Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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 ability to maintain 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, 2025, or the Form 10-K. 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.

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

Our company is a targeted healthcare holding company dedicated to acquiring and building middle-market niche healthcare clinics, primarily in orthopedics, spine care, and pain management. Our partnership-driven culture emphasizes service excellence, teamwork, accountability, and performance.

We are focused on the acquisition of orthopedic and related modality practices with strong organic growth plans that are materially cash generative to maximize value and provide greater coverage for our patients, and diversification and risk mitigation for our stockholders.

All current revenue is derived from Nova Ortho and Spine, LLC, or Nova, which was acquired on May 31, 2021. It operates a group of regional primary specialty and ancillary care facilities across Florida and Georgia that provide traumatic injury victims with primary care evaluations, interventional pain management, and specialty consultation services, including emergency medical condition assessments. We currently primarily focus on plaintiff-related care and provide healthcare to uninsured patients. Our patients have typically been in an accident and have filed a lawsuit as a plaintiff against the defendant who is allegedly responsible for the accident as the result of negligence or another tort. 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.

We also own a real estate company, Edge View Properties, Inc., or Edge View, which we acquired on July 16, 2014. Edge View 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. Management does not currently have any plans to develop this property and expects to eventually sell the property.

All of our operations are conducted through, and our income derived from, our two subsidiaries.

Recent Developments

Related Party Note Payable

On October 1, 2026, the Company issued an unsecured promissory note in the principal amount of $175,003 to Daniel Thompson, the Company's former Chairman of the Board and a significant stockholder, to resolve outstanding accrued compensation obligations. The note bears interest at 5% annually and matures October 1, 2028.

Segments

As of September 30, 2026, we had two 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)	Healthcare (Nova)
	(2)	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 two operating segments.

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.

Management uses revenues, cost of sales, operating expenses, and income (loss) before taxes to evaluate and measure its subsidiaries' success. To help the segments achieve optimal operating performance, management retains the prior owners of the subsidiaries and allows them to do what they do best, which is run the business. Additionally, management monitors key metrics primarily revenues and income from operations in order to allocate resources accordingly.

Results of Operations

Comparison of Three Months Ended September 30, 2026 and 2025

The following table sets forth key components of our results of operations during the three months ended September 30, 2026 and 2025, both in dollars and as a percentage of our revenue.

		Three Months Ended September 30,
		2026								2025
		Amount				% of Revenue				Amount				% of Revenue
Total revenue		$	1,912,179				100.00%			$	3,058,740				100.00%
Total cost of sales			875,420				45.78%				1,149,161				37.57%
Gross profit			1,036,759				54.22%				1,909,579				62.43%
Operating expenses
Depreciation expense			233				0.01%				762				0.02%
Share-based compensation			369,981				19.35%				41,188				1.35%
Selling, general and administrative			1,203,211				62.92%				1,224,350				40.03%
Total operating expenses			1,573,425				82.28%				1,266,300				41.40%
(Loss) income from operations			(536,666	)			(28.07)%				643,279				21.03%
Other (expense) income
Other expense			(106,593	)			(5.57)%				(20,550	)			(0.67)%
Penalties and fees			(5,500	)			(0.29)%				(1,500	)			(0.05)%
Loss on settlement of debt			(16,498	)			(0.86)%				-				-
Derivative liability loss on issuance and changes in fair value			(50,242	)			(2.63)%				-				-
Interest expense			(2,468,536	)			(129.10)%				(1,765,528	)			(57.72)%
Amortization of debt discounts			(22,516	)			(1.18)%				-				-
Total other expense			(2,669,885	)			(139.63)%				(1,787,578	)			(58.44)%
Net loss		$	(3,206,551	)			(167.69)%			$	(1,144,299	)			(37.41)%

Revenue. For the three months ended September 30, 2026 and 2025, all our revenue was generated by our healthcare segment, which generates revenue through a full range of diagnostic and surgical services. Our total revenue decreased by $1,146,561, or 37.48%, to $1,912,179 for the three months ended September 30, 2026 from $3,058,740 for the three months ended September 30, 2025. The decline in revenue was mainly attributable to the decrease in the realization rate on patient case claim settlements as well as a decrease in procedures from the third quarter of 2025. The realization rate decreased to 40% as of the third quarter of 2026, compared with 42% as of the third quarter of 2025.

Cost of sales. Our cost of sales consists of surgical center and laboratory fees, physician and professional fees, salaries and wages and medical supplies. Our total cost of sales decreased by $273,741, or 23.82%, to $875,420 for the three months ended September 30, 2026 from $1,149,161 for the three months ended September 30, 2025. As a percentage of revenue, cost of sales increased from 37.57% for the three months ended September 30, 2025 to 45.78% for the three months ended September 30, 2026. The increase is attributable to a decrease in revenue as noted above, which more than offset decreases in personnel related expenses and laboratory fees.

Gross profit. As a result of the foregoing, our total gross profit decreased by $872,820, or 45.71%, to $1,036,759 for the three months ended September 30, 2026 from $1,909,579 for the three months ended September 30, 2025. Our total gross margin (as a percentage of revenue) decreased from 62.43% for the three months ended September 30, 2025 to 54.22% for the three months ended September 30, 2026.

Depreciation expense. Our depreciation expense was $233, or 0.01% of revenue, for the three months ended September 30, 2026, as compared to $762, or 0.02% of revenue, for the three months ended September 30, 2025.

Share-based compensation expense. Share-based compensation expense was $369,981 and $41,188 for the three months ended September 30, 2026 and 2025, respectively. Share-based compensation expense in both 2026 and 2025 consisted of expense related to the issuance of common stock to our board of directors, officers and employees, our investor relations firm and other consultants for services provided.

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, professional advisor fees, credit losses, rent expense, insurance and other expenses incurred in connection with general operations. Our selling, general and administrative expenses decreased by $21,139, or 1.73%, to $1,203,211 for the three months ended September 30, 2026 from $1,224,350 for the three months ended September 30, 2025. As a percentage of revenue, our selling, general and administrative expenses were 62.92% and 40.03% for the three months ended September 30, 2026 and 2025, respectively. The decrease in selling, general and administrative expenses was primarily attributable to decreases in professional fees, rent and general administration and office costs, offset by increases in the allowance for credit loss, billing costs and payroll related costs.

Total other (expense) income. We had $2,669,885 in total other expense, net, for the three months ended September 30, 2026, as compared to $1,787,578 in total other expense, net, for the three months ended September 30, 2025. Total other expense, net, for the three months ended September 30, 2026 consisted of interest expense of $2,468,536, a $106,593 loss on deferred offering costs expensed during the quarter, a $50,242 loss on issuance or change in value of the derivative liability, a $16,498 loss on the settlement of debt, amortization of debt discounts of $22,516 and $5,500 in conversion costs. Other expense, net, for the three months ended September 30, 2025 consisted of interest expense of $1,765,528, other expense of $20,550 and penalties and fees of $1,500. The increase in interest expense is primarily attributable to the increase in initial and incremental fees charged on the number of existing purchases and claims under the line of credit outstanding as described below. The convertible notes derivative liabilities are remeasured at fair value each reporting period using a Monte Carlo simulation model. The commitment shares derivative liability was remeasured at settlement using a Black-Scholes option-pricing model. Changes in assumptions, as well as changes in our stock price during the period, resulted in a decrease in the estimated fair value of the derivative liability and the corresponding loss.

Net loss. As a result of the cumulative effect of the factors described above, our net loss was $3,206,551 for the three months ended September 30, 2026, as compared to $1,144,299 for the three months ended September 30, 2025, an increase in loss of $2,062,252, or 180.22%.

Comparison of Nine Months Ended September 30, 2026 and 2025

The following table sets forth key components of our results of operations during the nine months ended September 30, 2026 and 2025, both in dollars and as a percentage of our revenue.

		Nine Months Ended September 30,
		2026								2025
		Amount				% of Revenue				Amount				% of Revenue
Total revenue		$	6,294,016				100.00%			$	8,763,314				100.00%
Total cost of sales			2,756,887				43.80%				3,317,943				37.86%
Gross profit			3,537,129				56.20%				5,445,371				62.14%
Operating expenses
Depreciation expense			1,079				0.02%				4,890				0.06%
Loss on disposal of fixed assets			-				-				12,593				0.14%
Share-based compensation			1,401,116				22.26%				138,688				1.58%
Selling, general and administrative			3,727,402				59.22%				3,492,310				39.85%
Total operating expenses			5,129,597				81.50%				3,648,481				41.63%
(Loss) income from operations			(1,592,468	)			(25.30)%				1,796,890				20.50%
Other (expense) income
Other expense			(96,512	)			(1.53)%				(22,147	)			(0.25)%
Penalties and fees			(5,500	)			(0.09)%				(1,500	)			(0.02)%
Loss on settlement of debt			(16,498	)			(0.26)%				-				-
Derivative liability loss on issuance and changes in fair value			(493,014	)			(7.83)%				-				-
Interest expense			(6,516,692	)			(103.54)%				(4,594,714	)			(52.43)%
Amortization of debt discounts			(56,847	)			(0.90)%				-				-
Total other expense			(7,185,063	)			(114.16)%				(4,618,361	)			(52.70)%
Net loss		$	(8,777,531	)			(139.46)%			$	(2,821,471	)			(32.20)%

Revenue. For the nine months ended September 30, 2026 and 2025, all our revenue was generated by our healthcare segment, which generates revenue through a full range of diagnostic and surgical services. Our total revenue decreased by $2,469,298, or 28.18%, to $6,294,016 for the nine months ended September 30, 2026 from $8,763,314 for the nine months ended September 30, 2025. The decrease in revenue is mainly attributable to a decrease in procedures in the nine months of 2026 from the first nine months of 2025 as well as a lower implicit realization rate on patient case claim settlements. The realization rate declined from 44% at the beginning of 2025 to 42% during the first nine months of 2025, and further decreased to 40% as of September 30, 2026.

Cost of sales. Our total cost of sales decreased by $561,056, or 16.91%, to $2,756,887 for the nine months ended September 30, 2026 from $3,317,943 for the nine months ended September 30, 2025. As a percentage of revenue, cost of sales increased from 37.86% for the nine months ended September 30, 2025 to 43.80% for the nine months ended September 30, 2026. The increase is attributable to a decrease in revenue as noted above, which more than offset decreases in personnel related expenses and laboratory fees.

Gross profit. As a result of the foregoing, our total gross profit decreased by $1,908,242, or 35.04%, to $3,537,129 for the nine months ended September 30, 2026 from $5,445,371 for the nine months ended September 30, 2025. Our total gross margin (as a percentage of revenue) decreased from 62.14% for the nine months ended September 30, 2025 to 56.20% for the nine months ended September 30, 2026.

Depreciation expense. Our depreciation expense was $1,079, or 0.02% of revenue, for the nine months ended September 30, 2026, as compared to $4,890, or 0.06% of revenue, for the nine months ended September 30, 2025.

Loss on disposal of fixed assets. For the nine months ended September 30, 2025, we recognized a loss on disposal of fixed assets of $12,593, which resulted from the identification of certain medical equipment that was no longer functional in our medical facilities.

Share-based compensation expense. Share-based compensation expense was $1,401,116 and $138,688 for the nine months ended September 30, 2026 and 2025, respectively. Share-based compensation expense in both 2026 and 2025 consisted of expense related to the issuance of common stock to our board of directors, officers and employees, our investor relations firm and other consultants for services provided.

Selling, general and administrative expenses. Our selling, general and administrative expenses increased by $235,092, or 6.73%, to $3,727,402 for the nine months ended September 30, 2026 from $3,492,310 for the nine months ended September 30, 2025. As a percentage of revenue, our selling, general and administrative expenses were 59.22% and 39.85% for the nine months ended September 30, 2026 and 2025, respectively. The increase in selling, general and administrative expenses was primarily attributable to an increase in professional fees, offset slightly by lower rent expense and travel expenses.

Total other (expense) income. We had $7,185,063 in total other expense, net, for the nine months ended September 30, 2026, as compared to $4,618,361 in total other expense, net, for the nine months ended September 30, 2025. Total other expense, net, for the nine months ended September 30, 2026 consisted of interest expense of $6,516,692, a $493,014 loss from issuance or change in fair value of the derivative liability, other expense of $96,512, amortization of debt discounts of $56,847, a loss on the settlement of debt of $16,498 and conversion costs of $5,500. Other expense, net, for the nine months ended September 30, 2025 consisted of interest expense of $4,594,714, other expense of $22,147 and penalties and fees of $1,500. The increase in interest expense is primarily attributable to the increase in initial and incremental fees charged on the number of existing purchases and claims under the line of credit described below. The derivative liability is remeasured at fair value each reporting period using a Monte Carlo simulation model. Changes in assumptions, as well as changes in our stock price during the period, resulted in a decrease in the estimated fair value of the derivative liability and the corresponding loss.

Net loss. As a result of the cumulative effect of the factors described above, our net loss was $8,777,531 for the nine months ended September 30, 2026, as compared to $2,821,471 for the nine months ended September 30, 2025, an increase in loss of $5,956,060, or 211.10%.

Liquidity and Capital Resources

As of September 30, 2026, we had $584,319 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.

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. We have sustained operating losses since inception and have an accumulated deficit of $89,117,673 as of September 30, 2026 and have a negative cash flow from operations of $235,975 for the nine months ended September 30, 2026. These factors raise a substantial doubt about our company's ability to continue as a going concern. 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 we are unable to continue as a going concern.

The ability of our 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 us to fund our cash flow shortfalls and pursue new acquisitions. However, there can be no assurance that we 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 us. Furthermore, the sale of additional equity securities could result in dilution to our stockholders and 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. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future. Should we not be able to raise sufficient funds, it may cause cessation of operations.

Summary of Cash Flow

The following table provides detailed information about our net cash flow for the nine months ended September 30, 2026 and 2025.

		Nine Months Ended September 30,
		2026				2025
Net cash used in operating activities		$	(235,975	)		$	(2,463,300	)
Net cash provided by financing activities			501,759				1,507,148
Net change in cash			265,784				(956,152	)
Cash at beginning of period			318,535				1,188,185
Cash at end of period		$	584,319			$	232,033

Our net cash used in operating activities was $235,975 for the nine months ended September 30, 2026, as compared to $2,463,300 for the nine months ended September 30, 2025. The primary drivers of our net cash used in operating activities for the nine months ended September 30, 2026 are our net loss of $8,777,531 and an increase of $1,409,255 in accounts receivable, offset by an increase of $6,524,189 in interest expense included in the line of credit, the loss on issuance or change in value of the derivative liability of $493,014, stock compensation expense or shares issued for services rendered of $1,401,116, an increase of $207,097 in accounts payable and other accrued expenses, an increase in accrued interest of $273,494, and an increase in accrued related parties compensation expense of $939,729. For the nine months ended September 30, 2025, the primary drivers of our net cash used in operating activities were our net loss of $2,821,471 and an increase of $4,878,236 in accounts receivable, offset by an increase of $4,292,471 in interest expense included in the line of credit balance.

We monitor outstanding patient cases as they develop through ongoing discussions with attorneys, doctors and our third-party medical billing company and additionally monitor our settlement realization rates over time. We currently have one primary method of accelerating our cash settlement of our revenue and related accounts receivable through accepting lower settlement amounts during the final negotiations of the settlement, which is coordinated through our third-party medical billing company. When our third-party medical billing company is provided with a settlement amount of 49% of gross charges or greater they will accept. When presented with a lower amount we will discuss the reasons for the reduced rate and negotiate a higher rate. Shortening our negotiation time frame will typically result in a lower settlement realization rate, but will accelerate the cash settlement of the outstanding accounts receivable. We began employing this method in 2024, which reduced our settlement realization rate as described below. We may employ this method in the future. The most recent average realization time for accounts receivable was approximately 12 to 24 months from the initial date of service. Typically, a patient will have a series of dates of service over an average of 12 to 16 months.

We periodically evaluate our estimated settlement realization rate at which revenue is recorded in accordance with ASC 606. This includes a monthly review of historical data and settlement realization rates, along with estimates of current and pending settlements through ongoing discussions with attorneys, doctors and the Company's third-party medical billing company in order to determine the variable consideration under ASC 606 and the net transaction price. For the nine months ended September 30, 2026 and 2025, we realized a 40% and 42% average settlement rate of our gross billed charges, respectively.

We had no investing activities for the nine months ended September 30, 2026 and 2025.

Our net cash provided by financing activities was $501,759 for the nine months ended September 30, 2026, as compared to $1,507,148 for the nine months ended September 30, 2025. Net cash provided by financing activities for the nine months ended September 30, 2026 consisted of proceeds from the issuance of convertible notes totaling $1,113,889 and proceeds from sales of common stock under our equity line of credit of $30,000, offset by net payments on the line of credit of $294,605, payments of debt issuance costs of $195,089, payment of note payable of $110,000, payment of a convertible note of $35,357, repayments of the Small Business Administration loan described below of $6,579, and a payment of $500 to a related party. Net cash provided by financing activities for the nine months ended September 30, 2025 consisted of proceeds from line of credit of $1,788,727, offset by the payment of note payable of $225,000, payment of preferred stock dividends of $50,000 and repayments of the Small Business Administration loan described below of $6,579.

Convertible Notes

As of September 30, 2026, we had convertible debt outstanding, at carrying value, of $240,205. During the nine months ended September 30, 2026, we received $918,800 in net proceeds from convertible notes, issued an aggregate of 1,487,768 shares of our common stock upon conversion of $341,388 in principal and interest and $5,500 in conversion cost on various convertible notes, and settled accrued interest totaling $22,916 in 12,006 shares of our common stock. Debt discounts associated with the convertible debt at September 30, 2026 were $873,327. Please see Note 8. Convertible Notes Payable to the accompanying unaudited condensed consolidated financial statements for a description of the terms of our convertible debt.

Debenture

On March 12, 2009, we issued a debenture in the principal amount of $20,000. The debenture bore interest at 12% per year and matured on September 12, 2009. The balance of the debenture was $10,989 at September 30, 2026 and the accrued interest was $11,174. We assigned all our receivables from consumer activations of the rewards program as collateral on this debenture.

Small Business Administration Loans

On June 2, 2020, we obtained a loan from the Small Business Administration of $150,000 at an interest rate of 3.75% with a maturity date of June 2, 2050. The principal balance and accrued interest at September 30, 2026 was $140,988 and $0, respectively.

Line of Credit

We maintain a revolving purchase and security agreement with DML HC Series, LLC, or DML, which is accounted for as a secured borrowing. Under the facility, eligible accounts receivable are pledged as collateral, and advances of up to 70% of eligible receivables may be requested. Although the credit agreement currently provides for a maximum advance amount of $23,000,000, the lender has agreed to waive this maximum advance limit while the parties negotiate an amendment to the facility. The related accounts receivable remain recorded as assets on our balance sheet, and the amounts drawn are recorded as a liability under 'Line of Credit' until repaid. We are required to repurchase or replace certain ineligible or uncollected receivables. Collections on pledged receivables are remitted directly to the lender and applied against outstanding borrowings. The revolving purchase and security agreement includes discounts recorded as interest expense on each funding and matures on September 28, 2028. As of September 30, 2026, we had an outstanding balance of $23,439,491 against the revolving receivable line of credit and accrued interest of $730,107.

Related Party Loans

On June 30, 2026, we issued an unsecured promissory note in the principal amount of $233,333 to Daniel Thompson, our former Chairman of the Board and a significant stockholder, to resolve outstanding accrued compensation obligations. The note bears interest at 5% annually and matures on June 30, 2028. For the nine months ended September 30, 2026, we paid $4,387 in cash interest payments and as of September 30, 2026, had an outstanding balance of $233,333 on this note and accrued interest of $0.

On March 6, 2026, we entered into a lock-up and compensation resolution agreement with Daniel Thompson to resolve outstanding accrued compensation obligations. Under the agreement, we issued an unsecured promissory note in the principal amount of $116,667 bearing interest at 10% annually, payable interest-only in year one and 50% principal in each of years two and three, with all amounts due within three years. For the nine months ended September 30, 2026, we paid $6,553 in cash interest payments and as of September 30, 2026, had an outstanding balance of $116,667 on this note and accrued interest of $0.

On December 21, 2025, in connection with bonuses earned by certain employees, we issued promissory notes in the aggregate principal amount of $1,085,703, in lieu of cash payment, including a promissory note in the principal amount of $460,000 to Alex Cunningham, our Chairman and Chief Executive Officer, a promissory note in the principal amount of $122,550 to Matthew T. Shafer, our Chief Financial Officer, and a promissory note in the principal amount of $460,000 to Daniel Thompson. These notes bear interest of 5% per annum and matured on June 30, 2026. For the nine months ended September 30, 2026, we paid $16,445 in cash interest payments against these notes. As of September 30, 2026, these loans are in default, had an outstanding balance of $1,085,703 and accrued interest of $47,864.

Contractual Obligations

Our principal commitments consist mostly of obligations under the loans described above.

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 the Form 10-K.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.