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. Due to the IRS prolonging individual tax filings, this
affected our tax resolution businesses 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. Management will continue to monitor its
businesses and focus our growth primarily in the health industry.
Results of Operations
Three Months Ended June 30, 2022 and 2021
Revenues were $3,130,744 and $2,182,868 for the three months ended June 30, 2022
and 2021 an increase of $947,876 or 43.4%, respectively. The increase was
primarily due to the acquisition of Nova Ortho May 31, 2021 which generated
revenue of $2,619,218 for the three months ended June 30, 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 $1,115,232 and $647,210 for the three months ended June 30,
2022 and 2021 an increase of $468,022 or 72.3%, respectively. The increase was
primarily due to the acquisition of Nova Ortho May 31, 2021 which incurred cost
of sales of $983,842 for the three months ended June 30, 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 $2,015,512 and $1,535,658 for the three months ended June 30,
2022 and 2021 an increase of $479,854 or 31.2%, respectively.
Operating expenses were $912,829 and $3,892,291 for the three months ended June
30, 2022 and 2021 a decrease of $2,979,462 or 76.5%, respectively. The decrease
was primarily due to the transaction costs relating to the acquisition of Nova
Ortho May 31, 2021, 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 $61,826 and $3,077,861 for the three months ended June 30, 2022 and
2021 a decrease of $3,016,035 or 98.0%, respectively.
30
Six Months Ended June 30, 2022 and 2021
Revenues were $6,071,738 and $3,114,794 for the six months ended June 30, 2022
and 2021 an increase of $2,956,944 or 94.6%, respectively. The increase was
primarily due to the acquisition of Nova Ortho May 31, 2021 which generated
revenue of $5,051,525 for the six months ended June 30, 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 $2,250,934 and $1,119,828 for the six months ended June 30,
2022 and 2021 an increase of $1,131,106 or 101.0%, respectively. The increase
was primarily due to the acquisition of Nova Ortho May 31, 2021 which incurred
cost of sales of $1,887,624 for the six months ended June 30, 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 $3,820,804 and $1,994,966 for the six months ended June 30,
2022 and 2021 an increase of $1,825,838 or 91.5%, respectively.
Operating expenses were $1,994,757 and $4,727,446 for the six months ended June
30, 2022 and 2021 a decrease of $2,732,689 or 57.8%, respectively. The decrease
was primarily due to the transaction costs relating to the acquisition of Nova
Ortho May 31, 2021, 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 $548,280 and $4,846,900 for the six months ended June 30, 2022 and
2021 a decrease of $4,298,620 or 88.7%, 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 $752,260 in convertible notes during the six months ended
June 30, 2022.
Inflation
We do not believe that inflation will negatively impact our business plans.
31
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 June
30, 2022, we had $609,062 in cash, a working capital deficit of $3,176,207 and
total assets of $12,464,017 and total liabilities of $10,331,410.
Net cash used in operating activities was $481,058 for the six months ended June
30, 2022. The cash used in operating activities was primarily due to the net
loss of $548,280, an increase in accounts receivable of $1,268,425, offset by an
increase in accounts payable and accrued expenses of $696,553. Net cash used in
operating activities was for the six months ended June 30, 2021 was $575,331.
The cash used in operating activities was primarily due to the net loss of
$4,846,900 offset by an increase in accounts payable and accrued expenses and
accrued interest.
Net cash used in investing activities was $-0- for the six months ended June 30,
2022. The cash used in investing activities of $2,323,642 was for the
acquisition of Nova Ortho and Spine.
Net cash provided by financing activities was $450,708 and $3,624,261 for the
six months ended June 30, 2022 and 2021, respectively. The positive cash flows
for the six months ended June 30, 2022 were primarily due to proceeds from
convertible notes of $555,730, offset by the payment of dividends of $100,477.
The positive cash flows for the six months ended June 30, 2021 were primarily
due to proceeds from the issuance of preferred stock of $3,000,000 for the
purchase of Nova Ortho and proceeds from SBA / PPP loans of $347,050.
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 June 30, 2022, we had no off-balance sheet arrangements.
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