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
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
The accompanying notes are an integral part
of these condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
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. (“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, niche companies with high growth potential. 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
To date, Cardiff consists of the following wholly-owned subsidiaries:
We Three, LLC dba Affordable Housing Initiative (“AHI”),
acquired May 15, 2014
Romeo’s Alpharetta, LLC dba Romeo’s NY
Pizza (“Romeo’s”), acquired June 30, 2014, discontinued July 1, 2020
Edge View Properties, Inc., (“Edge View”)
acquired July 16, 2014
Repicci’s Franchise Group, LLC (“Repicci’s”),
acquired August 10, 2016, discontinued June 1, 2020
Platinum Tax Defenders, LLC (“Platinum Tax”),
acquired July 31, 2018
JM Enterprises 1, Inc. dba Key Tax Group (“Key
Tax”), acquired May 2019
Red Rock Travel Group,
LLC (“Red Rock”), acquired July 31, 2018, discontinued May 31, 2019
Basis of Presentation and Principles
of Consolidation
The accompanying September 30, 2020 interim
condensed consolidated financial statements (“financial statements”) have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements
prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant
to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading.
In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation
have been included in the condensed consolidated financial statements included herein. These statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2019. The results of operations for the periods presented are not necessarily indicative of results to be expected
for the full fiscal year or any other periods.
The financial statements include the accounts
of Cardiff, and its wholly-owned subsidiaries: AHI, Edge View, Platinum Tax and Key tax and subsidiaries shown as discontinued
operations includes Red Rock Travel Group, LLC, Romeo’s; Repicci’s. 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. Subsidiaries discontinued
are shows as discontinued operations.
Use of Estimates
The preparation of the unaudited condensed
financial statements in conformity with generally accepted accounting principles in the United States (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.
Change in Capital Structure
In January 2020, the Company announced
a reverse split of several of its Preferred Stock Classes which has been given retrospective treatment in the financial statements
for all periods presented.
In May 2020, the Company affected a 10,000:1
reverse split of Common Stock which has been given retrospective treatment in the financial statements for all periods presented.
COVID-19 Pandemic
The outbreak of a novel coronavirus throughout
the world, including the United States, during early calendar year 2020 has caused widespread business and economic disruption
through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”).
We are subject to risks and uncertainties as a result of the COVID-19 Pandemic. See the Management’s Discussion and Analysis
of Financial Condition and Results of Operations section for discussion on results of operations for the three and nine months
ended September 30, 2020. The extent of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult
to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other
markets where the Company operates. It is expected that many of the Company's customers and suppliers could be impacted by these
closings and restrictions which could materially and adversely affect demand for our products, our ability to obtain or deliver
inventory or services, and our ability to collect accounts receivables as customers face higher liquidity and solvency risk. Furthermore,
capital markets and economies worldwide have also been negatively impacted by the COVID-19 Pandemic, and it is possible that it
could cause an economic downturn, recession, or depression. Such economic disruption could have a material adverse effect on our
business. Policymakers around the world have responded with fiscal and monetary policy actions to support the economy. The magnitude
and overall effectiveness of these actions remains uncertain.
The Company’s restaurant franchise
operations have been hard hit by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to
this crisis taken by the federal, state, and local government. In light of current circumstances arising from the COVID-19 pandemic,
Cardiff as a public reporting company must evaluate what we should and are obligated to do in order to protect shareholders from
the negative effects of this pandemic.
The decrease in revenue for both the three
months and nine months ended September 30, 2020 is primarily attributable to the COVID-19 pandemic. Both the affordable housing
and financial services segments have been hit hard by the COVID-19 pandemic, due mainly to the significant increase in unemployment,
which directly affected our subsidiaries prospects and customer base. We believe the same segment of the population which were
heavily hit by unemployment were those who we provide our services and are no longer able to afford our services.
Revenue Recognition
On January 1, 2018, management adopted
ASC 606, Revenue from contracts with customers (“Topic 606”) using the modified retrospective approach for all contracts
as of the adoption date. As the adoption of this guidance did not have a significant impact on our consolidated financial adjustment,
no adjustments were recorded to prior periods.
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.
|
The Company recognizes revenue from our
financial service subsidiaries based on the five-step approach discussed above and from our affordable housing subsidiary based
on primarily 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.
Franchisor Income
Repicci’s, which was sold back to
the original owner, generates some 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. A divestiture of this segment was effective June 1, 2020,
and has been presented as discontinued operations for all periods presented.
Financial Services
Our financial services subsidiaries receive
payments in advance of service and are recorded as deferred revenue. Revenues are recognized as services are provided.
Rental Income
The Company’s rental revenue is from
mobile home leases. The expired leases are considered month-to-month leases. In accordance with section 605- 10-S99-1 of the FASB
Accounting Standards Codification for revenue recognition, the cost of property held for leasing by major classes of property according
to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying consolidated balance
sheets as of September 30, 2020 and December 31, 2019. There are no contingent rentals included in income in the accompanying statements
of operations. With the exception of the month-to-month leases, revenue was recognized on a straight-line basis and amortized into
income on a monthly basis, over the lease term.
Restaurant Sales
Revenue from restaurant sales were recognized
when food and beverage products are sold. We report revenue net of sales taxes collected from customers and remitted to governmental
taxing authorities. A divestiture of this segment was completed effective July 1, 2020 and has been presented as discontinued operations
for all periods presented.
Cash and Cash Equivalents
We consider all highly liquid investments
with an original maturity of three months or less to be cash equivalents. We had no cash equivalents at September 30, 2020 and
December 31, 2019.
Accounts Receivable
Accounts receivable is reported on the
condensed consolidated balance sheet at gross amounts due to us. Management closely monitors outstanding accounts receivable and
charges off to expense any balances that are determined to be uncollectible. As of September 30, 2020 and December 31, 2019, we
had accounts receivable of $70,989 and $118,125, respectively. Accounts receivables primarily are generated from our subsidiaries
in their normal course of business.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements
are carried at cost. Expenditures for renewals and betterments that extend the useful lives of property, equipment or leasehold
improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated
using the straight-line method for financial reporting purposes 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
|
Leases
In accordance with FASB issued Accounting
Standards Update (“ASU”) No. 2016-02,” Leases” (Topic 842), the Company recognizes their operating
leases on the balance sheet as an asset and liability for leases with lease terms of more than 12 months. ASU 2016-02 became effective
on January 1, 2019. Leases under this ASU are presented on the balance sheet as right of use asset and liability. These amounts
are presented as right of use - asset and right of use – liability on the balance sheet at September 30, 2020 and December
31, 2019.
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. We believe such assumptions are also comparable to those that would
be used by other marketplace participants.
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 used by us 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
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, we use the Black-Scholes 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, we record a “beneficial conversion feature” (“BCF”) discount
against the face amount of the respective debt instrument (offset to additional paid in capital).
When the Company records a BCF which is
not a conventional convertible, the fair value of the BCF is recorded as a derivative liability with an offset against the face
amount of the respective debt instrument which is and amortized to interest expense over the term 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 condensed 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 our financial assets measured and recorded at fair value on the Company’s condensed consolidated balance
sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2020 and December 31, 2019.
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of BCF Derivative Liability – September 30, 2020
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
3,168,106
|
|
|
$
|
3,168,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Fair Value of BCF Derivative Liability – December 31, 2019
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
3,102,392
|
|
|
$
|
3,102,392
|
|
Stock-Based Compensation
We account for stock-based compensation
in which we obtain employee services in share-based payment transactions under the recognition and measurement principles of the
fair value recognition provisions of ASC 718-10-30. Pursuant to ASC 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 consolidated statements of operations.
Equity Instruments Issued to Parties Other Than Employees
for Acquiring Goods or Services
We previously adopted ASU No 2018-07 for
equity instruments issued to parties other than employees.
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 periods ending September 30, 2020
and December 31, 2019 we did not have any interest and penalties associated with tax positions. As of September 30, 2020, and December
31, 2019, we 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.
Going Concern
The accompanying 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. We have sustained operating losses since its inception and have negative
working capital and an accumulated deficit. These factors raise substantial doubts about our ability to continue as a going concern.
The accompanying 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, our independent registered public accounting firm, in its report on our December 31, 2019 consolidated financial
statements, has raised substantial doubt about our ability to continue as a going concern.
Our ability 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 us to fund its cashflow shortfalls and pursue new acquisitions.
There can be no assurance we 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 we 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 we will be
able to operate profitably on a consistent basis, or at all, in the future. Should we not be able to raise sufficient funds, it
may cause cessation our operations.
Accounting Pronouncements
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 our financial position, results of operations or cash flows.
|
2.
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
Accounts payable
|
|
$
|
62,432
|
|
|
$
|
228,971
|
|
|
Accrued credit cards
|
|
|
27,607
|
|
|
|
86,077
|
|
|
Accrued income, payroll and other taxes
|
|
|
321,183
|
|
|
|
276,614
|
|
|
Accrued advertising
|
|
|
85,996
|
|
|
|
53,189
|
|
|
Accrued payroll
|
|
|
23,853
|
|
|
|
58,760
|
|
|
Accrued expenses other
|
|
|
108,026
|
|
|
|
92,353
|
|
|
Total
|
|
$
|
629,097
|
|
|
$
|
795,964
|
|
The Company is delinquent paying income
taxes. As of September 30, 2020, and December 31, 2019, the balance due for these taxes is $321,183 and $276,614, respectively,
as shown in the table above.
|
3.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment as of September
30, 2020 and December 31, 2019 is as following:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
Residential housing
|
|
$
|
341,205
|
|
|
$
|
341,205
|
|
|
Furniture, fixture and equipment
|
|
|
76,017
|
|
|
|
76,017
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
417,222
|
|
|
|
417,222
|
|
|
Less: accumulated depreciation
|
|
|
(199,679
|
)
|
|
|
(182,343
|
)
|
|
Property and equipment, net
|
|
$
|
217,543
|
|
|
$
|
234,879
|
|
During the three and nine months ended
September 30, 2020, total depreciation expense was $5,765, and $17,336, respectively. During the three and nine months ended September
30, 2019, total depreciation expense was $(1,945), and $9,373, respectively.
As of September 30, 2020 and December 31, 2019, we 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. We issued 241,199 shares of Series E Preferred Stock as consideration for this acquisition. The
land is currently vacant and is expected to be developed into a residential community using a third party developer. The Company
does not plan to develop the land itself.
At September 30, 2020 and December 31, 2019,
notes payable represent amounts outstanding under a $92,500 line of credit from a commercial lender. The line of credit bears interest
at prime plus a variable rate of 3.45%. There is a non-refundable annual fee of $250 subject to change as determined by the bank.
The monthly payment is the minimum of $100 or the sum of 1/100th of the then unpaid principal plus accrued interest
on unpaid principal not to exceed the outstanding balance of the note.
At September 30, 2020 and December 31,
2019, we had outstanding balances of $51,481 and $91,099, respectively.
|
6.
|
RELATED PARTY TRANSACTIONS
|
From time to time, the companies borrow
funds from our Chairman of the Board (“Chairman”) or certain subsidiary managers. Refer to Commitments and Contingencies
for additional related party transactions, refer to Note 13.
Notes payable at September 30, 2020 and
December 31, 2019 are summarized as follows:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
Notes Payable - Unrelated Party
|
|
$
|
641,870
|
|
|
$
|
617,351
|
|
|
Notes Payable - Related Party
|
|
|
46,545
|
|
|
|
84,746
|
|
|
Notes Payable – Paycheck Protection Program
|
|
|
551,900
|
|
|
|
–
|
|
|
Total
|
|
$
|
1,240,316
|
|
|
$
|
702,097
|
|
Notes Payable
On March 12, 2009, we 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, we issued warrants to purchase its Common Stock, recorded a $20,000 debt discount which
has been fully amortized. We assigned all of our receivables from consumer activations of the rewards program as collateral on
this debenture. On March 24, 2011, we 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, we repaid $5,000 of the
note. No warrants had been exercised before the expiration. As of September 30, 2020, we are in default on this debenture. The
principal balance of the note as of September 30, 2020 and December 31, 2019 is $10,989 and accrued interest at September 30, 2020
is $3,266.
On September 7, 2011, we entered into a
Promissory Note agreement (“Note 3”) for $50,000. Note 3 bears interest at 8% per year and matures on September 7,
2016. Interest was payable annually on the anniversary of Note 3, and the principal and any unpaid interest will be due upon maturity.
The balance of Note 3 was $50,000 at September 30, 2020 and December 31, 2019 and the note is currently in default. Accrued interest
on the note at September 30, 2020 was 36,295.
On November 17, 2011, we entered into a
Promissory Note agreement (“Note 3-1”) for $50,000. Note 3-1 bears interest at 8% per year and matures on November
17, 2016. Interest was payable annually on the anniversary of Note 3-1, and the principal and any unpaid interest will be due upon
maturity. The principal balance of Note 3-1, was $50,000 at September 30, 2020 and December 31, 2019. Note 3-1 is currently in
default. Accrued interest on the note at September 30, 2020 was 35,518.
On September 9, 2019, we entered into a Senior Secured Promissory Note with
an unrelated entity in the amount $410,000. The note bears interest at the rate of 10% per annum and matured on September 9, 2020.
On November 10, 2020, we entered into an extension on the note until December 31, 2020. The Company agreed to use the proceeds
to repay amounts owed to the commercial lender of the Company. The note is secured and is current as of September 30, 2020. The
balance of the note at September 30, 2020 is $410,000 and accrued interest is $43,584.
Notes Payable – Related Party
We assumed notes payable from the previous
owners of which are currently managers of Key Tax related to the acquisition of Key Tax on May 8, 2019. The notes are due on demand
and do not bear interest. The balance of these notes is $41,947 and $58,649 at September 30, 2020 and December 31, 2019. From time
to time, the previous owner which is currently the manager of Platinum Tax Defenders loans funds to the Company to cover short
term operating needs. Amounts owed as of September 30, 2020 and December 31, 2019 were $4,598 and $15,108, respectively.
Notes Payable – Paycheck Protection
Program Loans
The Company and certain of its subsidiaries
(the “Companies”) executed loan agreements with the U.S. Small Business Administration (“SBA”) to participate
in the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act, which was enacted March 27,
2020.
The Companies were granted aggregate proceeds
of $554,900 from the SBA. The loans accrue interest at the rate of 1% to 3.75%. The Companies must pay principal and interest payments
ranging from $731 to $14,491 monthly beginning seven to twelve months from the date of the Note with the SBA. Maturity dates range
from April 14, 2022 to June 2, 2050.
The loans and accrued interest may be forgivable
if the Companies use the funds for eligible purposes. Eligible uses include payroll, benefits, rent and utilities, and maintains
its payroll levels. Loan forgiveness will be reduced if the Companies terminate employees or reduces salaries or wages during the
necessary period.
The Companies intend to use the proceeds
for eligible purposes and believes the current usages are eligible as defined by the SBA. Although, we cannot assure that we will
meet the forgiveness criteria and that any or all the loans will be forgiven.
|
8.
|
CONVERTIBLE NOTES PAYABLE
|
Some of the Convertible Notes issued as
described below include an anti-dilution provisions that allowed for the adjustment of the conversion price. We 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, we determined that, as the
conversion price of the Convertible Notes issued in connection therewith could fluctuate based future events, such prices were
not fixed amounts. As a result, we determined that the conversion features of the Convertible Notes issued in connection therewith
are not considered indexed to our stock and characterized the value of the conversion feature of such notes as derivative liabilities.
The balances of convertible notes at September 30, 2020 and December 31, 2019 are $2,198,859 and $1,908,293,
respectively. During the nine-month period January 1, 2020 to September 30, 2020, the Company converted $166,727 of convertible
debt, and $45,600 in accrued interest and $21,000 in penalties and fees into 1,255,476 shares (post reverse split of 10,000:1)
of Common Stock and reclassified a $15,000 convertible note to conventional notes payable. We had debt discount of $649,391 and
$828,468 as of September 30, 2020 and December 31, 2019 respectively. During the nine months ending September 30, 2020 and 2019,
we recorded amortization of debt discounts of $715,980 and $825,206, respectively.
Convertible notes at September 30, 2020 and December 31, 2019
are summarized as follows:
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
Convertible notes payable
|
|
$
|
2,198,859
|
|
|
$
|
1,908,293
|
|
|
Unamortized discounts on convertible notes payable
|
|
|
(649,391
|
)
|
|
|
(828,468
|
)
|
|
Total convertible debt less debt discount
|
|
|
1,549,468
|
|
|
|
1,079,825
|
|
|
Current portion
|
|
|
1,549,468
|
|
|
|
595,257
|
|
|
Long-term portion
|
|
$
|
–
|
|
|
$
|
484,568
|
|
The following is a schedule of convertible notes payable from
December 31, 2019 to September 30, 2020.
|
Note
#
|
|
Issuance
|
|
|
Maturity
|
|
|
Principal
Balance 12/31/19
|
|
New
Loans and Reclasses
|
|
|
Cash
Paydown
|
|
|
Principal
Conversions
|
|
|
Default
|
|
|
Principal
Balance 9-30-20
|
|
|
Interest
Expense On Convertible Debt For Nine Months Ended 9-30-20
|
|
|
Accrued
Interest on Convertible Debt at 9-30-20
|
|
|
|
1
|
|
|
8/21/08
|
|
|
|
8/21/09
|
|
|
$
|
150,000
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
Yes
|
|
|
$
|
150,000
|
|
|
$
|
13,700
|
|
|
$
|
218,308
|
|
|
|
2
|
|
|
3/11/09
|
|
|
|
4/29/14
|
|
|
|
15,000
|
|
|
(15,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7
|
|
|
2/9/16
|
|
|
|
On demand
|
|
|
|
8,485
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
8,485
|
|
|
|
1,292
|
|
|
|
3,704
|
|
|
|
7-1
|
|
|
10/28/16
|
|
|
|
10/28/17
|
|
|
|
25,000
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
25,000
|
|
|
|
3,806
|
|
|
|
14,126
|
|
|
|
8
|
|
|
3/8/16
|
|
|
|
3/8/17
|
|
|
|
1,500
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
1,500
|
|
|
|
228
|
|
|
|
10,092
|
|
|
|
9
|
|
|
9/12/16
|
|
|
|
9/12/17
|
|
|
|
80,000
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
80,000
|
|
|
|
12,178
|
|
|
|
60,054
|
|
|
|
10
|
|
|
1/24/17
|
|
|
|
1/24/18
|
|
|
|
32,621
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
32,621
|
|
|
|
4,966
|
|
|
|
28,177
|
|
|
|
11-1
|
|
|
2/21/17
|
|
|
|
2/21/18
|
|
|
|
9,733
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
9,733
|
|
|
|
1,482
|
|
|
|
4,014
|
|
|
|
11-2
|
|
|
3/16/17
|
|
|
|
3/16/18
|
|
|
|
20,032
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
20,032
|
|
|
|
3,049
|
|
|
|
5,417
|
|
|
|
13-2
|
|
|
7/24/18
|
|
|
|
1/24/19
|
|
|
|
92,205
|
|
|
(48,246
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
43,959
|
|
|
|
6,022
|
|
|
|
30,024
|
|
|
|
22
|
|
|
7/10/18
|
|
|
|
1/10/21
|
|
|
|
953,414
|
|
|
(117,799
|
)
|
|
|
(20,207
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
815,408
|
|
|
|
73,429
|
|
|
|
86,918
|
|
|
|
22-1
|
|
|
2/20/19
|
|
|
|
1/10/21
|
|
|
|
–
|
|
|
61,704
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
61,704
|
|
|
|
5,636
|
|
|
|
11,985
|
|
|
|
22-3
|
|
|
4/10/19
|
|
|
|
1/10/21
|
|
|
|
–
|
|
|
56,095
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
56,095
|
|
|
|
5,123
|
|
|
|
10,269
|
|
|
|
25
|
|
|
8/13/18
|
|
|
|
2/13/19
|
|
|
|
78,314
|
|
|
48,246
|
|
|
|
–
|
|
|
|
(8,268
|
)
|
|
|
Yes
|
|
|
|
118,292
|
|
|
|
16,450
|
|
|
|
1,795
|
|
|
|
26
|
|
|
8/10/17
|
|
|
|
1/27/18
|
|
|
|
20,000
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
20,000
|
|
|
|
2,283
|
|
|
|
6,817
|
|
|
|
29-1
|
|
|
11/8/19
|
|
|
|
11/8/20
|
|
|
|
141,122
|
|
|
–
|
|
|
|
–
|
|
|
|
(36,159
|
)
|
|
|
–
|
|
|
|
104,963
|
|
|
|
7,291
|
|
|
|
1,324
|
|
|
|
29-2
|
|
|
11/8/19
|
|
|
|
11/8/20
|
|
|
|
62,367
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
62,367
|
|
|
|
3,797
|
|
|
|
3,797
|
|
|
|
30
|
|
|
7/26/19
|
|
|
|
7/26/20
|
|
|
|
73,500
|
|
|
–
|
|
|
|
–
|
|
|
|
(73,500
|
)
|
|
|
Yes
|
|
|
|
–
|
|
|
|
511
|
|
|
|
–
|
|
|
|
31
|
|
|
8/28/19
|
|
|
|
8/28/20
|
|
|
|
120,000
|
|
|
–
|
|
|
|
–
|
|
|
|
(48,800
|
)
|
|
|
Yes
|
|
|
|
71,200
|
|
|
|
7,277
|
|
|
|
7,427
|
|
|
|
32
|
|
|
5/22/19
|
|
|
|
5/10/20
|
|
|
|
25,000
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
Yes
|
|
|
|
25,000
|
|
|
|
3,806
|
|
|
|
5,027
|
|
|
|
33
|
|
|
2/11/20
|
|
|
|
2/11/21
|
|
|
|
–
|
|
|
157,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
157,500
|
|
|
|
6,090
|
|
|
|
6,090
|
|
|
|
34
|
|
|
5/18/20
|
|
|
|
5/18/21
|
|
|
|
–
|
|
|
63,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
63,000
|
|
|
|
1,418
|
|
|
|
1,418
|
|
|
|
35
|
|
|
8/24/20
|
|
|
|
8/24/21
|
|
|
|
–
|
|
|
85,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
85,000
|
|
|
|
524
|
|
|
|
524
|
|
|
|
36
|
|
|
9/3/20
|
|
|
|
1/3/21
|
|
|
|
–
|
|
|
120,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
120,000
|
|
|
|
900
|
|
|
|
900
|
|
|
|
37
|
|
|
9/3/20
|
|
|
|
6/3/21
|
|
|
|
–
|
|
|
67,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
67,000
|
|
|
|
503
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,908,293
|
|
$
|
477,500
|
|
|
$
|
(20,207
|
)
|
|
$
|
(166,727
|
)
|
|
|
–
|
|
|
$
|
2,198,859
|
|
|
$
|
181,760
|
|
|
$
|
518,710
|
|
|
9.
|
FAIR VALUE MEASUREMENT
|
We measure assets and liabilities at fair
value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the
amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The carrying amounts of our financial assets
and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable
and notes payable – related party, approximate their fair values because of the short maturity of these instruments.
We recognize our derivative liabilities
as level 3 and value these derivatives using the methods discussed in note 1. We believe that its valuation methods are appropriate
and consistent with other market participants, we recognize 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 terms in the notes that are subject to volatility and market
price of our underlying common stock.
As of September 30, 2020, and December
31, 2019, the Company did not have any derivative instruments that were designated as hedges.
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the 3 months ended
September 30, 2020, the Company’s stock price decreased from its initial valuation and thus, the derivative liability also
decreased. Generally, as the stock price decreases for each of the related convertible notes that have an embedded derivative liability,
the value of the derivative liability decreases. Stock price is one of the significant unobservable inputs used in the fair value
measurement of each of the Company’s convertible notes with an embedded derivative liability.
We used the Black-Scholes Model to measure
the fair value of the derivative liabilities of $3,168,106 and $3,102,392 on September 30, 2020 and December 31, 2019, respectively.
We recorded a net increase of $65,714 in the derivative liability for the nine months ended September 30, 2020.
The following table provides a summary
of changes in fair value of our Level 3 financial liabilities for the three months ended September 30, 2020:
|
Derivative Liability, December 31, 2019
|
|
$
|
3,102,392
|
|
|
Day 1 Loss
|
|
|
614,229
|
|
|
Discount on derivatives
|
|
|
482,403
|
|
|
Derivatives settled
|
|
|
(544,066
|
)
|
|
Mark to market adjustment
|
|
|
(486,852
|
)
|
|
Derivative Liability, September 30, 2020
|
|
$
|
3,168,106
|
|
The above tables also include derivative
liabilities related to warrants to purchase common stock of $22 at September 30, 2020. Net loss for the period included mark-to-market
adjustments relating to the liabilities held during the nine months ended September 30, 2020 in the amounts of $7,197. See note
12 for derivative liabilities from discontinued operations.
The valuation of the derivative liabilities
attached to the convertible debt was arrived at through the use of the Black-Scholes Option Pricing Model (“Black-Scholes
Model”) using the following assumptions:
|
|
|
|
For the Periods Ended
|
|
|
|
|
|
September 30, 2020
|
|
|
|
December 31, 2019
|
|
|
Volatility
|
|
|
372.7% - 1,140.6%
|
|
|
|
378.8% - 1,872.7%
|
|
|
Risk-free interest rate
|
|
|
10% - 13%
|
|
|
|
1.55% - 1.62%
|
|
|
Expected term
|
|
|
0.3 – 2.0
|
|
|
|
.47 – 2.8
|
|
Preferred Stock
During January 2020, we facilitated a reverse
split of several classes our Preferred Stock which has been given retrospective treatment in these financial statements. In addition
to the reverse stock split, management established new rights & privileges for certain classes of preferred stock. The reverse
split ratio ranges from 1.6:1 to 307.7:1 resulting in a reclassification of $98,989 from preferred stock to additional paid in
capital. The rights and privileges were changed with unanimous consent of all parties. All holders agreed to replace existing rights
and privileges with new uniform conditions and a simplified uniform preferred $4.00 per share stated value.
Holders of Series B, D, D1, E, E1, F, F1, G, G1, H, H1, I, J,
J1, L, L1, M, and P Preferred Stock shall have conversion rights that are affected by the closing common share market price on
the date of conversion as reported on such national exchange where the Company’s common stock is traded:
i. If the closing market price is less than $4 per
share one (1) share of the respective Series of Preferred Stock described in this Section 4(a) shall convert into an amount of
common stock equal to: two (2) times the Stated Value, as defined herein, divided by the closing market price as reported on such
national exchange where the Company’s common stock is traded on the date of conversion. For Example. If the closing price
of the common stock as reported on such national exchange where the Company’s common stock is traded is $1.00 and the Stated
Value is $4.00, one (1) preferred share would convert into eight (8) shares of common stock.
ii. If the closing market price is equal to or greater
than $4 per share one (1) share of the respective Series of Preferred Stock described in this Section 4(a) shall convert into two
(2) shares of common stock. For Example. If the closing price of the common stock as reported on such national exchange where
the Company’s common stock is traded is $5.00 one (1) preferred share would convert into two (2) shares of common stock.
Holders of Series C Preferred Stock shall have Conversion Rights
such that upon Conversion each one (1) share of Series C Preferred Stock shall convert into one hundred thousand (100,000) shares
of the Common Stock. In the event that the Company should up list to a national exchange as defined by the U.S. Securities and
Exchange Commission, each share of Series C Preferred Stock shall automatically be redeemed by the Company in exchange for a total
of Fifty Thousand Dollars ($50,000.00) worth of the Common Stock, valued at the time of redemption.
Holders of the Series K and K1 Preferred Stock shall have Conversion
Rights such that upon Conversion each one (1) share of Series K and K1 Preferred Stock shall convert into 1.25 shares of the Common
Stock.
Holders of Series R Preferred Stock shall
be the amount equal to $0.30; provided, however if the price of the Common Stock closes below $0.30 for the five (5) consecutive
Trading Days immediately prior to the Conversion Date, then the Conversion Price shall be adjusted to $0.20, and if the price of
the Common Stock closes below $0.20 for the five (5) consecutive Trading Days immediately prior to the Conversion Date, then the
Conversion Price shall be adjusted to $0.10.
Common Stock
During the nine months ended September
30, 2020, we issued the following transactions:
|
|
·
|
1,255,476 shares of common stock were issued upon conversion of certain convertible notes payable (see Footnote 9).
|
|
|
·
|
On January 9, 2020, we issued 25,000 warrants and a free trading common share certificate in the amount of 3,500 shares of common stock for settlement of a threatened lawsuit.
|
|
|
·
|
On May 11, 2020, the Company completed
a reverse stock split of 10,000:1 for common shares.
|
|
|
|
|
|
|
·
|
On August 24, 2020, 163,814 shares
were issued to a financial advisor for services
|
These transactions are reflecting
a retrospective treatment of common stock that was a reverse split effective in May 11, 2020.
The initial and ending valuation of the
warrants as of September 30, 2020 are as follows:
|
|
|
Nine Months
September 30, 2020
|
|
|
Initial Valuation
|
|
$
|
6,135
|
|
|
Ending Value
|
|
$
|
22
|
|
The table below set forth the assumptions
for the Black-Scholes Model September 30, 2020:
|
|
|
Nine Months
September 30, 2020
|
|
Volatility
|
|
406.8%-1,140.0%
|
|
Risk-free interest rate
|
|
8% - 16%
|
|
Expected term
|
|
0.11 – 5.28
|
Accordingly, the $5,592 change in warrant
values in earnings during the nine months ended September 30, 2020.
The following tables summarize all warrant
outstanding as of September 30, 2020, and the related changes during this period. The warrants expire three years from grant date,
which as of September 30, 2020 is 1.1 years. The intrinsic value of the warrants as of September 30, 2020 is $-0-.
|
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Stock Warrants
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
6,614,287
|
|
|
$
|
0.21
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
Expired
|
|
|
–
|
|
|
|
–
|
|
|
Balance at September 30, 2020
|
|
|
6,614,287
|
|
|
|
0.40
|
|
|
Warrants Exercisable at September 30, 2020
|
|
|
6,614,287
|
|
|
$
|
0.40
|
|
|
12.
|
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE
|
Below is a reconciliation between basic and diluted (loss) earnings per common share for the three and nine months ended September 30, 2020 and 2019.
|
|
|
Three
Months Ended September 30, 2020
|
|
|
Three
Months Ended September 30, 2019
|
|
|
|
|
Income/Loss
|
|
|
Share
|
|
|
Per
Share
|
|
|
Loss
|
|
|
Share
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) From Continued Operations - basic
|
|
$
|
2,985,695
|
|
|
|
968,379
|
|
|
$
|
3.08
|
|
|
$
|
(2,638,787
|
)
|
|
|
27,520
|
|
|
$
|
(95.89
|
)
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
6,393,968,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on income/loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in derivative liability
|
|
|
(3,864,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on convertible debt
|
|
|
63,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense
|
|
|
258,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount
|
|
|
(674,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) From Continued Operations - diluted
|
|
$
|
(1,231,347
|
)
|
|
|
6,394,936,792
|
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) From Discontinued Operations - basic
|
|
$
|
(43,420
|
)
|
|
|
968,379
|
|
|
$
|
(0.04
|
)
|
|
$
|
(351,672
|
)
|
|
|
27,520
|
|
|
$
|
(12.78
|
)
|
|
|
|
Nine
Months Ended September 30, 2020
|
|
|
Nine
Months Ended September 30, 2019
|
|
|
|
|
Loss
|
|
|
Share
|
|
|
Per
Share
|
|
|
Loss
|
|
|
Share
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) From Continued Operations - basic
|
|
$
|
(2,022,189
|
)
|
|
|
409,666
|
|
|
$
|
(4.94
|
)
|
|
$
|
(8,681,596
|
)
|
|
|
14,487
|
|
|
$
|
(599.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) From Discontinued Operations - basic
|
|
$
|
93,637
|
|
|
|
409,666
|
|
|
$
|
0.23
|
|
|
$
|
(451,510
|
)
|
|
|
14,487
|
|
|
$
|
(31.17
|
)
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
1,444,295,058,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in derivative liabilities
|
|
|
21,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on convertible debt
|
|
|
51,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss) From Discontinued Operations - diluted
|
|
$
|
166,914
|
|
|
|
1,444,295,468,290
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
All dilutive common stock equivalents are
reflected in our earnings (loss) per share calculations. Anti-dilutive common stock equivalents are not included in the
earning (loss) per share calculation. Due to the loss, all common stock equivalents were excluded from the diluted per share
calculation for the three and nine months ended September 30, 2020 because their inclusion would have been
anti-dilutive.
|
13.
|
DISCONTINUED OPERATIONS
|
Management has decided to divest from the
food services sector due primarily to a shift in strategy to focus time and resources on opportunities in the financial services
sector to build upon its tax subsidiaries with related debt, credit, billing, and real estate opportunities. The Company’s
restaurant franchise operations have been hard hit by the economic pressure of the COVID-19 pandemic and the subsequent directives
and responses to this crisis taken by the federal, state, and local government. In light of current circumstances arising from
the COVID-19 pandemic, Cardiff as a public reporting company must evaluate what we should and are obligated to do in order to protect
shareholders from the negative effects of this pandemic.
As a result, management entered into agreements
with the existing managers who were the original owners of Romeo’s NY Pizza (“Romeo’s”) and Repicci’s
Franchise Group (“Repicci’s”) to buyback the subsidiaries previously purchased by Cardiff Lexington Corp.
The Company and the Repicci’s manager
have entered into a Resignation, Release & Buyback Agreement and a Resignation, Release & Buyback Agreement Addendum (“Repicci’s
Agreements”) which was effective June 1, 2020. Pursuant to the Repicci’s Agreement, the Repicci’s manager resigned
employment from the Company effective June 1, 2020 and has purchased the Repicci’s subsidiary in exchange for returning 81,601
Preferred Shares Series H stock (“Preferred H”) which is held by the Company as treasury stock. The Repicci’s
manager retained 37,500 shares of Preferred H shares subject to the terms of the Repicci’s Agreements. There was a gain on
disposal in the amount of $216,013.
The Company and the Romeo’s manager
have entered into a Resignation, Release & Buyback Agreement and a Resignation, Release & Buyback Agreement Addendum (“Romeo
Agreements”) which is effective July 1, 2020. Pursuant to the Romeo Agreement, Romeo’s manager resigned employment
from the Company effective July 1, 2020 and has purchased back the Romeo’s subsidiary in exchange for returning 212,500 Preferred
Shares Series D stock (“Preferred D”). The Romeo’s manager will retain 37,500 shares of Preferred D shares subject
to the terms of the Romeo Agreements. There was a loss on disposal in the amount of $21,140.
In April 2019, the Company discontinued
operating Red Rock Travel due to continuing operating losses.
Net liabilities of discontinued operations
at September 30, 2020 and December 31, 2019 are $2,425,100 and $2,555,837, respectively. Net loss from discontinued operations
for the nine months ending September 30, 2020 and December 31, 2019 are $101,237 and $99,837, respectively.
|
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
|
Net liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
–
|
|
|
|
23,875
|
|
|
Receivables
|
|
|
–
|
|
|
|
18,585
|
|
|
Inventories
|
|
|
–
|
|
|
|
3,079
|
|
|
Other assets
|
|
|
–
|
|
|
|
1,486
|
|
|
Right of use assets
|
|
|
–
|
|
|
|
291,330
|
|
|
Property and Equipment
|
|
|
53,501
|
|
|
|
92,021
|
|
|
Total assets
|
|
|
53,501
|
|
|
|
430,376
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable & accrued expenses
|
|
|
1,930,960
|
|
|
|
2,2
|
|
|
Accrued expenses - related party
|
|
|
–
|
|
|
|
74,513
|
|
|
Accrued interest
|
|
|
147,876
|
|
|
|
96,729
|
|
|
Right of use liabilities
|
|
|
–
|
|
|
|
296,605
|
|
|
Deferred revenue
|
|
|
–
|
|
|
|
61,218
|
|
|
Notes payable
|
|
|
240,000
|
|
|
|
77,540
|
|
|
Derivative liability
|
|
|
159,765
|
|
|
|
138,244
|
|
|
Total liabilities
|
|
|
2,478,601
|
|
|
|
2,986,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liabilities of discontinued operations
|
|
$
|
(2,425,100
|
)
|
|
$
|
(2,555,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
283,661
|
|
|
|
468,666
|
|
|
Cost of sales
|
|
|
82,399
|
|
|
|
364,947
|
|
|
Selling, general and administrative expenses
|
|
|
223,980
|
|
|
|
168,364
|
|
|
Interest expense
|
|
|
56,998
|
|
|
|
35,192
|
|
|
Change in value of derivative liability
|
|
|
21,521
|
|
|
|
–
|
|
|
Net loss from discontinued operations
|
|
$
|
(101,237
|
)
|
|
$
|
(99,837
|
)
|
|
14.
|
COMMITMENTS AND CONTINGENCIES
|
Leases
We recorded operating lease expense of
$64,494 and $34,953 for the nine months ended September 30, 2020 and December 31, 2019, respectively.
The Company has property leases that are
renewable on an annual basis, with no long-term property leases.
Employees
We have an employment agreement effective
August 1, 2020 to December 31, 2025 with the Chairman of the Board, Mr. Thompson. with automatic extension for additional successive
one (1) year renewals terms unless terminated as defined in the agreement. We provide for compensation of $30,000 per month along
with additional incentives.
We have an employment agreement effective
August 1, 2020 to December 31, 2025 with the Chief Executive Officer, Mr. Cunningham with automatic extension for additional successive
one (1) year renewals terms unless terminated as defined the agreement. We provide for compensation of $30,000 per month.
We have an employment agreement with the
Chief Operating Officer, effective June 13, 2016 to December 31, 2021 with automatic extension for additional successive one (1)
year renewals terms unless terminated as defined in the agreement. We provide for compensation of $10,000 per month.
We have an employment agreement with the
Chief Financial Officer, effective January 27, 2020 to December 31, 2021 with automatic extension for additional successive one
(1) year renewals terms unless terminated as defined in the agreement. We provide for compensation of $8,333 per month.
We have an employment agreement with a
subsidiary manager, effective May 31, 2019 with a term of 5 years, whereby we provide for compensation of $17,333 per month along
with a bonus incentive if financial performance measures are met.
We have an employment agreement with a
subsidiary manager, effective July 1, 2018 with a term of 5 years, whereby we provide for compensation of $20,000 per month along
with a bonus incentive if financial performance measures are met.
We acquired Redrock Travel on May 1, 2018.
Our board of directors decided to terminate the acquisition agreement and to file for the cancelation of the Redrock Stock Class
with the State of Florida. A declaration has been served notifying Red Rock and its investors
the Board nor officer of the Company approved any transactions entered into with Red Rock. The Company is awaiting a response.
At September 30, 2020 the Company had federal
and state net operating loss carry forwards of approximately $16,000,000 that expire over various years through the year 2040.
The Company has two reportable operating
segment 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)
|
Affordable Housing (We Three) and
|
|
|
(2)
|
Financial Resolution Services (Platinum and Key Tax)
|
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, bookkeeping
and general accounting.
The Affordable Housing segment leases and
sells mobile homes as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, large monthly
mortgage payments and high property taxes and insurance which is a common trait of brick and mortar homes. Additionally, if bad
credit is an issue preventing potential home owners from purchasing a traditional house, the Company will provide a "lease
to own" option so people secure their family home.
Platinum Tax Defenders and Key Tax 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.
|
|
|
As of September 30, 2020
|
|
|
As of December 31, 2019
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
296,217
|
|
|
$
|
299,565
|
|
|
Financial Services
|
|
|
4,597,428
|
|
|
|
4,302,238
|
|
|
Others
|
|
|
51,125
|
|
|
|
269,401
|
|
|
Consolidated assets
|
|
$
|
4,944,770
|
|
|
$
|
4,871,204
|
|
|
|
|
For the Three Months Ended September 30, 2020
|
|
|
For the Three Months Ended September 30, 2019
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
31,993
|
|
|
$
|
39,199
|
|
|
Financial Services
|
|
|
675,915
|
|
|
|
1,288,116
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
707,908
|
|
|
$
|
1,327,315
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
39,279
|
|
|
$
|
32,254
|
|
|
Financial Services
|
|
|
437,707
|
|
|
|
372,642
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
476,986
|
|
|
$
|
404,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations From Subsidiaries:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
(5,683
|
)
|
|
$
|
5,857
|
|
|
Financial Services
|
|
|
(216,224
|
)
|
|
|
214,929
|
|
|
Total Income (Loss) from operations from subsidiaries
|
|
$
|
(221,907
|
)
|
|
$
|
220,786
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations from Cardiff Lexington
|
|
$
|
(308,661
|
)
|
|
$
|
(64,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations and before taxes:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
(5,683
|
)
|
|
$
|
5,857
|
|
|
Financial Services
|
|
|
(216,224
|
)
|
|
|
214,929
|
|
|
Corporate and Administration
|
|
|
3,207,602
|
|
|
|
(2,859,573
|
)
|
|
Total Loss before discontinued operations and before taxes
|
|
$
|
2,985,695
|
|
|
$
|
(2,638,787
|
)
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
110,820
|
|
|
$
|
135,577
|
|
|
Financial Services
|
|
|
2,551,325
|
|
|
|
2,816,644
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
2,662,145
|
|
|
$
|
2,952,221
|
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
120,763
|
|
|
$
|
153,873
|
|
|
Financial Services
|
|
|
1,228,096
|
|
|
|
958,641
|
|
|
Total Cost of Sales
|
|
$
|
1,348,859
|
|
|
$
|
1,112,514
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations From Subsidiaries:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
(10,331
|
)
|
|
$
|
6,827
|
|
|
Financial Services
|
|
|
(134,092
|
)
|
|
|
384,757
|
|
|
Total Income (Loss) from operations from subsidiaries
|
|
$
|
(144,423
|
)
|
|
$
|
391,584
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss From Operations from Cardiff Lexington
|
|
$
|
(747,211
|
)
|
|
$
|
(843,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations and before taxes:
|
|
|
|
|
|
|
|
|
|
Affordable Housing Rentals
|
|
$
|
(10,331
|
)
|
|
$
|
6,827
|
|
|
Financial Services
|
|
|
(134,092
|
)
|
|
|
384,757
|
|
|
Corporate and Administration
|
|
|
(1,877,766
|
)
|
|
|
(9,073,180
|
)
|
|
Total Loss before discontinued operations and before taxes
|
|
$
|
(2,022,189
|
)
|
|
$
|
(8,681,596
|
)
|