Cardiff Lexington Corp - Quarter Report: 2009 September (Form 10-Q)

cdif_10q-093009.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

Commission File Number000-49709

CARDIFF INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

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

16255 Ventura Boulevard, Suite 525, Encino, CA 91436

(Address of principal executive offices)

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

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 o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No x

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Common Stock outstanding at September 30, 2009, 53,299,517shares of no par value Common Stock.

FORM 10-Q

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

CARDIFF INTERNATIONAL, INC.

For the Quarter September 30, 2009

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	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3 – 4
	Condensed Consolidated Statements of Shareholders’ Equity (Deficit)	5 – 6
	Notes to Condensed Consolidated Financial Statements	7 – 14

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures, Evaluation of Disclosure Controls and Procedures	26

PART II - OTHER INFORMATION

		Page

Item 1.	Legal Proceedings	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Submission of Matters to a Vote of Security Holders	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF

SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008


ASSETS
	9/30/2009			12/31/2008

CURRENT ASSETS:
Cash and cash equivalents	$	5,568		$	994
Advances to Employees		1,659			1,659

TOTAL CURRENT ASSETS		7,227			2,653

PROPERTY AND EQUIPMENT
Artwork		-			6,536
Computer equipment		-			71,050
Domain names		-			1,250
Furniture and fixtures		-			72,984
Leasehold improvements		-			9,201
Office equipment		-			31,180
Software		-			1,596
Accumulated depreciation and amortization		-			(192,393	)
PROPERTY AND EQUIPMENT, NET		-			1,404

OTHER ASSETS
Deposits		600			600

TOTAL ASSETS	$	7,827		$	4,657

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	663,742		$	698,453
Accounts payable, related party		125,536			73,087
Interest payable		452,185			360,780
Accrued payroll taxes		233,423			197,423
Derivative liability		213,802			29,947
Due to officers		494,622			172,473
Advance from International Card Establishment, Inc.		50,000			50,000
Note payable - Legacy Investors		518,000			518,000
Note payable - Maricopa Equity Management		100,000			100,000
Note payable, unrelated party		35,500			-
Current portion of notes payable, related-party, convertible, net of discount of $0 and $50,000, respectively		150,000			100,000
Current portion of notes payable, related-party, net of discount of $3,168 and $0, respectively		36,822			-

TOTAL CURRENT LIABILITIES		3,073,632			2,300,163

LONG-TERM LIABILITIES
Notes payable, related-party, convertible		50,000			-
Notes payable, related-party		15,000			-
		15,000
TOTAL LIABILITIES		3,138,632			2,300,163

SHAREHOLDERS' DEFICIT:
Common Stock, No Par Value; 60,000,000 shares authorized;53,299,517 and 49,473,683 shares issued and outstanding, net of subscription of $0 and $150,000, respectively		7,099,783			7,052,858
Additional paid-in capital		116,629			136,399
Deficit accumulated during the development stage		(10,347,217	)		(9,484,763	)

TOTAL SHAREHOLDERS' DEFICIT		(3,130,805	)		(2,295,506	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	7,827		$	4,657

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 AND THE PERIOD

AUGUST 29, 2001 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 2009

													August 29, 2001
													(Date of Inception)
	Three Months Ended September 30,						Nine Months Ended September 30,						through
	2009			2008			2009			2008			September 30, 2009

REVENUE	$	101		$	-		$	101		$	-		$	101

COST OF SALES		-			-			-			-			-

GROSS PROFIT		101			-			101			-			101

OPERATING EXPENSES:
Consulting and outside services		4,188			-			11,188			-			2,789,552
Advertising		-			-			17,000			-			560,800
Legal services		-			-			-			-			952,073
Rent		-			-			-			-			514,936
Guaranteed payments		-			-			-			-			512,958
Officers' salaries		150,000			-			450,000			-			600,000
Salaries and wages		-			-			-			-			1,192,927
Other operating expenses		9,293			106,909			92,958			201,617			2,611,988

TOTAL OPERATING EXPENSES		163,481			106,909			571,146			201,617			9,735,234

NET LOSS FROM OPERATIONS		(163,380	)		(106,909	)		(571,045	)		(201,617	)		(9,735,133	)

OTHER INCOME AND (EXPENSES)
Sublease rental income		-			-			-			-			55,979
Interest income		-			-			-			-			6,768
Change in value of derivative liability		(37,881	)		-			(74,745	)		-			117,883
Other miscellaneous income (expense)		-			-			(1,405	)		-			107,800
Interest expense		(60,918	)		(17,331	)		(215,259	)		(53,397	)		(900,514	)

TOTAL OTHER INCOME (EXPENSE)		(98,799	)		(17,331	)		(291,409	)		(53,397	)		(612,084	)

NET LOSS	$	(262,179	)	$	(124,240	)	$	(862,454	)	$	(255,014	)	$	(10,347,217	)

Basic and diluted loss per share	$	(0.01	)	$	-		$	(0.02	)	$	(0.01	)

Weighted average shares outstanding		52,095,205			28,964,653			50,920,405			28,798,595

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 AND THE PERIOD

AUGUST 29, 2001 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 2009

							August 29, 2001
							(Date of Inception)
	Six Months Ended September 30,						through
	2009			2008			September 30, 2009

CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(862,454	)	$	(255,014	)	$	(10,347,217	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		-			699			237,392
Loss on disposal of property and equipment		1,405			-			1,405
Amortization of loan discount		112,461			-			212,461
Stock-based compensation		-			-			122,740
Change in value of derivative liability		74,745			-			(117,883	)
Issuance of common stock for loan costs		-			-			110,000
Issuance of warrants as loan costs		-			-			85,734
Issuance of common stock for services		-			-			1,438,222
Gain on settlement of accounts payable		-			-			(23,435	)
(Increase) decrease in:					-
Advances to employees		-			-			(1,659	)
Deposits		-			-			(600	)
Increase (decrease) in:
Accounts payable and accrued expenses		53,738			70,843			1,145,775
Accrued officers' salaries		450,000			-			600,000
Interest payable		93,224			52,482			655,037

NET CASH USED IN OPERATING ACTIVITIES		(76,881	)		(130,990	)		(5,882,028	)

CASH FLOW FROM INVESTING ACTIVITES
Acquistion of property and equipment		-			-			(193,797	)

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

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from shareholder advances		10,329			250,000			1,433,527
Repayments of shareholder advances		(140,000	)		(193,011	)		(1,753,577	)
Proceeds from ICE advance		-			-			50,000
Proceeds from note payable-Legacy Investors		-			-			451,428
Proceeds from note payable-Maricopa Equity Management		-			-			100,000
Proceeds from note payable, unrelated party		35,500			-			35,500
Proceeds from convertible notes payable		50,000			-			1,298,699
Proceeds from notes payable, related-party		54,990			-			54,990
Proceeds from sale of subscription receivable		-			25,000			-
Proceeds from sale of common stock		34,925			55,000			4,375,115
Write-off of payable		35,711			-			35,711
Book overdraft		-			(5,999	)		-

NET CASH PROVIDED BY FINANCING ACTIVITIES		81,455			130,990			6,081,393

NET INCREASE (DECREASE) IN CASH		4,574			-			5,568

CASH AT BEGINNING OF THE PERIOD		994			-			-

CASH AT END OF THE PERIOD	$	5,568		$	-		$	5,568

SUPPLEMENTAL DISCLOSURE
Interest paid in cash	$	2,624		$	16,179		$	50,154

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 AND THE PERIOD

AUGUST 29, 2001 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 2009

NON-CASH ACTIVITIES

During the nine months ended September 30, 2009, the Company converted $35,711 owed to an officer into equity.

During the year ended December 31, 2008, the Company issued 1,154,380 shares of common stock for the settlement of $130,945 payable to a related party. As a result the company recorded a gain on settlement of accounts payable of $23,435.

Accrued interest in the amounts of $1,819, $7,632 and $157,754 were capitalized to shareholder advances for the nine months ended September 30, 2009 and 2008, and for the period from August 29, 2001 (inception) through September 30, 2009, respectively. Repayments of advances to shareholders includes payments of capitalized interest.

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.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED)

					Additional
	Common Stock				Paid in		Accumulated
	Shares		Amount		Capital		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, 2005		561,764		277,000		-		-			277,000
Stock options issued, 2005		-		-		106,839		-			106,839
Issuance for consideration of loan, 2005		100,000		110,000		-		-			110,000
Conversion of notes payable, 2005		998,635		1,138,029		-		-			1,138,029
Warrants issued in connection with notes payable , 2005		-		-		85,734		-			85,734
Recapitalization of common equity, note 5		1,615,000		-		-		-			-
Net loss		-		-		-		(1,668,498	)		(1,668,498	)

BALANCE, DECEMBER 31, 2005		20,892,724		3,236,991		192,573		(5,518,564	)		(2,089,000	)
Issuance for cash, 2006		803,179		855,600		-		-			855,600
Compensation expense		-		-		16,401		-			16,401
Issuance of common stock, 2006		550,000		-		-		-			-
Payment on subscription receivable, 2006		-		428,000		-		-			428,000
Issuance for services, 2006		120,000		-		-		-			-
Net loss		-		-		-		(1,280,821	)		(1,280,821	)

BALANCE, DECEMBER 31, 2006		22,365,903		4,520,591		208,974		(6,799,385	)		(2,069,820	)
Issuance for cash, 2007		5,704,583		714,100		-		-			714,100
Issuance for services, 2007		40,000		10,000		-		-			10,000
Payment on subscription receivable, 2007		-		23,000		-		-			23,000
Issuance of common stock, 2007		166,667		-		-		-			-
Net loss		-		-		-		(788,596	)		(788,596	)

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED)

(CONTINUED)

					Additional
	Common Stock				Paid in			Accumulated
	Shares		Amount		Capital			Deficit			Total
BALANCE, DECEMBER 31, 2007		28,277,153		5,267,691		208,974			(7,587,981	)		(2,111,316	)
Payment on subscriptions receivable, 2008		-		25,000		-			-			25,000
Issuance for cash, 2008		4,387,500		176,000		-			-			176,000
Issuance for services, 2008		15,654,650		1,453,222		-			-			1,453,222
Issuance for settlement of liability, 2008		1,154,380		130,945		-			-			130,945
Loan discount on convertible debt, 2008		-		-		150,000			-			150,000
Derivative liability, 2008		-		-		(222,575	)		-			(222,575	)
Net loss		-		-		-			(1,896,782	)		(1,896,782	)

BALANCE, DECEMBER 31, 2008		49,473,683		7,052,858		136,399			(9,484,763	)		(2,295,506	)
Issuance for cash, 2009		2,325,834		34,925		-			-			34,925
Issuance in conjunction with debt, 2009		1,500,000		12,000		-			-			12,000
Capital contribution from officer, non-cash, 2009		-		-		35,711			-			35,711
Loan discount on convertible debt, 2009		-		-		53,629			-			53,629
Derivative liability, 2009		-		-		(109,110	)		-			(109,110	)
Net loss		-		-		-			(862,454	)		(862,454	)

BALANCE, SEPTEMBER 30, 2009		53,299,517	$	7,099,783	$	116,629		$	(10,347,217	)	$	(3,130,805	)

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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. Cardiff International, Inc., is a tech company who has developed a proprietary software system to track and manage consumer purchases from unlimited businesses: service companies, retailers, merchants, health industry, insurance industry, most consumer orientated businesses. Our software infrastructure tracks all commissions, rebates, discounts providing the public the ability to track all savings regardless of what program they participate in as long as the program utilizes the Cardiff technology.

The Company will derive its revenues from merchant commissions, interest earned on member’s savings accounts as well as credit card activation fees, commission earned on all transactions, renewal fee and interest earned on revolving credit balances. The Company expects to commence the launch of Mission Tuition in the fall of 2011.

Interim Financial Statements

The unaudited condensed consolidated financial statements of Cardiff, a development stage company, have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim condensed consolidated financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The balance sheet information as of December 31, 2008 was derived from the audited financial statements included in Form 10K filed June 10, 2011. These interim financial statements should be read in conjunction with that report.

Development Stage Activities

The Company is focusing its efforts in three areas during the development stage. First, the Company is devoting substantial time to the development of the rewards technology software that will be used to capture all transactions at the point of sale, capture the amount of the purchase and track the commission earned from each participating merchant. Second, the Company is working to contract with merchants to participate in the program and add incentives for consumers to both use the rewards program and a Mission Tuition credit card, Third, the Company has developed relationships with several Union groups and 9 State who are interested in offering the rewards program to their members and residents respectively.

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 Company is in the development stage and as such has sustained operating losses since its inception and has negative working capital and an accumulated deficit. These factors raise substantial doubts about the Company’s ability to continue as a going concern. The accompanying financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities 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 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. Should the Company not be able to raise sufficient funds, they may cease their operations.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

Advertising Costs

Advertising costs are charged to expense when incurred. During the nine months ended September 30, 2009 and 2008, the amount charged to expense was $17,000 and $0, respectively. From inception through September 30, 2009, advertising costs was $560,800.

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 estimates. Accordingly, actual results could differ from those estimates.

Valuation of Derivative Instruments

FASB ASC 815-10, Derivatives and Hedging, requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and in accordance with EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” to determine whether they would be considered a derivative liability and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes pricing model. At September 30, 2009, the Company adjusted its derivative liability to its fair value and reflected the increasein fair value of $74,745 as other income on the Condensed Consolidated Statement of Operations.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level Input:		Input Definition:

Level 1		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level 2		Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.

Level 3		Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes fair value measurements by level at September 30, 2009 and December 31, 2008 for assets and liabilities measured at fair value on a recurring basis:

	September 30, 2009
	Level 1		Level 2		Level 3		Total
Derivative liability	$	-	$	-	$	213,802	$	213,802

	December 31, 2008
	Level 1		Level 2		Level 3		Total
Derivative liability	$	-	$	-	$	29,947	$	29,947

The carrying amounts reported on the balance sheet of cash, accounts payable and other accrued expenses approximate fair value due to their relatively short maturity. The carrying amount of notes payable and advances from shareholders approximate fair value based on prevailing interest rates.

Derivative liability was valued under the Black-Scholes model using the following assumptions at September 30, 2009 and December 31, 2008:

	September 30, 2009	December 31, 2008
Risk free interest rate	0.04% - 2.375%	0.05% - 1.50%
Volatility	100%	100%
Term	0.01 - 4.99 Years	0.30 - 4.79 Years
Dividend yield	0.00%	0.00%

The following is a reconciliation of the value of the derivative liability:

Value at December 31, 2007	$	-
Reclassification of financial instrument from equity to liabilities		222,575
Decrease in value of derivative liability		(192,628	)
Value at December 31, 2008		29,947

Reclassification of financial instrument		109,110
Increase in value of derivative liability		74,745
Value at September 30, 2009	$	213,802

Stock Based Compensation

The Company accounts for stock options in accordance with guidance issued by the FASB using the modified prospective method. Under this method, compensation cost recognized during the periods include: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with guidance issued by the FASB amortized over the options' vesting period, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with guidance issued by the FASB amortized on a straight-line basis over the options' vesting period.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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		life of lease

During the nine months ended September 30, 2009 and 2008, depreciation expense was $0 and $699, respectively.

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 since April 18, 2005, when the Company was incorporated, the Company accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes, if any, represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Earnings (Loss) per Share

The Company reports its earnings (loss) per share in accordance with guidance issued by the FASB. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive.

Principles of Consolidation

The consolidated financial statements include the accounts of Cardiff International, Inc. and its wholly owned subsidiary, Legacy Card Company. All significant intercompany accounts and transactions are eliminated in consolidation.

Reclassifications

The Company reclassified certain amounts from 2008 to conform to the current year presentation.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS 157 (ASC Topic 820), Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. In February 2009, FASB Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 to fiscal years and interim periods within those fiscal years beginning after November 15, 2009 for 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 (at least annually). We elected to defer the adoption of the Standard for these non-financial assets and liabilities, and are currently evaluating the impact, if any, that the deferred provisions of the Standard will have on our consolidated financial statements. Because we did not elect to apply the fair value accounting option, the adoption of SFAS 157 for our financial assets and liabilities did not have an impact on our financial position or operating results.

In December 2008, the FASB issued SFAS No. 141(R) (ASC Topic 805), Business Combinations, and SFAS No. 160 (ASC Topic 810), Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. These new standards will significantly change the financial accounting and reporting of business combination transactions and noncontrolling (or minority) interests in consolidated financial statements. SFAS 141(R) is required to be adopted concurrently with SFAS 160 and is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2009. Early adoption is prohibited. We do not anticipate that the adoption of this accounting pronouncement will have a material effect on our consolidated financial statements.

In February 2008, the FASB issued SFAS No. 159 (ASC Topic 825), The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115, which is effective for us in fiscal years beginning after July 1, 2009. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We do not anticipate that the adoption of this accounting pronouncement will have a material effect on our consolidated financial statements.

In March 2009, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 161 (ASC Topic 815), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about a company's derivative and hedging activities. These enhanced disclosures will discuss (a) how and why a company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect a company's financial position, results of operations and cash flows. SFAS No. 161 is effective for fiscal years beginning on or after November 15, 2009, with earlier adoption allowed. We do not anticipate that the adoption of this accounting pronouncement will have a material effect on our consolidated financial statements.

In June 2009 the FASB established the Accounting Standards Codification ("Codification" or "ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change will not impact our financial statements. The ASC does change the way the guidance is organized and presented.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events, Amendments to Certain Recognition and Disclosure Requirements” which made a number of changes to the existing requirements to the FASB Accounting Standards Codification 855 Subsequent Events. The amended guidance was effective upon issuance and as a result of the amendments, SEC filers that file financial statements after February 24, 2010 are not required to disclose the date through which subsequent events have been evaluated.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements” which is intended to enhance the usefulness of fair value measurements by requiring both the disaggregation of the information in certain existing disclosures, as well as the inclusion of more robust disclosures about valuation techniques and inputs to recurring and non-recurring fair value measurements. The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 31, 2010 and for interim periods within those years. This ASU is not expected to have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU 2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary – Scope Clarification” which is intended to clarify which transactions require a decrease in ownership provisions particularly for non-controlling interests in consolidated financial statements. In addition, it requires increased disclosures about deconsolidation of a subsidiary. It requires retrospective application and is effective for the first interim or annual periods ending on or after December 15, 2009. Adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU 2020-01 “Accounting for Distributions to Shareholders with Components of Stock and Cash” which is intended to clarify the accounting treatment for a stock portion of a shareholder distribution that (1) contains both cash and stock components, (2) allows shareholders to select their preferred form of distribution, and (3) limits the total amount of cash to be distributed. It defines a stock dividend as a dividend that takes nothing from the property of an entity and adds nothing to the interests of an entity’s shareholders because the proportional interest of each shareholder remains the same. The stock portion of the distribution must be treated as a stock issuance and be reflected in the EPS calculation prospectively. It requires retrospective application and is effective for annual periods ending on or after December 15, 2009. Adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

In August 2009, the FASB issued ASU 2009-15, which changes the fair value accounting for liabilities. These changes clarify existing guidance that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using either a valuation technique that uses a quoted price of either a similar liability or a quoted price of an identical or similar liability when traded as an asset, or another valuation technique that is consistent with the principles of fair value measurements, such as an income approach (e.g., present value technique). This guidance also states that both a quoted price in an active market for the identical liability and a quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This ASU will be adopted effective on January 1, 2010 and we do not expect it will have a material impact on our consolidated financial statements.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

2. RELATED PARTY TRANSACTIONS

Due to Officers

The Company borrows funds from Daniel Thompson and Gary Teel; both of whom are Shareholders and Officers of the Company. The terms of repayment stipulate the loans are due twenty-four (24) months after the launch of the Legacy Tuition Card (or prior to such date) at an annual interest rate of six (6) percent. In addition, the Company has employment agreements with these officers (see Employment Agreements). The total balance due to Daniel Thompson and Gary Teel for accrued salaries, advances, and accrued interest, at September 30, 2009 and December 31, 2008, was $494,622 and $172,473, respectively.

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 through September 30, 2008. Effective October 1, 2008, both Daniel Thompson and Gary Teel have cancelled their waiver and the Company has accrued these salaries in accordance with the terms of the employment agreements. At September 30, 2009 and December 31, 2008, $450,000 and $150,000 has been accrued in connection with their employment agreements, respectively. These amounts are included as amounts Due to Officers on the balance sheet. During the nine months ended September 30, 2009, $76,500 of salaries has been paid to Danny Thompson and no salaries were paid to Gary Teel.

Accounts Payable- Related Party

During the year ended December 31, 2008, the Company issued 1,154,380 shares of common stock for the settlement of $130,945 payable to a related party. At September 30, 2009 and December 31, 2008 the Company had amounts payable to this related party of $125,536 and $73,087, respectively, for professional services rendered.

3. NOTES PAYABLE, ESCROW DEPOSIT & LOAN FEES

Legacy Investors, LLC

On August 5, 2004, the Company entered into a loan agreement with Legacy Investors, LLC, aFlorida limited liability company. The initial loan amount of $1,000,000 (the “Initial Loan Amount”) was made by Legacy Investors, LLC upon the satisfaction of the post-closing covenant, comprised of a convertible debenture in the amount of $500,000 and an initial debenture for the amount of $500,000. Legacy Investors, LLC required funds to be deposited into an escrow account. Disbursements were required to be from an escrow agent. The convertible debenture and initial debentures bear interest at 10.00% per year and matured in August 2006. The indebtedness was convertible into Series A Preferred Membership interests of the Company. This loan is secured by all assets of the Company.

During 2004, the Company received $451,428, assumed $106,572 of fees, and the balance of $442,000 was deposited in an escrow account. In May 2005, $382,000 was paid back to Legacy Investors, LLC and $60,000 of fees was left with the escrow agent. During 2008, an additional $100,000 was repaid by an officer on behalf of the Company. The balance on the note payable was $518,000 at September 30, 2009 and December 31, 2008, of which a portion is convertible into shares of the Company’s common stock.

Under an event of default, the interest rate on both debentures increases to 18% and the terms of repayment and the maturity dates are subject to change. The Company is in default under the terms of the loan agreement as of September 30, 2009 and continues to accrue interest on the outstanding principal balance.

Maricopa Equity Management Corporation

On October 27, 2005, the Company entered into a loan agreement in the amount of $100,000 with Maricopa Equity Management Corporation. The loan bears interest at 8% per annum and became due at the closing of the merger with Cardiff International, Inc. In connection with the loan, the Company issued 100,000 shares of common stock in 2005. The balance on the loan was $100,000 at September 30, 2009 and December 31, 2008. At September 30, 2009, the Company was in default on this loan agreement.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

International Card Establishment, Inc.

The Company entered into an agreement with International Card Establishment, Inc. (“ICE”) on April 19, 2007 whereby ICE will be the exclusive provider for the rewards and loyalty programs related to merchant contributions to a 529 College Savings Plan.

In connection with the agreement, the Company received a $50,000 advance from ICE during the second quarter of 2008. This advance is to be repaid within 120 days of written notice by ICE if the Company launches the card in a test market and the results of that test launch prove to be unsuccessful. If the Company fails to make the required payment within 120 days, the Company will be granted an additional 30 day period to remedy the default. If the Company does not remedy the default within this 30 day period, ICE may, at its discretion, convert the $50,000 debt to equity equaling 10% of the outstanding stock of the Company on a fully diluted basis.

Also, if ICE determines that the test launch was successful, ICE shall obtain up to three (3) $500,000 loan facilities for the Company within five (5) business days of the successful completion of the test launch. The Company will be required to repay the $50,000 advance directly from the loan proceeds. Upon receipt of each of the $500,000 loan facilities, the Company shall issue ICE a warrant to purchase three and one-third percent (3 1/3%) of the Company’s outstanding common stock on a fully diluted basis as of the date of issuance. Each warrant shall have an exercise price equal to $200,000 and shall have a five (5) year term from the issuance date.

All warrants will have a cashless exercise provision and shall entitle ICE to one (1) demand registration right for each warrant, at the Company’s expense.

The balance outstanding on the advance from ICE at September 30, 2009 and December 31, 2008 was $50,000.

Note Payable – Unrelated Party

On June 2, 2009, the Company entered into a Loan Agreement with an unrelated party for $50,000. As of September 30, 2009, $35,500 of this loan was funded. The note is non-interest bearing and matured on September 2, 2009. In conjunction with the Loan, the Company issued 1,500,000 warrants to purchase its common stock, exercisable at $0.20 per share and expire June 2, 2014. As of August 9, 2011, the Company is in default on this Preferred Debenture and the warrants have not been exercised.

Convertible Note Payable – Related Party

On April 21, 2008, the Company entered into a Convertible Debenture with a shareholder in the amount of $150,000. The Debenture is convertible into common shares of the Company at $0.03 per share at the option of the holder no earlier than August 21, 2008. The Debenture bears interest at 12% per year, and matured in August 2009, and is unsecured. All principal and unpaid accrued interest is due at maturity. In conjunction with the Convertible Debenture, the company also issued warrants to purchase 5,000,000 shares of the Company’s common stock at $0.03 per share. The warrants expire on April 20, 2013. As a result of issued warrants, the Company recorded a $150,000 debt discount during 2008. As ofSeptember 30, 2009, the Company is in default on this Convertible Debenture and the warrants have not been exercised.

On March 11, 2009, the Company entered into a Convertible Debenture with a shareholder in the amount of $15,000. The Debenture is convertible into common shares of the Company at $0.03 per share at the option of the holder. The Debenture bears interest at 12% per year, matures March 11, 2014, and is unsecured. All principal and unpaid accrued interest is due at maturity.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

On April 29, 2009, the Company entered into an unsecured Convertible Debenture agreement with a shareholder in the amount of $35,000. The Debenture bears interest at 12% per year and matures on April 29, 2011. The Debenture is convertible into common shares of the Company at $0.08 per share at the option of the holder no earlier than August 21, 2009. All principal and unpaid accrued interest is due at maturity and as of August 18, 2011 the Company is in default on this Convertible Debenture.

Note Payable – Related Party

On March 12, 2009, the Company entered into a Preferred Debenture agreement with a shareholder for $20,000. The note bears interest at 12% per year and matures on September 12, 2009. In conjunction with the Preferred Debenture, the Company issued 2,000,000 warrants to purchase its common stock, exercisable at $0.10 per share and expire March 12, 2014. On March 24, 2011, the Company amended the note and the principal balance was reduced to $15,000. The Company is due to pay annual principal payments of $5,000 plus accrued interest beginning March 12, 2012 (see note 8).

On April 27, 2009, the Company entered into a Preferred Debenture agreement with a shareholder for $20,000. The note bears interest at 12% per year and matures on October 27, 2009. In conjunction with the Preferred Debenture, the Company issued 2,000,000 warrants to purchase its common stock, exercisable at $0.10 per share and expire on April 27, 2014. As of August 18, 2011 the Company is in default on this Preferred Debenture and the warrants have not been exercised.

On May 27, 2009, the Company entered into an unsecured Promissory Note with a shareholder for $15,000. The Note bears interest at 10% per year and matures on August 26, 2009. In conjunction with the Note, the Company issued 1,500,000 shares of its common stock to the lender. During April 2011, the Company repaid the principal and interest balance due under this Note.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Future minimum payments due under these notes payable are as follows:

12-months ending September 30,	Related Parties		Unrelated Parties		Total
2010	$	189,990	$	703,500	$	893,490
2011		35,000		-		35,000
2012		5,000		-		5,000
2013		5,000		-		5,000
2014		20,000		-		20,000
		254,990		703,500		958,490
Less loan discount		3,168		-		3,168
Net loan balance	$	251,822	$	703,500	$	955,322

4. COMMITMENTS AND CONTINGENCIES

Operating Leases

Rent expense for the nine months ended September 30, 2009 and 2008 was $0 and $0, respectively. From inception through September 30, 2009, rent expense was $514,936.

Litigation

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 of the Company in the amount of $225,000, payable in monthly installments of $25,000, which resulted in a gain of $36,958. The unpaid amount balance amounted to $156,250 at December 31, 2006. The remaining balance due was paid in 2007.

Payroll Taxes

The Company has failed to remit payroll tax payments since 2006, as required by various taxing authorities. When payment is ultimately made management believes that the Company will be assessed various penalties for the delayed payments. As of September 30, 2009, management was unable to estimate the amount of penalties that the Company would incur as a result of these unpaid taxes.

Cash Deposits

The Company maintains its cash at a financial institution which may at times exceed federally insured limits. The Company had no uninsured deposits as of September 30, 2009.

5. RECAPITALIZATION

In November 2005, Legacy Card consummated a transaction, pursuant to which Cardiff International, Inc. acquired all the outstanding shares of Legacy Card, with Legacy Card surviving as a wholly-owned subsidiary of Cardiff International. Legacy Card recorded this transaction as a recapitalization followed by the issuance of shares to the shareholders of Cardiff International. Prior to the recapitalization transaction, Cardiff International was not an operating company, and had no assets. Under the terms of the transaction, Cardiff International issued 18,000,000 shares of Cardiff International common stock to the former shareholders of Legacy Card in exchange for all the outstanding shares of Legacy Card.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

6. INCOME TAXES

At September 30, 2009, the Company has net operating loss carryforwards available for federal tax purposes. Because of statutory “ownership changes” the amount of net operating losses which may be utilized in future years are subject to significant annual limitations. The Company also has operating loss carryforwards available for state tax purposes. As of September 30, 2009 management is still determining the amount of net operating loss carryforwards that are available to offset federal and state taxable income and their respective expiration dates.

As of September 30, 2009 and December 31, 2008, total deferred income tax assets consist principally of net operating loss carryforwards which have been fully reduced by a valuation allowance due to the uncertainty surrounding their ultimate realization.

The Company has adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. There were no interest and penalties for the nine months ended September 30, 2009 and 2008, respectively. The Company files income tax returns with the Internal Revenue Service (“IRS”) and various states. For jurisdictions in which tax filings are prepared, the Company is no longer subject to income tax examinations by state tax authorities for tax years through 2003, and by the IRS for tax years through 2004. The Company’s net operating loss carryforwards are subject to IRS examination until they are fully utilized and such tax years are closed. As of September 30, 2009 the Company has not filed all statutory filings.

7. STOCK OPTIONS AND WARRANTS

Stock Options

The Company has granted no stock options to consultants or employees since 2005. Stock-based compensation expense was $0 and $0 for the nine months ended September 30, 2009 and 2008, and $122,740 from August 29, 2001 (date of inception) through September 30, 2009.

The following is a schedule summarizing stock option activity for the year ended December 31, 2008 and nine months ended September 30, 2009:

			Weighted-
	Number of		Average
	Options		Exercise Price
Outstanding at January 1, 2007		425,000	$	1.37
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding at December 31, 2008		425,000		1.37
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding at September 30, 2009		425,000	$	1.37
Exercisable at September 30, 2009		425,000	$	1.37

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

As of September 30, 2009, the total unrecognized fair value compensation cost related to non-vested stock options was $0.

Information about stock options outstanding at September 30, 2009 is summarized below:

				Weighted-	Weighted-				Weighted-
				Average	Average				Average
Exercise		Shares		Remaining	Exercise Price of		Shares		Exercise Price of
Price		Outstanding		Contractual Life	Shares Outstanding		Exercisable		Shares Exercisable

$	1.25		325,000	1.25 years	$	1.25		325,000	$	1.25
$	1.75		100,000	1.25 years	$	1.75		100,000	$	1.75
			425,000					425,000

Warrants

The Company also issued warrants to purchase shares of common stock in 2009 and 2008. As of September 30, 2009, the Company has approximately 17,713,407 warrants outstanding with exercise prices ranging from $0.01 per share to $1.75 per share. These warrants expire through March 2014.

The following table summarizes information about warrants outstanding at September 30, 2009:

		Weighted-
		Average
Exercise	Number of	Remaining
Prices	Warrants	Life

$0.03 - $0.15	17,420,834	3.94 years
$0.25 - $0.50	4,043,334	3.19 years
$1.10 - $1.75	1,082,573	.90 years
Total warrants outstanding:	22,546,741

8. SUBSEQUENT EVENTS

Notes Payable

On June 2, 2009, the Company entered into a Loan Agreement with an unrelated party for $50,000 (see note 3). During the fourth quarter of 2009, the balance under this loan of $14,500 was funded.

On October 8, 2009, the Company entered into a Preferred Debenture agreement with an individual who is a shareholder and employee of the Company for $250,000. The Debenture bears interest at 7% per year and matures on October 1, 2014. The principal and interest balances are due upon maturity. In conjunction with the Debenture, the Company will issue 2,500,000 shares of its common stock to this lender, to be distributed at 500,000 shares per year for five years commencing October 1, 2009. As of August 18, 2011, the Company has distributed 500,000 shares and is due to distribute the remaining 2,000,000 shares of its common stock to the lender.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

On June 3, 2010, the Company entered into an unsecured Convertible Promissory Note agreement with an unrelated party for $250,000. The Note bears interest at 8% per year and matures on June 3, 2011. The Note is convertible into the Company’s common shares at $0.08 per share. As of August 18, 2011, the Company is in default on this Note.

On February 8, 2011, the Company entered into a Promissory Note agreement with an unrelated party for $200,000. The Note bears interest at 8% per year and matures on February 8, 2016. Interest is payable annually on the anniversary of the Note, and the principal and any unpaid interest will be due upon maturity. In conjunction with the Note, the Company issued 10,000,000 shares of its common stock to the lender.

On March 10, 2011, the Company entered into a Promissory Note agreement with an unrelated party for $25,000. The Note bears interest at 8% per year and matures on March 10, 2015. Interest is payable annually on the anniversary of the Note, and the principal and any unpaid interest will be due upon maturity. In conjunction with the Note, the Company issued 1,250,000 shares of its common stock to the lender.

On March 24, 2011, the Company amended a note payable to a shareholder in the amount of $20,000 (see note 3). The amendment provided for a reduction in the principal balance to $15,000 and for repayment in annual installments of principal in the amount of $5,000 plus accrued interest, commencing March 12, 2012.

During July 2011, the Company entered into a Promissory Note agreement with a related party for $50,000. The Note bears interest at 8% per year and matures on May 16, 2016. Interest is payable annually on the anniversary of the Note, and the principal and any unpaid interest will be due upon maturity. In conjunction with the Note, the Company issued 3,500,000 shares of its common stock to the lender.

Employment Agreement

On October 8, 2009, the Company entered into a five-year Employment Agreement for the Company’s new President. The employment agreement calls for a salary of $180,000 per year. In conjunction with the employment agreement, the Company granted stock options for 2,500,000 shares of its common stock with an option price of $0.10 per share. The options vest at a rate of 500,000 shares each year for five years.

On June 1, 2011, the Company entered into a five-year Employment Agreement for the Company’s new Chief Operating Officer. The employment agreement calls for a salary of $240,000 per year. In conjunction with the employment agreement, the Company granted stock options for 2,500,000 shares of its common stock with an option price of $0.10 per share. The options vest at a rate of 500,000 shares each year for five years.

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Severance Agreement with Officer

On September 1, 2010, the Company entered into a Severance Agreement with the Gary Teel, the Company’s former CFO. As part of the severance agreement, the Company will pay Mr. Teel $90,000 in 36 monthly installments, commencing on September 1, 2010 and the unpaid accrued salaries of September 1, 2010 are no longer due.

Stock Options and Warrants

On February 3, 2010, the Company issued options to purchase 2,000,000 shares of the Company’s common stock at $0.10 per share to a related party. The options expire on February 3, 2015 and vested immediately. As of August18, 2011, there have been no options exercised.

On February 3, 2010, the Company issued options to purchase 3,000,000 shares of the Company’s common stock at $0.05 per share to its officer. The options expire on February 3, 2015 and vested immediately. As of August 18, 2011, there have been no options exercised.

Issuance of Common Stock

The Company received $204,000 in exchange for 2,564,891 shares of common stock from October1, 2009 through August 18, 2011.

The Company issued 60,000 shares of common stock for services with a total value of $3,000 from October1, 2010 through August 18, 2011.

The Company granted 17,250,000 shares of common stock from October1, 2009 through August 18, 2011 as part of fourfinancing agreements. As of August 18, 2011, 15,500,000 shares were due to be issued.

Total shares of common stock issued from October1, 2009 through August 18, 2011 totaled 19,874,891. At August 18, 2011, there were 15,500,000 shares due to be issued.

On April 21, 2011, 8,275,000 shares of the Company’s common stock were returned and cancelled.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements including the related notes, and the other financial information included in this report. For ease of reference, “we,” “us” or “our” refer to Cardiff International, Inc., and Legacy Card Company, Inc. 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 International, Inc. 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 International, Inc., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of Cardiff International, Inc. 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.

Operating History. We have not commenced active business operations. We anticipate we will commence active operations during the third quarter of 2011. 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 a 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 June 9, 2011, for the years ended December 31, 2008 and 2007 and from August 29, 2001 (date of inception) through December 31, 2008 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 Limited Market. The Educational Rewards program is one of three national programs available to families. We cannot guarantee that we will compete successfully against our potential competitors, especially those with significantly greater financial resources or brand name recognition.

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.

Cardiff International, Inc., a tech company who has developed a proprietary software system to track and manage consumer purchases from unlimited businesses: service companies, retailers, merchants, health industry, insurance industry, most consumer orientated businesses. Our software infrastructure tracks all commissions, rebates, discounts providing the public the ability to track all savings regardless of what program they participate in as long as the program utilizes the Cardiff technology.

Cardiff’s first national program will be ready to launch during the third quarter 2011 is “Mission Tuition” a rewards program that helps solve a real need for families – saving for education. The Mission Tuition program is easy to understand and use, and is emotionally positioned to appeal to all consumers. The Mission Tuition Rewards program will become the rewards program of preference for every day spending for families with young children.

The program leverages the two biggest economic forces in society – consumer spending and consumer savings –to create the most unique value-added rewards program in decades.

The potential success of the Mission Tuition program involves the participation of three groups: (i) Cardiff as the marketer, (ii) The merchant coalition, (iii) the member. As a result of our merchant coalition and cash rebate program we expect that the member will become loyal customers of the coalition merchants and participating banks.

Participating merchants will provide both a member discount and a cash rebate on total purchases between 1% to 30% to our member’s educational savings account. The retailer contribution can be supplemented by additional cash rebates by using the Mission Tuition MasterCard. This issuing bank contribution is applicable no matter where the cardholder shops, therefore encouraging regular and daily usage of the Mission Tuition MasterCard.

The Mission Tuition program is expected to launch during the third quarter 2011.

The auditors’ report for the years ended December 31, 2008 and 2007 include a going concern qualification.

Liquidity and Capital Resources

At September 30, 2009

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, 2009, we had $5,568of cash and cash equivalents and total assets amounted to $7,827. At December 31, 2008 we had $994 of cash and cash equivalents, and total assets amounted to $ 4,657, which include fixed assets and other assets.

Net cash used in operating activities was $76,881 and $130,990 for the nine months ended September 30, 2009 and 2008, respectively. The decrease in the amount of net cash used in operating activities during the nine months ended September 30, 2009 compared to the same period last year was attributable to theincrease in net loss to $862,454 for the nine months ended September 30, 2009, compared to $255,014 for the same period last year. The current period loss was primarily offset by the following non-cash transactions: an increase in accrued officers’ salaries of $450,000 and amortization of loan costs of $112,461.

Net cash provided by financing activities was $81,455and $130,990 for the nine months ended September 30, 2009 and 2008, respectively. The cash flows from financing activities during the nine months ended September 30, 2009 was attributable to proceeds from the sale of common stock of $34,925, proceeds from notes payable of $140,490, and the write-off of payables due to an officer of $35,711. In addition, we repaid $140,000 of officers’ advances, which includes $76,500 in payments of salaries owed to the officers,and received $10,329in officer advances during the nine months ended September 30, 2009.

We have incurred operating losses since inception and at September 30, 2009, we had an accumulated deficit of $10,347,217.

Current liabilities at September 30, 2009 consisted primarily of accounts payable and accrued expenses of $663,742, accounts payable to a related party of $125,536, payroll tax payable of $233,423, amounts due to officers of $494,622, convertible and non-convertible promissory notes in the amount of $890,322 accrued interest in the amount of $452,185, and derivative liabilities in the amount of $213,802. Current liabilities at December 31, 2008 consisted primarily of accounts payable of $698,435, accounts payable to related party of $73,087, amounts due to officers of $172,473, convertible and non-convertible notes in the amount of $768,000, accrued interest in the amount of $360,780, and derivative liabilities in the amount of $29,947.

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. We are currently attempting to obtain additional working capital in a term loan transaction. Additionally, we anticipate that our credit card will be launched in the third quarter of 2011 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 Nine MonthsEnded September 30, 2009 and 2008

We had minimaloperating revenues for the nine months ended September 30, 2009 and no operating revenues for the nine months ended September 30, 2008.

We had operating expenses of $571,146 and $201,617 for the nine months ended September 30, 2009 and 2008, respectively, representing an increase of $369,529. The increase was primarily due to increase in officers’ salaries.

We had a net loss of $862,454 for the nine months ended September 30, 2009 compared to a net loss of $255,014for the nine months September 30, 2008, representing an increase of $607,440. The increase was primarily due to increases in operating expenses, compounded by a change in the value of derivative liabilitiesof $74,745and an increase in interest expense of $161,862 due to increases in promissory notes payable outstanding during the period.

For the Three Months Ended September 30, 2009 and 2008

We had minimal operating revenues for the nine months ended September 30, 2009 and no operating revenues for the three months ended September 30, 2008.

We had operating expenses of $163,481 and $106,909 for the three months ended September 30, 2009 and 2008, respectively, representing an increase of $56,572. The increase was primarily due to increase in officers’ salaries.

We had a net loss of $262,179 for the three months ended September 30, 2009 compared to a net loss of $124,240for the three months September 30, 2008, representing an increase of $137,939. The increase was primarily due to increases in operating expenses, compounded by a change in the value of derivative liabilities of $37,881 and an increase in interest expense of $43,587 due to increases in promissory notes payable outstanding during the period.

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-K for the year ended December 31, 2008.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. On an on-going basis, we evaluate the appropriateness of our estimates and we maintain a thorough process to review the application of our accounting policies. Our actual results may differ from these estimates.

We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different results when using different assumptions. We have discussed these critical accounting estimates, the basis for their underlying assumptions and estimates and the nature of our related disclosures herein with the audit committee of our Board of Directors. We believe our accounting policies specific to share-based compensation expense and estimation of the fair value of derivative liability involve our most significant judgments and estimates that are material to our consolidated financial statements. They are discussed further below.

Derivative Liability

We have issued warrants of our common stock, and the amended these warrants. The warrant agreements include provisions that require us to record them as a liability, at fair value, pursuant to FASB accounting rules, including the requirement to deliver registered shares upon exercise, which is considered outside of our control. The warrant liabilities are marked-to-market each reporting period and changes in fair value are recorded as a non-operating gain or loss in our statement of operations, until they are completely settled or expire. The fair value of the warrants is determined each reporting period using the Black-Scholes option pricing model, and is affected by changes in inputs to that model including our stock price, expected stock price volatility, interest rates and expected term.

The change in fair value of the derivative liability amounted to a net lossof $74,745 and $0 for the nine months ended September 30, 2009 and 2008, respectively. The lossesresulted mainly from a slight increase in the Company’s stock price. We will continue to re-measure the derivative liability at fair value each quarter-end until they are completely settled or expire.

Share-based compensation expense

We account for the issuance of stock, stock options and warrants for services from employees and non-employees based on an estimate of the fair value of options and warrants issued using the Black-Scholes pricing model. This model’s calculations include the exercise price, the market price of shares on grant date, weighted average assumptions for risk-free interest rates, expected life of the option or warrant, expected volatility of our stock and expected dividend yield.

The amounts recorded in the financial statements for share-based expense could vary significantly if we were to use different assumptions. For example, the assumptions we have made for the expected volatility of our stock price have been based on the historical volatility of our stock, measured over a period generally commensurate with the expected term. If we were to use a different volatility than the actual volatility of our stock price, there may be a significant variance in the amounts of share-based compensation expense from the amounts reported.

Off Balance Sheet Arrangements

As of September 30, 2009, we had no off balance sheet arrangements.

Recent Accounting Pronouncements

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURESEVALUATION 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, 2009 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 otherareas 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 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in the Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to Vote of Security Holders

None.

Item 5. Other Information

None.

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 President 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.

	32.2	Certification by the President 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.

	CARDIFF INTERNATIONAL, INC.

Dated: August 19, 2011	By:	/s/ Daniel Thompson
		Daniel Thompson
		Chief Executive Officer