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.
32
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.
As of As of
September 30, December 31,
2022 2021
Assets:
Affordable Housing Rentals $ 213,511 $ 213,876
Financial Services 2,115,474 2,212,379
Healthcare 12,971,911 8,092,820
Real Estate 594,150 611,900
Other 63,299 28,940
Consolidated assets $ 15,958,345 $ 11,159,915
33
For the Three For the Three
Months Ended Months Ended
September 30, September 30,
2022 2021
Revenues:
Affordable Housing Rentals $ 37,462 $ 30,944
Financial Services 219,872 1,034,422
Healthcare 3,103,409 2,092,427
Real Estate - 152,000
Total revenues $ 3,360,743 $ 3,309,793
Cost of Sales:
Affordable Housing Rentals $ 20,523 $ 22,281
Financial Services 39,963 454,118
Healthcare 1,094,794 526,839
Real Estate - 79,481
Total cost of sales $ 1,155,280 $ 1,082,719
Income (Loss) from Operations From Subsidiaries:
Affordable Housing Rentals $ 1,556 $ (2,276 )
Financial Services 3,839 (63,715 )
Healthcare 1,825,593 1,382,155
Real Estate (11,906 ) 68,934
Total income from operations from subsidiaries $ 1,819,082 $ 1,385,098
Loss From Operations from Cardiff Lexington $ (319,812 ) $ (318,448 )
Total income from operations $ 1,499,270 $ 1,066,650
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
2022 2021
Revenues:
Affordable Housing Rentals $ 120,818 $ 97,767
Financial Services 1,156,729 3,432,819
Healthcare 8,154,934 2,742,001
Real Estate - 152,000
Total revenues $ 9,432,481 $ 6,424,587
Cost of Sales:
Affordable Housing Rentals $ 58,611 $ 68,269
Financial Services 375,185 1,328,508
Healthcare 2,982,418 726,289
Real Estate - 79,481
Total cost of sales $ 3,406,214 $ 2,202,547
Income (Loss) from Operations From Subsidiaries:
Affordable Housing Rentals $ 4,109 $ (13,984 )
Financial Services (86,281 ) 324,761
Healthcare 4,609,996 1,786,434
Real Estate (14,419 ) 68,934
Total income from operations from subsidiaries $ 4,513,405 $ 2,166,145
Loss From Operations from Cardiff Lexington $ (1,188,088 ) $ (3,831,975 )
Total income (loss) from operations $ 3,325,317 $ (1,665,830 )
34
Results of Operations
Three Months Ended September 30, 2022 and 2021
Revenues were $3,360,743 and $3,309,793 for the three months ended September 30,
2022 and 2021 an increase of $50,950 or 1.5%, respectively. The increase was
primarily due to the acquisition of Nova Ortho on May 31, 2021 which generated
revenue of $3,103,409 for the three months ended September 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 $1,155,280 and $1,082,719 for the three months ended
September 30, 2022 and 2021 an increase of $72,561 or 6.7%, respectively. The
increase was primarily due to the acquisition of Nova Ortho on May 31, 2021
which incurred cost of sales of $1,094,794 for the three months ended September
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 $2,205,463 and $2,227,074 for the three months ended
September 30, 2022 and 2021 a decrease of $21,611 or 1.0%, respectively.
Operating expenses were $706,193 and $3,938,202 for the three months ended
September 30, 2022 and 2021 a decrease of $3,232,009 or 82.1%, respectively. The
decrease was primarily due to the transaction costs relating to the acquisition
of Nova Ortho on 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 $264,774 and $754,808 for the three months ended September 30, 2022
and 2021 a decrease of $490,034 or 64.9%, respectively.
Nine Months Ended September 30, 2022 and 2021
Revenues were $9,432,481 and $6,424,587 for the Nine months ended September 30,
2022 and 2021 an increase of $3,007,894 or 46.8%, respectively. The increase was
primarily due to the acquisition of Nova Ortho May 31, 2021 which generated
revenue of $8,154,934 for the Nine months ended September 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 $3,406,214 and $2,202,547 for the Nine months ended September
30, 2022 and 2021 an increase of $1,203,667 or 54.6%, respectively. The increase
was primarily due to the acquisition of Nova Ortho May 31, 2021 which incurred
cost of sales of $2,982,418 for the Nine months ended September 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 $6,026,267 and $4,222,040 for the Nine months ended September
30, 2022 and 2021 an increase of $1,804,227 or 42.7%, respectively.
Operating expenses were $2,700,950 and $5,887,870 for the Nine months ended
September 30, 2022 and 2021 a decrease of $3,186,920 or 54.1%, 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 $813,054 and $2,810,930 for the Nine months ended September 30,
2022 and 2021 a decrease of $1,997,876 or 71.1%, respectively.
35
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 $729,083 in convertible notes during the Nine months ended
September 30, 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 pre ferred stock, and (iii) advances from shareholders. At
September 30, 2022, we had $260,498 in cash, a working capital deficit of
$2,539,506 and total assets of $15,958,345 and total liabilities of $9,908,290.
Net cash used in operating activities was $414,252 for the nine months ended
September 30, 2022. The cash used in operating activities was primarily due to
the net loss of $850,454, an increase in accounts receivable of $1,858,494,
offset by an increase in accounts payable and accrued expenses of $315,123. The
negative cash flows for the nine months ended September 30, 2021 was due
primarily to the loss of 2,810,930, an increase in accounts receivable of
$114,399, an increase in accounts payable and accrued expenses of $594,276 and
an increase in accrued interest of 321,468.
Net cash used in investing activities was $-0- for the nine months ended
September 30, 2022. The cash used in investing activities of $2,323,642 for the
nine months ended September 30, 2021 was for the acquisition of Nova Ortho and
Spine.
Net cash provided by financing activities was $407,480 and $3,766,960 for the
nine months ended September 30, 2022 and 2021, respectively. The positive cash
flows for the nine months ended September 30, 2022 were primarily due to
proceeds from convertible notes of $729,083, offset by the payment of dividends
of $310,522. The positive cash flows for the Nine months ended September 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.
36
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 September 30, 2022, we had no off-balance sheet arrangements.
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CARDIFF LEXINGTON CORPORATION 
