UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 4
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2015
Commission File Number 000-49709
_______________________
CARDIFF INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
_______________________
| Florida | 84-1044583 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
401 East Las Olas Blvd., Unit 1400, Ft. Lauderdale, FL 33301
(Address of principal executive offices)
(844) 628-2100
(Registrant's telephone
no., including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Par Value $0.001 Common Stock
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [x].
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [_] No [x].
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [_] No [x]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [_] No [x]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is contained in this form and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [x]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer,’’ and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] Smaller reporting company [x]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [x]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $1,378,430.
Common shares outstanding at December 31, 2015 is 9,412,888 with a par value of $0.001.
FORM 10-K
CARDIFF INTERNATIONAL, INC.
INDEX
| Page | |
| PART I | |
| Item 1. Business | 1 |
| Item 1A. Risk Factors | 3 |
|
Item 1B. Unresolved Staff Comments |
6 |
| Item 2. Property | 6 |
| Item 3. Legal Proceedings | 6 |
| Item 4. Mine Safety Disclosures | 6 |
| PART II | |
| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 7 |
| Item 6. Selected Financial Data | 8 |
| Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 8 |
| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 16 |
| Item 8. Financial Statements and Supplementary Data | 16 |
| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures | 43 |
| Item 9A (T). Controls and Procedures | 43 |
| Item 9B. Other Information | 44 |
| PART III | |
| Item 10. Directors, Executive Officers and Corporate Governance | 45 |
| Item 11. Executive Compensation | 47 |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 48 |
| Item 13. Certain Relationships and Related Transactions, and Director Independence | 49 |
| Item 14. Principal Accountant Fees and Services | 49 |
|
PART IV |
|
| Item 15. Exhibits and Financial Statement Schedules | 50 |
| Signatures | 51 |
| i |
For purposes of this report, unless otherwise indicated or the context otherwise requires, all references herein to “Cardiff International,” “the Company”, “we,” “us,” and “our,” refer to Cardiff International, Inc., a Florida corporation, and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward- looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward- looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
| ii |
PART I
Item 1. DESCRIPTION OF BUSINESS.
History of the Business
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 International, Inc. (“Cardiff”, the “Company”), a publicly held corporation presently incorporated in Florida.
In the first quarter of 2013, it was decided to restructure Cardiff into a holding company that adopted a new business model known as "Collaborative Governance," a form of governance enabling businesses to take advantage of the power of a public company. Cardiff began targeting the acquisition of undervalued, niche companies with high growth potential, income-producing commercial real estate properties, and high return investments, all designed to pay a dividend to our shareholders. The reason for this strategy was to protect our shareholders by acquiring profitable small- to minimum-sized businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors. The plan is to establish new classes of preferred stock to streamline voting rights, negate debt, and acquire new businesses. By December of 2013, we had negated more than 90% of all its debt; by July of 2014, we had completed the acquisition of three businesses: We Three, LLC; Romeo’s NY Pizza; and Edge View Properties, Inc. We delayed the filing of its Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2015 due to difficulty obtaining information from another acquisition, which was subsequently unwound.
BUSINESS DEVELOPMENTS
The following business developments have been reported in our reports filed with the Securities and Exchange Commission (the “SEC”), which are referenced in Part IV, Item 15, of this Annual Report:
In March 19, 2015, increased authorized common shares to 11,000,000 at a par value of $0.001.
In March 26, 2015, extended the holding period of all classes of Preferred Stock for a period of 12 months.
April 7, 2015, increased authorized common shares to 50,000,000 at a par value of $0.001.
June 1, 2015, Kathy Roberton resigned as President/CEO /Director of the board.
June 1, 2015, Alex Cunningham was appointed President/CEO/Director of the Board
September 27, 2016, increased authorized common shares to 200,000,000 at a par value of $0.001.
Current Business Operations
We are a holding company that adopted a new business model known as "Collaborative Governance.” To date, we are not aware of any other domestic holding company using the same business philosophy or governing policies. Our business footprint is to acquire strong companies that meet the following criteria: (1) in business for a minimum of two years; (2) profitable; (3) good management team; (4) little to no debt; and (5) assets of a minimum of $1,000,000. We continue to practice all business ethics under the Securities Exchange Act of 1934 (“1934 Act”) and acknowledges that there are more than 43 successful business development companies subject to the Investment Company Act of 1940 (“1940 Act”), all of which may be considered competition to us and that are established and available to the public for investment. These companies offer experienced management, dividends and financial security.
To date, Cardiff consists of the following whole-owned subsidiaries:
We Three, LLC (Affordable Housing Initiative) acquired on May 15, 2014;
Romeo’s NY Pizza acquired on June 30, 2014;
Edge View Properties, Inc acquired on July 16, 2014;
FDR Enterprises, Inc. acquired on August 10, 2016;
Repicci’s Franchise Group, LLC acquired on August 10, 2016;
Refreshment Concepts, LLC acquired on August 10, 2016.
| 1 |
Organization
We are comprised of one corporation. All of our operations are conducted through this corporation.
Employees
Collectively, Cardiff at current has 29 employees and anticipates hiring additional personal with new acquisitions.
Competition
We are a holding company who adopted a new business model known as "Collaborative Commonwealth™" a new form of governance. To date, we are not aware of any other Holding Company using the same business philosophy or governing policies. Our competition is substantially larger. Berkshire Hathaway is closest to our governance model under the (1934 Act) and there are approximately 43 plus successful business development companies (1040 Act) all who are considered our competition and are established and available to the public for investment. These companies offer experienced management; dividends and financial security.
Proprietary Information
We own the following trademarks: Cardiff USA; Mission Tuition, Collaborative Governance, Legacy Card and Small Cap Rescue.
Government Regulation
We do not expect to be subject to material governmental regulation. However, it is our policy to fully comply with all governmental regulation and regulatory authorities.
Research and Development
We have spent funds on research and development of our proprietary software system. We plan to spend further funds on research and development activities in the future as the development of our software continues.
Environmental Compliance
We believe that we are not subject to any material costs for compliance with any environmental laws.
How to Obtain our SEC Filings
We file annual, quarterly, and special reports, proxy statements, and other information with the Securities Exchange Commission (SEC). Reports, proxy statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC's website at www.sec.gov.
Our investor relations department can be contacted at our principal executive office located at, 401 East Las Olas Blvd. Unit 1400 Lauderdale, FL 33301. Our telephone number is (844-628-2100).
| 2 |
Item 1A. RISK FACTORS
You should carefully consider the risks and uncertainties described below and the other information in this document before deciding to invest in shares of our common stock.
The occurrence of any of the following risks could materially and adversely affect our business, financial condition and operating result. In this case, the trading price of our common stock could decline and you might lose all or part of your investment.
During our startup phase we were not profitable and generated minimal revenue and no profit. As of this filing, though still not profitable, Cardiff is generating revenue which helps mitigate the risk. Currently we have a small amount of consolidated stockholders’ equity. As a result, though pleased with our current results, we may never become profitable, and could go out of business.
Through inception until December 2014, we have restructured ourselves into an holding company and have acquired three additional businesses; We Three, Inc. d/b/a Affordable Housing Initiative, Romeo’s NY Pizza and Edge View Properties.
Future sales will no longer depend on missiontuition.com, future revenues will come from our new acquisitions. We cannot guarantee we will ever develop a substantial revenue from our subsidiary companies and as required, we must state there is no assurance that we will become a profitable company.
Because we had incurred operating losses from our inception, we would still consider ourselves a going concern.
For the fiscal years ended December 31, 2015 and December 31, 2014, our accountants have expressed concern about our ability to continue as a result of our continued net losses. However, we believe our ability to achieve and maintain profitability and positive cash flow is dependent upon:
| · | our ability to acquire profitable businesses within CDIF; and |
| · | our ability to generate substantial revenues; and |
| · | our ability to obtain additional financing |
Based upon current plans, we may incur operating losses in future periods because we may, from time to time, be incurring expenses but not generating sufficient revenues. We expect approximately $800,000 in operating costs over the next twelve months. We cannot guarantee that we will be successful in generating sufficient revenues or obtaining other funds in the future to cover these operating costs. Failure to generate sufficient revenues will cause us to go out of business.
Since we are a start-up company, that has generated minimal revenue, an investment in the shares offered herein is highly risky and could result in a complete loss of your investment if we are unsuccessful in our business plans.
We were incorporated in August 2001 and have focused all of our efforts on the development of our product and we have generated minimal amounts revenue. Based upon current plans, we do expect to incur little to no operating losses in future periods. Further, there is no guarantee that we will be successful in realizing revenues or in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible closure of our business or force us to seek additional capital through loans or additional sales of our equity securities to continue business operations, which would dilute the value of any shares you hold, and could result in the loss of your entire investment.
| 3 |
We cannot predict when or if we will produce revenues which could result in a total loss of your investment if we are unsuccessful in our business plans.
We have generated limited revenues from operations since inception. In order for us to continue with our plans and open the business, we must generate revenue or find another source of capital. There can be no assurance that we will generate revenues or that revenues will be sufficient to maintain our business. As a result, one could lose all of one’s investment if we are not successful in our proposed business plans.
Commencement and development of operations will depend on the acquisitions acquired. If CDIF acquires the wrong businesses it could lead to a loss of revenue which could result in a failure of businesses and a loss of any investment one makes in the shares.
The acquisition of these new companies is critically important to our success. We cannot be certain that the company’s acquired will remain profitable and could possibly loose revenues. In addition, there are no assurances that the acquisitions acquired will continue as profitable businesses and could adversely affect our business and any possible revenues.
If the businesses acquisitions fail, then our business would be materially affected, which could result in the loss of your entire investment.
Our Collaborative Commonwealth business model depends on our acquired companies future growth and management. There can be no assurance that we will generate revenues as our current acquisitions may fail. As a result, one could lose all of the one’s investment if we select the wrong acquisition.
The loss of the services of the current officers and directors could severely impact our business operations and future development, which could result in a loss of revenues and one’s ability to ever sell any shares.
The performance is substantially dependent upon the professional expertise of the current officers and board of directors. Each has extensive expertise in business development and acquisitions and we are dependent on their abilities. If they are unable to perform their duties, this could have an adverse effect on business operations, financial condition and operating results if we are unable to replace them with other individuals qualified to develop and market our business. The loss of their services could result in a loss of revenues, which could result in a reduction of the value of any shares you hold as well as the complete loss of your investment.
If we cannot remain competitive in a way that allows us to generate the amount of revenue necessary to fund our operations, it could affect our business and result in the loss of your investment.
There can be no assurance that we can compete successfully in this market. As a result, you may never be able to liquidate or sell any shares.
We have been successful in implementing our business strategy, however, new acquisitions could adversely affect our business which could adversely affect our financial condition, results of operations and cash flows. If we cannot successfully implement our business strategy, it could result in the loss of your investment.
Successful implementation of our business strategy depends on factors specific to acquiring successful businesses. Adverse changes in our acquisition process could undermine our business strategy and have a material adverse effect on our business, financial condition, and results of operations and cash flow:
| · | The competitive environment in the specific field of business acquired; and |
| · | Our ability to acquire the right businesses that meet customers’ needs; and |
| · | Our ability to establish, maintain and eventually grow market share in a competitive environment. |
| 4 |
There are no substantial barriers to acquire established businesses and because we can acquire businesses in all types of industries, there is no guarantee the Company will acquire additional businesses, which could severely limit our proposed sales and revenues. If we cannot acquire established businesses, it could result in the loss of your investment.
Since we have no copyright protection, unauthorized persons may attempt to copy aspects of our business, including our governance design or functionality, services or marketing materials. Any encroachment upon our corporate information, including the unauthorized use of our brand name, the use of a similar name by a competing company or a lawsuit initiated against us for infringement upon another company's proprietary information or improper use of their copyright, may affect our ability to create brand name recognition, cause customer confusion and/or have a detrimental effect on our business. Litigation or proceedings before the U.S. or International Patent and Trademark Offices may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and domain name and/or to determine the validity and scope of the proprietary rights of others. Any such infringement, litigation or adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business operations and/or results of operations. As a result, an investor could lose his or her entire investment.
Our stock has no public trading market and there is no guarantee a trading market will ever develop for our securities. As a result, it may be difficult or impossible for you to liquidate your investment.
There has been, and continues to be, no public market for our common stock. An active trading market for our shares has not, and may never develop or be sustained. If you purchase shares of common stock, you may not be able to resell those shares at or above the initial price you paid. The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, including the following:
| · | actual or anticipated fluctuations in our operating results; |
| · | changes in financial estimates by securities analysts or our failure to perform in line with such estimates; |
| · | changes in market valuations of other companies, particularly those that market services such as ours; |
| · | announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; |
| · | introduction of product enhancements that reduce the need for our products; |
| · | departure of key personnel. |
The over-the-counter market for stock such as ours is subject to extreme price and volume fluctuations. You may not be able to resell your shares at or above the public sale price.
The securities of companies such as ours have historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as new product developments and trends in the our industry and in the investment markets generally, as well as economic conditions and quarterly variations in our operational results, may have a negative effect on the market price of our common stock.
In general, buying low-priced penny stocks is very risky and speculative. Our shares are defined as a penny stock under the Securities and Exchange Act of 1934, and rules of the Commission. You may not able to sell your shares when you want to do so, if at all.
Our shares are defined as a penny stock under the Securities and Exchange Act of 1934, and rules of the Commission. The Exchange Act and such penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly with spouse, or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for each purchaser and receive the purchaser's written agreement prior to such sale. In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the Commission. Consequently, the penny stock rules may affect the ability of broker-dealers to make a market in or trade our common stock and may also affect your ability to resell any shares you may purchase in the public markets.
| 5 |
Because of our size and limited resources, we may have difficulty establishing adequate management, legal and financial controls, which we are required to do in order to comply with U.S. GAAP and securities laws, and which could cause a materially adverse impact on our financial statements, the trading of our common stock and our business.
We are a small holding company that lacks the financial resources and qualified personnel to implement and sustain adequate internal controls As a result, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet proper internal control standards. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, material weaknesses or lack of compliance could result in restatements of our historical financial information, cause investors to lose confidence in our reported financial information, have an adverse impact on the trading price of our common stock, adversely affect our ability to access the capital markets and our ability to recruit personnel, lead to the delisting of our securities from the stock exchange on which they are traded, lead to litigation claims, thereby diverting management’s attention and resources, and which may lead to the payment of damages to the extent such claims are not resolved in our favor, lead to regulatory proceedings, which may result in sanctions, monetary or otherwise, and have a materially adverse effect on our reputation and business.
We do not expect to pay dividends on common stock in the foreseeable future.
We have not paid any cash dividends with respect to our common stock, and it is unlikely that we will pay any dividends on our common stock for the year. Earnings, if any, that we may realize will be retained in the business for further development and expansion.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. DESCRIPTION OF PROPERTY.
We are currently operating out of our office space located at 401 Las Olas Blvd., Unit 1400, Fort Lauderdale, FL 33301. This space is considered to be sufficient for us at the present time.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any material legal proceedings, nor is our property the subject of any material legal proceeding.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
| 6 |
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Holders
As of December 31, 2015 there were 796 record holders of our common stock, and there were 4.412,888 shares of our common stock outstanding.
Public Market for Common Stock
Our common stock, par value $.001 per share (the “Common Stock”), is currently quoted on the OTCQB under the symbol “CDIF”. The OTCBB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter, or the OTC, equity securities. An OTCBB equity security generally is any equity that is not listed or traded on a national securities exchange. The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTCBB quotation service. These bid prices represent prices quoted by broker-dealers on the OTCBB quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark- down or commissions, and may not represent actual transactions.
| Price range of common stock |
High Close |
Low Close | ||
|
Year Ended December 31, 2015 |
||||
| 1st Quarter | $6.20 | $1.66 | ||
| 2nd Quarter | $2.73 | $0.77 | ||
| 3rd Quarter | $0.80 | $0.40 | ||
| 4th Quarter | $0.50 | $0.075 | ||
| Year Ended December 31, 2014 | ||||
| 1st Quarter | $80.00 | $22.50 | ||
| 2nd Quarter | $67.50 | $20.00 | ||
| 3rd Quarter | $25.00 | $2.83 | ||
| 4th Quarter | $4.00 | $1.70 |
The market price of our common stock will be subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
The Securities Enforcement and Penny Stock Reform Act of 1990
The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
A purchaser is purchasing penny stock which limits the ability to sell the stock. The shares offered by this prospectus constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
| 7 |
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission, which:
| · | contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; |
| · | contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended; |
| · | contains a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and the significance of the spread between the bid and ask price; |
| · | contains a toll-free telephone number for inquiries on disciplinary actions; |
| · | defines significant terms in the disclosure document or in the conduct of trading penny stocks; and |
| · | contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation; |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:
| · | the bid and offer quotations for the penny stock; |
| · | the compensation of the broker-dealer and its salesperson in the transaction; |
| · | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and |
| · | monthly account statements showing the market value of each penny stock held in the customer's account. |
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.
Dividend Policy
We have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable future. The payment of dividends on our common stock is within the discretion of our board of directors. We intend to retain any earnings for use in our operations and the expansion of our business. Payment of dividends in the future will depend on our future earnings, future capital needs and our operating and financial condition, among other factors that our board of directors may deem relevant. We are not under any contractual restriction as to our present or future ability to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis or Plan of Operation contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases, you can identify forward-looking statements by the use of words such as “may”, “will”, “should”, “anticipate”, “believe”, “expect”, “plan”, “future”, “intend”, “could”, “estimate”, “predict”, “hope”, “potential”, “continue”, or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including, but not limited to, the matters discussed in this report under the caption “Risk Factors”. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.
The following discussion of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and the related notes included in this report.
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The following table provides selected financial data about us for the fiscal years ended December 31, 2015 and December 31, 2014. For detailed financial information, see the audited Financial Statements included in this report.
Balance Sheet Data:
| Year ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash | $ | 31,559 | 46,311 | |||||
| Total assets | $ | 1,212,479 | 1,250,856 | |||||
| Total liabilities | $ | 1,822,968 | 1,409,554 | |||||
| Shareholders' equity (deficiency) | $ | (610,489 | ) | (158,698 | ) | |||
| Operating Data: | ||||||||
| Revenues | $ | 1,389,601 | 890,401 | |||||
| Operating Expenses | $ | 4,302,247 | 12,689,311 | |||||
| Net (Loss) | $ | (3,944,421 | ) | (13,131,697 | ) | |||
Segment reporting for the years ended December 31, 2015 and 2014 were as follows:
| For the years ended | ||||||||
| December 31, 2015 | December 31, 2014 | |||||||
| Revenues: | ||||||||
| We Three | $ | 168,621 | $ | 56,870 | ||||
| Romeo’s NY Pizza | 1,210,880 | 833,531 | ||||||
| Others | 10,100 | – | ||||||
| Consolidated revenues | $ | 1,389,601 | $ | 890,401 | ||||
| Cost of Sales: | ||||||||
| We Three | $ | 134,912 | $ | 35,535 | ||||
| Romeo’s NY Pizza | 862,818 | 618,336 | ||||||
| Others | – | – | ||||||
| Consolidated cost of sales | $ | 997,730 | $ | 653,871 | ||||
| Income (Loss) before taxes | ||||||||
| We Three | $ | 14,216 | $ | (21,373 | ) | |||
| Romeo’s NY Pizza | 14,667 | (22,156 | ) | |||||
| Others | (3,973,304 | ) | (13,088,168 | ) | ||||
| Consolidated loss before taxes | $ | (3,944,421 | ) | $ | (13,131,697 | ) | ||
As of December 31, 2015 | As of December 31, 2014 | |||||||
| Assets: | ||||||||
| We Three | $ | 243,134 | $ | 169,417 | ||||
| Romeo’s NY Pizza | 76,386 | 159,039 | ||||||
| Others | 892,959 | 922,400 | ||||||
| Combined assets | $ | 1,212,479 | $ | 1,250,856 |
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Results of Operations
We had revenues in the amount of $1,389,601 and $890,401 for the years ended December 31, 2015 and 2014, respectively. The revenue for the year ended December 31, 2015 is attributable to Romeo’s NY Pizza - $1,210,880, We Three, LLC – $168,621, and other - $10,100. The revenue for the year ended December 31, 2014 is attributable to Romeo’s NY Pizza - $833,531, and We Three, LLC – $56,870, which represents approximately half year operation since the acquisitions were completed in July 2014.
Cost of Goods Sold. We had costs of sales in the amount of $997,730 and $653,871 for the years ended December 31, 2015 and 2014, respectively. The costs for the year ended December 31, 2015 are attributable to Romeo’s NY Pizza – $862,818 and We Three, LLC – $134,912. The costs for the year ended December 31, 2014 are attributable to Romeo’s NY Pizza – $618,336 and We Three, LLC – $35,535, which represents approximately half year operation since the acquisitions were completed in July 2014.
Operating Expenses. Operating expenses consisted of research and development and general and administrative expenses. We had operating expenses of $4,302,247 and $12,689,311 for the years ended December 31, 2015 and 2014, respectively. The operating expenses in 2015 was primarily attributable to the issuance of 2,512,000 shares of common stock to 6 consultants for marketing, management and financial strategies, resulting in non-cash stock based compensation of $3,136,120 during the year ended December 31, 2015. Comparatively, we had non-cash stock based compensation of $11,712,560 in 2014 due to the issuance of 4,427,200 shares of common stock, 611,999 shares of Series B preferred stock and 1 share of Series C preferred stock.
Employee stock compensation. We did not issue any shares to our employees in 2015. During the year ended December 31, 2014, we issued 4,427,200 shares of common stock and 600,000 shares of Series B preferred stock to officers for services rendered. The fair value of the common stock issuance was determined by the fair value of our common stock on the grant date, at a price of approximately $2.3 per share; and the fair value of Series B preferred stock issuance was determined by the private placement price of $2.5 per share in the arms-length transactions. Accordingly, we recognized officer stock based compensation of $11,682,560 to the consolidated statements of operations for the year ended December 31, 2014.
Non-employee stock compensation. During the year ended December 31, 2015, we issued total 2,512,000 shares of common stock to 6 different consultants for marketing, management and financial strategies. The fair value of the stock issuance was determined by the fair value of the Company’s common stock on the grant date, at the range from $0.36-$1.78 per share. Accordingly, we recognized stock based compensation of $3,136,120 to non- employees to the consolidated statements of operations for the year ended December 31, 2015. During the year ended December 31, 2014, we issued 11,999 shares of Series B preferred stock and 1 share of Series C preferred stock to certain consultants for marketing services rendered. The fair value of this stock issuance was determined by the private placement price of $2.5 per share in the arms-length transactions. Accordingly, we recognized stock based compensation of $30,000 to non- employees to the consolidated statements of operations for the year ended December 31, 2014.
Gain on conversion of debt. During the years ended December 31, 2015 and 2014, we had a gain on settlement of debt in amount of $10,000 and $822,080, respectively. The gain on settlement of debt in 2014 was due to a settlement of accounts payable.
Change in value of derivative liability. During the years ended December 31, 2015 and 2014, the change in value of derivative liability amounted to $(1,756) and $(35,590), respectively. In 2015, we issued 2 convertible promissory notes in amount of $12,200 and $10,000, respectively, both of which were convertible into shares of the Company’s common stock at 50% discount to the market. As a result, we had change in value of derivative liability amounted to $(1,756). In 2014, the convertible notes with accrued interest in amount of $32,010 were converted into 2,496 shares. We premeasured the fair value of the converted amount at the conversion date and increased the derivative liabilities to $132,981, which was credited to additional paid-in capital at the conversion.
Interest Expense. During the years end December 31, 2015 and 2014, interest expense amounted to $32,096 and $61,109, respectively. The decrease in interest was a result of fewer borrowings in 2015.
As a result of the foregoing, we had a net loss of $3,944,421 for the fiscal year ended December 31, 2015, which is compared to the net loss for the year ended December 31, 2014 of $13,131,697.
Our activities have been completely directed at developing our business plan for eventually generating revenue. We operated at a loss in all relevant periods.
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To try to operate at a break-even level based upon our current level of proposed business activity, we believe that we must generate approximately $20,000,000 in revenue per year. Each dollar of revenue is not directly tied to increasing costs. We believe that we can become profitable without incurring additional costs under our current operating cost structure. However, if our forecasts are inaccurate, we will need to raise additional funds. In the event that we need additional capital, our directors have orally agreed to loan such funds as may be necessary through December 31, 2016 for working capital purposes, although they have no obligation to do so.
On the other hand, if we decide that we cannot operate at a profit in our current configuration, we may choose to scale back our operations to operate at break-even with a smaller level of business activity, while adjusting our overhead to meet the revenue from current operations. In such event, we will probably not be profitable. In addition, we expect that we will need to raise additional funds if we decide to pursue more rapid expansion, the development of new or enhanced services or products, appropriate responses to competitive pressures, or the acquisition of complementary businesses or technologies, or if we must respond to unanticipated events that require us to make additional investments. We cannot assure that additional financing will be available when needed on favorable terms, or at all.
We expect to incur operating losses in future periods because we will be incurring expenses and not generating sufficient revenues. We expect approximately $800,000 in operating costs over the next twelve months. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these operating costs. Failure to generate sufficient revenues or additional financing when needed could cause us to go out of business.
Liquidity and Capital Resources
As of December 31, 2015, we had cash and cash equivalents of $31,559. As of December 31, 2014, we had cash and cash equivalents of $46,311.
Net cash used for operating activities was $(75,772) for the year ended December 31, 2015, which was comparable to the net cash used in operating activities of $(696,728) for the year ended December 31, 2014. The decrease in the amount of net cash used in operating activities in 2015 compared to last year was attributable to the net loss in 2015 offset by non-cash stock compensation of $3,136,120, plus the increase in accrued expenses and accrued officers’ salaries by $408,474 and $240,000, respectively. The net cash used in operating activities in 2014 was attributable to our net losses in the amounts of $13,131,697 offset by non-cash charges related to stock based compensation of $11,712,560. In addition, we had a non-recurring charge to operations during the year ended December 31, 2014 of $1,407,327 for an impairment loss of goodwill, net of gain of $822,080 on investment, which did not require the use of cash and is added back to the net loss. We had no such impairment in 2015.
Net cash used in investing activities was $78,557 during the year ended December 31, 2015. The cash flows used in investing activities in 2015 was attributed to the purchase of fixed assets in mobile home lease business, offset by the cash from disposal of fixed assets in the discontinued operations. We had no cash flows from investing activities for the year ended December 31, 2014.
Cash flows provided by financing activities were $139,577 for the year ended December 31, 2015, which compares to cash flows provided by financing activities of $738,363 for the year ended December 31, 2014. These cash flows were related to sales of stock in the amounts of $162,500 and $596,314 during the years ended December 31, 2015 and 2014, respectively. In addition, we had $41,700 in proceeds from a notes payable, of which $19,500 was with a related party in 2015, offset by repayments of $58,221 to notes payable. Comparatively, financing activities provided $28,942 in proceeds from a related party, and $113,107 in proceeds from a notes payable, of which $25,075 was with a related party in 2014.
Over the next twelve months we expect significant capital costs to develop operations since we have completed 3 acquisitions in August 2016. Our operating costs of $1,000,000 will be used for operations, but none will be used to pay salaries.
Our principal source of liquidity will be our operations or from additional financings. We expect variation in revenues to account for the difference between a profit and a loss. Also business activity is closely tied to the stock market and trading industry as a whole. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully develop our products and our ability to generate revenues.
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In any case, we try to operate with minimal overhead. Our primary activity will be to seek to develop clients for our services and, consequently, our sales. If we succeed in developing clients for our services and generating sufficient sales, we will become profitable. We cannot guarantee that this will ever occur. Our plan is to build our company in any manner which will be successful. If we are unable to obtain such profitability we will need to obtain additional financing. We cannot assure that additional financing will be available when needed on favorable terms, or at all.
There can be no assurance that 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 us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans and possibly relinquish rights to portions of our technology or products. In addition, increases in expenses or delays in product development may adversely impact our cash position and 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.
In order to continue our operations, development of our products, and implementation of our business plan, we need additional financing. We are currently attempting to obtain additional working capital in a term loan transaction.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements with any party.
Plan of Operation
The following milestones are assessments only. The working capital requirements and the projected milestones are approximations only and subject to adjustment based on sales, costs and needs.
In first quarter of 2013, it was decided that we restructure into a new holding company who adopted a new business model known as "Collaborative Commonwealth™" a new form of governance enabling businesses to take advantage of the power of a public Company. Targeting the acquisition of undervalued, niche companies with high growth potential, income-producing commercial real estate properties and high return investments, all designed to pay a dividend to our shareholders. The reason for this was to protect our shareholders by acquiring small to minimum size businesses seeking support with both financing and management. The plan was to establish new classes of Preferred stock to streamline voting rights, negate debt and acquire new businesses. By December of 2013 the Company negated 90% plus of all debt; by May of 2014 we acquired three businesses, We Three, LLC; Romeo’s NY Pizza and Edge View Properties, Inc. In August 2016, we completed additional three acquisitions, FDR Enterprises, Inc.; Repicci’s Franchise Group, LLC and Refreshment Concepts, LLC.
Recent Developments
As of this filing, we have acquired We Three, LLC (d/b/a Affordable Housing Initiative) (“AHI”), Romeo’s NY Pizza Chain, Edge View Properties, Inc., FDR Enterprises, Inc., Repicci’s Franchise Group, LLC and Refreshment Concepts, LLC.
Current Business Operations
Cardiff International, Inc., is currently structured as a company with holdings of various companies.
The following milestones are estimates only. The working capital requirements and the projected milestones are approximations only and subject to adjustment based on sales, costs and needs.
CARDIFF INTERNATIONAL, INC., is a public Holding company utilizing a new form of Collaborative Governance™*. Cardiff targets acquisitions of undervalued, niche companies with high growth potential, income-producing businesses, including commercial real estate properties all of which offer high returns for our investors. Our goal is to provide a form of governance enabling businesses to take advantage of the power of a public company without losing management control. Cardiff provides companies the ability to raise money and investors a low risk environment that protects their investment.
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MISSION TUITION (www.missiontuition.com): Cardiff through Mission Tuition has built one of the largest merchant shopping networks in America consisting of all the top name merchants; offering in-store savings and coupon savings with local, regional and national merchants throughout America. With each purchase members earn rebates which goes directly into their educational savings account. Our Tax-Free educational savings program provides a platform for families to start an "educational savings" program that encourages regular and daily use of the program. The Mission Tuition program helps families save for college. Mission Tuition encourages members to contribute to their educational savings with contribution from work, family members or just rebates generated by online and in- store purchases. The Mission Tuition program leverages the two biggest economic forces in society –– consumer spent and the cost of education –– to create the most unique value-added rewards program in decades. Cardiff’s missiontuition.com helps solve a real need for America's families – saving for your child's college education.
WE THREE, LLC (D/B/A AFFORDABLE HOUSING INITIATIVE) (“AHI”): AHI is located in Maryville, Tennessee. AHI acquires both mobile homes and mobile home parks offering an alternative to traditional housing. Their mobile home business is a popular option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, AHI will provide a financial leasing option with "O" interest on the lease providing a "lease to own" option for their family home. Most homes are 3 bedroom/2bath homes making the dream of owning a home possible.
ROMEO'S NY PIZZA, INC.: Romeo's NY Pizza - Established in Paterson, New Jersey in 1945. Romeo's NY Pizza makes authentic NY pizza, making their dough in-house, using the finest cheese and ingredients available. No soggy crust or watered down pizza sauce, only the best. They also serve Chicken Wings, Philly Steak Subs, Calzones and Salads. Romeo's NY Pizza is currently in negotiations to open a "quick serve" Romeo's location in the Hartfield International Airport in Atlanta.
EDGE VIEW PROPERTIES LLC: Edge View Properties consists of 30 prime acres of land; 23.5 acres zoned MDR (Medium Density Residential) with 12 lots already platted and 48 lots zoned HDR (High Density Residential), 4 acres of dedicated river front property zoned for recreation on the Salmon River, Idaho's premier whitewater river and 2.5 acres zoned for commercial use. All land is in the city limits of Salmon and adjacent to the Frank church Wilderness Park (the largest wilderness park in the lower 48 states).
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. On an on-going basis, we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies. Our actual results may differ from these estimates.
We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different results when using different assumptions. We have discussed these critical accounting estimates, the basis for their underlying assumptions and estimates and the nature of our related disclosures herein with the audit committee of our Board of Directors. We believe our accounting policies specific to share-based compensation expense and estimation of the fair value of derivative liability involve our most significant judgments and estimates that are material to our consolidated financial statements. They are discussed further below.
Derivative Liability
The Company evaluates its financial instruments 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 re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the probability weighted average Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the December 31, 2015 reporting date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
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Share-based compensation expense
We account for the issuance of stock, stock options and warrants for services from employees and non-employees based on an estimate of the fair value of options and warrants issued using the Black-Scholes pricing model. This model’s calculations include the exercise price, the market price of shares on grant date, weighted average assumptions for risk-free interest rates, expected life of the option or warrant, expected volatility of our stock and expected dividend yield.
The amounts recorded in the financial statements for share-based expense could vary significantly if we were to use different assumptions. For example, the assumptions we have made for the expected volatility of our stock price have been based on the historical volatility of our stock, measured over a period generally commensurate with the expected term. If we were to use a different volatility than the actual volatility of our stock price, there may be a significant variance in the amounts of share-based compensation expense from the amounts reported.
Inflation
We do not believe that inflation will negatively impact our business plans.
Recent Accounting Pronouncements
ASU 2014-10, Development Stage Entities
On June 10, 2014, the Financial Accounting Standards Board ("FASB") issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholders’ equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective consolidated financial statements.
In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.
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In June 2014, ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718); Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this ASU apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. For all entities, the amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities.
Entities may apply the amendments in this ASU either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.
In August 2014, the FASB issued ASU No. 2014-15 on “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This Update provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments in this Update are effective for public and nonpublic entities for annual periods ended after December 15, 2016. We are currently assessing the impact of the adoption of ASU No. 2014-15, and we have not yet determined the effect of the standard on our ongoing financial reporting.
In July 2015, FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In August 2015, FASB issued ASU No.2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
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We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our net results of operations, financial position, or cash flows.
Seasonality.
We do not expect our revenues to be impacted by seasonal demands for our services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See next page.
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INDEX TO FINANCIAL STATEMENTS
| Page | ||
| Report of Independent Registered Public Accounting Firm | 18 | |
| Consolidated Balance Sheets | 19 | |
| Consolidated Statements of Operations | 20 | |
| Consolidated Statements of Shareholders’ Equity (Deficit) | 21 | |
| Consolidated Statements of Cash Flows | 22 | |
| Notes to Consolidated Financial Statements | 23 |
| 17 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Cardiff International, Inc.
We have audited the accompanying consolidated balance sheets of Cardiff International, Inc. (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2015 and 2014. Cardiff International, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audit the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cardiff International, Inc. as of December 31, 2015 and 2014 and the results of its operations and its cash flows for the years ended December 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, The Company has suffered net losses and has had negative cash flows from operating activities during the years ended December 31, 2015 and 2014. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
|
/s/ KLJ & Associates, LLP
KLJ & Associates, LLP | |
| Edina, MN | |
| October 28, 2016 | |
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CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2015 AND 2014
| December 31, 2015 | December 31, 2014 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash | $ | 31,559 | $ | 46,311 | |||||||
| Accounts receivable | 54 | 3,782 | |||||||||
| Prepaid and other | 21,025 | 25,325 | |||||||||
| Total current assets | 52,638 | 75,418 | |||||||||
| Property and equipment, net of accumulated depreciation of $357,830 and $279,673, respectively | 540,024 | 534,212 | |||||||||
| Land | 603,000 | 603,000 | |||||||||
| Deposits | 6,950 | 9,725 | |||||||||
| Due from related party | 9,867 | 28,501 | |||||||||
| $ | 1,212,479 | $ | 1,250,856 | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | 29,080 | $ | 73,153 | |||||||
| Accrued expenses | 584,804 | 176,330 | |||||||||
| Accrued expenses - related parties | 502,500 | 450,000 | |||||||||
| Interest payable | 191,818 | 161,696 | |||||||||
| Accrued payroll taxes | 38,902 | 38,400 | |||||||||
| Due to officers and shareholders | 81,905 | 106,943 | |||||||||
| Common stock to be issued | 5,000 | – | |||||||||
| Notes payable, unrelated party | 60,811 | 129,032 | |||||||||
| Notes payable - related party | 119,500 | – | |||||||||
| Convertible notes payable, net of debt discounts of $0 and $0, respectively | 29,700 | 9,000 | |||||||||
| Convertible notes payable - related party | 165,000 | 165,000 | |||||||||
| Derivative liabilities | 13,948 | – | |||||||||
| Total current liabilities | 1,822,968 | 1,309,554 | |||||||||
| Long-term liabilities | |||||||||||
| Notes payable, related party, net of current portion and discount of $0 and $0, respectively | – | 100,000 | |||||||||
| Total liabilities | 1,822,968 | 1,409,554 | |||||||||
| Preferred stock | |||||||||||
| Series A preferred | – | – | |||||||||
| Preferred Stock Series B, D, E, F, F-1 | 6,072 | 6,348 | |||||||||
| Series C preferred | – | – | |||||||||
| Common stock; 50,000,000 shares authorized with $0.001 par value; 9,412,888 and 4,928,682 shares issued and outstanding at December 31, 2015 and 2014, respectively | 9,413 | 4,929 | |||||||||
| Additional paid-in capital | 42,580,891 | 39,092,469 | |||||||||
| Retained deficit | (43,206,865 | ) | (39,262,444 | ) | |||||||
| Total shareholders' equity (deficiency) | (610,489 | ) | (158,698 | ) | |||||||
| Total liabilities and shareholders' equity (deficiency) | $ | 1,212,479 | $ | 1,250,856 | |||||||
The accompanying notes are an integral part of these financial statements
| 19 |
CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
| For The Years Ended | ||||||||
| December 31, 2015 | December 31, 2014 | |||||||
| REVENUE | ||||||||
| Rental income | $ | 168,621 | $ | 56,870 | ||||
| Sales of pizza | 1,210,880 | 833,531 | ||||||
| Other | 10,100 | – | ||||||
| Total revenue | 1,389,601 | 890,401 | ||||||
| COST OF SALES | ||||||||
| Rental business | 134,912 | 35,535 | ||||||
| Pizza restaurants | 862,818 | 618,336 | ||||||
| Other | – | – | ||||||
| Total cost of sales | 997,730 | 653,871 | ||||||
| GROSS MARGIN | 391,871 | 236,530 | ||||||
| OPERATING EXPENSES | 4,302,247 | 12,689,311 | ||||||
| GAIN (LOSS) FROM OPERATIONS | (3,910,376 | ) | (12,452,781 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Impairment loss on goodwill | – | (1,407,327 | ) | |||||
| Gain on settlement of debt | 10,000 | 822,080 | ||||||
| Change in value of derivative liability | (1,756 | ) | (35,590 | ) | ||||
| Interest expense | (32,096 | ) | (61,109 | ) | ||||
| Amortization of debt discounts | (22,200 | ) | – | |||||
| Gain on disposal of fixed assets | 12,007 | – | ||||||
| Other | – | 3,030 | ||||||
| Total other income (expenses) | (34,045 | ) | (678,916 | ) | ||||
| NET INCOME (LOSS) FOR THE PERIOD | (3,944,421 | ) | (13,131,697 | ) | ||||
| INCOME (LOSS) PER COMMON SHARE | ||||||||
| -BASIC | $ | (0.52 | ) | $ | (11.39 | ) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON | ||||||||
| SHARES - BASIC AND DILUTED | 7,644,291 | 1,152,779 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
| 20 |
CARDIFF INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2015
| Preferred Stock Series A | Preferred Stock Series B, D, E, F, F-1 | Preferred Stock, Series C | Common Stock | Additional Paid- | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | in Capital | Deficiency | Total | ||||||||||||||||||||||||||||||||||
| Balance December 31, 2013 | 1 | – | 4,576,701 | 4,577 | 79 | – | 83,586 | 84 | 24,317,127 | (26,130,747 | ) | (1,808,959 | ) | |||||||||||||||||||||||||||||||
| Common stock issued for debt conversion - Asher | – | – | – | – | – | – | 2,496 | 2 | 32,008 | – | 32,010 | |||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion | – | – | – | – | – | – | 15,400 | 15 | 3,835 | – | 3,850 | |||||||||||||||||||||||||||||||||
| Common stock issued for services | – | – | – | – | – | – | 4,427,200 | 4,427 | 10,178,133 | – | 10,182,560 | |||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion | – | – | – | – | – | – | 400,000 | 400 | 670 | – | 1,070 | |||||||||||||||||||||||||||||||||
| Series B preferred shares issued for cash, $2.50 per share | – | – | 81,993 | 82 | – | – | – | – | 204,901 | – | 204,983 | |||||||||||||||||||||||||||||||||
| Series B & C preferred shares issued for services | – | – | 611,999 | 612 | 1 | – | – | – | 1,529,388 | – | 1,530,000 | |||||||||||||||||||||||||||||||||
| Series C preferred shares issued for cash, $2.50 per share | – | – | – | – | 33 | – | – | – | 83 | – | 83 | |||||||||||||||||||||||||||||||||
| Series D preferred shares issued for Romeo's NY Pizza | – | – | 400,000 | 400 | – | – | – | – | 999,600 | – | 1,000,000 | |||||||||||||||||||||||||||||||||
| Series E preferred shares issued for Edge View Properties | – | – | 241,199 | 241 | – | – | – | – | 602,759 | – | 603,000 | |||||||||||||||||||||||||||||||||
| Series F preferred shares issued for We Three LLC | – | – | 280,069 | 280 | – | – | – | – | 699,894 | – | 700,174 | |||||||||||||||||||||||||||||||||
| Series F-1 preferred shares issued for cash, 2.50 per share | – | – | 156,503 | 157 | – | – | – | – | 391,091 | – | 391,248 | |||||||||||||||||||||||||||||||||
| Reclassification of derivative liability associated with debt conversion | – | – | – | – | – | – | – | – | 132,981 | – | 132,981 | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (13,131,697 | ) | (13,131,697 | ) | |||||||||||||||||||||||||||||||
| Balance December 31, 2014 | 1 | $ | – | 6,348,464 | $ | 6,348 | 113 | $ | – | 4,928,682 | $ | 4,929 | $ | 39,092,469 | $ | (39,262,444 | ) | $ | (158,698 | ) | ||||||||||||||||||||||||
| Common stock issued for PF B conversion | – | – | (325,862 | ) | (326 | ) | – | – | 1,610,206 | 1,610 | (1,284 | ) | – | – | ||||||||||||||||||||||||||||||
| Series B preferred shares issued for cash, $2.50 per share | – | – | 33,197 | 33 | – | – | – | – | 82,460 | – | 82,493 | |||||||||||||||||||||||||||||||||
| Series C preferred shares issued for cash, $2.50 per share | – | – | – | – | 3 | – | – | – | 8 | – | 8 | |||||||||||||||||||||||||||||||||
| Series F-1 preferred shares issued for cash, $4.00 per share | – | – | 6,249 | 6 | 1 | – | – | – | 24,994 | – | 25,000 | |||||||||||||||||||||||||||||||||
| Series F-1 preferred shares issued for cash, $2.50 per share | – | – | 9,999 | 10 | 1 | – | – | – | 24,990 | – | 25,000 | |||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities due to BCF | – | – | – | – | – | – | – | – | 10,008 | – | 10,008 | |||||||||||||||||||||||||||||||||
| Contributed capital | – | – | – | – | – | – | – | – | 187,500 | – | 187,500 | |||||||||||||||||||||||||||||||||
| Cancellation of common stock | – | – | – | – | – | – | (188,000 | ) | (188 | ) | 188 | – | – | |||||||||||||||||||||||||||||||
| Common stock issued for services | – | – | – | – | – | – | 2,512,000 | 2,512 | 3,133,608 | – | 3,136,120 | |||||||||||||||||||||||||||||||||
| Common stock issued for note conversion | – | – | – | – | – | – | 300,000 | 300 | 1,200 | – | 1,500 | |||||||||||||||||||||||||||||||||
| Common stock issued for cash, $0.10 per share | – | – | – | – | – | – | 250,000 | 250 | 24,750 | – | 25,000 | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (3,944,421 | ) | (3,944,421 | ) | |||||||||||||||||||||||||||||||
| Balance December 31, 2015 | 1 | $ | – | 6,072,047 | $ | 6,072 | 118 | $ | – | 9,412,888 | $ | 9,413 | $ | 42,580,891 | $ | (43,206,865 | ) | $ | (610,489 | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
| 21 |
CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
| For The Years Ended | ||||||||
| December 31, 2015 | December 31, 2014 | |||||||
| Net (loss) from continuing operations | $ | (3,944,421 | ) | $ | (13,131,697 | ) | ||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | 84,752 | 39,992 | ||||||
| Impairment loss on goodwill | – | 1,407,327 | ||||||
| Gain from disposal of fixed assets | (12,007 | ) | – | |||||
| Gain from debt forgiveness | (10,000 | ) | (822,080 | ) | ||||
| Amortization of loan discount | 22,200 | – | ||||||
| Change in value of derivative liability | 1,756 | 35,590 | ||||||
| Stock based compensation | 3,136,120 | 11,712,560 | ||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 3,728 | (3,782 | ) | |||||
| Deposits | 2,775 | (9,125 | ) | |||||
| Prepaids and other | 4,300 | (23,666 | ) | |||||
| Increase (decrease) in: | ||||||||
| Accounts payable | (44,073 | ) | 73,153 | |||||
| Accrued expenses | 408,474 | (58,036 | ) | |||||
| Interest payable | 30,122 | 46,436 | ||||||
| Accrued payroll taxes | 502 | 36,600 | ||||||
| Accrued officers' salaries | 240,000 | – | ||||||
| Net cash used in operating activities | (75,772 | ) | (696,728 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Proceeds on sale of fixed assets | 30,902 | – | ||||||
| Purchase of fixed assets | (109,459 | ) | – | |||||
| Net cash used in investing activities | (78,557 | ) | – | |||||
| FINANCING ACTIVITIES | ||||||||
| Due from / to related party | (6,402 | ) | 28,942 | |||||
| Proceeds from sales of stock | 162,500 | 596,314 | ||||||
| Proceeds from notes payable | 22,200 | 79,032 | ||||||
| Proceeds from notes payable - related party | 19,500 | 25,075 | ||||||
| (Repayments to) proceeds from notes payable | (58,221 | ) | 9,000 | |||||
| Net cash provided by financing activities | 139,577 | 738,363 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (14,752 | ) | 41,635 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 46,311 | 4,676 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 31,559 | $ | 46,311 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Series D Preferred shares issued for acquisition | $ | – | $ | 1,000,000 | ||||
| Series E Preferred shares issued for acquisition | $ | – | $ | 603,000 | ||||
| Series F & F-1 Preferred shares issued for acquisition | $ | – | $ | 700,174 | ||||
| Common stock issued upon conversion of notes payable | $ | 1,500 | $ | 36,930 | ||||
The accompanying notes are an integral part of these financial statements
| 22 |
CARDIFF INTERNATIONAL, INC.
NOTES TO 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 International, Inc. (“Cardiff”, the “Company”), a publicly held corporation. In the first quarter of 2013, it was decided to restructure Cardiff into a holding company that adopted a new business model known as "Collaborative Governance," a form of governance enabling businesses to take advantage of the power of a public company. Cardiff began targeting the acquisition of undervalued, niche companies with high growth potential, income-producing commercial real estate properties, and high return investments, all designed to pay a dividend to the Company’s shareholders. The reason for this strategy was to protect the Company’s shareholders by acquiring profitable small- to minimum-sized businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors. The plan is to establish new classes of preferred stock to streamline voting rights, negate debt, and acquire new businesses. By December of 2013, the Company had negated more than 90% of all its debt; by July of 2014, the Company had completed the acquisition of three businesses: We Three, LLC; Romeo’s NY Pizza; and Edge View Properties, Inc. The Company delayed the filing of its Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2015 due to difficulty obtaining information from another acquisition, which was subsequently unwound.
Description of Business
Cardiff is a holding company that adopted a new business model known as "Collaborative Governance.” To date, the Company is not aware of any other domestic holding company using the same business philosophy or governing policies. The Company’s business footprint is to acquire strong companies that meet the following criteria: (1) in business for a minimum of two years; (2) profitable; (3) good management team; (4) little to no debt; and (5) assets of a minimum of $1,000,000. Cardiff continues to practice all business ethics under the Securities Exchange Act of 1934 (“1934 Act”) and acknowledges that there are more than 43 successful Business Development Companies subject to the Investment Company Act of 1940 (“1940 Act”), all of which may be considered competition to Cardiff and that are established and available to the public for investment. These companies offer experienced management, dividends and financial security.
To date, Cardiff consists of three subsidiaries: We Three, LLC; Romeo’s NY Pizza; and Edge View Properties, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of Cardiff International, Inc., and its wholly-owned subsidiaries: We Three, LLC; Romeo’s NY Pizza; and Edge View Properties, Inc. 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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Revenue Recognition
In general, the Company recognizes revenue on an accrual basis. Revenue is generally realized or realizable and earned when all of the following criteria are met: 1) persuasive evidence of an arrangement exists between the Company and our customer(s); 2) services have been rendered; 3) our price to our customer is fixed or determinable; and 4) collectability is reasonably assured.
Rental Income
The Company’s rental income 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, 2015 and 2014. There are no contingent rentals included in income in the accompanying statements of operations. With the exception of the month-to-month leases, revenue is recognized on a straight-line basis and amortized into income on a monthly basis, over the lease term.
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Restaurant Sales
Revenue from restaurant sales is recognized when food and beverage products are sold. The Company reports revenue net of sales taxes collected from customers and remitted to governmental taxing authorities.
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.
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 the year ended December 31, 2014, goodwill of $1,707,153 resulted from the business acquisitions in 2014 was impaired in full. There was no goodwill impairment in 2015.
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. There has been no impairment charge for the periods presented.
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. During the year ended December 31, 2014, the convertible notes principal and accrued interest totaled $32,010 were converted into 2,496 shares of Common Stock of the Company at the options of the noteholder. The Company used a Black-Scholes pricing model to determine the appropriate fair value of $132,981 at the conversion date. The Company adjusted its derivative liability to its fair value, and reflected the increase (decrease) in fair value of $35,590 for the year ended December 31, 2014 as Other Expenses on the Consolidated Statements of Operations. The derivative liability of $132,981 was reclassified as additional paid-in capital at the conversion. During the year ended December 31, 2015, the conversion price of a $10,000 convertible note was changed from 50% of the market to $0.01 per share due to the market price falling below certain level. As a result, the embedded derivative liabilities of $10,008 was reclassified as additional paid-in capital.
| 24 |
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 | 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, 2015 and 2014.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair Value of Derivative Liability – December 31, 2015 | $ | – | $ | – | $ | 13,948 | $ | – | ||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Fair Value of Derivative Liability – December 31, 2014 | $ | – | $ | – | $ | – | $ | – | ||||||||
Stock-Based Compensation – Employees
The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
| 25 |
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
| · | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
| · | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market |
| · | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. |
| · | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.
Stock-Based Compensation – Non Employees
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum, or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
| 26 |
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
| · | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. |
| · | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
| · | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. | |
| · | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments.
The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.
Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.
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Property and Equipment
Property and equipment are carried at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
| Classification | Useful Life | |
| Equipment, furniture and fixtures | 5 - 7 years | |
| Leasehold improvements | 10 years or lease term, if shorter |
During the years ended December 31, 2015 and 2014, depreciation and amortization expense was $84,752 and $39,992, respectively.
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, 2015 and 2014, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2015 and 2014, the Company did not have any significant unrecognized uncertain tax positions.
Earnings (Loss) per Share
FASB ASC Subtopic 260, Earnings Per Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.
The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2015 and 2014. During a period of net loss, all potentially dilutive securities are anti-dilutive. Accordingly, for the years ended December 31, 2015 and 2014, potentially dilutive securities have been excluded from the computations since they would be anti-dilutive. However, these dilutive securities could potentially dilute earnings per share in the future:
| For the years ended | ||||||||
| December 31, 2015 | December 31, 2014 | |||||||
| Numerator: | ||||||||
| Net (loss) | $ | (3,944,421 | ) | $ | (13,131,697 | ) | ||
| Denominator: | ||||||||
| Weighted-average shares outstanding | 7,644,291 | 1,152,779 | ||||||
| Basic earnings (loss) per share | $ | (0.52 | ) | $ | (11.39 | ) | ||
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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 is in the development stage and, as such, 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, 2015, the Company had shareholders’ deficit of $594,557. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern. As a result, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2015 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. Management has prospective investors and believes the raising of capital will allow the Company to pursue new acquisitions. There can be no assurance that the Company will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to it. Should the Company be unable to raise sufficient funds, it may be required to curtail its operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future. Should the Company not be able to raise sufficient funds, it may cause cessation of operations.
Recently Issued Accounting Pronouncements
In September 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU describes how an entity should assess its ability to meet obligations and sets disclosure requirements for how this information should be disclosed in the financial statements. The standard provides accounting guidance that will be used with existing auditing standards. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this guidance will be examined for the year ended December 31, 2016, and if applicable at that time, will require management to make the appropriate disclosures.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Topic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by ASU 2015-03. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. Upon adoption, the Company will reclassify debt issuance costs from prepaid expenses and other current assets and other assets as a reduction to debt in the condensed consolidated balance sheets. The Company is not planning to early adopt ASU 2015-03 and does not anticipate that the adoption of ASU 2015-03will materially impact its condensed consolidated financial statements.
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The guidance excludes inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is not planning to early adopt ASU 2015-11 and is currently evaluating ASU 2015-11 to determine the potential impact to its condensed consolidated financial statements and related disclosures.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows.
2. DISCONTINUED OPERATIONS
In April 2015, the Company closed 2 pizza restaurants located in Alpharetta, Georgia and Lawrenceville, Georgia due to continuing losses in operations and slow traffic at these 2 locations.
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3. PLANT AND EQUIPMENT, NET
Plant and equipment, net as of December 31, 2015 and 2014 was $540,024 and $534,212, respectively, consisting of the following:
| December 31, 2015 | December 31, 2014 | |||||||
| Furniture, fixture and equipment | $ | 261,882 | $ | 268,055 | ||||
| Leasehold improvements | 635,972 | 545,830 | ||||||
| 897,854 | 813,885 | |||||||
| Less: accumulated depreciation | (357,830 | ) | (279,673 | ) | ||||
| Plant and equipment, net | $ | 540,024 | $ | 534,212 | ||||
During the years ended December 31, 2015 and 2014, depreciation expense was $84,752 and $39,992, respectively.
During the year ended December 31, 2015, the Company disposed 2 smart cars for cash payment of $30,902, resulting in gain of $12,007 from disposal of fixed assets.
4. LAND
As of December 31, 2015 and 2014, the Company had land of $603,000 located in Salmon, Idaho with area of approximately 30 acres, which was in connection with the acquisition of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E Preferred Stock as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $603,000 valuation. The land is currently vacant and is expected to be developed into residential community. The value of the land is not subject to be depreciated.
5. ACCRUED EXPENSES
As of December 31, 2015 and 2014, the Company had accrued expenses of $1,087,304 and $626,330, respectively, consisted of the following:
| December 31, 2015 | December 31, 2014 | |||||||
| Accrued salaries | $ | 502,500 | $ | 450,000 | ||||
| Accrued expenses - other | 584,804 | 176,330 | ||||||
| Total | $ | 1,087,304 | $ | 626,330 | ||||
6. RELATED PARTY TRANSACTIONS
Due to Officers and Officer Compensation
The Company borrows funds from Daniel Thompson, who is a Shareholder and Officer of the Company. The terms of repayment stipulate the loans are due 24 months after the launch of the Legacy Tuition Card (or prior to such date) at an annual interest rate of six percent. As of December 31, 2015, the Company had $81,905 due to Daniel Thompson.
In addition, the Company has an employment agreement, renewed May 15, 2014, with Daniel Thompson whereby the Company changed Daniel Thompson’s compensation to $20,000 per month from $25,000. Accordingly, a total salary of $240,000 and $262,500 were accrued and reflected as an expense to Daniel Thompson during the years ended December 31, 2015 and 2014, respectively. The accrued salaries payable to Daniel Thompson was $502,500 and $450,000 as of December 31, 2015 and 2014, respectively.
The Company has an employment agreement with a former President, Ms. Roberton, whereby the Company provides for compensation of $25,000 per month beginning May 15, 2014. A total salary of $187,500 was reflected as an expense during the year ended December 31, 2014. On June 1, 2015, Ms. Roberton resigned from all her positions of the Company and agreed to waive all unpaid salary earned during her employment. Accordingly, the Company reclassified the accrued salaries of $187,500 into additional paid-in capital. The total balance due to Ms. Roberton for accrued salaries at December 31, 2015 and 2014 was $0 and $0, respectively.
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The Company had an employment agreement with a former Chief Operating Officer, Mr. Levy, whereby the Company provided for compensation of $15,000 per month. A total salary of $180,000 was accrued and reflected as an expense during the year ended December 31, 2015. The total balance due to Mr. Levy for accrued salaries at December 31, 2015 was $180,000.
The Company had an employment agreement with the Chief Executive Officer, Mr. Cunningham, whereby the Company provided for compensation of $15,000 per month. A total salary of $180,000 was accrued and reflected as an expense during the year ended December 31, 2015. The total balance due to Mr. Cunningham for accrued salaries at December 31, 2015 was $180,000.
Notes Payable – Related Party
The Company has entered into several loan agreements with related parties (see above; Footnote 7, Notes Payable – Related Party; and Footnote 8, Convertible Notes Payable – Related Party).
7. NOTES PAYABLE
Notes payable at December 31, 2015 and 2014 are summarized as follows:
| December 31, 2015 | December 31, 2014 | |||||||
| Notes Payable – Unrelated Party | $ | 60,811 | $ | 129,032 | ||||
| Notes Payable – Related Party | 119,500 | 100,000 | ||||||
| Discount on notes | – | – | ||||||
| Total | $ | 180,311 | $ | 229,032 | ||||
| Current portion | (180,311 | ) | (129,032 | ) | ||||
| Long-term portion | $ | – | $ | 100,000 | ||||
Notes Payable – Unrelated Party
On March 12, 2009, the Company entered into a preferred debenture agreement with a shareholder for $20,000. The note bore interest at 12% per year and matured on September 12, 2009. In conjunction with the preferred debenture, the Company issued 2,000,000 warrants to purchase its Common Stock, exercisable at $0.10 per share and expired on March 12, 2014. As a result of the warrants issued, the Company recorded a $20,000 debt discount during 2009 which has been fully amortized. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. On March 24, 2011, the Company amended the note and the principal balance was reduced to $15,000. The Company was due to pay annual principal payments of $5,000 plus accrued interest beginning March 12, 2012. On July 20, 2011, the Company repaid $5,000 of the note. As of December 31, 2012, the warrants had not been exercised. As of December 31, 2015, the Company is in default on this debenture. The balance of the note was $10,989 and $10,989 at December 31, 2015 and 2014, respectively.
The balance of $49,822 in notes payable to unrelated party was due to the auto loan for the vehicles used in the Pizza restaurants.
Notes Payable – Related Party
On September 7, 2011, the Company entered into a Promissory Note agreement (“Note 1”) with a related party for $50,000. Note 1 bears interest at 8% per year and matures on September 7, 2016. Interest is payable annually on the anniversary of Note 1, and the principal and any unpaid interest will be due upon maturity. In conjunction with Note 1, the Company issued 2,500,000 shares of its Common Stock to the lender. As a result of the shares issued in conjunction with Note 1, the Company recorded a $50,000 debt discount during 2011. The balance of Note 1, net of debt discount, was $50,000 and $50,000 at December 31, 2015 and 2014, respectively.
On November 17, 2011, the Company entered into a Promissory Note agreement (“Note 2”) with a related party for $50,000. Note 2 bears interest at 8% per year and matures on November 17, 2016. Interest is payable annually on the anniversary of Note 2, and the principal and any unpaid interest will be due upon maturity. In conjunction with Note 2, the Company issued 2,500,000 shares of its Common Stock to the lender. As a result of the shares issued in conjunction with Note 2, the Company recorded a $50,000 debt discount during 2011. The balance of Note 2, net of debt discount, was $50,000 and $50,000 at December 31, 2015 and 2014, respectively.
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On August 4, 2015, the Company entered into a Promissory Note agreement (“Note 3”) with a related party for $19,500. Note 3 bears interest at 6% per year and matures on December 31, 2016. Interest is 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 $19,500 at December 31, 2015.
The following is a schedule showing the future minimum loan payments in the future 5 years.
| Year ending December 31, | ||||
| 2015 | $ | 60,811 | ||
| 2016 | 119,500 | |||
| Total | $ | 180,311 |
8. CONVERTIBLE NOTES PAYABLE
Some of the Convertible Notes issued as described below included an anti-dilution provision that allowed for the adjustment of the conversion price. The Company considered the guidance provided by the FASB in “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” the result of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that, as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were not fixed amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith are not considered indexed to the Company’s stock and characterized the value of the conversion feature of such notes as derivative liabilities upon issuance.
Convertible notes at December 31, 2015 and 2014 are summarized as follows:
| December 31, 2015 | December 31, 2014 | |||||||
| Convertible Notes Payable – Unrelated Party | $ | 29,700 | $ | 9,000 | ||||
| Convertible Notes Payable – Related Party | 165,000 | 165,000 | ||||||
| Discount on notes | – | – | ||||||
| Total - Current | $ | 194,700 | $ | 174,000 | ||||
Convertible Notes Payable – Unrelated Party
On April 17, 2014, the Company entered into an unsecured Convertible Note (“Note 4”) in the amount of $9,000. Note 4 was convertible into Common Shares of the Company at $0.005 per share at the option of the holder. Note 4 bore interest at eight percent per year, matured on June 17, 2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. The Company is currently in default on Note 4. On August 17, 2015, a portion of principal of $1,500 was converted into 300,000 shares of Common Stock of the Company upon the request of the holder. The balance of the note was $7,500 and $9,000 at December 31, 2015 and 2014, respectively.
On May 6, 2015, the Company entered into a 10% convertible promissory note (“Note 5”) with an unrelated entity in the amount of $12,200. Note 5 bore interest at ten percent per year, matured on September 3, 2015, and was unsecured. Note 5 was convertible into Common Shares of the Company at the conversion ratio of 50% discount to market at the lowest traded price within 20 business days prior to “Notice of Conversion”. This gives rise to derivative liability accounting related to this Note since the conversion ratio is considered floorless.
Accordingly, Note 5 has been evaluated with respect to the terms and conditions of the conversion features contained in Note 5 to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in Note 5 for $12,200 carrying value represents a freestanding derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using the Black-Scholes valuation model at the inception date of Note 5 and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.
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The table below sets forth the assumptions for Black-Scholes valuation model on May 6, 2015 (inception) and December 31, 2015, respectively. For the period ended December 31, 2015, the Company had initial loss of $10,295 due to derivative liabilities, and decreased the derivative liability of $22,495 by $8,547, resulting in a derivative liability of $13,948 at December 31, 2015.
| Reporting Date | Fair Value | Term (Years) | Assumed Conversion Price | Market Price on Issuance Date | Volatility Percentage | Risk-free Rate |
| 5/6/2015 | $22,495 | 0.33 | $0.825 | $1.69 | 507% | 0.0002 |
| 12/31/2015 | $13,948 | 0.003 | $0.035 | $0.075 | 533% | 0.0014 |
The Company is currently in default on Note 5. As of December 31, 2015, the carrying values of Note 5 were $12,200 and the debt discount was $0. The Company recorded interest expense related to Note 5 in amount of $799 during the year ended December 31, 2015. The accrued interest of Note 5 was $799 as of December 31, 2015.
| The Notes | ||||
| Proceeds | $ | 12,200 | ||
| Less derivative liabilities on initial recognition | (12,200 | ) | ||
| Value of the Notes on initial recognition | 0 | |||
| Add accumulated accretion expense | 12,200 | |||
| Balance as of December 31, 2015 | $ | 12,200 | ||
On July 29, 2015, the Company entered into an 8% convertible promissory note (“Note 6”) with an unrelated entity in the amount of $10,000. Note 6 bore interest at eight percent per year, matured on November 26, 2015, and was unsecured. Note 6 was convertible into Common Shares of the Company at the conversion ratio of 50% discount to market at the conversion date. However, if the closing bid price of the Company’s Common Shares falls below $0.10 per share, the conversion price will be changed to $0.01 per share and remain intact from that point forward. Since the Company’s common stock was $0.075 per share at December 31, 2015, the conversion feature contained in Note 6 no longer meets the requirements for liability classification under ASC 815. As a result, the embedded derivative liabilities of $10,008 at December 31, 2015 was reclassified as additional paid-in capital.
The table below sets forth the assumptions for Black-Scholes valuation model on July 29, 2015 (inception) and December 31, 2015, respectively. For the period ended December 31, 2015, the Company had initial loss of $8,041 due to derivative liabilities, and decreased the derivative liability of $18,041 by $8,033, resulting in a derivative liability of $10,008 at December 31, 2015.
| Reporting Date | Fair Value | Term (Years) | Assumed Conversion Price | Market Price on Issuance Date | Volatility Percentage | Risk-free Rate |
| 7/29/2015 | $18,041 | 0.33 | $0.30 | $0.60 | 513% | 0.0006 |
| 12/31/2015 | $10,008 | 0.003 | $0.038 | $0.075 | 533% | 0.0014 |
The Company is currently in default on Note 6 and bears default interest at ten percent per year. As of December 31, 2015, the carrying values of Note 6 were $10,000 and the debt discount was $0. The Company recorded interest expense related to Note 6 in amount of $359 during the year ended December 31, 2015. The accrued interest of Note 6 was $359 as of December 31, 2015.
| The Notes | ||||
| Proceeds | $ | 10,000 | ||
| Less derivative liabilities on initial recognition | (10,000 | ) | ||
| Value of the Notes on initial recognition | 0 | |||
| Add accumulated accretion expense | 10,000 | |||
| Balance as of December 31, 2015 | $ | 10,000 | ||
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Convertible Notes Payable – Related Party
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 was convertible into Common Shares of the Company at $0.03 per share at the option of the holder no earlier than August 21, 2008. 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. In conjunction with the Debenture 1, the Company also issued warrants to purchase 5,000,000 shares of the Company’s Common Stock at $0.03 per share. The warrants expired on April 20, 2013. As a result of issued warrants, the Company recorded a $150,000 debt discount during 2008 which has been fully amortized. The Company is in default on Debenture 1, and the warrants have not been exercised. The balance of Debenture 1 was $150,000 and $150,000 at December 31, 2015 and 2014, respectively.
On March 11, 2009, the Company entered into an unsecured Convertible Debenture (“Debenture 2”) with a shareholder in the amount of $15,000. Debenture 2 was convertible into Common Shares of the Company at $0.03 per share at the option of the holder. Debenture 2 bore interest at 12% per year, matured on March 11, 2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. The Company is in default on Debenture 2. The balance of Debenture 2 was $15,000 and $15,000 at December 31, 2015 and 2014, respectively.
The following is a schedule showing the future minimum loan payments in the future 5 years.
| Year ending December 31, | ||||
| 2015 | $ | 194,700 |
9. DERIVATIVE LIABILITIES
As of December 31, 2015, the Company’s derivative liabilities are embedded derivatives associated with the Company’s convertible note payable (see Footnote 8). Due to the Notes’ conversion feature, the actual number of shares of common stock that would be required if a conversion of the note as described in Footnote 8 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 measured the fair value of the derivative liabilities as $40,536 on the inception date, and remeasured the fair value as $23,956 on December 31, 2015, of which $10,008 was reclassified as additional paid-in capital due to the change in conversion price from discounted market price to fixed price. The Company recorded the change of fair value of $1,756 in the statements of operations for the year ended December 31, 2015.
There was no derivative liabilities as of December 31, 2014.
10. PAYROLL TAXES
The Company previously reported that it has 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. These accruals were reversed for prior years, and a similar estimated accrual established for 2015 and 2014. As of December 31, 2015 and 2014, 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 $38,902 and $38,400, respectively.
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11. NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of common shares outstanding during the years. There were no dilutive earnings per share for the years ended December 31, 2015 and 2014 due to net loss during the years.
The following table sets forth the computation of basic net loss per share for the years indicated:
| For the years ended | ||||||||
| December 31, 2015 | December 31, 2014 | |||||||
| Numerator: | ||||||||
| Net (loss) | $ | (3,944,421 | ) | $ | (13,131,697 | ) | ||
| Denominator: | ||||||||
| Weighted-average shares outstanding | 7,644,291 | 1,152,779 | ||||||
| Basic earnings (loss) per share | $ | (0.52 | ) | $ | (11.39 | ) | ||
12. CAPITAL STOCK
Reverse Stock Split:
In August 2014, the Board of Directors approved new Articles of Incorporation per the effectuated domicile change which authorized four classes of Preferred Stock: 4 Series A shares authorized, 5,000,000 Series B shares authorized, 250 Series C shares and 100,000,000 Blank Check Preferred shares authorized.
The principal features of the Company's capital stock are as follows:
In August 2014, the Board of Directors approved an amendment to the Company’s Articles of Incorporation to amend Series B Preferred Stock Authorized & Designations, Rights & Privileges and to authorize three additional classes of Preferred Stock. After this action, the Company has five classes of Common Stock and Preferred Stock.
Series A Preferred Stock
As of December 31, 2015 and 2014, the Company has designated four shares of preferred stock as Series A Preferred Stock (“Series A”), with a par value of $.0001 per share, of which one share of preferred stock is issued and outstanding. Series A is authorized to have four shares which do not bear dividends and converts to common shares at four times the sum of: all shares of Common Stock issued and outstanding at time of conversion plus all shares of Series B Preferred Stock issued and outstanding at time of conversion divided by the number of issued Class A shares at the time of conversion, and have voting rights four times the sum of: all shares of Common Stock issued and outstanding at time of voting plus all shares of Series B Preferred Stocks issued and outstanding at time of voting divided by the number of Class A shares issued at the time of voting.
Series B Preferred Stock
As of December 31, 2015 and 2014, the Company has designated 5,000,000 shares of preferred stock as Series B Preferred Stock (“Series B”), with a par value $0.001 and $2.50 price per share, of which 4,978,028 and 5,270,693 shares of preferred stock are issued and outstanding, respectively. Shares of Series B are anti-dilutive to reverse splits. The conversion rate of shares of Series B, however, would increase proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share of Series B shall have no voting rights. The price of each share of Series B may be changed either through a majority vote of the Board of Directors through a resolution at a meeting of the Board of Directors, or through a resolution passed at an Action Without Meeting of the unanimous Board of Directors, until such time as a listed secondary and/or listed public market develops for the shares.
During the year ended December 31, 2014, the Company sold 81,993 shares of Series B to various investors at a price of $2.50 per share, or totaled $204,983 in cash.
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During the year ended December 31, 2014, the Company issued 600,000 shares of Series B preferred stock to officers for services rendered. The fair value of this stock issuance was determined by the private placement price of $2.5 per share in the arms-length transactions. Accordingly, the Company recognized stock based compensation of $1,500,000 to employees.
During the year ended December 31, 2014, the Company issued 11,999 shares of Series B preferred stock and 1 share of Series C preferred stock to certain consultants for marketing services rendered. The fair value of this stock issuance was determined by the private placement price of $2.5 per share in the arms-length transactions. Accordingly, the Company recognized stock based compensation of $30,000 to non-employees.
During the year ended December 31, 2015, 325,862 shares of Series “B” Preferred Stock were converted into 1,610,206 shares of Common Stock of the Company per the preferred shareholder’s instruction.
During the year ended December 31, 2015, the Company issued 33,197 shares of Series “B” Preferred stock and 3 shares of Series “C” Preferred Stock to several investors for total cash payment of $82,500 pursuant to the executed subscription agreements.
Series C Preferred Stock
As of December 31, 2015 and 2014, the Company has designated 250 shares of preferred stock as Series C Preferred Stock (“Series C”), with a par value of $.00001 per share, of which 118 and 113 shares are issued and outstanding, respectively. Shares of Series C are non-dilutive to reverse splits. The conversion rate of shares of Series C, however, would increase proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share of Series C converts to 100,000 shares of Common Stock. Each share of Series C shall have one vote for any election or other vote placed before the shareholders of the Company. The price of each share of Series C may be changed either through a majority vote of the Board of Directors through a resolution at a meeting of the Board of Directors, or through a resolution passed at an Action Without Meeting of the unanimous Board of Directors, until such time as a listed secondary and/or listed public market develops for the shares. Shares of Series C may not be converted into shares of Common Stock for a period of: a) six months after purchase, if the Company voluntarily or involuntarily files public reports pursuant to Section 12 or 15 of the Securities Exchange Act of 1934; or b) 12 months if the Company does not file such public reports.
During the year ended December 31, 2014, the Company sold 33 shares of Series C to various investors at a price of $2.50 per share, or totaled $83 in cash.
During the year ended December 31, 2015, the Company sold 4 shares of Series C to various investors at a price of $2.50 per share and 1 share at a price of $4.00 per share, or totaled $14 in cash.
Blank Check Preferred Stock
As of December 31, 2015 and 2014, the Company has designated 100,000,000 shares of Blank Check Preferred Stock, of which 1,094,019 and 1,077,771 shares have been issued with Designations, Rights & Privileges. The following Series have been assigned from the inventory of Blank Check Preferred Shares. The amount of Blank Check Preferred Stock is 98,905,981 as of December 31, 2015.
Series D Preferred Stock
On June 30, 2014, the Company completed the acquisition of Romeo’s NY Pizza. The Company issued 400,000 shares of Series D Preferred Stock (“Series D”) as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $1,000,000 valuation. Shares of Series D are anti-dilutive to reverse splits. The conversion rate of shares of Series D, however, would increase proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share of Series D shall have voting rights equal to one vote of Common Stock. With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series D shall vote together with the holders of Common Stock, without regard to class, except as to those matters on which separate class voting is required by applicable law or the Corporation’s Certificate of Incorporation or Bylaws. The initial price of each share of Series D shall be $2.50.
There was no change in Series D Preferred Stock in 2015.
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Series E Preferred Stock
On July 11, 2014, the Company completed the acquisition of Edge View Properties, Inc. The Company issued 241,199 shares of Series E Preferred Stock (“Series E”) as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $603,000 valuation. Shares of Series E are anti-dilutive to reverse splits. The conversion rate of shares of Series E, however, would increase proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share of Series E shall have voting rights equal to one vote of Common Stock. With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series E shall vote together with the holders of Common Stock, without regard to class, except as to those matters on which separate class voting is required by applicable law or the Corporation’s Certificate of Incorporation or Bylaws. The initial price of each share of Series E shall be $2.50.
There was no change in Series E Preferred Stock in 2015.
Series F Preferred Stock
On May 15, 2014, the Company completed the acquisition of We Three, LLC (d/b/a Affordable Housing Initiative) (“AHI”). The Company issued 280,069 shares of Series F Preferred Stock (“Series F”) as consideration for this acquisition. The fair value of We Three LLC was $1,000,000 (see Note 2). Based on the price of $2.50 per share for the Series F Preferred Stock, the fair value of the stock issuance of Series F Preferred Stock was $700,174, resulting in the gain of $299,826 on investment in We Three, which was offset the goodwill impairment at the end of 2014. In addition, the Company sold 156,503 shares of Series F1 Preferred Stock (Series F1”), to various investors at a price of $2.50 per share, or totaled $391,248 in cash. Shares of Series F are anti-dilutive to reverse splits. The conversion rate of shares of Series F, however, would increase proportionately in the case of forward splits, and may not be diluted by a reverse split following a forward split. Each one share of Series F shall have voting rights equal to five votes of Common Stock. With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series F shall vote together with the holders of Common Stock, without regard to class, except as to those matters on which separate class voting is required by applicable law or the Corporation’s Certificate of Incorporation or Bylaws. The initial price of each share of Series F shall be $2.50.
During the year ended December 31, 2015, the Company issued 6,249 shares of Series “F-1” Preferred stock and 1 share of Series “C” Preferred Stock to an investor for total cash payment of $25,000 pursuant to the executed subscription agreement.
During the year ended December 31, 2015, the Company issued 9,999 shares of Series “F-1” Preferred stock and 1 share of Series “C” Preferred Stock to an investor for total cash payment of $25,000 pursuant to the executed subscription agreement.
Common Stock
2014
In September 2014, the Board of Directors approved increasing the number of authorized shares of Common Stock from 250,000 to 50,000,000, par value of $0.001.
On August 22, 2014, the Company effectuated a Reverse Stock Split of its outstanding and authorized shares of Common Stock at a ratio of one for twenty five thousand (1:25,000). As a result of the Reverse Stock Split, the Company’s authorized shares of Common Stock were decreased from 5,000,000,000 to 250,000 shares and it authorized four-- classes of Preferred Stock. Upon the effectiveness of the Reverse Stock Split, which occurred on September 12, 2014, the Company’s issued, outstanding and authorized shares of Common Stock was decreased from 2,516,819,560 to 100,673 issued and outstanding shares and 250,000 authorized shares, all with a par value of $0.00001. Accordingly, all share and per share information has been restated to retroactively show the effect of the Reverse Stock Split.
During the year ended December 31, 2014, the Company issued 4,427,200 shares of common stock to officers for services rendered. The fair value of the common stock issuance was determined by the fair value of our common stock on the grant date, at a price of approximately $2.3 per share. Accordingly, the Company recognized stock based compensation of $10,182,560 to employees.
During the year ended December 31, 2014, the Company issued 417,896 shares of common stock for note conversion in amount of $36,930 per the requests from the noteholders.
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2015
On April 15, 2015, the Company entered into three consulting service agreements with three Consultants for marketing, management and financial strategies in exchange for 1,500,000 shares of Common Stock of the Company. The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately $1.78 per share. Accordingly, the Company calculated the stock based compensation of $2,670,000 at its fair value and included it in the consolidated statements of operations for the year ended December 31, 2015.
On June 3, 2015, the Company entered into a consulting service agreement with a Consultant for marketing, management and financial strategies in exchange for 150,000 shares of Common Stock of the Company. The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately $0.84 per share. Accordingly, the Company calculated the stock based compensation of $126,000 at its fair value and included it in the consolidated statements of operations for the year ended December 31, 2015.
On September 1, 2015, the Company entered into a consulting service agreement with a Consultant for marketing, management and financial strategies in exchange for 500,000 shares of Common Stock of the Company. The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately $0.42 per share. Accordingly, the Company calculated the stock based compensation of $210,000 at its fair value and included $209,800 in the consolidated statements of operations for the year ended December 31, 2015 due to the receipt of $200 cash from the Consultant.
On October 8, 2015, the Company entered into a consulting service agreement with a Consultant for marketing, management and financial strategies in exchange for 362,000 shares of Common Stock of the Company. The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock on the grant date, at a price of approximately $0.36 per share. Accordingly, the Company calculated the stock based compensation of $130,320 at its fair value and included it in the consolidated statements of operations for the year ended December 31, 2015.
During the year ended December 31, 2015, the Company issued 250,000 shares of Common Stock to five investors for total cash payment of $25,000, or $0.10 per share, pursuant to the executed subscription agreements.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company had operating leases of $255,535 and $92,351 for the years ended December 31, 2015 and 2014, respectively, consisting of the followings.
| For the years ended | ||||||||
| December 31, 2015 | December 31, 2014 | |||||||
| Restaurants | $ | 155,666 | $ | 90,000 | ||||
| Lot | 62,255 | 0 | ||||||
| Office | 33,620 | 0 | ||||||
| Equipment Rentals | 3,994 | 2,351 | ||||||
| Total | $ | 255,535 | $ | 92,351 | ||||
There was no rent expense for office in 2014 as such office space was contributed at no cost by Daniel Thompson, the imputed effects of which are immaterial to the consolidated financial statements taken as a whole.
14. INCOME TAXES
At December 31, 2015, the Company had federal and state net operating loss carry forwards of approximately $43,000,000 that expire in various years through the year 2035.
Due to operating losses, there is no provision for current federal or state income taxes for the years ended December 31, 2015 and 2014.
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.
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The Company’s deferred tax asset at December 31, 2015 and 2014 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $16,770,000 and $15,210,000, respectively, less a valuation allowance in the amount of approximately $16,770,000 and $15,210,000, respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in both 2015 and 2014. The valuation allowance increased by approximately $1,560,000 for the year ended December 31, 2015.
The Company’s total deferred tax asset as of December 31, 2015 and 2014 is as follows:
| 2015 | 2014 | |||||||
| Deferred tax assets | $ | 16,770,000 | $ | 15,210,000 | ||||
| Valuation allowance | (16,770,000 | ) | (15,210,000 | ) | ||||
| 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, 2015 and 2014 is as follows:
| 2015 | 2014 | |||||||
| Income tax computed at the federal statutory rate | 34% | 34% | ||||||
| Income tax computed at the state statutory rate | 5% | 5% | ||||||
| Valuation allowance | (39% | ) | (39% | ) | ||||
| Total deferred tax asset | 0% | 0% | ||||||
15. SEGMENT REPORTING
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) Mobile home lease (We Three), and (2) Company-owned Pizza Restaurants (Romeo’s NY Pizza). 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 two operating segments. Other revenue consists of nonrecurring items.
The mobile home lease segment establishes mobile home business as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, the Company will provide a financial leasing option with "0" interest on the lease providing a "lease to own" option for their family home.
The Company-owned Pizza Restaurant segment includes sales and operating results for all Company-owned restaurants. Assets for this segment include equipment, furniture and fixtures for the Company-owned restaurants.
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Corporate administration and other assets primarily include the deferred tax asset, cash and short-term investments, as well as furniture and fixtures located at the corporate office and trademarks and other intangible assets. All assets are located within the United States.
| For the years ended | ||||||||
| December 31, 2015 | December 31, 2014 | |||||||
| Revenues: | ||||||||
| We Three | $ | 168,621 | $ | 56,870 | ||||
| Romeo’s NY Pizza | 1,210,880 | 833,531 | ||||||
| Others | 10,100 | – | ||||||
| Consolidated revenues | $ | 1,389,601 | $ | 890,401 | ||||
| Cost of Sales: | ||||||||
| We Three | $ | 134,912 | $ | 35,535 | ||||
| Romeo’s NY Pizza | 862,818 | 618,336 | ||||||
| Others | – | – | ||||||
| Consolidated cost of sales | $ | 997,730 | $ | 653,871 | ||||
| Income (Loss) before taxes | ||||||||
| We Three | $ | 14,216 | $ | (21,373 | ) | |||
| Romeo’s NY Pizza | 14,667 | (22,156 | ) | |||||
| Others | (3,973,304 | ) | (13,088,168 | ) | ||||
| Consolidated loss before taxes | $ | (3,944,421 | ) | $ | (13,131,697 | ) | ||
As of December 31, 2015 | As of December 31, 2014 | |||||||
| Assets: | ||||||||
| We Three | $ | 243,134 | $ | 169,417 | ||||
| Romeo’s NY Pizza | 76,386 | 159,039 | ||||||
| Others | 892,959 | 922,400 | ||||||
| Combined assets | $ | 1,212,479 | $ | 1,250,856 | ||||
16. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to December 31, 2015 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than those specified below.
First Acquisition:
As previously disclosed on June 30, 2016, the Company completed the acquisition of Titancare, LLC. The acquisition became effective (the “Effective day”) on June 27, 2016, a Pennsylvania At Home Care franchise. The acquisition is subject to Franchisor approval and the completion of an independent audit.
In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of Titan, par value $0.17 per share ("Titan Preferred Class Stock"), was converted into $0.17 preferred shares (the "Stock Consideration") of the Company’s Preferred Class “G” Stock, par value $0.001 per share ("CDIF Preferred “G” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred Titan stockholders at $0.17 per share with a conversion rate of 1 to 1.3 Common Stock payable to Titan shareholders of record as of the close of business on June 27, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of Titan to certain parties designated the Company, which closed on June 27, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.
Pending Franchisor approval and the completion of the independent audit, CDIF will issue approximately 977,247 shares of CDIF Preferred “G” Shares to Titancare shareholders as Stock Consideration in the Acquisition. Based on the price of CDIF’s Common stock as of June 27 and 29, 2016 at $0.17 per share, the acquisition consideration represents an approximate value of $166,132. The LLC has filed to convert to a Pennsylvania Corporation.
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Second Acquisition:
As previously disclosed on June 29, 2016, the Company completed the acquisition of York County In Home Care, Inc. The acquisition became effective (the “Effective day”) on June 27, 2016, a Pennsylvania At Home Care franchise. The acquisition is subject to Franchisor approval and the completion of an independent audit.
In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of York, par value $0.17 per share ("York Preferred Class Stock"), was converted into $0.17 preferred shares (the "Stock Consideration") of the Company’s Preferred Class “G” Stock, par value $0.001 per share ("CDIF Preferred “G” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred York stockholders at $0.17 per share with a conversion rate of 1 to 1.3 Common Stock payable to York shareholders of record as of the close of business on June 29, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of York to certain parties designated by the Company, which closed on June 29, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.
Pending Franchisor approval and the completion of the independent audit, CDIF will issued approximately 8,235,294 shares of CDIF Preferred “G” Shares as Stock Consideration in the Acquisition. Based on the price of the Company’s Preferred “G” Class of stock on June 29, 2016. The acquisition consideration (based on the value of $0.17 in CDIF Preferred Stock, represents approximately $1,400,000.00.
Third Acquisition:
On August 10th, 2016, Cardiff International, Inc. (CDIF) completed the acquisition of Refreshment Concepts, LLC. The acquisition became effective (the "Effective day") on August 10th, 2016.
In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of Refreshment Concepts, par value $0.20 per share ("Refreshment Concepts Preferred Class Stock"), was converted into $0.20 preferred shares (the "Stock Consideration") of CDIF’s Preferred Class “H” Stock, par value $0.001 per share ("CDIF Preferred “H” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred Refreshment Concepts stockholders at $0.20 per share with a conversion rate of 1 to 1.25 Common Stock payable to Refreshment Concepts shareholders of record as of the close of business on July 22, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of Refreshment Concepts to certain parties designated by CDIF, which closed on July 22, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.
CDIF issued approximately 1,440,000 shares of CDIF Preferred “H” Shares as Stock Consideration in the Acquisition. Based on the price of CDIF’s Preferred “H” Class of stock on July 1st, 2016. The acquisition consideration (based on the value of $0.20 in CDIF Preferred Stock, represents approximately $288,000.00. The LLC has filed to convert to a Georgia Corporation. An amended 8K will be filed with audited financials by October 10th, 2016.
Fourth Acquisition:
On August 10th, 2016, Cardiff International, Inc. (CDIF) completed the acquisition of F.D.R. Enterprises. The acquisition became effective (the "Effective day") on August 10th, 2016.
In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of F.D.R. Enterprises par value $0.20 per share ("F.D.R. Enterprises Preferred Class Stock"), was converted into $0.20 preferred shares (the "Stock Consideration") of CDIF’s Preferred Class “H” Stock, par value $0.001 per share ("CDIF Preferred “H” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred F.D.R. Enterprises stockholders at $0.20 per share with a conversion rate of 1 to 1.25 Common Stock payable to F.D.R. Enterprises shareholders of record as of the close of business on July 22, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of F.D.R. Enterprises to certain parties designated by CDIF, which closed on July 22, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.
CDIF issued approximately 1,206,870 shares of CDIF Preferred “H” Shares as Stock Consideration in the Acquisition. Based on the price of CDIF’s Preferred “H” Class of stock on July 1st, 2016. The acquisition consideration (based on the value of $0.20 in CDIF Preferred Stock, represents approximately $241,374.00. The LLC has filed to convert to a Tennessee Corporation. An amended 8K will be filed with audited financials by October 10th, 2016.
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Fifth Acquisition:
On August 10th, 2016, Cardiff International, Inc. (CDIF) completed the acquisition of Repicci’s Franchise Group. The acquisition became effective (the "Effective day") on August 10th, 2016.
In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of Repicci’s Franchise Group par value $0.20 per share ("Repicci’s Franchise Group Preferred Class Stock"), was converted into $0.20 preferred shares (the "Stock Consideration") of CDIF’s Preferred Class “H” Stock, par value $0.001 per share ("CDIF Preferred “H” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred Repicci’s Franchise Group stockholders at $0.20 per share with a conversion rate of 1 to 1.25 Common Stock payable to Repicci’s Franchise Group shareholders of record as of the close of business on July 22, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of Repicci’s Franchise Group to certain parties designated by CDIF, which closed on July 22, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.
CDIF issued approximately 1,770,000 shares of CDIF Preferred “H” Shares as Stock Consideration in the Acquisition. Based on the price of CDIF’s Preferred “H” Class of stock on July 1st, 2016. The acquisition consideration (based on the value of $0.20 in CDIF Preferred Stock, represents approximately $354,000.00. The LLC has filed to convert to a Tennessee Corporation. An amended 8K will be filed with audited financials by October 10th, 2016.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods, including the interim periods up through the date the relationship ended.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed and submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that are filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision of and with the participation of its executive officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this Annual Report. Based on that evaluation, the sole executive officer of the Company has concluded that, as of the end of the period covered in this Annual Report, these disclosure controls and procedures were ineffective.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules forms, and that such information is accumulated and communicated to our management, including our principal executive officer (our president) and our principal accounting and financial officer (our chief financial officer and treasurer) to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluation the cost-benefit relationship of possible controls and procedures.
Our management does not expect that our disclosure controls or our internal controls over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but no absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources and benefits of a control system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future condition; over time controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
As of December 31, 2015, the year-end period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this annual report.
There have been no significant changes in our internal controls over financial reporting that occurred during the fiscal year ended December 31, 2015 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act, and assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:
1. As of December 31, 2015, our controls over the control environment were not effective. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedure. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial experts as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
2. As of December 31, 2015, our controls over financial statement disclosure were not effective. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our consolidated financial statements. Accordingly, management has determined that this corn deficiency constitutes a material weakness.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2015, based on the criteria established in “Internal Control-Integrated Framework” issued by COSO.
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This annual report does not include an attestation report of the company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management’s report.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2015 that have affected, or are reasonably likely to affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Officers and Directors
Our directors will serve until successors are elected and qualified. Our four officers are elected by the Board of Directors to a term of one year and serve until a successor is duly elected and qualified, or until that person is removed from office. Our Board of Directors has no nominating, or compensation committees. Our Board of Directors have three members.
The name, address, age and position of our sole officer and director is set forth below:
| Name and Address | Age | Positions | ||
|
Daniel Thompson |
67 |
Chairman of the Board of Directors | ||
| Alex Cunningham | 60 | Chief Executive Officer and President | ||
| Dr. Rolan Roberts II | 37 | Chief Operating Officer |
Background of our officers and directors
Daniel Thompson, 67, Chairman of the Board of Directors. In June of 2010 Thompson was previously appointed Chairman and CEO of Cardiff International, Inc. Formerly a television and entertainment industry professional with a 30-year career that embraces network and cable advertising sales programming production and product placement, Mr. Thompson was president of Creative Entertainment Services, which he founded and successfully sold in a transaction. Mr. Thompson also co-founded and successfully sold an industry service company – Creative Television Marketing, a producer of short-form advertising concepts: Closed-Captioning Sponsorships, 10-Second Promotional Advertising vehicles, and network Game Show Merchandising. He also oversaw new business for A Creative Group, a full service entertainment marketing company. Mr. Thompson also founded CableRep USA, a media sales firm specializing in local market cable advertising, which he sold to Cox Cable in 1981. Mr. Thompson attended Wayne State University, Bellevue College, and College of Continuing Studies at University of Nebraska at Omaha.
Alex Cunningham, 60, Chief Executive Officer and President. Mr. Cunningham has agreed to join the Cardiff family in June of 2015. Mr. Cunningham's background is in Business Development. His focus is on identifying prospects for franchising, mergers and acquisitions specializing in structuring one or multiple franchise acquisitions; and/or franchising existing businesses. He is a founder of Fran Consult, Inc. a business development company representing over 300 Franchise operations; owner, managing partner at AH Cunningham & Associates, LLC 2006 - Present; Profit Management Consulting, Inc., founder, President & CEO 1996-2005; managed projects and staff of 85 for 20 years for over 2000 private or closely held middle-market companies throughout 24 states. He was a partner at London Capital Corporation 1991 - 1996; President & CFO at Vance Communications, Inc. 1988-1991. Honors and Awards: 2010 Consultant of the Year - Franchise, Inc. National Association of Franchise Consultants. MBA - Crummer Graduate School of Business Rollins College - Winter Park, Florida; BBA's - Finance and Business Administration University of Kentucky - Lexington, Kentucky.
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Dr. Rolan Roberts II, 37, Chief Operating Officer. Dr. Roberts II turned around large, established companies and has created high growth revenue organizations. Dr. Roberts has passionately led with excellence a multi-billion, publicly-held database company along with healthcare, technology, manufacturing and direct sales companies. He has led nearly 1,500 employees at a given time servicing clients such as Capital One, IndyMac Bank, State Farm, Allstate, Nationwide along with federal and state government agencies.
Dr. Roberts has authored 4 business and leadership books, holds an MBA from Liberty University, a doctorate degree in International Business & Entrepreneurship from California InterContinental University and was recognized as the “Top 100 Most Influential Floridians” of 2015. He has served on several industry and civic non-profit boards along with founding a non-profit that serves entrepreneurs in crisis.
| · | Successfully led the turnaround, rebranding, and new product line of a 29-year old, $250MM life sciences company. |
| · | Developed market-disrupting products in a startup environment by partnering with cancer treatment centers prior to a successful exit strategy. |
| · | Led multi-site, geographically-dispersed team of 1,000 and crisis management response as senior executive for a multi-billion, publicly- held company. |
| · | Recognized for superior interpersonal and communication skills, outstanding team leadership and an authority in the consumer, healthcare and technology fields. |
| · | Recognized as “Top 100 Most Influential Floridians” of 2015. |
Professional Accomplishments
| · | Recognized as “Top 100 Most Influential Floridians” of 2015 by Insight Magazine. |
| · | Best-selling author who has received international exposure for books based on corporate leadership and personal development. |
| · | Professional speaker and TV host with authentic, charismatic and dynamic personality. |
| · | Participated and starred in leadership movie titled “The Journey” with Brian Tracy. |
| · | Produced two seven-disc audio programs on personal excellence and corporate sales growth. |
| · | Advisor/Strategist to political and business leaders. |
| · | Licensed private pilot. |
Audit Committee Financial Expert
The functions of the Audit Committee are currently carried out by our Board of Directors. Our Board of Directors has determined that we do not have an audit committee financial expert on our Board of Directors carrying out the duties of the Audit Committee. The Board of Directors has determined that the cost of hiring a financial expert to act as a director and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee. Our Board of Directors has three members.
Code of Ethics
We have not adopted a code of ethics that applies to our President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer, or persons performing similar functions, because of the small number of persons involved in the management of the Company.
Compliance with Section 16 (a) of the Exchange Act
Under Section 16(a) of the Exchange Act, requires that our directors and executive officers and persons who beneficially own more than 10% of our Common Stock (referred to herein as the “Reporting Persons”) file with the SEC various reports as to their ownership of and activities relating to our Common Stock. Such Reporting Persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon our review of the copies of the forms we have received and representations that no other reports were required, we believe that all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during fiscal year ended October 31, 2013 except as stated below.
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ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation Table
| Long-Term Compensation | ||||||||||||||||||||||||||||||||
| Annual Compensation | Awards | Payouts | ||||||||||||||||||||||||||||||
| Names Executive Officer and Principal |
Salary | Bonus | Other Annual Compensation |
Under Options/ SARs Granted |
Securities Restricted Shares or Restricted Share/Units |
LTIP Payouts |
Other Annual Compensation |
|||||||||||||||||||||||||
| Position | Year | (US$) | (US$) | (US$) | (#) | (US$) | (US$) | (US$) | ||||||||||||||||||||||||
| Daniel Thompson | 2013 | 300,000 | 0 | 0 | 0 | 2,257,018 | 0 | 0 | ||||||||||||||||||||||||
| Chairman of the Board of Directors |
2014 2015 |
240,000 240,000 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
||||||||||||||||||||||||
| Alex Cunningham | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| President and Chief Executive Officer |
2014 2015 |
150,000 180,000
|
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
||||||||||||||||||||||||
| Dr. Rolan Roberts II | 2013 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Chief Operating Officer |
2014 2015 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
0 0 |
||||||||||||||||||||||||
| (1) | On October 20, 2013, we issued 1,880,848,703 shares of common stock to Mr. Thompson amounted to $2,257,018. |
Employment Agreements
We have an employment agreement, renewed May 15, 2014, with the Chairman, Mr. Thompson whereby we provide for compensation of $20,000 per month.
We have an employment agreement with the former President, Ms. Roberton, whereby we provide for compensation of $25,000 per month beginning May 15, 2014. A total salary of $187,500 was reflected as an expense during the year ended December 31, 2014. On June 1, 2015, Ms. Roberton resigned from all her positions of the Company and agreed to waive all unpaid salary earned during her employment.
We had an employment agreement with the Chief Executive Officer, Mr. Cunningham, whereby we provided for compensation of $15,000 per month.
There are no other stock option plans, retirement, pension, or profit sharing plans for the benefit of our sole officer and director other than as described herein.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
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Compensation of Directors
Our directors do not receive any compensation for serving as a members of the Board of Directors.
Indemnification
Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defended a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defended the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Florida.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding our shares of common stock beneficially owned as of June 8, 2016, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
| Name of Beneficial Owner and Address | Amount and Nature of Beneficial Ownership of Common Stock |
Percent of Common Stock (1) | ||||||
| Daniel Thompson 401 East Las Olas Blvd. Unit 1400 Ft. Lauderdale, Florida |
2,927,200 | 22.09% | ||||||
| Alex Cunningham | ||||||||
| 401 East Las Olas Blvd. Unit 1400 | ||||||||
| Ft. Lauderdale, Florida | 1,000,000 | 7.55% | ||||||
| All directors and officers and 5% stockholders as a group | 3,927,200 | 29.64% | ||||||
___________________
(1) Based on 13,251,477 shares of common stock issued and outstanding as of June 20, 2016.
Note: Daniel Thompson and Alex Cunningham also own 720,000 and 9,999 shares of Preferred “B” and 1 and 1 shares of Preferred “C”, respectively.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Company borrows funds from Daniel Thompson, who is a Shareholder and Officer of the Company. The terms of repayment stipulate the loans are due 24 months after the launch of the Legacy Tuition Card (or prior to such date) at an annual interest rate of six percent. As of December 31, 2015, the Company had $81,905 due to Daniel Thompson.
During the year ended December 31, 2014, Mr. Thompson paid expenses on behalf of the Company totaling $100,000 reflected as rent and other expenses. All expenses and out of pocket costs above will be converted to stock.
Conversion of equity
On October 10, 2014, we appointed Kathleen Robertson, our former CEO, and Jason Levy, our former Chief Operating Officer to the Board. In conjunction with the appointment, 1,500,000 shares of common stock, was issued to both Ms. Roberton and Mr. Levy, and 1,427,200 shares of common stock was issued to Mr. Thompson as Chairman.
During the year ended December 31, 2015, Daniel Thompson converted 300,000 shares of Series “B” Preferred Stock into 1,500,000 shares of Common Stock of the Company.
ITEM 14. PRINCIPAL LEGAL AND ACCOUNTING FEES AND SERVICES
The aggregate fees billed for the years ended December 31, 2015 and 2014 for professional services rendered by the principal accountant for the audit of its annual financial statements included in Form 10-K (“Audit Fees”), (2) tax compliance, advice, and planning (“Tax Fees”), and (iv) other products or services provided (“Other Fees”) and for professional services rendered by company’s legal attorney:
Year Ended 2015 | Year Ended 2014 | |||||||
| Legal and Accounting Fees | $ | 20,000 | $ | 19,000 | ||||
| Tax Fees | 0 | 0 | ||||||
| All Other Fees | 10,500 | 6,000 | ||||||
| Total | $ | 30,500 | $ | 25,000 | ||||
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| Exhibit No. | Description |
| 3.1* | Articles of Incorporation |
| 3.2* | Bylaws |
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Schema |
| 101.CAL | XBRL Taxonomy Calculation Linkbase |
| 101.DEF | XBRL Taxonomy Definition Linkbase |
| 101.LAB | XBRL Taxonomy Label Linkbase |
| 101.PRE* | XBRL Taxonomy Presentation Linkbase |
*Previously filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities on this 31st day of October 2016.
| CARDIFF INTERNATIONAL, INC. | |
| /s/ Daniel Thompson | |
|
Daniel Thompson President, Chief Executive Officer, and Chief Financial Officer (Duly Authorized, Principal Executive and Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Daniel Thompson | President, Chief Executive Officer, | |||
| Daniel Thompson | Chief Financial Officer, and Director | October 31, 2016 |
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