UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCD.C. 20549
FORM 10-Q
(Mark One)
☒
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022ended: March 31, 2023
ORor
☐
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ___________________________
Commission file number: File Number: 000-49709
Cardiff Lexington Corporation
(Name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter) |
Nevada | 84-1044583 | |
(State or other jurisdiction of | (I.R.S. Employer |
3200 Bel Air Drive, Las Vegas, NV | 89109 | |
(Address of principal executive | (Zip Code) |
844-628-2100
(Registrant’s telephone number, including area code)
844-628-2100 |
(Registrant’s telephone number, including area code) |
N/A
(Former name or former address and former fiscal year, if changed since last report)
N/A |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value
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 ☒ xNo ☐¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☒ xNo ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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:Act.
Large accelerated Filer ☐ | Accelerated Filer ☐ | |
Non-accelerated Filer ☒ | Smaller reporting company ☒ | |
Emerging | growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complyingcomply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ ¨No ☒ x
The numberAs of commonsJune 29, 2023, there were shares outstanding at January 5, 2023 is 824,796,735 with a par value of $0.001.common stock of the registrant issued and outstanding.
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND SCHEDULES
CARDIFF LEXINGTON CORPORATION
For the Three and Nine MonthsQuarterly Report on Form 10-Q
Period Ended September 30, 2022March 31, 2023
The following financial statements and schedules of the registrant are submitted herewith:TABLE OF CONTENTS
1 |
PART I
FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2 |
EXPLANATORY NOTE
This 10-Q Amendment is filed solely for the purpose of providing the interactive data files for inline XBRL.
PART I - FINANCIAL INFORMATION
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022MARCH 31, 2023 AND DECEMBER 31, 20212022
(UNAUDITED)
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Unaudited | Audited | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash | $ | 260,498 | $ | 595,987 | $ | 350,329 | $ | 226,802 | ||||||||
Accounts receivable-net | 6,829,160 | 4,948,796 | 7,446,416 | 6,604,780 | ||||||||||||
Prepaid and other current assets | 5,000 | 5,000 | 5,000 | 5,000 | ||||||||||||
Total current assets | 7,094,658 | 5,549,783 | 7,801,745 | 6,836,582 | ||||||||||||
Property and equipment, net of accumulated depreciation of $247,861 and $218,471, respectively | 222,114 | 259,030 | ||||||||||||||
Property and equipment, net | 50,804 | 55,439 | ||||||||||||||
Land | 540,000 | 540,000 | 540,000 | 540,000 | ||||||||||||
Goodwill | 7,758,656 | 4,483,656 | 5,666,608 | 5,666,608 | ||||||||||||
Right of use - assets | 189,626 | 218,926 | ||||||||||||||
Due from related party | 4,979 | 4,979 | 4,979 | 4,979 | ||||||||||||
Other assets | 30,882 | 38,882 | 30,823 | 30,823 | ||||||||||||
Right of use assets | 307,056 | 283,621 | ||||||||||||||
Total assets | $ | 15,958,345 | $ | 11,159,951 | $ | 14,284,585 | $ | 13,353,357 | ||||||||
LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY | ||||||||||||||||
LIABILITIES, MEZZANINE EQUITY AND DEFICIENCY IN STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued expense | $ | 1,917,891 | $ | 1,392,722 | $ | 2,070,490 | $ | 2,038,595 | ||||||||
Accrued expenses - related parties | 3,461,057 | 2,961,057 | 3,904,557 | 3,750,557 | ||||||||||||
Accrued interest | 222,873 | 449,455 | 461,307 | 350,267 | ||||||||||||
Operating lease liability | 164,093 | 176,285 | ||||||||||||||
Common stock to be issued | 157,600 | – | ||||||||||||||
Right of use - liability | 140,777 | 142,307 | ||||||||||||||
Due to director & officer | 123,882 | 126,765 | 123,192 | 123,192 | ||||||||||||
Due to related party | 4,025 | 36 | ||||||||||||||
Notes payable, current portion | 25,835 | 458,177 | ||||||||||||||
Convertible notes payable, net of debt discounts of $0 and $0, respectively | 3,189,175 | 2,077,753 | ||||||||||||||
Net liabilities of discontinued operations | – | 471,318 | ||||||||||||||
Notes payable | 36,596 | 15,809 | ||||||||||||||
Notes payable - related party | 90,189 | 37,024 | ||||||||||||||
Convertible notes payable, net of debt discounts of $87,147 and $46,797, respectively | 3,717,936 | 3,515,752 | ||||||||||||||
Total current liabilities | 9,266,431 | 8,113,568 | 10,545,044 | 9,973,503 | ||||||||||||
Other Liabilities | ||||||||||||||||
Notes payable – net of current portion | 140,541 | 142,755 | ||||||||||||||
Operating lease liability – net of current portion | 133,585 | 122,264 | ||||||||||||||
Other liabilities | ||||||||||||||||
Notes payable | 144,646 | 139,789 | ||||||||||||||
Operating lease liability – long term | 55,408 | 84,871 | ||||||||||||||
Total liabilities | $ | 9,540,557 | $ | 8,378,587 | 10,745,097 | 10,198,163 | ||||||||||
Mezzanine equity | ||||||||||||||||
Redeemable Series N Senior Convertible Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 3,578,656 | 3,125,002 | ||||||||||||||
Redeemable Series X Senior Convertible Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 1,593,205 | 1,500,000 | ||||||||||||||
Total Mezzanine Equity | 5,171,861 | 4,625,002 | ||||||||||||||
Stockholders' equity (deficit) | ||||||||||||||||
Series B Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 8,525,313 | 8,525,313 | ||||||||||||||
Series C Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 488 | 488 | ||||||||||||||
Series E Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 603,000 | 603,000 | ||||||||||||||
Series F-1 Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 143,008 | 143,008 | ||||||||||||||
Series I Preferred Stock - shares authorized, $ par value, shares issued and outstanding at March 31, 2023 and December 31, 2022 | 59,540,000 | 59,540,000 | ||||||||||||||
Series J Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 6,854,336 | 6,854,336 | ||||||||||||||
Series K Preferred Stock - shares authorized, $ par value, shares issued and outstanding at March 31, 2023 and December 31, 2022 | 8,201 | 8,201 | ||||||||||||||
Series L Preferred Stock - shares authorized, $0.001 par value, stated value $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 1,277,972 | 1,277,972 | ||||||||||||||
Series R Preferred Stock - shares authorized, $0.001 par value, stated value of $ , shares issued and outstanding at March 31, 2023 and December 31, 2022 | 198,000 | 198,000 | ||||||||||||||
Common Stock - shares authorized, $ par value; and shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | 908,378 | 789,696 | ||||||||||||||
Additional paid-in capital | (8,482,814 | ) | (8,554,368 | ) | ||||||||||||
Accumulated deficit | (71,208,254 | ) | (70,855,453 | ) | ||||||||||||
Total stockholders' equity (deficit) | (1,632,373 | ) | (1,469,808 | ) | ||||||||||||
Total liabilities, mezzanine equity and stockholders' equity | $ | 14,284,585 | $ | 13,353,357 |
The accompanying notes are an integral part of these condensed consolidated financial statements
3 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS
AS OF SEPTEMBER 30,FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 AND DECEMBER 31, 2021
(UNAUDITED)
September 30, 2022 | December 31, 2021 | |||||||
Unaudited | Audited | |||||||
Shareholders' equity | ||||||||
Preferred stock | ||||||||
Preferred Stock Series B - 3,000,000 shares authorized, par value $.001, stated value $4.00, 2,020,078 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | $ | 8,080,313 | $ | 7,780,313 | ||||
Preferred Stock Series C- 500 shares authorized, par value $.001, stated value $4.00, 122 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 488 | 488 | ||||||
Preferred Stock Series D- 800,000 shares authorized, par value $.001, stated value $4.00, -0- shares issued and outstanding at September 30, 2022 and 37,500 shares issued and outstanding at December 31, 2021 | – | 150,000 | ||||||
Preferred Stock Series E- 1,000,000 shares authorized, par value $.001, stated value $4.00, 150,750 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 603,000 | 603,000 | ||||||
Preferred Stock Series F- 800,000 shares authorized, par value $.001, stated value $4.00, 175,045 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 700,180 | 700,180 | ||||||
Preferred Stock Series F-1- 800,000 shares authorized, par value $.001, stated value $4.00, 35,752 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 143,008 | 143,008 | ||||||
Preferred Stock Series H- 4,859,379 shares authorized, par value $.001, stated value $4.00, -0- shares issued and outstanding at September 30, 2022 and 37,500 shares issued and outstanding December 31, 2021 | – | 150,000 | ||||||
Preferred Stock Series I- 500,000,000 shares authorized, par value $.001, stated value $4.00, 14,885,000 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 59,540,000 | 59,540,000 | ||||||
Preferred Stock Series J- 10,000,000 shares authorized, par value $.001, stated value of $4.00, 1,713,584 shares issued and outstanding at September 30, 2022 and 894,834 shares issued and outstanding at December 31, 2021, respectively | 6,854,336 | 3,579,336 | ||||||
Preferred Stock Series K- 10,937,500 shares authorized, par value of $.001, 8,200,562 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 8,201 | 8,201 | ||||||
Preferred Stock Series L- 100,000,000 shares authorized, par value $.001, stated value $4.00, 319,493 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 1,277,972 | 1,277,972 | ||||||
Preferred Stock Series N- 3,000,000 shares authorized, par value $.001, stated value of $4.00, 868,056 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 3,472,224 | 3,472,224 | ||||||
Preferred Stock Series R- 5,000 shares authorized, par value $.001, stated value of $1,200, 165 shares issued and outstanding at September 30, 2022 and December 31, 2021 | 198,000 | 198,000 | ||||||
Preferred Stock Series X- 5,000,000 shares authorized, par value $.001, stated value of $4.00, 375,000 and 0 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 1,500,000 | – | ||||||
Common stock; 7,500,000,000 shares authorized with $0.001 par value; 197,796,735 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 199,088 | 167,421 | ||||||
Treasury stock; at cost, 212,500 shares of series D preferred stock, 81,601 of series H preferred stock and 325,244 shares of series G preferred stock at September 30, 2022 and December 31, 2021, respectively, | (4,967,686 | ) | (4,967,686 | ) | ||||
Additional paid-in capital | (3,873,016 | ) | (3,826,349 | ) | ||||
Accumulated deficit | (67,318,320 | ) | (66,194,744 | ) | ||||
Total shareholders' equity | 6,417,788 | 2,781,364 | ||||||
Total liabilities and shareholders' equity | $ | 15,958,345 | $ | 11,159,951 |
Three Months Ended March 31, | ||||||||
2023 | 2022 (Restated) | |||||||
REVENUE | ||||||||
Financial services | $ | 154,399 | $ | 464,843 | ||||
Healthcare | 2,706,399 | 2,432,307 | ||||||
Total revenue | 2,860,798 | 2,897,150 | ||||||
COST OF SALES | ||||||||
Financial services | 26,829 | 212,446 | ||||||
Healthcare | 956,295 | 903,782 | ||||||
Total cost of sales | 983,124 | 1,116,228 | ||||||
GROSS PROFIT | 1,877,674 | 1,780,922 | ||||||
OPERATING EXPENSES | ||||||||
Depreciation expense | 4,635 | 5,783 | ||||||
Selling, general and administrative | 1,159,478 | 1,053,656 | ||||||
Total operating expenses | 1,164,113 | 1,059,439 | ||||||
INCOME FROM OPERATIONS | 713,561 | 721,483 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Other income | 205 | – | ||||||
Gain on forgiveness of debt | 390 | – | ||||||
Penalties and fees | (15,000 | ) | – | |||||
Interest expense and finance charge | (695,164 | ) | (2,220,176 | ) | ||||
Conversion cost penalty and reimbursement | (2,000 | ) | – | |||||
Amortization of debt discounts | (17,983 | ) | (44,546 | ) | ||||
Total other income (expense) | (729,552 | ) | (2,264,722 | ) | ||||
NET LOSS BEFORE DISCONTINUED OPERATIONS | (15,991 | ) | (1,543,239 | ) | ||||
LOSS FROM DISCONTINUED OPERATIONS | – | (19,215 | ) | |||||
NET LOSS FOR THE PERIOD | $ | (15,991 | ) | $ | (1,562,454 | ) | ||
DEEMED DIVIDENDS ON PREFERRED STOCK | (336,811 | ) | – | |||||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (352,802 | ) | $ | (1,562,454 | ) | ||
BASIC LOSS PER SHARE | ||||||||
Continuing operations | $ | 0.00 | $ | (0.01 | ) | |||
Discontinued operations | $ | 0.00 | $ | (0.00 | ) | |||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC AND DILUTED |
The accompanying notes are an integral part of these condensed consolidated financial statements
4 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSSTOCKHOLDERS’ EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(UNAUDITED)
Preferred Stock Series A, I, K | Preferred Stock Series B, D, E, F, F-1, G, H, L | Preferred Stock Series C and R | Treasury Stock | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance December 31, 2021 (Restated) | 23,085,563 | $ | 59,548,201 | 3,595,952 | $ | 14,383,808 | 287 | $ | 198,488 | (619,345 | ) | $ | (4,967,686 | ) | ||||||||||||||||||
Dividend to preferred stock | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Net loss | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Balance, March 31, 2022 (Restated) | 23,085,563 | $ | 59,548,201 | 3,595,952 | $ | 14,383,808 | 287 | $ | 198,488 | (619,345 | ) | $ | (4,967,686 | ) | ||||||||||||||||||
Balance December 31, 2022 | 23,085,563 | $ | 59,548,201 | 4,350,907 | $ | 17,403,628 | 287 | $ | 198,488 | – | $ | – | ||||||||||||||||||||
Conversion of convertible notes payable | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Dividend to preferred stock | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Net loss | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Balance, March 31, 2023 | 23,085,563 | $ | 59,548,201 | 4,350,907 | $ | 17,403,628 | 287 | $ | 198,488 | – | $ | – |
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUE | ||||||||||||||||
Rental income | $ | 37,462 | $ | 30,944 | $ | 120,818 | $ | 97,767 | ||||||||
Financial Services | 219,872 | 1,034,422 | 1,156,729 | 3,432,819 | ||||||||||||
Healthcare | 3,103,409 | 2,092,427 | 8,154,934 | 2,742,001 | ||||||||||||
Other | – | 152,000 | – | 152,000 | ||||||||||||
Total revenue | 3,360,743 | 3,309,793 | 9,432,481 | 6,424,587 | ||||||||||||
COST OF SALES | ||||||||||||||||
Rental business | 20,523 | 22,281 | 58,611 | 68,269 | ||||||||||||
Financial Services | 39,963 | 454,118 | 365,185 | 1,328,508 | ||||||||||||
Healthcare | 1,094,794 | 526,839 | 2,982,418 | 726,289 | ||||||||||||
Other | – | 79,481 | – | 79,481 | ||||||||||||
Total cost of sales | 1,155,280 | 1,082,719 | 3,406,214 | 2,202,547 | ||||||||||||
GROSS MARGIN | 2,205,463 | 2,227,074 | 6,026,267 | 4,222,040 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Depreciation expense | 5,783 | 6,175 | 17,349 | 8,103 | ||||||||||||
Transaction costs | – | – | – | 2,777,778 | ||||||||||||
Selling, general and administrative | 700,410 | 1,154,249 | 2,683,601 | 3,101,989 | ||||||||||||
Total operating expenses | 706,193 | 1,160,424 | 2,700,950 | 5,887,870 | ||||||||||||
PROFIT (LOSS) FROM OPERATIONS | 1,499,270 | 1,066,650 | 3,325,317 | (1,665,830 | ) | |||||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Other income | (2 | ) | 53,703 | 6 | 82,385 | |||||||||||
Change in value of derivative liability | – | (172,982 | ) | – | (1,305,596 | ) | ||||||||||
Gain on forgiveness of debt | 1,397,271 | 67,568 | 1,397,271 | 507,863 | ||||||||||||
Gain on change of estimate | – | 66,216 | – | 184,243 | ||||||||||||
Loss on disposal | – | – | (4,474 | ) | – | |||||||||||
Interest expense & finance charge | (1,506,869 | ) | (936,287 | ) | (3,686,856 | ) | (1,409,481 | ) | ||||||||
Financing penalties & fees | (1,923,916 | ) | (3,000 | ) | (1,923,916 | ) | (13,000 | ) | ||||||||
Amortization of debt discounts | (92,868 | ) | (18,750 | ) | (249,120 | ) | (1,050,014 | ) | ||||||||
Total other income (expenses) | (2,126,384 | ) | (943,532 | ) | (4,467,089 | ) | (3,003,600 | ) | ||||||||
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS | (627,114 | ) | 123,118 | (1,141,772 | ) | (4,669,430 | ) | |||||||||
LOSS FROM DISCONTINUED OPERATIONS | 328,718 | 1,912,852 | 328,718 | 1,858,500 | ||||||||||||
GAIN FROM DISPOSAL OF SUBSIDIARY | 33,622 | – | – | – | ||||||||||||
362,340 | 1,912,852 | 328,718 | 1,858,500 | |||||||||||||
NET INCOME (LOSS) FOR THE PERIOD | $ | (264,774 | ) | $ | 2,035,970 | $ | (813,054 | ) | $ | (2,810,930 | ) | |||||
BASIC AND DILUTED INCOME (LOSS) PER SHARE | ||||||||||||||||
Continuing operations | $ | 0.00 | $ | 0.01 | $ | (0.00 | ) | $ | (0.02 | ) | ||||||
Discontinued operations | $ | (0.00 | ) | $ | 0.01 | $ | (0.00 | ) | $ | 0.002 | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES – CONTINUED AND DISCONTINUED OPERATIONS | 208,829,344 | 150,277,623 | 189,084,892 | 115,230,605 |
The accompanying notes are an integral part of these condensed consolidated financial statements
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
Preferred Stock Series A, I, K | Preferred Stock Series B,D,E,F,F-1,G,H,J,L,N,X | Preferred Stock, Series C and R | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Balance December 31, 2020 (Restated) | 203,210,563 | $ | 780,048,201 | 2,824,563 | $ | 11,298,252 | 287 | $ | 198,488 | |||||||||||||||
Conversion of convertible notes payable | – | – | – | – | – | – | ||||||||||||||||||
Reclassify Derivative liabilities to Additional Paid in Capital | – | – | – | – | – | – | ||||||||||||||||||
Issuance of Common Stock for preferred I shares | (125,000 | ) | (500,000 | ) | – | – | – | – | ||||||||||||||||
Reclassify warrant liabilities to additional paid in capital | – | – | – | – | – | – | ||||||||||||||||||
Issuance of preferred stock series J | – | – | 894,834 | 3,579,336 | – | – | ||||||||||||||||||
Issuance of preferred stock series N | – | – | 868,056 | 3,472,224 | – | – | ||||||||||||||||||
Issuance of preferred stock series B | – | – | 201,799 | 807,196 | – | – | ||||||||||||||||||
Issuance of common stock for services | – | – | – | – | – | – | ||||||||||||||||||
Distribution of dividend | – | – | – | – | – | – | ||||||||||||||||||
Issuance of warrant | – | – | – | – | – | – | ||||||||||||||||||
Net loss | – | – | – | – | – | – | ||||||||||||||||||
Balance, September 30, 2021 (unaudited) | 203,085,563 | $ | 779,548,201 | 4,789,252 | $ | 19,157,008 | 287 | $ | 198,488 |
Treasury Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance December 31, 2020 (Restated) | (294,101 | ) | $ | (2,365,864 | ) | 5,268,797 | $ | 5,267 | $ | (732,473,423 | ) | $ | (65,583,255 | ) | $ | (8,872,334 | ) | |||||||||||
Conversion of convertible notes payable | – | – | 109,234,241 | 109,234 | 804,991 | – | 914,225 | |||||||||||||||||||||
Reclassify Derivative liabilities to Additional Paid in Capital | – | – | – | – | 1,396,610 | – | 1,396,610 | |||||||||||||||||||||
Issuance of Common Stock for preferred I shares | – | – | 50,000,000 | 50,000 | 450,000 | – | – | |||||||||||||||||||||
Reclassify warrant liabilities to additional paid in capital | – | – | – | – | 260,443 | – | 260,443 | |||||||||||||||||||||
Issuance of preferred stock series J | – | – | – | – | – | – | 3,579,336 | |||||||||||||||||||||
Issuance of preferred stock series N | – | – | – | – | (347,222 | ) | – | 3,125,002 | ||||||||||||||||||||
Issuance of preferred stock series B | – | – | – | – | – | – | 807,196 | |||||||||||||||||||||
Issuance of common stock for services | 1,275,427 | 1,275 | 14,412 | – | 15,687 | |||||||||||||||||||||||
Distribution of dividend | – | – | – | – | – | (99,999 | ) | (99,999 | ) | |||||||||||||||||||
Issuance of warrant | – | – | – | – | 2,777,778 | – | 2,777,778 | |||||||||||||||||||||
Net loss | – | – | – | – | – | (2,810,930 | ) | (2,810,930 | ) | |||||||||||||||||||
Balance September 30, 2021 (unaudited) | (294,101 | ) | $ | (2,365,864 | ) | 165,778,465 | $ | 165,776 | $ | (727,116,411 | ) | $ | (68,494,184 | ) | $ | (1,093,014 | ) |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
FOR THE PERIOD ENDED SEPTEMBER 30, 2022
Preferred Stock Series A, I, K | Preferred Stock Series B,D,E,F,F-1,G,H,J,L,N,X | Preferred Stock, Series C and R | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
Balance, December 31, 2021 | 23,085,563 | $ | 59,548,201 | 4,464,008 | $ | 17,856,032 | 287 | $ | 198,488 | |||||||||||||||
Issuance of preferred B in exchange of preferred D and H | – | – | 75,000 | 300,000 | – | – | ||||||||||||||||||
Cancellation of common stock | – | – | – | – | – | – | ||||||||||||||||||
Cancellation of preferred stock series D | – | – | (37,500 | ) | (150,000 | ) | – | – | ||||||||||||||||
Cancellation of preferred stock series H | – | – | (37,500 | ) | (150,000 | ) | – | – | ||||||||||||||||
Issuance of preferred stock series X | – | – | 375,000 | 1,500,000 | – | – | ||||||||||||||||||
Issuance of preferred stock series J | – | – | 818,750 | 3,275,000 | – | – | ||||||||||||||||||
Distribution of dividend | – | – | – | – | – | – | ||||||||||||||||||
Net loss | – | – | – | – | – | – | ||||||||||||||||||
Balance, September 30, 2022 | 23,085,563 | $ | 59,548,201 | 5,657,758 | $ | 22,631,032 | 287 | $ | 198,488 |
Treasury Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
Balance, December 31, 2021 | (619,345 | ) | $ | (4,967,686 | ) | 166,130,069 | $ | 167,421 | $ | (3,826,349 | ) | $ | (66,194,744 | ) | $ | (2,781,364 | ) | |||||||||||
Issuance of preferred B in exchange of preferred D and H | – | – | – | – | – | – | 300,000 | |||||||||||||||||||||
Cancellation of common stock | – | – | (35,000,000 | ) | (35,000 | ) | – | – | (35,000 | ) | ||||||||||||||||||
Cancellation of preferred stock series D | – | – | – | – | – | – | (150,000 | ) | ||||||||||||||||||||
Cancellation of preferred stock series H | – | – | – | – | – | – | (150,000 | ) | ||||||||||||||||||||
Issuance of preferred stock series X | – | – | – | – | – | – | 1,500,000 | |||||||||||||||||||||
Issuance of preferred stock series J | – | – | – | – | – | – | 3,275,000 | |||||||||||||||||||||
Issuance of common stock for settlement of red Rock Travel | – | – | 66,666,666 | 66,667 | (46,667 | ) | 20,000 | |||||||||||||||||||||
Distribution of dividend | – | – | – | – | – | (310,522 | ) | (310,552 | ) | |||||||||||||||||||
Net loss | – | – | – | – | – | (813,054 | ) | (813,054 | ) | |||||||||||||||||||
Balance, September 30, 2022 | (619,345 | ) | $ | (4,967,686 | ) | 197,796,735 | $ | 199,088 | $ | (3,826,349 | ) | $ | (67,318,320 | ) | $ | 6,417,788 |
Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
Balance December 31, 2021 (Restated) | 166,130,069 | $ | 167,421 | $ | (3,479,126 | ) | $ | (65,118,744 | ) | $ | 732,361 | |||||||||
Dividend to preferred stock | – | – | – | (102,746 | ) | (102,746 | ) | |||||||||||||
Net loss | – | – | – | (1,562,454 | ) | (1,562,454 | ) | |||||||||||||
Balance, March 31, 2022 (Restated) | 166,130,069 | $ | 167,421 | $ | (3,479,126 | ) | $ | (66,783,944 | ) | $ | (932,839 | ) | ||||||||
Balance December 31, 2022 | 789,796,735 | $ | 789,696 | $ | (8,554,368 | ) | $ | (70,855,453 | ) | $ | (1,469,808 | ) | ||||||||
Conversion of convertible notes payable | 118,682,378 | 118,682 | 71,555 | – | 190,237 | |||||||||||||||
Dividend to preferred stock | – | – | – | (336,811 | ) | (336,811 | ) | |||||||||||||
Net loss | – | – | – | (15,991 | ) | (15,991 | ) | |||||||||||||
Balance, March 31, 2023 | 908,479,113 | $ | 908,378 | $ | (8,482,813 | ) | $ | (71,208,255 | ) | $ | (1,632,373 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2023 AND 2022 AND 2021
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Loss for the period | $ | (813,054 | ) | $ | (2,810,930 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 32,442 | 24,441 | ||||||
Amortization of loan discount | 249,120 | 1,050,014 | ||||||
Other noncash items, net | 324,563 | 586,644 | ||||||
Loss on disposal | 4,474 | – | ||||||
Change in value of derivative liability | – | 1,305,596 | ||||||
Warrant issued for transaction costs | – | 2,777,778 | ||||||
Loss on finance penalties and fees | 1,923,916 | – | ||||||
Gain on refinance of debt | (1,397,271 | ) | – | |||||
Reduction from forgiveness of PPP Loans | – | (507,863 | ) | |||||
(Increase) decrease in: | ||||||||
Accounts receivable | (1,858,494 | ) | (114,399 | ) | ||||
Assets held for sale | – | (187,671 | ) | |||||
Right of use – assets | (23,434 | ) | (278,994 | ) | ||||
Prepaid expenses and other current assets | 8,000 | (7,392 | ) | |||||
Intangible assets | – | 3,550 | ||||||
Other assets | – | 321,975 | ||||||
Land | – | 63,000 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable & accrued expense | 315,123 | (594,276 | ) | |||||
Accrued officer’s compensation | 500,000 | 244,835 | ||||||
Due (to) from related parties | (5,016 | ) | (149,579 | ) | ||||
Accrued interest | (219,082 | ) | (321,468 | ) | ||||
Right of use – liabilities | (871 | ) | 297,418 | |||||
Capital stock to be issued | 545,333 | – | ||||||
Deferred revenue | – | (353,830 | ) | |||||
Net cash used in operating activities | (414,252 | ) | 1,348,849 | |||||
Net cash used in discontinued operations - operating activities | (328,718 | ) | (1,858,500 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of furniture & equipment | – | (3,407 | ) | |||||
Acquisition of Nova Ortho and Spine PLLC, net of cash acquired | – | (2,320,235 | ) | |||||
Net cash used in investing activities | – | (2,323,642 | ) |
(continued)
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Due to director | (2,883 | ) | – | |||||
Proceeds from convertible notes payable | 729,083 | 400,000 | ||||||
Repayment of convertible notes payable | (5,908 | ) | – | |||||
Proceeds from PPP loans | – | 547,050 | ||||||
Payment of PPP loan | (2,290 | ) | – | |||||
Dividend on preferred stock | (310,522 | ) | (99,999 | ) | ||||
Repayment of credit line | – | (51,927 | ) | |||||
Issuance of preferred stock series N | – | 3,000,000 | ||||||
Payment of notes payable | – | (28,164 | ) | |||||
Payment of notes payable related party | (5,065 | ) | – | |||||
Proceeds of notes payable related party | 5,065 | – | ||||||
Net cash provided by financing activities | 407,480 | 3,766,960 | ||||||
NET INCREASE(DECREASE) IN CASH | (335,489 | ) | 933,667 | |||||
CASH, BEGINNING OF PERIOD | 595,987 | 279,311 | ||||||
CASH, END OF PERIOD | $ | 260,498 | $ | 1,212,978 | ||||
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 73,476 | $ | 70,674 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Payment of notes payable | $ | – | $ | (28,164 | ) | |||
Preferred stock issued for business acquisition | $ | 3,275,000 | $ | 3,579,336 | ||||
Preferred stock issued upon conversion of notes payable and accrued interest | $ | – | $ | 563,196 | ||||
Derivative liability settled upon conversion | $ | – | $ | 1,396,610 | ||||
Preferred stock issued for debt refinance | $ | 1,500,000 | $ | – |
Three Months Ended March 31 | ||||||||
2023 | 2022 (Restated) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss for the period | $ | (15,991 | ) | $ | (1,562,454 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 4,635 | 10,814 | ||||||
Amortization of loan discount | 17,983 | 44,546 | ||||||
Gain on forgiveness of debt | (390 | ) | – | |||||
Other noncash items, net | – | (66,054 | ) | |||||
Bad debt | 270,000 | – | ||||||
Fair value settled upon conversion | 123,566 | – | ||||||
Conversion and note issuance cost | 5,000 | – | ||||||
(Increase) decrease in: | ||||||||
Accounts receivable | (1,111,636 | ) | 343,840 | |||||
Right of use – assets | 29,300 | 103,119 | ||||||
Prepaid expenses and other current assets | – | 8,000 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expense | 241,945 | 569,508 | ||||||
Accrued officer’s compensation | 154,000 | 120,000 | ||||||
Due from related parties | – | 3,988 | ||||||
Accrued interest | 123,074 | 110,559 | ||||||
Right of use – liabilities | (30,993 | ) | (62,319 | ) | ||||
Net cash used in operating activities | (189,507 | ) | (376,453 | ) | ||||
Net cash provided by discontinued operations - operating activities | – | 19,215 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from convertible notes payable | 240,000 | 405,730 | ||||||
Repayment of convertible notes payable | – | (5,908 | ) | |||||
Payment of SBA loan | (750 | ) | (756 | ) | ||||
Dividend on preferred stock | – | (102,746 | ) | |||||
Proceeds from credit line | 37,000 | – | ||||||
Repayment of credit line | (16,381 | ) | – | |||||
Payment of notes payable related party | (835 | ) | (816 | ) | ||||
Proceeds from notes payable related party | 54,000 | 4,803 | ||||||
Net cash provided by financing activities | 313,034 | 300,307 | ||||||
NET (DECREASE) INCREASE IN CASH | 123,527 | (56,931 | ) | |||||
CASH, BEGINNING OF PERIOD | 226,802 | 595,987 | ||||||
CASH, END OF PERIOD | $ | 350,329 | $ | 539,056 | ||||
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the period for interest | $ | 1,503 | $ | 22,709 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Common stock issued upon conversion of notes payable and accrued interest | $ | 66,673 | $ | – | ||||
Debt discount from derivative liabilities | $ | – | $ | 94,321 |
The accompanying notes are an integral part of these condensed consolidated financial statements
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and Nature of Operations
Cardiff Lexington Corporation (“Cardiff”) was originally incorporated on September 3, 1986 in Colorado as Cardiff International Inc. On November 10, 2005, Cardiff merged with Legacy Card Company, LLC (“Legacy”) was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability Companyand changed its name to a NevadaCardiff Lexington Corporation. On November 10, 2005, Legacy merged withAugust 27, 2014, Cardiff Lexington Corporation (“Cardiff Lexington”,redomiciled and became a corporation under the “Company”), a publicly held corporation.laws of Florida. On April 13, 2021, Cardiff Lexington Corporation converted fromredomiciled and became a Florida Corporation to a Nevada Corporation.
Incorporation under the first quarterlaws of 2013, it was decided to restructure Cardiff Lexington into a holding company that adopted a new business model known as "Collaborative Governance," a form of governance enabling businesses to take advantage of the potential access to capital markets provided by affiliation with a publicly-traded company. Cardiff Lexington began targeting the acquisition of niche companies with high growth potential. The reason for this strategy was to protect the Company’s shareholders by acquiring businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors.
Description of BusinessNevada.
Cardiff Lexington consistsis an acquisition holding company focused on locating undervalued and undercapitalized companies, primarily in the healthcare industry, and providing them capitalization and leadership to maximize the value and potential of the following wholly owned subsidiaries:their private enterprises while also providing diversification and risk mitigation for stockholders. All of Cardiff’s operations are conducted through, and its income derived from, its various subsidiaries, which includes:
We Three, LLC dba Affordable Housing Initiative (“AHI”), acquired May 15, 2014
Romeo’s Alpharetta, LLC dba Romeo’s NY Pizza (“Romeo’s Pizza”), acquired September 30, 2014; Sold July 1, 2021.
Edge View Properties, Inc., (“Edge View”) acquired July 16, 2014
Repicci’s Franchise Group, LLC (“Repicci’s Group”), acquired August 10, 2016; Sold September 1, 2021.
Platinum Tax Defenders, LLC (“Platinum Tax”), acquired July 31, 2018
JM Enterprises 1, Inc. dba Key Tax Group (“Key Tax”), acquired May 8, 2019; Sold December 31, 2021
Red Rock Travel Group, LLC (“Red Rock”), acquired July 31, 2018, discontinued May 31, 2019
Nova Ortho and Spine, PLLC (“Nova”), acquired May 31, 2021
· | We Three, LLC dba Affordable Housing Initiative (“AHI”), which was acquired on May 15, 2014 and sold on October 31, 2022; | |
· | Edge View Properties, Inc. (“Edge View”), which was acquired on July 16, 2014; | |
· | Platinum Tax Defenders (“Platinum Tax”), which was acquired on July 31, 2018; and | |
· | Nova Ortho and Spine, PLLC (“Nova”), which was acquired on May 31, 2021. |
Basis of Presentation and Principles of Consolidation
The accompanying September 30, 2022 interim condensed consolidated financial statements (“financial statements”include the accounts of Cardiff and its wholly owned subsidiaries AHI, Edge View, Platinum Tax and Nova (collectively, the “Company”). AHI is included in discontinued operations. All significant intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts may have been prepared pursuant toreclassified for consistency with the rules and regulations ofcurrent period presentation. These reclassifications would have no material effect on the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in thereported condensed consolidated financial statements included herein. These statements should be read in conjunction with the audited condensed consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the periods presented are not necessarily indicative of results to be expected for the full fiscal year or any other periods.results.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAPGAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management uses its historical records and knowledge of its business in making estimates. Accordingly, actual results could differ from those estimates.
COVID-19 Pandemic
7 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
The outbreak of a novel coronavirus throughout the world, including the United States, during early calendar year 2021 has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). The extent of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that many of the Company's customers and suppliers could be impacted by these closings and restrictions which could materially and adversely affect demand for our products, our ability to obtain or deliver inventory or services, and our ability to collect accounts receivables as customers face higher liquidity and solvency risk. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 Pandemic, and it is possible that it could cause an economic downturn, recession, or depression. Such economic disruption could have a material adverse effect on our business. Policymakers around the world have responded with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remains uncertain.
Accounts Receivable
Accounts receivable is reported on the balance sheet at the net amounts expected to be collected by the Company. Management closely monitors outstanding accounts receivable and charges off to expense any balances that are determined to be uncollectible, which was zero$270,000 and $0 as of September 30, 2022March 31, 2023 and December 31, 2021, respectfully.2022, respectively. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had net accounts receivable of $6,829,160$7,446,416 and $4,948,796,$6,604,780, respectively. Accounts receivables are primarily generated from our subsidiaries in their normal course of business.
Property and Equipment
Property and equipment are carried at cost. Expenditures for renewals and betterments that extend the useful lives of property, equipment or leasehold improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method for financial reporting purposes based on the following estimated useful lives:
Schedule of estimated useful lives | |
Classification | Useful Life |
Equipment, furniture, and fixtures | 5 - 7 years |
Medical equipment | 10 years |
Leasehold improvements | 10 years or lease term, if shorter |
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands are not amortized but are evaluated for impairment annually or when indicators of a potential impairment are present. OurThe Company’s impairment testing of goodwill is performed separately from ourits impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. During ninethe three months ended September 30,March 31, 2023 and 2022, and 2021, the Company did notnot recognize any goodwill impairment. The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors.
Valuation of long-lived assetsLong-lived Assets
In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
8 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Revenue Recognition
On January 1, 2018, wethe Company adopted ASC 606, Revenue from contracts with customers (“Topic 606”), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.
The Company applies the following five-step model to determine revenue recognition:
· | Identification of a contract with a customer | |
· | Identification of the performance obligations in the contact | |
· | Determination of the transaction price | |
· | Allocation of the transaction price to the separate performance allocation | |
· | Recognition of revenue when performance obligations are |
The Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses services promised within each contract and determines those that are performance obligations and assesses whether each promised service is distinct.
The Company’s financial services sector reports revenues as services are performed and its healthcare sector reports revenues at the time control of the services transfer to the customer and from providing licensed and/or certified orthopedic procedures. OurThe Company’s healthcare subsidiary does not have contract liabilities or deferred revenue as there are no amounts prepaid for services.
Healthcare Income
Established billing rates are not the same as actual amounts recovered for ourthe Company’s healthcare subsidiary. They generally do not reflect what the Company is ultimately paid and therefore are not reported in ourthe condensed unauditedconsolidated financial statements. The Company is typically paid amounts based on established charges per procedure with guidance from the annually updated Current Procedural Terminology (“CPT”) guidelines (a code set maintained by the American Medical Association through the CPT Editorial Panel), that designates relative value units (“RVU's”) and a suggested range of charges for each procedure which is then assigned a CPT code.
This fee is discounted to reflect the percentage paid to the Company “using a modifier” recognized by each insurance carrier for services, less deductible, co-pay, and contractual adjustments which are deducted from the calculated fee. The net revenue is recorded at the time the services are rendered.
Contract Fees (Non-PIP)
The Company has contract fees for amounts earned from its Non-Personal Injury Protection (“PIP”) related procedures, typically car accidents, and are collected on a contingency basis. These cases are sold to a factor, who bears the risk of economic benefit or loss. After selling patient cases to the factor, any additional funds collected by the Company are remitted to the factor.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Service Fees – Net (PIP)
The Company generates services fees from performing various procedures on the date the services are performed. These services primarily include slip and falls as well as smaller nominal Non-PIP services. Fees are collected primarily from third party insurance providers. These revenues are based on established insurance billing rates less allowances for contractual adjustments and uncollectible amounts. These contractual adjustments vary by insurance company and self-pay patients. The Company computes these contractual adjustments and collection allowances based on its historical collection experience.
Completing the paperwork for each case and preparing it for billing takes approximately ten business days after a procedure is performed. The majority of claims are then filed electronically except for those remaining insurance carriers requiring paper filing. An initial response is usually received within four weeks from electronic filing and up to Ninesix weeks from paper filing. Responses may be a payment, a denial, or a request for additional information.
The Company’s healthcare revenues are generated from professional medical billings including facility and anesthesia services. With respect to facility and anesthesia services, the Company is the primary obligor as the facility and anesthesia services are considered part of one integrated performance obligation. Historically the Company receives 49.9% of collections from total gross billed. Accordingly, the Company recognized net healthcare service revenue as 49.9% of gross billed amounts. Historical collection rates are estimated using the most current prior 18-month12-month historical payment and collection percentages.
The Company’s healthcare subsidiary has contractual medical receivable sales and purchase agreements with third party factors which result in approximately 51% to 56% reduction from the accounts receivables amounts when a receivable is sold to the factors. The Company generally receives allevaluated the factored adjustments considering the actual factored amounts per patient quarterly, and the reductions from accounts receivable that are factored were recorded in finance charges as other expenses on the consolidated statement of its collections within 18 months from the date of service. The Company accounts for chargebacks as they occur and records an estimate for expected chargebacks as they are received from insurance companies.
For the Nine months ended September 30, 2022 and 2021, respectively, the Company did not record any bad debt expense. Additionally, the Company has not recorded any estimate for expected chargebacks.operations.
The Company’s contracts for both its contract and service fees each contain a single performance obligation (providing orthopedic services), as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct, as a result, the entire transaction price is allocated to this single performance obligation.
Accordingly, the Company recognizes revenues (net) when the patient receives orthopedic care services. OurThe Company’s patient service contracts generally have performance obligations which are satisfied at a point in time. The performance obligation is for onsite or off-site care provided. Patient service contracts are generally fixed-price, and the transaction price is in the contract. Revenue is recognized when obligations under the terms of the contract with our patients are satisfied; generally, at the time of patient care.
Financial Services Income
The Company generates revenue from providing tax resolution services to individuals and business owners that have federal and state tax liabilities by assisting its clients to settle outstanding tax debts. Additionally, services include back taxes, offer in compromise, audit representation, amending tax returns, tax preparation, wage garnishment relief, removal of bank levies and liens, and other financial challenges. The Company recognizes revenues for these services as services are performed.
Rental Income
The Company’s rent revenue is derived from the mobile home leases. The expired leases are considered month-to-month leases. In accordance with section ASC 842, the cost of property held for leasing by major classes of property according to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021. There are no contingent rentals included in income in the accompanying condensed consolidated statements of operations. With the exception of the month-to-month leases, revenue was recognized on a straight-line basis and amortized into income on a monthly basis, over the lease term.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are included as a component of cost of sales in the condensed consolidated statements of operations and changes in members’stockholders’ equity. The Company recognized advertising and marketing expense of $93,905$38,353 and $221,690$127,785 for the three and nine months ended September 30,March 31, 2023 and 2022, respectively. The Company recognized advertising and marketing expense of $317,899 and $881,591 for the three and nine months ended September 30, 2021, respectively.
Valuation of Derivative Instruments
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-10, Derivatives and Hedging (“ASC 815-10”), requires that embedded derivative instruments be bifurcated and assessed, along with freestanding derivative instruments such as convertible promissory notes, on their issuance date to determine whether they would be considered a derivative liability and measured at their fair value for accounting purposes. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option based simple derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level Input Definition
Level 1 | Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. |
Level 2 | Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date. |
Level 3 | Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
Distinguishing Liabilities from Equity
The Company accounts for its series N senior convertible preferred stock and series X senior convertible preferred stock subject to possible redemption in accordance with ASC 480, “Distinguishing Liabilities from Equity”. Conditionally redeemable preferred shares are classified as temporary equity within the Company’s condensed consolidated balance sheet.
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification.ASC. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification,ASC, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
11 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments is recorded in general and administrative expense in the condensed consolidated statements of operations.
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company early adoptedFASB ASU No 2018-07 forprescribes equity instruments issued to parties other than employees.
Income Taxes
Income taxes are determined in accordance with ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the periods ended September 30,As of March 31, 2023 and December 31, 2022, and September 30, 2021, the Company did not have any interest and penalties associated with tax positions and did notnot have any significant unrecognized uncertain tax positions.
FASB ASC Subtopic 260, Earnings Per Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per common share is computed by dividing income available to common shareholdersstockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholdersstockholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares.stock. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stockcommon stock can result in a greater dilutive effect from potentially dilutive securities.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Going Concern
The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The Company has sustained operating losses since its inception and has negative working capital and an accumulated deficit. These factors raise substantial doubts about the Company’s ability to continue as a going concern. As of September 30, 2022,March 31, 2023, the Company has sustained recurring losses and has an accumulated deficit of $67.8 million and a working capital deficit of approximately $3.1 million.$2.7 million. The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.
The ability of the Company to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. Management is seeking additional capitalhas prospective investors and believes the raising of capital will allow the Company to fund its cash flow shortfalls and pursue new acquisitions. There can be no assurance that the Company will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to it. Should the Company be unable to raise sufficient funds, it may be required to curtail its operating plans. In addition, the Companyincreases in expenses may be required to makerequire 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.
Recent Accounting Standards
Changes to accounting principles are established by the FASB in the form of Accounting Standards Update (“ASU”) to the FASB's Codification. We considerThe Company considers the applicability and impact of all ASU's on ourits financial position, results of operations, shareholders’ deficit.stockholders’ deficit, cash flows, or presentation thereof.
In August 2021,June 2016, the FASB issued ASU No. 2021-06 (“ASU 2021-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2021-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion accounting models. As a result, the Company’s convertible debt instruments will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. Upon adoption of ASU 2020-06, we classified the previously identified beneficial conversion features to the associated debt. We also determined, that in accordance with ASU 2017-11, such beneficial conversion features are not considered a liability classified derivative.
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments -- Credit Losses (Topic 326), Derivatives and hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The newCompany has adopted this standard will be effective for the Company in the first quarter of fiscal year beginning January 1, 2023, and early adoption is permitted.which did not have a material impact to the consolidated financial statements,which resulted in the Company recognizing an allowance for doubtful accounts of $270,000 during the three months ended March 31, 2023.
Management does not expectbelieve that the adoption of this standard willany other recently issued, but not yet effective, accounting standards could have a material effect on the Company'saccompanying consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
ReclassificationsCARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Certain accounts relating to the prior year have been reclassified to conform to the current period’s presentation. These reclassifications had no effect on the net income or net assets as previously reported.
2. |
Nova OrthoSubsequent to the initial issuance of the Company's 2021 financial statements on March 31, 2022, management reconsidered the methodology previously applied in its valuation of goodwill and Spine, LLCredeemable preferred stocks.
On May 31, 2021 theThe Company completed the acquisition of Nova Ortho and Spine LLC. Sellers received a cash payment in the amount of $2,500,000 and were issued 894,834 shares of Series J Preferred Stock of the Company with a par value of $0.001 and a stated value of $4.00 with an aggregate stated value equal to $3,579,334 for a total transaction of $6,079,334. The Preferred J stock rights and privileges include voting rights, a conversion ratio of 1:2:00. The Preferred J shares have a lock-up/leak-out limiting the sale of stock for 6 months after which conversions and sales are limited to 20% of their portfolio per year, pursuant to the terms of the Stock Purchase Agreement. The parties further agreed to performance based contingent supplement payment to Sellers in 2022 should one year from the closing date the Company’s trailing twelve months minimum Pre-Tax Net Income exceed $1,979,320, the “Milestone”, which in that event would cause the issuance to Sellers ofissue 818,750 additional shares of series J Preferred J Stock with an aggregate stated value equal to $3,275,000.$3,275,000 if, as of May 31, 2022, Nova’s trailing twelve months minimum pre-tax net income exceeded $1,979,320 (the “Milestone”). The Company finalized its purchase price accounting and allocation in 2022 and recorded purchase consideration of $6,100,000 associated with the cash consideration, the fair value of the series J preferred stock and the fair value of the contingent consideration. The impact of the correction is reflected in $3,275,000 increase to goodwill and contingent consideration liability on the consolidated balance sheet.
On August 25,In December 2022, under the termsCompany identified an error in its classification for its series N senior convertible preferred stock for the acquisition of NOVA as presented in its audited balance sheet as of December 31, 2021. Pursuant to ASC 250, “Accounting changes and error corrections” issued by FASB and SAB 99 “Materiality” issued by SEC, the Company determined the impact of the Stock Purchase Agreement entered on May 31, 2021 between the Company and the former owners of its Nova Ortho and Spine subsidiary and an addendum to that agreement regarding the acquisition supplemental payment the parties recognized unanticipated series of events which prevented alternative financing and equity funding during the initial year that impacted the Milestone outcome, and the parties acknowledged the significant gains and accomplishments during the initial year. Based upon those accomplishments and the performanceerror was immaterial. The impact of the subsidiary during its initial yearerror correction is reflected in $3,125,002 increase to the Company agreedmezzanine equity and offsetting decrease to issue the supplemental payment of 818,750 additional shares ofSeries N Preferred Series J Stock with an aggregate stated value equalin subject to $3,275,000.possible redemption mezzanine equity line item.
The preliminary purchase price allocationCompany and We3 managers entered into a resignation, release and buyback agreement and addendum, effective October 31, 2022. The Company presented in prior periods operating loss as loss from discontinued operations in the amount of $2,593 on the net assets acquired is as follows:consolidated statement of operations for the three months ended March 31, 2022.
Nova Ortho and Spine, PLLC | ||||
Cash | $ | 177,977 | ||
Accounts receivable | 4,052,213 | |||
Property and equipment | 92,064 | |||
Other assets | 342,493 | |||
Goodwill | 5,666,608 | |||
Liabilities | (977,021 | ) | ||
Total | $ | 9,354,334 |
Property and equipmentThe Company identified that NOVA’s accounts receivable as presented in its balance sheet as of September 30, 2022 and December 31, 2021, was understated due to an error in the collection utilized to estimate NOVA’s accounts receivable. The impact of this correction on the accounting estimates is reflected in $1,076,000 decrease to accounts receivable as follows:of March 31, 2022 and $1,076,000 increase in finance charges for the three months ended March 31, 2022.
September 30, 2022 | December 31, 2021 | |||||||
Residential housing | $ | 312,330 | $ | 319,856 | ||||
Medical equipment | 35,974 | 96,532 | ||||||
Computer Equipment | 9,189 | 9,189 | ||||||
Furniture, fixture and equipment | 96,532 | 35,974 | ||||||
Leasehold Improvement | 15,950 | 15,950 | ||||||
Total | 469,975 | 477,501 | ||||||
Less: accumulated depreciation | (247,861 | ) | (218,471 | ) | ||||
Property and equipment, net | $ | 222,114 | $ | 259,030 |
The following table summarizes the impacts of the error corrections on the Company's financial statements for each of the periods presented below:
i. Balance sheet
Schedule of restated financial information | ||||||||||||
Impact of correction of error | ||||||||||||
March 31, 2022 (Unaudited) | As previously reported | Adjustments | As restated | |||||||||
Total assets | $ | 11,704,750 | $ | 3,275,000 | $ | 14,979,750 | ||||||
Total liabilities | 9,512,586 | 3,275,000 | 12,787,586 | |||||||||
Mezzanine equity | – | 3,125,002 | 3,125,002 | |||||||||
Total shareholders' equity | $ | 2,192,163 | $ | (3,125,002 | ) | $ | (932,839 | ) |
For the three and nine months ended September 30,CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022 total depreciation expense was $10,814 and $32,442, respectively. Depreciation expense recorded as cost
(UNAUDITED)
ii. Statement of sales for the three and nine months ended September 30, 2022 was $5,031 and $15,093, respectively, and depreciation expense recorded as cost of sales for the year ended December 31, 2021 was $12,448.operations
Impact of correction of error | ||||||||||||
Three months ended March 31, 2022 (Unaudited) | As previously reported | Adjustments | As restated | |||||||||
Revenue | $ | 2,940,994 | $ | (43,844 | ) | $ | 2,897,150 | |||||
Cost of sales | 1,135,702 | (19,474 | ) | 1,116,228 | ||||||||
Gross margin | 1,805,292 | (24,370 | ) | 1,780,922 | ||||||||
Operating expense | 1,081,928 | (22,489 | ) | 1,059,439 | ||||||||
Income from operations | $ | 723,364 | $ | (1,881 | ) | $ | 721,483 | |||||
Other income (expense), net | (1,193,196 | ) | (1,071,526 | ) | (2,264,722 | ) | ||||||
Net loss before discontinued operations | (469,832 | ) | (1,073,407 | ) | (1,543,239 | ) | ||||||
Loss from discontinued operations | (16,622 | ) | (2,593 | ) | (19,215 | ) | ||||||
Net loss | $ | (486,454 | ) | $ | (1,076,000 | ) | $ | (1,562,454 | ) | |||
Basic Loss per Share | ||||||||||||
Continued Operations | ) | ) | ||||||||||
Discontinued Operations | ||||||||||||
Weighted Average Shares Outstanding - Basic Earnings Loss per Share | ||||||||||||
Continued Operations | ||||||||||||
Discontinued Operations |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
Schedule of account payable and accrued expenses | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
Accounts payable | $ | 492,391 | $ | 342,330 | ||||
Accrued credit cards | 10,325 | 45,722 | ||||||
Accrued expense – previously factored liability | 954,366 | 776,414 | ||||||
Accrued income taxes, and other taxes | 6,732 | 6,732 | ||||||
Accrued professional fees | 479,609 | 573,040 | ||||||
Accrued advertising | 69,656 | 69,656 | ||||||
Accrued payroll | 57,411 | 14,292 | ||||||
Accrue expense - other | – | 363 | ||||||
Accrued expense - dividend payable | – | 210,046 | ||||||
Total | $ | 2,070,490 | $ | 2,038,595 |
The Company is delinquent paying certain income and property taxes. As of March 31, 2023 and December 31, 2022, the balance for these taxes, penalties and interest is $6,732.
15 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
4. | PLANT AND EQUIPMENT, NET |
InProperty and equipment as of March 31, 2023 and December 31, 2022 is as follows:
Schedule of Property and Equipment | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
Medical equipment | $ | 96,532 | $ | 96,532 | ||||
Computer Equipment | 9,189 | 9,189 | ||||||
Furniture, fixtures and equipment | 30,841 | 35,974 | ||||||
Leasehold Improvement | 15,950 | 15,950 | ||||||
Total | 152,512 | 157,645 | ||||||
Less: accumulated depreciation | (101,708 | ) | (102,206 | ) | ||||
Property and equipment, net | $ | 50,804 | $ | 55,439 |
For the quarterthree months ended September 30,2021, the Company sold 3 lots for $152,000. At September 30,March 31, 2023 and 2022, depreciation expense was $4,635 and $10,814, respectively.
5. | LAND |
As of March 31, 2023 and December 31, 2022, the Company had 27 acres of land ofvalued at approximately $540,000. As of December 31, 2021, the Company had 30 acres of land of approximately $603,000 located in Salmon, Idaho, which was in connection with the acquisition of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E Preferred Stock as consideration for this acquisition.$540,000. The land is currently vacant and is expected to be developed into a residential community.
LINE OF CREDIT |
September 30, 2022 | December 31, 2021 | |||||||
Accounts payable | $ | 244,146 | $ | 170,914 | ||||
Accrued finance cost | 796,546 | 846,754 | ||||||
Accrued dividends payable | 210,046 | – | ||||||
Accrued credit cards | 54,675 | 16,466 | ||||||
Accrued advertising | 69,656 | 39,886 | ||||||
Accrued payroll wages | 21,576 | 39,959 | ||||||
Accrued professional fees | 514,151 | 270,827 | ||||||
Accrued expenses other | 7,095 | 7,916 | ||||||
Total | $ | 1,917,891 | $ | 1,392,722 |
The Company is delinquent paying certain income and property taxes. As of September 30, 2022At March 31, 2023 and December 31, 20212022, the Company had a revolving line of credit with a financial institution for $92,500 which was personally guaranteed by the manager of Platinum Tax. The loan accrues interest at 11.20% at March 31, 2023 and 10.95% at December 31, 2022. As of March 31, 2023 and December 31, 2022, the Company had $20,619 and $0, respectively, of outstanding balance for these taxes, penalties and interest is $6,732 and $7,553, respectivelyagainst the line of credit.
7. | RELATED PARTY TRANSACTIONS |
On February 11, 2021, the Chairman of the Board and the CEO each converted 62,500 Preferred Series I shares into 25,000,000 restricted common shares for a total of 125,000 Preferred Series I shares into 50,000,000 restricted common shares.
From time to time, the previous owner whichwho is currently the manager of Platinum Tax Defenders loansloaned funds to the CompanyPlatinum Tax to cover short term operating needs. Amounts owed as of September 30, 2022March 31, 2023 and December 31, 20212022 were $4,025$90,189 and $37$37,025, respectively.
TheIn connection with the acquisition of Edge View on July 16, 2014, the Company assumed amounts due to previous owners who are current managers of Edge View Properties Inc. related to the acquisition on July 16, 2014.View. These amounts are due on demand and do not bear interest. The balance of these amounts are $4,979 due from the previous owners$4,979 as of September 30, 2022March 31, 2023 and December 31, 2021, respectively. On August 6, 2021, a Board Resolution was executed to terminate one of the two employees of Edge View Properties for fraud, deceit, larceny, and thievery for selling property belonging to the Company and personally taking the $162,598 in proceeds. The Company hired counsel to terminate the employee and handle all legal matters for return of monies and criminal prosecution.2022.
The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive granted in 2021 to the Chief Executive Officer. Based on his employment agreement since January1, 2022 currently 29% is paid in cash and 71% is accrued. The Company previously paid the Chief Executive Officer $360,000 per year. The total outstanding accrued compensation as of September 30, 2022 and December 31, 2021 were $1,605,000 and $1,415,000, respectively.
The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive to the Chairman of the Board. Based on his employment agreement since January 1, 2022 of which currently 29% is paid in cash and 71% is accrued. The Company previously paid the Chairman of the Board $300,000 per year. The total outstanding accrued compensation as of September 30, 2022 and December 31, 2021 were $1,590,000 and $1,400,000, respectively.
The Company agreed to pay $120,000 per year to the Chief Operating Officer based on his amended employment agreement executed on May 15, 2019. In the third quarter of 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000. The total outstanding accrued compensation as of September 30, 2022 and December 31, 2021 was $249,000 and $159,000, respectively.
The Company agreed to pay $156,000 per year to the Chief Financial Officer based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued compensation as of September 30, 2022 and December 31, 2021 was $17,057.
The Company entered into a Management Agreement effective May 31, 2021 for compensation to the Principals of the Company’s Nova Ortho and Spine subsidiary in the form of an annual base salaries of $372,000 to one of the 3 doctors, $450,000 to the second, and $372,000 to the third doctor.
Collectively, as a group, Principals will receive an annual cash bonus and stock equity set forth below (the “Annual Bonus”). The Annual Bonus will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth below.
Year | Minimum Annual Nova EBITDA | Cash Annual Bonus | Series J Preferred Stock |
2021 | $2.0M | $120,000 | 120,000 Shares |
2022 | $2.4M | $150,000 | 135,000 Shares |
2023 | $3.7M | $210,000 | 150,000 Shares |
2024 | $5.5M | $300,000 | 180,000 Shares |
2025 | $8.0M | $420,000 | 210,000 Shares |
The Company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company owed the Chairman $123,882 and $126,765, respectively.$123,192.
See also Note 14 for compensation paid to employees of the Company.
Notes payable at September 30, 2022 and December 31, 2021 are summarized as follows:
September 30, 2022 | December 31, 2021 | |||||||
Notes and Loans Payable | $ | 166,376 | $ | 600,932 | ||||
Less current portion | (25,835 | ) | (458,177 | ) | ||||
Long-term portion | $ | 140,541 | $ | 142,755 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
8. | NOTES AND LOANS PAYABLE |
Notes payable at March 31, 2023 and December 31, 2022, respectively, are summarized as follows:
Schedule of notes payable | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
Notes and loans payable | $ | 181,242 | $ | 155,598 | ||||
Less current portion | (36,596 | ) | (15,809 | ) | ||||
Long-term portion | $ | 144,646 | $ | 139,789 |
Long-term debt matures as follows:
Schedule of Maturities of Long-term Debt | ||||||||
Amount | Amount | |||||||
2023 | $ | 25,835 | ||||||
2024 | 4,846 | $ | 36,596 | |||||
2025 | 4,846 | 4,988 | ||||||
2026 | 4,846 | 4,988 | ||||||
2027 | 4,846 | 4,988 | ||||||
2028 | 4,988 | |||||||
Thereafter | 121,157 | 124,694 | ||||||
Total | $ | 166,376 | $ | 181,242 |
Notes and Loans Payable – Related Party
From time to time, the previous owner which is currently the manager of Platinum Tax Defenders loans funds to the Company to cover short term operating needs. Amounts owed as of September 30, 2022 and December 31, 2021 were $4,025 and $36, respectively. The amounts due from the previous owners of Edge View is $4,979 as of September 30, 2022 and December 31, 2021.
Loans and Notes Payable – Unrelated PartiesParty
On March 12, 2009, the Company entered intoissued a preferred debenture agreement forin the principal amount of $20,000. The note boredebenture bears interest at 12% per yearannum and matured on September 12, 2009. The balance of the debenture was $10,989 at March 31, 2023 and December 31, 2022 and the accrued interest was $6,554 and $6,229 at March 31, 2023 and December 31, 2022, respectively. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. No warrants had been exercised before the expiration. The balance of the note was $10,989 at September 30, 2022 and December 31, 2021. The accrued interest of the note was $5,986 and $4,910 at September 30, 2022 and December 31, 2021, respectively.
On September 9, 2019, the Company obtained a promissory note for $410,000 at 10% interest and matured on September 9, 2021. On November 10, 2021, the Company entered into addendum No. 1 on the note extending the maturity date until December 31, 2021. On May 4, 2021, the Company entered into addendum No. 2, whereby the maturity date was amended to November 3, 2021, accrued interest of $22,266 was added to the principal balance of $410,000 resulting in a new principal balance of $432,266 at May 4, 2021 and interest accruing at the rate of 24%. On September 22, 2022, this note was refinanced into a consolidated senior secured convertible promissory note. See footnote 8, for further discussion.
Small Business Administration (“SBA”) Loans
On SeptemberJune 2, 2021, The2020, the Company obtained an SBA loan in the principal amount of $150,000 at$150,000 with an interest rate of 3.75% with3.75% and a maturity date of SeptemberJune 2, 2050.2050. The Company reclassified $5,723 of accrued interest to the principal amounts for the three months ended March 31, 2023. The principal balance and accrued interest at September 30, 2022March 31, 2023 was $145,387$149,633 and $5,723,$0, respectively, and the principal balance and accrued interest at December 31, 20212022 was $147,677$144,609 and $5,723,$5,723, respectively.
17 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
9. | CONVERTIBLE NOTES PAYABLE |
As of March 31, 2023 and December 31, 2022, the Company had convertible debt outstanding net of amortized debt discount of $3,717,936 and $3,515,752, respectively. During the three months ended March 31, 2023, the Company received net proceeds of $240,000 from convertible notes. During the three months ended March 31, 2022, the Company had proceeds of $550,967 from convertible notes and repaid $5,908 to convertible noteholders. There are debt discounts associated with the convertible debt of $89,147 and $46,798 at March 31, 2023 and December 31, 2022, respectively. For the three months ended March 31, 2023 and 2022, the Company recorded amortization of debt discounts of $17,983 and $44,546, respectively. During the three months ended March 31, 2023, the Company converted $58,800 of convertible debt, $5,873 in accrued interest and $2,000 in penalties and fees into shares of the Company’s common stock. The Company recognized $123,566 of interest expense and additional paid-in capital to adjust fair value for the debt settlement during the three months ended March 31, 2023.
On September 22, 2022, the Company entered into a security exchange and purchase agreement with its largest lender to consolidate all promissory notes held by themit and related accrued interest in exchange for (1) one consolidated senior secured convertible promissory note (“New Promissory Note”) in the amount of $2,600,000$2,600,000 and (2) shares of series X senior convertible preferred stock totaling $1,500,000$1,500,000 with a par value of $0.001, stated value of $4.00,$ , convertible into common shares at a 1:1 conversion rate, non-dilutive and non-voting shares. Prior to conversion, all promissory notes with this lender totaled to $4,791,099$4,791,099 consisting of principal of $3,840,448$3,840,448 and accrued interest of $950,651$950,651 resulting in a gain on debt consolidation of $1,217,744.$1,397,271.
Convertible notes as of March 31, 2023 and December 31, 2022 are summarized as follows:
Schedule of convertible notes summary | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
Convertible notes payable | $ | 3,807,083 | $ | 3,562,550 | ||||
Discounts on convertible notes payable | (89,147 | ) | (46,798 | ) | ||||
Total convertible debt less debt discount | 3,717,936 | 3,515,752 | ||||||
Current portion | 3,717,936 | 3,515,752 | ||||||
Long-term portion | $ | – | $ | – |
18 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
The following is a schedule of convertible notes payable as of and for the three months ended March 31, 2023.
Schedule of convertible notes details | ||||||||||||||||||||||||||||||||||||||||
Note # | Issuance | Maturity | Principal Balance 12/31/22 | New Loan | Principal Conversions | Shares Issued Upon Conversion | Principal Balance 3/31/23 | Accrued Interest on Convertible Debt at 12/31/22 | Interest Expense On Convertible Debt For the Period Ended 3/31/23 | Accrued Interest on Convertible Debt at 3/31/23 | Unamortized Debt Discount At 3/31/23 | |||||||||||||||||||||||||||||
7-1 | 10/28/2016 | 10/28/2017 | 10,000 | $ | – | $ | (10,000 | ) | 23,405,455 | $ | – | $ | 2,263 | $ | – | $ | – | $ | – | |||||||||||||||||||||
9 | 9/12/2016 | 9/12/2017 | 50,080 | – | – | – | 50,080 | 14,157 | 2,470 | 16,627 | – | |||||||||||||||||||||||||||||
10 | 1/24/2017 | 1/24/2018 | 55,000 | – | – | – | 55,000 | 69,876 | 2,712 | 72,588 | – | |||||||||||||||||||||||||||||
10-1 | 2/10/2023 | 2/10/2024 | – | 50,000 | – | – | 50,000 | – | 1,007 | 1,007 | – | |||||||||||||||||||||||||||||
10-2 | 3/30/2023 | 3/30/2024 | – | 25,000 | – | – | 25,000 | – | 10 | 10 | – | |||||||||||||||||||||||||||||
29-2 | 11/8/2019 | 11/8/2020 | 36,604 | – | – | – | 36,604 | 20,160 | 2,166 | 22,326 | – | |||||||||||||||||||||||||||||
31 | 8/28/2019 | 8/28/2020 | – | – | – | – | – | 8,385 | – | 8,385 | – | |||||||||||||||||||||||||||||
37-1 | 9/3/2020 | 6/30/2021 | 113,667 | – | – | – | 113,667 | 28,756 | 5,045 | 38,801 | – | |||||||||||||||||||||||||||||
37-2 | 11/2/2020 | 8/31/2021 | 113,167 | – | – | – | 113,167 | 27,510 | 5,023 | 37,533 | – | |||||||||||||||||||||||||||||
37-3 | 12/29/2020 | 9/30/2021 | 113,166 | – | – | – | 113,166 | 26,474 | 5,023 | 36,497 | – | |||||||||||||||||||||||||||||
38 | 2/9/2021 | 2/9/2022 | 96,000 | – | (48,800 | ) | 85,276,923 | 47,200 | 27,939 | 3,321 | 31,260 | – | ||||||||||||||||||||||||||||
39 | 4/26/2021 | 4/26/2022 | 168,866 | – | – | – | 168,866 | 39,684 | 9,160 | 48,844 | – | |||||||||||||||||||||||||||||
40-1 | 9/22/2022 | 9/22/23 | 2,600,000 | – | – | 10,000,000 | 2,600,000 | 71,233 | 64,110 | 131,343 | – | |||||||||||||||||||||||||||||
40-2 | 11/4/2022 | 11/4/2023 | 68,666 | – | – | – | 68,666 | 1,072 | 1,693 | 2,765 | 10,253 | |||||||||||||||||||||||||||||
40-3 | 11/28/2022 | 11/28/2023 | 68,667 | – | – | – | 68,667 | 620 | 1,693 | 2,313 | 11,382 | |||||||||||||||||||||||||||||
40-4 | 12/21/2022 | 12/21/2023 | 68,667 | – | – | – | 68,667 | 187 | 1,693 | 1,880 | 12,464 | |||||||||||||||||||||||||||||
40-5 | 1/24/2023 | 1/24/2024 | – | 90,166 | – | – | 90,166 | – | 1,630 | 1,630 | 19,387 | |||||||||||||||||||||||||||||
40-6 | 3/21/2023 | 3/21/2024 | – | 138,167 | – | – | 138,167 | – | 379 | 379 | 35,661 | |||||||||||||||||||||||||||||
$ | 3,562,550 | $ | 303,333 | $ | (58,800 | ) | 118,682,378 | $ | 3,807,083 | $ | 338,316 | $ | 107,135 | $ | 454,188 | $ | 89,147 |
Note 7-1
On October 28, 2016, the Company issued a convertible promissory note in the principal amount of $50,000, which matured on October 28, 2017. Note 7-1 is currently in default and accrues interest at a default interest rate of 20% per annum.
19 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Note 9
On September 12, 2016, the Company issued a convertible promissory note in the principal amount of $80,000 for services rendered, which matured on September 12, 2017. Note 9 is currently in default and accrues interest at a default interest rate of 20% per annum.
Notes 10, 10-1 and 10-2
On January 24, 2017, the Company issued a convertible promissory note in the principal amount of $80,000 for services rendered, which matured on January 24, 2018. Note 10 is currently in default and accrues interest at a default interest rate of 20% per annum. On February 10, 2023, the Company executed a second tranche under this note in the principal amount of $50,000 (Note 10-1). On March 30, 2023, the Company executed a third tranche under this note in the principal amount of $25,000 (Note 10-2). Notes 10-1 and 10-2 accrue interest at a rate of 15% per annum.
Notes 29, 29-1 and 29-2
On May 10, 2019, the Company issued a convertible promissory note in the principal amount of $150,000. On November 8, 2019, this note (Note 29) was purchased by and assigned to an unrelated party. The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,918 which was issued as Note 29-1, plus a new convertible promissory note in the principal amount of $62,367 which was issued as Note 29-2. Note 29-2 is currently in default and accrues interest at a default interest rate of 24% per annum.
Note 31
On August 28, 2019, the Company issued a convertible promissory note in the principal amount of $120,000, which matured on August 28, 2020. Note 31 is currently in default and accrues interest at a default interest rate of 24% per annum.
Notes 37-1, 37-2 and 37-3
On September 3, 2020, the Company issued a convertible promissory note in the principal amount of $200,000, with an original issue discount of $50,000, which could be drawn in several tranches. On September 3, 2020, the Company executed the first tranche in the principal amount of $67,000, less an original issue discount of $17,000, which matured on June 30, 2021 (Note 37-1). On November 2, 2020, the Company executed the second tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on August 31, 2021 (Note 37-2). On December 29, 2020, the Company executed the third tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021 (Note 37-3). Notes 37-1, 37-2 and 27-3 are currently in default and accrue interest at a default interest rate of 18% per annum.
Note 38
On February 9, 2021, the Company issued a convertible promissory note in the principal amount $103,500, which matured on February 9, 2022. Note 38 is currently in default and accrues interest at a default interest rate of 22% per annum.
20 |
As of September 30,CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022 and December 31,
(UNAUDITED)
Note 39
On April 26, 2021, the Company hadissued a convertible debt outstandingpromissory note in the principal amount $153,500, which matured on May 10, 2022. Note 39 is currently in default and accrues interest at a default interest rate of $3,189,17522% per annum.
Notes 40-1, 40-2, 40-3, 40-4, 40-5 and $2,077,753, respectively, net of debt discounts. During the nine months ending40-6
On September 30,22, 2022, the Company had proceedsissued a convertible promissory note in the principal amount of $990,072 from convertible$2,600,000 in exchange for total of $4,791,099 of defaulted promissory notes and repaid $5,908 to convertible noteholders. There are debt discounts associated with the convertible debt of $0 and $0 as of September 30,balances (Note 40-1). On November 4, 2022, and December 31, 2021, respectively. For the nine months ending September 30, 2022 and 2021, the Company recorded amortizationexecuted a second tranche under this note in the principal amount of debt discounts$68,667, less an original issue discount and fee of $249,120$18,667 (Note 40-2). On November 28, 2022, the Company executed the third tranche under this note in the principal amount of $68,667, less an original issue discount and $1,050,014, respectively.fee of $18,667 (Note 40-3). On November 28, 2022, the Company executed a fourth tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-4). On January 24, 2023, the Company executed a fifth tranche under this note in the principal amount of $88,6676, less an original issue discount and fee of $25,166 (Note 40-5). On March 21, 2023, the Company executed a sixth tranche under this note in the principal amount of $136,666, less an original issue discount and fee of $39,166 (Note 40-6). All of the Note 40 tranches mature in one year from the note issuance date and accrue interest at a rate of 10% per annum.
10. | CAPITAL STOCK |
Preferred Stock
The Company had nohas designated multiple series of preferred stock, including shares of series A preferred stock, shares of series B preferred stock, shares of series C preferred stock, shares of series D preferred stock, shares of series E preferred stock, shares of series F preferred stock, shares of series F-1 preferred stock, shares of series I preferred stock, shares of series J preferred stock, shares of series K preferred stock, shares of series L preferred stock, shares of series N senior convertible debt conversions during the nine months ended September 30, 2022.preferred stock, shares of series R preferred stock and shares of series X senior convertible preferred stock.
Convertible notes at September 30, 2022The following is a description of the rights and December 31, 2021 are summarized as follows:preferences of each series of preferred stock.
September 30, 2022 | December 31, 2021 | |||||||
Convertible notes payable | $ | 3,189,175 | $ | 2,077,753 | ||||
Discounts on convertible notes payable | – | – | ||||||
Total convertible debt less debt discount | 3,189,175 | 2,077,753 | ||||||
Current portion | 3,189,175 | 2,077,753 | ||||||
Long-term portion | $ | – | $ | – |
Redeemable Preferred Stock
The Company recognized the series N senior convertible preferred stock and series X senior convertible preferred stock as mezzanine equity since the redeemable preferred stock may be redeemed at the option of the holder, but is not mandatorily redeemable.
21 |
The following is a schedule of convertible notes payable from DecemberCARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021 to September 30, 2022.2023 AND 2022
(UNAUDITED)
Note # | Issuance | Maturity | Principal Balance 12/31/21 | New Loan | Debt Consolidation | Cash Paydown | Principal Balance 9/30/22 | Accrued Interest on Convertible Debt at 12/31/21 | Interest Expense On Convertible Debt For the Period Ended 9/30/22 | Accrued Interest on Convertible Debt at 9/30/22 | Unamortized Debt Discount At 9/30/22 | |||||||||||||||||||||||||||||
7-1 | 10/28/2016 | 10/28/2017 | 10,000 | $ | – | $ | – | $ | – | $ | 10,000 | $ | 10,899 | $ | 1,495 | $ | 12,394 | $ | – | |||||||||||||||||||||
9 | 9/12/2016 | 9/12/2017 | 50,080 | – | – | – | 50,080 | 4,141 | 7,491 | 11,632 | – | |||||||||||||||||||||||||||||
10 | 1/24/2017 | 1/24/2018 | 12,646 | – | – | – | 12,646 | 14,831 | 1,892 | 16,723 | – | |||||||||||||||||||||||||||||
11-2 | 3/16/2017 | 3/16/2018 | 17,345 | – | – | – | 17,345 | 9,843 | 2,595 | 12,438 | – | |||||||||||||||||||||||||||||
13-2 | 7/24/2018 | 1/24/2019 | 43,961 | – | (43,961 | ) | – | – | 34,113 | 8,075 | – | – | ||||||||||||||||||||||||||||
22 | 7/10/2018 | 1/10/2021 | 772,118 | – | (766,210 | ) | (5,908 | ) | – | – | 53,908 | – | – | |||||||||||||||||||||||||||
22-1 | 2/20/2019 | 1/10/2021 | 61,704 | – | (61,704 | ) | – | – | 28,523 | 11,076 | – | – | ||||||||||||||||||||||||||||
22-3 | 4/10/2019 | 1/10/2021 | 56,095 | – | (56,095 | ) | – | – | 25,303 | 10,069 | – | – | ||||||||||||||||||||||||||||
26 | 8/10/2017 | 1/27/2018 | 20,000 | – | – | – | 20,000 | 10,525 | 2,244 | 12,769 | – | |||||||||||||||||||||||||||||
29-1 | 11/8/2019 | 11/8/2021 | – | – | – | – | – | 2,283 | – | 2,283 | – | |||||||||||||||||||||||||||||
29-2 | 11/8/2019 | 11/8/2021 | 36,604 | – | – | – | 36,604 | 11,374 | 6,571 | 17,945 | – | |||||||||||||||||||||||||||||
31 | 8/28/2019 | 8/28/2021 | – | – | – | – | – | 8,385 | – | 8,385 | – | |||||||||||||||||||||||||||||
32 | 5/22/2019 | 5/22/2021 | 25,000 | – | – | – | 25,000 | 12,277 | 3,740 | 16,017 | – | |||||||||||||||||||||||||||||
34 | 5/18/2021 | 5/18/2021 | – | – | – | – | – | 219 | – | 219 | – | |||||||||||||||||||||||||||||
35 | 8/24/2021 | 8/24/2021 | – | – | – | – | – | 74 | – | 74 | – | |||||||||||||||||||||||||||||
36-1 | 9/3/2021 | 1/3/2021 | 122,400 | – | (122,400 | ) | – | – | 25,906 | 16,479 | – | – | ||||||||||||||||||||||||||||
36-2 | 11/3/2021 | 3/3/2021 | 122,400 | – | (122,400 | ) | – | – | 23,906 | 16,479 | – | – | ||||||||||||||||||||||||||||
36-3 | 12/29/2021 | 4/29/2021 | 122,400 | – | (122,400 | ) | – | – | 22,070 | 16,479 | – | – | ||||||||||||||||||||||||||||
36-4 | 5/5/2021 | 9/5/2021 | 187,500 | – | (187,500 | ) | – | – | 22,131 | 25,243 | – | – | ||||||||||||||||||||||||||||
36-5 | 1/11/2022 | 5/11/2022 | – | 202,300 | (202,300 | ) | – | – | – | 26,138 | – | – | ||||||||||||||||||||||||||||
36-6 | 3/9/2022 | 7/9/2022 | – | 146,667 | (146,667 | ) | – | – | – | 14,827 | – | – | ||||||||||||||||||||||||||||
36-7 | 3/22/2022 | 7/22/2022 | – | 202,000 | (202,000 | ) | – | – | – | 19,126 | – | – | ||||||||||||||||||||||||||||
36-8 | 4/25/2022 | 8/25/2022 | – | 201,293 | (201,293 | ) | – | – | – | 15,684 | – | – | ||||||||||||||||||||||||||||
36-9 | 7/25/2022 | 11/25/2022 | – | 68,692 | (68,692 | ) | – | – | – | 2,270 | – | – | ||||||||||||||||||||||||||||
36-10 | 8/4/2022 | 12/4/2022 | – | 74,120 | (74,120 | ) | – | – | – | 2,083 | – | – | ||||||||||||||||||||||||||||
36-11 | 9/12/2022 | 1/12/2023 | – | 95,000 | (95,000 | ) | – | – | – | 843 | – | – | ||||||||||||||||||||||||||||
37-1 | 9/3/2021 | 6/30/2021 | 67,000 | – | – | – | 67,000 | 8,878 | 5,011 | 13,889 | – | |||||||||||||||||||||||||||||
37-2 | 11/2/2021 | 8/31/2021 | 66,500 | – | – | – | 66,500 | 7,722 | 4,974 | 12,696 | – | |||||||||||||||||||||||||||||
37-3 | 12/29/2021 | 9/30/2021 | 66,500 | – | – | – | 66,500 | 6,686 | 4,974 | 11,660 | – | |||||||||||||||||||||||||||||
38 | 2/9/2021 | 2/9/2022 | 64,000 | – | – | – | 64,000 | 4,614 | 2,872 | 7,486 | – | |||||||||||||||||||||||||||||
39 | 5/10/2021 | 5/10/2022 | 153,500 | – | – | – | 153,500 | 5,915 | 6,889 | 12,803 | – | |||||||||||||||||||||||||||||
40 | 9/22/2022 | 9/22/23 | – | 2,600,000 | – | – | 2,600,000 | – | 40,603 | 40,603 | – | |||||||||||||||||||||||||||||
$ | 2,077,753 | $ | 3,590,072 | $ | (2,472,742 | ) | $ | (5,908 | ) | $ | 3,189,175 | $ | 300,618 | $ | 330,130 | $ | 210,016 | $ | – |
Series N Senior Convertible Preferred Stock
On September 12, 2022,Ranking. The series N senior convertible preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not expressly made senior to or on parity with the series N senior convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series N senior convertible preferred stock; and (iii) junior to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company issued 375,000and each class or series that is expressly made senior to the series N senior convertible preferred stock.
Dividend Rights. Holders of series X sharesN senior convertible preferred stock are entitled to dividends at a parrate per annum of 12.0% of the stated value ($4.00 per share); provided that upon an event of $.001default (as defined in the certificate of designation for the series N senior convertible preferred stock), such rate shall increase by 8% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date in cash or common stock at the Company’s discretion. Dividends payable in common stock shall be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common stock on the Company’s principal trading market (the “VWAP”) during the five (5) trading days immediately prior to the applicable dividend payment date. At March 31, 2023, cumulative dividends on Series N Preferred Stock were $453,654.
Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash equal to 115% of the stated value of $4.00 totaling $1,500,000. See footnote 8,per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders.
Voting Rights. Holders of series N senior convertible notes payablepreferred stock do not have any voting rights; provided that, so long as any shares of series N senior convertible preferred stock are outstanding, the affirmative vote of holders of a majority of the series N senior convertible preferred stock, which majority must include SILAC Insurance Company so long as it holds any shares of series N senior convertible preferred stock, voting as a separate class, shall be necessary for further discussion.approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate of designation or prior to the Company’s (or Nova’s) creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series N senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of 66% of the series N senior convertible preferred stock, voting as a separate class, is required prior to the Company’s (or Nova’s) creation or issuance of any senior securities.
Conversion Rights. Each shares of series N senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price of $0.012 per share (subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers, consolidations or similar transactions); provided that in no event shall the holder of any series N senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock issuable upon the conversion of the series N senior convertible preferred stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to the Company.
22 |
In the second quarter ofCARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022 37,500 preferred series D shares were cancelled and exchanged for 37,500 B shares and 37,500 preferred series H shares were cancelled and exchanged for 37,500 B shares.
(UNAUDITED)
Additionally, as part
Redemption Rights. The Company may redeem the series N senior convertible preferred stock at any time by paying in cash therefore a sum equal to 115% of the Nova acquisition, on September 7, 2022, the Company issued 818,750 preferred series J shares at a par value of $.001 and stated value of $4.00 totaling $3,275,000 as discussed in note 2.
As partper share, plus the amount of the Nova Ortho acquisition, the Company issued 894,834 shares of preferred stock series J with par value $.001accrued and a stated value of $4.00, for $3,579,334.
Also, as part of the Nova Ortho acquisition, the Company issued 868,056 shares of preferred stock series N with par value $.001unpaid dividends and a stated value of $4.00, for $3,000,000 including a discount of $472,224 which was recorded as a reduction to APIC.
The Company and Key Tax managers have entered into a Buyback Agreement (“Agreement”) which is effective December 31, 2021. Pursuant to the Agreement, Key Tax managers resigned employment from the Company effective December 31, 2021 and has purchased back the subsidiary in exchange for returning 325,244 Preferred Shares Series G stock (“Preferred G”) which is 100% of Preferred G shares. The Key Tax managers will retain zero shares of Preferred G shares subjectany other amounts due pursuant to the terms of the Agreement. There wascertificate of designation. In addition, a lossny holder may require the Company to redeem some or all of its shares of series N senior convertible preferred stock on disposalthe same terms after a period of twelve months from the date of issuance; provided, however, that such redemption right shall only be exercisable if the Company raises at least $5,000,000 or the common stock is trading on the Nasdaq Stock Market or the New York Stock Exchange.
Series X Senior Convertible Preferred Stock
Ranking. The series X senior convertible preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not expressly made senior to or on parity with the series X senior convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series X senior convertible preferred stock; and (iii) junior to the series N senior convertible preferred stock, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each class or series that is expressly made senior to the series X senior convertible preferred stock.
Dividend Rights. Holders of series X senior convertible preferred stock are entitled to dividends at a rate per annum of 10.0% of the stated value ($4.00 per share); provided that upon an event of default (as defined in the certificate of designation for the series X senior convertible preferred stock), such rate shall increase by 5% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date. At March 31, 2023, cumulative dividends on Series X Preferred Stock were $93,205.
Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities, including the series N senior convertible preferred stock, or parity securities (in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash equal to 100% of the stated value of $4.00 per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders.
Voting Rights. Holders of series X senior convertible preferred stock do not have any voting rights; provided that, so long as any shares of series X senior convertible preferred stock are outstanding, the affirmative vote of holders of a majority of the series X senior convertible preferred stock, which majority must include Leonite Capital LLC so long as it holds any shares of series X senior convertible preferred stock, voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate of designation or prior to the creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series X senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of 66% of the series X senior convertible preferred stock, voting as a separate class, is required prior to the creation or issuance of any senior securities.
23 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Conversion Rights. Each shares of series X senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price equal to the lower of (i) the lowest VWAP during the five (5) trading days immediately prior to the applicable conversion date and (ii) the price per share paid in any subsequent financing (the “Fixed Price”). The Fixed Price is subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers, consolidations or similar transactions, as well as a price based antidilution adjustment, pursuant to which, subject to certain exceptions, if the Company issues common stock at a price lower than the Fixed Price, the Fixed Price shall decrease to such lower price. Notwithstanding the foregoing, in no event shall the holder of any series X senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock issuable upon the conversion of the series X senior convertible preferred stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to the Company.
Redemption Rights. Commencing on September 22, 2023, any holder may require the Company to redeem its shares by the payment in cash therefore of a sum equal to 100% of the stated value of $4.00 per share, plus the amount of $1,201,169 which represented net assetsaccrued and liabilities atunpaid dividends and any other amounts due pursuant to the time of sale back.
Effective December 28, 2021, the Chairmanterms of the Board and Chief Executive Officer each forfeit and surrendered for no consideration 90,000,000 Preferred I shares each, totaling 180,000,000.
Effective March 29, 2021, $265,000certificate of designation; provided however, that in principle fromthe event that the Company completes a public offering prior to the redemption date, then any holder may only cause the Company to redeem any outstanding series X senior convertible debt and conventional debt and $298,195 in accrued interest was converted into 140,799 shares of preferred stock series Bby paying such redemption price in twelve (12) equal monthly installments with a $4.00 stated value per share. This has been reflected in the statement of deficiency in shareholders’ equity.
The Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000.
On February 11, 2021 the Chairman of the Board and the CEO and each converted 62,500 Preferred Series I shares into 25,000,000 restricted common shares for a total of 125,000 Preferred Series I shares into 50,000,000 restricted common shares.
During January 2021, we facilitated a reverse split of several classes our Preferred Stock which has been given retrospective treatment in these financial statements. In addition to the reverse stock split, management established new rights & privileges for certain classes of preferred stock. The reverse split ratio ranges from 1.6:1 to 307.7:1 resulting in a reclassification of $11,837,482 from preferred stock to additional paid in capital. The rights and privileges were changed with unanimous consent of all parties. All holders agreed to replace existing rights and privileges with new uniform conditions and a simplified uniform preferred $4.00 per share stated value.
Holders of Series B, D, D1, E, E1, F, F1, G, G1, H, H1, I, J, J1, L, L1, M, and P Preferred Stock shall have conversion rights that are affected by the closing common share market pricefirst such payment due on the date that is six (6) months following the date that the Company completes such public offering.
Non-redeemable Preferred Stock
Series A Preferred Stock
Each share of conversion as reported on such national exchange where the Company’s commonseries A preferred stock is traded:
i. Ifentitled to a number of votes and converts to a number of shares equal to the closing market pricesum of all shares of common stock and series B preferred stock issued and outstanding, divided by the number shares of series A preferred stock held. Holders of series A preferred stock do not have any dividend, liquidation or redemption rights.
Series B Preferred Stock
Each share of series B preferred stock is less than $4 per shareentitled to one (1) vote on all matters submitted to a vote of stockholders. Each share the Preferred Stock shall convertof series B preferred stock is convertible into an amounttwo (2) shares of common stock equal to: two (2) times the Stated Value, as defined herein, divided by the closing market price as reported on such national exchange where the Company’s common(subject to adjustment for forward stock splits but not reverse stock splits). Holders of series B preferred stock do not have any dividend, liquidation or redemption rights.
Series C Preferred Stock
Each share of series C preferred stock is tradedentitled to one (1) vote on the dateall matters submitted to a vote of conversion. For Example. If the closing pricestockholders. Each share of the common stock as reported on such national exchange where the Company’s commonseries C preferred stock is traded is $1.00 and the Stated Value is $4.00, one (1) preferred share would convertconvertible into eight (8) shares of common stock.stock (subject to adjustment for forward stock splits but not reverse stock splits). If the Company lists on an exchange, it has the right to repurchase these shares at a purchase price of $ per share. Holders of series C preferred stock do not have any dividend, liquidation or redemption rights.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Series D Preferred Stock
ii. If the closing market price
Each share of commonseries D preferred stock is equalentitled to or greater than $4 per share one (1) vote on all matters submitted to a vote of stockholders. Each share the Preferred Stock shall convertof series D preferred stock is convertible into two (2) shares of common stock. For Example. If the closing priceHolders of the commonseries D preferred stock as reported on such national exchange where the Company’s commondo not have any dividend, liquidation or redemption rights.
Series E Preferred Stock
Each share of series E preferred stock is traded is $5.00entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series E preferred share would convertstock is convertible into two (2) shares of common stock. Holders of series E preferred stock do not have any dividend, liquidation or redemption rights.
Series F Preferred Stock
Each share of series F preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series F preferred stock is convertible into two (2) shares of common stock. Holders of Series C Preferred Stock shallseries F preferred stock do not have Conversion Rights such that upon Conversion each one (1) share of Series C Preferred Stock shall convert into one hundred thousand (100,000) shares of the Common Stock. In the event that the Company should up list to a national exchange as defined by the U.S. Securities and Exchange Commission, each share of Series C Preferred Stock shall automatically be redeemed by the Company in exchange for a total of Fifty Thousand Dollars ($50,000.00) worth of the Common Stock, valued at the time of redemption.any dividend, liquidation or redemption rights.
Series F-1 Preferred Stock
Each share of series F-1 preferred stock is convertible into two (2) shares of common stock. Holders of the series F-1 preferred stock do not have any voting, dividend, liquidation or redemption rights.
Series I Preferred Stock
Each share of series I preferred stock is entitled to five (5) votes on all matters submitted to a vote of stockholders. Each share of series I preferred stock is convertible into two (2) shares of common stock. Holders of series I preferred stock do not have any dividend, liquidation or redemption rights.
Series J Preferred Stock
Each share of series J preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series J preferred stock is convertible into two (2) shares of common stock. Holders of series J preferred stock do not have any dividend, liquidation or redemption rights.
Series K and K1 Preferred Stock shall have Conversion Rights such that upon Conversion each
Each share of series K preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of Seriesseries K and K1 Preferred Stock shall convertpreferred stock is convertible into 1.25 shares of the Common Stock.
common stock. Holders of Series R Preferred Stock shall have conversion rights to common stock equal to $0.30; provided, however if the price of the Common Stock closes below $0.30 for the five (5) consecutive Trading Days immediately prior to the Conversion Date, then the Conversion Price shall be adjusted to $0.20, and if the price of the Common Stock closes below $0.20 for the five (5) consecutive Trading Days immediately prior to the Conversion Date, then the Conversion Price shall be adjusted to $0.10.
Common Stock
During the nine months ended September 30, 2022, 84,028,411 shares of common stock were issued upon conversion of certain convertible notes payable and 1,275,427 shares of common stock were issued for services.
On February 11, 2021 the Chairman of the Board and the CEO and each converted 62,500 Preferred Series I shares into 25,000,000 restricted common shares for a total of 125,000 Preferred Series I shares into 50,000,000 restricted common shares.
In the third quarter of 2022, the Company issued 66,666,666 shares of common stock to Red Rock Travel Group and will issue 525,333,334 shares of common stock to be issued which is recorded as common stock to be issued in current liabilities at $157,600 as discussed in note 11.
The following tables summarize all warrant outstanding as of September 30, 2022, and the related changes during this period.
Number of Warrants | Weighted Average Exercise Price | |||||||
Stock Warrants | ||||||||
Balance at December 31, 2021 | 244,420,943 | $ | 0.020 | |||||
Granted | – | – | ||||||
Exercised | – | – | ||||||
Expired | (8,939,477 | ) | (0.146 | ) | ||||
Balance at September 30, 2022 | 235,481,466 | 0.015 | ||||||
Warrants Exercisable at September 30, 2022 | 235,481,466 | $ | 0.015 |
Management has decided to divest from the food services sector due primarily to a shift in strategy to focus time and resources on opportunities in the financial services sector to build upon its tax subsidiaries with related debt, credit, billing, real estate and healthcare. The Company’s restaurant franchise operations have been hard hit by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to this crisis taken by federal, state, and local governments. In light of current circumstances arising from the COVID-19 pandemic, the Company, as a public reporting company, must evaluate what the Company should and are obligated to do in order to protect shareholders from the negative effects of this pandemic.
As a result, management entered into agreements with the existing managers who were the original owners of Romeo’s NY Pizza (“Romeo’s”) and Repicci’s Franchise Group (“Repicci’s”) to buyback the subsidiaries previously purchased by Cardiff Lexington Corporation
The Company and the Repicci’s manager have entered into a Resignation, Release & Buyback Agreement and a Resignation, Release & Buyback Agreement Addendum (“Repicci’s Agreements”) which was effective September 1, 2021. Pursuant to the Repicci’s Agreement, the Repicci’s manager resigned employment from the Company effective September 1, 2021 and has purchased the Repicci’s subsidiary in exchange for returning 81,601 Preferred Shares Series H stock (“Preferred H”) which is held by the Company as treasury stock. The Repicci’s manager retained 37,500 shares of Preferred H shares subject to the terms of the Repicci’s Agreements. There was a gain on disposal in the amount of $216,013 in September 2021 which represented net assets and liabilities at the time of sale back.
The Company and the Romeo’s manager have entered into a Resignation, Release & Buyback Agreement and a Resignation, Release & Buyback Agreement Addendum (“Romeo Agreements”) which is effective July 1, 2021. Pursuant to the Romeo Agreement, Romeo’s manager resigned employment from the Company effective July 1, 2021 and has purchased back the Romeo’s subsidiary in exchange for returning 212,500 Preferred Shares Series D stock (“Preferred D”). The Romeo’s manager will retain 37,500 shares of Preferred D shares subject to the terms of the Romeo Agreements. There was a loss on disposal in the amount of $21,140 in July 2021 which represented net assets and liabilities at the time of sale back.
Cardiff Lexington filed a lawsuit against investors in Red Rock Travel seeking a judgement declaring that convertible secured notes issued to them by Red Rock Travel Group purportedly convertible into Cardiff’s common stock, to be null and void, and defendants subsequently filed a counterclaim. On July 29, 2022 the parties entered into a mediated settlement agreement whereby defendants agreed to dismiss all claims against Cardiff Lexington related to Red Rock Travel notes and accrued interest in the amount of $510,418 and further agreed to cancel and return common stock and warrants issued to claimants in a related 2020 settlement. Cardiff agreed to issue Defendants 592 million restricted common shares at $.0003 per share ($180,000). As a result of the settlement agreement, the convertible notes and accrued interest has been written-off by the Company in the third quarter of 2022 resulting in a gain of $510,417 which is recorded in discontinued operation. As of September 30, 2022, 66,666,666 shares were issued and recorded in common stock for $66,667, additional paid in capital for $46,667 and $157,600 was recorded in liabilities as shares to be issued.
Prior to the Mediated Settlement, the Company continued to carry Red Rock liabilities on its balance sheet including accounts payables and accrued expenses of $1,872,086, convertible notes payable of $240,000, accrued interest of $214,318 and a derivative liability of $378,877 as of September 30, 2021. The party responsible for the convertible notes and related accrued interest is in dispute and is currently in litigation. The derivative liability is a function of the convertible notes and accrued interest. And the accounts payable and accrued expenses of $1,872,086 is deemed to be the responsibility of the current owners of Red Rock and was written-off by the Company in the third quarter of 2021 resulting in a gain of $328,718 which is recorded in discontinued operation.
On May 1, 2018, the Company entered into a stock for stock purchase agreement with the sellers of Red Rock Travel, LLC and a related management agreement to manage Red Rock Travel, LLC (“Red Rock”). The terms and conditions of those agreements were subsequently violated causing the transaction to be reversed and dissolved on May 31, 2019. Red Rock reverted to its previous ownership, the Company canceled the preferred series K shares related to the aborted acquisition and the Company filed notice with the State of Florida of the dissolution.
preferred stock do not have any dividend, liquidation or redemption rights.
25 |
On April 26, 2021,CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Series L Preferred Stock
Each share of series L preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series L preferred stock is convertible into two (2) shares of common stock. Holders of series L preferred stock do not have any dividend, liquidation or redemption rights.
Series R Preferred Stock
Each share of series R preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series B preferred stock is convertible into one (1) shares of common stock (subject to adjustment for forward stock splits but not reverse stock splits). Holders of series R preferred stock do not have any dividend, liquidation or redemption rights.
Preferred Stock Transactions
The Company had no preferred stock transactions during the three months ended March 31, 2023 and 2022.
Common Stock
During the three months ended March 31, 2023, the Company filed a lawsuit against Investorsissued shares of Red Rock seeking a judgment declaring that convertible secured notes totaling $240,000 issued by Red Rock and purportedly convertible into the Company’s common stock be deemed null and void. The Company continues to maintain the liabilityupon conversion of these Red Rock Investor notes on its balance sheet under discontinued operations together with corresponding accrued interest and related derivative liability. Subsequently, in the first quarter of 2022, the company settled a $40,000 note with one Red Rock Investor. Litigation and settlement discussions continue on the remaining $200,000 of Red Rock Investorcertain convertible notes.
September 30, 2022 | December 31, 2021 | |||||||
Net liabilities of discontinued operations | ||||||||
Accrued interest | $ | – | $ | 231,318 | ||||
Convertible debt | – | 240,000 | ||||||
Net liabilities of discontinued operations | $ | – | $ | 471,318 |
The Company did not issue any shares of common stock during the three months ended March 31, 2022.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Loss from discontinued operations | ||||||||||||||||
Interest expense | $ | 5,478 | $ | 17,000 | $ | 39,100 | $ | 51,378 | ||||||||
Gain from reversal of Red Rock liabilities | – | (1,872,086 | ) | – | (1,872,086 | ) | ||||||||||
Gain on settlement of debt | (510,418 | ) | – | (510,418 | ) | – | ||||||||||
Change in derivative liability | – | (57,766 | ) | – | (37,792 | ) | ||||||||||
Loss from discontinued operations | $ | (504,940 | ) | $ | (1,912,852 | ) | $ | (471,318 | ) | $ | (1,858,500 | ) |
11. | WARRANTS |
The table below sets forth warrant activity for the three months ended March 31, 2023 and 2022:
Schedule of warrant activity | ||||||||
Number of Warrants | Weighted Average Exercise Price | |||||||
Balance at January 1, 2023 | 235,557,856 | $ | 0.015 | |||||
Granted | – | – | ||||||
Exercised | – | – | ||||||
Expired | – | – | ||||||
Balance at March 31, 2023 | 235,557,856 | 0.015 | ||||||
Warrants Exercisable at March 31, 2023 | 235,557,856 | $ | 0.015 |
26 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
12. | DISCONTINUED OPERATIONS |
The Company and the managers of AHI entered into a resignation, release and buyback agreement and addendum, effective October 31, 2022, pursuant to which the managers purchased AHI in exchange for returning 217,769 on October 31, 2022, which represented net assets and liabilities at the time of sale back.
shares of series F preferred stock. There was a loss on disposal in the amount of $The Company had no net liabilities of discontinued operations at March 31, 2023 and December 31, 2022. The Company had $0 and $19,215 of loss from discontinued operations for the three months ended March 31, 2023 and 2022, respectively.
Schedule of discontinued operations | ||||||||
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Gain (Loss) from discontinued operations | ||||||||
Revenue | $ | – | $ | 43,844 | ||||
Cost of sales | – | (19,474 | ) | |||||
Selling, general and administrative expenses | – | (1,881 | ) | |||||
Interest expense of Red Rock Investor Note | – | (16,622 | ) | |||||
Loss on divestiture of AHI subsidiary | – | (2,593 | ) | |||||
Gain no change in estimate | – | (4,474 | ) | |||||
Loss from discontinued operations | $ | – | $ | (19,215 | ) |
13. | GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET |
The following table shows ourthe Company’s goodwill balances by reportable segment. We reviewThe Company reviews goodwill for impairment on a reporting unit basis quarterlyannually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. SinceDuring the date of our last quarterly assessment, we have not identified any changes in circumstances that would indicatethree months ended March 31, 2023 and 2022, the carrying value ofCompany had no goodwill is not recoverable.
Allocation of Goodwill to Reporting Segmentsimpairment.
The following table shows our goodwill balances by reportable segment:
Affordable Housing Rentals | Financial Services | Healthcare | Total | |||||||||||||
Gross carrying value at December 31, 2021 | $ | – | $ | 2,092,048 | $ | 2,391,608 | $ | 4,483,656 | ||||||||
Accumulated impairment | – | – | – | – | ||||||||||||
Carrying value at December 31, 2021 | – | 2,092,048 | 2,391,608 | 4,483,656 | ||||||||||||
Milestone reached | – | – | 3,275,000 | 3,275,000 | ||||||||||||
Accumulated impairment | – | – | – | – | ||||||||||||
Carrying value at September 30, 2022 | $ | – | $ | 2,092,048 | $ | 5,666,608 | $ | 7,758,656 |
Schedule of goodwill balances | ||||||||
Healthcare | Total | |||||||
Carrying value at December 31, 2022 | $ | 5,666,608 | $ | 5,666,608 | ||||
Accumulated impairment | – | – | ||||||
Carrying value at March 31, 2023 | $ | 5,666,608 | $ | 5,666,608 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
14. | COMMITMENTS AND CONTINGENCIES |
Leases
ASC 842, “Leases”, requires that a lessee recognize the assets and liabilities that arise from operating leases, A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transaction, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified retrospective approach. Under the effective date method, the Company’s comparative period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted ASC 842, January 1, 2021,2020, using the effective date method and elected certain practical expedients allowing the Company not to reassess:
· | whether expired or existing contracts contain leases under the new definition of a lease; |
· | lease classification for expired or existing leases; and |
· | whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. |
The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less.
The Company recorded operating lease expense of $60,878$77,852 and $91,726$134,000 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and the Company recorded operating lease expense of $231,028 and $108,979 for the nine months ended September 30, 2022 and 2021, respectively.
The Company has propertyoperating leases with future commitments as follows:
Amount | ||||
2022 | $ | 175,183 | ||
2023 | 109,345 | |||
2024 | 22,215 | |||
2025 | 5,554 | |||
Total | $ | 312,297 |
Employees
We have an employment agreement effective July 15, 2021 to December 31, 2025 with the Chairman of the Board, Mr. Thompson. with automatic extension for additional successive one (1) year renewals terms unless terminated as defined in the agreement. We provide for compensation of $30,000 per month along with additional incentives.
We have an employment agreement effective July 15, 2021 to December 31, 2025 with the Chief Executive Officer, Mr. Cunningham with automatic extension for additional successive one (1) year renewals terms unless terminated as defined the agreement. We provide for compensation of $30,000 per month.
Schedule of property leases | ||||
March 31, | Amount | |||
2024 | $ | 140,777 | ||
2025 | 55,408 | |||
Total | $ | 196,185 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Employees
The Company agreed to pay $120,000$360,000 per year and $200,000 of targeted annual incentives to the Chief OperatingExecutive Officer based on his amended employment agreement executed on May 15, 2019. In the third quartersince July 1, 2020, of 2021, the Chief Operating Officer received 61,000 shares of preferred stock series Bwhich currently 50% is paid in exchange for accrued salaries of $244,000.cash and 50% is accrued. The total outstanding accrued compensation as of September 30,March 31, 2023 and December 31, 2022 were $1,935,500 and $1,870,500, respectively.
The Company agreed to pay $360,000 per year and $200,000 of targeted annual incentives to the Chairman of the Board based on his employment agreement since July 1, 2020, of which currently 50% is paid in cash and 50% is accrued. The total outstanding accrued compensation as of December 31, 2022 and December 31, 2021 was $129,000were $1,952,000 and $120,000,$1,863,000, respectively.
In April 2021, the Company’s previous Chief Financial Officer was terminated and replaced. The Company agreed to pay $156,000 per year to the newprevious Chief Financial Officer $156,000 per year along with a bonus of preferred shares based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued compensation as of September 30, 2022March 31, 2023 and December 31, 20212022 was $17,057.$17,057.
The Company entered into a Management Agreement effective May 31, 2021 for compensation to the Principalsprincipals of the Company’s Nova Ortho and Spine (“Nova”) subsidiary in the form of an annual base salaries of $372,000 $372,000 to one of the 3three doctors, $450,000 $450,000 to the second, and $372,000 $372,000 to the third doctor.
Collectively, as a group, Principals of Novasuch principals will receive an annual cash bonus and stock equity set forth in footnote 8 (the “Annual Bonus”). The Annual Bonusbelow, which will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth in footnote 8.below.
Schedule of annual objectives of financial performance | |||
Year | Minimum Annual Nova EBITDA | Cash Annual Bonus | Series J Preferred Stock |
2022 | $2.0M | $120,000 | Shares |
2022 | $2.4M | $150,000 | Shares |
2023 | $3.7M | $210,000 | Shares |
2024 | $5.5M | $300,000 | Shares |
2025 | $8.0M | $420,000 | Shares |
Additionally, the previous owners of Nova were issued an additional 818,750 shares of preferred series J representing the supplemental payment for the acquisition of Nova as described in the agreement.
We have an employment agreement with a subsidiary manager, effective July 1, 2018 with a term of 5 years, whereby we provide for compensation of $20,000 per month along with a bonus incentive if financial performance measures are met.
We acquired Redrock Travel on May 1, 2018. After numerous violations of the Management Agreement it was determined by our board of directors to terminate the acquisition agreement and to file for the cancelation of the Redrock Stock Class with the State of Florida. A declaration has been served notifying Red Rock and its investors the Board nor officer of the Company approved any transactions entered into with Red Rock. The case with Red Rock was settled in the third quarter 2022.
On August 6, 2021, a Board Resolution was executed to terminate one of the two employees of Edge View Properties for fraud, deceit, larceny, and thievery for selling property belonging to the Company and personally taking the $162,598 in proceeds. The Company hired counsel to terminate the employee and handle all legal matters for return of monies and criminal prosecution.
LEGAL PROCEEDINGS |
At September 30, 2022From time to time, the Company had federalmay become involved in various lawsuits and state netlegal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. Management is not currently aware of any such legal proceedings or claims that it believes will have a material adverse effect on the Company’s business, financial condition, or operating loss carry forwards of approximately $18,000,000 that expire over various years through the year 2038.results.
16. | INCOME TAXES |
Due to operating losses, there is no provision for current federal or state income taxes for the yearthree months ended DecemberMarch 31, 2021.2023 and 2022.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.
On October 10, 2022.At March 31, 2023 and December 31, 2022, the Company’s Chief Operating Officer was issued 18,750 preferred series B shares.Company had federal and state net operating loss carry forwards of approximately $22,429,214 that expire in various years through the year 2039.
On OctoberCARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022 the Company strategically concentrating on the healthcare sector executed a Buyback Agreement finalizing the sale of We Three (d.b.a – Affordable Housing Initiative -AHI) a Tennessee registered business, back to the original owners of all of its shares for the return to the Company of 175,045 Preferred F Shares and the Company issuing the buyers 67,500 Restricted Preferred B Shares.
(UNAUDITED)
On November 23, 2022, the Board of Directors of the Company voted to amend and restate the Bylaws of the Company, effective immediately. The primary and substantive changes were as follows: · The articles have been amended to remove twelve (12) classes of preferred stock.
17. | 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) | ||
(3) | Healthcare (Nova) |
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, bookkeepinggeneral accounting, human resources, legal and general accounting.credit and collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items.
The Affordable Housing segment leases and sells mobile homes as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, large monthly mortgage payments and high property taxes and insurance which is a common trait of brick and mortarbrick-and-mortar homes. Additionally, if bad credit is an issue preventing potential home ownershomeowners from purchasing a traditional house, the Company will provide a "lease to own" option so people secure their family home.
PlatinumThe Tax Resolution Services segment provides tax resolution services to individuals and companies that have federal and state tax liabilities. The companyCompany collects fees based on efforts to negotiate and assist in the settlement of outstanding tax debts.
Nova OrthoThe Real Estate segment consists of Edge View, a real estate company that owns five (5) acres zoned medium density residential (MDR) with 12 lots already platted, six (6) acres zoned high-density residential (HDR) that can be platted in various configurations to meet current housing needs, and Spinetwelve (12) acres zoned in Lemhi County as Agriculture that is available for further annexation into the City of Salmon for development, as well as a group of doctors thatcommon area for landowners to view wildlife, provide access to the Salmon River and fishing in a two (2) acre pond.
The Healthcare segment provides a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves.
Management uses numerous tools and methods to evaluate and measure of it’s subsidiaries success. To help succeed, management retains the prior owners of the subsidiaries and allow them to do what they do best is run the business. Additionally, management monitors key metrics primarily revenues and net income from operations.
Schedule of segment reporting | ||||||||||||||||
As of September 30, 2022 | As of December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Assets: | ||||||||||||||||
Affordable Housing Rentals | $ | 213,511 | $ | 213,876 | ||||||||||||
Financial Services | 2,115,474 | 2,212,379 | $ | 8,673 | $ | 8,577 | ||||||||||
Healthcare | 12,971,911 | 8,092,820 | 13,595,507 | 12,692,531 | ||||||||||||
Real Estate | 594,150 | 611,900 | 592,461 | 592,557 | ||||||||||||
Other | 63,299 | 28,940 | ||||||||||||||
Others | 87,944 | 59,692 | ||||||||||||||
Consolidated assets | $ | 15,958,345 | $ | 11,159,915 | $ | 14,284,585 | $ | 13,353,357 |
For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | |||||||
Revenues: | ||||||||
Affordable Housing Rentals | $ | 37,462 | $ | 30,944 | ||||
Financial Services | 219,872 | 1,034,422 | ||||||
Healthcare | 3,103,409 | 2,092,427 | ||||||
Real Estate | – | 152,000 | ||||||
Total revenues | $ | 3,360,743 | $ | 3,309,793 | ||||
Cost of Sales: | ||||||||
Affordable Housing Rentals | $ | 20,523 | $ | 22,281 | ||||
Financial Services | 39,963 | 454,118 | ||||||
Healthcare | 1,094,794 | 526,839 | ||||||
Real Estate | – | 79,481 | ||||||
Total cost of sales | $ | 1,155,280 | $ | 1,082,719 | ||||
Income (Loss) from Operations From Subsidiaries: | ||||||||
Affordable Housing Rentals | $ | 1,556 | $ | (2,276 | ) | |||
Financial Services | 3,839 | (63,715 | ) | |||||
Healthcare | 1,825,593 | 1,382,155 | ||||||
Real Estate | (11,906 | ) | 68,934 | |||||
Total income from operations from subsidiaries | $ | 1,819,082 | $ | 1,385,098 | ||||
Loss From Operations from Cardiff Lexington | $ | (319,812 | ) | $ | (318,448 | ) | ||
Total income from operations | $ | 1,499,270 | $ | 1,066,650 |
For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | |||||||
Revenues: | ||||||||
Affordable Housing Rentals | $ | 120,818 | $ | 97,767 | ||||
Financial Services | 1,156,729 | 3,432,819 | ||||||
Healthcare | 8,154,934 | 2,742,001 | ||||||
Real Estate | – | 152,000 | ||||||
Total revenues | $ | 9,432,481 | $ | 6,424,587 | ||||
Cost of Sales: | ||||||||
Affordable Housing Rentals | $ | 58,611 | $ | 68,269 | ||||
Financial Services | 365,185 | 1,328,508 | ||||||
Healthcare | 2,982,418 | 726,289 | ||||||
Real Estate | – | 79,481 | ||||||
Total cost of sales | $ | 3,406,214 | $ | 2,202,547 | ||||
Income (Loss) from Operations From Subsidiaries: | ||||||||
Affordable Housing Rentals | $ | 4,109 | $ | (13,984 | ) | |||
Financial Services | (86,281 | ) | 324,761 | |||||
Healthcare | 4,609,996 | 1,786,434 | ||||||
Real Estate | (14,419 | ) | 68,934 | |||||
Total income from operations from subsidiaries | $ | 4,513,405 | $ | 2,166,145 | ||||
Loss From Operations from Cardiff Lexington | $ | (1,188,088 | ) | $ | (3,831,975 | ) | ||
Total income (loss) from operations | $ | 3,325,317 | $ | (1,665,830 | ) |
30 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Revenues: | ||||||||
Financial Services | $ | 154,399 | $ | 464,843 | ||||
Healthcare | 2,706,399 | 2,432,307 | ||||||
Consolidated revenues | $ | 2,860,798 | $ | 2,897,150 | ||||
Cost of Sales: | ||||||||
Financial Services | $ | 26,829 | $ | 212,446 | ||||
Healthcare | 956,295 | 903,782 | ||||||
Consolidated cost of sales | $ | 983,124 | $ | 1,116,228 | ||||
Loss from operations from subsidiaries | ||||||||
Financial Services | $ | (43,987 | ) | $ | (101,481 | ) | ||
Healthcare | 1,278,239 | 1,303,348 | ||||||
Real Estate | (97 | ) | (825 | ) | ||||
Income from operations from subsidiaries | $ | 1,234,155 | $ | 1,201,042 | ||||
Loss from operations from Cardiff Lexington | $ | (520,594 | ) | $ | (479,559 | ) | ||
Total income from operations | $ | 713,562 | $ | 721,483 | ||||
Loss before taxes | ||||||||
Financial Services | $ | (45,490 | ) | $ | (101,773 | ) | ||
Healthcare | 817,098 | (797,140 | ) | |||||
Real Estate | (97 | ) | (825 | ) | ||||
Corporate, administration and other non-operating expenses | (787,502 | ) | (662,716 | ) | ||||
Consolidated loss before taxes | $ | (15,991 | ) | $ | (1,562,454 | ) |
18. | SUBSEQUENT EVENTS |
The Company has evaluated its operations subsequent to March 31, 2023 to the date these condensed consolidated financial statements were issued and determined there was subsequent events or transactions the required recognition or disclosure in these consolidated financial statements.
On May 25, 2023, the Company issued 3,150 shares of Series B Preferred Stock to Zia Choe, Interim Chief Financial Officer. These shares were fully vested upon grant.
On June 5, 2023, the Company executed a seventh tranche under Convertible Note 40 in the principal amount of $136,667, less original issue discount and fee of $39,167.
On June 22, 2023, 8,200,562 shares of series K preferred stock were cancelled in connection with terminated acquisition of Red Rock.
31 |
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following management’s discussion and analysis of our financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with our consolidatedsuch financial statements includingand notes thereto set forth elsewhere herein.
Use of Terms
Except as otherwise indicated by the related notes,context and for the other financial information includedpurposes of this report only, references in this report. For ease of reference, “the Company”, ‘Cardiff”,report to “we,” “us” or“us,” “our” refersand “our company” are to Cardiff Lexington Corporation, unless otherwise stated.a Nevada corporation, and its consolidated subsidiaries.
Cautionary Statement ConcerningSpecial Note Regarding Forward-Looking InformationStatements
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 Lexington Corporation 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 to1933, as amended, or the future business prospects, revenueSecurities Act, and income of Cardiff Lexington Corporation, wherever they occur, are necessarily estimates reflecting the best judgmentSection 21E of the senior managementSecurities Exchange Act of Cardiff Lexington Corporation1934, as amended, or the Exchange Act, that are based on the dateour management’s beliefs and assumptions and on which they were made,information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or if no date is stated, as of the date of this report. These forward-looking statements are subject to our future financial performance and involve known and unknown 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”),other factors that may affect the operations, performance, development and results ofcause our business. Because the factors discussed in this report could cause actual results, levels of activity, performance or outcomesachievements to differbe materially different from thoseany future results, levels of activity, performance or achievements expressed in any forward-looking statements madeor implied by us or on our behalf, you should not place undue reliance on any suchthese forward-looking statements. New factors emerge from timeForward-looking statements include, but are not limited 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.about:
Overview
Cardiff Lexington Corporation is a holding company with no stand-alone operations and no material assets other than its ownership interest in its subsidiaries. All of the Company's operations are conducted through, and its income derived from, its various subsidiaries, which are organized and operated according to the laws of their jurisdiction of incorporation, and consolidated by the Company.
To date, Cardiff consists of the following wholly owned subsidiaries:
We Three, LLC, d/b/a Affordable Housing Initiative (“AHI”), which we acquired on May 15, 2014, is an affordable home acquirer located in Maryville, Tennessee, which acquirers’ mobile homes and mobile home parks and either sells them or rents the homes to individual families. The acquisition of mobile homes or mobile home parks allows AHI to provide an alternative to traditional housing, which is a popular option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage payments and high property taxes. The typical arrangement with potential buyers is a lease-to-own arrangement on an individual home. The fundamentals of that arrangement obligate the tenant(s) to the terms of the lease with AHI retaining ownership. In addition, the tenant(s) pay non-refundable option monies prior to the start of the lease. This option consideration enables them to purchase the home at the end of the lease if they choose. A typical lease is 7 years. We have found that most tenants move out before the end of that period and thus never satisfy the terms that would enable them to purchase the home.
Edge View Properties, Inc. (“Edge View”), which we acquired on July 16, 2014, is a real estate company that owns 30 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 the 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). Edge View’s plan is to enter into a joint venture agreement with a developer for construction of single-family homes on the property. The Company has yet to enter into a joint venture agreement for the development of single-family homes.
· | our ability to successfully identify and acquire additional businesses; | |
· | our ability to effectively integrate and operate the businesses that we acquire; | |
· | our expectations around the performance of our current businesses; | |
· | our ability to maintain our business model and improve our capital efficiency; | |
· | our ability to effectively manage the growth of our business; | |
· | our lack of operating history and ability to attain profitability; | |
· | the competitive environment in which our businesses operate; | |
· | trends in the industries in which our businesses operate; | |
· | the regulatory environment in which our businesses operate under; | |
· | changes in general economic or business conditions or economic or demographic trends in the United States, including changes in interest rates and inflation; | |
· | our ability to service and comply with the terms of indebtedness; | |
· | our ability to retain or replace qualified employees of our businesses; | |
· | labor disputes, strikes or other employee disputes or grievances; | |
· | casualties, condemnation or catastrophic failures with respect to any of our business’ facilities; | |
· | costs and effects of legal and administrative proceedings, settlements, investigations and claims; and | |
· | extraordinary or force majeure events affecting the business or operations of our businesses. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
We are an acquisition holding company focused on locating undervalued and undercapitalized companies, primarily in the healthcare industry, and providing them capitalization and leadership to maximize the value and potential of their private enterprises while also providing diversification and risk mitigation for our stockholders. Specifically, we have and will continue to look at a diverse variety of acquisitions in the healthcare sector in terms of growth stages and capital structures and we intend to focus our portfolio of subsidiaries approximately as follows: 80% will be targeted to established profitable niche small to mid-sized healthcare companies and 20% will be targeted to second stage startups in healthcare and related financial services (emerging businesses with a strong organic growth plan that is materially cash generative).
All of our operations are conducted through, and our income derived from, our various subsidiaries. We operate the following businesses through our wholly owned subsidiaries.
· | Healthcare Business. Nova Ortho and Spine, PLLC, or Nova, which we acquired May 31, 2021, operates a group of regional primary specialty and ancillary care facilities throughout Florida that provide traumatic injury victims with primary care evaluations, interventional pain management, and specialty consultation services. We focus on plaintiff related care are and a highly efficient provider of emergency medical condition, or EMC, assessments. We provide a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves. From sports injuries, to sprains, strains, and fractures, our doctors are dedicated to helping patients return to active lifestyles. | |
· | Financial Services (Tax Resolution) Business. Platinum Tax Defenders, or Platinum Tax, which we acquired on July 31, 2018, is a full-service tax resolution firm located in Los Angeles, California. Since 2011, we have been assisting all types of taxpayers resolve any and all issues with the IRS and applicable state tax agencies. We provide fee-based tax resolution services to individuals and companies that have federal and state tax liabilities by assisting clients to settle outstanding tax debts. | |
· | Real Estate Business. Edge View Properties, Inc., or Edge View, which we acquired on July 16, 2014, is a real estate company that owns five (5) acres zoned medium density residential (MDR) with 12 lots already platted, six (6) acres zoned high-density residential (HDR) that can be platted in various configurations to meet current housing needs, and twelve (12) acres zoned in Lemhi County as Agriculture that is available for further annexation into the City of Salmon for development, as well as a common area for landowners to view wildlife, provide access to the Salmon River and fishing in a two (2) acre pond. Salmon is known as Idaho’s premier whitewater destination as well as one of the easier accesses to the Frank Church Wilderness Area - the largest wilderness in the lower 48 states. Salmon’s airport has service to Boise, Idaho and serves as a hub to access whitewater rafting start points and wilderness landing strips. Management has invested years working to develop a new and exciting housing development in Salmon, Idaho and plans to enter into a joint venture agreement with a developer for this planned concept development. |
33 |
We previously owned We Three, LLC (“Platinum Tax”),dba Affordable Housing Initiative, or AHI, which wewas acquired on JulyMay 15, 2014 and sold on October 31, 2018, is2022. AHI leased and sold mobile homes and also provided a full-service tax resolution firm located“lease to own” option.
Segments
During the three months March 31, 2023 and 2022, we had 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) | Financial Services (Platinum Tax) | |
(2) | Healthcare (Nova) | |
(3) | Real Estate (Edge View) |
These segments are a result of differences in Los Angeles, CA. Since 2011, Platinum Tax has been assisting all typesthe nature of taxpayers resolve anythe products and all issues with IRSservices sold. Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and applicable state tax agencies. Platinum Taxcredit and collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items.
The financial services segment provides fee-based tax resolution services to individuals and companies that have federal and state tax liabilities by assisting its clientsliabilities. It collects fees based on efforts to settlenegotiate and assist in the settlement of outstanding tax debts. Specifically, the Platinum Tax teams tax relief services include but are not limited to, back taxes, offer in compromise, audit representation, amending tax returns, tax preparation, tax resolution, wage garnishment relief, removal of bank levies and liens, bookkeeping, and other financial challenges. Platinum Tax has a team of 28 which includes tax attorneys, accountants, and enrolled agents that have an aggregate of more than 90 years of experience in the financial services industry and have resolved tax issues for thousands of clients.
Nova Ortho and Spine, PLLC (“Nova Ortho”) which we acquired on May 31, 2021 is a company in which doctorsThe healthcare segment provides a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves. From sports injuries,
The Real Estate segment consists of Edge View, a real estate company that owns five (5) acres zoned medium density residential (MDR) with 12 lots already platted, six (6) acres zoned high-density residential (HDR) that can be platted in various configurations to sprains, strains,meet current housing needs, and fractures, our doctors are dedicated to helping you return to your active lifestyle. Orthopedic and pain procedure services include hip and knee replacement, shoulder reconstruction, fracture care and hand surgery,twelve (12) acres zoned in Lemhi County as Agriculture that is available for further annexation into the City of Salmon for development, as well as spinal surgerya common area for landowners to view wildlife, provide access to the Salmon River and fishing in the State of Florida.a two (2) acre pond.
Impact of COVID-19 Pandemic
The outbreak of a novel coronavirus throughout the world, including the United States, since early calendar year 2020 through current, has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). We are subject to risks and uncertainties as a result of the COVID-19 Pandemic. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussion on results of operations for the year ended December 31, 2021. The extent of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that the Company's customers and suppliers may well continue to be impacted which could materially and adversely affect the Company. Our ability to obtain or deliver inventory or services, and our ability to collect accounts receivables as customers may be affected
The financial services segments of the economy was adversely affected by the COVID-19 Pandemic. Due to the IRS prolonging individual tax filings, this affected our tax resolution businesses and management decided to divest JM Enterprise 1, Inc. (Key Tax Group). The Company’s tax resolution business operations have been hard hit by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to this crisis taken by the IRS, federal, state, and local governments. Management will continue to monitor its businesses and focus our growth primarily in the health industry.
As of September 30, 2022 | As of December 31, 2021 | |||||||
Assets: | ||||||||
Affordable Housing Rentals | $ | 213,511 | $ | 213,876 | ||||
Financial Services | 2,115,474 | 2,212,379 | ||||||
Healthcare | 12,971,911 | 8,092,820 | ||||||
Real Estate | 594,150 | 611,900 | ||||||
Other | 63,299 | 28,940 | ||||||
Consolidated assets | $ | 15,958,345 | $ | 11,159,915 |
For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | |||||||
Revenues: | ||||||||
Affordable Housing Rentals | $ | 37,462 | $ | 30,944 | ||||
Financial Services | 219,872 | 1,034,422 | ||||||
Healthcare | 3,103,409 | 2,092,427 | ||||||
Real Estate | – | 152,000 | ||||||
Total revenues | $ | 3,360,743 | $ | 3,309,793 | ||||
Cost of Sales: | ||||||||
Affordable Housing Rentals | $ | 20,523 | $ | 22,281 | ||||
Financial Services | 39,963 | 454,118 | ||||||
Healthcare | 1,094,794 | 526,839 | ||||||
Real Estate | – | 79,481 | ||||||
Total cost of sales | $ | 1,155,280 | $ | 1,082,719 | ||||
Income (Loss) from Operations From Subsidiaries: | ||||||||
Affordable Housing Rentals | $ | 1,556 | $ | (2,276 | ) | |||
Financial Services | 3,839 | (63,715 | ) | |||||
Healthcare | 1,825,593 | 1,382,155 | ||||||
Real Estate | (11,906 | ) | 68,934 | |||||
Total income from operations from subsidiaries | $ | 1,819,082 | $ | 1,385,098 | ||||
Loss From Operations from Cardiff Lexington | $ | (319,812 | ) | $ | (318,448 | ) | ||
Total income from operations | $ | 1,499,270 | $ | 1,066,650 |
For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | |||||||
Revenues: | ||||||||
Affordable Housing Rentals | $ | 120,818 | $ | 97,767 | ||||
Financial Services | 1,156,729 | 3,432,819 | ||||||
Healthcare | 8,154,934 | 2,742,001 | ||||||
Real Estate | – | 152,000 | ||||||
Total revenues | $ | 9,432,481 | $ | 6,424,587 | ||||
Cost of Sales: | ||||||||
Affordable Housing Rentals | $ | 58,611 | $ | 68,269 | ||||
Financial Services | 375,185 | 1,328,508 | ||||||
Healthcare | 2,982,418 | 726,289 | ||||||
Real Estate | – | 79,481 | ||||||
Total cost of sales | $ | 3,406,214 | $ | 2,202,547 | ||||
Income (Loss) from Operations From Subsidiaries: | ||||||||
Affordable Housing Rentals | $ | 4,109 | $ | (13,984 | ) | |||
Financial Services | (86,281 | ) | 324,761 | |||||
Healthcare | 4,609,996 | 1,786,434 | ||||||
Real Estate | (14,419 | ) | 68,934 | |||||
Total income from operations from subsidiaries | $ | 4,513,405 | $ | 2,166,145 | ||||
Loss From Operations from Cardiff Lexington | $ | (1,188,088 | ) | $ | (3,831,975 | ) | ||
Total income (loss) from operations | $ | 3,325,317 | $ | (1,665,830 | ) |
Results ofDiscontinued Operations
Three Months Ended September 30,We and the managers of AHI entered into a resignation, release and buyback agreement and addendum, effective October 31, 2022, pursuant to which the managers purchased AHI in exchange for returning 175,045 shares of series F preferred stock. There was a loss on disposal in the amount of $217,769 on October 31, 2022, which represented net assets and 2021liabilities at the time of sale back.
Revenues were $3,360,743We had no net liabilities of discontinued operations at March 31, 2023 and $3,309,793December 31, 2022. We had $0 and $19,215 of loss from discontinued operations for the three months ended September 30,March 31, 2023 and 2022, and 2021 an increase of $50,950 or 1.5%, respectively. The increase was primarily due to the acquisition of Nova Ortho on May 31, 2021 which generated revenue of $3,103,409 for the three months ended September 30, 2022, offset by the decrease in revenue from the sale of Key Tax and the reduction in revenues for Platinum Tax Defenders due to a reduction in business due to the IRS prolonging individual tax filings which affected both tax resolution businesses.
Cost of sales were $1,155,280 and $1,082,719 for the three months ended September 30, 2022 and 2021 an increase of $72,561 or 6.7%, respectively. The increase was primarily due to the acquisition of Nova Ortho on May 31, 2021 which incurred cost of sales of $1,094,794 for the three months ended September 30, 2022 offset by the decrease in cost of sales from the sale of Key Tax and the reduction in cost of sales for Platinum Tax Defenders due to a reduction in business due to the IRS prolonging individual tax filings which affected both tax resolution businesses.
Gross margins were $2,205,463 and $2,227,074 for the three months ended September 30, 2022 and 2021 a decrease of $21,611 or 1.0%, respectively.
Operating expenses were $706,193 and $3,938,202 for the three months ended September 30, 2022 and 2021 a decrease of $3,232,009 or 82.1%, respectively. The decrease was primarily due to the transaction costs relating to the acquisition of Nova Ortho on May 31, 2021, the sale of Key Tax and the reduction in business for Platinum Tax Defenders due to a reduction in business due to the IRS prolonging individual tax filings which affected both tax resolution businesses.
Net loss was $264,774 and $754,808 for the three months ended September 30, 2022 and 2021 a decrease of $490,034 or 64.9%, respectively.
Nine Months Ended September 30, 2022 and 2021
Revenues were $9,432,481 and $6,424,587 for the Nine months ended September 30, 2022 and 2021 an increase of $3,007,894 or 46.8%, respectively. The increase was primarily due to the acquisition of Nova Ortho May 31, 2021 which generated revenue of $8,154,934 for the Nine months ended September 30, 2022, offset by the decrease in revenue from the sale of Key Tax and the reduction in revenues for Platinum Tax Defenders due to a reduction in business due to the IRS prolonging individual tax filings which affected both tax resolution businesses.
Cost of sales were $3,406,214 and $2,202,547 for the Nine months ended September 30, 2022 and 2021 an increase of $1,203,667 or 54.6%, respectively. The increase was primarily due to the acquisition of Nova Ortho May 31, 2021 which incurred cost of sales of $2,982,418 for the Nine months ended September 30, 2022 offset by the decrease in cost of sales from the sale of Key Tax and the reduction in cost of sales for Platinum Tax Defenders due to a reduction in business due to the IRS prolonging individual tax filings which affected both tax resolution businesses.
Gross margins were $6,026,267 and $4,222,040 for the Nine months ended September 30, 2022 and 2021 an increase of $1,804,227 or 42.7%, respectively.
Operating expenses were $2,700,950 and $5,887,870 for the Nine months ended September 30, 2022 and 2021 a decrease of $3,186,920 or 54.1%, respectively. The decrease was primarily due to the transaction costs relating to the acquisition of Nova Ortho May 31, 2021, the sale of Key Tax and the reduction in business for Platinum Tax Defenders due to a reduction in business due to the IRS prolonging individual tax filings which affected both tax resolution businesses.
Net loss was $813,054 and $2,810,930 for the Nine months ended September 30, 2022 and 2021 a decrease of $1,997,876 or 71.1%, respectively.
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The outbreakResults of the coronavirus throughout the world, including the United States, during early calendar year 2020 has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). Due to the IRS prolonging individual tax filings, this affected our tax resolution businesses in 2021 and management decided to divest JM Enterprise 1, Inc. (Key Tax Group). The Company’s tax resolution business operations have been hard hit by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to this crisis taken by the IRS, federal, state, and local governments. Considering these circumstances arising from the COVID-19 pandemic, the Company, as a public reporting company, must evaluate what the Company should and are obligated to do in order to protect shareholders.Operations
Comparison of Three Months Ended March 31, 2023 and 2022
The outbreakfollowing table sets forth key components of a novel coronavirus throughout the world, including the United States, since early calendar year 2020 through current, has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). We are subject to risks and uncertainties as a result of the COVID-19 Pandemic. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussion onour results of operations forduring the yearthree months ended DecemberMarch 31, 2021. The extent2023 and 2022, both in dollars and as a percentage of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that the Company's customers and suppliers may well continue to be impacted which could materially and adversely affect the Company. Our ability to obtain or deliver inventory or services, and our ability to collect accounts receivables as customers may be affectedrevenue.
The financial services segments of the economy was adversely affected by the COVID-19 Pandemic. Management will continue to monitor its businesses and focus our growth primarily in the health industry.
The Company raised $729,083 in convertible notes during the Nine months ended September 30, 2022.
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 (i) debenture convertible notes and conventional notes payable, (ii) the sale of common stock and pre ferred stock, and (iii) advances from shareholders. At September 30, 2022, we had $260,498 in cash, a working capital deficit of $2,539,506 and total assets of $15,958,345 and total liabilities of $9,908,290.
Net cash used in operating activities was $414,252 for the nine months ended September 30, 2022. The cash used in operating activities was primarily due to the net loss of $850,454, an increase in accounts receivable of $1,858,494, offset by an increase in accounts payable and accrued expenses of $315,123. The negative cash flows for the nine months ended September 30, 2021 was due primarily to the loss of 2,810,930, an increase in accounts receivable of $114,399, an increase in accounts payable and accrued expenses of $594,276 and an increase in accrued interest of 321,468.
Net cash used in investing activities was $-0- for the nine months ended September 30, 2022. The cash used in investing activities of $2,323,642 for the nine months ended September 30, 2021 was for the acquisition of Nova Ortho and Spine.
Net cash provided by financing activities was $407,480 and $3,766,960 for the nine months ended September 30, 2022 and 2021, respectively. The positive cash flows for the nine months ended September 30, 2022 were primarily due to proceeds from convertible notes of $729,083, offset by the payment of dividends of $310,522. The positive cash flows for the Nine months ended September 30, 2021 were primarily due to proceeds from the issuance of preferred stock of $3,000,000 for the purchase of Nova Ortho and proceeds from SBA / PPP loans of $347,050.
March 31, 2023 | March 31, 2022 | |||||||||||||||
Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
Revenue | ||||||||||||||||
Financial services | $ | 154,399 | 5.40% | $ | 464,843 | 16.04% | ||||||||||
Healthcare | 2,706,399 | 94.60% | 2,432,307 | 83.96% | ||||||||||||
Total revenue | 2,860,798 | 100.00% | 2,897,150 | 100.00% | ||||||||||||
Cost of sales | ||||||||||||||||
Financial services | 26,829 | 0.94% | 212,446 | 7.33% | ||||||||||||
Healthcare | 956,295 | 33.43% | 903,782 | 31.20% | ||||||||||||
Total cost of sales | 983,124 | 34.37% | 1,116,228 | 38.53% | ||||||||||||
Gross profit | 1,877,674 | 65.63% | 1,780,922 | 61.47% | ||||||||||||
Operating expenses | ||||||||||||||||
Depreciation expense | 4,635 | 0.16% | 5,783 | 0.20% | ||||||||||||
Selling, general and administrative | 1,159,478 | 40.53% | 1,053,656 | 36.37% | ||||||||||||
Total operating expenses | 1,164,113 | 40.69% | 1,059,439 | 36.57% | ||||||||||||
Income from operations | 713,561 | 24.94% | 721,483 | 24.90% | ||||||||||||
Other income (expense) | ||||||||||||||||
Other income | 205 | 0.01% | – | – | ||||||||||||
Gain on forgiveness of debt | 390 | 0.01 | – | – | ||||||||||||
Penalties and fees | (15,000 | ) | (0.52 | )% | – | – | ||||||||||
Interest expense and finance charge | (695,164 | ) | (24.30 | )% | (2,220,176 | ) | (76.63 | )% | ||||||||
Conversion cost penalty and reimbursement | (2,000 | ) | (0.07 | )% | – | – | ||||||||||
Amortization of debt discounts | (17,983 | ) | (0.63 | )% | (44,546 | ) | (1.54 | )% | ||||||||
Total other income (expense) | (729,552 | ) | (25.50 | )% | (2,264,722 | ) | (78.17 | )% | ||||||||
Net loss before discontinued operations | (15,991 | ) | (0.56 | )% | (1,543,239 | ) | (53.27 | )% | ||||||||
Loss from discontinued operations | – | – | (19,215 | ) | (0.66 | )% | ||||||||||
Net loss | $ | (15,991 | ) | (0.56 | )% | $ | (1,562,454 | ) | (53.93 | )% | ||||||
Deemed dividends on preferred stock | (336,811 | ) | (11.77 | )% | – | – | ||||||||||
Net loss attributable to common shareholders | $ | (352,802 | ) | (12.33 | )% | – | – |
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Revenue. Our total revenue decreased by $36,352, or 1.25%, to $2,860,798 for the three months ended March 31, 2023 from $2,897,150 for the three months ended March 31, 2022. Such decrease was primarily due to decreases in revenue from the financial services, offset by an increase in revenue from the healthcare segment.
The financial services segment generates revenue through the provision of tax resolution services to individuals and business owners. Revenue from the financial services segment decreased by $310,444, or 66.78%, to $154,399 for the three months ended March 31, 2023 from $464,843 for the three months ended March 31, 2022. Such decrease was primarily due to the loss of leads from the discontinued service with Optima Tax Relief, which affected the significant revenue reduction in the tax resolution business.
The healthcare segment generates revenue through a full range of diagnostic and surgical services. Revenue from the healthcare services segment increased by $274,092, or 11.27%, to $2,706,399 for the three months ended March 31, 2023 from $2,432,307 for the three months ended March 31, 2022. Such increase was primarily due to increased Personal Injury Protection (PIP) services.
Cost of sales. Our total cost of sales decreased by $133,104, or 11.92%, to $983,124 for the three months ended March 31, 2023 from $1,116,228 for the three months ended March 31, 2022. Such decrease was primarily due a decrease from the financial service segment, offset by an increase from the healthcare segment. As a percentage of revenue, our total cost of sales was 34.37% and 38.53% for the three months ended March 31, 2023 and 2022, respectively.
Cost of sales for the financial services segment consists of advertising, contract labor and merchant fees. Cost of sales for the financial services segment decreased by $185,617, or 87.37%, to $26,829 for the three months ended March 31, 2023 from $212,446 for the three months ended March 31, 2022. As a percentage of financial services revenue, cost of sales was 17.38% and 45.70% for the three months ended March 31, 2023 and 2022, respectively. Such decrease was generally in line with the decrease in revenue from this segment.
Cost of sales for the healthcare segment consists of surgical center fees, physician and professional fees, salaries and wages and medical supplies. Cost of sales from the healthcare services segment increased by $52,513, or 5.81%, to $956,295 for the three months ended March 31, 2023 from $903,782 for the three months ended March 31, 2022. As a percentage of healthcare revenue, cost of sales was 35.33% and 37.16% for the three months ended March 31, 2023 and 2022, respectively. This slight increase was primarily due to increased labor costs.
Gross profit. As a result of the foregoing, our total gross profit increased by $96,752, or 5.43%, to $1,877,674 for the three months ended March 31, 2023 from $1,780,922 for three months ended March 31, 2022. Our total gross margin (percent of revenue) was 65.63% and 61.47% for three months ended March 31, 2023 and 2022, respectively.
Gross profit for the financial services segment decreased by $124,827, or 49.46%, to $127,570 for the three months ended March 31, 2023 from $252,397 for the three months ended March 31, 2022. Gross margin (percent of revenue) for the financial services segment was 82.62% and 54.30% for the three months ended March 31, 2023 and 2022, respectively.
Gross profit for the healthcare services segment increased by $221,579, or 14.5%, to $1,750,104 for the three months ended March 31, 2023 from $1,528,525 for the three months ended March 31, 2022. Gross margin (percent of revenue) for the healthcare segment was 64.67% and 62.84% for the for the three months ended March 31, 2023 and 2022, respectively.
Depreciation expense. Our depreciation expense was $4,635, or 0.16% of revenue, for the three months ended March 31, 2023, as compared to $5,783, or 0.20% of revenue, for the three months ended March 31, 2022.
Selling, general and administrative expenses. Our selling, general and administrative expenses consist primarily of accounting, auditing, legal and public reporting expenses, personnel expenses, including employee salaries and bonuses plus related payroll taxes, advertising expenses, professional advisor fees, bad debts, rent expense, insurance and other expenses incurred in connection with general operations. Our selling, general and administrative expenses increased by $105,822, or 10.04%, to $1,159,478 for the three months ended March 31, 2023 from $1,053,656 for the three months ended March 31, 2022. As a percentage of revenue, our selling, general and administrative expenses were 40.69% and 36.37% for the three months ended March 31, 2023 and 2022, respectively. Such increase was primarily due to the bad debt expense for allowances for doubtful accounts relating to our healthcare services business.
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Total other income (expense). We had $729,552 in total other expense, net, for the three months ended March 31, 2023, as compared to other expense, net, of $2,264,722 for the three months ended March 31, 2022. Other expense, net, for the three months ended March 31, 2023 consisted of interest expense and finance charges of $695,164, amortization of debt discounts of $17,983, financing penalties and fees of $15,000 and conversion cost penalty and reimbursement related to convertible note of $2,000, offset by other income of $595. Other expense, net, for the three months ended March 31, 2022 consisted of interest expense and finance charges of $2,220,176 and amortization of debt discounts of $44,546.
Discontinued operations. For the three months ended March 31, 2023 and 2022, we recorded a loss from discontinued operations of $0 and $19,215, respectively.
Net loss. As a result of the cumulative effect of the factors described above, our net loss was $15,991 for the three months ended March 31, 2023, as compared to net loss of $1,562,454 for the three months ended March 31, 2022, an increase of $1,546,463, or 98.98%.
Liquidity and Capital Resources
As of March 31, 2023, we had $350,329 in cash. To date, we have financed our operations primarily through revenue generated from operations, sales of securities, advances from stockholders and third-party and related party debt.
We believe, based on our operating plan, that current working capital and current and expected additional financing should be sufficient to fund operations and satisfy our obligations as they come due for at least one year from the financial statement issuance date. However, additional funds from new financing and/or future equity raises are required for continued operations and to execute our business plan and our strategy of acquiring additional businesses. The funds required to sustain operations ranges between $600,000 to $1 million and additional funds execute our business plan will depend on the size, capital structure and purchase price consideration that the seller of a target business deems acceptable in a given transaction. The amount of funds needed to execute our business plan also depends on what portion of the purchase price of a target business the seller of that business is willing to take in the form of seller notes or our equity or equity in one of our subsidiaries. Given these factors, we believe that the amount of outside additional capital necessary to execute our business plan on the low end (assuming target company sellers accept a significant portion of the purchase price in the form of seller notes or our equity or equity in one of our subsidiaries) ranges between $5 million to $7 million. If, and to the extent, that sellers are unwilling to accept a significant portion of the purchase price in seller notes and equity, then the cash required to execute our business plan could be as much as $10 million.
We intend to raise capital for additional acquisitions primarily through equity and debt financings. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. There can beis no assuranceguarantee that we will be able to obtain sufficientacquire additional businesses under the terms outlined above.
Summary of Cash Flow
The following table provides detailed information about our net cash flow for the three months ended March 31, 2023 and 2022.
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Net cash used in operating activities from continuing operations | $ | (189,507 | ) | $ | (376,453 | ) | ||
Net cash from discontinued operations | – | 19,215 | ||||||
Net cash provided by financing activities | 313,034 | 300,307 | ||||||
Net change in cash | 123,527 | (56,931 | ) | |||||
Cash and cash equivalents at beginning of period | 226,802 | 595,987 | ||||||
Cash and cash equivalents at end of period | $ | 350,329 | $ | 539,056 |
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Our net cash used in operating activities from continuing operations was $189,507 for the three months ended March 31, 2023, as compared to $376,453 for the three months ended March 31, 2022. For the three months ended March 31, 2023, our net loss of $15,991, an increase in bad debt expense of $270,000, fair value settled upon conversion of $123,566, accounts payable and accrued expenses of $241,945, an increase in accrued officer’s compensation of $154,000 and an increase in accrued interest of $123,074, offset by an in accounts receivable of $1,111,636, were the primary drivers for the cash used in operations. For the three months ended March 31, 2022, our net loss of $1,562,454 and a increase in accounts receivable of $343,840, offset by increased accounts payable and accrued expense of $569,508 and an increase in accrued officers’ compensation of $120,000, were the primary drivers for the cash used in operations.
We had no investing activities for the three months ended March 31, 2023 and 2022.
Our net cash provided by financing activities was $313,034 for the three months ended March 31, 2023, as compared to $300,307 for the three months ended March 31, 2023. Net cash provided by operating activities for the three months ended March 31, 2023 consisted of proceeds from convertible notes payable of $240,000, proceeds from related party notes payable of $54,000 and proceeds from line of credit of $37,000, offset by repayments of line of credit of $16,381, payment of related party notes payable of $835 and payment of the SBA loan described below of $750. Net cash provided by financing activities for the three months ended March 31, 2022 consisted of proceeds from convertible notes payable of $405,730 and proceeds from related party notes payable of $4,803, offset by preferred stock dividends of $102,746, repayment of convertible notes payable of $5,908, payment of related party notes payable of $816 and payment of the SBA loan described below of $756.
Convertible Notes
As of March 31, 2023, we had convertible debt outstanding net of amortized debt discount of $3,717,936. During the three months ended March 31, 2023, we received net proceeds of $240,000 from convertible notes and converted $58,800 of convertible debt, $5,873 in accrued interest and $1,390 in penalties and fees into 118,682,378 shares of common stock. The Company recognized $123,566 of interest expense and additional paid-in capital fromto adjust fair value for the debt or equity transactions or from operationssettlement during the three months ended March 31, 2023. For the three months ended March 31, 2023 and 2022, we recorded amortization of debt discounts of $17,983 and $44,546, respectively.
The following is a schedule of convertible notes payable outstanding as of March 31, 2023:
Note # | Issuance Date | Maturity Date | Principal Balance | Accrued Interest | Unamortized Debt Discount | |||||||||||
9 | 09/12/2016 | 09/12/2017 | 50,080 | 16,627 | – | |||||||||||
10 | 01/24/2017 | 1/24/2018 | 55,000 | 72,588 | – | |||||||||||
10-1 | 02/10/2023 | 02/10/2024 | 50,000 | 1,007 | – | |||||||||||
10-2 | 03/30/2023 | 03/30/2024 | 25,000 | 10 | ||||||||||||
29-2 | 11/08/2019 | 11/08/2020 | 36,604 | 22,326 | – | |||||||||||
31 | 08/28/2019 | 08/28/2020 | – | 8,385 | – | |||||||||||
37-1 | 09/03/2020 | 06/30/2021 | 113,666 | 38,801 | – | |||||||||||
37-2 | 11/02/2020 | 08/31/2021 | 113,167 | 37,533 | – | |||||||||||
37-3 | 12/29/2020 | 09/30/2021 | 113,167 | 36,497 | – | |||||||||||
38 | 02/09/2021 | 02/09/2022 | 47,200 | 31,260 | – | |||||||||||
39 | 04/26/2021 | 04/26/2022 | 168,866 | 48,844 | – | |||||||||||
40-1 | 09/22/2022 | 09/22/2023 | 2,600,000 | 131,342 | – | |||||||||||
40-2 | 11/04/2022 | 11/04/2023 | 68,666 | 2,765 | 10,253 | |||||||||||
40-3 | 11/28/2022 | 11/28/2023 | 68,667 | 2,313 | 11,382 | |||||||||||
40-4 | 12/21/2022 | 12/21/2023 | 68,667 | 1,880 | 12,464 | |||||||||||
40-5 | 01/24/2023 | 01/24/2024 | 90,166 | 1,630 | 19,387 | |||||||||||
40-6 | 03/21/2023 | 03/21/2024 | 138,167 | 379 | 35,661 | |||||||||||
$ | 3,807,083 | $ | 454,578 | $ | 89,147 |
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Note 9. On September 12, 2016, we issued a convertible promissory note in the necessary time frame orprincipal amount of $80,000 for services rendered, which matured on terms acceptable to us. ShouldSeptember 12, 2017. Note 9 is currently in default and accrues interest at a default interest rate of 20% per annum.
Notes 10, 10-1 and 10-2. On January 24, 2017, 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 services provided. In addition, increases in expenses may adversely impact our cash position and may require cost reductions. No assurance can be given that we will be able to operate profitably onissued a consistent basis, or at all,convertible promissory note in the future.principal amount of $80,000 for services rendered, which matured on January 24, 2018. Note 10 is currently in default and accrues interest at a default interest rate of 20% per annum. On February 10, 2023, we executed a second tranche under this note in the principal amount of $50,000 (Note 10-1). On March 30, 2023, we executed a third tranche under this note in the principal amount of $25,000 (Note 10-2). Notes 10-1 and 10-2 accrue interest at a rate of 15% per annum.
Note 29-2. On May 10, 2019, we issued a convertible promissory note in the principal amount of $150,000. On November 8, 2019, this note (Note 29) was purchased by and assigned to an unrelated party. The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,917.81, which was issued as Note 29-1, plus a new convertible promissory note in the principal amount of $62,367.12, which was issued as Note 29-2. Note 29-2 is currently in default and accrues interest at a default interest rate of 24% per annum.
Note 31. On August 28, 2019, we issued a convertible promissory note in the principal amount of $120,000, which matured on August 28, 2020. Note 31 is currently in default and accrues interest at a default interest rate of 24% per annum.
Notes 37-1, 37-2 and 37-3. On September 3, 2020, we issued a convertible promissory note in the principal amount of $200,000, with an original issue discount of $50,000, which could be drawn in several tranches. On September 3, 2020, we executed the first tranche in the principal amount of $67,000, less an original issue discount of $17,000, which matured on June 30, 2021 (Note 37-1). On November 2, 2020, we executed the second tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on August 31, 2021 (Note 37-2). On December 29, 2020, we executed the third tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021 (Note 37-3). Notes 37-1, 37-2 and 27-3 are currently in default and accrue interest at a default interest rate of 18% per annum.
Note 38. On February 9, 2021, we issued a convertible promissory note in the principal amount $103,500, which matured on February 9, 2022. Note 38 is currently in default and accrues interest at a default interest rate of 22% per annum.
Note 39. On April 26, 2021, we issued a convertible promissory note in the principal amount $153,500, which matured on May 10, 2022. Note 39 is currently in default and accrues interest at a default interest rate of 22% per annum.
Notes 40-1, 40-2, 40-3, 40-4, 40-5 and 40-6. On September 22, 2022, we issued a convertible promissory note in the principal amount of $2,600,000 in exchange for total of $4,791,099 of defaulted promissory notes balances (Note 40-1). On November 4, 2022, we executed a second tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-2). On November 28, 2022, we executed the third tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-3). On November 28, 2022, we executed a fourth tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-4). On January 24, 2023, we executed a fifth tranche under this note in the principal amount of $88,667, less an original issue discount and fee of $25,166 (Note 40-5). On March 21, 2023, we executed a sixth tranche under this note in the principal amount of $136,666, less an original issue discount and fee of $39,166 (Note 40-6). All of the Note 40 tranches mature in one year from the note issuance date and accrue interest at a rate of 10% per annum.
Line of Credit
In orderFebruary 2018, we entered into a revolving line of credit with a financial institution for $92,500 which was personally guaranteed by the manager of Platinum Tax. The loan accrues interest at 11.20% as of March 31, 2023. As of March 31, 2023, the outstanding balance was $20,619.
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Small Business Administration Loan
On June 2, 2020, we obtained a loan from the U.S. Small Business Administration, or SBA, in the principal amount of $150,000 with an interest rate of 3.75% and a maturity date of June 2, 2050. We reclassified $5,723 of accrued interest to continue our operationsthe principal amount for the three months ended March 31, 2023. The principal balance and implementationaccrued interest at March 31, 2023 was $149,633 and $0, respectively.
Debenture
On March 12, 2009, we issued a debenture in the principal amount of $20,000. The debenture bears interest at 12% per annum and matured on September 12, 2009. The balance of the debenture was $10,989 at March 31, 2023 and the accrued interest was $6,554. We assigned all of our business plan,receivables from consumer activations of our rewards program as collateral on this debenture.
Related Party Loans
From time to time, the previous owner and current manager of Platinum Tax loaned funds to Platinum Tax to cover short term operating needs. The amount owed as of March 31, 2023 was $90,189.
In connection with the acquisition of Edge View on July 16, 2014, we need additional financing. assumed amounts due to previous owners who are current managers of Edge View. These amounts are due on demand and do not bear interest. The balance of these amounts are $4,979 as of March 31, 2023.
We have obtained short-term advances from the Chairman of the Board that are currently attemptingnon-interest bearing and due on demand. As of March 31, 2023, we owed the Chairman $123,192.
Critical Accounting Policies
The preparation of our unaudited condensed consolidated financial statements requires our management to obtain additional working capitalmake estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in an equity transaction.management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission, or the SEC, on June 6, 2023.
Off Balance Sheet Arrangements
As of September 30, 2022,March 31, 2023, we had no off-balance sheet arrangements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicableapplicable.
ITEM 4. | CONTROLS AND PROCEDURES. |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in ourthe reports filedwe file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the required time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officerchief executive officer and Chief Financial Officer,chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Under
As required by Rule 13a-15(e) of the supervision andExchange Act, our management has carried out an evaluation, with the participation and under the supervision of our management, includingchief executive officer and chief financial officer, of the Chief Executive Officereffectiveness of the design and Chief Financial Officer, we have evaluated the effectivenessoperation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15(b)of March 31, 2023. Based upon, and as of the enddate of this evaluation, our chief executive officer and chief financial officer determined that, because of the period covered by this report. Basedmaterial weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on that evaluation,Form 10-K for the Chief Executive Officer has concluded that these disclosure controls and proceduresfiscal year ended December 31, 2022, which we are ineffective. There have been no changes tostill in the process of remediating as of March 31, 2023, our disclosure controls and procedures duringwere not effective. Specifically, we did not design and maintain effective controls related to separation of duties as it relates to the Nine monthspreparation and review of financial statements and monitoring, documenting over internal control procedures and environment. Investors are directed to Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.December 31, 2022 for the description of these weaknesses.
There has been no changeRemediation of Material Weaknesses in Internal Control Over Financial Reporting
We have evaluated the material weakness described above and our management and board of directors are committed to the design and successful implementation of internal control over financial reporting as promptly as possible. We currently plan to evaluate our updated internal controls design and determine whether the controls have operated effectively during the year ended of 2023 in order to fully remediate the aforementioned material weakness in our internal control over financial reporting.
As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, our management has identified the steps necessary to address the material weaknesses, and in the first quarter of 2023, we continued to implement the following remedial procedures:
· | We plan to make necessary changes by providing training to our financial team and our other relevant personnel on the GAAP accounting guidelines applicable to financial reporting requirements. | |
· | We plan to implement proper documentation procedures for key functional areas, control objectives and our workflows. | |
· | We plan to reinforce effective compensating controls can improve the design of the current process with limited human resources. | |
· | We plan to develop a more comprehensive review process over our accounting policies and procedures to ensure that all required disclosures are included in our consolidated financial statements. | |
· | We plan to perform a review of key business process controls related to high-risk financial statement accounts, such as revenue, accounts receivables, convertible notes, and significant transactions, which resulted in addition of newly developed documented control activities, in order to mitigate material weakness and strengthen the overall control environments. |
41 |
We intend to complete the remediation of the material weaknesses discussed above as soon as practicable, but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
Changes in Internal Control Over Financial Reporting
Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the Nine months ended September 30, 2022first quarter of 2023 that hashave materially affected, or isare 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.
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.
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
There have been no events under any bankruptcy act, any criminalFrom time to time, we may become involved in various lawsuits and legal proceedings, nor any judgmentswhich arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or injunctions materialother matters, may arise from time to the evaluation of the ability and integritytime that may harm our business. We are currently not aware of any directorsuch legal proceedings or executive officer during the last five years.
Cardiff and its subsidiaries are parties in a few legal actionsclaims that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through tax resolution contracts or rental property defaults. We do notwe believe that such normal and routine litigation will have a material adverse effect on our business, financial condition or results of operations. Cardiff parent is also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our consolidated financial condition or results of operations.operating results.
ITEM 1A. | RISK FACTORS. |
Item 1A. Risk FactorsNot applicable.
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. |
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsWe have not sold any equity securities during the three months ended March 31, 2023 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
None.We did not repurchase any of our common shares during the three months ended March 31, 2023.
Item 3. Defaults upon Senior Securities
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | MINE SAFETY DISCLOSURES. |
Item 4. Mine Safety DisclosuresNot applicable.
None.
ITEM 5. | OTHER INFORMATION. |
None.
ITEM 6. | EXHIBITS. |
Description of Exhibit | ||
3.1 | ||
3.2 | Certificate of Designation of Series N Senior Convertible Preferred Stock (incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed on June 6, 2023) | |
3.3 | Amended and Restated Bylaws of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed on June 6, 2023) | |
4.1 | Common Stock Purchase Warrant issued by Cardiff Lexington Corporation to SILAC Insurance Company on May 21, 2021 (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K filed on June 6, 2023) | |
31.1* | Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of | |
101.INS* | ||
Inline XBRL Instance Document | ||
Inline XBRL Taxonomy Extension Schema Document | ||
Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
Inline XBRL Taxonomy Extension Label Linkbase Document | ||
Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
Cover Page Interactive Data File (formatted as Inline XBRL and contained in |
______________
____________*Filed herewith
*to be filed by amendment* Furnished herewith
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the Companyregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CARDIFF LEXINGTON CORPORATION | ||
/s/ Alex Cunningham | ||
Name: Alex Cunningham | ||
Title: Chief Executive Officer | ||
(Principal Executive Officer) | ||
/s/ Zia Choe | ||
(Principal Financial and Accounting Officer) | ||