Cardiff Lexington Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition . The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein. Use of Terms Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and “our company” are to Cardiff Lexington Corporation, a Nevada corporation, and its consolidated subsidiaries. Special Note Regarding Forward-Looking Statements This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about: · our ability to successfully identify and acquire additional businesses; · our ability to effectively integrate and operate the businesses that we acquire; · our expectations around the performance of our current businesses; · our ability to maintain our business model and improve our capital efficiency; · our ability to effectively manage the growth of our business; · our lack of operating history and ability to attain profitability; · the competitive environment in which our businesses operate; · trends in the industries in which our businesses operate; · the regulatory environment in which our businesses operate under; · changes in general economic or business conditions or economic or demographic trends in the United States, including changes in interest rates and inflation; · our ability to service and comply with the terms of indebtedness; · our ability to retain or replace qualified employees of our businesses; · labor disputes, strikes or other employee disputes or grievances; · casualties, condemnation or catastrophic failures with respect to any of our business’ facilities; · costs and effects of legal and administrative proceedings, settlements, investigations and claims; and · extraordinary or force majeure events affecting the business or operations of our businesses. In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. 40 In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. Overview We are 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 our stockholders. Specifically, we have and will continue to look at a diverse variety of acquisitions in the healthcare sector in terms of growth stages and capital structures and we intend to focus our portfolio of subsidiaries approximately as follows: 80% will be targeted to established profitable niche small to mid-sized healthcare companies and 20% will be targeted to second stage startups in healthcare and related financial services (emerging businesses with a strong organic growth plan that is materially cash generative). All of our operations are conducted through, and our income derived from, our various subsidiaries. We operate the following businesses through our wholly owned subsidiaries. · Healthcare Business . Nova Ortho and Spine, PLLC, or Nova, which we acquired May 31, 2021, operates a group of regional primary specialty and ancillary care facilities throughout Florida that provide traumatic injury victims with primary care evaluations, interventional pain management, and specialty consultation services. We focus on plaintiff related care are and a highly efficient provider of emergency medical condition, or EMC, assessments. We provide a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves. From sports injuries, to sprains, strains, and fractures, our doctors are dedicated to helping patients return to active lifestyles. · Financial Services (Tax Resolution) Business . Platinum Tax Defenders, or Platinum Tax, which we acquired on July 31, 2018, is a full-service tax resolution firm located in Los Angeles, California. Since 2011, we have been assisting all types of taxpayers resolve any and all issues with the IRS and applicable state tax agencies. We provide fee-based tax resolution services to individuals and companies that have federal and state tax liabilities by assisting clients to settle outstanding tax debts. · Real Estate Business . Edge View Properties, Inc., or Edge View, which we acquired on July 16, 2014, is a real estate company that owns five (5) acres zoned medium density residential (MDR) with 12 lots already platted, six (6) acres zoned high-density residential (HDR) that can be platted in various configurations to meet current housing needs, and twelve (12) acres zoned in Lemhi County as Agriculture that is available for further annexation into the City of Salmon for development, as well as a common area for landowners to view wildlife, provide access to the Salmon River and fishing in a two (2) acre pond. Salmon is known as Idaho’s premier whitewater destination as well as one of the easier accesses to the Frank Church Wilderness Area - the largest wilderness in the lower 48 states. Salmon’s airport has service to Boise, Idaho and serves as a hub to access whitewater rafting start points and wilderness landing strips. Management has invested years working to develop a new and exciting housing development in Salmon, Idaho and plans to enter into a joint venture agreement with a developer for this planned concept development. We previously owned We Three, LLC dba Affordable Housing Initiative, or AHI, which was acquired on May 15, 2014 and sold on October 31, 2022. AHI leased and sold mobile homes and also provided a “lease to own” option. 41 Segments During the three months ended September 30, 2023 and 2022, we had three reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related Information : (1) Financial Services (Platinum Tax) (2) Healthcare (Nova) (3) Real Estate (Edge View) These segments are a result of differences in the nature of the products and services sold. Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the three operating segments. Other revenue consists of nonrecurring items. The financial services segment provides tax resolution services to individuals and companies that have federal and state tax liabilities. It collects fees based on efforts to negotiate and assist in the settlement of outstanding tax debts. The healthcare segment provides a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves. The Real Estate segment consists of Edge View, a real estate company that owns five (5) acres zoned medium density residential (MDR) with 12 lots already platted, six (6) acres zoned high-density residential (HDR) that can be platted in various configurations to meet current housing needs, and twelve (12) acres zoned in Lemhi County as Agriculture that is available for further annexation into the City of Salmon for development, as well as a common area for landowners to view wildlife, provide access to the Salmon River and fishing in a two (2) acre pond. Discontinued Operations We 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. We had no net liabilities of discontinued operations at September 30, 2023 and December 31, 2022. We had $0 and $363,895 of gain from discontinued operations for the three months ended September 30, 2023 and 2022, respectively. We had $0 and $328,353 of gain from discontinued operations for the nine months ended September 30, 2023 and 2022, respectively. 42 Results of Operations Comparison of Three Months Ended September 30, 2023 and 2022 The following table sets forth key components of our results of operations during the three months ended September 30, 2023 and 2022, both in dollars and as a percentage of our revenue. September 30, 2023 September 30, 2022 Amount % of Revenue Amount % of Revenue Revenue Financial services $ 32,264 0.94 % $ 219,872 6.62 % Healthcare 3,405,860 99.06 % 3,103,409 93.38 % Total revenue 3,438,124 100.00 % 3,323,281 100.00 % Cost of sales Financial services 5,604 0.16 % 39,963 1.20 % Healthcare 551,424 16.04 % 1,094,794 32.94 % Total cost of sales 557,028 16.20 % 1,134,757 34.15 % Gross profit 2,881,096 83.80 % 2,188,524 65.85 % Operating expenses Depreciation expense 3,365 0.11 % 5,783 0.17 % Selling, general and administrative 607,745 17.68 % 685,026 20.61 % Total operating expenses 611,110 17.77 % 690,809 20.79 % Income from operations 2,269,986 66.02 % 1,497,715 45.07 % Other income (expense) Other income – – (2 ) (0.00)% Gain on forgiveness of debt – – 1,397,271 42.04 % Interest expense and finance charge (226,418 ) (6.59)% (3,430,785 ) (103.23)% Conversion cost (1,000 ) (0.03)% – – Penalties and fees (15,000 ) (0.44)% – – Amortization of debt discounts (46,048 ) (1.34)% (92,868 ) (2.79)% Total other expense, net (288,466 ) (8.39)% (2,126,384 ) (63.98)% Net income (loss) before discontinued operations 1,981,520 57.63 % (628,669 ) (18.92)% Gain from discontinued operations – – 363,895 10.95 % Net income (loss) $ 1,981,520 57.63 % $ (264,774 ) (7.97)% 43 Revenue . Our total revenue increased by $114,843, or 3.46%, to $3,438,124 for the three months ended September 30, 2023 from $3,323,281 for the three months ended September 30, 2022. Such increase was primarily due to an increase in revenue from the healthcare segment. The financial services segment generates revenue through the provision of tax resolution services to individuals and business owners. Revenue from the financial services segment decreased by $187,608, or 85.33%, to $32,264 for the three months ended September 30, 2023 from $219,872 for the three months ended September 30, 2022. Such decrease was primarily due to the loss of sales leads from the discontinued service with Optima Tax Relief, which affected the significant revenue reduction in the tax resolution business. The healthcare segment generates revenue through a full range of diagnostic and surgical services. Revenue from the healthcare services segment increased by $302,451, or 9.75%, to $3,405,860 for the three months ended September 30, 2023 from $3,103,409 for the three months ended September 30, 2022. Such increase was primarily due to increased patients and Personal Injury Protection (PIP) services. Cost of sales . Our total cost of sales decreased by $577,729 or 50.91%, to $557,028 for the three months ended September 30, 2023 from $1,134,757 for the three months ended September 30, 2022. Such a decrease was primarily due to a decrease in contractor services from the healthcare segment and terminated employees in the financial services segment due to the decreased revenue from financial service segment. As a percentage of revenue, our total cost of sales was 16.20% and 34.15% for the three months ended September 30, 2023 and 2022, respectively. Cost of sales for the financial services segment consists of advertising, contract labor and merchant fees. Cost of sales for the financial services segment decreased by $34,359, or 85.98%, to $5,604 for the three months ended September 30, 2023 from $39,963 for the three months ended September 30, 2022. As a percentage of financial services revenue, cost of sales was 0.16% and 1.20% for the three months ended September 30, 2023 and 2022, respectively. Such a decrease was generally in line with the decrease in revenue from this segment. Cost of sales for the healthcare segment consists of surgical center fees, physician and professional fees, salaries and wages and medical supplies. Cost of sales from the healthcare services segment decreased by $543,370, or 49.63%, to $551,424 for the three months ended September 30, 2023 from $1,094,794 for the three months ended September 30, 2022. As a percentage of healthcare revenue, cost of sales was 16.04% and 32.94% for the three months ended September 30, 2023 and 2022, respectively. This decrease was due to decreased surgical and laboratory contracted services. Gross profit . As a result of the foregoing, our total gross profit increased by $692,572, or 31.65%, to $2,881,096 for the three months ended September 30, 2023 from $2,188,524 for three months ended September 30, 2022. Our total gross profit (percent of revenue) was 83.80% and 65.85% for September 30, 2023 and 2022, respectively. Gross profit for the financial services segment decreased by $153,249, or 85.18%, to $26,660 for the three months ended September 30, 2023 from $179,909 for the three months ended September 30, 2022. Gross profit (percent of revenue) for the financial services segment was 82.63% and 81.82% for the three months ended September 30, 2023 and 2022, respectively. Gross profit for the healthcare services segment increased by $845,821, or 42.11%, to $2,854,436 for the three months ended September 30, 2023 from $2,008,615 for the three months ended September 30, 2022. Gross profit (percent of revenue) for the healthcare segment was 83.81% and 64.72% for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense . Our depreciation expense was $3,365, or 0.10% of revenue, for the three months ended September 30, 2023, as compared to $5,783, or 0.17% of revenue, for the three months ended September 30, 2022. Selling, general and administrative expenses . Our selling, general and administrative expenses consist primarily of accounting, auditing, legal and public reporting expenses, personnel expenses, including employee salaries and bonuses plus related payroll taxes, advertising expenses, professional advisor fees, bad debts, rent expense, insurance and other expenses incurred in connection with general operations. Our selling, general and administrative expenses decreased by $77,281, or 11.28%, to $607,745 for the three months ended September 30, 2023 from $685,026 for the three months ended September 30, 2022. As a percentage of revenue, our selling, general and administrative expenses were 17.68% and 20.61% for the three months ended September 30, 2023 and 2022, respectively. Such decrease was primarily due to the significant terminated employees in the financial services segment due to the decreased revenue and decreased laboratory fees and travel expense in our healthcare services business. 44 Total other income (expense) . We had $288,466 in total other expense, net, for the three months ended September 30, 2023, as compared to other expense, net, of $2,126,384 for the three months ended September 30, 2022. Other expenses, net, for the three months ended September 30, 2023 consisted of interest expense and finance charges of $226,418, amortization of debt discounts of $46,048, financing penalties and fees of $15,000 and conversion costs of $1,000. Other expense, net, for the three months ended September 30, 2022, consisted of interest expense and finance charges of $3,430,785 and amortization of debt discounts of $92,868, offset by gain on forgiveness of debt of $1,397,271. Discontinued operations . For the three months ended September 30, 2023 and 2022, we recorded a gain from discontinued operations of $0 and $363,895, respectively. Net income (loss) . As a result of the cumulative effect of the factors described above, our net income was $1,981,520 for the three months ended September 30, 2023, as compared to net loss of $264,774 for the three months ended September 30, 2022, an increase of $2,246,294, or 848.38%. Comparison of Nine Months Ended September 30, 2023 and 2022 The following table sets forth key components of our results of operations during the nine months ended September 30, 2023 and 2022, both in dollars and as a percentage of our revenue. September 30, 2023 September 30, 2022 Amount % of Revenue Amount % of Revenue Revenue Financial services $ 304,967 3.12 % $ 1,156,729 12.42 % Healthcare 9,476,764 96.88 % 8,154,934 87.58 % Total revenue 9,781,731 100.00 % 9,311,663 100.00 % Cost of sales Financial services 53,730 0.55 % 365,185 3.92 % Healthcare 2,589,407 26.47 % 2,982,418 32.03 % Total cost of sales 2,643,137 27.02 % 3,347,603 35.95 % Gross profit 7,138,594 72.98 % 5,964,060 64.05 % Operating expenses Depreciation expense 11,365 0.12 % 17,349 0.19 % Selling, general and administrative 2,437,511 24.92 % 2,625,503 28.20 % Total operating expenses 2,448,876 25.04 % 2,642,852 28.38 % Income from operations 4,689,718 47.94 % 3,321,208 35.67 % Other income (expense) Other income 205 0.00 % 6 0.00 % Gain on forgiveness of debt 390 0.00 % 1,397,271 15.01 % Interest expense and finance charge (1,766,041 ) (18.05)% (6,686,772 ) (71.81)% Conversion cost (3,000 ) (0.03)% – – Penalties and fees (45,000 ) (0.46)% – – Amortization of debt discounts (94,664 ) (0.97)% (249,120 ) (2.68)% Total other expense, net (1,908,110 ) (19.51)% (5,538,615 ) (47.93)% Net income (loss) before discontinued operations 2,781,608 28.44 % (2,217,407 ) (23.81)% Gain from discontinued operations – – 328,353 3.53 % Net income (loss) $ 2,781,608 28.44 % $ (1,889,054 ) (20.29)% 45 Revenue . Our total revenue increased by $470,068, or 5.05%, to $9,781,731 for the nine months ended September 30, 2023 from $9,311,663 for the nine months ended September 30, 2022. Such increase was primarily due to an increase in revenue from the healthcare segment. Revenue from the financial services segment decreased by $851,762, or 73.64%, to $304,967 for the nine months ended September 30, 2023 from $1,156,729 for the nine months ended September 30, 2022. Such decrease was primarily due to the loss of sales leads from the discontinued service with Optima Tax Relief, which affected the significant revenue reduction in the tax resolution business. Revenue from the healthcare services segment increased by $1,321,830, or 16.21%, to $9,476,764 for the nine months ended September 30, 2023 from $8,154,934 for the nine months ended September 30, 2022. Such an increase was primarily due to increased Personal Injury Protection (PIP) services. Cost of sales . Our total cost of sales decreased by $704,466 or 21.04%, to $2,643,137 for the nine months ended September 30, 2023 from $3,347,603 for the nine months ended September 30, 2022. Such decrease was primarily due to a decrease from both financial service segment and healthcare segment. As a percentage of revenue, our total cost of sales was 27.02% and 35.95% for the nine months ended September 30, 2023 and 2022, respectively. Cost of sales for the financial services segment decreased by $311,455, or 85.29%, to $53,730 for the nine months ended September 30, 2023 from $365,185 for the nine months ended September 30, 2022. As a percentage of financial services revenue, cost of sales was 0.55% and 3.92% for the nine months ended September 30, 2023 and 2022, respectively. Such a decrease was generally in line with the decrease in revenue from this segment. Cost of sales from the healthcare services segment decreased by $393,011, or 13.18%, to $2,589,407 for the nine months ended September 30, 2023 from $2,982,418 for the nine months ended September 30, 2022. As a percentage of healthcare revenue, cost of sales was 26.47% and 32.03% for the nine months ended September 30, 2023 and 2022, respectively. This decrease was due to decreased surgical contracted services and laboratory fees. Gross profit . As a result of the foregoing, our total gross profit increased by $1,174,534, or 19.69%, to $7,138,594 for the nine months ended September 30, 2023 from $5,964,060 for the nine months ended September 30, 2022. Our total gross profit (percent of revenue) was 72.98% and 64.05% for the nine months ended September 30, 2023 and 2022, respectively. Gross profit for the financial services segment decreased by $540,307, or 68.26%, to $251,237 for the nine months ended September 30, 2023 from $791,544 for the nine months ended September 30, 2022. Gross profit (percent of revenue) for the financial services segment was 82.38% and 68.43% for the nine months ended September 30, 2023 and 2022, respectively. Gross profit for the healthcare services segment increased by $1,714,841, or 33.15%, to $6,887,357 for the nine months ended September 30, 2023 from $5,172,516 for the nine months ended September 30, 2022. Gross profit (percent of revenue) for the healthcare segment was 72.68% and 63.43% for the nine months ended September 30, 2023 and 2022, respectively. Depreciation expense . Our depreciation expense was $11,365, or 0.12% of revenue, for the nine months ended September 30, 2023, as compared to $17,349, or 0.19% of revenue, for the nine months ended September 30, 2022. Selling, general and administrative expenses . Our selling, general and administrative expenses decreased by $187,992, or 7.16%, to $2,437,511 for the nine months ended September 30, 2023 from $2,625,503 for the nine months ended September 30, 2022. As a percentage of revenue, our selling, general and administrative expenses were 24.92% and 28.20% for the nine months ended September 30, 2023 and 2022, respectively. Such decrease was primarily due to the significant terminated employees in the financial services segment due to the decreased revenue and decreased laboratory fees and travel expense into our healthcare services business. Total other income (expense) . We had $1,908,110 in total other expense, net, for the nine months ended September 30, 2023, as compared to other expense, net, of $5,538,615 for the nine months ended September 30, 2022. Other expense, net, for the nine months ended September 30, 2023 consisted of interest expense and finance charges of $1,766,041, amortization of debt discounts of $94,664, financing penalties and fees of $45,000 and conversion costs related to convertible note of $3,000, offset by gain on forgiveness of debt of $390 and other income of $205. Other expenses, net, for the nine months ended September 30, 2022 consisted of interest expense and finance charges of $6,686,772 and amortization of debt discounts of $249,120, offset by gain on forgiveness of debt of $1,397,271 and other income of $6. 46 Discontinued operations . For the nine months ended September 30, 2023 and 2022, we recorded a gain from discontinued operations of $0 and $328,353, respectively. Net income (loss) . As a result of the cumulative effect of the factors described above, our net income was $2,781,608 for the nine months ended September 30, 2023, as compared to net loss of $1,889,054 for the nine months ended September 30, 2022, an increase of $4,670,662, or 247.25%. Liquidity and Capital Resources As of September 30, 2023, we had $181,343 in cash. To date, we have financed our operations primarily through revenue generated from operations, sales of securities, advances from stockholders and third-party and related party debt. We believe, based on our operating plan, that current working capital and current and expected additional financing should be sufficient to fund operations and satisfy our obligations as they come due for at least one year from the financial statement issuance date. However, additional funds from new financing and/or future equity raises are required for continued operations and to execute our business plan and our strategy of acquiring additional businesses. The funds required to sustain operations ranges between $600,000 to $1 million and additional funds execute our business plan will depend on the size, capital structure and purchase price consideration that the seller of a target business deems acceptable in a given transaction. The amount of funds needed to execute our business plan also depends on what portion of the purchase price of a target business the seller of that business is willing to take in the form of seller notes or our equity or equity in one of our subsidiaries. Given these factors, we believe that the amount of outside additional capital necessary to execute our business plan on the low end (assuming target company sellers accept a significant portion of the purchase price in the form of seller notes or our equity or equity in one of our subsidiaries) ranges between $5 million to $7 million. If, and to the extent, that sellers are unwilling to accept a significant portion of the purchase price in seller notes and equity, then the cash required to execute our business plan could be as much as $10 million. We intend to raise capital for additional acquisitions primarily through equity and debt financing. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. There is no guarantee that we will be able to acquire additional businesses under the terms outlined above. Summary of Cash Flow The following table provides detailed information about our net cash flow for the nine months ended September 30, 2023 and 2022. Nine Months Ended September 30, 2023 2022 Net cash used in operating activities from continuing operations $ (603,392 ) $ (414,616 ) Net cash from discontinued operations – (328,353 ) Net cash provided by financing activities 557,933 407,480 Net change in cash (45,459 ) (335,489 ) Cash and cash equivalents at beginning of period 226,802 595,987 Cash and cash equivalents at end of period $ 181,343 $ 260,498 Our net cash used in operating activities from continuing operations was $603,392 for the nine months ended September 30, 2023, as compared to $414,616 for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, our net income of $2,781,608, an increase in accounts payable and accrued expenses of $687,135, an increase in accrued officer’s compensation of $514,000, an increase in accrued interest of $380,020, an increase in bad debt expense of $270,000, an increase in amortization of debt discount of $94,664, and an increase in fair value settled upon conversion of $141,406, offset by a decrease in accounts receivable of $5,509,958, were the primary drivers of our net cash used in operating activities. For the nine months ended September 30, 2022, our net loss of $1,889,054, a decrease in accounts receivable of $782,494, a decrease in gain on refinancing debt of $1,397,271 and a decrease in accrued interest of $219,082, offset by increase in accounts payable and accrued expense of $319,232, an increase in accrued officers’ compensation of $500,000, an increase in capital stock to be issued of $545,333, an increase of the amortization of debt discount of $249,120, an increase of non-cash items of $324,563 and loss on finance penalties and fees of $1,923,916, were the primary drivers of our net cash used in operating activities. 47 We had no investing activities for the nine months ended September 30, 2023 and 2022. Our net cash provided by financing activities was $557,933 for the nine months ended September 30, 2023, as compared to $407,480 for the nine months ended September 30, 2022. Net cash provided by financing activities for the nine months ended September 30, 2023 consisted of proceeds from convertible notes payable of $421,375, proceeds from related party notes payable of $129,220 and proceeds from line of credit of $44,254, offset by repayments of line of credit and SBA loan of $30,584 and payment of related party notes payable of $6,332. Net cash provided by financing activities for the nine months ended September 30, 2022 consisted of proceeds from convertible notes payable of $729,083 and proceeds from related party notes payable of $5,065, offset by preferred stock dividends of $310,522, repayment of convertible notes payable of $5,908, payment of related party notes payable of $7,948 and payment of the SBA loan described below of $2,290. Convertible Notes As of September 30, 2023, we had convertible debt outstanding net of amortized debt discount of $3,952,581. During the nine months ended September 30, 2023, we received net proceeds of $421,375 from convertible notes and converted $87,460 of convertible debt, $12,073 in accrued interest and $3,000 in conversion cost into 274,682,378 shares of 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. For the nine months ended September 30, 2023, we recorded amortization of debt discounts of $94,664. The following is a schedule of convertible notes payable outstanding as of September 30, 2023: Note # Issuance Date Maturity Date Principal Balance Accrued Interest Unamortized Debt Discount 9 09/12/2016 09/12/2017 $ 50,080 $ 21,648 $ – 10 01/24/2017 1/24/2018 55,000 78,103 – 10-1 02/10/2023 02/10/2024 50,000 4,767 – 10-2 03/30/2023 03/30/2024 25,000 1,890 – 10-3 08/11/2023 08/11/2024 25,000 514 – 29-2 11/08/2019 11/08/2020 36,604 26,731 – 31 08/28/2019 08/28/2020 – 8,385 – 37-1 09/03/2020 06/30/2021 113,667 59,059 – 37-2 11/02/2020 08/31/2021 113,167 57,746 – 37-3 12/29/2020 09/30/2021 113,166 56,710 – 38 02/09/2021 02/09/2022 18,540 35,181 – 39 04/26/2021 04/26/2022 168,866 67,470 – 40-1 09/22/2022 09/22/2023 2,600,000 255,499 – 40-2 11/04/2022 11/04/2023 68,666 6,208 4,327 40-3 11/28/2022 11/28/2023 68,667 5,756 4,327 40-4 12/21/2022 12/21/2023 68,667 5,323 4,327 40-5 01/24/2023 01/24/2024 90,166 6,151 5,965 40-6 03/21/2023 03/21/2024 139,166 7,359 9,242 40-7 6/5/2023 6/5/2024 139,166 4,461 24,913 40-8 6/13/2023 6/13/2024 21,167 632 3,624 40-9 7/19/2023 7/19/2024 35,500 710 7,100 40-10 7/24/2023 7/24/2024 14,000 261 2,849 41 8/25/2023 8/25/2024 5,000 49 – $ 4,019,255 $ 710,613 $ 66,674 48 Note 9 . On September 12, 2016, we 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 10-3 . On January 24, 2017, we 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, we executed a second tranche under this note in the principal amount of $50,000 (Note 10-1). On March 30, 2023, we executed a third tranche under this note in the principal amount of $25,000 (Note 10-2). On August 11, 2023, we executed a fourth tranche under this note in the principal amount of $25,000 (Note 10-3). Notes 10-1, 10-2 and 10-3 accrue interest at a rate of 15% per annum. Note 29-2 . On May 10, 2019, we 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 $62,367.12, 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, we 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, we 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, we 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, we 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, we 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, we issued a convertible promissory note in the principal amount $103,500, which matured on February 9, 2022. Note 38 is currently in default and accrues interest at a default interest rate of 22% per annum. Note 39 . On April 26, 2021, we 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. Note 40-1 through 40-10 . On September 22, 2022, we 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, we 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, we 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, we 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, we executed a fifth tranche under this note in the principal amount of $90,166, less an original issue discount and fee of $25,166 (Note 40-5). On March 21, 2023, we executed a sixth tranche under this note in the principal amount of $136,666, less an original issue discount and fee of $39,166 (Note 40-6). On June 5, 2023, we executed a seventh tranche under this note in the principal amount of $136,667, less original issue discount and fee of $39,167 (Note 40-7). On June 13, 2023, we executed an eighth tranche under this note in the principal amount of $21,167, less original issue discount and fee of $5,167 (Note 40-8). On July 19, 2023, we executed a ninth tranche under this note in the principal amount of $35,500, less an original issue discount and fee of $8,875 (Note 40-9). On July 24, 2023, we executed a tenth tranche under this note in the principal amount of $14,000, less an original issue discount and fee of $3,500 (Note 40-10). All of the Note 40 tranches mature in one year from the note issuance date and accrue interest at a rate of 10% per annum. 49 Notes 41 On August 25, 2023, we issued a twelve-month convertible promissory note in the principal amount of $5,000 to our CEO for our operation expenses. The rate of interest is 10% per annum. Lines of Credit In February 2018, we entered into a revolving line of credit with a financial institution for $92,500 which was personally guaranteed by the manager of Platinum Tax. The loan accrues interest at 11.95% as of September 30, 2023. As of September 30, 2023, the outstanding balance was $8,622. On September 29, 2023, we entered into a two-year revolving purchase and security agreement with DML HC Series, LLC to sell Nova’s accounts receivables for a revolving financing up to a maximum advance amount of $4.5 million. As of September 30, 2023, we had no outstanding balance against the revolving receivable line of credit. Small Business Administration Loan On June 2, 2020, we obtained a loan from the U.S. Small Business Administration, or SBA, in the principal amount of $150,000 with an interest rate of 3.75% and a maturity date of June 2, 2050. We reclassified $5,723 of accrued interest to the principal amount for the nine months ended September 30, 2023. The principal balance and accrued interest at September 30, 2023 was $149,655 and $0, respectively. Debenture On March 12, 2009, we issued a debenture in the principal amount of $20,000. The debenture bears interest at 12% per annum and matured on September 12, 2009. The balance of the debenture was $10,989 at September 30, 2023 and the accrued interest was $7,215. We assigned all of our receivables from consumer activations of our rewards program as collateral on this debenture. Related Party Loans From time to time, the previous owner and current manager of Platinum Tax loaned funds to Platinum Tax to cover short term operating needs. The amount owed as of September 30, 2023 was $159,662. In connection with the acquisition of Edge View on July 16, 2014, we assumed amounts due to previous owners who are current managers of Edge View. These amounts are due on demand and do not bear interest. The balance of these amounts are $4,979 as of September 30, 2023. We have obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of September 30, 2023, we owed the Chairman $123,442. 50 Critical Accounting Policies The preparation of our unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission, or the SEC, on September 30, 2023. Off Balance Sheet Arrangements As of September 30, 2023, we had no off-balance sheet arrangements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.