CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Legacy Card Company (“Legacy”)
was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability
Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff Lexington Corp (formerly Cardiff International,
Inc.) (“Cardiff”, the “Company”), a publicly held corporation.
Organization and Nature of Operations
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.
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;
Red Rock Travel Group, was acquired July31, 2018
Platinum Tax Defenders, LLC was acquired July 31, 2018
Principles of Consolidation
The consolidated financial statements include
the accounts of Cardiff, and its wholly-owned subsidiaries: We Three, LLC; Romeo’s NY Pizza; Edge View Properties, Inc.;
FDR Enterprises, Inc.; Refreshment Concepts, LLC, Repicci’s Franchise Group, LLC, Red Rock Travel Group, and Platinum Tax
Defenders LLC. All significant intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts
may have been reclassified for consistency with the current period presentation. These reclassifications would have no material
effect on the reported financial results.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principals in the United States of America (US GAAP) requires management to make
estimates and assumptions that affect certain reported amounts and disclosures. Management uses its historical records and knowledge
of its business in making estimates. Accordingly, actual results could differ from those estimates.
Revenue Recognition
On January 1, 2018, we adopted ASC 606,
Revenue from contracts with customers (“Topic 606”) using the modified retrospective method applied to those contracts
which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under
Topic 606, 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 year ended December 31, 2018, as a result of applying Topic 606.
The Company applies a five-step approach
in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying
the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the
performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially
all of the Company’s revenue is recognized at the time control of the products transfers to the customer.
The Company generates revenue from our
subsidiaries primarily on a cash basis for sale of food items and monthly rentals of mobile homes. As allowed by a practical expedient
in Topic 606, the entity recognizes revenue in the amount to which the entity has a right to invoice. The term between invoicing
and when payment is due is not significant.
Our subsidiary Repicci, generates revenues
through franchise fees. Revenues from franchise fees are recognized in accordance with guidance Topic 606, as the fees are earned.
One-third of the revenues are recognized within 60 days and the balance are recognized over the life of the franchise agreement,
which can be up to 15 years.
Our segmented revenue is disclosed more
fully in our financial statements, see Footnote 12 for further details.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable is reported on the
balance sheet at gross amounts due to the Company. Management closely monitors outstanding accounts receivable and charges off
to expense any balances that are determined to be uncollectible. As of March 31, 2019 and December 31, 2018, the Company had accounts
receivable of $17,320 and $64,345, respectively. Accounts receivables are primarily generated from our subsidiaries in their normal
course of business.
Inventory
Inventory consists of finished goods purchased,
which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out (FIFO) method. The
Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of
any anticipated changes in future demand.
Property and Equipment
Property and equipment are carried at cost.
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation and amortization of property and equipment is provided
using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
Classification
|
Useful Life
|
Equipment, furniture and fixtures
|
5 - 7 years
|
Leasehold improvements
|
10 years or lease term, if shorter
|
During the three months ended March 31,
2019 and the year ended December 31, 2018, depreciation and amortization expense was $17,692 ($12,956 is included in Cost of Goods
Sold) and $80,165 ($57,468 is included in Cost of Goods Sold), respectively.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands are
not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment
testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation
for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal
projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those
that would be used by other marketplace participants. During the three months ended March 31, 2019 and the year-ended December
31, 2018, the company had Goodwill impairment of $-0- and $1,459,725, respectively, related to its acquisitions of FDR Enterprises,
Inc.; Refreshment Concepts, LLC; and Repicci’s Franchise Group, LLC. (collectively referred to as “Repicci’s
Group”) and Red Rock Travel Group. The Company based this decision on impairment testing off the underlying assets, expected
cash flows, decreased asset value and other factors.
Valuation of long-lived assets
In accordance with the provisions of Accounting
Standards Codification (“ASC”) Topic 360-10-5, “
Impairment or Disposal of Long-Lived Assets
”, all
long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Valuation of Derivative Instruments
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 815-10,
Derivatives and Hedging (“ASC 815-10”)
, requires
that embedded derivative instruments be bifurcated and assessed, along with freestanding derivative instruments such as convertible
promissory notes, on their issuance date to determine whether they would be considered a derivative liability and measured at their
fair value for accounting purposes. The Company evaluates all of it financial instruments, including stock purchase warrants, to
determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then
revalued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option based simple derivative financial
instruments, the Company uses the Lattice Binomial option pricing model to value the derivative instruments at inception and subsequent
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is reassessed at the end of each reporting period.
Beneficial Conversion Feature
For conventional convertible debt where
the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
and related debt discount.
When the Company records a BCF, the relative
fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional
paid in capital) and amortized to interest expense over the life of the debt.
Fair Value Measurements
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon the
level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1)
market participant assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an
entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances
(unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level
3). The three levels of the fair value hierarchy are described below:
Level Input Definition
Level 1
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
Level 2
|
Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date.
|
Level 3
|
Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
The following table presents certain investments
and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s Consolidated
Balance Sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2019 and December 31, 2018.
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair Value of Derivative Liability –
March 31, 2019
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
6,475,205
|
|
|
$
|
6,475,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair Value of Derivative Liability –
December 31, 2018
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,870,625
|
|
|
$
|
1,870,625
|
|
Stock-Based Compensation – Employees
The Company accounts for its stock based
compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement
principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant
to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine
the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which
it is probable that performance will occur.
If the Company is a newly formed corporation
or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement
memorandum (based on sales to third parties), or weekly or monthly price observations would generally be more appropriate than
the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked
quotes and lack of consistent trading in the market.
Generally, all forms of share-based payments,
including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based
payments is recorded in general and administrative expense in the statements of operations.
Stock-Based Compensation – Non Employees
Equity Instruments Issued to Parties Other Than Employees
for Acquiring Goods or Services
The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting
Standards Codification (“Sub-topic 505-50”).
Income Taxes
Income taxes are determined in accordance
with ASC Topic 740, “Income
Taxes
” (“ASC 740”). Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted
income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC 740 prescribes a comprehensive model
for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken
or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the three month period ended March
31, 2019 and year ended December 31, 2018 the Company did not have any interest and penalties associated with tax positions. As
of December 31, 2018, the Company did not have any significant unrecognized uncertain tax positions.
Earnings (Loss) per Share
FASB ASC Subtopic 260,
Earnings Per
Share
(“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available
to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include
the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been
issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares.
The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the
treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock
can result in a greater dilutive effect from potentially dilutive securities.
The following table sets forth the computation of basic and
diluted earnings per common share for the three months ended March 31, 2019 and the year ended December 31, 2018. During a period
of net loss, all potentially dilutive securities are anti-dilutive. Accordingly, for the three months ended March 31, 2019 and
the year ended December 31, 2018 potentially dilutive securities have been excluded from the computations since they would be anti-dilutive.
However, these dilutive securities could potentially dilute earnings per share in the future (weighted average reflected post 1500:1
reverse stock split):
|
|
For the three months and year ended
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(4,871,846
|
)
|
|
$
|
(6,265,251
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
490,602,827
|
|
|
|
602,038
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
This does not include the potential dilutive
effect if all exercisable warrants were exercised or conversions of convertible notes and convertible preferred stock as described
below as of March 31, 2019:
Principal and Interest conversion
|
|
|
601,367,618
|
|
Warrants
|
|
|
8,749,287
|
|
Preferred Stock conversion
|
|
|
179,106,727
|
|
Total
|
|
|
789,223,632
|
|
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 March 31, 2019, the Company had shareholders’ deficit of $9,022,580. 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 March
31, 2019 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going
concern.
The ability of the Company to continue
as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash
infusions. Management has prospective investors and believes the raising of capital will allow the Company to pursue new acquisitions.
There can be no assurance that the Company will be able to obtain sufficient capital from debt or equity transactions or from operations
in the necessary time frame or on terms acceptable to it. Should the Company be unable to raise sufficient funds, it may be required
to curtail its operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that
the Company will be able to operate profitably on a consistent basis, or at all, in the future. Should the Company not be able
to raise sufficient funds, it may cause cessation of operations.
Recently Issued Accounting Pronouncements
Adoption of ASU 2016-02, Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its
balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for
a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative
information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty
of cash flows arising from leases. For public companies, The Company adopted this standard on January 1, 2019 using the modified
retrospective method. The new standard provides a number of optional practical expedients in transition. The Company elected the
‘package of practical expedients’, which permitted the Company not to reassess under the new standard its prior conclusions
about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition
practical expedients.
On adoption, the Company recognized a right of use asset of
$430,640, operating lease liabilities of $430,640 with a cumulative effect adjustment to accumulated deficit of $25,252, based
on the present value of the remaining minimum rental payments under current leasing standards for its existing operating lease.
The new standard also provides practical expedients for a company’s
ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease
term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.
Recent accounting pronouncements not
yet adopted
In May 2017, the FASB issued ASU No.
2017-09,
“Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”,
to
provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic
718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU
provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in ASC 718. The amendments are effective for fiscal years beginning after December 15, 2017 and
should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including
adoption in an interim period. The Company adopted the standard on January 1, 2018, which did not have a material impact on
the financial statements.
We expect the adoption will have an immaterial
impact to our comparative net income or loss and as such comparative information has not been restated and continues to be reported
under the accounting standards in effect for those periods. We also expect the impact of the adoption of the new standard to be
immaterial to our net income or loss on an ongoing basis, due to the nature of our revenues.
In June 2016, the FASB amended guidance
related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, which will be effective January 1, 2020. The guidance replaces the incurred loss
impairment methodology with an expected credit loss model for which a Group recognizes an allowance based on the estimate of expected
credit loss. The Company does not expect that the adoption of the standard to have an impact on the Company’s financial
statements.
Other pronouncements issued by the FASB or other authoritative
accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the
Company’s financial position, results of operations or cash flows.
2. ACCRUED EXPENSES
As of March 31, 2019, and December 31,
2018, the Company had accrued expenses of $1,549,076 and $1,310,074, respectively, consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accrued salaries – related party
|
|
|
847,665
|
|
|
|
747,000
|
|
Accrued expenses – other
|
|
|
701,411
|
|
|
|
563,074
|
|
Total
|
|
|
1,549,076
|
|
|
|
1,310,074.0
|
|
3.
PLANT AND EQUIPMENT, NET
Plant and equipment, net as of March 31,
2019 and 2018 was $362,184 and $325,716, respectively, consisting of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Furniture, fixture and equipment
|
|
|
716,568
|
|
|
|
715,466
|
|
Leasehold improvements
|
|
|
161,166
|
|
|
|
161,166
|
|
Total
|
|
|
877,734
|
|
|
|
876,632
|
|
Less: accumulated depreciation
|
|
|
(515,550
|
)
|
|
|
(495,331
|
)
|
Plant and equipment, net
|
|
|
362,184
|
|
|
|
381,301
|
|
During the three months ended March 31,
2019 and 2018, depreciation expense was $17,692 and $22,463, respectively. The Company accounts for depreciation as a separate
item in the operational expense of $4,737 and $3,258, respectively and included $12.956 and $19,205, respectively in depreciation
in cost of goods sold.
4.
LAND
As of March 31, 2019 and December 31, 2018,
the Company had land of $603,000 located in Salmon, Idaho with area of approximately 30 acres, which was in connection with the
acquisition of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E Preferred Stock as consideration
for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $603,000 valuation. The
land is currently vacant and is expected to be developed into residential community. The value of the land is not subject to be
depreciated.
5.
LINE OF CREDIT
On December 28, 2016, the Company entered
into an unsecured Business Line of Credit Agreement with Fundation Group LLC (“Fundation”), pursuant to which the Company
was allowed to take a draw from Fundation up to $20,000 from time to time. The Line of Credit bears interest at a rate of 11.49%
per annum, subject to increase or decrease with 90 days notice. There was an initial closing fee of $500 and a 2% draw fee on subsequent
draws. Monthly principal and interest payments are due and the line is due in full in 18 months from the latest draw. The outstanding
principal and interest will be due in payments over 18 months.
As of March 31, 2019 and December 31, 2018,
The Company had balance of $1,999 and $1,999, respectively. During the three months ended March 31, 2019, total cash advanced
amounted to $-0- and cash payment made was $-0-.
6.
RELATED PARTY TRANSACTIONS
Due to Officers and Officer Compensation
During the three months ended March 31, 2019 and 2018, the Company
borrowed and repaid a total of $30,000 and $-0-, respectively to related parties.
The Company borrows funds from Daniel Thompson,
who is a Shareholder and Officer of the Company. The terms of repayment stipulate the unsecured loans are due 24 months from issuance
or on demand, at an annual interest rate of six percent. As of March 31, 2019 and December 31, 2018, the Company had $107,640 and
$77,640 due (included in due to officers and shareholders on the financial statements) to Daniel Thompson, respectively.
In addition, the Board of Directors of
the Company approved to increase Daniel Thompson’s compensation to $25,000 per month from $20,000 effective January 1, 2017.
Accordingly, a total salary of $75.000 and $300,000 were accrued and reflected as an expense to Daniel Thompson during the three
months ended March 31, 2019 and the year ended December 31, 2018, respectively. The accrued salaries payable to Daniel Thompson
was $367,500 and $317,500 as of Mach 31, 2019 and December 31, 2018, 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 $120,000 and $60,000 were accrued and reflected as an expense during the year ended December 31, 2017
and 2016, respectively. The total balance due to Mr. Roberts for accrued salaries at March 31, 2019 and December 31, 2018 were
$137,000 and $107,000, 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 $300,000 were accrued and reflected as an expense during the three months ended March 31, 2019
and the year ended December 31, 2018, respectively. The accrued salaries payable to Daniel Mr. Cunningham was $372.500 and $322,500
as of Mach 31, 2019 and December 31, 2018, respectively.
Notes Payable – Related Party
The Company has entered into several unsecured
loan agreements with related parties (see below; Footnote 7, Notes Payable – Related Party; and Footnote 8 Convertible Notes
Payable – Related Party).
Preferred Stock -
During the year ended December 31, 2018,
the Company agreed to issue 125,000,000 preferred I shares each to Mr. Thompson and Mr. Cunningham, which were reflected as preferred
shares to be issued on the financial statements at a total cost of stock compensation of $200,000. During the three months ended
March 31, 2019, the shares were issued.
7. NOTES PAYABLE
For the three months ended March 31, 2019,
the company received $-0- cash proceeds, from notes payable and repaid $-0- in cash.
Notes payable at March 31, 2019 and December
31, 2018 are summarized as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Loans Payable Unrelated Party
|
|
$
|
466,579
|
|
|
$
|
665,488
|
|
Notes Payable – Unrelated Party
|
|
|
10,989
|
|
|
|
10,989
|
|
Notes Payable – Related Party
|
|
|
357,095
|
|
|
|
265,242
|
|
Total
|
|
|
834,663
|
|
|
|
941,719
|
|
Current portion
|
|
|
(834,663
|
)
|
|
|
(941,719
|
)
|
Long-term portion
|
|
$
|
–
|
|
|
$
|
–
|
|
Loans and 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 March 31, 2019, the
Company is in default on this debenture. The balance of the note was $10,989 at March 31, 2019 and December 31, 2018.
As of March 31, 2019, the Company had lease
payable of $32,360 in connection with two capital leases on two Mercedes Sprinter Vans for the ice cream section and two 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.
Notes payable to unrelated party of $31,820
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.
The balance in notes payable to unrelated
parties of $402,399, were assumed in connection the acquisition of Red Rock Travel.
Notes Payable – Related Party
On September 7, 2011, the Company entered
into a Promissory Note agreement (“Note 3”) with a related party for $50,000. Note 1 bears interest at 8% per year
and matures on September 7, 2016. Interest is payable annually on the anniversary of Note 3, and the principal and any unpaid interest
will be due upon maturity. In conjunction with Note 3, the Company issued 2,500,000 shares of its Common Stock to the lender. As
a result of the shares issued in conjunction with Note 1, the Company recorded a $50,000 debt discount during 2011. The balance
of Note 3, net of debt discount, was $50,000 and $50,000 at March 31, 2019 and December 31, 2018, respectively. Note 3 is currently
in default.
On November 17, 2011, the Company entered
into a Promissory Note agreement (“Note 3-1”) with a related party for $50,000. Note 2 bears interest at 8% per year
and matures on November 17, 2016. Interest is payable annually on the anniversary of Note 3-1, and the principal and any unpaid
interest will be due upon maturity. In conjunction with Note 3-1, the Company issued 2,500,000 shares of its Common Stock to the
lender. As a result of the shares issued in conjunction with Note 3-1, the Company recorded a $50,000 debt discount during 2011.
The balance of Note 3-1, net of debt discount, was $50,000 and $50,000 at March 31, 2019 and December 31, 2018, respectively. Note
3-1 is currently in default.
The Company borrows funds from Officers
of our subsidiaries from time to time. The terms of repayment stipulate the unsecured loans are due demand, at no interest. As
of March 31, 2019 and December 31, 2018, the Company had $257,095 and $215,989 due respectively.
8. CONVERTIBLE NOTES PAYABLE
Certain of the Company’s issued Convertible
Notes include anti-dilution provisions that allow for the adjustment of the conversion price. The Company considered the guidance
provided by the FASB in “
Determining Whether an Instrument Indexed to an Entity’s Own Stock
,” the result
of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that,
as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were not fixed
amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith are not considered
indexed to the Company’s stock and characterized the value of the conversion feature of such notes as derivative liabilities
upon issuance. The Company has recorded derivative liabilities associated with convertible debt instruments.
As of March 31, 2019, the company received
$50,000 net cash proceeds, from convertible notes. The Company recorded amortization of debt discount of $84,369 and $201,440 related
to convertible notes, during the three months ended March 31, 2019 and the year ended December 31, 2018, respectively.
Convertible notes at March 31, 2019 and December 31, 2018 are
summarized below:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Convertible Notes Payable – Unrelated Party
|
|
$
|
2,097,473
|
|
|
$
|
2,026,800
|
|
Convertible Notes Payable – Related Party
|
|
|
165,000
|
|
|
|
165,000
|
|
Discount on Convertible Notes Payable - Unrelated Party
|
|
|
(1,206,146
|
)
|
|
|
(201,024
|
)
|
Total
|
|
$
|
1,056,327
|
|
|
$
|
1,990,775
|
|
Current Portion
|
|
|
973,318
|
|
|
|
950,775
|
|
Long-Term Portion
|
|
$
|
83,009
|
|
|
$
|
1,040,000
|
|
Note
#
|
|
*
|
|
Issuance
|
|
Maturity
|
Rate
|
|
Default
|
|
12/31/2018
Principal
Balance
|
|
2019
Add Principal
|
|
2019
Principal Conversions
|
|
|
2019
Interest Converted
|
|
|
Shares
issued upon conversion 2019
|
|
|
2019
Principal Paid with Cash
|
|
|
2019
interest paid in Cash
|
|
|
3/31/19
Principal Balance
|
|
|
Tota
Interest expense for Three Month Ended 3/31/2019
|
|
|
Accrued
Interest as of 3/31/2019
|
|
Conversion
price
|
1
|
|
R
|
|
8/21/2008
|
|
8/21/2009
|
|
12%
|
|
Y
|
|
150,000
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
4,500
|
|
|
112,750
|
|
Short Term
|
2
|
|
R
|
|
3/11/2009
|
|
4/29/2014
|
|
12%
|
|
Y
|
|
15,000
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
450
|
|
|
11,275
|
|
Short Term
|
7
|
|
|
|
2/9/2016
|
|
2/9/2017
|
|
20%
|
|
Y
|
|
8,485
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,485
|
|
|
424
|
|
|
1,139
|
|
$.03 per share or 50% of market
|
7-1
|
|
|
|
10/28/2016
|
|
10/28/2017
|
|
20%
|
|
Y
|
|
25,000
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
1,250
|
|
|
6,571
|
|
$.03 per share or 50% of market
|
8
|
|
|
|
3/8/2016
|
|
3/8/2017
|
|
20%
|
|
Y
|
|
1,500
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
75
|
|
|
9,638
|
|
$.03 per share or 50% of market
|
9
|
|
|
|
9/12/2016
|
|
9/12/2017
|
|
20%
|
|
Y
|
|
80,000
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
4,000
|
|
|
35,876
|
|
$.03 per share or 50% of market
|
10
|
|
|
|
1/24/2017
|
|
1/24/2018
|
|
20%
|
|
Y
|
|
55,000
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
2,750
|
|
|
20,488
|
|
$.25 per share or 50% of market
|
11
|
|
|
|
1/27/2017
|
|
1/27/2018
|
|
20%
|
|
Y
|
|
2,698
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,698
|
|
|
135
|
|
|
135
|
|
$.25 per share or 50% of market
|
11-1
|
|
|
|
2/21/2017
|
|
2/21/2018
|
|
20%
|
|
Y
|
|
25,000
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
1,250
|
|
|
2,279
|
|
$.25 per share or 50% of market
|
11-2
|
|
|
|
3/16/2017
|
|
3/16/2018
|
|
20%
|
|
Y
|
|
40,000
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
2,000
|
|
|
7,949
|
|
$.25 per share or 50% of market
|
12
|
|
|
|
4/6/2017
|
|
4/6/2018
|
|
20%
|
|
Y
|
|
31,997
|
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,997
|
|
|
1,600
|
|
|
8,371
|
|
$.25 per share or 50% of market
|
13-1
|
|
|
|
4/21/2017
|
|
4/21/2018
|
|
5%
|
|
Y
|
|
172,000
|
|
|
|
|
(82,900
|
)
|
|
(1,393
|
)
|
|
254,414
|
|
|
|
|
|
|
|
|
|
|
|
89,100
|
|
|
1,114
|
|
|
11,826
|
|
$.30 per share or 60% of the lowest
trading price for 10 days
|
16
|
|
|
|
11/27/2017
|
|
11/27/2018
|
|
12%
|
|
N
|
|
–
|
|
|
|
|
|
|
|
(119
|
)
|
|
26,630
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
119
|
|
|
0
|
|
60% of the lowest trading or bid (whichever
is lower) price for 20 days
|
18
|
|
|
|
1/19/2018
|
|
1/19/2019
|
|
12%
|
|
Y
|
|
83,500
|
|
|
|
|
(35,428
|
)
|
|
–
|
|
|
358,333
|
|
|
|
|
|
|
|
|
|
|
|
48,072
|
|
|
1,442
|
|
|
11,601
|
|
60% of the lowest trading price for
20 days
|
20
|
|
|
|
3/29/2018
|
|
3/29/2019
|
|
8%
|
|
N
|
|
25,100
|
|
|
|
|
(25,100
|
)
|
|
–
|
|
|
112,844
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
1,020
|
|
60% of the lowest trading price for
15 days
|
21
|
|
|
|
4/9/2018
|
|
4/9/2019
|
|
10%
|
|
N
|
|
130,206
|
|
|
|
|
(2,515
|
)
|
|
–
|
|
|
72,901
|
|
|
|
|
|
|
|
|
|
|
|
127,691
|
|
|
3,192
|
|
|
1,784
|
|
40% discount on the lowest trading
price for previous 25 days
|
22
|
|
|
|
7/10/2018
|
|
1/10/2021
|
|
12%
|
|
N
|
|
1,040,000
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
$
|
(80,000
|
)
|
|
$
|
(20,808
|
)
|
|
|
960,000
|
|
|
28,800
|
|
|
14,388
|
|
$0.04/ share or 40% of the lowest
bid price for prior 21 days
|
22.1
|
|
|
|
2/21/2019
|
|
1/10/2021
|
|
12%
|
|
N
|
|
–
|
|
|
56,616
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,616
|
|
|
1,698
|
|
|
1,698
|
|
|
23
|
|
|
|
7/19/2018
|
|
12/31/2018
|
|
8%
|
|
N
|
|
–
|
|
|
|
|
|
|
|
(1,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading price for
10 days
|
24
|
|
|
|
7/19/2018
|
|
12/31/2018
|
|
8%
|
|
N
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
1,724
|
|
60% of the lowest trading price for
10 days
|
25
|
|
|
|
8/13/2018
|
|
2/13/2019
|
|
12%
|
|
N
|
|
78,314
|
|
|
|
|
|
|
|
(3,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,314
|
|
|
2,349
|
|
|
3,883
|
|
$0.004/ share or 60% of the lowest
trading price for prior 21 days
|
26
|
|
|
|
8/10/2017
|
|
1/27/2018
|
|
15%
|
|
N
|
|
20,000
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
750
|
|
|
750
|
|
$.25 per share or 50% of market
|
27-1-4
|
|
|
|
12/10/2018
|
|
12/10/2019
|
|
8%
|
|
N
|
|
108,000
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,000
|
|
|
2,160
|
|
|
2,664
|
|
60% of the lowest trading price for
10 days
|
28
|
|
|
|
12/5/2018
|
|
12/5/2019
|
|
8%
|
|
N
|
|
100,000
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
2,000
|
|
|
2,467
|
|
55% of the lowest trading price for
15 days
|
RR 1
|
|
|
|
5/22/2018
|
|
5/22/2019
|
|
20%
|
|
N
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
2,000
|
|
|
5,378
|
|
75% of the lowest closing ask price
for the three prior trading days
|
RR 3.0 and 3.1
|
|
|
|
8/9/2018
|
|
8/9/2019
|
|
30%
|
|
N
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
7,500
|
|
|
19,500
|
|
70% of the lowest closing ask price
for the three prior trading days
|
RR 4
|
|
|
|
9/13/2018
|
|
9/13/2019
|
|
30%
|
|
N
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
3,750
|
|
|
8,292
|
|
70% of the lowest closing ask price
for the three prior trading days
|
RR 5
|
|
|
|
9/13/2018
|
|
9/13/2019
|
|
30%
|
|
N
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
3,750
|
|
|
8,292
|
|
70% of the lowest closing ask price
for the three prior trading days
|
* R = Related Party
|
Convertible Notes Payable
|
|
$
|
2,266,800
|
|
|
$
|
56,616
|
|
|
$
|
(145,943
|
)
|
|
$
|
(6,532
|
)
|
|
|
825,122
|
|
|
$
|
(80,000
|
)
|
|
$
|
(20,808
|
)
|
|
$
|
2,097,473
|
|
|
$
|
74,109
|
|
|
$
|
187,712
|
|
SUMMARY
|
Convertible Notes Payable - Related
Party
|
|
$
|
165,000
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
165,000
|
|
|
$
|
4,950
|
|
|
$
|
124,025
|
|
|
Total
|
|
$
|
2,431,800
|
|
|
$
|
56,616
|
|
|
$
|
(145,943
|
)
|
|
$
|
(6,532
|
)
|
|
|
825,122
|
|
|
$
|
(80,000
|
)
|
|
$
|
(20,808
|
)
|
|
$
|
2,262,473
|
|
|
$
|
79,059
|
|
|
$
|
311,737
|
|
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.
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, 2019 and December 31, 2018,
the Company did not have any items that would be classified as level 1 or 2 disclosures.
The Company recognizes its derivative liabilities
as level 3 and values its derivatives using the methods discussed. While the Company believes that its valuation methods are appropriate
and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine
the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary
assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price
of the underlying common stock of the Company.
As of March 31, 2019 and December 31, 2018,
the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of March 31,
2019, in the amount of $6,475,205 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 nine months ended March 31, 2019:
Derivative Liability, December 31,2018
|
|
|
1,866,82925
|
|
Day 1 Loss
|
|
|
21,713,381
|
|
Discount from derivatives
|
|
|
1,096,616
|
|
Resolution of derivative liability upon conversion
|
|
|
(415,262
|
)
|
Mark to market adjustment
|
|
|
(17,790,155
|
)
|
Derivative Liability, March 31, 2019
|
|
|
6,475,205
|
|
Net loss for the period included mark-to-market
adjustments relating to the liabilities held during the three-month periods ended March 31, 2019 and 2018 in the amounts of $(17,790,155)
and $530,290, respectively.
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the three months ended
March 31, 2019, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of the
related derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant
unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.
The valuation of the derivative liabilities
attached to the convertible debt was arrived at through the use of the Lattice Bi-nominal Option Pricing Model and the following
assumptions:
|
|
|
For
the period ended
|
|
|
|
|
March
31,
2019
|
|
|
|
December
31,
2018
|
|
Volatility
|
|
|
768.61%-793.00%
|
|
|
|
182.91%-636.13%
|
|
Risk-free interest rate
|
|
|
2.36%-2.72%
|
|
|
|
2.13% -2.72%
|
|
Expected term
|
|
|
.13 – 1.87
|
|
|
|
.04 - 5.14
|
|
10. CAPITAL STOCK
Series I Preferred Stock
During the three months ended March 31,
2019, the Company issued 250,000,000 shares of Series I Preferred Stock to officers of the Company, which were granted during year
ended December 31, 2018. See Note 7, for more details.
Common Stock
During the three months ended March 31,
2019, the Company issued 825,122 shares for conversion of convertible notes payable (see Footnote 8), 7,350,000,000 shares to be
held for acquisitions and issued 25 to round up partial shares as part of the 1:1500 share reverse stock split.
11. COMMITMENTS AND CONTINGENCIES
The Company has an employment agreement,
renewed May 15, 2014, with the Chairman, Mr. Thompson amended on January 1, 2017 through December 31, 2021, whereby we provide
for compensation of $25,000 per month.
The Company has an employment agreement
with the Chief Executive Officer, Mr. Cunningham, amended on January 1, 2017 through December 31, 2021, whereby we provide for
compensation of $25,000 per month.
The Company has an employment agreement
with the Chief Operating Officer, Mr. Roberts, effective June 2016 through June 2020, whereby we provide for compensation of $10,000
per month.
The Company has employment agreements for
Chief Executives of subsidiaries Platinum Tax Defenders and Red Rock Travel Group. The agreement for Platinum Tax Defenders is
a base salary of $20,000 per month, with additional annual bonuses and stock awards based on performance. The agreement for Red
Rock Travel Group is for $5,000 per month. Each agreement has a 5 year term.
There are no other stock option plans,
retirement, pension, or profit-sharing plans for the benefit of our sole officers and directors other than as described above.
Leases
The Company’s subsidiary Platinum Tax Defenders
has an operating lease for an office sub-lease in Simi Valley, California with an initial term of 38 months. Base monthly rent
is approximately $4,000 per month plus net operating expenses. A deposit equal to one-month rent was paid and the commencement
of the lease. The lease can be extended for a two-year period at same amount of increase in the original lease (3%), at the option
of the original lessee. The lease contains variable lease payments for non-rental occupancy expenses. These non-lease components
were not included in the determination of the right of use asset and lease liability as part of the transition to ASC 842 due to
the practical expedients elected by the Company.
Additionally, the Company’s subsidiary Romeo
Pizza has an operating lease for its restaurant at Johns Creek, Georgia with an initial term of 65 months and renewed on January
1, 2019 for an additional 120 months. Base monthly rent is approximately $4,629 per month plus net operating expenses. A deposit
of $6,000 was paid and the commencement of the lease. The current lease renewal does not currently contain an extension provision.
The lease contains variable lease payments for non-rental occupancy expenses. These non-lease components were not included in the
determination of the right of use asset and lease liability as part of the transition to ASC 842 due to the practical expedients
elected by the Company.
The Company utilizes the incremental borrowing rate
in determining the present value of lease payments unless the implicit rate is readily determinable. The Company used an estimated
incremental borrowing rate of 15% to estimate the present value of the right of use liability.
The Company has right-of-use assets of $430,640,
operating lease liabilities of $430,640 as of March 31, 2019. Operating lease expense for the three months ended March 31, 2019
was $9,463. The company had cash used in operating activities related to leases of $47,067 during the three months ended March
31, 2019. These leases have a remaining term of 2.5 years and 9.75 years.
The following table provides the maturities of lease
liabilities at March 31, 2019:
Maturity of Lease Liabilities at March 31, 2019
|
|
|
|
2019
|
|
$
|
77,659
|
|
2020
|
|
|
106,096
|
|
2021
|
|
|
108,705
|
|
2022
|
|
|
67,431
|
|
2023
|
|
|
60,124
|
|
2024 and thereafter
|
|
|
319,144
|
|
Total future undiscounted lease payments
|
|
|
739,158
|
|
Less: Interest
|
|
|
(318,347
|
)
|
Present value of lease liabilities
|
|
$
|
420,811
|
|
The Company’s other subsidiaries also maintain
short-term lease agreements for office space. Total rent expense for these rentals was $24,207 for the three months ended March
31, 2019. Total rent expense for the three months ended March 31, 2018 was $71,274.
Pursuant to the same consulting agreement,
dated February 10, 2017, in addition to the 800,000 shares of common stock, the Company agreed to grant total 800,000 warrants
to the consultant for consulting services related to marketing and business development and are exercisable on the grant date and
expire in three years. The initial allotment of 200,000 warrants were granted during the first quarter of 2017. The second allotment
of 200,000 warrants were granted during the second quarter of 2017. The third allotment of 200,000 warrants were granted during
the third quarter of 2017. The fourth allotment of 200,000 warrants were granted during the fourth quarter of 2017.
The Company determined that the warrants
were tainted and therefore the carrying value represents an embedded derivative instrument that meets the requirements for liability
classification under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the
Company’s balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was
measured using the Black-Scholes valuation model at the grant dates of the agreement(February 10, 2017, May 10, 2017, August 10,
2017 and December 10, 2017.) and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative
financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities
will be reclassified into additional paid in capital upon conversion.
During the year ended December 31, 2018,
the Company entered into a note agreement for $1,040,000, as part of the note agreement the Company agreed to issue the noteholder
warrants exercisable for 4,000,000 shares of common stock with a term of eight years, at an exercise price of $0.04. The terms
also include a full-ratchet anti-dilution protection provision and therefore the Company has deemed them to be a derivative liability.
|
|
Year Ended
December 31, 2018
|
|
Initial Valuation
|
|
|
89,359
|
|
Ending Value
|
|
|
3,795
|
|
The table below sets forth the assumptions
for Black-Scholes valuation model on each initial date and December 31, 2018
|
|
Year Ended
December 31, 2018
|
|
Volatility
|
|
|
213% - 494%
|
|
Risk-free interest rate
|
|
|
0.147 - 0.269
|
|
Expected term
|
|
|
2.11 – 2.53
|
|
Accordingly, the Company recorded warrant
expenses of $133,123 during the year ended December 31, 2018.
On April 21, 2017, the Company entered
into a Securities Purchase Agreement with an unrelated entity, pursuant to which the purchasers agreed to pay the Company an aggregate
of up to $600,000 for an aggregate of up to 660,000 in Principal Amount of Notes. The first tranche of $330,000 was closed simultaneously
(“Note 13-1”). The proceeds of $300,000, net of $30,000 Original Issuance Discount, was received by the Company.
In addition, in connection with this Securities
Purchase Agreement, the Company granted purchasers 2,357,143 warrants with exercise price of $0.14 per share (“Warrants A”),
1,885,715 warrants with exercise price of $0.175 per share (“Warrants B”) and 1,571,429 warrants with exercise price
of $0.21 per share (“Warrants C”). Warrants A, B and C are exercisable on the grant date and expire in three years,
each of which represents 100% of the Principal Amount at the Closing divided by the respective exercise price.
The following tables summarize all warrant
outstanding as of March 31, 2019 and the related changes during this period. The warrants expire three years from grant date, which
as of March 31, 2019 is 3.06 years. The intrinsic value of the warrants as of March 31, 2019 was $-0-.
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Stock Warrants
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
Balance at March 31, 2019
|
|
|
6,614,287
|
|
|
|
0.21
|
|
Warrants Exercisable at March 31, 2019
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
13. SEGMENT REPORTING
The Company has six reportable operating
segments as determined by management using the “management approach” as defined by the authoritative guidance on
Disclosures
about Segments of an Enterprise and Related Information
: (1) Mobile home lease (We Three), (2) Company-owned Pizza Restaurants
(Romeo’s NY Pizza), (3) “Repicci’s Italian Ice” franchised stores.(4) Travel related services (Red Rock
Travel Group, and (5) Tax resolution services (Platinum Tax Defenders). These segments are a result of differences in the nature
of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human
resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of
nonrecurring items.
The mobile home lease segment establishes
mobile home business as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage
payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, the Company
will provide a financial leasing option with "0" interest on the lease providing a "lease to own" option for
their family home.
The Company-owned Pizza Restaurant segment
includes sales and operating results for all Company-owned restaurants. Assets for this segment include equipment, furniture and
fixtures for the Company-owned restaurants.
Repicci’s Group offers franchisees
for the operation of “Repicci’s Italian Ice” franchises. These franchised stores specialize in the distribution
of nonfat frozen confections.
The number of franchise agreements in force
as of March 31, 2019 was forty-five (45), seven (7) new state of the art “mobile” units.
Platinum Tax Defenders provides tax resolution
services to individuals and companies that have federal and state tax liabilities. The company collects fees based on efforts to
negotiate and assist in the settlement of outstanding tax debts.
Red Rock Travel Group is a travel services
company that provides discounted travel packages. The packages are marketed in conjunction with interval ownership properties and
the company earns fees for scheduling the client visits and commissions on travel packages sold.
|
|
For the three month period ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
52,878
|
|
|
$
|
51,277
|
|
Romeo’s NY Pizza
|
|
|
147,797
|
|
|
|
206,358
|
|
Repicci's Group
|
|
|
32,627
|
|
|
|
10,943
|
|
Platinum Tax
|
|
|
627,227
|
|
|
|
–
|
|
Red Rock Travel
|
|
|
63,917
|
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
Consolidated revenues
|
|
$
|
924,446
|
|
|
$
|
268,578
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
67,163
|
|
|
|
38,399
|
|
Romeo’s NY Pizza
|
|
|
110,023
|
|
|
|
98,456
|
|
Repicci's Group
|
|
|
39,620
|
|
|
|
82,155
|
|
Platinum Tax
|
|
|
203,133
|
|
|
|
–
|
|
Red Rock Travel
|
|
|
14,892
|
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
|
–
|
|
Consolidated cost of sales
|
|
$
|
434,831
|
|
|
$
|
219,010
|
|
Income (Loss) before taxes
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
(20,106
|
)
|
|
$
|
10,192.00
|
|
Romeo’s NY Pizza
|
|
|
4,798
|
|
|
|
2,027
|
|
Repicci’s Group
|
|
|
(16,927
|
)
|
|
|
(56,694
|
)
|
Platinum Tax
|
|
|
29,627
|
|
|
|
–
|
|
Red Rock Travel
|
|
|
(10,134
|
)
|
|
|
–
|
|
Others
|
|
|
(4,859,904
|
)
|
|
|
(48,245
|
)
|
Consolidated gain/(loss) before taxes
|
|
$
|
(4,871,847
|
)
|
|
$
|
(92,720
|
)
|
|
|
As of
|
|
|
As of
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Assets:
|
|
|
|
|
|
|
|
|
We Three
|
|
$
|
212,677
|
|
|
$
|
245,724
|
|
Romeo’s NY Pizza
|
|
|
104,127
|
|
|
|
157,876
|
|
Repicci’s Group
|
|
|
147,544
|
|
|
|
284,357
|
|
Platinum Tax
|
|
|
111,965
|
|
|
|
–
|
|
Red Rock Travel
|
|
|
(1,461
|
)
|
|
|
–
|
|
Others
|
|
|
2,996,842
|
|
|
|
648,331
|
|
Combined assets
|
|
$
|
3,571,694
|
|
|
$
|
1,336,288
|
|
14. SUBSEQUENT EVENTS
Stock Issuances:
Subsequent to March 31, 2019 the Company
issued 82,500,000 shares of common stock in connection with conversion of Preferred I shares.
The
Company and JM Enterprises 1, Inc. (d.b.a. – Key Tax Group) (Private: “JM Enterprises 1, Inc.”) announced on
May 14, 2019 signed a definitive merger agreement under which JM Enterprises 1, Inc. will merge into Cardiff Lexington as its wholly
owned subsidiary has been completed effective May 8
th
, 2019.
In connection with the closing of the acquisition, on May 8
th
,
2019 a Preferred “G” Class of stock with a par value of $0.001was issued. The Preferred “G” Class of stock
rights and privileges include voting rights, a conversion ratio of 1:1.25 and were distributed at the adjusted rate of $0.07 per
share for a total of 18,571,428 representing a value of $1,300,000. These Preferred “G” shares have a lock-up/leak-out
limiting the sale of stock for 12 months after which conversions and sales are limited to 20% of their portfolio per year, pursuant
to the terms of the Acquisition Agreement.
Additionally, Cardiff has allocated a Preferred “G1”
Class Series for potential investors – 10,000,000 shares authorized, par value $0.001 per share with the following rights
and privileges no - voting rights, converts to common stock at a ratio of 1 share preferred to 1.25 shares common. Series G1 stock
cannot be diluted due to actions taken by the Company, BOD and/or its shareholders.
The Company issued 500,000 Common Shares related to this agreement.
On May 8
th
, 2019, CDIX’s Board of Directors
approved retaining current founders to serve as senior management of JM Enterprises 1, Inc.