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CERTAIN TERMS USED IN THIS REPORTFORWARD-LOOKING STATEMENTS

The statements contained in this report with respect to our financial condition, results of operations and business that are not historical facts are “forward-looking statements”. Forward-looking statements can be identified by the use of forward-looking terminology, such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “seek”, “estimate”, “project”, “could”, “may” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader of the forward-looking statements that any such statements that are contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employees, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors, some of which are described in this report including in “Risk Factors” in Item 1A and some of which are discussed in our other filings with the SEC. These forward-looking statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing our company, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward-looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

AmeriGuard Security Services, Inc.

CONSOLIDATED BALANCE SHEETS

When this report uses

See accompanying notes to financial statements

AmeriGuard Security Services, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the words “we,” “us,” “our,”Three Months Ending March 31, 2023 and 2022

See accompanying notes to financial statements

AmeriGuard Security Services, Inc.

CONSPIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the “Company,” they referThree Months Ending March 31, 2023

See accompanying notes to financial statements

AmeriGuard Security Services, Inc.

STATEMENTS OF CASH FLOWS

See accompanying notes to financial statements

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

AmeriGuard Security Services, Inc. (the Company), was incorporated on November 14, 2002, with an S-Corp tax election. The corporation was incorporated with the issuance of 1,000 shares of no-par value stock held by Lawrence Garcia, President and CEO with 550 shares and Lillian Flores, VP of Operations with 450 shares. The Company provides armed guard services as a federal contractor with licenses in 5 states and provides commercial guard services in California.

On July 7, 2021, the Company, entered into an agreement to gain 100% control of Health Revenue Assurance Holdings, Inc. “SEC” refers toInc (HRAA) a public corporation, incorporated in Nevada, by the Securities and Exchange Commission.

purchase of 10,000,000 shares of Preferred A-1 Stock from the seller, Custodian Ventures LLC. The accompanying unaudited notes are an integral partpurchase of these unaudited consolidated financial statements.

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements

The accompanying unaudited notes are an integral part of these unaudited consolidated financial statements

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

1 – NATURE OF BUSINESS AND GOING CONCERN

Overview

Health Revenue Assurance Holdings, Inc. (the “Company”) is a provider of revenue cycle services to a broad range of healthcare providers. We offer our customers integrated solutions designed around their specific business needs, including revenue cycle data analysis, contract and outsourced coding, billing, coding and compliance audits, coding education, coding consulting, physician coding services and ICD-10 education and transition services. With this approach, our customers benefit from integrated service offerings that we believe enhances their revenue integrity. As a result, we believe we help our customers achieve their business objectives and patient care objectives.

Dream Reachers, LLC, owns the Company’s office and is the borrower on a mortgage loan related to such offices. Dream Reachers, LLC does not engage in real estate rental business. Its office is occupied by Health Revenue Assurance Associates, Inc. (“HRAA”) at no cost and HRAA pays the related mortgage’s principal and interest, taxes and maintenance. The Company’s subsidiary HRAA is the sole member effective May 2011. Dream Reachers has been treated as a subsidiary for accounting purposes in the Company’s consolidated financial statements for all periods presented. (See Note 2) On June 16, 2014,allowed the Company to begin plans to consummate a reverse merger with authorizationHRAA becoming a wholly owned subsidiary of its boarda public company. In March of directors listed its office for sale. Accordingly,2022, a Certificate of Amendment was filed with the propertyNevada Secretary of State, changing the name of HRAA, to Ameriguard Security Services, Inc. (AGSS). Shortly thereafter, a stock name and fixtures relatedticker change report was filed with the SEC and the stock ticker of HRAA was changed to AGSS.

On December 9, 2022, the Company’s office have been reclassified to property held for sale onCompany executed the unaudited consolidatedreverse merger agreement and became the subsidiary of AGSS. From that point forward, the financial statements.

On February 10, 2012, HRAA entered into an Agreement and Planstatement filings will be the consolidation of Merger and Reorganization (the “Merger Agreement”) with Health Revenue Assurance Holdings, Inc. (formerly known as Anvex International, Inc., "HRAH"),Ameriguard Security Services, Inc, a Nevada company and its wholly-owned subsidiary Health Revenue Acquisition Corporation (“Acquisition Sub”), which was treated for accounting purposes aswith Ameriguard Security Services, Inc. a reverse recapitalization with HRAA, considered the accounting acquirer. Each share of HRAA's common stock was exchanged for the right to receive approximately 1,271 shares of HRAH’s common stock. Before their entry into the Merger Agreement, no material relationship existed between HRAH and Acquisition Sub or HRAA.California company.

Going Concern

As of June 30, 2014, the Company had a working capital deficiency, stockholders’ deficit and accumulated deficit of approximately $443,000, $3,065,000, and $9,666,000, respectively, for the six months ended June 30, 2014, incurred a net operating loss of approximately $2,495,000, and has used net cash in operations of approximately $1,849,000. As of June 30, 2014, the Company has a cash balance of approximately $778,000. The Company had not been able to generate sufficient cash from operating activities to fund its on-going operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s future successaccounting year end is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing.December 31.

The Company’s unaudited consolidatedBasis of Presentation

These financial statements are presented on a going concern basis since its wholly owned operating subsidiary, Health Revenue Assurance Associates, Inc. filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of Florida on August 11, 2014. (See Note 15) The unaudited consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assetsdollars and liabilities that might result should the Company be unable to continue as a going concern.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.United States generally accepted accounting principles (“GAAP”) for interimprinciples.

Risks and Uncertainties

The risks and uncertainties described below may not be the only ones we are or may face in the future. If any of the following do occur, our business, financial information andcondition or results of operations could be materially adversely affected.

The company receives over 90% of its total revenue from four Federal contracts as described in Note 9 below. These contracts have specific terms, typically five years with the instructionsopportunity for extension, but there are no assurances they will be extended. Although we have had several extended in the past, there is no guarantee this will again happened in the future. However, there are significant direct expenses for each contract that also are removed from operations at the end of a contract. As a result, the revenue lost from a completed contract does not affect the bottom-line profits in an amount equal to Form 10-Q and Article 8 of Regulation S-X.the revenue lost. The actual net income impact depends on the contract.

Accordingly, they do not include allThe process required to acquire a government contract takes several months to complete prior to delivery of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2014 are not indicative of the results that may be expected for the year ending December 31, 2014 or for any other future period. These unaudited consolidated financial statements and the unaudited notes thereto should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2014 (our “10-K”).

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Health Revenue Assurance Associates, Inc. and Dream Reachers, LLC. All significant inter-company transactions and balances are eliminated in consolidation.

Reclassifications

Certain prior period amounts in the unaudited consolidated financial statements have been reclassified from research and development to selling and administrative expenses to conformproposal to the current period’s presentation. Further,contracting agency. Due to the Company reclassified $197,367 fromtime span required to prepare a proposal and wining the December 31, 2013 line item propertycontract is not guaranteed, the company maintains a department of individuals who monitor and equipmentwrite proposals for all government contracts that become open for bid on a continuing basis. It is important to property held for sale.the company that new contracts are acquired consistently to maintain and grow annual revenue.

Other risks to operations consist of State and Federal regulations, staffing shortages, accelerating inflation, and overall business environment issues we cannot foresee.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the unaudited consolidatedIn preparing financial statements in conformity with generally accepted accounting principles, generally accepted in the United States of America (“GAAP”) requires management is required to make estimates and assumptions that affect the reported amounts inof assets and liabilities and the consolidateddisclosure of contingent assets and liabilities at the date of the financial statements.statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include valuation of accounts receivable, valuationestimated useful lives and potential impairment of property and equipment, valuationalong with the collectability of some receivables from customers.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On March 31, 2023, and December 31, 2022, the Company had cash and cash equivalents totaling $444,879 and $1,227,654 respectively.

Accounts Receivable

We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on assets held for sale, valuationthe accounts receivable balances and amortization periodis charged to other bad debt expense. We calculate this allowance based on our history of software, valuationwrite-offs, the level of beneficial conversion features in convertible debt, valuationpast-due accounts based on the contractual terms of derivatives, valuation of equity based instruments issued for other than cash, revenue recognition,the receivables, and our relationships with, and the valuationeconomic status of, our customers. With over ninety percent of year end accounts receivable balance from Federal contracts that require payment, and the uncollectable amount historically has been less than 1%. As of March 31, 2023, and December 31, 2022, an allowance on deferred tax assets.for estimated uncollectible accounts was determined to be unnecessary.

Earnings Per ShareProperty and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company computesuses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful life for Machinery and presents earnings or losses per share in accordanceEquipment, and Vehicles is 5 years, with Leasehold improvements useful life is 10 Years.

Operating Leases

In February 2016, FASB ASU No. 2016-02 established ASC Topic 260, Earnings842, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Effective December 31, 2022, we have implemented ASU No. 2016-02 and booked the operating lease asset and the related liability.

Net Income/(Loss) per share. Basic earnings or lossesShare

Net income/(loss) per share are computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings or loss per share is computed by dividing net income or loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share”. Basic earnings/(loss) attributable toper common stockholdersshare (“EPS”) calculations are determined by dividing net income/(loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common stockshare equivalents outstanding, calculated on the treasury stock method for options and warrants using the average market prices during the period.outstanding.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.Revenue Recognition

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)We recognize revenue when the Invoice for contracted services is issued as stipulated by the contract. Other services provided are recognized at the time the service is provided. Ninety eight percent of revenues are billed monthly and recognized in the month the services were provided. Refunds and returns, which are minimal, are recorded as a reduction of revenue. The Company has not recorded a reserve for returns on March 31, 2023, or 2022 since it does not believe such returns will be material.

Fair Value of Financial Instruments

AsThe Company applies the Company incurred net income for the three and six months ended June 30, 2014, we have computed basic and diluted earnings per share for both periods as required. For the three and six months ended June 30, 2014 diluted income per share, all potentially dilutive securities were excluded from the computation since the effect of including them is anti-dilutive. Dilutive securities outstanding at June 30, 2014 include 29,940,000 of warrants and Series A Preferred stock convertible into 27,000,000 shares of common stock. There were no dilutive securities outstanding at June 30, 2013 respectively.

Segment Reporting

accounting guidance under Financial Accounting Standards Board (“FASB”) ASC Topic 280, Segment Reporting (“ASC 280”), establishes standards for the way public business enterprises report information about operating segments. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company has determined that based on these criteria it only operates one segment, consulting services, as all other services do not meet the minimum threshold for separate reporting of a segment.

Contingencies

We accrue for contingent obligations, including legal costs and restructuring costs, when the obligation is probable and the amount can be reasonably estimated. As facts concerning contingencies become known we reassess our position and make appropriate adjustments to the consolidated financial statements. Estimates that are particularly sensitive to future changes include those related to tax, legal, and other regulatory matters that are subject to change as events evolve and additional information becomes available.

Recent Accounting Pronouncements

We have implemented all new accounting standards that are in effect and that may impact our unaudited consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations.

In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

3 - ACCOUNTS RECEIVABLE

Accounts receivable was as follows at:

We had $0 and $6,450 in bad debt expense on trade accounts receivable for six months ended June 30, 2014 and 2013, respectively. Accounts receivable includes outstanding receivables of $452,583 and $638,270 purchased by the factor as of June 30, 2014 and December 31, 2013, respectively.  (See Note 8)

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

4 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

Depreciation expense for the six months ended June 30, 2014 and 2013 was approximately $39,500 and $44,600, respectively.

On June 16, 2014, the Company listed its office condominium for sale in conjunction with cost savings initiatives. Accordingly $206,932 the net balance of related building and fixtures were reclassified to property held for sale and depreciation of the related assets was ceased.

5 – RESEARCH AND DEVELOPMENT AND SOFTWARE

In early 2012, the Company started developing the Visualizer suite. This business intelligence product is designed to meet the emerging need for healthcare analytics. Customer data is infused into the suite, and the Company uses this data in its consulting services to develop pre-defined analytics targeted to address healthcare’s emerging concerns and needs.

The Company’s Visualizer suite offers our consultants a range of functionality. Visualizer also assists healthcare leaders with their need to understand the impacts of the transition to ICD-10 including work flow, productivity, process changes and documentation and reimbursement risks. The application helps to visualize the reimbursement and operational effects of transitioning organizations to ICD-10 and identify where to focus education and documentation issues. It enables clients to develop a custom work plan to mitigate risks from the highest areas of exposure to the least.

At September 30, 2013, the Company had accumulated a total of $1,011,068 in capitalized costs related to the development of the Visualizer suite and the other functionality which was included as software on the accompanying consolidated balance sheet. As of September 30, 2013, we had amortized $64,137 of the capitalized software after the general release on July 15, 2013 for the Visualizer project.

At the end of September 2013, the Company re-evaluated the capitalized research and development costs for the Visualizer software suite. The evaluation was based in part on the lack of cash flow and customer demand in ICD Visualizer after its general acceptance release date of July 15, 2013. In addition, the Company also considered its going concern risk and cash liquidity concerns that restrain the ability to make capital investments in research and development to complete existing products in the pipeline as the available cash is needed to fund normal operating expenses. As a result of this evaluation, the Company recorded a loss of $946,931 for the year ended December 31, 2013 that is presented as a line item entitled “asset impairment” on the consolidated statement of operations. The Company will continue to use the Visualizer suite of functionality as internally developed software to generate customized reports for revenue integrity auditing and compliance services but the Company no longer intends to market or sell internally developed software on a stand-alone basis. There was no amortization expense for software for the six months ended June 30, 2014 and 2013, respectively.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

Software consisted of the following at:

6 – LINES OF CREDIT

Bank

The Company has a $150,000 revolving line of credit with a bank (the “Line of Credit”), effective in December 2008, for its general working capital needs. The line contains certain restrictive covenants including restrictions on granting liens on the Company's assets. The line is also guaranteed by certain former officers of the Company. The line of credit matured on December 18, 2009 and was renewed and was due on December 18, 2012. The revolving line was modified on December 18, 2012 so that the loan no longer has an expiration date of December 18, 2012, but instead, a final maturity date of December 18, 2018.

On September 19, 2013, the Company converted the Line of Credit to a term note. The Company consolidated the Line of Credit and an existing bank term loan into a consolidated term loan. Monthly payments of principal and interest are approximately $3,900 per month, and a new maturity date of September 19, 2017. Interest is calculated at a rate per year equal to the bank’s prime rate plus 3.5% or 6.75%. At the time of the conversion the line of credit had an outstanding balance in the amount of $133,334. (See Note 7)

Dell

The Company maintains a Dell Business Credit line of up to $50,000. Interest rates vary under the line based on difference types of payment plans. The balance due under the line as of June 30, 2014 and December 31, 2013 was $40,075, and $44,692, respectively, which is included in line of credit, current portion in the accompanying unaudited consolidated financial statements.

7 – LONG TERM DEBT AND NOTES PAYABLE

Long Term debt:

Long Term debt consisted of the following at:

In March 2009, HRAA entered into a term loan with Bank of America which proceeds were used for general working capital needs (the “Term Loan”). The Term Loan was established as a result of a conversion of a revolving line of credit. The Term Loan is personally guaranteed by Robert Rubinowitz and Andrea Clark-Rubinowitz and contains certain restrictive covenants including restrictions on granting liens on the Company's assets. The Term Loan matured in five years and incurred interest at the rate of 6.75% per annum.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

On September 19, 2013, HRAA consolidated the above March 2009 Term Loan with the Line of Credit. (See Note 6) The outstanding balance for the Term Loan and the Line of Credit prior to consolidation was $20,697 and $133,334, respectively. The new consolidated term loan is personally guaranteed by Robert Rubinowitz and Andrea Clark-Rubinowitz and contains restrictive covenants, and prohibits the Company from granting any security interests or liens on the assets of the Company. Payments of principal and interest are approximately $3,900 per month. The new consolidated term loan matures on September 19, 2017 and incurs interest at a rate per year equal to the bank’s prime rate plus 3.5% or 6.75% at June 30, 2014.

The Company’s subsidiary has a mortgage related to certain real estate, a building condominium, which houses the Company’s main offices in Plantation, Florida. The loan originated July 2010 in the amount of $192,500 and matures July 2020, when a balloon principal and interest payment of approximately $129,000 becomes due. The loan is collateralized by the real estate and is personally guaranteed by Robert Rubinowitz, a former officer and stockholder of the Company. Interest is fixed at 6.625% for the first five years of the loan, and converts for the second five years to an adjustable indexed rate at the Federal Funds Rate plus 3.25%820-10, “Fair Value Measurements”, as established by the United State Federal Reserve but under no circumstances will the effective interest rate of interest on the mortgage be less than 6.625%. Monthly payments for principal and interest are approximately $1,500 until July 2015, when the total monthly payment may vary due to the adjustable interest rate provision in the note.

Although the Company is current in its payments on these loans at June 30, 2014, management believes the Company may be in default ofwell as certain non-financial covenants. Default provisions were likely triggered since the Company’s wholly owned operating subsidiary, Health Revenue Assurance Associates, Inc. filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of Florida on August 11, 2014. The banks have not notified the Company of any default.

Notes payable:

The Company has eighteen notes payable, (i) thirteen of the loans are secured by contract accounts receivable of a Company customer which security interest is subordinate to the lender under the factoring agreement, and (ii) one of the loans is secured by the stock of HRAA.

In December 2012, the Company entered into loan agreements with various investors and issued promissory notes upon receipt of $815,000. The loan agreements have an interest rate of 12% per annum calculated on the original loan balances resulting in an effective interest rate of 24% over the term of the loans. Principal and interest is payable over 24 months. Additionally, in connection with the financing, the Company issued 2,375,000 shares of common stock to the lenders as loan fees. Therelated FASB staff positions. This guidance defines fair value per share of $0.28 (based on recent cash sales prices) was used to compute the relative fair value of the shares in accordance with ASC 470-20 which totaled $343,500 which was recorded as a debt discount with a credit to additional paid-in-capital and such discount is being amortized over the term of the loans. The unamortized discount was $61,900 and $114,958 as of June 30, 2014 and December 31, 2013, respectively.

In January and February 2013, the Company entered into loan agreements with various investors and issued promissory notes upon receipt of $1,220,000. The loan agreements have an interest rate of 12% per annum. Principal and interest is payable over 24 months. Additionally, in connection with the financing, the Company issued 5,575,000 shares of common stock to the lenders as loan fees. (See Note 11) The fair value per share of $0.28 (based on recent cash sales prices) was used to compute the relative fair value of the shares in accordance with ASC 470-20 which totaled approximately $679,500 which was recorded as a debt discount with a credit to additional paid-in-capital and such discount is being amortized over the term of the loans. The unamortized discount was $200,298 and $350,522 as of June 30, 2014 and December 31, 2013, respectively.

The Company began paying principal and interest on the above mentioned notes in early 2013 in accordance with the payment terms. On August 2013, the Company converted $402,083 in unsecured investor promissory notes for five (5) individuals into one million six hundred eight thousand three hundred and thirty three (1,608,333) common shares at a conversion price of $0.25 per share. As a result of the conversion the Company expensed $128,452 of the unamortized discount as interest expense for the year ended December 31, 2013. Additionally, the Company recorded a loss on conversion of $112,584 as a result of issuing stock at a discount from fair market value in 2013.

Although the Company is current in its payments on these notes at June 30, 2014, management believes default provisions were likely triggered since the Company’s wholly owned operating subsidiary, Health Revenue Assurance Associates, Inc. filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of Florida on August 11, 2014. The note holders have not notified the Company of any default.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

Notes payable consisted of the following at:

8 – FACTORING AGREEMENT

In June 2012, the Company entered into a one-year factoring agreement with a finance company. The agreement automatically renews annually unless terminated by either party. Under the terms of the agreement, the Company, at its discretion, assigns the collection rights of its receivables to the finance company in exchange for an advance rate of 85% of face value. The assignments are transacted with recourse only at the option of the finance company in the event of non-payment. The Company's obligations under the factor agreement are secured by substantially all assets of the Company. In accordance with ASC 860 "Transfers and Servicing" regarding transfers of receivables with recourse, this factoring arrangement is accounted for as a secured financing. For the six months ended June 30, 2014, the Company had factored approximately $2,234,000 of receivables and had received cash advances of approximately $2,262,600. Outstanding receivables purchased by the factor as of June 30, 2014 were approximately $452,600 and are included in accounts receivable in the accompanying unaudited consolidated balance sheet, and the secured loan due to the lender was approximately $364,800. Factor fees for the three months ending June 30, 2014 and 2013 were approximately $30,000 and $138,400, respectively. Factor fees for the six months ended June 30, 2014 and 2013 were approximately $70,600 and $76,100, respectively, and are included in interest expenses. (See Note 3)

Although the Company is current in its financial obligations under this factoring agreement, management believes the Company may be in default under the solvency provision and certain non-financial default provisions. The Company has not been notified of any default by the factor company.

9 – CONVERTIBLE PROMISSORY NOTES

On October 7, 2013, the Company entered into a one-year original issue discount (OID) convertible promissory note with warrants in the amount of $280,000 with Tonaquint, Inc., a Utah corporation (“Tonaquint”). The purchase price for this note and the warrants was $250,000. The Company had the option to repay this note at any time on or before the date that is sixty (60) days from October 7, 2013. The Company recorded a debt discount for the OID of $25,000 and expensed $5,000. The debt was treated as stock settled debt where a put premium of $120,000 was to be recorded over the six-month period to the first conversion date. Tonaquint had the right at any time after the date that is six (6) months from the effective date, at its election, to convert all or any part of the outstanding balance of the note into shares of fully paid and non-assessable common stock of the company based upon a formula that is seventy (70%) percent of the average of the two (2) lowest intra-day trade prices in the fifteen (15) trading days immediately preceding the conversion (the “Conversion Formula”). Tonaquint was granted the right to purchase at any time on or after October 7, 2013 until the date which is the last calendar day of the month in which the fifth anniversary of the “issue date” occurs, 350,000 fully paid and non-assessable shares of the Company’s common stock, par value $.001 per share, as such number may be the adjusted from time to time pursuant to the full ratchet price protection terms and conditions of the warrant. The initial “exercise price” is $0.40 per share of common stock. On November 12, 2013, the note was paid in full with financing received in connection with the sale and issuance of Series A Preferred Stock and warrants pursuant to the Securities Purchase Agreement, dated November 12, 2013, between the Company and the investors named therein. (See Note 11) As mentioned above, the Company issued 350,000 free standing and detachable warrants related to the note. The Company accounted for these warrants issued in accordance with the GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. Based on this guidance, the Company determined that the Company's warrants do not meet the criteria for classification as equity due to the price protection provisions. Accordingly, the Company classified the warrants as current liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. We will estimate the fair value of these warrants at the respective balance sheet dates, based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates and expected dividends on and expected volatility of the price of the underlying common stock. (See Note 12) As a result of the November 12, 2013 financing and the full ratchet protection, the exercise price of the warrants was reduced to $0.20 per share and 350,000 additional warrants were issued to Tonaquint.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

On October 17, 2013, the Company entered into a one-year OID convertible promissory note in the amount of $142,500 with Tonaquint. The purchase price for this note and the warrant was $125,000. The Company had the option to repay this note at any time on or before the date that is sixty (60) days from October 17, 2013. The Company recorded a debt discount for the OID of $12,500 and expensed $5,000. The debt was treated as stock settled debt where a put premium of $61,071 was to be recorded over the six-month period to the first conversion date. Tonaquint had the right at any time after the date that is six (6) months from the effective date, at its election, to convert all or any part of the outstanding balance of the note into shares of fully paid and non-assessable common stock of the Company based upon the Conversion Formula. Tonaquint was granted the right to purchase at any time on or after October 17, 2013 until the date which is the last calendar day of the month in which the fifth anniversary of the “issue date” occurs, 175,000 fully paid and non-assessable shares of the Company’s common stock, as such number may be the adjusted from time to time pursuant to the full ratchet price protection terms and conditions of the warrant. The initial “exercise price” is $0.40 per share of common stock. On November 12, 2013, the note was paid in full with financing received in connection with the sale and issuance of Series A Preferred Stock and warrants pursuant to the Securities Purchase Agreement, dated November 12, 2013, between the Company and the investors named therein. (See Note 11) As mentioned above, the Company issued 175,000 free standing and detachable warrants related to the note. The Company accounted for these warrants issued in accordance with the US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings. Based on this guidance, the Company determined that the Company's warrants do not meet the criteria for classification as equity due to the price protection provisions. Accordingly, the Company classified the warrants as current liabilities. The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. We estimate the fair value of these warrants at the respective balance sheet dates, based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates and expected dividends on and expected volatility of the price of the underlying common stock. (See Note 12) As a result of the November 12, 2013 financing and the full ratchet anti-dilution provision, the exercise price of the warrants was reduced to $0.20 per share and 175,000 additional warrants were issued to Tonaquint.

At the time the above two notes were paid off, the Company had accreted $33,364 of the put premium and according recognized a gain on extinguishment of $33,364 relating to this put premium. Further, as only $3,459 of the discount was amortized, the Company recorded a loss on early debt extinguishment of $34,041 in 2013.

10 – COMMITMENTS AND CONTINGENCIES

Commitments:

Leases:

In September 2012, the Company started a non-cancellable operating lease for office equipment. The lease term is 5 years. Lease payments during the five years are approximately $560 per month.

On September 1, 2011, the Company entered into a commercial lease agreement for additional office space. The lease term is one year with five successive one year renewal options. Starting September 1, 2013, the lease has been renewed for one year with a fixed payment of approximately $5,800 per month. The commercial leased was cancelled effective June 30, 2014. The related security deposit of $8,865 was refunded to the Company on July 14, 2014.

Capital Leases:

The Company leases its equipment from Dell Financial Services L.L.C. under various capital leases. The economic substance of the lease is that the Company is financing the acquisition of the assets through the lease and accordingly, it is recorded in the Company’s assets and liabilities.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

The following is an analysis of the leased assets included in property and equipment:

The lease agreement contains a bargain purchase option at the end of the lease term. The total amount due at June 30, 2014 is $42,492 of which $30,989 is included in short term liabilities. Amortization of assets held under capital leases is included with depreciation expense and is approximately $13,200 as of June 30, 2014.Although the Company is current in its payments on these leases at June 30, 2014, management believes the default provisions were likely triggered since the Company’s wholly owned operating subsidiary, Health Revenue Assurance Associates, Inc. filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of Florida on August 11, 2014. Dell Financial Services L.L.C. has not notified the Company of any default.

Settlement Agreements:

On March 14, 2013, the Company and its former regional sales manager entered into a settlement agreement to resolve one pending lawsuits arising out of the termination of his employment. The lawsuit was initiated by the former regional sales manager against the Company in the United States District Court for the city of Denver, Colorado. Pursuant to the settlement agreement, the former regional sales manager agreed to abolish all claims and lawsuits against the Company. As part of the settlement agreement, the Company agreed to make a payment totaling $11,000 pursuant to the terms of the settlement agreement and general release of all claims executed by both parties. The settlement payments were paid in full as of June 30, 2014.

On April 14, 2014, the Company entered into a separation agreement (the “Separation Agreement”) with Robert Rubinowitz, its former President, Chief Operating Officer, Secretary, Treasurer and director, which provided for the termination of Mr. Rubinowitz's employment and his resignation as an officer and director of the Company, and the termination of that certain Employment Agreement dated October 1, 2013, as amended on November 12, 2013, between the Company and Mr. Rubinowitz (the “Employment Agreement”). The Separation Agreement provides that Mr. Rubinowitz will receive from the Company (i) $175,000 to be paid in equal increments of $3,365.39 on each of May 2, 2014, May 16, 2014, May 30, 2014, June 14, 2014 and June 27, 2014 and thereafter equal increments of $7,532.05 with the last payment date being April 17, 2015, and (ii) $23,557.70 in accrued and unpaid base salary, bonus and vacation earned through April 11, 2014 payable in equal installments of $1,121.80 beginning on July 11, 2014, in each case, less all applicable deductions and withholdings. As of June 30, 2014, the Company has a settlement accrued of $181,700 in connection with Mr. Rubinowitz’s Separation Agreement.

The Separation Agreement also requires the Company to use commercially reasonable efforts to have Mr. Rubinowitz and Andrea Clark-Rubinowitz removed as guarantors under certain of the Company's debt obligations. The Company paid an early termination fee for the early return of Mr. Rubinowitz's leased vehicle. The Company further agreed to file a Registration Statement with the SEC to register the resale of Mr. Rubinowitz's outstanding common stock as of the date of Separation Agreement.

The foregoing description of the Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Separation Agreement, a copy of which is attached as Exhibit 10.22 to the Company’s 2013 Annual Report on Form 10-K filed April 15, 2014.

On March 26, 2014, the Company terminated Dean Boyer’s employment as its chief technology officer.  On May 15, 2014, a consulting agreement and a termination and release agreement were executed with Mr. Boyer and the Company.  The agreements provide that Mr. Boyer will receive $200,000 to be paid $50,000 on May 16, 2014, and payments to be made thereafter in equal increments of $12,000 with the Company’s scheduled payrolls, and with a final payment of $6,000 date being made on November 14, 2014. All payments will be less applicable payroll tax deductions and withholdings. As of June 30, 2014, the Company accrued $114,000 payable to Mr. Boyer in connection with his agreements. 

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

Employment Agreements:

On October 2, 2013 the Company entered into employment agreements with four (4) of our officers and directors. The Employment Agreements provided for severance benefits, change in control provisions, accrued but unpaid wages and bonuses, accrued but unpaid vacation time, incentive awards, equity and stock options, and other benefits. These four (4) employment agreements were amended on November 12, 2013. As of June 30, 2014, no performance bonuses have been earned. The Company owed Andrea Clark-Rubinowitz $75,000. The balance due to Ms. Clark-Rubinowitz was formalized in a promissory note dated November 1, 2013. The Company also owed Robert Rubinowitz $40,000 pursuant to a promissory note dated November 1, 2013 for funds advanced in September 2013. On November 12, 2013 the promissory notes to Ms. Clark-Rubinowitz and Mr. Rubinowitz were paid in full from the net proceeds of the Securities Purchase Agreement, dated November 12, 2013, among the Company and the investors named therein.

Contingencies:

From time to time, the Company is involved in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending or threatened against the Company, the ultimate disposition of which would have a material adverse effect on our business, results of operations, financial condition or cash flows. (See Note 15)

The Company has not filed state tax returns and has a potential liability for unrecognized taxes relating primarily to state tax contingencies in several jurisdictions. The Company cannot predict with certainty the amount of the potential state tax liability including the associated interest and penalties. The Company also cannot predict with certainty the amount of unrecognized state tax benefits, net of federal tax benefits, that if recognized would have impacted the prior year’s effective tax rates.

On August 11, 2014, the Company’s wholly owned operating subsidiary, Health Revenue Assurance Associates, Inc. filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of Florida. (See Note 15)

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

11 – STOCKHOLDERS' DEFICIT

Share Based Compensation

The Company is in the process of establishing a non-qualified stock option plan. In advance of the actual establishment of the plan in 2013, the Company has granted a total of one million (1,000,000) stock options to an officer. The grant date is that which an employer and its employee reach a mutual understanding of the key terms and conditions of a share-based payment arrangement. This is the date on which the employer becomes contingently obligated to issue equity instruments or transfer assets to the employee who renders the requisite service. The Company is obligated for this grant as adoption of a stock option plan and board approval is considered a mere formality. The Company may cancel option grants and the unvested stock options are forfeited for an employee at resignation and termination.

Stock Options

During the six months ended June 30, 2014, the Company recorded pre-tax recovery of compensation expense of $14,822 related the cancellation of 1,000,000 stock options as result of an officer’s resignation. There was no unrecognized compensation expense related to stock options at June 30, 2014. There were no exercises of stock options for the six months ended June 30, 2014.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The 1,000,000 options were valued at $221,121. Unvested stock options of 1,000,000 were forfeited and the related option grant was cancelled as result of an officer’s resignation.

The following table summarizes stock option activity for the six months ended June 30, 2014:

Common Stock

2013:

On January 15, 2013, the Company sold 46,429 shares of common stock for $13,000 at a price per share of $0.28.

On January 31, 2013, the Company issued 50,266 shares of common stock as compensation to an employee for services rendered through March 31, 2013. The shares were valued at $0.49 per share based on the quoted trading price per share or $24,630, which was expensed.

In February 2013, the Company issued 5,575,000 shares of common stock in connection with a financing transaction as more fully described in Note 7.

In March 2013, the Company entered into a one-year agreement with a consultant for 230,000 vested shares and cash consideration. The shares were valued on the agreement date, which was the measurement date at $0.35, based on the quoted trading price, and the $80,500 was recorded as a prepaid asset and is being expensed over the term of the contract. The shares were issued on April 1, 2013 to the consultant.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

On April 1, 2013, the Company issued an aggregate of 54,847 shares of common stock as compensation to two employees for services rendered through March 31, 2013. The shares were valued at $0.40 per share based on recent cash sales by the Company or $21,939, which was expensed.

On May 19, 2013, the Company sold 625,000 shares of common stock for $250,000 at a price per share of $0.40.

On May 24, 2013, the Company sold 125,000 shares of common stock for $50,000 at a price of $0.40 per share.

On June 21, 2013, the Company sold 750,000 shares of common stock for $300,000 at a price per share of $0.40.

On June 27, 2013, the Company entered into a financial advisor and agent placement agreement whereby the Company had the option to pay in cash or issue 100,000 shares of common stock. The shares were valued on the agreement date, which was the measurement date at $0.51 per share based on the quoted trading price, and the $51,000 is being expensed over the term of the contract. The Company issued the shares in September 2013.

On July 8, 2013, the Company sold 500,000 shares of common stock for $200,000 at a price per share $0.40.

On August 7, 2013, the Company sold 500,000 shares of common stock for $200,000 at a price per share $0.40.

On August 21, 2013, the Company sold 100,000 shares of common stock for $25,000 at a price per share of $0.25.

On August 27, 2013, the Company issued 400,000 shares of common stock for $100,000 at a price per share of $0.25.

On August 30, 2013, the Company issued 400,000 shares of common stock for $100,000 at a price per share of $0.25 per share.

On August 22, 2013 and August 28, 2013, the Company converted $402,083 in unsecured promissory notes for five (5) individuals into one million six hundred eight thousand three hundred and thirty three (1,608,333) shares of common stock at a conversion price of $0.25 per share. The shares of common stock were valued at $514,666 based on the quoted trading price of $0.32 and accordingly, the Company recorded a loss on conversion of $112,583.

In September 2013, the Company issued 95,052 shares of common stock as compensation to three employees for services rendered through June 30, 2013. The shares were valued at $0.48 per share based on the quoted trading price per share or $45,625, which was expensed.

On September 6, 2013, the Company entered into a three-year agreement with a company to provide consulting and recruiting services. Upon execution of the agreement, the Company issued 50,000 shares of common stock valued at $0.30 per share based on the quoted trading price, in consideration of their services to be rendered for the first year of the agreement. The $15,000 is being expensed over 12 months.

On September 9, 2013, the Company entered into a one year consulting agreement with a stockholder to provide certain consulting services related to the Company’s business in exchange for four million one hundred twenty five thousand (4,125,000) shares of common stock in consideration of the services to be rendered. The shares were valued on the agreement date, which was the measurement date at $0.28 per share based on the quoted trading price, and the $1,155,000 is being expensed over the term of the contract.

On September 30, 2013, the Company issued 187,500 shares of common stock as compensation to two employees for services rendered through September 30, 2013. The shares were valued at $0.23 per share based on the quoted trading price per share or $43,125, which was expensed.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

On October 9, 2013, the Company issued 100,000 shares of common stock as compensation to a consultant to provide services. The shares were valued at $0.24 per share based on the quoted trading price per share or $24,000, which was recorded as prepaid and is being expensed over the term of the agreement, which is six (6) months.

On December 31, 2013, in accordance with a 2012 employment agreement, the Company issued 75,000 shares of common stock as compensation to an employee for services rendered through December 31, 2013. The shares were valued at $0.25 per share based on the quoted trading price per share or $18,750, which was expensed.

2014:

On March 31, 2014, in accordance with a 2012 employment agreement, the Company issued 93,750 shares of common stock as compensation to an employee for services rendered through March 31, 2014. The shares were valued at $0.20 per share based on the quoted trading price per share or $18,750, which was expensed.

On May 19, 2014, a resolution was proposed for a grant of restricted common stock for board members Mr. Michael Brainard and Mr. Peter Russo. Under Nevada law, in order to take action through a written consent, the consent must be approved by all directors.  The Company did not obtain written consents from all board of directors members and accordingly, the board of directors did not approve the restricted stock grants. The board of directors has waived any equity grants to a later date based on the Company’s future results of operations.

Temporary Equity – Redeemable Convertible Preferred Stock

On November 12, 2013, the Company entered into a Securities Purchase Agreement for the sale of Series A 8% Redeemable Convertible Preferred Stock (“Series A stock”) and warrants to purchase shares of the Company’s common stock. The Company sold 13,500,000 of Series A stock and warrants to purchase 27,000,000 shares of the Company’s common stock for gross proceeds of $5,400,000. The net proceeds to the Company after offering costs were $4,903,652. The Series A stock is convertible into common stock on a 2 for 1 basis and is redeemable by the Company, at the option of the investor, 48 months from November 12, 2013 at the stated value of $0.40 per share or a total of $5,400,000 plus accumulated but unpaid dividends, whether declared or not. The Company accounts for these preferred stock in accordance with the US GAAP accounting guidance under ASC 480 applicable to redeemable instruments, which requires the differential between the issuance and redemption value to be accreted over the period that begins on the issuance date and ends on the redemption date. The accretion increases accumulated deficits and net loss allocable to common stockholders in calculating net loss per share.

Due to the redemption feature the Series A Stock is reflected as temporary equity as follows:

The Company also issued warrants to purchase 1,890,000 shares of common stock to a placement agent. (See Note 12)

The Company recorded a beneficial conversion value for the preferred stock of approximately $2.6 million in 2013 as an immediate charge to accumulated deficit as it is considered a constructive dividend to Series A preferred stockholders. As part of this equity financing transaction, the Company issued 27,000,000 five-year warrants (See Note 12) with immediate vesting rights to convert into common shares at an initial exercise price of $0.30 per share under price protection provisions. The warrants also contain cashless exercise provisions. Due to price protection provisions in the warrants, the Company will account for these warrants issued in accordance with the US GAAP accounting guidance under ASC 815 applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 (UNAUDITED)

In connection with the Securities Purchase Agreement, the Company entered into a registration rights agreement with the Purchasers, pursuant to which the Company agreed to register all of the shares of common stock underlying the Series A Preferred Stock and the shares of common stock underlying the Warrants on a registration statement on Form S-1 (the “Registration Statement”) to be filed with the SEC within 30 calendar days following the Closing Date (the “Filing Deadline”) and to use its best efforts to cause the Registration Statement to be declared effective under the Securities Act within 90 calendar days following the Filing Deadline. The Registration Statement was declared effective prior to the Filing Deadline.

12 – WARRANTS AND FAIR VALUE MEASUREMENTS

Warrants

In connection with the promissory notes issued to Tonaquint on October 7, 2013 and October 17, 2013, the Company issued 350,000 and 175,000 warrants, respectively. As a result of the Series A Preferred Stock and warrant sale on November 12, 2013, the exercise price of both the 350,000 warrants and 175,000 warrants was reduced to $0.20 per share and an additional 525,000 warrants were issued to Tonaquint pursuant to full ratchet anti-dilution provisions.

On November 12, 2013 and in connection with the Series A Preferred Stock offering, the Company issued 27,000,000 warrants to investors and 1,890,000 warrants were issued as a fee to the placement agent all at an exercise price of $0.30 per share.

Warrant activity is as follows:

All warrants were issued with an exercise term of 5 years.

Warrants outstanding have a weighted average remaining contractual life of 4.36 years as of June 30, 2014.

Fair Value Measurements – Derivative liability:

The accounting guidance for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received forfrom selling an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in an orderly transaction between marketwhich it would transact business and considers assumptions that marketplace participants onwould use when pricing the measurement date. asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.

The accounting guidance establishedalso establishes a fair value hierarchy which requires an entity to maximize the usefor measurements of observable inputs, where available. This hierarchy prioritizes the inputs into three broad levelsfair value as follows. Level 1 inputs arefollows:

The carrying amount of the Company’s financial instruments approximates their fair value as of March 31, 2023 and December 31, 2022, due to the short-term nature of these instruments.

NOTE 3 – RELATED PARTY RECEIVABLE

On July 7, 2021, the company has entered into an agreement to purchase 100% of the Preferred A-1 Stock of Health Revenue Assurance Holdings, Inc. a SEC registered company for $5000,000. In March 2022, Health Revenue Assurance Holdings, Inc. name was changed to Ameriguard Security Services Inc. (AGSS). On December 9, 2022, we signed the definitive merger agreement initiating a reverse merger with AGSS, resulting in the Company becoming a 100% owned subsidiary of AGSS. Prior to the merger, the Company funded the operational expenses of AGSS and treated these expenses as related party expenses. These expenses we eliminated when the two companies were consolidated for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputsstatement presentation.

The receivable balances on March 31, 2023, and December 31, 2022, were $57,971. Related party receivables are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.eliminated upon consolidation.

HEALTH REVENUE ASSURANCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSNOTE 4 – FIXED ASSETS

JUNE 30, 2014 (UNAUDITED)

Assets and liabilities measured at fair value on a recurring and non-recurring basis consistedFixed assets consist of the following at:

The following is a summary of activity of Level 3 liabilities:

Changes in fair value of the warrant derivative liability are included in other income (expense) in the accompanying unaudited consolidated statements of operations.

The Company estimates the fair value of the warrant liability utilizing the Binomial Lattice model, which is dependent upon several variables such as the expected term (based on contractual term), expected volatility of our stock price over the expected term (based on historical volatility), expected risk-free interest rate over the expected term, and the expected dividend yield rate over the expected term. The Company also used the Black-Scholes pricing model as a comparison to the Binomial Lattice method and the results were similar. The Company believes this valuation methodology is appropriate for estimating the fair value of the warrant derivative liability. The following table summarizes the assumptions the Company utilized to estimate the fair value of the embedded conversion option:

There were no changes in the valuation techniques during 2014.

13 – CONCENTRATIONS

Sales to six hospitals represented approximately 54% of net sales for the six months ended June 30, 2014.

Four and three customers represented approximately 59% and 64% of the accounts receivable as of June 30, 2014March 31, 2023, and December 31, 2013 respectively.2022:

HEALTH REVENUE ASSURANCE HOLDINGS, INC.NOTE 5 – PAYROLL LIABILITY – PENSION

The company offers various pension plans to employee groups based on location of employment. Corporate office employees and guards have an option to participate in a 401K sponsored by the company with a matching program up to 5% of employee salary. Federal contracts have union agreements that define the pension calculation and due dates. It is the responsibility of the company to calculate the pension benefit amount each month and contribute the amount due to the plan designated. The pension balances due on March 31, 2023, and December 31, 2022, for all plans were $281,582 and $453,965 respectively.

NOTE 6 – NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSPAYABLE

JUNE 30, 2014 (UNAUDITED)

In June 2020, AmeriGuard Security Services, Inc. received an SBA Loan through Fresno First Bank in the amount of $1,080,000 that was used to close out the Citibank loan in the amount of $312,339 with the remaining balance after expenses held in reserve. The SBA loan is a 10-year loan with monthly principal and interest payments. Interest rate is variable at prime rate plus 2.75%, adjusted every calendar quarter. Interest rate on March 31, 2023, and December 31, 2022, was 10.75% and 9% respectively. Balance remaining on the SBA loan was $804,387 and $785,988 as of March 31, 2023, and December 31, 2022, respectively.

14 – RELATED PARTY TRANSACTIONS

In March 2013,On July 7, 2022, the Company entered into a contractbuyout agreement with ResumeBear, Inc. (“ResumeBear”)a shareholder Lillian Flores. The total buyout amount was $3,384,950 representing 45% of the calculated business value as of December 31, 2020. Following the initial payment of $686,990, the company agreed to make 4 equal instalments of principal and interest of $739,508 each December 31, starting 2023. Interest is calculated at a related party, to provide website development servicesfixed rate of 3.110% compounded semi-annually. The company has accrued interest on March 31, 2022, of $70,335. Balance remaining in the amount of $302,764. Mr. Peter Russo,$2,697,960.

The following schedule details the loans active as of March 31, 2023, and December 31, 2022:

NOTE 7 – STOCKHOLDERS’ EQUITY

From December 31, 2022, to March 31,2023 the only impact to equity was the net loss for the period of $442,996.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The company has a membermultiple vehicle lease agreement with Enterprise Leasing. As of March 31, 2023, the company had 19 vehicles under lease. The lease agreement includes maintenance services. The term of the Company’s board of directors,lease agreement varies based on the date vehicle were leased and the respective terms for each vehicle. The master lease is updated annually and requires annual internal financial reports and company tax return.

NOTE 9 – CONCENTRATION OF SALES

The company generated approximately $6,000,000 and $5,700,000 in guard service revenue for the chief executive officerthree-month ending March 31, 2023 and a director of ResumeBear. Mr. Michael Brainard, a member of2022 respectively. Of the Company’s board of directors, is also a director of ResumeBear. No revenues were recordedtotal guard service revenue, approximately 92% was earned from four federal contracts operated by the Company from ResumeBear for the six months ended June 30, 2014company. The contracts and 2013. In January 2014, the Company wrote-off approximately $108,000their respective terms are as follows:

NOTE 10 – LITIGATION AND CLAIMS

As of the account receivable with ResumeBear which is reflected in the December 31, 2013 consolidated financial statements as an allowance2022, there was one employment issue pending. The issue involves a terminated employee alleging discrimination and wrongful termination. A lawsuit has not been filed only a demand letter has been presented. Management has been working with the attorneys to find a reasonable settlement to this dispute without going to trial. After several months of $16,244discussion and a reductionnegotiation it appears that the complaint will be settled for $23,000. As of revenue of approximately $92,000. Due to cost overruns and product delivery issues relating primarily to a third party subcontractor, the Company estimates the cumulative total loss on this contract is approximately $220,200 through June 30, 2014, and $112,200 incurred for the six months ended June 30, 2014.

ResumeBear hired Dean Boyer, the Company’s former chief technology officer, as their chief technology officer in April 2014. (See Note 10 for severances due to former officers)

15 – SUBSEQUENT EVENTS

On JulyMarch 31, 2014, the Company’s Board of Directors, after consulting with its management and reorganization attorney, directed management to file a petition under Chapter 11 of the U.S. Bankruptcy Code subject to any change in2023, the final recommendation ofagreement was signed which pays out the reorganization attorney. On August 11, 2014, the Company’s wholly owned subsidiary and operating entity, Health Revenue Assurance Associates filed a petition for relief under Chapter 11 of the federal bankruptcy laws$23,000 settlement in the United States Bankruptcy Court for the Southern District of Florida. Under Chapter 11, certain claims against the Company in existence before the filing of the petition for relief under the federal bankruptcy lawsthree monthly installments starting May 15, 2023 Per Attorney letters received there are stayed while the Company continues business operations as debtor-in-possession. Additional claims (liabilities subject to compromise) may arise after the filing date resulting from rejection of executory contracts, including leases, and from determination by the court of allowed claims for contingencies andno other disputed amounts. Claims secured by the Company assets (secured claims) also are stayed, although the holders of such claims have the right to move the court for relief from stay.pending cases or legal matters.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Item 2. 2 contains forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond our control. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ, including those discussed in the sections entitled “Forward-Looking Statements” and “Risk Factors” included elsewhere in this Quarterly Report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the results of operations and financial condition of Health Revenue Assurance Holdings, Inc. for the six months ended June 30, 2014 and 2013, should be read in conjunction with the Health Revenue Assurance Holdings’ financial statements included in this Quarterly Report on Form 10-Q (the “Financial Statements”). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.

The following discussion of the Company’s financial condition and the notes to those financial statements that are includedresults of operations should be read in conjunction with the Financial Statements and footnotes thereto appearing elsewhere in this Quarterly Report. Our discussion includes

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements based upon current expectations that involve risks and uncertainties such as our plans, objectives,detailed herein and from time to time in the Company’s other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result ofare subject to a number of factors including those set forth under the Cautionary Notice Regarding Forward-Looking Statements in this Quarterly Report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “on going,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

Health Revenue is a provider of revenue cycle services to a broad range of healthcare providers. We offer our customers integrated solutions designed around their specific business needs, including revenue cycle data analysis, contract and outsourced coding, billing, coding and compliance audits, coding education, coding consulting, physician coding services and ICD-10 education and transition services. With this approach, our customers benefit from integrated service offerings that we believe enhances their revenue integrity. As a result, we believe we help our customers achieve their business objectives and patient care objectives.

Recent Developments

Certain significant items or events must be considered to better understand differences in our results of operations from period to period. We believe that the following item has had a material impact on our results of operations for the periods discussed below or may have a material impact on our results of operations in future periods.

ICD-10 Transition

In the short term, the main focus of our business will be with respect to the ICD-10 coding transition. In that regard, our potential clients are all hospitals and medical providers,uncertainties, which currently maintain coding personnel in some form that are primarily responsible for seeking reimbursement for patients’ procedures. The current system in place that drives the appropriate medical codes from hospitals/medical facilities to insurance companies is called ICD-9, which was implemented over 30 years ago.  Presently, ICD-10 is scheduled to take effect on October 1, 2015 as a result of April 2014 legislation, although that date could be extended by further legislation or by the HHS.

We believe the impacts to the ICD-10 delay will have minimal impacts on our near term coding staffing and consulting services and do not affect our ability to acquire long term coding outsourcing service contracts.  However, our customers may anticipate further delays and thereby delay their engaging us for consulting services.

Our Services

We provide the following categories of services to our customers either on a standalone basis or bundled within a comprehensive solution. Depending on a customer’s needs, we offer a mix of the following services as part of our solutions:

Coding Services

Coding services can be performed under short term or multi-year contracts in which we assume operational responsibility for various aspects of our customers’ coding operations, including departmental or physician specialty coding, staff augmentation, or full outsource of a hospital or physician group coding operation. In the outsource contracts we typically hire part or the entire customer’s coding staff that supported these functions prior to the transition of services. We then apply our coding expertise and operating methodologies and utilize technology to increase the efficiency of the operations, which usually results in increased coding quality at a lower cost.

Coding Consulting Services

Coding consulting services are typically performed under short term contracts in which we conduct billing and coding audits. In connection with such audits, we collect and analyze the clients’ clinical documentation, the coding applied, and reimbursements and provide recommendations for improvement.

Education Services

We offer various training and educational solutions to our customers including on-site training, coding boot camps, workshops, video training, and on demand webinars.

Our Contracts

Our contracts include services priced using a variety of pricing mechanisms. In determining how to price our services, we consider the delivery, credit and pricing risk of a business relationship.  Depending on a customer’s business requirements and the pricing structure of the contract, the amount of profit generated from a contract can vary significantly during a contract’s term. Fixed- or unit-priced contracts, or an outsourcing services contract will typically produce less profit at the beginning of the contract with significantly more profit being generated as efficiencies are realized later in the term. Time and materials contracts are where our billings are based on measurements such as hours, days or months and an agreed upon rate. In some cases, the rate the customer pays for a unit of time can vary over the term of contract, which may result in the customer realizing immediate savings at the beginning of a contract.

Change in Officers and Directors

On March 26, 2014, the Company notified Dean Boyer, its chief technology officer, that the Company was terminating his employment with the Company as well as that certain employment agreement with the Company dated October 1, 2013, as amended on November 13, 2013, effective March 31, 2014.

On April 2, 2014 and April 4, 2014, respectively, directors Mitchell D. Kaye and David Kroin resigned from the board of directors.

On April 15, 2014, the Company notified Joseph Brophy, its senior vice president of operations that the Company was terminating his employment with the Company as well as that certain letter agreement, dated December 5, 2012, both effective April 25, 2014.

On April 16, 2014, Tim Lankes resigned as the Chief Executive Officer and as a member of the board of directors. Mr. Lankes did not serve on any committees or hold any other positions in the Company.

On April 18, 2014, Mr. Evan McKeown resigned as Chief Financial and Accounting Officer of the Company.

On April 22, 2014, the board of directors of Health Revenue Assurance Holdings, Inc. appointed Mr. Todd Willis as its interim Chief Executive Officer.  Since October 2013, Mr. Willis has served as the Senior Vice President of the Company’s Coding Business Unit.

On April 29, 2014, the board of directors of Health Revenue Assurance Holdings, Inc. appointed Gina Hicks as its interim Chief Financial Officer.

On June 27, 2014, Ms. Andrea Clark-Rubinowitz resigned as a Chief Visionary Officer of Health Revenue Assurance Holdings, Inc.  Ms. Clark-Rubinowitz also resigned as a director of the Company.

On July 28, 2014, the three-month Employment Agreement entered into between the Company and Gina Hicks, the Company’s then interim Chief Financial Officer, expired.

Three months ended June 30, 2014 compared to June 30, 2013

Results of Operations

The following table presents a summary of operating information for the three months ended June 30, 2014 and 2013:

Revenue:

Revenue decreased by approximately $549,700 or 26.6%, from approximately $2,067,500 for the three months ended June 30, 2013 to approximately $1,517,800 for the three months ended June 30, 2014.  The decrease in revenue was due primarily to reductions in education and coding consulting services partially attributable the deceleration in the service demand due to the delay in the implementation of ICD-10 and lower utilization rates for coding services.

Cost of Revenues:

Cost of revenues decreased by approximately $93,000 or 9.5%, from approximately $975,600 for the three months ended June 30, 2013 to approximately $882,600 for the three months ended June 30, 2014. The decrease in cost was due primarily to decreased salaries resulting from a decrease in headcount and execution of cost savings initiatives which we began implementing at the end of April 2014.

Gross profit:

Gross profit decreased by approximately $456,700, or 41.8%, from approximately $1,091,800 for the three months ended June 30, 2013 to approximately $635,200 for the three months ended June 30, 2014.  The decrease in gross profit is primarily attributable to declines in education, consulting services, net of cost reduction resulting from the implementation of cost savings initiatives.

Selling and Administrative Expenses:

Selling and administrative expenses were approximately $1,861,000 for the three months ended June 30, 2014, a decrease of approximately $80,700 or 4.2%, from approximately $1,941,700 for the three months ended June 30, 2013.  The change in the 2014 period compared to the 2013 period was primarily due to:

The Company is currently conducting a cost reduction initiative to improve efficiencies, reduce costs, and streamline and focus its efforts on its profitable business services including strategic workforce reductions and consolidating its real estate facilities.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses were approximately $19,900 for the three months ended June 30, 2014, an increase of approximately $700, or 3.7%, from approximately $19,200 for the three months ended June 30, 2013. The decrease was primarily due to amortization for the Visualizer software product that was fully impaired in September 2013.

Interest Expense (included in other expenses, net):

Interest Expense was approximately $185,100 for the three months ended June 30, 2014, a decrease of approximately $43,600, from approximately $228,700 for the three months ended June 30, 2013. The decrease in interest expense is primarily to debt modifications and conversion to common stock which took place in the August 2013 resulting in decreased in interest paid on notes.

Change in Fair Value of Warrant Liability:

The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. We estimate the fair value of these warrants at the respective balance sheet dates, based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates and expected dividends and expected volatility of the price of the underlying common stock. For the three months ended June 30, 2014 approximately $3,420,900 gain in fair value of warrant liability was recorded attributable to re-measurement.  The resulting decrease in the warrant liability is primarily due to the decrease in the market value of the Company’s common stock from a closing price of $0.20 per share at March 31, 2014 to a closing price of $0.04 per share at June 30, 2014.

If the Company’s common stock closing price at September 30, 2014 or future periods is higher than the closing price at June 30, 2014, the Company may record a non-cash loss from change in fair value of warrant liability which may be material. Conversely, if the Company’s common stock closing price at June 30, 2014 is lower than the closing price at September 30, 2014 or future periods, the Company may record a non-cash gain from change in fair value of warrant liability which may be material.

Net Income (Loss):

As a result of the above factors, a net income of approximately $1,990,000 was recognized for the three months ended June 30, 2014 as compared to net loss of approximately $1,097,100 for the three months ended June 30, 2013, an increase of approximately $3,087,100 or over 280%.  The increase in net income is primarily attributable to the gain in fair value of warrant liability.

Six months ended June 30, 2014 compared to June 30, 2013

Results of Operations

The following table presents a summary of operating information for the six months ended June 30, 2014 and 2013:

Revenue:

Revenue decreased by approximately $828,900 or 19.6%, from approximately $4,224,100 for the six months ended June 31, 2013 to approximately $3,395,200 for the six months ended June 30, 2014.  The decrease in revenue was due primarily to reductions in education and coding consulting services partially attributable the deceleration in the service demand due to the delay in the implementation of ICD-10 and lower utilization rates for coding services.

Cost of Revenues:

Cost of revenues increased by approximately $61,400 or 3.1%, from approximately $1,960,900 for the six months ended June 30, 2013 to approximately $2,022,300 for the six months ended June 30, 2014. The increase in cost was due primarily to the salaries, training and related employee costs for hiring of additional experienced coding and audit/consulting service personnel to service the anticipated growth in contracts from the ICD-10 implementation net of decreases in salaries resulting from a decrease in headcount and accomplishment of cost savings initiatives made during the second quarter of 2014.

Gross profit:

Gross profit decreased by approximately $890,300, or 39.3%, from approximately $2,263,100 for the six months ended June 30, 2013 to approximately $1,372,800 for the six months ended June 30, 2014.  The decrease in gross profit is primarily attributable to declines in education, consulting services, and coding revenues and a net increase in employee costs.

Selling and Administrative Expenses:

Selling and administrative expenses were approximately $3,827,700 for the six months ended June 30, 2014, an increase of approximately $441,300 or 13.0%, from approximately $3,386,400 for the six months ended June 30, 2013.  The net change in the 2014 period compared to the 2013 period was primarily due to:

The Company is currently conducting a cost reduction initiative to improve efficiencies, reduce costs, and streamline and focus its efforts on its profitable business services including strategic workforce reductions and consolidating its real estate facilities.

Depreciation and Amortization Expenses:

Depreciation and amortization expenses were approximately $39,700 for the six months ended June 30, 2014, a decrease of approximately $4,900, or 11.0%, from approximately $44,600 for the six months ended June 30, 2013. The decrease was primarily due to amortization for the Visualizer software product that was fully impaired in September 2013.

Interest Expense (included in other expenses, net):

Interest Expense was approximately $374,300 for the six months ended June 30, 2014, an increase of approximately $9,600, from approximately $364,700 for the six months ended June 30, 2013. The increase in interest expense is primarily due to increase in interest paid on notes and finance charges related to the amortization of debt issue costs.

Change in Fair Value of Warrant Liability:

The warrants are subject to re-measurement at each balance sheet date, with any change in fair value recognized as a component of other income (expense), net in the statements of operations. We estimate the fair value of these warrants at the respective balance sheet dates, based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates and expected dividends and expected volatility of the price of the underlying common stock. For the six months ended June 30, 2014 approximately $4,722,700 gain in fair value of warrant liability was recorded attributable to re-measurement.  The resulting decrease in the warrant liability is primarily due to the decrease in the market value of the Company’s common stock from a closing price of $0.25 per share at December 31, 2013 to a closing price of $0.04 per share at June 30, 2014.

If the Company’s common stock closing price at September 30, 2014 or future periods is higher than the closing price at June 30, 2014, the Company may record a non-cash loss from change in fair value of warrant liability which may be material. Conversely, if the Company’s common stock closing price at September 30, 2014 or future periods is lower than the closing price at June 30, 2014, the Company may record a non-cash gain from change in fair value of warrant liability which may be material.

Net Income (loss):

As a result of the above factors, a net income of approximately $1,854,000 was recognized for the six months ended June 30, 2014 as compared to net loss of approximately $1,531,900 for the six months ended June 30, 2013, an increase of approximately $3,385,900 or over 220.0%.  The increase in net income is primarily attributable to the gain in fair value of warrant liability.

Liquidity and Capital Resources

Net cash used in operating activities was approximately $1,849,100 for the six months ended June 30, 2014 compared to $1,086,500 for the same period in 2013. For the six months ended June 30, 2014, net cash used  by operating activities consisted primarily of net income allocable to common stockholders of approximately $1,085,800 increased by non-cash adjustments of approximately $4,722,700 for the gain from change in fair market value of warrants offset by $689,900 of amortization of prepaid shares issued for services, $547,600 of accretion of series A redeemable convertible preferred stock redemption value differential, $220,600 of cumulative series a redeemable convertible preferred stock dividend, $203,300 of amortization of debt discount, $39,700 of depreciation and amortization, net loss on disposal of assets in the amount of $23,900 and $3,900 of net stock compensation expense.  Additionally, changes in working capital approximately of $5,900 decreased the net cash used in operating activities. For the six months ended June 30, 2013, net cash used by operating activities consisted primarily of net loss allocable to common stockholders of approximately $1,531,900 offset by non-cash adjustments of approximately $209,900 of amortization of debt discount, $44,600 depreciation, and $70,000 of shares issued for services, and $6,450 of bad debt expense.  Additionally, changes in working capital approximately $114,400 increased the net cash provided by operating activities.

Net cash used in investing activities was approximately $2,200 for the six months ended June 30, 2014 compared to $689,100 for the same period in 2013. Net cash used in investing activities for six months ended June 30, 2014 of approximately $2,200 was provided by disposal of furniture and computer equipment.  Net cash used in investing activities for the six months ended June 30, 2013 of approximately $689,100 represent the cost of internally developed software.

Net cash used in financing activities was approximately $423,900 for the six months ended June 30, 2014 compared to cash provided by financing activities of $1,053,300 for the same period in 2013. Net cash used by financing activities amounted to approximately $423,900 for the six months ended June 30, 2014, and relates to the repayment of debt obligations. Net cash provided by financing activities in the six months ended June 30, 2013, of approximately $1,053,300, is attributable to approximately $383,100, the proceeds from notes payable net of debt repayments, $618,000 issuance of common stock offset by $92,200 of settlement payments and net repayments on line of credit.

As of August 11, 2014, the Company had a cash balance of approximately $282,000.   As of August 11, 2014, the Company owed approximately $427,000 of notes payable due through February 2015, capital lease debt of approximately $39,800 due through 2016, mortgage debt of $171,100, and line of credit debt of $39,700.  As of August 11, 2014, the Company’s term loan balance was approximately $119,400, required monthly principal and interest payments of approximately $4,000, contains restrictive covenants prohibiting the granting any security interests or liens on the Company’s assets.  Under the Company’s automatically renewing factoring agreement it assigns the collection rights of its receivables to a finance company in exchange for an advance rate of 85% of face value.  (See Note 8 to our unaudited consolidated financial statements contained herein for factoring activity and related balances.)  Although the Company was current in its debt payments as of June 30, 2014, management believes the Company may be in default of certain non-financial covenants. Default provisions were likely triggered since the Company’s wholly owned operating subsidiary, Health Revenue Assurance Associates, Inc. filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of Florida on August 11, 2014, as described below. The Company has not been notified of any defaults.

Petition under Chapter 11 of the U.S. Bankruptcy Code.

On July 31, 2014, the Company’s Board of Directors, after consulting with its management and reorganization attorney, directed management to file a petition under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) subject to any change in the final recommendation of the reorganization attorney. On August 11, 2014 (the “Petition Date”), as described above, the Company’s wholly owned operating subsidiary, Health Revenue Assurance Associates Inc. (the “Company’s Subsidiary”), filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of Florida (the Bankruptcy Court”) as administered as Case No. 14-28030-RBR. The Company’s Subsidiary continues to operate its business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and orders of the Bankruptcy Court. Under Chapter 11, certain claims against the Company’s Subsidiary in existence before the filing of the petition for relief under the federal bankruptcy laws are stayed while the Company’s subsidiary continues business operations as debtor-in-possession. Additional claims (liabilities subject to compromise) may arise after the Petition Date resulting from rejection of executory contracts, including leases, and from determination by the Bankruptcy Court of allowed claims for contingencies and other disputed amounts. Claims secured by the Company’s Subsidiary assets (secured claims) also are stayed, although the holders of such claims have the right to move the Bankruptcy Court for relief from stay.

As part of the Chapter 11 Case and as discussed further below, the Company’s Subsidiary’s goal is to develop and implement a Chapter 11 plan that meets the standards for confirmation under the Bankruptcy Code. This includes a plan to either sell all or a portion of the Company’s Subsidiary’s assets pursuant to Section 363 of the Bankruptcy Code or to seek confirmation of a Chapter 11 reorganization plan providing for another arrangement. The confirmation of a Chapter 11 reorganization plan or a sale pursuant to Section 363 of the Bankruptcy code could materially alter the classifications and amounts reported in the accompanying unaudited consolidated financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a Chapter 11 plan or other arrangement or the effect of any operational changes that may be implemented.

Under Section 362 of the Bankruptcy Code, the filing of voluntary bankruptcy petitions by the Company’s Subsidiary automatically stayed most actions against the Company’s Subsidiary, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company’s Subsidiary property. Accordingly, although the Company defaulted on certain of the Company’s Subsidiary’s debt obligations, creditors are stayed from taking any actions as a result of such defaults. Absent an order of the Bankruptcy Court, substantially all of the Company’s Subsidiary’s pre-petition liabilities are subject to settlement under a reorganization plan or in connection with a Section 363 sale. As a result of the Bankruptcy Filing the realization of assets and the satisfaction of liabilities are subject to uncertainty. The Company’s Subsidiary, operating as debtor-in-possession under the Bankruptcy Code, may, subject to approval of the Bankruptcy Court, sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the accompanying unaudited consolidated financial statements. Further, a confirmed reorganization plan or other arrangement may materially change the amounts and classifications in the accompanying unaudited consolidated financial statements.

Subsequent to the Petition Date, the Company’s Subsidiary received approval from the Bankruptcy Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Company’s Subsidiary’s operations. These obligations related to certain employee wages, salaries and benefits, and the payment of vendors and other providers in the ordinary course for goods and services received after the Petition Date. The Company’s Subsidiary has retained, pursuant to Bankruptcy Court approval, legal and financial professionals to advise the Company’s Subsidiary in connection with the Bankruptcy Filing and certain other professionals to provide services and advice in the ordinary course of business. From time to time, the Company’s Subsidiary may seek Bankruptcy Court approval to retain additional professionals.

In order for the Company’s Subsidiary to emerge successfully from Chapter 11, the Company’s Subsidiary may determine that it is in the best interests of the Debtor’ estates to seek Bankruptcy Court approval of a sale of all or a portion of the Company’s Subsidiary’s assets pursuant to Section 363 of the Bankruptcy Code or seek confirmation of a reorganization plan providing for such a sale or other arrangement. The Company’s Subsidiary’s ability to obtain such approval and financing will depend on, among other things, the timing and outcome of various ongoing matters related to the Bankruptcy Filing. A Section 363 Sale or a reorganization plan determines the rights and satisfaction of claims of various creditors and security holders, and is subject to the ultimate outcome of negotiations and Bankruptcy Court decisions ongoing through the date on which the reorganization plan is confirmed.

The Company’s Subsidiary presently expects that any proposed reorganization plan or Section 363 Sale will provide, among other things, mechanisms for settlement of claims against the Debtor’ estates, treatment of the Company’s Subsidiary’s existing equity and debt holders, and certain corporate governance and administrative matters pertaining to the reorganized Company. Any proposed reorganization plan will be subject to revision prior to submission to the Bankruptcy Court based upon discussions with the Company’s Subsidiary’s creditors and other interested parties, and thereafter in response to creditor claims and objections and the requirements of the Bankruptcy Code or the Bankruptcy Court. There can be no assurance that the Company’s Subsidiary will be able to secure approval for the Company’s Subsidiary’s proposed reorganization plan from the Bankruptcy Court or that the Company’s Subsidiary’s proposed plan will be accepted by its lenders. In the event the Company’s Subsidiary does not secure approval of the reorganization plan, the outstanding principal and interest could become immediately due and payable.

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company’s Subsidiary will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s Subsidiary’s ability to continue as a going concern is contingent upon the Bankruptcy Court’s approval of the Company’s Subsidiary’s reorganization plan or Section 363 Sale and the Company’s Subsidiary’s ability to successfully implement the Company’s Subsidiary’s plan and obtain exit financing, among other factors. As a result of the Chapter 11 Case, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtor-in-possession under Chapter 11, the Company’s Subsidiary may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, for amounts other than those reflected in the accompanying unaudited consolidated financial statements. Further, the reorganization plan could materially change the amounts and classifications of assets and liabilities reported in the unaudited consolidated financial statements. The accompanying unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company’s Subsidiary be unable to continue as a going concern or as a consequence of the Chapter 11 Case.

Trends and Uncertainties

In 2014, we have encountered a series of resignations and other events, which may affect our future results of operations. In addition to the resignations in April of our former chief executive officer and chief financial officer, other employees resigned. Claims have been made for severance, which in at least three instances seem unwarranted. As of the date of this report, it is not feasible to quantify our exposure. We have been advised by our bankruptcy attorney that these claims for severance are subordinate to any secured creditor.

Going Concern

As of June 30, 2014, the Company had a working capital deficiency, stockholders’ deficit and accumulated deficit of approximately $443,000, $3,065,000, and $9,666,000, respectively, for the six months ended June 30, 2014, incurred a net operating loss of approximately $2,495,000, and has used net cash in operations of approximately $1,849,000. As of June 30, 2014, the Company has a cash balance of approximately $778,000. The Company had not been able to generate sufficient cash from operating activities to fund its on-going operations. There is no guarantee that the Company will be able to generate enough revenue and/or raise capital to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s future success is dependent upon its ability to achieve profitable operations and generate cash from operating activities, and upon additional financing.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, HRAA and Dream Reachers. All significant inter-company transactions and balances are eliminated in consolidation.

Allowance for doubtful accounts

Accounts receivable balances are subject to credit risk. Management has reserved for expected credit losses, sales returns and allowances, and discounts based upon past experience, as well as knowledge of current customer information. The Company believes that its reserves are adequate. It is possible, however, that the accuracy of our estimation process could be impacted by unforeseen circumstances. The Company continuously reviews its reserve balance and refines the estimates to reflect any changes in circumstances.

Software

Costs incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985   Costs of Software to Be Sold, Leased or Marketed.”   Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market and capitalization ceases after the general release of the software. Amortization of capitalized software development costs begins upon initial product shipment after general release. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six months) using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset.

Software maintenance costs are charged to expense as incurred. Expenditures for enhanced functionality are capitalized. The cost of the software and the related accumulated amortization are removed from the accounts upon retirement of the software with any resulting loss being recorded in operations.

Asset Impairment

At the end of September 2013, the Company re-evaluated the capitalized research and development costs for the Visualizer software suite of multiple offerings and the OMC Initiator after an evaluation based in part on the lack of cash flow and customer demand in ICD Visualizer after the general acceptance release date of July 15, 2013. In addition, the Company also considered its going concern opinion and cash liquidity concerns that restrain the ability to make capital investments in research and development to complete existing products in the pipeline as the available cash is needed to fund normal operating expenses. As a result of this evaluation, the Company recorded a loss of $946,931 that is presented as a line item entitled “asset impairment” on the consolidated statement of operations. The Company will continue to use the Visualizer suite of functionality as internally developed software to generate customized reports for revenue integrity auditing and compliance services but the Company no longer intends to market or sell internally developed software on a stand-alone basis.

Use of Estimates

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include valuation of accounts receivable, valuation of property and equipment, valuation of loss on assets held for sale, valuation and amortization period of software, valuation of beneficial conversion features in convertible debt, valuation of equity based instruments issued for other than cash, revenue recognition, and the valuation allowance on deferred tax assets.

Revenue Recognition

The Company recognizes medical coding audit services revenue based on the proportional performance method of recognizing revenue.

A portion of the Company’s revenue is generated from medical coding audit services. Auditing revenue is invoiced in accordance with the contract, generally at three benchmark time periods which coincide with when specific, obligatory field work services have been rendered and completed, the value of this portion of the contract price has been predetermined and agreed upon, and the client has received benefit or value in the form of the independent identification of system weaknesses and risk analysis. Further, collectability is reasonably assured due to the existence of a fixed fee contract and the size and financial health of the Company’s clients. Below is a description of the general benchmarks and work phases associated with the Company’s audit services:

A portion of the Company’s revenue is derived from consulting and coding services provided. Revenue from these revenue streams is recognized after services are performed based on the quoted and agreed upon fee contained in its contracts.

Arrangements with customers may involve multiple elements including software products, education products, training, software product maintenance, coding services, coding audit services and other consulting services. Training and maintenance on software products will generally occur after the software product sale. Other services may occur before or after the product sales and may not relate to the products. Revenue recognition for multiple element arrangements is as follows:

Each element is accounted for separately when each element has value to the customer on a standalone basis and there is Company specific objective evidence of selling price of each deliverable. For revenue arrangements with multiple deliverables, the Company allocates the total customer arrangement to the separate units of accounting based on their relative selling prices as determined by the price of the items when sold separately. Once the selling price is allocated, the revenue for each element is recognized using the general and specific criteria under GAAP as discussed above for elements sold in non-multiple element arrangements. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement are combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue is then determined for those combined deliverables as a single unit of accounting. The Company has historically sold its services with established rates, which it believes is Company specific objective evidence of selling price. For the new software products, management has established selling prices, which qualifies as Company specific objective evidence of selling price.

For our education products sold we have determined to account for the course materials and training components as one unit of accounting.  Accordingly, revenue is recognized for the single unit upon delivery of the training through our online webinars.

On July 15, 2013, the Company issued a general release for one of its products Visualizer. Software sales on a standalone basis will be recognized upon delivery of the software when evidence of the purchase arrangement exists and the price is determinable, and when collectability is reasonably assured. The Company will continue to use the Visualizer suite of functionality as internally developed software to generate customized reports for revenue integrity auditing and compliance services but the Company no longer intends to market or sell internally developed software on a stand-alone basis.

Recent Accounting Pronouncements

See Note 2 to our unaudited consolidated financial statements regarding recent accounting pronouncements.

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements including statements regarding liquidity and expectations from the filing of the Petition.

The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements.  We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.  

The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ materially from those, described in the forward-looking statementsstatements. These factors include, among others: (a) the filingCompany’s fluctuations in sales and operating results; (b) regulatory, competitive and contractual risks; (c) development risks; (d) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth, and (e) unknown litigation.

Corporate Structure

As previously mentioned, on December 9, 2022, AGSS executed a reverse merger with AmeriGuard resulting in AGSS becoming the sole owner of AmeriGuard. This merger establishes AGSS as a company operating a viable guard company with annual sales of approximately $24,000,000. It also is in the Petition distracting managementposition to access the capital market to generate the capital needed to begin its growth strategy of mergers and draining our cash. Further informationacquisitions within the security industry.

Prior to and after the merger AGSS has been working on our risk factors is containeddeveloping the leadership team needed. We have in place a CEO with 20 years of experience in our filingsindustry and who has been very successful in the government contracting market. Our CFO has over 35 years of business finance experience, the last 15 of which he has been focusing on organizational development consulting across multiple industries, and an Operations team on the east coast managing IT and our federal contracts. We have a Board of Directors with Wall Street and government security experience making us well positioned to aggressively grow the SEC, including our Annual Report on Form 10-K filed on April 15, 2014business.

Results of Operations for the three months ending March 31, 2023

Revenues and Cost of Goods Sold

The first quarter of 2023 experienced a 5.6% increase of approximately $325,000 in overall revenue over the previous year. The majority of which was from federal contracts and commercial services in the amount of approximately $288,000 and the Prospectus dated May 16, 2014. We undertake no obligation to publicly update or revise any forward-looking statements, whether asremaining increase from training revenue. The contract services revenue increase was the result of monthly fee increases within the four existing contracts operated during both quarters. As the costs of labor increases within the unionized contract so does the revenue. For the Commercial operations we saw a significant increase in demand for services, specifically our patrol services. Patrol services solve the problem of delayed police response. Our patrol officers respond to all alarms regardless of cause within 15 minutes of activation. This is a cost effect way for businesses to have protection without the high expense of a posted guard. This is an area of service we are continuing to expand.

Like other professional service industries most of the expense is direct labor and the expenses associated with that labor. We are not an exception. Our direct expenses average around 90% of revenues. Total cost of services increased approximately $232,300 in 2023 over 2022, and that increase is expected in relation to the revenue increase in 2023 as previously discussed.

Operating Expenses and Other Expense

Operation expenses, overhead expenses, increased in 2023 over 2022 by approximately $385,000. Nearly half of that increase, 42%, was in administrative salaries and related payroll expenses, of approximately $165,000. As part of the reverse merger preparations, we added to our administrative team a full-time CFO, an HR Management team and an Operations Management team along with the necessary support positions in payroll and accounting. We also experienced an increase in professional fees of approximately $70,000. These increases relate to the preparations for the merger and the following corporate expansion. We have established an administrative team with the capacity available to take the company to annual sales of $200 million and beyond.

The remaining increase in operations expenses varied between various expense accounts with both increases and decreases in total expense. Most of which were minor, yet the combined total is approximately $150,000. Some categories of expense that experienced some sizable increase were loan interest in the amount of $29,200, training expense in the amount of $64,000 to name two of the significant accounts.

At this time, our operating structure and current level of expense can handle several times more revenue with minor increases to our operating overhead expenses. This allows the entire gross profit of any new information,contract or company acquisition to go straight to the bottom line, providing a consistent return on investment.

Net (Loss) from Operations

Net loss in the first quarter of 2023 was approximately $441,000. An increase over the loss in 2022 of approximately $298,000. As previously mentioned, our operational structure that drives theses costs has excess capacity in anticipation of significant growth via new contracts or more specifically, company acquisitions. This allows additional revenue to go directly to our bottom line (see moving forward comments).

Liquidity and Capital Resources

The Company’s principal sources of liquidity include cash from operations and proceeds from long term debt financing. During the three months ending March 31, 2023, operations generated net decrease in cash of approximately $441,000 while cash used from general operations was approximately $344,000. The majority of the operational cash used was due to an increase in accounts receivable of approximately $138,000 and payments to pension liabilities of approximately $172,000. The net decrease in cash for period was approximately $783,000.

On March 31, 2023, the Company had cash on hand of $444,879, with total current assets of $2,619,095.

Moving Forward

During the past twenty-one months we have been working to get to where we are today. It has been difficult and expensive to get to this point of being a public company with the corporate structure, systems and team that can expand our business with increasing profitability. These costs have had a negative impact on our bottom line, yet we now in a position to execute our plans. Our current overhead expense structure has the capacity to manage ten times the revenues from one of two strategic sources. We are confident that our future eventsis profitable.

Our first source is to continue down our historical path of seeking out contracts that meet our sweet spot and bidding with hope of successful award. However, this path is time consuming and isn’t a guarantee of the growth we desire and is outside of our control.

Our second source of growth is merger and acquisition. Now that we have the capital market available to us and our industry is positioned for long term growth, now is the time. The security industry continues to grow in opportunity, and at the same there’s a lot of consolidation occurring. As a top tier company in the industry, we can be a company acquiring others and quickly triple our revenues with one or otherwise.two key acquisitions. After which we could see all the gross profit from those companies going directly to our bottom line. The returns would be quick and significant.

There are also acquisition opportunities in several other industries that fit our business model. Those include transportation, cyber security, private security, ammunition manufacturing, and surveillance to mention a few. At the March 23, 2023, board meeting, the board approved the acquisition of TransportUS Inc. A company valued at $3.72 million with 3 million shares issued to Lawrence Garcia, sole owner of the company. Shares will be issued in two phases. 1.5 million shares issued at close, with the remaining 1.5 million shares issued upon completion of a major contract renewal. We are very pleased to add this company to our family of companies and look forward to more acquisitions in 2023.

The Company has begun the process of our first equity raise to recover our expended working capital and position the Company for future acquisitions. We anticipate the equity raise to be completed in the third quarter.

Management is very positive regarding profitable operations for the next twelve months based on the following: