Cardiff Lexington Corp - Quarter Report: 2008 September (Form 10-Q)

cardiff_10q-093008.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-49709

CARDIFF INTERNATIONAL, INC.

(Name of Small Business Issuer as specified in its charter)

	Colorado		84-1044583
	(State or other jurisdiction of		(I.R.S. employer
	incorporation or organization		identification No.)

16255 Ventura Boulevard, Suite 525, Encino, CA 91436

(Address of principal executive offices)

Registrant's telephone no., including area code: (818) 879-9722

N/A

Former name, former address, and former fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: No Par Value Common Stock

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

(Do not check if a smaller reporting company)

Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ý

Common Stock outstanding at November 17, 2008, 28,964,653 shares of no par value Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

FORM 10-Q

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

CARDIFF INTERNATIONAL, INC.

For the Quarter ended September 30, 2008

The following financial statements and schedules of the registrant are submitted herewith:

PART I - FINANCIAL INFORMATION

Page of

Form 10-Q

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007 (Audited)	1
	Condensed Consolidated Statements of Operations (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows (Unaudited)	3 – 4
	Condensed Consolidated Statements of Shareholders’ Equity (Deficit) (Unaudited)	5 – 7
	Notes to Condensed Consolidated Financial Statements	8 – 13

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Controls and Procedures, Evaluation of Disclosure Controls and Procedures	20

PART II - OTHER INFORMATION

Page

Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	21

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
	(Unaudited)			(Audited)
	9/30/2008			12/31/2007
CURRENT ASSETS:
Cash and cash equivalents	$	-		$	-
Advances to employees		1,659			1,659

TOTAL CURRENT ASSETS		1,659			1,659

FIXED ASSETS:
Artwork		6,536			6,536
Computer equipment		71,050			71,050
Domain names		1,250			1,250
Furniture and fixtures		72,984			72,984
Leasehold improvements		9,201			9,201
Office equipment		31,180			31,180
Software		1,596			1,596
Accumulated depreciation and amortization		(192,393	)		(191,694	)

FIXED ASSETS, NET		1,404			2,103

OTHER ASSETS:
Deposits		600			600

TOTAL ASSETS	$	3,663		$	4,362

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Bank overdraft	$	299		$	6,298
Accounts payable and accrued expenses		723,637			652,569
Subscription deposit		179,380			179,380
Interest payable		287,633			242,783
Payroll and payroll tax payable		186,923			187,148
Advances from shareholders		244,241			179,620
Advance from ICE		50,000			50,000
Note payable - Legacy Investors, current		518,000			518,000
Note payable - Maricopa Equity Management Corporation		100,000			100,000

TOTAL CURRENT LIABILITIES		2,290,113			2,115,798

SHAREHOLDERS EQUITY (DEFICIT):
Common stock, no par value; 60,000,000 and 30,000,000 shares
authorized; 28,964,653 and 28,277,153 shares issued and outstanding		5,496,691			5,441,691
Additional paid in capital		208,474			208,474
Subscription receivable		(150,000	)		(175,000	)
Deficit accumulated during the development stage		(7,841,615	)		(7,586,601	)

TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		(2,286,450	)		(2,111,436	)

TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)	$	3,663		$	4,362

Prepared without audit.

See notes to condensed consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

													August 29, 2001
													(Date of Inception)
	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,						through
	2008			2007			2008			2007			September 30, 2008

REVENUE	$	-		$	-		$	-		$	-		$	-

COST OF SALES		-			-			-			-			-

GROSS PROFIT		-			-			-			-			-

OPERATING EXPENSES:
Legal services		-			-			-			6,975			759,878
Consulting and outside services		-			32,044			-			42,890			1,640,614
Salaries and wages		-			63,798			-			210,559			1,192,927
Guaranteed payments		-			-			-			-			512,958
Advertising		-			-			-			-			363,800
Rent		-			-			-			-			411,586
Other operating expenses		106,909			66,492			201,617			242,173			2,598,209

TOTAL OPERATING EXPENSES		106,909			162,334			201,617			502,597			7,479,972

NET INCOME (LOSS) FROM
OPERATIONS		(106,909	)		(162,334	)		(201,617	)		(502,597	)		(7,479,972	)

OTHER INCOME AND (EXPENSES):
Sublease rental income		-			-			-			-			55,979
Interest income		-			-			-			-			6,768
Misc. income		-			-			-			-			85,770
Interest expense		(17,331	)		(17,450	)		(53,397	)		(67,235	)		(510,160	)

TOTAL OTHER INCOME
AND (EXPENSES)		(17,331	)		(17,450	)		(53,397	)		(67,235	)		(361,643	)

LOSS BEFORE
INCOME TAXES		(124,240	)		(179,784	)		(255,014	)		(569,832	)		(7,841,615	)

NET LOSS	$	(124,240	)	$	(179,784	)	$	(255,014	)	$	(569,832	)	$	(7,841,615	)


Basic and diluted earnings (loss)
per share		(0.00	)		(0.01	)		(0.01	)		(0.02	)

Weighted average shares
outstanding		28,964,653			23,111,408			28,798,595			22,968,073

Prepared without audit.

See notes to condensed consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

							August 29, 2001
							(Date of Inception)
	Nine Months Ended Sept. 30,						through
	2008			2007			September 30, 2008

CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(255,014	)	$	(569,832	)	$	(7,841,615	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization		699			12,187			237,392
Compensation expense		-						122,740
Issuance of common stock for loan costs		-			-			110,000
Issuance of warrants for loan costs		-			-			85,734
Issuance of common stock for services								10,000
(Increase) decrease in:
Employee advances		-			-			(1,659	)
Deposits		-			-			(600	)
Increase (decrease) in:
Accounts payable and accrued expenses		70,843			241,817			1,032,134
Interest payable		52,482			58,844			486,717

NET CASH USED IN
OPERATING ACTIVITIES		(130,990	)		(256,984	)		(5,759,157	)

CASH FLOW FROM INVESTING ACTIVITES
Advances to shareholders		-			(53,249	)		-
Acquisition of equipment		-			-			(193,797	)

NET CASH USED IN
INVESTING ACTIVITIES		-			(53,249	)		(193,797	)

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from shareholder advances		250,000			9,457			1,632,638
Repayments of shareholder advances		(193,011	)		(136,768	)		(1,599,300	)
Proceeds from ICE advance		-			50,000			50,000
Proceeds from note payable-Legacy Investors		-			-			451,428
Proceeds from note payable-Maricopa Equity Management Corporation		-			-			100,000
Proceeds from convertible notes payable		-			-			1,098,699
Proceeds from payments of subscription receivable		25,000						25,000
Proceeds from sale of common stock		55,000			502,250			4,194,190
Bank overdraft		(5,999	)		-			299

NET CASH PROVIDED BY
FINANCING ACTIVITIES		130,990			424,939			5,952,954

NET INCREASE IN CASH		-			114,706			-

CASH AT BEGINNING OF THE YEAR		-			6,431			-

CASH AT END OF YEAR	$	-		$	121,137		$	-

SUPPLEMENTAL DISCLOSURES
Interest paid in cash	$	16,179		$	8,391

Prepared without audit.

See notes to condensed consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

NON-CASH ACTIVITIES

Accrued interest in the amounts of $7,632, $6,494 and $163,567 were capitalized to shareholder advances for the nine months ended September 30, 2008 and 2007, and for the period from August 29, 2001 (inception) through September 30, 2008, respectively.

During the year ended December 31, 2005, convertible debt in the amount of $1,098,699 plus the related accrued interest of $39,330 was converted into 998,635 shares of common stock.

Out of the $1,000,000 debentures from Legacy Investors, $106,572 was used to pay loan related fees, and $442,000 remained in an escrow account at December 31, 2004. During the year ended December 31, 2005, the escrow funds were returned to Legacy Investors.

During 2007, a shareholder repaid $100,000 to Legacy Investments on behalf of the Company.

During 2007, 156,380 shares were issued to pay for $156,380 for services previously rendered.

Prepared without audit.

See notes to condensed consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

					Additional
	Common Stock				Paid in		Subscription		Accumulated
	Shares		Amount		Capital		Receivable		Deficit			Total
BALANCE, AUGUST 29, 2001
(Date of Inception)		-	$	-	$	-	$	-	$	-		$	-
Issuance for cash, 2001		2,066,717		200,833		-		-		-			200,833
Issuance for cash, 2002		10,703,678		1,040,129		-		-		-			1,040,129
Net loss		-		-		-		-		(1,182,273	)		(1,182,273	)

BALANCE, DECEMBER 31, 2002		12,770,395		1,240,962		-		-		(1,182,273	)		58,689
Issuance for cash, 2003		4,846,930		471,000		-		-		-			471,000
Net loss		-		-		-		-		(1,608,882	)		(1,608,882	)

BALANCE, DECEMBER 31, 2003		17,617,325		1,711,962		-		-		(2,791,155	)		(1,079,193	)
Net loss		-		-		-		-		(1,058,911	)		(1,058,911	)

BALANCE, DECEMBER 31, 2004		17,617,325		1,711,962		-		-		(3,850,066	)		(2,138,104	)
Issuance for cash, March 2005		360,175		35,000		-		-		-			35,000
Issuance for cash, April 2005		22,500		45,000		-		-		-			45,000
Stock options issued, May 2005		-		-		63,790		-		-			63,790
Stock options issued, August 2005		-		-		39,869		-		-			39,869
Issuance for consideration of loan,
October 2005		100,000		110,000		-		-		-			110,000
Conversion of notes payable,
November 2005		998,635		1,138,029		-		-		-			1,138,029
Warrants issued in connection with
notes payable, November 2005		-		-		85,734		-		-			85,734
Stock options issued, November 2005						3,180		-					3,180
Recapitalization of common equity,
note 5		1,615,000		-		-		-		-			-
Issuance for cash, November 2005		135,908		149,500		-		-		-			149,500
Issuance for cash, December 2005		43,181		47,500		-		-		-			47,500
Net loss		-		-		-		-		(1,668,498	)		(1,668,498	)

Prepared without audit.

See notes to condensed consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(CONTINUED)

					Additional
	Common Stock				Paid in		Subscription			Accumulated
	Shares		Amount		Capital		Receivable			Deficit			Total

BALANCE, DECEMBER 31, 2005		20,892,724		3,236,991		192,573		-			(5,518,564	)		(2,089,000	)
Issuance for cash, January 2006		183,634		202,000		-		-			-			202,000
Issuance for cash, February 2006		70,000		77,000		-		-			-			77,000
Issuance for cash, March 2006		265,545		268,100		-		-			-			268,100
Issuance for cash, April 2006		60,000		66,000		-		-			-			66,000
Issuance for cash, June 2006		24,000		30,000		-		-			-			30,000
Compensation expense		-		-		15,901		-			-			15,901
Issuance for cash, September 2006		150,000		150,000		-		-			-			150,000
Issuance of common stock, October 2006		550,000		451,000		-		(451,000	)		-			-
Payment on subscription receivable, October 2006		-		-		-		175,000			-			175,000
Issuance for cash, October 2006		40,000		50,000		-		-			-			50,000
Payment on subscription receivable, November 2006		-		-		-		120,000			-			120,000
Payment on subscription receivable, December 2006		-		-		-		133,000			-			133,000
Issuance for cash, December 2006		10,000		12,500		-		-			-			12,500
Issuance for services, December 2006		120,000		150,000		-		(150,000	)		-			-
Net loss		-		-		-		-			(1,279,441	)		(1,279,441	)

BALANCE, DECEMBER 31, 2006		22,365,903		4,693,591		208,474		(173,000	)		(6,798,005	)		(2,068,940	)
Issuance for cash, January 2007		100,000		27,000		-		-			-			27,000
Payment on subscription receivable, January 2007		-		-		-		23,000			-			23,000
Issuance for cash, February 2007		40,000		10,000		-		-			-			10,000
Issuance for cash, April 2007		60,000		15,000		-		-			-			15,000
Issuance for cash, June 2007		500,000		100,000		-		-			-			100,000
Issuance for cash, July 2007		875,000		161,100										161,100
Issuance for cash, September 2007		1,869,583		190,000										190,000
Issuance for cash, October 2007		2,000,000		175,000										175,000
Issuance for common stock, November 2007		260,000		35,000										35,000
Issuance for services, November 2007		40,000		10,000										10,000
Issuance for common stock, December 2007		166,667		25000				(25,000	)					-
Net loss		-		-		-		-			(788,596	)		(788,596	)

Prepared without audit.

See notes to condensed consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(CONTINUED)

					Additional
	Common Stock				Paid in		Subscription			Accumulated
	Shares		Amount		Capital		Receivable			Deficit			Total

BALANCE, DECEMBER 31, 2007		28,277,153	$	5,441,691	$	208,474	$	(175,000	)	$	(7,586,601	)	$	(2,111,436	)
Payment on subscription receivable, January 2008		-		-		-		25,000			-			25,000
Issuance for cash, February 2008		500,000		40,000		-		-			-			40,000
Net loss		-		-		-		-			(37,334	)		(37,334	)

BALANCE, MARCH 31, 2008		28,777,153	$	5,481,691	$	208,474	$	(150,000	)	$	(7,623,935	)	$	(2,083,770	)
		-		-										-
Issuance for cash, April 2008		187,500		15,000										15,000
Net loss		-		-		-		-			(93,440	)		(93,440	)

BALANCE, JUNE 30, 2008		28,964,653	$	5,496,691	$	208,474	$	(150,000	)	$	(7,717,375	)	$	(2,162,210	)

Net loss		-		-		-		-			(124,240	)		(124,240	)

BALANCE, SEPTEMBER 30, 2008		28,964,653		5,496,691		208,474		(150,000	)		(7,841,615	)		(2,286,450	)

Prepared without audit.

See notes to condensed consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Legacy Card Company was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, the Company converted from a California Limited Liability Company to a Nevada Corporation. On November 10, 2005, the Company merged with Cardiff International, Inc. (“Cardiff”), a publicly held corporation. The purpose of the Company is to develop a co-marketing agreement with a premier national bank to offer an integrated financial program to consumers. Legacy Card Company is a credit card marketing company. The Company offers a new credit card that takes advantage of Internal Revenue Code Section 529 educational savings tax-reform legislation, providing significant tax-free savings and economic incentives for families to save early and often for college tuition and related expenses. The Company will derive its revenues from new credit card one-time account fees, new mutual (ESA) one-time account fees, credit card dollar purchase fees, any negotiated mutual fund (ESA) annual account management fees and any negotiated credit card annual renewal fees. The Company expects to commence the launch of their credit card in a test market in the near future.

Basis of Presentation

The accompanying unaudited financial statements of Cardiff International, Inc. have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the periods presented.

The results of operations presented for the nine months ended September 30, 2008 are not necessarily indicative of the results to be expected for any other interim period or any future fiscal year.

Development Stage Activities

The Company is focusing its efforts in two areas during the development stage. First, the Company is devoting substantial time to the development of the credit card technology software that will be used to capture information at the credit card transaction level. Second, the Company is working to contract with merchants to participate in the program and add incentives for consumers to both use the credit card and make purchases from these merchants.

Prepared without audit.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Going Concern

The Company has sustained operating losses since its inception and has negative working capital and an accumulated deficit, which raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The ability of the Company to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. Management has prospective investors and believes the raising of capital will allow the Company to pursue the development of its credit card business. However, if the Company is unable to raise additional capital we may have to cease operations.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three (3) months or less to be cash equivalents.

Property and Equipment

Property and equipment are carried at cost. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:

		Years
Artwork		7
Computer equipment		3
Domain and software		3
Furniture and fixtures		5
Office equipment		5
Leasehold improvements		Shorter of life of lease or asset

During the nine months ended September 30, 2008 and 2007 and for the period August 29, 2001 (date of inception) through September 30, 2008, depreciation expense was $699, $12,187 and $237,392, respectively.

Advertising Costs

Advertising costs are charged to expense when incurred. During the nine months ended September 30, 2008 and 2007 and for the period August 29, 2001 (date of inception) through September 30, 2008, the amount charged to expense was $0, $0 and $363,800, respectively.

Prepared without audit.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Research and Development

Research and development costs are charged to expense when incurred. These costs primarily include the costs associated with the development of the credit card software technology. During the nine months ended September 30, 2008 and 2007 and for the period August 29, 2001 (date of inception) through September 30, 2008, the amount charged to expense was $0, $0 and $36,410, respectively.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management uses its historical records and knowledge of its business in making these estimates. Accordingly, actual results could differ from those estimates.

Income Taxes

The Company was treated as a partnership for federal income tax purposes up to April 18, 2005, when it converted to a Nevada Corporation. Consequently, federal income taxes were not payable by, or provided for, the Company. Members were taxed individually on their shares of the Company’s earnings. The Company’s net income or loss was allocated among the members in accordance with the regulations of the Company. Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax asset or liability is established for the expected future consequences of temporary differences in the financial reporting and tax bases of assets and liabilities. The Company considers future taxable income and ongoing, prudent and feasible tax planning strategies, in assessing the value of its deferred tax assets. If the Company determines that it is more likely than not that these assets will not be realized, the Company will reduce the value of these assets to their expected realizable value, thereby decreasing net income. Evaluating the value of these assets is based on the Company’s judgment. If the Company subsequently determined that the deferred tax assets, which had been written down, would be realized in the future, the value of the deferred tax assets would be increased, thereby increasing net income in the period when that determination was made.

Earnings (Loss) per Share

Earnings (loss) per share is computed using the weighted average number of common shares outstanding during the periods presented. Warrants and options to purchase shares of the Company’s stock may have a dilutive effect on the Company’s earnings per share in the future, but are not included in the calculation for the nine months ended September 30, 2008 and 2007 because they have an anti-dilutive effect in those periods.

Prepared without audit.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Options

On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R relating to its stock-based compensation plans using the modified prospective method. Under this method, compensation costs include costs for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the fair value method. There were no options granted during the nine months ended September 30, 2008 and 2007. Prior to January 1, 2006, the Company had accounted for stock options under SFAS No. 123.

2. RELATED PARTY TRANSACTIONS

Advances from Shareholders

The Company borrowed funds from Gary Teel, a shareholders and officer of the Company. The terms of repayment stipulate the loans are due twenty-four (24) months after the launch of the Legacy Tuition Card at an annual interest rate of six (6) percent. The total balance due to Gary Teel at September 30, 2008, including accrued interest, is $244,241.

	September 30,

	2008		2007
Daniel Thompson	$	-	$	26,624
Gary Teel		244,241		26,624

Total	$	244,241	$	53,248

Employment Agreements

The employment agreements that both Daniel Thompson and Gary Teel have with the Company provides for their compensation to be $25,000 each, per month. Both Daniel Thompson and Gary Teel have waived their right to receive any unpaid balances.

Prepared without audit.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

3. COMMITMENTS AND CONTINGENCIES

Litigation

On February 1, 2003, the Company signed a lease with Red Bull North America, Inc. for office space. The lease commenced February 1, 2003 and was to expire March 31, 2006. The Company vacated the premises in 2004. The Company is in negotiation with Red Bull North America, Inc., who is holding the Company’s property and equipment as collateral for the balance owed. The Company vacated the premises in 2004.

From time to time, the Company is also involved in claims and litigations arising during the course of business.

4. STOCK OPTIONS AND WARRANTS

The following is a schedule summarizing stock option activity for the nine months ended September 30, 2008:

			Weighted-
	Number of		Average
	Options		Exercise Price

Exercisable at December 31, 2007		425,000	$	1.37

Granted		-		-
Exercised		-		-
Forfeited		-		-

Exercisable at September 30, 2008		425,000	$	1.37

As of December 31, 2007, all stock options outstanding became fully vested and the fair value compensation cost related to these options has been recognized.

Information about stock options outstanding at September 30, 2008 is summarized below:

		Weighted-
		Average	Weighted-		Weighted-
Exercise	Number	Remaining	Average	Number	Average
Price	Outstanding	Contractual Life	Exercise Price	Exercisable	Exercise Price

$ 1.25	325,000	2.25 years	$ 1.25	325,000	$ 1.25
$ 1.75	100,000	2.25 years	$ 1.75	100,000	$ 1.75

Prepared without audit.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

4. STOCK OPTIONS AND WARRANTS (Continued)

Warrants

The Company also issued warrants to purchase shares of common stock in 2007. The following is a summary of the warrants outstanding at September 30, 2008:

Number of Warrants	Exercise Price	Maturity

449,318	$ 1.75	April-Aug.2010
84,318	$ 1.10	Jan. 2011- Sept. 2013
422,272	$ 1.75	Jan.-June 2011
375,000	$ 0.50	Sept. 2011
1,125,000	$ 0.50	Oct. 2011
60,000	$ 1.75	Oct. 2011
500,000	$ 0.36	June 2013
350,000	$ 0.30	Sept. 2012
166,667	$ 0.25	Dec. 2013
1,025,000	$ 0.15	Jan.-Oct. 2013
1,625,000	$ 0.10	Sept-Oct. 2013

Prepared without audit.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Cardiff International, Inc. (“Cardiff”), acquired Legacy Card Company, Inc. (“Legacy”) in a merger transaction in November 2005. The transaction was accounted for as a reverse merger transaction whereby Legacy, although a subsidiary of Cardiff, was deemed to be the surviving entity for accounting purposes. In January 2006, Cardiff changed its fiscal year end to December 31st from September 30th to have the same year end as Legacy.

Legacy is a marketing and sales firm that has developed the Simply Brilliant Tuition Card, a national credit card. Legacy is currently in negotiations with a national bank to be the issuing bank. Legacy anticipates the credit card will be available to the public in the near future. Legacy’s business plan calls for revenue to be generated as customers sign up for the credit card and when purchases are made with the credit card. Legacy has generated no revenues since its inception and has expended considerable funds in developing its business plan and funding its operations to date. Legacy was formed as a limited liability company in August 2001. In April 2005, Legacy was converted into a Nevada corporation.

The auditors’ report for the years ended December 31, 2007 and 2006 include a going concern qualification.

Liquidity and Capital Resources

AT SEPTEMBER 30, 2008

Since inception, the principal sources of cash have been funds raised from the sale of common stock, advances from shareholders, and loans in the form of debentures and convertible notes. At September 30, 2008, we had $0 of cash and cash equivalents and total assets amounted to $3,663. At December 31, 2007 we had no cash and cash equivalents, and total assets amounted to $4,362, which include fixed assets and other assets.

Net cash used in operating activities was $130,990 and $256,984 for the nine months ended September 30, 2008 and September 30, 2007, respectively. The decrease in the amount of net cash used in operating activities between these periods was attributable to decreased fees and other operating costs.

Net cash used in investing activities was $0 and $53,249 for the nine months ended September 30, 2008 and September 30, 2007, respectively. The decrease in the amount of net cash used in investing activities between these periods was attributable to decreases in advances to shareholders.

Net cash provided by financing activities was $130,990 and $424,939 for the nine months ended September 30, 2008 and September 30, 2007, respectively. The cash flows from financing activities during the nine months ended September 30, 2008 was attributable to proceeds from the sale of common stock of $55,000, subscription receivables of $25,000 and shareholder advances of $250,000. In addition, we repaid $193,011 of shareholder advances during the nine months ended September 30, 2008.

We have incurred operating losses since inception and at September 30, 2008, we had an accumulated deficit of $7,841,615.

Gary R. Teel and Daniel Thompson, the officers and directors of the Company, have entered into employment agreements calling for a monthly salary of $25,000 ($300,000 annually); however, both have waived their unpaid salaries. This waiver of salary not only reduced our operating expenses and net loss, it reduced the amount of capital needed to fund our operations. During the nine months September 30, 2008, we repaid $193,011 to Mr. Teel and $0 to Mr. Thompson on outstanding advances.

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 products. In addition, increases in expenses or delays in product development 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, development of our products, and implementation of our business plan, we need additional financing. During the nine months ended September 30, 2008 we raised $55,000 from the sale of shares of our common stock and $250,000 from shareholder advances. We are also currently attempting to obtain additional working capital in a term loan transaction. Additionally, we anticipate that our credit card will be launched in the near future thereby commencing the generation of revenues shortly thereafter. In addition, we also anticipate that we will continue to operate at a loss for the foreseeable future.

Results of Operations

For the Quarters Ended September 30, 2008 and 2007

We had no operating revenues for the three months ended September 30, 2008 and September 30, 2007.

We had operating expenses of $106,909 for the three months ended September 30, 2008 and $162,334 for the three months ended September 30, 2007, representing an increase of $55,425. The decrease was primarily due to decreases in marketing efforts, professional and outside services and operating expenses.

We had a net loss of $124,240 for the three months ended September 30, 2008 compared to a net loss of $179,784 for the three months ended September 30, 2007, representing a decrease of $55,546. The decrease was primarily due to decreases in operating expenses.

For the Nine Months Ended September 30, 2008 and 2007

We had no operating revenues for the nine months ended September 30, 2008 and September 30, 2007.

We had operating expenses of $201,617 for the nine months ended September 30, 2008 and $502,597 for the nine months ended September 30, 2007, representing a decrease of $300,980. The decrease was primarily due to decreases in marketing efforts, professional and outside services and operating expenses.

We had a net loss of $255,014 for the nine months ended September 30, 2008 compared to a net loss of $569,832 for the nine months ended September 30, 2007, representing a decrease of $314,818. The decrease was primarily due to decreases in operating expenses.

Inflation

We do not believe that inflation will negatively impact our business plans.

Plan of Operation

Our current business plan is described in “Item 1 - Description of Business” of Form 10-KSB for the year ended December 31, 2007.

Critical Accounting Policies

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss the Company’s Financial Statements prepared in accordance with accounting principles generally accepted in the US.

We have not yet commenced active operations. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions. Management will base its estimates and judgments on historical experience of the operations we may acquire and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, will affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements:

We utilize the fair value based method of accounting for stock-based compensation, in accordance with Statement of Financial Accounting Standards No. 123(R).

Recent Accounting Pronouncements

During May 2008, the Financial Accounting Standards Boards (“FASB”) issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). FAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation and presentation of financial statements in accordance with generally accepted accounting principles. This statement will be effective 60 days after the Securities and Exchange Commission approves the Public Company Accounting Oversight Board’s amendments to AU Section 411, The Meaning of ‘Present Fairly in Conformity With Generally Accepted Accounting Principles’. The Company does not anticipate that the adoption of FAS 162 will have an effect on its financial statements.

During March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“FAS 161”). This new standard requires enhanced disclosures for derivative instruments, including those used in hedging activities. It is effective for fiscal years and interim periods beginning after November 15, 2008, and will be applicable to the Company in the first quarter of fiscal 2009. The Company does not anticipate that the adoption of FAS 161 will have an effect on its financial statements.

During December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements (“FAS 160”). FAS 160 requires all entities to report noncontrolling (minority) interests in entities in the same way as equity in the consolidated financial statements. The Company is required to adopt FAS 160 for the first fiscal year beginning after December 15, 2008. The Company does not anticipate that the adoption of FAS 160 will have an effect on its financial statements.

During December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“FAS 141R”). FAS 141R provides revised guidance for recognizing and measuring assets acquired and liabilities assumed in a business combination. It establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and also requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. Changes in acquired tax contingencies, including those existing at the date of adoption, will be recognized in earnings if outside the maximum allocation period (generally one year). FAS 141R will be applied prospectively to business combinations with acquisition dates on or after January 1, 2009. Following the date of adoption of FAS 141R, the resolution of such items at values that differ from recorded amounts will be adjusted through earnings, rather than goodwill.

During September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. FAS 157 requires companies to disclose the fair value of financial instruments according to a fair value hierarchy as defined in the standard. In February 2008, the FASB issued FASB Staff Position 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (“FSP 157-1”) and FSP 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-1 amends FAS 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and was adopted by the Company, as it applies to its financial instruments, effective December 30, 2007. The adoption of this accounting pronouncement did not have a material effect on the Company’s financial statements.

Forward Outlook and Risks

Operating History. We have not commenced active business operations. We anticipate we will commence active operations in the near future. Potential investors should be aware that there is only a limited basis upon which to evaluate our prospects for achieving our intended business objectives. We have limited resources and have had no revenues since our formation.

Possibility of Total Loss of Investment. An investment in Cardiff is an extremely high risk investment, and should not be made unless the investor has no need for current income from the invested funds and unless the investor can afford a total loss of his or her investment.

Additional Financing Requirements. We will likely be required to seek additional financing in order to fund our operations and carry out our business plan. In order to fund our operations and effect additional acquisitions, we will be required to obtain additional capital. There can be no assurance that such financing will be available on acceptable terms, or at all. We do not have any arrangements with any bank or financial institution to secure additional financing and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in our best interest.

No Public Market for Securities. There is no active public market for our common stock and we can give no assurance that an active market will develop, or if developed, that it will be sustained.

Auditor’s Opinion has a Going Concern Qualification. Our auditor’s report dated April 13, 2008, for the years ended December 31, 2007 and 2006 and from August 29, 2001 (date of inception) through December 31, 2007 includes a going concern qualification which states that our significant recurring operating losses and negative working capital raise substantial doubt about our ability to continue as a going concern.

We do not anticipate paying any dividends and any gains from your investment in our stock will have to come from increases in the price of such stock. We currently intend to retain any future earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future.

We Operate in a Competitive Market. The credit card industry is competitive and new offerings and technologies are becoming available regularly. We cannot guarantee that we will compete successfully against our potential competitors, especially those with significantly greater financial resources or brand name recognition.

ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate,

to allow for timely decisions regarding disclosure.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.

(b) Changes in Internal Controls

There were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings. On June 2, 2005, the Company went to trial for a complaint filed by a prior officer of the Company, alleging that his employment was not terminated in January 2002, and claiming back wages. The Court issued a ruling and order that found that the officer was entitled to back pay. On September 15, 2006, the Company reached a settlement with the prior officer in the amount of $225,000, payable in monthly installments of $25,000, which resulted in a gain of $36,958. The unpaid balance amounted to $156,250 at December 31, 2006. The entire amount was paid in 2007.

Item 2. Unregistered Sales of Equity Securities. During the quarter ended September 30, 2008, there were no issuances of shares of our unregistered common stock.

Item 3. Defaults by the Company on its Senior Securities. None

Item 4. Submission of Matters to Vote of Security Holders. None

Item 5. Other Information.

Item 6. Exhibits.	31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1 Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 19, 2008	CARDIFF INTERNATIONAL, INC.

	By: /s/ Gary R. Teel
	Chief Financial Officer/Chief Executive Officer/Secretary/Chairman