10-Q/A: Cardiff Lexington Reports Steep Losses, Going Concern Doubt

Sentiment:

Quarterly Report Amendment 19 August 2025 3:47 PM

Cardiff Lexington Corporation reported a significant decline in revenue and a swing to net loss for the nine months ended September 30, 2024, raising substantial doubt about its ability to continue as a going concern.

Delay expectedThe 10-Q/A for the period ended September 30, 2024, was filed on August 18, 2025, indicating a significant delay in the filing of this amendment.The promissory note settlement agreement implies a delay in the planned underwritten public offering, as monthly payments of $25,000 began after August 15, 2024, because the offering was not completed by that date.

Capital raiseThe company requires $600,000 to $1 million for continued operations and $4 million to $8 million (potentially up to $10 million) for new acquisitions.It intends to raise capital primarily through equity and debt financings.A 'planned underwritten public offering' is mentioned as a potential source of funds, with specific payment terms for a promissory note contingent on the amount raised in such an offering.

Worse than expectedRevenue decreased by 45.66% for the nine months ended September 30, 2024, compared to the same period in 2023.Gross profit decreased by 65.04% for the nine months ended September 30, 2024.The company swung from a net income of $2,781,608 in 2023 to a net loss of $2,392,657 in 2024 for the nine-month period.Net cash used in operating activities significantly increased from $(557,542) in 2023 to $(2,043,238) in 2024, indicating a worsening cash burn.

Summary

Revenue for the nine months ended September 30, 2024, decreased by 45.66% to $5,149,416 from $9,476,764 in the prior year period.
The company swung from a net income of $2,781,608 for the nine months ended September 30, 2023, to a net loss of $2,392,657 for the same period in 2024.
Gross profit decreased by 65.04% to $2,407,651 for the nine months ended September 30, 2024, compared to $6,887,357 in the prior year.
Operating expenses increased by 39.22% to $2,933,302 for the nine months ended September 30, 2024, primarily due to higher salaries, professional fees, and share-based compensation.
Net cash used in operating activities from continuing operations significantly worsened to $(2,043,238) for the nine months ended September 30, 2024, from $(557,542) in the prior year.
The company's accumulated deficit increased to $71,792,589 as of September 30, 2024.
A 1-for-75,000 reverse stock split was effected on January 9, 2024.
The estimated settlement realization rate for healthcare revenue was reduced from 49% to 44%, resulting in a $1,650,474 reduction in accounts receivable and revenue during Q3 2024.
The company's line of credit balance significantly increased to $7,468,971 as of September 30, 2024, from $2,120,100 at December 31, 2023.
Convertible notes payable decreased significantly to $105,000 as of September 30, 2024, from $3,807,030 at December 31, 2023, due to payments and conversion into Series Y preferred stock.

Sentiment

Score: 2

Explanation: The company exhibits severe financial deterioration with significant revenue and gross profit declines, a swing to substantial net losses, and increased operational cash burn. The explicit 'going concern' doubt and persistent material weaknesses in internal controls highlight fundamental instability. While some debt was converted to equity, overall liabilities increased, and the company remains heavily reliant on external financing, indicating a highly unfavorable financial position.

Positives

Cash balance increased to $1,949,600 as of September 30, 2024, from $866,943 at December 31, 2023, primarily due to increased financing activities.
A gain on debt refinance and forgiveness of $78,834 was recorded for the nine months ended September 30, 2024.
The company successfully converted a significant portion of convertible notes payable into Series Y senior convertible preferred stock, reducing debt obligations.
The Series R convertible preferred stock was cancelled as part of a settlement agreement, simplifying the capital structure.

Negatives

Revenue decreased by 45.66% for the nine months ended September 30, 2024, compared to the prior year, partly due to hurricane impacts and a lower settlement realization rate.
Gross profit declined by 65.04% and gross margin decreased from 72.68% to 46.76% for the nine months ended September 30, 2024.
The company reported a net loss of $2,392,657 for the nine months ended September 30, 2024, a significant deterioration from a net income of $2,781,608 in the prior year.
Net cash used in operating activities increased substantially, indicating a worsening operational cash burn.
The accumulated deficit grew to $71,792,589, highlighting historical and ongoing losses.
Interest expense remains high at $1,803,657 for the nine months ended September 30, 2024.
The company continues to have material weaknesses in internal control over financial reporting.

Risks

Substantial doubt exists about the company's ability to continue as a going concern due to sustained recurring operating losses and a significant accumulated deficit.
The company requires additional capital ranging from $600,000 to $1 million for operations and $4 million to $8 million (potentially up to $10 million) for acquisitions, with no assurance of obtaining it on acceptable terms.
Future equity raises could result in significant dilution to existing stockholders.
Incurrence of additional indebtedness would increase debt service obligations and could impose restrictive covenants.
The company's revenue is highly dependent on settlement realization rates in the lien-based medical industry, which can fluctuate and are subject to external factors like legal settlements and insurance negotiations.
Operational disruptions due to natural disasters, such as hurricanes in Florida, can negatively impact revenue and facility operations.
The company's internal controls over financial reporting have identified material weaknesses that are still being remediated, posing risks to financial reporting reliability.

Future Outlook

The company expects the trend of accelerating cash settlements by accepting lower settlement amounts for accounts receivable to continue in the short term to generate cash flow for operations. Management is in continuous discussions with prospective investors and believes raising capital will fund cash flow shortfalls and new acquisitions. The company requires $600,000 to $1 million for operations and $4 million to $8 million (potentially up to $10 million) for acquisitions, intending to raise this through equity and debt financings, including a planned underwritten public offering.

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.
We expect this trend [accelerating cash settlement by accepting lower settlement amounts] to continue in the short term as we work to settle our accounts receivables more quickly to generate cash flow for operations.

Industry Context

Cardiff Lexington operates primarily in the lien-based medical healthcare industry through its Nova Ortho and Spine, LLC subsidiary, providing diagnostic and surgical services to traumatic injury victims. This niche market relies on insurance settlements, making revenue recognition and cash flow dependent on legal and insurance processes. The company's strategy involves acquiring undervalued and undercapitalized companies, primarily in healthcare, and providing capitalization and leadership. The real estate segment (Edge View) is focused on developing a residential community, which is a separate industry trend.

Comparison to Industry Standards

The filing does not provide specific comparable companies or global benchmarks for its healthcare or real estate segments.
The company's historical settlement realization rate of 49% for healthcare services, and its recent reduction to 44% to accelerate cash flow, are internal metrics and not directly compared to industry-wide averages for similar lien-based medical practices.
The significant decline in revenue and gross profit, coupled with a swing to net loss, suggests underperformance relative to a healthy, growing company in the healthcare sector, especially given the stated focus on 'established profitable niche' companies for acquisition.

Management Changes

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

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Internal Control Remediation	Ongoing efforts to remediate material weaknesses in internal control over financial reporting, including strategic hiring, training, documentation procedures, enhanced segregation of duties, and external consulting for accounting guidelines.	2024-09-30	Aims to improve reliability of financial reporting, but effectiveness is still being evaluated. A classification error was identified and corrected, but not deemed a material weakness.
Authorized Stock Increase	Amended Articles of Incorporation to increase total authorized shares to 350,000,000 (300,000,000 common, 50,000,000 preferred).	2024-05-08	Provides flexibility for future equity raises and conversions, but also enables potential significant dilution.

Legal Proceedings

No material adverse legal proceedings or claims are currently known to management that are believed to have a material adverse effect on the company's business, financial condition, or operating results.
An aggregate of 74,225 shares of common stock were issued in September 2024 as part of a legal settlement.
An aggregate of 37,104 shares of common stock were issued in February 2024 to six previous owners as part of the Red Rock settlement, recorded as a loss from discontinued operations.

Related Party Transactions

Due from previous owners of Edge View (current managers): $4,979 as of September 30, 2024 (non-interest bearing, due on demand).
Owed to Chairman of the Board: $0 as of September 30, 2024, with $120,997 paid during the nine months ended September 30, 2024.
Convertible Note 41 ($5,000 principal) was issued to the company's CEO for operating expenses and paid in full in August 2024.
Compensation agreements for the Chief Executive Officer and Chairman of the Board, with 50% of their annual compensation accrued through December 31, 2023, and April 30, 2024, respectively, now paid in cash.
Management agreement for Nova principals (three doctors) includes annual base salaries ($372,000, $450,000, $372,000) and conditional annual cash and stock equity bonuses based on Nova EBITDA targets.

Stakeholder Impact

**Shareholders**: Face significant dilution from past and potential future equity issuances (e.g., preferred stock conversions, common stock for settlements/compensation) and a substantial increase in net loss attributable to common shareholders. The 'going concern' doubt poses a direct threat to investment value.
**Creditors**: The company's reliance on a significantly increased line of credit and the issuance of a new promissory note in debt settlement indicate ongoing financial strain, potentially increasing risk for lenders, despite some convertible debt being exchanged for preferred stock.
**Employees/Management**: Key management personnel received stock-based compensation and have employment agreements with specific salary and bonus structures, indicating continued commitment to leadership, but overall financial performance may impact job security or future incentives.
**Customers (Patients)**: The change in settlement realization rate and operational disruptions due to hurricanes could indirectly affect service delivery or patient experience, although the filing focuses on financial impact.
**Suppliers**: Increased accounts payable and reliance on financing could indicate potential payment delays or strained relationships with suppliers.

Next Steps

Continue efforts to accelerate cash settlements of accounts receivable by shortening negotiation times and accepting lower settlement amounts.
Evaluate the estimate of settlement realization rates monthly, including a review of the trailing 24-month historical rate and current/pending settlements.
Pursue additional financing through debt or equity transactions to fund cash flow shortfalls and new acquisitions, including a planned underwritten public offering.
Continue to implement remedial procedures to address material weaknesses in internal control over financial reporting, including strategic hiring, training, documentation, segregation of duties, and external consulting.

Key Dates

Date	Description
1986-09-03	Cardiff Lexington Corporation was originally incorporated in Colorado as Cardiff International Inc.
2005-11-10	Cardiff merged with Legacy Card Company, LLC and changed its name to Cardiff Lexington Corporation.
2009-03-12	Company issued a debenture in the principal amount of $20,000.
2009-09-12	Maturity date of the $20,000 debenture.
2014-07-16	Acquisition of Edge View Properties, Inc. (Real Estate segment).
2014-08-27	Cardiff redomiciled and became a corporation under the laws of Florida.
2016-09-12	Company issued convertible promissory note #9 in the principal of $80,000.
2017-01-24	Company issued convertible promissory note #10 in the principal amount of $80,000.
2018-07-31	Acquisition of Platinum Tax Defenders (Discontinued Operations).
2019-05-10	Company issued convertible promissory note #29 in the principal amount of $150,000.
2019-08-28	Company issued convertible promissory note #31.
2019-11-08	Note #29 was purchased by and assigned to an unrelated party, issued as Note 29-1 and Note 29-2.
2020-06-02	Company obtained an SBA loan in the principal amount of $150,000.
2020-09-03	Company issued convertible promissory note #37-1 in the principal amount of $67,000.
2020-11-02	Company executed the second tranche of note #37 in the principal amount of $66,500 (Note 37-2).
2020-12-29	Company executed the third tranche of note #37 in the principal amount of $66,500 (Note 37-3).
2021-04-13	Cardiff redomiciled and became a corporation under the laws of Nevada.
2021-05-15	Previous Chief Financial Officer's amended employment agreement effective date.
2021-05-31	Acquisition of Nova Ortho and Spine, LLC (Healthcare segment) and effective date of management agreement for Nova principals.
2022-09-22	Company issued convertible promissory note #40-1 in the principal amount of $2,600,000.
2022-11-04	Company executed second tranche of note #40 in the principal amount of $68,667 (Note 40-2).
2022-11-28	Company executed third tranche of note #40 in the principal amount of $68,667 (Note 40-3).
2022-12-21	Company executed fourth tranche of note #40 in the principal amount of $68,667 (Note 40-4).
2023-01-24	Company executed fifth tranche of note #40 in the principal amount of $90,166 (Note 40-5).
2023-02-10	Company executed second tranche of note #10 in the principal amount of $50,000 (Note 10-1).
2023-03-21	Company executed sixth tranche of note #40 in the principal amount of $136,666 (Note 40-6).
2023-03-30	Company executed third tranche of note #10 in the principal amount of $25,000 (Note 10-2).
2023-05-25	Company issued 3,150 shares of Series B preferred stock to Zia Choe, Interim Chief Financial Officer.
2023-06-05	Company executed seventh tranche of note #40 in the principal amount of $136,667 (Note 40-7).
2023-06-13	Company executed eighth tranche of note #40 in the principal amount of $21,167 (Note 40-8).
2023-07-19	Company executed ninth tranche of note #40 in the principal amount of $35,500 (Note 40-9).
2023-07-24	Company issued 5,000 shares of Series E preferred stock as compensation for the property manager of Edge View.
2023-07-24	Company executed tenth tranche of note #40 in the principal amount of $14,000 (Note 40-10).
2023-08-11	Company executed fourth tranche of note #10 in the principal amount of $25,000 (Note 10-3).
2023-08-25	Company issued convertible promissory note #41 in the principal amount of $5,000 to the CEO.
2023-09-29	Company and Nova entered into a two-year revolving purchase and security agreement with DML HC Series, LLC.
2023-11-10	Company sold Platinum Tax Defenders, now presented as a discontinued operation.
2023-12-01	Company executed amendment on Notes series 40 consolidated senior secured convertible promissory note to extend expired tranches due date to September 20, 2024.
2024-01-02	Employment agreements for Chief Financial Officer and former Chief Accounting Officer became effective.
2024-01-09	Company effected a 1-for-75,000 reverse split of its outstanding common stock.
2024-01-19	Company issued 62,500 shares of Series I preferred stock to Daniel R. Thompson (Chairman) and Alex Cunningham (CEO) for bonus compensation.
2024-01-31	Company issued 5,000 shares of Series I preferred stock to Matthew Shafer (CFO) and 2,500 shares to Zia Choe (CAO) for compensation.
2024-02-29	Company issued 37,104 shares of common stock to six previous owners as part of the Red Rock settlement.
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.
2024-04-11	Company issued 938,908 shares of Series Y senior convertible preferred stock in exchange for Notes 40-1 to 40-10.
2024-04-24	Company and Nova entered into amendment No. 1 with DML, increasing maximum advance amount to $8,000,000.
2024-05-08	Company amended its Articles of Incorporation to increase authorized stock.
2024-05-15	938,908 shares of Series Y preferred senior convertible preferred stock were issued.
2024-05-31	Notes 9 and 10-1 were paid in full.
2024-06-11	Company and Nova entered into amendment No. 2 with DML, increasing maximum advance amount to $11,000,000.
2024-06-11	Company entered into a settlement agreement and release of claims with the holder of Series R convertible preferred stock and certain convertible promissory notes.
2024-08-15	Deadline for planned underwritten public offering completion, after which monthly payments of $25,000 on the promissory note began.
2024-08-31	Note 41 was paid in full.
2024-09-25	16,206 shares of Series Y senior convertible preferred stock were issued as payment of accrued dividends.
2024-09-30	End of the quarterly period covered by this report.
2024-10-14	Company issued 9,453 shares of Series X senior convertible preferred stock as payment of accrued dividends.
2024-10-25	41,812 shares of Series B preferred stock converted into 83,624 shares of common stock.
2024-10-25	8 shares of Series C preferred stock converted into 80,000 shares of common stock.
2024-10-25	50,000 shares of Series I preferred stock converted into 100,000 shares of common stock.
2024-10-25	Company issued 26,256 shares of Series N senior convertible preferred stock as payment of accrued dividends.
2024-10-28	1 share of Series C preferred stock converted into 10,000 shares of common stock.
2025-08-18	Filing date of this Amendment No. 1 to the Quarterly Report on Form 10-Q.

Recommendation

strong sell

The company's financial performance is severely deteriorating, marked by a drastic 45.66% revenue decline, a 65.04% drop in gross profit, and a swing from net income to a significant net loss. The substantial increase in cash used in operating activities highlights an unsustainable cash burn. The explicit 'going concern' warning, coupled with persistent material weaknesses in internal controls, signals profound operational and financial instability. While some debt was converted to preferred equity, overall liabilities increased, and the company's heavy reliance on a growing line of credit and the need for substantial additional capital for both operations and acquisitions, with no guarantee of favorable terms, presents an extremely high risk of further dilution and financial distress. These factors collectively indicate a highly unfavorable investment outlook, warranting a strong sell recommendation.

Keywords

Healthcare, Acquisition Holding Company, Financial Reporting, SEC Filing, Quarterly Report, Going Concern, Net Loss, Revenue Decline, Preferred Stock, Convertible Notes, Internal Controls, Real Estate

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