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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

 

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

 

For the quarterly period ended: June 30, 2024

 

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

 

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 complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

 

As of August 13, 2024, there were 14,076,376 shares of common stock of the registrant issued and outstanding.

 

 

 

   

 

 

EXPLANATORY NOTE

 

Cardiff Lexington Corporation (the “Company”) is filing this Amendment No. 1 on Form 10-Q (“Amendment”) to amend its Quarterly Report on Form 10-Q for the period ended June 30, 2024, which was originally filed with the Securities and Exchange Commission on August 14, 2024 (the “Form 10-Q”).

 

This Amendment is being filed to correct an error in the Form 10-Q as a result of a change in classification of credit loss expense to net revenue and a related adjustment to its allowance for credit losses. Additionally, the Company filed this Amendment to respond to certain comments received from the staff of the Securities and Exchange Commission. The Form 10-Q, as amended by this Amendment, continues to be as of August 14, 2024 and does not reflect events occurring after August 14, 2024.

 

 

 

 

 

 

 

 

 

 

   

 

 

CARDIFF LEXINGTON CORPORATION

 

Quarterly Report on Form 10-Q

Period Ended June 30, 2024

 

 

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 42
Item 3. Quantitative and Qualitative Disclosures about Market Risk 53
Item 4. Controls and Procedures 53
PART II
OTHER INFORMATION
 
Item 1. Legal Proceedings 55
Item 1A. Risk Factors 55
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 55
Item 3. Defaults Upon Senior Securities 55
Item 4. Mine Safety Disclosures 55
Item 5. Other Information 55
Item 6. Exhibits 56

 

 

 

 

 

 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 June 30, 2024 and December 31, 2023 (Unaudited and restated)   4
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited and restated)   5
Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) for the Six Months Ended June 30, 2024 and 2023 (Unaudited and restated)   6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited)   7
Notes to Condensed Consolidated Financial Statements (Unaudited and restated)   8

 

 

 

 

 

 3 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2024 AND DECEMBER 31, 2023

(UNAUDITED) 

 

         
   June 30, 2024   December 31, 2023 
   (Restated)   (Restated) 
ASSETS          
Current assets          
Cash  $3,196,795   $866,943 
Accounts receivable-net   14,861,139    13,305,254 
Prepaid and other current assets   5,000    5,000 
Total current assets   18,062,934    14,177,197 
           
Property and equipment, net   27,929    34,661 
Land   540,000    540,000 
Goodwill   5,666,608    5,666,608 
Right of use - assets   348,702    289,062 
Due from related party   4,979    4,979 
Other assets   50,730    33,304 
Total assets  $24,701,882   $20,745,811 
           
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expense  $1,679,731   $2,047,131 
Accrued expenses - related parties   4,353,056    4,733,057 
Accrued interest   103,345    620,963 
Right of use – liabilities   173,985    157,669 
Due to director and officer       120,997 
Notes payable – current portion   550,900    15,977 
Line of credit   6,675,746    2,120,100 
Convertible notes payable, net of debt discounts of $0 and $24,820, respectively   110,000    3,807,030 
Net liabilities of discontinued operations   237,643    237,643 
Total current liabilities   13,884,406    13,860,567 
           
Notes payable   142,391    144,666 
Operating lease liability – long term   169,811    119,056 
Total liabilities   14,196,608    14,124,289 
           
Mezzanine equity          
Redeemable Series N Senior Convertible Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value $4.00, 868,056 shares issued and outstanding at June 30, 2024 and December 31, 2023   3,125,000    3,891,439 
Redeemable Series R Senior Convertible Preferred Stock - 5,000 shares authorized, $0.001 par value, stated value of $1,200, 0 and 165, shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively       307,980 
Redeemable Series X Senior Convertible Preferred Stock - 5,000,000 shares authorized, $0.001 par value, stated value of $4.00 par value; 375,000 shares issued and outstanding at June 30, 2024 and December 31, 2023   1,500,000    1,690,685 
Total Mezzanine Equity   4,625,000    5,890,104 
           
Stockholders' equity          
Series B Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value of $4.00, 980,179 and 2,139,478 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively   3,920,716    8,557,912 
Series C Preferred Stock - 500 shares authorized, $0.001 par value, stated value of $4.00, 60 and 123 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively   240    492 
Series E Preferred Stock - 1,000,000 shares authorized, $0.001 par value, stated value $4.00, 75,375 and 155,750 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively   301,500    623,000 
Series F-1 Preferred Stock - 50,000 shares authorized, $0.001 par value, stated value $4.00, 25,750 and 35,752 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively   103,000    143,008 
Series I Preferred Stock - 15,000,000 shares authorized, $0.001 par value, stated value $4.00, 11,640,500 and 14,885,000 issued and outstanding at June 30, 2024 and December 31, 2023, respectively   46,562,000    59,540,000 
Series J Preferred Stock - 2,000,000 shares authorized, $0.001 par value, stated value $4.00, 0 and 1,713,584 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively       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 June 30, 2024 and December 31, 2023   1,277,972    1,277,972 
Series Y Senior Convertible Preferred Stock - 1,000,000 shares authorized, $0.001 par value, stated value of $4.00, 938,908 and 0 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively   3,755,632     
Common Stock; 300,000,000 shares authorized, $0.001 par value; 13,626,376 and 25,121 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively   13,626    25 
Additional paid-in capital   19,522,200    (7,581,212)
Accumulated deficit   (69,576,612)   (68,684,115)
Total stockholders’ equity   5,880,274    731,418 
Total liabilities, mezzanine equity and stockholders’ equity  $

24,701,882

   $20,745,811 

 

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 SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

 

                     
  

Three Months

Ended June 30,

  

Six Months

Ended June 30,

 
   2024
(Restated)
  

2023

(Restated)

   2024
(Restated)
  

2023

(Restated) 

 
REVENUE  $1,471,643   $3,364,506   $3,793,775   $6,070,905 
COST OF SALES   793,010    1,081,689    1,741,164    2,037,984 
GROSS PROFIT   678,633    2,282,817    2,052,611    4,032,921 
                     
OPERATING EXPENSES                    
Depreciation expense   3,366    3,365    6,731    8,000 
Share based compensation           300,225     
Selling, general and administrative   834,750    530,013    1,686,146    1,517,933 
Total operating expenses   838,116    533,378    1,993,102    1,525,933 
                     
(LOSS) INCOME FROM CONTINUING OPERATIONS   (159,483)   1,749,439    59,509    2,506,988 
                     
OTHER INCOME (EXPENSE)                    
Other income   2,047        2,047    204 
Gain on debt refinance and forgiveness   78,834        78,834    390 
Penalties and fees   (330)   (15,000)   (1,330)   (32,000)
Interest expense   (41,347   (843,918)   (417,616)   (1,537,579)
Amortization of debt discounts   (11,306)   (30,633)   (24,821)   (48,616)
Total other income (expense)   27,898    (889,551)   (362,886)   (1,617,601)
                     
NET (LOSS) INCOME BEFORE DISCONTINUED OPERATIONS   (131,585)   859,888    (303,377)   889,387 
LOSS FROM DISCONTINUED OPERATIONS       (43,810)   (111,312)   (89,300)
NET (LOSS) INCOME FOR THE PERIOD  $(131,585)  $816,078   $(414,689)  $800,087 
                     
PREFERRED STOCK DIVIDENDS   (326,174)  $(125,744)  $(477,808)   (454,419)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS  $(457,759)  $690,334   $(892,497)  $345,668 
                     
BASIC (LOSS) INCOME PER SHARE                    
CONTINUING OPERATIONS  $(0.04)  $55.66   $(0.11)  $28.75 
DISCONTINUED OPERATIONS  $0.00   $(3.53)  $(0.01)  $(7.43)
                     
DILUTED (LOSS) INCOME PER SHARE                    
CONTINUING OPERATIONS  $(0.04)  $3.59   $(0.11)  $1.45 
DISCONTINUED OPERATIONS  $0.00   $(3.53)  $(0.01)  $(7.43)
                     
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC   12,792,767    12,403    8,305,493    12,024 
WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED   12,792,767    192,477    8,305,493    237,814 

 

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)

SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

                                             
  

Preferred Stock Series

A and I

  

Preferred Stock Series

B, E, F-1, J and L

  

Preferred Stock

Series C

   Common Stock   Additional Paid-In   Accumulated
Deficit
   Total
Stockholders’ (Deficit)
Equity
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   (Restated)   (Restated) 
Balance, December 31, 2022 (Restated)   14,885,001   $59,540,000   4,350,907   $17,403,628    123   $492    12,053   $12   $(10,004,808)  $(68,684,115)  $(1,744,791)
Conversion of convertible notes payable                           1,583    2    190,236        190,238 
Preferred stock Dividends                                       (344,947)   (344,947)
Issuance of preferred stock series B           3,150    12,600                    12,400        25,000 
Net loss                                      800,087    800,087 
Balance, June 30, 2023 (Restated)   14,885,001   $59,540,000   4,354,057   $17,416,228    123   $492    13,636   $14   $(9,802,172)  $(68,228,975)  $(1,074,413)

  

                                                        
  

Preferred Stock Series

A, I and Y

  

Preferred Stock Series

B, E, F-1, J and L

  

Preferred Stock

Series C

   Common Stock   Additional Paid-In   Accumulated
Deficit
   Total
Stockholders’ (Deficit)
Equity
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   (Restated)   (Restated) 
Balance, December 31, 2023 (Restated)   14,885,002   $59,540,000    4,364,057   $17,456,228    123   $492    25,121   $25   $(7,581,212)  $(68,684,115)  $731,418 
Conversion of convertible notes payable                           1,222    1    1,679        1,680 
Conversion of series B preferred stock           (1,159,299)   (4,637,196)           2,318,598    2,318    4,634,878         
Conversion of series C preferred stock                   (61)   (244)   610,000    610    (366)        
Conversion of series E preferred stock           (80,375)   (321,500)           160,750    161    321,339         
Conversion of series F-1 preferred stock           (10,002)   (40,008)           20,004    20    39,988         
Conversion of series I preferred stock   (3,377,000)   (13,508,000)                   6,754,000    6,754    13,501,246         
Conversion of series J preferred stock           (1,713,584)   (6,854,336)           3,427,168    3,427    6,850,909         
Issuance of series I preferred stock to officers   132,500    530,000                            63,600        593,600 
Issuance of series Y preferred stock   938,908    3,755,632                                    3,755,632 
Cancellation of series C preferred stock                   (2)   (8)           8         
Common stock issued for services                           7,500    8    11,617        11,625 
Common stock issued to board members                           30,000    30    194,970        195,000 
Common stock issued in Red Rock settlement                           37,104    37    111,275        111,312 
Preferred stock Dividends                           234,909    235    1,372,269    (477,808)   (894,696)
Net income (Restated)                                       (414,689)   (414,689)
Balance, June 30, 2024 (Restated)   12,579,410   $50,317,632    1,400,797   $5,603,188    60   $240    13,626,376   $13,626   $19,522,200   $(69,576,612)  $5,880,274 

 

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

 

 

 6 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(UNAUDITED)

         
   Six Months Ended June 30, 
   2024
(Restated)
  

2023

(Restated)

 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net (loss) income from continuing operations  $(414,689)  $800,087 
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   6,731    8,000 
Amortization of debt discount   24,820    48,616 
Bad debt       270,000 
Conversion and note issuance cost   1,000    7,000 
Share issuance for compensations to directors and officers   788,600     
Share issuance for service rendered   11,625    25,000 
Fair value settled upon conversion       123,566 
Gain on settlement or forgiveness of debt   (78,834   (390)
(Increase) decrease in:          
Accounts receivable   (1,555,885)   (2,859,607)
Right of use – assets   (59,640)   64,993 
Prepaids and other current assets   (17,425)    
Increase (decrease) in:          
Accounts payable and accrued expense   (367,400)   738,353 
Accrued officers compensation   (380,001)   334,000 
Accrued interest   (6,700)   248,137 
Right of use – liabilities   67,071    (68,221)
Net cash used in operating activities   (1,980,727)   (260,466)
           
Net cash provided by (used in) Discontinued Operations – Operating   111,312    (38,809)
           
FINANCING ACTIVITIES          
Payments to director   (120,997)   355,500 
Repayment of SBA loans   (2,352)    
Payment of convertible notes   (100,079)    
Proceeds from line of credit   4,522,695    35,131 
Payment of line of credit       (30,161)
Payment of dividends on preferred stock   (100,000)     
Net cash provided by financing activities   4,199,267    360,470 
           
Net cash provided by Discontinued Operations – Financing       128,109 
           
NET INCREASE IN CASH AND CASH EQUIVALENTS   2,329,852    189,304 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   866,943    219,085 
CASH AND CASH EQUIVALENTS, END OF PERIOD  $3,196,795   $408,389 
           
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the year for Interest  $122,279   $2,044 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued upon conversion of notes payable  $1,680   $66,673 
Common stock issued upon conversion of preferred stock  $13,290   $ 
Series Y preferred stock issued in exchange of convertible notes payable  $3,755,632   $ 
Promissory note payable issued in settlement agreement  $535,000   $ 
Right of use assets acquired  $186,638   $ 

 

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 SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(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:

 

  · 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 sold on November 10, 2023; and
     
  · Nova Ortho and Spine, LLC (“Nova”), which was acquired on May 31, 2021.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Cardiff and its wholly owned subsidiaries, Edge View, Platinum Tax and Nova (collectively, the “Company”). Subsidiaries shown as discontinued operations include Platinum Tax. All significant intercompany accounts and transactions are eliminated in consolidation. Subsidiaries discontinued are shown as discontinued operations.

 

Reverse Stock Split

 

On January 9, 2024, the Company effected a 1-for-75,000 reverse split of its outstanding common stock. All outstanding shares of common stock and warrant to purchase common stock were adjusted to reflect the 1-for-75,000 reverse split, with respective exercise prices of the warrants proportionately increased. The conversion prices of the outstanding convertible notes and certain series of preferred stock were adjusted to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion.

 

All share and per share data throughout these consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. The total number of authorized shares of common stock did not change. As a result of the reverse stock split, an amount equal to the decreased value of the common stock was reclassified from “common stock” to “additional paid-in capital.”

 

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

 

In the normal course of business, the Company is in the lien based medical industry providing orthopedic healthcare servicing an uninsured market insulated by a letter of protection which insulates the Company and insures payment in full from insurance settlements. Accounts receivable consists of amounts due from attorneys and insurance providers for services provided to patients under the letter of protection. The accounts receivable are recorded at the expected settlement realization amount, which is less contractual adjustments and an allowance for credit losses. The Company recognizes an allowance for credit losses for its accounts receivable to present the net amount expected to be collected as of the balance sheet date. This allowance is determined based on the history of net settlements received, where the net settlement amount is not collected. No collection can happen if no settlement is reached with the defendant’s insurance company and the plaintiff (the patient) loses the case at trial, or the case is abandoned, then the Company will not be able to collect on its letter of protection and its receivable will not be collected. Additionally, the Company considers economic factors and events or trends expected to affect future collections experience. The no collection history of the Company’s customers is considered in future assessments of collectability as these patterns are established over a longer period. The Company uses the term collection and collection rate in its disclosures to describe the historical less than 1% occurrence of not collecting under a contract, which aligns with the Company’s credit loss accounting under ASC 326.

 

The Company does not have a significant exposure to credit losses as it has historically had a less than 1.0% loss rate where the Company received no settlement amount for its outstanding accounts receivable. Although possible, claims resulting in zero collection upon settlement are rare based on the Company’s historical experience and has historically been 0.5% to 1.0% of its outstanding accounts receivable, thereby resulting in a collection rate of 99%. The Company uses the loss rate method to record its allowance for credit losses. The Company applies the loss rate method by reviewing its zero collection history on a regular basis and updating its estimates of credit losses to adjust for changes in loss data. The Company typically collects on its accounts receivable between eighteen and twenty-four months after recording. The Company does not record an allowance for credit losses based on an aging of its accounts receivable as the aging of the Company’s receivables do not influence the credit loss rate due to the nature of its business and the letter of protection. The Company does not adjust its receivables for the effects of a significant financing component at contract inception as the timing of variable consideration is determined by the settlement, which is outside of the Company’s control. As of June 30, 2024 and December 31, 2023, the Company’s allowance for credit losses was $122,190. The Company recognized $0 and $270,000 of credit loss expense during the six months ended June 30, 2024 and 2023, respectively, which is included in selling, general and administrative expenses in the condensed consolidated statement of operations.

 

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

 

 

 

 

 

 9 

 

 

Goodwill and Other Intangible Assets

 

Goodwill and indefinite-lived assets 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 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. Goodwill is tested first for impairment based on qualitative factors on an annual basis or in between if an event occurs or circumstances change that indicate the fair value may be below its carrying amount, otherwise known as a ‘triggering event’. An assessment is made of these qualitative factors as such to determine whether it is more likely than not the fair value is less than the carry amount, including goodwill. The annual evaluation for impairment of indefinite-lived intangibles and, if then needed after the first step, Goodwill, is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. During the six months ended June 30, 2024 and 2023, 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 cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

 

Revenue Recognition

 

The Company’s primary source of revenue is its healthcare subsidiary, which records revenues from providing licensed and/or certified orthopedic procedures. Revenue is recognized at a point in time in accordance with ASC 606 and at an estimated net settlement realization rate based on gross billed charges. The Company’s healthcare subsidiary does not have contract liabilities or deferred revenue as there are no amounts prepaid for services. The Company applies the following five-step ASC 606 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 obligations
     
  · Recognition of revenue when performance obligations are satisfied.

 

The Company applies the five-step model when it is probable that the Company will settle 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 a performance obligation and assesses whether each promised service is distinct.

 

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.

 

 

 

 10 

 

 

Accordingly, the Company recognizes net revenue 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 the Company’s patients are satisfied; generally, at the time of patient care.

 

In determining net revenue to record under ASC 606, the Company must estimate the transaction price, including estimates of variable consideration in the contract at inception. In order to estimate variable consideration, the Company uses established billings rates (also described as “gross charges”) for the procedures being performed, however, the 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 by the customer, insurance carriers and other payors, and therefore are not reported in the consolidated financial statements at that rate. The Company is typically paid amounts based on established charges per procedure with guidance from the annually updated CPT guidelines that designates relative value units and a suggested range of charges for each procedure which is then assigned a CPT code. This gross charge 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. These adjustments are considered variable consideration under ASC 606 and are deducted from the calculated fee to arrive at the net transaction price. The Company also estimates changes in the contract price as a result of price concessions, changes to deductibles, co-pays and other contractual adjustments to determine the eventual settlement amount the Company expects to receive. The Company uses the term settlement realization in its disclosures to describe the amount of cash the company expects to receive based on its estimate of the transaction price under the expected value method of ASC 606.

 

Where appropriate, the Company utilizes the expected value method to determine the appropriate amount for estimates of variable consideration, which is based on a historical 12-month lookback of its actual settlement realization rates. The estimates of reserves established for variable consideration reflect current contractual requirements, the Company’s historical experience, specific known market events and trends, industry data and forecasted patient data and settlement patterns. Settlement realization patterns are assessed based on actual settlements and based on expected settlement realization trends obtained from discussions with attorneys, doctors and our third party medical billing company. Settlement amounts are negotiated and prolonged settlement negotiations are not indicative of a greater likelihood of reduced settlement realization or zero settlement.

 

The Company may accept a lower settlement realization rate in order to receive faster payment. The Company obtains information about expected settlement realization trends from discussions with doctors and attorneys and its third party medical billing company, which handles settlement claims and negotiations. Settlement amounts are presented to the Company’s third party medical billing company. Settlement rates of 49% or higher based on gross billed amounts are typically accepted without further negotiation. Proposed settlement rates below 49% are negotiated and longer negotiations typically result in higher settlement rates. If the Company accepts a lower settlement realization rate in order to receive payments more quickly, the Company considers that a price concession and estimates these concessions at contract inception. The various forms of variable consideration described above included in the transaction price may be constrained and are included in net revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. The Company has not constrained any of its estimates of variable consideration for any of the periods presented.

 

 

 

 

 11 

 

  

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. As described above, 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 and other adjustments based on its historical settlement realization experience. Completing the paperwork for each case and preparing it for billing takes approximately ten business days after a procedure is performed. The majority of claims are then filed electronically except for those remaining insurance carriers requiring paper filing. An initial response is usually received within four weeks from electronic filing and up to six weeks from paper filing. Responses may be a payment, a denial, or a request for additional information. The Company’s healthcare revenues are generated from professional medical billings including facility and anesthesia services. With respect to facility and anesthesia services, the Company is the primary obligor as the facility and anesthesia services are considered part of one integrated performance obligation.

 

The Company satisfies performance obligations as services are performed and then billed to the patient. Payment in most cases is made by an attorney for such services to our patients which are due upon final settlement of patients claims. During the claims process, legal counsel warranties such claim through the letter of protection, which is sent to the Company, as a medical provider, on behalf of the client patient. This letter states that the attorney is responsible for paying the client’s medical bills when the case is fully developed and settles. The medical professional agrees to provide treatment to the injured person and refrain from attempting to collect payment as it is developing and until the case is resolved. Once the personal injury case is finalized with the insurance company, the attorney pays the outstanding medical bills from the settlement.

 

Prior to its fiscal year 2024, the Company has historically had a 49% settlement realization rate from its total gross billed charges. Accordingly, the Company has historically recognized net healthcare service revenue as 49% of gross billed charges. However, during the six months ended June 30, 2024, the Company underwent efforts to accelerate cash settlements by accepting lower settlement realization rates in order to settle outstanding accounts receivable more quickly. As a result of the new effort, during the six months ended June 30, 2024 the Company realized a 42.3% average settlement rate of its gross billed charges during this time frame, which were historically recorded in accounts receivable and revenue at 49% of gross billings. As a result of this reduced settlement realization percentage, the Company recorded a reduction to net revenue of $859,321 and $1,199,155 for the three and six months ended June 30, 2024, respectively.

 

The Company will continue to reassess its settlement realization rate in the future and incorporate changes in settlement realization in its estimate of variable consideration due under its contracts. See additional disclosure in Note 17. Subsequent Events regarding the Company’s review of its settlement realization percentage subsequent to the quarter ended June 30, 2024.

 

 

 

 

 

 12 

 

 

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 settled on a contingency basis. Prior to April 2023, these cases were sold to a factor who bears the risk of economic benefit or loss. Generally, the sale of these cases to a third party factor resulted in an approximate 54% reduction from the accounts receivables amounts. After selling patient cases to the factor, any additional funds settled by us were remitted to the factor. The Company evaluated the factored adjustments considering the actual factored amounts per patient on a quarterly interval, and the reductions from accounts receivable that were factored were recorded in finance charges as other expenses on the consolidated statement of operations. As a result of the Company’s eighteen to twenty-four month settlement realization timeframe, the Company has an accrued liability resulting from the settlement of receivables sold to the third party factors which fluctuates as settlements are made and remitted to those third party factors. These accounts receivables sold to these third party factors are not included in the Company’s financial statements accounts receivable balance once sold and therefore are not part of the assessment of the net realizable value of accounts receivable. For the six months ended June 30, 2023, the Company factored a total of $544,196 of its accounts receivable in exchange for cash of $253,750. The Company ceased factoring of accounts receivable in the first quarter of 2023.

 

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising costs are included as a component of cost of sales in the consolidated statements of operations and changes in stockholders’ equity. The Company recognized advertising and marketing expense of $96,899 and $133,326 for the three months ended June 30, 2024 and 2023, respectively. The Company recognized advertising and marketing expense of $171,950 and $171,679 for the six months ended June 30, 2024 and 2023, respectively.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the 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, series R 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 consolidated balance sheet.

 

 

 

 13 

 

 

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 Financial Accounting Standards Board (“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 the consolidated statements of operations.

 

Income Taxes

 

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

 

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

 

As of June 30, 2024 and 2023, 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.

 

 

 14 

 

 

Going Concern

 

The accompanying consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The Company had sustained recurring operating losses since its inception and has an accumulated deficit of $69,576,612 as of June 30, 2024. These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying 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 is in continuous discussions with 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, if overall Company expenses increase, the Company may need to implement 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.

 

Recently Issued Accounting Standards

 

The FASB issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting: Improvements to Reportable Segment Disclosures” (“Topic 280”) in November 2023. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Topic 280 improves “reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.” In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable “investors to better understand an entity’s overall performance” and assess “potential future cash flows.” Management is evaluating the impact of ASU 2023-07 on the consolidated financial statements and does not expect there to be any changes or impact to the financial statements.

 

Recently Adopted Accounting Standards

 

The FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 81540).” The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within that period. The FASB also specified that an entity must adopt the guidance as of the beginning of its annual fiscal year and is not permitted to adopt the guidance in an interim period, other than the first interim period of their fiscal year. ASU 2020-06 reduces the number of accounting models for convertible debt and convertible preferred stock instruments and makes certain disclosure amendments to improve the information provided to users. There were no material impacts on the consolidated financial statements at adoption.

 

 

 

 

 

 15 

 

 

 

2. RESTATEMENT OF FINANCIAL STATEMENTS

 

The Company restated its financial statements for the six months ended June 30, 2024 as a result of a change in classification of credit loss expense to net revenue and a related adjustment to its allowance for credit losses. During the preparation of the financial statements for the six months ended June 30, 2024, the Company identified and corrected its accounting for its allowance for credit losses and its credit loss expense. The Company’s allowance for credit losses of $122,190 did not require adjustment during the six months ended June 30, 2024 and as a result, the Company reversed its credit loss expense associated with this adjustment. The remaining $1,199,155 of credit loss expense for the six months ended June 30, 2024 was reclassified to net revenue as variable consideration accounted for under ASC 606.

Schedule of restatements

Balance sheet

                   
    Impact of correction of error  
June 30, 2024 (Unaudited)   As previously reported     Adjustments     As restated  
                   
Total assets   $ 24,659,020     $ 42,862     $ 24,701,882  
                         
Total stockholders' equity   $ 5,837,412     $ 42,862     $ 5,880,274  

 

Statement of operations

 

    Impact of correction of error  
Three months ended June 30, 2024 (Unaudited)   As previously reported     Adjustments     As restated  
                   
Revenue   $ 2,330,964     $ (859,321 )   $ 1,471,643  
Cost of sales     793,010             793,010  
Gross profit     1,537,954       (859,321 )     678,633  
Operating expense     1,740,299       (902,183 )     838,116  
Loss from operations   $ (202,345   $ 42,862     $ (159,483
Other income, net     27,898             27,898  
Net loss before discontinued operations     (174,447     42,862       (131,585
Loss from discontinued operations                  
Net loss for the period   $ (174,447   $ 42,862     $ (131,585
Preferred stock dividends   $ (326,174 )   $     $ (326,174 )
Net loss attributable to common shareholders   $ (500,621   $ 42,862     $ (457,759

 

 

    Impact of correction of error  
Six months ended June 30, 2024 (Unaudited)   As previously reported     Adjustments     As restated  
                   
Revenue   $ 4,992,930     $ (1,199,155 )   $ 3,793,775  
Cost of sales     1,741,164             1,741,164  
Gross profit     3,251,766       (1,199,155 )     2,052,611  
Operating expense     3,235,119       (1,242,017 )     1,993,102  
Income from operations   $ 16,647     $ 42,862     $ 59,509  
Other expense, net     (362,886 )           (362,886 )
Net loss before discontinued operations     (346,239     42,862       (303,377
Loss from discontinued operations     (111,312           (111,312
Net loss for the period   $ (457,551   $ 42,862     $ (414,689
Preferred stock dividends   $ (477,808 )   $     $ (477,808 )
Net loss attributable to common shareholders   $ (935,359   $ 42,862     $ (892,497

  

 

 

 

 16 

 

 

During the preparation of the financial statements for the year ended December 31, 2023, the Company identified and corrected its classification and accounting treatment for its series R convertible preferred stock and the related dividend accrual. Pursuant to ASC 250, Accounting changes and error corrections issued by FASB and Staff Accounting Bulletin 99 Materiality, issued by Securities and Exchange Commission, the Company determined the impact of the error was immaterial. The impact of the error correction is reflected in the consolidated balance sheet as of June 30, 2023 as a $274,982 increase to the mezzanine equity and offsetting decrease to the series R convertible preferred stock and subject to possible redemption mezzanine equity line item. In addition, the impact of the unpaid dividend accrual was reflected as of June 30, 2023 as a $16,363 increase to mezzanine equity and offsetting decrease to the accumulated deficits.

 

During the preparation of the financial statements for three and six months ended June 30, 2024, the Company identified and corrected its classification for all its outstanding common stock amount per par value of $0.001 with additional paid-in-capital related with a 1-for-75,000 reverse split executed on January 9, 2024. The impact of this adjustment decreased $1,804,774 to common stock and offsetting increase to additional paid-in-capital as of December 31, 2023.

 

On November 10, 2023, the Company sold Platinum Tax, which was a full-service tax resolution firm located in Los Angeles, California. The Company presented in prior periods operating loss as loss from discontinued operations of $43,810 and $89,300 on the consolidated statement of operations for the three and six months ended June 30, 2023, respectively.

 

The impact of the error corrections also reflected a $55.66 increase of basic earnings per share, and a $3.59 increase of diluted earnings per share on the consolidated statement of operations for the three months ended June 30, 2023. For the six months ended June 30, 2023, the impact of the error correction reflected a $28.75 increase of basic earnings per share, and an increase of $1.45 of diluted earnings per share.

 

The following tables summarize the impact of the corrections on the Company’s condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statement of operations for the three and six months ended June 30, 2023, and the condensed consolidated statement of cash flows for the six months ended June 30, 2023:

 

Balance sheet

            
   Impact of correction of error 
June 30, 2023 (Unaudited)  As previously reported   Adjustments   As restated 
             
Total assets  $16,053,519   $(2,818)  $16,050,700 
                
Total liabilities   11,672,952    (243,242)   11,429,710 
                
Mezzanine equity   5,297,605    291,345    5,588,949 
                
Total stockholders' equity  $(917,038)  $(291,345)  $(1,208,383)

 

Statement of operations

 

   Impact of correction of error 
Three months ended June 30, 2023 (Unaudited)  As previously reported   Adjustments   As restated 
             
Revenue  $3,482,810   $(118,304)  $3,364,506 
Cost of sales   1,102,986    (21,297)   1,081,689 
Gross profit   2,379,824    (97,007)   2,282,817 
Operating expense   673,654    (140,276)   533,378 
Income from operations  $1,706,170   $43,269   $1,749,439 
Other income (expense), net   (890,092)   (541)   (889,551)
Net income before discontinued operations   816,078    43,810    859,888 
Loss from discontinued operations       (43,810)   (43,810)
Net income for the period  $816,078   $   $816,078 
Preferred stock dividends  $(125,744)  $0.00   $(125,744)
Net income attributable to common shareholders  $690,334   $0.00   $690,334 
Basic earnings per share for continuing operations  $0.00   $55.66   $55.66 
Diluted earnings per share for continuing operations  $0.00   $3.59   $3.59 

 

 

 

 17 

 

 

   Impact of correction of error 
Six months ended June 30, 2023 (Unaudited)  As previously reported   Adjustments   As restated 
             
Revenue  $6,343,608   $(272,703)  $6,070,905 
Cost of sales   2,086,109    (48,125)   2,037,984 
Gross profit   4,257,499    (224,578)   4,032,921 
Operating expense   1,837,768    (311,835)   1,525,933 
Income from operations  $2,419,731   $87,257   $2,506,988 
Other income (expense), net   (1,619,644)   2,043    (1,617,601)
Net income before discontinued operations   800,087    89,300    889,387 
Loss from discontinued operations       (89,300)   (89,300)
Net income for the period  $800,087   $   $800,087 
Preferred stock dividends  $(462,555)  $(8,136)  $(454,419)
Net income attributable to common shareholders  $337,532   $8,136   $345,668 
Basic earnings per share for continuing operations  $0.00   $28.75   $28.75 
Diluted earnings per share for continuing operations  $0.00   $1.45   $1.45 

 

Statement of Cash Flows

 

   Impact of correction of error 
Six months ended June 30, 2023 (Unaudited)  As previously reported   Adjustments   As restated 
             
Net cash used in operating activities of continuing operations  $(304,173)  $43,707   $(260,466)
Net cash provided by financing activities of continuing operations  $488,580   $(128,110)  $360,470 

 

 

3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

          
  June 30, 2024   December 31, 2023 
Accounts payable  $543,866   $720,774 
Accrued credit cards   15,613    26,645 
Accrued liability for settlement of previously factored receivables   990,824    1,247,772 
Accrued income and property taxes   5,346    5,346 
Accrued professional fees   82,418    29,122 
Accrued board fees   15,000     
Accrued public company fees   9,100     
Accrued payroll   17,564    17,472 
Total  $1,679,731   $2,047,131 

 

The Company is delinquent paying certain property taxes. As of June 30, 2024 and December 31, 2023, the balance for these property taxes was $1,649.

 

 

 

 18 

 

 

 

4. PLANT AND EQUIPMENT, NET

 

Property and equipment as of June 30, 2024 and December 31, 2023 is as follows: 

        
   June 30, 2024   December 31, 2023 
Medical equipment  $96,532   $96,532 
Computer Equipment   9,189    9,189 
Furniture, fixtures and equipment   15,079    15,079 
Leasehold Improvement   15,950    15,950 
Total   136,750    136,750 
Less: accumulated depreciation   (108,821)   (102,089)
Property and equipment, net  $27,929   $34,661 

 

For the three months ended June 30, 2024 and 2023, depreciation expense was $3,366 and $3,365, respectively. For the six months ended June 30, 2024 and 2023, depreciation expense was $6,731 and $8,000, respectively.

 

 

5. LAND

 

As of June 30, 2024 and December 31, 2023, the Company had 27 acres of land of approximately $540,000. The land is currently vacant and is expected to be developed into a residential community.

 

 

6. RELATED PARTY TRANSACTIONS

 

In connection with the acquisition of Edge View on July 16, 2014, the Company assumed amounts due to previous owners who are current managers of Edge View. These amounts are due on demand and do not bear interest. The balance of these amounts are $4,979 due from the previous owners as of June 30, 2024 and December 31, 2023.

 

The Company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of June 30, 2024 and December 31, 2023, the Company owed the Chairman $0 and $120,997, respectively. During the six months ended June 30, 2024, the Company paid $120,997 to the Chairman.

 

See also Note 8. Convertible Notes Payable and the disclosure regarding Note payable 41.

 

See also Note 13. Commitments and Contingencies for compensation paid to employees of the Company.

 

 

 

 19 

 

 

 

7. NOTES AND LOANS PAYABLE

 

Notes payable at June 30, 2024 and December 31, 2023 are summarized as follows: 

Schedule of notes payable        
   June 30, 2024   December 31, 2023 
Notes and loans payable  $7,369,037   $2,280,743 
Less current portion   (7,226,646)   (2,136,077)
Long-term portion  $142,391   $144,666 

 

Long-term debt matures as follows: 

    
   Amount 
2024 (remainder of year)  $7,226,646 
2025   4,910 
2026   4,910 
2027   4,910 
2028   4,910 
Thereafter   122,751 
Total  $7,369,037 

 

Promissory Note – Settlement Agreement

 

On June 11, 2024, the Company entered into a settlement agreement and release of claims with the holder of 165 shares of series R convertible preferred stock and certain convertible promissory notes (see Notes 29-2, 37-1, 37-2, and 37-3 referenced in Note 8. Convertible Notes Payable). Pursuant to the settlement agreement and release of claims, the holder agreed to cancel its shares of series R convertible preferred stock and convertible promissory notes in exchange for a new fixed amount settlement promissory note in the principal amount of $535,000.

 

The note does not bear interest and requires fixed payments as follows: (i) if the Company raises at least $5 million but less than $6 million in its planned underwritten public offering (the “Offering”), then it must pay $250,000 on the closing date of the Offering, with payments of $125,000, $125,000 and $35,000 to follow on the 90th, 180th, and 240th days following the closing of the Offering, respectively; (ii) if the Company raises at least $6 million but less than $7 million in the Offering, then it must pay $390,000 on the closing date of the Offering and $145,000 on the 90th day following the closing of the Offering; and (iii) if the Company raises at least $7 million in the Offering, then it must repay the entire principal amount on the closing date of the Offering. If the Offering is not completed by August 15, 2024, then the Company is required to pay $25,000 on such date and to continue making payments of $25,000 on each monthly anniversary thereof until the entire principal amount is repaid in full. If the Offering is completed after August 15, 2024, then the Company is required to make payments as described in the schedule above. Notwithstanding the foregoing, if the Company abandons the Offering and conducts a new public offering thereafter, then the Company is required to make a payment of $100,000 on the closing date of such other public offering, a second payment of $100,000 on the 90th day following the closing of such offering and $35,000 each month thereafter until the entire principal amount is repaid in full. If any portion of the principal amount remains unpaid on the second (2nd) anniversary of the date of the note, it shall become immediately due and payable on such date. The Company may prepay the entire principal amount at any time without penalty. The note is unsecured and contains customary events of default for a loan of this type. Upon an event of default, interest would automatically begin to accrue at a simple interest rate of ten percent per annum. This transaction was accounted for as a debt extinguishment and a gain on settlement of $78,834 was recorded to the unaudited, consolidated statement of operations for the quarter ended June 30, 2024, in accordance with FASB Topic 470 Borrower’s Accounting for Debt Modifications.

 

 

 

 20 

 

 

Loans and Notes Payable – Unrelated Party

 

On March 12, 2009, the Company issued a debenture in the principal amount of $20,000. The debenture bore interest at 12% per year and matured on September 12, 2009. The balance of the debenture was $10,989 at June 30, 2024 and December 31, 2023. The accrued interest of the debenture was $8,205 and $7,547 at June 30, 2024 and December 31, 2023, 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 principal balance and accrued interest at June 30, 2024 was $147,301 and $0, respectively, and principal and accrued interest at December 31, 2023 was $149,655 and $956, respectively.

 

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 (“DML”) to sell, with recourse, Nova’s accounts receivables for a revolving financing up to a maximum advance amount of $4.5 million. A review is performed on a quarterly basis to assess the adequacy of the maximum amount. If mutually agreed upon by the Company and DML, the maximum amount may be increased. On April 24, 2024, the Company and Nova entered into amendment No. 1 with DML which increased the maximum advance amount to $8,000,000 and defined the discount fee equal to 2.25% per purchase and claims balance forward on new purchases with a minimum fee to now be $10,000. On June 11, 2024, the Company and Nova entered into amendment No. 2 with DML which further increased the maximum advance amount to $11,000,000. As of June 30, 2024, and December 31, 2023, the Company had $6,675,746 and $2,120,100, respectively, outstanding balance against the revolving receivable line of credit. The revolving purchase and security agreement includes discounts recorded as interest expense on each funding and matures on September 29, 2025.

 

 

8. CONVERTIBLE NOTES PAYABLE

 

As of June 30, 2024 and December 31, 2023, the Company had convertible debt outstanding net of amortized debt discount of $110,000 and $3,807,030, respectively. During the six months ended June 30, 2024, the Company made $100,080 in principal payments to the holder of Notes 9 and 10-1 and paid the total outstanding accrued interest on these notes in the amount of $22,279. The Company also paid $100,000 of accrued interest to convertible noteholder related to note 40-1. On June 11, 2024, the Company entered into a settlement agreement and release of claims with the holder of Notes 29-2, 37-1, 37-2 and 37-3 (see below and also Note 7. Notes and Loans Payable for further details). Pursuant to the settlement agreement and release of claims, the holder agreed to cancel these notes in exchange for a new fixed amount settlement promissory note in the principal amount of $535,000. Additionally, during the six months ended June 30, 2024, the Company exchanged Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7, 40-8, 40-9 and 40-10 for the issuance of 938,908 shares of series Y senior convertible preferred stock to the noteholder. See also Note 9. Capital Stock.

 

During the six months ended June 30, 2023, the Company received net proceeds of $355,500 from convertible notes. There were debt discounts associated with the convertible debt of $0 and $24,820 at June 30, 2024 and December 31, 2023, respectively. For the three months ended June 30, 2024 and 2023, the Company recorded amortization of debt discounts of $11,306 and $30,633, respectively. For the six months ended June 30, 2024 and 2023, the Company recorded amortization of debt discounts of $24,821and $48,616, respectively.

 

 

 21 

 

 

During the six months ended June 30, 2024, the Company converted $680 in accrued interest and $1,000 in conversion cost into 1,222 shares of common stock. The Company recognized $1,679 of additional paid-in capital to adjust fair value for the debt settlement during the six months ended June 30, 2024. During the six months ended June 30, 2023, the Company converted $58,800 of convertible debt, $5,873 in accrued interest and $2,000 in penalties and fees into 1,582 shares of the Company’s common stock. The Company recognized $123,566 of interest expense and additional paid-in capital to adjust fair value for the debt settlement during the six months ended June 30, 2023.

 

Convertible notes as of June 30, 2024 and December 31, 2023 are summarized as follows: 

        
   June 30, 2024   December 31, 2023 
Convertible notes payable  $110,000   $3,831,850 
Discounts on convertible notes payable       (24,820)
Total convertible debt less debt discount   110,000    3,807,030 
Current portion   110,000    3,807,030 
Long-term portion  $   $ 

 

The following is a schedule of convertible notes payable as of and for the six months ended June 30, 2024. 

                                          
Note #  Issuance  Maturity  Principal Balance 12/31/23   Settlements and/or Principal Conversions   New Loans or (Cash Paydown)   Shares Issued Upon Conversion or Exchange   Principal Balance 06/30/24   Accrued Interest on Convertible Debt at 12/31/23   Interest On Convertible Debt For the Period Ended 06/30/24   Accrued Interest on Convertible Debt at 06/30/24   Unamortized Debt Discount At 06/30/24 
9  09/12/2016  09/12/2017  $50,080        (50,080)   1,222   $   $5,581   $(5,581)        
10  01/24/2017  01/24/2018   55,000                55,000    80,875    5,486    86,361     
10-1  02/10/2023  02/10/2024   50,000        (50,000)           6,658    (6,658)        
10-2  03/30/2023  03/30/2024   25,000                25,000    2,836    2,181    5,017     
10-3  08/11/2023  08/11/2024   25,000                25,000    1,469    1,870    3,339     
29-2  11/08/2019  11/08/2020   36,604    (36,604)               10,109    (10,109)        
31  08/28/2019  08/28/2020                       8,385    (8,385)        
37-1  09/03/2020  06/30/2021   113,667    (113,667)               64,929    (64,929)        
37-2  11/02/2020  08/31/2021   113,167    (113,167)               63,594    (63,594)        
37-3  12/29/2020  09/30/2021   113,166    (113,166)               62,558    (62,558)        
40-1  09/22/2022  09/22/2024   2,600,000    (2,600,000)       938,908(1)       252,665    (252,655)        
40-2  11/04/2022  09/22/2024   68,667    (68,667)               7,939    (7,939)        
40-3  11/28/2022  09/22/2024   68,667    (68,667)               7,506    (7,506)        
40-4  12/21/2022  09/22/2024   68,667    (68,667)               7,054    (7,054)        
40-5  01/24/2023  03/21/2024   90,166    (90,166)               8,284    (8,284)        
40-6  03/21/2023  09/22/2024   139,166    (139,166)               10,671    (10,671)        
40-7  06/05/2023  06/05/2024   139,166    (139,166)               7,826    (7,826)        
40-8  06/13/2023  06/13/2024   21,167    (21,167)               1,127    (1,127)        
40-9  07/19/2023  07/19/2024   35,500    (35,500)               1,605    (1,605)        
40-10  07/24/2023  07/24/2024   14,000    (14,000)               614    (614)        
41  08/25/2023  08/25/2024   5,000                5,000    175    250    425      
         $3,831,850   $(3,621,770)  $(100,080   940,130   $110,000   $612,460   $(517,318)  $95,142   $ 

 

(1)938,908 Series Y Senior Convertible Preferred Shares issued in exchange for full value of the outstanding principal and interest on Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7, 40-8, 40-9 and 40-10

 

 

 22 

 

 

Note 9

 

On September 12, 2016, the Company issued a convertible promissory note in the principal of $80,000 for services rendered, which matured on September 12, 2017. Note 9 is currently in default and accrues at a default interest rate of 20% per annum. In May of 2024, the $58,846 total outstanding principal and interest was paid in full.

 

Note 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). In May of 2024, the $63,513 total outstanding principal and interest on Note 10-1 was paid in full. Note 10-2 is currently in default and accrues interest at a default interest rate of 20% per annum. Note 10-3 accrues interest at a rate of 15% per annum.

 

Notes 29-2, 37-1, 37-2 and 37-3

 

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.

 

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).

 

On June 11, 2024, the Company entered into a settlement agreement and release of claims with the holder of Notes 29-2, 37-1, 37-2 and 37-3 (see Note 7. Notes and Loans Payable for further details). Pursuant to the settlement agreement and release of claims, the holder agreed to cancel these notes, along with the cancellation of their holding in the series R preferred stock, in exchange for a new fixed amount settlement promissory note in the principal amount of $535,000.

 

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 December 21, 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). On December 1, 2023, the Company executed amendment on Notes series 40 consolidated senior secured convertible promissory note to extend the expired tranche note 40-1 through 40-5’ due date to September 20, 2024. 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.

 

On April 11, 2024, the Company issued 938,908 shares of series Y senior convertible preferred stock in exchange for the settlement of the principal and interest in full on Notes 40-1, 40-2, 40-3, 40-4, 40-5, 4-6, 40-7, 40-8, 40-9 and 40-10. See also Note 9. Capital Stock.

 

 

 23 

 

 

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.

 

 

9. CAPITAL STOCK

 

On May 8, 2024, the Company amended its Articles of Incorporation to increase its authorized stock. The total amended authorized shares are 350,000,000 shares of capital stock, consisting of 300,000,000 shares of common stock, $0.001 par value, and 50,000,000 shares of preferred stock, $0.001 par value per share.

 

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 convertible preferred stock, 5,000,000 shares of series X senior convertible preferred stock and 1,000,000 shares of series Y 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 recognizes the series N senior convertible preferred stock, series R convertible preferred stock and series X senior convertible preferred stock as mezzanine equity in accordance with ASC 480, “Distinguishing Liabilities from Equity”.

 

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 would increase by 8% per annum. Dividends accrued from day to day, whether or not declared, and are cumulative. Dividends are payable quarterly in arrears on each dividend payment date in cash or common stock at the Company’s discretion. Dividends payable in common stock are to be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common stock on the Company’s principal trading market (the “VWAP”) during the five (5) trading days immediately prior to the applicable dividend payment date. At June 30, 2024 and December 31, 2023, cumulative dividends earned on the series N senior convertible preferred stock were $1,106,562 and $766,437, respectively. The total balance of the cumulative accrued dividends was paid by the Company via the issuance of 197,601 shares of the Company’s common stock as of June 30, 2024.

 

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) are to 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 is 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.

 

 

 24 

 

 

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, is 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 does not apply to any financing transaction the use of proceeds of which would 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 share of series N senior convertible preferred stock, plus all accrued and unpaid dividends thereon, are 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 $900 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 can be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to the Company.

 

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

 

Series R Convertible Preferred Stock

 

The series R convertible preferred stock was cancelled as part of the June 2024 promissory note and settlement agreement. See also Note 7. Notes and Loans Payable and Note 8. Convertible Notes Payable.

 

Ranking. The series R convertible preferred stock ranked, 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 convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series R convertible 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 convertible 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 convertible preferred stock were entitled to receive cumulative dividends in the amount of twelve percent (12%) per annum, payable quarterly. In addition, holders of series R convertible preferred stock were 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. Any dividends that were not paid when due were to continue to accrue and entailed a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which was to accrue and compound daily from the missed payment date through and including the date of actual payment in full. At June 30, 2024 and December 31, 2023, cumulative dividends on Series R Preferred Stock were $0 and $109,980, respectively.

 

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series R convertible preferred stock were entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the stated value ($1,200), plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing, for each share of series R convertible preferred stock before any distribution or payment shall be made to the holders of any junior securities.

 

 

 25 

 

 

Voting Rights. The holders of series R convertible preferred stock voted together with the common stock on an as-converted basis. However, as long as any shares of series R convertible preferred stock were outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the series R convertible preferred stock, directly and/or indirectly (i) alter or change adversely the powers, preferences or rights given to the series R convertible preferred stock or alter or amend the certificate of designation, (ii) authorize or create any class of stock ranking as to redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the series R convertible preferred stock, or authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the series R convertible preferred stock, (iii) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of the series R convertible preferred stock, (iv) increase the number of authorized shares of series R convertible preferred stock, or (v) enter into any agreement with respect to any of the foregoing.

 

Conversion Rights. Each share of series R convertible preferred stock was 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 ($1,200 per share) by a conversion price equal to the lower of (i) $75.0 and (ii) the lowest daily VWAP during the twenty (20) trading days immediately prior to the applicable conversion date. Notwithstanding the foregoing, the Company shall not effect any conversion of the series R convertible preferred stock, and a holder shall not have the right to convert any portion of the series R convertible preferred stock, to the extent that, after giving effect to the conversion, such holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own in excess of 4.99% of the then outstanding common stock. The conversion price was subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock, as well as for mergers, business combinations and certain other fundamental transactions. In addition, subject to certain exceptions, upon any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the holder could have elected, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of series R convertible preferred stock then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis.

 

Participation Rights. Subject to certain exceptions, upon a Subsequent Financing, a holder of at least 100 shares of series R convertible preferred stock were to have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.

 

Company Redemption Rights. The Company had the right to redeem all (but not less than all), shares of the series R convertible preferred stock issued and outstanding at any time upon three (3) business days’ notice, at a redemption price per share equal to the product of (i) the Premium Rate multiplied by (ii) the sum of (x) the stated value ($1,200), (y) all accrued but unpaid dividends, and (z) all other amounts due to the holder. “Premium Rate” means (a) 1.1 if all of the series R convertible preferred stock is redeemed within ninety (90) calendar days from the issuance date thereof; (b) 1.2 if all of the series R convertible preferred stock is redeemed after ninety (90) calendar days and within one hundred twenty (120) calendar days from the issuance date thereof; (c) 1.3 if all of the series R convertible preferred stock is redeemed after one hundred twenty (120) calendar days and within one hundred eighty (180) calendar days from the issuance date thereof; and (iv) 1.0 if all of the series R convertible preferred stock is redeemed after one hundred eighty (180) calendar days.

 

Redemption Upon Triggering Events. Upon the occurrence of a Triggering Event (as defined below), each holder of series R convertible preferred stock had (in addition to all other rights it may have) the right, exercisable at the sole option of such holder, to require the Company to (A) redeem all of the series R convertible preferred stock then held by such holder for a redemption price, in cash, equal to the Triggering Redemption Amount (as defined below), or (B) at the option of each holder either (i) redeem all of the series R convertible preferred stock then held by such holder though the issuance to such holder of such number of shares of common stock equal to the quotient of (x) the Triggering Redemption Amount, divided by (y) the lowest of (1) the conversion price, and (2) 75% of the average of the 10 VWAPs immediately prior to the date of election, or (ii) increase the dividend rate on all of the outstanding series R convertible preferred stock held by such holder retroactively to the initial issuance date to 18% per annum thereafter. “Triggering Redemption Amount” means, for each share of series R convertible preferred stock, the sum of (a) the greater of (i) 130% of the stated value and (ii) the product of (y) the VWAP on the trading day immediately preceding the date of the Triggering Event, multiplied by (z) the stated value divided by the then applicable conversion price, (b) all accrued but unpaid dividends thereon and (c) all liquidated damages, late fees and other costs, expenses or amounts due in respect of the series R convertible preferred stock including, but not limited to legal fees and expenses of legal counsel to the holder in connection with, related to and/or arising out of a Triggering Event. A “Triggering Event” means any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

 

 26 

 

 

  · the Company shall fail to deliver the shares of common stock issuable upon a conversion prior to the fifth (5th) trading day after such shares are required to be delivered, or the Company shall provide written notice to any holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of series R convertible preferred stock in accordance with the terms of the certificate of designation;

 

  · the Company shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In (as defined in the certificate of designation) within five (5) trading days after notice therefor is delivered;

 

  · the Company shall fail to have available a sufficient number of authorized and unreserved shares of common stock to issue to such holder upon a conversion;

 

  · unless specifically addressed elsewhere in the certificate of designation as a Triggering Event, the Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents (as defined in the certificate of designation), and such failure or breach shall not, if subject to the possibility of a cure by the Company, have been cured within five (5) calendar days after the date on which written notice of such failure or breach shall have been delivered;

 

  · the Company shall redeem junior securities or pari passu securities;

 

  · the Company shall be party to a Change of Control Transaction (as defined in the certificate of designation);
  · there shall have occurred a Bankruptcy Event (as defined in the certificate of designation);

 

  · any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000 (provided that amounts covered by the Company’s insurance policies are not counted toward this $50,000 threshold), and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of thirty (30) trading days;

 

  · the electronic transfer by the Company of shares of common stock through the Depository Trust Company or another established clearing corporation once established subsequent to the date of the certificate of designation is no longer available or is subject to a ‘freeze” and/or “chill;” or

 

  · any “Event of Default,” as defined in the Purchase Agreement (as defined in the certificate of designation).

 

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 fo