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Table of Contents 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended: June 30, 2023

 

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
(Exact name of registrant as specified in its charter)

 

Nevada   84-1044583
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

3753 Howard Hughes Parkway, Suite 200, Las Vegas, NV   89169
(Address of principal executive offices)   (Zip Code)

 

844-628-2100
(Registrant’s telephone number, including area code)

 

3200 Bel Air Drive, Las Vegas, NV 89109

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

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 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 comply 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).  YesNo

 

As of June 30, 2023, there were 943,475,613 shares of common stock of the registrant issued and outstanding.

 

   

 

 

CARDIFF LEXINGTON CORPORATION

 

Quarterly Report on Form 10-Q

Period Ended June 30, 2023

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30
Item 3. Quantitative and Qualitative Disclosures about Market Risk 39
Item 4. Controls and Procedures 39

 

PART II

OTHER INFORMATION

 

 

Item 1. Legal Proceedings 41
Item 1A. Risk Factors 41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41
Item 3. Defaults Upon Senior Securities 41
Item 4. Mine Safety Disclosures 41
Item 5. Other Information 41
Item 6. Exhibits 41

 

 

 

 1 

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS.

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 (Audited)   3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 (Unaudited) and 2022 (Unaudited and restated)   4
Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) for the Six Months Ended June 30, 2023 (Unaudited) and 2022 (Unaudited and restated)   5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 (Unaudited) and 2022 (Unaudited and restated)   6
Notes to Condensed Consolidated Financial Statements (Unaudited)   7

 

 

 

 

 

 2 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022

(UNAUDITED)

 

           
  

June 30,

2023

   December 31,
2022
 
         
ASSETS          
Current assets          
Cash  $411,209   $226,802 
Accounts receivable-net   9,193,529    6,604,780 
Prepaid and other current assets   5,000    5,000 
Total current assets   9,609,738    6,836,582 
           
Property and equipment, net   47,438    55,439 
Land   540,000    540,000 
Goodwill   5,666,608    5,666,608 
Right of use - assets   153,933    218,926 
Due from related party   4,979    4,979 
Other assets   30,823    30,823 
Total assets  $16,053,519   $13,353,357 
           
LIABILITIES, MEZZANINE EQUITY AND DEFICIENCY IN STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expense  $2,522,332   $2,038,595 
Accrued expenses - related parties   4,084,557    3,750,557 
Accrued interest   590,144    350,267 
Right of use - liability   126,752    142,307 
Due to director & officer   123,192    123,192 
Notes payable   24,724    15,809 
Notes payable - related party   156,384    37,024 
Convertible notes payable, net of debt discounts of $100,347 and $46,797, respectively   3,868,068    3,515,752 
Total current liabilities   11,496,153    9,973,503 
           
Other liabilities          
Notes payable   144,594    139,789 
Operating lease liability – long term   32,205    84,871 
Total liabilities   11,672,952    10,198,163 
           
Mezzanine equity          
Redeemable Series N Senior Convertible Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value $4.00, 868,058shares issued and outstanding at June 30, 2023 and December 31, 2022   3,682,537    3,125,002 
Redeemable Series X Senior Convertible Preferred Stock - 5,000,000 shares authorized, $0.001 par value, stated value $4.00, 375,000 shares issued and outstanding at June 30, 2023 and December 31, 2022   1,615,068    1,500,000 
Total Mezzanine Equity   5,297,605    4,625,002 
           
Stockholders' equity (deficit)          
Series B Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value $4.00, 2,134,478 and 2,131,328 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively   8,537,912    8,525,313 
Series C Preferred Stock - 500 shares authorized, $0.001 par value, stated value $4.00, 122 shares issued and outstanding at June 30, 2023 and December 31, 2022   488    488 
Series E Preferred Stock - 1,000,000 shares authorized, $0.001 par value, stated value $4.00, 150,750 shares issued and outstanding at June 30, 2023 and December 31, 2022   603,000    603,000 
Series F-1 Preferred Stock - 800,000 shares authorized, $0.001 par value, stated value $4.00, 35,752 shares issued and outstanding at June 30, 2023 and December 31, 2022   143,008    143,008 
Series I Preferred Stock - 500,000,000 shares authorized, $0.001 par value, 14,885,000 shares issued and outstanding at June 30, 2023 and December 31, 2022   59,540,000    59,540,000 
Series J Preferred Stock - 10,000,000 shares authorized, $0.001 par value, stated value $4.00, 1,713,584 shares issued and outstanding at June 30, 2023 and December 31, 2022   6,854,336    6,854,336 
Series L Preferred Stock - 100,000,000 shares authorized, $0.001 par value, stated value $4.00, 319,493 shares issued and outstanding at June 30, 2023 and December 31, 2022   1,277,972    1,277,972 
Series R Preferred Stock - 5,000 shares authorized, $0.001 par value, stated value of $1,200, 165 shares issued and outstanding at June 30, 2023 and December 31, 2022   198,000    198,000 
Common Stock - 7,500,000,000 shares authorized, $0.001 par value; 943,475,613 and 789,796,735 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively   943,475    824,793 
Additional paid-in capital   (8,497,309)   (8,581,265)
Accumulated deficit   (70,517,920)   (70,855,453)
Total stockholders' equity (deficit)   (917,038)   (1,469,808)
Total liabilities, mezzanine equity and stockholders' equity  $16,053,519   $13,353,357 

 

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

 

 

 3 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

 

 

                     
  

THREE MONTHS

ENDED JUNE 30,

  

SIX MONTHS

ENDED JUNE 30,

 
   2023  

2022

(Restated)

   2023  

2022

(Restated)

 
REVENUE                
Financial Services  $118,304   $472,014   $272,703   $936,857 
Healthcare   3,364,506    2,619,218    6,070,905    5,051,525 
Total revenue   3,482,810    3,091,232    6,343,608    5,988,382 
                     
COST OF SALES                    
Financial Services   21,297    112,776    48,126    325,222 
Healthcare   1,081,689    983,842    2,037,983    1,887,624 
Total cost of sales   1,102,986    1,096,618    2,086,109    2,212,846 
                     
GROSS PROFIT   2,379,824    1,994,614    4,257,499    3,775,536 
                     
OPERATING EXPENSES                    
Depreciation expense   3,365    5,783    8,000    11,566 
Selling, general and administrative   670,289    866,213    1,829,768    1,940,477 
Total operating expenses   673,654    871,996    1,837,768    1,952,043 
                     
INCOME FROM OPERATIONS   1,706,170    1,122,618    2,419,731    1,823,493 
                     
OTHER INCOME (EXPENSE)                    
Other income       8    205    8 
Gain on forgiveness of debt           390     
Interest expense and finance charge   (844,459)   (1,035,811)   (1,539,623)   (3,255,987)
Conversion cost penalty and reimbursement           (2,000)    
Penalties and fees   (15,000)       (30,000)    
Amortization of debt discounts   (30,633)   (111,706)   (48,616)   (156,252)
Total other income (expenses)   (890,092)   (1,147,509)   (1,619,644)   (3,412,231)
                     
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS   816,078    (24,891)   800,087    (1,588,738)
                     
LOSS FROM DISCONTINUED OPERATIONS       (36,935)       (35,542)
                     
NET INCOME (LOSS) FOR THE PERIOD  $816,078   $(61,826)  $800,087   $(1,624,280)
DEEMED DIVIDENDS ON PREFERRED STOCK   (125,744)       (462,555)    
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS  $690,334   $(61,826)  $337,532   $(1,624,280)
                     
BASIC INCOME (LOSS) PER SHARE                    
Continuing operations  $0.00    (0.00)   0.00    (0.01)
Discontinued operations  $0.00    (0.00)   0.00    (0.00)
                     
DILUTED INCOME (LOSS) PER SHARE                    
Continuing operations  $0.00    (0.00)   0.00    (0.00)
Discontinued operations  $0.00    (0.00)   0.00    (0.00)
                     
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES – CONTINUED AND DISCONTINUED OPERATIONS   930,254,713    166,130,069    901,781,592    166,130,069 
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES – CONTINUED AND DISCONTINUED OPERATIONS   14,435,802,103    166,130,069    17,836,079,282    166,130,069 

 

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

 

 

 4 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

 

 

                                         
  

Preferred Stock Series

A, K and I

  

Preferred Stock Series

B, D, E, F, F-1, G, H, L

  

Preferred Stock

Series C and R

   Treasury Stock 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount 
Balance December 31, 2021 (Restated)   23,085,563   $59,548,201    3,595,952   $14,383,808    287   $198,488    (619,345)  $(4,967,686)
Distribution of dividend                                  
Net loss                                
Balance, June 30, 2022 (Restated)   23,085,563   $59,548,201    3,595,952   $14,383,808    287   $198,488    (619,345)  $(4,967,686)
                                         
                                         
                                         
Balance December 31, 2022   14,885,001   $59,540,000    4,350,907   $17,403,628    287   $198,488         
Conversion of convertible notes payable                                
Distribution of dividend                                
Issuance of preferred stock series B           3,150    12,600                 
Net income                                
Balance, June 30, 2023   14,885,001   $59,540,000    4,354,057   $17,416,228    287   $198,488       $ 

 

 

                          
   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares   Amount   Capital   Deficit   Deficit 
Balance December 31, 2021 (Restated)   166,130,069   $167,421   $(3,479,126)  $(65,118,744)  $732,361 
Distribution of dividend               (100,476)   (100,476)
Net loss               (1,624,280)   (1,624,280)
Balance, June 30, 2022 (Restated)   166,130,069   $167,421   $(3,479,126)  $(66,843,500)  $(992,395)
                          
                          
                          
Balance December 31, 2022   824,793,235   $824,793   $(8,581,264)  $(70,855,453)  $(1,469,808)
Conversion of convertible notes payable   118,682,378    118,682    71,555        190,237 
Accrued dividend               (462,554)   (462,554)
Issuance of preferred stock series B           12,400        25,000 
Net income               800,087    800,087 
Balance, June 30, 2023   943,475,613   $943,475   $(8,497,308)  $(70,517,920)  $(917,038)

 

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

 

 

 5 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

 

           
   Six Months Ended June 30, 
  

2023

  

2022

(Restated)

 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income (loss) for the period  $800,087   $(1,624,280)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   8,000    21,628 
Amortization of loan discount   48,616    156,252 
Gain on forgiveness of debt   (390)    
Other noncash items, net       (28,271)
Bad debt   270,000     
Fair value settled upon conversion   123,566     
Conversion and note issuance cost   7,000     
Share issuance for service rendered   25,000     
Increase (decrease) in:          
Accounts receivable   (2,858,749)   (192,425)
Right of use – assets   64,993    (38,823)
Prepaid expenses and other current assets       8,000 
Increase (decrease) in:          
Accounts payable and accrued expense   693,788    699,107 
Accrued officer’s compensation   334,000    240,000 
Due from related parties       3,988 
Accrued interest   248,137    252,634 
Right of use – liabilities   (68,221)   29,015)
Net cash used in operating activities - continuing operations   (304,173)   (473,175)
           
Net cash provided by operating activities - discontinued operations        35,542 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from convertible notes payable   355,500    555,730 
Repayment of convertible notes payable       (5,908)
Payment of SBA loan       (1,520)
Dividend on preferred stock       (100,477)
Proceeds from line of credit   43,880     
Repayment of line of credit   (30,160)    
Payment of notes payable related party   (5,336)   (5,065)
Proceeds from notes payable related party   124,696    7,948 
Net cash provided by financing activities   488,580    450,708 
           
NET INCREASE IN CASH   184,407    13,075 
CASH, BEGINNING OF PERIOD   226,802    595,987 
CASH, END OF PERIOD  $411,209   $609,062 
           
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the period for interest  $2,044   $46,098 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued upon conversion of notes payable and accrued interest  $66,673   $ 
Proceeds from related party  $   $3,987 

 

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

 

 

 6 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

  

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Nature of Operations

 

Cardiff Lexington Corporation (“Cardiff”) was originally incorporated on September 3, 1986 in Colorado as Cardiff International Inc. On November 10, 2005, Cardiff merged with Legacy Card Company, LLC and changed its name to Cardiff Lexington Corporation. On August 27, 2014, Cardiff redomiciled and became a corporation under the laws of Florida. On April 13, 2021, Cardiff redomiciled and became a corporation under the laws of Nevada.

 

Cardiff is an acquisition holding company focused on locating undervalued and undercapitalized companies, primarily in the healthcare industry, and providing them capitalization and leadership to maximize the value and potential of their private enterprises while also providing diversification and risk mitigation for stockholders. All of Cardiff’s operations are conducted through, and its income derived from, its various subsidiaries, which includes:

 

·We Three, LLC dba Affordable Housing Initiative (“AHI”), which was acquired on May 15, 2014 and sold on October 31, 2022;

 

·Edge View Properties, Inc. (“Edge View”), which was acquired on July 16, 2014;

 

·Platinum Tax Defenders (“Platinum Tax”), which was acquired on July 31, 2018; and

 

·Nova Ortho and Spine, PLLC (“Nova”), which was acquired on May 31, 2021.

 

Princsiples of Consolidation

 

The condensed consolidated financial statements include the accounts of Cardiff and its wholly owned subsidiaries AHI, Edge View, Platinum Tax and Nova (collectively, the “Company”). AHI is included in discontinued operations. All significant intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts may have been reclassified for consistency with the current period presentation. These reclassifications would have no material effect on the reported condensed consolidated financial results.

 

Use of Estimates

 

The preparation of financial statements in conformity with United States generally accepted accounting principles (“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.

 

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 $270,000 and $0 as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, the Company had net accounts receivable of $9,193,529 and $6,604,780, respectively. Accounts receivables are primarily generated from subsidiaries in their normal course of business.

 

 

 7 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

Property and Equipment

 

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

 
Classification Useful Life
Equipment, furniture, and fixtures 5 - 7 years
Medical equipment 10 years
Leasehold improvements 10 years or lease term, if shorter

 

Goodwill and Other Intangible Assets

 

Goodwill and indefinite-lived brands are not amortized but are evaluated for impairment annually or when indicators of a potential impairment are present. The Company’s impairment testing of goodwill is performed separately from its impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. During the six months ended June 30, 2023 and 2022, 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

 

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. The Company’s healthcare subsidiary does not have contract liabilities or deferred revenue as there are no amounts prepaid for services.

 

 

 8 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

 

 

Healthcare Income

 

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

 

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

 

Contract Fees (Non-PIP)

 

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

 

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.

 

The Company’s healthcare revenues are generated from professional medical billings including facility and anesthesia services. With respect to facility and anesthesia services, the Company is the primary obligor as the facility and anesthesia services are considered part of one integrated performance obligation. Historically the Company receives 49.9% of collections from total gross billed. Accordingly, the Company recognized net healthcare service revenue as 49.9% of gross billed amounts. Historical collection rates are estimated using the most current prior 12-month historical payment and collection percentages.

 

The Company’s healthcare subsidiary has contractual medical receivable sales and purchase agreements with third party factors which result in approximately 51% to 56% reduction from the accounts receivables amounts when a receivable is sold to the factors. The Company evaluated the factored adjustments considering the actual factored amounts per patient quarterly, and the reductions from accounts receivable that are factored were recorded in finance charges as other expenses on the consolidated statement of operations.

 

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. The Company’s 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.

 

 

 9 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

 

 

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.

 

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 stockholders’ equity. The Company recognized advertising and marketing expense of $133,326 and $82,269 for the three months ended June 30, 2023 and 2022, respectively. The Company recognized advertising and marketing expense of $171,679 and $210,054 for the six months ended June 30, 2023 and 2022, respectively.

 

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 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.

 

Distinguishing Liabilities from Equity

 

The Company accounts for its series N senior convertible preferred stock and series X senior convertible preferred stock subject to possible redemption in accordance with ASC 480, “Distinguishing Liabilities from Equity”. Conditionally redeemable preferred shares are classified as temporary equity within the Company’s condensed consolidated balance sheet.

 

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 ASC. Pursuant to paragraph 718-10-30-6 of the FASB ASC, 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.

 

 

 10 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

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

 

FASB ASU No 2018-07 prescribes equity instruments issued to parties other than employees.

 

Income Taxes

 

Income taxes are determined in accordance with ASC Topic 740, “Income Taxes”. 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.

 

As of June 30, 2023 and December 31, 2022, the Company did not have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain tax positions.

 

Income (Loss) per Share

 

FASB ASC Subtopic 260, Earnings Per Share, provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per common share is computed by dividing income available to common stockholders 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 stockholders 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 stock. The dilutive effect of stock options and warrants are 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. The diluted effect of debt convertibles is reflected utilizing the if converted method.

 

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 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, 2023, the Company has an accumulated working capital deficit of approximately $1.9 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.

 

 

 11 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

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

 

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

 

In June 2016, the FASB issued 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 Company has adopted this standard effective January 1, 2023, and it resulted in the Company recognizing an allowance for doubtful accounts of $270,000 during the six months ended June 30, 2023.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

 

 

2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

 

Subsequent to the initial issuance of the Company's 2021 financial statements on June 30, 2022, management reconsidered the methodology previously applied in its valuation of goodwill and redeemable preferred stocks.

 

The Company agreed to issue 818,750 additional shares of series J Preferred Stock with an aggregate stated value equal to $3,275,000 if, as of May 31, 2022, Nova’s trailing twelve months minimum pre-tax net income exceeded $1,979,320 (the “Milestone”). The Company finalized its purchase price accounting and allocation in 2022 and recorded purchase consideration of $6,100,000 associated with the cash consideration, the fair value of the series J preferred stock and the fair value of the contingent consideration. The impact of the correction is reflected in $3,275,000 increase to goodwill and contingent consideration liability on the consolidated balance sheet.

 

In December 2022, the Company identified an error in its classification for its series N senior convertible preferred stock for the acquisition of NOVA as presented in its audited balance sheet as of December 31, 2021. Pursuant to ASC 250, “Accounting changes and error corrections” issued by FASB and SAB 99 “Materiality” issued by SEC, the Company determined the impact of the error was immaterial. The impact of the error correction is reflected in $3,125,002 increase to the mezzanine equity and offsetting decrease to the Series N Preferred Stock in subject to possible redemption mezzanine equity line item.

 

The Company and We3 managers entered into a resignation, release and buyback agreement and addendum, effective October 31, 2022. The Company presented in prior periods operating loss as loss from discontinued operations in the amount of $1,920 on the consolidated statement of operations for the six months ended June 30, 2022.

 

The Company identified that NOVA’s accounts receivable as presented in its balance sheet as of December 31, 2021, was understated due to an error in the collection utilized to estimate NOVA’s accounts receivable. The impact of this correction on the accounting estimates is reflected in $1,076,000 decrease to accounts receivable as of June 30, 2022 and $1,076,000 increase in finance charges for the six months ended June 30, 2022.

 

 

 12 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

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

 

i. Balance sheet 

               
   Impact of correction of error 
June 30, 2022 (Unaudited)  As previously reported   Adjustments   As restated 
             
Total assets  $12,464,017   $3,275,000   $15,739,017 
                
Total liabilities   10,331,410    3,275,000    13,606,410 
                
Mezzanine equity       3,125,002    3,125,002 
                
Total shareholders' equity  $2,132,607   $(3,125,002)  $(992,395)

 

ii. Statement of operations

 

   Impact of correction of error 
Three months ended June 30, 2022 (Unaudited)  As previously reported   Adjustments   As restated 
             
Revenue  $3,130,744   $(39,512)  $3,091,232 
Cost of sales   1,115,232    (18,614)   1,096,618 
Gross margin   2,015,512    (20,898)   1,994,614 
Operating expense   912,829    (40,833)   871,996 
Income from operations  $1,102,683   $19,935   $1,122,618 
Other income (expense), net   (1,147,509)       (1,147,509)
Net loss before discontinued operations   (44,826)   19,935    (24,891)
Loss from discontinued operations   (17,000)   (19,935)   (36,935)
Net loss  $(61,826)  $   $(61,826)
Basic Loss per Share               
Continued Operations   (0.00)        (0.00)
Discontinued Operations   (0.00)        (0.00)
Weighted Average Shares Outstanding - Basic Earnings Loss per Share               
Continued Operations   166,130,069         166,130,069 
Discontinued Operations   166,130,069         166,130,069 

 

 

 

 

 13 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

   Impact of correction of error 
Six months ended June 30, 2022 (Unaudited)  As previously reported   Adjustments   As restated 
             
Revenue  $6,071,738   $(83,356)  $5,988,382 
Cost of sales   2,250,934    (38,088)   2,212,846 
Gross margin   3,820,804    (45,268)   3,775,536 
Operating expense   1,994,757    (42,714)   1,952,043 
Income from operations  $1,826,047   $(2,554)  $1,823,493 
Other income (expense), net   (2,340,705)   (1,071,526)   (3,412,231)
Net loss before discontinued operations   (514,658)   (1,074,080)   (1,588,738)
Loss from discontinued operations   (33,622)   (1,920)   (35,542)
Net loss  $(548,280)  $(1,076,000)  $(1,624,280)
Basic Loss per Share               
Continued Operations   (0.00)        (0.01)
Discontinued Operations   (0.00)        (0.01)
Weighted Average Shares Outstanding - Basic Earnings Loss per Share               
Continued Operations   166,130,069         166,130,069 
Discontinued Operations   166,130,069         166,130,069 

 

 

3.REVISION OF FINANCIAL STATEMENTS

 

During the preparation of the financial statements for the six months ended June 30, 2023, the Company found that the results of the settlement agreement with Red Rock Travel Group (“Red Rock”) were incorrectly reflected on the consolidated statement of stockholders’ equity(deficiency) as of December 31, 2022. The Company determined that these errors were immaterial to the previously issued consolidated financial statements, and as such no restatement was necessary. The revisions discussed below were made to the December 31, 2022 balance sheet and statement of stockholders’ equity (deficiency).

 

As a result of the settlement agreement with Red Rock on July 29, 2022, the Company reduced 35,000,000 shares of common shares on the consolidated financial statements as of December 31, 2022. The certificate of the common stock for 35,000,000 shares which were originally issued on February 24, 2020 was returned as part of the 2022 agreement with Red Rock and 3,500 common shares were cancelled which were equivalent to 35,000,000 shares before the 10,000:1 reverse split on May 12, 2020. Consequently, the December 31, 2022 financial statements as originally reported were understated by 34,996,500 common shares. The impact of the correction is reflected in the $35,097 increase to common stock and decrease the same amount to additional paid-in-capital on the consolidated statement of shareholders’ equity. The adjustment had no impact on earnings per share for any 2022 period.

 

On July 31, 2018, the Company issued 8,200,562 shares of series K preferred stock to the prior owners of Red Rock for the consideration of the acquisition of Red Rock. The acquisition was not completed, and Red Rock returned the 8,200,562 shares of series K preferred shares during the year ended December 31, 2018. A total of 8,200,562 shares of series K Preferred Share were cancelled The impact of the correction is reflected in the $8,201 decrease to series K Preferred Stock and increase the same amount to additional paid-in-capital on the consolidated statement of shareholders’ equity (deficiency).

  

 

 

 14 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

4.ACCOUNTS PAYABLE AND ACCRUED EXPENSES

          
  

June 30,

2023

   December 31,
2022
 
Accounts payable  $437,718   $342,330 
Accrued credit cards   15,358    45,722 
Accrued expense – previously factored liability   1,291,691    776,414 
Accrued income taxes, and other taxes   5,346    6,732 
Accrued professional fees   694,140    573,040 
Accrued advertising   69,656    69,656 
Accrued payroll   8,423    14,292 
Accrue expense - other       363 
Accrued expense - dividend payable       210,046 
Total  $2,522,332   $2,038,595 

 

The Company is delinquent paying certain income and property taxes. As of June 30, 2023 and December 31, 2022, the balance for these taxes, penalties and interest is $5,346 and $6,732, respectively.

 

 

5.PLANT AND EQUIPMENT, NET

 

Property and equipment as of June 30, 2023 and December 31, 2022 is as follows:  

          
   June 30, 2023   December 31, 2022 
Medical equipment  $96,532   $96,532 
Computer Equipment   9,189    9,189 
Furniture, fixtures and equipment   30,841    35,974 
Leasehold Improvement   15,950    15,950 
Total   152,512    157,645 
Less: accumulated depreciation   (105,074)   (102,206)
Property and equipment, net  $47,438   $55,439 

 

For the three and six months ended June 30, 2023, total depreciation expense was $3,365 and $8,000, respectively. 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.

 

 

6.LAND

 

As of June 30, 2023 and December 31, 2022, the Company had 27 acres of land valued at approximately $540,000. The land is currently vacant and is expected to be developed into a residential community.

 

 

7.LINE OF CREDIT

 

At June 30, 2023 and December 31, 2022, the Company had a revolving line of credit with a financial institution for $92,500 which was personally guaranteed by the manager of Platinum Tax. The loan accrues interest at 11.70% at June 30, 2023 and 10.95% at December 31, 2022. As of June 30, 2023 and December 31, 2022, the Company had $8,749 and $0, respectively, of outstanding balance against the line of credit.

 

 

 15 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

8.RELATED PARTY TRANSACTIONS

 

From time to time, the previous owner who is currently the manager of Platinum Tax loaned funds to Platinum Tax to cover short term operating needs. Amounts owed as of June 30, 2023 and December 31, 2022 were $156,384 and $37,024, respectively.

 

In connection with the acquisition of Edge View on July 16, 2014, the Company assumed amounts due to previous owners who are current managers Edge View. These amounts are due on demand and do not bear interest. The balance of these amounts are $4,979 as of June 30, 2023 and December 31, 2022.

 

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, 2023 and December 31, 2022, the Company owed the Chairman $123,192 and $123,192, respectively.

 

See also Note 14 for compensation paid to employees of the Company.

 

 

9.NOTES AND LOANS PAYABLE

 

Notes payable at June 30, 2023 and December 31, 2022, respectively, are summarized as follows:

        
   June 30, 2023   December 31, 2022 
Notes and loans payable  $169,318   $155,598 
Less current portion   (24,724)   (15,809)
Long-term portion  $144,594   $139,789 

 

Long-term debt matures as follows:  

    
   Amount 
2024  $24,724 
2025   4,986 
2026   4,986 
2027   4,986 
2028   4,986 
Thereafter   124,650 
Total  $169,318 

 

Loans and Notes Payable – Unrelated Party

 

On March 12, 2009, the Company issued a debenture in the principal amount of $20,000. The debenture bears interest at 12% per annum and matured on September 12, 2009. The balance of the debenture was $10,989 at June 30, 2023 and December 31, 2022 and the accrued interest was $6,882 and $6,229 at June 30, 2023 and December 31, 2022, respectively. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture.

 

Small Business Administration (“SBA”) Loans

 

On June 2, 2020, the Company obtained an SBA loan in the principal amount of $150,000 with an interest rate of 3.75% and a maturity date of June 2, 2050. The Company reclassified $5,723 of accrued interest to the principal amounts for the six months ended June 30, 2023. The principal balance and accrued interest at June 30, 2023 was $149,580 and $0, respectively, and principal and accrued interest at December 31, 2022 was $144,609 and $5,723, respectively.

 

 

 16 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

10.CONVERTIBLE NOTES PAYABLE

 

As of June 30, 2023 and December 31, 2022, the Company had convertible debt outstanding net of amortized debt discount of $3,868,068 and $3,515,752, respectively. During the six months ended June 30, 2023, the Company received net proceeds of $355,500 from convertible notes. During the six months ended 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 $100,347 and $46,798 at June 30, 2023 and December 31, 2022, respectively. For the six months ending June 30, 2023 and 2022, the Company recorded amortization of debt discounts of $ 48,616 and $156,252, respectively. For the three months ending June 30, 2023 and 2022, the Company recorded amortization of debt discounts of $30,633 and $111,706, respectively. During the six months ended June 30, 2023, the Company converted $58,800 of convertible debt, $5,873 in accrued interest and $2,000 in penalties and fees into 118,682,378 shares of the Company’s common stock. The Company recognized $123,566 of interest expense and additional paid-in capital to adjust fair value for the debt settlement during the six months ended June 30, 2023. The Company had no convertible debt conversions during the six months ended June 30, 2022.

 

On September 22, 2022, the Company entered into a security exchange and purchase agreement with its largest lender to consolidate all promissory notes held by it and related accrued interest in exchange for (1) one consolidated senior secured convertible promissory note in the amount of $2,600,000 and (2) 375,000 shares of series X senior convertible preferred stock totaling $1,500,000 with a par value of $0.001, stated value of $4.00, convertible into common shares at a 1:1 conversion rate, non-dilutive and non-voting shares. Prior to conversion, all promissory notes with this lender totaled to $4,791,099 consisting of principal of $3,840,448 and accrued interest of $950,651 resulting in a gain on debt consolidation of $1,397,271.

 

Convertible notes as of June 30, 2023 and December 31, 2022 are summarized as follows:  

        
   June 30, 2023   December 31, 2022 
Convertible notes payable  $3,968,415   $3,562,550 
Discounts on convertible notes payable   (100,347)   (46,798)
Total convertible debt less debt discount   3,868,068    3,515,752 
Current portion   3,868,068    3,515,752 
Long-term portion  $   $ 

 

The following is a schedule of convertible notes payable as of and for the six months ended June 30, 2023. 

                                           
Note #   Issuance  Maturity  Principal Balance 12/31/22   New Loan   Principal Conversions   Shares Issued Upon Conversion   Principal Balance 6/30/23   Accrued Interest on Convertible Debt at 12/31/22   Interest Expense On Convertible Debt For the Period Ended 6/30/23   Accrued Interest on Convertible Debt at 6/30/23   Unamortized Debt Discount At 6/30/23 
7-1   10/28/2016  10/28/2017   10,000   $   $(10,000)   23,405,455   $   $2,263   $   $   $ 
9   9/12/2016  9/12/2017   50,080                50,080    14,157    4,967    19,124     
10   1/24/2017  1/24/2018   55,000                55,000    69,876    5,455    75,331     
10-1   2/10/2023  2/10/2024       50,000            50,000        2,877    2,877     
10-2   3/30/2023  3/30/2024       25,000            25,000        945    945     
29-2   11/8/2019  11/8/2020   36,604                36,604    20,160    4,356    24,516     
31   8/28/2019  8/28/2020                       8,385        8,385     
37-1   9/3/2020  6/30/2021   113,667                113,667    28,756    10,146    48,902     
37-2   11/2/2020  8/31/2021   113,167                113,167    27,510    10,101    47,611     
37-3   12/29/2020  9/30/2021   113,166                113,166    26,474    10,101    46,575     
38   2/9/2021  2/9/2022   96,000        (48,800)   85,276,923    47,200    27,939    5,910    33,849     
39   4/26/2021  4/26/2022   168,866                168,866    39,684    18,423    58,106     
40-1   9/22/2022  9/22/23   2,600,000            10,000,000    2,600,000    71,233    128,932    196,164     
40-2   11/4/2022  11/4/2023   68,666                68,666    1,072    3,405    4,477    5,973 
40-3   11/28/2022  11/28/2023   68,667                68,667    620    3,405    4,025    7,102 
40-4   12/21/2022  12/21/2023   68,667                68,667    187    3,405    3,592    8,184 
40-5   1/24/2023  1/24/2024       90,166            90,166        3,878    3,878    13,486 
40-6   3/21/2023  3/21/2024       139,166            139,166        3,851    3,851    26,520 
40-7   6/5/2023  6/5/2024       139,166            139,166        953    953    34,155 
40-8   6/13/2023  6/13/2024       21,167            21,167        99    99    4,927 
          $3,562,550   $464,665   $(58,800)   118,682,378   $3,968,415   $338,316   $221,209   $583,260   $100,347 

 

 

 17 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

Note 7-1

 

On October 28, 2016, the Company issued a convertible promissory note in the principal amount of $50,000, which matured on October 28, 2017. Note 7-1 is currently in default and accrues interest at a default interest rate of 20% per annum.

 

Note 9

 

On September 12, 2016, the Company issued a convertible promissory note in the principal amount of $80,000 for services rendered, which matured on September 12, 2017. Note 9 is currently in default and accrues interest at a default interest rate of 20% per annum.

 

Notes 10, 10-1 and 10-2

 

On January 24, 2017, the Company issued a convertible promissory note in the principal amount of $80,000 for services rendered, which matured on January 24, 2018. Note 10 is currently in default and accrues interest at a default interest rate of 20% per annum. On February 10, 2023, the Company executed a second tranche under this note in the principal amount of $50,000 (Note 10-1). On March 30, 2023, the Company executed a third tranche under this note in the principal amount of $25,000 (Note 10-2). Notes 10-1 and 10-2 accrue interest at a rate of 15% per annum.

 

Notes 29, 29-1 and 29-2

 

On May 10, 2019, the Company issued a convertible promissory note in the principal amount of $150,000. On November 8, 2019, this note (Note 29) was purchased by and assigned to an unrelated party. The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,918 which was issued as Note 29-1, plus a new convertible promissory note in the principal amount of $62,367 which was issued as Note 29-2. Note 29-2 is currently in default and accrues interest at a default interest rate of 24% per annum.

 

Note 31

 

On August 28, 2019, the Company issued a convertible promissory note in the principal amount of $120,000, which matured on August 28, 2020. Note 31 is currently in default and accrues interest at a default interest rate of 24% per annum.

 

Notes 37-1, 37-2 and 37-3

 

On September 3, 2020, the Company issued a convertible promissory note in the principal amount of $200,000, with an original issue discount of $50,000, which could be drawn in several tranches. On September 3, 2020, the Company executed the first tranche in the principal amount of $67,000, less an original issue discount of $17,000, which matured on June 30, 2021 (Note 37-1). On November 2, 2020, the Company executed the second tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on August 31, 2021 (Note 37-2). On December 29, 2020, the Company executed the third tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021 (Note 37-3). Notes 37-1, 37-2 and 27-3 are currently in default and accrue interest at a default interest rate of 18% per annum.

 

Note 38

 

On February 9, 2021, the Company issued a convertible promissory note in the principal amount $103,500, which matured on February 9, 2022. Note 38 is currently in default and accrues interest at a default interest rate of 22% per annum.

 

Note 39

 

On April 26, 2021, the Company issued a convertible promissory note in the principal amount $153,500, which matured on May 10, 2022. Note 39 is currently in default and accrues interest at a default interest rate of 22% per annum.

 

 

 18 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7 and 40-8

 

On September 22, 2022, the Company issued a convertible promissory note in the principal amount of $2,600,000 in exchange for total of $4,791,099 of defaulted promissory notes balances (Note 40-1). On November 4, 2022, the Company executed a second tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-2). On November 28, 2022, the Company executed the third tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-3). On November 28, 2022, the Company executed a fourth tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-4). On January 24, 2023, the Company executed a fifth tranche under this note in the principal amount of $90,166, less an original issue discount and fee of $25,166 (Note 40-5). On March 21, 2023, the Company executed a sixth tranche under this note in the principal amount of $136,666, less an original issue discount and fee of $39,166 (Note 40-6). On June 5, 2023, the Company executed a seventh tranche under this note in the principal amount of $136,667, less original issue discount and fee of $39,167 (Note 40-7). On June 13, 2023, the Company executed a eighth tranche under this note in the principal amount of $21,167, less original issue discount and fee of $5,167 (Note 40-8). All of the Note 40 tranches mature in one year from the note issuance date and accrue interest at a rate of 10% per annum.

 

 

11.CAPITAL STOCK

 

Preferred Stock

 

The Company has designated multiple series of preferred stock, including 4 shares of series A preferred stock, 3,000,000 shares of series B preferred stock, 500 shares of series C preferred stock, 800,000 shares of series D preferred stock, 1,000,000 shares of series E preferred stock, 800,000 shares of series F preferred stock, 800,000 shares of series F-1 preferred stock, 500,000,000 shares of series I preferred stock, 10,000,000 shares of series J preferred stock, 10,937,500 shares of series K preferred stock, 100,000,000 shares of series L preferred stock, 3,000,000 shares of series N senior convertible preferred stock, 5,000 shares of series R preferred stock and 5,000,000 shares of series X senior convertible preferred stock.

 

The following is a description of the rights and preferences of each series of preferred stock.

 

Redeemable Preferred Stock

 

The Company recognized the series N senior convertible preferred stock and series X senior convertible preferred stock as mezzanine equity since the redeemable preferred stock may be redeemed at the option of the holder, but is not mandatorily redeemable.

 

Series N Senior Convertible Preferred Stock

 

Ranking. The series N senior convertible preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not expressly made senior to or on parity with the series N senior convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series N senior convertible preferred stock; and (iii) junior to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each class or series that is expressly made senior to the series N senior convertible preferred stock.

 

Dividend Rights. Holders of series N senior convertible preferred stock are entitled to dividends at a rate per annum of 12.0% of the stated value ($4.00 per share); provided that upon an event of default (as defined in the certificate of designation for the series N senior convertible preferred stock), such rate shall increase by 8% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date in cash or common stock at the Company’s discretion. Dividends payable in common stock shall be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common stock on the Company’s principal trading market (the “VWAP”) during the five (5) trading days immediately prior to the applicable dividend payment date. At June 30, 2023, cumulative dividends on Series N Preferred Stock were $557,535.

 

 

 19 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash equal to 115% of the stated value of $4.00 per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders.

 

Voting Rights. Holders of series N senior convertible preferred stock do not have any voting rights; provided that, so long as any shares of series N senior convertible preferred stock are outstanding, the affirmative vote of holders of a majority of the series N senior convertible preferred stock, which majority must include SILAC Insurance Company so long as it holds any shares of series N senior convertible preferred stock, voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate of designation or prior to the Company’s (or Nova’s) creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series N senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of 66% of the series N senior convertible preferred stock, voting as a separate class, is required prior to the Company’s (or Nova’s) creation or issuance of any senior securities.

 

Conversion Rights. Each shares of series N senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price of $0.012 per share (subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers, consolidations or similar transactions); provided that in no event shall the holder of any series N senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock issuable upon the conversion of the series N senior convertible preferred stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to the Company.

 

Redemption Rights. The Company may redeem the series N senior convertible preferred stock at any time by paying in cash therefore a sum equal to 115% of the stated value of $4.00 per share, plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the certificate of designation. In addition, any holder may require the Company to redeem some or all of its shares of series N senior convertible preferred stock on the same terms after a period of twelve months from the date of issuance; provided, however, that such redemption right shall only be exercisable if the Company raises at least $5,000,000 or the common stock is trading on the Nasdaq Stock Market or the New York Stock Exchange.

 

Series X Senior Convertible Preferred Stock

 

Ranking. The series X senior convertible preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not expressly made senior to or on parity with the series X senior convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series X senior convertible preferred stock; and (iii) junior to the series N senior convertible preferred stock, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each class or series that is expressly made senior to the series X senior convertible preferred stock.

 

 

 20 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

Dividend Rights. Holders of series X senior convertible preferred stock are entitled to dividends at a rate per annum of 10.0% of the stated value ($4.00 per share); provided that upon an event of default (as defined in the certificate of designation for the series X senior convertible preferred stock), such rate shall increase by 5% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date. At June 30, 2023, cumulative dividends on Series X Preferred Stock were $115,068.

 

Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities, including the series N senior convertible preferred stock, or parity securities (in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash equal to 100% of the stated value of $4.00 per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders.

 

Voting Rights. Holders of series X senior convertible preferred stock do not have any voting rights; provided that, so long as any shares of series X senior convertible preferred stock are outstanding, the affirmative vote of holders of a majority of the series X senior convertible preferred stock, which majority must include Leonite Capital LLC so long as it holds any shares of series X senior convertible preferred stock, voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate of designation or prior to the creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series X senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of 66% of the series X senior convertible preferred stock, voting as a separate class, is required prior to the creation or issuance of any senior securities.

 

Conversion Rights. Each shares of series X senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price equal to the lower of (i) the lowest VWAP during the five (5) trading days immediately prior to the applicable conversion date and (ii) the price per share paid in any subsequent financing (the “Fixed Price”). The Fixed Price is subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers, consolidations or similar transactions, as well as a price based antidilution adjustment, pursuant to which, subject to certain exceptions, if the Company issues common stock at a price lower than the Fixed Price, the Fixed Price shall decrease to such lower price. Notwithstanding the foregoing, in no event shall the holder of any series X senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock issuable upon the conversion of the series X senior convertible preferred stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to the Company.

 

Redemption Rights. Commencing on September 22, 2023, any holder may require the Company to redeem its shares by the payment in cash therefore of a sum equal to 100% of the stated value of $4.00 per share, plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the certificate of designation; provided however, that in the event that the Company completes a public offering prior to the redemption date, then any holder may only cause the Company to redeem any outstanding series X senior convertible preferred stock by paying such redemption price in twelve (12) equal monthly installments with the first such payment due on the date that is six (6) months following the date that the Company completes such public offering.

 

 

 

 21 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

Non-redeemable Preferred Stock

 

Series A Preferred Stock

 

Each share of series A preferred stock is entitled to a number of votes and converts to a number of shares equal to the sum of all shares of common stock and series B preferred stock issued and outstanding, divided by the number shares of series A preferred stock held. Holders of series A preferred stock do not have any dividend, liquidation or redemption rights.

 

Series B Preferred Stock

 

Each share of series B preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series B preferred stock is convertible into two (2) shares of common stock (subject to adjustment for forward stock splits but not reverse stock splits). Holders of series B preferred stock do not have any dividend, liquidation or redemption rights.

 

Series C Preferred Stock

 

Each share of series C preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series C preferred stock is convertible into 100,000 shares of common stock (subject to adjustment for forward stock splits but not reverse stock splits). If the Company lists on an exchange, it has the right to repurchase these shares at a purchase price of $50,000 per share. Holders of series C preferred stock do not have any dividend, liquidation or redemption rights.

 

Series D Preferred Stock

 

Each share of series D preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series D preferred stock is convertible into two (2) shares of common stock. Holders of series D preferred stock do not have any dividend, liquidation or redemption rights.

 

Series E Preferred Stock

 

Each share of series E preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series E preferred stock is convertible into two (2) shares of common stock. Holders of series E preferred stock do not have any dividend, liquidation or redemption rights.

 

Series F Preferred Stock

 

Each share of series F preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series F preferred stock is convertible into two (2) shares of common stock. Holders of series F preferred stock do not have any dividend, liquidation or redemption rights.

 

Series F-1 Preferred Stock

 

Each share of series F-1 preferred stock is convertible into two (2) shares of common stock. Holders of series F-1 preferred stock do not have any voting, dividend, liquidation or redemption rights.

 

Series I Preferred Stock

 

Each share of series I preferred stock is entitled to five (5) votes on all matters submitted to a vote of stockholders. Each share of series I preferred stock is convertible into two (2) shares of common stock. Holders of series I preferred stock do not have any dividend, liquidation or redemption rights.

 

 

 22 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

Series J Preferred Stock

 

Each share of series J preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series J preferred stock is convertible into two (2) shares of common stock. Holders of series J preferred stock do not have any dividend, liquidation or redemption rights.

 

Series L Preferred Stock

 

Each share of series L preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series L preferred stock is convertible into two (2) shares of common stock. Holders of series L preferred stock do not have any dividend, liquidation or redemption rights.

 

Series R Preferred Stock

 

Each share of series R preferred stock is entitled to one (1) vote on all matters submitted to a vote of stockholders. Each share of series B preferred stock is convertible into one (1) shares of common stock (subject to adjustment for forward stock splits but not reverse stock splits). Holders of series R preferred stock do not have any dividend, liquidation or redemption rights.

 

Preferred Stock Transactions

 

During the six months ended June 30, 2023, the Company executed the following transactions:

 

·On May 25, 2023, the Company issued 3,150 shares of series B preferred stock to Zia Choe, Interim Chief Financial Officer for $25,000.

 

During the six months ended June 30, 2022, the Company executed the following transactions:

 

·In the second quarter of 2022, 37,500 shares of series D preferred stock were cancelled and exchanged for 37,500 shares of series B preferred stock and 37,500 shares of series H preferred stock were cancelled and exchanged for 37,500 shares of series B preferred stock.

 

Common Stock

 

During the six months ended June 30, 2023, the Company executed the following transactions:

 

·The Company issued 118,682,378 shares of common stock upon conversion of certain convertible notes.

 

 

12.WARRANTS

 

The table below sets forth warrant activity for the six months ended June 30, 2023 and 2022:  

          
   Number of
Warrants
   Weighted
Average
Exercise
Price
 
Balance at January 1, 2023   235,557,856   $0.015 
Granted        
Exercised        
Forfeited   (25,000)    
Balance at June 30, 2023   235,532,856    0.015 
Warrants Exercisable at June 30, 2023   235,532,856   $0.015 

 

 

 23 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

As a result of the settlement agreement with Red Rock on July 29, 2022, the Company required the previous owners to relinquish warrants for 25,000 shares of common stock. The certificate of the 25,000 warrants were returned and cancelled during the second quarter of 2023. There was no impact on the consolidated financial statements as of December 31, 2022.

 

 

13.DISCONTINUED OPERATIONS

 

The Company and the managers of AHI entered into a resignation, release and buyback agreement and addendum, effective October 31, 2022, pursuant to which the managers purchased AHI in exchange for returning 175,045 shares of series F preferred stock. There was a loss on disposal in the amount of $217,769 on October 31, 2022, which represented net assets and liabilities at the time of sale back.

 

The Company had no net liabilities of discontinued operations at June 30, 2023 and December 31, 2022. The Company had $0 and $36,935 of loss from discontinued operations for the three months ended June 30, 2023 and 2022, respectively. The Company had $0 and $35,542 of loss from discontinued operations for the six months ended June 30, 2023 and 2022, respectively.

          
   Three Months Ended June 30, 
   2023   2022 
         
Gain (Loss) from discontinued operations          
Revenue of AHI subsidiary  $   $39,512 
Cost of sales of AHI subsidiary       (18,614)
Selling, general and administrative expenses of AHI subsidiary       (40,833)
Interest expense of Red Rock Investor Note       (17,000)
Loss from discontinued operations  $   $(36,935)

 

           
   Six Months Ended June 30, 
   2023   2022 
         
Gain (Loss) from discontinued operations          
Revenue AHI subsidiary  $   $83,356 
Cost of sales AHI subsidiary       (38,088)
Selling, general and administrative expenses AHI subsidiary       (42,714)
Interest expense of Red Rock Investor Note       (33,622)
Gain no change in estimate of AHI subsidiary       (4,474)
Loss from discontinued operations  $   $(35,542)

 

 

14.GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET

 

The following table shows the Company’s goodwill balances by reportable segment. The Company reviews goodwill for impairment on a reporting unit basis annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. During the six months ended June 30, 2023 and 2022, the Company had no goodwill impairment.

 

The following table shows goodwill balances by reportable segment:  

          
   Healthcare   Total 
Carrying value at December 31, 2022  $5,666,608   $5,666,608 
Accumulated impairment        
Carrying value at June 30, 2023  $5,666,608   $5,666,608 

 

 

 24 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

15.COMMITMENTS AND CONTINGENCIES

 

Leases

 

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

 

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

 

·lease classification for expired or existing leases; and

 

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

 

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

 

The Company recorded operating lease expense of $56,378 and $34,305 for the three months ended June 30, 2023 and 2022, respectively and the Company recorded operating lease expense of $134,230 and $170,150 for the six months ended June 30, 2023 and 2022, respectively.

 

The Company has operating leases with future commitments as follows:  

     
June 30,  Amount 
2024  $126,752 
2025   32,205 
Total  $158,957 

 

Employees

 

The Company agreed to pay $360,000 per year and $200,000 of targeted annual incentives 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 total outstanding accrued compensation as of June 30, 2023 and December 31, 2022 were $2,025,500 and $1,870,500, respectively.

 

The Company agreed to pay $360,000 per year and $200,000 of targeted annual incentives 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 total outstanding accrued compensation as of June 30, 2023 and December 31, 2022 were $2,042,000 and $1,863,000, respectively.

 

The Company agreed to pay $156,000 per year to the previous Chief Financial Officer based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued compensation as of June 30, 2023 and December 31, 2022 was $17,057.

 

 

 25 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

 

 

The Company entered into a Management Agreement effective May 31, 2021 for compensation to the principals of Nova in the form of an annual base salaries of $372,000 to one of the three doctors, $450,000 to the second, and $372,000 to the third doctor. Collectively, as a group, such principals will receive an annual cash bonus and stock equity set forth below, which will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth below.  

     
Year Minimum Annual Nova EBITDA Cash Annual Bonus Series J Preferred Stock
2022 $2.0M $120,000 120,000 Shares
2022 $2.4M $150,000 135,000 Shares
2023 $3.7M $210,000 150,000 Shares
2024 $5.5M $300,000 180,000 Shares
2025 $8.0M $420,000 210,000 Shares

 

 

16.LEGAL PROCEEDINGS

 

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. Management is not currently aware of any such legal proceedings or claims that it believes will have a material adverse effect on the Company’s business, financial condition, or operating results.

 

 

17.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) Tax Resolution Services (Platinum Tax)

 

  (2) Real Estate (Edge View)

 

  (3) Healthcare (Nova)

 

These segments are a result of differences in the nature of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items.

 

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

 

The Tax Resolution Services segment 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.

 

The Real Estate segment consists of Edge View, a real estate company that owns five (5) acres zoned medium density residential (MDR) with 12 lots already platted, six (6) acres zoned high-density residential (HDR) that can be platted in various configurations to meet current housing needs, and twelve (12) acres zoned in Lemhi County as Agriculture that is available for further annexation into the City of Salmon for development, as well as a common area for landowners to view wildlife, provide access to the Salmon River and fishing in a two (2) acre pond. 

 

The Healthcare segment 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.

 

 

 26 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

          
   June 30, 2023   December 31, 2022 
Assets:          
Financial Services  $2,820   $8,577 
Healthcare   15,455,454    12,692,531 
Real Estate   589,331    592,557 
Others   5,914    59,692 
Consolidated assets  $16,053,519   $13,353,357 

 

   Three Months Ended June 30, 
   2023   2022 
Revenues:        
Financial Services  $118,304   $472,014 
Healthcare   3,364,506    2,619,218 
Consolidated revenues  $3,482,810   $3,091,232 
           
Cost of Sales:          
Financial Services  $21,297   $112,776 
Healthcare   1,081,689    983,842 
Consolidated cost of sales  $1,102,986   $1,096,618 
           
Income (Loss) from operations from subsidiaries          
Financial Services  $(43,269)  $11,361 
Healthcare   2,106,551    1,481,055 
Real Estate   (1,743)   (1,688)
Income from operations from subsidiaries  $2,061,539   $1,490,728 
           
Loss from operations from Cardiff Lexington  $(355,369)  $(388,717)
Total income from operations  $1,706,170   $1,102,011 
           
Income (Loss) before taxes          
Financial Services  $(43,810)  $(45,540)
Healthcare   1,378,445    51,136 
Real Estate   (1,743)   (2,416)
Corporate, administration and other non-operating expenses   (516,814)   (65,006)
Consolidated income (loss) before taxes  $816,078   $(61,826)

 

 

 

 

 27 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(UNAUDITED)

  

 

   Six Months Ended June 30, 
   2023   2022 
Revenues:        
Financial Services  $272,703   $936,857 
Healthcare   6,070,905    5,051,525 
Consolidated revenues  $6,343,608   $5,988,382 
           
Cost of Sales:          
Financial Services  $48,126   $325,222 
Healthcare   2,037,983    1,887,624 
Consolidated cost of sales  $2,086,109   $2,212,846 
           
Income (Loss) from operations from subsidiaries          
Financial Services  $(87,256)  $(90,120)
Healthcare   3,384,790    2,784,403 
Real Estate   (1,840)   (2,513)
Income from operations from subsidiaries  $3,295,694   $2,691,770 
           
Loss from operations from Cardiff Lexington  $(875,962)  $(868,276)
Total income from operations  $2,419,732   $1,823,494 
           
Income (Loss) before taxes          
Financial Services  $(89,300)  $(91,030)
Healthcare   2,195,542    868,234 
Real Estate   (1,840)   (2,513)
Corporate, administration and other non-operating expenses   (1,304,315)   (2,398,971)
Consolidated income (loss) before taxes  $800,087   $(1,624,280)

 

 

18.SUBSEQUENT EVENTS

 

The Company has evaluated its operations subsequent to June 30, 2023 to the date these condensed consolidated financial statements were issued and determined there was subsequent events or transactions the required recognition or disclosure in these consolidated financial statements.

 

On July 19, 2023, the Company executed a ninth tranche under Note 40 in the principal amount of $35,500, less an original issue discount and fee of $8,875 (See Note 10).

 

On July 24, 2023, the Company issued 5,000 shares of series E preferred stock as compensation for the property manager of Edge View in exchange for the bonus of $5,000.

 

On July 24, 2023, the Company executed a tenth tranche under Note 40 in the principal amount of $14,000, less an original issue discount and fee of $3,500 (See Note 10).

 

In July, the Company issued 156,000,000 shares of common stock upon conversion of certain convertible notes’ principal and accrued interests in the amount of $30,637 and $6,200, respectively.

 

On August 11, 2023, the Company executed a third tranche under Note 10 in the principal amount of $25,000 (See Note 10).

 

 

 

 28 

 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND