The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization and Nature of Operations
Cardiff Lexington Corporation (“Cardiff”)
was originally incorporated on September 3, 1986 in Colorado as Cardiff International Inc. On November 10, 2005, Cardiff merged with Legacy
Card Company, LLC and changed its name to Cardiff Lexington Corporation. On August 27, 2014, Cardiff redomiciled and became a corporation
under the laws of Florida. On April 13, 2021, Cardiff redomiciled and became a corporation under the laws of Nevada.
Cardiff is an acquisition holding company focused
on locating undervalued and undercapitalized companies, primarily in the healthcare industry, and providing them capitalization and leadership
to maximize the value and potential of their private enterprises while also providing diversification and risk mitigation for stockholders.
All of Cardiff’s operations are conducted through, and its income derived from, its various subsidiaries, which includes:
| · | We Three, LLC dba Affordable
Housing Initiative (“AHI”), which was acquired on May 15, 2014 and sold on October 31, 2022; |
| | | |
| · | Edge View Properties,
Inc. (“Edge View”), which was acquired on July 16, 2014; |
| | | |
| · | Platinum Tax Defenders
(“Platinum Tax”), which was acquired on July 31, 2018; and |
| | | |
| · | Nova Ortho and Spine, PLLC (“Nova”), which was acquired
on May 31, 2021. |
Principles of Consolidation
The condensed consolidated financial statements
include the accounts of Cardiff and its wholly owned subsidiaries AHI, Edge View, Platinum Tax and Nova (collectively, the “Company”).
AHI is included in discontinued operations. All significant intercompany accounts and transactions are eliminated in consolidation. Certain
prior period amounts may have been reclassified for consistency with the current period presentation. These reclassifications would have
no material effect on the reported condensed consolidated financial results.
Use of Estimates
The preparation of financial statements in conformity
with United States generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Management uses its historical records and knowledge of its business in making estimates.
Accordingly, actual results could differ from those estimates.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Accounts Receivable
Accounts receivable is reported on the balance
sheet at the net amounts expected to be collected by the Company. Management closely monitors outstanding accounts receivable and charges
off to expense any balances that are determined to be uncollectible, which was $270,000 and $0 as of March 31, 2023 and December 31, 2022,
respectively. As of March 31, 2023 and December 31, 2022, the Company had net accounts receivable of $7,446,416 and $6,604,780, respectively.
Accounts receivables are primarily generated from subsidiaries in their normal course of business.
Property and Equipment
Property and equipment are carried at cost. Expenditures
for renewals and betterments that extend the useful lives of property, equipment or leasehold improvements are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method for financial
reporting purposes based on the following estimated useful lives:
| Schedule of estimated useful lives |
|
| Classification |
Useful Life |
| Equipment, furniture, and fixtures |
5 - 7 years |
| Medical equipment |
10 years |
| Leasehold improvements |
10 years or lease term, if shorter |
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands are not amortized
but are evaluated for impairment annually or when indicators of a potential impairment are present. The Company’s impairment testing
of goodwill is performed separately from its impairment testing of indefinite-lived intangibles. The annual evaluation for impairment
of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected
future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other
marketplace participants. During the three months ended March 31, 2023 and 2022, the Company did not recognize any goodwill impairment.
The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors.
Valuation of Long-lived Assets
In accordance with the provisions of Accounting
Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived
assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held
and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated
by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value of the assets.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Revenue Recognition
On January 1, 2018, the Company adopted ASC 606,
Revenue from contracts with customers (“Topic 606”), using the modified retrospective method applied to those contracts
which were not completed as of January 1, 2018.
The Company applies the following five-step model
to determine revenue recognition:
| · | Identification of a contract with a customer |
| · | Identification of the performance obligations
in the contact |
| · | Determination of the transaction price |
| · | Allocation of the transaction price to the separate
performance allocation |
| · | Recognition of revenue when performance obligations are satisfied. |
The Company only applies the five-step model when
it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers
to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses services
promised within each contract and determines those that are performance obligations and assesses whether each promised service is distinct.
The Company’s financial services sector
reports revenues as services are performed and its healthcare sector reports revenues at the time control of the services transfer to
the customer and from providing licensed and/or certified orthopedic procedures. The Company’s healthcare subsidiary does not have
contract liabilities or deferred revenue as there are no amounts prepaid for services.
Healthcare Income
Established billing rates are not the same
as actual amounts recovered for the Company’s healthcare subsidiary. They generally do not reflect what the Company is
ultimately paid and therefore are not reported in the condensed consolidated financial statements. The Company is
typically paid amounts based on established charges per procedure with guidance from the annually updated Current Procedural
Terminology (“CPT”) guidelines (a code set maintained by the American Medical Association through the CPT Editorial
Panel), that designates relative value units (“RVU's”) and a suggested range of charges for each procedure which is then
assigned a CPT code.
This fee is discounted to reflect the percentage
paid to the Company “using a modifier” recognized by each insurance carrier for services, less deductible, co-pay, and contractual
adjustments which are deducted from the calculated fee. The net revenue is recorded at the time the services are rendered.
Contract Fees (Non-PIP)
The Company has contract fees for amounts earned
from its Non-Personal Injury Protection (“PIP”) related procedures, typically car accidents, and are collected on a contingency
basis. These cases are sold to a factor, who bears the risk of economic benefit or loss. After selling patient cases to the factor, any
additional funds collected by the Company are remitted to the factor.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Service Fees – Net (PIP)
The Company generates services fees from performing
various procedures on the date the services are performed. These services primarily include slip and falls as well as smaller nominal
Non-PIP services. Fees are collected primarily from third party insurance providers. These revenues are based on established insurance
billing rates less allowances for contractual adjustments and uncollectible amounts. These contractual adjustments vary by insurance company
and self-pay patients. The Company computes these contractual adjustments and collection allowances based on its historical collection
experience.
Completing the paperwork for each case and preparing
it for billing takes approximately ten business days after a procedure is performed. The majority of claims are then filed electronically
except for those remaining insurance carriers requiring paper filing. An initial response is usually received within four weeks from electronic
filing and up to six weeks from paper filing. Responses may be a payment, a denial, or a request for additional information.
The Company’s healthcare revenues are generated
from professional medical billings including facility and anesthesia services. With respect to facility and anesthesia services, the Company
is the primary obligor as the facility and anesthesia services are considered part of one integrated performance obligation. Historically
the Company receives 49.9% of collections from total gross billed. Accordingly, the Company recognized net healthcare service revenue
as 49.9% of gross billed amounts. Historical collection rates are estimated using the most current prior 12-month historical payment and
collection percentages.
The Company’s healthcare subsidiary has
contractual medical receivable sales and purchase agreements with third party factors which result in approximately 51% to 56% reduction
from the accounts receivables amounts when a receivable is sold to the factors. The Company evaluated the factored adjustments considering
the actual factored amounts per patient quarterly, and the reductions from accounts receivable that are factored were recorded in finance
charges as other expenses on the consolidated statement of operations.
The Company’s contracts for both its contract
and service fees each contain a single performance obligation (providing orthopedic services), as the promise to transfer the individual
services is not separately identifiable from other promises in the contracts and, therefore, not distinct, as a result, the entire transaction
price is allocated to this single performance obligation.
Accordingly, the Company recognizes revenues (net)
when the patient receives orthopedic care services. The Company’s patient service contracts generally have performance obligations
which are satisfied at a point in time. The performance obligation is for onsite or off-site care provided. Patient service contracts
are generally fixed-price, and the transaction price is in the contract. Revenue is recognized when obligations under the terms of the
contract with our patients are satisfied; generally, at the time of patient care.
Financial Services Income
The Company generates revenue from providing tax
resolution services to individuals and business owners that have federal and state tax liabilities
by assisting its clients to settle outstanding tax debts. Additionally, services include back taxes, offer in compromise, audit representation,
amending tax returns, tax preparation, wage garnishment relief, removal of bank levies and liens, and other financial challenges.
The Company recognizes revenues for these services as services are performed.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Advertising Costs
Advertising costs are expensed as incurred. Advertising
costs are included as a component of cost of sales in the condensed consolidated statements of operations and changes in stockholders’
equity. The Company recognized advertising and marketing expense of $38,353 and $127,785 for the three months ended March 31, 2023 and
2022, respectively.
Fair Value Measurements
Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level
of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1) market participant
assumptions developed based on market data obtained from independent sources (observable inputs), and (2) an entity’s own assumptions
about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The
fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value
hierarchy are described below:
| |
Level 1 |
Inputs
are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. |
| |
|
|
| |
Level 2 |
Inputs,
other than quoted prices included in Level 1, which are observable for the asset or liability through corroboration with market data at
the measurement date. |
| |
|
|
| |
Level 3 |
Unobservable
inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement
date. |
Distinguishing Liabilities from Equity
The Company accounts for its series N senior convertible
preferred stock and series X senior convertible preferred stock subject to possible redemption in accordance with ASC 480, “Distinguishing
Liabilities from Equity”. Conditionally redeemable preferred shares are classified as temporary equity within the Company’s
condensed consolidated balance sheet.
Stock-Based Compensation
The Company accounts for its stock-based compensation
in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of
the fair value recognition provisions of section 718-10-30 of the FASB ASC. Pursuant to paragraph 718-10-30-6 of the FASB ASC, all transactions
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value
of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair
value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable
that performance will occur.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Generally, all forms of share-based payments,
including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on
the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments
is recorded in general and administrative expense in the condensed consolidated statements of operations.
Equity Instruments Issued to Parties Other
Than Employees for Acquiring Goods or Services
FASB ASU No 2018-07 prescribes equity instruments
issued to parties other than employees.
Income Taxes
Income taxes are determined in accordance with
ASC Topic 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how
companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to
be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the
tax authority assuming full knowledge of the position and relevant facts.
As of March 31, 2023 and December 31, 2022, the
Company did not have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain
tax positions.
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 potentially dilutive securities is reflected in diluted earnings
per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of
the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Going Concern
The accompanying condensed consolidated financial
statements have been prepared using the going concern basis of accounting, which contemplates continuity of operations, realization of
assets and liabilities and commitments in the normal course of business. The Company has sustained operating losses since its inception
and has negative working capital and an accumulated deficit. These factors raise substantial doubts about the Company’s ability
to continue as a going concern. As of March 31, 2023, the Company has an accumulated working capital deficit of approximately $2.7 million.
The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as
a going concern.
The ability of the Company to continue as a going
concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. Management
has prospective investors and believes the raising of capital will allow the Company to fund its cash flow shortfalls and pursue new acquisitions.
There can be no assurance that the Company will be able to obtain sufficient capital from debt or equity transactions or from operations
in the necessary time frame or on terms acceptable to it. Should the Company be unable to raise sufficient funds, it may be required to
curtail its operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that the Company
will be able to operate profitably on a consistent basis, or at all, in the future. Should the Company not be able to raise sufficient
funds, it may cause cessation of operations.
Recent Accounting Standards
Changes to accounting principles are established
by the FASB in the form of Accounting Standards Update (“ASU”) to the FASB's Codification. The Company considers the applicability
and impact of all ASU's on its financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof.
In June 2016, the FASB issued ASU No. 2016-13,
Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses
when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses
on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition
of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued
ASU No. 2019-10, Financial Instruments -- Credit Losses (Topic 326), Derivatives and hedging (Topic 815) and Leases (Topic 842),
which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The Company
has adopted this standard effective January 1, 2023, which did not have a material impact to the consolidated financial statements,which
resulted in the Company recognizing an allowance for doubtful accounts of $270,000 during the three months ended March 31, 2023.
Management does not believe that any other recently
issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements.
As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
| 2. |
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS |
Subsequent to the initial issuance of the Company's
2021 financial statements on March 31, 2022, management reconsidered the methodology previously applied in its valuation of goodwill and
redeemable preferred stocks.
The Company agreed to issue 818,750 additional
shares of series J Preferred Stock with an aggregate stated value equal to $3,275,000 if, as of May 31, 2022, Nova’s trailing twelve
months minimum pre-tax net income exceeded $1,979,320 (the “Milestone”). The Company finalized its purchase price accounting
and allocation in 2022 and recorded purchase consideration of $6,100,000 associated with the cash consideration, the fair value of the
series J preferred stock and the fair value of the contingent consideration. The impact of the correction is reflected in $3,275,000 increase
to goodwill and contingent consideration liability on the consolidated balance sheet.
In December 2022, the Company identified an error in its classification
for its series N senior convertible preferred stock for the acquisition of NOVA as presented in its audited balance sheet as of December
31, 2021. Pursuant to ASC 250, “Accounting changes and error corrections” issued by FASB and SAB 99 “Materiality”
issued by SEC, the Company determined the impact of the error was immaterial. The impact of the error correction is reflected in $3,125,002
increase to the mezzanine equity and offsetting decrease to the Series N Preferred Stock in subject to possible redemption mezzanine equity
line item.
The Company and We3 managers entered into a resignation,
release and buyback agreement and addendum, effective October 31, 2022. The Company presented in prior periods operating loss as loss
from discontinued operations in the amount of $2,593 on the consolidated statement of operations for the three months ended March 31,
2022.
The Company identified that NOVA’s accounts
receivable as presented in its balance sheet as of December 31, 2021, was understated due to an error in the collection utilized to estimate
NOVA’s accounts receivable. The impact of this correction on the accounting estimates is reflected in $1,076,000 decrease to accounts
receivable as of March 31, 2022 and $1,076,000 increase in finance charges for the three months ended March 31, 2022.
The following table summarizes the impacts of
the error corrections on the Company's financial statements for each of the periods presented below:
i. Balance sheet
| Schedule of restated financial information | |
| | | |
| | | |
| | |
| | |
Impact of correction of error | |
| March 31, 2022 (Unaudited) | |
As previously
reported | | |
Adjustments | | |
As restated | |
| | |
| | |
| | |
| |
| Total assets | |
$ | 11,704,750 | | |
$ | 3,275,000 | | |
$ | 14,979,750 | |
| | |
| | | |
| | | |
| | |
| Total liabilities | |
| 9,512,586 | | |
| 3,275,000 | | |
| 12,787,586 | |
| | |
| | | |
| | | |
| | |
| Mezzanine equity | |
| – | | |
| 3,125,002 | | |
| 3,125,002 | |
| | |
| | | |
| | | |
| | |
| Total shareholders' equity | |
$ | 2,192,163 | | |
$ | (3,125,002 | ) | |
$ | (932,839 | ) |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
ii. Statement of operations
| | |
Impact of correction of error | |
| Three months ended March 31, 2022 (Unaudited) | |
As previously
reported | | |
Adjustments | | |
As restated | |
| | |
| | |
| | |
| |
| Revenue | |
$ | 2,940,994 | | |
$ | (43,844 | ) | |
$ | 2,897,150 | |
| Cost of sales | |
| 1,135,702 | | |
| (19,474 | ) | |
| 1,116,228 | |
| Gross margin | |
| 1,805,292 | | |
| (24,370 | ) | |
| 1,780,922 | |
| Operating expense | |
| 1,081,928 | | |
| (22,489 | ) | |
| 1,059,439 | |
| Income from operations | |
$ | 723,364 | | |
$ | (1,881 | ) | |
$ | 721,483 | |
| Other income (expense), net | |
| (1,193,196 | ) | |
| (1,071,526 | ) | |
| (2,264,722 | ) |
| Net loss before discontinued operations | |
| ) | |
| ) | |
| ) |
| Loss from discontinued operations | |
| (16,622 | ) | |
| (2,593 | ) | |
| (19,215 | ) |
| Net loss | |
$ | (486,454 | ) | |
$ | (1,076,000 | ) | |
$ | (1,562,454 | ) |
| Basic Loss per Share | |
| | | |
| | | |
| | |
| Continued Operations | |
| (0.01 | ) | |
| | | |
| (0.01 | ) |
| Discontinued Operations | |
| 0.01 | | |
| | | |
| – | |
| Weighted Average Shares Outstanding - Basic Earnings Loss per Share | |
| | | |
| | | |
| | |
| Continued Operations | |
| 166,130,069 | | |
| | | |
| 128,021,527 | |
| Discontinued Operations | |
| 166,130,069 | | |
| | | |
| 128,021,527 | |
| 3. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
| Schedule of account payable and accrued expenses | |
| | | |
| | |
| | |
March 31, 2023 | | |
December 31,
2022 | |
| Accounts payable | |
$ | 492,391 | | |
$ | 342,330 | |
| Accrued credit cards | |
| 10,325 | | |
| 45,722 | |
| Accrued expense – previously factored liability | |
| 954,366 | | |
| 776,414 | |
| Accrued income taxes, and other taxes | |
| 6,732 | | |
| 6,732 | |
| Accrued professional fees | |
| 479,609 | | |
| 573,040 | |
| Accrued advertising | |
| 69,656 | | |
| 69,656 | |
| Accrued payroll | |
| 57,411 | | |
| 14,292 | |
| Accrue expense - other | |
| – | | |
| 363 | |
| Accrued expense - dividend payable | |
| – | | |
| 210,046 | |
| Total | |
$ | 2,070,490 | | |
$ | 2,038,595 | |
The Company is delinquent paying certain income
and property taxes. As of March 31, 2023 and December 31, 2022, the balance for these taxes, penalties and interest is $6,732.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
| 4. | PLANT AND EQUIPMENT, NET |
Property and equipment as of March 31, 2023 and
December 31, 2022 is as follows:
| Schedule of Property and Equipment | |
| | | |
| | |
| | |
March 31, 2023 | | |
December 31,
2022 | |
| Medical equipment | |
$ | 96,532 | | |
$ | 96,532 | |
| Computer Equipment | |
| 9,189 | | |
| 9,189 | |
| Furniture, fixtures and equipment | |
| 30,841 | | |
| 35,974 | |
| Leasehold Improvement | |
| 15,950 | | |
| 15,950 | |
| Total | |
| 152,512 | | |
| 157,645 | |
| Less: accumulated depreciation | |
| (101,708 | ) | |
| (102,206 | ) |
| Property and equipment, net | |
$ | 50,804 | | |
$ | 55,439 | |
For the three months ended March 31, 2023 and
2022, depreciation expense was $4,635 and $10,814, respectively.
As of March 31, 2023 and December 31, 2022, the
Company had 27 acres of land valued at approximately $540,000. The land is currently vacant and is expected to be developed into a residential
community.
At March 31, 2023 and December 31, 2022, the Company
had a revolving line of credit with a financial institution for $92,500 which was personally guaranteed by the manager of Platinum Tax.
The loan accrues interest at 11.20% at March 31, 2023 and 10.95% at December 31, 2022. As of March 31, 2023 and December 31, 2022, the
Company had $20,619 and $0, respectively, of outstanding balance against the line of credit.
| 7. | RELATED PARTY TRANSACTIONS |
From time to time, the previous owner who is currently
the manager of Platinum Tax loaned funds to Platinum Tax to cover short term operating needs. Amounts owed as of March 31, 2023 and December
31, 2022 were $90,189 and $37,025, respectively.
In connection with the acquisition of Edge View
on July 16, 2014, the Company assumed amounts due to previous owners who are current managers Edge View. These amounts are due on demand
and do not bear interest. The balance of these amounts are $4,979 as of March 31, 2023 and December 31, 2022.
The Company obtained short-term advances from
the Chairman of the Board that are non-interest bearing and due on demand. As of March 31, 2023 and December 31, 2022, the Company owed
the Chairman $123,192.
See also Note 14 for compensation paid to employees
of the Company.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
| 8. | NOTES AND LOANS PAYABLE |
Notes payable at March 31, 2023 and December
31, 2022, respectively, are summarized as follows:
| Schedule of notes payable | |
| | | |
| | |
| | |
March 31, 2023 | | |
December 31,
2022 | |
| Notes and loans payable | |
$ | 181,242 | | |
$ | 155,598 | |
| Less current portion | |
| (36,596 | ) | |
| (15,809 | ) |
| Long-term portion | |
$ | 144,646 | | |
$ | 139,789 | |
Long-term debt matures as follows:
| Schedule of Maturities of Long-term Debt | |
| | |
| | |
Amount | |
| 2024 | |
$ | 36,596 | |
| 2025 | |
| 4,988 | |
| 2026 | |
| 4,988 | |
| 2027 | |
| 4,988 | |
| 2028 | |
| 4,988 | |
| Thereafter | |
| 124,694 | |
| Total | |
$ | 181,242 | |
Loans and Notes Payable – Unrelated Party
On March 12, 2009, the Company issued a debenture
in the principal amount of $20,000. The debenture bears interest at 12% per annum and matured on September 12, 2009. The balance of the
debenture was $10,989 at March 31, 2023 and December 31, 2022 and the accrued interest was $6,554 and $6,229 at March 31, 2023 and December
31, 2022, respectively. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on
this debenture.
Small Business Administration (“SBA”)
Loans
On June 2, 2020, the Company obtained an SBA loan
in the principal amount of $150,000 with an interest rate of 3.75% and a maturity date of June 2, 2050. The Company reclassified $5,723
of accrued interest to the principal amounts for the three months ended March 31, 2023. The principal balance and accrued interest at
March 31, 2023 was $149,633 and $0, respectively, and principal and accrued interest at December 31, 2022 was $144,609 and $5,723, respectively.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
| 9. | CONVERTIBLE NOTES PAYABLE |
As of March 31, 2023 and December 31, 2022, the
Company had convertible debt outstanding net of amortized debt discount of $3,717,936 and $3,515,752, respectively. During the three months
ended March 31, 2023, the Company received net proceeds of $240,000 from convertible notes. During the three months ended March 31, 2022,
the Company had proceeds of $550,967 from convertible notes and repaid $5,908 to convertible noteholders. There are debt discounts
associated with the convertible debt of $89,147 and $46,798 at March 31, 2023 and December 31, 2022, respectively. For the three months
ended March 31, 2023 and 2022, the Company recorded amortization of debt discounts of $17,983 and $44,546, respectively. During the three
months ended March 31, 2023, the Company converted $58,800 of convertible debt, $5,873 in accrued interest and $2,000 in penalties and
fees into 118,682,378 shares of the Company’s common stock. The Company recognized $123,566 of interest expense and additional paid-in
capital to adjust fair value for the debt settlement during the three months ended March 31, 2023.
On September 22, 2022, the Company entered into
a security exchange and purchase agreement with its largest lender to consolidate all promissory notes held by it and related accrued
interest in exchange for (1) one consolidated senior secured convertible promissory note in the amount of $2,600,000 and (2) 375,000 shares
of series X senior convertible preferred stock totaling $1,500,000 with a par value of $0.001, stated value of $4.00, convertible into
common shares at a 1:1 conversion rate, non-dilutive and non-voting shares. Prior to conversion, all promissory notes with this lender
totaled to $4,791,099 consisting of principal of $3,840,448 and accrued interest of $950,651 resulting in a gain on debt consolidation
of $1,397,271.
Convertible notes as of March 31, 2023 and December
31, 2022 are summarized as follows:
| Schedule of convertible notes summary | |
| | | |
| | |
| | |
March 31, 2023 | | |
December 31,
2022 | |
| Convertible notes payable | |
$ | 3,807,083 | | |
$ | 3,562,550 | |
| Discounts on convertible notes payable | |
| (89,147 | ) | |
| (46,798 | ) |
| Total convertible debt less debt discount | |
| 3,717,936 | | |
| 3,515,752 | |
| Current portion | |
| 3,717,936 | | |
| 3,515,752 | |
| Long-term portion | |
$ | – | | |
$ | – | |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
The following is a schedule of convertible notes
payable as of and for the three months ended March 31, 2023.
| Schedule of convertible notes details |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Note # |
|
Issuance |
|
Maturity |
|
Principal Balance 12/31/22 |
|
|
New Loan |
|
|
Principal Conversions |
|
|
Shares Issued Upon Conversion |
|
|
Principal Balance 3/31/23 |
|
|
Accrued Interest on Convertible Debt at 12/31/22 |
|
|
Interest Expense On Convertible Debt For the Period Ended 3/31/23 |
|
|
Accrued Interest on Convertible Debt at 3/31/23 |
|
|
Unamortized Debt Discount At 3/31/23 |
|
| 7-1 |
|
10/28/2016 |
|
10/28/2017 |
|
|
10,000 |
|
|
$ |
– |
|
|
$ |
(10,000 |
) |
|
|
23,405,455 |
|
|
$ |
– |
|
|
$ |
2,263 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
| 9 |
|
9/12/2016 |
|
9/12/2017 |
|
|
50,080 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
50,080 |
|
|
|
14,157 |
|
|
|
2,470 |
|
|
|
16,627 |
|
|
|
– |
|
| 10 |
|
1/24/2017 |
|
1/24/2018 |
|
|
55,000 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
55,000 |
|
|
|
69,876 |
|
|
|
2,712 |
|
|
|
72,588 |
|
|
|
– |
|
| 10-1 |
|
2/10/2023 |
|
2/10/2024 |
|
|
– |
|
|
|
50,000 |
|
|
|
– |
|
|
|
– |
|
|
|
50,000 |
|
|
|
– |
|
|
|
1,007 |
|
|
|
1,007 |
|
|
|
– |
|
| 10-2 |
|
3/30/2023 |
|
3/30/2024 |
|
|
– |
|
|
|
25,000 |
|
|
|
– |
|
|
|
– |
|
|
|
25,000 |
|
|
|
– |
|
|
|
10 |
|
|
|
10 |
|
|
|
– |
|
| 29-2 |
|
11/8/2019 |
|
11/8/2020 |
|
|
36,604 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
36,604 |
|
|
|
20,160 |
|
|
|
2,166 |
|
|
|
22,326 |
|
|
|
– |
|
| 31 |
|
8/28/2019 |
|
8/28/2020 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
8,385 |
|
|
|
– |
|
|
|
8,385 |
|
|
|
– |
|
| 37-1 |
|
9/3/2020 |
|
6/30/2021 |
|
|
113,667 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
113,667 |
|
|
|
28,756 |
|
|
|
5,045 |
|
|
|
38,801 |
|
|
|
– |
|
| 37-2 |
|
11/2/2020 |
|
8/31/2021 |
|
|
113,167 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
113,167 |
|
|
|
27,510 |
|
|
|
5,023 |
|
|
|
37,533 |
|
|
|
– |
|
| 37-3 |
|
12/29/2020 |
|
9/30/2021 |
|
|
113,166 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
113,166 |
|
|
|
26,474 |
|
|
|
5,023 |
|
|
|
36,497 |
|
|
|
– |
|
| 38 |
|
2/9/2021 |
|
2/9/2022 |
|
|
96,000 |
|
|
|
– |
|
|
|
(48,800 |
) |
|
|
85,276,923 |
|
|
|
47,200 |
|
|
|
27,939 |
|
|
|
3,321 |
|
|
|
31,260 |
|
|
|
– |
|
| 39 |
|
4/26/2021 |
|
4/26/2022 |
|
|
168,866 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
168,866 |
|
|
|
39,684 |
|
|
|
9,160 |
|
|
|
48,844 |
|
|
|
– |
|
| 40-1 |
|
9/22/2022 |
|
9/22/23 |
|
|
2,600,000 |
|
|
|
– |
|
|
|
– |
|
|
|
10,000,000 |
|
|
|
2,600,000 |
|
|
|
71,233 |
|
|
|
64,110 |
|
|
|
131,343 |
|
|
|
– |
|
| 40-2 |
|
11/4/2022 |
|
11/4/2023 |
|
|
68,666 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
68,666 |
|
|
|
1,072 |
|
|
|
1,693 |
|
|
|
2,765 |
|
|
|
10,253 |
|
| 40-3 |
|
11/28/2022 |
|
11/28/2023 |
|
|
68,667 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
68,667 |
|
|
|
620 |
|
|
|
1,693 |
|
|
|
2,313 |
|
|
|
11,382 |
|
| 40-4 |
|
12/21/2022 |
|
12/21/2023 |
|
|
68,667 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
68,667 |
|
|
|
187 |
|
|
|
1,693 |
|
|
|
1,880 |
|
|
|
12,464 |
|
| 40-5 |
|
1/24/2023 |
|
1/24/2024 |
|
|
– |
|
|
|
90,166 |
|
|
|
– |
|
|
|
– |
|
|
|
90,166 |
|
|
|
– |
|
|
|
1,630 |
|
|
|
1,630 |
|
|
|
19,387 |
|
| 40-6 |
|
3/21/2023 |
|
3/21/2024 |
|
|
– |
|
|
|
138,167 |
|
|
|
– |
|
|
|
– |
|
|
|
138,167 |
|
|
|
– |
|
|
|
379 |
|
|
|
379 |
|
|
|
35,661 |
|
| |
|
|
|
|
|
$ |
3,562,550 |
|
|
$ |
303,333 |
|
|
$ |
(58,800 |
) |
|
|
118,682,378 |
|
|
$ |
3,807,083 |
|
|
$ |
338,316 |
|
|
$ |
107,135 |
|
|
$ |
454,188 |
|
|
$ |
89,147 |
|
Note 7-1
On October 28, 2016, the Company issued a convertible
promissory note in the principal amount of $50,000, which matured on October 28, 2017. Note 7-1 is currently in default and accrues interest
at a default interest rate of 20% per annum.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Note 9
On September 12, 2016, the Company issued a convertible
promissory note in the principal amount of $80,000 for services rendered, which matured on September 12, 2017. Note 9 is currently in
default and accrues interest at a default interest rate of 20% per annum.
Notes 10, 10-1 and 10-2
On January 24, 2017, the Company issued a convertible
promissory note in the principal amount of $80,000 for services rendered, which matured on January 24, 2018. Note 10 is currently in default
and accrues interest at a default interest rate of 20% per annum. On February 10, 2023, the Company executed a second tranche under this
note in the principal amount of $50,000 (Note 10-1). On March 30, 2023, the Company executed a third tranche under this note in the principal
amount of $25,000 (Note 10-2). Notes 10-1 and 10-2 accrue interest at a rate of 15% per annum.
Notes 29, 29-1 and 29-2
On May 10, 2019, the Company issued a convertible
promissory note in the principal amount of $150,000. On November 8, 2019, this note (Note 29) was purchased by and assigned to an unrelated
party. The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,918 which was issued as Note 29-1,
plus a new convertible promissory note in the principal amount of $62,367 which was issued as Note 29-2. Note 29-2 is currently in default
and accrues interest at a default interest rate of 24% per annum.
Note 31
On August 28, 2019, the Company issued a convertible
promissory note in the principal amount of $120,000, which matured on August 28, 2020. Note 31 is currently in default and accrues interest
at a default interest rate of 24% per annum.
Notes 37-1, 37-2 and 37-3
On September 3, 2020, the Company issued a convertible
promissory note in the principal amount of $200,000, with an original issue discount of $50,000, which could be drawn in several tranches.
On September 3, 2020, the Company executed the first tranche in the principal amount of $67,000, less an original issue discount of $17,000,
which matured on June 30, 2021 (Note 37-1). On November 2, 2020, the Company executed the second tranche in the principal amount of $66,500,
less an original issue discount of $16,500, which matured on August 31, 2021 (Note 37-2). On December 29, 2020, the Company executed the
third tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021 (Note
37-3). Notes 37-1, 37-2 and 27-3 are currently in default and accrue interest at a default interest rate of 18% per annum.
Note 38
On February 9, 2021, the Company issued a convertible
promissory note in the principal amount $103,500, which matured on February 9, 2022. Note 38 is currently in default and accrues interest
at a default interest rate of 22% per annum.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Note 39
On April 26, 2021, the Company issued a convertible
promissory note in the principal amount $153,500, which matured on May 10, 2022. Note 39 is currently in default and accrues interest
at a default interest rate of 22% per annum.
Notes 40-1, 40-2, 40-3, 40-4, 40-5 and 40-6
On September 22, 2022, the Company issued a convertible
promissory note in the principal amount of $2,600,000 in exchange for total of $4,791,099 of defaulted promissory notes balances (Note
40-1). On November 4, 2022, the Company executed a second tranche under this note in the principal amount of $68,667, less an original
issue discount and fee of $18,667 (Note 40-2). On November 28, 2022, the Company executed the third tranche under this note in the principal
amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-3). On November 28, 2022, the Company executed a fourth
tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-4). On January
24, 2023, the Company executed a fifth tranche under this note in the principal amount of $88,6676, 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). 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.
Preferred Stock
The Company has designated multiple series of
preferred stock, including 4 shares of series A preferred stock, 3,000,000 shares of series B preferred stock, 500 shares of series C
preferred stock, 800,000 shares of series D preferred stock, 1,000,000 shares of series E preferred stock, 800,000 shares of series F
preferred stock, 800,000 shares of series F-1 preferred stock, 500,000,000 shares of series I preferred stock, 10,000,000 shares of series
J preferred stock, 10,937,500 shares of series K preferred stock, 100,000,000 shares of series L preferred stock, 3,000,000 shares of
series N senior convertible preferred stock, 5,000 shares of series R preferred stock and 5,000,000 shares of series X senior convertible
preferred stock.
The following is a description of the rights and
preferences of each series of preferred stock.
Redeemable Preferred Stock
The Company recognized the series N senior convertible
preferred stock and series X senior convertible preferred stock as mezzanine equity since the redeemable preferred stock may be redeemed
at the option of the holder, but is not mandatorily redeemable.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Series N Senior Convertible Preferred Stock
Ranking. The series N senior convertible
preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common
stock and each other class or series that is not expressly made senior to or on parity with the series N senior convertible preferred
stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series N senior convertible preferred
stock; and (iii) junior to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company
and each class or series that is expressly made senior to the series N senior convertible preferred stock.
Dividend Rights. Holders of series N senior
convertible preferred stock are entitled to dividends at a rate per annum of 12.0% of the stated value ($4.00 per share); provided that
upon an event of default (as defined in the certificate of designation for the series N senior convertible preferred stock), such rate
shall increase by 8% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall
be payable quarterly in arrears on each dividend payment date in cash or common stock at the Company’s discretion. Dividends payable
in common stock shall be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common
stock on the Company’s principal trading market (the “VWAP”) during the five (5) trading days immediately prior to the
applicable dividend payment date. At March 31, 2023, cumulative dividends on Series N Preferred Stock were $453,654.
Liquidation Rights. Subject to the rights
of creditors and the holders of any senior securities or parity securities (in each case, as defined in the certificate of designation),
upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital
or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including
the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash
equal to 115% of the stated value of $4.00 per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon
(whether or not declared) to, but not including the date of final distribution to such holders.
Voting Rights. Holders of series N senior
convertible preferred stock do not have any voting rights; provided that, so long as any shares of series N senior convertible preferred
stock are outstanding, the affirmative vote of holders of a majority of the series N senior convertible preferred stock, which majority
must include SILAC Insurance Company so long as it holds any shares of series N senior convertible preferred stock, voting as a separate
class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate
of designation or prior to the Company’s (or Nova’s) creation or issuance of any parity securities or new indebtedness (as
defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds
of which will be used to redeem the series N senior convertible preferred stock and the warrants issued in connection therewith. In addition,
the affirmative vote of holders of 66% of the series N senior convertible preferred stock, voting as a separate class, is required prior
to the Company’s (or Nova’s) creation or issuance of any senior securities.
Conversion Rights. Each shares of series
N senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder
thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing
the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price of $0.012 per
share (subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in
common stock, sales of substantially all assets, mergers, consolidations or similar transactions); provided that in no event shall the
holder of any series N senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of
(i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock
issuable upon the conversion of the series N senior convertible preferred stock with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common
stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one
(61) days’ prior notice to the Company.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Redemption Rights. The Company may redeem
the series N senior convertible preferred stock at any time by paying in cash therefore a sum equal to 115% of the stated value of $4.00
per share, plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the certificate of designation.
In addition, any holder may require the Company to redeem some or all of its shares of series
N senior convertible preferred stock on the same terms after a period of twelve months from the date of issuance; provided, however, that
such redemption right shall only be exercisable if the Company raises at least $5,000,000 or the
common stock is trading on the Nasdaq Stock Market or the New York Stock Exchange.
Series X Senior Convertible Preferred Stock
Ranking. The series X senior convertible
preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common
stock and each other class or series that is not expressly made senior to or on parity with the series X senior convertible preferred
stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series X senior convertible preferred
stock; and (iii) junior to the series N senior convertible preferred stock, all indebtedness and other liabilities with respect to assets
available to satisfy claims against the Company and each class or series that is expressly made senior to the series X senior convertible
preferred stock.
Dividend Rights. Holders of series X senior
convertible preferred stock are entitled to dividends at a rate per annum of 10.0% of the stated value ($4.00 per share); provided that
upon an event of default (as defined in the certificate of designation for the series X senior convertible preferred stock), such rate
shall increase by 5% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall
be payable quarterly in arrears on each dividend payment date. At March 31, 2023, cumulative dividends on Series X Preferred Stock were
$93,205.
Liquidation Rights. Subject to the rights
of creditors and the holders of any senior securities, including the series N senior convertible preferred stock, or parity securities
(in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment
or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities
(as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred
stock shall be entitled to receive an amount of cash equal to 100% of the stated value of $4.00 per share, plus an amount of cash equal
to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution
to such holders.
Voting Rights. Holders of series X senior
convertible preferred stock do not have any voting rights; provided that, so long as any shares of series X senior convertible preferred
stock are outstanding, the affirmative vote of holders of a majority of the series X senior convertible preferred stock, which majority
must include Leonite Capital LLC so long as it holds any shares of series X senior convertible preferred stock, voting as a separate class,
shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate
of designation or prior to the creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation);
provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series
X senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of
66% of the series X senior convertible preferred stock, voting as a separate class, is required prior to the creation or issuance of any
senior securities.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Conversion Rights. Each shares of series
X senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder
thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing
the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price equal to the lower
of (i) the lowest VWAP during the five (5) trading days immediately prior to the applicable conversion date and (ii) the price per share
paid in any subsequent financing (the “Fixed Price”). The Fixed Price is subject to standard adjustments in the event of any
stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers,
consolidations or similar transactions, as well as a price based antidilution adjustment, pursuant to which, subject to certain exceptions,
if the Company issues common stock at a price lower than the Fixed Price, the Fixed Price shall decrease to such lower price. Notwithstanding
the foregoing, in no event shall the holder of any series X senior convertible preferred stock be entitled to convert any number of shares
that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii)
the number of shares of common stock issuable upon the conversion of the series X senior convertible preferred stock with respect to which
the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99%
of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion,
upon not less than sixty-one (61) days’ prior notice to the Company.
Redemption Rights. Commencing on September
22, 2023, any holder may require the Company to redeem its shares by the payment in cash
therefore of a sum equal to 100% of the stated value of $4.00 per share, plus the amount of accrued and unpaid dividends and any other
amounts due pursuant to the terms of the certificate of designation; provided however, that in the event that the Company completes a
public offering prior to the redemption date, then any holder may only cause the Company to redeem any outstanding series X senior convertible
preferred stock by paying such redemption price in twelve (12) equal monthly installments with the first such payment due on the date
that is six (6) months following the date that the Company completes such public offering.
Non-redeemable Preferred Stock
Series A Preferred Stock
Each share of series A preferred stock is entitled
to a number of votes and converts to a number of shares equal to the sum of all shares of common stock and series B preferred stock issued
and outstanding, divided by the number shares of series A preferred stock held. Holders of series A preferred stock do not have any dividend,
liquidation or redemption rights.
Series B Preferred Stock
Each share of series B preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series B preferred stock is convertible into two (2)
shares of common stock (subject to adjustment for forward stock splits but not reverse stock splits). Holders of series B preferred stock
do not have any dividend, liquidation or redemption rights.
Series C Preferred Stock
Each share of series C preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series C preferred stock is convertible into 100,000
shares of common stock (subject to adjustment for forward stock splits but not reverse stock splits). If the Company lists on an exchange,
it has the right to repurchase these shares at a purchase price of $50,000 per share. Holders of series C preferred stock do not have
any dividend, liquidation or redemption rights.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Series D Preferred Stock
Each share of series D preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series D preferred stock is convertible into two (2)
shares of common stock. Holders of series D preferred stock do not have any dividend, liquidation or redemption rights.
Series E Preferred Stock
Each share of series E preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series E preferred stock is convertible into two (2)
shares of common stock. Holders of series E preferred stock do not have any dividend, liquidation or redemption rights.
Series F Preferred Stock
Each share of series F preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series F preferred stock is convertible into two (2)
shares of common stock. Holders of series F preferred stock do not have any dividend, liquidation or redemption rights.
Series F-1 Preferred Stock
Each share of series F-1 preferred stock is convertible
into two (2) shares of common stock. Holders of series F-1 preferred stock do not have any voting, dividend, liquidation or redemption
rights.
Series I Preferred Stock
Each share of series I preferred stock is entitled
to five (5) votes on all matters submitted to a vote of stockholders. Each share of series I preferred stock is convertible into two (2)
shares of common stock. Holders of series I preferred stock do not have any dividend, liquidation or redemption rights.
Series J Preferred Stock
Each share of series J preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series J preferred stock is convertible into two (2)
shares of common stock. Holders of series J preferred stock do not have any dividend, liquidation or redemption rights.
Series K Preferred Stock
Each share of series K preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series K preferred stock is convertible into 1.25 shares
of common stock. Holders of series K preferred stock do not have any dividend, liquidation or redemption rights.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Series L Preferred Stock
Each share of series L preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series L preferred stock is convertible into two (2)
shares of common stock. Holders of series L preferred stock do not have any dividend, liquidation or redemption rights.
Series R Preferred Stock
Each share of series R preferred stock is entitled
to one (1) vote on all matters submitted to a vote of stockholders. Each share of series B preferred stock is convertible into one (1)
shares of common stock (subject to adjustment for forward stock splits but not reverse stock splits). Holders of series R preferred stock
do not have any dividend, liquidation or redemption rights.
Preferred Stock Transactions
The Company had no preferred stock transactions
during the three months ended March 31, 2023 and 2022.
Common Stock
During the three months ended March 31, 2023,
the Company issued 118,682,378 shares of common stock upon conversion of certain convertible notes.
The Company did not issue any shares of common
stock during the three months ended March 31, 2022.
The table below sets forth warrant activity for
the three months ended March 31, 2023 and 2022:
| Schedule of warrant activity | |
| | | |
| | |
| | |
Number of
Warrants | | |
Weighted
Average
Exercise
Price | |
| Balance at January 1, 2023 | |
| 235,557,856 | | |
$ | 0.015 | |
| Granted | |
| – | | |
| – | |
| Exercised | |
| – | | |
| – | |
| Expired | |
| – | | |
| – | |
| Balance at March 31, 2023 | |
| 235,557,856 | | |
| 0.015 | |
| Warrants Exercisable at March 31, 2023 | |
| 235,557,856 | | |
$ | 0.015 | |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
| 12. | DISCONTINUED OPERATIONS |
The Company and the managers of AHI entered into
a resignation, release and buyback agreement and addendum, effective October 31, 2022, pursuant to which the managers purchased AHI in
exchange for returning 175,045 shares of series F preferred stock. There was a loss on disposal in the amount of $217,769 on October 31,
2022, which represented net assets and liabilities at the time of sale back.
The Company had no net liabilities of discontinued
operations at March 31, 2023 and December 31, 2022. The Company had $0 and $19,215 of loss from discontinued operations for the three
months ended March 31, 2023 and 2022, respectively.
| Schedule of discontinued operations | |
| | |
| |
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| | |
| | |
| |
| Gain (Loss) from discontinued operations | |
| | | |
| | |
| Revenue | |
$ | – | | |
$ | 43,844 | |
| Cost of sales | |
| – | | |
| (19,474 | ) |
| Selling, general and administrative expenses | |
| – | | |
| (1,881 | ) |
| Interest expense of Red Rock Investor Note | |
| – | | |
| (16,622 | ) |
| Loss on divestiture of AHI subsidiary | |
| – | | |
| (2,593 | ) |
| Gain no change in estimate | |
| – | | |
| (4,474 | ) |
| Loss from discontinued operations | |
$ | – | | |
$ | (19,215 | ) |
| 13. | GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET |
The following table shows the Company’s
goodwill balances by reportable segment. The Company reviews goodwill for impairment on a reporting unit basis annually and whenever events
or changes in circumstances indicate the carrying value of goodwill may not be recoverable. During the three months ended March 31, 2023
and 2022, the Company had no goodwill impairment.
The following table shows goodwill balances by
reportable segment:
| Schedule of goodwill balances | |
| | | |
| | |
| | |
Healthcare | | |
Total | |
| Carrying value at December 31, 2022 | |
$ | 5,666,608 | | |
$ | 5,666,608 | |
| Accumulated impairment | |
| – | | |
| – | |
| Carrying value at March 31, 2023 | |
$ | 5,666,608 | | |
$ | 5,666,608 | |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
| 14. | COMMITMENTS AND CONTINGENCIES |
Leases
ASC 842, “Leases”, requires that a
lessee recognize the assets and liabilities that arise from operating leases, A lessee should recognize in the statement of financial
position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying
asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by
class of underlying asset not to recognize lease assets and lease liabilities. In transaction, lessees and lessors are required to recognize
and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented
(the “comparative method”) using a modified retrospective approach. Under the effective date method, the Company’s comparative
period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning
of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented.
Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The
Company adopted ASC 842, January 1, 2020, using the effective date method and elected certain practical expedients allowing the Company
not to reassess:
| · | whether expired or existing contracts contain
leases under the new definition of a lease; |
| | | |
| · | lease classification for expired or existing
leases; and |
| | | |
| · | whether previously capitalized initial direct
costs would qualify for capitalization under Topic 842. |
The Company also made the accounting policy decision
not to recognize lease assets and liabilities for leases with a term of 12 months or less.
The Company recorded operating lease expense of
$77,852 and $134,000 for the three months ended March 31, 2023 and 2022, respectively.
The Company has operating leases with future
commitments as follows:
| Schedule of property leases | |
| | |
| March 31, | |
Amount | |
| 2024 | |
$ | 140,777 | |
| 2025 | |
| 55,408 | |
| Total | |
$ | 196,185 | |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
(UNAUDITED)
Employees
The Company agreed to pay $360,000 per year and
$200,000 of targeted annual incentives to the Chief Executive Officer based on his employment agreement since July 1, 2020, of which currently
50% is paid in cash and 50% is accrued. The total outstanding accrued compensation as of March 31, 2023 and December 31, 2022 were $1,935,500
and $1,870,500, respectively.
The Company agreed to pay $360,000 per year and
$200,000 of targeted annual incentives to the Chairman of the Board based on his employment agreement since July 1, 2020, of which currently
50% is paid in cash and 50% is accrued. The total outstanding accrued compensation as of December 31, 2022 and December 31, 2021 were
$1,952,000 and $1,863,000, respectively.
The Company agreed to pay $156,000 per year to
the previous Chief Financial Officer based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued
compensation as of March 31, 2023 and December 31, 2022 was $17,057.
The Company entered
into a Management Agreement effective May 31, 2021 for compensation to the principals of Nova in the form of an annual base salaries
of $372,000
to one of the three doctors, $450,000
to the second, and $372,000
to the third doctor. Collectively, as a group, such principals will receive an annual cash bonus and stock equity set forth below,
which will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth below.
| Schedule of annual objectives of financial performance |
|
|
|
| Year |
Minimum Annual Nova EBITDA |
Cash Annual Bonus |
Series J Preferred Stock |
| 2022 |
$2.0M |
$120,000 |
120,000 Shares |
| 2022 |
$2.4M |
$150,000 |
135,000 Shares |
| 2023 |
$3.7M |
$210,000 |
150,000 Shares |
| 2024 |
$5.5M |
$300,000 |
180,000 Shares |
| 2025 |
$8.0M |
$420,000 |
210,000 Shares |