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The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and Nature of Operations
Legacy Card Company, LLC (“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 Lexington”,
the “Company”), a publicly held corporation.
In the first quarter of 2013, it was decided
to restructure Cardiff Lexington 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 potential access to capital markets provided by affiliation with
a publicly-traded company. Cardiff Lexington 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
Cardiff Lexington 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 Pizza”), acquired June 30, 2014; Sold July 1, 2020.
Edge View Properties, Inc., (“Edge View”)
acquired July 16, 2014
Repicci’s Franchise Group, LLC (“Repicci’s
Group”), acquired August 10, 2016; Sold 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
Principles of Consolidation
The
consolidated financial statements include the accounts of Cardiff, and its wholly-owned subsidiaries: AHI dba We Three, LLC, Edge
View, Platinum Tax, and Key tax, and subsidiaries shown as discontinued operations includes Red Rock Travel Group, LLC, Romeo’s,
and 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 condensed consolidated financial results. Subsidiaries discontinued are shown as discontinued operations.
Use of Estimates
The preparation of financial statements
in conformity with 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 the first quarter of 2019, the Company
executed a reverse stock split of 1,500:1 effective March 21, 2019.
In January 2020, the Company announced
a reverse split of several of its Preferred Stock Classes which has been given retrospective treatment in the consolidated financial
statements.
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”). 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.
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.
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.
Our tax services subsidiaries receive payments
in advance of service and are recorded as deferred revenue. Revenues are as services are provided.
Rental Income
The Company’s rent revenue is derived
from the 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 December 31, 2020 and 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.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents. The Company has no 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 which was $21,870 and none as of December 31, 2020 and 2019, respectfully.
As of December 31, 2020 and 2019, the Company had accounts receivable of $16,377 and $99,540, respectively. Accounts receivables
are primarily 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 |
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 believe such assumptions are also comparable to those
that would be used by other marketplace participants. During years-ended December 31, 2020 and 2019, the company did not recognize
any Goodwill impairment. The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased
asset value and other factors.
Valuation of long-lived assets
In accordance with the provisions of Accounting
Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all
long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Valuation of Derivative Instruments
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 815-10, Derivatives and Hedging (“ASC 815-10”), requires
that embedded derivative instruments be bifurcated and assessed, along with freestanding derivative instruments such as convertible
promissory notes, on their issuance date to determine whether they would be considered a derivative liability and measured at their
fair value for accounting purposes. The Company evaluates all of it financial instruments, including stock purchase warrants, to
determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then
revalued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option based simple derivative financial
instruments, the Company uses the Lattice Binomial option pricing model to value the derivative instruments at inception and subsequent
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is reassessed at the end of each reporting period.
Beneficial Conversion Feature
For conventional convertible debt where
the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)
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 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 December 31, 2020 and 2019. Please
refer to Note 2 for further explanation.
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Fair Value of BCF Derivative Liability – December 31, 2020 | |
$ | – | | |
$ | – | | |
$ | 2,903,663 | | |
$ | 2,903,663 | |
| |
| | | |
| | | |
| | | |
| | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Fair Value of BCF Derivative Liability – December 31, 2019 | |
$ | – | | |
$ | – | | |
$ | 3,655,518 | | |
$ | 3,665,518 | |
| |
| | | |
| | | |
| | | |
| | |
Stock-Based Compensation
The Company accounts for its stock-based
compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement
principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant
to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine
the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which
it is probable that performance will occur.
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
The Company early 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 years ended December 31, 2020 and
2019 the Company did not have any interest and penalties associated with tax positions. As of December 31, 2020 and 2019, 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.
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 December 31, 2020, the Company has sustained recurring loses and accumulated a working
capital deficit. 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.
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 fund its cash flow
shortfalls and 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.
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 the Company’s financial position, results of operations or cash flows.
Reclassifications
Certain prior period amounts have been reclassified
to conform with the current year presentation.
2. |
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS |
Subsequent to the initial issuance of the Company's 2020 financial
statements on March 31, 2021, management reconsidered the methodology previously applied in its valuation of derivative liabilities contained
in its matured convertible notes which are in default, to include all inputs to measure the time value component to the application of
the Black-Scholes Model. In addition, management also discovered that it did not reflect the impact of amendments which resulted in modifications
in certain rights and privileges for certain classes of its preferred stock, which should have been accounted for as a deemed dividend
at the time of modification.
The restatement primarily relates to the accounting for (1) the valuation
of embedded derivative liabilities in certain matured convertible notes and (2) the accounting treatment for changes in certain rights
and privileges with respect to certain classes of preferred stock on January 10, 2020.
| (1) | For certain convertible notes in default containing embedded
derivatives (the "Notes"), the Company originally valued the derivative liability
using a Black-Scholes Model, but without consideration to a time value component (the term,
volatility, or discount rates), because these notes had matured and were immediately due.
As a result, the embedded derivatives for expired notes were measured using a valuation methodology
which was analogous to the use of intrinsic value. Company management has reconsidered the
methodology previously applied, and determined that the use of all inputs to the Black-Scholes
Model is more appropriate in the determination to measure the fair value of all derivative
liabilities. |
| (2) | The Company originally did not reflect the impact of amendments
which resulted in modifications in certain rights and privileges for certain classes of its
preferred stock. Subsequent to the issuance of its financial statements for the year ended
December 31, 2020, Company management determined that these modifications resulted in changes
to the carrying value of certain classes of preferred stock, which should have been accounted
for as a deemed dividend at the time of modification. |
The following table summarizes
the impacts of the error corrections on the Company's financial statements for each of the periods presented below:
i. Balance
sheet
| |
Impact of correction of error | |
December 31, 2019 (Audited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Total assets | |
$ | 4,915,805 | | |
$ | – | | |
$ | 4,915,805 | |
| |
| | | |
| | | |
| | |
Derivative liability | |
| 3,102,392 | | |
| 553,127 | | |
| 3,655,519 | |
Net, liabilities of discontinued operations | |
| 2,555,837 | | |
| 263,148 | | |
| 2,818,985 | |
Other | |
| 5,168,005 | | |
| – | | |
| 5,168,005 | |
Total liabilities | |
| 10,826,234 | | |
| 816,275 | | |
| 11,642,509 | |
| |
| | | |
| | | |
| | |
Accumulated deficit | |
| (61,742,235 | ) | |
| (816,275 | ) | |
| (62,558,510 | ) |
Others | |
| 55,831,806 | | |
| – | | |
| 55,831,806 | |
Total deficiency in shareholders' equity | |
$ | (5,910,429 | ) | |
$ | (816,275 | ) | |
$ | (6,726,704 | ) |
i. Balance sheet (Continued)
| |
Impact of correction of error | |
March 31, 2020 (Unaudited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Total assets | |
$ | 5,268,016 | | |
$ | – | | |
$ | 5,268,016 | |
| |
| | | |
| | | |
| | |
Derivative liability | |
| 7,416,815 | | |
| (176,308 | ) | |
| 7,240,507 | |
Net, liabilities of discontinued operations | |
| 2,863,541 | | |
| 63,545 | | |
| 2,927,086 | |
Other | |
| 6,045,172 | | |
| – | | |
| 6,045,172 | |
Total liabilities | |
| 16,325,528 | | |
| (112,763 | ) | |
| 16,212,765 | |
| |
| | | |
| | | |
| | |
Accumulated deficit | |
| (67,402,951 | ) | |
| 112,763 | | |
| (67,290,188 | ) |
Others | |
| 56,345,439 | | |
| – | | |
| 56,345,439 | |
Total deficiency in shareholders' equity | |
$ | (11,057,512 | ) | |
$ | 112,763 | | |
$ | (10,944,749 | ) |
| |
Impact of correction of error | |
June 30, 2020 (Unaudited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Total assets | |
$ | 5,146,980 | | |
$ | – | | |
$ | 5,146,980 | |
| |
| | | |
| | | |
| | |
Derivative liability | |
| 6,936,309 | | |
| 903,272 | | |
| 7,839,581 | |
Net, liabilities of discontinued operations | |
| 2,374,181 | | |
| 368,349 | | |
| 2,742,530 | |
Other | |
| 6,016,924 | | |
| – | | |
| 6,016,924 | |
Total liabilities | |
| 15,327,414 | | |
| 1,271,621 | | |
| 16,599,035 | |
| |
| | | |
| | | |
| | |
Accumulated deficit | |
| (66,800,912 | ) | |
| (1,271,621 | ) | |
| (68,072,533 | ) |
Others | |
| 56,620,478 | | |
| – | | |
| 56,620,478 | |
Total deficiency in shareholders' equity | |
$ | (10,180,434 | ) | |
$ | (1,271,621 | ) | |
$ | (11,452,055 | ) |
| |
Impact of correction of error | |
September 30, 2020 (Unaudited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Total assets | |
$ | 4,944,770 | | |
$ | – | | |
$ | 4,944,770 | |
| |
| | | |
| | | |
| | |
Derivative liability | |
| 3,168,106 | | |
| (350,869 | ) | |
| 2,817,237 | |
Net, liabilities of discontinued operations | |
| 2,425,100 | | |
| 300,164 | | |
| 2,725,264 | |
Other | |
| 6,437,026 | | |
| – | | |
| 6,437,026 | |
Total liabilities | |
| 12,030,232 | | |
| (50,705 | ) | |
| 11,979,527 | |
| |
| | | |
| | | |
| | |
Accumulated deficit | |
| (63,858,637 | ) | |
| 50,705 | | |
| (63,807,932 | ) |
Others | |
| 56,773,175 | | |
| – | | |
| 56,773,175 | |
Total deficiency in shareholders' equity | |
$ | (7,085,462 | ) | |
$ | 50,705 | | |
$ | (7,034,757 | ) |
i. Balance sheet (Continued)
| |
Impact of correction of error | |
December 31, 2020 (Audited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Total assets | |
$ | 4,930,147 | | |
$ | – | | |
$ | 4,930,147 | |
| |
| | | |
| | | |
| | |
Derivative liability | |
| 2,405,358 | | |
| 498,305 | | |
| 2,903,663 | |
Net, liabilities of discontinued operations | |
| 2,441,965 | | |
| 249,730 | | |
| 2,691,695 | |
Other | |
| 8,207,123 | | |
| – | | |
| 8,207,123 | |
Total liabilities | |
| 13,054,446 | | |
| 748,035 | | |
| 13,802,481 | |
| |
| | | |
| | | |
| | |
Accumulated deficit | |
| (64,835,220 | ) | |
| (748,035 | ) | |
| (65,583,255 | ) |
Others | |
| 56,710,921 | | |
| – | | |
| 56,710,921 | |
Total deficiency in shareholders' equity | |
$ | (8,124,299 | ) | |
$ | (748,035 | ) | |
$ | (8,872,334 | ) |
ii. Statement of operations
| Impact
of correction of error - year | |
Year ended December 31, 2019 (Audited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Loss from operations | |
$ | (1,271,268 | ) | |
$ | – | | |
$ | (1,271,268 | ) |
Change in value of derivative liability | |
| (2,482,145 | ) | |
| (553,127 | ) | |
| (3,035,272 | ) |
Others | |
| (2,274,561 | ) | |
| – | | |
| (2,274,561 | ) |
Other income (expense) | |
| (4,756,706 | ) | |
| (553,127 | ) | |
| (5,309,833 | ) |
Net loss before discontinued operations | |
| (6,027,974 | ) | |
| (553,127 | ) | |
| (6,581,101 | ) |
Loss from discontinued operations | |
| (335,658 | ) | |
| (263,148 | ) | |
| (598,806 | ) |
Net loss | |
$ | (6,363,632 | ) | |
$ | (816,275 | ) | |
$ | (7,179,907 | ) |
Basic and Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| (250.53 | ) | |
| | | |
| (282.66 | ) |
Discontinued Operations | |
| (13.21 | ) | |
| | | |
| (23.57 | ) |
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 25,401 | | |
| | | |
| 25,401 | |
Discontinued Operations | |
| 25,401 | | |
| | | |
| 25,401 | |
ii. Statement of operations (Continued)
| |
Impact of correction of error - quarter | |
Quarter ended March 31, 2020 (Unaudited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Loss from operations | |
$ | (257,028 | ) | |
$ | – | | |
$ | (257,028 | ) |
Change in value of derivative liability | |
| (4,467,534 | ) | |
| 729,435 | | |
| (3,738,099 | ) |
Others | |
| (327,917 | ) | |
| – | | |
| (327,917 | ) |
Other income (expense) | |
| (4,795,451 | ) | |
| 729,435 | | |
| (4,066,016 | ) |
Net loss before discontinued operations | |
| (5,052,479 | ) | |
| 729,435 | | |
| (4,323,044 | ) |
Loss from discontinued operations | |
| (523,280 | ) | |
| 199,603 | | |
| (323,677 | ) |
Net loss | |
| (5,575,759 | ) | |
| 929,038 | | |
| (4,646,721 | ) |
Deemed dividend on preferred stock | |
| – | | |
| (1,605,266 | ) | |
| (1,605,266 | ) |
Net loss attributable to common stockholders | |
$ | (5,575,759 | ) | |
$ | (676,228 | ) | |
$ | (6,251,987 | ) |
Basic and Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| (49.17 | ) | |
| | | |
| (57.69 | ) |
Discontinued Operations | |
| (5.09 | ) | |
| | | |
| (3.15 | ) |
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 102,762 | | |
| | | |
| 102,762 | |
Discontinued Operations | |
| 102,762 | | |
| | | |
| 102,762 | |
ii. Statement of operations (Continued)
| |
Impact of correction of error - quarter | |
Three months ended June 30, 2020 (Unaudited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Loss from operations | |
$ | (126,833 | ) | |
$ | – | | |
$ | (126,833 | ) |
Change in value of derivative liability | |
| (28,750 | ) | |
| (1,079,579 | ) | |
| (1,108,329 | ) |
Others | |
| (347,536 | ) | |
| – | | |
| (347,536 | ) |
Other income (expense) | |
| (376,286 | ) | |
| (1,079,579 | ) | |
| (1,455,865 | ) |
Net loss before discontinued operations | |
| (503,119 | ) | |
| (1,079,579 | ) | |
| (1,582,698 | ) |
Loss from discontinued operations | |
| (103,390 | ) | |
| (304,804 | ) | |
| (408,194 | ) |
Gain from disposal from discontinued operations | |
| 216,013 | | |
| – | | |
| 216,013 | |
Income (loss) from discontinued operations | |
| 112,623 | | |
| (304,804 | ) | |
| (192,181 | ) |
Net loss | |
| (390,496 | ) | |
| (1,384,383 | ) | |
| (1,774,879 | ) |
Deemed dividend on preferred stock | |
| – | | |
| – | | |
| – | |
Net loss attributable to common stockholders | |
$ | (390,496 | ) | |
$ | (1,384,383 | ) | |
$ | (1,774,879 | ) |
Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | (3.19 | ) | |
| | | |
$ | (10.03 | ) |
Discontinued Operations | |
$ | 0.71 | | |
| | | |
$ | (1.22 | ) |
Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | – | | |
| | | |
$ | (10.03 | ) |
Discontinued Operations | |
$ | – | | |
| | | |
$ | (1.22 | ) |
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 157,856 | | |
| | | |
| 157,856 | |
Discontinued Operations | |
| 157,856 | | |
| | | |
| 157,856 | |
Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| – | | |
| | | |
| – | |
Discontinued Operations | |
| – | | |
| | | |
| – | |
ii. Statement of operations (Continued)
| |
Impact of correction of error - quarter |
Six months ended June 30, 2020 (Unaudited) |
|
As previously
reported | |
Adjustments | |
As restated |
| |
| |
| |
|
Loss from operations | |
$ | (361,066 | ) | |
$ | – | | |
$ | (361,066 | ) |
Change in value of derivative liability | |
| (3,992,316 | ) | |
| (350,144 | ) | |
| (4,342,460 | ) |
Others | |
| (654,502 | ) | |
| – | | |
| (654,502 | ) |
Other income (expense) | |
| (4,646,818 | ) | |
| (350,144 | ) | |
| (4,996,962 | ) |
Net loss before discontinued operations | |
| (5,007,884 | ) | |
| (350,144 | ) | |
| (5,358,028 | ) |
Loss from discontinued operations | |
| (78,956 | ) | |
| (105,201 | ) | |
| (184,157 | ) |
Gain from disposal from discontinued operations | |
| 216,013 | | |
| | | |
| 216,013 | |
Income (loss) from discontinued operations | |
| 137,057 | | |
| (105,201 | ) | |
| 31,856 | |
Net loss | |
| (4,870,827 | ) | |
| (455,345 | ) | |
| (5,326,172 | ) |
Deemed dividend on preferred stock | |
| – | | |
| (1,605,266 | ) | |
| (1,605,266 | ) |
Net loss attributable to common stockholders | |
$ | (4,870,827 | ) | |
$ | (2,060,611 | ) | |
$ | (6,931,438 | ) |
Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | (38.43 | ) | |
| | | |
$ | (53.44 | ) |
Discontinued Operations | |
$ | 1.05 | | |
| | | |
$ | 0.24 | |
Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | – | | |
| | | |
$ | (53.44 | ) |
Discontinued Operations | |
$ | – | | |
| | | |
$ | 0.00 | |
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 130,309 | | |
| – | | |
| 130,309 | |
Discontinued Operations | |
| 130,309 | | |
| – | | |
| 130,309 | |
Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| – | | |
| – | | |
| 130,309 | |
Discontinued Operations | |
| – | | |
| – | | |
| 6,391,483,108 | |
ii. Statement of operations (Continued)
| |
Impact of correction of error - quarter | |
Three months ended September 30, 2020 (Unaudited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Loss from operations | |
$ | (530,568 | ) | |
$ | – | | |
$ | (530,568 | ) |
Change in value of derivative liability | |
| 3,864,938 | | |
| 1,254,140 | | |
| 5,119,078 | |
Others | |
| (348,675 | ) | |
| – | | |
| (348,675 | ) |
Other income (expense) | |
| 3,516,263 | | |
| 1,254,140 | | |
| 4,770,403 | |
Net income (loss) before discontinued operations | |
| 2,985,695 | | |
| 1,254,140 | | |
| 4,239,835 | |
(Loss) from discontinued operations | |
| (22,280 | ) | |
| 68,185 | | |
| 45,905 | |
(Loss) Gain from disposal of discontinued operations | |
| (21,140 | ) | |
| – | | |
| (21,140 | ) |
Income (loss) from discontinued operations | |
| (43,420 | ) | |
| 68,185 | | |
| 24,765 | |
Net (loss) income | |
| 2,942,275 | | |
| (1,322,325 | ) | |
| 1,619,950 | |
Deemed dividend on preferred stock | |
| – | | |
| – | | |
| – | |
Net loss attributable to common stockholders | |
$ | 2,942,275 | | |
$ | (1,322,325 | ) | |
$ | 1,619,950 | |
Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | 3.08 | | |
| | | |
$ | 4.38 | |
Discontinued Operations | |
$ | (0.04 | ) | |
| | | |
$ | 0.03 | |
Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| – | | |
| | | |
$ | 0.00 | |
Discontinued Operations | |
$ | (0.04 | ) | |
| | | |
$ | 0.00 | |
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 968,379 | | |
| | | |
| 968,379 | |
Discontinued Operations | |
| 968,379 | | |
| | | |
| 968,379 | |
Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 6,394,936,792 | | |
| | | |
| 6,394,936,792 | |
Discontinued Operations | |
| 968,379 | | |
| | | |
| 6,394,936,792 | |
ii. Statement of operations (Continued)
| |
Impact of correction of error - year to date |
Nine months ended September 30, 2020 (Unaudited) | |
As previously
reported | |
Adjustments | |
As restated |
| |
| |
| |
|
Loss from operations | |
$ | (891,634 | ) | |
$ | – | | |
$ | (891,634 | ) |
Change in value of derivative liability | |
| (12,378 | ) | |
| 903,996 | | |
| 891,618 | |
Others | |
| (1,118,177 | ) | |
| – | | |
| (1,118,177 | ) |
Other income (expense) | |
| (1,130,555 | ) | |
| 903,996 | | |
| (226,559 | ) |
Net income (loss) before discontinued operations | |
| (2,022,189 | ) | |
| 903,996 | | |
| (1,118,193 | ) |
(Loss) from discontinued operations | |
| (101,236 | ) | |
| (37,016 | ) | |
| (138,252 | ) |
(Loss) Gain from disposal of discontinued operations | |
| 194,873 | | |
| | | |
| 194,873 | |
Income (loss) from discontinued operations | |
| 93,637 | | |
| (37,016 | ) | |
| 56,621 | |
Net (loss) income | |
| (1,928,552 | ) | |
| 866,980 | | |
| (1,061,572 | ) |
Deemed dividend on preferred stock | |
| – | | |
| (1,605,266 | ) | |
| (1,605,266 | ) |
Net loss attributable to common stockholders | |
$ | (1,928,552 | ) | |
$ | (738,286 | ) | |
$ | (2,666,838 | ) |
Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | (4.94 | ) | |
| | | |
$ | (6.65 | ) |
Discontinued Operations | |
$ | 0.23 | | |
| | | |
$ | 0.14 | |
Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | (4.94 | ) | |
| | | |
$ | (6.65 | ) |
Discontinued Operations | |
$ | – | | |
| | | |
$ | 0.00 | |
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 409,666 | | |
| | | |
| 409,666 | |
Discontinued Operations | |
| 409,666 | | |
| | | |
| 409,666 | |
Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 409,666 | | |
| | | |
| 409,666 | |
Discontinued Operations | |
| 1,444,295,468,290 | | |
| | | |
| 1,444,295,468,290 | |
ii. Statement of operations (Continued)
| |
Impact of correction of error - year | |
Year ended December 31, 2020 (Audited) | |
As previously reported | | |
Adjustments | | |
As restated | |
| |
| | |
| | |
| |
Loss from operations | |
$ | (1,804,151 | ) | |
$ | – | | |
$ | (1,804,151 | ) |
Change in value of derivative liability | |
| 379,892 | | |
| 54,822 | | |
| 434,714 | |
Others | |
| (1,550,148 | ) | |
| – | | |
| (1,550,148 | ) |
Other income (expense) | |
| (1,170,256 | ) | |
| 54,822 | | |
| (1,115,434 | ) |
Net loss before discontinued operations | |
| (2,974,407 | ) | |
| 54,822 | | |
| (2,919,585 | ) |
Loss from discontinued operations | |
| (125,599 | ) | |
| 13,418 | | |
| (112,181 | ) |
Gain from discontinued operations | |
| 194,873 | | |
| – | | |
| 194,873 | |
Income (loss) from discontinued operations | |
| 69,274 | | |
| 13,418 | | |
| 82,692 | |
Net loss | |
| (2,905,133 | ) | |
| 68,240 | | |
| (2,836,893 | ) |
Deemed dividend on preferred stock | |
| – | | |
| (1,605,266 | ) | |
| (1,605,266 | ) |
Net loss attributable to common stockholders | |
$ | (2,905,133 | ) | |
$ | (1,537,026 | ) | |
$ | (4,442,159 | ) |
Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | (3.20 | ) | |
| | | |
$ | (4.98 | ) |
Discontinued Operations | |
$ | 0.08 | | |
| | | |
$ | 0.09 | |
Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
$ | (3.20 | ) | |
| | | |
$ | (4.98 | ) |
Discontinued Operations | |
$ | – | | |
| | | |
$ | 0.00 | |
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 908,485 | | |
| | | |
| 908,485 | |
Discontinued Operations | |
| 908,485 | | |
| | | |
| 908,485 | |
Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | |
| | | |
| | | |
| | |
Continued Operations | |
| 908,485 | | |
| | | |
| 908,485 | |
Discontinued Operations | |
| 1,444,295,967,109 | | |
| | | |
| 1,444,295,967,109 | |
JM Enterprise 1, Inc. (dba) Key Tax
Group
JM Enterprise 1, Inc. (d.b.a. Key Tax Group)
(“Key Tax) and Cardiff Lexington Corp. as previously announced in May 2019 signed a definitive merger agreement under which
Key Tax became a wholly owned subsidiary effective May 8, 2019. In connection with the closing of the acquisition, a Preferred
“G” Class of stock with a par value of $0.001 was established and 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 (pre-split) for a total of 18,571,428 representing a value of $1,300,000. Additionally, the Company issued 500,000 shares
of common stock 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 allocation of
the net assets acquired was finalized as follows:
| |
Key Tax Fair Value | |
Cash | |
$ | 9,484 | |
Accounts receivable | |
| 90,766 | |
Key Tax Group trade name | |
| 250,000 | |
Property and equipment | |
| 6,044 | |
Goodwill | |
| 1,407,915 | |
Liabilities | |
| (464,209 | ) |
Total | |
$ | 1,300,000 | |
4. |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
| |
December 31, | |
| |
2020 | | |
2019 | |
Accounts payable | |
$ | 119,653 | | |
$ | 228,971 | |
Accrued Credit cards | |
| 28,548 | | |
| 86,077 | |
Accrued Income, payroll, and other taxes | |
| 282,798 | | |
| 276,614 | |
Accrued advertising | |
| 75,963 | | |
| 53,189 | |
Accrued payroll | |
| 27,569 | | |
| 58,760 | |
Accrue expense - other | |
| 82,543 | | |
| 92,353 | |
Total | |
$ | 617,074 | | |
$ | 795,964 | |
The Company previously reported that it
failed to remit payroll tax payments since 2006, as required by various taxing authorities. Payroll taxes and estimated penalties
were accrued in recognition of accrued salaries subsequently settled via stock issue and other agreements that did not result
in reportable or taxable payroll transactions. As of December 31, 2020 and 2019, the Company estimated the amount of taxes, interest,
and penalties that the Company could incur as a result of payroll related taxes and penalties to be $0 and $45,238, respectively.
5. |
PLANT AND EQUIPMENT, NET |
Plant and equipment, net as of December
31, 2020 and 2019 was $211,779 and $234,879, respectively, consisting of the following:
| |
December 31, | |
| |
2020 | | |
2019 | |
Residential housing | |
$ | 341,205 | | |
$ | 341,205 | |
Furniture, fixture, and equipment | |
| 76,017 | | |
| 76,017 | |
Leasehold improvements | |
| – | | |
| – | |
Total | |
| 417,222 | | |
| 417,222 | |
Less: accumulated depreciation | |
| (205,443 | ) | |
| (182,343 | ) |
Plant and equipment, net | |
$ | 211,779 | | |
$ | 234,879 | |
During the years ended December 31, 2020
and 2019, depreciation expense was $23,100 and $278,154, respectively. During the years end December 31, 2020 and 2019, the Company
recorded depreciation expense of $1,274 and $7,318, in operations expense and $21,826 and $60,384, in cost of goods sold, respectively.
During the year ended December 31, 2019,
the Company disposed fixed assets of $104,886 and related liabilities related to a company-owned franchise, resulting in net cash
flow of $0 and a gain on sale of $91,847 from disposal.
As of December 31, 2020 and 2019, the Company
owns 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. The land is currently vacant and is expected to be developed into a residential community.
In February 2018, The Company had a line
of credit with a financial institution for $92,500 which incurs interest of PRIME plus 3.45% (6.7% and 8.2% at December 31, 2020
and 2019, respectively) and is revolving. As of December 31, 2020 and 2019, the Company had balance of $51,927 and 91,099, respectively.
8. |
RELATED PARTY TRANSACTIONS |
The Company has entered into several unsecured
loan agreements with related parties.
The Chairman of the Board was paid deferred
compensation of $360,000 and $300,000 per year for the years 2020 and 2019, respectfully. Additionally, a target bonus was granted
and accrued in the amount of $200,000. Unpaid deferred compensation as of December 31, 2020 and 2019, respectively was $1,020,000
and $642,500.
The Chief Executive Officer was paid compensation
of $360,000 and $300,000 per year for the years 2020 and 2019, respectfully. Additionally, a target bonus was granted and accrued
of $200,000. Unpaid deferred compensation as of December 31, 2020 and 2019, respectively was $1,035,000 and $657,500.
The Chief Operating Officer was paid compensation
of $120,000 per year for the years 2020 and 2019. Unpaid deferred compensation as of December 31, 2020 and 2019, respectively was
$120,000 and $222,000.
The Company obtained short-term advances
from the Chairman of the Board that are non-interest bearing and due on demand. As of December 31, 2020 and 2019, the Company
owed the Chairman $126,849 and $136,349, respectively.
9. |
NOTES AND LOANS PAYABLE |
Notes and loans payable at December 31,
2020 and 2019 are summarized as follows:
| |
December 31, | |
| |
2020 | | |
2019 | |
Notes and Loans Payable - Unrelated Party | |
$ | 1,347,690 | | |
$ | 617,351 | |
Notes and Loans Payable - Related Party | |
| 37,885 | | |
| 84,746 | |
Total | |
| 1,385,575 | | |
| 702,097 | |
Notes and Loans Payable - Related Party | |
| 37,885 | | |
| 84,746 | |
Current portion | |
| 947,912 | | |
| 207,351 | |
Long-term portion | |
$ | 399,778 | | |
$ | 410,000 | |
Notes and Loans Payable – Related
Party
The Company obtained short-term advances
from Managers at several entities that are none interest bearing and due on demand. These balances were $37,885 and $84,746 as
of December 31, 2020 and 2019, respectively.
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. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture.
No warrants had been exercised before the expiration. The balance of the note was $10,989 at December 31, 2020 and 2019, respectively.
The accrued interest of the note was $2,272 and $3,591 at December 31, 2020 and 2019, respectively.
On September 7, 2011, the Company entered
into a Promissory Note agreement with for $50,000. The note bore interest at 8% per year and matured on September 7, 2016. The
balance of the note, was $50,000 at December 31, 2020 and 2019, respectively. The accrued interest of the note was $37,822 and
$33,282 at December 31, 2020 and 2019, respectively.
On November 17, 2011, the Company entered
into a Promissory Note agreement for $50,000. The note bore interest at 8% per year and matured on November 17, 2016. The balance
of the note was $50,000 at December 31, 2020 and 2019, respectively. The accrued interest of the note was $55,500 and $32,505
at December 31, 2020 and 2019, respectively.
On September 9, 2019, the Company obtained
a promissory note for $410,000 at 10% interest which is due in September 9, 2020. The balance of the note, was $410,000 at December
31, 2020 and 2019, respectively. The accrued interest of the note was $53,805 and $41,000 at December 31, 2020 and 2019, respectively
Paycheck Protection Program (“PPP”)
Loans
On April 14, 2020, the Company obtained
a PPP loan of $127,400 at an interest rate of 1% with a maturity date of April 14, 2022. This loan has been forgiven as part of
the 2020 US Federal government Coronavirus Aid, Relief and Economic Security Act. The balance and accrued interest at December
31, 2020 was $127,400 and $923, respectively.
On May 8, 2020, the Company obtained a
PPP loan of $257,500 at an interest rate of 1% with a maturity date of May 8, 2022. This loan has been forgiven as part of the
2020 US Federal government Coronavirus Aid, Relief and Economic Security Act. The balance and accrued interest at December 31,
2020 was $257,500 and $1,695, respectively.
The Company obtained short-term loans from
individuals. These short-term loans are due on demand and accrue interest from 12% - 18%. These short-term loans were $119,129
and $166,000 at December 31, 2020 and 2019, respectively. The accrued interest of these short-term loans was $29,544 and $30,050
at December 31, 2020 and 2019, respectively
Small Business Administration (“SBA”)
Loans
On June 2, 2020, The Company obtained an
SBA loan of $150,000 at an interest rate of 3.75% with a maturity date of June 2, 2050. The balance and accrued interest at December
31, 2020 was $149,900 and $3,310, respectively.
On April 12, and June 16, 2020, the Company
obtained an SBA grants of $20,000 and mature in one year from advance, if not forgiven. The balances and accrued interest at December
31, 2020 was $20,000 and $628, respectively.
On October 7, 2020, the company obtained
an SBA loan of $150,000 at an interest rate of 3.5% with a maturity date of October 7, 2050. The balance and accrued interest at
December 31, 2020 was $149,900 and $1,239, respectively.
10. |
CONVERTIBLE NOTES PAYABLE |
Some of the Convertible Notes issued as
described below included an anti-dilution provisions that allowed for the adjustment of the conversion price. The Company considered
the guidance provided by the FASB in “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” the
result of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined
that, as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were
not fixed amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith
are not considered indexed to the Company’s stock and characterized the value of the conversion feature of such notes as
derivative liabilities.
During the years ending December 31, 2020
and 2019, the Company had proceeds of $865,500 and $613,526 from convertible notes, repaid $223,397 and $218,863 to convertible
noteholders resulting in balances due to convertible note holders of $2,476,647 and $1,079,825, as of December 31, 2020 and 2019,
respectively net of debt discounts. The following amounts reflect debt discount of $108,320 and $828,468 as of December 31, 2020
and 2019, respectively.
During the years ending December 31, 2020
and 2019, the Company recorded amortization of debt discounts of $1,192,044 and $972,047 during the years ending December 31, 2020
and 2019, respectively.
During the years ended December 31, 2020
and 2019, respectively, the Company converted $196,291 and $422,809 of convertible debt and $49,466 and $53,255 in interest, penalties,
and fees into 5,014,697 shares of the company’s Common Stock.
Convertible notes at December 31, 2020 and December 31, 2019
are summarized as follows:
| |
Year Ended December 31, | |
| |
2020 | | |
2019 | |
Convertible notes payable - unrelated party | |
$ | 2,584,967 | | |
$ | 1,908,293 | |
Convertible notes payable - related party | |
| – | | |
| – | |
Total convertible debt | |
| 2,584,967 | | |
| 1,908,293 | |
Discounts on convertible notes payable | |
| (108,320 | ) | |
| (828,468 | ) |
Total convertible debt less debt discount | |
| 2,476,647 | | |
| 1,079,825 | |
Current portion | |
| 2,476,647 | | |
| 595,257 | |
Long-term portion | |
$ | – | | |
$ | 484,568 | |
Convertible Notes Payable – Unrelated Party
Note 1
On April 21, 2008, the Company entered
into an unsecured Convertible Debenture (“Debenture 1”) with a shareholder in the amount of $150,000.. Debenture 1
bore interest at 12% per year, matured in August 2009, and was unsecured. All principal and unpaid accrued interest was due at
maturity.
On March 11, 2009, the Company entered
into an unsecured Convertible Debenture (“Debenture 2”) with a shareholder in the amount of $15,000. Debenture 2 bore
interest at 12% per year, matured on March 11, 2014. All principal and unpaid accrued interest was due at maturity. The Company
was in default on Debenture 2. The note is in default and currently accrues interest at the default interest rate of 12%.
Note 7
On February 9, 2016, the Company entered
into a 15% convertible line of credit with an unrelated entity in the amount up to $50,000. On February 9, 2016, the Company received
$17,500 cash for the line of credit, which matured on February 9, 2017. Note 7, is currently in default and accrues at a default
interest rate of 20%.
Note 7-1
On October 28, 2016, the Company received
$25,000 cash pursuant to the terms of Note 7, which matured on October 28, Note 7-1 is currently in default and accrues at a default
interest rate of 20%.
Note 8
On March 8, 2016, the Company entered into
a 15% convertible promissory note in the principal of $50,000 with an unrelated entity for services rendered. Note 8 is matured
on March 8, 2017. Note 8 is currently in default and accrues at a default interest rate of 20%.
Note 9
On September 12, 2016, the Company entered
into a 10% convertible promissory note in the principal of $80,000 (“Note 9”) with an unrelated entity for services
rendered. Note 9 is matured on September 12, 2017Note 9 is currently in default and accrues at a default interest rate of 20%.
Note 10
On January 24, 2017, the Company entered
into a 10% convertible promissory note in the principal of $80,000 with an unrelated entity for services rendered. Note 10 is matured
on January 24, 2018. Note 10 is currently in default and accrues at a default interest rate of 20%.
Note 11-1
On February 21, 2017, the Company received
$25,000 cash pursuant to the terms of Note 11, which matured on February 21, 2018. Note 11-1 is currently in default and accrues
at a default interest rate of 20%.
Note 11-2
On March 16, 2017, the Company received
$40,000 cash pursuant to the terms of Note 11-2, which matured on March 16, 2018. Note 11-2 is currently in default and accrues
at a default interest rate of 20%.
Note 13-1 & -2
On April 21, 2017, the Company entered
into a convertible promissory note with an unrelated entity in the amount $330,000, with original issue discount of $30,000 for
net cash to the company of $300,000 (“Note 13-1”). Note 13-1 matured on April 21, 2018.
On July 24, 2018, Note 13-1 was purchased
by an unrelated party with a new Replacement Convertible Promissory Note (“Note 13-2”) in the amount of $237,909.
Note 13-2 bears interest at 5%, matured on January 24, 2019.
Note 22,-1,&-3
On July 10, 2018, the Company entered into
a Senior Secured Convertible Promissory Note with an unrelated entity in the amount $1,040,000, with original issue discount of
$103,000, expenses of $64,160 and an interest deposit of $20,000 resulting in net cash to the company of $852,840. Note 22 matures
January 10, 2021 and is current. Note 22 bears interest at a 12 % rate.
Note 25
On August 13, 2018, the Company entered
into a Convertible Promissory Note with an unrelated entity in the amount $126,560, with original issue discount of $13,560 and
expenses of $13,000 resulting in net cash to the company of $100,000. Note 25 matured February 13, 2019 and is currently in default.
The default interest rate is 18%.
Note 26
On August 10, 2017, the Company entered
into a Debt Purchase Agreement with an unrelated entity in the amount $20,000. The Note matured January 27, 2018 and is currently
in default. The default interest rate is 15%.
Note 29
On May 10, 2019, the Company entered into
an 8% Convertible Secured Redeemable Note (“Note 29”) with an unrelated entity in the amount $150,000 and expenses
of $7,500 resulting in net cash to the company of $142,500. Note 29 is secured, prior to maturity of May 10, 2020.
On November 8, 2019, Note 29 was purchased
by and assigned to an unrelated party upon execution of Amendment No. 1 to Convertible Promissory Note. The amount assigned was
the existing principal amount of the Note 29 of $150,000 and accrued interest of $5,917.81 (“Note 29-1”) plus a new
8% Convertible Secured Redeemable Note (“Note 29-2). The total amount assigned to the new note holder is $218,284.93. Note
29-2 bears interest at 8%, matured on November 8. The note is in default and currently accrues interest at the default interest
rate of 24%..
Note 30
On July 26, 2019, the Company entered into
a Convertible Note Payable (“Note 30”) with an unrelated entity in the amount $73,500, with expenses of $3,000 resulting
in net cash to the company of $70,500. Note 30 matured on July 26, 2020. The note is in default and currently accrues interest
at the default interest rate of 22%.
Note 31
On August 28, 2019, the Company entered
into an 8% Convertible Secured Redeemable Note with an unrelated entity in the amount $120,000, with expenses of $6,000 resulting
in net cash to the company of $114,000. Note 31 matured August 28, 2020. The note is in default and currently accrues interest
at the default interest rate of 24%.
Note 32
On May 22, 2019, the Company received $25,000
from a draw on the line of credit. Note 32 matured May 22, 2020. The note is in default and currently accrues interest at the
default interest rate of 20%.
Note 33
On February 11, 2020, the Company entered
into a 6% Convertible Promissory Note with an unrelated entity in the amount $157,500, with original issue discount of $7,500 and
expenses of $7,500 resulting in net cash to the company of $142,500. Note 33 is matures February 11, 2021.
Note 34
On May 18, 2020, the Company entered into
a 6% Convertible Promissory Note with an unrelated entity in the amount $63,000 and expenses of $3,000 resulting in net cash to
the company of $60,000. Note 34 matures May 18, 2021.
Note 35
On August 24, 2020, the Company entered
into a 6% Convertible Promissory Note with an unrelated entity in the amount $85,000 with expenses of $3,500 resulting in net cash
to the company of $81,500. Note 35 matures August 24, 2021.
Note 36-1
On September 03, 2020, the Company entered
into a 10% Senior Secured Convertible Promissory Note with an unrelated entity in the amount $733,500, with original issue discount
of $183,500 resulting in net cash to the company of $550,000. Note 36-1 matures September 03, 2021.
Note 36-2
On November 03, 2020, the Company entered
into a 10% Senior Secured Convertible Promissory Note with an unrelated entity in the amount $733,500, with original issue discount
of $183,500 resulting in net cash to the company of $550,000. Note 36- matures November 3, 2021. The first tranche executed upon
closing, the Company received $90,000 and a second tranche of $30,000 resulting in net cash to the Company of $120,000.
Note 36-3
On December 29, 2020, the Company entered
into a 10% Senior Secured Convertible Promissory Note with an unrelated entity in the amount $126,500, with original issue discount
of $13,560 resulting in net cash to the company of $113,000. Note 36-3 matures June 03, 2021 and is current.
Note 37-1
On September 03, 2020, the Company entered
into a 10% Senior Secured Convertible Promissory Note with an unrelated entity in the amount $200,000, with original issue discount
of $50,000 resulting in net cash to the company of $150,000. Note 37-1 matures June 3, 2021. This Note became eligible to convert
April 03, 2021 and is convertible into shares of the Company’s common stock as defined in the agreement. The first tranche
executed upon closing; the Company received $50,000 resulting in net cash to the Company of $100,000.
Note 37-2
On November 02, 2020, the Company entered
into a 10% Senior Secured Convertible Promissory Note with an unrelated entity in the amount $200,000, with original issue discount
of $50,000 resulting in net cash to the company of $150,000. Note 37-2 matures November 3, 2021. The first tranche executed upon
closing; the Company received $50,000 resulting in net cash to the Company of $100,000.
Note 37-3
On December 29, 2020, the Company entered
into a 10 % Senior Secured Convertible Promissory Note with an unrelated entity in the amount $200,000, with original issue
discount of $50,000 resulting in net cash to the company of $150,000. Note 37-3 matures December 29, 2021. The first tranche executed
upon closing; the Company received $50,000 resulting in net cash to the Company of $100,000.
As of December 31, 2020, the Company’s
derivative liabilities are embedded derivatives associated with the Company’s convertible notes payable. Due to the Notes’
conversion features, the actual number of shares of common stock that would be required if a conversion of the note as described
in Note 9 was made through the issuance of the Company’s common stock cannot be predicted. As a result, the conversion feature
requires derivative accounting treatment and will be bifurcated from the note and “marked to market” each reporting
period through the statement of operations.
The Company used the Black-Scholes Model
to measure the fair value of the derivative liabilities, resulting in a valuation measurement of $2,405,358 and $3,102,392 at December
31, 2020 and 2019, respectively.
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”).
Refer to Note 10 for the derivative liabilities associated with convertible debt instruments, at December 2020 and 2019.
The following is a schedule of convertible notes payable from
December 31, 2019 to December 31, 2020.
Note # |
Issuance | |
Maturity | |
Principal
Balance 12/31/19 | | |
New
Loan | | |
Cash
Paydown | | |
Principal
Conversions | | |
Shares
Issued Upon Conversion | | |
Principal
Balance 12/31/20 | | |
Accrued
Interest on Convertible Debt at 12/31/19 | | |
Interest
Expense On Convertible Debt For the Year Ended 12/31/20 | | |
Accrued
Interest on Convertible Debt at 12/31/20 | | |
Unamortized
Debt Discount At 12/31/20 | |
1 |
| 8/21/2008 | |
| 8/21/2009 | |
$ | 150,000 | | |
$ | – | | |
$ | – | | |
$ | – | | |
– | | |
$ | 150,000 | | |
$ | 204,608 | | |
$ | 16,300 | | |
$ | 225,800 | | |
$ | – | |
7 |
| 2/9/2016 | |
| On demand | |
| 8,485 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 8,485 | | |
| 2,412 | | |
| 1,537 | | |
| 4,431 | | |
| – | |
7-1 |
| 10/28/2016 | |
| 10/28/2017 | |
| 25,000 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 25,000 | | |
| 10,321 | | |
| 4,528 | | |
| 23,120 | | |
| – | |
8 |
| 3/8/2016 | |
| 3/8/2017 | |
| 1,500 | | |
| – | | |
| – | | |
| – | | |
– | | |
| – | | |
| 9,863 | | |
| 272 | | |
| – | | |
| – | |
9 |
| 9/12/2016 | |
| 9/12/2017 | |
| 80,000 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 80,000 | | |
| 47,876 | | |
| 14,489 | | |
| 64,701 | | |
| – | |
10 |
| 1/24/2017 | |
| 1/24/2018 | |
| 32,621 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 55,000 | | |
| 23,212 | | |
| 5,908 | | |
| 42,134 | | |
| – | |
11-1 |
| 2/21/2017 | |
| 2/21/2018 | |
| 9,733 | | |
| – | | |
| – | | |
| – | | |
– | | |
| – | | |
| 2,533 | | |
| 1,763 | | |
| – | | |
| – | |
11-2 |
| 3/16/2017 | |
| 3/16/2018 | |
| 20,032 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 21,345 | | |
| 2,367 | | |
| 3,628 | | |
| 4,433 | | |
| – | |
13-2 |
| 7/24/2018 | |
| 1/24/2019 | |
| 92,205 | | |
| – | | |
| (48,246 | ) | |
| – | | |
– | | |
| 43,961 | | |
| 24,002 | | |
| 1,990 | | |
| 1,525 | | |
| – | |
22 |
| 7/10/2018 | |
| 1/10/2021 | |
| 953,414 | | |
| – | | |
| (144,905 | ) | |
| – | | |
– | | |
| 838,433 | | |
| 87,762 | | |
| – | | |
| 74,654 | | |
| 12,634 | |
22-1 |
| 2/20/2019 | |
| 1/10/2021 | |
| – | | |
| – | | |
| 61,704 | | |
| – | | |
– | | |
| 61,704 | | |
| 6,350 | | |
| 6,705 | | |
| – | | |
| – | |
22-3 |
| 4/10/2019 | |
| 1/10/2021 | |
| – | | |
| – | | |
| 56,095 | | |
| – | | |
– | | |
| 56,095 | | |
| 5,145 | | |
| 6,096 | | |
| – | | |
| – | |
25 |
| 8/13/2018 | |
| 2/13/2019 | |
| 78,314 | | |
| – | | |
| 48,246 | | |
| (8,268 | ) | |
1,140,161 | | |
| 118,292 | | |
| 17,226 | | |
| 19,283 | | |
| 6,811 | | |
| – | |
26 |
| 8/10/2017 | |
| 1/27/2018 | |
| 20,000 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 20,000 | | |
| 4,533 | | |
| 2,717 | | |
| 7,533 | | |
| – | |
29-1 |
| 11/8/2019 | |
| 11/8/2020 | |
| 141,122 | | |
| – | | |
| – | | |
| (40,225 | ) | |
924,249 | | |
| 101,374 | | |
| 2,409 | | |
| 7,309 | | |
| 178 | | |
| – | |
29-2 |
| 11/8/2019 | |
| 11/8/2020 | |
| 62,367 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 62,367 | | |
| – | | |
| 13,555 | | |
| 7,176 | | |
| – | |
30 |
| 7/26/2019 | |
| 7/26/2020 | |
| 73,500 | | |
| – | | |
| – | | |
| (73,500 | ) | |
30,913 | | |
| – | | |
| 1,909 | | |
| 463 | | |
| – | | |
| – | |
31 |
| 8/28/2019 | |
| 8/28/2020 | |
| 120,000 | | |
| – | | |
| – | | |
| (58,170 | ) | |
1,356,979 | | |
| 61,839 | | |
| 3,288 | | |
| 13,438 | | |
| 10,825 | | |
| – | |
32 |
| 5/22/2019 | |
| 5/22/2020 | |
| 25,000 | | |
| – | | |
| – | | |
| – | | |
– | | |
| 25,000 | | |
| 2,291 | | |
| 4,528 | | |
| 7,301 | | |
| – | |
33 |
| 2/11/2020 | |
| 2/11/2021 | |
| – | | |
| 157,500 | | |
| – | | |
| (3,328 | ) | |
355,556 | | |
| 153,672 | | |
| – | | |
| 7,438 | | |
| 8,384 | | |
| 14,364 | |
34 |
| 5/18/2020 | |
| 5/18/2021 | |
| – | | |
| 63,000 | | |
| – | | |
| (12,800 | ) | |
1,206,838 | | |
| 50,200 | | |
| – | | |
| 1,699 | | |
| 2,414 | | |
| 35,150 | |
35 |
| 8/24/2020 | |
| 8/24/2021 | |
| – | | |
| 85,000 | | |
| – | | |
| – | | |
– | | |
| 85,000 | | |
| – | | |
| 1,640 | | |
| 1,803 | | |
| – | |
36-1 |
| 9/3/2020 | |
| 1/3/2021 | |
| – | | |
| 120,000 | | |
| – | | |
| – | | |
– | | |
| 127,200 | | |
| – | | |
| 3,563 | | |
| 3,969 | | |
| 922 | |
36-2 |
| 11/3/2020 | |
| 1/3/2021 | |
| – | | |
| 120,000 | | |
| – | | |
| – | | |
– | | |
| 120,000 | | |
| – | | |
| 1,752 | | |
| 1,937 | | |
| 1,475 | |
36-3 |
| 12/29/2020 | |
| 1/3/2021 | |
| – | | |
| 120,000 | | |
| – | | |
| – | | |
– | | |
| 120,000 | | |
| – | | |
| 89 | | |
| 98 | | |
| 18,000 | |
37-1 |
| 9/3/2020 | |
| 6/30/2021 | |
| – | | |
| 67,000 | | |
| – | | |
| – | | |
– | | |
| 67,000 | | |
| – | | |
| 1,989 | | |
| 2,197 | | |
| 11,162 | |
37-2 |
| 11/2/2020 | |
| 6/30/2021 | |
| – | | |
| 66,500 | | |
| – | | |
| – | | |
– | | |
| 66,500 | | |
| – | | |
| 987 | | |
| 1,090 | | |
| 8,319 | |
37-3 |
| 12/29/2020 | |
| 6/30/2021 | |
| – | | |
| 66,500 | | |
| – | | |
| – | | |
– | | |
| 66,500 | | |
| – | | |
| 49 | | |
| 55 | | |
| 6,295 | |
|
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
|
| | |
| | |
$ | 1,893,293 | | |
$ | 865,500 | | |
$ | (27,106 | ) | |
$ | (196,291 | ) | |
5,014,696 | | |
$ | 2,584,967 | | |
$ | 458,107 | | |
$ | 143,715 | | |
$ | 502,569 | | |
$ | 108,320 | |
11. |
FAIR VALUE MEASUREMENT |
The Company measures 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 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:
The following are the hierarchical levels
of inputs to measure fair value:
|
• |
Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
|
• |
Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
|
• |
Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
The carrying amounts of the Company’s
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.
The Company recognizes its derivative liabilities
as level 3 and values its derivatives using the methods discussed below. 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 terms in the notes that are subject to volatility
and market price of the underlying common stock of the Company.
As of December 31, 2020, and December 31,
2019, the Company did not have any derivative instruments that were designated as hedges.
The derivative liability as of December
31, 2020 and 2019, respectively, in the amounts of $2,903,663 and $3,655,518, have a level 3 classification. Please refer to Note 2 for
further explanation.
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the year ended December
31, 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.
The Company used the Black-Scholes Model to measure
the fair value of the derivative liabilities as $2,903,663 and $3,655,518 on December 31, 2020 and 2019, respectively, and will subsequently
remeasures the fair value at the end of each period, and record the change of fair value in the consolidated statement of operation during
the corresponding period.
The following table provides a summary
of changes in fair value of the Company’s Level 3 financial liabilities for the year ended December 31, 2019:
Derivative Liability, December 31,2018 | |
$ | 1,870,625 | |
Day 1 Loss | |
| 24,762,381 | |
Discount from derivatives | |
| 1,275,912 | |
Resolution of derivative liability upon conversion | |
| (2,856,994 | ) |
Mark to market adjustment | |
| 21,396,406 | |
Derivative Liability, December 31, 2019 | |
$ | 3,655,518 | |
Fluctuations in the Company’s stock
price are a primary driver for the changes in the derivative valuations during each reporting period. During the year ended December
31, 2020, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of the related
derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable
inputs used in the fair value measurement of each of the Company’s derivative instruments.
Derivative Liability, December 31, 2019 | |
$ | 3,655,518 | |
Day 1 Loss | |
| 564,952 | |
Discount from derivatives | |
| 294,000 | |
Derivatives settled | |
| (611,141 | ) |
Mark to market adjustment | |
| (999,666 | ) |
Derivative Liability, December 31, 2020 | |
$ | 2,903,663 | |
The above tables also include derivative
liabilities related to warrants to purchase common stock of $6,135 at December 31, 2020. Net gain for the period included mark-to-market
adjustments relating to the liabilities held during the year ended December 31, 2019 in the amounts of $2,340.
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:
|
| Year Ended December 31, |
|
|
| 2020 | | |
2019 |
|
Volatility |
| 204.5% - 1,005.9% | | |
378.8% - 1,872.7% |
|
Risk-free interest rate |
| .099% - .18% | | |
1.59% - 1.62% |
|
Expected term |
| .33 – 2.5 | | |
.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 and 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 $11,837,482 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 twelve months ended December
31, 2019, we executed the following transactions:
|
· |
59,382 shares of common stock were issued upon conversion of certain convertible notes payable. |
|
· |
May 8, 2019, the Company issued 50 shares of common stock with a par value of $0.001 pursuant to the terms of the Acquisition Agreement. |
|
· |
On March 21, 2019, the Company completed a reverse stock split of 1,500:1 for common shares. |
|
· |
On April 26, 2019, conversion of 55,000,000 series I shares were converted to common stock of 8,250 |
|
· |
On August 24, 2020, 163,814 shares were issued to a financial advisor for services. |
During the twelve months ended December
31, 2020, we executed the following transactions:
|
· |
5,014,697 shares of common stock were issued upon conversion of certain convertible notes payable. |
|
· |
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, refer to Note 14. |
|
· |
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. |
|
|
· On November 5, 2020, 18,000 shares were issued to investor relations advisor for services
· On February 10, 2020, 320 shares were purchased in exchange for 119,101 preferred series H shares. |
The initial and ending valuation of the
warrants as of December 31, 2020 are as follows:
| |
Year Ended December 31, 2020 | |
Initial Valuation | |
$ | 6,135 | |
Ending Value | |
$ | 3,795 | |
The table below set forth the assumptions
for the Black-Scholes Model on each initial date and December 31, 2020:
|
|
|
Year Ended
December 31, 2020 |
|
Volatility |
|
|
1,847% - 1,861% |
|
Risk-free interest rate |
|
|
1.60% - 1.83% |
|
Expected term |
|
|
0.5 – 7.0 |
|
The initial and ending valuation of the
warrants as of December 31, 2019 are as follows:
| |
Year Ended December 31, 2019 | |
Initial Valuation | |
$ | 3,795 | |
Ending Value | |
$ | 6,135 | |
The table below set forth the assumptions
for the Black-Scholes Model on each initial date and December 31, 2019:
|
|
|
Year Ended
December 31, 2019 |
|
Volatility |
|
|
1,847% - 1,861% |
|
Risk-free interest rate |
|
|
1.60% - 1.83% |
|
Expected term |
|
|
0.5 – 7.0 |
|
Accordingly, the Company recorded warrant
expense of $2,340 during the year ended December 31, 2019.
The following tables summarize all warrant
outstanding as of December 31, 2020, and the related changes during this period. The warrants expire three years from grant date,
which as of December 31, 2020 is 1.31 years. The intrinsic value of the warrants as of December 31, 2020 was $-0-.
| |
Number of Warrants | | |
Weighted Average Exercise Price | |
Stock Warrants | |
| | | |
| | |
Balance at January 1, 2020 | |
| 6,614,287 | | |
$ | 0.21 | |
Granted | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | |
Expired | |
| – | | |
| – | |
Balance at December 31, 2020 | |
| 6,614,287 | | |
| 0.21 | |
Warrants Exercisable at December 31, 2020 | |
| 6,614,287 | | |
$ | 0.21 | |
14. |
COMMITMENTS AND CONTINGENCIES |
Operating Leases
The Company had operating lease expense
of $87,649 and $210,286 for the year ended December 31, 2020 and 2019, respectively, consisting of the followings.
| |
For the year ended | |
| |
December 31, 2020 | | |
December 31, 2019 | |
| |
| | |
| |
Lot | |
$ | 408 | | |
$ | 65,208 | |
Office | |
| 87,169 | | |
| 71,557 | |
Total | |
$ | 87,649 | | |
$ | 136,765 | |
The Company has property leases’
future commitments are as follows at December 31, 2020:
2020 | |
$ | 50,916 | |
2021 | |
| 8,486 | |
| |
$ | 59,402 | |
We have an employment agreement, renewed
May 15, 2014, with the Chairman, Mr. Thompson amended on July 15, 2020, effective July 15, 2020 to December 31, 2025 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 along with additional incentives.
We have an employment agreement with the
Chief Executive Officer, Mr. Cunningham, amended on July 15, 2020, effective on July 15, 2020 to December 31, 2025 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 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.
There are no other stock option plans,
retirement, pension, or profit-sharing plans for the benefit of our sole officer and director other than as described herein.
On December 31, 2020, the Company’s
Chief Financial Officer resigned and was replaced on February 8, 2021. Whereby we provide for compensation of $8,500 per month
along with a bonus contingent upon successful up listing on Nasdaq with preferred share and stock options.
The Company is currently in negotiations
for the purchase two companies planning to finalize in first two quarters of 2021. One purchase is for $11,000,000 for a time share
removal service and other is for $9,213,083 for medical doctor’s office who specializes in orthopedic care and surgery.
The Company acquired Redrock Travel on
May 1, 2018. It was determined by the Board of Directors to terminate the acquisition agreement and to file with the State of Florida
the cancelation of the Redrock Stock Class. The Company settled a threatened lawsuit related to this entity with issuance of common
shares, refer to Note 11.
From time to time the Company may be involved in various asserted
claims and legal proceedings arising in the ordinary course of business, some of which may involve claims for substantial amounts.
At December 31, 2020, the Company had federal
and state net operating loss carry forwards of approximately $17,330,000 that expire
in various years through the year 2038.
Due to operating losses, there is no provision
for current federal or state income taxes for the years ended December 31, 2020 and 2019.
Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amount used for federal and state income tax purposes.
The Company’s deferred tax asset
at December 31, 2020 and 2019 consists of net operating loss carry forwards calculated using federal and state effective tax rates
equating to approximately $4,391,000 and $3,815,102, respectively, less a valuation allowance in the amount of approximately $4,391,000
and $3,815,102, respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset
by a valuation allowance in both 2020 and 2019. The valuation allowance increased by approximately $576,700 for the year ended
December 31, 2020.
The Company’s total deferred tax
asset as of December 31, 2020 and 2019 is as follows:
| |
2020 | | |
2019 | |
Deferred tax assets | |
$ | 4,391,000 | | |
$ | 3,815,102 | |
Valuation allowance | |
| (4,391,000 | ) | |
| (3,815,102 | ) |
| |
| | | |
| | |
Net deferred tax asset | |
$ | – | | |
$ | – | |
The reconciliation of income taxes computed at the federal and
state statutory income tax rate to total income taxes for the years ended December 31, 2020 and 2019 is as follows:
On December 22, 2017, the U.S. Tax Cuts
and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump. The Tax Reform Act significantly revised
the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January
1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system, and imposing
a repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation
be recognized in the period in which the law was enacted. The provisional amounts incorporate assumptions made based upon the Company’s
current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation
guidance.
The Company has two 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) |
Affordable Housing (We Three), and |
|
(2) |
Tax Resolution Services (Platinum Tax 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, general
accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other
revenue consists of nonrecurring items.
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 homeowners 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 | | |
As of | |
| |
December 31, 2020 | | |
December 31, 2019 | |
Assets: | |
| | | |
| | |
Affordable Housing Rentals | |
$ | 258,813 | | |
$ | 299,565 | |
Financial Services | |
| 4,369,195 | | |
| 4,302,238 | |
Others | |
| 302,139 | | |
| 314,002 | |
Consolidated assets | |
$ | 4,930,147 | | |
$ | 4,915,805 | |
| |
December 31, 2020 | | |
December 31, 2019 | |
Revenues: | |
| | | |
| | |
Affordable Housing Rentals | |
$ | 138,832 | | |
$ | 176,882 | |
Financial Services | |
| 3,314,226 | | |
| 3,530,480 | |
Other | |
| – | | |
| – | |
Consolidated revenues | |
$ | 3,453,058 | | |
$ | 3,707,360 | |
| |
| | | |
| | |
Cost of Sales: | |
| | | |
| | |
Affordable Housing Rentals | |
$ | 156,191 | | |
$ | 174,433 | |
Financial Services | |
| 1,511,995 | | |
| 1,491,053 | |
Other | |
| – | | |
| – | |
Consolidated cost of sales | |
$ | 1,668,146 | | |
$ | 1,665,486 | |
| |
| | | |
| | |
Income (Loss) from operations from subsidiaries | |
| | | |
| | |
Affordable Housing Rentals | |
$ | (40,378 | ) | |
$ | (18,720 | ) |
Financial Services | |
| (190,338 | ) | |
| 114,773 | |
Loss from operations | |
$ | (230,716 | ) | |
$ | 96,053 | |
| |
| | | |
| | |
Loss from operations from Cardiff Lexington | |
$ | (1,573,435 | ) | |
$ | (1,374,409 | ) |
| |
| | | |
| | |
Income (Loss) before taxes | |
| | | |
| | |
Affordable Housing Rentals | |
$ | (40,378 | ) | |
$ | (18,720 | ) |
Financial Services | |
| (187,943 | ) | |
| 82,354 | |
Corporate and administration | |
| (2,608,572 | ) | |
| (7,243,540 | ) |
Consolidated income (loss) before taxes | |
$ | (2,836,893 | ) | |
$ | (7,179,906 | ) |