The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements
including the related notes, and the other financial information included in
this report. For ease of reference, "the Company", 'Cardiff", "we," "us" or
"our" refers to Cardiff Lexington Corporation, unless otherwise stated.
Cautionary Statement Concerning Forward-Looking Information
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to the financial
condition, results of operations, business strategies, operating efficiencies or
synergies, competitive positions, growth opportunities for existing products,
plans and objectives of management, markets for stock of Cardiff Lexington
Corporation and other matters. Statements in this report that are not historical
facts are hereby identified as "forward-looking statements" for the purpose of
the safe harbor provided by Section 21E of the Exchange Act of 1934 and Section
27A of the Securities Act of 1933. Such forward-looking statements, including,
without limitation, those relating to the future business prospects, revenue and
income of Cardiff Lexington Corporation, wherever they occur, are necessarily
estimates reflecting the best judgment of the senior management of Cardiff
Lexington Corporation on the date on which they were made, or if no date is
stated, as of the date of this report. These forward-looking statements are
subject to risks, uncertainties and assumptions, including those described in
the "Risk Factors" in Item 1A of Part I of our most recent Annual Report on Form
10-K, filed with the Securities and Exchange Commission ("SEC"), that may affect
the operations, performance, development and results of our business. Because
the factors discussed in this report could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us or on our behalf, you should not place undue reliance on any such
forward-looking statements. New factors emerge from time to time, and it is not
possible for us to predict which factors will arise. In addition, we cannot
assess the impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. The Company assumes no
obligation and does not intend to update these forward-looking statements,
except as required by law.
Overview
Cardiff Lexington Corporation is a holding company with no stand-alone
operations and no material assets other than its ownership interest in its
subsidiaries. All of the Company's operations are conducted through, and its
income derived from, its various subsidiaries, which are organized and operated
according to the laws of their jurisdiction of incorporation, and consolidated
by the Company.
To date, Cardiff consists of the following wholly owned subsidiaries:
We Three, LLC, d/b/a Affordable Housing Initiative ("AHI"), which we acquired on
May 15, 2014, is an affordable home acquirer located in Maryville, Tennessee,
which acquirers' mobile homes and mobile home parks and either sells them or
rents the homes to individual families. The acquisition of mobile homes or
mobile home parks allows AHI to provide an alternative to traditional housing,
which is a popular option for a homeowner wishing to avoid large down payments,
expensive maintenance costs, monthly mortgage payments and high property taxes.
The typical arrangement with potential buyers is a lease-to-own arrangement on
an individual home. The fundamentals of that arrangement obligate the tenant(s)
to the terms of the lease with AHI retaining ownership. In addition, the
tenant(s) pay non-refundable option monies prior to the start of the lease. This
option consideration enables them to purchase the home at the end of the lease
if they choose. A typical lease is 7 years. We have found that most tenants move
out before the end of that period and thus never satisfy the terms that would
enable them to purchase the home.
Edge View Properties, Inc. ("Edge View"),which we acquired on July 16, 2014, is
a real estate company that owns 30 acres of land; 23.5 acres zoned MDR (Medium
Density Residential) with 12 lots already platted and 48 lots zoned HDR (High
Density Residential), 4 acres of dedicated river front property zoned for
recreation on the Salmon River, Idaho's premier whitewater river and 2.5 acres
zoned for commercial use. All the land is in the city limits of Salmon and
adjacent to the Frank church Wilderness Park (the largest wilderness park in the
lower 48 states). Edge View's plan is to enter into a joint venture agreement
with a developer for construction of single-family homes on the property. The
Company has yet to enter into a joint venture agreement for the development of
single-family homes.
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Platinum Tax Defenders, LLC ("Platinum Tax"), which we acquired on July 31,
2018, is a full-service tax resolution firm located in Los Angeles, CA. Since
2011, Platinum Tax has been assisting all types of taxpayers resolve any and all
issues with IRS and applicable state tax agencies. Platinum Tax provides
fee-based tax resolution services to individuals and companies that have federal
and state tax liabilities by assisting its clients to settle outstanding tax
debts. Specifically, the Platinum Tax teams tax relief services include but are
not limited to, back taxes, offer in compromise, audit representation, amending
tax returns, tax preparation, tax resolution, wage garnishment relief, removal
of bank levies and liens, bookkeeping, and other financial challenges. Platinum
Tax has a team of 28 which includes tax attorneys, accountants, and enrolled
agents that have an aggregate of more than 90 years of experience in the
financial services industry and have resolved tax issues for thousands of
clients.
Nova Ortho and Spine, PLLC ("Nova Ortho") which we acquired on May 31, 2021 is a
company in which doctors provides a full range of diagnostic and surgical
services for injuries and disorders of the skeletal system and associated bones,
joints, tendons, muscles, ligaments, and nerves. From sports injuries, to
sprains, strains, and fractures, our doctors are dedicated to helping you return
to your active lifestyle. Orthopedic and pain procedure services include hip and
knee replacement, shoulder reconstruction, fracture care and hand surgery, as
well as spinal surgery in the State of Florida.
Impact of COVID-19 Pandemic
The outbreak of a novel coronavirus throughout the world, including the United
States, since early calendar year 2020 through current, has caused widespread
business and economic disruption through mandated and voluntary business
closings and restrictions on the movement and activities of people ("COVID-19
Pandemic"). We are subject to risks and uncertainties as a result of the
COVID-19 Pandemic. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussion on results of operations for
the year ended December 31, 2021. The extent of the impact of the COVID-19
Pandemic on the Company's business is highly uncertain and difficult to predict,
as the response to the COVID-19 Pandemic is rapidly evolving in many countries,
including the United States and other markets where the Company operates. It is
expected that the Company's customers and suppliers may well continue to be
impacted which could materially and adversely affect the Company. Our ability to
obtain or deliver inventory or services, and our ability to collect accounts
receivables as customers may be affected
The financial services segments of the economy was adversely affected by the
COVID-19 Pandemic. Management will continue to monitor its businesses and focus
our growth primarily in the health industry.
As of March 31,
2022 As of December 31, 2021
Assets:
Affordable Housing Rentals $ 211,283 $ 213,876
Financial Services 2,160,005 2,212,379
Healthcare 8,593,278 8,092,820
Real Estate 611,900 611,900
Other 128,284 28,940
Consolidated assets $ 11,704,750 $ 11,159,915
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For the Three For the Three
Months Ended Months Ended
March 31, 2022 March 31, 2021
Revenues:
Affordable Housing Rentals $ 43,844 $ 38,979
Financial Services 464,843 892,947
Healthcare 2,432,307 -
Real Estate - -
Total revenues $ 2,940,994 $ 931,926
Cost of Sales:
Affordable Housing Rentals $ 19,474 $ 40,167
Financial Services 212,446 451,788
Healthcare 903,782 -
Real Estate - -
Total cost of sales $ 1,135,702 $ 491,955
Income (Loss) from Operations From Subsidiaries:
Affordable Housing Rentals $ 1,881 $ (1,364 )
Financial Services (101,481 ) (81,835 )
Healthcare 1,303,348 -
Real Estate (825 ) -
Total Income (Loss) from operations from subsidiaries $ 1,202,923 $ (83,199 )
Loss From Operations from Cardiff Lexington $ (479,559 ) $ (292,648 )
Total income (loss) from operations $ 723,364 $ (375,847 )
Results of Operations
Three Months Ended March 31, 2022 and 2021
Revenues were $2,940,994 and $931,926 for the three months ended March 31, 2022
and 2021 an increase of $2,009,068 or 215.6%, respectively. The increase was
primarily due to the acquisition of Nova Ortho May 31, 2021 which generated
revenue of $2,432,307 for the three months ended March 31, 2022, offset by the
decrease in revenue from the sale of Key Tax and the reduction in revenues for
Platinum Tax Defenders due to a reduction in business due to the IRS prolonging
individual tax filings which affected both tax resolution businesses.
Cost of sales were $1,135,702 and $491,955 for the three months ended March 31,
2022 and 2021 an increase of $643,747 or 130.9%, respectively. The increase was
primarily due to the acquisition of Nova Ortho May 31, 2021 which incurred cost
of sales of $975,038 for the three months ended March 31, 2022 offset by the
decrease in cost of sales from the sale of Key Tax and the reduction in cost of
sales for Platinum Tax Defenders due to a reduction in business due to the IRS
prolonging individual tax filings which affected both tax resolution businesses.
Gross margins were $1,805,292 and $439,971 for the three months ended March 31,
2022 and 2021 an increase of $1,365,321 or 310.3%, respectively.
34
Operating expenses were $1,081,928 and $815,818 for the three months ended March
31, 2022 and 2021 an increase of $266,110 or 32.6%, respectively. The increase
was primarily due to the acquisition of Nova Ortho May 31, 2021, an increase in
professional fees offset by the sale of Key Tax and the reduction in business
for Platinum Tax Defenders due to a reduction in business due to the IRS
prolonging individual tax filings which affected both tax resolution businesses.
Net loss was $486,454 and $1,769,039 for the three months ended March 31, 2022
and 2021 a decrease of $1,282,585 or 72.5%, respectively.
The outbreak of the coronavirus throughout the world, including the United
States, during early calendar year 2020 has caused widespread business and
economic disruption through mandated and voluntary business closings and
restrictions on the movement and activities of people ("COVID-19 Pandemic"). Due
to the IRS prolonging individual tax filings, this affected our tax resolution
businesses in 2021 and management decided to divest JM Enterprise 1, Inc. (Key
Tax Group). The Company's tax resolution business operations have been hard hit
by the economic pressure of the COVID-19 pandemic and the subsequent directives
and responses to this crisis taken by the IRS, federal, state, and local
governments. Considering these circumstances arising from the COVID-19 pandemic,
the Company, as a public reporting company, must evaluate what the Company
should and are obligated to do in order to protect shareholders.
The outbreak of a novel coronavirus throughout the world, including the United
States, since early calendar year 2020 through current, has caused widespread
business and economic disruption through mandated and voluntary business
closings and restrictions on the movement and activities of people ("COVID-19
Pandemic"). We are subject to risks and uncertainties as a result of the
COVID-19 Pandemic. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussion on results of operations for
the year ended December 31, 2021. The extent of the impact of the COVID-19
Pandemic on the Company's business is highly uncertain and difficult to predict,
as the response to the COVID-19 Pandemic is rapidly evolving in many countries,
including the United States and other markets where the Company operates. It is
expected that the Company's customers and suppliers may well continue to be
impacted which could materially and adversely affect the Company. Our ability to
obtain or deliver inventory or services, and our ability to collect accounts
receivables as customers may be affected
The financial services segments of the economy was adversely affected by the
COVID-19 Pandemic. Management will continue to monitor its businesses and focus
our growth primarily in the health industry.
The Company raised $550,967 in convertible notes during the three months ended
March 31, 2022.
Inflation
We do not believe that inflation will negatively impact our business plans.
Liquidity and Capital Resources
Since inception, the principal sources of cash have been funds raised from (i)
debenture convertible notes and conventional notes payable, (ii) the sale of
common stock and preferred stock, and (iii) advances from shareholders. At March
31, 2022, we had $539,056 in cash, a working capital deficit of $3,044,622 and
total assets of $11,704,750 and total liabilities of $9,512,586.
Net cash used in operating activities was $373,860 for the three months ended
March 31, 2022. The cash used in operating activities was primarily due to the
net loss of $486,454 an increase in accounts receivable of $732,160 and a
decrease in accounts payable and accrued expenses, offset by a decrease in
accounts payable and accrued expenses of $567,627.
Net cash used in operating activities was $208,921 for the three months ended
March 31, 2021. The cash used in operating activities was primarily due to the
net loss of $1,749,432 offset by a decrease in accounts payable and accrued
expenses and accrued interest.
35
Net cash used in investing activities was $-0- for both the three months ended
March 31, 2022 and 2021, respectively.
Net cash provided by financing activities was $300,307 and $440,400 for the
three months ended March 31, 2022 and 2021, respectively. The positive cash
flows for the three months ended March 31, 2022 were primarily due to proceeds
from convertible notes of $405,730, offset by the payment of dividends of
$102,746. The positive cash flows for the three months ended March 31, 2021 were
primarily due to proceeds from convertible notes of $103,500 and proceeds from
SBA / PPP loans of $345,269.
There can be no assurance that we will be able to obtain sufficient capital from
debt or equity transactions or from operations in the necessary time frame or on
terms acceptable to us. Should we be unable to raise sufficient funds, we may be
required to curtail our operating plans and possibly relinquish rights to
portions of our technology or services provided. In addition, increases in
expenses may adversely impact our cash position and may require cost reductions.
No assurance can be given that we will be able to operate profitably on a
consistent basis, or at all, in the future.
In order to continue our operations and implementation of our business plan, we
need additional financing. We are currently attempting to obtain additional
working capital in an equity transaction.
Off Balance Sheet Arrangements
As of March 31, 2022, we had no off-balance sheet arrangements.
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CARDIFF LEXINGTON CORPORATION 
