10-Q/A: Cardiff Lexington Corporation Files Amended 10-Q After Accounting Error

Sentiment:

Quarterly Report 17 October 2024 3:15 PM

Cardiff Lexington Corporation has filed an amended 10-Q to correct a classification error related to credit loss expense and respond to SEC comments.

Capital raiseThe company intends to raise capital for additional acquisitions primarily through equity and debt financings.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.

Worse than expectedThe company's revenue decreased by 14.20% year-over-year.The company's net loss increased significantly to $(283,104) for the quarter.The company's gross profit margin decreased from 64.67% to 59.17% year-over-year.The company's settlement realization rate decreased from 49% to 42.9% during the quarter.

Summary

Cardiff Lexington Corporation filed an amendment to its quarterly report for the period ending March 31, 2024, to correct an error in the classification of credit loss expense.
The error reclassified $339,834 from selling, general, and administrative expenses to a reduction in net revenue.
The company also addressed comments received from the Securities and Exchange Commission.
The amended report includes restated financial statements for the three months ended March 31, 2024 and 2023.
The company's revenue for the quarter was $2,322,132, a decrease from $2,706,399 in the same period last year.
The net loss for the period was $(283,104), compared to a net loss of $(15,991) in the prior year.
The company's cash balance at the end of the quarter was $1,253,552.
The company has a significant amount of convertible debt outstanding, totaling $3,820,545 net of discounts.
The company has a history of operating losses and an accumulated deficit of $69,118,853 as of March 31, 2024, raising substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including decreased revenue, increased losses, and a going concern warning. While there are some positive aspects, the overall tone is negative due to the company's financial instability and reliance on external funding.

Positives

The company has a cash balance of $1,253,552 at the end of the quarter.
The company is actively working to accelerate cash settlements of accounts receivable.
The company has a revolving line of credit of $3,583,373.

Negatives

The company experienced a decrease in revenue of 14.20% year-over-year.
The company's net loss increased significantly to $(283,104) for the quarter.
The company's gross profit margin decreased from 64.67% to 59.17% year-over-year.
The company has a significant accumulated deficit of $69,118,853.
The company's settlement realization rate decreased from 49% to 42.9% during the quarter.
The company has a history of operating losses and is facing substantial doubt about its ability to continue as a going concern.

Risks

The company's ability to continue as a going concern is dependent on additional cash infusions.
The company may not be able to obtain sufficient capital from debt or equity transactions.
The company's operating plans may be curtailed if sufficient funds are not raised.
The company may be required to make cost reductions.
The company may not be able to operate profitably on a consistent basis.
The company has a significant amount of convertible debt outstanding, which could lead to dilution.
The company's internal controls over financial reporting are not effective due to material weaknesses.

Future Outlook

The company believes that current working capital and additional financing should be sufficient to fund operations for at least one year, but additional funds are required for continued operations and acquisitions. The company intends to raise capital through equity and debt financings.

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 monitors key metrics primarily revenues and net income from operations.
Management retains the prior owners of the subsidiaries and allows them to do what they do best is run the business.

Industry Context

The company operates primarily in the healthcare industry, focusing on providing orthopedic services. The company's performance is affected by factors such as the mix of services provided, settlement realization rates, and the ability to manage costs. The company also has a real estate segment, which is currently focused on developing a residential community.

Comparison to Industry Standards

The company's decrease in revenue and gross profit margin is concerning compared to industry averages, which typically show more stable performance.
The company's reliance on convertible debt and the high level of accumulated deficit are not typical for established healthcare companies.
The company's settlement realization rate of 42.9% is below the historical rate of 49%, indicating a potential issue with revenue collection.
The company's operating losses and negative cash flow from operations are not sustainable in the long term and require significant improvement.
Compared to companies like 'Medifast' or 'Teladoc Health', which have shown consistent revenue growth and profitability, Cardiff Lexington's financial performance is significantly weaker.
The company's reliance on a revolving line of credit and convertible debt is similar to some early-stage biotech companies, but the lack of profitability is a major concern.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Chief Financial Officer	Previous CFO	Matthew Shafer	2024-01-02	New employment agreement
Chief Accounting Officer	NA	Zia Choe	2024-01-02	New employment agreement

Legal Proceedings

The company is not currently aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition, or operating results.

Related Party Transactions

The company has amounts due to previous owners of Edge View, totaling $4,979.
The company obtained short-term advances from the Chairman of the Board, owing $45,844 as of March 31, 2024.

Stakeholder Impact

Shareholders face the risk of dilution from potential equity raises.
Employees may be affected by potential cost reductions.
Creditors face the risk of non-payment due to the company's financial instability.
Customers may be affected by potential changes in service delivery due to financial constraints.

Next Steps

The company plans to evaluate its updated internal controls design and determine whether the controls have operated effectively during 2024.
The company will continue to evaluate its estimate of its settlement realization rates in the future.
The company plans to enter into a joint venture agreement with a developer for its planned housing development in Salmon, Idaho.

Key Dates

Date	Description
2009-03-12	Company issued a debenture in the principal amount of $20,000.
2014-07-16	Cardiff Lexington acquired Edge View Properties, Inc.
2016-09-12	Company issued a convertible promissory note in the principal of $80,000 (Note 9).
2017-01-24	Company issued a convertible promissory note in the principal amount of $80,000 (Note 10).
2018-07-31	Cardiff Lexington acquired Platinum Tax Defenders.
2019-05-10	Company issued a convertible promissory note in the principal amount of $150,000 (Note 29).
2019-11-08	Note 29 was purchased by and assigned to an unrelated party, creating Note 29-2.
2020-06-02	Company obtained an SBA loan in the principal amount of $150,000.
2020-09-03	Company issued a convertible promissory note in the principal amount of $200,000 (Note 37).
2021-05-31	Cardiff Lexington acquired Nova Ortho and Spine, LLC.
2022-09-22	Company issued a convertible promissory note in the principal amount of $2,600,000 (Note 40-1).
2023-02-10	Company executed a second tranche under Note 10 in the principal amount of $50,000 (Note 10-1).
2023-03-21	Company executed a sixth tranche under Note 40 in the principal amount of $136,666 (Note 40-6).
2023-03-30	Company executed a third tranche under Note 10 in the principal amount of $25,000 (Note 10-2).
2023-06-05	Company executed a seventh tranche under Note 40 in the principal amount of $136,667 (Note 40-7).
2023-06-13	Company executed an eighth tranche under Note 40 in the principal amount of $21,167 (Note 40-8).
2023-07-19	Company executed a ninth tranche under Note 40 in the principal amount of $35,500 (Note 40-9).
2023-07-24	Company executed a tenth tranche under Note 40 in the principal amount of $14,000 (Note 40-10).
2023-08-11	Company executed a fourth tranche under Note 10 in the principal amount of $25,000 (Note 10-3).
2023-08-25	Company issued a twelve-month convertible promissory note in the principal amount of $5,000 to the CEO (Note 41).
2023-09-29	Company and Nova entered into a revolving purchase and security agreement with DML HC Series, LLC.
2023-11-10	Company sold Platinum Tax Defenders.
2024-01-09	Company effected a 1-for-75,000 reverse stock split.
2024-01-19	Company issued 62,500 shares of series I preferred stock to Daniel R. Thompson and Alex Cunningham.
2024-01-31	Company issued 5,000 shares of series I preferred stock to Matthew Shafer and 2,500 shares to Zia Choe.
2024-03-05	Company issued 7,500 shares of common stock to an investor relation service provider.
2024-03-26	Company issued 30,000 shares of common stock to three board members.
2024-05-08	Company filed the amendment of Articles of Incorporation.

Keywords

financial statements, healthcare, convertible debt, revenue, net loss, credit loss, settlement realization, operating expenses, going concern, preferred stock

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