10-Q/A: Cardiff Lexington Corporation Files Amended 10-Q/A for Q2 2024, Restating Financials

Cardiff Lexington Corporation has filed an amended 10-Q/A for the quarter ended June 30, 2024, to correct a classification error and respond to SEC comments.

Summary

• Cardiff Lexington Corporation filed an amended 10-Q/A for the quarter ended June 30, 2024, to correct a classification error related to credit loss expense and to address comments from the SEC.
• The company restated its financials, moving credit loss expense to net revenue and adjusting the allowance for credit losses.
• The amendment does not reflect events after August 14, 2024.
• The company's revenue for the three months ended June 30, 2024, was $1,471,643, a decrease from $3,364,506 in the same period of 2023.
• The company's revenue for the six months ended June 30, 2024, was $3,793,775, a decrease from $6,070,905 in the same period of 2023.
• The company experienced a net loss of $131,585 for the three months ended June 30, 2024, compared to a net income of $816,078 for the same period in 2023.
• The company experienced a net loss of $414,689 for the six months ended June 30, 2024, compared to a net income of $800,087 for the same period in 2023.
• The company's cash balance was $3,196,795 as of June 30, 2024, compared to $866,943 as of December 31, 2023.
• The company has a significant accumulated deficit of $69,576,612 as of June 30, 2024.
• The company has a line of credit with a balance of $6,675,746 as of June 30, 2024.
• The company has convertible notes payable of $110,000 as of June 30, 2024.
• The company issued 938,908 shares of series Y senior convertible preferred stock in exchange for certain convertible notes.
• The company has federal and state net operating loss carryforwards of approximately $24 million.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including decreased revenue, net losses, and material weaknesses in internal controls. While there are some positive aspects, such as increased cash balance and debt settlement, the overall sentiment is negative due to the company's financial performance and going concern risk.

Positives

• The company's cash balance increased to $3,196,795 as of June 30, 2024, from $866,943 as of December 31, 2023.
• The company settled certain convertible notes by issuing 938,908 shares of series Y senior convertible preferred stock.
• The company has federal and state net operating loss carryforwards of approximately $24 million.

Negatives

• The company's revenue decreased significantly in both the three and six month periods ending June 30, 2024, compared to the same periods in 2023.
• The company experienced a net loss for both the three and six month periods ending June 30, 2024, compared to net income in the same periods of 2023.
• The company has a significant accumulated deficit of $69,576,612 as of June 30, 2024.
• The company's disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses.
• The company is still in the process of remediating material weaknesses in internal control over financial reporting.

Risks

• The company's ability to continue as a going concern is dependent on additional cash infusions.
• The company has sustained recurring operating losses since its inception.
• The company's revenue is dependent on the mix of services provided and settlement realization rates.
• The company's disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses.
• The company is still in the process of remediating material weaknesses in internal control over financial reporting.
• The company may be involved in various lawsuits and legal proceedings which may harm the business.

Future Outlook

The company believes that current working capital and current and expected additional financing should be sufficient to fund operations and satisfy obligations for at least one year from the financial statement issuance date, but additional funds from new financing and/or future equity raises are required for continued operations and to execute the business plan.

Management Comments

• Management is in continuous discussions with prospective investors and believes the raising of capital will allow the Company to fund its cash flow shortfalls and pursue new acquisitions.
• 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.
• Management uses numerous tools and methods to evaluate and measure of its subsidiaries success. To help succeed, management retains the prior owners of the subsidiaries and allow them to do what they do best is run the business.

Industry Context

The company operates primarily in the healthcare industry, which is subject to various regulations and market trends. The company's performance is affected by the mix of services provided and settlement realization rates. The company also has a real estate segment, which is subject to market conditions and development risks.

Comparison to Industry Standards

• The company's revenue decline is significant compared to industry averages, which have seen growth in healthcare services.
• The company's net loss is concerning, as many healthcare companies are profitable or have a clear path to profitability.
• The company's reliance on debt financing and the need for additional capital raises are common in the industry, but the company's high debt levels and accumulated deficit are concerning.
• The company's settlement realization rate of 42.3% is below industry averages, which typically range from 50% to 70% depending on the type of services and payor mix.
• The company's internal control weaknesses are a significant concern, as most public companies have robust internal controls to ensure accurate financial reporting.

Management Changes

Related Party Transactions

• The company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand.
• In connection with the acquisition of Edge View on July 16, 2014, the Company assumed amounts due to previous owners who are current managers of Edge View.

Stakeholder Impact

• Shareholders may experience dilution due to potential equity raises.
• Employees may be affected by potential cost reductions or changes in operations.
• Customers may be affected by changes in service offerings or pricing.
• Creditors may be concerned about the company's ability to repay its debts.
• Suppliers may be affected by changes in the company's purchasing patterns.

Next Steps

• The company will continue to evaluate its estimate of its settlement realization rates in the future.
• The company intends to complete the remediation of the material weaknesses in internal control over financial reporting as soon as practicable.
• The company plans to implement proper documentation procedures for key functional areas, control objectives and our workflows.
• The company plans to reinforce effective compensating controls can improve the design of the current process with limited human resources.

Key Dates

Keywords

financial statements, revenue, net loss, convertible notes, preferred stock, credit loss, operating expenses, cash flow, healthcare, real estate