The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
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, 2021.
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, 2021.
Platinum Tax Defenders, LLC (“Platinum Tax”),
acquired July 31, 2018
JM Enterprises 1, Inc. dba Key Tax Group (“Key Tax”),
acquired May 8, 2019; Sold December 31, 2021
Red Rock Travel Group, LLC (“Red Rock”), acquired
July 31, 2018, discontinued May 31, 2019
Nova Ortho and Spine, PLLC (“Nova”), acquired
May 31, 2021
Basis of Presentation and Principles of Consolidation
The accompanying June 30, 2022 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, 2021. The
results of operations for the periods presented are not necessarily indicative of results to be expected for the full fiscal year or any
other periods.
Use of Estimates
The preparation of financial statements in conformity
with 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 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 2021 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 zero 0 as of June 30, 2022 and
December 31, 2021, respectfully. As of June 30, 2022 and December 31, 2021, the Company had accounts receivable of $6,239,091 and
$4,948,796, 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:
Schedule of estimated useful lives |
|
Classification |
Useful Life |
Equipment, furniture, and fixtures |
5 - 7 years |
Medical equipment |
10 years |
Leasehold improvements |
10 years or lease term, if shorter |
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands are not amortized,
but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment testing of goodwill
is performed separately from our impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill
and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future
cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace
participants. During quarters ended June 30, 2022 and 2021, the Company did not recognize any goodwill impairment. The Company based this
decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors.
Valuation of long-lived assets
In accordance with the provisions of Accounting
Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived
assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated
by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value of the assets.
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.
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 18-month historical payment and collection percentages. The Company generally receives all of its collections within
18 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 six months ended June 30, 2022 and 2021,
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 June 30, 2022 and December 31, 2021. 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 $82,269 and $210,054 For the Three and Six Months Ended June 30, 2022
and 2021, 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.
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.
Fair Value Measurements
Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level
of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1) market participant
assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The
fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value
hierarchy are described below:
Level Input Definition
Level 1 |
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. |
Level 2 |
Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date. |
Level 3 |
Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
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 June 30, 2022 and June 30, 2021, 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.
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 June 30, 2022, the Company has sustained recurring losses and has a working capital deficit of approximately
$3.1 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 2021, the FASB issued ASU No. 2021-06
(“ASU 2021-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40).” ASU 2021-06 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. Upon adoption of ASU 2020-06, we classified the previously identified beneficial conversion features
to the associated debt. We also determined, that in accordance with ASU 2017-11, such beneficial conversion features are not considered
a liability classified derivative.
Changes to accounting principles are established
by the FASB in the form of Accounting Standards Update (“ASU”) to the FASB's Codification. We consider the applicability and
impact of all ASU's on our financial position, results of operations, shareholders’ deficit. cash flows, or presentation thereof.
In June 2016, the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial
Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred.
The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other
receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables
and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments -- Credit Losses
(Topic 326), Derivatives and hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies
until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of fiscal
year beginning January 1, 2023, and early adoption is permitted.
Management does not expect that the adoption of
this standard will have a material effect on the Company's financial statements.
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:
Schedule of preliminary purchase price allocation |
|
|
|
|
|
Nova Ortho and Spine, PLLC |
|
Cash |
|
$ |
177,977 |
|
Accounts receivable |
|
|
4,052,213 |
|
Property and equipment |
|
|
92,064 |
|
Other assets |
|
|
342,493 |
|
Goodwill |
|
|
2,391,608 |
|
Liabilities |
|
|
(977,021 |
) |
|
|
|
|
|
Total |
|
$ |
6,079,334 |
|
3. |
PROPERTY AND EQUIPMENT, NET |
Property and equipment as of June 30, 2022 and
December 31, 2021 is as follows:
Schedule of Property and Equipment | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
Residential housing | |
$ | 312,230 | | |
$ | 319,856 | |
Medical equipment | |
| 35,974 | | |
| 96,532 | |
Computer Equipment | |
| 9,189 | | |
| 9,189 | |
Furniture, fixture and equipment | |
| 96,532 | | |
| 35,974 | |
Leasehold Improvement | |
| 15,950 | | |
| 15,950 | |
| |
| | | |
| | |
Total | |
| 469,975 | | |
| 477,501 | |
Less: accumulated depreciation | |
| (237,048 | ) | |
| (218,471 | ) |
Property and equipment, net | |
$ | 232,927 | | |
$ | 259,030 | |
For the three and six months ended June 30, 2022,
total depreciation expense was $10,814 and $21,628,
respectively. Depreciation expense recorded as cost of sales for the three and six months ended June 30, 2022 was $5,031
and $10,062,
respectively, and depreciation expense recorded as cost of sales for the year ended December 31, 2021 was $12,448.
In the quarter ended September 30,2021, the Company
sold 3 lots for $152,000. At June 30, 2022, the Company had 27 acres of land of approximately $540,000. As of December 31, 2021, 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.
5. |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
Schedule of accrued expenses | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
Accounts payable | |
$ | 325,492 | | |
$ | 170,914 | |
Accrued previously factored receivables | |
| 1,362,467 | | |
| 846,754 | |
Accrued credit cards | |
| 33,146 | | |
| 16,466 | |
Accrued income and taxes | |
| 6,732 | | |
| 7,553 | |
Accrued advertising | |
| 69,656 | | |
| 39,886 | |
Accrued payroll wages | |
| 28,798 | | |
| 39,959 | |
Accrued professional fees | |
| 262,621 | | |
| 270,827 | |
Accrued expenses other | |
| 363 | | |
| 363 | |
Total | |
$ | 2,089,275 | | |
$ | 1,392,722 | |
The Company is delinquent paying certain income
and property taxes. As of June 30, 2022 and December 31, 2021 the balance for these taxes, penalties and interest is $6,732 and $7,553.
6. |
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.
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 June
30, 2022 and December 31, 2021 were $4,025 and $37 respectively.
The Company assumed amounts due to previous owners
who are current managers of Edge View Properties Inc. related to the acquisition on July 16, 2014. These amounts are due on demand and
do not bear interest. The balance of these amounts are $4,979 due from the previous owners as of June 30, 2022 and December 31, 2021,
respectively. On August 6, 2021, a Board Resolution was executed to terminate one of the two employees of Edge View Properties for fraud,
deceit, larceny, and thievery for selling property belonging to the Company and personally taking the $162,598 in proceeds. The Company
hired counsel to terminate the employee and handle all legal matters for return of monies and criminal prosecution.
The Company agreed to pay $360,000 per year and
a $200,000 of target annual incentive granted in 2021 to the Chief Executive Officer based on his employment agreement since July 1, 2021
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 June 30, 2022 and December 31, 2021 were $1,535,000 and $1,415,000, 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, 2021 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 June 30, 2022 and December 31, 2021 were $1,520,000 and $1,400,000, 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 June 30, 2022 and December 31, 2021 was $219,000 and $159,000, 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 June 30, 2022 and December 31, 2021 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.
The Company obtained short-term advances from
the Chairman of the Board that are non-interest bearing and due on demand. As of June 30, 2022 and December 31, 2021, the Company owed
the Chairman $123,882 and $126,765.
7. |
NOTES AND LOANS PAYABLE |
Notes payable at June 30, 2022 and December 31,
2021 are summarized as follows:
Schedule of notes payable | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
Notes and Loans Payable | |
$ | 599,413 | | |
$ | 600,932 | |
Less current portion | |
| (458,127 | ) | |
| (458,177 | ) |
Long-term portion | |
$ | 141,286 | | |
$ | 142,755 | |
Long-term debt matures as follows:
Schedule of Maturities of Long-term Debt | |
| | |
| |
Amount | |
2023 | |
$ | 458,127 | |
2024 | |
| 4,872 | |
2025 | |
| 4,872 | |
2026 | |
| 4,872 | |
2027 | |
| 4,872 | |
Thereafter | |
| 121,798 | |
Total | |
$ | 599,413 | |
Notes and Loans Payable – Related Party
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 June
30, 2022 and December 31, 2021 were $4,025 and $37, respectively. The amounts due from the previous owners of Edge View is $4,979 as of
June 30, 2022 and as of December 31, 2021.
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 June 30, 2022 and December 31, 2021. The accrued interest of the note was
$5,564 and $4,910 at June 30, 2022 and December 31, 2021, respectively.
On September 9, 2019, the Company obtained a promissory
note for $410,000 at 10% interest and matured on September 9, 2021. On November 10, 2021, the Company entered into addendum No. 1 on the
note extending the maturity date until December 31, 2021. On May 4, 2021, the Company entered into addendum No. 2, whereby the maturity
date was amended to 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 at June 30, 2022 and December
31, 2021, respectively. The accrued interest of the note was $208,092 and $137,345 at June 30, 2022 and December 31, 2021, respectively.
Small Business Administration (“SBA”)
Loans
On June 2, 2021, 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 June 30,
2022 was $146,158 and $5,723, respectively, and the principal balance and accrued interest at December 31, 2021 was $147,677 and $5,723,
respectively.
8. |
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 June 30, 2022 and December 31, 2021,
the Company had convertible debt outstanding of $2,790,690
and $2,077,753, respectively, net of
debt discounts. During the six months period ending June 30, 2022, the Company had proceeds of $752,260
from convertible notes and repaid $5,908
to convertible noteholders. There are debt discounts associated with the convertible debt of $33,415
and $0 as of June 30,
2022 and December 31, 2021, respectively. For the six months ending June 30, 2022 and 2021, the Company recorded amortization of
debt discounts of $156,252
and $1,031,264,
respectively. For the three months ending June 30, 2022 and 2021, the Company recorded amortization of debt discounts of $111,706
and $315,863, respectively.
The Company had no convertible debt conversion
during the six months ended June 30, 2022.
Convertible notes at June 30, 2022 and December 31, 2021 are summarized
as follows:
Schedule of convertible notes summary | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
Convertible notes payable | |
$ | 2,824,105 | | |
$ | 2,077,753 | |
Discounts on convertible notes payable | |
| (33,415 | ) | |
| – | |
Total convertible debt less debt discount | |
| 2,790,690 | | |
| 2,077,753 | |
Current portion | |
| 2,790,690 | | |
| 2,077,753 | |
Long-term portion | |
$ | – | | |
$ | – | |
The following is a schedule of convertible notes payable from December
31, 2021 to June 30, 2022.
Schedule of convertible notes details |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
# |
|
|
Issuance |
|
|
Maturity |
|
Principal
Balance 12/31/21 |
|
|
New
Loan |
|
|
Cash
Paydown |
|
|
Principal
Conversions |
|
|
Shares
Issued Upon Conversion |
|
|
Principal
Balance 6/30/22 |
|
|
Accrued
Interest on Convertible Debt at 12/31/21 |
|
|
Interest
Expense On Convertible Debt For the Period Ended 6/30/22 |
|
|
Accrued
Interest on Convertible Debt at 6/30/22 |
|
|
Unamortized
Debt Discount At 6/30/22 |
|
|
7-1 |
|
|
|
10/28/2016 |
|
|
10/28/2017 |
|
|
10,000 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
|
– |
|
|
$ |
10,000 |
|
|
$ |
10,899 |
|
|
$ |
992 |
|
|
$ |
11,891 |
|
|
$ |
– |
|
|
9 |
|
|
|
9/12/2016 |
|
|
9/12/2017 |
|
|
50,080 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
50,080 |
|
|
|
4,141 |
|
|
|
4,967 |
|
|
|
9,108 |
|
|
|
– |
|
|
10 |
|
|
|
1/24/2017 |
|
|
1/24/2018 |
|
|
12,646 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
12,646 |
|
|
|
14,831 |
|
|
|
1,254 |
|
|
|
16,085 |
|
|
|
– |
|
|
11-2 |
|
|
|
3/16/2017 |
|
|
3/16/2018 |
|
|
17,345 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
17,345 |
|
|
|
9,843 |
|
|
|
1,720 |
|
|
|
11,563 |
|
|
|
– |
|
|
13-2 |
|
|
|
7/24/2018 |
|
|
1/24/2019 |
|
|
43,961 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
43,961 |
|
|
|
34,113 |
|
|
|
3,924 |
|
|
|
38,037 |
|
|
|
– |
|
|
22 |
|
|
|
7/10/2018 |
|
|
1/10/2021 |
|
|
772,118 |
|
|
|
– |
|
|
|
(5,908 |
) |
|
|
– |
|
|
|
– |
|
|
|
766,210 |
|
|
|
|
|
|
|
30,732 |
|
|
|
30,732 |
|
|
|
– |
|
|
22-1 |
|
|
|
2/20/2019 |
|
|
1/10/2021 |
|
|
61,704 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
61,704 |
|
|
|
28,523 |
|
|
|
7,344 |
|
|
|
35,867 |
|
|
|
– |
|
|
22-3 |
|
|
|
4/10/2019 |
|
|
1/10/2021 |
|
|
56,095 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
56,095 |
|
|
|
25,303 |
|
|
|
6,676 |
|
|
|
31,979 |
|
|
|
– |
|
|
26 |
|
|
|
8/10/2017 |
|
|
1/27/2018 |
|
|
20,000 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
20,000 |
|
|
|
10,525 |
|
|
|
1,488 |
|
|
|
12,013 |
|
|
|
– |
|
|
29-1 |
|
|
|
11/8/2019 |
|
|
11/8/2021 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,283 |
|
|
|
– |
|
|
|
2,283 |
|
|
|
– |
|
|
29-2 |
|
|
|
11/8/2019 |
|
|
11/8/2021 |
|
|
36,604 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
36,604 |
|
|
|
11,374 |
|
|
|
4,357 |
|
|
|
15,732 |
|
|
|
– |
|
|
31 |
|
|
|
8/28/2019 |
|
|
8/28/2021 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
8,385 |
|
|
|
– |
|
|
|
8,385 |
|
|
|
– |
|
|
32 |
|
|
|
5/22/2019 |
|
|
5/22/2021 |
|
|
25,000 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
25,000 |
|
|
|
12,277 |
|
|
|
2,479 |
|
|
|
14,756 |
|
|
|
– |
|
|
34 |
|
|
|
5/18/2021 |
|
|
5/18/2021 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
219 |
|
|
|
– |
|
|
|
219 |
|
|
|
– |
|
|
35 |
|
|
|
8/24/2021 |
|
|
8/24/2021 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
74 |
|
|
|
– |
|
|
|
74 |
|
|
|
– |
|
|
36-1 |
|
|
|
9/3/2021 |
|
|
1/3/2021 |
|
|
122,400 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
122,400 |
|
|
|
25,906 |
|
|
|
10,925 |
|
|
|
36,831 |
|
|
|
– |
|
|
36-2 |
|
|
|
11/3/2021 |
|
|
3/3/2021 |
|
|
122,400 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
122,400 |
|
|
|
23,906 |
|
|
|
10,925 |
|
|
|
34,831 |
|
|
|
– |
|
|
36-3 |
|
|
|
12/29/2021 |
|
|
4/29/2021 |
|
|
122,400 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
122,400 |
|
|
|
22,070 |
|
|
|
10,925 |
|
|
|
32,995 |
|
|
|
– |
|
|
36-4 |
|
|
|
5/5/2021 |
|
|
9/5/2021 |
|
|
187,500 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
187,500 |
|
|
|
22,131 |
|
|
|
16,736 |
|
|
|
38,867 |
|
|
|
– |
|
|
36-5 |
|
|
|
1/11/2022 |
|
|
5/11/2022 |
|
|
– |
|
|
|
202,300 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
202,300 |
|
|
|
– |
|
|
|
16,960 |
|
|
|
16,960 |
|
|
|
– |
|
|
36-6 |
|
|
|
3/9/2022 |
|
|
7/9/2022 |
|
|
– |
|
|
|
146,667 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
146,667 |
|
|
|
– |
|
|
|
8,173 |
|
|
|
8,173 |
|
|
|
2,139 |
|
|
36-7 |
|
|
|
3/22/2022 |
|
|
7/22/2022 |
|
|
– |
|
|
|
202,000 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
202,000 |
|
|
|
– |
|
|
|
9,962 |
|
|
|
9,962 |
|
|
|
8,416 |
|
|
36-8 |
|
|
|
4/25/2022 |
|
|
8/25/2022 |
|
|
– |
|
|
|
201,293 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
201,293 |
|
|
|
– |
|
|
|
6,552 |
|
|
|
6,552 |
|
|
|
22,860 |
|
|
37-1 |
|
|
|
9/3/2021 |
|
|
6/30/2021 |
|
|
67,000 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
67,000 |
|
|
|
8,878 |
|
|
|
3,323 |
|
|
|
12,201 |
|
|
|
– |
|
|
37-2 |
|
|
|
11/2/2021 |
|
|
8/31/2021 |
|
|
66,500 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
66,500 |
|
|
|
7,722 |
|
|
|
3,298 |
|
|
|
11,020 |
|
|
|
– |
|
|
37-3 |
|
|
|
12/29/2021 |
|
|
9/30/2021 |
|
|
66,500 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
66,500 |
|
|
|
6,686 |
|
|
|
3,298 |
|
|
|
9,984 |
|
|
|
– |
|
|
38 |
|
|
|
2/9/2021 |
|
|
2/9/2022 |
|
|
64,000 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
64,000 |
|
|
|
4,614 |
|
|
|
1,904 |
|
|
|
6,518 |
|
|
|
– |
|
|
39 |
|
|
|
5/10/2021 |
|
|
5/10/2022 |
|
|
153,500 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
153,500 |
|
|
|
5,915 |
|
|
|
4,567 |
|
|
|
10,481 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,077,753 |
|
|
$ |
752,260 |
|
|
$ |
(5,908 |
) |
|
$ |
– |
|
|
|
– |
|
|
$ |
2,824,105 |
|
|
$ |
300,618 |
|
|
$ |
173,481 |
|
|
$ |
474,099 |
|
|
$ |
33,415 |
|
9. |
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).
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 June 30, 2022 and December 31, 2021, the
Company did not have any derivative instruments.
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.
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 2021, 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.
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 six months ended June 30, 2021, 84,028,411
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.
Schedule of warrant activity | |
| | | |
| | |
| |
Number of Warrants | | |
Weighted Average Exercise Price | |
Stock Warrants | |
| | | |
| | |
Balance at December 31, 2021 | |
| 244,420,943 | | |
$ | 0.020 | |
Granted | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | |
Expired | |
| (5,839,287 | ) | |
| (0.015 | ) |
Balance at June 30, 2022 | |
| 238,581,656 | | |
| 0.017 | |
Warrants Exercisable at June 30, 2022 | |
| 238,581,656 | | |
$ | 0.017 | |
12. |
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, 2021. Pursuant to the Repicci’s Agreement, the Repicci’s manager resigned employment
from the Company effective June 1, 2021 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 2021 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, 2021. Pursuant to the Romeo Agreement, Romeo’s manager resigned employment from the
Company effective July 1, 2021 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 2021 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 June 30, 2022. The party responsible for the convertible notes and related accrued
interest is in dispute and is currently in litigation. The derivative liability is a function of the convertible notes and accrued interest.
And the accounts payable and accrued expenses of $1,872,086 is deemed to be the responsibility of the current owners of Red Rock and was
written-off by the Company in the third quarter of 2021 resulting in a gain of $1,872,086 which is recorded in discontinued operation.
On April 26, 2021, 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.
Schedule of Red Rock Travel | |
| | | |
| | |
| |
June 30, 2022 | | |
December 31, 2021 | |
Net liabilities of discontinued operations | |
| | | |
| | |
Accrued interest | |
$ | 264,940 | | |
$ | 231,318 | |
Convertible debt | |
| 240,000 | | |
| 240,000 | |
Net liabilities of discontinued operations | |
$ | 504,940 | | |
$ | 471,318 | |
| |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Loss from discontinued operations | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
$ | 17,000 | | |
$ | 17,189 | | |
$ | 33,622 | | |
$ | 34,378 | |
Change in derivative liability | |
| | | |
| 17,367 | | |
| | | |
| 19,974 | |
Loss from discontinued operations | |
$ | 17,000 | | |
$ | 34,556 | | |
$ | 33,622 | | |
$ | 54,352 | |
13. |
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:
Schedule of goodwill balances | |
| | | |
| | | |
| | | |
| | |
| |
Affordable Housing Rentals | | |
Financial Services | | |
Healthcare | | |
Total | |
| |
| | |
| | |
| | |
| |
Gross carrying value at December 31, 2021 | |
$ | – | | |
$ | 2,092,048 | | |
$ | 2,391,608 | | |
$ | 4,483,656 | |
Accumulated impairment | |
| – | | |
| – | | |
| – | | |
| – | |
Carrying value at December 31, 2021 | |
| – | | |
| 2,092,048 | | |
| 2,391,608 | | |
| 4,483,656 | |
Accumulated impairment | |
| – | | |
| – | | |
| – | | |
| – | |
Carrying value at June 30, 2022 | |
$ | – | | |
$ | 2,092,048 | | |
$ | 2,391,608 | | |
$ | 4,483,656 | |
14. |
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, 2021, 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 $34,305
and $19,528
for the three months ended June 30, 2022 and 2021, respectively and the Company recorded operating lease expense of $170,150 and
$36,781 for the six months ended June 30, 2022 and 2021, respectively.
The Company has property leases with future commitments
as follows:
Schedule of property leases | |
| | |
| |
Amount | |
2022 | |
$ | 203,118 | |
2023 | |
| 140,317 | |
2024 | |
| 25,543 | |
2025 | |
| 11,108 | |
Total | |
$ | 380,086 | |
Employees
We have an employment agreement effective July
15, 2021 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, 2021 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 June 30, 2022 and December 31, 2021 was $129,000 and $120,000, respectively.
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 June 30, 2022 and December 31, 2021 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 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.
At June 30, 2022 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, 2021.
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.
On September 22, 2022, the Company negotiated
and executed a refinancing agreement with its largest lender of six outstanding notes totaling $4.79M in principal, interest, and fees
into a consolidated and restructured new $2.6 million dollar restated senior secure note and $1.5 million dollars in preferred equity.
The note maturity is for the earlier of twelve months from execution or a registered public offering of the company. The interest is 10%
fixed due upon maturity
.
On October 31, 2022, the Company strategically
concentrating on the healthcare sector executed a Buyback Agreement finalizing the sale of We Three (d.b.a – Affordable Housing
Initiative -AHI) a Tennessee registered business, back to the original sellers.
General Matters
July 15, 2022 – Entered into a new agreement
to represent the Company in the Edge View Properties lawsuit.
July 29, 2022 Settlement Agreement Signed by Red
Rock Travel all parties agreed to the negotiated terms.
The Company has four reportable operating segments
as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about
Segments of an Enterprise and Related Information:
|
(1) |
Affordable Housing (We Three) |
|
(2) |
Financial Resolutions Services (Platinum Tax Defenders) |
|
(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 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.
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.
Schedule of segment reporting | |
| | |
| |
| |
As of June 30, 2022 | | |
As of December 31, 2021 | |
Assets: | |
| | |
| |
Affordable Housing Rentals | |
$ | 211,955 | | |
| 213,876 | |
Financial Services | |
| 2,109,924 | | |
| 2,212,379 | |
Healthcare | |
| 9,508,716 | | |
| 8,092,820 | |
Real Estate | |
| 608,566 | | |
| 611,900 | |
Other | |
| 24,856 | | |
| 28,940 | |
Consolidated assets | |
$ | 12,464,017 | | |
| 11,159,915 | |
| |
For the Three Months Ended June 30, 2022 | | |
For the Three Months Ended June 30, 2021 | |
Revenues: | |
| | |
| |
Affordable Housing Rentals | |
$ | 39,512 | | |
| 27,844 | |
Financial Services | |
| 472,014 | | |
| 1,505,450 | |
Healthcare | |
| 2,619,218 | | |
| 649,574 | |
Real Estate | |
| – | | |
| – | |
Total revenues | |
$ | 3,130,744 | | |
| 2,182,868 | |
| |
| | | |
| | |
Cost of Sales: | |
| | | |
| | |
Affordable Housing Rentals | |
$ | 18,614 | | |
| 25,158 | |
Financial Services | |
| 112,776 | | |
| 422,602 | |
Healthcare | |
| 983,842 | | |
| 199,450 | |
Real Estate | |
| – | | |
| – | |
Total cost of sales | |
$ | 1,115,232 | | |
| 647,210 | |
| |
| | | |
| | |
Income (Loss) from Operations From Subsidiaries: | |
| | | |
| | |
Affordable Housing Rentals | |
$ | 672 | | |
| (10,344 | ) |
Financial Services | |
| 11,361 | | |
| 470,311 | |
Healthcare | |
| 1,481,055 | | |
| 404,279 | |
Real Estate | |
| (1,688 | ) | |
| – | |
Total Income (Loss) from operations from subsidiaries | |
$ | 1,491,400 | | |
| 864,246 | |
| |
| | | |
| | |
Loss From Operations from Cardiff Lexington | |
$ | (388,717 | ) | |
| (3,220,879 | ) |
Total income (loss) from operations | |
$ | 1,102,683 | | |
| (2,356,633 | ) |
| |
For the Six Months Ended June 30, 2022 | | |
For the Six Months Ended June 30, 2021 | |
Revenues: | |
| | |
| |
Affordable Housing Rentals | |
$ | 83,356 | | |
| 66,823 | |
Financial Services | |
| 936,857 | | |
| 2,398,397 | |
Healthcare | |
| 5,051,525 | | |
| 649,574 | |
Real Estate | |
| – | | |
| – | |
Total revenues | |
$ | 6,071,738 | | |
| 3,114,794 | |
| |
| | | |
| | |
Cost of Sales: | |
| | | |
| | |
Affordable Housing Rentals | |
$ | 38,088 | | |
| 45,988 | |
Financial Services | |
| 325,222 | | |
| 874,390 | |
Healthcare | |
| 1,887,624 | | |
| 199,450 | |
Real Estate | |
| – | | |
| – | |
Total cost of sales | |
$ | 2,250,934 | | |
| 1,119,828 | |
| |
| | | |
| | |
Income (Loss) from Operations From Subsidiaries: | |
| | | |
| | |
Affordable Housing Rentals | |
$ | 2,553 | | |
| (11,708 | ) |
Financial Services | |
| (90,120 | ) | |
| 388,476 | |
Healthcare | |
| 2,784,403 | | |
| 404,279 | |
Real Estate | |
| (2,513 | ) | |
| – | |
Total Income (Loss) from operations from subsidiaries | |
$ | 2,694,323 | | |
| 781,047 | |
| |
| | | |
| | |
Loss From Operations from Cardiff Lexington | |
$ | (868,276 | ) | |
| (3,513,527 | ) |
Total income (loss) from operations | |
$ | 1,826,047 | | |
| (2,732,480 | ) |