10-K/A: Cardiff Lexington Corporation Amends 2023 Financials Following SEC Review

Cardiff Lexington Corporation files an amendment to its 2023 annual report to address SEC comments, with no other changes to the original filing.

Summary

• Cardiff Lexington Corporation has filed an amendment to its 2023 annual report on Form 10-K to address comments from the Securities and Exchange Commission.
• The amendment does not reflect any events occurring after March 27, 2024, the date of the original filing.
• The company is an acquisition holding company focused on healthcare, with a strategy of acquiring undervalued businesses and providing them with capital and leadership.
• Cardiff aims for 80% of its portfolio to be established, profitable healthcare companies and 20% to be second-stage startups.
• The company operates through subsidiaries, including Nova Ortho and Spine, a healthcare provider, and Edge View Properties, a real estate company.
• For the year ended December 31, 2023, the company reported total revenue of $11,853,266, a gross profit of $8,292,642, and a net income of $3,028,394.
• The company's healthcare segment accounted for all of its revenue for the years ended December 31, 2023 and 2022.
• The company's typical accounts receivable collection lifecycle is between eighteen and twenty-four months.
• The company has identified material weaknesses in its internal control over financial reporting and is taking remedial measures.
• The company's independent auditor has included a going concern explanatory paragraph in its report.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company shows improved financial results in 2023, the going concern warning, internal control weaknesses, and extended collection cycle raise significant concerns. The need for additional capital also adds uncertainty.

Positives

• The company's revenue increased by 10.85% to $11,853,266 in 2023.
• The company's gross profit increased by 25.02% to $8,292,642 in 2023.
• The company achieved a net income of $3,028,394 in 2023, a significant improvement from the net loss in 2022.
• The company's healthcare segment is experiencing growth and is the primary revenue generator.

Negatives

• The company has an extended accounts receivable collection period of 18 to 24 months, which creates liquidity and cash flow risks.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company's independent auditor has included a going concern explanatory paragraph in its report.
• The company has an accumulated deficit of $68,684,115 as of December 31, 2023.

Risks

• The company's acquisition strategy exposes it to substantial risk, including the failure to identify material problems during due diligence.
• The company may experience difficulty integrating acquired businesses.
• The company may not be able to successfully fund acquisitions due to the unavailability of equity or debt financing on acceptable terms.
• The company's extended accounts receivable collection cycle creates liquidity and cash flow constraints.
• The company lacks systematic processes and resources to support the aging of its accounts receivables.
• The company's healthcare business is subject to extensive laws and government regulations, and failure to comply could result in penalties.
• The company's real estate business is subject to demand fluctuations and environmental liabilities.
• The company's common stock is eligible for quotation on the Pink Market, which may have an unfavorable impact on its stock price and liquidity.
• The company's common stock may be subject to significant price volatility.

Future Outlook

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

Management Comments

• Management believes, 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.
• 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.

Industry Context

The healthcare industry is highly competitive, with increasing pressure on cost containment and reimbursement rates. The company's focus on plaintiff-related care partially insulates it from declining Medicare/Medicaid reimbursements. The real estate market is subject to demand fluctuations and environmental regulations.

Comparison to Industry Standards

• The company's extended accounts receivable collection cycle of 18-24 months is significantly longer than the typical 30-90 day cycle for most businesses, including many healthcare providers.
• The company's reliance on external financing to mitigate the impact of delayed collections is a common practice for businesses with long collection cycles, but it increases financial risk.
• The company's focus on acquiring small to mid-sized healthcare companies is a common strategy in the fragmented healthcare market, but it also exposes the company to competition from other acquirers.
• The company's use of a letter of protection model is a common practice in the lien-based medical industry, but it also creates unique risks related to settlement outcomes and collection rates.
• The company's reported net income of $3,028,394 for 2023 is a significant improvement from the net loss of $5,429,521 in 2022, but it is still important to consider the company's accumulated deficit of $68,684,115 and the going concern warning from its auditor.

Management Changes

Legal Proceedings

• The company is involved in a breach of contract lawsuit with Absolute Medical Group, LLC, where the company has filed a counterclaim.
• The company is involved in a lawsuit in Idaho against Mark Adams, alleging breach of contract, breach of fiduciary duties, and conversion.

Related Party Transactions

• The company has short-term advances from the Chairman of the Board that are non-interest bearing and due on demand.
• The company has assumed amounts due to previous owners of Edge View who are current managers.

Stakeholder Impact

• Shareholders face the risk of losing their investment due to the company's going concern issues and potential stock price volatility.
• Employees may be affected by the company's financial instability and potential cost-cutting measures.
• Customers may be impacted by the company's ability to provide services due to financial constraints.
• Creditors face the risk of non-payment due to the company's financial difficulties.

Next Steps

• The company plans to implement proper documentation procedures for key functional areas, control objectives and its workflows.
• The company plans to reinforce effective compensating controls can improve the design of the current process with limited human resources.
• The company intends to complete the remediation of the material weaknesses identified in its internal controls.
• The company plans to raise capital for additional acquisitions primarily through equity and debt financings.

Key Dates

Keywords

healthcare, acquisition, financials, real estate, internal controls, going concern, convertible debt, accounts receivable, SEC, preferred stock