Five Public Companies Charged With Failing to Comply With Form 10-Q Requirements

The Securities and Exchange Commission announced charges against five public companies for failing to provide financial statements that were reviewed by their independent external auditor when they filed quarterly reports with the Commission on Form 10-Q.

Regulation S-X provides that interim financial statements must be subject to a review conducted by an independent external auditor prior to the statements being included in quarterly reports filed with the Commission.  This requirement helps to ensure that investors are provided timely, accurate, and reliable interim financial information on a periodic basis.

According to the SEC’s orders, each of the five companies filed one or more Forms 10-Q with interim financial statements where a review was not conducted prior to filing, as required by Regulation S-X.  These actions are the Commission’s first enforcement proceedings against an issuer for violating the Regulation S-X interim review requirement and resulted from a review of filings, staff comment letters and other metrics that indicated potential violations.  Each company agreed to settle the SEC’s charges, and the agency assessed a total of $250,000 in penalties.

“The Commission’s reporting rules are designed to help ensure that investors are provided timely access to reliable interim financial information about public companies in quarterly reports,” said Anita B. Bandy, an Associate Director in the SEC’s Enforcement Division. “Our data-driven investigative techniques led us to identify these companies, who had deprived investors of the benefit of the external auditor’s involvement by including financial statements in Forms 10-Q that had not been reviewed in accordance with Regulation S-X.”

The SEC’s orders find that the companies violated their reporting obligations under the Securities Exchange Act of 1934 by failing to comply with Regulation S-X.  Without admitting or denying the findings, the five companies agreed to a cease and desist order that made the following findings and requires payment of the following penalties:

• Cardiff Lexington Corporation – Filed one Form 10-Q with unreviewed financial statements.  The Florida-based company agreed to pay a penalty of $25,000.
• Cool Technologies Inc. – Filed three Forms 10-Q with unreviewed financial statements.  The Florida-based company agreed to pay a penalty of $75,000.
• Dasan Zhone Solutions Inc. – Filed two Forms 10-Q with unreviewed financial statements.  The California-based company agreed to pay a penalty of $50,000.
• First Hartford Corporation – Filed two Forms 10-Q with unreviewed financial statements.  The Connecticut-based company agreed to pay a penalty of $50,000.
• Infrax Systems Inc. – Filed two Forms 10-Q with unreviewed financial statements.  The Florida-based company agreed to pay a penalty of $50,000.

The SEC’s investigation, which is continuing, has been conducted by Kendra Kinnaird and Kristin Dieter and supervised by Fuad Rana.  The SEC appreciates the assistance of the Public Company Accounting Oversight Board.

https://www.sec.gov/news/press-release/2018-207

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