CDIX 10-Q/A
Cardiff Lexington Corp (CDIX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
Amendment 1
For the quarterly period ended
OR
For the transition period from ____________ to ______________
Commission file number:
(Name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer identification No.) |
| (Address of principal executive offices | (Zip Code) |
(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.
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).
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 ☐ |
| 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 ☐
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 30, 2022, was .
EXPLANATORY NOTE
This Amendment No. 2 to the Quarterly Report on Form 10-Q for the nine months ended September 30, 2021, is being filed solely to furnish the Interactive Data files as Exhibit 101, in accordance with Rule 405 of Regulation S-T. No other changes have been made to the Form 10-Q, as originally filed on June 30, 2022.
FORM 10-Q
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND SCHEDULES
CARDIFF LEXINGTON CORPORATION
For the Three and Nine Months Ended September 30, 2021
The following financial statements and schedules of the registrant are submitted herewith:
| 3 |
EXPLANATORY NOTE
This 10-Q Amendment is filed solely for the purpose of providing the interactive data files for inline XBRL.
| 4 |
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | (Audited) (RESTATED) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable-net | ||||||||
| Assets held for sale | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Land | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Due from related party | ||||||||
| Other assets | ||||||||
| Right of use assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expense | $ | $ | ||||||
| Accrued expenses - related parties | ||||||||
| Accrued interest | ||||||||
| Operating lease liability | ||||||||
| Due to director & officer | ||||||||
| Deferred revenue | ||||||||
| Line of credit | ||||||||
| Preferred stock to be issued | ||||||||
| Notes payable, current portion | ||||||||
| Due to related party | ||||||||
| Convertible notes payable, net of debt discounts of $ | ||||||||
| Net liabilities of discontinued operations | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Other Liabilities | ||||||||
| Notes payable – net of current portion | ||||||||
| Operating lease liability – net of current portion | ||||||||
| Total liabilities | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
| September
30, 2021 | December
31, 2020 | |||||||
| (Unaudited) | Audited (RESTATED) | |||||||
| Shareholders' equity (deficit) | ||||||||
| Preferred stock | ||||||||
| Preferred Stock Series B - shares authorized, par value $.001, stated value $, and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | $ | $ | ||||||
| Preferred Stock Series C- shares authorized, par value $.001, stated value $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series D- shares authorized, par value $.001, stated value $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series E- shares authorized, par value $.001, stated value $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
Preferred Stock Series F- shares authorized, par value $.001, stated value $, shares issued and RealEstate1Member780 outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series F-1- shares authorized, par value $.001, stated value $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series G- shares authorized, par value $.001, stated value $, shares issued and outstanding September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series H- shares authorized, par value $.001, stated value $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series I- shares authorized, par value $.001, stated value $, and shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series J- shares authorized, par value $.001, stated value of $, and zero shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Preferred Stock Series K- shares authorized, par value of $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series L- shares authorized, par value $.001, stated value $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Preferred Stock Series N- shares authorized, par value $.001, stated value of $, and zero shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Preferred Stock Series R- shares authorized, par value $.001, stated value of $, shares issued and outstanding at September 30, 2021 and December 31, 2020 | ||||||||
| Common stock; shares authorized with $ par value; and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Treasury stock; at cost, shares of series D preferred stock and of series H preferred stock at September 30, 2021 and December 31, 2020, respectively, | ( | ) | ( | ) | ||||
| Additional paid-in capital | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders' equity (deficit) | ( | ) | ||||||
| Total liabilities and shareholders' equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 6 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
| 2021 | 2020 (RESTATED) | 2021 | 2020 (RESTATED) | |||||||||||||
| REVENUE | ||||||||||||||||
| Rental income | $ | |||||||||||||||
| Financial Services | ||||||||||||||||
| Healthcare | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | ||||||||||||||||
| COST OF SALES | ||||||||||||||||
| Rental business | ||||||||||||||||
| Financial Services | ||||||||||||||||
| Healthcare | ||||||||||||||||
| Real Estate | ||||||||||||||||
| Total cost of sales | ||||||||||||||||
| GROSS MARGIN | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Transaction costs | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| PROFIT / LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Other income | ( | ) | ||||||||||||||
| Change in value of derivative liability | ( | ) | ( | ) | ||||||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| Gain on change of estimate | ||||||||||||||||
| Interest expense & finance charge | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Conversion cost penalty and reimbursement | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discounts | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS | ( | ) | ( | ) | ||||||||||||
| LOSS FROM DISCONTINUED OPERATIONS | ( | ) | ||||||||||||||
GAIN FROM DISPOSAL OF DISCONTINUED OPERATIONS | ( | ) | ||||||||||||||
| Total income (loss) from discontinued operations | ||||||||||||||||
| NET INCOME (LOSS) FOR THE PERIOD | $ | $ | ( | ) | ( | ) | ||||||||||
| BASIC AND DILUTED INCOME (LOSS) PER SHARE | ||||||||||||||||
| Continuing operations | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Discontinued operations | $ | $ | $ | $ | ||||||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC AND DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 7 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
FOR THE PERIODS ENDED SEPTEMBER 30, 2021 and 2020
| Preferred Stock Series A, I, K | Preferred Stock Series B, D, E, F, F-1, G, H, L | Preferred Stock, Series C and R | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | |||||||||||||||||||||
| Issuance of preferred stock for services | – | |||||||||||||||||||||||
| Issuance of common stock in exchange for preferred stock | ( | ) | ( | ) | – | – | ||||||||||||||||||
| Issuance of preferred stock in exchange for common stock | – | – | ||||||||||||||||||||||
| Distributions from an entity | – | – | – | |||||||||||||||||||||
| Conversion of convertible notes payable | – | – | – | |||||||||||||||||||||
| Reclassify derivative liabilities to Additional Paid in Capital Sale of subsidiary | – | – | – | |||||||||||||||||||||
| Net loss | – | – | – | |||||||||||||||||||||
| Balance, September 30, 2020 (RESTATED) | $ | $ | $ | |||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | |||||||||||||||||||||
| Conversion of convertible notes payable | – | – | – | |||||||||||||||||||||
| Reclassify Derivative liabilities to Additional Paid in Capital | – | – | – | |||||||||||||||||||||
| Issuance of Common Stock for preferred I shares | ( | ) | ( | ) | – | – | ||||||||||||||||||
| Reclassify warrant liabilities to additional paid in capital | – | – | – | |||||||||||||||||||||
| Issuance of preferred stock series J | – | – | ||||||||||||||||||||||
| Issuance of preferred stock series N | – | – | ||||||||||||||||||||||
| Issuance of preferred stock series B | – | – | ||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | |||||||||||||||||||||
| Distribution of dividend | – | – | – | |||||||||||||||||||||
| Distribution of preferred stock series B | – | – | – | |||||||||||||||||||||
| Issuance of warrant | – | – | – | |||||||||||||||||||||
| Net loss | – | – | – | |||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 8 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (DEFICIENCY) IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30, 2021 and 2020
| Treasury Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Issuance of preferred stock for services | – | – | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock in exchange for preferred stock | – | |||||||||||||||||||||||||||
| Issuance of preferred stock in exchange for common stock | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Distributions from an entity | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion of convertible notes payable | – | |||||||||||||||||||||||||||
| Reclassify derivative liabilities to additional paid in capital | – | – | ||||||||||||||||||||||||||
| Sale of subsidiary | ( | ) | ( | ) | – | |||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance September 30, 2020 (RESTATED) | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Balance, December 31, 2020 | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Conversion of convertible notes payable | – | |||||||||||||||||||||||||||
| Reclassify Derivative liabilities to Additional Paid in Capital | – | – | ||||||||||||||||||||||||||
| Issuance of Common Stock for preferred I shares | – | |||||||||||||||||||||||||||
| Reclassify warrant liabilities to additional paid in capital | – | – | ||||||||||||||||||||||||||
| Issuance of preferred stock series J | – | – | ||||||||||||||||||||||||||
| Issuance of preferred stock series N | – | – | ( | ) | ||||||||||||||||||||||||
| Issuance of preferred stock series B | – | – | ||||||||||||||||||||||||||
| Issuance of common stock for services | – | |||||||||||||||||||||||||||
| Distribution of dividend | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of warrant | – | – | ||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2021 | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 9 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
| 2021 | 2020 (RESTATED) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of loan discount | ||||||||
| Other noncash items, net | ||||||||
| Change in value of derivative liability | ||||||||
| Warrant issued for transaction costs | ||||||||
| Reduction from forgiveness of PPP Loans | ( | ) | ||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Assets held for sale | ( | ) | ||||||
| Right of use – assets | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Intangible assets | ||||||||
| Other assets | ||||||||
| Land | ||||||||
| Increase (decrease) in: | ||||||||
| Accounts payable & Accrued expense | ( | ) | ( | ) | ||||
| Accrued officer’s compensation | ||||||||
| Due (to) from related parties | ( | ) | ||||||
| Accrued interest | ( | ) | ||||||
| Right of use – liabilities | ( | ) | ||||||
| Capital stock to be issued | ||||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ||||||
| Net cash used in discontinued operations - operating activities | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 10 |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
| 2021 | 2020 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of furniture & equipment | $ | ( | ) | $ | ||||
| Acquisition of Nova Ortho and Spine PLLC, net of cash acquired | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Due to director | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Repayment of convertible notes payable | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Proceeds from PPP and SBA loans | ||||||||
| Dividend on preferred stock | ( | ) | ( | ) | ||||
| Repayment of credit line | ( | ) | ( | ) | ||||
| Issuance of preferred stock series N | ||||||||
| Payment of notes payable | ( | ) | ||||||
| Proceeds of notes payable related party | ||||||||
| Proceeds of notes payable related party | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN CASH | ||||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued upon conversion of notes payable and accrued interest | $ | $ | ||||||
| Preferred stock issued for business acquisition | $ | $ | ||||||
| Preferred stock issued upon conversion of notes payable and accrued interest | $ | $ | ||||||
| Derivative liability settled upon conversion | $ | $ | ||||||
| Treasury stock redemptions from disposal of discontinued operations | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 11 |
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, 2020.
Edge View Properties, Inc., (“Edge View”) acquired July 16, 2014
Repicci’s Franchise Group, LLC (“Repicci’s Group”), acquired August 10, 2016; Sold June 1, 2020.
Platinum Tax Defenders, LLC (“Platinum Tax”), acquired July 31, 2018
JM Enterprises 1, Inc. dba Key Tax Group (“Key Tax”), acquired May 8, 2019
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, 2021 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, 2020. 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.
| 12 |
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.
Change in Capital Structure
In the first quarter of 2020, the Company announced a reverse split of several of its Preferred Stock Classes effective December 31, 2019.
In May 2020, the Company affected a 10,000:1 reverse split of Common Stock effective March 31, 2020.
In the second quarter of 2021, the Company completed a change in domicile from a Florida corporation to a Nevada Corporation.
COVID-19 Pandemic
The outbreak of a novel 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”). 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 $
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 | |
| Medical equipment | |
| Leasehold improvements |
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 quarters ended September 30, 2021 and 2020, 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.
| 13 |
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.
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.
| 14 |
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 six 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 12-month historical payment and collection percentages. The Company generally receives all of its collections within 12 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 three and nine months ended September 30, 2021 and 2020, 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, 2021 and December 31, 2020. 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.
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 $
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.
| 15 |
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.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) discount against the face amount of the respective debt instrument (offset to additional paid in capital).
When the Company records a BCF which is not a conventional convertible, the fair value of the BCF is recorded as a derivative liability with an offset against the face amount of the respective debt instrument which is amortized to interest expense over the term of the debt.
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. |
The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2021 and December 31, 2020.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair Value of BCF Derivative Liability – September 30, 2021 |
$ | $ | $ | $ | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fair Value of BCF Derivative Liability – December 31, 2020 |
$ | $ | $ | $ | ||||||||||||
| 16 |
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, 2021 and December 31, 2020, the Company did not have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain tax positions.
FASB ASC Subtopic 260, Earnings Per Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per common share is computed by dividing income available to common 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.
| 17 |
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, 2021, the Company has sustained recurring losses and accumulated a working capital deficit of approximately $12 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 has prospective investors and believes the raising of capital will allow the Company to fund its cash flow shortfalls and pursue new acquisitions. There can be no assurance that the Company will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to it. Should the Company be unable to raise sufficient funds, it may be required to curtail its operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future. Should the Company not be able to raise sufficient funds, it may cause cessation of operations.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 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. Management is still evaluating the impact of adoption of ASU 2020-06 and has not adopted ASU 2020-06 as of the filing of this September 30, 2021 Form 10-Q.
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 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.
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.
| 18 |
| 2. | RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS |
Subsequent to the initial issuance of the Company's 2020 financial statements on March 31, 2021, management reconsidered the methodology previously applied in its valuation of derivative liabilities contained in its matured convertible notes which are in default, to include all inputs to measure the time value component to the application of the Black-Scholes Model. In addition, management also discovered that it did not reflect the impact of amendments which resulted in modifications in certain rights and privileges for certain classes of its preferred stock, which should have been accounted for as a deemed dividend at the time of modification.
The restatement primarily relates to the accounting for the valuation of embedded derivative liabilities for certain convertible notes in default containing embedded derivatives (the "Notes"), the Company originally valued the derivative liability using a Black-Scholes Model, but without consideration to a time value component (the term, volatility, or discount rates), because these notes had matured and were immediately due. As a result, the embedded derivatives for expired notes were measured using a valuation methodology which was analogous to the use of intrinsic value. Company management has reconsidered the methodology previously applied, and determined that the use of all inputs to the Black-Scholes Model is more appropriate in the determination to measure the fair value of all derivative liabilities.
The following table summarizes the impacts of the error corrections on the Company's financial statements for each of the periods presented below:
| Impact of correction of error | ||||||||||||
| September 30, 2020 (Unaudited) | As previously reported | Adjustments | As restated | |||||||||
| Total assets | ||||||||||||
| Derivative liability | ( | ) | ||||||||||
| Net, liabilities of discontinued operations | ||||||||||||
| Other | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Others | ||||||||||||
| Total deficiency in shareholders' equity | ( | ) | ( | ) | ||||||||
| Impact of correction of error | ||||||||||||
| As previously | ||||||||||||
| December 31, 2020 (Audited) | reported | Adjustments | As restated | |||||||||
| Total assets | $ | $ | $ | |||||||||
| Derivative liability | ||||||||||||
| Net, liabilities of discontinued operation | ||||||||||||
| Other | ||||||||||||
| Total liabilities | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Others | ||||||||||||
| Total deficiency in shareholders' equity | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| 19 |
| Impact of correction of error–3 months ended September 30, 2020 | ||||||||||||
| Three months ended September 30, 2020 (Unaudited) | As previously reported | Adjustments | As restated | |||||||||
| Loss from operations | $ | ( | ) | $ | $ | ( | ) | |||||
| Change in value of derivative liability | ||||||||||||
| Others | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||
| Net income (loss) before discontinued operations | ||||||||||||
| (Loss) from discontinued operations | ( | ) | ||||||||||
| (Loss) Gain from disposal of discontinued operations | ( | ) | ( | ) | ||||||||
| Income (loss) from discontinued operations | ( | ) | ||||||||||
| Net (loss) income | ||||||||||||
| Deemed dividend on preferred stock | ||||||||||||
| Net loss attributable to common stockholders | $ | $ | $ | |||||||||
| Basic Earnings (loss) per Share | ||||||||||||
| Continued Operations | $ | $ | ||||||||||
| Discontinued Operations | $ | ( | ) | $ | ||||||||
| Diluted Earnings (loss) per Share | ||||||||||||
| Continued Operations | $ | $ | ||||||||||
| Discontinued Operations | $ | ( | ) | $ | ||||||||
| Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | ||||||||||||
| Continued Operations | ||||||||||||
| Discontinued Operations | ||||||||||||
| Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | ||||||||||||
| Continued Operations | ||||||||||||
| Discontinued Operations | ||||||||||||
| Impact of correction of error – 9 months ended September 30, 2020 | ||||||||||||
| Nine months ended September 30, 2020 (Unaudited) | As previously reported | Adjustments | As restated | |||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||||||
| Change in value of derivative liability | ( | ) | ||||||||||
| Others | ( | ) | ( | ) | ||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||
| Net income (loss) before discontinued operations | ( | ) | ( | ) | ||||||||
| (Loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||
| (Loss) Gain from disposal of discontinued operations | ||||||||||||
| Income (loss) from discontinued operations | ( | ) | ||||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||
| Deemed dividend on preferred stock | ( | ) | ( | ) | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Basic Earnings (loss) per Share | ||||||||||||
| Continued Operations | $ | ( | ) | $ | ( | ) | ||||||
| Discontinued Operations | $ | $ | ||||||||||
| Diluted Earnings (loss) per Share | ||||||||||||
| Continued Operations | $ | ( | ) | $ | ( | ) | ||||||
| Discontinued Operations | $ | $ | ||||||||||
| Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | ||||||||||||
| Continued Operations | ||||||||||||
| Discontinued Operations | ||||||||||||
| Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | ||||||||||||
| Continued Operations | ||||||||||||
| Discontinued Operations | ||||||||||||
| 20 |
| 3. | 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 Three Million Two Hundred Seventy-Five Thousand Dollars ($3,275,000). The preliminary purchase price allocation of the net assets acquired is as follows:
| Nova Ortho and Spine, PLLC | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Property and equipment | ||||
| Other assets | ||||
| Goodwill | ||||
| Liabilities | ( | ) | ||
| Total | $ | |||
| 4. | PROPERTY AND EQUIPMENT, NET |
Property and equipment as of September 30, 2021 and December 31, 2020 is as follows:
September 30, 2021 | December 31, 2020 | |||||||
| Residential housing | $ | $ | ||||||
| Medical equipment | ||||||||
| Computer Equipment | ||||||||
| Furniture, fixture and equipment | ||||||||
| Leasehold Improvement | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
For the three and nine months ended September
30, 2021, total depreciation expense was $
| 21 |
| 5. | LAND |
As of September 30,2021, the Company sold 3 lots
for $
| 6. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
September 30, 2021 | December 31, 2020 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued previously factored receivables | ||||||||
| Accrued credit cards | ||||||||
| Accrued income and taxes | ||||||||
| Accrued advertising | ||||||||
| Accrued payroll wages | ||||||||
| Accrued professional fees | ||||||||
| Accrued expenses other | ||||||||
| Total | $ | $ | ||||||
The Company is delinquent paying certain income and property taxes. As of September 30, 2021 and December 31, 2020 the balance for these taxes, penalties and interest is $145,559 and $282,798.
| 7. | LINE OF CREDIT |
At September 30, 2021 and December 31, 2020, the
Company had a revolving line of credit with a financial institution for $92,500 which accrues interest at prime (3.25% at September 30,
2021 and December 31, 2020) plus
| 8. | 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.
The Company assumed notes payable from the previous
owners of which are currently managers of certain subsidiaries related to the acquisition of Key Tax on May 8, 2019. These notes and loans
are due on demand and do not bear interest. The balance of these notes and loans are $
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, 2021 and December 31, 2020 were $
The Company assumed amounts due to previous owners
who are current managers 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 $
| 22 |
The Company agreed to pay $360,000 per year and
a $200,000 of target annual incentive granted in 2020 to the Chief Executive Officer based on his employment agreement since July 1, 2020
of which currently 50% is paid in cash and 50% is accrued. The Company previously paid the Chief Executive Officer $300,000 per year.
The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 were $
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 July 1, 2020 of which currently
50% is paid in cash and 50% is accrued. The Company previously paid the Chairman of the Board $300,000 per year. The total outstanding
accrued compensation as of September 30, 2021 and December 31, 2020 were $
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 shares of preferred stock series B in exchange for accrued salaries of $
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, 2021 and December 31, 2020 was $
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 $
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 | $ |
$ |
Shares |
| 2022 | $ |
$ |
Shares |
| 2023 | $ |
$ |
Shares |
| 2024 | $ |
$ |
Shares |
| 2025 | $ |
$ |
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, 2021 and December 31, 2020, the Company
owed the Chairman $
| 9. | NOTES AND LOANS PAYABLE |
Notes payable at September 30, 2021 and December 31, 2020 are summarized as follows:
September 30, 2021 | December 31, 2020 | |||||||
| Notes and Loans Payable | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
| 23 |
Long-term debt matures as follows:
| Amount | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
Notes and Loans Payable – Related Party
The Company assumed notes payable from the previous
owners of which are currently managers of Key Tax related to the acquisition of Key Tax on May 8, 2019. The notes are due on demand and
do not bear interest. Additionally, the previous owner’s loan funds to the Company to cover short term operating needs. The balance
of these notes and loans are a debit balance of $
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 $
On September 7, 2011, the Company entered into
a Promissory Note agreement for $50,000. The note bore interest at 8% per year and matured on September 7, 2016. Effective March 29, 2021,
the principal balance of $50,000 and accrued interest of $37,282 were converted into shares of preferred stock. This note was converted
to preferred stock in the first quarter. See footnote 12, Capital Stock. The balance of the note was -
On November 17, 2011, the Company entered into
a Promissory Note agreement for $50,000. The note bore interest at 8% per year and matured on November 17, 2016. Effective March 29, 2021,
the principal balance of $50,000 and accrued interest of $36,505 were converted into shares of preferred stock. This note was converted
to preferred stock in the first quarter. See footnote 12, Capital Stock. The balance of the note was -
On March 11, 2009, the Company entered into a
Promissory Note agreement for $15,000. The note bore interest at 12% per year and matured on April 29, 2014. Effective March 29, 2021,
the principal balance of $15,000 and accrued interest of $19,465 were converted into shares of preferred stock. This note was converted
to preferred stock in the first quarter. See footnote 12, Capital Stock. The balance of the note was -
On September 9, 2019, the Company obtained a promissory
note for $410,000 at 10% interest and matured on September 9, 2020. On November 10, 2020, the Company entered into addendum No. 1 on the
note extending the maturity date until December 31, 2020. On May 4, 2021, the Company entered into addendum No. 2, whereby the maturity
date shall be amended to be
| 24 |
The Company obtained short-term loans from unsecured
sources. These short-term loans are due on demand and accrue interest at 18%. These short-term loans were $
Paycheck Protection Program (“PPP”) Loans
On April 14, 2020, the Company obtained a PPP
loan for $
On May 8, 2020, the Company obtained a PPP loan
for $
On February 19, 2021, the Company obtained a PPP
loan of $
On February 23, 2021, the Company obtained a PPP
loan of $
Small Business Administration (“SBA”) Loans
On June 2, 2020, The Company obtained an SBA loan
of $
On October 7, 2020, the Company obtained an SBA
loan for $
| 25 |
| 10. | CONVERTIBLE NOTES PAYABLE |
Some of the Convertible Notes issued as described below included anti-dilution provisions that allowed for the adjustment of the conversion price. The Company considered the guidance provided by the FASB in “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” the result of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that, as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were not fixed amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith are not considered indexed to the Company’s stock and characterized the value of the conversion feature of such notes as derivative liabilities.
As of September 30, 2021 and December 31, 2020,
the Company had convertible debt outstanding of $
During the nine months ended September 30, 2021,
the Company converted $
Convertible notes at September 30, 2021 and December 31, 2020 are summarized as follows:
September 30, 2021 | December 31, 2020 | |||||||
| Convertible notes payable | $ | $ | ||||||
| Discounts on convertible notes payable | ( | ) | ( | ) | ||||
| Total convertible debt less debt discount | ||||||||
| Current portion | ||||||||
| Long-term portion | $ | $ | ||||||
| 26 |
The following is a schedule of convertible notes payable from December 31, 2020 to September 30, 2021.
| Note # | Issuance | Maturity | Principal Balance 12/31/20 | New Loan | Cash Paydown | Principal Conversions | Shares Issued Upon Conversion | Principal Balance 9/30/21 | Accrued Interest on Convertible Debt at 12/31/20 | Interest Expense On Convertible Debt For the Period Ended 9/30/21 | Accrued Interest on Convertible Debt at 9/30/21 | Unamortized Debt Discount At 9/30/21 | ||||||||||||||||||||||||||||||||||||
| 1 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| 7 | On demand | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| 7-1 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 9 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 10 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 11-2 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 13-2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 22 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 22-1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 22-3 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 25 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 26 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 29-1 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 29-2 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 31 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 32 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 33 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 34 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 35 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 36-1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 36-2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 36-3 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 36-4 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 37-1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 37-2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 37-3 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 38 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| 39 | ||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| 11. | FAIR VALUE MEASUREMENT |
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, A three level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).
| 27 |
The following are the hierarchical levels of inputs to measure fair value:
| · | Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. | |
| · | Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
| · | Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.
The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using terms in the notes that are subject to volatility and market price of the underlying common stock of the Company.
As of September 30, 2021 and December 31, 2020, the Company did not have any derivative instruments that were designated as hedges.
The derivative liabilities as of September 30, 2021 and December 31, 2020 have a level 3 classification.
Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuation. During the three months ended September 30, 2021, the Company’s stock price decreased from its initial valuation and thus, the derivative liability also decreased. Although, this decrease is offset by an increase in derivative liabilities from new convertible notes that an embedded derivative liability. Generally, as the stock price decreases for each of the related convertible notes that have an embedded derivative liability, the value of the derivative liability decreases. Stock price is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s convertible notes with an embedded derivative liability.
The Company used the Black-Scholes Model to measure
the fair value of the derivative liabilities as $
The following table provides a summary of changes in fair value of our Level 3 financial liabilities for the nine months ended September 30, 2021:
| Derivative Liability, December 31, 2020 | $ | |||
| Discount on derivatives | ||||
| Derivatives settled | ( | ) | ||
| Mark to market adjustment | ||||
| Derivative Liability, September 30, 2021 | $ | |||
The above table also includes derivative liabilities related to warrants to purchase common stock of $2.40 at September 30, 2021. The net loss for the period includes mark-to-market adjustments relating to the liabilities held during the nine months ended September 30, 2021 in the amounts of $1,171,355.
| 28 |
The valuation of the derivative liabilities attached to the convertible debt was arrived at through the use of the Black-Scholes Option Pricing Model using the following assumptions:
| For the Periods Ended | ||||||
| September 30, 2021 | December 31, 2020 | |||||
| Volatility | ||||||
| Risk-free interest rate | ||||||
| Expected term | ||||||
| 12. | CAPITAL STOCK |
Preferred Stock
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.
And also as part of the Nova Ortho acquisition, the Company issued shares of preferred stock series N with par value $.001 and a stated value of $, for $3,000,000 including a discount of $472,224 which was recorded as a reduction to APIC.
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 shares
of preferred stock series B in exchange for accrued salaries of $
On February 11, 2021 the Chairman of the Board and the CEO and each converted 62,500 Preferred Series I shares into restricted common shares for a total of 125,000 Preferred Series I shares into 50,000,000 restricted common shares.
During January 2020, 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.
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.
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.
| 29 |
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, 2021, 109,234,241 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.
| 13. | WARRANTS |
The initial and ending valuation of the warrants accounted for as derivatives and marked to fair value, as of September 30, 2021 are as follows:
September 30, 2021 | ||||
| Initial Valuation | $ | |||
| Ending Value | $ | 2.40 | ||
The table below set forth the assumptions for the Black-Scholes Model on each initial date and September 30, 2021:
| September 30, 2021 | ||||
| Volatility | % | |||
| Risk-free interest rate | % | |||
| Expected term | ||||
| 30 |
The following tables summarize all warrant outstanding
as of September 30, 2021, and the related changes during this period. The warrants expire eight years from grant date, which as of September
30, 2021 is
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Stock Warrants | ||||||||
| Balance at December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired | ( | ) | ( | ) | ||||
| Balance at September 30, 2021 | ||||||||
| Warrants Exercisable at September 30, 2021 | $ | |||||||
| 14. | 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 June 1, 2020. Pursuant to the Repicci’s Agreement, the Repicci’s manager resigned employment from the Company effective June 1, 2020 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 June 2020 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, 2020. Pursuant to the Romeo Agreement, Romeo’s manager resigned employment from the Company effective July 1, 2020 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 2020 which represented net assets and liabilities at the time of sale back
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.
The Company continued to carry Red Rock liabilities on its balance
sheet including accounts payables and accrued expenses of $
| 31 |
On April 26, 2020, 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
$
| September 30, 2021 | December 31, 2020 | |||||||
| Net liabilities of discontinued operations | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued interest | ||||||||
| Convertible debt | ||||||||
| Derivative liability | ||||||||
| Net liabilities of discontinued operations | $ | $ | ||||||
| Three Months Ended September, | Nine Months Ended September, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Gain) Loss from discontinued operations | ||||||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Gain from reversal of Red Rock Travel liabilities | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Change in derivative liability | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from discontinued operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| 15. | 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, 2020 | $ | $ | $ | $ | ||||||||||||
| Accumulated impairment | ||||||||||||||||
| Carrying value at December 31, 2020 | ||||||||||||||||
| Acquisition | ||||||||||||||||
| Accumulated impairment | ||||||||||||||||
| Carrying value at September 30, 2021 | $ | $ | $ | $ | ||||||||||||
| 32 |
| 16. | 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, 2020, using the effective date method and elected certain practical expedients allowing the Company not to reassess:
| · | whether expired or existing contracts contain leases under the new definition of a lease; |
| · | lease classification for expired or existing leases; and |
| · | whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. |
The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less.
The Company recorded operating lease expense of
$
The Company has property leases with future commitments as follows:
| Amount | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ | |||
Employees
We have an employment agreement effective July 15, 2020 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, 2020 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.
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 shares of preferred stock series B in exchange for accrued salaries of $
| 33 |
In April 2021, the Company’s previous Chief
Financial Officer was terminated and replaced. The Company agreed to pay the new Chief Financial Officer $
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 $
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.
We have an employment agreement with subsidiary managers, effective May 31, 2019 with a term of 5 years, whereby we provide for compensation of $17,333 per month along with a bonus incentive if financial performance measures are met.
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 Company is waiting for a response.
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 $
| 17. | INCOME TAXES |
At September 30, 2021 the Company had federal
and state net operating loss carry forwards of approximately $
Due to operating losses, there is no provision for current federal or state income taxes for the year ended December 31, 2020.
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.
| 18. | SUBSEQUENT EVENTS |
General Matters
December 7, 2021 – The Company executed a Buyback Agreement finalizing the sale of JM Enterprises1, Inc., acquired May 8, 2019, back to the original sellers.
February 17, 2022 - The Company concluded that the Company’s previously issued consolidated financial statements as of and for the year ended December 31, 2020 included in our Annual Report on Form 10-K (the “2020 10-K”) and the Company’s unaudited condensed consolidated financial statements for the three months ended and year-to-date period ended March 31, 2021 (the “2021 Q-1 10-Q”) (the periods covered by the 2020 10-K and the 2021 Q-1 10-Q being referred to herein as the “Affected Periods”) should no longer be relied upon. As a result, the Company restated the financial statements for the Affected Periods. The restatement primarily relates to the accounting for (1) the valuation of embedded derivative liabilities in certain matured convertible notes and (2) the accounting treatment for changes in certain rights and privileges with respect to certain classes of preferred stock on January 10, 2020.
| 34 |
Subsequent to September 30, 2021, Paycheck Protection Program Loans totaling $229,500 have been forgiven.
On March 15, 2022 the Company settled a $
Stock Issuances:
November 9, 2021 - the Company issued shares of common stock in connection with a service agreement.
December 28, 2021 – shares were surrendered back to the treasury.
December 29, 2021 - the Company issued shares of common stock in connection with a service agreement.
March 31, 2022 – preferred shares were returned to treasury.
April 28, 2022 – preferred shares were issued in exchange for preferred shares of a different class of preferred. Same Rights & Privileges.
| 19. | SEGMENT REPORTING |
The Company has three 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) and |
| (2) |
Financial Resolution Services (Platinum Tax and Key Tax)
| |
| (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 and Key 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.
| 35 |
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, 2021 | As of December 31, 2020 | |||||||
| Assets: | ||||||||
| Affordable Housing Rentals | $ | $ | ||||||
| Financial Services | ||||||||
| Healthcare | ||||||||
| Real Estate | ||||||||
| Other | ( | ) | ||||||
| Consolidated assets | $ | $ | ||||||
For the Three Months Ended September 30, 2021 | For the Three Months Ended September 30, 2020 | |||||||
| Revenues: | ||||||||
| Affordable Housing Rentals | $ | $ | ||||||
| Financial Services | ||||||||
| Healthcare | ||||||||
| Real Estate | ||||||||
| Total revenues | $ | $ | ||||||
| Cost of Sales: | ||||||||
| Affordable Housing Rentals | $ | $ | ||||||
| Financial Services | ||||||||
| Healthcare | ||||||||
| Real Estate | ||||||||
| Total cost of sales | $ | $ | ||||||
| Income (Loss) from Operations From Subsidiaries: | ||||||||
| Affordable Housing Rentals | $ | ( | ) | $ | ( | ) | ||
| Financial Services | ( | ) | ( | ) | ||||
| Healthcare | ||||||||
| Real Estate | ||||||||
| Total Income (Loss) from operations from subsidiaries | $ | $ | ( | ) | ||||
| Loss From Operations from Cardiff Lexington | $ | ( | ) | $ | ( | ) | ||
| Total income (loss) from operations | $ | $ | ( | ) | ||||
| 36 |
| For the Nine Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2020 | |||||||
| Revenues: | ||||||||
| Affordable Housing Rentals | $ | $ | ||||||
| Financial Services | ||||||||
| Healthcare | ||||||||
| Real Estate | ||||||||
| Total revenues | $ | $ | ||||||
| Cost of Sales: | ||||||||
| Affordable Housing Rentals | $ | $ | ||||||
| Financial Services | ||||||||
| Healthcare | ||||||||
| Real Estate | ||||||||
| Total cost of sales | $ | $ | ||||||
| Income (Loss) from Operations From Subsidiaries: | ||||||||
| Affordable Housing Rentals | $ | ( | ) | $ | ( | ) | ||
| Financial Services | ( | ) | ||||||
| Healthcare | ||||||||
| Real Estate | ||||||||
| Total Income (Loss) from operations from subsidiaries | $ | $ | ( | ) | ||||
| Loss From Operations from Cardiff Lexington | $ | ( | ) | $ | ( | ) | ||
| Total loss from operations | $ | ( | ) | $ | ( | ) | ||
| 37 |
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.
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.
| 38 |
JM Enterprises 1, Inc. (DBA) Key Tax Group (“Key Tax”), which we acquired on May 13, 2019, is a full-service tax resolution firm located in Jacksonville, FL. Key Tax assists businesses and individuals around the nation with tax debt issues. Key Tax has a team of twelve members, including tax lawyers, enrolled agents, and support staff with an aggregate of more than 35 years of experience in the tax industry, who are well versed in both the accounting portion of tax debt as well as the resolution side with substantial experienced in working successfully with revenue officers and collectors. Among other services, Key Tax offers Tax Audit Representation, IRS Installment Agreements, Sales Tax Representation, 940/941 Payroll Tax, Representation, Foreign Bank Account Report Filings, OIC/Fresh Start Program, Wage Garnishment, Bank Levies, Tax Lien Removal, State Tax Resolution, Audit Reconsideration, and Penalty Abatement.
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 Outbreak
The Company’s financial condition and results of operations for the fiscal year 2020 is being adversely affected and is expected to continue to be adversely affected by the COVID-19 pandemic. Public health officials have recommended and mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in heavily populated areas and shelter-in-place orders or similar measures. As a result, we have during periods of 2020 temporarily closed certain of our operations for several months. All operations are now open and operating. Our results will be adversely impacted by these closures and other actions taken to contain or treat the impact of COVID-19, and the extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted.
Due to the COVID-19 pandemic, client enrollment has been at a slower pace at certain of our tax resolution subsidiary companies than initially expected. In addition, during 2020 certain of our tax resolution subsidiaries have temporarily suspended enrollment due to facility closures, quarantine, travel restrictions and other governmental restrictions. As a result, we expect the performance from our tax resolution subsidiaries to be affected, which we expect will have a material adverse impact on their market share growth plans and timelines. Additionally, we have taken certain measures to account for the ongoing significant negative impact of the pandemic, including divestiture of our holdings in the food services sector. These businesses no longer fit within our longer-term strategy and given their impact from COVID-19 for these companies to remain subsidiaries of a public entity exerts additional and unnecessary cost and pressure. While COVID-19 changed the trajectory of that growth, we are planning to get back on track quickly with the acquisition and we remain committed to making the investments necessary to drive long term company growth.
| 39 |
The extent to which COVID-19 or any other health epidemic may impact the Company’s results for 2020 and beyond will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the economic impact of the COVID-19 pandemic. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition, and prospects during 2020 and beyond.
For the Three Months Ended September 30, 2021 | For the Three Months Ended September 30, 2020 | |||||||
| Revenues: | ||||||||
| Affordable Housing Rentals | $ | 30,944 | $ | 31,993 | ||||
| Financial Services | 1,034,422 | 675,915 | ||||||
| Healthcare | 2,092,427 | – | ||||||
| Real Estate | 152,000 | – | ||||||
| Total revenues | $ | 3,309,793 | $ | 707,908 | ||||
| Cost of Sales: | ||||||||
| Affordable Housing Rentals | $ | 22,281 | $ | 26,279 | ||||
| Financial Services | 454,118 | 437,707 | ||||||
| Healthcare | 526,839 | – | ||||||
| Real Estate | 79,481 | – | ||||||
| Total cost of sales | $ | 1,082,719 | $ | 463,986 | ||||
| Income (Loss) from Operations From Subsidiaries: | ||||||||
| Affordable Housing Rentals | $ | (2,276 | ) | $ | (5,683 | ) | ||
| Financial Services | (63,715 | ) | (216,224 | ) | ||||
| Healthcare | 1,382,155 | – | ||||||
| Real Estate | 68,934 | – | ||||||
| Total Income (Loss) from operations from subsidiaries | $ | 1,385,098 | $ | (221,907 | ) | |||
| Loss From Operations from Cardiff Lexington | $ | (318,448 | ) | $ | (308,661 | ) | ||
| Total income (loss) from operations | $ | 1,066,650 | $ | (530,568 | ) | |||
| 40 |
| For the Nine Months Ended September 30, 2021 |
For the Nine Months
Ended September 30, 2020 |
|||||||
| Revenues: | ||||||||
| Affordable Housing Rentals | $ | 97,767 | $ | 110,820 | ||||
| Financial Services | 3,432,819 | 2,551,325 | ||||||
| Healthcare | 2,742,001 | – | ||||||
| Real Estate | 152,000 | – | ||||||
| Total revenues | $ | 6,424,587 | $ | 2,662,145 | ||||
| Cost of Sales: | ||||||||
| Affordable Housing Rentals | $ | 68,269 | $ | 81,763 | ||||
| Financial Services | 1,328,508 | 1,228,096 | ||||||
| Healthcare | 726,289 | – | ||||||
| Real Estate | 79,481 | – | ||||||
| Total cost of sales | $ | 2,139,547 | $ | 1,309,859 | ||||
| Income (Loss) from Operations From Subsidiaries: | ||||||||
| Affordable Housing Rentals | $ | (13,984 | ) | $ | (10,331 | ) | ||
| Financial Services | 324,761 | (134,092) | ||||||
| Healthcare | 1,786,434 | – | ||||||
| Real Estate | 68,934 | – | ||||||
| Total Income (Loss) from operations from subsidiaries | $ | 2,166,145 | $ | (144,423) | ||||
| Loss From Operations from Cardiff Lexington | $ | (3,831,975 | ) | $ | (747,211 | ) | ||
| Total loss from operations | $ | (1,665,830 | ) | $ | (891,634 | ) | ||
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Three Months Ended September 30, 2021 and 2020
Revenues were $3,309,793 and $707,908 for the three months ended September 30, 2021 and 2020 an increase of $2,601,885 or 367.5%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho which generated revenue of $2,092,427 for the three months ended September 30, 2021, the sale of parcels of land by Edge View of $152,000 and (ii) higher sales in the third quarter of 2021 due primarily to the impact of the COVID-19 pandemic during 2020.
Cost of sales were $1,082,719 and $463,986 for the three months ended September 30, 2021 and 2020 an increase of $618,733 or 133.4%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho, the sale of parcels of land by Edge View, and (ii) higher advertising expenses, merchant fees and compensation in the third quarter of 2021.
Gross margins were $2,227,074 and $243,922 for the three months ended September 30, 2021 and 2020 an increase of $1,983,152 or 813.0%, respectively.
| 41 |
Operating expenses were $1,160,424 and $744,490 for the three months ended September 30, 2021 and 2020 an increase of $385,934 or 49.8%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho, (ii) an increase in accounting fees and legal fees offset by a decrease in management fees.
Net income was $2,035,970 and $4,264,600 for the three months ended September 30, 2021 and 2020 a decrease of $2,228,630 or 52.3%, respectively.
Nine Months Ended September 30, 2021 and 2020
Revenues were $6,424,587 and $2,662,145 for the nine months ended September 30, 2021 and 2020 an increase of 3,762,442 or 141.3%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho which generated revenue of $2,742,001 for the four months ending September 30, 2021, (ii) the sale of parcels of land by Edge View of $152,000 and (iii) higher sales in the nine months ended September 30, 2021 due primarily to the impact of the COVID-19 pandemic during 2020.
Cost of sales were $2,202,547 and $1,309,859 for the nine months ended September 30, 2021 and 2020 an increase of $892,688 or 68.2%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho, the sale of parcels of land by Edge View and (iii) higher advertising expenses, merchant fees and compensation in the nine months ended September 30, 2021 due primarily to higher sales and the impact of the COVID-19 pandemic during 2020.
Gross margins were $4,222,040 and $1,352,286 for the nine months ended September 30, 2021 and 2020 an increase of $2,869,754 or 212.2%, respectively.
Operating expenses were $5,887,870 and $2,243,920 for the nine months ended September 30, 2021 and 2020 an increase of $3,643,950 or 162.4%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho on May 31, 2021, and (ii) an increase in accounting fees and legal fees.
Net loss was $2,810,930 and $1,061,572 for the nine months ended September 30, 2021 and 2020 an increase of $1,749,358 or 164.8%, respectively.
The Company had been affected 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. Several of our subsidiaries have been hard-hit by the pandemic. We were able to secure Paycheck Protection Program (PPP) loans to offset the reduction in revenues and profitability. Furthermore, the stock market has been severely adversely impacted with our stock price experiencing a period of high volatility. In light of current circumstances arising from the COVID-19 pandemic, the Company as a public reporting company must evaluate what we should and are obligated to do in order to protect shareholders from the negative effects of this pandemic. In order to adequately sustain funding for 2020 operations and continue our growth through acquisitions the Board Of Directors have initiated a reverse stock split of 10,000:1 which became effective May 2020.
The Company raised $444,500 in convertible notes and $547,050 in SBA and PPP loans during the nine months ended September 30, 2021. Also, the Company entered into an agreement on April 29, 2020 engaging an exclusive financial advisor in connection with a transaction or related series or combination of transactions involving a merger, share capital exchange, asset acquisition, share purchase, reorganization or similar business combination. The advisor is a boutique investment bank created by experienced professionals that have worked together for over a decade, collectively financing over $50 billion of public and private capital raises, restructurings, and mergers and acquisitions. The term of the agreement is 1 year and the fees include shares of common stock and out-of-pocket expenses as defined in the agreement. Additionally, the Company entered into an agreement August 26, 2020 with the same firm to underwrite a registered public offering. The term of the agreement is the earlier of the consummation of the offering or 1 year and fees include cash and equity as defined in the agreement.
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 preferred stock, and (iii) advances from shareholders. At September 30, 2021, we had $1,212,978 in cash, a working capital deficit of $9,035,731 and total assets of $13,092,931 and total liabilities of $11,999,917.
| 42 |
Net cash provided by (used in) operating activities was $1,348,849 and $443,936 for the nine months ended September 30, 2021 and 2020, respectively. The negative cash flows for the nine months ended September 30, 2021 were primarily due to the net loss of $2,810,930, an increase in accounts receivable of $114,399 and a decrease in accrued interest of $326,881, offset by a decrease in accounts payable and accrued expenses of $594,276. The negative cash flows for the nine months ended September 30, 2020 were primarily due to the net loss of $1,928,552, and a decrease in accounts payable and accrued expenses of $166,867 offset by an increase in accrued officer’s compensation of $219,570.
Net cash used in investing activities was $2,323,642 and $-0- for the nine months ended September 30, 2021 and 2020, respectively. The cash used in investing activities was for the acquisition of the new business.
Net cash provided by financing activities was $3,766,960 and $725,543 for the nine months ended September 30, 2021 and 2020, respectively. The positive cash flows for the nine months ended September 30, 2021 were primarily due to proceeds from convertible notes of $400,000, proceeds from SBA and PPP loans of $547,050, and proceeds from the issuance of preferred stock of $3,000,000 offset by the paydown of the line of credit of $51,927. The positive cash flows for the nine months ended September 30, 2020 were primarily due to proceeds from convertible notes of $415,000, proceeds from PPP loans of $551,900 partially offset by distributions of $187,850.
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, 2021, we had no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures
| (a) | Evaluation of Disclosure Controls and Procedures |
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer has concluded that these disclosure controls and procedures are ineffective. There have been no changes to our disclosure controls and procedures during the three months ended September 30, 2021.
There has been no change in our internal control over financial reporting during the three months ended September 30, 2021 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.
| 43 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
| 31.1 | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS* | 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
| 44 |
SIGNATURES
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: July 5, 2022 | CARDIFF LEXINGTON CORPORATION | |
| By: | /s/ Alex Cunningham | |
| Alex Cunningham Chief Executive Officer | ||
| By: | /s/ Daniel Thompson | |
| Daniel Thompson | ||
| Chairman | ||
| 45 |