10-K/A: Cardiff Lexington Corporation Files Amended 10-K, Correcting Accounting Firm Report

Cardiff Lexington Corporation has filed an amendment to its 2023 annual report to include the correct independent auditor's report and exhibit.

Summary

• Cardiff Lexington Corporation filed an amendment to its 2023 annual report on Form 10-K to correct an error in the included independent registered public accounting firm's report.
• The amendment also includes the correct version of Exhibit 23.1.
• No other changes were made to the original Form 10-K, which remains as of March 27, 2024.
• The company is an acquisition holding company focused on healthcare, with a goal of acquiring undervalued businesses.
• Cardiff Lexington 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.
• The company sold its financial services business, Platinum Tax Defenders, during the year ended December 31, 2023.
• The company's healthcare business accounted for all of its revenues 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's management believes that current working capital and additional financing should be sufficient to fund operations for at least one year from the financial statement issuance date.
• The company estimates that it will need between $4 million to $10 million to execute its business plan.

Sentiment

Score: 4

Explanation: The document highlights significant financial challenges, including operating losses, negative cash flow, and material weaknesses in internal controls. While there are some positive aspects, such as revenue growth and a high collection rate, the overall tone is cautious due to the company's dependence on external financing and the risks associated with its business model.

Positives

• The company's management believes that current working capital and additional financing should be sufficient to fund operations for at least one year from the financial statement issuance date.
• The company has a 99% collection rate based on net settlements recorded to its accounts receivable and revenue.

Negatives

• The company has sustained operating losses since its inception and has an accumulated deficit of $68,684,115 as of December 31, 2023.
• The company had negative cash flow from operating activities of $1,807,987 during the year ended December 31, 2023.
• The company's typical accounts receivable collection lifecycle is between eighteen and twenty-four months, which creates liquidity and cash flow risks.
• The company has identified material weaknesses in its internal control over financial reporting.

Risks

• The company's ability to continue as a going concern is dependent on obtaining additional financing.
• The company's extended accounts receivable collection period creates liquidity and cash flow constraints.
• The company's acquisition strategy exposes it to substantial risk, including the failure to identify material problems during due diligence.
• The company may not be able to effectively integrate acquired businesses.
• The company faces competition for businesses that fit its acquisition strategy.
• The company may not be able to successfully fund acquisitions due to the unavailability of equity or debt financing on acceptable terms.
• The company may change its management and acquisition strategies without the consent of its stockholders.
• The company is dependent on the management teams of its businesses, the loss of any of whom could materially adversely affect its financial condition.
• The company may engage in a business transaction with one or more target businesses that have relationships with its executive officers, its directors, or any of their respective affiliates, which may create or present conflicts of interest.
• The operational objectives and business plans of the company's businesses may conflict with its operational and business objectives or with the plans and objective of another business it owns and operates.
• If the company ceases to control and operate its businesses, it may be deemed to be an investment company under the Investment Company Act.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company's ability to grow its business through organic expansion is dependent upon many factors.
• Changes to payment rates or methods of third-party payors could adversely affect the company's operating margins and revenues.
• An increase in uninsured or underinsured patients or the deterioration in the collectability of the accounts of such patients could harm the company's results of operations.
• The company's facilities face competition for patients from other healthcare providers.
• The company's performance depends on its ability to recruit and retain quality physicians, nurses and medical support staff.
• If the company fails to comply with extensive laws and government regulations, it could suffer civil or criminal penalties.
• The company is subject to occupational health, safety and other similar regulations.
• The company may be required to spend substantial amounts to comply with statutes and regulations relating to privacy and security of protected health information.
• State efforts to regulate the construction or expansion of health care facilities could impair the company's ability to expand.
• A cyber security incident could cause a violation of HIPAA, breach of member privacy, or other negative impacts.
• The company may fail to deal with clinical waste in accordance with applicable regulations.
• If any of the company's existing healthcare facilities lose their accreditation or any of its new facilities fail to receive accreditation, such facilities could become ineligible to receive reimbursement under Medicare or Medicaid.
• The company could be subject to lawsuits which could harm the value of its business.
• The company is subject to demand fluctuations in the real estate industry.
• Adverse weather conditions, natural disasters, and other unforeseen and/or unplanned conditions could disrupt the company's real estate developments.
• If the market value of the company's real estate investments decreases, its results of operations will also likely decrease.
• Changes in tax laws, taxes or fees may increase the cost of development.
• The real estate industry is highly competitive.
• The company may incur environmental liabilities with respect to its real estate assets.
• The company's co-venture partners or other partners in co-ownership arrangements could take actions that decrease the value of its real estate assets.
• Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect the value of the company's stock.
• 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.
• The company's officers and directors own a significant percentage of its outstanding voting securities which could reduce the ability of minority stockholders to effect certain corporate actions.
• The company has no current plans to pay cash dividends on its common stock for the foreseeable future.
• Future issuances of the company's common stock or securities convertible into, or exercisable or exchangeable for, its common stock could cause the market price of its common stock to decline and would result in the dilution of your holdings.
• Rule 144 sales in the future may have a depressive effect on the company's stock price.
• Future issuances of debt securities and preferred stock may adversely affect the level of return you may be able to achieve from an investment in the company's common stock.
• If the company's common stocks become subject to the penny stock rules, it would become more difficult to trade its common stock.
• If securities industry analysts do not publish research reports on the company, or publish unfavorable reports on the company, then the market price and market trading volume of its common stock could be negatively affected.
• The company is subject to ongoing public reporting requirements that are less rigorous than for larger, more established companies.
• Anti-takeover provisions in the company's charter documents and under Nevada law could make an acquisition of the company more difficult.

Future Outlook

The company believes that current working capital and additional financing should be sufficient to fund operations for at least one year from the financial statement issuance date. The company estimates that it will need between $4 million to $10 million to execute its 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 economic conditions.

Comparison to Industry Standards

• The company's extended accounts receivable collection cycle of 18-24 months is unusual compared to typical product or service businesses.
• The company's reliance on external financing to mitigate delayed collections is common in the healthcare industry, but the extent of reliance may be higher due to the extended collection cycle.
• The company's focus on plaintiff-related care is a niche strategy that differs from traditional healthcare providers.
• The company's use of letters of protection is a common practice in the lien-based medical industry, but it also introduces unique risks related to settlement outcomes.

Management Changes

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 filed a complaint in Idaho against Mark Adams, seeking damages for 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.
• In connection with the acquisition of Edge View, the company assumed amounts due to previous owners who are current managers of Edge View.

Stakeholder Impact

• Shareholders face risks related to the company's ability to continue as a going concern and the potential for dilution from future equity issuances.
• Employees may be affected by the company's financial challenges and potential changes in management and acquisition strategies.
• Customers (patients) may be impacted by the company's ability to provide services and maintain quality care.
• Creditors face risks related to the company's ability to repay its debts.
• Suppliers may be affected by the company's financial challenges and potential changes in its operations.

Next Steps

• The company plans to implement proper documentation procedures for key functional areas, control objectives and its workflows.
• The company intends to complete the remediation of the material weaknesses identified in its internal controls.
• The company plans to continue to focus on initiatives to improve productivity, including more efficient scheduling, continued use of mid-level providers, enhancing its leadership training programs, improving and realigning compensation programs.
• The company will continue to follow a disciplined strategy in exploring future acquisitions by analyzing the strategic rationale, financial impact and organic growth profile of each potential opportunity.
• The company's current focus for future acquisitions is MRI imaging, followed by medical billing and outpatient surgery centers.

Key Dates

Keywords

healthcare, acquisition, holding company, real estate, convertible notes, preferred stock, financial statements, internal control, risk factors, going concern