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 Corporation (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 Corporation (“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; merged into
Repicci’s Franchise Group
Refreshment Concepts, LLC acquired on August 10, 2016; Sold
assets closed business
Repicci’s Franchise Group, LLC acquired on August 10,
2016;
Red Rock Travel Group, was acquired July31, 2018 (Discontinued
operations April 1, 2019)
Platinum Tax Defenders, LLC was acquired July 31, 2018
JM Enterprise 1s, Inc. (dba) Key Tax Group was acquired May
8 2019
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.;
Repicci’s Franchise Group, LLC, Red Rock Travel Group (Discontinued Operations), and Platinum Tax Defenders LLC and JM Enterprise
1 (dba) Key Tax Group. 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 principles 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.
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 subsidiaries Platinum Tax Defenders
and Key Tax generates revenue from services provided in the tax resolution space. Revenue is recognized once services have been
completed, based on the contract terms.
Our segmented revenue is disclosed more
fully in our consolidated financial statements, see Footnote 15 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 June 30, 2019 and December 31, 2018, the Company had accounts
receivable of $267,319 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 net realizable 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 six months ended June 30,
2019 and the year ended December 31, 2018, depreciation and amortization expense was $39,665 ($28,347 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 six months ended June 30, 2019 and the year-ended December 31,
2018, the company had Goodwill impairment of $-0- and $1,459,725, respectively, related to its acquisitions 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”)
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 June 30, 2019 and December 31, 2018.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Fair Value of Derivative Liability –
June 30, 2019
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
6,865,677
|
|
|
$
|
6,865,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 ASC. Pursuant
to paragraph 718-10-30-6 of the FASB ASC, 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.
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 ASC (“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 six month period ended June 30,
2019 and year ended December 31, 2018 the Company did not have any interest and penalties associated with tax positions. As of
June 30, 2019 and 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 six months ended June 30, 2019 and the year ended December 31, 2018. During
a period of net loss, all potentially dilutive securities are anti-dilutive. Accordingly, for the six months ended June 30, 2019
and 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 December 31, 2018 period):
|
|
For the Six months and year ended
|
|
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(6,142,747
|
)
|
|
$
|
(6,265,251
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
155,129,015
|
|
|
|
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 June 30, 2019:
Principal and Interest conversion
|
|
|
613,794,780
|
|
Warrants
|
|
|
8,749,287
|
|
Preferred Stock conversion
|
|
|
179,106,727
|
|
Total
|
|
|
801,6550,794
|
|
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 June 30, 2019, the Company had shareholders’ deficit of $7,650,429. 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 June
30, 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
$381,088, operating lease liabilities of $381,088 with a cumulative effect adjustment to accumulated deficit of $35,096, 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.
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 consolidated financial statements.
Recent accounting pronouncements not
yet adopted
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 consolidated 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. DISCONTINUED OPERATIONS
In April 2019, the Company discontinued
operating Red Rock Travel Group due to continuing operating losses.
JM Enterprise 1 (dba) Key Tax Group
JM Enterprise 1, Inc.
(d.b.a. Key Tax Group)
and Cardiff Lexington Corporation as previously announced in May 2019 signed a definitive merger
agreement under which Key Tax Group became a wholly owned subsidiary effective May 8, 2019. In connection with the closing of
the acquisition, on May 8, 2019 a Preferred “G” Class of stock with a par value of $0.001 was 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. Additionally, Cardiff issued
500,000 Common Shares with a par value of $0.001 to novate a convertible debt of $30,912.32. 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.
The preliminary purchase price allocation of the net assets
acquired are as follows:
|
|
Key Tax Fair Value
|
|
Cash
|
|
$
|
35,991
|
|
Accounts receivable
|
|
|
189,200
|
|
Other assets
|
|
|
11,622
|
|
Property and equipment
|
|
|
2,596
|
|
Goodwill
|
|
|
1,463,281
|
|
Liabilities
|
|
|
(371,778
|
)
|
Total
|
|
$
|
1,330,912
|
|
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.
4. ACCRUED EXPENSES
As of June 30, 2019, and December 31, 2018,
the Company had accrued expenses of $1,731,353 and $1,310,074, respectively, consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accrued salaries – related party
|
|
|
997,909
|
|
|
|
747,000
|
|
Accrued expenses – other
|
|
|
733,444
|
|
|
|
563,074
|
|
Total
|
|
|
1,731,353
|
|
|
|
1,310,074.0
|
|
5. PLANT AND EQUIPMENT, NET
Plant and equipment, net as of June 30,
2019 and December 31, 2018 was $336,311 and $381,301, respectively, consisting of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Furniture, fixture and equipment
|
|
$
|
546,002
|
|
|
$
|
715,466
|
|
Leasehold improvements
|
|
|
136,069
|
|
|
|
161,166
|
|
Total
|
|
|
682,071
|
|
|
|
876,632
|
|
Less: accumulated depreciation
|
|
|
(399,262
|
)
|
|
|
(495,331
|
)
|
Plant and equipment, net
|
|
$
|
282,409
|
|
|
$
|
381,301
|
|
During the three and six months ended June
30, 2019, depreciation expense was $22,463 and $39,665, respectively. The Company accounts for depreciation as a separate item
in the operational expense of $11,318 and $6,581 respectively and included $15,391 and $28,347, respectively in depreciation in
cost of goods sold.
6. LAND
As of June 30, 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.
7. 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 June 30, 2019 and December 31, 2018,
The Company had balance of $1,999 and $1,999, respectively. During the six months ended June 30, 2019, total cash advanced amounted
to $-0- and cash payment made was $-0-.
8. RELATED PARTY TRANSACTIONS
Due to Officers and Officer Compensation
During the six months ended June 30, 2019 and December 31, 2018,
the Company borrowed a total of $30,176 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 June 30, 2019 and December 31, 2018, the
Company had $137,816 and $77,640 due (included in due to officers and shareholders on the consolidated 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 $150,000 and $300,000 were accrued and reflected as an expense to Daniel Thompson during the six
months ended June 30, 2019 and the year ended December 31, 2018, respectively. The accrued salaries payable to Daniel Thompson
was $422,500 and $317,500 as of June 30, 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. Effective May 2019, the Company and Roberts entered a Allonge Addendum Employment Agreement whereby Roberts accepted
and agreed to a $5,000 cash settlement and accrued and future salaries would be stock only. A total salary of $60,000 and $120,000
were accrued and reflected as an expense during the six months ended June 30, 2019 and the year ended December 31, 2018, respectively.
The total balance due to Mr. Roberts for accrued salaries at June 30, 2019 and December 31, 2018 were $162,000 and $107,000, respectively
balance due in preferred “B” stock at $0.50 per share.
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 $150,000 and $300,000 were accrued and reflected as an expense during the six months ended June 30, 2019
and the year ended December 31, 2018, respectively. The accrued salaries payable to Mr. Cunningham was $417,500 and $322,500 as
of June 30, 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 9, Notes Payable – Related Party; and Footnote 10 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 consolidated financial statements at a total cost of stock compensation of $200,000. During the six months ended
June 30, 2019, the shares were issued. During the six months ended June 30, 2019, Mssrs. Thompson and Cunningham collectively converted
55,000,000 preferred I shares for 82,500,000 shares of restricted common shares.
9. NOTES PAYABLE
For the six months ended June 30, 2019,
the company received $-0- cash proceeds, from notes payable and repaid $-0- in cash.
Notes payable at June 30, 2019 and December
31, 2018 are summarized as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Loans Payable Unrelated Party
|
|
$
|
458,207
|
|
|
$
|
665,488
|
|
Notes Payable – Unrelated Party
|
|
|
10,989
|
|
|
|
10,989
|
|
Notes Payable – Related Party
|
|
|
360,989
|
|
|
|
265,242
|
|
Total
|
|
|
830,185
|
|
|
|
941,719
|
|
Current portion
|
|
|
(830,185
|
)
|
|
|
(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 June 30, 2019, the
Company is in default on this debenture. The balance of the note was $10,549 at June 30, 2019.
As of June 30, 2019, the Company had
lease payable of $23,988 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 June 30, 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 June 30, 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 June 30, 2019 and December 31, 2018, the Company had $260,989 and $215,989 due respectively.
10. 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 June 30, 2019, the company
received $50,000 net cash proceeds, from convertible notes. The Company recorded amortization of debt discount of $522,360
and $201,440 related to convertible notes, during the six months ended June 30, 2019 and the year ended December 31, 2018,
respectively.
Convertible notes at June 30, 2019 and December 31, 2018 are
summarized below:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Convertible Notes Payable – Unrelated Party
|
|
$
|
2,111,248
|
|
|
$
|
2,026,800
|
|
Convertible Notes Payable – Related Party
|
|
|
165,000
|
|
|
|
165,000
|
|
Discount on Convertible Notes Payable - Unrelated Party
|
|
|
(1,066,205
|
)
|
|
|
(201,024
|
)
|
Total
|
|
$
|
1,210,043
|
|
|
$
|
1,990,775
|
|
Current Portion
|
|
|
962,084
|
|
|
|
950,775
|
|
Long-Term Portion
|
|
$
|
83,009
|
|
|
$
|
1,040,000
|
|
*
|
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
|
|
6/30/19 Principal
Balance
|
|
Total Interest
expense for Six Month Ended 6/30/2019
|
|
Accrued Interest
as of 6/30/2019
|
|
Conversion price
|
R
|
8/21/2008
|
8/21/2009
|
|
12%
|
|
Y
|
|
150,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
9,050
|
|
|
195,658
|
|
Short Term
|
R
|
3/11/2009
|
4/29/2014
|
|
12%
|
|
Y
|
|
15,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
905
|
|
|
18,570
|
|
Short Term
|
|
2/9/2016
|
2/9/2017
|
|
20%
|
|
Y
|
|
8,485
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,485
|
|
|
853
|
|
|
6,635
|
|
$.03 per share or 50% of market
|
|
10/28/2016
|
10/28/2017
|
|
20%
|
|
Y
|
|
25,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
2,514
|
|
|
13,391
|
|
$.03 per share or 50% of market
|
|
3/8/2016
|
3/8/2017
|
|
20%
|
|
Y
|
|
1,500
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
151
|
|
|
3,389
|
|
$.03 per share or 50% of market
|
|
9/12/2016
|
9/12/2017
|
|
20%
|
|
Y
|
|
80,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
8,044
|
|
|
44,866
|
|
$.03 per share or 50% of market
|
|
1/24/2017
|
1/24/2018
|
|
20%
|
|
Y
|
|
55,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
5,531
|
|
|
26,807
|
|
$.25 per share or 50% of market
|
|
1/27/2017
|
1/27/2018
|
|
20%
|
|
Y
|
|
2,698
|
|
|
1,500
|
|
|
(4,198
|
)
|
|
(9,225
|
)
|
|
1,250,000
|
|
|
|
|
|
|
|
|
–
|
|
|
135
|
|
|
1,060
|
|
$.25 per share or 50% of market
|
|
2/21/2017
|
2/21/2018
|
|
20%
|
|
Y
|
|
25,000
|
|
|
1,500
|
|
|
(18,770
|
)
|
|
|
|
|
4,231,176
|
|
|
|
|
|
|
|
|
7,730
|
|
|
1,641
|
|
|
10,929
|
|
$.25 per share or 50% of market
|
|
3/16/2017
|
3/16/2018
|
|
20%
|
|
Y
|
|
40,000
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
4,022
|
|
|
18,379
|
|
$.25 per share or 50% of market
|
|
4/6/2017
|
4/6/2018
|
|
20%
|
|
Y
|
|
31,997
|
|
|
–
|
|
|
(31,997
|
)
|
|
(2,908
|
)
|
|
1,695,400
|
|
|
|
|
|
|
|
|
–
|
|
|
1,600
|
|
|
11,805
|
|
$.25 per share or 50% of market
|
|
4/21/2017
|
4/21/2018
|
|
18%
|
|
Y
|
|
172,000
|
|
|
|
|
|
(89,410
|
)
|
|
(2,984
|
)
|
|
3,969,066
|
|
|
|
|
|
|
|
|
82,590
|
|
|
4,872
|
|
|
22,763
|
|
$.30 per share or 60% of the lowest trading price for 10 days
|
|
11/27/2017
|
11/27/2018
|
|
12%
|
|
Y
|
|
–
|
|
|
|
|
|
|
|
|
(119
|
)
|
|
26,630
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading or bid (whichever is lower) price for 20 days
|
|
1/19/2018
|
1/19/2019
|
|
24%
|
|
Y
|
|
83,500
|
|
|
|
|
|
(35,428
|
)
|
|
–
|
|
|
358,333
|
|
|
|
|
|
|
|
|
48,072
|
|
|
4,359
|
|
|
13,857
|
|
60% of the lowest trading price for 20 days
|
|
3/29/2018
|
3/29/2019
|
24
|
%
|
|
Y
|
|
25,100
|
|
|
|
|
|
(25,100
|
)
|
|
–
|
|
|
112,844
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
762
|
|
60% of the lowest trading price for 15 days
|
|
4/9/2018
|
4/9/2019
|
|
10%
|
|
Y
|
|
130,206
|
|
|
|
|
|
(2,515
|
)
|
|
–
|
|
|
72,901
|
|
|
|
|
|
|
|
|
127,691
|
|
|
10,939
|
|
|
22,326
|
|
40% discount on the lowest trading price for previous 25 days
|
|
7/10/2018
|
1/10/2021
|
|
12%
|
|
N
|
|
1,040,000
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
$
|
(140,000
|
)
|
$
|
(52,020
|
)
|
|
900,000
|
|
|
56,100
|
|
|
11,016
|
|
$0.04/ share or 40% of the lowest bid price for prior 21 days
|
|
2/21/2019
|
1/10/2021
|
|
12%
|
|
N
|
|
–
|
|
|
56,616
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
56,616
|
|
|
3,416
|
|
|
3,416
|
|
|
|
7/19/2018
|
12/31/2018
|
|
8%
|
|
Y
|
|
–
|
|
|
|
|
|
|
|
|
(1,653
|
)
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading price for 10 days
|
|
7/19/2018
|
12/31/2018
|
|
8%
|
|
Y
|
|
–
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
–
|
|
|
–
|
|
60% of the lowest trading price for 10 days
|
|
8/13/2018
|
2/13/2019
|
|
12%
|
|
Y
|
|
78,314
|
|
|
|
|
|
|
|
|
(3,367
|
)
|
|
|
|
|
|
|
|
|
|
|
78,314
|
|
|
5,913
|
|
|
8,616
|
|
$0.004/ share or 60% of the lowest trading price for prior 21 days
|
|
8/10/2017
|
1/27/2018
|
|
15%
|
|
Y
|
|
20,000
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
1,761
|
|
|
3,849
|
|
$.25 per share or 50% of market
|
|
12/10/2018
|
12/10/2019
|
|
8%
|
|
N
|
|
108,000
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
108,000
|
|
|
4,344
|
|
|
4,593
|
|
60% of the lowest trading price for 10 days
|
|
12/5/2018
|
12/5/2019
|
|
8%
|
|
N
|
|
100,000
|
|
|
|
|
|
(17,750
|
)
|
|
(724
|
)
|
|
5,022,337
|
|
|
|
|
|
|
|
|
82,250
|
|
|
3,663
|
|
|
3,224
|
|
55% of the lowest trading price for 15 days
|
|
5/10/2019
|
5/10/2020
|
|
8%
|
|
N
|
|
–
|
|
|
150,000
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
3,033
|
|
|
3,033
|
|
55% of the lowest trading price for 15 days
|
|
5/22/2018
|
5/22/2019
|
|
20%
|
|
Y
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
4,022
|
|
|
8,178
|
|
75% of the lowest closing ask price for the three prior trading days
|
|
8/9/2018
|
8/9/2019
|
|
30%
|
|
N
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
15,083
|
|
|
27,083
|
|
70% of the lowest closing ask price for the three prior trading days
|
|
9/13/2018
|
9/13/2019
|
|
30%
|
|
N
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
7,542
|
|
|
12,083
|
|
70% of the lowest closing ask price for the three prior trading days
|
|
9/13/2018
|
9/13/2019
|
|
30%
|
|
N
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
7,542
|
|
|
12,083
|
|
70% of the lowest closing ask price for the three prior trading days
|
* R = Related Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable
|
|
|
|
|
$
|
2,266,800
|
|
$
|
209,616
|
|
$
|
(225,168
|
)
|
$
|
(20,980
|
)
|
|
16,738,687
|
|
$
|
(140,000
|
)
|
$
|
(52,020
|
)
|
$
|
2,111,248
|
|
$
|
157,079
|
|
$
|
294,142
|
|
|
|
Summary
|
Convertible Notes Payable - Related Party
|
|
|
|
|
$
|
165,000
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
165,000
|
|
$
|
9,955
|
|
$
|
214,228
|
|
|
|
|
Total
|
|
|
|
|
$
|
2,431,800
|
|
$
|
209,616
|
|
$
|
(225,168
|
)
|
$
|
(20,980
|
)
|
|
16,738,687
|
|
$
|
(140,000
|
)
|
$
|
(52,020
|
)
|
$
|
2,276,248
|
|
$
|
167,034
|
|
$
|
508,370
|
|
|
* R = Related Party
The Company entered into a new Convertible note in May 2019
for a total of $150,000. The note is due in 12 months, has 8% interest rate and is convertible after six months at 55% of the lowest
trading price for 15 days.
11. 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 consolidated 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, 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 June 30, 2019 and December 31, 2018,
the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of June 30,
2019, in the amount of $6,865,667 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 six months ended June 30, 2019:
Derivative Liability, December 31,2018
|
|
$
|
1,870,625
|
|
Financial instruments issued containing derivatives
|
|
|
1,394,616
|
|
Settlement of derivative liability upon conversion
|
|
|
(694,956
|
)
|
Mark to market adjustment
|
|
|
(4,2955,382
|
)
|
Derivative Liability, June 30, 2019
|
|
$
|
6,865,667
|
|
Net loss for the period included mark-to-market
adjustments relating to the liabilities held during the six-month periods ended June 30, 2019 and 2018 in the amounts of $(4,295,382)
and a gain of $581,687, respectively.
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,
2019
|
|
|
|
December 31,
2018
|
|
Volatility
|
|
|
801.74%-820.86%
|
|
|
|
182.91%-636.13%
|
|
Risk-free interest rate
|
|
|
1.72%-2.72%
|
|
|
|
2.13% -2.72%
|
|
Expected term
|
|
|
.45 – 2.41
|
|
|
|
.04 - 5.14
|
|
12. CAPITAL STOCK
Series I Preferred Stock
During the six months ended June 30, 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 8, for more details.
Common Stock
During the six months ended June 30, 2019,
the Company issued 16,738,687 shares for conversion of convertible notes payable (see Footnote 9), 82,500,00 shares for conversion
of Preferred I shares, 500,000 shares issued related to acquisition of Key Tax. and cancelled (826) to adjust partial shares as
part of the 1:1500 share reverse stock split.
13. 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 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.
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 $381,088, operating lease
liabilities of $381,088 as of June 30, 2019. Operating lease expense for the six months ended June 30, 2019 was $25,886. The company
had cash used in operating activities related to leases of $35,086 during the six months ended June 30, 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 June 30, 2019:
Maturity of Lease Liabilities at June 30, 2019
|
|
|
|
2019
|
|
$
|
51,773
|
|
2020
|
|
|
106,096
|
|
2021
|
|
|
108,705
|
|
2022
|
|
|
67,431
|
|
2023
|
|
|
60,124
|
|
2024 and thereafter
|
|
|
319,144
|
|
Total future undiscounted lease payments
|
|
|
713,272
|
|
Less: Interest
|
|
|
(302,693
|
)
|
Present value of lease liabilities
|
|
$
|
381,088
|
|
The Company’s other subsidiaries also maintain short-term
lease agreements for office space. Total rent expense for these rentals was $78,161 for the six months ended June 30, 2019. Total
rent expense for the six months ended June 30, 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 warrants were 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.
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.
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.
Initial Valuation for Year Ended 12.31.18
|
|
|
89,359
|
|
Ending Value 12.31.18
|
|
|
3,795
|
|
Change in Valuation for six months ended 6.30.19
|
|
|
6,015
|
|
Ending Value 6.30.19
|
|
|
9,810
|
|
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 $6,015 for the six months ended June 30, 2019 and $133,123 during the year ended December 31, 2018 .
The following tables summarize all warrant
outstanding as of June 30, 2019 and the related changes during this period. The warrants expire three to eight years from grant
date, which as of June 30, 2019 is 0.62 – 7.03 years. The intrinsic value of the warrants as of June 30, 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 June 30, 2019
|
|
|
6,614,287
|
|
|
|
0.21
|
|
Warrants Exercisable at June 30, 2019
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
15. 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) Red Rock Travel Group (discontinued
operations), and (5) Tax resolution services (Platinum Tax Defenders) and (JM Enterprise 1s (dba) Key Tax Group. 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, 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 was a travel services
company that provided 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. As of April 1, 2019, this entity
is reflected as a discontinued operation.
For the three month period ended
|
|
June 30, 2019
|
|
|
|
|
June 30, 2018
|
|
Revenues:
|
|
|
|
|
Revenues
:
|
|
|
|
We Three
|
|
$
|
43,500
|
|
|
We Three
|
|
$
|
47,386
|
|
Romeo’s NY Pizza
|
|
|
167,349
|
|
|
Romeo’s NY Pizza
|
|
|
156,719
|
|
Repicci's Group
|
|
|
89,133
|
|
|
Repicci's Group
|
|
|
356,758
|
|
Platinum Tax
|
|
|
777,350
|
|
|
Platinum Tax
|
|
|
–
|
|
Key Tax
|
|
|
123,951
|
|
|
Key Tax
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
Consolidated revenues
|
|
$
|
1,201,283
|
|
|
Consolidated revenues
|
|
$
|
560,863
|
|
Cost of Sales:
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
We Three
|
|
$
|
54,456
|
|
|
We Three
|
|
$
|
75,089
|
|
Romeo’s NY Pizza
|
|
|
118,568
|
|
|
Romeo’s NY Pizza
|
|
|
114,391
|
|
Repicci's Group
|
|
|
81,149
|
|
|
Repicci's Group
|
|
|
198,575
|
|
Platinum Tax
|
|
|
236,560
|
|
|
Platinum Tax
|
|
|
–
|
|
Key Tax
|
|
|
146,306
|
|
|
Key Tax
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
Consolidated cost of sales
|
|
$
|
637,040
|
|
|
Consolidated cost of sales
|
|
$
|
376,869
|
|
Income (Loss) before taxes
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
We Three
|
|
$
|
(76,430
|
)
|
|
We Three
|
|
$
|
(27,410
|
)
|
Romeo’s NY Pizza
|
|
|
14,553
|
|
|
Romeo’s NY Pizza
|
|
|
25,723
|
|
Repicci’s Group
|
|
|
(2,164
|
)
|
|
Repicci’s Group
|
|
|
142,670
|
|
Platinum Tax
|
|
|
59,833
|
|
|
Platinum Tax
|
|
|
–
|
|
Key Tax
|
|
|
(52,892
|
)
|
|
Key Tax
|
|
|
–
|
|
Others
|
|
|
(1,213,700
|
)
|
|
Others
|
|
|
(744,852
|
)
|
Consolidated gain/(loss) before taxes
|
|
$
|
(1,270,800
|
)
|
|
Consolidated gain/(loss) before taxes
|
|
$
|
(603,869
|
)
|
For the six month period ended
|
|
June
30, 2019
|
|
|
|
|
June 30, 2018
|
|
Revenues:
|
|
|
Revenues:
|
|
|
|
|
|
|
|
We Three
|
|
$
|
96,378
|
|
|
We Three
|
|
$
|
98,663
|
|
Romeo’s NY Pizza
|
|
|
315,146
|
|
|
Romeo’s NY Pizza
|
|
|
304,015
|
|
Repicci's Group
|
|
|
121,760
|
|
|
Repicci's Group
|
|
|
426,764
|
|
Platinum Tax
|
|
|
1,404,577
|
|
|
Platinum Tax
|
|
|
–
|
|
Key Tax
|
|
|
123,951
|
|
|
Key Tax
|
|
|
–
|
|
Other
|
|
|
(0
|
)
|
|
Other
|
|
|
–
|
|
Consolidated revenues
|
|
$
|
2,061,812
|
|
|
Consolidated revenues
|
|
$
|
829,442
|
|
Cost of Sales:
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
We Three
|
|
$
|
121,619
|
|
|
We Three
|
|
$
|
113,488
|
|
Romeo’s NY Pizza
|
|
|
228,591
|
|
|
Romeo’s NY Pizza
|
|
|
212,847
|
|
Repicci's Group
|
|
|
120,769
|
|
|
Repicci's Group
|
|
|
280,730
|
|
Platinum Tax
|
|
|
439,693
|
|
|
Platinum Tax
|
|
|
–
|
|
Key Tax
|
|
|
146,306
|
|
|
Key Tax
|
|
|
–
|
|
Other
|
|
|
–
|
|
|
Other
|
|
|
–
|
|
Consolidated cost of sales
|
|
$
|
1,056,978
|
|
|
Consolidated cost of sales
|
|
$
|
595,922
|
|
Income (Loss) before taxes
|
|
|
|
|
|
Income (Loss) before taxes
|
|
|
|
|
We Three
|
|
$
|
(96,536
|
)
|
|
We Three
|
|
$
|
(17,218
|
)
|
Romeo’s NY Pizza
|
|
|
19,351
|
|
|
Romeo’s NY Pizza
|
|
|
27,750
|
|
Repicci’s Group
|
|
|
(18,292
|
)
|
|
Repicci’s Group
|
|
|
85,976
|
|
Platinum Tax
|
|
|
89,461
|
|
|
Platinum Tax
|
|
|
(793,097
|
)
|
Key Tax
|
|
|
(52,892
|
)
|
|
Key Tax
|
|
|
–
|
|
Others
|
|
|
(6,083,838
|
)
|
|
Others
|
|
|
–
|
|
Consolidated gain/(loss) before taxes
|
|
$
|
(6,142,747
|
)
|
|
Consolidated gain/(loss) before taxes
|
|
$
|
(696,589
|
)
|
|
|
As of
|
|
|
|
|
As of
|
|
|
|
June 30, 2019
|
|
|
|
|
December 31, 2018
|
|
Assets:
|
|
|
Assets:
|
|
|
|
|
|
|
|
We Three
|
|
$
|
289,797
|
|
|
We Three
|
|
$
|
318,285
|
|
Romeo’s NY Pizza
|
|
|
72,175
|
|
|
Romeo’s NY Pizza
|
|
|
108,908
|
|
Repicci’s Group
|
|
|
79,375
|
|
|
Repicci’s Group
|
|
|
169,030
|
|
Platinum Tax
|
|
|
123,479
|
|
|
Platinum Tax
|
|
|
60,578
|
|
Key Tax
|
|
|
–
|
|
|
Key Tax
-
|
|
|
–
|
|
Others
|
|
|
5,207,620
|
|
|
Others
|
|
|
2,684,265
|
|
Combined assets
|
|
$
|
5,772,446
|
|
|
Combined assets
|
|
$
|
3,341,066
|
|
16. SUBSEQUENT EVENTS
Stock Issuances:
In August 2019 the Company
entered into a letter of intent to acquire the net assets constituting the business of Acela Biomedical, LLC, for a combination
of $15 Million in Preferred Stock and $15 Million in cash. Consummation of the acquisition is conditional upon successful
completion of due diligence and transfer of purchase consideration.
Subsequent
to June 30, 2019 the Company issued 86,292,777 shares of common stock in connection with conversion of convertible debt.
Subsequent to June 30,
2019, the Company entered into a Convertible Promissory Note agreement with Power UP Lending Group, LTD., for $73,500.
An addendum
to
change the employment agreement with the Company COO that includes a conversion of accrued payroll to preferred stock was approved
by all parties.