Capital Financial (CPFH) 10-Q 16 May 19 2019 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 15, 2019
Document And Entity Information
Entity Registrant Name	Capital Financial Holdings, Inc.
Entity Central Index Key	0000944696
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		1,241
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
CURRENT ASSETS
Cash and cash equivalents	$ 1,743,589	$ 1,833,079
Accounts receivable (net of an allowance for doubtful accounts of $24,000 for March 31, 2019 and December 31, 2018)	1,576,127	1,800,704
Prepaids	21,326	30,587
Total current assets	3,341,042	3,664,370
PROPERTY AND EQUIPMENT
Land	98,409	98,409
Building	1,102,443	1,102,148
Furniture, fixtures and equipment	349,454	350,429
Less accumulated depreciation	(360,389)	(343,800)
Net property and equipment	1,189,917	1,207,186
OTHER ASSETS
Deferred tax asset - non-current	249,636	270,414
Total other assets	249,636	270,414
TOTAL ASSETS	4,780,595	5,141,970
CURRENT LIABILITIES
Accounts payable and accrued expenses	176,555	302,512
Commissions payable	1,849,739	2,046,263
Total current liabilities	2,026,294	2,348,775
NON CURRENT LIABILITIES
Building mortgage	633,005	641,169
Loss contingency	555,000	555,000
Total noncurrent liabilities	1,188,005	1,196,169
TOTAL LIABILITIES	3,214,299	3,544,944
STOCKHOLDERS' EQUITY
Series A preferred stock - 5,000,000 shares authorized, $.0001 par value; 3,050,000 and 3,050,000 shares issued and outstanding, respectively	305	305
Additional paid in capital - series A preferred stock	1,524,695	1,524,695
Common stock - 1,000,000,000 shares authorized, $.0001 par value; 1,241 and 1,241 shares issued and outstanding, respectively	1,241	1,241
Additional paid in capital - common stock	10,221,515	10,221,515
Accumulated deficit	(8,881,460)	(8,850,730)
Less Treasury stock, 3,050,000 preferred shares at $0.4262	(1,300,000)	(1,300,000)
TOTAL STOCKHOLDERS' EQUITY	1,566,296	1,597,026
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 4,780,595	$ 5,141,970

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
CURRENT ASSETS
Allowance for doubtful accounts	$ 24,000	$ 24,000
STOCKHOLDERS' EQUITY
Series A Preferred stock, par value	$ 0.0001	$ 0.0001
Series A Preferred stock shares authorized	5,000,000	5,000,000
Series A Preferred stock shares issued	3,050,000	3,050,000
Series A Preferred stock shares outstanding	3,050,000	3,050,000
Common stock, par value	$ 0.0001	$ 0.0001
Common stock shares authorized	1,000,000,000	1,000,000,000
Common stock shares issued	1,241	1,241
Common stock shares outstanding	1,241	1,241
Treasury stock	3,050,000	3,050,000
Treasury stock, par value	$ 0.4262	$ 0.4262

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
OPERATING REVENUES
Fee income	$ 507,105	$ 450,012
Commissions	2,888,937	3,474,364
Other income	11,589	0
Other fee income	23,709	21,109
Total revenue	3,431,340	3,945,485
EXPENSES
Compensation and benefits	285,401	318,611
Commission expense	2,834,739	3,250,644
General and administrative expenses	283,177	222,830
Depreciation	16,589	15,385
Total operating expenses	3,419,906	3,807,470
INCOME (LOSS) OF CONTINUING OPERATIONS	11,434	138,015
OTHER INCOME/EXPENSES
Interest (expense)	(7,791)	(8,173)
Interest income	155	0
Total other income (expense)	(7,636)	(8,173)
INCOME (LOSS) OF CONTINUING OPERATIONS BEFORE INCOME TAX	3,798	129,842
INCOME TAX BENEFIT (EXPENSE)	(34,528)	(46,449)
NET INCOME (LOSS)	$ (30,730)	$ 83,393
NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED:
Continuing	$ (25)	$ 67
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted	1,241	1,241

CONDENSED CONSOLIDATED STATEM_2

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ (30,730)	$ 83,393
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation	16,589	15,387
Provision (benefit) for deferred income taxes	0	(52,956)
Effects on operating cash flows due to changes in:
Accounts receivable	224,577	100,172
Income taxes payable (receivable)	20,778	46,449
Prepaids	9,261	(28,561)
Accounts payable	(125,957)	(53,865)
Commissions payable	(196,524)	(81,638)
Other liabilities	0	6,694
Net cash provided by (used for) operating activities	(82,006)	35,075
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal (Purchase) of property and equipment	680	3,235
Reduction in Mortgage Debt	(8,164)	(7,783)
Net cash used for investing activities	(7,484)	(4,548)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by (used for) financing activities
NET [INCREASE/DECREASE] IN CASH AND CASH EQUIVALENTS	(89,490)	30,527
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	1,833,079	1,794,896
CASH AND CASH EQUIVALENTS AT END OF PERIOD	1,743,589	1,825,423
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for: Interest	7,791	8,173
Cash paid during the year for: Income taxes	0	0
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest on building mortgage	$ 7,791	$ 8,173

CONSOLIDATED STATEMENT OF CHANG

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - 3 months ended Mar. 31, 2019 - USD ($)	Accumulated Deficit	Common stock and additional paid-in capital	Additional Paid In Capital	Treasury stock and additional paid-in capital	Total
Balance, beginning of year at Dec. 31, 2018	$ (8,850,730)	$ 1,241	$ 10,221,515	$ 225,000	$ 1,597,026
Net income (loss)	(30,730)				(30,730)
Balance, end of year at Mar. 31, 2019	$ (8,881,460)	$ 1,241	$ 10,221,515	$ 225,000	$ 1,566,296

1. BASIS OF PRESENTATION

1. BASIS OF PRESENTATION	3 Months Ended
	Mar. 31, 2019
Accounting Policies [Abstract]
NOTE 1 - BASIS OF PRESENTATION	The accompanying condensed consolidated financial statements of Capital Financial Holdings, Inc., a North Dakota corporation, and its subsidiary Capital Financial Services, Inc. (“CFS”) (collectively, the "Company"), included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the footnotes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2018, of Capital Financial Holdings, Inc., as filed with the SEC. The condensed consolidated balance sheet at December 31, 2018, contained herein, was derived from audited financial statements, but does not include all disclosures included in the Form 10-K and applicable under accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, but not required for interim reporting purposes, have been condensed or omitted. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which are of a normal, recurring nature) necessary for a fair presentation of the financial statements. The results of operations for the three months ended March 31, 2019, are not necessarily indicative of operating results for the entire year.

2. ACCOUNTING PRONOUNCEMENTS IS

2. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE	3 Months Ended
	Mar. 31, 2019
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
NOTE 2 - ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE	A summary of our significant accounting policies is included in Note 1 of our 2018 Form 10-K filed on April 15, 2019.

3. STOCK WARRANTS, STOCK SPLITS

3. STOCK WARRANTS, STOCK SPLITS, AND STOCK OPTIONS	3 Months Ended
	Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
NOTE 3 - STOCK WARRANTS, STOCK SPLITS, AND STOCK OPTIONS	The Company measures and records compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values. There were no compensation costs or deferred tax benefits recognized for stock-based compensation awards for the three months ended March 31, 2019 and 2018. Changes are due to the stock buyback and reverse stock split. Option activity for the twelve months ended December 31, 2018 and the three months ended March 31, 2019 was as follows: Number of Options Weighted Average Exercise Price per Share Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Outstanding on January 1, 2018 167 $ 4,538 $ 4,190 $ – Granted – – – Exercised – – – Cancelled – – – Outstanding on December 31, 2018 167 4,538 4,190 – Granted – – – Exercised – – – Canceled – – – Outstanding on March 31, 2018 167 $ 4,538 $ 4,190 $ - Exercisable options totaled 167 at December 31, 2018 and totaled 167 at March 31, 2019.

4. INCOME TAXES

4. INCOME TAXES	3 Months Ended
	Mar. 31, 2019
Income Tax Disclosure [Abstract]
NOTE 4 - INCOME TAXES	Deferred taxes arise because of different tax treatment between financial statement accounting and tax accounting, known as “temporary differences.” The Company records the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in future periods) and “deferred tax liabilities” (generally items for which the Company has received a tax deduction and has not yet been recorded in the consolidated statement of operations). Management reviews and adjusts those estimates annually based upon the most current information available. However, because the recoverability of deferred taxes is directly dependent upon the future operating results of the Company, actual recoverability of deferred taxes may differ materially from management’s estimates. At March 31, 2019, the Company has approximately $1,084,000 in federal net operation loss carry forward which begins to expire in 2036.

5. EARNINGS PER SHARE

5. EARNINGS PER SHARE	3 Months Ended
	Mar. 31, 2019
Earnings Per Share [Abstract]
NOTE 5 - EARNINGS PER SHARE	Basic earnings per share are computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common shares had been converted to common shares. The following reconciles amounts reported in the financial statements: Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 Numerator Denominator Per Share Amount Numerator Denominator Per Share Amount Net (Loss) Income of continuing operations $ (30,730 ) $ 83,393 Less: Preferred Stock Dividends – – Income of Continuing Operations Available to Common Shareholders – Basic and diluted Earnings per Share $ (30,730 ) $ 1,241 (25 ) $ 83,393 1,241 $ (67 ) Options and warrants to purchase 377 common shares at exercise prices between $3,500 and $14,300 were outstanding at March 31, 2019, but were not included in the computation of diluted earnings per share for the quarter ending March 31, 2019 and March 31, 2018, because their effect was anti-dilutive.

6. RULE 4110 (c) (1)

6. RULE 4110 (c) (1)	3 Months Ended
	Mar. 31, 2019
Rule 4110 C
NOTE 8 - RULE 4110 (c)(1)	The Company operates under the provision of FINRA Rule 4410 (c)(1) and, accordingly, the member is restricted from withdrawing equity capital for a period of one year from the date such equity capital is contributed, unless otherwise permitted by FINRA in writing. Subject to the requirements of paragraph (c)(2) of this Rule, this paragraph shall not preclude a member from withdrawing profits earned.

7. REGULATORY MATTERS

7. REGULATORY MATTERS	3 Months Ended
	Mar. 31, 2019
Regulatory Matters
NOTE 7 - REGULATORY MATTERS	The broker dealer (“BD”) segment of Capital Financial Services, Inc. is subject to periodic examinations by its regulators, the Financial Industry Regulatory Authority (“FINRA”) and the Securities Exchange Commission (“SEC”).

8. BUILDING PURCHASE

8. BUILDING PURCHASE	3 Months Ended
	Mar. 31, 2019
Building Purchase
NOTE 8 - BUILDING PURCHASE	On November 16, 2016, the Company closed on the acquisition of a commercial office building and associated property (the “Office Building”) located at 1801 Burdick Expressway West, Minot, North Dakota from Evanmark Enterprises, LLC, an entity unrelated to the Company. The contract purchase price for the Office Building was $975,000, exclusive of closing costs of $9,091, with all built-in fixtures and other furniture, fixtures and equipment in the building remaining with the property. The Company paid $509,091 at closing toward the purchase price of the Office Building with the remaining $475,000 of the purchase price financed by a commercial real estate loan from American Bank Center (“American Bank”) in the principal amount of $675,000, $475,000 of which is being applied to the purchase price of the Office Building and $200,000 of which was utilized for renovations to the building. Renovations to the building at cost of $221,264 were made in 2017 to bring the total cost of the land building to $1,195,355, and additional renovation costs of $5,202 and $295 were made in 2018 and 2019 to date to bring the total cost of the land and building to $1,200,852. The loan carries a fixed interest rate of 4.879% per annum for five (5) years with the rate to be adjusted at the end of the five (5) year period based on the Wall Street Journal Prime interest rate plus 1.759%. American Bank has a first priority mortgage on the Office Building.

9. SEGMENT REPORTING

9. SEGMENT REPORTING	3 Months Ended
	Mar. 31, 2019
Segment Reporting [Abstract]
NOTE 9 - SEGMENT REPORTING	The Company organizes its current business units into two reportable segments: broker dealer services and holding company. The broker-dealer services segment distributes securities and insurance products to retail investors through a network of registered representatives through its wholly-owned subsidiary, Capital Financial Services, Inc. (“CFS”), a Wisconsin corporation. The holding company encompasses cost associated with its office building, business development and acquisitions, dispositions of subsidiary entities and results of discontinued operations, dividend income and recognized gains or losses. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. As of, and for the three months ended, March 31, 2019 Holding Company Broker-Dealer Services Total Commissions and fee income $ – 3,396,042 3,396,042 Other fee income $ – 23,709 23,709 Interest expense $ 7,791 – 7,791 Depreciation $ 8,798 7,791 16,589 Income (loss) before income tax benefit (expense) $ (118,232 ) 122,030 3,798 Income tax benefit (expense) $ – (34,528 ) (34,528 ) Net income (loss) of continued operations $ (118,232 ) 87,502 (30,730 ) Segment assets of continued operations $ 1,508,638 3,271,957 4,780,595

10. LEGAL PROCEEDINGS

10. LEGAL PROCEEDINGS	3 Months Ended
	Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]
NOTE 10 - LEGAL PROCEEDINGS	The Company operates in a legal and regulatory environment that exposes it to potentially significant litigation risks. Issuers of certain alternative products sold by the Company are in Bankruptcy or may have other financial difficulties. As a result of such alleged failings of alternative products and the uncertainty of client recovery from the various product issuers, the Company is subject to multiple FINRA arbitration proceedings by customers. These proceedings include customer suits, investments alleged to be unsuitable, and bankruptcies and other issues brought by claimants. The Company vigorously contests the allegations of the various proceedings and believes that there are multiple meritorious legal and fact based defenses in these matters. Such cases are subject to many uncertainties, and their outcome is often difficult to predict, including the impact on operations or on the financial statements, particularly in the earlier stages of a case. The Company makes provisions for cases brought against it when, in the opinion of management after seeking legal advice, it is probable that a liability exists, and the amount can be reasonably estimated. Collectively these legal proceedings, when resolved are expected to be material to the Company’s financial statements. To protect against the currently known legal risks, including suitable expenses for defense and legal advice related to the legal proceedings, existing information and assessments at the time indicated the need to generate provisions for the contingency. For the year ended December 31, 2018, a sum of $555,000 has been reported for contingent liabilities, insofar as these can be adequately measured at this stage. No additional amount has been reported for the quarter ended March 31, 2019. The provisions recognized, the contingent liabilities disclosed and the other latent legal risks are partially subject to substantial estimation risks given the complexity of the individual factors and the fact that the independent and exhaustive investigations have not yet been completed.

11. SUBSEQUENT EVENTS

11. SUBSEQUENT EVENTS	3 Months Ended
	Mar. 31, 2019
Subsequent Events [Abstract]
Subsequent Events	The Company has evaluated subsequent events through the date the financial statements were available to be issued, May 8, 2019, and have not identified any significant subsequent events.

3. STOCK WARRANTS, STOCK SPLI_2

3. STOCK WARRANTS, STOCK SPLITS, AND STOCK OPTIONS (Tables)	3 Months Ended
	Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Option activity	Number of Options Weighted Average Exercise Price per Share Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Outstanding on January 1, 2018 167 $ 4,538 $ 4,190 $ – Granted – – – Exercised – – – Cancelled – – – Outstanding on December 31, 2018 167 4,538 4,190 – Granted – – – Exercised – – – Canceled – – – Outstanding on March 31, 2018 167 $ 4,538 $ 4,190 $ -

5. EARNINGS PER SHARE (Tables)

5. EARNINGS PER SHARE (Tables)	3 Months Ended
	Mar. 31, 2019
Earnings Per Share [Abstract]
Schedule of earnings per share	Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 Numerator Denominator Per Share Amount Numerator Denominator Per Share Amount Net (Loss) Income of continuing operations $ (30,730 ) $ 83,393 Less: Preferred Stock Dividends – – Income of Continuing Operations Available to Common Shareholders – Basic and diluted Earnings per Share $ (30,730 ) $ 1,241 (25 ) $ 83,393 1,241 $ (67 )

9. SEGMENT REPORTING (Tables)

9. SEGMENT REPORTING (Tables)	3 Months Ended
	Mar. 31, 2019
Segment Reporting [Abstract]
Schedule of segment reporting	As of, and for the three months ended, March 31, 2019 Holding Company Broker-Dealer Services Total Commissions and fee income $ – 3,396,042 3,396,042 Other fee income $ – 23,709 23,709 Interest expense $ 7,791 – 7,791 Depreciation $ 8,798 7,791 16,589 Income (loss) before income tax benefit (expense) $ (118,232 ) 122,030 3,798 Income tax benefit (expense) $ – (34,528 ) (34,528 ) Net income (loss) of continued operations $ (118,232 ) 87,502 (30,730 ) Segment assets of continued operations $ 1,508,638 3,271,957 4,780,595

3. STOCK WARRANTS, STOCK SPLI_3

3. STOCK WARRANTS, STOCK SPLITS, AND STOCK OPTIONS (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Number of options, Outstanding Beginning	167	167
Number of options, Granted	0	0
Number of options, Exercised	0	0
Number of options, Canceled	0	0
Number of options, Outstanding Ending	167	167
Weighted Average Exercise Price per Share, Beginning	$ 4,538	$ 4,538
Weighted Average Exercise Price per Share, Granted	0	0
Weighted Average Exercise Price per Share, Exercised	0	0
Weighted Average Exercise Price per Share, Canceled	0	0
Weighted Average Exercise Price per Share, Ending	4,538	4,538
Weighted Average Grant Date Fair Value, Beginning	4,190	4,190
Weighted Average Grant Date Fair Value, Granted	0	0
Weighted Average Grant Date Fair Value, Exercised	0	0
Weighted Average Grant Date Fair Value, Canceled	0	0
Weighted Average Grant Date Fair Value, Ending	$ 4,190	$ 4,190
Aggregate Intrinsic Value, Beginning	$ 0	$ 0
Aggregate Intrinsic Value, Ending	$ 0	$ 0

3. STOCK WARRANTS, STOCK SPLI_4

3. STOCK WARRANTS, STOCK SPLITS, AND STOCK OPTIONS (Details Narrative) - shares	Mar. 31, 2019	Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Exercisable options	167	167

4. INCOME TAXES (Details Narrat

4. INCOME TAXES (Details Narrative)	Mar. 31, 2019USD ($)
Income Tax Disclosure [Abstract]
Federal net operation loss carry forward	$ 1,084,000

5. EARNINGS PER SHARE (Details)

5. EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net (Loss) Income of continuing operations	$ (30,730)	$ 83,393
Less: Preferred Stock Dividends	0	0
Income of Continuing Operations Available to Common Shareholders	$ (30,730)	$ 83,393
Basic and diluted shares outstanding	1,241	1,241
Continuing Operations Earnings Per Share	$ (25)	$ 67

5. EARNINGS PER SHARE (Details

5. EARNINGS PER SHARE (Details Narrative)	Mar. 31, 2019$ / sharesshares
Options and warrants to purchase common stock, outstanding | shares	377
Minimum [Member]
Options and warrants exercise price	$ 3,500
Maximum [Member]
Options and warrants exercise price	$ 14,300

9. SEGMENT REPORTING (Details)

9. SEGMENT REPORTING (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Commissions and fee income	$ 3,396,042
Other fee income	23,709	$ 21,109
Interest expense	7,791	8,173
Depreciation	16,589	15,385
Income (loss) before income tax benefit (expense)	3,798	129,842
Income tax benefit (expense)	(34,528)	(46,449)
Net income (loss) of continued operations	(30,730)	$ 83,393
Segment assets of continued operations	4,780,595		$ 5,141,970
Holding Company
Commissions and fee income	0
Other fee income	0
Interest expense	7,791
Depreciation	8,798
Income (loss) before income tax benefit (expense)	(118,232)
Income tax benefit (expense)	0
Net income (loss) of continued operations	(118,232)
Segment assets of continued operations	1,508,638
Broker-Dealer Services
Commissions and fee income	3,396,042
Other fee income	23,709
Interest expense	0
Depreciation	7,791
Income (loss) before income tax benefit (expense)	122,030
Income tax benefit (expense)	(34,528)
Net income (loss) of continued operations	87,502
Segment assets of continued operations	$ 3,271,957