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.
JM Enterprises 1, Inc. (DBA) Key Tax Group ("Key Tax"), which we acquired on May
13, 2019, is a full-service tax resolution firm located in Jacksonville, FL. Key
Tax assists businesses and individuals around the nation with tax debt issues.
Key Tax has a team of twelve members, including tax lawyers, enrolled agents,
and support staff with an aggregate of more than 35 years of experience in the
tax industry, who are well versed in both the accounting portion of tax debt as
well as the resolution side with substantial experienced in working successfully
with revenue officers and collectors. Among other services, Key Tax offers Tax
Audit Representation, IRS Installment Agreements, Sales Tax Representation,
940/941 Payroll Tax, Representation, Foreign Bank Account Report Filings,
OIC/Fresh Start Program, Wage Garnishment, Bank Levies, Tax Lien Removal, State
Tax Resolution, Audit Reconsideration, and Penalty Abatement.
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 Outbreak
The Company's financial condition and results of operations for the fiscal year
2020 is being adversely affected and is expected to continue to be adversely
affected by the COVID-19 pandemic. Public health officials have recommended and
mandated precautions to mitigate the spread of COVID-19, including prohibitions
on congregating in heavily populated areas and shelter-in-place orders or
similar measures. As a result, we have during periods of 2020 temporarily closed
certain of our operations for several months. All operations are now open and
operating. Our results will be adversely impacted by these closures and other
actions taken to contain or treat the impact of COVID-19, and the extent of such
impact will depend on future developments, which are highly uncertain and cannot
be predicted.
Due to the COVID-19 pandemic, client enrollment has been at a slower pace at
certain of our tax resolution subsidiary companies than initially expected. In
addition, during 2020 certain of our tax resolution subsidiaries have
temporarily suspended enrollment due to facility closures, quarantine, travel
restrictions and other governmental restrictions. As a result, we expect the
performance from our tax resolution subsidiaries to be affected, which we expect
will have a material adverse impact on their market share growth plans and
timelines. Additionally, we have taken certain measures to account for the
ongoing significant negative impact of the pandemic, including divestiture of
our holdings in the food services sector. These businesses no longer fit within
our longer-term strategy and given their impact from COVID-19 for these
companies to remain subsidiaries of a public entity exerts additional and
unnecessary cost and pressure. While COVID-19 changed the trajectory of that
growth, we are planning to get back on track quickly with the acquisition and we
remain committed to making the investments necessary to drive long term company
growth.
The extent to which COVID-19 or any other health epidemic may impact the
Company's results for 2020 and beyond will depend on future developments, which
are highly uncertain and cannot be predicted, including new information which
may emerge concerning the severity of the economic impact of the COVID-19
pandemic. Accordingly, COVID-19 could have a material adverse effect on the
Company's business, results of operations, financial condition, and prospects
during 2020 and beyond.
39
Results of Operations
For the Three For the Three
Months Ended Months Ended
June 30, 2021 June 30, 2020
Revenues:
Affordable Housing Rentals $ 27,844 $ 40,615
Financial Services 1,505,450 952,896
Healthcare 649,574 -
Total revenues $ 2,182,868 $ 993,511
Cost of Sales:
Affordable Housing Rentals $ 25,158 $ 31,663
Financial Services 422,602 395,591
Healthcare 199,450 -
Total cost of sales $ 647,210 $ 427,254
Income (Loss) from Operations From Subsidiaries:
Affordable Housing Rentals $ (10,344 ) $ (3,348 )
Financial Services 470,311 99,943
Healthcare 404,279 -
Total Income (Loss) from operations from subsidiaries $ 864,246 $ 96,595
Loss From Operations from Cardiff Lexington $ (3,220,879 ) $ (223,428 )
Total loss from operations $ (2,356,879 ) $ (126,833 )
For the Six For the Six
Months Ended Months Ended
June 30, 2021 June 30, 2020
Revenues:
Affordable Housing Rentals $ 66,823 $ 78,827
Financial Services 2,398,397 1,875,410
Healthcare 649,574 -
Total revenues $ 3,114,794 $ 1,954,237
Cost of Sales:
Affordable Housing Rentals $ 45,988 $ 55,484
Financial Services 874,390 790,389
Healthcare 199,450 -
Total cost of sales $ 1,119,828 $ 845,873
Income (Loss) from Operations From Subsidiaries:
Affordable Housing Rentals $ (11,708 ) $ (3,348 )
Financial Services 388,476 99,943
Healthcare 404,279 -
Total Income (Loss) from operations from subsidiaries $ 781,047 $ 96,595
Loss From Operations from Cardiff Lexington $ (3,513,527 ) $ (457,661 )
Total loss from operations $ (2,732,480 ) $ (361,066 )
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Results of Operations
Three Months Ended June 30, 2021 and 2020
Revenues were $2,182,868 and $993,511 for the three months ended June 30, 2021
and 2020 an increase of $1,189,357 or 119.7%, respectively. The increase was
primarily due to: (i) the acquisition of Nova Ortho on May 31, 2021 which
generated revenue of $649,574 for the month of June 2021 and (ii) higher sales
in the second quarter of 2021 due primarily to the impact of the COVID-19
pandemic during 2020.
Cost of sales were $647,210 and $427,254 for the three months ended June 30,
2021 and 2020 an increase of $219,956 or 51.5%, respectively. The increase was
primarily due to: (i) the acquisition of Nova Ortho on May 31, 2021 and (ii)
higher advertising expenses, merchant fees and contract labor in the second
quarter of 2021 due primarily to higher sales and the impact of the COVID-19
pandemic during 2020.
Gross margins were $1,535,658 and $566,257 for the three months ended June 30,
2021 and 2020 an increase of $969,401 or 171.2%, respectively
Operating expenses were $3,892,291 and $693,090 for the three months ended June
30, 2021 and 2020 an increase of $3,199,201 or 461.6%, respectively. The
increase was primarily due to the acquisition of Nova Ortho on May 31, 2021 and
the related transaction costs of $2,777,778 to complete the acquisition.
Net loss was $3,077,861 and $1,774,879 for the three months ended June 30, 2021
and 2020 an increase of $1,302,982 or 73.4%, respectively.
Six Months Ended June 30, 2021 and 2020
Revenues were $3,114,794 and $1,954,237 for the six months ended June 30, 2021
and 2020 an increase of 1,160,557 or 59.4%, respectively. The increase was
primarily due to: (i) the acquisition of Nova Ortho on May 31, 2021 which
generated revenue of $649,574 for the month of June 2021 and (ii) higher sales
in the second quarter of 2021 due primarily to the impact of the COVID-19
pandemic during 2020.
Cost of sales were $1,119,828 and $845,873 for the six months ended June 30,
2021 and 2020 an increase of $273,953 or 32.4%, respectively. The increase was
primarily due to: (i) the acquisition of Nova Ortho on May 31, 2021 and (ii)
higher advertising expenses, merchant fees and contract labor in the second
quarter of 2021due primarily to higher sales and the impact of the COVID-19
pandemic during 2020.
Gross margins were $1,994,966 and $1,108,364 for the six months ended June 30,
2021 and 2020 an increase of $886,602 or 80.0%, respectively.
Operating expenses were $4,727,446 and $1,469,430 for the six months ended June
30, 2021 and 2020 an increase of $3,258,016 or 221.7%, respectively. The
increase was primarily due to: (i) the acquisition of Nova Ortho on May 31, 2021
and the related transaction costs of $2,777,778 to complete the acquisition (ii)
higher professional fees and (iii) the impact of the COVID-19 pandemic during
2020.
Net loss was $4,846,900 and $5,326,172 for the six months ended June 30, 2021
and 2020 a decrease of $479,272 or 9.0%, respectively.
The Company had been affected by the economic pressure of the COVID-19 pandemic
and the subsequent directives and responses to this crisis taken by federal,
state, and local governments. Several of our subsidiaries have been hard-hit by
the pandemic. We were able to secure Paycheck Protection Program (PPP) loans to
offset the reduction in revenues and profitability. Furthermore, the stock
market has been severely adversely impacted with our stock price experiencing a
period of high volatility. In light of current circumstances arising from the
COVID-19 pandemic, the Company as a public reporting company must evaluate what
we should and are obligated to do in order to protect shareholders from the
negative effects of this pandemic. In order to adequately sustain funding for
2020 operations and continue our growth through acquisitions the Board Of
Directors have initiated a reverse stock split of 10,000:1 which became
effective May 2020.
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The Company raised $444,500 in convertible notes and $347,050 in SBA and PPP
loans during the six months ended June 30, 2021. Also, the Company entered into
an agreement on April 29, 2020 engaging an exclusive financial advisor in
connection with a transaction or related series or combination of transactions
involving a merger, share capital exchange, asset acquisition, share purchase,
reorganization or similar business combination. The advisor is a boutique
investment bank created by experienced professionals that have worked together
for over a decade, collectively financing over $50 billion of public and private
capital raises, restructurings, and mergers and acquisitions. The term of the
agreement is 1 year and the fees include shares of common stock and
out-of-pocket expenses as defined in the agreement. Additionally, the Company
entered into an agreement August 26, 2020 with the same firm to underwrite a
registered public offering. The term of the agreement is the earlier of the
consummation of the offering or 1 year and fees include cash and equity as
defined in the agreement.
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 June
30, 2021, we had $1,058,951 in cash and cash equivalents, a working capital
deficit of $11,649,299 and total assets of $12,455,656 and total liabilities of
$13,871,366.
Net cash used in operating activities was $575,331 and $366,234 for the six
months ended June 30, 2021 and 2020, respectively. The negative cash flows for
the six months ended June 30, 2021 were primarily due to the net loss of
$4,846,900, an increase in accounts receivable of $123,793 and a decrease in
accrued interest of $342,745. The negative cash flows for the six months ended
June 30, 2020 were primarily due to the net loss of $5,326,172, a decrease in
accounts payable and accrued expenses of $125,266.
Net cash used in investing activities was $2,323,642 and $-0- for the six months
ended June 30, 2021 and 2020, respectively. The cash used in investing
activities was for the acquisition of the new business.
Net cash provided by financing activities was $3,624,261 and $609,445 for the
six months ended June 30, 2021 and 2020, respectively. The positive cash flows
for the six months ended June 30, 2021 were primarily due to proceeds from
convertible notes of $444,500, proceeds from PPP loans of $347,050, and proceeds
from the issuance of preferred stock of $3,000,000 offset by the paydown of the
line of credit of $51,927. The positive cash flows for the six months ended June
30, 2020 were primarily due to proceeds from convertible notes of $220,500,
proceeds from PPP loans of $552,746 partially offset by distributions of
$187,850.
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, 2021, we had no off-balance sheet arrangements.
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