Cardiff Lexington Corp 10-K, filed Oct 21, 2022
Cardiff Lexington Corp (CDIX)
About this 10-K
Cardiff Lexington Corp filed this 10-K on October 21, 2022, covering the fiscal year ended December 31, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 4 OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission File Number 000-49709
CARDIFF LEXINGTON CORP.
(Exact name of registrant as specified in its charter)
| Florida | 84-1044583 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
401 East Las Olas Blvd., Suite 1400, Ft. Lauderdale, FL 33301
(Address of principal executive offices)
(844) 628-2100
(Registrant's telephone no., including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Par Value $0.001 Common Stock
(Title of each class)
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒.
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its annual report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $1,990,001.00
Common shares outstanding at October 20, 2022 is 232,796,735 with a par value of $0.001.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORM 10-K
CARDIFF LEXINGTON CORP
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K/A (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward- looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance, or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties, and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward- looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances, or assumptions underlying such statements, or otherwise.
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ITEM 1. DESCRIPTION OF BUSINESS.
History and Operation of the Business
Legacy Card Company, LLC (“Legacy”) was formed as a California limited liability company on August 29, 2001. On April 18, 2005, Legacy converted to a Nevada corporation. On November 10, 2005, Legacy merged with Cardiff Lexington Corp (formerly Cardiff International, Inc.) (“Cardiff Lexington”, the “Company”), a publicly traded Colorado corporation. On August 27, 2014, Cardiff Lexington redomiciled to Florida. On April 13, 2021, Cardiff Lexington Corporation converted from a Florida Corporation to a Nevada Corporation.
In the first quarter of 2013, Cardiff Lexington was restructured into a holding company that began targeting the acquisition of undervalued, niche companies with high growth potential, income-producing commercial real estate properties, or high return investments, with the goal of generating the net income required to support a consistent dividend to our shareholders. The reason for this strategy was to protect our shareholders by acquiring profitable small- to minimum-sized businesses with little to no debt, and provide financing and management support to enhance their ability to provide acceptable returns to investors. New classes of preferred stock have been and may continue to be created to streamline voting rights, avoid debt, and acquire new businesses. By December 31, 2021, we had acquired ten businesses. Four of the acquired businesses were merged into two, one was discontinued, and two were sold during 2021. Accordingly, we currently operate the following four businesses, each as a separate subsidiary:
| · | We Three, LLC, which operates under the name “Affordable Housing Initiative” or “AHI,” was acquired in April 2014. AHI is located in Maryville, Tennessee. AHI acquires both mobile homes and mobile home parks offering an alternative to traditional housing. Their mobile home business is a popular option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, AHI will provide a financial leasing option with “O” interest on the lease providing a “lease to own” option for their family home. Most homes are 3 bedroom/2bath homes making the dream of owning a home possible. |
| · | Edge View Properties, Inc., was acquired in July 2014 (“Edge View”). Edge View consists of 30 prime acres of land; 23.5 acres zoned MDR (Medium Density Residential) with 12 lots already platted and 48 lots zoned HDR (High Density Residential), 4 acres of dedicated river front property zoned for recreation on the Salmon River, Idaho’s premier whitewater river and 2.5 acres zoned for commercial use. Three lots were sold during 2021 for a total price of $152,000. All land is in the city limits of Salmon and adjacent to the Frank church Wilderness Park (the largest wilderness park in the lower 48 states). |
| · | Platinum Tax Defenders, LLC, 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. |
| · | Nova Ortho and Spine, PLL, was acquired May 31, 2021 and 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. |
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Cardiff Lexington divested its holdings in the food services sector: Repicci's Italian Ice and Gelato and Romeo's New York Style Pizza. And divested in one of its tax resolution companies. The companies’ 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 the federal, state, and local government. In light of current circumstances arising from the COVID-19 pandemic, management is continuing to evaluate alternatives to mitigate the negative effects of the pandemic on the Company and its shareholders. Cardiff Lexington Board of Directors has narrowed its forward focus to acquisitions in the financial services, healthcare and real estate sectors.
The outbreak of the coronavirus throughout the world, including the United States, during early calendar year 2020 has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). Due to the IRS prolonging individual tax filings, this affected our tax resolution businesses in 2021 and management decided to divest JM Enterprise 1, Inc. (Key Tax Group). The Company’s tax resolution business operations have been hard hit by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to this crisis taken by the IRS, federal, state, and local governments. Considering these circumstances arising from the COVID-19 pandemic, the Company, as a public reporting company, must evaluate what the Company should and are obligated to do in order to protect shareholders.
Cardiff Lexington is a diversified holding company that operates much like a cooperative, leveraging proven management in private companies that become subsidiaries under our umbrella. Our current emphasis is on the financial services, healthcare, and real estate sectors. Our platform provides an “Equity Exit or Equity Capitalization” strategy for acquisitions as well as a diversified investment platform for investors that is intended to mitigate risk. Our “Buy and Build” strategy seeks niche companies which complement existing subsidiaries. Our acquisition strategy is driven by structure, transaction value, alignment, resources and return on investment. Our acquisition strategy is not limited by geographic location, and is focused on proven management teams, attractive markets, and historical operating margins. We target acquisitions of mature, high growth, niche companies. Cardiff Lexington’s strategy identifies and empowers select, income-producing, middle market private businesses and commercial real estate properties.
The target company’s management team typically maintains control of the day-to-day operations. Acquisitions become standalone autonomous subsidiaries that gain the advantages of a publicly traded company without losing their independent management control. Management enjoys the advantage of improved valuation, liquidity, synergies, and support, along with diversification and asset appreciation through collective subsidiary performance. Diversification and pooled resources leverage value and mitigate risk.
Cardiff Lexington provides these companies both the enhanced ability to raise money for operations or expansion, and an equity exit and liquidity strategy for the owner, heirs, and/or Investors.
For investors, Cardiff Lexington provides a diversified lower risk to protect and safely enhance their investment by continually adding assets and holdings.
Cardiff Lexington employs a merge, acquire, and hold strategy to maximize value and potential of private, often family run, enterprises while providing diversification and risk mitigation for all shareholders.
Cardiff Lexington is led by strong and talented roster of executives and advisors providing expert acquisition, market guidance and added value for subsidiaries and investors.
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Impact of COVID-19 Pandemic
The outbreak of a novel coronavirus throughout the world, including the United States, since early calendar year 2020 through current, has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). We are subject to risks and uncertainties as a result of the COVID-19 Pandemic. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussion on results of operations for the year ended December 31, 2021. The extent of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that the Company's customers and suppliers may well continue to be impacted which could materially and adversely affect the Company. Our ability to obtain or deliver inventory or services, and our ability to collect accounts receivables as customers may be affected
The financial services segments of the economy was adversely affected by the COVID-19 Pandemic. Management will continue to monitor its businesses and focus our growth primarily in the health industry.
Human Capital
Collectively, Cardiff Lexington and its subsidiaries employ approximately 19 employees and anticipates hiring additional personnel with new acquisitions. We believe that we have good relations with our employees and our employees are not represented by any collective bargaining group or agreement. We believe our ability to attract and retain employees is a key to a successful acquisition strategy.
Competition
We are a small capitalization holding company that seeks to enable 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 undervalued, niche companies with high growth potential, income-producing commercial real estate properties, and high return investments, all designed to generate sufficient earnings to pay a consistent dividend to our shareholders. The strategy is intended to mitigate risk to shareholders by building a diversified portfolio of profitable small- to minimum-sized businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors. We will continue to establish new classes of preferred stock to streamline voting rights, negate debt, and acquire new businesses in the financial services and healthcare, and real estate sectors.
We face significant competition in the markets in which our subsidiaries operate. Platinum Tax has significant competition in most of the markets in which they operate from other local tax resolution entities and from larger national companies. AHI has significant competition from other private companies in the area and a few real estate investment trusts, which compete in the manufactured housing communities Edge View competes in the highly competitive housing industry. Some of our subsidiaries’ competitors may have advantages over us in terms of greater operational, financial, management or other resources in particular markets or in general. Our market position depends on our financing, development and operation capabilities, reputation, experience and track record. There can be no assurance that our current or potential competitors will not offer products or services comparable or superior to those that our subsidiaries offer. Increased competition may result in price reductions, reduced profit margins and loss of market share.
Proprietary Information
We own the following trademarks: Cardiff USA; Mission Tuition, Legacy Card Company and Small Cap Rescue.
Government Regulation
We do not expect to be subject to material governmental regulation. However, it is our policy to fully comply with all governmental regulation and regulatory authorities.
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Research and Development
We are investing in the development of a new website that will effectively present the Company’s acquisition strategy and its benefits to prospective acquisition targets and the communities we serve, as well as keep investors informed of our progress in executing our strategy.
Environmental Compliance
We believe that we are not subject to any material costs for compliance with any environmental laws.
How to Obtain our SEC Filings
We file annual, quarterly, and special reports, information statements, and other information with the Securities and Exchange Commission (the “SEC”). Reports, information statements and other information filed with the SEC can be inspected and copied at the public reference facilities of the SEC at 100 F Street N.E., Washington, DC 20549. Such material may also be accessed electronically by means of the SEC's website at www.sec.gov.
Our investor relations department can be contacted at our principal executive office located at, 401 East Las Olas Blvd. Unit 1400, Fort Lauderdale, FL 33301. Our telephone number is (844-628-2100).
You should carefully consider the risks and uncertainties described below and the other information in this document before deciding to invest in shares of our common stock.
The occurrence of any of the following risks could materially and adversely affect our business, financial condition, and operating result. In this case, the trading price of our common stock could decline, and you might lose all or part of your investment.
Risks Relating to Our Business, Strategy and Industry
We are a holding company and rely on distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We have no direct operations and derive all of our cash flow from our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for payments or distributions to meet our obligations. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay us.
Our acquisition strategy exposes us to substantial risk.
Our acquisition of companies is subject to substantial risk, including but not limited to the failure to identify material problems during due diligence (for which we may not be indemnified post-closing), the risk of over-paying for assets (or not making acquisitions on an accretive basis), the ability to obtain or retain customers and the risks of entering markets where we have limited experience. While we perform due diligence on prospective acquisitions, we may not be able to discover all potential operational deficiencies in such entities.
Our prior and future acquisitions may not perform as expected or the returns from such acquisitions may not support the financing utilized to acquire them or maintain them. Furthermore, integration and consolidation of acquisitions requires substantial human, financial and other resources and may divert management's attention from our existing business concerns, disrupt our ongoing business or not be successfully integrated. Even if we consummate acquisitions that we believe will be accretive to such cash per unit, those acquisitions may in fact result in a decrease in such cash per unit as a result of incorrect assumptions in our evaluation of such acquisitions, unforeseen consequences or other external events beyond our control. Furthermore, if we consummate any future acquisitions, our capitalization and results of operations may change significantly, and stockholders will generally not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and other resources. As a result, the consummation of acquisitions may have a material adverse effect on our business, financial condition, results of operations and cash flows.
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Failure to manage our growing and changing business could have a material adverse effect on our business, prospects, financial condition and results of operations.
As we grow, we expect to encounter additional challenges to our internal processes, capital commitment process, and acquisition funding and financing capabilities. Our existing operations, personnel, systems and internal control may not be adequate to support our growth and expansion and may require us to make additional unanticipated investments in our infrastructure. To manage the future growth of our operations, we will be required to improve our administrative, operational and financial systems, procedures and controls, and maintain, expand, train and manage our growing employee base. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies successfully or respond to competitive pressures. As a result, our business, prospects, financial condition and results of operations could be materially and adversely affected.
During our startup phase we were not profitable and generated minimal revenue and no profit.
Since the launch of its acquisition strategy in 2013, the Company has not been profitable. Although management is pleased with the execution of the Company’s acquisition strategy and the revenues it has generated to date, the Company may never become profitable, and could go out of business.
Despite having sustained net losses from our inception, we still consider ourselves a going concern.
For the fiscal years ended December 31, 2021 and 2020, our independent registered public accounting firm has included an emphasis of matter paragraph about our ability to continue as a going concern, due to our continued losses and deficiencies in working capital. We believe our ability to achieve and maintain profitability and positive cash flow is dependent upon:
| · | our ability to acquire profitable businesses; | |
| · | our ability to generate substantial revenues; and | |
| · | our ability to obtain additional financing |
Based upon current plans, we may incur operating losses in future periods. Also, we expect to incur approximately $6,400,000 in operating costs to be incurred over the next twelve months. We cannot guarantee that we will be successful in generating sufficient revenues or obtaining other financing in the future to cover these operating costs. Additionally, financing may not be available on terms favorable to the Company. Failure to generate sufficient revenues may cause us to go out of business.
Since we are an early-stage company that has generated minimal revenue, an investment in our shares is highly risky and could result in a complete loss of your investment if we are unsuccessful in our business plans.
We were incorporated in August 2001 and, since 2013, have focused all our efforts on the acquisition and development of our portfolio of companies which have quadrupled our revenue since 2015. However, there is no guarantee that we will be successful in realizing revenues or in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible closure of our business or force us to seek additional capital through loans or additional sales of our equity securities to continue business operations, which would dilute the value of any shares you hold and could result in the loss of your entire investment.
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Future acquisitions are important to our success. We may not be able to successfully integrate our acquisitions into our operations.
The acquisition of new companies is central to our business model and critically important to our success. Although we generally seek companies that have positive cash flows, we cannot be certain that the acquired companies will remain cash flow positive and could possibly lose revenues. In addition, there are no assurances that the companies acquired will continue as profitable businesses and could adversely affect our business and any possible revenues.
Successful implementation of our business strategy depends on factors specific to acquiring successful businesses. Adverse changes in our acquisition process could undermine our business strategy and have a material adverse effect on our business, financial condition, and results of operations and cash flow:
| · | The competitive environment in the specific field of business acquired; | |
| · | Our ability to acquire the right businesses that meet customers’ needs; and | |
| · | Our ability to establish, maintain and eventually grow market share in a competitive environment. |
There are no substantial barriers to acquire established businesses and there is no guarantee the Company will successfully acquire additional businesses, which could severely limit our anticipated revenues. If we cannot acquire established businesses, it could result in the loss of your investment.
Since we have no copyright protection, unauthorized persons may attempt to copy aspects of our business model, including our governance design or functionality, services, or marketing materials. Any encroachment upon our corporate information, including the unauthorized use of our brand name, the use of a similar name by a competing company or a lawsuit initiated against us for infringement upon another company's proprietary information or improper use of their copyright, may affect our ability to create brand name recognition, cause confusion among prospective portfolio companies and their customers, and/or have a detrimental effect on our business. Litigation or proceedings before the U.S. or International Patent and Trademark Offices may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and domain name and/or to determine the validity and scope of the proprietary rights of others. Any such infringement, litigation or adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business operations and/or results of operations. As a result, an investor could lose his or her entire investment.
Risks Associated with our Common Stock
Our stock has limited liquidity.
Our common stock trades on the OTC Pink Market, which is operated by OTC Markets Group Inc. (“OTC Pink Market”). Trading volume in our shares may be sporadic and the price could experience volatility. If adverse market conditions exist, you may have difficulty selling your shares.
The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, including the following:
| · | actual or anticipated fluctuations in our operating results; | |
| · | changes in financial estimates by securities analysts or our failure to perform in line with such estimates; | |
| · | changes in market valuations of other companies, particularly those that market services such as ours; | |
| · | announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; | |
| · | introduction of product enhancements that reduce the need for our products; and | |
| · | departure of key personnel. |
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Our shares are defined as a “penny stock” under the Exchange Act and rules of the SEC. In general, buying low-priced penny stocks is very risky and speculative. You may not be able to sell your shares when you want to do so, if at all.
Our shares are defined as a “penny stock” under the Exchange Act and rules of the SEC. The Exchange Act and SEC rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly with spouse, or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for each purchaser and receive the purchaser's written agreement prior to such sale. In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required by the Commission. Consequently, the penny stock rules may affect the ability of broker-dealers to make a market in or trade our common stock and may also affect your ability to resell any shares you may purchase in the public markets.
We do not expect to pay dividends on common stock in the foreseeable future.
We have not paid any cash dividends with respect to our common stock, and it is unlikely that we will pay any dividends on our common stock for the year. Earnings, if any, that we may realize will be retained in the business for further development and expansion.
Other General Risks
The loss of the services of the current officers and directors could severely impact our business operations and future development, which could result in a loss of revenues and one’s ability to ever sell any shares.
Our performance is substantially dependent upon the professional expertise of the current officers and board of directors. Each has extensive expertise in business development and acquisitions, and we are dependent on their abilities. If they are unable to perform their duties, this could have an adverse effect on business operations, financial condition, and operating results if we are unable to replace them with other individuals qualified to develop and market our business. The loss of their services could result in a loss of revenues, which could result in a reduction of the value of any shares you hold as well as the complete loss of your investment.
Because of our size and limited resources, we may have difficulty establishing adequate management, legal and financial controls, which we are required to do in order to comply with U.S. GAAP and securities laws, and which could cause a materially adverse impact on our financial statements, the trading of our common stock and our business.
We are a small holding company that lacks the financial resources and qualified personnel to implement and sustain adequate internal controls. As a result, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet proper internal control standards. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, material weaknesses or lack of compliance could result in restatements of our historical financial information, cause investors to lose confidence in our reported financial information, have an adverse impact on the trading price of our common stock, adversely affect our ability to access the capital markets and our ability to recruit personnel, lead to the delisting of our securities from the electronic platform on which they are traded, lead to litigation claims, thereby diverting management’s attention and resources, and which may lead to the payment of damages to the extent such claims are not resolved in our favor, lead to regulatory proceedings, which may result in sanctions, monetary or otherwise, and have a materially adverse effect on our reputation and business.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company had operating lease expense of $185,831 and $87,649 for the years ended December 31, 2021 and 2020, respectively, consisting of the followings.
| For the year ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Lot | $ | 0 | $ | 408 | ||||
| Office | 185,831 | 87,169 | ||||||
| Total | $ | 185,831 | $ | 87,649 | ||||
Cardiff filed a lawsuit on October 4, 2020 in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida seeking to nullify agreements with six individuals. In violation of the management agreement entered into by the Company and Ihsane (Jay) Jahid in connection with the Company’s acquisition of Red Rock Travel Group, LLC, the Company alleges that Mr. Jahid engaged in self-interested, self-serving conduct utilizing the Company’s goodwill to enter into certain Convertible Note agreements with Matt Kanuck, Rita Home & Investment, LLC, Taoufik Litefti, Khalid Ahroum, and Iham Taharraoui without the legal authority to bind the Company. The Company alleges that it did not authorize Mr. Jahid to enter into the subject agreements with the five other defendants, was not aware that Mr. Jahid had done so, Mr. Jahid was acting outside of the scope of his authority when he caused the Company to enter into the agreements, the five other defendants knew or should have known that Mr. Jahid did not have the authority to bind the Company to the obligations contemplated by the subject agreements, and any rights that the five other defendants claim under the agreements with Mr. Jahid are controverted by the management agreement that was in place between the Company and Mr. Jahid and therefore cannot form the basis for any breach of contract claims against the Company. The parties are currently engaged in settlement negotiations.
On August 31, 2021, without knowledge or consent of Cardiff Lexington or Edge View Properties and in a manner to conceal his unlawful actions, a property manager used a new company check from Summit National Bank to withdraw $50,000 from the Company Account. The Defendant is being charged with intentional, oppressive, fraudulent, malicious and outrageous damages. We received the Court’s decision on our Motion for Partial Summary Judgment. In the decision, the Judge denied our Motion for Partial Summary Judgment due to several disputed facts and unanswered questions. Case is pending.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Holders
As of August 15, 2022, there were 853 record holders of our common stock, and there were 166,130,069 shares of our common stock outstanding.
Public Market for Common Stock
Our common stock, par value $0.001 per share (the “Common Stock”), is currently quoted on the OTC Pink Market, which is operated by OTC Markets Group Inc. under the symbol “CDIX.” The OTC Pink Market is a quotation service that displays real-time quotes, last-sale prices, and volume information in over the counter, or “OTC,” equity securities. An OTC equity security generally is any equity that is not listed or traded on a national securities exchange. The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTC Pink Market quotation service. These bid prices represent prices quoted by broker-dealers on the OTC Pink quotation service. The quotations reflect inter- dealer prices, without retail mark-up, mark- down or commissions, and may not represent actual transactions. The prices presented have not been adjusted to reflect the impact of a one for ten thousand (1:10,000) reverse stock split of the Company’s common stock effected on April 4, 2020.
| High | Low | |||||||
| December 31, 2021 | ||||||||
| 1st Quarter | $ | .0660 | $ | .0102 | ||||
| 2nd Quarter | $ | .0240 | $ | .0104 | ||||
| 3rd Quarter | $ | .0165 | $ | .0045 | ||||
| 4th Quarter | $ | .0071 | $ | .0001 | ||||
| December 31, 2020 | ||||||||
| 1st Quarter | $ | 40.00 | $ | .0001 | ||||
| 2nd Quarter | $ | .5100 | $ | .0001 | ||||
| 3rd Quarter | $ | .4200 | $ | .0400 | ||||
| 4th Quarter | $ | .0810 | $ | .0180 | ||||
The market price of our common stock will be subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market, and other factors, over many of which we have little or no control. In addition, broad market fluctuations, as well as general economic, business, and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.
The Securities Enforcement and Penny Stock Reform Act of 1990
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
A purchaser is purchasing penny stock which limits the ability to sell the stock. The Company’s common stock constitute penny stock under the Exchange Act and SEC regulations. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 promulgated under the Exchange Act. Rather than creating a need to comply with those rules, some broker- dealers will refuse to attempt to sell penny stock.
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The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission, which:
| · | contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; | |
| · | contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act; | |
| · | contains a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and the significance of the spread between the bid and ask price; | |
| · | contains a toll-free telephone number for inquiries on disciplinary actions; | |
| · | defines significant terms in the disclosure document or in the conduct of trading penny stocks; and | |
| · | contains such other information and is in such form (including language, type, size, and format) as the SEC shall require by rule or regulation; |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:
| · | the bid and offer quotations for the penny stock; | |
| · | the compensation of the broker-dealer and its salesperson in the transaction; | |
| · | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and | |
| · | monthly account statements showing the market value of each penny stock held in the customer's account. |
In addition, the SEC’s penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker- dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our common stock because it will be subject to these penny stock rules. Therefore, shareholders may have difficulty selling their securities.
Dividend Policy
We have not previously declared or paid any dividends on our common stock and do not anticipate declaring any dividends in the foreseeable future. The payment of dividends on our common stock is within the discretion of our board of directors. We intend to retain any earnings for use in our operations and the expansion of our business. Payment of dividends in the future will depend on our future earnings, future capital needs and our operating and financial condition, among other factors that our board of directors may deem relevant. We are not under any contractual restriction as to our present or future ability to pay dividends.
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Recent Sales of Unregistered Securities
On February 11, 2021, the Chairman of the Board and the Chief Executive Officer 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.
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.
As part of the Nova Ortho acquisition, on May 31, 2021, the Company issued 894,834 shares of preferred stock series J with par value $0.001 and a stated value of $4.00, for $3,579,334.
Also, as part of the Nova Ortho acquisition, the Company issued 868,056 shares of preferred stock series N with par value $0.001 and a stated value of $4.00, for $3,000,000 including a discount of $472,224 which was recorded as a reduction to APIC.
On July 22, 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000.
Effective December 28, 2021, the Chairman of the Board and Chief Executive Officer each forfeit and surrendered for no consideration 90,000,000 preferred I shares each totaling 180,000,000.
The Company and Key Tax managers have entered into a Buyback Agreement (“Agreement”) which is effective December 31, 2021. Pursuant to the Agreement, Key Tax managers resigned employment from the Company effective December 31, 2021 and has purchased back the subsidiary in exchange for returning 325,244 Preferred Shares Series G stock (“Preferred G”) which is 100% of Preferred G shares. The Key Tax managers will retain zero shares of Preferred G shares subject to the terms of the Agreement. There was a loss on disposal in the amount of $1,201,171, which represented net assets and liabilities at the time of sale back
During the year ended December 31, 2021, the Company converted convertible debt into 109,234,241 shares of common stock.
In the second quarter of 2021, the Company issued 1,627,031 shares of common stock in exchange for professional services.
See footnote #10 to the Company’s consolidated financial statements appearing elsewhere in this report for information on convertible notes payable issued during 2021.
The Company relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act for transactions not involving any public offering for each issuance of securities during 2021.
ITEM 6. SELECTED FINANCIAL DATA.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis or Financial Condition and Results of Operation contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases, you can identify forward-looking statements by the use of words such as “may”, “will”, “should”, “anticipate”, “believe”, “expect”, “plan”, “future”, “intend”, “could”, “estimate”, “predict”, “hope”, “potential”, “continue”, or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks, and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including, but not limited to, the matters discussed in this report under the caption “Risk Factors”. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
The following discussion of our consolidated financial condition and consolidated results of operations should be read in conjunction with our consolidated financial statements and the related notes included in this report.
The following table provides segment reporting for selected financial data about the Company as of and for the years ended December 31, 2021 and 2020. For detailed financial information, see the audited consolidated financial statements included in this report.
| As of | As of | |||||||
December 31, 2021 | December 31, 2020 | |||||||
| Assets: | ||||||||
| Affordable Housing Rentals | $ | 213,876 | $ | 258,813 | ||||
| Financial Services | 2,212,379 | 4,369,195 | ||||||
| Healthcare | 8,092,820 | – | ||||||
| Real Estate | 611,900 | – | ||||||
| Cardiff Lexington | 28,940 | 302,139 | ||||||
| Consolidated assets | $ | 11,159,915 | $ | 4,930,147 | ||||
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December 31, 2021 | December 31, 2020 | |||||||
| Revenues: | ||||||||
| Affordable Housing Rentals | $ | 129,803 | $ | 138,832 | ||||
| Financial Services | 4,313,167 | 3,314,226 | ||||||
| Healthcare | 5,413,890 | – | ||||||
| Real Estate | 152,000 | – | ||||||
| Consolidated revenues | $ | 10,008,860 | $ | 3,453,058 | ||||
| Cost of Sales: | ||||||||
| Affordable Housing Rentals | $ | 79,953 | $ | 156,191 | ||||
| Financial Services | 1,942,411 | 1,511,955 | ||||||
| Healthcare | 1,746,561 | – | ||||||
| Real Estate | 79,481 | – | ||||||
| Consolidated cost of sales | $ | 3,848,406 | $ | 1,668,146 | ||||
| Income (Loss) from operations from subsidiaries | ||||||||
| Affordable Housing Rentals | $ | (36,022 | ) | $ | (40,378 | ) | ||
| Financial Services | 187,027 | (190,338 | ) | |||||
| Healthcare | 3,272,241 | – | ||||||
| Real Estate | 68,744 | – | ||||||
| Income (loss) from operations from subsidiaries | $ | 3,491,990 | $ | (230,716 | ) | |||
| Loss from operations from Cardiff Lexington | $ | (1,865,888 | ) | $ | (1,573,435 | ) | ||
| Total income (loss) from operations | $ | 1,626,102 | (1,804,151 | ) | ||||
| Income (Loss) before taxes | ||||||||
| Affordable Housing Rentals | $ | (36,022 | ) | $ | (40,378 | ) | ||
| Financial Services | 187,027 | (190,338 | ) | |||||
| Healthcare | 3,272,241 | – | ||||||
| Real Estate | 68,744 | – | ||||||
| Corporate, admin and other non-operating expenses | (3,901,697 | ) | (2,608,572 | ) | ||||
| Consolidated loss before taxes | $ | (409,707 | ) | $ | (2,836,893 | ) | ||
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Results of Operations
Revenues. We had revenues in the amount of 10,008,860 and $3,453,058 for the years ended December 31, 2021 and 2020, respectively, an increase of $6,555,802 or 189.9%. The increase in revenue was primarily due to: (i) the acquisition of Nova Ortho which generated revenue of $5,413,890 for the seven months ending December 31, 2021, (ii) the sale of three parcels of land by Edge View for $152,000 and (iii) higher sales in the financial services sector for the twelve months ended December 31, 2021 due primarily to the impact of the COVID-19 pandemic during 2020, offset by a decrease in housing rentals.
Cost of Goods Sold. We had costs of sales in the amount of $3,848,406 and $1,668,146 for the years ended December 31, 2021 and 2020, respectively, an increase of $2,180,260 or 130.7%. The increase in revenue was primarily due to: (i) the acquisition of Nova Ortho which incurred cost of sales of $1,685,625 for the seven months ending December 31, 2021, (ii) the sale of three parcels of land by Edge View which incurred cost of sales of $79,481 and (iii) higher cost of sales for the financial services sector for the twelve months ended December 31, 2021, offset by a decrease in housing rentals.
Operating Expenses. Operating expenses consist of acquisition costs, depreciation expense, and general and administrative expenses. We had operating expenses of $4,534,352 and $3,589,063 for the years ended December 31, 2021 and 2020, respectively, an increase of $945,289 or 26.3%. The increase in operating expenses was primarily due to: (i) the acquisition of Nova Ortho which incurred operating expenses of $395,088 for the seven months ending December 31, 2021, and (ii) higher operating expenses for the financial services sector for the twelve months ended December 31, 2021.
Amortization of debt discounts. We had amortization of debt discount of $1,051,264 and $1,192,044 for years ended December 31, 2021 and 2020, respectively, a decrease of $140,780 or 11.8%. Amortization of debt discount is related to our convertible debt.
Interest Expense and finance charge. During the years end December 31, 2021 and 2020, interest expense and finance charge was $2,982,844 and $332,704, respectively, an increase of $2,650,140 or 796.5%. The increase is due primarily to finance charges of $2,633,634 for the seven months ended December 31, 2021 for Nova Ortho factoring certain accounts receivables.
Net Loss. As a result of the foregoing, we had a net loss of $409,707 for the year ending December 31, 2021, compared to a net loss for the year ending December 31, 2020 of $2,836,893.
Our activities have a focus on growing revenue and cash flow. We plan to continue this strategy into 2022.
To try to operate at a break-even level based upon our current level of proposed business activity, we believe that we must generate approximately $9,000,000 in revenue per year. Each dollar of revenue is not directly tied to increasing costs. We believe that we can become profitable without incurring additional costs under our current operating cost structure. However, if our forecasts are inaccurate, we will need to raise additional funds. If we need additional capital, our directors have informally agreed to borrow such funds as may be necessary for the next 12 months for working capital purposes, although they have no obligation to do so.
On the other hand, if we decide that we cannot operate at a profit in our current configuration, we may choose to scale back our operations to operate at break-even with a smaller level of business activity, while adjusting our overhead to meet the revenue from current operations. In such event, we will probably continue to not be profitable. In addition, we expect that we will need to raise additional funds if we decide to pursue more rapid expansion, the development of new or enhanced services or products, appropriate responses to competitive pressures, or the acquisition of complementary businesses or technologies, or if we must respond to unanticipated events that require us to make additional investments. We cannot assure that additional financing will be available when needed on favorable terms, or at all.
We expect to incur operating losses in future periods because we will be incurring expenses and not generating sufficient revenues. We expect approximately $6,400,000 in operating costs over the next twelve months. We cannot guarantee that we will be successful in generating sufficient revenues or other funds in the future to cover these operating costs. Failure to generate sufficient revenues or additional financing when needed could cause us to go out of business.
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Liquidity and Capital Resources
As of December 31, 2021, we had cash of $595,987 and a working capital deficit of $2,502,813. As of December 31, 2020, we had cash of $279,311 and a working capital deficit of $13,107,015.
Net cash used in operating activities was $844,826 for the year ended December 31, 2021, representing a $903,416 decrease from the prior year ended December 31, 2020. The improvement in cash used in operating activities is primarily due to a $903,416 reduction in loss from operating income.
Net cash used in investing activities was $2,323,642 for the year ended December 31, 2021, used for the acquisition of the new business, compared with cash provided by investing activities of $0 for the year ended the December 31, 2020.
Net cash flows provided by financing activities was $3,676,648 for the year ended December 31, 2021, compared with cash provided by financing activities of $1,150,423 for the year ended December 31, 2020. The increase is due primarily issuance of preferred stock for the acquisition of Nova Ortho.
There can be no assurance that we will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans and possibly relinquish rights to portions of our technology or products. In addition, increases in expenses or delays in product development may adversely impact our cash position and may require cost reductions. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.
In order to continue our operations, development of our products, and implementation of our business plan, we need additional financing. We are currently attempting to obtain additional working capital in a term loan transaction.
During 2020 and 2021 both the Platinum Tax Subsidiary and the Key Tax Subsidiary (sold at December 31, 2021) secured PPP Funding to sustain their respective payrolls.
The Company’s current funding is now concentrated with 3 primary lenders and the Company is currently in discussions with each to convert those outstanding notes to equity to include lockup and leakout agreements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements with any party.
Plan of Operation
At Cardiff Lexington, we acquire or merge with middle market companies in the financial services and healthcare sectors by providing them the ability to have an infusion of equity into their business or providing them the ability to exit out of their company. Our focus is not industry or geographic-specific, but rather proven management, market, and margin - we are opportunity oriented.
We target acquisitions of mature, high growth, niche companies. Our target companies' proven management maintains full operational control, meaning our acquisitions become standalone autonomous subsidiaries that gain the advantages of a public company without losing their operational independence. For investors, our goal is to provide a diversified lower risk platform to protect and safely enhance their investment by continually adding assets and holdings. By employing a merge or acquire and hold strategy, we expect to maximize the value and potential of private, often family run, enterprises while providing diversification and risk mitigation for all shareholders. Our portfolio is comprised of mature, high growth and niche companies with great management, in an identifiable market, which they have penetrated through a significant advantage, and have acceptable margins.
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Current Business Operations
Cardiff Lexington Corp (formerly Cardiff International, Inc.) is currently structured as a company with holdings of various companies.
The following milestones are estimates only. The working capital requirements and the projected milestones are approximations only and subject to adjustment based on sales, costs and needs.
CARDIFF LEXINGTON CORP (FORMERLY CARDIFF INTERNATIONAL, INC.) is a publicly-traded holding company utilizing a form of collaborative governance. Cardiff Lexington targets acquisitions of undervalued, niche companies with high growth potential, income-producing businesses, including commercial real estate properties all of which offer high returns for our investors. Our goal is to provide a form of governance enabling businesses to take advantage of the potential access to capital markets of a publicly-traded company without losing management control. Cardiff Lexington seeks to provide companies the ability to raise money and investors a low-risk environment that protects their investment.
WE THREE, LLC (D/B/A AFFORDABLE HOUSING INITIATIVE) (“AHI”): AHI was acquired on May 15, 2014 is located in Maryville, Tennessee. AHI acquires both mobile homes and mobile home parks offering an alternative to traditional housing and sells them or rents the homes or properties to individual families. The acquisition of mobile homes and 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. If bad credit is an issue preventing people from purchasing a traditional house, AHI will provide a financial leasing option with “O” interest on the lease providing a “lease to own” option for their family home. Most homes are 3 bedroom/2bath homes making the dream of owning a home possible.
EDGE VIEW PROPERTIES LLC: Edge View Properties was acquired on July 16, 2014, is a real estate company that owns 30 prime acres of land; 23.5 acres zoned MDR (Medium Density Residential) with 12 lots already platted and 48 lots zoned HDR (High Density Residential), 4 acres of dedicated river front property zoned for recreation on the Salmon River, Idaho’s premier whitewater river and 2.5 acres zoned for commercial use. Three lots were sold during 2021 for a total price of $152,000. All land is in the city limits of Salmon and adjacent to the Frank church Wilderness Park (the largest wilderness park in the lower 48 states). Edgeview’s plan is to enter into a joint venture agreement with a planned concept developer to develop the land.
PLATINUM TAX DEFENDERS: Platinum tax was acquired on July 31, 2018 and 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 team includes tax attorneys, accountants, and enrolled agents that have an aggregate of more than 90 years of experience in the financial services industry and have resolved tax issues for thousands of clients.
NOVA ORTHO AND SPINE, PLLC (“NOVA ORTHO”) which we acquired on May 31, 2021 is a company in which doctors provides a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves. From sports injuries, to sprains, strains, and fractures, our doctors are dedicated to helping you return to your active lifestyle. Orthopedic and pain procedure services include hip and knee replacement, shoulder reconstruction, fracture care and hand surgery, as well as spinal surgery in the State of Florida.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. On an on-going basis, we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies. Our actual results may differ from these estimates.
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We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different results when using different assumptions. We have discussed these critical accounting estimates, the basis for their underlying assumptions and estimates and the nature of our related disclosures herein with the audit committee of our Board of Directors. We believe our accounting policies specific to share-based compensation expense and estimation of the fair value of derivative liability involve our most significant judgments and estimates that are material to our consolidated financial statements. They are discussed further below.
Share-based compensation expense
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.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private sales to third parties, or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a lattice-binomial option pricing valuation model. The ranges of assumptions for inputs are as follows:
| · | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees expected exercise and post vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. | |
| · | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f) (2)(ii) a thinly traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market |
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| · | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
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 statements of operations.
Stock Based Compensation – Nonemployees
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Subtopic 505-50 of the FASB Accounting Standards Codification (“Subtopic 505-50”).
Pursuant to ASC Section 505-50-30, 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. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum, or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option pricing valuation model. The ranges of assumptions for inputs are as follows:
| · | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. | |
| · | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f) (2)(ii) a thinly traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. |
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| · | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. | |
| · | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments. |
Pursuant to ASC paragraph 505-50-257, if fully vested, no forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into), whether the corresponding cost is an immediate expense or a prepaid asset.
Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.
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 the years ended December 31, 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.
Inflation
We do not believe that inflation will negatively impact our business plans.
Seasonality
We do not expect our revenues to be impacted by seasonal demands for our services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Cardiff Lexington Corp. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Cardiff of Lexington Corp. and Subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt Regarding the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, the Company has sustained net losses and has accumulated and working capital deficits, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
| F-2 |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Goodwill
Critical Audit Matter Description
At December 31, 2021, the Company had approximately $7.9 million of goodwill. As discussed in Note 1 and Note 14 to the consolidated financial statements, goodwill is tested annually for impairment at the reporting unit level, or more frequently if impairment indicators arise. In accordance with the FASB revised guidance on “Testing of Goodwill for Impairment,” a company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company decides, as a result of its qualitative assessment, that it is more-likely- than- not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a two-step goodwill impairment test. The first step compares the fair value of each reporting unit to its carrying amount. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.
Auditing the Company’s goodwill impairment analyses was complex and highly judgmental due to the nature of qualitive assessment and, where necessary, the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimate was sensitive to significant assumptions, such as future operating results, cash flows and the weighted average cost of capital. These significant assumptions are forward looking and could be materially affected by future market or economic conditions.
How we addressed the matter:
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s goodwill impairment evaluation process, including controls over management’s review of the significant assumptions described above.
Our audit procedures to test the Company’s goodwill impairment analyses included evaluating the reasonableness of management’s qualitative assessments and in certain instances the estimated fair value of the Company’s reporting units. In evaluating estimated fair value of reporting units we, among others, evaluated management’s significant assumptions described above and used within the fair value method, and tested the completeness and accuracy of the underlying data. We engaged our valuation specialists to assist in assessing fair valuation methodologies utilized in the Company’s goodwill impairment analyses. We compared certain significant assumptions to existing market information and, where relevant, to the plans of the Company, including management’s expectations with regard to the Company’s business model, customer base, product mix and other relevant factors. We assessed the historical accuracy of management’s projected cash flows, where applicable, and performed sensitivity analyses of the significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We involved our valuation specialists to assist in evaluating the discount rates, which included comparison of the selected discount rates to the Company’s weighted average cost of capital and the risk associated with projected cash flows. Finally, we assessed the adequacy of the disclosures in the consolidated financial statements.
/s/ Grassi & Co., CPAs, P.C.
Jericho, New York
October 21, 2022
We have served as the Company’s auditor since 2022.
| F-3 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Cardiff Lexington Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cardiff Lexington Corporation (the Company) at December 31, 2020, and the related consolidated statements of operations, deficiency in shareholder’s equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the years ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 2, the accompanying 2020 consolidated financial statements for the have been restated.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, the Company has sustained net losses and has accumulated and working capital deficits, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| F-4 |
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Intangible Assets Impairment Assessments
As described in Note 14 to the consolidated financial statements, the Company has goodwill of $3.5 million at December 31, 2020. In most cases, no directly observable market inputs are available to measure the fair value to determine if the asset is impaired. Therefore, an estimate is derived indirectly and is based on net present value techniques utilizing post-tax cash flows and discount rates. The estimates that management used in calculating the net present values depend on assumptions specific to the nature of the management service activities with regard to the amount and timing of projected future cash flows; long-term professional service forecasts; actions of competitors (competing services), future tax and discount rates.
The principal considerations for our determination that performing procedures relating to the intangible assets impairment assessment is a critical audit matter are the significant judgment by management when developing the net present value of the intangible assets. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of projected future cash flows and the discount rate.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the net present value techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the amount and timing of projected future cash flows and the discount rate. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and the discount rate involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the intangible assets, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ Daszkal Bolton LLP
Daszkal Bolton LLP
March 31, 2021, except for Note 2 as to which the date is February 8, 2022
Fort Lauderdale, Florida
We have served as the Company’s auditor since 2018 through 2021.
| F-5 |
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
AS OF DECEMBER 31, 2021, AND 2020
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| (Restated) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 595,987 | $ | 279,311 | ||||
| Accounts receivable-net | 4,948,796 | 16,377 | ||||||
| Prepaid and other current assets | 5,000 | – | ||||||
| Total current assets | 5,549,783 | 295,688 | ||||||
| Property and equipment, net of accumulated depreciation of $218,471 and $205,443, respectively | 259,030 | 211,799 | ||||||
| Land | 540,000 | 603,000 | ||||||
| Intangible assets, net | – | 253,550 | ||||||
| Goodwill | 4,483,656 | 3,499,963 | ||||||
| Right of use - assets | 283,622 | 52,567 | ||||||
| Due from related party | 4,942 | – | ||||||
| Other assets | 38,882 | 13,600 | ||||||
| Total assets | $ | 11,159,915 | $ | 4,930,147 | ||||
| LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expense | $ | 1,392,722 | $ | 617,073 | ||||
| Accrued expenses - related parties | 2,961,057 | 2,196,222 | ||||||
| Accrued interest | 449,455 | 722,815 | ||||||
| Right of use - liability | 176,285 | 54,185 | ||||||
| Due to director & officer | 126,765 | 126,849 | ||||||
| Deferred revenue | – | 353,830 | ||||||
| Line of credit | – | 51,927 | ||||||
| Preferred stock to be issued | – | 222,000 | ||||||
| Notes payable | 458,177 | 947,912 | ||||||
| Notes payable - related party | – | 37,885 | ||||||
| Convertible notes payable, net of debt discounts of $0 and $108,321, respectively | 2,077,753 | 2,476,647 | ||||||
| Derivative liabilities | – | 2,903,663 | ||||||
| Net, liabilities of discontinued operations | 471,318 | 2,691,695 | ||||||
| Total current liabilities | 8,113,532 | 13,402,703 | ||||||
| Other Liabilities | ||||||||
| Notes payable | 142,755 | 399,778 | ||||||
| Operating lease liability – long term | 122,264 | – | ||||||
| Total liabilities | $ | 8,378,551 | $ | 13,802,481 | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-6 |
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
AS OF DECEMBER 31, 2021 AND 2020 (Restated)
| Shareholders' equity (deficit) | ||||||||
| Preferred stock | ||||||||
| Preferred Stock Series B- 3,000,000 shares authorized, no par, stated value of $4.00, 1,945,078 and 1,733,254 shares issued and outstanding at December 31, 2021 and 2020, respectively | $ | 7,780,313 | $ | 7,056,977 | ||||
| Preferred Stock Series C- 500 shares authorized, no par, stated value of $4.00, 122 and 122 shares issued and outstanding at December 31, 2021 and 2020, respectively | 488 | 488 | ||||||
| Preferred Stock Series D- 800,000 shares authorized, no par, stated value $4.00, 37,500 and 250,000 shares issued and outstanding at December 31, 2021 and 2020 | 150,000 | 1,000,000 | ||||||
| Preferred Stock Series E- 1,000,000 shares authorized, no par, stated value $4.00, 150,750 and 150,750 shares issued and outstanding at December 31, 2021 and 2020, respectively | 603,000 | 603,000 | ||||||
| Preferred Stock Series F- 800,000 shares authorized, no par, stated value $4.00, 175,045 and 175,045 shares issued and outstanding at December 31, 2021 and 2020, respectively | 700,180 | 700,180 | ||||||
| Preferred Stock Series F-1- 800,000 shares authorized, no par, stated value $4.00, 35,752 and 35,752 shares issued and outstanding at December 31, 2021 and 2020, respectively | 143,008 | 143,008 | ||||||
| Preferred Stock Series G- 20,000,000 shares authorized, no par, stated value $4.00 zero and 325,444 shares issued and outstanding at December 31, 2021 and 2020 | – | 1,300,976 | ||||||
| Preferred Stock Series H- 4,859,379 shares authorized, no par, stated value $4.00, 37,500 shares issued and outstanding at December 31, 2021 and 2020, respectively | 150,000 | 476,404 | ||||||
| Preferred Stock Series I- 500,000,000 shares authorized, with par value of $4.00, 14,885,000 and 195,010,000 issued and outstanding at December 31, 2021 and 2020, respectively | 59,540,000 | 780,040,000 | ||||||
| Preferred Stock Series J-10,000,000 shares authorized, no par, stated value $4, 894,834 and -0- shares issued and outstanding at December 31, 2021 and 2020 | 3,579,336 | – | ||||||
| Preferred Stock Series K- 10,937,500 shares authorized, par value of $.001, 8,200,562 shares issued and outstanding at December 31, 2021 and 2020 | 8,201 | 8,201 | ||||||
| Preferred Stock Series K1- 35,000,000 shares authorized, par value of $.001, -0- shares issued and outstanding at December 31, 2021 and 2020, respectively | – | – | ||||||
| Preferred Stock Series L- 100,000,000 shares authorized, no par, stated value $4.00, 319,493 shares issued and outstanding at December 31, 2021 and 2020 | 1,277,972 | 1,277,972 | ||||||
| Preferred Stock Series N-3,000,000 shares authorized, no par, stated value $4, 868,058 and -0- shares issued and outstanding at December 31, 2021 and 2020 | 3,472,224 | – | ||||||
| Preferred Stock Series R-5,000 shares authorized, stated value of $1,200, 165 shares issued and outstanding at December 31, 2021 and 2020 | 198,000 | 198,000 | ||||||
| Common stock; 7,500,000,000 shares authorized with $0.001 par value; 166,130,069 and 5,268,797 shares issued and outstanding at December 31, 2021 and 2020, respectively | 167,421 | 5,267 | ||||||
| Treasury stock; 619,345 and 294,101 shares of Series H Preferred stock at December 31, 2021 and 2020 | (4,967,686 | ) | (2,365,864 | ) | ||||
| Additional paid-in capital | (3,826,349 | ) | 733,733,688 | |||||
| Accumulated deficit | (66,194,744 | ) | (65,583,252 | ) | ||||
| Total shareholders' equity (deficit) | 2,781,364 | (8,872,334 | ) | |||||
| Total liabilities and shareholders' equity | $ | 11,159,915 | $ | 4,930,147 | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-7 |
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31, 2020
| DECEMBER 31, | ||||||||
| 2021 | 2020 | |||||||
| (Restated) | ||||||||
| REVENUE | ||||||||
| Rental income | $ | 129,803 | $ | 138,832 | ||||
| Financial services | 4,313,167 | 3,314,226 | ||||||
| Healthcare | 5,413,890 | – | ||||||
| Real estate | 152,000 | – | ||||||
| Total revenue | 10,008,860 | 3,453,058 | ||||||
| COST OF SALES | ||||||||
| Rental business | 79,953 | 156,191 | ||||||
| Financial services | 1,942,411 | 1,511,955 | ||||||
| Healthcare | 1,746,561 | – | ||||||
| Real estate | 79,481 | – | ||||||
| Total cost of sales | 3,848,406 | 1,668,146 | ||||||
| GROSS MARGIN | 6,160,454 | 1,784,912 | ||||||
| OPERATING EXPENSES | ||||||||
| Depreciation expense | 13,886 | 1,274 | ||||||
| Selling, general and administrative | 4,520,466 | 3,587,789 | ||||||
| Total operating expenses | 1,626,102 | 3,589,063 | ||||||
| INCOME (LOSS) FROM OPERATIONS | (1,090,740 | ) | (1,804,151 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Other income (loss) | 32,629 | – | ||||||
| Gain on divestiture | 788,500 | – | ||||||
| Change in derivative liability | – | 434,714 | ||||||
| Gain on change of estimate | 170,964 | – | ||||||
| Interest expense | (2,982,844 | ) | (332,704 | ) | ||||
| Conversion cost penalty and reimbursement | (13,000 | ) | (25,400 | ) | ||||
| Amortization of debt discounts | (1,051,264 | ) | (1,192,044 | ) | ||||
| Total other income (expenses) | (3,055,015 | ) | (1,115,434 | ) | ||||
| NET LOSS BEFORE DISCONTINUED OPERATIONS | (1,428,913 | ) | (2,919,585 | ) | ||||
| GAIN (LOSS) FROM DISCONTINUED OPERATIONS | 2,220,377 | (112,181 | ) | |||||
| GAIN (LOSS) FROM DISPOSAL OF DISCONTINUED OPERATIONS | (1,201,171 | ) | 194,873 | |||||
| INCOME FROM DISCONTINUED OPERATIONS | 1,019,206 | 82,692 | ||||||
| NET LOSS FOR THE YEAR | $ | (409,707 | ) | $ | (2,836,893 | ) | ||
| Deemed dividend - modification of preferred stock | – | (1,605,266 | ) | |||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (409,707 | ) | $ | (4,442,159 | ) | ||
| BASIC EARNINGS (LOSS) PER SHARE | ||||||||
| CONTINUED OPERATIONS | $ | (0.01 | ) | $ | (4.98 | ) | ||
| DISCONTINUED OPERATIONS | $ | 0.01 | $ | 0.09 | ||||
| DILUTED EARNINGS (LOSS) PER SHARE | ||||||||
| CONTINUED OPERATIONS | $ | (0.01 | ) | $ | (4.98 | ) | ||
| DISCONTINUED OPERATIONS | $ | 0.00 | $ | (0.00 | ) | |||
| WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC EARNING (LOSS) PER SHARE | ||||||||
| CONTINUED OPERATIONS | 128,021,527 | 908,485 | ||||||
| DISCONTINUED OPERATIONS | 128,021,527 | 908,485 | ||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED EARNINGS (LOSS) PER SHARE | ||||||||
| CONTINUED OPERATIONS | 128,021,527 | 908,485 | ||||||
| DISCONTINUED OPERATIONS | 110,239,662,132 | 1,444,295,967,109 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-8 |
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Preferred Stock Series A, I, K, K-1 | 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 (Restated) | 204,647,720 | $ | 780,049,638 | 2,989,528 | $ | 11,958,113 | 285 | $ | 198,480 | |||||||
| Issuance of preferred stock for services | 10,000 | 10 | 31,000 | 124,000 | 2 | 8 | ||||||||||
| Issuance of common stock in exchange for preferred stock | (1,447,157 | ) | (1,447 | ) | – | – | – | – | ||||||||
| Issuance of preferred stock in exchange for common stock | – | – | 119,101 | 476,404 | – | – | ||||||||||
| Issuance of common stock for services | – | – | – | – | – | – | ||||||||||
| Issuance of common stock | – | – | – | – | – | – | ||||||||||
| Distribution from an entity | – | – | – | – | – | – | ||||||||||
| Conversion of convertible notes payable | – | – | – | – | – | – | ||||||||||
| Reclassify Derivative liabilities to Additional Paid in Capital | – | – | – | – | – | – | ||||||||||
| Sale of subsidiary | – | – | – | – | – | – | ||||||||||
| Net loss | – | – | – | – | – | – | ||||||||||
| Balance December 31, 2020 (Restated) | 203,210,563 | $ | 780,048,201 | 3,139,629 | $ | 12,558,517 | 287 | $ | 198,488 | |||||||
| Conversion of convertible notes payable | – | – | – | – | – | – | ||||||||||
| Reclassify derivative liabilities to additional paid in capital | – | – | – | – | – | – | ||||||||||
| Surrender of Preferred I shares | (180,000,000 | ) | (720,000,000 | ) | – | – | – | – | ||||||||
| Issuance of common stock in exchange for preferred I shares | (125,000 | ) | (500,000 | ) | – | – | – | – | ||||||||
| Warrants issued with indebtedness | – | – | – | – | – | – | ||||||||||
| Issuance of preferred stock series J | – | – | 579,768 | 3,579,336 | – | – | ||||||||||
| Issuance of preferred stock series N | – | – | 868,056 | 3,472,224 | – | – | ||||||||||
| Issuance of preferred stock series B | – | – | 201,799 | 807,196 | – | – | ||||||||||
| Issuance of common stock for services | – | – | – | – | – | – | ||||||||||
| Distribution of dividend | – | – | – | – | – | – | ||||||||||
| Divestiture of subsidiary | – | – | (325,244 | ) | (2,561,241 | ) | – | – | ||||||||
| Issuance of warrant | – | – | – | – | – | – | ||||||||||
| Net loss | – | – | – | – | – | – | ||||||||||
| Balance, December 31, 2021 | 23,085,563 | $ | 59,548,201 | 4,464,008 | $ | 17,856,032 | 287 | $ | 198,488 | |||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-9 |
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIENCY) (continued)
FOR THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31, 2020
| Treasury Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance December 31, 2019 (Restated) | – | $ | – | 67,742 | $ | 68 | $ | (736,374,493 | ) | $ | (62,558,509 | ) | $ | (6,726,704 | ) | |||||||
| Issuance of preferred stock for services | – | – | – | – | (124,018 | ) | – | – | ||||||||||||||
| Issuance of common stock in exchange for preferred stock | – | – | 3,500 | 4 | 1,444 | – | – | |||||||||||||||
| Issuance of preferred stock in exchange for common stock | – | – | (320 | ) | (1 | ) | (476,403 | ) | – | – | ||||||||||||
| Issuance of common stock for services | – | – | 18,000 | 18 | (18 | ) | – | – | ||||||||||||||
| Issuance of common stock | – | – | 163,814 | 164 | (164 | ) | – | – | ||||||||||||||
| Distribution from an entity | – | – | – | – | – | (187,853 | ) | (187,853 | ) | |||||||||||||
| Conversion of convertible notes payable | – | – | 5,014,697 | 5,014 | 262,959 | – | 267,973 | |||||||||||||||
| Reclassify Derivative liabilities to Additional Paid in Capital upon conversion of debt | – | – | – | – | 611,143 | – | 611,141 | |||||||||||||||
| Sale of subsidiary | (294,101 | ) | (2,365,864 | ) | – | – | 2,365,864 | – | ||||||||||||||
| Net loss | – | – | – | – | – | (2,836,893 | ) | (2,836,893 | ) | |||||||||||||
| Balance December 31, 2020 (Restated) | (294,101 | ) | $ | (2,365,864 | ) | 5,267,433 | $ | 5,267 | $ | (733,733,688 | ) | $ | (65,583,255 | ) | $ | (8,872,334 | ) | |||||
| Conversion of convertible notes payable | – | – | 109,234,241 | 109,234 | 804,991 | – | 914,225 | |||||||||||||||
| Reclassify derivative liabilities to additional paid in capital upon conversion of debt | – | – | – | – | 644,997 | – | 644,997 | |||||||||||||||
| Surrender of Preferred I shares | – | – | – | – | 720,000,000 | – | – | |||||||||||||||
| Issuance of common stock in exchange for preferred I shares | – | – | 50,000,000 | 50,000 | 450,000 | – | – | |||||||||||||||
| Warrants issued with indebtedness | – | – | – | – | 260,433 | – | 260,433 | |||||||||||||||
| Issuance of preferred stock series J | – | – | – | – | – | – | 3,579,336 | |||||||||||||||
| Issuance of preferred stock series N | – | – | – | – | (347,222 | ) | – | 3,125,002 | ||||||||||||||
| Issuance of preferred stock series B | – | – | – | – | – | – | 807,196 | |||||||||||||||
| Issuance of common stock for services | – | – | 1,628,395 | 2,920 | 27,404 | – | 30,324 | |||||||||||||||
| Distribution of dividend | – | – | – | – | – | (201,782 | ) | (201,782 | ) | |||||||||||||
| Divestiture of subsidiary | (325,244 | ) | (2,601,822 | ) | – | – | 5,163,063 | – | – | |||||||||||||
| Reclass of derivative liability due to change in accounting policy | – | – | – | – | 2,903,663 | – | 2,903,663 | |||||||||||||||
| Net loss | – | – | – | – | – | (409,707 | ) | (409,707 | ) | |||||||||||||
| Balance, December 31, 2021 | (619,345 | ) | $ | (4,967,686 | ) | 166,130,069 | $ | 167,421 | $ | (3,826,349 | ) | $ | (66,194,744 | ) | $ | 2,781,364 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-10 |
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31, 2020
| 2021 | 2020 | |||||||
| (Restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (Loss) from continuing operations | $ | (409,707 | ) | $ | (2,919,585 | ) | ||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
| Depreciation | 35,334 | 23,100 | ||||||
| Amortization of loan discount | 1,051,264 | 1,183,147 | ||||||
| Change in value of derivative liability | – | (434,714 | ) | |||||
| Gain on forgiveness of debt | (739,450 | ) | – | |||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | (1,100,277 | ) | 83,163 | |||||
| Right of use - assets | 100,715 | 38,232 | ||||||
| Prepaids and other current assets | (30,282 | ) | 20,234 | |||||
| Land | 63,000 | – | ||||||
| Increase(decrease) in: | ||||||||
| Accounts payable & Accrued expense | 190,302 | (156,678 | ) | |||||
| Due to from related party | (42,827 | ) | – | |||||
| Accrued officers compensation | 764,835 | 748,735 | ||||||
| Accrued interest | (265,860 | ) | 185,820 | |||||
| Right of use - liabilities | (108,043 | ) | (38,143 | ) | ||||
| Preferred shares to be issued | – | 222,000 | ||||||
| Due to officers and shareholders | – | 23,338 | ||||||
| Deferred revenue | (353,830 | ) | 117,935 | |||||
| Net cash provided by (used in) operating activities | (844,826 | ) | (903,416 | ) | ||||
| Net cash from Discontinued Operations - Operating | (191,504 | ) | (44,598 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (3,407 | ) | – | |||||
| Acquisition of Nova Ortho and Spine PLLC, net of cash acquired | (2,320,235 | ) | – | |||||
| Net cash used in investing activities | (2,323,642 | ) | – | |||||
| Net cash from Discontinued Operations - Investing | $ | – | $ | – | ||||
The accompanying notes are an integral part of these consolidated financial statements
| F-11 |
CARDIFF LEXINGTON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31, 2020
| FINANCING ACTIVITIES | ||||||||
| Repayments to directors and officers | $ | – | $ | (9,500 | ) | |||
| Proceeds from convertible notes payable | 444,500 | 746,072 | ||||||
| Proceeds from notes payable - related party | – | 127,445 | ||||||
| Proceeds from notes payable | – | 706,807 | ||||||
| Proceeds from PPP loan and SPA loans | 547,050 | – | ||||||
| Repayment of credit line | (51,927 | ) | (39,172 | ) | ||||
| Repayment to convertible notes payable | (30,777 | ) | (27,106 | ) | ||||
| Repayments to notes payable - related party | – | (163,316 | ) | |||||
| Payment of notes payable - 3rd party | (28,318 | ) | (2,957 | ) | ||||
| Dividend on preferred stock | (203,880 | ) | (187,850 | ) | ||||
| Issuance of preferred stock series N | 3,000,000 | – | ||||||
| Net cash provided by financing activities | 3,676,648 | 1,150,423 | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 316,676 | 202,409 | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 279,311 | 76,902 | ||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 595,987 | $ | 279,311 | ||||
| SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 127,242 | $ | 379,892 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Common stock issued upon conversion of notes payable | $ | 885,691 | $ | 196,291 | ||||
| Common stock issued for settlement of accrued expense | $ | 388,143 | $ | 49,466 | ||||
| Preferred stock issued for business acquisition | $ | 3,579,336 | $ | – | ||||
| Preferred stock issued upon conversion of notes payable and accrued interest | $ | 563,196 | $ | – | ||||
| Derivative liability settled upon conversion | $ | 1,396,610 | $ | 611,141 |
The accompanying notes are an integral part of these consolidated financial statements
| F-12 |
NOTES TO 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; Sold December 31, 2021
Red Rock Travel Group, LLC (“Red Rock”), acquired July 31, 2018, discontinued May 31, 2019
Nova Ortho and Spine, PLLC (“Nova”), acquired May 31, 2021
Principles of Consolidation
The consolidated financial statements include the accounts of Cardiff, and its wholly-owned subsidiaries: AHI, Edge View, Platinum Tax, Nova Ortho and Spine and subsidiaries shown as discontinued operations includes Red Rock, Romeo’s, Repicci’s and Key Tax. All significant intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts may have been reclassified for consistency with the current period presentation. These reclassifications would have no material effect on the reported consolidated financial results. Subsidiaries discontinued are shown as discontinued operations.
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, 2020.
| F-13 |
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 $0 and $21,870 as of December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021, and December 31, 2020, the Company had accounts receivable of $4,948,796 and $16,377, respectively. Accounts receivables are primarily generated from our subsidiaries in their normal course of business.
Property and Equipment
Property and equipment are carried at cost. Expenditures for renewals and betterments that extend the useful lives of property, equipment or leasehold improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method for financial reporting purposes based on the following estimated useful lives:
| Classification | Useful Life |
| Equipment, furniture, and fixtures | 5 - 7 years |
| Medical equipment | 10 years |
| Leasehold improvements | 10 years or lease term, if shorter |
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. During the years ended December 31, 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.
| F-14 |
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 consolidated 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.
| F-15 |
Service Fees – Net (PIP)
The Company generates services fees from performing various procedures on the date the services are performed. These services primarily include slip and falls as well as smaller nominal Non-PIP services. Fees are collected primarily from third party insurance providers. These revenues are based on established insurance billing rates less allowances for contractual adjustments and uncollectible amounts. These contractual adjustments vary by insurance company and self-pay patients. The Company computes these contractual adjustments and collection allowances based on its historical collection experience.
Completing the paperwork for each case and preparing it for billing takes approximately ten business days after a procedure is performed. The majority of claims are then filed electronically except for those remaining insurance carriers requiring paper filing. An initial response is usually received within four weeks from electronic filing and up to 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 years ended December 31, 2021 and 2020, the Company recorded $0 and $21,870 of bad debt expense, respectively. 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 consolidated balance sheets as of December 31, 2021 and December 31, 2020. There are no contingent rentals included in income in the accompanying 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 consolidated statements of operations and changes in members’ equity. The Company recognized advertising and marketing expense of $1,301,050 and $1,511,955 for the years ended December 30, 2021 and 2020, respectively.
| F-16 |
Valuation of Derivative Instruments
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-10, Derivatives and Hedging (“ASC 815-10”), requires that embedded derivative instruments be bifurcated and assessed, along with freestanding derivative instruments such as convertible promissory notes, on their issuance date to determine whether they would be considered a derivative liability and measured at their fair value for accounting purposes. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option based simple derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.
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 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. |
| F-17 |
Stock-Based Compensation
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments is recorded in general and administrative expense in the 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 December 31, 2021 and 2020, the Company did not have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain tax positions.
Loss per Share
FASB ASC Subtopic 260, Earnings Per Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.
| F-18 |
Going Concern
The accompanying consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The Company 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 December 31, 2021, the Company has sustained recurring losses and accumulated a working capital deficit of approximately $5,975,487. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.
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 has adopted ASU 2020-06 as of the filing of this December 31, 2021 Form 10-K. Upon adoption of ASU 2020-06, we reclassified the previously identified beneficial conversion features to the associated debt. We also determined, that in accordance with ASU 2017-11, such beneficial conversion features are not considered a liability classified derivative.
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.
| F-19 |
| 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 (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.
| (1) | 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. |
| (2) | The Company originally did not reflect the impact of amendments which resulted in modifications in certain rights and privileges for certain classes of its preferred stock. Subsequent to the issuance of its financial statements for the year ended December 31, 2020, Company management determined that these modifications resulted in changes to the carrying value of certain classes of preferred stock, which should have been accounted for as a deemed dividend at the time of modification. |
The following table summarizes the impacts of the error corrections on the Company's financial statements for each of the periods presented below:
i. Balance sheet
| Impact of correction of error | ||||||||||||
| December 31, 2020 | As previously reported | Adjustments | As restated | |||||||||
| Total assets | $ | 4,930,147 | $ | – | $ | 4,930,147 | ||||||
| Derivative liability | 2,405,358 | 498,305 | 2,903,663 | |||||||||
| Net, liabilities of discontinued operations | 2,441,965 | 249,730 | 2,691,695 | |||||||||
| Other | 8,207,123 | – | 8,207,123 | |||||||||
| Total liabilities | 13,054,446 | 748,035 | 13,802,481 | |||||||||
| Accumulated deficit | (64,835,220 | ) | (748,035 | ) | (65,583,255 | ) | ||||||
| Others | 56,710,921 | – | 56,710,921 | |||||||||
| Total deficiency in shareholders' equity | $ | (8,124,299 | ) | $ | (748,035 | ) | $ | (8,872,334 | ) | |||
| F-20 |
ii. Statement of operations
| Impact of correction of error | ||||||||||||
| Year ended December 31, 2020 | As previously reported | Adjustments | As restated | |||||||||
| Loss from operations | $ | (1,804,151 | ) | $ | – | $ | (1,804,151 | ) | ||||
| Change in value of derivative liability | 379,892 | 54,822 | 434,714 | |||||||||
| Others | (1,550,148 | ) | – | (1,550,148 | ) | |||||||
| Other income (expense) | (1,170,256 | ) | 54,822 | (1,115,434 | ) | |||||||
| Net loss before discontinued operations | (2,974,407 | ) | 54,822 | (2,919,585 | ) | |||||||
| Loss from discontinued operations | (125,599 | ) | 13,418 | (112,181 | ) | |||||||
| Gain from discontinued operations | 194,873 | – | 194,873 | |||||||||
| Income (loss) from discontinued operations | 69,274 | 13,418 | 82,692 | |||||||||
| Net loss | (2,905,133 | ) | 68,240 | (2,836,893 | ) | |||||||
| Deemed dividend on preferred stock | – | (1,605,266 | ) | (1,605,266 | ) | |||||||
| Net loss attributable to common stockholders | $ | (2,905,133 | ) | $ | (1,537,026 | ) | $ | (4,442,159 | ) | |||
| Basic Earnings (loss) per Share | ||||||||||||
| Continued Operations | $ | (3.20 | ) | $ | (4.98 | ) | ||||||
| Discontinued Operations | $ | 0.08 | $ | 0.09 | ||||||||
| Diluted Earnings (loss) per Share | ||||||||||||
| Continued Operations | $ | (3.20 | ) | $ | (4.98 | ) | ||||||
| Discontinued Operations | $ | – | $ | 0.00 | ||||||||
| Weighted Average Shares Outstanding - Basic Earnings (loss) per Share | ||||||||||||
| Continued Operations | 908,485 | 908,485 | ||||||||||
| Discontinued Operations | 908,485 | 908,485 | ||||||||||
| Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share | ||||||||||||
| Continued Operations | 908,485 | 908,485 | ||||||||||
| Discontinued Operations | 1,444,295,967,109 | 1,444,295,967,109 | ||||||||||
| 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:
| F-21 |
| Nova Ortho and Spine, PLLC | ||||
| Cash | $ | 177,977 | ||
| Accounts receivable | 4,052,213 | |||
| Property and equipment | 92,064 | |||
| Other assets | 342,493 | |||
| Goodwill | 2,391,608 | |||
| Liabilities | (977,021 | ) | ||
| Total | $ | 6,079,334 |
| 4. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Accounts payable | $ | 170,914 | $ | 119,653 | ||||
| Accrued credit cards | 16,466 | 28,548 | ||||||
| Accrued expense – previously factored liability | 846,754 | – | ||||||
| Accrued income taxes, and other taxes | 7,553 | 282,798 | ||||||
| Accrued professional fees | 270,827 | 27,727 | ||||||
| Accrued advertising | 39,886 | 75,963 | ||||||
| Accrued payroll | 39,959 | 27,569 | ||||||
| Accrue expense - other | 363 | 54,815 | ||||||
| Total | $ | 1,392,722 | $ | 617,073 | ||||
The Company is delinquent paying certain income and property taxes. As of December 31, 2021 and 2020, the balance for these taxes, penalties and interest is $7,553 and $276,614.
| 5. | PLANT AND EQUIPMENT, NET |
Property and equipment as of December 31, 2021 and December 31, 2020 is as follows:
December 31, 2021 | December 31, 2020 | |||||||
| Residential housing | $ | 319,856 | $ | 341,205 | ||||
| Medical equipment | 35,974 | – | ||||||
| Computer Equipment | 9,189 | – | ||||||
| Furniture, fixtures and equipment | 96,532 | 76,017 | ||||||
| Leasehold Improvement | 15,950 | – | ||||||
| Total | 477,501 | 417,222 | ||||||
| Less: accumulated depreciation | (218,471 | ) | (205,443 | ) | ||||
| Property and equipment, net | $ | 259,030 | $ | 211,779 | ||||
For the years ended December 31, 2021 and 2020, depreciation expense was $35,334 and $23,100, respectively. For the years end December 31, 2021 and 2020, the Company recorded depreciation expense of $13,886 and $1,274 in operations expense and $21,448 and $21,826 in cost of goods sold, respectively.
| F-22 |
| 6. | LAND |
During the year ended December 31, 2021, the Company sold 3 lots for $152,000. and had 27 acres of land of approximately $540,000 as of December 31, 2021. As of December 31, 2020, the Company had 30 acres of land of approximately $603,000 located in Salmon, Idaho, which was in connection with the acquisition of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E Preferred Stock as consideration for this acquisition. The land is currently vacant and is expected to be developed into a residential community.
| 7. | LINE OF CREDIT |
At December 30, 2021 and December 31, 2020, the Company had a revolving line of credit with a financial institution for $92,500, expires February 2, 2021, which was personally guaranteed by the manager of the subsidiary, accrues interest at prime (3.25% at December 30, 2021 and December 31, 2020) plus 3.45%, for a total rate of 6.70%. As of December 31, 2021 and 2020, the Company had balance of $0 and $51,927, respectively.
| 8. | RELATED PARTY TRANSACTIONS |
On February 11, 2021, the Chairman of the Board and the Chief Executive Officer 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.
Effective December 28, 2021, the Chairman of the Board and Chief Executive Officer each forfeit and surrendered for no consideration 90,000,000 Preferred I shares each, totaling 180,000,000.
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 $153,925 due from the previous owners at December 31, 2021 and $35,164 due to the previous owners at December 31, 2020, respectively.
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 December 31, 2021 and 2020 were $37 and $2,721 respectively.
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 $4,979 due from the previous owners as of December 31, 2021 and $50,021 due to the previous owners at December 31, 2020, respectively. On August 6, 2021, a Board Resolution was executed to terminate one of the two employees of Edge View Properties for fraud, deceit, larceny, and thievery for selling property belonging to the Company and personally taking the $162,598 in proceeds. The Company hired counsel to terminate the employee and handle all legal matters for return of monies and criminal prosecution.
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 December 31, 2021 and 2020 were $1,415,000 and $1,035,000, respectively.
The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive to the Chairman of the Board based on his employment agreement since 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 December 31, 2021 and 2020 were $1,400,000 and $1,020,000, respectively.
| F-23 |
The Company agreed to pay $120,000 per year to the Chief Operating Officer based on his amended employment agreement executed on May 15, 2019. In the third quarter of 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000. The total outstanding accrued compensation as of December 31, 2021 and 2020 was $159,000 and $120,000, respectively.
The Company pays $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 December 31, 2021 and 2020 was $17,057.
The Company entered into a Management Agreement effective May 31, 2021 for compensation to the Principals of the Company’s Nova Ortho and Spine subsidiary in the form of an annual base salaries of $372,000 to one of the 3 doctors, $450,000 to the second, and $372,000 to the third doctor.
Collectively, as a group, Principals will receive an annual cash bonus and stock equity set forth below (the “Annual Bonus”). The Annual Bonus will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth below.
| Year | Minimum Annual Nova EBITDA | Cash Annual Bonus | Series J Preferred Stock |
| 2021 | $2.0M | $120,000 | 120,000 Shares |
| 2022 | $2.4M | $150,000 | 135,000 Shares |
| 2023 | $3.7M | $210,000 | 150,000 Shares |
| 2024 | $5.5M | $300,000 | 180,000 Shares |
| 2025 | $8.0M | $420,000 | 210,000 Shares |
The Company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of December 31, 2021 and 2020, the Company owed the Chairman $126,765 and $126,849, respectively.
| 9. | NOTES AND LOANS PAYABLE |
Notes payable at December 31, 2021 and 2020, respectively, are summarized as follows:
December 31, 2021 | December 31, 2020 | |||||||
| Notes and Loans Payable | $ | 600,932 | $ | 1,347,690 | ||||
| Less current portion | (458,177 | ) | (947,912 | ) | ||||
| Long-term portion | $ | 142,755 | $ | 399,778 | ||||
Long-term debt matures as follows:
| Amount | ||||
| 2022 | $ | 458,177 | ||
| 2023 | 4,923 | |||
| 2024 | 4,923 | |||
| 2025 | 4,923 | |||
| 2026 | 4,923 | |||
| Thereafter | 123,063 | |||
| Total | $ | 600,932 | ||
| F-24 |
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 and these amounts have been divested and returned to the previous owners. The notes are due on demand and do not bear interest. The balance of these notes and loans are zero as of December 31, 2021 and $36,642 as of December 31, 2020. 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 December 31, 2021 and 2020, were $37 and $2,721 respectively. The amounts due to the previous owners of Edge View were from the original acquisition of the subsidiary and the balance at December 31, 2021 is a receivable of $8,209 and at December 31, 2020 is a liability of $50,021, respectively.
Loans and Notes Payable – Unrelated Party
On March 12, 2009, the Company entered into a preferred debenture agreement for $20,000. The note bore interest at 12% per year and matured on September 12, 2009. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. No warrants had been exercised before the expiration. The balance of the note was $10,989 at December 31, 2021 and 2020. The accrued interest of the note was $4,910 and $3,591 at December 31, 2021 and 2020, respectively.
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 -0- at December 31, 2021 and $50,000 at December 31, 2020. The accrued interest of the note was -0- and $37,822 at December 31, 2021 and December 31, respectively.
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 -0- at December 31, 2021 and $50,000 December 31, 2020. The accrued interest of the note was -0- and $55,500 at December 31, 2021 and 2020, respectively.
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 -0- at December 31, 2021 and $15,000 at December 31, 2020. The accrued interest of the note was -0- and $21,265 at December 31, 2021 and 2020, respectively.
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 November 3, 2021, accrued interest of $22,266 was added to the principal balance of $410,000 resulting in a new principal balance of $432,266 at May 4, 2021 and interest accruing at the rate of 24%. The principal balance was $432,266 and $410,000 at December 31, 2021 and 2020, respectively. The accrued interest of the note was $137,345 and $53,805 at December 31, 2021 and 2020, respectively.
The Company obtained short-term loans from unsecured sources. These short-term loans were due on demand and accrue interest at 18%. This subsidiary was divested 12-31-21 and these loans were eliminated.
| F-25 |
Paycheck Protection Program (“PPP”) Loans
On April 14, 2020, the Company obtained a PPP loan for $127,400 at an interest rate of 1% with a maturity date of April 14, 2022. This loan has been forgiven as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and was recognized as a gain from forgiveness of debt in the amount of $128,640 recorded in other income and expenses in the consolidated statement of operations. The principal and accrued interest at December 31, 2021 was -0- and the principal and accrued interest at December 31, 2020 was $127,400 and $923 respectively.
On May 8, 2020, the Company obtained a PPP loan for $257,500 at an interest rate of 1% with a maturity date of May 8, 2022. This loan has been forgiven as part of the CARES Act and was recognized as a gain from forgiveness of debt in the amount of $261,675 recorded in other income and expenses in the consolidated statement of operations. The principal and accrued interest at December 31, 2021 was -0- and the principal and accrued interest at December 31, 2020 was $257,500.
On February 19, 2021, the Company obtained a PPP loan of $229,500 at an interest rate of 1% with a maturity date of February 19, 2023. This loan has been forgiven as part of the CARES Act and was recognized as a gain from forgiveness of debt in the amount of $231,374 recorded in other income and expenses in the consolidated statement of operations. The principal and accrued interest at December 31, 2021 was -0-.
On February 23, 2021, the Company obtained a PPP loan of $117,550 at an interest rate of 1% with a maturity date of February 23, 2023. This loan has been forgiven as part of the CARES Act and was recognized as a gain from forgiveness of debt in the amount of $118,130 recorded in other income and expenses in the consolidated statement of operations. The principal balance and accrued interest at December 31, 2021 was -0-. This note was forgiven in the third quarter of 2021.
Small Business Administration (“SBA”) Loans
On June 2, 2020, The Company obtained an SBA loan of $150,000 at an interest rate of 3.75% with a maturity date of June 2, 2050. The principal balance and accrued interest at December 31, 2021 was $147,677 and $5,723, respectively, and principal and accrued interest at December 31, 2020 was $149,900 and $3,310, respectively.
On October 7, 2020, the Company obtained an SBA loan for $150,000 at an interest rate of 3.50% with a maturity date of October 7, 2050. On August 31, 2021, this SBA loan was amended to add an additional $200,000 of principal to the original note and the new interest rate was increased to 3.75%. The principal balance and accrued interest at December 31, 2021 was $349,900 and $9,608, respectively, and principal and accrued interest at December 31, 2020 was $149,900 and $1,239 respectively.
On April 12, and June 16, 2020, the Company obtained SBA grants totaling $20,000 at interest rate of 5% and mature in one year from advance, if not forgiven. The principal balance and accrued interest at December 31, 2021 was $10,000 and $860, respectively, and principal and accrued interest at December 31, 2020 was $20,000 and $628 respectively.
| 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.
| F-26 |
As of December 31, 2021, and 2020, the Company had convertible debt outstanding of $2,077,753 and $2,584,967, respectively. During the year ending December 31, 2021, the Company had proceeds of $444,500 from convertible notes and repaid $66,315 to convertible noteholders. There are debt discounts associated with the convertible debt of $0 and $108,320 at December 31, 2021 and 2020, respectively. For the year ended December 31, 2021 and 2020, the Company recorded amortization of debt discounts of $1,051,264 and $1,192,044, respectively.
During the year ended December 31, 2021, the Company converted $885,691 of convertible debt principal, $388,143 in accrued interest and $13,000 in penalties and fees into 109,234,241 shares of the company’s Common Stock.
During the years ended December 31, 2020, the Company converted $196,291 of convertible debt, $49,466 in accrued interest, and $53,255 in penalties and fees into 5,014,696 shares of the company’s Common Stock.
In addition to the conversions of convertible debt into common stock, the Company converted convertible debt principal of $150,000 and accrued interest of $225,800 into 140,799 shares of preferred series B stock. The series B stock has a par value of $.001 and a stated value of $4.00 per share.
Convertible notes as of December 31, 2021 and 2020 are summarized as follows:
December 31, 2021 | December 31, 2020 | |||||||
| Convertible notes payable | $ | 2,077,753 | $ | 2,584,967 | ||||
| Discounts on convertible notes payable | – | (108,320 | ) | |||||
| Total convertible debt less debt discount | 2,077,753 | 2,476,647 | ||||||
| Current portion | 2,077,753 | 2,476,647 | ||||||
| Long-term portion | $ | – | $ | – | ||||
Convertible Notes Payable – Unrelated Party
Note 1
On March 11, 2009, the Company entered into an unsecured Convertible Debenture (“Debenture 2”) with a shareholder in the amount of $15,000. Debenture 2 bore interest at 12% per year, matured on March 11, 2014. All principal and unpaid accrued interest was due at maturity. The Company was in default on Debenture 2. The note is in default and currently accrues interest at the default interest rate of 12%.
Note 7
On February 9, 2016, the Company entered into a 15% convertible line of credit with an unrelated entity in the amount up to $50,000. On February 9, 2016, the Company received $17,500 cash for the line of credit, which matured on February 9, 2017. Note 7, is currently in default and accrues at a default interest rate of 20%.
Note 7-1
On October 28, 2016, the Company received $25,000 cash pursuant to the terms of Note 7, which matured on October 28, Note 7-1 is currently in default and accrues at a default interest rate of 20%.
| F-27 |
Note 8
On March 8, 2016, the Company entered into a 15% convertible promissory note in the principal of $50,000 with an unrelated entity for services rendered. Note 8 is matured on March 8, 2017. Note 8 is currently in default and accrues at a default interest rate of 20%.
Note 9
On September 12, 2016, the Company entered into a 10% convertible promissory note in the principal of $80,000 with an unrelated entity for services rendered. Note 9 is matured on September 12, 2017 Note 9 is currently in default and accrues at a default interest rate of 20%.
Note 10
On January 24, 2017, the Company entered into a 10% convertible promissory note in the principal of $80,000 with an unrelated entity for services rendered. Note 10 is matured on January 24, 2018. Note 10 is currently in default and accrues at a default interest rate of 20%.
Note 11-1
On February 21, 2017, the Company received $25,000 cash pursuant to the terms of Note 11, which matured on February 21, 2018. Note 11-1 is currently in default and accrues at a default interest rate of 20%.
Note 11-2
On March 16, 2017, the Company received $40,000 cash pursuant to the terms of Note 11-2, which matured on March 16, 2018. Note 11-2 is currently in default and accrues at a default interest rate of 20%.
Note 13-1 & -2
On April 21, 2017, the Company entered into a convertible promissory note with an unrelated entity in the amount $330,000, with original issue discount of $30,000 for net cash to the company of $300,000 . Note 13-1 matured on April 21, 2018.
On July 24, 2018, Note 13-1 was purchased by an unrelated party with a new Replacement Convertible Promissory Note (“Note 13-2”) in the amount of $237,909. The note is in default and currently accrues interest at the default interest rate of 18%.
Note 22, 22-1 and 22-3
On July 10, 2018, the Company entered into a Senior Secured Convertible Promissory Note with an unrelated entity in the amount $1,040,000, with original issue discount of $103,000, expenses of $64,160 and an interest deposit of $20,000 resulting in net cash to the company of $852,840. The notes 22, 22-1 and 22-3 are in default and currently accrues interest at the default interest rate of 24%. On February 20, 2019, the Company executed an addendum to Note 22, whereby the Company will receive 2 additional tranches. The first upon closing, the Company received $55,216 less expenses of $5,216 resulting in net cash to the Company of $50,000 and on April 10, 2019, the Company received the second tranche, upon completing certain events, of $55,616 less expenses of $5,616 resulting in net cash of $50,000 which was paid directly to a certain vendor.
| F-28 |
Note 25
On August 13, 2018, the Company entered into a Convertible Promissory Note with an unrelated entity in the amount $126,560, with original issue discount of $13,560 and expenses of $13,000 resulting in net cash to the company of $100,000. Note 25 matured February 13, 2019 and is currently in default. The default interest rate is 18%.
Note 26
On August 10, 2017, the Company entered into a Debt Purchase Agreement with an unrelated entity in the amount $20,000. The Note matured January 27, 2018 and is currently in default. The default interest rate is 15%.
Note 29, 29-1 and 29-2
On May 10, 2019, the Company entered into an 8% Convertible Secured Redeemable Note with an unrelated entity in the amount $150,000 and expenses of $7,500 resulting in net cash to the company of $142,500. Note 29 secured, prior to maturity of May 10, 2020.
On November 8, 2019, Note 29 was purchased by and assigned to an unrelated party upon execution of Amendment No. 1 to Convertible Promissory Note. The amount assigned was the existing principal amount of the Note 29 of $150,000 and accrued interest of $5,917.81 (“Note 29-1”) plus a new 8% Convertible Secured Redeemable Note (“Note 29-2). The total amount assigned to the new note holder is $218,284.93. Note 29-2 bears interest at 8%, matured on November 8. The note is in default and currently accrues interest at the default interest rate of 24%.
Note 31
On August 28, 2019, the Company entered into an 8% Convertible Secured Redeemable Note with an unrelated entity in the amount $120,000, with expenses of $6,000 resulting in net cash to the company of $114,000. Note 31 matured August 28, 2020. The note is in default and currently accrues interest at the default interest rate of 24%.
Note 32
On May 22, 2019, the Company received $25,000 from a draw on the line of credit. Note 32 matured May 22, 2020. The note is in default and currently accrues interest at the default interest rate of 20%.
Note 33
On February 11, 2020, the Company entered into a 6% Convertible Promissory Note with an unrelated entity in the amount $157,500, with original issue discount of $7,500 and expenses of $7,500 resulting in net cash to the company of $142,500. The note is in default and currently accrues interest at 6%.
Note 34
On May 18, 2020, the Company entered into a 6% Convertible Promissory Note with an unrelated entity in the amount $63,000 and expenses of $3,000 resulting in net cash to the company of $60,000. The note is in default and currently accrues interest at the default interest rate of 22%.
| F-29 |
Note 35
On August 24, 2020, the Company entered into a 6% Convertible Promissory Note with an unrelated entity in the amount $85,000 with expenses of $3,500 resulting in net cash to the company of $81,500. The note is in default and currently accrues interest at the default interest rate of 22%.
Note 36-1
On September 3, 2020, the Company entered into a 10% Senior Secured Convertible Promissory Note (“10% Senior Secured Note”) with an unrelated entity in the amount of $733,500, with a gross amount of original issue discount of $183,500 resulting in a gross net cash available to the company of $550,000. Note 36-1 matures September 03, 2021 The first tranche (Note 36-1) executed upon closing was a principal amount of $122,400, less original issue discount of $30,000 and expenses of $7,500 resulting in net cash of $84,900. The note is in default and currently accrues interest at the default interest rate of 18%.
Note 36-2
On November 3, 2020, the Company executed the second tranche of the 10% Senior Secured Note The second tranche was a principal amount of $120,000, less original issue discount of $30,000 resulting in net cash of $90,000. The note is in default and currently accrues interest at the default interest rate of 18%.
Note 36-3
On December 29, 2020, the Company executed the third tranche of the 10% Senior Secured Note The third tranche was a principal amount of $120,000, less original issue discount of $30,000 resulting in net cash of $90,000. The note is in default and currently accrues interest at the default interest rate of 18%.
Note 36-4
On May 5, 2021, the Company executed the fourth tranche of the 10% Senior Secured Note The fourth tranche was a principal amount of $187,500, less original issue discount of $37,500 resulting in net cash of $150,000. The note is in default and currently accrues interest at the default interest rate of 18%.
Note 37-1
On September 03, 2020, the Company entered into a 10% Senior Secured Convertible Promissory (“Second 10% Senior Secured Note”) Note with an unrelated entity in the amount $200,000, with original issue discount of $50,000 resulting in net cash available to the company of $150,000. The note is in default. This Note became eligible to convert March 31, 2021 and is convertible into shares of the Company’s common stock as defined in the agreement The first tranche executed upon closing was a principal amount of $67,000, less original issue discount of $17,000 and expenses of $1,500 resulting in net cash of $48,500. The note is in default and currently accrues interest at the default interest rate of 18%.
Note 37-2
On November 02, 2020, the Company executed the second tranche of the 10% Senior Secured Note. The second tranche was a principal amount of $66,500, less original issue discount of $16,500 resulting in net cash of $50,000 The note is in default and currently accrues interest at the default interest rate of 18%.
Note 37-3
On December 29, 2020, the Company executed the second tranche of the 10% Senior Secured Note. The second tranche was a principal amount of $66,500, less original issue discount of $16,500 resulting in net cash of $50,000. The note is in default and currently accrues interest at the default interest rate of 18%.
| F-30 |
Note 38
On February 9, 2021, the Company entered into a 6% Convertible Promissory Note with an unrelated entity in the amount $103,500 and expenses of $3,500 resulting in net cash to the company of $100,000.
Note 39
On April 26, 2021, the Company entered into a 6% Convertible Promissory Note with an unrelated entity in the amount $153,500 and expenses of $3,500 resulting in net cash to the company of $150,000.
Previously, the valuation of the derivative liabilities attached to the convertible debt was arrived at through the use of the Black-Scholes Option Pricing Model (“Black-Scholes Model”).
| Original Account Balance at 1-1-21 | Adjustment to Remove the Derivative Liability | Original Account Balance at 1-1-21 | ||||||||||
| (Restated) | ||||||||||||
| Derivative Liability | 2,903,663 | (2,903,663 | ) | – | ||||||||
Upon adoption of ASU 2020-06, we reclassified the previously identified beneficial conversion features to the associated debt. We also determined, that in accordance with ASU 2017-11, such beneficial conversion features are not considered a liability classified derivative.
| F-31 |
The following is a schedule of convertible notes payable as of and for the year ended December 31, 2021.
| Note # | Issuance | Maturity | Principal Balance 12/31/20 | New Loan | Cash Paydown | Principal Conversions | Shares Issued Upon Conversion | Principal Balance 12/31/21 | Accrued Interest on Convertible Debt at 12/31/20 | Interest Expense On Convertible Debt For the Period Ended 12/31/21 | Accrued Interest on Convertible Debt at 12/31/21 | Unamortized Debt Discount At 12/31/21 | ||||||||||||||||||||||
| 1 | 8/21/2008 | 8/21/2009 | $ | 150,000 | $ | – | $ | – | $ | (150,000 | ) | 140,799 | $ | – | $ | 222,608 | $ | – | $ | – | $ | – | ||||||||||||
| 7 | 2/9/2016 | On demand | 8,485 | – | – | (8,485 | ) | 18,024,012 | – | 4,109 | 1,167 | – | – | |||||||||||||||||||||
| 7-1 | 10/28/2016 | 10/28/2017 | 25,000 | – | – | (15,000 | ) | – | 10,000 | 29,963 | 4,190 | 10,899 | – | |||||||||||||||||||||
| 9 | 9/12/2016 | 9/12/2017 | 80,000 | – | – | (29,920 | ) | 17,278,267 | 50,080 | 63,876 | 12,639 | 4,141 | – | |||||||||||||||||||||
| 10 | 1/24/2017 | 1/24/2018 | 55,000 | – | – | (42,355 | ) | 4,714,626 | 12,646 | 29,736 | 3,166 | 14,831 | – | |||||||||||||||||||||
| 11-2 | 3/16/2017 | 3/16/2018 | 21,345 | – | – | (4,000 | ) | – | 17,345 | 6,374 | 3,469 | 9,843 | – | |||||||||||||||||||||
| 13-2 | 7/24/2018 | 1/24/2019 | 43,961 | – | – | – | – | 43,961 | 26,200 | 7,913 | 34,113 | – | ||||||||||||||||||||||
| 22 | 7/10/2018 | 1/10/2021 | 838,433 | – | (66,315 | ) | – | – | 772,118 | 75,040 | – | – | – | |||||||||||||||||||||
| 22-1 | 2/20/2019 | 1/10/2021 | 61,704 | – | – | – | – | 61,704 | 13,754 | 14,768 | 28,523 | – | ||||||||||||||||||||||
| 22-3 | 4/10/2019 | 1/10/2021 | 56,095 | – | – | – | – | 56,095 | 11,877 | 13,426 | 25,303 | – | ||||||||||||||||||||||
| 25 | 8/13/2018 | 2/13/2019 | 118,292 | – | – | (118,292 | ) | 17,823,255 | – | 5,788 | 4,169 | – | – | |||||||||||||||||||||
| 26 | 8/10/2017 | 1/27/2018 | 20,000 | – | – | – | – | 20,000 | 7,533 | 2,992 | 10,525 | – | ||||||||||||||||||||||
| 29-1 | 11/8/2019 | 11/8/2020 | 101,374 | – | – | (101,374 | ) | 13,561,809 | – | 19 | 3,683 | 2,283 | – | |||||||||||||||||||||
| 29-2 | 11/8/2019 | 11/8/2020 | 62,367 | – | – | (25,763 | ) | – | 36,604 | 14,968 | 9,283 | 11,374 | – | |||||||||||||||||||||
| 31 | 8/28/2019 | 8/28/2020 | 61,839 | – | (9 | ) | (61,830 | ) | 5,247,042 | – | 14,059 | 1,447 | 8,385 | – | ||||||||||||||||||||
| 32 | 5/22/2019 | 5/22/2020 | 25,000 | – | – | – | – | 25,000 | 7,291 | 4,986 | 12,277 | – | ||||||||||||||||||||||
| 33 | 2/11/2020 | 2/11/2021 | 153,672 | – | 500 | (154,172 | ) | 15,522,516 | – | 8,214 | 1,277 | – | – | |||||||||||||||||||||
| 34 | 5/18/2020 | 5/18/2021 | 50,200 | – | (200 | ) | (50,000 | ) | 4,121,766 | – | 1,876 | 233 | 219 | – | ||||||||||||||||||||
| 35 | 8/24/2020 | 8/24/2021 | 85,000 | – | – | (85,000 | ) | 5,759,130 | – | 1,811 | 813 | 74 | – | |||||||||||||||||||||
| 36-1 | 9/3/2020 | 1/3/2021 | 122,400 | – | – | – | – | 122,400 | 3,934 | 21,972 | 25,906 | – | ||||||||||||||||||||||
| 36-2 | 11/3/2020 | 3/3/2021 | 122,400 | – | – | – | – | 122,400 | 1,934 | 21,972 | 23,906 | – | ||||||||||||||||||||||
| 36-3 | 12/29/2020 | 4/29/2021 | 122,400 | – | – | – | – | 122,400 | 98 | 21,972 | 22,070 | – | ||||||||||||||||||||||
| 36-4 | 5/5/2020 | 9/5/2021 | – | 187,500 | – | – | – | 187,500 | – | 22,131 | 22,131 | – | ||||||||||||||||||||||
| 37-1 | 9/3/2020 | 6/30/2021 | 67,000 | – | – | – | – | 67,000 | 2,197 | 6,682 | 8,878 | – | ||||||||||||||||||||||
| 37-2 | 11/2/2020 | 8/31/2021 | 66,500 | – | – | – | – | 66,500 | 1,090 | 6,632 | 7,722 | – | ||||||||||||||||||||||
| 37-3 | 12/29/2020 | 9/30/2021 | 66,500 | – | – | – | – | 66,500 | 55 | 6,632 | 6,686 | – | ||||||||||||||||||||||
| 38 | 2/9/2021 | 2/9/2022 | – | 103,500 | – | (39,500 | ) | 7,181,818 | 64,000 | – | 4,614 | 4,614 | – | |||||||||||||||||||||
| 39 | 5/10/2021 | 5/10/2022 | – | 153,500 | – | – | – | 153,500 | – | 5,915 | 5,915 | – | ||||||||||||||||||||||
| $ | 2,584,967 | $ | 444,500 | $ | (66,024 | ) | $ | (885,691 | ) | 109,375,040 | $ | 2,077,753 | $ | 554,404 | $ | 208,143 | $ | 300,618 | $ | – | ||||||||||||||
| 11. | CAPITAL STOCK |
Preferred Stock
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 and privileges for certain classes of preferred stock. The reverse split ratio ranges from 1.6:1 to 307.7:1 resulting in a reclassification of $11,837,482 from preferred stock to additional paid in capital. The rights and privileges were changed with unanimous consent of all parties. All holders agreed to replace existing rights and privileges with new uniform conditions and a simplified uniform preferred $4.00 per share stated value.
| F-32 |
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 is less than $4 per share one (1) share of the respective Series of Preferred Stock described in this Section 4(a) 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 is equal to or greater than $4 per share one (1) share of the respective Series of Preferred Stock described in this Section 4(a) shall convert into two (2) shares of common stock. For Example. If the closing price of the common stock as reported on such national exchange where the Company’s common stock is traded is $5.00 one (1) preferred share would convert into two (2) shares of common stock.
Holders of Series C Preferred Stock shall have Conversion Rights such that upon Conversion each one (1) share of Series C Preferred Stock shall convert into one hundred thousand (100,000) shares of the Common Stock. In the event that the Company should up list to a national exchange as defined by the U.S. Securities and Exchange Commission, each share of Series C Preferred Stock shall automatically be redeemed by the Company in exchange for a total of Fifty Thousand Dollars ($50,000.00) worth of the Common Stock, valued at the time of redemption.
Holders of the Series K and K1 Preferred Stock shall have Conversion Rights such that upon Conversion each one (1) share of Series K and K1 Preferred Stock shall convert into 1.25 shares of the Common Stock.
Holders of Series R Preferred Stock shall be the amount 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.
On February 11, 2021, the Chairman of the Board and the Chief Executive Officer 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.
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.
As part of the Nova Ortho acquisition, on May 31, 2021, the Company issued 894,834 shares of preferred stock series J with par value $.001 and a stated value of $4.00, for $3,579,334.
Also. as part of the Nova Ortho acquisition, the Company issued 868,056 shares of preferred stock series N with par value $.001 and a stated value of $4.00, for $3,000,000 including a discount of $472,224 which was recorded as a reduction to APIC.
On July 22, 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000.
Effective December 28, 2021, the Chairman of the Board and Chief Executive Officer each forfeit and surrendered for no consideration 90,000,000 Preferred I shares each, totally 180,000,000.
| F-33 |
The Company and Key Tax managers have entered into a Buyback Agreement (“Agreement”) which is effective December 31, 2021. Pursuant to the Agreement, Key Tax managers resigned employment from the Company effective December 31, 2021 and has purchased back the subsidiary in exchange for returning 325,244 Preferred Shares Series G stock (“Preferred G”) which is 100% of Preferred G shares. The Key Tax managers will retain zero shares of Preferred G shares subject to the terms of the Agreement. There was a loss on disposal in the amount of $1,201,169 which represented net assets and liabilities at the time of sale back
Common Stock
During the twelve months ended December 31, 2021, we executed the following transactions:
| · | 109,234,241 shares of common stock were issued upon conversion of certain convertible notes. | |
| · | 50,000,000 shares of common stock were issued in exchange for 125,000 preferred shares series I. | |
| · | 1,627,031 shares of common stock were issued in exchange for professional services. |
During the twelve months ended December 31, 2020, we executed the following transactions:
| · | 5,014,697 shares of common stock were issued upon conversion of certain convertible notes payable. | |
| · | On January 9, 2020, we issued 25,000 warrants and a free trading common share certificate in the amount of 3,500 shares of common stock for settlement of a threatened lawsuit, refer to Note 14. | |
| · | On May 11, 2020, the Company completed a reverse stock split of 10,000:1 for common shares. | |
| · | On August 24, 2020, 163,814 shares were issued to a financial advisor for services. | |
| · On November 5, 2020, 18,000 shares were issued to investor relations advisor for services. · On February 10, 2020, 320 shares were purchased in exchange for 119,101 preferred series H shares. |
| 12. | WARRANTS |
The initial and ending valuation of the warrants as of December 31, 2021 are as follows:
| Year Ended December 31, 2021 | ||||
| Initial Valuation | $ | 3,795 | ||
| Ending Value | $ | 2.96 | ||
The table below set forth the assumptions for the Black-Scholes Model on each initial date and December 31, 2021:
| Year Ended December 31, 2021 |
|||
| Volatility | 935.98% | ||
| Risk-free interest rate | 126.0% | ||
| Expected term | 5.0 |
| F-34 |
The initial and ending valuation of the warrants as of December 31, 2020 are as follows:
| Year Ended December 31, 2020 | ||||
| Initial Valuation | $ | 6,135 | ||
| Ending Value | $ | 3,795 | ||
The table below set forth the assumptions for the Black-Scholes Model on each initial date and December 31, 2020:
| Year Ended December 31, 2020 |
|||
| Volatility | 1,847% - 1,861% | ||
| Risk-free interest rate | 1.60% - 1.83% | ||
| Expected term | 0.5 – 7.0 |
Accordingly, the Company recorded warrant expense of $2,340 during the year ended December 31, 2020.
The following tables summarize all warrant outstanding as of December 31, 2021, and the related changes during this period. The warrants expire three years from grant date, which as of December 31, 2021 is 1.31 years. The intrinsic value of the warrants as of December 31, 2021 was $2.96.
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Stock Warrants | ||||||||
| Balance at January 1, 2021 | 14,274,477 | $ | 0.105 | |||||
| Granted | 231,481,466 | 0.015 | ||||||
| Exercised | – | – | ||||||
| Expired | (1,335,000 | ) | 0.030 | |||||
| Balance at December 31, 2021 | 244,420,943 | 0.200 | ||||||
| Warrants Exercisable at December 31, 2021 | 244,420,943 | $ | 0.200 | |||||
| 13. | 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
| F-35 |
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 $1,872,086, convertible notes payable of $240,000, accrued interest of $214,318 and a derivative liability of $378,877 as of September 30, 2021. The party responsible for the convertible notes and related accrued interest is in dispute and is currently in litigation. The derivative liability is a function of the convertible notes and accrued interest. And the accounts payable and accrued expenses of $1,872,086 is deemed to be the responsibility of the current owners of Red Rock and was written-off by the Company in the third quarter of 2021 resulting in a gain of $1,872,086 which is recorded in discontinued operation.
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 $40,000 note with one Red Rock Investor. Litigation and settlement discussions continue on the remaining $200,000 of Red Rock Investor notes.
| December 31, 2021 | December 31, 2020 | |||||||
| (Restated) | ||||||||
| Net liabilities of discontinued operations | ||||||||
| Accounts payable and accrued expenses | $ | – | $ | 1,869,961 | ||||
| Accrued interest | 231,318 | 165,065 | ||||||
| Convertible debt | 240,000 | 240,000 | ||||||
| Derivative liability | – | 416,669 | ||||||
| Net liabilities of discontinued operations | $ | 471,318 | $ | 2,691,695 | ||||
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| (Gain) Loss from discontinued operations | ||||||||
| Selling, general and administrative expenses | $ | – | $ | 28,148 | ||||
| Interest expense | 68,378 | 68,756 | ||||||
| Change in derivative liability | (37,792 | ) | 15,277 | |||||
| Gain on elimination of derivative liability | (378,877 | ) | – | |||||
| Gain on reversal of RRT liability | (1,872,086 | ) | – | |||||
| Loss from discontinued operations | $ | (2,220,377 | ) | $ | 112,181 | |||
| F-36 |
| 14. | 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 | $ | – | $ | 3,499,963 | $ | – | $ | 3,499,963 | ||||||||
| Accumulated impairment | – | – | – | – | ||||||||||||
| Carrying value at December 31, 2020 | – | 3,499,963 | – | 3,499,963 | ||||||||||||
| Acquisition | – | – | 2,391,608 | 2,391,608 | ||||||||||||
| Accumulated impairment | – | – | – | – | ||||||||||||
| Carrying value at December 31, 2021 | $ | – | $ | 2,092,048 | $ | 2,391,608 | $ | 4,483,656 | ||||||||
| 15. | 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 $185,831 and $87,649 for the years ended December 31, 2021 and 2020, respectively.
| F-37 |
The Company has operating leases with future commitments as follows:
| Amount | ||||
| 2022 | $ | 166,568 | ||
| 2023 | 77,697 | |||
| 2024 | 35,527 | |||
| 2025 | 22,215 | |||
| Total | $ | 302,007 | ||
Employees
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 December 31, 2021 and 2020 were $1,385,000 and $1,035,000, respectively.
The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive to the Chairman of the Board based on his employment agreement since 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 $1,400,000 and $1,020,000, respectively.
The Company agreed to pay $120,000 per year to the Chief Operating Officer based on his amended employment agreement executed on May 15, 2019. In the third quarter of 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000. The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 was $159,000 and $120,000, respectively.
The Company agreed to pay $156,000 per year to the Chief Financial Officer based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued compensation as of December 31, 2021 and December 31, 2020 was $17,057.
The Company entered into a Management Agreement effective May 31, 2021 for compensation to the Principals of the Company’s Nova Ortho and Spine (“Nova”) subsidiary in the form of an annual base salaries of $372,000 to one of the 3 doctors, $450,000 to the second, and $372,000 to the third doctor.
Collectively, as a group, Principals of Nova will receive an annual cash bonus and stock equity set forth in footnote 8 (the “Annual Bonus”). The Annual Bonus will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth in footnote 8.
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 $162,598 in proceeds. The Company hired counsel to terminate the employee and handle all legal matters for return of monies and criminal prosecution.
| F-38 |
| 16. | INCOME TAXES |
At December 31, 2021, the Company had federal and state net operating loss carry forwards of approximately $17,330,000 that expire in various years through the year 2038.
Due to operating losses, there is no provision for current federal or state income taxes for the years ended December 31, 2021 and 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.
The Company’s deferred tax asset at December 31, 2021 and 2020 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $4,991,000 and $4,391,000, respectively, less a valuation allowance in the amount of approximately $4,991,000 and $4,391,000, respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in both 2021 and 2020. The valuation allowance increased by approximately $600,000 from the year ended December 31, 2020.
The Company’s total deferred tax asset as of December 31, 2021 and 2020 is as follows:
| 2021 | 2020 | |||||||
| Deferred tax assets | $ | 4,991,000 | $ | 4,391,000 | ||||
| Valuation allowance | (4,991,000 | ) | (4,391,000 | ) | ||||
| Net deferred tax asset | $ | – | $ | – | ||||
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Trump. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. The provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation guidance.
| 17. | SUBSEQUENT EVENTS |
General Matters
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 its Annual Report on Form 10-K (the “2020 10-K”) and 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. The Company filed an amendment to its 2020 10-K to restate its financial annual statements and disclose the impact of the restatement on previously reported quarterly amounts for the Affected Periods. The restatement primarily related 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. The quantification of this restatement is summarized in Note 2.
| F-39 |
On March 15, 2022 the Company settled a $40,000 promissory note between Red Rock Travel and note holder. The settlement amount was $13,333 payable by the issuance of common shares of stock.
June 27, 2022 – The Board of Directors confirms the transfer of 1,000,000,000 share from Cardiff Acquisition & Growth Fund to treasury.
July 15, 2022 – Entered into a new agreement to represent the Company in the Edge View Properties lawsuit.
July 29, 2022 Settlement Agreement Signed by Red Rock Travel all parties agreed to the negotiated terms.
Stock Issuances:
March 31, 2022 – 1,275,427 preferred shares were returned to treasury.
April 28, 2022 – 37,500 preferred shares were issued in exchange for 37,500 preferred shares of a different class of preferred. Same Rights & Privileges.
| 18. | SEGMENT REPORTING |
The Company has four reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related Information:
| (1) | Affordable Housing (We Three), |
| (2) | Tax Resolution Services (Platinum Tax and Key Tax (Divested as of December 31, 2021)) |
| (3) | Real Estate (Edge View) |
| (4) | Healthcare (Nova Ortho) |
These segments are a result of differences in the nature of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items.
The 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 homeowners 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 (divested as of December 31, 2021) 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.
Edge View consists of 30 prime acres of land; 23.5 acres zoned MDR (Medium Density Residential) with 12 lots already platted and 48 lots zoned HDR (High Density Residential), 4 acres of dedicated river front property zoned for recreation on the Salmon River, Idaho’s premier whitewater river and 2.5 acres zoned for commercial use. All land is in the city limits of Salmon and adjacent to the Frank church Wilderness Park (the largest wilderness park in the lower 48 states).
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.
| F-40 |
Management uses numerous tools and methods to evaluate and measure of its 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 | As of | |||||||
December 31, 2021 | December 31, 2020 | |||||||
| Assets: | ||||||||
| Affordable Housing Rentals | $ | 213,876 | $ | 258,813 | ||||
| Financial Services | 2,212,379 | 4,369,195 | ||||||
| Healthcare | 8,092,820 | – | ||||||
| Real Estate | 611,900 | – | ||||||
| Others | 28,940 | 302,139 | ||||||
| Consolidated assets | $ | 11,159,915 | $ | 4,930,147 | ||||
December 31, 2021 | December 31, 2020 | |||||||
| Revenues: | ||||||||
| Affordable Housing Rentals | $ | 129,803 | $ | 138,832 | ||||
| Financial Services | 4,313,167 | 3,314,226 | ||||||
| Healthcare | 5,413,890 | – | ||||||
| Real Estate | 152,000 | – | ||||||
| Consolidated revenues | $ | 10,008,860 | $ | 3,453,058 | ||||
| Cost of Sales: | ||||||||
| Affordable Housing Rentals | $ | 79,953 | $ | 156,191 | ||||
| Financial Services | 1,942,411 | 1,511,995 | ||||||
| Healthcare | 1,746,561 | – | ||||||
| Real Estate | 79,481 | – | ||||||
| Consolidated cost of sales | $ | 3,848,406 | $ | 1,668,186 | ||||
| Income (Loss) from operations from subsidiaries | ||||||||
| Affordable Housing Rentals | $ | (36,022 | ) | $ | (40,378 | ) | ||
| Financial Services | 187,027 | (190,338 | ) | |||||
| Healthcare | 3,272,241 | – | ||||||
| Real Estate | 68,744 | – | ||||||
| Income (loss) from operations from subsidiaries | $ | 3,491,990 | $ | (230,716 | ) | |||
| Loss from operations from Cardiff Lexington | $ | (1,865,888 | ) | $ | (1,573,435 | ) | ||
| Total income (loss) from operations | $ | 1,626,102 | $ | (1,804,151 | ) | |||
| Income (Loss) before taxes | ||||||||
| Affordable Housing Rentals | $ | (36,022 | ) | $ | (40,378 | ) | ||
| Financial Services | 187,027 | (187,943 | ) | |||||
| Healthcare | 3,272,241 | – | ||||||
| Real Estate | 68,744 | – | ||||||
| Corporate, admin and other non-operating items | (3,901,697 | ) | (2,608,572 | ) | ||||
| Consolidated loss before taxes | $ | (409,707 | ) | $ | (2,836,893 | ) | ||
| F-41 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On June 18, 2021, Daszkal Bolton did not re-engage as independent registered public accounting firm for Cardiff Lexington Corporation (“the Company”). There were no disagreements with Daszkal Bolton at the time of non-reengagement.
On June 24, 2021, the Company engaged Rosenberg Rich Baker Berman & Company (“RRBB”) to be its independent registered public accounting firm. On March 16, 2022, management terminated RRBB from being its independent registered public accounting firm. There were no disagreements with RRBB at the time of termination.
On March 15, 2022, the Company engaged Grassi & CO., CPAs, P.C. to be its independent registered public accounting firm.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed and submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that are filed under the Exchange Act are accumulated and communicated to management, including the principal executive officer, as appropriate to allow timely decisions regarding required disclosure. Under the supervision of and with the participation of its executive officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this Annual Report. Based on that evaluation, the executive officers of the Company has concluded that, as of the end of the period covered in this Annual Report, these disclosure controls and procedures were ineffective.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules forms, and that such information is accumulated and communicated to our management, including our principal executive officer (our president) and our principal accounting and financial officer (our chief financial officer) to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluation the cost-benefit relationship of possible controls and procedures.
Our management does not expect that our disclosure controls or our internal controls over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but no absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources and benefits of a control system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future condition; over time controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
As of December 31, 2021, the year-end period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this annual report.
| 20 |
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a- 15(f) under the Exchange Act, and assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:
1. As of December 31, 2021, our controls over the control environment were not effective. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedure. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
2. As of December 31, 2021, our controls over financial statement disclosure were not effective. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our consolidated financial statements. Accordingly, management has determined that this deficiency constitutes a material weakness.
3. Lack of formal documentation over internal control procedures and environment.
4. Lack of proper segregation of duties and multiple level of reviews.
5. Lack of expertise in accounting of derivative liabilities.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2021, based on the criteria established in “2013 Internal Control-Integrated Framework” issued by COSO.
This annual report does not include an attestation report of the company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report.
Changes in Internal Controls
We had a material weakness in our internal control over financial reporting during the fiscal year ended December 31, 2021 and 2020 that have affected, or are reasonably likely to affect, our internal control over financial reporting.
None.
| 21 |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Officers and Directors
Our directors will serve until successors are elected and qualified. Our Chief Executive Officer is appointed by the Board of Directors to a term of one year and serve until a successor is duly elected and qualified, or until that person resigns or is removed from office. Our Board of Directors has no nominating, or compensation committees. Our Board of Directors has two members.
The name, address, age and position of our officers and directors is set forth below:
| Name and Address | Age | Positions | ||||
| Daniel Thompson | 73 | Chairman of the Board of Directors | ||||
| Alex Cunningham | 66 | Chief Executive Officer and President, Director | ||||
| Dr. Rollan Roberts II | 44 | Chief Operating Officer | ||||
| Steven Healy, CPA | 60 | Chief Financial Officer | ||||
Background of our officers and directors
Daniel Thompson, 73, Chairman of the Board of Directors. In June of 2010 Thompson was previously appointed Chairman and CEO of Cardiff Lexington formerly a television and entertainment industry professional with a 30-year career that embraces network and cable advertising sales programming production and product placement, Mr. Thompson was president of Creative Entertainment Services, which he founded and successfully sold in a transaction. Mr. Thompson also co-founded and successfully sold an industry service company – Creative Television Marketing, a producer of short-form advertising concepts: Closed- Captioning Sponsorships, 10-Second Promotional Advertising vehicles, and network Game Show Merchandising. He also oversaw new business for A Creative Group, a full-service entertainment marketing company. Mr. Thompson also founded CableRep USA, a media sales firm specializing in local market cable advertising, which he sold to Cox Cable in 1981. Mr. Thompson attended Wayne State University, Bellevue College, and College of Continuing Studies at University of Nebraska at Omaha.
Alex Cunningham, 66, Chief Executive Officer, President, and Director. Mr. Cunningham has agreed to join the Cardiff Lexington family in June of 2015. Mr. Cunningham's background is in Business Development. His focus is on identifying prospects for franchising, mergers and acquisitions specializing in structuring one or multiple franchise acquisitions; and/or franchising existing businesses. He is a founder of Fran Consult, Inc. a business development company representing over 300 Franchise operations; owner, managing partner at AH Cunningham & Associates, LLC 2006 - Present; Profit Management Consulting, Inc., founder, President & CEO 1996-2005; managed projects and staff of 85 for 20 years for over 2000 private or closely held middle-market companies throughout 24 states. He was a partner at London Capital Corporation 1991 - 1996; President & CFO at Vance Communications, Inc. 1988-1991. Honors and Awards: 2010 Consultant of the Year - Franchise, Inc. National Association of Franchise Consultants. MBA - Crummer Graduate School of Business Rollins College - Winter Park, Florida; BBA's - Finance and Business Administration University of Kentucky - Lexington, Kentucky.
Dr. Rollan Roberts II, 44, Chief Operating Officer. Dr. Roberts II turned around large, established companies, and has created high growth revenue organizations. Dr. Roberts has passionately led with excellence a multi-billion, publicly held database company along with healthcare, technology, manufacturing, and direct sales companies. He has led nearly 1,500 employees at a given time servicing clients such as Capital One, IndyMac Bank, State Farm, Allstate, Nationwide along with federal and state government agencies.
Dr. Roberts has authored four business and leadership books, holds an MBA from Liberty University, a doctorate degree in International Business & Entrepreneurship from California InterContinental University and was recognized as the “Top 100 Most Influential Floridians” of 2015.
| 22 |
Steven Healy, CPA 60, Chief Financial Officer brings to Cardiff Lexington over 25 years’ progressive public and private company experience in finance and operations management. He is familiar with and has been instrumental in numerous levels of consolidations in manufacturing, distribution, retail, and service industries with start-ups, multi-location and multi-state companies. Mr. Healy founded Dania Solutions (2017–present) a financial and accounting consulting company working closely with the Board of Directors of public companies providing SEC reporting including 10Qs, 10Ks, and 8Ks services, month end closings and reconciliations, financial statements and reports, budgets and variance analysis. He developed and rolled out performance metrics and has designed cash forecasting and debt covenants sensitivity models. Mr. Healy served as CFO (2014–2016) of NetTalk.COM, Inc., a public telecommunications company and app developer which provides low cost phone service and business wireless service via devices and mobile apps using VoIP and other technologies. He was CFO (2009-2013) of National Molding, LLC, a private injection molding and tooling manufacturing company which makes small plastic parts using custom molds primarily for the automotive industry and military with plants in South Florida, Pennsylvania, and Shanghai, China. Mr. Healy was CFO (2005-2008) of Imperial Industries, Inc., a public manufacturer and distributer of building materials from 15 distribution centers and 2 manufacturing plants throughout Florida and the Southeast United States. He managed rapid growth from both organic and acquisitions. Mr. Healy began his career with Deloitte (f/k/a Touche Ross & Co.) as an auditor and subsequently Audit Manager. He holds a Bachelors in Accounting Degree from the University of Florida graduating with honors
Audit Committee Financial Expert
The functions of the Audit Committee are currently carried out by our Board of Directors. Our Board of Directors has determined that we do not have an audit committee financial expert on our Board of Directors carrying out the duties of the Audit Committee. The Board of Directors has determined that the cost of hiring a financial expert to act as a director and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee. Our Board of Directors has two members.
Code of Ethics
We have not adopted a code of ethics that applies to our President, Chief Executive Officer, Secretary, Treasurer, Chief Financial Officer, or persons performing similar functions, because of the small number of persons involved in the management of the Company.
Compliance with Section 16 (a) of the Exchange Act
Under Section 16(a) of the Exchange Act, requires that our directors and executive officers and persons who beneficially own more than 10% of our Common Stock (referred to herein as the “Reporting Persons”) file with the SEC various reports as to their ownership of and activities relating to our Common Stock. Such Reporting Persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon our review of the copies of the forms we have received and representations that no other reports were required, we believe that all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during fiscal year ended December 31, 2021 except as stated below.
| 23 |
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
| Long-Term Compensation | |||||||||||||||||
| Annual Compensation | Awards | Payouts | |||||||||||||||
| Names | Under | Restricted | |||||||||||||||
| Executive | Other | Options/ | Shares or | Other | |||||||||||||
| Officer and | Annual | SARs | Restricted | LTIP | Annual | ||||||||||||
| Principal | Salary | Bonus | Compensation | Granted | Share/Units | Payouts | Compensation | ||||||||||
| Position | Year | (US$) | (US$) | (US$) | (#) | (US$) | (US$) | (US$) | |||||||||
| Daniel Thompson | 2020 | 327,500 | 200,000 | 0 | 0 | 0 | 0 | 0 | |||||||||
| Chairman of the Board of Directors | 2021 | 360,000 | 200,000 | 0 | 0 | 0 | 0 | 0 | |||||||||
| Alex Cunningham | 2020 | 327,500 | 200,000 | 0 | 0 | 0 | 0 | 0 | |||||||||
| President and Chief Executive Officer | 2021 | 360,000 | 200,000 | 0 | 0 | 0 | 0 | 0 | |||||||||
| Dr. Rollan Roberts II | 2020 | 120,000 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
| Chief Operating Officer | 2021 | 120,000 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
| Steven Healy | 2020 | 135,000 | 0 | 17,057 | 0 | 0 | 0 | 0 | |||||||||
| Chief Financial Officer | 2021 | 156,000 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||
Employment Agreements
The Company has an employment agreement with Mr. Thompson whereby the Company provides for compensation of $360,000 per year plus additional performance bonus incentives with a term of July 15, 2020 to December 31, 2025 with automatic extension for additional successive one (1) year renewals terms unless terminated as defined in the agreement.
The Company has an employment agreement with Mr. Cunningham whereby the Company provides for compensation of $360,000 per year plus additional performance bonus incentives with a term of July 15, 2020 to December 31, 2025 with automatic extension for additional successive one (1) year renewals terms unless terminated as defined in the agreement.
The Company has an employment agreement, with the Chief Operating Officer, whereby the Company provides for compensation of $120,000 per year plus additional incentives with a term of June 13, 2016 to December 31, 2021 with automatic extension for additional successive one (1) year renewals terms unless terminated as defined in the agreement.
The Company has an employment agreement, with the Chief Financial Officer, whereby the Company provides for compensation of $156,000 per year plus additional incentives with a term of June 13, 2016 to December 31, 2021 with automatic extension for additional successive one (1) year renewals terms unless terminated as defined in the agreement.
There are no other stock option plans, retirement, pension, or profit-sharing plans for the benefit of our sole officer and director other than as described herein.
| 24 |
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
Compensation of Directors
Our directors do not receive any compensation for serving as members of the Board of Directors.
Indemnification
Under our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defended a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defended the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Florida.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Florida law, we are informed that, in the opinion of the SEC, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding our shares of common stock beneficially owned as of March 31, 2021 for (i) each shareholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
| Name of Beneficial Owner and Address (1) | Amount and Nature of Beneficial Ownership of Common Stock |
Percent of Common Stock (1) |
|||||
| Daniel Thompson | |||||||
| 401 East Las Olas Blvd. Unit 1400 | |||||||
| Ft. Lauderdale, Florida | 25,095,168 | 11.7% | |||||
| Alex Cunningham | |||||||
| 401 East Las Olas Blvd. Unit 1400 | |||||||
| Ft. Lauderdale, Florida | 25,095,169 | 11.7% | |||||
| All directors and officers and 5% shareholders as a group | 50,190,337 | 23.4% | |||||
(1) Based on 166,130,069 shares of common stock issued and outstanding as of December 31, 2021.
(2) The above table does not include 27,488,862 of shares of series A, B, C, D, E, F, F-1, I, J, K, K-1, L, N, and R preferred stock which are convertible into 49,558,962 shares of common stock.
(3) Daniel Thompson owns 1 share of Preferred “A”, 13,062 shares of Preferred “B”, 1 share of Preferred “C” and 5,037,412 shares of Preferred “I” and Alex Cunningham 6,250 shares of Preferred “B”, 1 share of Preferred “C” and 6,237,500 shares of Preferred “I”.
| 25 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The Company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of December 31, 2021 and 2020, the Company owed the Chairman $126,765 and $126,849, respectively.
Blank Check Preferred Stock
As of December 31, 2021, the Company has designated 1,000,000,000 shares of Blank Check Preferred Stock zero of which have been issued.
2021 Preferred Stock Activity:
Series J Preferred Stock
On May 31, 2021 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 $3,579,336.
Series N Preferred Stock
On May 31, 2021 and also as part of the Nova Ortho acquisition, the Company issued 868,056 shares of preferred stock series N with par value $.001 and a stated value of $4.00, for $3,000,000 including a discount of $472,224 which was recorded as a reduction to APIC.
Series Preferred B Stock
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.
Onn July 22, 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000.
Series I Preferred Stock
On December 31, 2021 Daniel Thompson and Alex Cunningham Shareholders and officers of the Company each forfeited and surrendered for no consideration 90,000,000 Preferred Class I Shares resulting in aggregate of 180,000,000 outstanding Preferred Class I Shares returned to the Treasury.
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.
Common Stock
Stock Issuances:
November 9, 2021 - the Company issued 351,604 shares of common stock in connection with a service agreement.
December 28, 2021 – 180,000,000 shares were surrendered back to the treasury.
| 26 |
December 29, 2021 - the Company issued 1,275,427 shares of common stock in connection with a service agreement.
Effective May 12, 2020 the Company completed a reverse stock split of 10,000:1 for common shares. In conjunction with the reverse stock split, the Company canceled 826 partial rounding shares to balance the shares outstanding.
During the years ended December 31, 2021 and 2020, respectively, the Company converted $855,691 and $196,291 of convertible debt and $208,143 and $74,866 in interest, penalties, and fees into 109,234,241 and 5,014,696 shares of the Company’s commons stock.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The aggregate fees billed for the years ended December 31, 2021 and 2020 for professional services rendered by the principal accountant for the audit of its annual financial statements included in Form 10-K/A (“Audit Fees”), (2) tax compliance, advice, and planning (“Tax Fees”), and (3) other professional services rendered by the Company’s principal accountant (“Other Fees”):
| Daszkal Bolton | Year Ended December 31, | Year Ended December 31, | ||||||
| 2021 | 2020 | |||||||
| Audit Fees | $ | 57,500 | $ | 97,000 | ||||
| Tax Fees | – | – | ||||||
| Other Fees | – | – | ||||||
| Total | $ | 57,500 | $ | 97,000 | ||||
| Rosenberg Rich Baker Berman & Company | Year Ended December 31, | Year Ended December 31, | ||||||
| 2021 | 2020 | |||||||
| Audit Fees | $ | 31,255 | $ | – | ||||
| Tax Fees | – | – | ||||||
| Other Fees | – | – | ||||||
| Total | $ | 31,255 | $ | – | ||||
| 27 |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
_____________________________________________
* To be filed by amendment
1 NTD: Item 601(b)(2) requires filing of material plans of acquisition. Given the company’s strategy, it appears the agreements for each of its acquisitions should be filed. Item 601(b)(4) requires filing of all instruments defining rights of securities holders. Confirm the Articles of Incorporation on file reflect all classes of outstanding preferred stock. Item 601(b)(10) requires filing of all material contracts. At a minimum, each of the executive employments agreements should be filed. Consider other agreements material to the Company’s business other than plans of acquisition covered by 601(b)(2) mentioned above. Item 601(b)(21) requires current list of subsidiaries and jurisdiction of organization. Item 601(b)(23) requires auditors consent if 10-K/A will be incorporated by reference into the pending Form S-1 Registration Statement.
| 28 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities on this 21st day of October, 2022.
| CARDIFF LEXINGTON CORP | |
| /s/ Alex Cunningham | |
| Alex Cunningham | |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Daniel Thompson | Chairman of the Board of Directors | October 21, 2022 | ||
| Daniel Thompson | ||||
| /s/ Alex Cunningham | Chief Executive Officer | October 21, 2022 | ||
| Alex Cunningham | ||||
| /s/ Steven Healy | Chief Financial Officer | October 21, 2022 | ||
| Steven Healy | ||||
| 29 |
Exhibit 21.1
Subsidiaries of Cardiff Lexington Corp.
| Name | D/B/A or Assumed Name | Jurisdiction | Ownership |
| We Three, LLC | Affordable Housing Initiative | Tennessee | 100% |
| Edge View Properties, Inc | n/a | Idaho | 100% |
|
JM Enterprises 1, Inc. (Sold December 31, 2021) |
Key Tax | Delaware | 100% |
| Platinum Tax Defenders, LLC | n/a | California | 100% |
| Nova Ortho and Spine, PLLC | n/a | Florida | 100% |
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT 2002
I, Alex Cunningham, certify that:
1. I have reviewed the Annual Report on Form 10-K/A of Cardiff Lexington Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15d- 15(f) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: October 21, 2022
| By: /s/ Alex Cunningham | |
| Alex Cunningham | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT 2002
I, Steven Healy, certify that:
1. I have reviewed the Annual Report on Form 10-K/A of Cardiff Lexington Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15d- 15(f) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: October 21, 2022
| By: /s/ Steven Healy | |
| Steven Healy | |
| Chief Financial Officer (Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cardiff Lexington Corp. (the “Company”) on Form 10-K/A for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alex Cunningham, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: October 21, 2022
| By: /s/ Alex Cunningham | |
| Alex Cunningham | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cardiff Lexington Corp. (the “Company”) on Form 10-K/A for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven Healy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: October 21, 2022
| By: /s/ Steven Healy | |
| Steven Healy | |
| Chief Financial Officer (Principal Accounting Officer) |