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Cardiff Lexington (CDIX)

Filed: 30 Jun 22, 5:03pm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2021

  

OR

 

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

For the transition period from ____________ to ______________

 

Commission file number: 000-49709

 

Cardiff Lexington Corporation

(Name of registrant as specified in its charter)

 

Nevada84-1044583
(State or other jurisdiction of Incorporation or Organization)(I.R.S. Employer identification No.)

 

400 Las Olas Blvd., Fort Lauderdale, Florida, Unit 140033301
(Address of principal executive offices(Zip Code)

 

844-628-2100

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address and former fiscal year, if changed since last report)

 

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

 

Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
N/AN/AN/A

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No

 

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

Yes       No

 

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

 

Large accelerated Filer Accelerated Filer
Non-accelerated Filer Smaller reporting company
Emerging Growth Company  

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 30, 2022, was 232,796,735.

 

 

 

   

 

 

FORM 10-Q

 

CONDENSED CONSOLIDATED FINANCIAL

STATEMENTS AND SCHEDULES

CARDIFF LEXINGTON CORPORATION

 

For the Three and Nine Months Ended September 30, 2021

 

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

 

  Page
 
 PART I - FINANCIAL INFORMATION 
   
Item 1.Unaudited Condensed Consolidated Financial Statements:3
 Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 (Audited)3
 Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2021 (unaudited) and 2020 (unaudited)5
 Condensed Consolidated Statements of Shareholders’ Equity (Deficiency) for the Periods ended September 30, 2021 and 2020 (unaudited)7
 Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2021 and 2020 (unaudited)8
 Notes to Condensed Consolidated Financial Statements10
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations36
Item 3Quantitative and Qualitative Disclosures about Market Risk41
Item 4.Controls and Procedures, Evaluation of Disclosure Controls and Procedures41
   
 PART II - OTHER INFORMATION 
   
Item 1.Legal Proceedings42
Item 1A.Risk Factors42
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds42
Item 3.Defaults Upon Senior Securities42
Item 4.Mine Safety Disclosures42
Item 5.Other Information42
Item 6.Exhibits42

 

 

 

 

 2 

 

 

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

 

       
  September 30,
2021
  December 31,
2020
 
  (Unaudited)  (Audited)
(RESTATED)
 
ASSETS      
Current assets        
Cash $1,212,978  $279,311 
Accounts receivable-net  805,780   16,377 
Assets held for sale  187,671    
Prepaid and other current assets  7,392    
Total current assets  2,213,821   295,688 
         
Property and equipment, net of accumulated depreciation of $263,091 and $205,443  283,201   211,779 
Land  540,000   603,000 
Intangible assets, net  250,000   253,550 
Goodwill  9,290,650   3,499,963 
Due from related party  149,579    
Other assets  34,119   13,600 
Right of use assets  331,561   52,567 
Total assets $13,092,931  $4,930,147 
         
LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY        
         
Current liabilities        
Accounts payable and accrued expense $1,001,606  $617,073 
Accrued expenses - related parties  2,441,057   2,196,222 
Accrued interest  395,934   722,815 
Operating lease liability  206,452   54,185 
Due to director & officer  126,849   126,849 
Deferred revenue     353,829 
Line of credit     51,928 
Preferred stock to be issued     222,000 
Notes payable, current portion  666,177   947,912 
Due to related party  780   37,885 
Convertible notes payable, net of debt discounts of $1,250 and $108,320, respectively  2,119,856   2,476,647 
Net liabilities of discontinued operations  833,195   2,691,695 
Derivative liability  3,457,646   2,903,663 
Total current liabilities  11,249,552   13,402,703 
         
Other Liabilities        
Notes payable – net of current portion  605,214   399,778 
Operating lease liability – net of current portion  145,151    
Total liabilities $11,999,917  $13,802,481 

 

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

 

 

 

 

 3 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

 

  September 30,
2021
  December 31,
2020
 
  (Unaudited)  Audited
(RESTATED)
 
Shareholders' equity (deficit)      
Preferred stock      
Preferred Stock Series B - 3,000,000 shares authorized, par value $.001, stated value $4.00, 1,945,078 and 1,743,279 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively $7,780,312  $6,973,116 
Preferred Stock Series C- 500 shares authorized, par value $.001, stated value $4.00, 122 shares issued and outstanding at September 30, 2021 and December 31, 2020  488   488 
Preferred Stock Series D- 800,000 shares authorized, par value $.001, stated value $4.00, 37,500 shares issued and outstanding at September 30, 2021 and December 31, 2020  150,000   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 September 30, 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 September 30, 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 September 30, 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 September 30, 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, 37,500 shares issued and outstanding at September 30, 2021 and December 31, 2020  150,000   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 September 30, 2021 and December 31, 2020  779,540,000   780,040,000 
Preferred Stock Series J- 10,000,000 shares authorized, par value $.001, stated value of $4.00, 894,834 and zero shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  3,579,336    
Preferred Stock Series K- 10,937,500 shares authorized, par value of $.001, 8,200,562 shares issued and outstanding at September 30, 2021 and December 31, 2020  8,201   8,201 
Preferred Stock Series L- 100,000,000 shares authorized, par value $.001, stated value $4.00, 319,493 shares issued and outstanding at September 30, 2021 and December 31, 2020  1,277,972   1,277,972 
Preferred Stock Series N- 3,000,000 shares authorized, par value $.001, stated value of $4.00, 868,056 and zero shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  3,472,224    
Preferred Stock Series R- 5,000 shares authorized, par value $.001, stated value of $1,200, 165 shares issued and outstanding at September 30, 2021 and December 31, 2020  198,000   198,000 
Common stock; 7,500,000,000 shares authorized with $0.001 par value; 165,778,465 and 5,268,797 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively  165,776   5,267 
Treasury stock; at cost, 212,500 shares of series D preferred stock and 81,601 of series H preferred stock at September 30, 2021 and December 31, 2020, respectively,  (2,365,864)  (2,365,864)
Additional paid-in capital  (727,116,411)  (733,649,827)
Accumulated deficit  (68,494,184)  (65,583,255)
Total shareholders' equity (deficit)  1,093,014   (8,872,334)
Total liabilities and shareholders' equity (deficit) $13,092,931  $4,930,147 

 

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

 

 

 

 

 4 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

 

             
  

THREE MONTHS ENDED

SEPTEMBER 30,

  

NINE MONTHS ENDED

SEPTEMBER 30,

 
  2021  

2020

(RESTATED)

  2021  

2020

(RESTATED)

 
REVENUE            
Rental income $30,944   31,993   97,767   110,820 
Financial Services  1,034,422   675,915   3,432,819   2,551,325 
Healthcare  2,092,427      2,742,001    
Other  152,000      152,000    
Total revenue  3,309,793   707,908   6,424,587   2,662,145 
                 
COST OF SALES                
Rental business  22,281   26,279   68,269   81,763 
Financial Services  454,118   437,707   1,328,508   1,228,096 
Healthcare  526,839      726,289    
Real Estate  79,481      79,481    
Total cost of sales  1,082,719   463,986   2,202,547   1,309,859 
                 
GROSS MARGIN  2,227,074   243,922   4,222,040   1,352,286 
                 
OPERATING EXPENSES                
Depreciation expense  6,175   319   8,103   956 
Transaction costs        2,777,778    
Selling, general and administrative  1,154,249   774,171   3,101,989   2,242,964 
Total operating expenses  1,160,424   774,490   5,887,870   2,243,920 
                 
PROFIT / LOSS FROM OPERATIONS  1,066,650   (530,568)  (1,665,830)  (891,634)
                 
OTHER INCOME (EXPENSE)                
Other income  53,703      82,385   (5,003)
Change in value of derivative liability  (172,982)  5,119,078   (1,305,596)  891,618 
                 
Gain on forgiveness of debt  67,568      507,863    
Gain on change of estimate  66,216      184,243    
Interest expense & finance charge  (936,287)  (78,622)  (1,409,481)  (268,194)
Conversion cost penalty and reimbursement  (3,000)  (10,003)  (13,000)  (14,000)
                 
Amortization of debt discounts  (18,750)  (260,050)  (1,050,014)  (830,980)
Total other income (expenses)  (943,532)  4,770,403   (3,003,600)  (226,559)
                 
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS  123,118   4,239,835   (4,669,430)  (1,118,193)
                 
LOSS FROM DISCONTINUED OPERATIONS  1,912,852   45,905   1,858,500   (138,252)

GAIN FROM DISPOSAL OF

DISCONTINUED OPERATIONS

     (21,140)     194,873 
   1,912,852   24,765   1,858,500   56,621 
                 
NET INCOME (LOSS) FOR THE PERIOD $2,035,970  $4,264,600   (2,810,930)  (1,061,572)
                 
BASIC AND DILUTED INCOME (LOSS) PER SHARE                
Continuing operations $0.01  $4.38  $(0.02) $(6.68)
Discontinued operations $0.01  $0.03  $0.002  $0.14 
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES - BASIC AND DILUTED  150,277,623   968,379   115,230,605   409,666 

 

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

 5 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)

FOR THE PERIODS ENDED SEPTEMBER 30, 2021 and 2020

 

 

                   
   Preferred Stock Series
A, I, K
   Preferred Stock Series
B, D, E, F, F-1, G, H, L
   Preferred Stock, Series
C and R
   Shares   Amount   Shares   Amount   Shares   Amount 
Balance December 31, 2019  204,647,720  $780,008,201   120,630,787  $11,958,252   286  $198,484 
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 Sale of subsidiary                  
Net loss                  
Balance, September 30, 2020 (RESTATED)  203,200,563  $780,006,753   120,770,888  $12,518,656   287  $198,488 
                         
Balance, December 31, 2020  203,210,563  $780,048,201   2,824,563  $11,298,252   287  $198,488 
Conversion of convertible notes payable                  
Reclassify Derivative liabilities to Additional Paid in Capital                  
Issuance of Common Stock for preferred I shares  (125,000)  (500,000)            
Reclassify warrant liabilities to additional paid in capital                  
Issuance of preferred stock series J        894,834   3,579,336       
Issuance of preferred stock series N        868,056   3,472,224       
Issuance of preferred stock series B        201,799   807,196       
Issuance of common stock for services                  
Distribution of dividend                  
Distribution of preferred stock series B                  
Issuance of warrant                  
Net loss                  
Balance, September 30, 2021  203,085,563  $779,548,201   4,789,252  $19,157,008   287  $198,488 

 

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

 

 

 6 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (DEFICIENCY) IN SHAREHOLDERS' EQUITY

FOR THE PERIOD ENDED SEPTEMBER 30, 2021 and 2020

 

 

                      
  Treasury Stock  Common Stock  

Additional

Paid-in

  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
Balance December 31, 2019    $   67,742  $68  $(736,333,200) $(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                 (187,850)  (187,850)
Conversion of convertible notes payable        231,491   231   171,043      171,274 
Reclassify derivative liabilities to additional paid in capital              452,398      452,398 
Sale of subsidiary  (81,601)  (665,864)        665,864       
Net loss                 (5,326,172)  (5,326,172)
Balance September 30, 2020 (RESTATED)  (81,601) $(665,864)  302,413  $302  $(735,602,858) $(68,072,531) $(11,617,054)
                             
Balance, December 31, 2020  (294,101) $(2,365,864)  5,268,797  $5,267  $(732,473,423) $(65,583,255) $(8,872,334)
Conversion of convertible notes payable        109,234,241   109,234   804,991      914,225 
Reclassify Derivative liabilities to Additional Paid in Capital              1,396,610      1,396,610 
Issuance of Common Stock for preferred I shares        50,000,000   50,000   450,000       
Reclassify warrant liabilities to additional paid in capital              260,443      260,443 
Issuance of preferred stock series J                    3,579,336 
Issuance of preferred stock series N              (347,222)     3,125,002 
Issuance of preferred stock series B                    807,196 
Issuance of common stock for services        1,275,427   1,275   14,412      15,687 
Distribution of dividend                 (99,999)  (99,999)
Issuance of warrant              2,777,778      2,777,778 
Net loss                 (2,810,930)  (2,810,930)
Balance, September 30, 2021  (294,101) $(2,365,864)  165,778,465  $165,776  $(727,116,411) $(68,494,184) $1,093,014 

 

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

 

 

 

 

 7 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

 

 

       
  2021  

2020

(RESTATED)

 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net Loss for the period $(2,810,930) $(1,928,552)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation  24,441   17,336 
Amortization of loan discount  1,050,014   715,980 
Other noncash items, net  586,644   28,145 
Change in value of derivative liability  1,305,596   127,208 
Warrant issued for transaction costs  2,777,778    
Reduction from forgiveness of PPP Loans  (507,863)   
         
         
(Increase) decrease in:        
Accounts receivable  (114,399)  34,231 
Assets held for sale  (187,671)   
Right of use – assets  (278,994)  28,134 
Prepaid expenses and other current assets  (7,392)  8,866 
Intangible assets  3,550    
Other assets  321,975   10,000 
Land  63,000    
         
Increase (decrease) in:        
Accounts payable & Accrued expense  (594,276)  (166,867)
Accrued officer’s compensation  244,835   219,570 
Due (to) from related parties  (149,579)  23,338 
Accrued interest  (321,468)  169,828 
Right of use – liabilities  297,418   (28,134)
Capital stock to be issued     165,000 
Deferred revenue  (353,830)  131,981 
         
Net cash used in operating activities  1,348,849   (443,936)
         
Net cash used in discontinued operations - operating activities $(1,858,500) $(130,737)

 

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

 

 

 

 8 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(UNAUDITED)

 

 

  2021  2020 
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of furniture & equipment $(3,407) $ 
Acquisition of Nova Ortho and Spine PLLC, net of cash acquired  (2,320,235)   
Net cash used in investing activities  (2,323,642)   
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Due to director     20,500 
Proceeds from convertible notes payable  400,000   415,000 
Repayment of convertible notes payable     (20,207)
Proceeds from notes payable     24,019 
Proceeds from PPP and SBA loans  547,050   551,900 
Dividend on preferred stock  (99,999)  (187,850)
Repayment of credit line  (51,927)  (39,618)
Issuance of preferred stock series N  3,000,000    
Payment of notes payable  (28,164)   
         
Proceeds of notes payable related party     116,385 
Proceeds of notes payable related party     (154,586)
Net cash provided by financing activities  3,766,960   725,543 
         
NET INCREASE IN CASH  933,667   150,870 
         
CASH, BEGINNING OF PERIOD  279,311   76,902 
         
CASH, END OF PERIOD $1,212,978  $227,772 
         
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION        
Cash paid during the period for:        
Interest $70,674  $87,625 
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Common stock issued upon conversion of notes payable and accrued interest $109,234  $212,327 
Preferred stock issued for business acquisition $3,579,336  $ 
Preferred stock issued upon conversion of notes payable and accrued interest $563,196  $ 
Derivative liability settled upon conversion $1,396,610  $544,066 
Treasury stock redemptions from disposal of discontinued operations $  $2,365,864 

 

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

 

 

 

 

 9 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Nature of Operations

 

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

 

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

 

Description of Business

 

Cardiff Lexington consists of the following wholly owned subsidiaries:

 

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

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

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

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

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

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

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

Nova Ortho and Spine, PLLC (“Nova”), acquired May 31, 2021

 

Basis of Presentation and Principles of Consolidation

 

The accompanying September 30, 2021 interim condensed consolidated financial statements (“financial statements”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated financial statements included herein. These statements should be read in conjunction with the audited condensed consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. The results of operations for the periods presented are not necessarily indicative of results to be expected for the full fiscal year or any other periods.

 

 

 

 

 10 

 

 

Use of Estimates

 

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

 

Change in Capital Structure

 

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

 

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

 

In the second quarter of 2021, the Company completed a change in domicile from a Florida corporation to a Nevada Corporation.

 

COVID-19 Pandemic

 

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

 

Accounts Receivable

 

Accounts receivable is reported on the balance sheet at the net amounts expected to be collected by the Company. Management closely monitors outstanding accounts receivable and charges off to expense any balances that are determined to be uncollectible which was $0 and $21,870 as of September 30, 2021 and December 31, 2020, respectfully. As of September 30, 2021 and December 31, 2020, the Company had accounts receivable of $805,780 and $16,377, respectively. Accounts receivables are primarily generated from our subsidiaries in their normal course of business.

 

Property and Equipment

 

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

 

  
ClassificationUseful Life
Equipment, furniture, and fixtures5 - 7 years
Medical equipment10 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 September 30, 2021 and 2020, the Company did not recognize any goodwill impairment. The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors.

 

 

 

 

 11 

 

 

Valuation of long-lived assets

 

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

 

Revenue Recognition

 

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

 

The Company applies the following five-step model to determine revenue recognition:

 

·Identification of a contract with a customer
·Identification of the performance obligations in the contact
·Determination of the transaction price
·Allocation of the transaction price to the separate performance allocation
·Recognition of revenue when performance obligations are satisfied

 

The Company only applies the five-step model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses services promised within each contract and determines those that are performance obligations and assesses whether each promised service is distinct.

 

The Company’s financial services sector reports revenues as services are performed and its healthcare sector reports revenues at the time control of the services transfer to the customer and from providing licensed and/or certified orthopedic procedures. Our healthcare subsidiary does not have contract liabilities or deferred revenue as there are no amounts prepaid for services.

 

Established billing rates are not the same as actual amounts recovered for our healthcare subsidiary.  They generally do not reflect what the Company is ultimately paid and therefore are not reported in our condensed unaudited financial statements.  The Company is typically paid amounts based on established charges per procedure with guidance from the annually updated Current Procedural Terminology (“CPT”) guidelines (a code set maintained by the American Medical Association through the CPT Editorial Panel), that designates relative value units (“RVU's”) and a suggested range of charges for each procedure which is then assigned a CPT code.

 

This fee is discounted to reflect the percentage paid to the Company “using a modifier” recognized by each insurance carrier for services, less deductible, co-pay, and contractual adjustments which are deducted from the calculated fee.  The net revenue is recorded at the time the services are rendered.

 

Contract Fees (Non-PIP)

 

The Company has contract fees for amounts earned from its Non-Personal Injury Protection (“PIP”) related procedures, typically car accidents, and are collected on a contingency basis. These cases are sold to a factor, who bears the risk of economic benefit or loss. After selling patient cases to the factor, any additional funds collected by the Company are remitted to the factor.

 

Service Fees – Net (PIP)

 

The Company generates services fees from performing various procedures on the date the services are performed. These services primarily include slip and falls as well as smaller nominal Non-PIP services. Fees are collected primarily from third party insurance providers. These revenues are based on established insurance billing rates less allowances for contractual adjustments and uncollectible amounts. These contractual adjustments vary by insurance company and self-pay patients. The Company computes these contractual adjustments and collection allowances based on its historical collection experience.

 

 

 

 

 12 

 

 

Completing the paperwork for each case and preparing it for billing takes approximately ten business days after a procedure is performed. The majority of claims are then filed electronically except for those remaining insurance carriers requiring paper filing. An initial response is usually received within four weeks from electronic filing and up to six weeks from paper filing. Responses may be a payment, a denial, or a request for additional information.

 

Historical collection rates are estimated using the most current prior 12-month historical payment and collection percentages. The Company generally receives all of its collections within 12 months from the date of service. The Company accounts for chargebacks as they occur and records an estimate for expected chargebacks as they are received from insurance companies.

 

For the three and nine months ended September 30, 2021 and 2020, respectively, the Company did not record any bad debt expense. Additionally, the Company has not recorded any estimate for expected chargebacks.

 

The Company’s contracts for both its contract and service fees each contain a single performance obligation (providing orthopedic services), as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct, as a result, the entire transaction price is allocated to this single performance obligation.

 

Accordingly, the Company recognizes revenues (net) when the patient receives orthopedic care services. Our patient service contracts generally have performance obligations which are satisfied at a point in time. The performance obligation is for onsite or off-site care provided. Patient service contracts are generally fixed-price, and the transaction price is in the contract. Revenue is recognized when obligations under the terms of the contract with our patients are satisfied; generally, at the time of patient care.

 

Financial Services Income

 

The Company generates revenue from providing tax resolution services to individuals and business owners that have federal and state tax liabilities by assisting its clients to settle outstanding tax debts. Additionally, services include back taxes, offer in compromise, audit representation, amending tax returns, tax preparation, wage garnishment relief, removal of bank levies and liens, and other financial challenges. The Company recognizes revenues for these services as services are performed.

 

Rental Income

 

The Company’s rent revenue is derived from the mobile home leases. The expired leases are considered month-to-month leases. In accordance with section ASC 842, the cost of property held for leasing by major classes of property according to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020. There are no contingent rentals included in income in the accompanying condensed consolidated statements of operations. With the exception of the month-to-month leases, revenue was recognized on a straight-line basis and amortized into income on a monthly basis, over the lease term.

 

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising costs are included as a component of cost of sales in the condensed consolidated statements of operations and changes in members’ equity. The Company recognized advertising and marketing expense of $333,964 and $961,300 for the three and nine months ended September 30, 2021 and $317,899 and $881,591 for the three and nine months ended September 30, 2020, respectively.

 

Valuation of Derivative Instruments

 

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

 

 

 

 

 13 

 

 

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.

 

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2021 and December 31, 2020.

 

             
  Level 1  Level 2  Level 3  Total 

Fair Value of BCF Derivative Liability – September 30,

2021

 $  $  $3,457,646  $3,457,646 
                 

 

  Level 1  Level 2  Level 3  Total 

Fair Value of BCF Derivative Liability – December 31,

2020

 $  $  $2,903,663  $2,903,663 
                 

 

 

 

 

 14 

 

 

Stock-Based Compensation

 

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

 

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

 

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

 

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

 

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

 

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

 

Income Taxes

 

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

 

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

 

For the periods ended September 30, 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.

 

Loss per Share

 

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

 

 

 

 

 15 

 

 

Going Concern

 

The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The Company has sustained operating losses since its inception and has negative working capital and an accumulated deficit. These factors raise substantial doubts about the Company’s ability to continue as a going concern. As of September 30, 2021, the Company has sustained recurring losses and accumulated a working capital deficit of approximately $12 million. The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.

 

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

 

Recent Accounting Standards

 

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion accounting models. As a result, the Company’s convertible debt instruments will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. Management is still evaluating the impact of adoption of ASU 2020-06 and has not adopted ASU 2020-06 as of the filing of this September 30, 2021 Form 10-Q.

 

Changes to accounting principles are established by the FASB in the form of Accounting Standards Update (“ASU”) to the FASB's Codification. We consider the applicability and impact of all ASU's on our financial position, results of operations, shareholders’ deficit. cash flows, or presentation thereof.

 

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments -- Credit Losses (Topic 326), Derivatives and hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of fiscal year beginning January 1, 2023, and early adoption is permitted.

  

Management does not expect that the adoption of this standard will have a material effect on the Company's financial statements.

 

Reclassifications

 

Certain accounts relating to the prior year have been reclassified to conform to the current period’s presentation. These reclassifications had no effect on the net income or net assets as previously reported.

 

 

 

 

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2.RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

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

 

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

 

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

 

  Impact of correction of error 
September 30, 2020 (Unaudited) As previously reported  Adjustments  As restated 
          
Total assets  4,944,770      4,944,770 
             
Derivative liability  3,168,106   (350,869)  2,817,237 
Net, liabilities of discontinued operations  2,425,100   300,164   2,725,264 
Other  6,437,026       6,437,026 
Total liabilities  12,030,232   (50,705)  11,979,527 
             
Accumulated deficit  (63,858,637)  50,705   (63,807,932)
Others  56,773,175      56,773,175 
Total deficiency in shareholders' equity  (7,085,462)  50,705   (7,034,757)

 

  Impact of correction of error 
  As previously       
December 31, 2020 (Audited) 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 operation  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)

 

 

 

 

 

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  Impact of correction of error–3 months ended September 30, 2020 
Three months ended September 30, 2020 (Unaudited) As previously reported  Adjustments  As restated 
          
Loss from operations $(530,568) $  $(530,568)
Change in value of derivative liability  3,864,938   1,254,140   5,119,078 
Others  (348,675)     (348,675)
Other income (expense)  3,516,263   1,254,140   4,770,403 
Net income (loss) before discontinued operations  2,985,695   1,254,140   4,239,835 
(Loss) from discontinued operations  (22,280)  68,185   45,905 
(Loss) Gain from disposal of discontinued operations  (21,140)      (21,140)
Income (loss) from discontinued operations  (43,420)  68,185   24,765 
Net (loss) income  2,942,275   1,322,325   4,264,600 
Deemed dividend on preferred stock          
Net loss attributable to common stockholders $2,942,275  $1,322,325  $4,264,600 
Basic Earnings (loss) per Share            
Continued Operations $3.08      $4.38 
Discontinued Operations $(0.04)     $0.03 
Diluted Earnings (loss) per Share            
Continued Operations $      $0.00 
Discontinued Operations $(0.04)     $0.00 
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share            
Continued Operations  968,379       968,379 
Discontinued Operations  968,379       968,379 
Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share            
Continued Operations  6,394,936,792       6,394,936,792 
Discontinued Operations  968,379       6,394,936,792 

 

  Impact of correction of error – 9 months ended September 30, 2020 
Nine months ended September 30, 2020 (Unaudited) As previously reported  Adjustments  As restated 
          
Loss from operations $(891,634)    $(891,634)
Change in value of derivative liability  (12,378)  903,996   891,618 
Others  (1,118,177)     (1,118,177)
Other income (expense)  (1,130,555)  903,996   (226,559)
Net income (loss) before discontinued operations  (2,022,189)  903,996   (1,118,193)
(Loss) from discontinued operations  (101,236)  (37,016)  (138,252)
(Loss) Gain from disposal of discontinued operations  194,873       194,873 
Income (loss) from discontinued operations  93,637   (37,016)  56,621 
Net (loss) income  (1,928,552)  866,980   (1,061,572)
Deemed dividend on preferred stock     (1,605,266)  (1,605,266)
Net loss attributable to common stockholders $(1,928,552)  (738,286) $(2,666,838)
Basic Earnings (loss) per Share            
Continued Operations $(4.94)     $(6.65)
Discontinued Operations $0.23      $0.14 
Diluted Earnings (loss) per Share            
Continued Operations $(4.94)     $(6.65)
Discontinued Operations $      $0.00 
Weighted Average Shares Outstanding - Basic Earnings (loss) per Share            
Continued Operations  409,666       409,666 
Discontinued Operations  409,666       409,666 
Weighted Average Shares Outstanding - Diluted Earnings (loss) per Share            
Continued Operations  409,666       409,666 
Discontinued Operations  1,444,295,468,290       1,444,295,468,290 

 

 

 

 18 

 

 

3.ACQUISITIONS

 

Nova Ortho and Spine, LLC

 

On May 31, 2021 the Company completed the acquisition of Nova Ortho and Spine LLC. Sellers received a cash payment in the amount of $2,500,000 and were issued 894,834 shares of Series J Preferred Stock of the Company with a par value of $0.001 and a stated value of $4.00 with an aggregate stated value equal to $3,579,334 for a total transaction of $6,079,334. The Preferred J stock rights and privileges include voting rights, a conversion ratio of 1:2:00. The Preferred J shares have a lock-up/leak-out limiting the sale of stock for 6 months after which conversions and sales are limited to 20% of their portfolio per year, pursuant to the terms of the Stock Purchase Agreement. The parties further agreed to performance based contingent supplement payment to Sellers in 2022 should one year from the closing date the Company’s trailing twelve months minimum Pre-Tax Net Income exceed $1,979,320, the “Milestone”, which in that event would cause the issuance to Sellers of 818,750 additional shares of Preferred J Stock, with an aggregate stated value equal to Three Million Two Hundred Seventy-Five Thousand Dollars ($3,275,000). The preliminary purchase price allocation of the net assets acquired is as follows:

 

    
 Nova Ortho and Spine, PLLC
Cash $177,977 
Accounts receivable  653,134 
Property and equipment  92,064 
Other assets  342,493 
Goodwill  5,790,687 
Liabilities  (977,021)
     
Total $6,079,334 

 

4.PROPERTY AND EQUIPMENT, NET

 

Property and equipment as of September 30, 2021 and December 31, 2020 is as follows:

 

       
  

September 30,

2021

  

December 31,

2020

 
Residential housing $344,755  $341,205 
Medical equipment  96,532    
Computer Equipment  9,188    
Furniture, fixture and equipment  91,096   76,017 
Leasehold Improvement  15,950    
         
Total  557,521   417,222 
Less: accumulated depreciation  (274,320)  (205,443)
Property and equipment, net $283,201  $211,779 

 

For the three and nine months ended September 30, 2021, total depreciation expense was $11,621 and $24,441 respectively. And for the three and nine months ended September 30, 2020, total depreciation expense was $5,765 and $17,336, respectively. Of this, depreciation expense recorded as cost of sales for the three and nine months ended September 30, 2021 was $5,446 and $16,338 and depreciation expense recorded as cost of sales for the three and nine months ended September 30, 2020 was $5,446 and $16,380, respectively.

 

 

 

 

 19 

 

 

5.LAND

 

As of September 30,2021, the Company sold 3 lots for $152,000, and had 27 acres of land of approximately $540,000. As of December 31, 2020, the Company had 30 acres of land of approximately $603,000 located in Salmon, Idaho, which was in connection with the acquisition of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E Preferred Stock as consideration for this acquisition. The land is currently vacant and is expected to be developed into a residential community.

 

6.ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

       
  

September 30,

2021

  

December 31,

2020

 
Accounts payable $116,965  $119,653 
Accrued previously factored receivables  471,010    
Accrued credit cards  8,765   28,548 
Accrued income and taxes  145,559   282,798 
Accrued advertising  68,449   75,963 
Accrued payroll wages  11,762   27,569 
Accrued professional fees  68,338   27,727 
Accrued expenses other  110,758   54,815 
Total $1,001,606  $617,073 

 

The Company is delinquent paying certain income and property taxes. As of September 30, 2021 and December 31, 2020 the balance for these taxes, penalties and interest is $145,559 and $282,798.

 

7.LINE OF CREDIT

 

At September 30, 2021 and December 31, 2020, the Company had a revolving line of credit with a financial institution for $92,500 which accrues interest at prime (3.25% at September 30, 2021 and December 31, 2020) plus 3.45%, for a total rate of 6.70%. As of September 30, 2021 and December 31, 2020, the Company had balance of $0 and $51,927, respectively.

 

8.RELATED PARTY TRANSACTIONS

 

On February 11, 2021, the Chairman of the Board and the CEO each converted 62,500 Preferred Series I shares into 25,000,000 restricted common shares for a total of 125,000 Preferred Series I shares into 50,000,000 restricted common shares.

 

The Company assumed notes payable from the previous owners of which are currently managers of certain subsidiaries related to the acquisition of Key Tax on May 8, 2019. These notes and loans are due on demand and do not bear interest. The balance of these notes and loans are $141,370 due from the previous owners at September 30, 2021 and $35,164 due to the previous owners at December 31, 2020, respectively.

 

From time to time, the previous owner which is currently the manager of Platinum Tax Defenders loans funds to the Company to cover short term operating needs. Amounts owed as of September 30, 2021 and December 31, 2020 were $780 and $2,721 respectively.

 

The Company assumed amounts due to previous owners who are current managers Edge View Properties Inc. related to the acquisition on July 16, 2014. These amounts are due on demand and do not bear interest. The balance of these amounts are $8,209 due from the previous owners as of September 30, 2021 and $50,021 due to the previous owners at December 31, 2020, respectively. August 6, 2021, a Board Resolution was executed to terminate one of the two employees of Edge View Properties for fraud, deceit, larceny, and thievery for selling property belonging to the Company and personally taking the $162,598 in proceeds. The Company hired counsel to terminate the employee and handle all legal matters for return of monies and criminal prosecution.

 

 

 

 

 20 

 

 

 

The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive granted in 2020 to the Chief Executive Officer based on his employment agreement since July 1, 2020 of which currently 50% is paid in cash and 50% is accrued. The Company previously paid the Chief Executive Officer $300,000 per year. The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 were $1,155,000 and $1,035,000, respectively.

 

The Company agreed to pay $360,000 per year and a $200,000 of target annual incentive to the Chairman of the Board based on his employment agreement since July 1, 2020 of which currently 50% is paid in cash and 50% is accrued. The Company previously paid the Chairman of the Board $300,000 per year. The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 were $1,140,000 and $1,020,000, respectively.

 

The Company agreed to pay $120,000 per year to the Chief Operating Officer based on his amended employment agreement executed on May 15, 2019. In the third quarter of 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000. The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 was $129,000 and $120,000, respectively.

 

The Company agreed to pay $156,000 per year to the Chief Financial Officer based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 was $17,057.

 

The Company entered into a Management Agreement effective May 31, 2021 for compensation to the Principals of the Company’s Nova Ortho and Spine subsidiary in the form of an annual base salaries of $372,000 to one of the 3 doctors, $450,000 to the second, and $372,000 to the third doctor.

 

Collectively, as a group, Principals will receive an annual cash bonus and stock equity set forth below (the “Annual Bonus”). The Annual Bonus will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth below.

 

YearMinimum Annual Nova EBITDACash Annual BonusSeries J Preferred Stock
2021$2.0M$120,000120,000 Shares
2022$2.4M$150,000135,000 Shares
2023$3.7M$210,000150,000 Shares
2024$5.5M$300,000180,000 Shares
2025$8.0M$420,000210,000 Shares

 

The Company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of September 30, 2021 and December 31, 2020, the Company owed the Chairman $126,849.

 

9.NOTES AND LOANS PAYABLE

 

Notes payable at September 30, 2021 and December 31, 2020 are summarized as follows:

 

       
  

September 30,

2021

  

December 31,

2020

 
Notes and Loans Payable $1,271,391  $1,347,690 
Less current portion  (666,177)  (947,912)
Long-term portion $605,214  $399,778 

 

 

 

 21 

 

 

Long-term debt matures as follows:

 

    
  Amount 
2022 $666,177 
2023  131,361 
2024  16,611 
2025  16,611 
2026  16,611 
Thereafter  424,020 
Total $1,271,391 

 

Notes and Loans Payable – Related Party

 

The Company assumed notes payable from the previous owners of which are currently managers of Key Tax related to the acquisition of Key Tax on May 8, 2019. The notes are due on demand and do not bear interest. Additionally, the previous owner’s loan funds to the Company to cover short term operating needs. The balance of these notes and loans are a debit balance of $141,370 as of September 30, 2021 and a credit balance of $35,164 as of December 31, 2020. From time to time, the previous owner which is currently the manager of Platinum Tax Defenders loans funds to the Company to cover short term operating needs. Amounts owed as of September 30, 2021 and December 31, 2020 were $780 and $2,721 respectively. The amounts due to the previous owners of Edge View were from the original acquisition of the subsidiary and the balance as of September 30, 2021 is a debit of $8,209 and as of December 31, 2020 is a credit balance of $50,021, 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 September 30, 2021 and December 31, 2020. The accrued interest of the note was $4,577 and $3,591 at September 30, 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. This note was converted to preferred stock in the first quarter. See footnote 12, Capital Stock. The balance of the note was -0- at September 30, 2021 and $50,000 at December 31, 2020. The accrued interest of the note was -0- and $37,282 at September 30, 2021 and December 31, respectively.

 

On November 17, 2011, the Company entered into a Promissory Note agreement for $50,000. The note bore interest at 8% per year and matured on November 17, 2016. Effective March 29, 2021, the principal balance of $50,000 and accrued interest of $36,505 were converted into shares of preferred stock. This note was converted to preferred stock in the first quarter. See footnote 12, Capital Stock. The balance of the note was -0- at September 30, 2021 and $50,000 December 31, 2020. The accrued interest of the note was -0- and $55,500 September 30, 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 $19,465 were converted into shares of preferred stock. This note was converted to preferred stock in the first quarter. See footnote 12, Capital Stock. The balance of the note was -0- at September 30, 2021 and $15,000 at December 31, 2020. The accrued interest of the note was -0- and $1,800 at September 30, 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 addendum No. 1 on the note extending the maturity date until December 31, 2020. On May 4, 2021, the Company entered into addendum No. 2, whereby the maturity date shall be amended to be November 3, 2021, accrued interest of $22,266 was added to the principal balance of $410,000 resulting in a new principal balance of $432,266 at May 4, 2021 and interest accruing at the rate of 24%. The principal balance was $432,266 and $410,000 at September 30, 2021 and December 31, 2020, respectively. The accrued interest of the note was $104,232 and $53,805 at September 30, 2021 and December 31, 2020, respectively.

 

 

 

 

 22 

 

 

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 $80,309 and $119,129 at September 30, 2021 and December 31, 2020, respectively. The accrued interest of these short-term loans was $20,826 and $29,544 at September 30, 2021 and December 31, 2020, respectively.

 

Paycheck Protection Program (“PPP”) Loans

 

On April 14, 2020, the Company obtained a PPP loan for $127,400 at an interest rate of 1% with a maturity date of April 14, 2022. This loan has been forgiven as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and was recognized as a gain from forgiveness of debt in the amount of $128,698 recorded in other income and expenses in the condensed consolidated statement of operations. The principal and accrued interest at September 30, 2021 was -0- and the principal and accrued interest at December 31, 2020 was $127,400 and $923 respectively.

 

On May 8, 2020, the Company obtained a PPP loan for $257,500 at an interest rate of 1% with a maturity date of May 8, 2022. This loan has been forgiven as part of the CARES Act and was recognized as a gain from forgiveness of debt in the amount of $261,675 recorded in other income and expenses in the condensed consolidated statement of operations. The principal and accrued interest at September 30, 2021 was -0- and the principal and accrued interest at December 31, 2020 was $257,500 and $3,531 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. The principal balance and accrued interest at September 30, 2021 was $229,500 and $1,402, respectively. This note was forgiven subsequent to September 30, 2021.

 

On February 23, 2021, the Company obtained a PPP loan of $117,550 at an interest rate of 1% with a maturity date of February 23, 2023. This loan has been forgiven as part of the CARES Act and was recognized as a gain from forgiveness of debt in the amount of $117,550 recorded in other income and expenses in the condensed consolidated statement of operations. The principal balance and accrued interest at September 30, 2021 was -0-. This note was forgiven in the third quarter of 2021.

 

Small Business Administration (“SBA”) Loans

 

On June 2, 2020, The Company obtained an SBA loan of $150,000 at an interest rate of 3.75% with a maturity date of June 2, 2050. The principal balance and accrued interest at September 30, 2021 was $149,900 and $7,515, respectively, and principal and accrued interest at December 31, 2020 was $149,900 and $3,310, respectively.

 

On October 7, 2020, the Company obtained an SBA loan for $150,000 at an interest rate of 3.50% with a maturity date of October 7, 2050. On August 31, 2021, this SBA loan was amended to add an additional $200,000 of principal to the original note and the new interest rate was increased to 3.75%. The principal balance and accrued interest at September 30, 2021 was $349,900 and $5,766, respectively, and principal and accrued interest at December 31, 2020 was $149,900 and $1,239 respectively

 

 

 

 

 23 

 

 

10.CONVERTIBLE NOTES PAYABLE

 

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

 

As of September 30, 2021 and December 31, 2020, the Company had convertible debt outstanding of $2,121,106 and $2,584,967. During the nine month period ending September 30, 2021, the Company had proceeds of $444,500 from convertible notes and repaid $22,671 to convertible noteholders. There are debt discounts associated with the convertible debt of $1,250 and $108,320 as of September 30, 2021 and December 31, 2020, respectively. For the nine months ending September 30, 2021 and 2020, the Company recorded amortization of debt discounts of $1,050,014 and $830,980, respectively. The Company recorded amortization of debt discounts of $18,750 and $260,050 during the three months ending September 30, 2021 and 2020, respectively.

 

During the nine months ended September 30, 2021, the Company converted $885,691 of convertible debt principal, $388,143 in accrued interest and $13,000 in penalties and fees into 109,234,241 shares of the company’s Common Stock. During the three months ended September 30, 2020, the Company converted $62,985 of convertible debt, $28,530 in accrued interest and $3,000 penalties and fees into 25,205,830 shares (post reverse split of 10,000:1) of the company’s Common Stock and reclassified a $15,000 convertible note to conventional notes payable. In addition to the conversions of convertible debt into common stock, the Company converted convertible debt principal of $150,000 and accrued interest of $225,800 into 140,799 shares of preferred series B stock. The series B stock has a par value of $.001 and a stated value of $4.00 per share.

 

Convertible notes at September 30, 2021 and December 31, 2020 are summarized as follows:

 

       
  

September 30,

2021

  

December 31,

2020

 
Convertible notes payable $2,121,106  $2,584,967 
Discounts on convertible notes payable  (1,250)  (108,320)
Total convertible debt less debt discount  2,119,856   2,476,647 
Current portion  2,119,856   2,476,647 
Long-term portion $  $ 

 

 

 

 

 24 

 

 

The following is a schedule of convertible notes payable from December 31, 2020 to September 30, 2021.

 

                                     
Note #  Issuance  Maturity Principal Balance 12/31/20  New Loan  Cash Paydown  Principal Conversions  Shares Issued Upon Conversion  Principal Balance 9/30/21  Accrued Interest on Convertible Debt at 12/31/20  Interest Expense On Convertible Debt For the Period Ended 9/30/21  Accrued Interest on Convertible Debt at 9/30/21  Unamortized Debt Discount At 9/30/21 
 1   8/21/2008  8/21/2009 $150,000  $  $  $(150,000)  140,799  $  $222,608  $  $  $ 
 7   2/9/2016  On demand  8,485         (8,485)  18,024,012      4,109   1,489       
 7-1   10/28/2016  10/28/2017  25,000         (15,000)     10,000   15,321   3,686   10,717    
 9   9/12/2016  9/12/2017  80,000         (29,920)  17,278,267   50,080   74,039   10,115   1,617    
 10   1/24/2017  1/24/2018  55,000         (42,355)  4,714,626   12,646   29,736   2,730   14,395    
 11-2   3/16/2017  3/16/2018  21,345         (4,000)     17,345   10,853   2,595   8,968    
 13-2   7/24/2018  1/24/2019  43,961               43,961   26,200   5,918   32,118    
 22   7/10/2018  1/10/2021  838,433      (22,671)        815,471   75,040          
 22-1   2/20/2019  1/10/2021  61,704               61,704   13,754   11,046   24,800    
 22-3   4/10/2019  1/10/2021  56,095               56,095   11,877   10,042   21,919    
 25   8/13/2018  2/13/2019  118,292         (118,292)  17,823,255      5,788   5,114       
 26   8/10/2017  1/27/2018  20,000               20,000   7,533   2,238   9,771    
 29-1   11/8/2019  11/8/2020  101,374         (101,374)  13,561,809      19   3,683   2,283    
 29-2   11/8/2019  11/8/2020  62,367         (25,763)     36,604   14,968   7,438   9,529    
 31   8/28/2019  8/28/2020  61,839         (61,830)  5,247,042      14,059   1,447   8,385    
 32   5/22/2019  5/22/2020  25,000               25,000   7,291   3,730   11,021    
 33   2/11/2020  2/11/2021  153,672         (154,172)  15,522,516      8,214   1,587       
 34   5/18/2020  5/18/2021  50,200         (50,000)  4,121,766      1,876   233   219    
 35   8/24/2020  8/24/2021  85,000         (85,000)  5,759,130      1,811   813   74    
 36-1   9/3/2020  1/3/2021  127,200               122,400   3,934   16,434   20,368    
 36-2   11/3/2020  3/3/2021  120,000               122,400   1,934   16,434   18,368    
 36-3   12/29/2020  4/29/2021  120,000               122,400   98   16,434   16,532    
 36-4   5/5/2020  9/5/2021     187,500            187,500      13,648   13,648   1,250 
 37-1   9/3/2020  6/30/2021  67,000               67,000   2,197   4,998   7,194    
 37-2   11/2/2020  8/31/2021  66,500               66,500   1,090   4,960   6,050    
 37-3   12/29/2020  9/30/2021  66,500               66,500   55   4,958   5,015    
 38   2/9/2021  2/9/2022     103,500      (39,500)  7,181,818   64,000      3,646   3,646    
 39   5/10/2021  5/10/2022     153,500            153,500      3,598   3,598    
                                                 
          $2,584,967  $444,500  $(22,671) $(885,691)  109,375,040  $2,121,106  $554,404  $234,054  $250,235  $1,250 

 

 

11.FAIR VALUE MEASUREMENT

 

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

 

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, A three level hierarchy is applied to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements).

 

 

 

 

 

 25 

 

 

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

 

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

 

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

 

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

 

As of September 30, 2021 and December 31, 2020, the Company did not have any derivative instruments that were designated as hedges.

 

The derivative liabilities as of September 30, 2021 and December 31, 2020 have a level 3 classification.

 

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuation. During the three months ended September 30, 2021, the Company’s stock price decreased from its initial valuation and thus, the derivative liability also decreased. Although, this decrease is offset by an increase in derivative liabilities from new convertible notes that an embedded derivative liability. Generally, as the stock price decreases for each of the related convertible notes that have an embedded derivative liability, the value of the derivative liability decreases. Stock price is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s convertible notes with an embedded derivative liability.

 

The Company used the Black-Scholes Model to measure the fair value of the derivative liabilities as $3,457,646 and $2,903,663 on September 30, 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.

 

The following table provides a summary of changes in fair value of our Level 3 financial liabilities for the nine months ended September 30, 2021:

 

    
Derivative Liability, December 31, 2020 $2,903,663 
Discount on derivatives  645,000 
Derivatives settled  (1,396,610)
Mark to market adjustment  1,305,593 
Derivative Liability, September 30, 2021 $3,457,646 

 

The above table also includes derivative liabilities related to warrants to purchase common stock of $2.40 at September 30, 2021. The net loss for the period includes mark-to-market adjustments relating to the liabilities held during the nine months ended September 30, 2021 in the amounts of $1,171,355.

 

 

 

 

 26 

 

 

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

 

       
  For the Periods Ended 
  September 30, 2021  December 31, 2020 
Volatility 1.0% - 998.8%  204.5% - 1,005.9% 
Risk-free interest rate 0.04% - 0.98%  0.099% - 0.18% 
Expected term .33 – 4.5  .33 – 2.5 

 

12.CAPITAL STOCK

 

Preferred Stock

 

As part of the Nova Ortho acquisition, the Company issued 894,834 shares of preferred stock series J with par value $.001 and a stated value of $4.00, for $3,579,334.

 

And also as part of the Nova Ortho acquisition, the Company issued 868,056 shares of preferred stock series N with par value $.001 and a stated value of $4.00, for $3,000,000 including a discount of $472,224 which was recorded as a reduction to APIC.

 

Effective March 29, 2021, $265,000 in principle from convertible debt and conventional debt and $298,195 in accrued interest was converted into 140,799 shares of preferred stock series B with a $4.00 stated value per share. This has been reflected in the statement of deficiency in shareholders’ equity.

 

The Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000.

 

On February 11, 2021 the Chairman of the Board and the CEO and each converted 62,500 Preferred Series I shares into 25,000,000 restricted common shares for a total of 125,000 Preferred Series I shares into 50,000,000 restricted common shares.

 

During January 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.

 

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.

 

 

 

 

 27 

 

 

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

 

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

 

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

 

Common Stock

 

During the nine months ended September 30, 2021, 109,234,241 shares of common stock were issued upon conversion of certain convertible notes payable and 1,275,427 shares of common stock were issued for services.

 

On February 11, 2021 the Chairman of the Board and the CEO and each converted 62,500 Preferred Series I shares into 25,000,000 restricted common shares for a total of 125,000 Preferred Series I shares into 50,000,000 restricted common shares.

 

13.WARRANTS

 

The initial and ending valuation of the warrants accounted for as derivatives and marked to fair value, as of September 30, 2021 are as follows:

 

    
  

September 30, 2021

 
Initial Valuation $3,795 
Ending Value $2.40 

 

 

The table below set forth the assumptions for the Black-Scholes Model on each initial date and September 30, 2021:

 

    
  September 30, 2021 
Volatility  998.78% 
Risk-free interest rate  0.98% 
Expected term  5 

 

 

 

 

 28 

 

 

The following tables summarize all warrant outstanding as of September 30, 2021, and the related changes during this period. The warrants expire eight years from grant date, which as of September 30, 2021 is 5.0 years. The intrinsic value of the warrants as of September 30, 2021 was $5.00

 

       
  Number of
Warrants
  Weighted
Average
Exercise
Price
 
Stock Warrants      
Balance at December 31, 2020  14,274,477  $0.105 
Granted  231,481,466   0.015 
Exercised      
Expired  (1,335,000)  (0.030)
Balance at September 30, 2021  244,420,943   0.020 
Warrants Exercisable at September 30, 2021  244,420,943  $0.020 

 

14.DISCONTINUED OPERATIONS

 

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

 

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

 

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

 

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

 

On May 1, 2018, the Company entered into a stock for stock purchase agreement with the sellers of Red Rock Travel, LLC and a related management agreement to manage Red Rock Travel, LLC (“Red Rock”). The terms and conditions of those agreements were subsequently violated causing the transaction to be reversed and dissolved on May 31, 2019. Red Rock reverted to its previous ownership, the Company canceled the preferred series K shares related to the aborted acquisition and the Company filed notice with the State of Florida of the dissolution.

 

The Company continued to carry Red Rock liabilities on its balance sheet including accounts payables and accrued expenses of $1,872,086, convertible notes payable of $240,000, accrued interest of $214,318 and a derivative liability of $378,877 as of September 30, 2021. The party responsible for the convertible notes and related accrued interest is in dispute and is currently in litigation. The derivative liability is a function of the convertible notes and accrued interest. And the accounts payable and accrued expenses of $1,872,086 is deemed to be the responsibility of the current owners of Red Rock and was written-off by the Company in the third quarter of 2021 resulting in a gain of $1,872,086 which is recorded in discontinued operation.

 

 

 

 

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On April 26, 2020, the Company filed a lawsuit against Investors of Red Rock seeking a judgment declaring that convertible secured notes totaling $240,000 issued by Red Rock and purportedly convertible into the Company’s common stock, be deemed null and void. The Company continues to maintain the liability of these Red Rock Investor notes on its balance sheet under discontinued operations together with corresponding accrued interest and related derivative liability. Subsequently, in the first quarter of 2022, the company settled a $40,000 note with one Red Rock Investor. Litigation and settlement discussions continue on the remaining $200,000 of Red Rock Investor notes.

 

       
  September 30, 2021  December 31, 2020 
Net liabilities of discontinued operations        
Accounts payable and accrued expenses $  $1,869,961 
Accrued interest  214,318   165,065 
Convertible debt  240,000   240,000 
Derivative liability  378,877   416,669 
Net liabilities of discontinued operations $833,195  $2,691,695 

 

 

             
  Three Months Ended September,  Nine Months Ended September, 
  2021  2020  2021  2020 
(Gain) Loss from discontinued operations            
Interest expense $17,000  $17,189  $51,378  $34,378 
Gain from reversal of Red Rock Travel liabilities $(1,872,086) $  $(1,872,086) $ 
                 
Change in derivative liability  (57,766)  28,716   (37,792)  (172,630)
Loss from discontinued operations $(1,912,852) $45,905  $(1,858,500) $(138,252)

 

 

15.GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET

 

The following table shows our goodwill balances by reportable segment. We review goodwill for impairment on a reporting unit basis quarterly and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Since the date of our last quarterly assessment, we have not identified any changes in circumstances that would indicate the carrying value of goodwill is not recoverable.

 

Allocation of Goodwill to Reporting Segments

 

The following table shows our goodwill balances by reportable segment:

 

             
  

Affordable

Housing Rentals

  

Financial

Services

  Healthcare  Total 
             
Gross carrying value at December 31, 2020 $  $3,499,963  $  $3,499,963 
Accumulated impairment            
Carrying value at December 31, 2020     3,499,963      3,499,963 
Acquisition        5,790,687   5,790,687 
Accumulated impairment            
Carrying value at September 30, 2021 $  $3,499,963  $5,790,687  $9,290,650 

 

 

 

 

 

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16.COMMITMENTS AND CONTINGENCIES

 

Leases

 

ASC 842, “Leases”, requires that a lessee recognize the assets and liabilities that arise from operating leases, A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transaction, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified retrospective approach. Under the effective date method, the Company’s comparative period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted ASC 842, January 1, 2020, using the effective date method and elected certain practical expedients allowing the Company not to reassess:

 

 ·whether expired or existing contracts contain leases under the new definition of a lease;

 

 ·lease classification for expired or existing leases; and

 

 ·whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.

 

The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less.

 

The Company recorded operating lease expense of $91,726 and $22,107 for the three months ended September 30, 2021 and 2020, respectively, and operating lease expense of $108,979 and $64,494 for the nine months ended September 30, 2021 and 2020, respectively.

 

The Company has property leases with future commitments as follows:

 

     
  Amount 
2022 $206,935 
2023  79,574 
2024  22,925 
2025  19,159 
2026  4,671 
Total $333,264 

 

Employees

 

We have an employment agreement effective July 15, 2020 to December 31, 2025 with the Chairman of the Board, Mr. Thompson. with automatic extension for additional successive one (1) year renewals terms unless terminated as defined in the agreement. We provide for compensation of $30,000 per month along with additional incentives.

 

We have an employment agreement effective July 15, 2020 to December 31, 2025 with the Chief Executive Officer, Mr. Cunningham with automatic extension for additional successive one (1) year renewals terms unless terminated as defined the agreement. We provide for compensation of $30,000 per month.

 

The Company agreed to pay $120,000 per year to the Chief Operating Officer based on his amended employment agreement executed on May 15, 2019. In the third quarter of 2021, the Chief Operating Officer received 61,000 shares of preferred stock series B in exchange for accrued salaries of $244,000. The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 was $129,000 and $120,000, respectively.

 

 

 

 

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In April 2021, the Company’s previous Chief Financial Officer was terminated and replaced. The Company agreed to pay the new Chief Financial Officer $156,000 per year along with a bonus of preferred shares based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued compensation as of September 30, 2021 and December 31, 2020 was $17,057.

 

The Company entered into a Management Agreement effective May 31, 2021 for compensation to the Principals of the Company’s Nova Ortho and Spine (“Nova”) subsidiary in the form of an annual base salaries of $372,000 to one of the 3 doctors, $450,000 to the second, and $372,000 to the third doctor.

 

Collectively, as a group, Principals of Nova will receive an annual cash bonus and stock equity set forth in footnote 8 (the “Annual Bonus”). The Annual Bonus will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth in footnote 8.

 

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

 

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

 

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

 

On August 6, 2021, a Board Resolution was executed to terminate one of the two employees of Edge View Properties for fraud, deceit, larceny, and thievery for selling property belonging to the Company and personally taking the $162,598 in proceeds. The Company hired counsel to terminate the employee and handle all legal matters for return of monies and criminal prosecution.

 

17.INCOME TAXES

 

At September 30, 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.

 

18.SUBSEQUENT EVENTS

 

General Matters

 

December 7, 2021 – The Company executed a Buyback Agreement finalizing the sale of JM Enterprises1, Inc., acquired May 8, 2019, back to the original sellers.

 

February 17, 2022 - The Company concluded that the Company’s previously issued consolidated financial statements as of and for the year ended December 31, 2020 included in our Annual Report on Form 10-K (the “2020 10-K”) and the Company’s unaudited condensed consolidated financial statements for the three months ended and year-to-date period ended March 31, 2021 (the “2021 Q-1 10-Q”) (the periods covered by the 2020 10-K and the 2021 Q-1 10-Q being referred to herein as the “Affected Periods”) should no longer be relied upon. As a result, the Company restated the financial statements for the Affected Periods. The restatement primarily relates to the accounting for (1) the valuation of embedded derivative liabilities in certain matured convertible notes and (2) the accounting treatment for changes in certain rights and privileges with respect to certain classes of preferred stock on January 10, 2020.

 

 

 

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Subsequent to September 30, 2021, Paycheck Protection Program Loans totaling $229,500 have been forgiven.

 

On March 15, 2022 the Company settled a $40,000 promissory note between Red Rock Travel and note holder. The settlement amount was $13,333 payable by the issuance of common shares of stock.

 

Stock Issuances:

 

November 9, 2021 - the Company issued 351,604 shares of common stock in connection with a service agreement.

 

December 28, 2021 – 180,000,000 shares were surrendered back to the treasury.

 

December 29, 2021 - the Company issued 1,275,427 shares of common stock in connection with a service agreement.

 

March 31, 2022 – 1,275,427 preferred shares were returned to treasury.

 

April 28, 2022 – 37,500 preferred shares were issued in exchange for 37,500 preferred shares of a different class of preferred. Same Rights & Privileges.

 

 

19.SEGMENT REPORTING

 

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

 

 (1)Affordable Housing (We Three) and

 

 (2)

Financial Resolution Services (Platinum Tax and Key Tax)

 

 (3)

Healthcare (Nova Ortho and Spine)

 

(4) Real Estate (Edge View Properties Inc

 

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

 

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

 

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

 

Nova Ortho and Spine is a group of doctors that provide a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves.

 

 

 

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Management uses numerous tools and methods to evaluate and measure of it’s subsidiaries success. To help succeed, management retains the prior owners of the subsidiaries and allow them to do what they do best is run the business. Additionally, management monitors key metrics primarily revenues and net income from operations.

 

       
  

As of September 30,

2021

  

As of December 31,

2020

 
Assets:      
Affordable Housing Rentals $244,830  $258,813 
Financial Services  4,861,481   4,369,195 
Healthcare  7,679,720    
Real Estate  613,738    
Other  (306,838)  302,139 
Consolidated assets $13,092,931  $4,930,147 

 

  

For the Three

Months Ended

September 30, 2021

  

For the Three

Months Ended

September 30, 2020

 
Revenues:      
Affordable Housing Rentals $30,944  $31,993 
Financial Services  1,034,422   675,915 
Healthcare  2,092,427    
Real Estate  152,000    
Total revenues $3,309,793  $707,908 
         
Cost of Sales:        
Affordable Housing Rentals $22,281  $26,279 
Financial Services  454,118   437,707 
Healthcare  526,839    
Real Estate  79,481    
Total cost of sales $1,082,719  $463,986 
         
Income (Loss) from Operations From Subsidiaries:        
Affordable Housing Rentals $(2,276) $(5,683)
Financial Services  (63,715)  (216,224)
Healthcare  1,382,155    
Real Estate  68,934    
Total Income (Loss) from operations from subsidiaries $1,385,098  $(221,907)
         
Loss From Operations from Cardiff Lexington $(318,448) $(308,661)
Total income (loss) from operations $1,066,650  $(530,568)

 

 

 

 

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  For the Nine Months Ended September 30, 2021  For the Nine Months Ended September 30, 2020 
Revenues:      
Affordable Housing Rentals $97,767  $110,820 
Financial Services  3,432,819   2,551,325 
Healthcare  2,742,001    
Real Estate  152,000    
Total revenues $6,424,587  $2,662,145 
         
Cost of Sales:        
Affordable Housing Rentals $68,269  $81,763 
Financial Services  1,328,508   1,228,096 
Healthcare  726,289    
Real Estate  79,481    
Total cost of sales $2,202,547  $1,309,859 
         
Income (Loss) from Operations From Subsidiaries:        
Affordable Housing Rentals $(13,984) $(10,331)
Financial Services  324,761   (134,092)
Healthcare  1,786,434    
Real Estate  68,934    
Total Income (Loss) from operations from subsidiaries $2,166,145  $(144,423)
         
Loss From Operations from Cardiff Lexington $(3,831,975) $(747,211)
Total loss from operations $(1,665,830) $(891,634)

 

 

 

 35 

 

 

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

 

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

 

Cautionary Statement Concerning Forward-Looking Information

 

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

 

Overview

 

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

 

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

 

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

 

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

 

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

 

 

 

 

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

 

Nova Ortho and Spine, PLLC (“Nova Ortho”) which we acquired on May 31, 2021 is a company in which doctors provides a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves. From sports injuries, to sprains, strains, and fractures, our doctors are dedicated to helping you return to your active lifestyle. Orthopedic and pain procedure services include hip and knee replacement, shoulder reconstruction, fracture care and hand surgery, as well as spinal surgery in the State of Florida.

 

Impact of COVID-19 Outbreak

 

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

 

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

 

 

 

 

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

 

  

For the Three

Months Ended

September 30, 2021

  

For the Three

Months Ended

September 30, 2020

 
Revenues:        
Affordable Housing Rentals $30,944  $31,993 
Financial Services  1,034,422   675,915 
Healthcare  2,092,427    
Real Estate  152,000    
Total revenues $3,309,793  $707,908 
         
Cost of Sales:        
Affordable Housing Rentals $22,281  $26,279 
Financial Services  454,118   437,707 
Healthcare  526,839    
Real Estate  79,481    
Total cost of sales $1,082,719  $463,986 
         
Income (Loss) from Operations From Subsidiaries:        
Affordable Housing Rentals $(2,276) $(5,683)
Financial Services  (63,715)  (216,224)
Healthcare  1,382,155    
Real Estate  68,934    
Total Income (Loss) from operations from subsidiaries $1,385,098  $(221,907)
         
Loss From Operations from Cardiff Lexington $(318,448) $(308,661)
Total income (loss) from operations $1,066,650  $(530,568)

 

 

 

 

 

 

 38 

 

 

  For the Nine Months Ended
September 30, 2021
  For the Nine Months Ended
September 30, 2020
 
Revenues:        
Affordable Housing Rentals $97,767  $110,820 
Financial Services  3,432,819   2,551,325 
Healthcare  2,742,001    
Real Estate  152,000    
Total revenues $6,424,587  $2,662,145 
         
Cost of Sales:        
Affordable Housing Rentals $68,269  $81,763 
Financial Services  1,328,508   1,228,096 
Healthcare  726,289    
Real Estate  79,481    
Total cost of sales $2,139,547  $1,309,859 
         
Income (Loss) from Operations From Subsidiaries:        
Affordable Housing Rentals $(13,984) $(10,331)
Financial Services  324,761   (134,092) 
Healthcare  1,786,434    
Real Estate  68,934    
Total Income (Loss) from operations from subsidiaries $2,166,145  $(144,423) 
         
Loss From Operations from Cardiff Lexington $(3,831,975) $(747,211)
Total loss from operations $(1,665,830) $(891,634)

 

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

 

Results of Operations

 

Three Months Ended September 30, 2021 and 2020

 

Revenues were $3,309,793 and $707,908 for the three months ended September 30, 2021 and 2020 an increase of $2,601,885 or 367.5%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho which generated revenue of $2,092,427 for the three months ended September 30, 2021, the sale of parcels of land by Edge View of $152,000 and (ii) higher sales in the third quarter of 2021 due primarily to the impact of the COVID-19 pandemic during 2020.

 

Cost of sales were $1,082,719 and $463,986 for the three months ended September 30, 2021 and 2020 an increase of $618,733 or 133.4%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho, the sale of parcels of land by Edge View, and (ii) higher advertising expenses, merchant fees and compensation in the third quarter of 2021.

 

Gross margins were $2,227,074 and $243,922 for the three months ended September 30, 2021 and 2020 an increase of $1,983,152 or 813.0%, respectively.

 

 

 

 

 39 

 

 

Operating expenses were $1,160,424 and $744,490 for the three months ended September 30, 2021 and 2020 an increase of $385,934 or 49.8%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho, (ii) an increase in accounting fees and legal fees offset by a decrease in management fees.

 

Net income was $2,035,970 and $4,264,600 for the three months ended September 30, 2021 and 2020 a decrease of $2,228,630 or 52.3%, respectively.

 

Nine Months Ended September 30, 2021 and 2020

 

Revenues were $6,424,587 and $2,662,145 for the nine months ended September 30, 2021 and 2020 an increase of 3,762,442 or 141.3%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho which generated revenue of $2,742,001 for the four months ending September 30, 2021, (ii) the sale of parcels of land by Edge View of $152,000 and (iii) higher sales in the nine months ended September 30, 2021 due primarily to the impact of the COVID-19 pandemic during 2020.

 

Cost of sales were $2,202,547 and $1,309,859 for the nine months ended September 30, 2021 and 2020 an increase of $892,688 or 68.2%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho, the sale of parcels of land by Edge View and (iii) higher advertising expenses, merchant fees and compensation in the nine months ended September 30, 2021 due primarily to higher sales and the impact of the COVID-19 pandemic during 2020.

 

Gross margins were $4,222,040 and $1,352,286 for the nine months ended September 30, 2021 and 2020 an increase of $2,869,754 or 212.2%, respectively.

 

Operating expenses were $5,887,870 and $2,243,920 for the nine months ended September 30, 2021 and 2020 an increase of $3,643,950 or 162.4%, respectively. The increase was primarily due to: (i) the acquisition of Nova Ortho on May 31, 2021, and (ii) an increase in accounting fees and legal fees.

 

Net loss was $2,810,930 and $1,061,572 for the nine months ended September 30, 2021 and 2020 an increase of $1,749,358 or 164.8%, respectively.

 

The Company had been affected by the economic pressure of the COVID-19 pandemic and the subsequent directives and responses to this crisis taken by federal, state, and local governments. Several of our subsidiaries have been hard-hit by the pandemic. We were able to secure Paycheck Protection Program (PPP) loans to offset the reduction in revenues and profitability. Furthermore, the stock market has been severely adversely impacted with our stock price experiencing a period of high volatility. In light of current circumstances arising from the COVID-19 pandemic, the Company as a public reporting company must evaluate what we should and are obligated to do in order to protect shareholders from the negative effects of this pandemic. In order to adequately sustain funding for 2020 operations and continue our growth through acquisitions the Board Of Directors have initiated a reverse stock split of 10,000:1 which became effective May 2020.

 

The Company raised $444,500 in convertible notes and $547,050 in SBA and PPP loans during the nine months ended September 30, 2021. Also, the Company entered into an agreement on April 29, 2020 engaging an exclusive financial advisor in connection with a transaction or related series or combination of transactions involving a merger, share capital exchange, asset acquisition, share purchase, reorganization or similar business combination. The advisor is a boutique investment bank created by experienced professionals that have worked together for over a decade, collectively financing over $50 billion of public and private capital raises, restructurings, and mergers and acquisitions. The term of the agreement is 1 year and the fees include shares of common stock and out-of-pocket expenses as defined in the agreement. Additionally, the Company entered into an agreement August 26, 2020 with the same firm to underwrite a registered public offering. The term of the agreement is the earlier of the consummation of the offering or 1 year and fees include cash and equity as defined in the agreement.

 

Inflation

 

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

 

Liquidity and Capital Resources

 

Since inception, the principal sources of cash have been funds raised from (i) debenture convertible notes and conventional notes payable, (ii) the sale of common stock and preferred stock, and (iii) advances from shareholders. At September 30, 2021, we had $1,212,978 in cash, a working capital deficit of $9,035,731 and total assets of $13,092,931 and total liabilities of $11,999,917.

 

 

 

 

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Net cash provided by (used in) operating activities was $1,348,849 and $443,936 for the nine months ended September 30, 2021 and 2020, respectively. The negative cash flows for the nine months ended September 30, 2021 were primarily due to the net loss of $2,810,930, an increase in accounts receivable of $114,399 and a decrease in accrued interest of $326,881, offset by a decrease in accounts payable and accrued expenses of $594,276. The negative cash flows for the nine months ended September 30, 2020 were primarily due to the net loss of $1,928,552, and a decrease in accounts payable and accrued expenses of $166,867 offset by an increase in accrued officer’s compensation of $219,570.

 

Net cash used in investing activities was $2,323,642 and $-0- for the nine months ended September 30, 2021 and 2020, respectively. The cash used in investing activities was for the acquisition of the new business.

 

Net cash provided by financing activities was $3,766,960 and $725,543 for the nine months ended September 30, 2021 and 2020, respectively. The positive cash flows for the nine months ended September 30, 2021 were primarily due to proceeds from convertible notes of $400,000, proceeds from SBA and PPP loans of $547,050, and proceeds from the issuance of preferred stock of $3,000,000 offset by the paydown of the line of credit of $51,927. The positive cash flows for the nine months ended September 30, 2020 were primarily due to proceeds from convertible notes of $415,000, proceeds from PPP loans of $551,900 partially offset by distributions of $187,850.

 

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

 

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

 

Off Balance Sheet Arrangements

 

As of September 30, 2021, we had no off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable

 

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

 

 (a)Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer has concluded that these disclosure controls and procedures are ineffective. There have been no changes to our disclosure controls and procedures during the three months ended September 30, 2021.

 

There has been no change in our internal control over financial reporting during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.

 

 (b)Changes in Internal Controls

 

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

 

 

 

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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.INS*Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101).

_________________

*to be filed by amendment

 

 

 

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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: June 30, 2022CARDIFF LEXINGTON CORPORATION
  
 By:/s/ Alex Cunningham
  Alex Cunningham
Chief Executive Officer
   
   
 By:/s/ Daniel Thompson
  Daniel Thompson
  Chairman

 

 

 

 

 

 

 

 

 

 

 

 

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