Cardiff Lexington Corp 10-Q, filed Jan 6, 2023
Cardiff Lexington Corp (CDIX)
About this 10-Q
Cardiff Lexington Corp filed this 10-Q on January 6, 2023, covering the quarter ended September 30, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ 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: 000-49709
Cardiff Lexington Corporation
(Name of registrant as specified in its charter)
| Nevada | 84-1044583 |
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer identification No.) |
| 400 Las Olas Blvd., Fort Lauderdale, Florida, Unit 1400 | 33301 |
| (Address of principal executive offices | (Zip 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)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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 ☒ No ☐
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:
| 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 complying 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 ☒
The number of commons shares outstanding at January 5, 2023 is 824,796,735 with a par value of $0.001.
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND SCHEDULES
CARDIFF LEXINGTON CORPORATION
For the Three and Nine Months Ended September 30, 2022
The following financial statements and schedules of the registrant are submitted herewith:
| 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, 2022 AND DECEMBER 31, 2021
| September 30, 2022 | December 31, 2021 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 260,498 | $ | 595,987 | ||||
| Accounts receivable-net | 6,829,160 | 4,948,796 | ||||||
| Prepaid and other current assets | 5,000 | 5,000 | ||||||
| Total current assets | 7,094,658 | 5,549,783 | ||||||
| Property and equipment, net of accumulated depreciation of $247,861 and $218,471, respectively | 222,114 | 259,030 | ||||||
| Land | 540,000 | 540,000 | ||||||
| Goodwill | 7,758,656 | 4,483,656 | ||||||
| Due from related party | 4,979 | 4,979 | ||||||
| Other assets | 30,882 | 38,882 | ||||||
| Right of use assets | 307,056 | 283,621 | ||||||
| Total assets | $ | 15,958,345 | $ | 11,159,951 | ||||
| LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expense | $ | 1,917,891 | $ | 1,392,722 | ||||
| Accrued expenses - related parties | 3,461,057 | 2,961,057 | ||||||
| Accrued interest | 222,873 | 449,455 | ||||||
| Operating lease liability | 164,093 | 176,285 | ||||||
| Common stock to be issued | 157,600 | – | ||||||
| Due to director & officer | 123,882 | 126,765 | ||||||
| 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 | ||||||
| Total current liabilities | 9,266,431 | 8,113,568 | ||||||
| Other Liabilities | ||||||||
| Notes payable – net of current portion | 140,541 | 142,755 | ||||||
| Operating lease liability – net of current portion | 133,585 | 122,264 | ||||||
| Total liabilities | $ | 9,540,557 | $ | 8,378,587 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
| 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 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
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
| 5 |
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 | ) | |||||||||||
| 6 |
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 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 7 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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)
| 8 |
| 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 | $ | – |
The accompanying notes are an integral part of these condensed consolidated financial statements
| 9 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and Nature of Operations
Legacy Card Company, LLC (“Legacy”) was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff Lexington Corporation (“Cardiff Lexington”, the “Company”), a publicly held corporation. On April 13, 2021, Cardiff Lexington Corporation converted from a Florida Corporation to a Nevada Corporation.
In the first quarter of 2013, it was decided to restructure Cardiff Lexington into a holding company that adopted a new business model known as "Collaborative Governance," a form of governance enabling businesses to take advantage of the potential access to capital markets provided by affiliation with a publicly-traded company. Cardiff Lexington began targeting the acquisition of niche companies with high growth potential. The reason for this strategy was to protect the Company’s shareholders by acquiring businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors.
Description of Business
Cardiff Lexington consists of the following wholly owned subsidiaries:
We Three, LLC dba Affordable Housing Initiative (“AHI”), acquired May 15, 2014
Romeo’s Alpharetta, LLC dba Romeo’s NY Pizza (“Romeo’s Pizza”), acquired 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
Basis of Presentation and Principles of Consolidation
The accompanying September 30, 2022 interim condensed consolidated financial statements (“financial statements”) have been prepared pursuant to the rules and regulations of 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 the 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.
| 10 |
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management uses its historical records and knowledge of its business in making estimates. Accordingly, actual results could differ from those estimates.
COVID-19 Pandemic
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 as of September 30, 2022 and December 31, 2021, respectfully. As of September 30, 2022 and December 31, 2021, the Company had accounts receivable of $6,829,160 and $4,948,796, 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:
| 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. Our impairment testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. During nine months ended September 30, 2022 and 2021, the Company did not recognize any goodwill impairment. The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors.
| 11 |
Valuation of long-lived assets
In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Revenue Recognition
On January 1, 2018, we adopted ASC 606, Revenue from contracts with customers (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.
The Company applies 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 satisfied |
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. Our healthcare subsidiary does not have contract liabilities or deferred revenue as there are no amounts prepaid for services.
Established billing rates are not the same as actual amounts recovered for our healthcare subsidiary. They generally do not reflect what the Company is ultimately paid and therefore are not reported in our condensed unaudited 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.
| 12 |
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 Nine weeks from paper filing. Responses may be a payment, a denial, or a request for additional information.
Historical collection rates are estimated using the most current prior 18-month historical payment and collection percentages. The Company generally receives all 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.
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. Our 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.
| 13 |
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’ equity. The Company recognized advertising and marketing expense of $93,905 and $221,690 for the three and nine months ended September 30, 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. |
| 14 |
Stock-Based Compensation
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments is recorded in general and administrative expense in the condensed consolidated statements of operations.
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company early adopted ASU No 2018-07 for equity instruments issued to parties other than employees.
Income Taxes
Income taxes are determined in accordance with ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the periods ended September 30, 2022 and September 30, 2021, the Company did not have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain tax positions.
Loss per Share
FASB ASC Subtopic 260, Earnings Per Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.
| 15 |
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, 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. 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 capital 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 Company may be required to make 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 consider the applicability and impact of all ASU's on our financial position, results of operations, shareholders’ deficit. cash flows, or presentation thereof.
In August 2021, 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 new standard will be effective for the Company in the first quarter of fiscal year beginning January 1, 2023, and early adoption is permitted.
Management does not expect that the adoption of this standard will have a material effect on the Company's financial statements.
| 16 |
Reclassifications
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. | ACQUISITIONS |
Nova Ortho and Spine, LLC
On May 31, 2021 the 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 of 818,750 additional shares of Preferred J Stock, with an aggregate stated value equal to $3,275,000.
On August 25, 2022 under the terms 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 performance of the subsidiary during its initial year the Company agreed to issue the supplemental payment of 818,750 additional shares of Preferred Series J Stock, with an aggregate stated value equal to $3,275,000.
The preliminary purchase price allocation of the net assets acquired is as follows:
| 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 | ||
| 3. | PROPERTY AND EQUIPMENT, NET |
Property and equipment as of September 30, 2022 and December 31, 2021 is as follows:
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 | ||||
| 17 |
For the three and nine months ended September 30, 2022, total depreciation expense was $10,814 and $32,442, respectively. Depreciation expense recorded as cost 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.
| 4. | LAND |
In the quarter ended September 30,2021, the Company sold 3 lots for $152,000. At September 30, 2022, the Company had 27 acres of land of 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. The land is currently vacant and is expected to be developed into a residential community.
| 5. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
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, 2022 and December 31, 2021 the balance for these taxes, penalties and interest is $6,732 and $7,553, respectively
| 6. | 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 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 $37 respectively.
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. These amounts are due on demand and do not bear interest. The balance of these amounts are $4,979 due from the previous owners as of September 30, 2022 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.
| 18 |
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, 2022 and December 31, 2021, the Company owed the Chairman $123,882 and $126,765, respectively.
| 7. | NOTES AND LOANS PAYABLE |
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 | ||||
| 19 |
Long-term debt matures as follows:
| Amount | ||||
| 2023 | $ | 25,835 | ||
| 2024 | 4,846 | |||
| 2025 | 4,846 | |||
| 2026 | 4,846 | |||
| 2027 | 4,846 | |||
| Thereafter | 121,157 | |||
| Total | $ | 166,376 | ||
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 Parties
On March 12, 2009, the Company entered into a preferred debenture agreement for $20,000. The note bore interest at 12% per year and matured on September 12, 2009. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. No warrants had been exercised before the expiration. The balance of the note was $10,989 at 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 September 2, 2021, The Company obtained an SBA loan of $150,000 at an interest rate of 3.75% with a maturity date of September 2, 2050. The principal balance and accrued interest at September 30, 2022 was $145,387 and $5,723, respectively, and the principal balance and accrued interest at December 31, 2021 was $147,677 and $5,723, respectively.
| 8. | CONVERTIBLE NOTES PAYABLE |
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 them 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 and (2) 375,000 shares of series X senior convertible preferred stock totaling $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 consisting of principal of $3,840,448 and accrued interest of $950,651 resulting in a gain on debt consolidation of $1,217,744.
| 20 |
As of September 30, 2022 and December 31, 2021, the Company had convertible debt outstanding of $3,189,175 and $2,077,753, respectively, net of debt discounts. During the nine months ending September 30, 2022, the Company had proceeds of $990,072 from convertible 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, 2022 and December 31, 2021, respectively. For the nine months ending September 30, 2022 and 2021, the Company recorded amortization of debt discounts of $249,120 and $1,050,014, respectively.
The Company had no convertible debt conversions during the nine months ended September 30, 2022.
Convertible notes at September 30, 2022 and December 31, 2021 are summarized as follows:
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 | $ | – | $ | – | ||||
| 21 |
The following is a schedule of convertible notes payable from December 31, 2021 to September 30, 2022.
| 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 | $ | – | |||||||||||||||||||||
| 9. | CAPITAL STOCK |
Preferred Stock
On September 12, 2022, the Company issued 375,000 preferred series X shares at a par value of $.001 and stated value of $4.00 totaling $1,500,000. See footnote 8, convertible notes payable for further discussion.
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In the second quarter of 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.
Additionally, as part 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 part of the Nova Ortho acquisition, the Company issued 894,834 shares of preferred stock series J with par value $.001 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 $.001 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 subject to the terms of the Agreement. There was a loss on disposal in the amount of $1,201,169 which represented net assets and liabilities at the time of sale back.
Effective December 28, 2021, the Chairman 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, $265,000 in principle from convertible debt and conventional debt and $298,195 in accrued interest was converted into 140,799 shares of preferred stock series B 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 price on the date of conversion as reported on such national exchange where the Company’s common stock is traded:
i. If the closing market price of common stock is less than $4 per share one (1) share the Preferred Stock shall convert into an amount of common stock equal to: two (2) times the Stated Value, as defined herein, divided by the closing market price as reported on such national exchange where the Company’s common stock is traded on the date of conversion. For Example. If the closing price of the common stock as reported on such national exchange where the Company’s common stock is traded is $1.00 and the Stated Value is $4.00, one (1) preferred share would convert into eight (8) shares of common stock.
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ii. If the closing market price of common stock is equal to or greater than $4 per share one (1) share the Preferred Stock shall convert into two (2) shares of common stock. For Example. If the closing price of the common stock as reported on such national exchange where the Company’s common stock is traded is $5.00 one (1) preferred share would convert into two (2) shares of common stock.
Holders of Series C Preferred Stock shall have Conversion Rights such that upon Conversion each one (1) share of Series C Preferred Stock shall convert into one hundred thousand (100,000) shares of the Common Stock. In the event that the Company should up list to a national exchange as defined by the U.S. Securities and Exchange Commission, each share of Series C Preferred Stock shall automatically be redeemed by the Company in exchange for a total of Fifty Thousand Dollars ($50,000.00) worth of the Common Stock, valued at the time of redemption.
Holders of the Series K and K1 Preferred Stock shall have Conversion Rights such that upon Conversion each one (1) share of Series K and K1 Preferred Stock shall convert into 1.25 shares of the Common Stock.
Holders of Series R Preferred Stock shall 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.
| 10. | WARRANTS |
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 | |||||
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| 11. | DISCONTINUED OPERATIONS |
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.
| 25 |
On April 26, 2021, the Company filed a lawsuit against Investors 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 liability 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 Investor 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 | ||||
| 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 | ) | ||||
| 12. | GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET |
The following table shows our goodwill balances by reportable segment. We review goodwill for impairment on a reporting unit basis quarterly and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Since the date of our last quarterly assessment, we have not identified any changes in circumstances that would indicate the carrying value of goodwill is not recoverable.
Allocation of Goodwill to Reporting Segments
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 | ||||||||
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| 13. | 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, 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 and $91,726 for the three months ended September 30, 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 property 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.
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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 $129,000 and $120,000, respectively.
In April 2021, the Company’s previous Chief Financial Officer was terminated and replaced. The Company agreed to pay the new 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, 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 (“Nova”) 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 of Nova will receive an annual cash bonus and stock equity set forth in footnote 8 (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 in footnote 8.
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.
| 14. | INCOME TAXES |
At September 30, 2022 the Company had federal and state net operating loss carry forwards of approximately $18,000,000 that expire over various years through the year 2038.
Due to operating losses, there is no provision for current federal or state income taxes for the year ended December 31, 2021.
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.
| 15. | SUBSEQUENT EVENTS |
On October 10, 2022. the Company’s Chief Operating Officer was issued 18,750 preferred series B shares.
| 28 |
On October 31, 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.
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.
| 16. | SEGMENT REPORTING |
The Company has four reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related Information:
| (1) | Affordable Housing (We Three) | |
| (2) | Financial Resolutions Services (Platinum Tax Defenders) | |
| (3) | Healthcare (Nova Ortho and Spine) | |
| (4) | Real Estate (Edge View Properties Inc) |
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, bookkeeping and general accounting.
The Affordable Housing segment leases and sells mobile homes as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, large monthly mortgage payments and high property taxes and insurance which is a common trait of brick and mortar homes. Additionally, if bad credit is an issue preventing potential home owners from purchasing a traditional house, the Company will provide a "lease to own" option so people secure their family home.
Platinum Tax provides tax resolution services to individuals and companies that have federal and state tax liabilities. The company collects fees based on efforts to negotiate and assist in the settlement of outstanding tax debts.
Nova Ortho and Spine is a group of doctors that 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.
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.
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 | ||||
| 29 |
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 |
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements including the related notes, and the other financial information included in this report. For ease of reference, “the Company”, ‘Cardiff”, “we,” “us” or “our” refers to Cardiff Lexington Corporation, unless otherwise stated.
Cautionary Statement Concerning Forward-Looking Information
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of Cardiff 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 to the future business prospects, revenue and income of Cardiff Lexington Corporation, wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of Cardiff Lexington Corporation on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), that may affect the operations, performance, development and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
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.
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Platinum Tax Defenders, LLC (“Platinum Tax”), which we acquired on July 31, 2018, is a full-service tax resolution firm located in Los Angeles, CA. Since 2011, Platinum Tax has been assisting all types of taxpayers resolve any and all issues with IRS and applicable state tax agencies. Platinum Tax provides fee-based tax resolution services to individuals and companies that have federal and state tax liabilities by assisting its clients to settle 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 doctors 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, to sprains, strains, 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, as well as spinal surgery in the State of Florida.
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 | ||||
| 32 |
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 | ) | |||
| 33 |
Results of Operations
Three Months Ended September 30, 2022 and 2021
Revenues were $3,360,743 and $3,309,793 for the three months ended September 30, 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.
| 34 |
The outbreak 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.
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. 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.
| 35 |
There can be no assurance that we will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans and possibly relinquish rights to portions of our technology or 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 on a consistent basis, or at all, in the future.
In order to continue our operations and implementation of our business plan, we need additional financing. We are currently attempting to obtain additional working capital in an equity transaction.
Off Balance Sheet Arrangements
As of September 30, 2022, we had no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures
| (a) | Evaluation of Disclosure Controls and Procedures |
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer has concluded that these disclosure controls and procedures are ineffective. There have been no changes to our disclosure controls and procedures during the Nine months ended September 30, 2022.
There has been no change in our internal control over financial reporting during the Nine months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.
| (b) | Changes in Internal Controls |
There were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| 36 |
There have been no events under any bankruptcy act, any criminal proceedings nor any judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the last five years.
Cardiff and its subsidiaries are parties in a few legal actions 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 not believe that such normal and routine litigation will have a material effect on our 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.
There have been no material changes in our risk factors from those disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
None.
| 31.1 | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
____________
*to be filed by amendment
| 37 |
In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: January 6, 2023 | CARDIFF LEXINGTON CORPORATION | |
| By: | /s/ Alex Cunningham | |
| Alex Cunningham Chief Executive Officer | ||
| By: | /s/ Daniel Thompson | |
| Daniel Thompson | ||
| Chairman | ||
| 38 |
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT 2002
I, Alex Cunningham, certify that:
1. I have reviewed the Quarterly Report on Form 10-Q of Cardiff Lexington Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15d- 15(f) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: January 6, 2023
| By: /s/ Alex Cunningham | |
|
Alex Cunningham Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT 2002
I, Steven Healy, certify that:
1. I have reviewed the Quarterly Report on Form 10-Q of Cardiff Lexington Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15d- 15(f) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: January 6, 2023
| By: /s/ Steven Healy | |
| Steven Healy | |
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cardiff Lexington Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alex Cunningham, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: January 6, 2023
| By: /s/ Alex Cunningham | |
| Alex Cunningham | |
| Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cardiff Lexington Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven Healy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: January 6, 2023
| By: /s/ Steven Healy | |
| Steven Healy | |
| Chief Financial Officer |