recognizes two types of
leases - finance leases and operating leases. The standard requires that a lessee recognize on the balance sheet assets and
liabilities for leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses
and cash flows arising from a lease by a lessee will depend on its classification as a finance or an operating lease. New
disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of
cash flows arising from leases are also required. These disclosures include qualitative and quantitative requirements,
providing information about the amounts recorded in the financial statements. ASU 2016-02 will be effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating
the effect its adoption of this standard, if any, on our consolidated financial position, results of operations or cash
flows.
In May 2016, the FASB issued ASU No. 2016-12,
“
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
”, to
clarify certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications
and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted.
The effective date and transition requirements for these amendments are annual reporting periods beginning after December 15,
2017, including interim reporting periods therein, and that would also permit public entities to elect to adopt the amendments
as of the original effective date as applicable to reporting periods beginning after December 15, 2016. The new guidance allows
for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect
adjustment as of the date of adoption. We have determined that no changes to our revenue recognition is required at this
time. We adopted the new guidance on January 1, 2018. See revenue recognition policy above for further details.
In May 2017, the FASB issued ASU No. 2017-09,
“Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting”,
to provide clarity and reduce both (1) diversity in
practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change
to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions
of a share-based payment award require an entity to apply modification accounting in ASC 718. The amendments are effective for
fiscal years beginning after December 15, 2017 and should be applied prospectively to an award modified on or after the adoption
date. Early adoption is permitted, including adoption in an interim period. The Company adopted the standard on January 1, 2018,
the Company has determined that there is no material impact on the financial statements.
3. ACCRUED EXPENSES
As of June 30, 2018, and December 31, 2017,
the Company had accrued expenses of $955,377 and $740,696, respectively, consisted of the following:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Accrued salaries – related party
|
|
$
|
685,000
|
|
|
|
470,000
|
|
Lease payable – related party
|
|
|
25,250
|
|
|
|
25,250
|
|
Accrued expenses – other
|
|
|
245,127
|
|
|
|
245,446
|
|
Total
|
|
$
|
955,377
|
|
|
|
740,696
|
|
4. NOTES PAYABLE
For
the six months ended June 30, 2018, the company received $0 cash proceeds, from a line of credit and repaid $7,048 in cash.
Notes payable at June 30, 2018 and December
31, 2017 are summarized as follows:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Notes Payable – Unrelated Party
|
|
$
|
98,379
|
|
|
$
|
215,979
|
|
Notes Payable – Related Party
|
|
|
152,798
|
|
|
|
144,189
|
|
Total
|
|
|
251,177
|
|
|
|
360,168
|
|
Current portion
|
|
|
(251,177
|
)
|
|
|
(360,168
|
)
|
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. No warrants had been exercised before the expiration. As of June 30, 2018, the
Company is in default on this debenture. The balance of the note was $10,989 and $10,989 at June 30, 2018 and December 31, 2017,
respectively.
As of June 30, 2018, the Company had lease
payable of $55,570 in connection with 2 capital leases on 2 Mercedes Sprinter Vans for the ice cream section and 2 auto loans related
to our pizza business. There are purchase options at the end of all lease terms that are based on the fair market value of the
vans at the time. The leases are not in default at the current time.
The balance of $31,820 in notes payable
to unrelated party was due to the auto loans for the vehicles used in the Pizza restaurants and Repicci’s Group and for daily
operations. The loans carry interest from 0% to 6% interest and are not currently in default.
During
the period ended June 30, 2018, the Company sold and or disposed of assets related to one of its subsidiaries and in turn transferred
and paid in full two notes related to automobiles in addition to reductions related to scheduled payments, reducing our outstanding
unrelated party notes payable by $117,600.
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 June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017, respectively. Note 2 is currently
in default.
As of June 30, 2018 and December 31,
2017, the Company also had note payable of $52,798 and $44,189, respectively, to the prior owner of Repicci’s
Group. For the six months ended June 30, 2018, a related party loaned the Company $8,609, which is due on demand at no
interest.
5. 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. The Company has recorded derivative liabilities associated with convertible debt instruments,
as more fully discussed at Note 6.
As
of June 30, 2018, the company received $402,090 net cash proceeds, from convertible notes payable and repaid $-0- in cash.
The company recorded amortization of debt discount of $201,440 and $434,960 related to convertible notes, during the three
and six-months ended June 30, 2018, respectively.
Convertible notes at June 30, 2018 and December 31, 2017 are
summarized as follows:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Convertible Notes Payable – Unrelated Party
|
|
$
|
1,178,340
|
|
|
$
|
861,875
|
|
Convertible Notes Payable – Related Party
|
|
|
165,000
|
|
|
|
165,000
|
|
Discount on Convertible Notes Payable - Unrelated Party
|
|
|
(300,284
|
)
|
|
|
(245,494
|
)
|
Total - Current
|
|
$
|
1,043,056
|
|
|
$
|
781,381
|
|
Convertible Notes Payable – Unrelated Party
During
the six months ended June 30, 2018, the Company borrowed an aggregate of $395,000, net of original issue discounts and fees of
$12,250, under convertible notes payable. As of June 30, 2018, and December 31, 2017, the Company had outstanding convertible notes
payable of $1,043,056
and $781,381, net of unamortized discounts
of $300,284 and $245,494, respectively. The outstanding convertible notes of the Company are unsecured, bear interest between 8%
and 20% per annum and mature through April 2019. Aggregate amortization of the debt discounts on convertible debt for the three
and six-months ended June 30, 2018 and 2017 was $233,520 and $434,960 and $30,277 and $143,639, respectively.
Four of the above referenced convertible
notes payable are convertible at $0.03 per share or 50% of market. Five of the above referenced convertible notes payable are convertible
at $0.25 per share or 50% of market. One of the above referenced convertible notes payable are convertible at $0.30 per share or
50% of market. One of the above referenced notes is convertible at 40% of the lowest sale price of the common stock during the
10 consecutive trading days prior to the date of conversion. Two of the above referenced notes is convertible at 60% of the lowest
sale price of the common stock during the 10 consecutive trading days prior to the date of conversion. One of the above referenced
notes is convertible at 60% of the lowest sale price or bid (whichever is lower) of the common stock during the 20 consecutive
trading days prior to the date of conversion. One of the above referenced notes is convertible at 60% of the lowest sale price
of the common stock during the 20 consecutive trading days prior to the date of conversion. Two of the above referenced notes is
convertible at 60% of the lowest sale price of the common stock during the 15 consecutive trading days prior to the date of conversion.
One of the above referenced notes is convertible at 60% of the lowest trading price of the common stock during the 25 consecutive
trading days prior to the date of conversion. As of June 30, 2018, twelve of these convertible notes are in default and have default
fees and default interest ranging from 5% to 20%.
During the three and six months
ended June 30, 2018, the Company received conversion notices for $7,785 and $95,285 of convertible debt and $21,780 and
$41,902 in interest and fees, respectively, which was converted into 4,107,877 and 12,407,985 shares,
respectively.
Convertible Notes Payable – Related Party
Resulting from the tainted issue by the
derivative financial instrument of the convertible notes, The Company determined that the conversion features contained in convertible
note payable with related party carrying value represents an embedded derivative instrument that meets the requirements for liability
classification under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the
Company’s balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was
measured using the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance
sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income
or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.
See Footnote 6 for more information on derivative liabilities.
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 is
convertible into Common Shares of the Company at $0.03 per and interest of 12% per year, matured in August 2009, and is unsecured.
The Company is currently in default on Debenture 1. The balance of Debenture 1 was $150,000 and $150,000 at June 30, 2018 and December
31, 2017, 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 is
convertible into Common Shares of the Company at $0.03 per and interest of 12% per year, matured in August 2009, and is unsecured.
The Company is currently in default on Debenture 1. The balance of Debenture 2 was $15,000 and $15,000 at June 30, 2018 and December
31, 2017, respectively.
6. FAIR VALUE MEASUREMENT
The Company adopted the provisions of Accounting
Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines
fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels
of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active
markets for identical assets or liabilities.
Level 2 – Observable inputs other
than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or
can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs to
the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined
based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was
no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.
The carrying value of the Company’s
cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable),
and other current assets and liabilities approximate fair value because of their short-term maturity.
As of June 30, 2018 and December 31, 2017,
the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative liabilities
as level 3 and values its derivatives using the methods discussed. While the Company believes that its valuation methods are appropriate
and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary
assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price
of the underlying common stock of the Company.
As of June 30, 2018 and December 31, 2017,
the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of June 30,
2018, in the amount of $1,272,044 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 and six months ended June
30, 2018:
Derivative Liability, December 31, 2017
|
|
|
2,236,656
|
|
Day 1 Loss
|
|
|
103,392
|
|
Discount from derivatives
|
|
|
257,090
|
|
Mark to market adjustment
|
|
|
(633,682
|
)
|
Resolution of derivative liability upon conversion
|
|
|
(95,456
|
)
|
Derivative Liability, March 31, 2018
|
|
|
1,868,000
|
|
Day 1 Loss
|
|
|
293,416
|
|
Discount from derivatives
|
|
|
227,500
|
|
Mark to market adjustment
|
|
|
(344,812
|
)
|
Resolution of derivative liability upon conversion
|
|
|
(60,796
|
)
|
Derivative Liability, June 30, 2018
|
|
|
1,983,308
|
|
Net
gain for the period included in earnings relating to the liabilities held during the period ended June 30, 2018 was $581,687.
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 June
30, 2018, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of the related
derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable
inputs used in the fair value measurement of each of the Company’s derivative instruments.
The valuation of the derivative liabilities
attached to the convertible debt was arrived at through the use of the Lattice Bi-nominal Option Pricing Model and the following
assumptions:
|
|
|
For the period ended
|
|
|
|
|
June 30, 2018
|
|
|
|
December 31, 2017
|
|
Volatility
|
|
|
166.55%-240.09%
|
|
|
|
111.09% - 220.65%
|
|
Risk-free interest rate
|
|
|
1.90%-2.33%%
|
|
|
|
0.51% - 1.76%
|
|
Expected term
|
|
|
.02-5.14
|
|
|
|
.02-1.00
|
|
Warrants
The table below sets forth the assumptions
for Black-Scholes valuation model on June 30, 2018.
|
|
Six Month Period Ended
June 30, 2018
|
|
Volatility
|
|
|
240%
|
|
Risk-free interest rate
|
|
|
2.63%
|
|
Expected term
|
|
|
2.73
|
|
7. CAPITAL STOCK
Series B Preferred Stock
During
the six months ended June 30, 2018
, 10,000 shares of
Series B Preferred Stock were converted into 50,000 shares of Common Stock of the Company per the preferred
shareholder’s instructions.
Series H Preferred Stock
During the six- months ended June 30, 2018,
4,859,469 shares of Series H Preferred Stock were converted into 6,074,223 shares of Common Stock of the Company per the preferred
shareholder’s instruction.
Series I Preferred Stock
During
the six months ended June 30, 2018, 203,655 shares of Series I Preferred Stock were converted into 305,483 shares of Common Stock
of the Company per the preferred shareholder’s instruction.
Common
Stock
See Note 5 for further issuance information
related to conversion of debt to common stock.
During the six months ended June 30, 2018,
the Company issued 3,886,930 shares to third-party consultants. The fair market value of the shares on the date of issuances was
$0.0186 to $0.0247 per share, at a total cost of $86,751.
8. COMMITMENTS AND CONTINGENCIES
We have an employment agreement, renewed
May 15, 2014, with the Chairman, Mr. Thompson amended on January 1, 2017, whereby we provide for compensation of $25,000 per month.
We have an employment agreement with the
Chief Executive Officer, Mr. Cunningham, amended on January 1, 2017, whereby we provide for compensation of $25,000 per month.
We have an employment agreement with the
Chief Operating Officer, Mr. Roberts, effective June 2016, whereby we provide for compensation of $10,000 per month.
There are no other stock option plans,
retirement, pension, or profit sharing plans for the benefit of our sole officer and director other than as described herein
9. 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 June 30, 2018 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
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Revenues:
|
|
|
|
|
|
|
We Three
|
|
$
|
47,386
|
|
|
$
|
48,687
|
|
Romeo’s NY Pizza
|
|
|
156,719
|
|
|
|
150,640
|
|
Repicci’s Group
|
|
|
356,758
|
|
|
|
361,159
|
|
Total revenues
|
|
$
|
560,863
|
|
|
$
|
560,486
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
75,089
|
|
|
$
|
45,566
|
|
Romeo’s NY Pizza
|
|
|
114,391
|
|
|
|
106,253
|
|
Repicci’s Group
|
|
|
198,575
|
|
|
|
420,956
|
|
Total cost of sales
|
|
$
|
376,912
|
|
|
$
|
572,775
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
(27,410
|
)
|
|
$
|
27,260
|
|
Romeo’s NY Pizza
|
|
|
25,723
|
|
|
|
11,480
|
|
Repicci’s Group
|
|
|
142,670
|
|
|
|
(155,027
|
)
|
Others
|
|
|
(744,852
|
)
|
|
|
(657,387
|
)
|
Net (loss) for the period
|
|
$
|
(603,869
|
)
|
|
$
|
(773,674
|
)
|
|
|
For the six months ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Revenues:
|
|
|
|
|
|
|
We Three
|
|
$
|
98,663
|
|
|
$
|
94,697
|
|
Romeo’s NY Pizza
|
|
|
304,015
|
|
|
|
284,877
|
|
Repicci’s Group
|
|
|
426,764
|
|
|
|
621,812
|
|
Others
|
|
|
–
|
|
|
|
3,745
|
|
Total revenues
|
|
$
|
829,442
|
|
|
$
|
1,005,131
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
113,488
|
|
|
$
|
79,187
|
|
Romeo’s NY Pizza
|
|
|
212,847
|
|
|
|
200,556
|
|
Repicci’s Group
|
|
|
280,730
|
|
|
|
572,261
|
|
Totalcost of sales
|
|
$
|
595,922
|
|
|
$
|
852,004
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
(17,218
|
)
|
|
$
|
42,303
|
|
Romeo’s NY Pizza
|
|
|
27,750
|
|
|
|
(27,474
|
)
|
Repicci’s Group
|
|
|
85,976
|
|
|
|
(117,429
|
)
|
Others
|
|
|
(793,097
|
)
|
|
|
(1,197,453
|
)
|
Net (loss) for the period
|
|
$
|
(696,589
|
)
|
|
$
|
(1,300,053
|
)
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Assets:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
313,677
|
|
|
$
|
235,532
|
|
Romeo’s NY Pizza
|
|
|
95,527
|
|
|
|
158,551
|
|
Repicci’s Group
|
|
|
272,965
|
|
|
|
293,216
|
|
Others
|
|
|
587,785
|
|
|
|
631,762
|
|
Total assets
|
|
$
|
1,269,955
|
|
|
$
|
1,319,061
|
|
10. RELATED
PARTY TRANSACTIONS
Due to Officers
During the six months ended June 30, 2018, the Company
repaid a total of $6,970 to officers.
11. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the
Company has analyzed its operations subsequent to June30, 2018 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.
Red Rock Travel Group:
Cardiff
Lexington Corporation (OTCQB:CDIX) and Red Rock Travel Group (Private: “Red Rock Travel Group”) in July 2018
signed a definitive merger agreement under which Red Rock Travel Group will merge into Cardiff Lexington as its wholly owned
subsidiary has been completed effected July 30th, 2018. In connection with the closing of the acquisition, on July 30th, 2018
a Preferred “K” Class of stock with a par value of $0.001 was established and issued. The Preferred
“K” Class of stock rights and privileges include voting rights, a conversion ratio of 1:1.25 and were distributed
at the adjusted rate of $0.021 per share for a total of 8,200,562 representing a value of $175,000. These Preferred
“K” shares have a lock-up/leak-out limiting the sale of stock for 12 months after which conversions and sales are
limited to 20% of their portfolio per year, pursuant to the terms of the Forward Acquisition Agreement.
PLATINUM TAX DEFENDERS:
Cardiff
Lexington Corporation (OTCQB:CDIX) and Platinum Tax Defenders (Private: “Platinum Tax Defenders”) as
previously announced on July 18
th
, 2018 signing a definitive merger agreement under which Platinum Tax Defenders
will merge into Cardiff Lexington as its wholly owned subsidiary has been completed effected July 30
th
, 2018.
Audited financials will follow in an upcoming 8-K within the required 75-day period following the closing.
In
connection with the closing of the acquisition, on July 30
th
, 2018 a Preferred “L” Class of stock with
a par value of $0.001 was established and issued. The Preferred “L” Class of stock rights and privileges include
voting rights, a conversion ratio of 1:1.25 and were distributed at the adjusted rate of $0.013 per share for a total of
98,307,692 representing a value of $1,278,000. These Preferred “L” shares have a lock-up/leak-out limiting the
sale of stock for 12 months after which conversions and sales are limited to 20% of their portfolio per year, pursuant to the
terms of the Acquisition Agreement.
Notes payable:
LEONITE CAPITAL:
The Company issued
a $1,060,400 thirty (30) month convertible secured promissory note at 12% annual interest to Leonite Capital, LLC, a Delaware limited
liability company. This note provides residual ownership of 10% of Platinum Tax Defenders; a default interest; default penalty,
4,000,000 warrants exercisable at $0.04 per share; prepayment clause; a 40% conversion discount; key man insurance policy; and
Piggyback rights.
AUCTUS CAPITAL:
the company entered
into a Securities Purchase Agreement dated April 9, 2018 (the "Agreement") , by and between the Corporation and Auctus
Fund, LLC, in connection with the issuance of the 10% convertible note, in the aggregate principal amount of $145,000.00 (the
"Note"), convertible into shares of common stock, $0.001 par value per share, (the "Common Stock"), upon the
terms and subject to the limitations and conditions set forth in such Note, along with an irrevocable letter agreement with Standard
Registrar and Transfer Co., Inc., the Company's transfer agent (the "Transfer Agent"), with respect to the reserve of
shares of common stock to be issued upon any conversion of the Note; the issuance of such shares of common stock in connection
with a conversion of the Note; and the indemnification of the Transfer Agent for all loss, liability, or expense in carrying out
the authority and direction contained in the irrevocable letter agreement (the "Letter Agreement").
Stock
Issuances:
Subsequent
to June 30, 2018 68,056,520 shares were issued for debt conversion, interest and fees, of approximately $266,000.