What changed in this filing

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Item 9A. Controls and Procedures

2024-08-08 compared with 2024-07-24 · 134 added, 72 removed, 2904 unchanged (7% of the section changed)

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of Subsidiaries of the registrant (incorporated by reference to Exhibit 21.1 to the Annual Report on Form 10-K filed on March 27, 2024)

of Grassi & Co., CPAs, P.C.

(incorporated by reference to Exhibit 23.1 to the Annual Report on Form 10-K filed on March 27, 2024)

Consent of Grassi & Co., CPAs, P.C.

Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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To the Board of Directors and

Stockholders of Cardiff Lexington Corp and Subsidiaries

on the Financial Statements

Stockholders of Cardiff Lexington Corporation and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying balance sheets

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As discussed in Note 2 to the consolidated financial

statements, the Company’s consolidated financial statements as of and for the year ended December 31, 2022 have been restated to

correct certain misstatements.

statements, the Company’s consolidated financial statements as of and for the years ended December 31, 2023 and 2022 have been restated

to correct certain misstatements.

Substantial Doubt Regarding the Company’s

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Critical Audit Matter Description

December 31, 2023, the Company had approximately $5.7 million of goodwill.

As discussed in Note 1 and Note 12 to the consolidated financial

statements, goodwill is tested annually for impairment at the reporting unit level, or more frequently if impairment indicators arise.

principal consideration for our determination that this was a critical audit matter resulted from the material balance of goodwill at

year end and the Company’s goodwill impairment analyses requiring a high degree of management judgement.

There was a high degree

of subjective auditor judgment associated with the evaluation of management’s assertion with respect to the realizability of goodwill.

As of December 31, 2023, the Company

had approximately $5.7 million of goodwill.

As discussed in Note 1 and Note 12 to the consolidated financial statements, goodwill is tested

annually for impairment at the reporting unit level, or more frequently if impairment indicators arise.

The principal consideration for our

determination that this was a critical audit matter resulted from the material balance of goodwill at year end and the Company’s

goodwill impairment analyses requiring a high degree of management judgement.

There was a high degree of subjective auditor judgment associated

with the evaluation of management’s assertion with respect to the realizability of goodwill.

How we addressed the matter:

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qualitative assessment.

We obtained management’s qualitative goodwill analysis and compared certain significant assumptions to existing

market conditions and information.

We also compared significant assumptions, where relevant, to the plans of the Company, including management’s

expectations regarding the Company’s business model, customer base and other relevant factors.

Finally, we assessed the adequacy

of the disclosures in the consolidated financial statements.

GRASSI & CO., CPAs, PC

We obtained management’s qualitative goodwill analysis and compared certain significant assumptions to

existing market conditions and information.

We also compared significant assumptions, where relevant, to the plans of the Company, including

management’s expectations regarding the Company’s business model, customer base and other relevant factors.

Finally, we assessed

the adequacy of the disclosures in the consolidated financial statements.

& CO., CPAs, PC

We have served as the Company’s auditor since 2022.

Jericho, New York

March 27, 2024

2024, except for Notes 1, 2 and 17, as to which date is July 23, 2024

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

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was reclassified from “common stock” to “additional paid-in capital.”

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Use of Estimates

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Accordingly, actual results could differ from those estimates.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Accounts Receivable

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net settlements recorded to its accounts receivable and revenue.

Collection rates are estimated considering the Company’s 48-month

historical collections with primary emphasis to the most current prior 12-month trailing payment and collection percentage rates.

method the Company uses to measure expected credit losses is the loss rate method, and in addition the Company qualitatively evaluates

on an ongoing basis various factors, which include market conditions in which the Company operates, and the status of claims being settled.

The Company has established billing rates, which are not the same as actual amounts recovered.

These rates generally do not

reflect what is ultimately paid by the customer, insurance carriers, law firms and other payors, which is typically received eighteen

to twenty-four months later, and are not reported in the consolidated financial statements at those established billing rates.

Company’s customers, its patients, typically pay amounts based on established charges per procedure with guidance from the annually

updated Current Procedural Terminology (“CPT”) guidelines (a code set maintained by the American Medical Association through

the CPT Editorial Panel), that designates relative value units and a suggested range of charges for each procedure which is then assigned

This fee is discounted to reflect the percentage paid to the Company “using a modifier” recognized by each insurance

carrier for services, less deductible, co-pay, and contractual adjustments which are deducted from the calculated fee.

The net revenue

is recorded at the time the services are rendered.

Collection of that revenue typically occurs eighteen to twenty-four months later and

after the patient claim develops and settles.

Historical collection rates are estimated using the most current prior 12-month historical

payment and collection percentages.

The Company’s accounts receivable balance each reporting period

does not include accounts receivables that were factored (sold).

Further, accounts receivable and revenue are recorded at what the company

anticipates will ultimately be collected, which historically is 99% of the net recognized upon billing to its patients for gross amounts

of services provided to patients.

In the past, for those receivables that were factored, the Company was advanced 46% of the accounts

receivable balance and recorded 54% to finance charge.

The Company last factored its accounts receivable in the first quarter of fiscal

Collection rates are estimated considering the Company’s 48-month historical collections with primary emphasis to the most

current prior 12-month trailing payment and collection percentage rates.

The Company acquired Nova in May 2021.

Nova was founded in January

As of December 31, 2023, the Company based its 48-month historical collections analysis on look back period from December 31, 2023

to 48 months, part of which was a period of time Cardiff Lexington did not yet own Nova.

The method the Company uses to measure expected

credit losses is the loss rate method, and in addition the Company qualitatively evaluates on an ongoing basis various factors, which

include market conditions in which the Company operates, and the status of claims being settled.

The Company has established billing

rates, which are not the same as actual amounts recovered.

These rates generally do not reflect what is ultimately paid by the customer,

insurance carriers, law firms and other payors, which is typically received eighteen to twenty-four months later, and are not reported

in the consolidated financial statements at those established billing rates.

The Company’s customers, its patients, typically pay

amounts based on established charges per procedure with guidance from the annually updated Current Procedural Terminology (“CPT”)

guidelines (a code set maintained by the American Medical Association through the CPT Editorial Panel), that designates relative value

units and a suggested range of charges for each procedure which is then assigned a CPT code.

This fee is discounted to reflect the percentage

paid to the Company “using a modifier” recognized by each insurance carrier for services, less deductible, co-pay, and contractual

adjustments which are deducted from the calculated fee.

The net revenue is recorded at the time the services are rendered.

of that revenue typically occurs eighteen to twenty-four months later and after the patient claim develops and settles.

Historical collection

rates are estimated using the most current prior 12-month historical payment and collection percentages.

The Company may incur instances

whereby patient claims are not settled.

However, these instances are very rare.

For example, the death of a patient during the claim’s

development period and there is no estate to bequeath.

Settlements that are less than what was billed to the patient is covered in the

Company’s 99% collectability rate

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

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DECEMBER 31, 2023 AND 2022

The Company had adopted ASU 2016-13,

“Financial Instruments – Credit Losses.” In accordance with this standard, the Company recognizes an allowance for

credit losses for its trade receivables to present the net amount expected to be collected as of the balance sheet date.

allowance is based on the credit losses expected to arise over the life of the asset and are based on current expected credit

Accounts receivable is reported on the balance sheet at the net amounts expected to be collected by the Company.

closely monitors outstanding accounts receivable and recognized an additional allowance for credit losses in the amount of $ 122,190 and

$ 0 as of December 31, 2023 and

2022, respectively.

As of December 31, 2023 and 2022, the Company had net accounts receivable of $ 13,305,254 and

$ 6,603,920 , respectively.

receivables are primarily generated from its healthcare subsidiary in its normal course of business.

The Company calculates a forward-looking collectability

rate which it then applies to its gross billings.

The amount recorded in accounts receivables approximates the amount expected to actually

be collected.

The allowance for credit losses represents any adjustments deemed necessary to the collectability rate based upon an annual

review of both actual collections, as well as any changes in industry billing and collection, and/or legal practices.

The Company had adopted ASU 2016-13, “Financial

Instruments – Credit Losses.” In accordance with this standard, the Company recognizes an allowance for credit losses for

its trade receivables to present the net amount expected to be collected as of the balance sheet date.

This allowance is based on the

credit losses expected to arise over the life of the asset and are based on current expected credit losses.

Accounts receivable is reported

on the balance sheet at the net amounts expected to be collected by the Company.

Management closely monitors outstanding accounts receivable

and recognized an additional allowance for credit losses in the amount of $ 122,190

and $ 0 as of December 31,

2023 and 2022, respectively.

As of December 31, 2023 and 2022, the Company had net accounts receivable of $ 13,305,254

and $ 6,603,920 , respectively.

Accounts receivables are primarily generated from its healthcare subsidiary in its normal course of business.

The Company factored

(sold) accounts receivable to third party(s) during the year ended December 31, 2023 and December 31, 2022 in the amounts of $ 1,090,574

and $ 6,826,364 , respectively.

T he Company currently does not age its receivables and is developing its systems to be able to age its receivables.

to time the Company may ultimately collect less than the billed amount for accounts receivable as a result of its claims settlement process,

as such, these amounts are written off to the allowance for credit losses.

The Company estimates it collects approximately 99% of its

billed accounts receivables billed to its customers, which typically takes approximately 18 to 24 months to collect from the first date

of service to settlement as part of the Company’s normal operating cycle.

In this regard, the Company does not consider such accounts

receivables neither past due nor delinquent.

The Company recognizes credit losses when such losses are expected.

losses include those amounts the Company determines will not be collectible when billed.

Historically, the Company has conducted an

annual assessment of its collectability rate of its patients accounts receivables, and then records a provision for changes to this

collectability rate as a provision.

The Company calculates a forward-looking collectability rate which

it then applies to its gross billings.

The amount recorded in accounts receivables approximates the amount expected to actually be collected.

The allowance for credit losses represents any adjustments deemed necessary to the collectability rate based upon an annual review of

both actual collections, as well as any changes in industry billing and collection, and/or legal practices.

For the period ending December 31, 2023, the Company recorded bad debt expense in excess of credit loss recognized in that period, which is as a result of the Company

recording direct write offs when deemed uncollectible in accordance with ASC 326-20-35-8 and accounts receivable true up adjustments to

bad debt expense.

During the year ended December 31, 2023, the Company recorded a $270,000 provision less a $147,810 adjustment to that

provision for the change in collectability rate to the roll forward of allowance for credit losses.

Also, during this period, the Company

recorded bad debt expense of $132,281, which consisted of the $270,000 charge and the $147,810 credit as well as direct write offs of

The Company continues to assess its collections of its accounts receivable through industry analysis and its collectability rate

assessment of 99% by applying a 12-month look back to collections from settlements made on claims.

Based on the Company’s accounts

receivable balances and its revenue, the Company does not believe the bad debt is a material amount.

The following table

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Current period provision

Write off charged against allowance

Balance at December 31, 2023

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10 years or lease term, if shorter

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Goodwill and Other Intangible Assets

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and other factors.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Valuation of Long-lived Assets

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price is allocated to this single performance obligation.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Accordingly, the Company recognizes revenues (net)

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generally, at the time of patient care.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Established billing rates are not the same

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Historical collection rates are estimated using the most current prior 12-month historical payment and collection

The Company satisfies its performance obligations

as services are performed and then billed to the patient.

Payment in most cases is made by an attorney for such services to the Company’s

patients which are due upon final settlement of patients claims.

During the claims process, legal counsel warranties such claim through

the letter of protection, which is sent to the Company, as a medical provider, on behalf of the client patient.

This letter states that

the attorney is responsible for paying the client’s medical bills when the case is fully developed and settles.

The medical professional

agrees to provide treatment to the injured person and refrain from attempting to collect payment as it is developing and until the case

Once the personal injury case is finalized with the insurance company, the attorney pays the outstanding medical bills from

the settlement.

Historically through April 2023, the Company’s

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thereunto duly authorized.

July 24, 2024

August 7, 2024

CARDIFF LEXINGTON CORPORATION

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Chief Executive Officer and Director (principal executive officer)

July 24, 2024

August 7, 2024

Alex Cunningham

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Chief Financial Officer (principal financial officer)

July 24, 2024

August 7, 2024

Matthew Shafer

Chief Accounting Officer (principal accounting officer)

July 24, 2024

August 7, 2024

/s/ Daniel Thompson

Chairman of the Board

July 24, 2024

August 7, 2024

Daniel Thompson

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K/A

Item 9A. Controls and Procedures