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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended: September 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 November 5, 2024, there were 15,036,725 shares of common stock of the registrant issued and outstanding.

 

   

 

 

CARDIFF LEXINGTON CORPORATION

 

Quarterly Report on Form 10-Q

Period Ended September 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 47
Item 3. Quantitative and Qualitative Disclosures about Market Risk 57
Item 4. Controls and Procedures 57
     
PART II
OTHER INFORMATION
 
Item 1. Legal Proceedings 59
Item 1A. Risk Factors 59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 59
Item 3. Defaults Upon Senior Securities 59
Item 4. Mine Safety Disclosures 59
Item 5. Other Information 59
Item 6. Exhibits 61

 

 

 

 

 

 

 

 2 

 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
Condensed Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023 (restated)   4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited and restated)   5
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited and restated)   6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (Unaudited)   9
Notes to Condensed Consolidated Financial Statements (Unaudited and restated)   10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 3 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2024 (UNAUDITED) AND DECEMBER 31, 2023

 

         
   September 30, 2024  

December 31, 2023

(Restated)

 
ASSETS          
Current assets          
Cash  $1,949,600   $866,943 
Accounts receivable-net   14,798,220    13,305,254 
Prepaid and other current assets   5,000    5,000 
Total current assets   16,752,820    14,177,197 
           
Property and equipment, net   24,563    34,661 
Land   540,000    540,000 
Goodwill   5,666,608    5,666,608 
Right of use - assets, net   465,389    289,062 
Due from related party   4,979    4,979 
Other assets   60,403    33,304 
Total assets  $23,514,762   $20,745,811 
           
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expense  $1,386,412   $2,047,131 
Accrued expenses - related parties   4,353,056    4,733,057 
Accrued interest   361,172    620,963 
Right of use – lease liabilities   227,606    157,669 
Due to director and officer       120,997 
Notes payable – current portion   500,826    15,977 
Line of credit   7,468,971    2,120,100 
Convertible notes payable, net of debt discounts of $0 and $24,820, respectively   105,000    3,807,030 
Net liabilities of discontinued operations   237,643    237,643 
Total current liabilities   14,640,686    13,860,567 
           
Notes payable   140,272    144,666 
Operating lease liability – long term   236,853    119,056 
Total liabilities   15,017,811    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 September 30, 2024 and December 31, 2023, respectively   3,230,023    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 September 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 September 30, 2024 and December 31, 2023, respectively   1,537,808    1,690,685 
Total Mezzanine Equity   4,767,831    5,890,104 
           
Stockholders' equity          
Series B Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value of $4.00, 753,929 and 2,139,478 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively   3,015,716    8,557,912 
Series C Preferred Stock - 500 shares authorized, $0.001 par value, stated value of $4.00, 43 and 123 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively   172    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 September 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, 9,500 and 35,752 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively   38,000    143,008 
Series I Preferred Stock - 15,000,000 shares authorized, $0.001 par value, stated value $4.00, 11,540,500 and 14,885,000 issued and outstanding at September 30, 2024 and December 31, 2023, respectively   46,162,000    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 September 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 September 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, 955,114 and 0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively   3,820,456     
Common Stock; 300,000,000 shares authorized, $0.001 par value; 14,555,601 and 25,121 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively   14,556    25 
Additional paid-in capital   20,891,337    (7,581,212)
Accumulated deficit   (71,792,589)   (68,684,115)
Total stockholders’ equity   3,729,120    731,418 
Total liabilities, mezzanine equity and stockholders’ equity  $23,514,762   $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 NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

                 
  

Three Months

Ended September 30,

  

Nine Months

Ended September 30,

 
   2024  

2023

(Restated)

   2024  

2023

(Restated) 

 
REVENUE  $1,355,641   $3,405,859   $5,149,416   $9,476,764 
COST OF SALES   1,000,601    551,423    2,741,765    2,589,407 
GROSS PROFIT   355,040    2,854,436    2,407,651    6,887,357 
                     
OPERATING EXPENSES                    
Depreciation expense   3,365    3,365    10,096    11,365 
Share based compensation           300,225     
Selling, general and administrative   936,835    577,677    2,622,981    2,095,611 
Total operating expenses   940,200    581,042    2,933,302    2,106,976 
                     
(LOSS) INCOME FROM CONTINUING OPERATIONS   (585,160)   2,273,394    (525,651)   4,780,381 
                     
OTHER (EXPENSE) INCOME                    
Other (expense) income   (6,767)   (1)   (4,720)   204 
Gain on debt refinance and forgiveness           78,834    390 
Penalties and fees       (16,000)   (1,330)   (48,000)
Interest expense   (1,386,041)   (226,119)   (1,803,657)   (1,763,698)
Amortization of debt discounts       (46,048)   (24,821)   (94,664)
Total other (expense) income   (1,392,808)   (288,168)   (1,755,694)   (1,905,768)
                     
NET (LOSS) INCOME BEFORE DISCONTINUED OPERATIONS   (1,977,968)   1,985,226    (2,281,345)   2,874,613 
LOSS FROM DISCONTINUED OPERATIONS       (3,705)   (111,312)   (93,005)
NET (LOSS) INCOME FOR THE PERIOD  $(1,977,968)  $1,981,521   $(2,392,657)  $2,781,608 
                     
PREFERRED STOCK DIVIDENDS   (238,009)   (150,965)   (715,817)   (605,384)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS  $(2,215,977)  $1,830,556   $(3,108,474)  $2,176,224 
                     
BASIC (LOSS) INCOME PER SHARE                    
CONTINUING OPERATIONS  $(0.16)  $136.12   $(0.30)  $167.13 
DISCONTINUED OPERATIONS  $0.00   $(0.28)  $(0.01)  $(7.15)
                     
DILUTED (LOSS) INCOME PER SHARE                    
CONTINUING OPERATIONS  $(0.16)  $2.30   $(0.30)  $2.40 
DISCONTINUED OPERATIONS  $0.00   $(0.28)  $(0.01)  $(7.15)
                     
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC   14,075,296    13,448    10,242,799    13,005 
WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED   14,075,296    794,783    10,242,799    906,441 

 

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 (DEFICIT)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

Three Months Ended September 30, 2024:

                                             
  

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   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
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 
Conversion of series B preferred stock           (226,250)   (905,000)           452,500    453    904,547         
Conversion of series C preferred stock                   (17)   (68)   170,000    170    (102)        
Conversion of series F-1 preferred stock           (16,250)   (65,000)           32,500    33    64,967         
Conversion of series I preferred stock   (100,000)   (400,000)                   200,000    200    399,800         
Issuance of series Y preferred stock   16,206    64,824                            (1)       64,823 
Common stock issued in legal settlement                           74,225    74    (74)        
Preferred stock Dividends                                       (238,009)   (238,009)
Net income                                       (1,977,968)   (1,977,968)
Balance, September 30, 2024   12,495,616   $49,982,456    1,158,297   $4,633,188    43   $172    14,555,601   $14,556   $20,891,337   $(71,792,589)  $3,729,120 

 

 

 

 6 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

(continued)

 

Nine Months Ended September 30, 2024:

                                             
  

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   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
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           (1,385,549)   (5,542,196)           2,771,098    2,771    5,539,425         
Conversion of series C preferred stock                   (78)   (312)   780,000    780    (468)        
Conversion of series E preferred stock           (80,375)   (321,500)           160,750    161    321,339         
Conversion of series F-1 preferred stock           (26,252)   (105,008)           52,504    53    104,955         
Conversion of series I preferred stock   (3,477,000)   (13,908,000)                   6,954,000    6,954    13,901,246         
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   955,114    3,820,456                                    3,820,456 
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 
Common stock issued in legal settlement                           74,225    74    (74)        
Preferred stock Dividends                           234,909    235    1,372,269    (715,817)   656,687 
Net income                                       (2,392,657)   (2,392,657)
Balance, September 30, 2024   12,495,616   $49,982,456    1,158,297   $4,633,188    43   $172    14,555,601   $14,556   $20,891,337   $(71,792,589)  $3,729,120 

 

 

 

 

 7 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

(continued)

 

Three Months Ended September 30, 2023:

 

                                                        
  

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   Total
Stockholders’ (Deficit)
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
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)  $(68,338,447)  $(1,183,885)
Issuance of preferred stock series E           5,000    20,000                    (20,000)        
Conversion of convertible notes payable                           2,079    2    29,016        29,018 
Preferred stock Dividends                                       (150,965)   (150,965)
Net income                                       1,981,521    1,981,521 
Balance, September 30, 2023 (Restated)   14,885,001   $59,540,000    4,359,057   $17,436,228    123   $492    15,715   $16   $(9,793,156)  $(65,507,891)  $675,689 

 

Nine Months Ended September 30, 2023:

 

                                                        
  

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   Total
Stockholders’ (Deficit)
 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
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)
Issuance of preferred stock series B           3,150    12,600                    12,400        25,000 
Issuance of preferred stock series E           5,000    20,000                    (20,000)        
Conversion of convertible notes payable                           3,662    4    219,252        219,256 
Preferred stock Dividends                                       (605,384)   (605,384)
Net income                                       2,781,608    2,781,608 
Balance, September 30, 2023 (Restated)   14,885,001   $59,540,000    4,359,057   $17,436,228    123   $492    15,715   $16   $(9,793,156)  $(65,507,891)  $675,689 

 

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

 

 

 

 8 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(UNAUDITED)

 

           
   Nine Months Ended September 30, 
   2024  

2023

(Restated)

 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net (loss) income  $(2,392,657)  $2,781,608 
Adjustments to reconcile net (loss) income to net cash used in operating activities:          
Depreciation   10,096    11,365 
Amortization of debt discount   24,821    94,664 
Bad debt       270,000 
Change in estimate for settlement realization rate   1,650,474     
Conversion and note issuance cost   1,000    11,250 
Share issuance for compensations to directors and officers   788,600     
Share issuance for service rendered   11,625    25,000 
Fair value settled upon conversion       141,406 
Gain on settlement or forgiveness of debt   (78,834)   (390)
(Increase) decrease in:          
Accounts receivable   (3,143,440)   (5,510,098)
Right of use - assets   (176,327)   17,763 
Prepaids and other current assets   (27,098)    
Increase (decrease) in:          
Accounts payable and accrued expense   (691,072)   733,125 
Accrued officers compensation   (380,001)   514,000 
Accrued interest   218,174    380,020 
Right of use - liabilities   187,734    (27,255)
Net cash used in operating activities   (3,996,905)   (557,542)
           
Net cash provided by (used in) Discontinued Operations – Operating   111,312    (38,255)
           
FINANCING ACTIVITIES          
Payments to director   (120,997)    
Repayment of SBA loans   (4,545)   (803)
Proceeds from convertible notes payable       421,376 
Payment of convertible notes   (105,079)    
Net proceeds from line of credit   5,348,871    5,848 
Payment of note payable   (50,000)    
Proceeds from note payable – related party       250 
Payment of dividends on preferred stock   (100,000)    
Net cash provided by financing activities   4,968,250    426,671 
           
Net cash provided by Discontinued Operations – Financing       131,260 
           
NET INCREASE (DECREASE) IN CASH   1,082,657    (37,866)
CASH, BEGINNING OF PERIOD   866,943    219,085 
CASH, END OF PERIOD  $1,949,600   $181,219 
           
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid during the year for Interest  $126,732   $6,389 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Common stock issued upon conversion of notes payable  $1,680   $99,533 
Common stock issued upon conversion of preferred stock  $14,158   $ 
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  $363,411   $ 

 

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

 9 

 

 

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 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 predominantly conducted through, and its income derived from, its Nova Ortho and Spine, LLC (“Nova”) subsidiary. Its subsidiaries include:

 

  · Nova, which was acquired on May 31, 2021;
     
  · Edge View Properties, Inc. (“Edge View”), which was acquired on July 16, 2014; and
     
  · Platinum Tax Defenders (“Platinum Tax”), which was acquired on July 31, 2018 and sold on November 10, 2023. As a result, Platinum Tax is presented as a discontinued operation.

 

Principles of Consolidation

 

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

 

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.”

 

 

 

 10 

 

 

Use of Estimates

 

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

 

Accounts Receivable

 

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. 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. The Company monitors outstanding cases as they develop through ongoing discussions with attorneys, doctors and third-party medical billing company and additionally monitors settlement realization rates over time. 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 quarterly 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 September 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 nine months ended September 30, 2024 and 2023, respectively, which is included in selling, general and administrative expenses in the condensed consolidated statement of operations. The balance of accounts receivable, net as of January 1, 2023 was $6,603,920.

 

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

 

 

 

 11 

 

 

Goodwill

 

Goodwill is not amortized but is evaluated for impairment annually or when indicators of a potential impairment are present. 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 Goodwill, if needed, is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. During the nine months ended September 30, 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.

 

At contract inception, 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 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.

 

 

 12 

 

 

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 Current Procedural Terminology (“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 has been 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 vendor, which handles settlement claims and negotiations. Settlement amounts are presented to the Company’s third-party medical billing company vendor.

 

Settlement rates of 49% or higher based on gross billed amounts are typically accepted without further negotiation. Proposed settlement rates below 49% are negotiated when possible 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.

 

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.

 

 

 

 13 

 

 

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.

 

Settlement Rates

 

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 amounts. During the nine months ended September 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, which is expected to continue for the foreseeable future. This new initiative caused the Company to reassess the average settlement rate used to recognize healthcare service revenue as a prospective change in estimate given new information available. Accordingly, during the third quarter of 2024, the Company completed a thorough review of its third-party billing data, including reviewing historical reports and new reporting methods as a part of its updated analysis. Based upon this review it was determined that a 24-month lookback period should be used in the analysis of its historical settlement realization rates. Accordingly, its estimate of its settlement realization rate was reduced from 49% to 44%, resulting in a $1,650,474 million reduction in its accounts receivable and revenue during the third quarter of 2024 related to the change in estimate. Additionally, as a result of this reduced settlement realization experience, the Company recorded reductions to net revenue of $0 and $1,199,155 for the three and nine months ended September 30, 2024, respectively.

 

The Company will continue to evaluate its estimate of its settlement realization rates in the future, which will include a monthly review of the Company’s trailing 24-month historical settlement realization rate, along with estimates of current and pending settlements through ongoing discussions with attorneys, doctors and the Company’s third-party medical billing company in order to determine its variable consideration under ASC 606 and the net transaction price. The Company will update its settlement realization rate estimate used in determining its accounts receivable and revenue each quarter based on this review.

 

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 nine months ended September 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 $84,914 and $71,636 for the three months ended September 30, 2024 and 2023, respectively. The Company recognized advertising and marketing expense of $263,864 and $243,315 for the nine months ended September 30, 2024 and 2023, respectively.

 

 

 

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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.

 

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.

 

 

 

 15 

 

 

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

 

As of September 30, 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.

 

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 $71,792,589 as of September 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.

 

 

 

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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.

 

  

2.

RESTATEMENT OF FINANCIAL STATEMENTS

 

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 September 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 September 30, 2023 as a $24,681 increase to mezzanine equity and offsetting decrease to the accumulated deficits.

 

During the preparation of the financial statements for three months ended March 31, 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 $3,705 and $93,005 on the consolidated statement of operations for the three and nine months ended September 30, 2023, respectively.

 

The impact of the error corrections also reflected a $136.12 increase of basic earnings per share, and a $2.30 increase of diluted earnings per share on the consolidated statement of operations for the three months ended September 30, 2023. For the nine months ended September 30, 2023, the impact of the error correction reflected a $167.33 increase of basic earnings per share, and an increase of $2.40 of diluted earnings per share.

 

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

            
Balance sheet            
   Impact of correction of error 
September 30, 2023 (Unaudited)  As previously reported   Adjustments   As restated 
             
Total assets  $18,518,727   $(844)  $18,517,883 
                
Total liabilities   12,102,942    (244,129)   11,858,813 
                
Mezzanine equity   5,440,434    299,663    5,740,097 
                
Total stockholders' equity  $975,352   $(299,663)  $675,689 

 

 

 

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Statement of operations

 

    Impact of correction of error  
Three months ended September 30, 2023 (Unaudited)   As previously reported     Adjustments     As restated  
                   
Revenue   $ 3,438,124     $ (32,265 )   $ 3,405,859  
Cost of sales     557,028       (5,605 )     551,423  
Gross profit     2,881,096       (26,660 )     2,854,436  
Operating expense     611,110       (30,067 )     581,043  
Income from operations     2,269,986       3,407       2,273,393  
Other income (expense), net     (288,465 )     298       (288,167 )
Net income before discontinued operations     1,981,521       3,705       1,985,226  
Loss from discontinued operations           (3,705 )     (3,705 )
Net income for the period   $ 1,981,521     $     $ 1,981,521  
Preferred stock dividends   $ (150,965 )   $ 0.00     $ (150,965 )
Net income attributable to common shareholders   $ 1,830,556     $ 0.00     $ 1,830,556  
Basic earnings per share for continuing operations   $ 0.00     $ 136.12     $ 136.12  
Diluted earnings per share for continuing operations   $ 0.00     $ 2.30     $ 2.30  

 

   Impact of correction of error 
Nine months ended September 30, 2023 (Unaudited)  As previously reported   Adjustments   As restated 
             
Revenue  $9,781,731   $(304,967)  $9,476,764 
Cost of sales   2,643,137    (53,730)   2,589,407 
Gross profit   7,138,594    (251,237)   6,887,357 
Operating expense   2,448,876    (341,900)   2,106,976 
Income from operations   4,689,718    90,663    4,780,381 
Other income (expense), net   (1,908,110)   2,342    (1,905,768)
Net income before discontinued operations   2,781,608    93,005    2,874,613 
Loss from discontinued operations       (93,005)   (93,005)
Net income for the period  $2,781,608   $   $2,781,608 
Preferred stock dividends  $(605,384)  $0.00   $(605,384)
Net income attributable to common shareholders  $2,176,224   $0.00   $2,176,224 
Basic earnings per share for continuing operations  $0.00   $167.33   $167.33 
Diluted earnings per share for continuing operations  $0.00   $2.40   $2.40 

 

 

 

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Statement of Cash Flows

 

   Impact of correction of error 
Nine months ended September 30, 2023 (Unaudited)  As previously reported   Adjustments   As restated 
             
Net cash used in operating activities of continuing operations  $(603,392)  $45,850   $(557,542)
Net cash provided by financing activities of continuing operations  $557,933   $(131,262)  $426,671 

 

 

3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

        
   September 30, 2024   December 31, 2023 
Accounts payable  $663,381   $720,774 
Accrued credit cards   8,248    26,645 
Accrued liability for settlement of previously factored receivables   599,956    1,247,772 
Accrued income and property taxes   5,346    5,346 
Accrued professional fees   50,721    29,122 
Accrued board fees   15,000     
Accrued dividend   30,354     
Accrued public company fees   5,000     
Accrued travel expense   1,571     
Accrued payroll   6,835    17,472 
Total  $1,386,412   $2,047,131 

 

The Company is delinquent paying certain property taxes. As of September 30, 2024 and December 31, 2023, the balance for these property taxes was $1,659.

 

 

4. PLANT AND EQUIPMENT, NET

 

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

           
    September 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     (112,187 )     (102,089 )
Property and equipment, net   $ 24,563     $ 34,661  

 

For the three months ended September 30, 2024 and 2023, depreciation expense was $3,365 and $3,365, respectively. For the nine months ended September 30, 2024 and 2023, depreciation expense was $10,096 and $11,365, respectively.

 

 

 

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5. LAND

 

As of September 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 from 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 is $4,979 due from the previous owners as of September 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 September 30, 2024 and December 31, 2023, the Company owed the Chairman $0 and $120,997, respectively. During the nine months ended September 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.

 

 

7. NOTES AND LOANS PAYABLE

 

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

        
   September 30, 2024   December 31, 2023 
Notes and loans payable  $8,215,069   $2,280,743 
Less current portion   (8,074,797)   (2,136,077)
Long-term portion  $140,272   $144,666 

 

Long-term debt matures as follows:

    
   Amount 
2024 (remainder of year)  $8,071,169 
2025   4,837 
2026   4,837 
2027   4,837 
2028   4,837 
Thereafter   124,552 
Total  $8,215,069 

 

 

 

 20 

 

 

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. 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. During the three months ended September 30, 2024, the Company paid $50,000 against the outstanding principal balance. At September 30, 2024, the remaining principal balance was $485,000.

 

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 September 30, 2024 and December 31, 2023. The accrued interest of the debenture was $8,537 and $7,547 at September 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 September 30, 2024 was $145,109 and $0, respectively, and principal and accrued interest at December 31, 2023 was $149,655 and $956, respectively.

 

 

 

 21 

 

 

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 September 30, 2024, and December 31, 2023, the Company had $7,468,971 and $2,120,100, respectively, outstanding balance against the revolving receivable line of credit. As of September 30, 2024, there was $252,628 of interest accrued related to the 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 September 30, 2024 and December 31, 2023, the Company had convertible debt outstanding net of amortized debt discount of $105,000 and $3,807,030, respectively. During the nine months ended September 30, 2024, the Company paid the total principal outstanding of $100,080 and the total outstanding interest of $22,279 to the holder of Notes 9 and 10-1. The Company also paid the total principal outstanding of $5,000 and the total outstanding interest of $501 to the holder of Note 41. Additionally, the Company 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 nine months ended September 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 nine months ended September 30, 2023, the Company received net proceeds of $421,375 from convertible notes. There were debt discounts associated with the convertible debt of $0 and $24,820 at September 30, 2024 and December 31, 2023, respectively. For the three months ended September 30, 2024 and 2023, the Company recorded amortization of debt discounts of $0 and $46,048, respectively. For the nine months ended September 30, 2024 and 2023, the Company recorded amortization of debt discounts of $24,821and $94,664, respectively.

 

During the nine months ended September 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 nine months ended September 30, 2024. During the nine months ended September 30, 2023, the Company converted $87,460 of convertible debt, $12,073 in accrued interest and $3,000 in conversion cost into 3,662 shares of the Company’s common stock. The Company recognized $141,406 of interest expense and additional paid-in capital to adjust fair value for the debt settlement during the nine months ended September 30, 2023.

 

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

           
    September 30, 2024     December 31, 2023  
Convertible notes payable   $ 105,000     $ 3,831,850  
Discounts on convertible notes payable           (24,820 )
Total convertible debt less debt discount     105,000       3,807,030  
Current portion     105,000       3,807,030  
Long-term portion   $     $  

 

 

 

 22 

 

 

The following is a schedule of convertible notes payable as of and for the nine months ended September 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 09/30/24   Accrued Interest on Convertible Debt at 12/31/23   Interest On Convertible Debt For the Period Ended 09/30/24   Accrued Interest on Convertible Debt at 09/30/24   Unamortized Debt Discount At 09/30/24 
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    8,258    89,134     
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    3,442    6,277     
10-3  08/11/2023  08/11/2024   25,000                25,000    1,469    3,130    4,599     
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