Loading...
Docoh

Cardiff Lexington (CDIX)

Filed: 17 Feb 22, 12:30pm

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

Commission File Number 000-49709

 

CARDIFF LEXINGTON CORP.

(Exact name of registrant as specified in its charter)

 

Florida84-1044583
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)

 

401 Las Olas Blvd., Unit 1400, Ft. Lauderdale, FL 33301

(Address of principal executive offices)

 

(844) 628-2100

(Registrant's telephone no., including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒          No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

Yes ☒          No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

 Large accelerated filer  oAccelerated filer  o
 Non-accelerated filer  oSmaller reporting company  ☒
 Emerging growth company  o 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No ☒

 

As of May 14, 2021, 115,297,797 shares of Common Stock, par value $0.001 per share, were issued and outstanding.

 

 

 

   

 

 

EXPLANATORY PARAGRAPH

 

Cardiff Lexington Corp. (“Cardiff” or the “Company”), is filing this Amendment No. 1 (the “2021 Form 10-Q/A”) to its Quarterly Report on Form 10-Q for the three months ended March 31, 2021 (the “2021 Form 10-Q”) originally filed with the U.S. Securities and Exchange Commission (“SEC”) on May 17, 2021. This Form 10-Q/A is being filed to restate its condensed financial statements as of and for the three months ended march 31, 2021 and the accompanying notes to the condensed financial statements included in the Amendment.

 

The restatement primarily relates to the accounting for (1) the valuation of embedded derivative liabilities in certain matured convertible notes and (2) the accounting treatment for changes in certain rights and privileges with respect to certain classes of preferred stock on January 10, 2020.

 

Although this Form amends and restates the original Form in its entirety, except for the information described above, this Form does not reflect events occurring after the filing of the original 2021 Form 10-Q and unless otherwise stated herein, the information contained in this Form is current only as of the date of the original filing. Except as noted herein, no other changes have been made to the original Form. Accordingly, this form should be read in conjunction with the Company’s filings made with the U.S. Securities and Exchange Commission subsequent to the filing of the original Forms. The sections of the original Forms affected by the restatement should no longer be relied upon.

 

In connection with the restatement, the Company’s management reassessed the effectiveness of its disclosure controls and procedures as of March 31, 2021. As a result of that reassessment, the Company’s management affirmed its earlier conclusion that its disclosure controls and procedures as of March 31, 2021 are ineffective.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1 

 

 

FORM 10-Q

 

CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS AND SCHEDULES

CARDIFF LEXINGTON CORP.

 

For the Quarter ended March 31, 2021

 

The following financial statements and schedules of the registrant are submitted herewith:

 

  Page
 
 PART I - FINANCIAL INFORMATION 
   
Item 1.Unaudited Condensed Consolidated Financial Statements:3
 Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020 (Audited)3
 Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2021 (unaudited) and for the Three Months ended March 31, 2020 (unaudited)5
 Condensed Consolidated Statement of Deficiency in Shareholders’ Equity for the Three Months ended March 31, 2021 and 2020 (unaudited)6
 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021 and 2020 (unaudited)7
 Notes to Condensed Consolidated Financial Statements9
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations29
Item 3Quantitative and Qualitative Disclosures about Market Risk33
Item 4.Controls and Procedures, Evaluation of Disclosure Controls and Procedures33
   
 PART II - OTHER INFORMATION 
   
Item 1.Legal Proceedings34
Item 1A.Risk Factors34
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds34
Item 3.Defaults Upon Senior Securities34
Item 5.Other Information34
Item 6.Exhibits34

 

 

 

 

 

 

 

 

 2 

 

 

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

 

CARDIFF LEXINGTON CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

 

  March 31, 2021  December 31, 2020 
  (Unaudited)  Audited 
  (Restated)  (Restated) 
ASSETS        
Current assets        
Cash $510,760  $279,311 
Accounts receivable-net  25,483   16,377 
Prepaid and other assets  6,510    
Total current assets  542,753   295,688 
         
Property and equipment, net of accumulated depreciation of $211,031 and $205,443, respectively  206,191   211,779 
Land  603,000   603,000 
Intangible assets, net  253,550   253,550 
Goodwill  3,499,963   3,499,963 
Deposits  13,600   13,600 
Right of use assets  42,081   52,567 
Total assets $5,161,138  $4,930,147 
         
LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY        
         
Current liabilities        
Accounts payable and accrued expense $704,934  $617,073 
Accrued expenses - related parties  2,195,057   2,196,222 
Accrued interest  423,402   722,815 
Right of use - liability  50,211   54,185 
Due to director & officer  126,849   126,849 
Deferred revenue  458,434   353,830 
Line of credit  50,211   51,927 
Common stock to be issued  785,196   222,000 
Notes payable  1,101,791   947,912 
Notes payable - related party  37,006   37,885 
Convertible notes payable, net of debt discounts of $292,864 and $108,321, respectively  1,682,170   2,476,647 
Net liabilities of discontinued operations  2,711,302   2,691,695 
Derivative liability  3,076,328   2,903,663 
Total current liabilities  13,402,891   13,402,703 
         
Other Liabilities        
Notes payable  476,169   399,778 
Total liabilities $13,879,060  $13,802,481 

 

 

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

 

 

 

 3 

 

 

CARDIFF LEXINGTON CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2021 AND DECEMBER 31, 2020

  

  March 31, 2021  December 31, 2020 
  (Unaudited)  Audited 
  (Restated)  (Restated) 
Deficiency in shareholders' equity        
Preferred stock        
Preferred Stock Series B- 3,000,000 shares authorized, par value $.001, stated value $4.00, 1,764,244 shares issued and outstanding at March 31, 2021 and December 31, 2020  7,056,977   7,056,977 
Preferred Stock Series C- 500 shares authorized, par value $.001, stated value $4.00, 122 shares issued and outstanding at March 31, 2021 and December 31, 2020  488   488 
Preferred Stock Series D- 800,000 shares authorized, par value $.001, stated value $4.00, 250,000 shares issued and outstanding at March 31, 2021 and December 31, 2020  1,000,000   1,000,000 
Preferred Stock Series E- 1,000,000 shares authorized, par value $.001, stated value $4.00, 150,750 shares issued and outstanding at March 31, 2021 and December 31, 2020  603,000   603,000 
Preferred Stock Series F- 800,000 shares authorized, par value $.001, stated value $4.00, 175,045 shares issued and outstanding at March 31, 2021 and December 31, 2020  700,180   700,180 
Preferred Stock Series F-1- 800,000 shares authorized, par value $.001, stated value $4.00, 35,752 shares issued and outstanding at March 31, 2021 and December 31, 2020  143,008   143,008 
Preferred Stock Series G- 20,000,000 shares authorized, par value $.001, stated value $4.00, 325,244 shares issued and outstanding March 31, 2021 and December 31, 2020  1,300,976   1,300,976 
Preferred Stock Series H- 4,859,379 shares authorized, par value $.001, stated value $4.00, 119,101 issued and outstanding at March 31, 2021 and December 31, 2020  476,404   476,404 
Preferred Stock Series I- 500,000,000 shares authorized, par value $.001, stated value $4.00, 194,885,000 and 195,010,000 shares issued and outstanding at March 31, 2021 and December 31, 2020  778,815,000   195,010 
Preferred Stock Series K- 10,937,500 shares authorized, par value of $.001, 8,200,562 shares issued and outstanding at March 31, 2021 and December 31, 2020  8,201   8,201 
Preferred Stock Series K1- 35,000,000 shares authorized, par value $.001, no shares issued and outstanding at March 31, 2021 and December 31, 2020      
Preferred Stock Series L- 100,000,000 shares authorized, par value $.001, stated value $4.00, 319,492 shares issued and outstanding at March 31, 2021 and December 31, 2020  1,277,972   1,277,972 
Preferred Stock Series R- 5,000 shares authorized, par value $.001, stated value of $1,200, 165 shares issued and outstanding at March 31, 2021 and December 31, 2020  198,000   198,000 
Common stock; 7,500,000,000 shares authorized with $0.001 par value; 109,994,821 and 5,268,797 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively  109,335   5,267 
Treasury stock; at cost, 294,101 shares of Series H Preferred stock at March 31, 2021 and December 31, 2020, respectively,  (2,365,864)  (2,365,864)
Additional paid-in capital  (730,689,182)  46,111,302 
Accumulated deficit  (67,352,294)  (65,583,255)
Total deficiency in shareholders' equity  (8,717,799)  (8,872,334)
Total liabilities and deficiency in shareholders' equity $5,161,138  $4,930,147 

 

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

 

 

 

 4 

 

 

CARDIFF LEXINGTON CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

 

  THREE MONTHS ENDED
MARCH 31,
 
  2021  2020 
  (Unaudited)  (Unaudited) 
  (Restated)  (Restated) 
REVENUE      
Rental income $38,979  $38,212 
Financial Services  892,947   922,514 
Total revenue  931,926   961,014 
         
COST OF SALES        
Rental business  40,167   36,821 
Financial Services  451,788   394,798 
Total cost of sales  491,955   431,610 
         
GROSS MARGIN  439,971   529,404 
         
OPERATING EXPENSES        
Depreciation expense  392   319 
Selling, general and administrative  815,426   763,030 
Total operating expenses  815,818   763,349 
         
INCOME (LOSS) FROM OPERATIONS  (375,847)  (233,954)
         
OTHER INCOME (EXPENSE)        
Other income  22,856    
Change in value of derivative liability  (552,039)  (3,738,099)
Interest expense  (121,001)  (76,093)
Conversion cost penalty and reimbursement  (8,000)  (4,000)
Amortization of debt discounts  (715,401)  (246,185)
Total other income (expenses)  (1,373,585)  (4,064,377)
         
NET LOSS BEFORE DISCONTINUED OPERATIONS  (1,749,432)  (4,298,331)
         
LOSS FROM DISCONTINUED OPERATIONS  (19,607)  (348,399)
         
NET LOSS FOR THE PERIOD $(1,769,039) $(4,646,730)
         
Deemed dividend - modification of preferred stock     (1,605,266)
         
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(1,769,039)  (6,251,996)
         
BASIC AND DILUTED LOSS PER SHARE        
Continuing Operations $(0.03) $(57.454)
Discontinued Operations $(0.00) $(3.39)
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES – BASIC AND DILUTED  56,243,481   102,762 

 

 

 

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

 

 

 

 5 

 

 

CARDIFF LEXINGTON CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN SHAREHOLDERS' EQUITY

FOR THE PERIOD ENDED MARCH 31, 2021 and 2020

 

 

 

  Preferred Stock Series
A, I, K, K-1
  Preferred Stock Series
B, D, E, F, F-1, G, H, L
  Preferred Stock, Series
C and R
 
 Shares  Amount  Shares  Amount  Shares  Amount 
Balance December 31, 2019 Audited (restated)  9,647,720  $9,648   197,989,528  $791,958,113   284  $198,480 
Issuance of preferred stock for services        21,000   84,000   1   4 
Issuance of common stock in exchange for preferred stock  (1,447,157)  (1,448)            
Issuance of preferred stock in exchange for common stock        119,101   476,404       
Distributions from an entity                    
Conversion of convertible notes payable                  
Reclassify derivative liabilities to Additional Paid in Capital                  
Net loss                  
Balance, March 31, 2020 (unaudited and restated)  8,200,563  $8,200   198,129,629  $792,518,517   285  $198,484 
                         
Balance, December 31, 2020 Audited (restated)  8,200,563  $8,201   198,149,629  $792,598,517   286  $198,488 
Conversion of convertible notes payable                  
Reclassify Derivative liabilities to Additional Paid in Capital                  
Issuance of Common Stock for preferred I shares        (306,250  (1,225,000)      
Net loss                  
Balance, March 31, 2021 (unaudited and restated)  8,200,563  $8,201   197,843,379  $791,373,517   286  $198,488 

 

 Treasury Stock Common Stock 

Additional

Paid-in

 Accumulated   
 Shares Amount Shares Amount in Capital Deficit Total 
               
Balance December 31, 2019 Audited (restated)  $  67,742 $68 $(736,334,503)$(62,558,509)$(6,726,704)
Issuance of preferred stock for services         (84,004)     
Issuance of common stock in exchange for preferred stock     3,500  4  1,444     
Issuance of preferred stock in exchange for common stock     (320) (1) (476,403)    
Distributions from an entity           (84,957) (84,957)
Conversion of convertible notes payable     65,324  65  129,457    129,522 
Reclassify derivative liabilities to Additional Paid in Capital         384,111    384,111 
Net loss           (4,646,731) (4,646,731)
Balance March 31, 2020 (unaudited and restated)  $  136,246 $136 $(736,295,894)$(67,290,197)$(10,944,749)
                      
Balance, December 31, 2020 Audited (restated) (294,101)$(2,365,864) 5,267,433 $5,267 $(733,733,688)$(65,583,255)$(8,872,334)
Conversion of convertible notes payable     54,068,024  54,068  584,690    638,758 
Reclassify Derivative liabilities to Additional Paid in Capital         1,024,373    1,024,373 
Issuance of Common Stock for preferred I shares     50,000,000  50,000  1,175,000     
Warrant issued with indebtedness       0  260,443    260,443 
Net loss           (1,769,039) (1,769,039)
Balance, March 31, 2021 (unaudited and restated) (294,101)$(2,365,864) 109,335,457 $109,335 $(730,689,182)$(67,352,294)$(8,717,799)

 

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

 

 

 

 

 6 

 

 

CARDIFF LEXINGTON CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(UNAUDITED)

 

  2021  2020 
   (Unaudited)   (Unaudited) 
   (Restated)   (Restated) 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net (Loss) for the period $(1,749,432) $(4,298,331)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:        
Depreciation  5,588   15,602 
Amortization of loan discount  454,958   246,185 
Warrant Amortization  260,443    
Change in value of derivative liability  552,039   

3,738,099

 
Conversion cost penalty  8,000   4,000 
(Increase) decrease in:        
Accounts receivable  (9,106)  (5,233)
Other assets     13,152 
Right of use - assets  10,486   (14,239)
Prepaids and other  (6,510)   
Due from related party     23,388 
Increase (decrease) in:        
Accounts payable & Accrued expense  93,481   6,724 
Accrued officers’ compensation  (1,165)  120,000 
Accrued interest  71,983   24,843 
Right of use - liabilities  (3,974)  (13,152)
Deferred revenue  104,258   93,486 
Net cash (used in) operating activities  (208,951)  (45,476)
         
Net cash provided by (used in) discontinued operations - operating activities     (29,072)

 

 

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

 

 

 

 7 

 

 

CARDIFF LEXINGTON CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(UNAUDITED)

 

  2021  2020 
Cash Flows From Investing Activities      
         
FINANCING ACTIVITIES        
Proceeds from convertible notes payable  103,500   150,000 
Repayment of convertible notes payable  (6,876)  (10,632)
Proceeds from notes payable - related party     26,960 
Proceed from SBA loan  345,269    
Repayments of note payable     (4,534)
Due to director and officer     (4,500)
Proceeds from credit line     1,294 
Repayment of credit line  (1,493)   
Distributions     (84,957)
Net cash provided by financing activities  440,400   73,631 
         
NET INCREASE IN CASH AND CASH EQUIVALENTS  231,499   (917)
         
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  279,311   100,777 
         
CASH AND CASH EQUIVALENTS, END OF PERIOD $510,760  $99,860 
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION        
Cash paid during the period for:        
Interest $23,537  $20,580 
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Common stock issued upon conversion of notes payable and accrued interest $638,758  $129,522 
Derivative liability settled upon conversion $1,012,012  $384,111 
Debt discount from derivative liabilities $645,000  $231,000 

 

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

 

 

 

 8 

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Nature of Operations

 

Legacy Card Company, LLC (“Legacy”) was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff Lexington Corp. (“Cardiff Lexington”, the “Company”), a publicly held corporation. On April 13, 2021 Cardiff Lexington Corporation converted from a Florida Corporation to a Nevada Corporation.

 

In the first quarter of 2013, it was decided to restructure Cardiff Lexington into a holding company that adopted a new business model known as "Collaborative Governance," a form of governance enabling businesses to take advantage of the potential access to capital markets provided by affiliation with a publicly-traded company. Cardiff Lexington began targeting the acquisition of niche companies with high growth potential. The reason for this strategy was to protect the Company’s shareholders by acquiring businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors.

 

Description of Business

 

Cardiff Lexington consists of the following wholly owned subsidiaries:

 

We Three, LLC dba Affordable Housing Initiative (“AHI”), acquired May 15, 2014

Romeo’s Alpharetta, LLC dba Romeo’s NY Pizza (“Romeo’s Pizza”), acquired June 30, 2014; Sold July 1, 2020.

Edge View Properties, Inc., (“Edge View”) acquired July 16, 2014

Repicci’s Franchise Group, LLC (“Repicci’s Group”), acquired August 10, 2016; Sold June 1, 2020.

Platinum Tax Defenders, LLC (“Platinum Tax”), acquired July 31, 2018

JM Enterprises 1, Inc. dba Key Tax Group (“Key Tax”), acquired May 8, 2019

Red Rock Travel Group, LLC (“Red Rock”), acquired July 31, 2018, discontinued May 31, 2019

 

Basis of Presentation and Principles of Consolidation

 

The accompanying September 30, 2020 interim condensed consolidated financial statements (“financial statements”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated financial statements included herein. These statements should be read in conjunction with the audited condensed consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the periods presented are not necessarily indicative of results to be expected for the full fiscal year or any other periods.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management uses its historical records and knowledge of its business in making estimates. Accordingly, actual results could differ from those estimates.

 

 

 

 9 

 

 

Change in Capital Structure

 

In the first quarter of 2019, the Company executed a reverse stock split of 1,500:1 of Common Stock effective December 31, 2018.

 

In the first quarter of 2020, the Company announced a reverse split of several of its Preferred Stock Classes effective December 31, 2019.

 

In May 2020, the Company affected a 10,000:1 reverse split of Common Stock effective March 31, 2020.

 

Subsequent to March 31, 2021, the Company completed a change in domicile from a Florida corporation to a Nevada Corporation.

 

 

COVID-19 Pandemic

 

The outbreak of a novel coronavirus throughout the world, including the United States, during early calendar year 2020 has caused widespread business and economic disruption through mandated and voluntary business closings and restrictions on the movement and activities of people (“COVID-19 Pandemic”). The extent of the impact of the COVID-19 Pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the COVID-19 Pandemic is rapidly evolving in many countries, including the United States and other markets where the Company operates. It is expected that many of the Company's customers and suppliers could be impacted by these closings and restrictions which could materially and adversely affect demand for our products, our ability to obtain or deliver inventory or services, and our ability to collect accounts receivables as customers face higher liquidity and solvency risk. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 Pandemic, and it is possible that it could cause an economic downturn, recession, or depression. Such economic disruption could have a material adverse effect on our business. Policymakers around the world have responded with fiscal and monetary policy actions to support the economy. The magnitude and overall effectiveness of these actions remains uncertain.

 

Revenue Recognition

 

On January 1, 2018, we adopted ASC 606, Revenue from contracts with customers (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

 

The Company applies a five-step approach in determining the amount and timing of revenue to be recognized:

 

 (1)identifying the contract with a customer,

 

 (2)identifying the performance obligations in the contract,

 

 (3)determining the transaction price,

 

 (4)allocating the transaction price to the performance obligations in the contract and

 

 (5)recognizing revenue when the performance obligation is satisfied.

 

Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer.

 

Our tax services subsidiaries receive payments in advance of service and are recorded as deferred revenue. Revenues are recognized as services are provided.

 

 

 

 10 

 

 

Rental Income

 

The Company’s rent revenue is derived from the mobile home leases. The expired leases are considered month-to-month leases. In accordance with section 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition, the cost of property held for leasing by major classes of property according to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. There are no contingent rentals included in income in the accompanying statements of operations. With the exception of the month-to-month leases, revenue was recognized on a straight-line basis and amortized into income on a monthly basis, over the lease term.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company has no cash equivalents.

 

Accounts Receivable

 

Accounts receivable is reported on the balance sheet at gross amounts due to the Company. Management closely monitors outstanding accounts receivable and charges off to expense any balances that are determined to be uncollectible which was $0 and $21,870 as of March 31, 2021 and December 31, 2020, respectfully. As of March 31, 2021 and December 31, 2020, the Company had accounts receivable of $25,483 and $16,377, respectively. Accounts receivables are primarily generated from our subsidiaries in their normal course of business.

 

Property, Equipment and Leasehold Improvements

 

Property, equipment, and leasehold improvements are carried at cost. Expenditures for renewals and betterments that extend the useful lives of property, equipment or leasehold improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method for financial reporting purposes based on the following estimated useful lives:

 

ClassificationUseful Life
Equipment, furniture, and fixtures5 - 7 years
Leasehold improvements10 years or lease term, if shorter

  

Goodwill and Other Intangible Assets

 

Goodwill and indefinite-lived brands are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment testing of goodwill is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. During quarters ended March 31, 2021 and 2020, the company did not recognize any goodwill impairment. The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors.

 

Valuation of long-lived assets

 

In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

 

 

 

 11 

 

 

Valuation of Derivative Instruments

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-10, Derivatives and Hedging (“ASC 815-10”), requires that embedded derivative instruments be bifurcated and assessed, along with freestanding derivative instruments such as convertible promissory notes, on their issuance date to determine whether they would be considered a derivative liability and measured at their fair value for accounting purposes. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option based simple derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.

 

Beneficial Conversion Feature

 

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) discount against the face amount of the respective debt instrument (offset to additional paid in capital).

 

When the Company records a BCF which is not a conventional convertible, the fair value of the BCF is recorded as a derivative liability with an offset against the face amount of the respective debt instrument which is amortized to interest expense over the term of the debt.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

  

Level Input Definition

 

Level 1Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

 

Level 2Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date.

 

Level 3Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

 

 

 

 12 

 

 

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2021 and December 31, 2020. Refer to Note 2.

 

  Level 1  Level 2  Level 3  Total 
Fair Value of BCF Derivative Liability – March 31, 2021 $  $  $3,076,328  $3,076,328 

 

  Level 1  Level 2  Level 3  Total 
Fair Value of BCF Derivative Liability – December 31, 2020 $  $  $2,903,663  $2,903,663 

 

Stock-Based Compensation

 

The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

 

The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

 

Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.

 

The expense resulting from share-based payments is recorded in general and administrative expense in the condensed consolidated statements of operations.

  

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company early adopted ASU No 2018-07 for equity instruments issued to parties other than employees.

 

Income Taxes

 

Income taxes are determined in accordance with ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

 

For the periods ended March 31, 2021 and December 31, 2020, the Company did not have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain tax positions.

 

 

 

 13 

 

 

Loss per Share

 

FASB ASC Subtopic 260, Earnings Per Share (“ASC 260”), provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common shares. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The Company has sustained operating losses since its inception and has negative working capital and an accumulated deficit. These factors raise substantial doubts about the Company’s ability to continue as a going concern. As of March 31, 2021, the Company has sustained recurring losses and accumulated a working capital deficit of approximately $12 million. The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.

 

The ability of the Company to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. Management has prospective investors and believes the raising of capital will allow the Company to fund its cash flow shortfalls and pursue new acquisitions. There can be no assurance that the Company will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to it. Should the Company be unable to raise sufficient funds, it may be required to curtail its operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future. Should the Company not be able to raise sufficient funds, it may cause cessation of operations.

 

Accounting Pronouncements

 

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the Company’s financial position, results of operations or cash flows.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform with the current year presentation.

 

2.RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

Subsequent to the initial issuance of the Company's 2020 financial statements on March 31, 2021, management reconsidered the methodology previously applied in its valuation of derivative liabilities contained in its matured convertible notes which are in default, to include all inputs to measure the time value component to the application of the Black-Scholes Model. In addition, management also discovered that it did not reflect the impact of amendments which resulted in modifications in certain rights and privileges for certain classes of its preferred stock, which should have been accounted for as a deemed dividend at the time of modification.

 

 

 

 

 14 

 

 

The restatement primarily relates to the accounting for the valuation of embedded derivative liabilities for certain convertible notes in default containing embedded derivatives (the "Notes"), the Company originally valued the derivative liability using a Black-Scholes Model, but without consideration to a time value component (the term, volatility, or discount rates), because these notes had matured and were immediately due. As a result, the embedded derivatives for expired notes were measured using a valuation methodology which was analogous to the use of intrinsic value. Company management has reconsidered the methodology previously applied, and determined that the use of all inputs to the Black-Scholes Model is more appropriate in the determination to measure the fair value of all derivative liabilities.

 

The following table summarizes the impacts of the error corrections on the Company's financial statements for each of the periods presented below:

 

 

  Impact of correction of error 
December 31, 2020 (Audited) As previously reported  Adjustments  As restated 
          
Total assets $4,930,147  $  $4,930,147 
             
Derivative liability  2,405,358   498,305   2,903,663 
Net, liabilities of discontinued operations  2,441,965   249,730   2,691,695 
Other  8,207,123      8,207,123 
Total liabilities  13,054,446   748,035   13,802,481 
             
Accumulated deficit  (64,835,220)  (748,035)  (65,583,255)
Others  56,710,921      56,710,921 
Total deficiency in shareholders' equity $(8,124,299) $(748,035) $(8,872,334)

 

  Impact of correction of error 
March 31, 2021 (Unaudited) As previously reported  Adjustments  As restated 
          
Total assets $5,161,138  $  $5,161,138 
             
Derivative liability  2,402,858   673,470   3,076,328 
Net, liabilities of discontinued operations  2,466,063   245,239   2,711,302 
Other  8,091,307      8,091,307 
Total liabilities  12,960,228   918,709   13,878,937 
             
Accumulated deficit  (66,433,585)  (918,709)  (67,352,294)
Others  58,634,495      58,634,495 
Total deficiency in shareholders' equity $(7,799,090) $(918,709) $(8,717,799)

 

 

 

 15 

 

 

  Impact of correction of error - quarter 
Quarter ended March 31, 2020 (Unaudited) As previously reported  Adjustments  As restated 
          
Loss from operations $(233,954) $  $(233,954)
Change in value of derivative liability  (4,467,534)  729,435   (3,738,099)
Others  (326,279)     (326,279)
Other income (expense)  (4,793,813)  729,435   (4,064,378)
Net loss before discontinued operations  (5,027,767)  729,435   (4,298,332)
Loss from discontinued operations  (548,002)  199,603   (348,399)
Gain from discontinued operations         
Loss from discontinued operations  (548,002)  199,603   (348,399)
Net loss  (5,575,769)  929,038   (4,646,731)
Deemed dividend on preferred stock     (1,605,266)  (1,605,266)
Net loss attributable to common stockholders $(5,575,769) $(676,228) $(6,251,997)
Basic and Diluted Earnings (loss) per Share            
Continued Operations $(49.17)     $(57.45)
Discontinued Operations $(5.09)     $(3.39)
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share            
Continued Operations  102,762       102,762 
Discontinued Operations  102,762       102,762 

 

  Impact of correction of error - quarter 
Quarter ended March 31, 2021 (Unaudited) As previously reported  Adjustments  As restated 
          
Loss from operations $(375,847) $  $(375,847)
Change in value of derivative liability  (376,874)  (175,165)  (552,039)
Others  (821,546)     (821,546)
Other income (expense)  (1,198,420)  (175,165)  (1,373,585)
Net loss before discontinued operations  (1,574,267)  (175,165)  (1,749,432)
Loss from discontinued operations  (24,098)  4,491   (19,607)
Net loss $(1,598,365) $(170,674) $(1,769,039)
Basic and Diluted Earnings (loss) per Share            
Continued Operations $(0.03)     $(0.03)
Discontinued Operations $      $(0.00)
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share            
Continued Operations  56,243,481       56,243,481 
Discontinued Operations  56,243,481       56,243,481 

 

 

 

 

 16 

 

 

3.ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

  

March 31,

2021

  

December 31,

2020

 
Accounts payable $189,207  $119,653 
Accrued credit cards  29,093   28,548 
Accrued income, payroll and other taxes  280,528   282,798 
Accrued advertising  104,985   75,963 
Accrued payroll  18,233   27,569 
Accrued expenses other  82,542   82,542 
Total $704,588  $617,073 

 

The Company is delinquent filing and paying income taxes. As of March 31, 2021 and December 31, 2020, the balance due for these taxes is $280,528 and $282,798, respectively, as shown in the table above.

 

4.PROPERTY AND EQUIPMENT, NET

 

Property and equipment as of March 31, 2021 and December 31, 2020 is as following:

 

  

March 31,

2021

  

December 31,

2020

 
Residential housing $341,205  $341,205 
Furniture, fixture and equipment  76,017   76,017 
         
Total  417,222   417,222 
Less: accumulated depreciation  (211,031)  (205,443)
Property and equipment, net $206,191  $211,779 

 

For the three months ended March 31, 2021 and 2020, depreciation expense was $392 and $319, respectively.

 

5.LAND

 

As of March 31, 2021 and December 31, 2020, the Company had land of $603,000 located in Salmon, Idaho with area of approximately 30 acres, which was in connection with the acquisition of Edge View Properties, Inc. in July 2014. We issued 241,199 shares of Series E Preferred Stock as consideration for this acquisition. The land is currently vacant and is expected to be developed into a residential community.

 

 

 

 17 

 

 

6.LINE OF CREDIT

 

At March 31, 2021 and December 31, 2020, the Company had a revolving line of credit with a financial institution for $92,500 which accrues interest at prime plus 3.45%, which was 6.7% at both March 31, 2021 and December 31, 2020. As of March 31, 2021 and December 31, 2020, the Company had balance of $50,434 and $51,927, respectively.

 

7.RELATED PARTY TRANSACTIONS

 

The Company has entered into several unsecured loan agreements with related parties.

 

The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive granted in 2020 to the Chief Executive Officer based on his employment agreement since July 1, 2020. The Company previously paid the Chief Executive Officer $300,000 per year. The total outstanding accrued compensation as of March 31, 2021 and December 31, 2020 were $1,065,000 and $1,020,000, respectively.

 

The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive to the Chairman of the Board based on his employment agreement since July 1, 2020. The Company previously paid the Chairman of the Board $300,000 per year. The total outstanding accrued compensation as of March 31, 2021 and December 31, 2020 were $1,050,000 and $1,035,000, respectively.

 

The Company agreed to pay $120,000 per year to the Chief Operating Officer based on his amended employment agreement executed on May 15, 2019. The total outstanding accrued compensation as of March 31, 2021 and December 31, 2020 were $30,000 and $120,000, respectively.

 

The Company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of March 31, 2021 and December 31, 2020, the Company owed the Chairman $126,849.

 

7.NOTES AND LOANS PAYABLE

 

Notes payable at March 31, 2021 and December 31, 2020 are summarized as follows:

    
  March 31, 2021  December 31, 2020 
Notes and Loans Payable - Unrelated parties $1,577,959  $1,347,690 
Notes and Loans Payable - Related party  37,006   37,885 
Total  1,614,965   1,385,575 
Less current portion  1,138,796   947,912 
Long-term portion $476,169  $437,663 

 

Long-term debt matures as follows:

  Amount 
2022 $1,138,796 
2023  177,231 
2024  29,118 
2025  9,993 
2026  9,993 
Thereafter  249,833 
Total $1,614,964 

 

 

 

 18 

 

 

Notes and Loans Payable – Related Party

 

The Company assumed notes payable from the previous owners of which are currently managers of Key Tax related to the acquisition of Key Tax on May 8, 2019. The notes are due on demand and do not bear interest. The balance of these notes are $35,435 and $35,164 at March 31, 2021 and December 31, 2020. From time to time, the previous owner which is currently the manager of Platinum Tax Defenders loans funds to the Company to cover short term operating needs. Amounts owed as of March 31, 2021 and December 31, 2020 were $1,942 and $2,721, respectively.

 

Loans and Notes Payable – Unrelated Parties

 

On March 12, 2009, the Company entered into a preferred debenture agreement for $20,000. The note bore interest at 12% per year and matured on September 12, 2009. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. No warrants had been exercised before the expiration. The balance of the note was $10,989 at March 31, 2021 and December 31, 2020. The accrued interest of the note was $3,916 and $3,591 at March 31, 2021 and December 31, 2020, respectively.

 

On September 7, 2011, the Company entered into a Promissory Note agreement for $50,000. The note bore interest at 8% per year and matured on September 7, 2016. Effective March 29, 2021, the principal balance of $50,000 and accrued interest of $37,282 were converted into shares of preferred stock. See footnote 10, Capital Stock. The balance of the note was -0- at March 31, 2021 and $50,000 December 31, 2020. The accrued interest of the note was -0- and $37,822 at March 31, 2021 and December 31, respectively.

 

On November 17, 2011, the Company entered into a Promissory Note agreement for $50,000. The note bore interest at 8% per year and matured on November 17, 2016. Effective March 29, 2021, the principal balance of $50,000 and accrued interest of $36,505 were converted into shares of preferred stock. See footnote 10, Capital Stock. The balance of the note was -0- at March 31, 2021 and $50,000 December 31, 2020. The accrued interest of the note was -0- and $36,505 March 31, 2021 and December 31, 2020, respectively.

 

On March 11, 2009, the Company entered into a Promissory Note agreement for $15,000. The note bore interest at 12% per year and matured on April 29, 2014. Effective March 29, 2021, the principal balance of $15,000 and accrued interest of $1,800 were converted into shares of preferred stock. See footnote 10, Capital Stock. The balance of the note was -0- at March 31, 2021 and $15,000 at December 31, 2020. The accrued interest of the note was -0- and $1,800 at March 31, 2021 and December 31, 2020, respectively.

 

On September 9, 2019, the Company obtained a promissory note for $410,000 at 10% interest and matured on September 9, 2020. On November 10, 2020, the Company entered into an extension on the note until December 31, 2020. The balance of the note, was $410,000 at March 31, 2021 and December 31, 2020, respectively. The accrued interest of the note was $63,803 and $53,693 at March 31, 2021 and December 31, 2020, respectively.

 

The Company obtained short-term loans from unsecured sources. These short-term loans are due on demand and accrue interest at 18%. These short-term loans were $102,991 and $104,772 at March 31, 2021 and December 31, 2020, respectively. The accrued interest of these short-term loans was $53,559 and $48,909 March 31, 2021 and December 31, 2020, respectively.

 

On March 31, 2021, the remaining balance of principal and accrued interest from two Promissory Notes entered on September 7, 2011 and November 17, 2011, in the amount of $115,000 and $75,587, respectively, were converted into 140,799 Preferred Stock Series “B”. As of March 31, 2021, the outstanding balances of promissory note and the related accrued interest were both $0.

 

Paycheck Protection Program (“PPP”) Loans

 

On April 14, 2020, the Company obtained a PPP loan of $127,400 at an interest rate of 1% with a maturity date of April 14, 2022. This loan has not been forgiven as part of the 2020 US Federal government Coronavirus Aid, Relief and Economic Security Act. The balance and accrued interest at March 31, 2021 was $127,400 and $2,797 respectively.

 

On May 8, 2020, the Company obtained a PPP loan of $257,500 at an interest rate of 1% with a maturity date of May 8, 2022. This loan has not been forgiven as part of the 2020 US Federal government Coronavirus Aid, Relief and Economic Security Act. The balance and accrued interest at March 31, 2021 was $257,500 and $2,339, respectively.

 

On February 19, 2021, the Company obtained a PPP loan of $229,500 at an interest rate of 1% with a maturity date of February 19, 2023. This loan has not been forgiven as part of the 2021 US Federal government Coronavirus Aid, Relief and Economic Security Act. The balance and accrued interest at March 31, 2021 was $229,500 and $0, respectively.

 

 

 

 19 

 

 

On February 23, 2021, the Company obtained a PPP loan of $117,550 at an interest rate of 1% with a maturity date of February 23, 2023. This loan has not been forgiven as part of the 2021 US Federal government Coronavirus Aid, Relief and Economic Security Act. The balance and accrued interest at March 31, 2021 was $117,550 and $0, respectively.

 

As of March 31, 2021, the PPP loans have not been forgiven by the Security Act. Each of the PPP loans may be eligible for forgiveness of some or all of the outstanding balance. The likelihood of forgiveness is undetermined.

 

Small Business Administration (“SBA”) Loans

 

On June 2, 2020, The Company obtained an SBA loan of $150,000 at an interest rate of 3.75% with a maturity date of June 2, 2050. The balance and accrued interest at March 31, 2021 was $149,900 and $4,716, respectively.

 

On April 12, and June 16, 2020, the Company obtained an SBA grants of $20,000 and mature in one year from advance, if not forgiven. The balances and accrued interest at March 31, 2021 was $20,000 and $876, respectively.

 

On October 7, 2020, the Company obtained an SBA loan of $150,000 at an interest rate of 3.5% with a maturity date of October 7, 2050. The balance and accrued interest at March 31, 2021 was $149,900 and $1,326, respectively.

 

9.CONVERTIBLE NOTES PAYABLE

 

Some of the Convertible Notes issued as described below included anti-dilution provisions that allowed for the adjustment of the conversion price. The Company considered the guidance provided by the FASB in “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” the result of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that, as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were not fixed amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith are not considered indexed to the Company’s stock and characterized the value of the conversion feature of such notes as derivative liabilities.

 

As of March 31, 2021 and December 31, 2020, the Company had proceeds of $103,500 and $865,500 from convertible notes, repaid $7,675 and $27,106 to convertible noteholders resulting in balances due to convertible note holders of $1,975,034 and $2,476,647, as of March 31, 2021 and December 31, 2020, respectively, net of debt discounts. The following amounts reflect debt discount of $292,864 and $108,320 as of March 31, 2021 and December 31, 2020, respectively. For the three months ending March 31, 2021 and 2020, respectively, the Company recorded amortization of debt discounts of $454,958 and $246,185 during the quarters ending March 31, 2021 and 2020, respectively.

 

During the three months ended March 31, 2021, the Company converted $555,558 of convertible debt, $75,200 in accrued interest and $8,000 penalties and fees into 54,068,024 shares of the company’s Common Stock. During the three months ended March 31, 2020, the Company converted $100,203 of convertible debt, $25,319 in accrued interest and $4,000 penalties and fees into 65,324 shares (post reverse split of 10,000:1) of the company’s Common Stock.

 

Convertible notes at March 31, 2021 and December 31, 2020 are summarized as follows:

 

  March 31, 2021  December 31, 2020 
Convertible notes payable - unrelated party $1,975,035  $2,584,967 
Discounts on convertible notes payable  (292,864)  (108,320)
Total convertible debt less debt discount  1,682,171   2,476,647 
Current portion  1,682,171   2,476,647 
Long-term portion $  $ 

 

 20 

 

 

The following is a schedule of convertible notes payable from December 31, 2020 to March 31, 2021.

 

Note # Issuance Maturity Principal Balance 12/31/20 New Loan Cash Paydown  Principal Conversions  Shares Issued Upon Conversion  Principal Balance 3/31/21  Accrued Interest on Convertible Debt at 12/31/20  Interest Expense On Convertible Debt For the Period Ended 3/31/21  Accrued Interest on Convertible Debt at 3/31/21  Unamortized Debt Discount At 3/31/21 
1  8/21/2008 8/21/2009 $150,000 $ $  $(150,000)  140,799  $  $225,800  $  $  $ 
7  2/9/2016 On demand  8,485             8,485   4,430   418   4,849    
7-1  10/28/2016 10/28/2017  25,000             25,000   23,119   1,233   24,353    
9  9/12/2016 9/12/2017  80,000          5,130,000   80,000   64,701   3,945   32,737    
10  1/24/2017 1/24/2018  55,000       (42,354)  4,714,626   12,646   42,134   1,863   25,926    
11-1  2/21/2017 2/21/2018                        (480)    
11-2  3/16/2017 3/16/2018  21,345       (4,000)     17,345   4,433   855   5,288    
13-2  7/24/2018 1/24/2019  43,961             43,961   1,525   1,951   3,476    
22  7/10/2018 1/10/2021  838,433    (7,675)        830,759   49,023   23,537   72,560   24,300 
22-1  2/20/2019 1/10/2021  61,704             61,704   13,754   3,642   17,406    
22-3  4/10/2019 1/10/2021  56,095             56,095   11,876    3,320   15,196    
25  8/13/2018 2/13/2019  118,292       (93,310)  11,722,111   24,982   6,811   3,486   1,921    
26  8/10/2017 1/27/2018  20,000             20,000   7,533   740   8,273    
29-1  11/8/2019 11/8/2020  101,374       (92,482)  6,608,030   8,892   178   3,484   2,380    
29-2  11/8/2019 11/8/2020  62,367             62,367   7,176   3,691   10,867    
31  8/28/2019 8/28/2020  61,839       (61,830)  5,247,042   9   10,825   1,447   (3,234)    
32  5/22/2019 5/22/2020  25,000             25,000   7,301   1,233   8,534    
33  2/11/2020 2/11/2021  153,672       (126,582)  10,765,319   27,090   8,384   1,218   9,602    
34  5/18/2020 5/18/2021  50,200       (50,200)  4,121,766      2,414   233   538    
35  8/24/2020 8/24/2021  85,000       (85,000)  5,759,130      1,803   813   (8)   68,564 
36-1  9/3/2020 1/3/2021  122,400             122,400   3,970   5,646   9,615    
36-2  11/3/2020 1/3/2021  122,400             122,400   1,934   5,326   7,260    
36-3  12/29/2020 1/3/2021  122,400             122,400   98   5,326   5,424    
37-1  9/3/2020 6/30/2021  67,000             67,000   2,197   1,652   3,849   67,000 
37-2  11/2/2020 6/30/2021  66,500             66,500   1,091   1,640   2,730   66,500 
37-3  12/29/2020 6/30/2021  66,500             66,500   55   1,640   1,694   66,500 
38  2/9/2021 2/9/2022    103,500           103,500      851   851    
                                            
       $2,584,967 $103,500 $(7,675) $(705,758)  54,208,823  $1,975,035  $502,565  $79,190 $271,607  $292,864 

 

 21 

 

 

10.FAIR VALUE MEASUREMENT

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

The following are the hierarchical levels of inputs to measure fair value:

 

 ·Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
 ·Level 2 – Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 ·Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.

 

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using terms in the notes that are subject to volatility and market price of the underlying common stock of the Company.

 

As of March 31, 2021, and December 31, 2020, the Company did not have any derivative instruments that were designated as hedges.

 

The derivative liability as of March 31, 2021 and December 31, 2020, respectively, in the amounts of $3,076,328 and $2,903,663, have a level 3 classification.

 

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. During the three months ended March 31, 2021, the Company’s stock price decreased from its initial valuation and thus, the derivative liability also decreased. Although, this decrease is offset by an increase in derivative liabilities from new convertible notes that an embedded derivative liability. Generally, as the stock price decreases for each of the related convertible notes that have an embedded derivative liability, the value of the derivative liability decreases. Stock price is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s convertible notes with an embedded derivative liability.

 

 

 

 22 

 

 

The Company used the Black-Scholes Model to measure the fair value of the derivative liabilities as $3,076,328 and $2,903,663 on March 31, 2021 and December 31, 2020, respectively, and will subsequently remeasures the fair value at the end of each reporting period, and record the change of fair value in the condensed consolidated statement of operation during the corresponding period. Please refer to Note 2 for further explanation.

 

The following table provides a summary of changes in fair value of our Level 3 financial liabilities for the three months ended March 31, 2021:

 

Derivative Liability, December 31, 2020 $2,903,663 
Day 1 Loss  438,321 
Discount on derivatives  645,000 
Derivatives settled  (1,024,373)
Mark to market adjustment  113,717 
Derivative Liability, March 31, 2021 $3,076,328 

 

The above tables also include derivative liabilities related to warrants to purchase common stock of $22 at March 31, 2021. Net loss for the period included mark-to-market adjustments relating to the liabilities held during the three months ended March 31, 2021 in the amounts of $7,197.

 

The valuation of the derivative liabilities attached to the convertible debt was arrived at through the use of the Black-Scholes Option Pricing Model (“Black-Scholes Model”) using the following assumptions:

 

   For the Periods Ended 
   March 31, 2021   December 31, 2020 
Volatility  262.71%   204.5% - 1,005.9% 
Risk-free interest rate  .09%   .09% - .18% 
Expected term  .4 - .5   .33 – 2.5 

 

11.CAPITAL STOCK

 

Preferred Stock

 

Effective March 29, 2021, $265,000 in principle from convertible debt and conventional debt and $298,195 in accrued interest was converted into 140,799 shares of preferred stock series B with a $4.00 stated value per share. This has not yet been reflected in the statement of deficiency in shareholders’ equity.

 

During January 2020, we facilitated a reverse split of several classes our Preferred Stock which has been given retrospective treatment in these financial statements. In addition to the reverse stock split, management established new rights & privileges for certain classes of preferred stock. The reverse split ratio ranges from 1.6:1 to 307.7:1 resulting in a reclassification of $11,837,482 from preferred stock to additional paid in capital. The rights and privileges were changed with unanimous consent of all parties. All holders agreed to replace existing rights and privileges with new uniform conditions and a simplified uniform preferred $4.00 per share stated value.

 

 

 

 23 

 

 

Holders of Series B, D, D1, E, E1, F, F1, G, G1, H, H1, I, J, J1, L, L1, M, and P Preferred Stock shall have conversion rights that are affected by the closing common share market price on the date of conversion as reported on such national exchange where the Company’s common stock is traded:

 

i. If the closing market price of common stock is less than $4 per share one (1) share the Preferred Stock shall convert into an amount of common stock equal to: two (2) times the Stated Value, as defined herein, divided by the closing market price as reported on such national exchange where the Company’s common stock is traded on the date of conversion. For Example. If the closing price of the common stock as reported on such national exchange where the Company’s common stock is traded is $1.00 and the Stated Value is $4.00, one (1) preferred share would convert into eight (8) shares of common stock.

 

ii. If the closing market price of common stock is equal to or greater than $4 per share one (1) share the Preferred Stock shall convert into two (2) shares of common stock. For Example. If the closing price of the common stock as reported on such national exchange where the Company’s common stock is traded is $5.00 one (1) preferred share would convert into two (2) shares of common stock.

 

Holders of Series C Preferred Stock shall have Conversion Rights such that upon Conversion each one (1) share of Series C Preferred Stock shall convert into one hundred thousand (100,000) shares of the Common Stock. In the event that the Company should up list to a national exchange as defined by the U.S. Securities and Exchange Commission, each share of Series C Preferred Stock shall automatically be redeemed by the Company in exchange for a total of Fifty Thousand Dollars ($50,000.00) worth of the Common Stock, valued at the time of redemption.

 

Holders of the Series K and K1 Preferred Stock shall have Conversion Rights such that upon Conversion each one (1) share of Series K and K1 Preferred Stock shall convert into 1.25 shares of the Common Stock.

 

Holders of Series R Preferred Stock shall have conversion rights to common stock equal to $0.30; provided, however if the price of the Common Stock closes below $0.30 for the five (5) consecutive Trading Days immediately prior to the Conversion Date, then the Conversion Price shall be adjusted to $0.20, and if the price of the Common Stock closes below $0.20 for the five (5) consecutive Trading Days immediately prior to the Conversion Date, then the Conversion Price shall be adjusted to $0.10.

  

Common Stock

 

During the three months ended March 31, 2021, 54,068,024 shares of common stock were issued upon conversion of certain convertible notes payable (see Footnote 9).

 

 

 

 

 24 

 

 

12.WARRANTS

 

The initial and ending valuation of the warrants accounted for as derivatives and marked to fair value, as of March 31, 2021 are as follows:

 

  March 31, 2021 
Initial Valuation $6,135 
Ending Value $3,795 

  

 

The table below set forth the assumptions for the Black-Scholes Model on each initial date and March 31, 2021:

   
March 31, 2021
 
Volatility  1,847% - 1,861% 
Risk-free interest rate  1.60% - 1.83% 
Expected term  0.5 – 7.0 

 

The following tables summarize all warrant outstanding as of March 31, 2021, and the related changes during this period. The warrants expire three years from grant date, which as of March 31, 2021 is 1.31 years. The intrinsic value of the warrants as of March 31, 2021 was $-0-.

 

  Number of
Warrants
  Weighted
Average
Exercise
Price
 
Stock Warrants        
Balance at December 31, 2020  6,614,287  $0.21 
Granted  3,125,190   0.10 
Exercised  (800,000)  (0.50)
Expired      
Balance at March 31, 2021  8,939,477   0.17 
Warrants Exercisable at March 31, 2021  8,939,477  $0.17 

 

 25 

 

 

13.DISCONTINUED OPERATIONS

 

Management has decided to divest from the food services sector due primarily to a shift in strategy to focus time and resources on opportunities in the financial services sector to build upon its tax subsidiaries with related debt, credit, billing, and real estate opportunities. The Company’s restaurant franchise operations have been hard hit by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to this crisis taken by federal, state, and local governments. In light of current circumstances arising from the COVID-19 pandemic, Cardiff, as a public reporting company, must evaluate what the Company should and are obligated to do in order to protect shareholders from the negative effects of this pandemic.

 

As a result, management entered into agreements with the existing managers who were the original owners of Romeo’s NY Pizza (“Romeo’s”) and Repicci’s Franchise Group (“Repicci’s”) to buyback the subsidiaries previously purchased by Cardiff Lexington Corp.

 

The Company and the Repicci’s manager have entered into a Resignation, Release & Buyback Agreement and a Resignation, Release & Buyback Agreement Addendum (“Repicci’s Agreements”) which was effective June 1, 2020. Pursuant to the Repicci’s Agreement, the Repicci’s manager resigned employment from the Company effective June 1, 2020 and has purchased the Repicci’s subsidiary in exchange for returning 81,601 Preferred Shares Series H stock (“Preferred H”) which is held by the Company as treasury stock. The Repicci’s manager retained 37,500 shares of Preferred H shares subject to the terms of the Repicci’s Agreements. There was a gain on disposal in the amount of $216,013 in June 2020.

 

The Company and the Romeo’s manager have entered into a Resignation, Release & Buyback Agreement and a Resignation, Release & Buyback Agreement Addendum (“Romeo Agreements”) which is effective July 1, 2020. Pursuant to the Romeo Agreement, Romeo’s manager resigned employment from the Company effective July 1, 2020 and has purchased back the Romeo’s subsidiary in exchange for returning 212,500 Preferred Shares Series D stock (“Preferred D”). The Romeo’s manager will retain 37,500 shares of Preferred D shares subject to the terms of the Romeo Agreements. There was a loss on disposal in the amount of $21,140 in July 2020.

 

In April 2019, the Company discontinued operating Red Rock Travel due to continuing operating losses.

 

Net liabilities of discontinued operations at March 31, 2021 are $2,711,302.

 

14.COMMITMENTS AND CONTINGENCIES

 

Leases

 

The Company recorded operating lease expense of $17,253 and $16,790 for the three months ended March 31, 2021 and 2020, respectively.

 

The Company has property leases that are renewable on an annual basis, with no long-term property lease commitments.

 

Employees

 

We have an employment agreement effective August 1, 2020 to December 31, 2025 with the Chairman of the Board, Mr. Thompson. with automatic extension for additional successive one (1) year renewals terms unless terminated as defined in the agreement. We provide for compensation of $30,000 per month along with additional incentives.

 

We have an employment agreement effective August 1, 2020 to December 31, 2025 with the Chief Executive Officer, Mr. Cunningham with automatic extension for additional successive one (1) year renewals terms unless terminated as defined the agreement. We provide for compensation of $30,000 per month.

 

The Company agreed to pay $120,000 per year to the Chief Operating Officer based on his amended employment agreement executed on May 15, 2019. The total outstanding accrued compensation as of March 31, 2021 and December 31, 2020 were $30,000 and $120,000, respectively to be paid in common shares.

 

We have an employment agreement with a subsidiary manager, effective May 31, 2019 with a term of 5 years, whereby we provide for compensation of $17,333 per month along with a bonus incentive if financial performance measures are met.

 

 

 

 26 

 

 

In April 2021, the Company’s Chief Financial Officer was terminated. Whereby we provided for compensation of $8,500 per month along with a bonus contingent upon successful up listing on Nasdaq with preferred share and stock options.

 

We have an employment agreement with a subsidiary manager, effective July 1, 2018 with a term of 5 years, whereby we provide for compensation of $20,000 per month along with a bonus incentive if financial performance measures are met.

 

We acquired Redrock Travel on May 1, 2018. After numerous violations of the Management Agreement it was determined by our board of directors to terminate the acquisition agreement and to file for the cancelation of the Redrock Stock Class with the State of Florida. A declaration has been served notifying Red Rock and its investors the Board nor officer of the Company approved any transactions entered into with Red Rock. The Company is waiting for a response.

 

The Company is currently in negotiations for the purchase two companies planning to finalize in the second quarter of 2021. One is for the purchase of seven orthopedic and spine operating primary, specialty and ancillary care facilities for $6,079,334 and the other is a consulting firm specializing in the cancellation and removal of consumer timeshare debt for $11,000,000

 

15.INCOME TAXES

 

At March 31, 2021 the Company had federal and state net operating loss carry forwards of approximately $18,000,000 that expire over various years through the year 2038.

 

Due to operating losses, there is no provision for current federal or state income taxes for the year ended December 31, 2020.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.

 

 

16.SUBSEQUENT EVENTS

 

The Company entered an Allonge Agreement Addendum on May 3, 2021, with a note holder, amending that certain Secured Promissory Note, dated as of July 10, 2018. The Company’s failure to pay the amounts due under the Note by their original due dates shall not constitute an Event of Default under the Note. The Maturity Date shall be amended to be Wednesday, November 3, 2021. Beginning on May 10, 2021, and continuing on the same calendar of each month thereafter Borrower shall be required to make monthly payments of interest equal to at least $10,404. The total amount due under the Note, including but not limited to, Principal Amount, capitalized interest, and fees, shall be $1,050,246.

 

The Company entered an Allonge Agreement Addendum on May 3, 2021, with a note holder amending that certain Senior Secured Principal Amount Promissory Note, dated as of September 9, 2019 with an original maturity date of December 31, 2020. The Company’s failure to pay the amounts due under the Note by their original due dates shall not constitute an Event of Default under the Note. The Maturity Date shall be amended to be Wednesday, November 3, 2021. All outstanding amounts owed pursuant to the Note including but not limited to, Principal Amount, capitalized interest, and fees shall be $500,000.

 

Subsequent to March 31, 2021, the Company completed a change from a Florida corporation to a Nevada corporation. The Company filed an Article of Dissolution with the Florida Secretary of State with an effective date of April 15, 2021 and the Company filed an Articles of Domestication with the State of Nevada Office of the Secretary of State with an effective date of April 13, 2021.

 

 

 

 27 

 

 

17.SEGMENT REPORTING

 

The Company has two reportable operating segment as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related Information:

 

 (1)Affordable Housing (We Three) and

 

 (2)Financial Resolution Services (Platinum Tax and Key Tax)

 

These segments are a result of differences in the nature of the products and services sold. Corporate administration costs, which include, but are not limited to, bookkeeping and general accounting.

 

The Affordable Housing segment leases and sells mobile homes as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, large monthly mortgage payments and high property taxes and insurance which is a common trait of brick and mortar homes. Additionally, if bad credit is an issue preventing potential home owners from purchasing a traditional house, the Company will provide a "lease to own" option so people secure their family home.

 

Platinum Tax and Key Tax provides tax resolution services to individuals and companies that have federal and state tax liabilities. The company collects fees based on efforts to negotiate and assist in the settlement of outstanding tax debts.

 

  As of March 31, 2021  As of December 31, 2020 
Assets:        
Affordable Housing Rentals $257,449  $258,813 
Financial Services  4,750,362   4,369,195 
Others  153,327   302,139 
Consolidated assets $5,161,138  $4,930,147 

 

  For the Three Months Ended March 31, 2021  For the Three Months Ended March 31, 2020 
Revenues:        
Affordable Housing Rentals $38,979  $38,212 
Financial Services  892,947   922,514 
Total revenues $931,926  $960,726 
         
Cost of Sales:        
Affordable Housing Rentals $40,167  $36,821 
Financial Services  451,788   394,798 
Total cost of sales $491,955  $431,619 
         
Income (Loss) from Operations From Subsidiaries:        
Affordable Housing Rentals $(1,364) $791 
Financial Services  (81,835)  16,937 
Total Income (Loss) from operations from subsidiaries $(83,199) $17,728 
         
Loss From Operations from Cardiff Lexington $(292,648) $(250,610)
Total loss from operations $(375,847) $(232,882)

 

 

 

 

 28 

 

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements including the related notes, and the other financial information included in this report. For ease of reference, “the Company”, “we,” “us” or “our” refers to Cardiff Lexington Corp., unless otherwise stated.

 

Cautionary Statement Concerning Forward-Looking Information

 

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of Cardiff Lexington Corp. and other matters. Statements in this report that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenue and income of Cardiff Lexington Corp., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of Cardiff Lexington Corp. on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), that may affect the operations, performance, development and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

 

Overview

 

Cardiff Lexington Corp. is a holding company with no stand-alone operations and no material assets other than its ownership interest in its subsidiaries. All of the Company's operations are conducted through, and its income derived from, its various subsidiaries, which are organized and operated according to the laws of their jurisdiction of incorporation, and consolidated by the Company.

 

To date, Cardiff consists of the following wholly owned subsidiaries:

 

We Three, LLC, d/b/a Affordable Housing Initiative (“AHI”), which we acquired on May 15, 2014, is an affordable home acquirer located in Maryville, Tennessee, which acquirers’ mobile homes and mobile home parks and either sells them or rents the homes to individual families. The acquisition of mobile homes or mobile home parks allows AHI to provide an alternative to traditional housing, which is a popular option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage payments and high property taxes. The typical arrangement with potential buyers is a lease-to-own arrangement on an individual home. The fundamentals of that arrangement obligate the tenant(s) to the terms of the lease with AHI retaining ownership. In addition, the tenant(s) pay non-refundable option monies prior to the start of the lease. This option consideration enables them to purchase the home at the end of the lease if they choose. A typical lease is 7 years. We have found that most tenants move out before the end of that period and thus never satisfy the terms that would enable them to purchase the home.

 

Edge View Properties, Inc. (“Edge View”), which we acquired on July 16, 2014, is a real estate company that owns 30 acres of land; 23.5 acres zoned MDR (Medium Density Residential) with 12 lots already platted and 48 lots zoned HDR (High Density Residential), 4 acres of dedicated river front property zoned for recreation on the Salmon River, Idaho’s premier whitewater river and 2.5 acres zoned for commercial use. All the land is in the city limits of Salmon and adjacent to the Frank church Wilderness Park (the largest wilderness park in the lower 48 states). Edge View’s plan is to enter into a joint venture agreement with a developer for construction of single-family homes on the property. The Company has yet to enter into a joint venture agreement for the development of single-family homes.

 

 

 

 29 

 

 

Platinum Tax Defenders, LLC (“Platinum Tax”), which we acquired on July 31, 2018, is a full-service tax resolution firm located in Los Angeles, CA.  Since 2011, Platinum Tax has been assisting all types of taxpayers resolve any and all issues with IRS and applicable state tax agencies. Platinum Tax provides fee-based tax resolution services to individuals and companies that have federal and state tax liabilities by assisting its clients to settle outstanding tax debts. Specifically, the Platinum Tax teams tax relief services include but are not limited to, back taxes, offer in compromise, audit representation, amending tax returns, tax preparation, tax resolution, wage garnishment relief, removal of bank levies and liens, bookkeeping, and other financial challenges. Platinum Tax has a team of 28 which includes tax attorneys, accountants, and enrolled agents that have an aggregate of more than 90 years of experience in the financial services industry and have resolved tax issues for thousands of clients.

 

JM Enterprises 1, Inc. (DBA) Key Tax Group (“Key Tax”), which we acquired on May 13, 2019, is a full-service tax resolution firm located in Jacksonville, FL. Key Tax assists businesses and individuals around the nation with tax debt issues. Key Tax has a team of twelve members, including tax lawyers, enrolled agents, and support staff with an aggregate of more than 35 years of experience in the tax industry, who are well versed in both the accounting portion of tax debt as well as the resolution side with substantial experienced in working successfully with revenue officers and collectors. Among other services, Key Tax offers Tax Audit Representation, IRS Installment Agreements, Sales Tax Representation, 940/941 Payroll Tax, Representation, Foreign Bank Account Report Filings, OIC/Fresh Start Program, Wage Garnishment, Bank Levies, Tax Lien Removal, State Tax Resolution, Audit Reconsideration, and Penalty Abatement.

 

Impact of COVID-19 Outbreak

 

The Company’s financial condition and results of operations for the fiscal year 2020 is being adversely affected and is expected to continue to be adversely affected by the COVID-19 pandemic. Public health officials have recommended and mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in heavily populated areas and shelter-in-place orders or similar measures. As a result, we have during periods of 2020 temporarily closed certain of our operations for several months. All operations are now open and operating. Our results will be adversely impacted by these closures and other actions taken to contain or treat the impact of COVID-19, and the extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted.

 

Due to the COVID-19 pandemic, client enrollment has been at a slower pace at certain of our tax resolution subsidiary companies than initially expected. In addition, during 2020 certain of our tax resolution subsidiaries have temporarily suspended enrollment due to facility closures, quarantine, travel restrictions and other governmental restrictions. As a result, we expect the performance from our tax resolution subsidiaries to be affected, which we expect will have a material adverse impact on their market share growth plans and timelines. Additionally, we have taken certain measures to account for the ongoing significant negative impact of the pandemic, including divestiture of our holdings in the food services sector. These businesses no longer fit within our longer-term strategy and given their impact from COVID-19 for these companies to remain subsidiaries of a public entity exerts additional and unnecessary cost and pressure. While COVID-19 changed the trajectory of that growth, we are planning to get back on track quickly with the acquisition and we remain committed to making the investments necessary to drive long term company growth.

 

The extent to which COVID-19 or any other health epidemic may impact the Company’s results for 2020 and beyond will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the economic impact of the COVID-19 pandemic. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition, and prospects during 2020 and beyond.

 

 

 

 30 

 

 

Results of Operations

 

  For the Three Months Ended March 31, 2021  For the Three Months Ended March 31, 2020 
Revenues:        
Affordable Housing Rentals $38,979  $38,212 
Financial Services  892,947   922,514 
Total revenues $931,926  $960,726 
         
Cost of Sales:        
Affordable Housing Rentals $40,167  $36,821 
Financial Services  451,788   394,798 
Total cost of sales $491,955  $431,619 
         
Income (Loss) from Operations From Subsidiaries:        
Affordable Housing Rentals $(1,364) $791 
Financial Services  (81,835)  16,937 
Total Income (Loss) from operations from subsidiaries $(83,199) $17,728 
         
Loss From Operations from Cardiff Lexington $(292,648) $(250,610)
Total loss from operations $(375,847) $(232,882)

 

Revenues were $931,926 and $960,726 for the three months ended March 31, 2021 and 2020, respectively a decrease of $28,800 or 3%. The decrease was primarily attributable to the COVID-19 pandemic’s impact on the financial services segment. We believe the significant increase in unemployment directly affected our subsidiaries prospect and customer base and reduced their ability to afford our services.

 

Cost of sales were $491,955 and $431,619 for the three months ended March 31, 2021 and 2020, respectively, a increase of $60,336 or 14%. The increase is primarily attributable to increase in contract labor due to its flexibility necessary to match costs with the fluctuation in revenues.

 

Gross margins were $439,971 and $529,107 for the three months ended March 31, 2021 and 2020, respectively a decrease of $89,136 or 17%. The decrease is primarily due to lower revenues and higher costs due to the COVID-19 pandemic as described above.

 

Operating expenses were $815,818 and $763,349 for the three months ended March 31, 2021 and 2020, respectively, an increase of $52,469 or 6.9%. The increase is primarily due to an increase in professional fees.

 

 

 

 31 

 

 

The Company has been affected by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to this crisis taken by the federal, state, and local government. Several of our subsidiaries have been hard-hit by the pandemic. We were able to secure Paycheck Protection Program (PPP) loans to offset the reduction in revenues and profitability.

 

Furthermore, the stock market has been severely adversely impacted with our stock price experiencing a period of high volatility. In light of current circumstances arising from the COVID-19 pandemic, the Company as a public reporting company must evaluate what we should and are obligated to do in order to protect shareholders from the negative effects of this pandemic. In order to adequately sustain funding for 2020 operations and continue our growth through acquisitions the Board Of Directors have initiated a reverse stock split of 10,000:1 which became effective May 2020.

 

The Company raised $103,000 in convertible notes and $347,050 in SBA and PPP loans. Also, the Company entered into an agreement on April 29, 2020 engaging an exclusive financial advisor in connection with a transaction or related series or combination of transactions involving a merger, share capital exchange, asset acquisition, share purchase, reorganization or similar business combination. The advisor is a boutique investment bank created by experienced professionals that have worked together for over a decade, collectively financing over $50 billion of public and private capital raises, restructurings, and mergers and acquisitions. The term of the agreement is 1 year and the fees include shares of common stock and out-of-pocket expenses as defined in the agreement. Additionally, the Company entered into an agreement August 26, 2020 with the same firm to underwrite a registered public offering. The term of the agreement is the earlier of the consummation of the offering or 1 year and fees include cash and equity as defined in the agreement.

 

Inflation

 

We do not believe that inflation will negatively impact our business plans.

 

Liquidity and Capital Resources

 

Since inception, the principal sources of cash have been funds raised from the sale of common stock, advances from shareholders, and loans in the form of debenture convertible notes and conventional notes payable. At March 31, 2021, we had $510,760 in cash and cash equivalents, total assets of $5,161,138 and total liabilities of $13,879,060. See footnote 2 for further discussion.

 

Net cash used in (provided by) operating activities was $208,951 and $(45,476) for the three months ended March 31, 2021 and 2020, respectively. The negative cash flows from operating activities during the periods were primarily attributable to the net losses of $1,749,432 and $4,298,331. These amounts were partially offset by amortization of debt discount of $454,958 and $246,185, respectively and change in derivative liability related to convertible notes of $552,039 and $3,738,099, respectively, and warrant amortization $260,443 and $0, respectively. The change in value of derivative liability is due primarily to a reduction in the stock price used in the Black-Scholes Option Pricing Model. See footnote 2 for further discussion.

 

Net cash provided by financing activities was $440,400 and $73,631 for the three months ended March 31, 2021 and 2020, respectively. The increase in financing activities during the periods were primarily attributable to proceeds from convertible notes of $103,500 and SBA loans of $345,269 during the three months ended March 31, 2021 compared to proceeds from convertible notes of $150,000 for the same period in 2020.

 

There can be no assurance that we will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans and possibly relinquish rights to portions of our technology or services provided. In addition, increases in expenses may adversely impact our cash position and may require cost reductions. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.

 

In order to continue our operations and implementation of our business plan, we need additional financing. We are currently attempting to obtain additional working capital in an equity transaction.

 

 

 

 32 

 

 

Off Balance Sheet Arrangements

 

As of March 31, 2021, we had no off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable

 

Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures

 

 (a)Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer has concluded that these disclosure controls and procedures are ineffective. There have been no changes to our disclosure controls and procedures during the three months ended September 30, 2020.

 

There has been no change in our internal control over financial reporting during the three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.

 

 (b)Changes in Internal Controls

 

There were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 33 

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There have been no events under any bankruptcy act, any criminal proceedings nor any judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the last five years.

 

Item 1A. Risk Factors

 

There have been no material changes in our risk factors from those disclosed in the Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

31.1Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.INSXBRL Instances Document*
101.SCHXBRL Taxonomy Extension Schema Document*
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFXBRL Taxonomy Extension Definition Linkbase Document*
101.LABXBRL Taxonomy Extension Label Linkbase Document*
101.PREXBRL Taxonomy Extension Presentation Linkbase Document *

 

* To be filed by amendment

 

 

 

 

 34 

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

Dated: February 17, 2022CARDIFF LEXINGTON CORP.
  
 By:/s/ Alex Cunningham
  Alex Cunningham
Chief Executive Officer and Principal Accounting Officer
   
   
 By:/s/ Daniel Thompson
  Daniel Thompson
  Chairman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 35