Cardiff Lexington Corp 10-Q/A

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 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, 2024. 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. 41 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). On May 31, 2021, we acquired Nova Ortho and Spine, LLC, or Nova, which 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 and are 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. 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 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. All of our operations are conducted through, and our income derived from, our two subsidiaries. Segments As of March 31, 2025, 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. 42 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 March 31, 2025 and 2024 The following table sets forth key components of our results of operations during the three months ended March 31, 2025 and 2024, both in dollars and as a percentage of our revenue. Three Months Ended March 31, 2025 2024 (Restated) Amount % of Revenue Amount % of Revenue Total revenue $ 2,915,567 100.00% $ 2,322,132 100.00% Total cost of sales 1,075,034 36.87% 948,154 40.83% Gross profit 1,840,533 63.13% 1,373,978 59.17% Operating expenses Depreciation expense 3,365 0.12% 3,365 0.14% Loss on disposal of fixed assets 12,593 0.43% – – Share based compensation – – 300,225 12.93% Selling, general and administrative 1,280,641 43.92% 851,396 36.66% Total operating expenses 1,296,599 44.47% 1,154,986 49.74% Income from continuing operations 543,934 18.66% 218,992 9.43% Other expense Other expense (1,597 ) (0.05 )% – – Penalties and fees – – (1,000 ) (0.04 )% Interest expense (993,114 ) (34.06 )% (376,269 ) (16.20 )% Amortization of debt discounts – – (13,515 ) (0.58 )% Total other expense (994,711 ) (34.12 )% (390,784 ) (16.83 )% Net loss before discontinued operations (450,777 ) (15.46 )% (171,792 ) (7.40 )% Loss from discontinued operations – – (111,312 ) (4.79 )% Net loss $ (450,777 ) (15.46 )% $ (283,104 ) (12.19 )% Revenue . For the three months ended March 31, 2025, and 2024, all of our revenue was generated by our healthcare segment, which generates revenue through a full range of diagnostic and surgical services. Our total revenue increased by $593,435, or 25.56%, to $2,915,567 for the three months ended March 31, 2025 from $2,322,132 for the three months ended March 31, 2024. The increase in revenue is primarily attributable to an overall increase in patient volume and more complex medical procedures. 43 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 increased by $126,880, or 13.38%, to $1,075,034 for the three months ended March 31, 2025 from $948,154 for the three months ended March 31, 2024. This increase is mainly attributable to increases in laboratory fees and salaries, wages and management fees. As a percentage of revenue, cost of sales decreased from 40.83% for the three months ended March 31, 2024 to 36.87% for the three months ended March 31, 2025. Gross profit . As a result of the foregoing, our total gross profit increased by $466,555, or 33.96%, to $1,840,533 for the three months ended March 31, 2025 from $1,373,978 for the three months ended March 31, 2024. Our total gross margin (as a percent of revenue) increased from 59.17% for the three months ended March 31, 2024 to 63.13% for the three months ended March 31, 2025. Depreciation expense . Our depreciation expense was $3,365, or 0.12% of revenue, for the three months ended March 31, 2025, as compared to $3,365, or 0.14% of revenue, for the three months ended March 31, 2024. Share based compensation expense . Share based compensation expense was $0 and $300,225 for the three months ended March 31, 2025 and 2024, respectively. Loss on disposal of fixed assets . Loss on disposal of fixed assets was $12,593 and $0 for the three months ended March 31, 2025 and 2024, respectively. 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, bonuses plus related payroll taxes and stock compensation expense, advertising expenses, professional advisor fees, rent expense, insurance and other expenses incurred in connection with general operations. Our selling, general and administrative expenses increased by $429,245, or 50.42%, to $1,280,641 for the three months ended March 31, 2025 from $851,396 for the three months ended March 31, 2024. As a percentage of revenue, our selling, general and administrative expenses were 43.92% and 36.66% for the three months ended March 31, 2025 and 2024, respectively. Increases were primarily attributable to increases in salaries and wages expense of $255,387, bad debt expense of $112,727, and billing costs $57,735. Total other income (expense) . We had $994,711 in total other expense, net, for the three months ended March 31, 2025, as compared to total other expense, net, of $390,784 for the three months ended March 31, 2024. Total other expense, net, for the three months ended March 31, 2025 consisted of interest expense of $993,114 and other expense of 1,597. Other expense, net, for the three months ended March 31, 2024 consisted of interest expense of $376,269, amortization of debt discounts of $13,515 and financing penalties and fees of $1,000. Discontinued operations . For the three months ended March 31, 2025 and 2024, we recorded a loss from discontinued operations of $0 and $111,312, respectively. Net loss . As a result of the cumulative effect of the factors described above, our net loss was $450,777 for the three months ended March 31, 2025, as compared to $283,104 for the three months ended March 31, 2024, an increase of $167,673, or 59.23%. Liquidity and Capital Resources As of March 31, 2025, we had $996,758 in cash. This Quarterly Report on Form 10-Q/A reflects a restatement limited to reclassifying noncash interest expense in the consolidated statements of cash flows from financing to operating activities. This change in presentation did not affect our cash balance for any period presented. 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 range 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 $10 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. 44 We intend 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. There is no guarantee that we will be able to acquire additional businesses under the terms outlined above. The financial statements were prepared on a going concern basis and do not include any adjustment with respect to these uncertainties. Our ability to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. We have prospective investors and believe the raising of capital will allow us to fund our cash flow shortfalls and pursue new acquisitions. 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. 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 three months ended March 31, 2025 and 2024. Three Months Ended March 31, 2025 (Restated) 2024 (Restated) Net cash used in operating activities from continuing operations $ (491,420 ) $ (1,035,021 ) Net cash provided by financing activities from continuing operations 299,993 1,310,318 Net change in cash (191,427 ) 386,609 Cash at beginning of period 1,188,185 866,943 Cash at end of period $ 996,758 $ 1,253,552 Our net cash used in operating activities from continuing operations was $491,420 for the three months ended March 31, 2025, as compared to $1,035,021 for the three months ended March 31, 2024. The primary drivers of our net cash used in operating activities for the three months ended March 31, 2025 are our net loss of $450,777 and an increase of $1,680,291 in accounts receivable, offset by increases of $1,137,308 in interest included in the line of credit, $230,608 in accounts payable and other accrued expenses and $101,773 in accrued interest. For the three months ended March 31, 2024, the primary drivers of our net cash used in operating activities were our net loss of $283,104 and an increase in accounts receivable of $1,344,676, offset by increases of $300,225 forshare based compensation and $152,195 in interest included in the line of credit. We monitor outstanding 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 timeframe 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 18 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. 45 Prior to fiscal year 2024, we historically realized a 49% settlement rate from total gross billed charges. Accordingly, we had historically recognized net healthcare service revenue as 49% of gross billed amounts. During 2024, we underwent efforts to accelerate cash settlement of our accounts receivable to generate cash flow for operations. We did this by shortening our settlement negotiations with insurance companies and accepting lower settlement amounts. Additionally, during 2024, we completed a thorough review of our third-party billing data, including reviewing historical reports and new reporting methods as a part of our updated analysis. Based upon this review, we determined that a 24-month lookback period should be used in the analysis of our historical settlement realization rates. As a result of the new efforts to accelerate cash settlement, we realized a 42.9% average settlement rate of our gross billed charges during this time frame, which were historically recorded in accounts receivable and revenue at 49% of gross billings. Accordingly, we recorded reductions to net revenue of $339,834 for the three months ended March 31, 2024. We will continue to evaluate our estimate of our settlement realization rates in the future, which will include a monthly review of our trailing 24-month historical settlement realization rate, along with estimates of current and pending settlements through ongoing discussions with attorneys, doctors and our third-party medical billing company in order to determine our variable consideration under ASC 606 and the net transaction price. We will update our settlement realization rate estimate used in determining our accounts receivable and revenue each quarter based on this review. We had no investing activities for the three months ended March 31, 2025 and 2024. Our net cash provided by financing activities was $299,993 for the three months ended March 31, 2025, as compared to $1,310,318 for the three months ended March 31, 2024. Net cash provided by financing activities for the three months ended March 31, 2025 consisted of proceeds from line of credit of $427,186, offset by the payment of note payable of $75,000, payment of preferred stock dividends of $50,000 and repayments of the Small Business Administration loan described below of $2,193. Net cash provided by financing activities for the three months ended March 31, 2024 consisted of proceeds from line of credit of $1,310,478, offset by repayments of the Small Business Administration loan described below of $160. Convertible Notes As of March 31, 2025, we had convertible debt outstanding net of amortized debt discount of $105,000. 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. This note is currently in default and accrues interest at a default interest rate of 20% per annum. On March 30, 2023, we executed an additional tranche under this note in the principal amount of $25,000. This note is currently in default and accrues interest at a default interest rate of 20% per annum. On August 11, 2023, we executed an additional tranche under this note in the principal amount of $25,000. This note accrues interest at a rate of 15% per annum. Promissory Note – Settlement Agreement On June 11, 2024, we entered into a settlement agreement and release of claims with the holder of 165 shares of series R convertible preferred stock and certain convertible promissory notes. Pursuant to the settlement agreement and release of claims, the holder agreed to cancel its shares of series R convertible preferred stock and convertible promissory notes in exchange for a new fixed amount settlement promissory note in the principal amount of $535,000. This transaction was accounted for as a debt extinguishment and a gain on settlement of $78,834 was recorded to the unaudited consolidated statement of operations for the year ended December 31, 2024, in accordance with FASB Topic 470 Borrower’s Accounting for Debt Modifications. The note does not bear interest and requires fixed payments as follows: (i) if we raise at least $5 million but less than $6 million in our planned underwritten public offering, or the Offering, then we must pay $250,000 on the closing date of the Offering, with payments of $125,000, $125,000 and $35,000 to follow on the 90 th , 180 th , and 240 th days following the closing of the Offering, respectively; (ii) if we raise at least $6 million but less than $7 million in the Offering, then we must pay $390,000 on the closing date of the Offering and $145,000 on the 90 th day following the closing of the Offering; and (iii) if we raise at least $7 million in the Offering, then we must repay the entire principal amount on the closing date of the Offering. As the Offering was not completed by August 15, 2024, we are required to pay $25,000 on such date and to continue making payments of $25,000 on each monthly anniversary thereof until the entire principal amount is repaid in full. If the Offering is completed after August 15, 2024, then we are required to make payments as described in the schedule above. Notwithstanding the foregoing, if we abandon the Offering and conduct a new public offering thereafter, then we are required to make a payment of $100,000 on the closing date of such other public offering, a second payment of $100,000 on the 90 th day following the closing of such offering and $35,000 each month thereafter until the entire principal amount is repaid in full. If any portion of the principal amount remains unpaid on the second (2 nd ) anniversary of the date of the note, it shall become immediately due and payable on such date. We may prepay the entire principal amount at any time without penalty. The note is unsecured and contains customary events of default for a loan of this type. Upon an event of default, interest would automatically begin to accrue at a simple interest rate of ten percent per annum. During the three months ended March 31, 2025, we paid a total of $75,000 against the outstanding principal due. 46 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 March 31, 2025 was $146,045 and $0, respectively. 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 March 31, 2025 and the accrued interest was $9,195. We assigned all of our receivables from consumer activations of the rewards program as collateral on this debenture. Line of Credit On September 29, 2023, our company and Nova entered into a two-year revolving purchase and security agreement with DML HC Series, LLC, or DML, to sell, with recourse, Nova’s accounts receivables for a revolving financing up to a maximum advance amount of $4.5 million. A review is performed on a quarterly basis to assess the adequacy of the maximum amount. If mutually agreed upon by us and DML, the maximum amount may be increased. On April 24, 2024, we entered into amendment No. 1 with DML which increased the maximum advance amount to $8,000,000 and defined the discount fee equal to 2.25% per purchase and claims balance forward on new purchases with a minimum fee to now be $10,000. On June 11, 2024, we entered into amendment No. 2 with DML which further increased the maximum advance amount to $11,000,000. On December 27, 2024, we and Nova entered into amendment No. 3 with DML which further increased the maximum advance amount to $15,000,000. As of March 31, 2025, we had an outstanding balance of $10,210,485 against the revolving receivable line of credit and accrued interest of $411,300. The revolving purchase and security agreement includes discounts recorded as interest expense on each funding and matures on September 29, 2025. Related Party Loans 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 is $4,979 as of March 31, 2025. 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 our amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2024, filed with the Securities and Exchange Commission, or the SEC, on August 19, 2025. 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. 47 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.