10-K: Cardiff Lexington Corporation Amends Preferred Stock Terms, Reports 2023 Financial Results

Cardiff Lexington Corporation files a certificate of correction for Series B, C, E, F-1, I, and L preferred stock and reports a net income of $3.03 million for 2023, a significant turnaround from a net loss in 2022.

Summary

• Cardiff Lexington Corporation has filed a certificate of correction for its Series B, C, E, F-1, I, and L preferred stock, clarifying conversion terms and adjustments.
• The company reported a net income of $3.03 million for the year ended December 31, 2023, a substantial improvement from a net loss of $5.43 million in 2022.
• Revenue increased by 10.85% to $11.85 million in 2023, primarily driven by the healthcare segment.
• The cost of sales decreased by 12.30% to $3.56 million in 2023, contributing to a higher gross profit of $8.29 million.
• Operating expenses increased by 13.82% to $3.10 million in 2023, mainly due to credit losses, professional fees, and management bonuses.
• The company's other expenses decreased significantly from $7.16 million in 2022 to $2.08 million in 2023, due to a reduction in interest expense and penalties.
• The company sold its financial services business, Platinum Tax Defenders, in 2023, resulting in a loss from discontinued operations of $86,520.
• The company's healthcare segment operates ten facilities, which are estimated to be operating at 35% capacity as of December 31, 2023.
• The company's real estate business owns five acres zoned medium density residential, six acres zoned high-density residential, and twelve acres zoned as agriculture in Lemhi County, Idaho.
• The company effected a 1-for-75,000 reverse stock split on January 9, 2024.

Sentiment

Score: 7

Explanation: The document shows a significant improvement in financial performance, with a shift from a net loss to a net income. However, there are still risks and challenges, including the need for additional financing and the presence of material weaknesses in internal controls. The sentiment is cautiously optimistic.

Positives

• The company achieved a significant turnaround in profitability, reporting a net income of $3.03 million in 2023 compared to a net loss in 2022.
• Revenue increased by 10.85% in 2023, indicating growth in the company's operations.
• The cost of sales decreased by 12.30% in 2023, improving the company's gross profit margin.
• Other expenses decreased significantly in 2023, contributing to the improved profitability.
• The company has a track record of delivering strong growth through a combination of organic growth, new contract additions and selective acquisitions.

Negatives

• The company has identified material weaknesses in its internal control over financial reporting.
• The company has a history of operating losses and negative cash flow from operations.
• The company's healthcare facilities are operating at only 35% capacity, indicating potential for further growth but also current underutilization.
• The company is dependent on additional financing to execute its business plan and acquire additional businesses.
• The company faces competition for businesses that fit its acquisition strategy.

Risks

• The company's ability to continue as a going concern is dependent on its ability to obtain additional financing.
• 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, which could result in drains on resources and disruptions.
• The company faces competition for businesses that fit its acquisition strategy, which may lead to sub-optimal prices or missed opportunities.
• 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 healthcare business is subject to extensive laws and 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 subject to significant price volatility and is quoted on the Pink Market, which may have an unfavorable impact on its stock price and liquidity.

Future Outlook

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

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 estimates that the ten facilities are operating at 35% capacity as of December 31, 2023.

Industry Context

The healthcare industry is highly competitive, with increasing competition among providers for patients and physicians. The company's focus on plaintiff-related care and efficient EMC assessments provides a niche market position. The real estate market is subject to demand fluctuations and economic conditions.

Comparison to Industry Standards

• The company's financial performance shows a significant improvement in profitability compared to the previous year, which is a positive sign in the context of the competitive healthcare industry.
• The company's gross profit margin of 69.96% is relatively high, indicating efficient cost management in its healthcare operations.
• The company's reliance on bodily injury, general liability, and personal injury protection policies partially insulates it from the declining reimbursement programs paid from Medicare/Medicaid and traditional health insurance companies, which is a common challenge in the healthcare industry.
• The company's healthcare facilities operating at 35% capacity suggests room for growth, but also indicates that the company is not yet operating at full potential compared to industry benchmarks.
• The company's real estate holdings are in a specific geographic area (Salmon, Idaho) and are subject to local market conditions, which may differ from national real estate trends.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in a breach of contract lawsuit with Absolute Medical Group, LLC, with a counterclaim filed by the company.
• The company is involved in a lawsuit in Idaho against Mark Adams, seeking damages for breach of contract, breach of fiduciary duties, and conversion, with a counterclaim filed by the defendant.

Related Party Transactions

• The company has obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of December 31, 2023, the company owed the Chairman $120,997.
• In connection with the acquisition of Edge View on July 16, 2014, the company 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 are $4,979 as of December 31, 2023.

Stakeholder Impact

• Shareholders: The company's improved financial performance and potential for growth may positively impact shareholder value, but the risks associated with the company's acquisition strategy and reliance on additional financing should be considered.
• Employees: The company's growth and expansion may create new opportunities for employees, but the company's financial stability and ability to retain qualified personnel are important factors.
• Customers: The company's focus on clinical excellence and patient-focused care may lead to improved services for customers.
• Suppliers: The company's financial stability and growth may lead to increased business opportunities for suppliers.
• Creditors: The company's improved financial performance may increase its ability to meet its debt obligations, but the company's reliance on additional financing should be considered.

Next Steps

• The company plans to continue to look at a diverse variety of acquisitions in the healthcare sector.
• The company intends to focus its portfolio of subsidiaries with 80% targeted to established profitable niche small to mid-sized healthcare companies and 20% targeted to second stage startups in healthcare and related financial services.
• The company plans to enter into a joint venture agreement with a developer for its planned concept development in Salmon, Idaho.
• The company is undertaking remedial measures to address material weaknesses in its internal control over financial reporting.

Key Dates

Keywords

preferred stock, healthcare, acquisition, financial results, convertible notes, real estate, internal control, reverse stock split, going concern, operating expenses