Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

AMENDMENT NO. 1

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017

 

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 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 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 x          No o

 

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 x          No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

	Large accelerated filer  o	Accelerated filer  o
	Non-accelerated filer  o	Smaller reporting company  x
	Emerging growth company  o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No x

 

Common Stock outstanding at August 27, 2017, 38,817,810 shares of $0.001 par value Common Stock.

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 to Quarterly Report on Form 10-Q/A (this “Amended Report”) is being filed with the Securities and Exchange Commission to amend the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2017 (the “Original 10-Q”) of Cardiff International, Inc. to correct the disclosure with respect to the Acquisition Agreement with Consulting Services Support Corporation (CSSC Corp) and its subsidiaries Decision Technology Corporation and CSSC Services and Solutions, Incorporation (collectively referred to as “CSSC Group”), and understatement of derivative liabilities due to the derivative financial instrument of the convertible notes.

 

No other changes are being made and this Amended Report still speaks only as of the date it was initially filed.

 

This Amended Report includes currently-dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

FORM 10-Q

 

CONSOLIDATED FINANCIAL

STATEMENTS AND SCHEDULES

CARDIFF INTERNATIONAL, INC.

 

For the Quarter ending March 31, 2017

 

The following financial statements and schedules of the registrant are submitted herewith:

 

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7-28
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures, Evaluation of Disclosure Controls and Procedures	35
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

 

 

 

 

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

 

CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2017 AND DECEMBER 31, 2016

 

		March 31, 2017				December 31, 2016
		(Unaudited)
		(Restated)
ASSETS
Current assets
Cash		$	164,107			$	62,948
Accounts receivable, net			60,234				32,008
Inventory			42,229				42,229
Prepaid and other			39,190				36,990
Total current assets			305,760				174,175
Property and equipment, net of accumulated depreciation of $870,583 and $827,299, respectively			711,866				748,109
Land			603,000				603,000
Intangible assets, net			12,267				12,668
Deposits			6,950				1,528
Due from related party			283				–
Goodwill			932,529				932,529
Total Assets		$	2,572,655			$	2,472,009
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable		$	116,257			$	65,901
Accrued expenses			501,888				529,975
Accrued expenses - related parties			1,322,750				1,187,750
Interest payable			252,949				231,452
Accrued payroll taxes			42,402				41,783
Due to officers and shareholders			95,540				503,127
Line of credit			18,781				10,000
Common stock to be issued			500				500
Series I preferred shares to be issued			10,000				–
Series H preferred shares to be issued			–				728,907
Notes payable, unrelated party			242,532				259,320
Notes payable - related party			142,345				166,695
Convertible notes payable, net of debt discounts of $71,556 and $21,833, respectively			293,944				157,452
Convertible notes payable - related party			165,000				165,000
Derivative Liability			1,469,471				–
Tax payable			21,944				23,444
Total current liabilities			4,696,303				4,071,306
Preferred stock
Series A preferred			–				–
Preferred Stock Series B, D, E, F, F-1, H			8,924				5,480
Series C preferred			–				–
Common stock; 200,000,000 shares authorized with $0.001 par value; 36,089,183 and 25,223,578 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively			36,089				25,224
Additional paid-in capital			43,819,075				43,831,356
Retained deficit			(45,987,736	)			(45,461,357	)
Total shareholders' equity (deficiency)			(2,123,648	)			(1,599,297	)
Total liabilities and shareholders' equity (deficiency)		$	2,572,655			$	2,472,009

 

The accompanying notes are an integral part of these unaudited financial statements

 

 

CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

		For The Three Months Ended
		March 31, 2017				March 31, 2016
		(Unaudited)				(Unaudited)
		(Restated)
REVENUE
Rental income		$	46,010			$	40,613
Sales of pizza			134,237				214,593
Sales of ice cream			260,653				–
Other			3,745				18,090
Total revenue			444,645				273,296
COST OF SALES
Rental business			33,621				29,970
Pizza restaurants			94,303				106,903
Ice cream stores			151,305				–
Total cost of sales			279,229				136,873
GROSS MARGIN			165,416				136,423
OPERATING EXPENSES			610,741				330,833
GAIN (LOSS) FROM OPERATIONS			(445,325	)			(194,410	)
OTHER INCOME (EXPENSE)
(Loss) from extinguishment of debt			(45,933	)			–
Change in value of derivative liability			20,793				1,731
Interest expense			(25,637	)			(8,741	)
Amortization of debt discounts			(30,277	)			–
(Loss) from disposal of fixed assets			–				(2,442	)
Total other income (expenses)			(81,054	)			(9,452	)
NET INCOME (LOSS) FOR THE PERIOD			(526,379	)			(203,862	)
INCOME (LOSS) PER COMMON SHARE
-BASIC AND DILUTED		$	(0.02	)		$	(0.02	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED			30,153,144				9,528,026

 

The accompanying notes are an integral part of these unaudited financial statements

 

 

 

CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016

 

		For The Three Months Ended
		March 31, 2017				March 31, 2016
		(Unaudited)				(Unaudited)
		(Restated)
Net (loss) from continuing operations		$	(526,379	)		$	(203,862	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization			43,685				17,958
Loss (gain) from disposal of fixed assets			–				2,442
Loss on extinguishment of debt			45,933				–
Amortization of loan discount			30,277				–
Change in value of derivative liabilities			(20,793	)			(1,731	)
Stock based compensation			58,750				36,135
Warrants expenses			47,000				–
Convertible note issued for services rendered			80,000				50,000
(Increase) decrease in:
Accounts receivable			(28,226	)			–
Deposits			(5,422	)			(6,995	)
Prepaids and other			(2,200	)			(6,439	)
Increase (decrease) in:
Accounts payable			50,356				(11,102	)
Accrued expenses			47,913				60,133
Interest payable			21,599				8,741
Tax payable			(1,500	)			–
Accrued payroll taxes			619				(249	)
Accrued officers' salaries			135,000				31,755
Net cash (used in) operating activities			(23,388	)			(23,214	)
INVESTING ACTIVITIES
Advances - note receivable			–				18,219
Purchase of fixed assets			(7,041	)			(3,974	)
Net cash provided by (used in) investing activities			(7,041	)			14,245
FINANCING ACTIVITIES
Due from related party			(283	)			–
Due to related party			4,878				19,697
Proceeds from sales of stock			20,000				9,000
Proceeds from convertible notes payable			115,000				17,500
(Repayments to) notes payable - related party			–				(10,500	)
Proceeds from line of credit			8,781				–
(Repayments to) proceeds from notes payable			(16,788	)			461
Net cash provided by financing activities			131,588				36,158
NET (DECREASE) IN CASH AND CASH EQUIVALENTS			101,159				27,189
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			62,948				31,559
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	164,107			$	58,748
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid		$	5,140			$	–
Income tax paid		$	–			$	–
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued upon conversion of notes payable		$	9,887			$	5,000
Series H preferred shares issued for Repicci Group		$	728,907			$	–
Conversion of preferred stock to common stock		$	7,294			$	–
Derivative liability at beginning of the year		$	1,472,264			$	–
Reclassified derivative liabilities to additional paid in capital		$	62,000			$	12,217

 

The accompanying notes are an integral part of these unaudited financial statements

 

 

CARDIFF INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

 

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2016 and 2015 thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2016.

 

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, and income-producing commercial real estate properties, all designed to pay a dividend to the Company’s shareholders. The reason for this strategy was to protect the Company’s shareholders by acquiring businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors. 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 March 31, 2017, the Company had completed the acquisition of seven businesses: We Three, LLC; Romeo’s NY Pizza; Edge View Properties, Inc.; FDR Enterprises, Inc.; Refreshment Concepts, LLC; and Repicci’s Franchise Group, LLC. In addition, there are three acquisitions: Titancare, LLC, York County In Home Care, Inc., Ride Today Acceptance, LLC pending as of the date of this report.

 

Description of Business

 

Cardiff is a holding company that adopted a new business model known as "Collaborative Governance.” To date, the Company is not aware of any other domestic holding company using the same business philosophy or governing policies.

 

To date, Cardiff consists of the following 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;

Refreshment Concepts, LLC acquired on August 10, 2016;

Repicci’s Franchise Group, LLC acquired on August 10, 2016.

 

 

 

 

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 March 31, 2017, the Company had shareholders’ deficit of $2,123,648. 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, 2016 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.

 

2. RESTATEMENT OF FINANCIAL STATEMENTS

 

(1) On July 26, 2017, the Company’s Board of Directors approved to unwind the Acquisition Agreement with Consulting Services Support Corporation (CSSC Corp) and its subsidiaries Decision Technology Corporation and CSSC Services and Solutions, Incorporation (collectively referred to as “CSSC Group”), which was entered into on March 10, 2017. Upon rescission of the contract, CSSC Corp shall keep their finance business and the Company does not have to issue the stock. The contract between CSSC Corp and the Company is rendered a nullity. The Company believes the termination and revocation of this Acquisition is in the best interest of the Company’s Shareholders.

 

Accordingly, all the financial statements as of March 31, 2017 and for the three months ended March 31, 2017 are restated.

 

(2) In addition, on July 27, 2017 the Company identified errors related to understatement of derivative liabilities as of March 31, 2017, and change in the fair value of the derivative liability for the three months ended March 31, 2017. The facts underlying the Company’s original conclusion is that there were no derivative liabilities incurred when the convertible promissory notes in total amount of $61,500 were entitled to be converted at the conversion price of $0.03 per share, which was considered as a floor. In fact the variable conversion price of such convertible promissory notes triggered derivative liabilities of the Company and tainted the convertible notes with fixed conversion price. 

 

 

 

 

The following table sets forth all the accounts in the original amounts and restated amounts, respectively.

 

As of March 31, 2017

 

		March 31, 2017				Adjustments						March 31, 2017
		Original										Restated
ASSETS
Current assets
Cash		$	485,824			$	(321,717	)		(1)		$	164,107
Accounts receivable, net			478,738				(418,504	)		(1)			60,234
Inventory			42,229				–						42,229
Prepaid and other			57,632				(18,442	)		(1)			39,190
Total current assets			1,064,423				(758,663	)					305,760
Property and equipment, net of accumulated depreciation of $870,583			756,940				(45,074	)		(1)			711,866
Land			603,000				–						603,000
Intangible assets			185,320				(173,053	)		(1)			12,267
Deposits			59,976				(53,026	)		(1)			6,950
Due from related party			283				–						283
Goodwill			2,835,304				(1,902,775	)		(1)			932,529
Total Assets		$	5,505,246			$	(2,932,591	)				$	2,572,655
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable		$	605,993			$	(489,736	)		(1)		$	116,257
Accrued expenses			685,996				(184,108	)		(1)			501,888
Accrued expenses - related parties			1,403,069				(80,319	)		(1)			1,322,750
Interest payable			252,949				–						252,949
Accrued payroll taxes			42,402				–						42,402
Due to officers and shareholders			95,540				–						95,540
Line of credit			18,781				–						18,781
Common stock to be issued			500				–						500
Series J preferred shares to be issued			2,066,687				(2,066,687	)		(1)			–
Series I preferred shares to be issued			10,000				–						10,000
Series H preferred shares to be issued			–				–						–
Notes payable, unrelated party			292,532				(50,000	)		(1)			242,532
Notes payable - related party			142,345				–						142,345
Convertible notes payable, net of debt discounts of $71,556 and $21,833, respectively			293,944				–						293,944
Convertible notes payable - related party			165,000				–						165,000
Derivative Liability			–				1,469,471			(2)			1,469,471
Tax payable			92,232				(70,288	)		(1)			21,944
Total current liabilities			6,167,970				(1,471,667	)					4,696,303
Preferred stock
Series A preferred			–				–						–
Preferred Stock Series B, D, E, F, F-1, H			8,924				–						8,924
Series C preferred			–				–						–
Common stock; 200,000,000 shares authorized with $0.001 par value; 36,089,183 and 25,223,578 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively			36,089				–						36,089
Additional paid-in capital			45,309,339				(1,490,264	)		(1)(2)			43,819,075
Retained deficit			(46,017,076	)			29,340			(1)(2)			(45,987,736	)
Total shareholders' equity (deficiency)			(662,724	)			(1,460,924	)					(2,123,648	)
Total liabilities and shareholders' equity (deficiency)		$	5,505,246			$	(2,932,591	)				$	2,572,655

 

For the three months ended March 31, 2017

 

Statement of Operations

 

		Original				Adjustments						Restated
REVENUE
Rental income		$	46,010			$	–					$	46,010
Sales of pizza			134,237				–						134,237
Sales of ice cream			260,653				–						260,653
Financial services income			269,417				(269,417	)		(1)			–
Other			3,745				–						3,745
Total revenue			714,062				(269,417	)					444,645
COST OF SALES
Rental business			33,621				–						33,621
Pizza restaurants			94,303				–						94,303
Ice cream stores			151,305				–						151,305
Financial services			200,761				(200,761	)		(1)			–
Other			–				–						–
Total cost of sales			479,990				(200,761	)					279,229
GROSS MARGIN			234,072				(68,656	)					165,416
OPERATING EXPENSES			687,944				(77,203	)		(1)			610,741
GAIN (LOSS) FROM OPERATIONS			(453,872	)			8,547						(445,325	)
OTHER INCOME (EXPENSE)
(Loss) from extinguishment of debt			(45,933	)			–						(45,933	)
Change in value of derivative liability			–				20,793			(2)			20,793
Interest expense			(25,637	)			–						(25,637	)
Amortization of debt discounts			(30,277	)			–						(30,277	)
(Loss) from disposal of fixed assets			–				–						–
Total other income (expenses)			(101,847	)			20,793						(81,054	)
NET INCOME (LOSS) FOR THE PERIOD			(555,719	)			29,340						(526,379	)
INCOME (LOSS) PER COMMON SHARE
-BASIC		$	(0.02	)								$	(0.02	)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES - BASIC AND DILUTED			30,153,144										30,153,144

 

 

 

                             

Statement of Cash Flow

 

		Original				Adjustments				Restated
Net (loss) from continuing operations		$	(555,719	)		$	29,340		(1)(2)	$	(526,379	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization			48,260				(4,575	)	(1)		43,685
Loss on extinguishment of debt			45,933				–				45,933
Amortization of loan discount			30,277				–				30,277
Change in value of derivative liability			–				(20,793	)	(2)		(20,793	)
Stock based compensation			58,750				–				58,750
Warrants expenses			47,000				–				47,000
Convertible note issued for services rendered			80,000				–				80,000
(Increase) decrease in:
Accounts receivable			(113,825	)			85,599		(1)		(28,226	)
Inventory			–				–				–
Deposits			(5,422	)			–				(5,422	)
Prepaids and other			13,436				(15,636	)	(1)		(2,200	)
Increase (decrease) in:
Accounts payable			120,870				(70,514	)	(1)		50,356
Accrued expenses			45,653				2,260		(1)		47,913
Interest payable			21,599				–				21,599
Tax payable			(1,500	)			–				(1,500	)
Accrued payroll taxes			619				–				619
Accrued officers' salaries			135,000				–				135,000
Net cash (used in) operating activities			(29,069	)			5,681				(23,388	)
INVESTING ACTIVITIES
Purchase of fixed assets			(7,298	)			257		(1)		(7,041	)
Net cash provided by (used in) investing activities			(7,298	)			257				(7,041	)
FINANCING ACTIVITIES
Due from related party			(283	)			–				(283	)
Due to related party			4,878				–				4,878
Proceeds from sales of stock			20,000				–				20,000
Proceeds from convertible notes payable			115,000				–				115,000
(Repayments to) notes payable - related party			–				–				–
Proceeds from line of credit			8,781				–				8,781
(Repayments to) proceeds from notes payable			(16,788	)			–				(16,788	)
Net cash provided by financing activities			131,588				–				131,588
NET (DECREASE) IN CASH AND CASH EQUIVALENTS			95,221				5,938		(1)(2)		101,159
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			390,603				(327,655	)	(1)		62,948
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	485,824			$	(321,717	)	(1)	$	164,107

 

 

 

3. FIXED ASSETS

 

Plant and equipment, net as of March 31, 2017 and December 31, 2016 was $711,866 and $748,109, respectively, consisting of the following:

 

		March 31, 2017				December 31, 2016
Furniture, fixture and equipment		$	950,315			$	903,249
Leasehold improvements			632,134				672,159
			1,582,449				1,575,408
Less: accumulated depreciation			(870,583	)			(827,299	)
Plant and equipment, net		$	711,866			$	748,109

 

During the three months ended March 31, 2017 and 2016, depreciation and amortization expense was $43,685 and $17,958, respectively. See Note 4 for additional information regarding amortization.

 

4. INTANGIBLE ASSETS

 

As of March 31, 2017 and December 31, 2016, net intangible assets was $12,267 and $12,668 respectively, due to the franchise fee paid by Repicci’s Group.

 

5. ACCRUED EXPENSES

 

As of March 31, 2017 and December 31, 2016, the Company had accrued expenses of $1,824,638 and $1,717,725, respectively, consisted of the following:

 

		March 31, 2017				December 31, 2016
Accrued salaries		$	248,031			$	250,381
Accrued salaries – related party			1,297,500				1,162,500
Lease payable – related party			25,250				25,250
Accrued expenses - other			253,857				279,594
Total		$	1,824,638			$	1,717,725

 

6. RELATED PARTY TRANSACTIONS

 

Due to Officers and Officer Compensation

 

Refreshment Concepts, LLC leases its premises from its prior owner under a month-to-month lease at the rate of $1,500 per month. As of March 31, 2017 and December 31, 2016, the Company had lease payable of $25,250 to the related party.

 

On January 24, 2017, the Company issued 2,010,490 shares of Common Stock to settle $402,098 due to the prior owner of Refreshment Concepts LLC, pursuant to the Acquisition Agreement, dated August 10, 2016. 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 $0.24 per share, resulting in loss from extinguishment of debt in amount of $80,420. As of March 31, 2017 and December 31, 2016, in addition to the lease payable of $25,250, the outstanding balance due to the same prior owner was $33,345 and $57,695, respectively.

 

On January 24, 2017, the Company issued 173,585 shares of Common Stock to settle $34,717 due to the prior owner of Repicci’s Franchise Group LLC, pursuant to the Acquisition Agreement, dated August 10, 2016. 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 $0.24 per share, resulting in loss from extinguishment of debt in amount of $6,943. As of March 31, 2017 and December 31, 2016, the outstanding balance due to the same prior owner was $1,000 and $40,550, respectively.

 

 

 

 

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 March 31, 2017 and December 31, 2016, the Company had $94,540 and $84,540 due to Daniel Thompson, respectively.

 

In addition, the Board of Directors of the Company approved to increase Daniel Thompson’s compensation to $25,000 per month from $20,000 effective January 1, 2017. Accordingly, a total salary of $75,000 and $60,000 were accrued and reflected as an expense to Daniel Thompson during the three months ended March 31, 2017 and 2016, respectively. The accrued salaries payable to Daniel Thompson was $817,500 and $742,500 as of March 31, 2017 and December 31, 2016, respectively.

 

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 in 2015 and $10,000 per month in 2016. Mr. Levy resigned on June 7, 2016. A total salary of $0 and $30,000 were accrued and reflected as an expense during the three months ended March 31, 2017 and 2016, respectively. The total balance due to Mr. Levy for accrued salaries at March 31, 2017 and December 31, 2016 were $240,000 and $240,000, respectively.

 

The Company had an employment agreement with the Chief Operating Officer, Mr. Roberts, whereby the Company provided for compensation of $10,000 per month effective in June 2016. A total salary of $30,000 and $0 were accrued and reflected as an expense during the three months ended March 31, 2017 and 2016, respectively. The total balance due to Mr. Roberts for accrued salaries at March 31, 2017 and December 31, 2016 were $80,000 and $60,000, respectively.

 

The Board of Directors of the Company approved to increase Chief Executive Officer, Mr. Cunningham’s compensation to $25,000 per month from $15,000 effective January 1, 2017. A total salary of $75,000 and $45,000 were accrued and reflected as an expense during the three months ended March 31, 2017 and 2016, respectively. The total balance due to Mr. Cunningham for accrued salaries at March 31, 2017 and December 31, 2016 were $400,000 and $360,000, respectively.

 

Notes Payable – Related Party

 

The Company has entered into several loan agreements with related parties (see below; Footnote 8, Notes Payable – Related Party; and Footnote 8, Convertible Notes Payable – Related Party).

 

7. NOTES PAYABLE

 

Notes payable at March 31, 2017 and December 31, 2016 are summarized as follows:

 

		March 31, 2017				December 31, 2016
Notes Payable – Unrelated Party		$	242,532			$	259,320
Notes Payable – Related Party			142,345				166,695
Discount on notes			–				–
Total		$	384,877			$	426,015
Current portion			(384,877	)			(426,015	)
Long-term portion		$	–			$	–

 

 

 

 

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 March 31, 2017, the Company is in default on this debenture. The balance of the note was $10,989 and $10,989 at March 31, 2017 and December 31, 2016, respectively.

 

As of March 31, 2017, the Company had lease payable of $160,229 in connection with 2 capital leases on 2 Mercedes Sprinter Vans for the ice cream section. There are purchase options at the end of all lease terms that are based on the fair market value of the vans at the time.

 

The balance of $71,314 in notes payable to unrelated party was due to the auto loan for the vehicles used in the Pizza restaurants and Repicci’s Group and for daily operations.

 

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 March 31, 2017 and December 31, 2016, respectively. Note 1 is currently in default.

 

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 March 31, 2017 and December 31, 2016, respectively. Note 2 is currently in default.

 

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 Company repaid $10,500 to the related party in 2016, therefore, the balance of Note 3 was $9,000 as of March 31, 2017 and December 31, 2016, respectively. Note 3 is currently in default.

 

As of March 31, 2017 and December 31, 2016, the Company also had note payable of $33,345 and $57,695, respectively, to the prior owner of Repicci’s Group.

 

The following is a schedule showing the future minimum loan payments in the future 5 years.

 

Year ending December 31,
	2017			$	384,877
	2018				0
	2019				0
	2020				0
	2021				0
	Total			$	384,877

 

 

 

 

 

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 March 31, 2017 and December 31, 2016 are summarized as follows:

 

		March 31, 2017				December 31, 2016
Convertible Notes Payable – Unrelated Party		$	365,500			$	179,285
Convertible Notes Payable – Related Party			165,000				165,000
Discount on Convertible Notes Payable - Unrelated Party			(71,556	)			(21,833	)
Total - Current		$	458,944			$	322,452

 

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. During the year ended December 31, 2016, the note holder converted $3,715 principal and $1,310 accrued interest payable into 1,005,000 shares of common stock at a conversion price of $0.005 per share. And $3,000 of principal is forgiven by the note holder. In addition, the Company agreed to reimburse the holder’s certificate processing cost by adding $1,000 to the principal for each note conversion pursuant to an addendum, dated February 3, 2016. During the three months ended March 31, 2017, the note holder converted $2,785 principal, $1,000 processing cost reimbursement and $102 accrued interest into 777,400 shares of common stock at a conversion price of $0.005 per share. The balance of Note 4 was $2,785 as of December 31, 2016, which was paid in full as of March 31, 2017. 

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. On March 8, 2016, the Company entered into an addendum to Note 5 to change the conversion price to $0.005 per share. As a result, the embedded derivative liability of $12,217 at March 8, 2016 was reclassified as additional paid-in capital.

 

 

 

 

 

 

The table below sets forth the assumptions for Black-Scholes valuation model on May 6, 2015 (inception) and December 31, 2015, and March 8, 2016, respectively. For the three months ended March 31, 2016, the Company decreased the derivative liability of $13,948 at December 31, 2015 by $1,731, resulting in a derivative liability of $12,217 at March 8, 2016.

 

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			$	0.83			$	1.69				507%				0.0002
12/31/2015		$	13,948				0.003			$	0.04			$	0.08				533%				0.0014
3/8/2016		$	12,217				0.003			$	0.03			$	0.05				569%				0.0027

 

As of March 31, 2017, the principal and accrued interest of Note 5 were paid in full.

 

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 liability 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. The derivative liabilities is reclassified as additional paid in capital due to the conversion price become fixed price as of January 1, 2016.

 

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 March 31, 2017, 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 $250 and $200 during the three months ended March 31, 2017 and 2016, respectively. The accrued interest of Note 6 was $1,609 and $1,359 as of March 31, 2017 and December 31, 2016, respectively.

 

On February 9, 2016, the Company entered into a 15% convertible line of credit (“Note 7”) with an unrelated entity in the amount up to $50,000. On February 9, 2016, the Company received $17,500 cash for the line of credit, matured on February 9, 2017, and unsecured. Note 7 is convertible into common shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing price on the primary trading market on which Company's common stock is quoted for the last five trading days prior to the conversion date, whichever is lower. The Company determined that the conversion features contained in Note 7 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 Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.

 

 

 

 

 

 

The table below sets forth the assumptions for Binomial-Lattice valuation model on December 31, 2016 and March 31, 2017, respectively.

 

Reporting Date		Fair Value				Term (Years)				Assumed Conversion Price				Market Price on Issuance Date				Volatility Percentage				Risk-free Rate
12/31/2016		$	74,750				0.11			$	0.03			$	0.2250				221%				0.0062
3/31/2017		$	56,236				0.35			$	0.03			$	0.1767				173%				0.0091

 

Note 7 is currently in default and principal of $6,000 was converted into 200,000 shares of common stock at the end of 2016. During the three months ended March 31, 2017, the Company recorded interest expense, late fee and default interest related to Note 7 in total amount of $1,294 and amortization of debt discounts in amount of $3,500. There was no unamortized debt discount related Note 7 as of March 31, 2017.

 

On October 28, 2016, the Company received $25,000 cash pursuant to the terms of Note 7, matured on October 28, 2017 (“Note 7-1”). Note 7-1 is not convertible after 6 months of the effective date of this Note, which is April 28, 2017. Neither derivative liability accounting nor beneficial conversion feature will be considered before Note 7-1 is entitled for conversion. During the three months ended March 31, 2017, the Company recorded interest expense related to Note 7-1 in amount of $938.

 

On March 8, 2016, the Company entered into a 15% convertible promissory note in the principal of $50,000 (“Note 8”) with an unrelated entity for services rendered. Note 8 is matured on March 8, 2017, and unsecured. This Note is convertible into common shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing price on the primary trading market on which Company's common stock is quoted for the last five trading days prior to the conversion date, whichever is lower. The Company determined that the conversion features contained in Note 8 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 Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.

 

On February 16, 2017, a portion of principal of $6,000 was converted into 200,000 shares of common stock.

 

The table below sets forth the assumptions for Binomial-Lattice valuation model on December 31, 2016, February 16, 2017 and March 31, 2017, respectively.

 

Reporting Date		Fair Value				Term (Years)				Assumed Conversion Price				Market Price on Issuance Date				Volatility Percentage				Risk-free Rate
12/31/2016		$	325,001				0.18			$	0.03			$	0.2250				221%				0.0062
2/16/2017		$	62,000				0.05			$	0.03			$	0.3400				173%				0.0051
3/31/2017		$	215,164				0.35			$	0.03			$	0.1767				173%				0.0091

 

Note 8 was in default with principal balance of $44,000 as of March 31, 2017. During the three months ended March 31, 2017, the Company recorded late fee and default interest related to Note 8 in total amount of $6,608 and amortization of debt discounts in amount of $18,333. There was no unamortized debt discount related Note 8 as of March 31, 2017.

 

On September 12, 2016, the Company entered into a 10% convertible promissory note in the principal of $80,000 (“Note 9”) with an unrelated entity for services rendered. Note 9 is matured on September 12, 2017, and unsecured. This Note is convertible into common shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing bid price on the primary trading market on which Company's common stock is quoted for the last five trading days prior to the conversion date, whichever is lower. The Company determined that the conversion features contained in Note 9 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 Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.

 

 

 

 

 

The table below sets forth the assumptions for Binomial-Lattice valuation model on March 31, 2017.

 

Reporting Date		Fair Value				Term (Years)				Assumed Conversion Price				Market Price on Issuance Date				Volatility Percentage				Risk-free Rate
3/31/2017		$	391,208				0.45			$	0.03			$	0.1767				173%				0.0091

 

As a result, Note 9 was discounted in the amount of $80,000 and amortized over the remaining life of this Note. During the three months ended March 31, 2017, the Company recorded interest expenses related to Note 9 in amount of $2,000 and amortization of debt discounts in amount of $8,444. This resulted in an unamortized debt discount of $71,556 as of March 31, 2017.

 

On January 24, 2017, the Company entered into a 10% convertible promissory note in the principal of $80,000 (“Note 10”) with an unrelated entity for services rendered. Note 10 is matured on January 24, 2018, and unsecured. This Note is convertible into common shares of the Company at the conversion ratio of $0.25 or 50% discount of the lowest closing bid price on the primary trading market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower. However, Note 10 is not convertible after 6 months of the effective date of this Note, which is July 24, 2017. Neither derivative liability accounting nor beneficial conversion feature will be considered before Note 10 is entitled for conversion. During the three months ended March 31, 2017, the Company recorded interest expense related to Note 10 in amount of $1,467.

 

On January 24, 2017, the Company entered into a 15% convertible line of credit (“Note 11”) with an unrelated entity in the amount up to $250,000. On January 27, 2017, the Company received $50,000 cash for the line of credit, matured on January 27, 2018, and unsecured. Note 11 is convertible into common shares of the Company at the conversion ratio of $0.25 or 50% discount of the lowest closing price on the primary trading market on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower. However, Note 11 is not convertible after 6 months of the effective date of this Note, which is July 27, 2017. Neither derivative liability accounting nor beneficial conversion feature will be considered before Note 11 is entitled for conversion. During the three months ended March 31, 2017, the Company recorded interest expense related to Note 11 in amount of $1,313.

 

On February 21, 2017, the Company received $25,000 cash pursuant to the terms of Note 11, matured on February 21, 2018 (“Note 11-1”). Note 11-1 is not convertible after 6 months of the effective date of this Note, which is August 21, 2017. Neither derivative liability accounting nor beneficial conversion feature will be considered before Note 11-1 is entitled for conversion. During the three months ended March 31, 2017, the Company recorded interest expense related to Note 11-1 in amount of $396.

 

On March 16, 2017, the Company received $40,000 cash pursuant to the terms of Note 11, matured on March 16, 2018 (“Note 11-2”). Note 11-2 is not convertible after 6 months of the effective date of this Note, which is September 16, 2017. Neither derivative liability accounting nor beneficial conversion feature will be considered before Note 11-2 is entitled for conversion. During the three months ended March 31, 2017, the Company recorded interest expense related to Note 11-2 in amount of $250.

 

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 March 31, 2017 and December 31, 2016, respectively. The Company recorded interest expense related to Debenture 1 in amount of $4,500 and $4,500 during the three months ended March 31, 2017 and 2016, 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 March 31 and December 31, 2016, respectively. The Company recorded interest expense related to Debenture 1 in amount of $450 and $450 during the three months ended March 31, 2017 and 2016, respectively.

 

 

 

 

 

Resulting from the tainted issue by the derivative financial instrument of the convertible notes, The Company determined that the conversion features contained in Debenture 1 and Debenture 2 carrying value represents an embedded derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.

 

The table below sets forth the assumptions for Binomial-Lattice valuation model on December 31, 2016 and March 31, 2017, respectively.

 

Reporting Date		Fair Value				Term (Years)				Assumed Conversion Price				Market Price on Issuance Date				Volatility Percentage				Risk-free Rate
12/31/2016		$	1,072,513				0.50			$	0.03			$	0.2250				221%				0.0062
3/31/2017		$	806,863				0.35			$	0.03			$	0.1767				173%				0.0091

 

The following is a schedule showing the future minimum loan payments in the future 5 years.

 

Year ending December 31,
	2017			$	335,500
	2018			$	195,000

 

9. FAIR VALUE MEASUREMENT

 

The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.

 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

 

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the financial statements.

 

 

 

 

 

 

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

 

As of March 31, 2017 and December 31, 2016, the Company did not have any items that would be classified as level 1 or 2 disclosures.

 

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in note 9. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note 9 are that of volatility and market price of the underlying common stock of the Company.

As of March 31, 2017 and December 31, 2016, the Company did not have any derivative instruments that were designated as hedges.

 

The derivative liability as of March 31, 2017, in the amount of $1,469,471 has a level 3 classification.

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2017:

 

		Debt Derivative
Balance, December 31, 2016		$	–
Total (gains) losses
Initial fair value of debt derivative at note issuance			1,472,264
Mark-to-market at March 31, 2017:			(2,793	)
Transfers out of Level 3 upon conversion or payoff of notes payable			–
Balance, March 31, 2017		$	1,469,471
Net gain for the period included in earnings relating to the liabilities held during the period ended March 31, 2017		$	20,793

 

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. During the period ended March 31, 2017, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.

 

10. LINE OF CREDIT

 

On December 28, 2016, the Company entered into an unsecured Business Line of Credit Agreement with Fundation Group LLC (“Fundation”), pursuant to which the Company was allowed to take a draw from Fundation up to $20,000 from time to time. The Line of Credit bears interest at a rate of 11.49% per annum, subject to increase or decrease with 90 days notice. There was an initial closing fee of $500 and a 2% draw fee on subsequent draws. Monthly principal and interest payments are due and the line is due in full in 18 months from the latest draw. The outstanding principal and interest will be amortized over 18 months. As of March 31, 2017 and December 31, 2016, the Company had balance of $18,781 and $10,000, respectively.

 

11. 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 2016 and 2015. As of March 31, 2017 and December 31, 2016, 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 $42,402 and $41,783, respectively.

 

 

 

 

 

12. 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 three months ended March 31, 2017 and 2016 due to net loss during the periods.

 

The following table sets forth the computation of basic net loss per share for the periods indicated:

 

		For the three months ended
		March 31, 2017				March 31, 2016
Numerator:
Net (loss)		$	(526,379	)		$	(203,862	)
Denominator:
Weighted-average shares outstanding - Basic and Diluted			30,153,144				9,528,026
Basic and Diluted earnings (loss) per share		$	(0.02	)		$	(0.02	)

 

This does not include the potential dilutive effect if all exercisable warrants were exercised or conversions of convertible notes and convertible preferred stock as described below:

 

Principal conversion			7,028,696
Interest conversion			8,356,189
Warrants			200,000
Preferred Stock conversion			359,196,019
Total			367,752,208

 

13. CAPITAL STOCK

 

During the three months ended March 31, 2017, the Company filed Amended Articles of Incorporation with the Secretary of State of Florida to amend the rights and privileges for series of Preferred Stock, and to authorize the issuance of Series I, F1, G1, H1, J1 and K1 Preferred Stock, which was effective on April 26, 2017.

 

Series A Preferred Stock

 

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 was issued and outstanding as of March 31, 2017. 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

 

The Company has designated 3,000,000 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 3,003,202 shares of Series B preferred stock were issued and outstanding as of March 31, 2017. 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. Series B is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series B converts to 5 shares of Common Stock. 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 three months ended March 31, 2017, 1,406,829 shares of Series B Preferred Stock were converted into 7,034,145 shares of Common Stock of the Company per the preferred shareholder’s instruction.

 

On March 31, 2017, the Company issued 24,000 shares of Series B Preferred Stock to settle legal expenses of $60,000. Based on the price of $.9075 per share for the Series B Preferred Stock, which was determined by the market price of common stock at $.1815 per share on the issuance date multiplied by the conversion ratio of 1:5, the fair value of the stock issuance of Series B Preferred Stock was $21,780, resulting in gain from extinguishment of debt in amount of $38,220.

 

During the three months ended March 31, 2016, 72,718 shares of Series B Preferred Stock were converted into 363,589 shares of Common Stock of the Company per the preferred shareholder’s instruction.

 

Series C Preferred Stock

 

The Company has designated 500 shares of preferred stock as Series C Preferred Stock (“Series C”), with a par value of $.001 per share, of which 117 shares were issued and outstanding as of March 31, 2017. 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 three months ended March 31, 2017, 1 share of Series C Preferred Stock were converted into 100,000 shares of Common Stock of the Company per the preferred shareholder’s instruction.

 

Blank Check Preferred Stock

 

As of March 31, 2017, the Company has designated 100,000,000 shares of Blank Check Preferred Stock, of which 5,921,401 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 94,078,599 as of March 31, 2017.

 

Series D Preferred Stock

 

The Company has designated 800,000 shares of preferred stock as Series D Preferred Stock (“Series D”), with a par value of $.001 per share, of which 400,000 shares were issued and outstanding as of March 31, 2017. Series D is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series D converts to 5 shares of Common 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 during the three months ended March 31, 2017 and 2016.

 

 

 

 

 

Series E Preferred Stock

 

The Company has designated 1,000,000 shares of preferred stock as Series E Preferred Stock (“Series E”), with a par value of $.001 per share, of which 241,199 shares were issued and outstanding as of March 31, 2017. Series E is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series E converts to 5 shares of Common 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 during the three months ended March 31, 2017 and 2016.

 

Series F Preferred Stock

 

The Company has designated 800,000 shares of preferred stock as Series F Preferred Stock (“Series F”), with a par value of $.001 per share, of which 280,069 shares were issued and outstanding as of March 31, 2017. Series F is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series F converts to 5 shares of Common Stock.

 

The Company has designated 800,000 shares of preferred stock as Series F1 Preferred Stock (“Series F1”), with a par value of $.001 per share, of which 140,754 shares were issued and outstanding as of March 31, 2017. Series F1 is “non-Voting stock”. Each one share of Series F1 converts to 5 shares of Common 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 F-1 Preferred Stock (Series F-1”), 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 three months ended March 31, 2017, 31,997 share of Series F1 Preferred Stock were converted into 159,985 shares of Common Stock of the Company per the preferred shareholder’s instruction.

 

There was no change in Series F and F1 Preferred Stock during the three months ended March 31, 2016.

 

Series G Preferred Stock

 

The Company has designated 20,000,000 shares of preferred stock as Series G Preferred Stock (“Series G”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series G is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series G converts to 1.25 shares of Common Stock.

 

The Company has designated 10,000,000 shares of preferred stock as Series G1 Preferred Stock (“Series G1”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series G1 is “non-Voting stock”. Each one share of Series G1 converts to 1.25 shares of Common Stock.

There was no change in Series G and G1 Preferred Stock during the three months ended March 31, 2017 and 2016.

 

 

 

 

Series H Preferred Stock

 

The Company has designated 4,859,379 shares of preferred stock as Series H Preferred Stock (“Series H”), with a par value of $.001 per share, of which 4,859,379 shares were issued and outstanding as of March 31, 2017. Series H is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series H converts to 1.25 shares of Common Stock.

 

The Company has designated 3,000,000 shares of preferred stock as Series H1 Preferred Stock (“Series H1”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series H1 is “non-Voting stock”. Each one share of Series H1 converts to 1.25 shares of Common Stock.

 

On August 10, 2016, the Company completed the acquisitions of FDR Enterprises, Inc.; Refreshment Concepts, LLC; and Repicci’s Franchise Group, LLC. (collectively referred to as “Repicci’s Group”). Pursuant to the acquisition agreement, the Company agreed to issue 4,859,379 shares of Series H Preferred Stock as consideration for the acquisition of Repicci’s Group. The combined book value of Repicci’s Group was $(203,622). Based on the price of $.15 per share for the Series H Preferred Stock, which was determined by the market price of common stock at $.12 per share on the acquisition date multiplied by the conversion ratio of 1:1.25, the fair value of the stock issuance of Series H Preferred Stock was $728,907, resulting in the goodwill of $932,529. The 4,859,379 shares of Series H Preferred Stock were issued during the three months ended March 31, 2017.

 

There was no change in Series H and H1 Preferred Stock during the three months ended March 31, 2016.

 

Series I Preferred Stock

 

The Company has designated 20,000,000 shares of preferred stock as Series I Preferred Stock (“Series I”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series H is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series I converts to 1.50 shares of Common Stock.

 

During the three months ended March 31, 2017, one investor submitted a subscription agreement to the Company regarding the purchase of 29,412 shares of the Company’s Series I Preferred Stock by cash payment of $10,000, which was collected during the first quarter of 2017. The transaction was independently negotiated between the Company and the investor. The proceeds from the subscription agreement mitigated the Company’s cash pressure in short term.

 

The 29,412 shares of Series I Preferred Stock was not issued as of March 31, 2017. Accordingly, the Company recorded Series I preferred shares to be issued in amount of $10,000 as of March 31, 2017.

 

Series J Preferred Stock

 

The Company has designated 10,000,000 shares of preferred stock as Series J Preferred Stock (“Series J”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series J is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series J converts to 1.25 shares of Common Stock.

 

The Company has designated 7,500,000 shares of preferred stock as Series J1 Preferred Stock (“Series J1”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series J1 is “non-Voting stock”. Each one share of Series J1 converts to 1.25 shares of Common Stock.

 

There was no change in Series J and J1 Preferred Stock during the three months ended March 31, 2017 and 2016.

 

 

 

 

 

Series K Preferred Stock

 

The Company has designated 9,607,840 shares of preferred stock as Series K Preferred Stock (“Series K”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series K is awarded “Voting Right” at the ratio of 1 vote per share owned. Each one share of Series K converts to 1.25 shares of Common Stock.

 

The Company has designated 35,000,000 shares of preferred stock as Series K1 Preferred Stock (“Series K1”), with a par value of $.001 per share, of which 0 share was issued and outstanding as of March 31, 2017. Series K1 is “non-Voting stock”. Each one share of Series K1 converts to 1.25 shares of Common Stock.

There was no change in Series K and K1 Preferred Stock during the three months ended March 31, 2017 and 2016.

 

Common Stock

 

During the three months ended March 31, 2017, the Company issued 250,000 shares of Common Stock to a consultant for consulting services related to marketing and business development. 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 $.235 per share. Accordingly, the Company recognized stock based compensation of $58,750 to the consolidated statements of operations for the three months ended March 31, 2017.

 

During the three months ended March 31, 2017, the note holder converted $2,785 principal, $1,000 processing cost reimbursement and $102 accrued interest into 777,400 shares of common stock at a conversion price of $0.005 per share.

 

During the three months ended March 31, 2017, the note holder converted $6,000 principal into 200,000 shares of common stock at a conversion price of $0.03 per share.

 

On January 24, 2017, the Company issued 173,585 shares of Common Stock to settle $34,717 due to the prior owner of Repicci’s Franchise Group LLC, pursuant to the Acquisition Agreement, dated August 10, 2016. 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 $0.24 per share, resulting in loss from extinguishment of debt in amount of $6,943.

 

On January 24, 2017, the Company issued 2,010,490 shares of Common Stock to settle $402,098 due to the prior owner of Refreshment Concepts LLC, pursuant to the Acquisition Agreement, dated August 10, 2016. 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 $0.24 per share, resulting in loss from extinguishment of debt in amount of $80,420.

 

On March 20, 2017, the Company issued 60,000 shares of Common Stock to settle consulting fees of $15,000. 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 $0.1965 per share, resulting in gain from extinguishment of debt in amount of $3,210.

 

During the three months ended March 31, 2017, one investor submitted a subscription agreement to the Company regarding the purchase of 100,000 shares of Common Stock by cash payment of $10,000. The transaction was independently negotiated between the Company and the investor. The proceeds from the subscription agreement mitigated the Company’s cash pressure in short term.

 

 

 

 

14. WARRANTS

 

Pursuant to a consulting agreement with an unrelated party, dated February 10, 2017, the Company agreed to grant total 800,000 warrants to a consultant for consulting services related to marketing and business development. The initial allotment of 200,000 warrants were granted during the three months ended March 31, 2017. The fair value of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions for Black-Scholes valuation model on February 10, 2017.

 

Reporting Date		Fair Value				Term (Years)				Exercise Price				Market Price on Grant Date				Volatility Percentage				Risk-free Rate
2/10/2017		$	47,000				3			$	0.50			$	0.235				535%				0.0147

 

Accordingly, the Company recorded warrant expenses of $47,000 during the three months ended March 31, 2017.

 

The following tables summarize all warrant outstanding as of March 31, 2017, and the related changes during this period.

 

		Number of Warrants				Weighted Average Exercise Price
Stock Warrants
Balance at January 1, 2017			0			$	0
Granted			200,000				0.50
Exercised			0				0
Expired			0			$	0
Balance at March 31, 2017			200,000				0.50
Warrants Exercisable at March 31, 2017			200,000			$	0.50

 

15. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company had operating leases of $58,708 and $76,500 for the three months ended March 31, 2017 and 2016, respectively, consisting of the followings. 

 

		For the three months ended
		March 31, 2017				March 31, 2016
Restaurants		$	33,800			$	35,536
Lot			17,381				11,324
Office			7,527				29,308
Equipment Rentals			0				332
Total		$	58,708			$	76,500

 

16. SEGMENT REPORTING

 

The Company has four reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related Information: (1) Mobile home lease (We Three), (2) Company-owned Pizza Restaurants (Romeo’s NY Pizza), and (3) “Repicci’s Italian Ice” franchised stores. These segments are a result of differences in the nature of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items.

 

The mobile home lease segment establishes mobile home business as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, the Company will provide a financial leasing option with "0" interest on the lease providing a "lease to own" option for their family home.

 

 

 

 

 

The Company-owned Pizza Restaurant segment includes sales and operating results for all Company-owned restaurants. Assets for this segment include equipment, furniture and fixtures for the Company-owned restaurants.

 

Repicci’s Group offers franchisees for the operation of “Repicci’s Italian Ice” franchises. These franchised stores specialize in the distribution of nonfat frozen confections.

 

The number of franchise agreements in force as of December 31, 2016 was 48, five of which are “mobile” unites.

 

The Company obligates itself to each franchisee to perform the following services:

 

1.

Designate an exclusive territory;

2.

Provide guidance and approval for selection and location of site;

3.

Provide initial training of franchisee and employees;

4.

Provide a company manual and other training aids.

 

The Company has developed a new “Mobile Franchise Opportunity”. The total investment for the new opportunity ranges from $155,600 to $165,000, as follows: $125,000 for a new Mercedes Sprinter Van, customized for the franchisee, $25,000 for the franchise fee, the balance for product. The Company’s obligation is as above, except for Item #3, training is specific to the new opportunity.

 

		For the three months ended
		March 31, 2017				March 31, 2016
Revenues:
We Three		$	46,010			$	40,613
Romeo’s NY Pizza			134,237				214,593
Repicci’s Group			260,653				–
Others			3,745				18,090
Consolidated revenues		$	444,645			$	273,296
Cost of Sales:
We Three		$	33,621			$	29,970
Romeo’s NY Pizza			94,303				106,903
Repicci’s Group			151,305				–
Others			–				–
Consolidated cost of sales		$	279,229			$	136,873
Income (Loss) before taxes
We Three		$	15,043			$	32,383
Romeo’s NY Pizza			(38,954	)			2,349
Repicci’s Group			37,598				–
Others			(540,066	)			(238,594	)
Consolidated loss before taxes		$	(526,379	)		$	(203,862	)

 

		As of				As of
		March 31, 2016				December 31, 2016
Assets:
We Three		$	231,476			$	216,433
Romeo’s NY Pizza			(6,757	)			19,241
Repicci’s Group			519,508				411,606
Others			1,828,428				1,824,729
Combined assets		$	2,572,655			$	2,472,009

 

 

 

 

 

 

16. SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to March 31, 2017 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.

 

Notes payable:

 

On April 6, 2017, the Company entered into a 15% convertible promissory note with an unrelated entity in the amount of $50,000. The Company received $50,000 cash pursuant to the terms of this Note as of the date of this Report.

 

On April 21, 2017, the Company entered into a Securities Purchase Agreement with an unrelated entity, pursuant to which the purchasers agreed to pay the Company an aggregate of up to $600,000 for an aggregate of up to 660,000 in Principal Amount of Notes. The first tranche of $330,000 was closed simultaneously (“Note 13-1”). Note 13-1 is convertible into common shares of the Company at the conversion ratio of 60% of the lowest trading price on the primary trading market on which Company's common stock is quoted for the last ten trading days prior to the conversion date. In addition, in connection with this Securities Purchase Agreement, the Company granted purchasers 2,357,143 warrants with exercise price of $0.14 per share (“Warrants A”), 1,885,715 warrants with exercise price of $0.175 per share (“Warrants B”) and 1,571,429 warrants with exercise price of $0.21 per share (“Warrants C”). Warrants A, B and C are exercisable on the grant date and expire in three years, each of which represents 100% of the Principal Amount at the Closing divided by the respective exercise price.

 

 

 

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements including the related notes, and the other financial information included in this report. For ease of reference, “the Company”, “we,” “us” or “our” refer to Cardiff International, Inc., and Legacy Card Company, Inc. (d/b/a: Mission Tuition) unless otherwise stated.

 

Cautionary Statement Concerning Forward-Looking Information

 

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of Cardiff International, Inc. and other matters. Statements in this report that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenue and income of Cardiff International, Inc., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of Cardiff International, Inc. on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), that may affect the operations, performance, development and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company assumes no obligation and does not intend to update these forward looking statements, except as required by law.

 

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 a holding company and have acquired several additional businesses; We Three, Inc. d/b/a Affordable Housing Initiative, Romeo’s NY Pizza, Edge View Properties, FDR Enterprises, Inc. Repicci’s Franchise Group, and Refreshment Concepts.

 

Future sales will no longer depend on missiontuition.com, but will be derived from our new acquisitions. We cannot guarantee we will ever develop substantial revenue from our subsidiary companies and there is no assurance that we will achieve profitability.

 

 

 

 

 

Because we had incurred operating losses from our inception, we still consider ourselves a going concern.

 

For the fiscal years ended December 31, 2016 and December 31, 2015, our accountants have expressed concern about our ability to continue as a going concern due to our continued net losses and need for additional capital. 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. Also, we expect approximately $600,000 in operating costs to be incurred over the next twelve months. We cannot guarantee that we will be successful in generating sufficient revenues or obtaining other financing in the future to cover these operating costs. Additionally, financing may not be available on terms favorable to the Company. Failure to generate sufficient revenues may cause us to go out of business.

 

Since we are an early stage company that has generated minimal revenue, an investment in our shares 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. 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.

 

Future acquisitions are important to our success. We may not be able to successfully integrate our acquisitions into our operations

 

The acquisition of new companies is central to our business model and critically important to our success. Although we generally seek companies that have positive cash flows, we cannot be certain that the company’s acquired will remain cash flow positive and could possibly lose 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.

 

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.

 

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.

 

 

 

 

 

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.

 

Our 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.

 

Our stock has limited liquidity.

 

Our common stock trades on the OTCQB market. Trading volume in our shares may be sporadic and the price could experience volatility. If adverse market conditions exist, you may have difficulty selling your shares.

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.

 

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.

 

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.

 

Overview

 

Cardiff International, Inc., is currently structured as a company with holdings of various companies.

 

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.

 

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).

 

 

 

 

 

REPICCI’S GROUP: Repicci’s Group offers franchisees for the operation of “Repicci’s Italian Ice” franchises. These franchised stores specialize in the distribution of nonfat frozen confections.

 

The number of franchise agreements in force as of December 31, 2016 was 48, five of which are “mobile” unites.

 

The Company obligates itself to each franchisee to perform the following services:

 

1.	Designate an exclusive territory;

2.	Provide guidance and approval for selection and location of site;

3.	Provide initial training of franchisee and employees;

4.	Provide a company manual and other training aids.

 

The Company has developed a new “Mobile Franchise Opportunity”. The total investment for the new opportunity ranges from $155,600 to $165,000, as follows: $125,000 for a new Mercedes Sprinter Van, customized for the franchisee, $25,000 for the franchise fee, the balance for product. The Company’s obligation is as above, except for Item #3, training is specific to the new opportunity.

 

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

 

Under Financial Accounting Standard Board (“FASB”), U.S. GAAP, Accounting Standards Codification, “Derivatives and Hedging”, ASC Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

 

The Company’s convertible notes have been evaluated with respect to the terms and conditions of the conversion features contained in the notes to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. When the Company determined that the conversion features contained in the notes’ carrying value represents a freestanding derivative instrument that meets the requirements for liability classification under ASC 815, 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 Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.

 

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.

 

 

 

 

Results of Operations

 

We had revenues in the amount of $444,645 for the three months ended March 31, 2017 compared to revenues of $273,296 for the three months ended March 31, 2016, an increase of 63%. Since we had various acquisitions over the past year, the increase in revenues is primarily attributable experience full revenue quarter cycles for those acquisitions. A revenue breakdown by segment is as follows:

 

	For the three months ended
		March 31,				March 31,
		2017				2016
Revenues:
We Three		$	46,010			$	40,613
Romeo’s NY Pizza			134,237				214,593
Repicci’s Group			260,653				–
Others			3,745				18,090
Consolidated revenues		$	444,645			$	273,296

 

The decrease in revenues from sales of pizza during this reporting period were attributable to the decrease in number of stores. We have one pizza store open in the first quarter of 2017. The impact from such decrease was offset by the revenues from Repicci’s Group, which was acquired on August 10, 2016. The results of the operations for Repicci’s Group have been included in the consolidated financial statements since the dates of the acquisitions.

 

We had costs of sales in the amount of $279,229 for the three months ended March 31, 2017 compared to costs of sales in the amount of $136,873 for the three months ended March 31, 2016. The costs of sales for the periods related to each segment are as follows:

 

		For the three months ended
		March 31,				March 31,
		2017				2016
Cost of Sales:
We Three		$	33,621			$	29,970
Romeo’s NY Pizza			94,303				106,903
Repicci’s Group			151,305				–
Others			–				–
Consolidated cost of sales		$	279,229			$	136,873

 

The increase in cost of sales was primarily attributable to the acquisitions of Repicci’s Group. The results of the operations for Repicci’s Group have been included in the consolidated financial statements since the dates of the acquisitions.

 

We had operating expenses of $610,741 for the three months ended March 31, 2017 compared to operating expenses of $330,833 for the three months ended March 31, 2016. The increase in operating expenses during the period was primarily due to our increased level of operations due to our acquisitions and also due to an increase in professional fees associated with auditing our acquisitions. Additionally, stock based compensation increased to $58,750 for the period compared to $36,135 for the same period in 2016.

 

Inflation

 

We do not believe that inflation will negatively impact our business plans.

 

 

 

 

Liquidity and Capital Resources

 

Since inception, the principal sources of cash have been funds raised from the sale of common stock, advances from shareholders, and loans in the form of debentures and convertible notes. At March 31, 2017, we had $164,107 in cash and cash equivalents and total assets amounted to $2,572,655. At December 31, 2016 we had $62,948 of cash and cash equivalents, and total assets amounted to $2,472,009.

 

Net cash used in operating activities was $23,388 and $23,214 for the three months ended March 31, 2017 and 2017, respectively. The negative cash flows from operating activities during the periods were primarily attributable to the net losses of $526,379 and $203,862, respectively. These amounts were partially offset by increases in accounts payable, accrued expenses and accrued officer salaries during the 2017 period. In the 2016 period, the negative cash flows from operating activities were partially offset by increases in accrued expenses and accrued officer salaries.

 

Net cash used in investing activities was $7,041 for the three months ended March 31, 2017, compared to net cash provided by investing activities of $14,245 for the same period in 2016. Cash flows provided by and used in investing activities for both periods were due to fixed asset purchases and sales related to our mobile home leasing business.

 

Net cash provided by financing activities was $131,588 and $36,158 for three months ended March 31, 2017 and 2016, respectively. The cash flows from financing activities during the three months ended March 31, 2017 were attributable to proceeds of $20,000 from sales of stock and proceeds of $115,000 from the issuances of convertible notes payable. For the 2016 period we had cash proceeds of $19,697 from related party loans and $17,500 from the sales of common stock.

 

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 an equity transaction.

 

Off Balance Sheet Arrangements

 

As of March 31, 2017, we had no off balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable

 

Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures

 

(a)

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,+ summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer has concluded that these disclosure controls and procedures are ineffective. There have been no changes to our disclosure controls and procedures during the three months ended March 31, 2017.

 

There has been no change in our internal control over financial reporting during the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.

 

(b)

Changes in Internal Controls

 

There were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There have been no events under any bankruptcy act, any criminal proceedings and any judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the last five years.

 

Item 1A. Risk Factors

 

There have been no material changes in our risk factors from those disclosed in the Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Submission of Matters to Vote of Security Holders

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instances Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

SIGNATURE

 

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

Dated: September 5, 2017	CARDIFF INTERNATIONAL, INC.
	By:	/s/ Alex Cunningham
		Alex Cunningham Chief Executive Officer and Principal Accounting Officer
	By:	/s/ Daniel Thompson
		Daniel Thompson
		Chairman