false --12-31 2023 Q3 0000811222 0000811222 2023-01-01 2023-09-30 0000811222 2023-11-14 0000811222 2023-09-30 0000811222 2022-12-31 0000811222 CDIF:SeriesNSeniorConvertiblePreferredStockMember 2023-09-30 0000811222 CDIF:SeriesNSeniorConvertiblePreferredStockMember 2022-12-31 0000811222 CDIF:SeriesXSeniorConvertiblePreferredStockMember 2023-09-30 0000811222 CDIF:SeriesXSeniorConvertiblePreferredStockMember 2022-12-31 0000811222 us-gaap:SeriesBPreferredStockMember 2023-09-30 0000811222 us-gaap:SeriesBPreferredStockMember 2022-12-31 0000811222 us-gaap:SeriesCPreferredStockMember 2023-09-30 0000811222 us-gaap:SeriesCPreferredStockMember 2022-12-31 0000811222 us-gaap:SeriesEPreferredStockMember 2023-09-30 0000811222 us-gaap:SeriesEPreferredStockMember 2022-12-31 0000811222 CDIF:SeriesF1PreferredStockMember 2023-09-30 0000811222 CDIF:SeriesF1PreferredStockMember 2022-12-31 0000811222 CDIF:SeriesIPreferredStockMember 2023-09-30 0000811222 CDIF:SeriesIPreferredStockMember 2022-12-31 0000811222 CDIF:SeriesJPreferredStockMember 2023-09-30 0000811222 CDIF:SeriesJPreferredStockMember 2022-12-31 0000811222 CDIF:SeriesLPreferredStockMember 2023-09-30 0000811222 CDIF:SeriesLPreferredStockMember 2022-12-31 0000811222 CDIF:SeriesRPreferredStockMember 2023-09-30 0000811222 CDIF:SeriesRPreferredStockMember 2022-12-31 0000811222 CDIF:SeriesNPreferredStockMember 2023-09-30 0000811222 CDIF:SeriesNPreferredStockMember 2022-12-31 0000811222 CDIF:SeriesXPreferredStockMember 2023-09-30 0000811222 CDIF:SeriesXPreferredStockMember 2022-12-31 0000811222 2023-07-01 2023-09-30 0000811222 2022-07-01 2022-09-30 0000811222 2022-01-01 2022-09-30 0000811222 us-gaap:FinancialServiceMember 2023-07-01 2023-09-30 0000811222 us-gaap:FinancialServiceMember 2022-07-01 2022-09-30 0000811222 us-gaap:FinancialServiceMember 2023-01-01 2023-09-30 0000811222 us-gaap:FinancialServiceMember 2022-01-01 2022-09-30 0000811222 CDIF:HealthcareSegmentMember 2023-07-01 2023-09-30 0000811222 CDIF:HealthcareSegmentMember 2022-07-01 2022-09-30 0000811222 CDIF:HealthcareSegmentMember 2023-01-01 2023-09-30 0000811222 CDIF:HealthcareSegmentMember 2022-01-01 2022-09-30 0000811222 CDIF:PreferredStockSeriesAIKMember 2021-12-31 0000811222 CDIF:PreferredStockSeriesBDEFF1GHLMember 2021-12-31 0000811222 CDIF:PreferredStockSeriesCAndRMember 2021-12-31 0000811222 us-gaap:TreasuryStockCommonMember 2021-12-31 0000811222 CDIF:PreferredStockSeriesAIKMember 2022-12-31 0000811222 CDIF:PreferredStockSeriesBDEFF1GHLMember 2022-12-31 0000811222 CDIF:PreferredStockSeriesCAndRMember 2022-12-31 0000811222 us-gaap:TreasuryStockCommonMember 2022-12-31 0000811222 us-gaap:CommonStockMember 2021-12-31 0000811222 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0000811222 us-gaap:RetainedEarningsMember 2021-12-31 0000811222 2021-12-31 0000811222 us-gaap:CommonStockMember 2022-12-31 0000811222 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0000811222 us-gaap:RetainedEarningsMember 2022-12-31 0000811222 CDIF:PreferredStockSeriesAIKMember 2022-01-01 2022-09-30 0000811222 CDIF:PreferredStockSeriesBDEFF1GHLMember 2022-01-01 2022-09-30 0000811222 CDIF:PreferredStockSeriesCAndRMember 2022-01-01 2022-09-30 0000811222 us-gaap:TreasuryStockCommonMember 2022-01-01 2022-09-30 0000811222 CDIF:PreferredStockSeriesAIKMember 2023-01-01 2023-09-30 0000811222 CDIF:PreferredStockSeriesBDEFF1GHLMember 2023-01-01 2023-09-30 0000811222 CDIF:PreferredStockSeriesCAndRMember 2023-01-01 2023-09-30 0000811222 us-gaap:TreasuryStockCommonMember 2023-01-01 2023-09-30 0000811222 us-gaap:CommonStockMember 2022-01-01 2022-09-30 0000811222 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-09-30 0000811222 us-gaap:RetainedEarningsMember 2022-01-01 2022-09-30 0000811222 us-gaap:CommonStockMember 2023-01-01 2023-09-30 0000811222 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-09-30 0000811222 us-gaap:RetainedEarningsMember 2023-01-01 2023-09-30 0000811222 CDIF:PreferredStockSeriesAIKMember 2022-09-30 0000811222 CDIF:PreferredStockSeriesBDEFF1GHLMember 2022-09-30 0000811222 CDIF:PreferredStockSeriesCAndRMember 2022-09-30 0000811222 us-gaap:TreasuryStockCommonMember 2022-09-30 0000811222 CDIF:PreferredStockSeriesAIKMember 2023-09-30 0000811222 CDIF:PreferredStockSeriesBDEFF1GHLMember 2023-09-30 0000811222 CDIF:PreferredStockSeriesCAndRMember 2023-09-30 0000811222 us-gaap:TreasuryStockCommonMember 2023-09-30 0000811222 us-gaap:CommonStockMember 2022-09-30 0000811222 us-gaap:AdditionalPaidInCapitalMember 2022-09-30 0000811222 us-gaap:RetainedEarningsMember 2022-09-30 0000811222 2022-09-30 0000811222 us-gaap:CommonStockMember 2023-09-30 0000811222 us-gaap:AdditionalPaidInCapitalMember 2023-09-30 0000811222 us-gaap:RetainedEarningsMember 2023-09-30 0000811222 us-gaap:EquipmentMember 2023-01-01 2023-09-30 0000811222 CDIF:MedicalEquipmentMember 2023-01-01 2023-09-30 0000811222 us-gaap:LeaseholdImprovementsMember 2023-01-01 2023-09-30 0000811222 srt:ScenarioPreviouslyReportedMember 2022-09-30 0000811222 srt:RestatementAdjustmentMember 2022-09-30 0000811222 CDIF:AsRestatedMember 2022-09-30 0000811222 srt:ScenarioPreviouslyReportedMember 2022-07-01 2022-09-30 0000811222 srt:RestatementAdjustmentMember 2022-07-01 2022-09-30 0000811222 CDIF:AsRestatedMember 2022-07-01 2022-09-30 0000811222 srt:ScenarioPreviouslyReportedMember 2022-01-01 2022-09-30 0000811222 srt:RestatementAdjustmentMember 2022-01-01 2022-09-30 0000811222 CDIF:AsRestatedMember 2022-01-01 2022-09-30 0000811222 2022-01-01 2022-12-31 0000811222 2023-09-28 2023-09-29 0000811222 CDIF:ManagerOfPlatinumTaxMember 2023-09-30 0000811222 CDIF:ManagerOfPlatinumTaxMember 2022-12-31 0000811222 CDIF:PreviousOwnersOfEdgeViewMember 2023-09-30 0000811222 CDIF:PreviousOwnersOfEdgeViewMember 2022-12-31 0000811222 CDIF:ChairmanMember 2023-09-30 0000811222 CDIF:ChairmanMember 2022-12-31 0000811222 CDIF:LoansAndNotesPayableMember 2023-09-30 0000811222 CDIF:LoansAndNotesPayableMember 2022-12-31 0000811222 CDIF:SBALoanMember 2020-06-01 2020-06-02 0000811222 CDIF:SBALoanMember 2023-09-30 0000811222 CDIF:SBALoanMember 2022-12-31 0000811222 us-gaap:ConvertibleNotesPayableMember 2023-01-01 2023-09-30 0000811222 us-gaap:ConvertibleNotesPayableMember 2022-01-01 2022-09-30 0000811222 us-gaap:ConvertibleNotesPayableMember 2023-01-01 2023-09-30 0000811222 us-gaap:ConvertibleNotesPayableMember 2022-01-01 2022-09-30 0000811222 CDIF:SecurityExchangeAndPurchaseAgreementMember 2022-09-21 2022-09-22 0000811222 CDIF:SecurityExchangeAndPurchaseAgreementMember CDIF:SeriesXSeniorConvertiblePreferredStockMember 2022-09-21 2022-09-22 0000811222 CDIF:SecurityExchangeAndPurchaseAgreementMember CDIF:PrincipalAmountMember 2022-09-21 2022-09-22 0000811222 CDIF:SecurityExchangeAndPurchaseAgreementMember CDIF:AccruedInterestMember 2022-09-21 2022-09-22 0000811222 CDIF:ConvertibleNote40Member 2023-06-05 0000811222 CDIF:ConvertibleNote40Member 2023-06-13 0000811222 CDIF:ConvertibleNote40Member 2023-07-19 0000811222 CDIF:ConvertibleNote40Member 2023-07-24 0000811222 CDIF:ConvertibleNote40Member 2023-06-04 2023-06-05 0000811222 CDIF:ConvertibleNote40Member 2023-07-18 2023-07-19 0000811222 CDIF:ConvertibleNote40Member 2023-07-23 2023-07-24 0000811222 CDIF:ConvertibleNotesPayablesMember 2023-09-30 0000811222 CDIF:ConvertibleNotesPayablesMember 2022-12-31 0000811222 CDIF:ConvertibleNote71Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote71Member 2022-12-31 0000811222 CDIF:ConvertibleNote71Member 2023-09-30 0000811222 CDIF:ConvertibleNote9Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote9Member 2022-12-31 0000811222 CDIF:ConvertibleNote9Member 2023-09-30 0000811222 CDIF:ConvertibleNote10Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote10Member 2022-12-31 0000811222 CDIF:ConvertibleNote10Member 2023-09-30 0000811222 CDIF:ConvertibleNote101Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote101Member 2022-12-31 0000811222 CDIF:ConvertibleNote101Member 2023-09-30 0000811222 CDIF:ConvertibleNote102Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote102Member 2022-12-31 0000811222 CDIF:ConvertibleNote102Member 2023-09-30 0000811222 CDIF:ConvertibleNote103Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote103Member 2022-12-31 0000811222 CDIF:ConvertibleNote103Member 2023-09-30 0000811222 CDIF:ConvertibleNote292Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote292Member 2022-12-31 0000811222 CDIF:ConvertibleNote292Member 2023-09-30 0000811222 CDIF:ConvertibleNote31Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote31Member 2022-12-31 0000811222 CDIF:ConvertibleNote31Member 2023-09-30 0000811222 CDIF:ConvertibleNote371Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote371Member 2022-12-31 0000811222 CDIF:ConvertibleNote371Member 2023-09-30 0000811222 CDIF:ConvertibleNote372Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote372Member 2022-12-31 0000811222 CDIF:ConvertibleNote372Member 2023-09-30 0000811222 CDIF:ConvertibleNote373Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote373Member 2022-12-31 0000811222 CDIF:ConvertibleNote373Member 2023-09-30 0000811222 CDIF:ConvertibleNote38Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote38Member 2022-12-31 0000811222 CDIF:ConvertibleNote38Member 2023-09-30 0000811222 CDIF:ConvertibleNote39Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote39Member 2022-12-31 0000811222 CDIF:ConvertibleNote39Member 2023-09-30 0000811222 CDIF:ConvertibleNote401Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote401Member 2022-12-31 0000811222 CDIF:ConvertibleNote401Member 2023-09-30 0000811222 CDIF:ConvertibleNote402Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote402Member 2022-12-31 0000811222 CDIF:ConvertibleNote402Member 2023-09-30 0000811222 CDIF:ConvertibleNote403Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote403Member 2022-12-31 0000811222 CDIF:ConvertibleNote403Member 2023-09-30 0000811222 CDIF:ConvertibleNote404Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote404Member 2022-12-31 0000811222 CDIF:ConvertibleNote404Member 2023-09-30 0000811222 CDIF:ConvertibleNote405Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote405Member 2022-12-31 0000811222 CDIF:ConvertibleNote405Member 2023-09-30 0000811222 CDIF:ConvertibleNote406Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote406Member 2022-12-31 0000811222 CDIF:ConvertibleNote406Member 2023-09-30 0000811222 CDIF:ConvertibleNote407Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote407Member 2022-12-31 0000811222 CDIF:ConvertibleNote407Member 2023-09-30 0000811222 CDIF:ConvertibleNote408Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote408Member 2022-12-31 0000811222 CDIF:ConvertibleNote408Member 2023-09-30 0000811222 CDIF:ConvertibleNote409Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote409Member 2022-12-31 0000811222 CDIF:ConvertibleNote409Member 2023-09-30 0000811222 CDIF:ConvertibleNote4010Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote4010Member 2022-12-31 0000811222 CDIF:ConvertibleNote4010Member 2023-09-30 0000811222 CDIF:ConvertibleNote41Member 2023-01-01 2023-09-30 0000811222 CDIF:ConvertibleNote41Member 2022-12-31 0000811222 CDIF:ConvertibleNote41Member 2023-09-30 0000811222 us-gaap:SeriesAPreferredStockMember 2023-09-30 0000811222 CDIF:SeriesNSeniorConvertiblePreferredStockMember 2023-01-01 2023-09-30 0000811222 CDIF:SeriesXPreferredStockMember 2023-01-01 2023-09-30 0000811222 us-gaap:SeriesBPreferredStockMember 2023-05-24 2023-05-25 0000811222 us-gaap:SeriesEPreferredStockMember 2023-07-23 2023-07-24 0000811222 us-gaap:SeriesDPreferredStockMember 2022-07-01 2022-09-30 0000811222 us-gaap:SeriesBPreferredStockMember 2022-07-01 2022-09-30 0000811222 CDIF:SeriesJPreferredStockMember 2022-09-06 2022-09-07 0000811222 CDIF:SeriesXPreferredStockMember 2022-09-11 2022-09-12 0000811222 CDIF:SeriesXPreferredStockMember 2022-09-12 0000811222 us-gaap:ConvertibleNotesPayableMember 2023-01-01 2023-09-30 0000811222 CDIF:RedRockSettlementMember 2022-01-01 2022-09-30 0000811222 us-gaap:WarrantMember 2022-12-31 0000811222 us-gaap:WarrantMember 2023-01-01 2023-09-30 0000811222 us-gaap:WarrantMember 2023-09-30 0000811222 us-gaap:SeriesFPreferredStockMember CDIF:BuyBackAgreementMember CDIF:AHIMember 2022-10-01 2022-10-31 0000811222 CDIF:AHIMember 2022-10-01 2022-10-31 0000811222 us-gaap:SegmentDiscontinuedOperationsMember 2023-07-01 2023-09-30 0000811222 us-gaap:SegmentDiscontinuedOperationsMember 2022-07-01 2022-09-30 0000811222 us-gaap:SegmentDiscontinuedOperationsMember 2023-01-01 2023-09-30 0000811222 us-gaap:SegmentDiscontinuedOperationsMember 2022-01-01 2022-09-30 0000811222 us-gaap:HealthCareMember 2022-12-31 0000811222 us-gaap:HealthCareMember 2023-01-01 2023-09-30 0000811222 us-gaap:HealthCareMember 2023-09-30 0000811222 srt:ChiefExecutiveOfficerMember 2023-09-30 0000811222 srt:ChiefExecutiveOfficerMember 2022-12-31 0000811222 srt:BoardOfDirectorsChairmanMember 2023-09-30 0000811222 srt:BoardOfDirectorsChairmanMember 2022-12-31 0000811222 2021-05-15 0000811222 srt:ChiefFinancialOfficerMember 2023-09-30 0000811222 srt:ChiefFinancialOfficerMember 2022-12-31 0000811222 CDIF:FirstDoctorMember 2021-05-02 2021-05-31 0000811222 CDIF:SecondDoctorMember 2021-05-02 2021-05-31 0000811222 CDIF:ThirdDoctorMember 2021-05-02 2021-05-31 0000811222 CDIF:YearEnd2021Member 2023-09-30 0000811222 CDIF:YearEnd2021Member CDIF:SeriesJPreferredStockMember 2023-09-30 0000811222 CDIF:YearEnd2022Member 2023-09-30 0000811222 CDIF:YearEnd2022Member CDIF:SeriesJPreferredStockMember 2023-09-30 0000811222 CDIF:YearEnd2023Member 2023-09-30 0000811222 CDIF:YearEnd2023Member CDIF:SeriesJPreferredStockMember 2023-09-30 0000811222 CDIF:YearEnd2024Member 2023-09-30 0000811222 CDIF:YearEnd2024Member CDIF:SeriesJPreferredStockMember 2023-09-30 0000811222 CDIF:YearEnd2025Member 2023-09-30 0000811222 CDIF:YearEnd2025Member CDIF:SeriesJPreferredStockMember 2023-09-30 0000811222 CDIF:FinancialServicesMember 2023-09-30 0000811222 CDIF:FinancialServicesMember 2022-12-31 0000811222 CDIF:HealthcareSegmentMember 2023-09-30 0000811222 CDIF:HealthcareSegmentMember 2022-12-31 0000811222 CDIF:RealEstatesMember 2023-09-30 0000811222 CDIF:RealEstatesMember 2022-12-31 0000811222 CDIF:OthersMember 2023-09-30 0000811222 CDIF:OthersMember 2022-12-31 0000811222 CDIF:FinancialServicesMember 2023-07-01 2023-09-30 0000811222 CDIF:FinancialServicesMember 2022-07-01 2022-09-30 0000811222 CDIF:HealthcareSegmentMember 2023-07-01 2023-09-30 0000811222 CDIF:HealthcareSegmentMember 2022-07-01 2022-09-30 0000811222 CDIF:RealEstatesMember 2023-07-01 2023-09-30 0000811222 CDIF:RealEstatesMember 2022-07-01 2022-09-30 0000811222 CDIF:SubsidiaryMember 2023-07-01 2023-09-30 0000811222 CDIF:SubsidiaryMember 2022-07-01 2022-09-30 0000811222 CDIF:CardiffLexingtonMember 2023-07-01 2023-09-30 0000811222 CDIF:CardiffLexingtonMember 2022-07-01 2022-09-30 0000811222 us-gaap:CorporateMember 2023-07-01 2023-09-30 0000811222 us-gaap:CorporateMember 2022-07-01 2022-09-30 0000811222 CDIF:FinancialServicesMember 2023-01-01 2023-09-30 0000811222 CDIF:FinancialServicesMember 2022-01-01 2022-09-30 0000811222 CDIF:HealthcareSegmentMember 2023-01-01 2023-09-30 0000811222 CDIF:HealthcareSegmentMember 2022-01-01 2022-09-30 0000811222 CDIF:RealEstatesMember 2023-01-01 2023-09-30 0000811222 CDIF:RealEstatesMember 2022-01-01 2022-09-30 0000811222 CDIF:SubsidiaryMember 2023-01-01 2023-09-30 0000811222 CDIF:SubsidiaryMember 2022-01-01 2022-09-30 0000811222 CDIF:CardiffLexingtonMember 2023-01-01 2023-09-30 0000811222 CDIF:CardiffLexingtonMember 2022-01-01 2022-09-30 0000811222 us-gaap:CorporateMember 2023-01-01 2023-09-30 0000811222 us-gaap:CorporateMember 2022-01-01 2022-09-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure

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: September 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)

 

N/A

 
(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).  Yes ☐ No

 

As of November 14, 2023, there were 1,326,475,613 shares of common stock of the registrant issued and outstanding.

 

 

 

   

 

 

CARDIFF LEXINGTON CORPORATION

 

Quarterly Report on Form 10-Q

Period Ended September 30, 2023

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40
Item 3. Quantitative and Qualitative Disclosures about Market Risk 51
Item 4. Controls and Procedures 51

 

PART II

OTHER INFORMATION

 

 

Item 1. Legal Proceedings 53
Item 1A. Risk Factors 53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 53
Item 3. Defaults Upon Senior Securities 53
Item 4. Mine Safety Disclosures 53
Item 5. Other Information 53
Item 6. Exhibits 54

 

 

 

 

 

 

 

 

 

 

 

 2 

 

 

 

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 September 30, 2023 (Unaudited) and December 31, 2022 (Unaudited)   4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 (Unaudited) and 2022 (Unaudited and restated)   5
Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) for the Nine Months Ended September 30, 2023 (Unaudited) and 2022 (Unaudited and restated)   6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 (Unaudited) and 2022 (Unaudited and restated)   7
Notes to Condensed Consolidated Financial Statements (Unaudited)   8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 3 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022

(UNAUDITED)

 

         
  

September 30,

2023

   December 31,
2022
 
         
ASSETS          
Current assets          
Cash  $181,343   $226,802 
Accounts receivable-net   11,844,738    6,604,780 
Prepaid and other current assets   5,000    5,000 
Total current assets   12,031,081    6,836,582 
           
Property and equipment, net   44,073    55,439 
Land   540,000    540,000 
Goodwill   5,666,608    5,666,608 
Right of use - assets   201,163    218,926 
Due from related party   4,979    4,979 
Other assets   30,823    30,823 
Total assets  $18,518,727   $13,353,357 
           
LIABILITIES, MEZZANINE EQUITY AND DEFICIENCY IN STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expense  $2,515,682   $2,038,595 
Accrued expenses - related parties   4,264,557    3,750,557 
Accrued interest   717,827    350,267 
Right of use - liability   135,776    142,307 
Due to director & officer   123,442    123,192 
Notes payable   24,600    15,809 
Notes payable - related party   159,662    37,024 
Convertible notes payable, net of debt discounts of $66,674 and $46,798, respectively   3,952,581    3,515,752 
Total current liabilities   11,894,127    9,973,503 
           
Other liabilities          
Notes payable   144,668    139,789 
Operating lease liability – long term   64,147    84,871 
Total liabilities   12,102,942    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, 868,058 shares issued and outstanding at September 30, 2023 and December 31, 2022   3,787,559    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 September 30, 2023 and December 31, 2022   1,652,875    1,500,000 
Total Mezzanine Equity   5,440,434    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 September 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, 123 shares issued and outstanding at September 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, 155,750 and 150,750 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively   623,000    603,000 
Series F-1 Preferred Stock - 50,000 shares authorized, $0.001 par value, stated value $4.00, 35,752 shares issued and outstanding at September 30, 2023 and December 31, 2022   143,008    143,008 
Series I Preferred Stock - 15,000,000 shares authorized, $0.001 par value, 14,885,000 shares issued and outstanding at September 30, 2023 and December 31, 2022   59,540,000    59,540,000 
Series J Preferred Stock - 2,000,000 shares authorized, $0.001 par value, stated value $4.00, 1,713,584 shares issued and outstanding at September 30, 2023 and December 31, 2022   6,854,336    6,854,336 
Series L Preferred Stock - 400,000 shares authorized, $0.001 par value, stated value $4.00, 319,493 shares issued and outstanding at September 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 September 30, 2023 and December 31, 2022   198,000    198,000 
Common Stock - 7,500,000,000 shares authorized, $0.001 par value; 1,099,475,613 and 824,793,235 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively   1,099,475    824,793 
Additional paid-in capital   (8,619,611)   (8,581,265)
Accumulated deficit   (68,679,229)   (70,855,453)
Total stockholders' equity (deficit)   975,351    (1,469,808)
Total liabilities, mezzanine equity and stockholders' equity  $18,518,727   $13,353,357 

 

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

 

 4 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(UNAUDITED)

 

                 
  

THREE MONTHS

ENDED SEPTEMBER 30,

  

NINE MONTHS

ENDED SEPTEMBER 30,

 
   2023  

2022

(Restated)

   2023  

2022

(Restated)

 
REVENUE                
Financial Services  $32,264   $219,872   $304,967   $1,156,729 
Healthcare   3,405,860    3,103,409    9,476,764    8,154,934 
Total revenue   3,438,124    3,323,281    9,781,731    9,311,663 
                     
COST OF SALES                    
Financial Services   5,604    39,963    53,730    365,185 
Healthcare   551,424    1,094,794    2,589,407    2,982,418 
Total cost of sales   557,028    1,134,757    2,643,137    3,347,603 
                     
GROSS PROFIT   2,881,096    2,188,524    7,138,594    5,964,060 
                     
OPERATING EXPENSES                    
Depreciation expense   3,365    5,783    11,365    17,349 
Selling, general and administrative   607,745    685,026    2,437,511    2,625,503 
Total operating expenses   611,110    690,809    2,448,876    2,642,852 
                     
INCOME FROM OPERATIONS   2,269,986    1,497,715    4,689,718    3,321,208 
                     
OTHER INCOME (EXPENSE)                    
Other income       (2)   205    6 
Gain on forgiveness of debt       1,397,271    390    1,397,271 
Interest expense and finance charge   (226,418)   (3,430,785)   (1,766,041)   (6,686,772)
Conversion cost   (1,000)       (3,000)    
Penalties and fees   (15,000)       (45,000)    
Amortization of debt discounts   (46,048)   (92,868)   (94,664)   (249,120)
Total other expenses, net   (288,466)   (2,126,384)   (1,908,110)   (5,538,615)
                     
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS   1,981,520    (628,669)   2,781,608    (2,217,407)
                     
GAIN FROM DISCONTINUED OPERATIONS       363,895        328,353 
                     
NET INCOME (LOSS) FOR THE PERIOD  $1,981,520   $(264,774)  $2,781,608   $(1,889,054)
DEEMED DIVIDENDS ON PREFERRED STOCK   (142,829)       (605,384)    
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS  $1,838,691   $(264,774)  $2,176,224   $(1,889,054)
                     
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   1,008,580,008    208,829,344    975,400,768    189,084,892 
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES – CONTINUED AND DISCONTINUED OPERATIONS   59,608,730,482    208,829,344    67,983,088,742    189,084,892 

 

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

 

 5 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

FOR THE NINE MONTHS ENDED SEPTEMBER 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)
Issuance of series B preferred stock in exchange of series D preferred stock and series H preferred stock         75,000    300,000               
Cancellation of common stock                            
Cancellation of series D preferred stock         (37,500)   (150,000)              
Cancellation of series H preferred stock         (37,500)   (150,000)              
Issuance of series J preferred stock         818,750    3,275,000               
Issuance of common stock for settlement of Red Rock Travel                            
Distribution of dividend                            
Net loss                            
Balance, September 30, 2022 (Restated)  23,085,563   $59,548,201   4,414,702   $17,658,808   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 series B preferred stock         3,150    12,600               
Issuance of series E preferred stock         5,000    20,000               
Net income                            
Balance, September 30, 2023  14,885,001   $59,540,000   4,359,057   $17,436,228   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 
Issuance of series B preferred stock in exchange of series D preferred stock and series H preferred stock                  300,000 
Cancellation of common stock  (35,000,000)   (35,000)           (35,000)
Cancellation of series D preferred stock                  (150,000)
Cancellation of series H preferred stock                  (150,000)
Issuance of series J preferred stock                  3,275,000 
Issuance of common stock for settlement of Red Rock Travel  66,666,666    66,667    (46,667)       20,000 
Distribution of dividend              (310,522)   (310,522)
Net loss              (1,889,054)   (1,889,054)
Balance, September 30, 2022 (Restated)  197,796,735   $199,088   $(3,525,793)  $(67,318,320)  $1,792,785 
                         
                         
                         
Balance December 31, 2022  824,793,235   $824,793   $(8,581,264)  $(70,855,453)  $(1,469,808)
Conversion of convertible notes payable  274,682,378    274,682    (30,747)       243,935 
Accrued dividend              (605,384)   (605,384)
Issuance of series B preferred stock          12,400        25,000 
Issuance of series E preferred stock          (20,000)        
Net income              2,781,608    2,781,608 
Balance, September 30, 2023  1,099,475,613   $1,099,475   $(8,619,611)  $(68,679,229)  $975,351 

 

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

 

 6 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(UNAUDITED)

 

         
   Nine Months Ended September 30, 
   2023  

2022

(Restated)

 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income (loss) for the period  $2,781,608   $(1,889,054)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   11,365    32,442 
Amortization of loan discount   94,664    249,120 
Gain on forgiveness of debt   (390)    
Gain on refinance of debt       (1,397,271)
Loss on finance penalties and fees       1,923,916 
Other noncash items, net       324,563 
Bad debt   270,000     
Fair value settled upon conversion   141,406     
Conversion and note issuance cost   11,250     
Share issuance for service rendered   25,000     
Increase (decrease) in:          
Accounts receivable   (5,509,958)   (782,494)
Right of use – assets   17,763    (23,434)
Prepaid expenses and other current assets       8,000 
Increase (decrease) in:          
Accounts payable and accrued expense   687,135    319,232 
Accrued officer’s compensation   514,000    500,000 
Due from related parties       (5,016)
Accrued interest   380,020    (219,082)
Capital stock to be issued       545,333 
Right of use – liabilities   (27,255)   (871)
Net cash used in operating activities - continuing operations   (603,392)   (414,616)
           
Net cash used in operating activities - discontinued operations       (328,353)
           
CASH FLOWS FROM    FINANCING ACTIVITIES          
Proceeds from convertible notes payable   421,375    729,083 
Repayment of convertible notes payable       (5,908)
Payment of SBA loan   (803)   (2,290)
Dividend on preferred stock       (310,522)
Proceeds from line of credit   44,254     
Repayment of line of credit   (29,781)    
Payment of notes payable related party   (6,332)   (7,948)
Proceeds from notes payable related party   129,220    5,065 
Net cash provided by financing activities   557,933    407,480 
           
NET (DECREASE) IN CASH   (45,459)   (335,489)
CASH, BEGINNING OF PERIOD   226,802    595,987 
CASH, END OF PERIOD  $181,343   $260,498 
           
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the period for interest  $6,389   $73,476 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued upon conversion of notes payable and accrued interest  $99,533   $ 
Preferred stock issued for business acquisition       3,275,000 
Preferred stock issued for debt refinance  $   $1,500,000 

 

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

 

 7 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 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.

 

Principles 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.

 

 

 

 8 

 

 

Accounts Receivable and Credit Losses

 

The Company adopted ASU 2016-13, Financial Instruments – Credit Losses. In accordance with this standard, the Company recognizes an allowance for credit losses for its trade receivables to present the net amount expected to be collected as of the balance sheet date. This allowance is based on the credit losses expected to arise over the life of the asset and are based on Current Expected Credit Losses (CECL). 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 September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company had net accounts receivable of $11,844,738 and $6,604,780, respectively. Accounts receivables are primarily generated from subsidiaries in their normal course of business.

 

Property and Equipment

 

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

 
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 nine months ended September 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.

 

 

 

 9 

 

 

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.

 

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.

 

 

 

 10 

 

 

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 30% 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.

 

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 expenses of $71,636 and $93,905 for the three months ended September 30, 2023 and 2022, respectively. The Company recognized advertising and marketing expenses of $243,315 and $317,899 for the nine months ended September 30, 2023 and 2022, respectively.

 

 

 

 11 

 

 

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 1 Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
     
  Level 2 Inputs, other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at the measurement date.
     
  Level 3 Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

 

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.

 

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.

 

 

 

 12 

 

 

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 September 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 accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.

 

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

 

 

 

 13 

 

 

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 nine months ended September 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 balance sheet as of December 31, 2021, management reconsidered the methodology previously applied in its valuation of goodwill and redeemable preferred stock.

 

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 a $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 a $3,125,002 increase to the mezzanine equity and offsetting decrease to the series N senior convertible preferred stock subject to possible redemption mezzanine equity line item.

 

The Company and the managers of AHI 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 $365 on the consolidated statement of operations for the nine months ended September 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 a $1,076,000 decrease to accounts receivable as of September 30, 2022 and a $1,076,000 increase in finance charges for the nine months ended September 30, 2022.

 

 

 

 14 

 

 

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 
September 30, 2022 (Unaudited)  As previously reported   Adjustments   As restated 
             
Total assets  $15,958,345   $3,275,000   $19,233,345 
                
Total liabilities   9,540,557    3,275,000    12,815,557 
                
Mezzanine equity       3,125,002    3,125,002 
                
Total stockholders' equity  $6,417,788   $(3,125,002)  $3,292,786 

 

 ii. Statement of operations

   Impact of correction of error 
Three months ended September 30, 2022 (Unaudited)  As previously reported   Adjustments   As restated 
             
Revenue  $3,360,743   $(37,462)  $3,323,281 
Cost of sales   1,155,280    (20,523)   1,134,757 
Gross profit   2,205,463    (16,939)   2,188,524 
Operating expense   706,193    (15,384)   690,809 
Income from operations  $1,499,270   $(1,555)  $1,497,715 
Other income (expense), net   (2,126,384)       (2,126,384)
Net loss before discontinued operations   (627,114)   (1,555)   (628,669)
Loss from discontinued operations   362,340    1,555    363,895 
Net loss  $(264,774)  $   $(264,774)
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   208,829,344         208,829,344 
Discontinued Operations   208,829,344         208,829,344 

 

 

 

 15 

 

 

   Impact of correction of error 
Nine months ended September 30, 2022 (Unaudited)  As previously reported   Adjustments   As restated 
             
Revenue  $9,432,481   $(120,818)  $9,311,663 
Cost of sales   3,406,214    (58,611)   3,347,603 
Gross profit   6,026,267    (62,207)   5,964,060 
Operating expense   2,700,950    (58,098)   2,642,852 
Income from operations  $3,325,317   $(4,109)  $3,321,208 
Other income (expense), net   (4,467,089)   (1,071,526)   (5,538,615)
Net loss before discontinued operations   (1,141,772)   (1,075,635)   (2,217,407)
Loss from discontinued operations   328,718    (365)   328,353 
Net loss  $(813,054)  $(1,076,000)  $(1,889,054)
Basic Loss per Share               
Continued Operations  $(0.00)       $(0.01)
Discontinued Operations  $(0.00)       $(0.00)
Weighted Average Shares Outstanding - Basic Earnings Loss per Share               
Continued Operations   189,084,892         189,084,892 
Discontinued Operations   189,084,892         189,084,892 

 

 

3. REVISION OF FINANCIAL STATEMENTS

 

During the preparation of the financial statements for the nine months ended September 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 stockholders’ 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 stock during the year ended December 31, 2018. A total of 8,200,562 shares of series K preferred stock 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 stockholders’ equity (deficiency).

  

 

 

 16 

 

 

 

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

        
  

September 30,

2023

   December 31,
2022
 
Accounts payable  $797,768   $342,330 
Accrued credit cards   29,316    45,722 
Accrued expense – previously factored liability   1,466,371    776,414 
Accrued income taxes, and other taxes   5,346    6,732 
Accrued professional fees   70,122    573,040 
Accrued advertising   69,656    69,656 
Accrued payroll   77,103    14,292 
Accrue expense - other       363 
Accrued expense - dividend payable       210,046 
Total  $2,515,682   $2,038,595 

 

The Company is delinquent paying certain income and property taxes. As of September 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 September 30, 2023 and December 31, 2022 is as follows:

        
  

September 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   (108,439)   (102,206)
Property and equipment, net  $44,073   $55,439 

 

For the three and nine months ended September 30, 2023, total depreciation expense was $3,365 and $11,365, respectively. For the three and nine months ended September 30, 2022, total depreciation expense was $10,814 and $32,442, respectively. Depreciation expense recorded as cost of sales for the three and nine months ended September 30, 2022 was $5,031 and $15,093, respectively.

 

 

 

 17 

 

 

 

6. LAND

 

As of September 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. LINES OF CREDIT

 

At September 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 11.95% at September 30, 2023 and 10.95% at December 31, 2022. As of September 30, 2023 and December 31, 2022, the Company had $8,622 and $0, respectively, of outstanding balance against the line of credit.

 

On September 29, 2023, the Company and Nova entered into a two-year revolving purchase and security agreement with DML HC Series, LLC to sell Nova’s accounts receivables for a revolving financing up to a maximum advance amount of $4.5 million. As of September 30, 2023, the Company had no outstanding balance against the revolving receivable line of credit.

 

 

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 September 30, 2023 and December 31, 2022 were $159,662 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 September 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 September 30, 2023 and December 31, 2022, the Company owed the Chairman $123,442 and $123,192, respectively.

 

See also Note 15 for compensation paid to employees of the Company.

 

 

9. NOTES AND LOANS PAYABLE

 

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

        
  

September 30,

2023

  

December 31,

2022

 
Notes and loans payable  $169,268   $155,598 
Less current portion   (24,600)   (15,809)
Long-term portion  $144,668   $139,789 

 

 

 

 18 

 

 

Long-term debt matures as follows:

    
   Amount 
2024  $24,600 
2025   4,989 
2026   4,989 
2027   4,989 
2028   4,989 
Thereafter   124,712 
Total  $169,268 

 

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 September 30, 2023 and December 31, 2022 and the accrued interest was $7,215 and $6,229 at September 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 nine months ended September 30, 2023. The principal balance and accrued interest at September 30, 2023 was $149,655 and $0, respectively, and principal and accrued interest at December 31, 2022 was $144,609 and $5,723, respectively.

 

 

10. CONVERTIBLE NOTES PAYABLE

 

As of September 30, 2023 and December 31, 2022, the Company had convertible debt outstanding net of amortized debt discount of $3,952,581 and $3,515,752, respectively. During the nine months ended September 30, 2023, the Company received net proceeds of $421,375 from convertible notes. During the nine months ended September 30, 2022, the Company had net proceeds of $729,083 from convertible notes and repaid $5,908 to convertible noteholders. There are debt discounts associated with the convertible debt of $66,674 and $46,798 at September 30, 2023 and December 31, 2022, respectively. For the three months ending September 30, 2023 and 2022, the Company recorded amortization of debt discounts of $46,048 and $92,868, respectively. For the nine months ending September 30, 2023 and 2022, the Company recorded amortization of debt discounts of $94,664 and $249,120, respectively. During the nine months ended September 30, 2023, the Company converted $87,460 of convertible debt, $12,073 in accrued interest and $3,000 in conversion cost into 274,682,378 shares of the Company’s common stock. The Company recognized $141,406 of interest expense and additional paid-in capital to adjust fair value for the debt settlement during the nine months ended September 30, 2023. The Company had no convertible debt conversions during the nine months ended September 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.

 

 

 

 19 

 

 

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

        
  

September 30,

2023

  

December 31,

2022

 
Convertible notes payable  $4,019,255   $3,562,550 
Discounts on convertible notes payable   (66,674)   (46,798)
Total convertible debt less debt discount   3,952,581    3,515,752 
Current portion   3,952,581    3,515,752 
Long-term portion  $   $ 

 

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

                                 
Note #  Issuance  Maturity  Principal Balance 12/31/22  New Loan  Principal Conversions  Shares Issued Upon Conversion  Principal Balance 9/30/23  Accrued Interest on Convertible Debt at 12/31/22  Interest Expense On Convertible Debt For the Period Ended 9/30/23  Accrued Interest on Convertible Debt at 9/30/23  Unamortized Debt Discount At 9/30/23
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   7,491   21,648   
10  1/24/2017  1/24/2018  55,000           55,000   69,876   8,227   78,103   
10-1  2/10/2023  2/10/2024     50,000        50,000      4,767   4,767   
10-2  3/30/2023  3/30/2024     25,000        25,000      1,890   1,890   
10-3  8/11/2023  8/11/2024     25,000        25,000      514   514   
29-2  11/8/2019  11/8/2020  36,604           36,604   20,160   6,571   26,731   
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   15,303   59,059   
37-2  11/2/2020  8/31/2021  113,167           113,167   27,510   15,236   57,746   
37-3  12/29/2020  9/30/2021  113,166           113,166   26,474   15,236   56,710   
38  2/9/2021  2/9/2022  96,000      (77,460) 221,276,923   18,540   27,939   7,242   35,181   
39  4/26/2021  4/26/2022  168,866           168,866   39,684   27,787   67,470   
40-1  9/22/2022  9/22/23  2,600,000        30,000,000   2,600,000   71,233   194,466   255,499   
40-2  11/4/2022  11/4/2023  68,666           68,666   1,072   5,136   6,208   4,327
40-3  11/28/2022  11/28/2023  68,667           68,667   620   5,136   5,756   4,327
40-4  12/21/2022  12/21/2023  68,667           68,667   187   5,136   5,323   4,327
40-5  1/24/2023  1/24/2024     90,166        90,166      6,151   6,151   5,965
40-6  3/21/2023  3/21/2024     139,166        139,166      7,359   7,359   9,242
40-7  6/5/2023  6/5/2024     139,166        139,166      4,461   4,461   24,913
40-8  6/13/2023  6/13/2024     21,167        21,167      632   632   3,624
40-9  7/19/2023  7/19/2024     35,500        35,500      710   710   7,100
40-10  7/24/2023  7/24/2024     14,000        14,000      261   261   2,849
41  8/25/2023  8/25/2024     5,000        5,000      49   49   
         3,562,550  $544,165  $(87,460) 274,682,378  $4,019,255  $338,316  $339,761  $710,613  $66,674

 

 

 

 20 

 

 

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, 10-2 and 10-3

 

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). On August 11, 2023, the Company executed a fourth tranche under this note in the principal amount of $25,000 (Note 10-3). Notes 10-1, 10-2 and 10-3 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.

 

 

 

 21 

 

 

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.

 

Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7, 40-8, 40-9 and 40-10

 

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 an eighth tranche under this note in the principal amount of $21,167, less original issue discount and fee of $5,167 (Note 40-8). On July 19, 2023, the Company executed a ninth tranche under this note in the principal amount of $35,500, less an original issue discount and fee of $8,875 (Note 40-9). On July 24, 2023, the Company executed a tenth tranche under this note in the principal amount of $14,000, less an original issue discount and fee of $3,500 (Note 40-10). 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.

 

Note 41

 

On August 25, 2023, the Company issued a twelve-month convertible promissory note in the principal amount of $5,000 to the Company’s CEO for the Company’s operating expenses. The rate of interest is 10% per annum.

 

 

11. CAPITAL STOCK

 

Preferred Stock

 

The Company has designated multiple series of preferred stock, including 2 shares of series A preferred stock, 3,000,000 shares of series B preferred stock, 500 shares of series C preferred stock, 1,000,000 shares of series E preferred stock, 50,000 shares of series F-1 preferred stock, 15,000,000 shares of series I preferred stock, 2,000,000 shares of series J preferred stock, 400,000 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.

 

 

 

 22 

 

 

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 September 30, 2023, cumulative dividends on Series N Preferred Stock were $662,557.

 

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.

 

 

 

 23 

 

 

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.

 

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 September 30, 2023, cumulative dividends on Series X Preferred Stock were $152,875.

 

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.

 

 

 

 24 

 

 

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.

 

Non-redeemable Preferred Stock

 

Series A Preferred Stock

 

Ranking. The series A preferred stock ranks, with respect to 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 A preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series A preferred stock; and (iii) junior to the series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series I preferred stock, series J preferred stock, series L preferred stock, series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and each other series of preferred stock and each class or series that is expressly made senior to the series A preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The series A preferred stock is not entitled to participate in any distributions or payments to the holders of common stock or any other class of stock and shall have no economic interest in the Company.

 

Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation of our company wherein the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, the holders of each share of series A preferred stock shall be entitled to receive from any distribution of any of the assets or surplus funds of the Company, before and in preference of any holder of shares of common stock, an amount equal to the stated value of $250. Once the holders receive the foregoing from any such liquidation, dissolution or winding up, the holders shall not participate with the common stock or any other class of stock.

 

Voting Rights. Each share of series A preferred stock shall have a number of votes at any time equal to (i) 25% of the number of votes then held or entitled to be made by all other equity securities of the Company, including, without limitation, the common stock, plus (ii) one (1). The series A preferred stock shall vote on any matter submitted to the holders of the common stock, or any other class of voting securities, for a vote, and shall vote together with the common stock, or any class of voting securities, as applicable, on such matter for as long as the shares of series A preferred stock are issued and outstanding. Notwithstanding the foregoing, the series A preferred stock shall not have the right to vote on any matter as to which solely another series of preferred stock is entitled to vote pursuant to the Company’s amended and restated articles of incorporation or a certificate of designation of such other series of preferred stock.

 

Transfer. Upon transfer of any share of series A preferred stock, except for a transfer by the holder to an affiliate, whether such transfer is voluntary or involuntary, such share of series A preferred stock shall automatically, and without any action being required by the Company or the holder, be converted into one (1) share of common stock.

 

Other Rights. Holders of series A preferred stock do not have any conversion (except as set forth above) or redemption rights.

 

Series B Preferred Stock

 

Ranking. The series B preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series B preferred stock; (ii) on parity with the series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series B preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series B preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

 

 

 25 

 

 

Dividend Rights. The holders of series B preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series B preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series B preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series B preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series B preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of series B preferred stock shall be entitled to cast one (1) vote per share of series B preferred stock held. Except as provided by law, the holders of series B preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series B preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series B preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series B preferred stock or alter or amend the certificate of designation for the series B preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series B preferred stock.

 

Conversion Rights. Each share of series B preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series B preferred stock, voting together as a single class, each share of series B preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events.

 

Redemption Rights. Holders of series B preferred stock do not have any redemption rights.

 

Series C Preferred Stock

 

Ranking. The series C preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series C preferred stock; (ii) on parity with the series B preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series C preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series C preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The holders of series C preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series C preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series C preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series C preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series C preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

 

 

 26 

 

 

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of series C preferred stock shall be entitled to cast one (1) vote per share of series C preferred stock held. Except as provided by law, the holders of series C preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series C preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series C preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series C preferred stock or alter or amend the certificate of designation for the series C preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series C preferred stock.

 

Conversion Rights. Each share of series C preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $0.00004. In addition, on the date on which the shares of common stock are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier) (a “Listing Event”), all outstanding shares of series C preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing $50,000 by the highest traded or closing price on such date, which such shares of common stock shall be issued pro rata among the holders of the outstanding series C preferred stock. Finally, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series C preferred stock, voting together as a single class, each share of series C preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $0.00004. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events.

 

Redemption Rights. If there is a Listing Event, the Company shall have the right (but not the obligation) to redeem shares of series C preferred stock at a price per share of $50,000.

 

Series E Preferred Stock

 

Ranking. The series E preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series E preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series E preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series E preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The holders of series E preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series E preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series E preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series E preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series E preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

 

 

 

 27 

 

 

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of series E preferred stock shall be entitled to cast one (1) vote per share of series E preferred stock held. Except as provided by law, the holders of series E preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series E preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series E preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series E preferred stock or alter or amend the certificate of designation for the series E preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series E preferred stock.

 

Conversion Rights. Each share of series E preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series E preferred stock, voting together as a single class, each share of series E preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events.

 

Redemption Rights. If the Company’s common stock is listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), the Company shall have the right (but not the obligation) to redeem shares of series E preferred stock at a price per share of $50,000.

 

Series F-1 Preferred Stock

 

Ranking. The series F-1 preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series F-1 preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series E preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series F-1 preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series F-1 preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The holders of series F-1 preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series F-1 preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series F-1 preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series F-1 preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series F-1 preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

 

 

 28 

 

 

Voting Rights. Except as provided by law, the holders of series F-1 preferred stock shall have no voting rights. However, as long as any shares of series F-1 preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series F-1 preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series F-1 preferred stock or alter or amend the certificate of designation for the series F-1 preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series F-1 preferred stock.

 

Conversion Rights. Each share of series F-1 preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series F-1 preferred stock, voting together as a single class, each share of series F-1 preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events.

 

Redemption Rights. Holders of series F-1 preferred stock do not have any redemption rights.

 

Series I Preferred Stock

 

Ranking. The series I preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock, series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and to each other class or series that is not expressly made senior to or on parity with the series I preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series I preferred stock; and (iii) junior to the series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series I preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The holders of series I preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series I preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series I preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series I preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series I preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of series I preferred stock shall be entitled to cast five (5) votes per share of series I preferred stock held. Except as provided by law, the holders of series I preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series I preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series I preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series I preferred stock or alter or amend the certificate of designation for the series I preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series I preferred stock.

 

 

 

 

 29 

 

 

Conversion Rights. Each share of series I preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $10,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series I preferred stock, voting together as a single class, each share of series I preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events.

 

Redemption Rights. Holders of series I preferred stock do not have any redemption rights.

 

Series J Preferred Stock

 

Ranking. The series J preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series J preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series J preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series J preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The holders of series J preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series J preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series J preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series J preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series J preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of series J preferred stock shall be entitled to cast one (1) vote per share of series J preferred stock held. Except as provided by law, the holders of series J preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series J preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series J preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series J preferred stock or alter or amend the certificate of designation for the series J preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series J preferred stock.

 

 

 

 

 30 

 

 

Conversion Rights. Each share of series J preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series J preferred stock, voting together as a single class, each share of series J preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events.

 

Redemption Rights. Holders of series J preferred stock do not have any redemption rights.

 

Series L Preferred Stock

 

Ranking. The series L preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series L preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock and each other class or series that is not expressly subordinated or made senior to the series L preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series L preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The holders of series L preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series L preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series L preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series L preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series L preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of series L preferred stock shall be entitled to cast one (1) vote per share of series L preferred stock held. Except as provided by law, the holders of series L preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series L preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series L preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series J preferred stock or alter or amend the certificate of designation for the series L preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series L preferred stock.

 

 

 

 31 

 

 

Conversion Rights. Each share of series L preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series L preferred stock, voting together as a single class, each share of series L preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $2.00. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events.

 

Redemption Rights. Holders of series L preferred stock do not have any redemption rights.

 

Series R Preferred Stock

 

Ranking. The series R preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock, series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series I preferred stock, series J preferred stock, series L preferred stock and to each other class or series that is not expressly made senior to or on parity with the series R preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series R preferred stock; and (iii) junior to the series N senior convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series R preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

 

Dividend Rights. The holders of series R preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series R preferred stock.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series R preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series R preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series R preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

 

Voting Rights. On any matter presented to stockholders for their action or consideration, each holder of series R preferred stock shall be entitled to cast one (1) vote per share of series R preferred stock held. Except as provided by law, the holders of series R preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series R preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series R preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series R preferred stock or alter or amend the certificate of designation for the series R preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series R preferred stock.

 

Conversion Rights. Each share of series R preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value of $1,200 by a conversion price of $1,200 (subject to standard adjustments in the event of any stock dividends, stock splits, stock reclassifications and similar events).

 

Redemption Rights. Holders of series R preferred stock do not have any redemption rights.

 

 

 

 32 

 

 

Preferred Stock Transactions

 

During the nine months ended September 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.
   
· 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 a bonus of $5,000.

 

During the nine months ended September 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.
   
· On September 7, 2022, the Company issued 818,750 shares of series J preferred stock for $3,275,000 as part of the Nova acquisition.
   
· On September 12, 2022, the Company issued 375,000 shares of series X senior convertible preferred stock for $1,500,000. See footnote 10, convertible notes payable for further discussion. The Company classified the series X preferred stock and amount of $1,500,000 as mezzanine equity.

 

Common Stock

 

During the nine months ended September 30, 2023, the Company executed the following transactions:

 

· The Company issued 274,682,378 shares of common stock upon the conversion of certain convertible notes.

 

During the nine months ended September 30, 2022, the Company executed the following transactions:

 

· As part of the Red Rock settlement, the Company issued 666,666,666 shares of common stock.  
     
· The settlement also required the previous owners to relinquish 35,000,000 shares of common stock resulting in a gain to the Company of $35,000

 

 

 

 33 

 

 

 

12. WARRANTS

 

The table below sets forth warrant activity for the nine months ended September 30, 2023:

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

 

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 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 September 30, 2023 and December 31, 2022. The Company had $0 and $363,895 of gain from discontinued operations for the three months ended September 30, 2023 and 2022, respectively. The Company had $0 and $328,353 of gain from discontinued operations for the nine months ended September 30, and 2022, respectively.

        
   Three Months Ended September 30, 
   2023   2022 
         
Gain (Loss) from discontinued operations          
Revenue of AHI subsidiary  $   $37,462 
Cost of sales of AHI subsidiary       (20,523)
Selling, general and administrative expenses of AHI subsidiary       (15,384)
Interest expense of Red Rock Investor Note       (39,100)
Gain from disposal of Red Rock subsidiary       33,622 
Gain on settlement of debt on Red Rock       367,818 
Gain from discontinued operations  $   $363,895 

 

 

 

 34 

 

 

         
   Nine Months Ended September 30, 
   2023   2022 
         
Gain (Loss) from discontinued operations          
Revenue AHI subsidiary  $   $102,818 
Cost of sales AHI subsidiary       (58,611)
Selling, general and administrative expenses AHI subsidiary       (58,098)
Interest expense of Red Rock Investor Note       (39,100)
Gain no change in estimate of AHI subsidiary       (4,474)
Gain on settlement of debt on Red Rock        385,818 
Gain from discontinued operations  $   $328,353 

 

 

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 nine months ended Sept