Cardiff Lexington Corp - Annual Report: 2011 (Form 10-K)

cardiff_10k-123111.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-49709

CARDIFF INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

COLORADO	84-1044583
(State of jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

16255 Ventura Boulevard, Suite 525 Encino, CA	91436
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (818) 783-2100

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

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

Check whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o

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 x No o.

Indicate by checkmark if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act: 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

State Issuer’s revenues for its most recent fiscal year: $0

As of December 31, 2011 there were 40,281,032 shares of the Issuer’s common stock held by non-affiliates.

The number of shares outstanding of the Registrant’s Common Stock (inclusive of book entry shares that are subject to vesting) as of March 30, 2012, was 52,194,408.

FORWARD-LOOKING STATEMENTS

We believe this annual report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management, based on information currently available to our management. When we use words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely” or similar expressions, we are making forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations set forth under “Business” and/or “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Our future results and stockholder values may differ materially from those expressed in the forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict. Stockholders are cautioned not to put undue reliance on any forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors.” In addition to the Risk Factors and other important factors discussed elsewhere in this annual report, you should understand that other risks and uncertainties presented in our public announcements and SEC filings could affect our future results and could cause results to differ materially from those suggested by the forward-looking statements.

TABLE OF CONTENTS

	Page

PART I

Item 1. Description of Business	4

Item 1A. Risk Factors	6

Item 1B. Unresolved Staff Comments	7

Item 2. Properties	7

Item 3. Legal Proceedings	7

Item 4. Submission of Matters to a Vote of Security Holders	7

PART II

Item 5. Market for the Registrant’s Common Stock and Related Security Holder Matters	8

Item 6. Selected Financial Data	9

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 8. Financial Statements	12

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	30

Item 9A. Controls and Procedures	30

Item 9B. Other Information	30

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	31

Item 11. Executive Compensation	32

Item 12. Security Ownership of Certain Beneficial Owners and Management	33

Item 13. Certain Relationships and Related Party Transactions	34

Item 14. Principal Accountant Fees and Services	34

Item 15. Exhibits	35

PART I

ITEM 1. DESCRIPTION OF BUSINESS

On November 10, 2005, Cardiff International, Inc. (“Cardiff”), a Colorado corporation, acquired Legacy Card Company, Inc. (“Legacy”), a privately held Nevada corporation in a triangular merger transaction (the “Merger”). The effective date of the Merger was November 10, 2005. As a result of the Merger, Legacy is now a wholly owned subsidiary of Cardiff.

Legacy was formed as a California limited liability company in August 2001. In April 2005, Legacy was converted into a Nevada corporation.

The Plan of Merger provided for the issuance by Cardiff to the stockholders of Legacy of an aggregate of 18,000,000 shares of Cardiff common stock, no par value per share in connection with the Merger. As a result of the Merger, the former stockholders of Legacy are now the controlling stockholders of Cardiff. As part of the Merger, the officers and directors of Cardiff, resigned from their positions as officers and directors of Cardiff and the officers and directors of Legacy were appointed as officers and directors of Cardiff at the effective time of the Merger.

As a result of the Merger described above, on November 1, 2005 Legacy became a subsidiary of Cardiff. Cardiff International, Inc. is the parent company for the Mission Tuition Rewards program, which is targeted to families focused on saving money for educational needs.

In January 2006, Cardiff changed its fiscal year end to December 31st from September 30th.

Description of Business

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 launched in the third quarter of 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 provide Cardiff a commission to drive customers to their site or location and Cardiff shares this commission with the merchant. Cardiff will provide a cash rebate on all purchases between made which goes directly into their personal educational savings account . The cash back 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.

What Is Mission Tuition

Mission Tuition has built one of the largest merchant shopping networks in America consisting of all the top name merchants; offering in-store savings and coupon savings with local, regional and national merchants throughout America. With each purchase Cardiff provides members with substantial savings and/or a cash rebate to their educational savings account. Members have thousands of leading retailers to shop and save. Our tax-free educational savings program provides a platform for “educational savings” which encourages regular and daily use of the program. Cardiff’s Mission Tuition program helps families save for college. Mission Tuition encourages members to contribute to their educational savings with contributions generated by on-line and in-store purchases.

The Mission Tuition MasterCard

The Mission Tuition MasterCard is a unique credit card that provides the user the opportunity to earn additional cash contributions anywhere MasterCard is honored. Regardless a Mission Tuition merchant or not the user earns additional cash rewards on total spending. Thousands leading retailers are part of our tuition rewards program. Contributions range from 1% to 30% on total purchases plus with the use of the Mission Tuition MasterCard users can earn additional cash rebates.

The Mission Tuition Card is the result of years of development, focus groups and other market research studies. Our brand, image, programming, sales and marketing have been carefully crafted to appeal to virtually every concerned American parent and grandparent, since our card addresses every family’s critical need -- saving for college -- and every family's fear -- not having enough when the time comes, to send junior to college.

Wells Fargo Bank

The Omnibus account will reside at Wells Fargo Bank. Cardholders who elect not to activate a 529 immediately will have the option to participate in Higher Educational Omnibus Savings program residing at Wells Fargo Bank. Once the cardholder reaches the required amount ($250 minimum in most states) Cardiff will notify Mission Tuition members they now qualify for their state’s 529 program providing them the necessary information to designate a State Fund Manager.

Omnibus Account

Cardiff opened an account with Wells Fargo Bank so all cash rebates will go directly into this account prior to any transfer to a 529 State Managed account.

State Managed 529 Plans

Each state has entered into a contractual agreement with accredited fund managers (i.e.) Alliance Bernstein, JP Morgan, CIAA-CREF, Wells Fargo, etc. to manage and administer their 529 programs.

Description of Section 529 Plans

Section 529 plans were authorized by congress to provide tax incentives savings for qualified higher education expenses (QHEE). Earnings in 529 plans are tax-free if withdrawals are made for QHEE, otherwise there is a 10% penalty on the earnings, which are taxed at ordinary rates. Although nonqualified withdrawals are subject to a 10% penalty on the earnings, taxes on the earnings are deferred until withdrawal. Federal legislation passed in 1996 allows states to create section 529 plans.

Section 529 plans are of two types. One is a tuition credit plan and the other is a savings plan. Section 529 provides that qualified state tuition programs shall be exempt from taxation. Such plans must be established and maintained by a State agency or instrumentality thereof. Most states have outsourced the management of their programs to investment advisory or financial service firms. While each state has its own specific requirements, the salient requirements applicable to all plans are:

1. Only cash contributions are allowed.

2. There must be separate accounting for each designated beneficiary.

3. There may be no investment direction by any contributor to, or designated beneficiary under, such program. The account owner may choose among several broad-based investment options once per year.

4. No interest in the program may be used as security for a loan.

5. The program must provide adequate safeguards to prevent contributions on behalf of a designated beneficiary in excess of those necessary to provide for the QHEE of the beneficiary.

6. There must be a penalty imposed on distributions from an account that are not used for QHEE, except death or disability of the designated beneficiary, or to the extent the designated beneficiary receives a scholarship.

Launching Mission Tuition

Cardiff International, Inc. is poised to achieve spectacular success. With over five years of investment, hard work, and hard learning, we believe that our company has the contractual arrangements, functional abilities, and most significantly, the revolutionary “best widget” that has ever been actualized in our sphere. Tying together these factors, we are pleased to offer our partners an undeniable business model.

Cardiff Merchant Coalition

As of December 31, 2011, over 20,000 businesses were part of the Cardiff Merchant Coalition, several with multiple locations throughout America.

Issuer of the Mission Tuition MasterCard

Cardiff entered into an agreement with Amalgamated Bank of Chicago.

Various Agreements

In connection with the activities related to the Mission Tuition Rewards program Cardiff has entered into two agreements with merchant providers. It is intended that each of these providers will continue to provide services to Cardiff which will aid in the marketing of the Mission Tuition.

Employees

Cardiff currently has three employees but anticipates it will hire additional personnel as the Mission Tuition program is launched.

Overview of Cardiff Prior to the Merger

Prior to the Merger Cardiff was an inactive, publicly held, SEC reporting company. Cardiff was incorporated under the laws of the State of Colorado under the name “Cardiff Financial, Inc.,” on October 14, 1986. Effective April 1989, Cardiff completed an acquisition transaction with, and changed its name to, United American, Inc. The transaction was subsequently rescinded and on December 4, 1989, Cardiff changed its name from United American, Inc., to Cardiff International, Inc. Since that time, Cardiff has been a shell corporation seeking to commence active business operations by acquiring a business opportunity.

Immediately prior to the Merger with Legacy, there were approximately 725,000 shares of Cardiff common stock issued and outstanding. Following the Merger, there were approximately 19,900,000 shares of Cardiff common stock issued and outstanding.

Legacy Acquisition Corp. (“LAC”) was a Nevada corporation, which prior to the Merger, was a wholly-owned subsidiary of Cardiff. LAC was formed solely to facilitate the Merger. As a result of the Merger, LAC was merged into Legacy and no longer exists as of the effective time of the Merger.

ITEM 1A. RISK FACTORS

Operating History:. We commenced 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.

The Company will derive its revenues from five different revenue streams:

commissions earned from merchants; interest earned on member’s savings accounts; credit card activation fees, 20bts on all credit card transactions; 10bts on interest earned on revolving credit balances; and an annual renewal fee. After additional testing in July -August 2011, changes were made to the home page and the site launched on a national level in late September and October. There is generally a 90 day waiting period between when the customer makes the purchase and the funds are transmitted to Cardiff.

After the September launch the company immediately obtained 1,200 members. By the end of December the company had 7,500 members. Based upon the awareness of the site and the marketing efforts the company expects that during 2012 the membership will increase at a similar pace. As the membership increases, the usage of the member ship will increase, and the associated revenues will follow.

Google rated the site between a 4 and 5 (five being the highest) for ease of navigation and time spent per visitor to our site.

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: Currently we have hired an Investor Relations firm to help develop an active public market for our common stock however 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 March 28, 2012 for the years ended December 31, 2011 and 2010 and for the period from August 29, 2001 (date of inception) through December 31, 2011 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 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. PROPERTIES

Currently, Cardiff has not entered into any lease agreement for office facilities. Cardiff is currently using facilities in Encino, California, Las Vegas, Nevada and Chicago, Illinois.

ITEM 3. LEGAL PROCEEDINGS

There have been no events under any bankruptcy act, no criminal proceedings, and no judgment or injunction material to the evaluation of the ability and integrity of any director or executive officer during the last five years.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to Cardiff’s shareholders for a vote during the year ended December 31, 2011.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

Our common stock is quoted on the OTCQB under the symbol “CDIF”. During the last three years, there has only been limited trading in our common stock.

As of December 31, 2011 there were 54,194,408 shares of common stock outstanding and approximately 736 stockholders of record of common stock.

Shares Issued in Unregistered Transactions

We issued shares of our common stock in unregistered transactions during 2005. All of the shares of common stock issued were issued in non-registered transactions in reliance on Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). As a result of the Merger, Cardiff issued 18,000,000 shares of its common stock to the shareholders of Legacy pursuant to the terms of the Plan of Merger.

No underwriter or placement agent was involved in the above referenced transactions. Cardiff is relying on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, (the “Securities Act”), and Rule 506 of Regulation D promulgated by the Securities Act.

Dividends

We have not paid cash dividends since our inception and do not anticipate paying dividends in the foreseeable future.

Recent Purchases of Securities

None

Limitation on Directors’ Liability, Charter Provisions and Other Matters

Colorado law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors’ fiduciary duty of care. The duty of care requires that, when acting on behalf of the corporation, directors must exercise an informed business judgment based on all material information reasonably available to them. Absent the limitations authorized by Colorado law, directors are accountable to corporations and their stockholders for monetary damages for conduct constituting gross negligence in the exercise of their duty of care. Colorado law enables corporations to limit available relief to equitable remedies such as injunction or rescission. Our Certificate of Incorporation limits the liability of our directors to us or to our stockholders (in their capacity as directors but not in their capacity as officers) to the fullest extent permitted by Colorado law.

The inclusion of this provision in the Certificate of Incorporation may have the effect of reducing the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited the Company and its stockholders.

Our Bylaws provide indemnification to our officers and directors and certain other persons with respect to certain matters. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to our directors and officers, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable.

Transfer Agent and Registrar

Our transfer agent is Standard Registrar and Transfer, 12528 South 1840 East, Draper, Utah 84020; Tel: (801) 571-8844.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-K. All statements contained herein that are not historical facts, including, but not limited to, statements regarding anticipated future capital requirements, our future plan of operations, our ability to obtain debt, equity or other financing, and our ability to generate cash from operations, are based on current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties that may cause the Company’s actual results in future periods to differ materially from forecasted results.

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.

Critical Accounting Policies

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 related to income taxes, share-based compensation expense, and estimation of the fair value of derivative liabilities involve our most significant judgments and estimates that are material to our consolidated financial statements. They are discussed further below.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, to the extent that we believe that the deferred tax asset is not likely to be recovered, a valuation allowance is provided. In making this determination, we consider estimated future taxable income and taxable timing differences expected to reverse in the future. Actual results may differ from those estimates.

Share-based Compensation Expense

Commencing January 1, 2006, we implemented changes that the FASB issued related to the accounting for employee stock options, on a modified-prospective basis, to recognize share-based compensation for employee stock option awards in our statements of operations. We account for the issuance of stock, stock options and warrants for services based on the estimated fair value of options and warrants 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 based on the subjective assumptions used in the pricing model.

We account for the issuance of stock, stock options and warrants for services from 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.

Derivative Liabilities

In determining the appropriate fair value, the Company uses the Black-Scholes pricing model.

Results of Operations

The following table sets forth certain selected condensed consolidated statement of operations data for the years ended December 31, 2011 and 2010:

	Year Ended December 31,
	2011			2010

Revenue	$	262		$	585
Cost of goods sold		-			-

Gross profit		262			585

Operating Expenses		1,089,344			1,419,278

Loss from Operations		(1,089,089	)		(1,418,693	)

Other income (expense)		(1,745,729	)		(870,647	)

Loss before provision for income taxes		(2,834,811	)		(2,289,340	)
Provision for income taxes		-			-
Net Loss	$	(2,834,811	)	$	(2,289,340	)

Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

The Company had limited operating revenues for the years ended December 31, 2011 and 2010.

The Company had operating expenses of $1,089,344 for the year ended December 31, 2011 compared to $1,419,278 for the year ended December 31, 2010, representing a decrease of $329,934. This decrease was primarily a result of decrease in stock-based compensation and consulting and outside services which were offset by increases in other operating expenses.

Other income (expenses) decreased $875,082 from 2010 to 2011 primarily because the company incurred interest expense of $329,268 during 2010 as compared to $906,569 during 2011, and a loss from the change in value of derivative liability of $541,037 during 2010 as compared to a loss of $839,167 during 2011.

These factors resulted in a net loss of $2,834,811 for the year ended December 31, 2011 compared to $2,289,340 for the year ended December 31, 2010, representing in increase of $545,471.

Liquidity and Capital Resources

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 December 31, 2011 and 2010, we had $8,874 and $1,822 of cash and cash equivalents, and total assets amounted to $46,116 and $7,635, respectively.

Net cash used in operating activities was $300,718 and $196,140 for the years ended December 31, 2011 and 2010, respectively. The increase in the amount of net cash used in operating activities during these periods was attributable to the increase in net loss which was offset by the increase in stock-based compensation, amortization of loan discount, change in fair value of derivative liability and interest accrual, and the decrease in accrual of officers’ salaries, accounts payable and accrued expenses compared to 2010.

Net cash used in investing activities was $43,000 and $3,212 for the years ended December 31, 2011 and 2010, respectively. The cash flows from investing activities during the year end December 31, 2011 was attributable to the development of the company's website which is included in property and equipment.

Net cash provided by financing activities was $350,770 and $194,274 for the years ended December 31, 2011 and 2010, respectively. The cash flows from financing activities during the year end December 31, 2011 was attributable to proceeds from the sale of common stock of $57,000 and proceeds from notes payable from related and unrelated parties of $510,000, which were offset by repayments on notes payable of $77,000. In addition, we received $1,350 and repaid $140,080 of shareholder advances during the year ended December 31, 2011.

Since inception, we have incurred operating losses and, at December 31, 2011 we had an accumulated deficit of $15,744,197.

Current liabilities at December 31, 2011 consisted primarily of accounts payable, and accrued expenses, accrued officers’ salaries, accrued payroll taxes and settlement payable to shareholder of $1,625,083, accounts payable to related party of $241,863, amounts due to officer of $485,939, derivative liability of $3,679,746, convertible and non-convertible promissory notes net of loan discounts in the amount of $1,177,990, and accrued interest in the amount of $825,799. Current liabilities at December 31, 2010 consisted primarily of accounts payable, accrued expenses, accrued officers’ salaries, accrued payroll taxes and settlement payable to shareholder of $1,185,722, accounts payable to related party of $183,896, amounts due to officers of $324,669, derivative liability of $1,886,224, convertible and non-convertible promissory notes net of loan discount in the amount of $1,053,823, and accrued interest in the amount of $646,102.

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.

Plan of Operation

Our current business plan is described in “Item 1 - Description of Business”.

ITEM 8. FINANCIAL STATEMENTS

Index to Financial Statements

	Page

Report of Independent Registered Public Accounting Firm	13

Consolidated Balance Sheets	14

Consolidated Statements of Operations	15

Consolidated Statements of Cash Flows	16-17

Consolidated Statements of Shareholders’ Equity	18

Notes to Financial Statements	19-29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Cardiff International, Inc. dba Legacy Card Company

We have audited the accompanying consolidated balance sheets of Cardiff International, Inc. dba Legacy Card Company (a development stage company) (the “Company”) as of December 31, 2011 and 2010 and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the years then ended and for the period from August 29, 2001 (date of inception) through December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cardiff International, Inc. dba Legacy Card Company as of December 31, 2011 and 2010, and the results of its operations and cash flows for the years then ended and for the period from August 29, 2001 (date of inception) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company is in the development stage and has sustained operating losses since its inception and has negative working capital and an accumulated deficit during the years ended December 31, 2011 and 2010. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Rose, Snyder & Jacobs LLP

Encino, California

March 28, 2012

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 AND 2010

	2011			2010
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	8,874		$	1,822
Advances to employees		1,659			1,659

TOTAL CURRENT ASSETS		10,533			3,481

PROPERTY AND EQUIPMENT
Computer equipment		4,124			4,124
Website		43,000			-
Accumulated depreciation		(12,748	)		(1,220	)

PROPERTY AND EQUIPMENT, NET		34,376			2,904

OTHER ASSETS
Patents and trademarks, net accumulated amortization of $43 and $0, respectively		607			650
Deposits		600			600

TOTAL ASSETS	$	46,116		$	7,635

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued expenses		841,760		$	683,859
Accounts payable, related party		241,863			183,896
Interest payable		825,799			646,102
Accrued officers' salaries		415,000			180,000
Accrued payroll taxes		335,823			291,863
Current portion of settlement payable, shareholder		32,500			30,000
Derivative liability		3,679,746			1,886,224
Due to officer		485,939			324,669
Advance from International Card Establishment, Inc.		50,000			50,000
Note payable - Legacy Investors		518,000			518,000
Note payable - Maricopa Equity Management Corporation		100,000			100,000
Note payable, unrelated party		50,000			50,000
Note payable, convertible, unrelated party, net of discount of $0 and $104,167, respectively		250,000			145,833
Current portion of notes payable, related-party, convertible		185,000			150,000
Current portion of notes payable, related-party		24,990			39,990

TOTAL CURRENT LIABILITIES		8,036,420			5,280,436

LONG-TERM LIABILITIES
Settlement payable, shareholder		20,000			50,000
Note payable, unrelated party, net of discount of $283,758 and $0, respectively		41,242			-
Notes payable, related-party, convertible		15,000			50,000
Notes payable, related-party, net of discount of $230,985 and $93,750, respectively		117,106			131,841

TOTAL LIABILITIES		8,229,768			5,512,277

SHAREHOLDERS' DEFICIT:
Common stock, no par value; 60,000,000 shares authorized; 54,194,408 and 58,104,408 shares issued and outstanding		7,472,783			7,415,783
Additional paid-in capital		87,762			(11,039	)
Deficit accumulated during the development stage		(15,744,197	)		(12,909,386	)

TOTAL SHAREHOLDERS' DEFICIT		(8,183,652	)		(5,504,642	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	46,116		$	7,635

See report of independent registered public accounting firm

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND THE PERIOD

AUGUST 29, 2001 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2011

	Years Ended December 31,						August 29, 2001 (Date of Inception) through
	2011			2010			December 31, 2011

REVENUE	$	262		$	585		$	1,030

COST OF SALES		-			-			-

GROSS PROFIT		262			585			1,030

OPERATING EXPENSES:
Consulting and outside services		21,037			106,568			2,974,182
Advertising		20,929			14,446			600,334
Legal services		-			-			952,073
Rent		-			-			514,936
Guaranteed payments		-			-			512,958
Officers' salaries		550,000			580,000			1,925,000
Salaries and wages		-			-			1,192,927
Stock based compensation		22,826			304,350			449,916
Other operating expenses		474,552			413,914			3,447,265

TOTAL OPERATING EXPENSES		1,089,344			1,419,278			12,569,591

LOSS FROM OPERATIONS		(1,089,082	)		(1,418,693	)		(12,568,561	)

OTHER INCOME AND (EXPENSES):
Sublease rental income		-			-			55,979
Interest income		7			-			6,775
Change in value of derivative liability		(839,167	)		(541,037	)		(1,159,224	)
Other miscellaneous income (expense)		-			(342	)		106,512
Interest expense		(906,569	)		(329,268	)		(2,185,678	)

TOTAL OTHER INCOME (EXPENSE)		(1,745,729	)		(870,647	)		(3,175,636	)

NET LOSS		(2,834,811	)	$	(2,289,340	)	$	(15,744,197	)


Basic and diluted loss per share	$	(0.05	)	$	(0.04	)

Weighted average shares outstanding (basic and diluted)		54,257,476			57,353,981

See report of independent registered public accounting firm

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND THE PERIOD

AUGUST 29, 2001 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2011

	Years Ended December 31,						August 29, 2001 (Date of Inception) through
	2011			2010			December 31, 2011

CASH FLOW FROM OPERATING ACTIVITIES
Net loss	$	(2,834,811	)	$	(2,289,340	)	$	(15,744,197	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		11,571			1,090			250,183
Loss on disposal of property and equipment		-			-			1,404
Amortization of loan discount		714,804			170,833			1,107,516
Stock-based compensation		22,826			304,350			449,916
Change in value of derivative liability		839,167			541,037			1,159,224
Issuance of common stock for loan costs		-			-			110,000
Issuance of warrants for services		-			254,800			254,800
Issuance of warrants as loan costs		-			-			85,734
Issuance of common stock for services		-			3,000			1,441,222
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		258,528			91,583			1,541,220
Accrued officers' salaries		535,000			580,000			1,865,000
Interest payable		179,697			156,507			1,029,158
Settlement payable		(27,500	)		(10,000	)		(37,500	)

NET CASH USED IN OPERATING ACTIVITIES		(300,718	)		(196,140	)		(6,512,014	)

CASH FLOW FROM INVESTING ACTIVITES
Acquisition of property and equipment		(43,000	)		(3,212	)		(241,571	)

NET CASH USED IN INVESTING ACTIVITIES		(43,000	)		(3,212	)		(241,571	)

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from shareholder advances		1,350			24,300			1,463,477
Repayments of shareholder advances		(140,080	)		(258,616	)		(2,255,051	)
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 convertible notes payable, related-party		-			-			1,283,699
Proceeds from note payable, unrelated party		335,000			-			385,000
Repayments of note payable, unrelated party		(10,000	)		-			(10,000	)
Proceeds from note payable, convertible, unrelated party		-			250,000			250,000
Proceeds from notes payable, related-party		175,000			30,000			494,990
Repayments of notes payable, related-party		(67,500	)		(39,410	)		(106,910	)
Proceeds from sale of common stock		57,000			188,000			4,620,115
Write-off of payable		-			-			35,711

NET CASH PROVIDED BY FINANCING ACTIVITIES		350,770			194,274			6,762,459

NET INCREASE (DECREASE) IN CASH		7,052			(5,078	)		8,874

CASH AT BEGINNING OF THE YEAR		1,822			6,900			-

CASH AT END OF YEAR	$	8,874		$	1,822		$	8,874

SUPPLEMENTAL DISCLOSURES
Interest paid in cash	$	4,778		$	1,400		$	56,814

See report of independent registered public accounting firm

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND THE PERIOD

AUGUST 29, 2001 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2011

NON-CASH ACTIVITIES

During the year ended December 31, 2010, the Company entered into a separation agreement with an officer and shareholder of the Company whereby the Company agreed to pay the shareholder $90,000 and the shareholder agreed to forgive the balance due to him, including accrued salaries, of $387,664.

During the year ended December 31, 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 $139,945 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 $0, $0 and $158,261 were capitalized to amounts due to officers for the years ended December 31, 2011 and 2010, and for the period from August 29, 2001 (inception) through December 31, 2011, respectively. Repayments of amounts due to officers 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.

See report of independent registered public accounting firm

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC. dba LEGACY CARD COMPANY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND THE PERIOD

AUGUST 29, 2001 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2011

	Common Stock					Additional 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 based compensation, 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
Stock based compensation, 2006		-			-		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	)

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		4,000,000			137,000		-			-			137,000
Capital contribution from officer, non-cash, 2009		-			-		35,711			-			35,711
Derivative liability, 2009		-			-		(134,110	)		-			(134,110	)
Loan discount on debt, 2009		-			-		53,629			-			53,629
Net Loss		-			-		-			(1,135,283	)		(1,135,283	)

BALANCE, DECEMBER 31, 2009		55,799,517			7,224,783		91,629			(10,620,046	)		(3,303,634	)

Issuance for cash, 2010		2,244,891			188,000		-			-			188,000
Issuance for services, 2010		60,000			3,000		-			-			3,000
Derivative liability, 2010		-			-		(1,209,482	)		-			(1,209,482	)
Loan discount on debt, 2010		-			-		250,000			-			250,000
Settlement of liability, 2010		-			-		297,664			-			297,664
Stock-based compensation, 2010		-			-		304,350			-			304,350
Warrants issued for services, 2010		-			-		254,800			-			254,800
Net Loss		-			-		-			(2,289,340	)		(2,289,340	)

BALANCE, DECEMBER 31, 2010		58,104,408			7,415,783		(11,039	)		(12,909,386	)		(5,504,642	)

Issuance for cash, 2011		1,140,000			57,000		-			-			57,000
Issuance for services, 2011		-			-		-			-			-
Shares issued in conjunction with debt, 2011		4,500,000			-		-			-			-
Derivative liability, 2011		-			-		(7,480	)		-			(7,480	)
Loan discount on debt, 2011		-			-		83,455			-			83,455
Cancelled and returned shares, 2011		(9,550,000	)		-		-			-			-
Stock-based compensation, 2011		-			-		22,826			-			22,826
Net Loss		-			-		-			(2,834,811	)		(2,834,811	)

BALANCE, DECEMBER 31, 2011		54,194,408		$	7,472,783	$	87,762		$	(15,744,197	)	$	(8,183,652	)

See report of independent registered public accounting firm

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

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, and 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 five different revenue streams:

After the September launch the company immediately obtained 1,200 members. By the end of December the company had 7,500 members. As the membership increases, the usage of the member ship will increase, and the associated revenues will follow.

Development Stage Activities

As of July 2011, the Company launched its mission tuition program and has begun activating members. The Union mailer has been designed and approved by Union officers and have begun the union campaign through their clearing house in October 2011.

Several states are interested in offering mission tuition to their residents, however the Company is in the process of raising additional funds to work directly to launch a co-op program with each state. We anticipate to work with eight states by the end of 2012. Social media was launched in October 2011 to help create awareness at the same time the union campaign was launched.

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.

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 years ended December 31, 2011 and 2010, the amount charged to expense was $20,929 and $14,446, respectively. From inception through December 31, 2011, advertising costs was $600,334.

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 December 31, 2011 and 2010, the Company adjusted its derivative liability to its fair value and reflected the increase in fair value of $839,167 and $541,037, respectively, as other expense on the Consolidated Statement of Operations.

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

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.

The following table summarizes fair value measurements by level at December 31, 2011 and 2010 for assets and liabilities measured at fair value on a recurring basis

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Derivative liability	$	-	$	-	$	3,679,746	$	3,679,746

	December 31, 2010
	Level 1		Level 2		Level 3		Total
Derivative liability	$	-	$	-	$	1,886,224	$	1,886,224

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

Derivative liability was valued under the Black-Scholes model using the following assumptions at December 31, 2011 and 2010:

	December 31,
	2011	2010
Risk free interest rate	0.01% - 0.88%	0.145% - 2.125%
Volatility	100%	100%
Term	0.01 - 4.88 Years	0.01 - 4.58 Years
Dividend yield	0.00%	0.00%

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

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

Value at December 31, 2009	$	135,705
Reclassification of financial instrument from equity to liabilities		1,209,482
Increase in value of derivative liability		541,037
Value at December 31, 2010		1,886,224

Reclassification of financial instrument from equity to liabilities		966,855
Reclassification of financial instrument from liabilities to equity		(12,500	)
Increase in value of derivative liability		839,167
Value at December 31, 2011	$	3,679,746

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 fiscal years 2011 and 2010 includes: (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.

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:

Classification		Useful Life
Computer equipment		3 Years
Website design		3 Years
Patents and trademarks		15 Years

During the fiscal year ended December 31, 2011 and 2010, depreciation and amortization expense was $11,571 and $1,090, respectively and $250,183 from August 29, 2001 (date of inception) through December 31, 2011.

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.

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

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.

Recently Issued Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Fair Value Measurement (“ASU 2011-04”), which amended ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements. ASU 2011-04 will be effective for us beginning January 1, 2012. The adoption of ASU 2011-04 is not expected to have a material effect on our consolidated financial statements or disclosures.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), which amends the guidance in ASC 350-20, Intangibles—Goodwill and Other – Goodwill. ASU 2011-08 provides entities with the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, the entities are required to perform a two-step goodwill impairment test. ASU 2011-08 will be effective for us beginning January 1, 2012. The adoption of ASU 2011-08 is not expected to have a material effect on our consolidated financial statements or disclosures.

2.	RELATED PARTY TRANSACTIONS

Separation and Release Agreement with Officer

On September 1, 2010, the Company entered into a Separation and Release 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 of $2,500, commencing on September 1, 2010 and the amount due to him of $387,664, including the balance of unpaid accrued salaries at September 1, 2010, which are no longer due. At December 31, 2011 and 2010, the Company had settlement payable to Gary Teel of $52,500 and $80,000, respectively.

Due to Officer

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). However, during 2010, the Company entered into a Separation and Release agreement with Gary Teel, and no amounts were due to him in connection with accrued salaries, advances, and accrued interest at December 31, 2011 and 2010. The total balance due to Daniel Thompson for accrued salaries, advances, and accrued interest, at December 31, 2011 and 2010, was $485,939 and $324,669, 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. Beginning in April 2010, Mr. Teel no longer served as the Company’s CFO, and on September 1, 2010, the Company entered into a separation and release agreement with Mr. Teel. As a result, the Company stopped accruing for his salaries in April 2010. At December 31, 2011 and 2010, $975,000 and $675,000 has been accrued in connection with Mr. Thompson's employment agreement, respectively. This amount is included as amounts Due to Officer on the balance sheet.

Accounts Payable- Related Party

At December 31, 2011 and 2010 the Company had amounts payable to a related party of $241,863 and $183,896, respectively, for professional services rendered and advances to the company.

Notes Payable- Related Party

During the year ended December 31, 2011 and 2010, the Company entered into several loan agreements (convertible and non- convertible) with related parties (see note 3).

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

3.	NOTES PAYABLE, ESCROW DEPOSIT & LOAN FEES

Legacy Investors, LLC

On August 5, 2004, Legacy Card Company entered into a loan agreement with Legacy Investors, LLC, a Florida 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,Legacy Card 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 December 31, 2011 and 2010, 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. As of August 2006, the Company defaulted on the loan. The Company is in default under the terms of the loan agreement as of December 31, 2011 and continues to accrue interest on the outstanding principal balance.

Maricopa Equity Management Corporation

On October 27, 2005, Legacy Card 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 December 31, 2011 and 2010. As of November 10, 2005, the Company defaulted on the loan. At December 31, 2011,Legacy Card Company was in default on this loan agreement.

International Card Establishment, Inc.

Legacy Card 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 December 31, 2011 and 2010 was $50,000.

Convertible Notes 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, matures in April 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 2009. As of April 2009 the Company defaulted on the Convertible Debenture. As of December 31, 2011 and subsequent to year-end, the Company is in default on this Convertible Debenture and the warrants have not been exercised.

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

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 on March 11, 2014, and is unsecured. All principal and unpaid accrued interest is due at maturity.

On April 29, 2009, the Company entered into an unsecured Convertible Debenture agreement with a shareholder in the amount of $35,000. 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. The Debenture bears interest at 12% per year, matures on April 29, 2011, and is unsecured. All principal and unpaid accrued interest is due at maturity. As of April 29, 2011 the Company defaulted on the Convertible Debenture. As of December 31, 2011 and subsequent to year end, the Company is in default on this Convertible Debenture.

Notes 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 matured on September 12, 2009. In conjunction with the Preferred Debenture, the Company issued 2,000,000 warrants to purchase its common stock, exercisable at $0.01 per share and expire March 12, 2014. As a result of the warrants issued, the Company recorded a $20,000 debt discount during 2009. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. 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. The amended note matures on March 24, 2014. As of December 31, 2011 and subsequent to year-end, the warrants have not been exercised.

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 matured on October 27, 2009. In conjunction with the Preferred Debenture, the Company issued 2,000,000 warrants to purchase its common stock, exercisable at $0.01 per share and expire on April 27, 2014. As a result of the warrants issued, the Company recorded a $19,990 debt discount during 2009. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. As of October 27, 2009 the Company defaulted on the note. As of December 31, 2011 and subsequent to year end, 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 matured on August 26, 2009. In conjunction with the Note, the Company issued 1,500,000 shares of its common stock to the lender. In April 2011, the Company repaid the principal and interest balance due under this Note.

On October 8, 2009, the Company entered into a Preferred Debenture agreement with an individual who is a shareholder and officer of the Company for $250,000. The Debenture bears interest at 7% per year, matures on October 8, 2014, and is unsecured. Monthly interest-only payments are due from November 1, 2009 through October 1, 2014. The principal and accrued and unpaid interest balances are due upon maturity. However, during the year ended December 31, 2011 and 2010, the Company repaid $47,500 and $39,410 of principal, respectively. The balance of this preferred debenture at December 31, 2011 and 2010 was $163,090 and $210,590, respectively. In conjunction with the Debenture, the Company issued 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 December 31, 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.

On March 10, 2011, the Company entered into a Promissory Note agreement with a shareholder 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. As a result of the issuance of these shares, the Company recorded a debt discount of $25,000 during 2011.

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. As a result of the shares issued in conjunction with the note, the Company recorded a $50,000 debt discount during 2011. As of March 28, 2012, the Company has not distributed these shares to the lender due to the fact that the Company does not have enough authorized shares to fulfill this issuance, therefore, these shares are not in equity and have been included in the calculation of the derivative liability at December 31, 2011.

On September 7, 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 September 7, 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 2,500,000 shares of its common stock to the lender. As a result of the shares issued in conjunction with the note, the Company recorded a $50,000 debt discount during 2011.

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

On November 17, 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 November 17, 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 2,500,000 shares of its common stock to the lender. As a result of the shares issued in conjunction with the note, the Company recorded a $50,000 debt discount during 2011. As of March 28, 2012, the Company has not distributed these shares to the lender due to the fact that the Company does not have enough authorized shares to fulfill this issuance, therefore, these shares are not in equity and have been included in the calculation of the derivative liability at December 31, 2011.

Note Payable – Unrelated Party

On June 3, 2009, the Company entered into a Loan Agreement with an unrelated party for $50,000. 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, which expire on June 2, 2014. As a result of the warrants issued, the Company recorded a $13,639 debt discount during 2009. As of September 2, 2009 the Company defaulted on the loan. As of December 31, 2011 and subsequent to year end, the Company is in default on this Preferred Debenture and the warrants have not been exercised.

On February 8, 2011, the Company entered into an unsecured 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. As a result of the shares issued with the Note, the Company recorded a $200,000 debt discount during 2011. As of March 28, 2012, the Company has not distributed these shares to the lender due to the fact that the Company does not have enough authorized shares to fulfill this issuance, therefore these shares are not in equity and have been included in the calculation of the derivative liability at September 30, 2011.

On May 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 May 10, 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 1,250,000 shares of its common stock to the lender. As a result of the shares issued in conjunction with the note, the Company recorded a $25,000 debt discount during 2011.

On August 22, 2011, the Company entered into two separate Promissory Note agreements with unrelated parties for $5,000 each, for a total of $10,000. Both notes bear interest at 8% per year and mature on September 22, 2011. Interest is payable annually on the anniversary of the Notes, and the principal and any unpaid interest will be due upon maturity. In October 2011 the Company prepaid the principal and interest balance due under these Promissory Notes. In conjunction with these Notes, the Company issued options to each of the note Holders for 100,000 shares of its common stock. As a result of the warrants issued, the Company recorded debt discounts on these Notes amounting to $8,454 during 2011. As of December 31, 2011 and subsequent to year end, the warrants have not been exercised.

On September 30, 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 October 1, 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 1,250,000 shares of its common stock to the lender. As a result of the shares issued in conjunction with the note, the Company recorded a $25,000 debt discount during 2011. As of March 28, 2012, the Company has not distributed these shares to the lender due to the fact that the Company does not have enough authorized shares to fulfill this issuance, therefore, these shares are not in equity and have been included in the calculation of the derivative liability at December 31, 2011.

On November 1, 2011, the Company entered into a Promissory Note agreement with an unrelated party for $75,000. The Note bears interest at 8% per year and matures on November 1, 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 3,750,000 shares of its common stock to the lender. As a result of the shares issued in conjunction with the note, the Company recorded a $75,000 debt discount during 2011. As of March 28, 2012, the Company has not distributed these shares to the lender due to the fact that the Company does not have enough authorized shares to fulfill this issuance, therefore, these shares are not in equity and have been included in the calculation of the derivative liability at December 31, 2011.

Convertible Notes Payable – Unrelated Party

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. In conjunction with this loan, the Company issued warrants to purchase 5,000,000 shares of its common stock, exercisable at $0.08 per share, which expires on June 3, 2015. As a result of issued warrants, the Company recorded a $250,000 debt discount during 2009. As of June 3, 2011 the Company defaulted on the Note. As of December 31, 2011 and subsequent to year end, the Company is in default on this Preferred Debenture and the warrants have not been exercised.

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

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

	Related Party		Unrelated Party		Total
2012	$	209,991	$	968,000	$	1,177,991
2013		5,000		-		5,000
2014		183,090		-		183,090
2015		-				-
2016		175,000		325,000		500,000
Therafter		-		-		-
		573,081		1,293,000		1,866,081
Less loan discount		230,985		283,758		514,743
Net loan balance	$	342,096	$	1,009,242	$	1,351,338

4.	COMMITMENTS AND CONTINGENCIES

Operating Leases

Rent expense for the years ended December 31, 2011 and 2010 was $0. From inception through December 31, 2011, rent expense was $514,936.

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 December 31, 2011, management was unable to estimate the amount of penalties that the Company would incur as a result of these unpaid taxes.

Employment Agreement

On October 8, 2009, the Company entered into a five-year Employment Agreement with 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 on the anniversary date of the Employment Agreement 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 on the anniversary date of the Employment Agreement at a rate of 500,000 shares each year for five years. In addition, the Company issued 2,500,000 shares of the Company’s common stock. These shares vest at a rate of 500,000 shares each year for five years. On November 1, 2011, the Company terminated the Employment Agreement with this officer.

Accrued unpaid salaries for these employees at December 31, 2011 and 2010 were $415,000 and $180,000, respectively.

The Company has employment agreements with their CFO and CEO (see note 2).

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 December 31, 2011.

Settlement Agreement

On September 1, 2010, the Company entered into a separation and release agreement with Gary Teel (see note 2). As part of this agreement, the Company is to pay Mr. Teel monthly severance payments and pay Mr. Teel's medical insurance premiums for 36 months. Beginning June 2011, the Company was in default on the medical insurance premiums for Mr. Teel. In accordance with the agreement, in the event by default of the Company, the Company is liable for all of Mr. Teel's damages, liabilities and other costs incurred by the Company's breach. As of December 31, 2011, the Company is unable to determine under FASB ASC 450, Contingencies, the amount of potential liabilities as a result of this breach.

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 (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

6.	INCOME TAXES

At December 31, 2011, 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. At December 31, 2011 the Company has approximately $10,241,000, of state NOL carryforwards that expire through 2031. At December 31, 2011 the Company has approximately $10,347,000 in Federal NOL carryforwards that expire through 2031.

As of December 31, 2011 and 2010, 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 years ended December 31, 2011 and 2010, 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 2006, and by the IRS for tax years through 2007. The Company’s net operating loss carryforwards are subject to IRS examination until they are fully utilized and such tax years are closed.

7.	STOCK OPTIONS AND WARRANTS

Stock Options

The Company has granted no stock options to consultants or employees between 2005 through 2008. During 2011 and 2010, the Company granted and 2,500,000 and 3,000,000, stock options to employees, respectively. During 2011, 2,500,000 stock options to an employee were cancelled. Stock based compensation expense related to employees for the years ended December 31, 2011 and 2010 amounted to $22,826 and $304,350, respectively, and $449,916 from August 1, 2001 (date of inception) through December 31, 2011.

The following is a schedule summarizing stock option activity for the years ended December 31, 2011 and 2010:

	Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2010		2,925,000		$	0.28
Granted		3,000,000			0.08
Exercised		-			-
Expired		-			-
Forfeited		-			-
Outstanding at December 31, 2010		5,925,000			0.18
Granted		2,500,000			0.08
Exercised		-			-
Expired		(425,000	)		1.37
Forfeited		(2,500,000	)		0.08
Outstanding at December 31, 2011		5,500,000		$	0.09
Exercisable at December 31, 2011		4,000,000		$	0.09

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

The estimated weighted-average fair value of options granted during 2011 and 2010 was $0.03 and $0.10 per share, respectively, and was calculated using Black-Scholes pricing model based on the following assumptions:

	December 31,
	2011	2010
Risk free interest rate	1.60%	2.40%
Volatility	100%	100%
Term	5 years	5 years
Dividend yield	0.00%	0.00%

As of December 31, 2011, the total unrecognized fair value compensation cost related to non-vested stock options was $45,287 which is expected to be recognized over 2.77 years.

Information about stock options outstanding at December 31, 2011 is summarized below:

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

$	0.10		2,500,000	2.75 years	$	0.10		1,000,000	$	0.10
$	0.08		3,000,000	3.09 years	$	0.08		3,000,000	$	0.08
			5,500,000					4,000,000

Warrants

The Company also issued warrants to purchase shares of common stock in 2011 and 2010. As of December 31, 2011, the Company has approximately 31,141,612 warrants outstanding with exercise prices ranging from $0.01 per share to $1.10 per share. These warrants expire through November 2016.

The following table summarizes information about warrants outstanding at December 31, 2011:

Exercise Prices	Number of Warrants	Weighted- Average Remaining Life

$0.01 - $0.15	26,251,613	2.27 years
$0.20 - $0.50	4,763,334	2.28 years
$1.10	126,665	0.51 years
Total warrants outstanding:	31,141,612

8.	SUBSEQUENT EVENTS

Notes Payable

On March 15, 2012, the Company entered into a Convertible Promissory Note agreement with an unrelated party for $50,000. The Note bears interest at 8% per year and matures on December 19, 2016. The principal and interest balances are due upon maturity. Any amount of principal or interest on the Note that is not paid at maturity will bear an annual interest rate of 22% thereafter. The Note is convertible, at the option of the holder, into common shares of the Company at 58% of the average market price at the date of conversion. The conversion price is subject to certain adjustments.

CARDIFF INTERNATIONAL, INC.dba LEGACY CARD COMPANY (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

Issuance of Common Stock

The Company has received $36,500 in exchange for 730,000 shares of common stock from January 1, 2012 through March 28, 2012.

Total shares of common stock granted subsequent to year-end totaled 730,000 shares. Of these grants, 320,000 shares were due to be issued at March 28, 2011 .

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are ineffective.

As described below under Management's Report on Internal Control over Financial Reporting, our management has identified and reported to our audit committee and Rose, Snyder & Jacobs, our independent registered public accounting firm, material weaknesses in our internal control over financial reporting. As a result of these material weaknesses, our CEO and CFO have concluded that, as of December 31, 2011, our internal controls over financial reporting were not effective.

Report of Management on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company’s internal control over financial reporting was ineffective as of December 31, 2011. There were no significant changes in our internal control over financial reporting during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Ineffective controls over the accounting for cash disbursements

Management has not obtained or maintained documentation supporting all cash disbursements. This control deficiency arose during the year ended December 31, 2007 and was identified by management during the annual evaluation of the effectiveness of internal control over financial reporting.

Ineffective controls over the recording of equity transactions

Management does not have an adequate process to ensure that all equity transactions are properly recorded in a timely manner.

Lack of segregation of duties and ineffective review process

Management does not have proper segregation of duties and does not have an effective review process in place.

Lack of oversight by Audit Committee

The Company does not have a functioning audit committee due to a lack of independent members and a lack of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls, approvals and procedures.

ITEM 9B. OTHER INFORMATION

Not Applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Identification of Directors and Executive Officers

The directors and officers of Cardiff who will serve until the next annual meeting of shareholders or until their successors are elected or appointed and qualified, are set forth below:

Name		Position

Joseph DiLeonardo		President
Daniel Thompson		Chairman/CEO

Background information about the Company’s officers and directors is as follows:

Joseph DiLeonardo: President is a Consumer marketing expert, with extensive marketing, sales and general management experience spanning a wide range of companies and product categories. Most recently he served as Chief Operating Officer for Networked Robotics Company, which specialized in computer hardware designed for the biotech industry. Previously he served as Vice President of Marketing for Ferrara Pan Candy Company, Vice President/General Manager for a Nabisco Foods, Director of Marketing for Warner Bros. and a Vice President of Hershey Foods. Joe earned his MBA from the University of Illinois and holds a Bachelor’s degree in Marketing from the University of Notre Dame. He has also received numerous CPG industry awards including: Advertising Age’s Marketing 100, several “New Product of the Years” awards, advertising’s EFFIE for outstanding advertising effectiveness, FLAME for impactful kids advertising and a Gold OMA for excellence in in-store merchandising.

Daniel Thompson: Mr. Thompson former CEO of Legacy Card Company was appointed the new CEO of Cardiff International, Inc. after the reverse merger. In June of 2010 Thompson was appointed Chairman and CEO of Cardiff International, Inc. in June 2010. Formerly a television and entertainment industry professional with a 30-year career that embraces network and cable advertising sales programming production and product placement, Mr. Thompson was president of Creative Entertainment Services, which he founded and successfully sold in a transaction. Mr. Thompson also co-founded and successfully sold an industry service company – Creative Television Marketing, a producer of short-form advertising concepts: Closed-Captioning Sponsorships, 10-Second Promotional Advertising vehicles, and network Game Show Merchandising. He also oversaw new business for A Creative Group, a full service entertainment marketing company. Mr. Thompson also founded CableRep USA, a media sales firm specializing in local market cable advertising, which he sold to Cox Cable in 1981. Mr. Thompson attended Wayne State University, Bellevue College, and College of Continuing Studies at University of Nebraska at Omaha.

Other Involvement in Certain Legal Proceedings

There have been no events under any bankruptcy act, any criminal proceedings and any judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the last five years.

Code of Ethics

We adopted a code of ethics that applies to all officers, directors and employees of the Company, a copy of which was filed as Exhibit 14 to this Form 10-K.

Committees of the Board of Directors

We do not have any committees established by our Board of Directors. Accordingly we have no audit committee, compensation committee, nominating committee or any other committee. Cardiff’s common stock is currently traded on the OTCBB. If Cardiff were ever to meet the qualifications for listing on a securities exchange or for quotation on NASDAQ, it would be required to have an audit committee and possibly other board committees.

Communications with Board Members

We have not adopted a formal process by which stockholders may communicate with the Board of Directors. Until a formal process occurs, stockholders may contact our CEO/President at dthompson@cardiffusa.com , or (818)783-2100.

Compliance with Section 16(a)

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”). Officers, directors and greater than ten percent stockholders are required by the Commission's regulations to furnish us with copies of all Section 16(a) forms they file. During fiscal 2011, none of our officers, directors or 10% or greater stockholders filed any forms late to the best of our knowledge.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information concerning compensation for services rendered for the past three years to the Company’s Chief Executive Officer and to the Company’s most highly compensated officers other than the CEO, whose annual salary and bonus exceeded $100,000:

Name and Other Annual Principal Position	Year	Salary	Bonus	Other Annual Compensation	Stock Awards	Options/ SAR’s (#)	LTIP Payouts	Other Compensation
Gary R. Teel, (former CFO and Chairman)	2011	-0-	-0-	-0-	-0-	-0-	-0-	-0-
	2010	-100,000-	-0-	-0-	-0-	-0-	-0-	-0-
	2009	-300,000-	-0-	-0-	-0-	-0-	-0-	-0-

Daniel Thompson, CEO, Chairman	2011	-300,000-	-0-	-0-	-0-	-0-	-0-	-0-
	2010	-300,000-	-0-	-0-	-0-	-3,000,000-	-0-	-0-
	2009	-300,000-	-0-	-0-	-0-	-0-	-0-	-0-

Joseph DiLeonardo, President	2011	-180,000-	-0-	-0-	-0-	-0-	-0-	-0-
	2010	-180,000-	-0-	-0-	-0-	-0-	-0-	-0-
	2009	-45,000-	-0-	-0-	-0-	-2,500,000-	-0-	-0-

Mr. Teel and Mr. Thompson each waived their unpaid salary since the inception of Legacy through September 30, 2008. Effective October 1, 2008, the officers are no longer waiving payment of any salary earned as of October 1, 2008. Beginning April 2010, Mr. Teel no longer served as the Company’s CFO, and on September 1, 2010, the Company entered into a separation and release agreement with Mr. Teel. As a result, the Company stopped accruing for his salaries during April 2010.

Employment Agreements

On June 3, 2002 we entered into employment agreements with each of Gary R. Teel and Daniel Thompson. The terms of the agreements are similar and include the following terms: (1) monthly salaries of $25,000, (ii) annual bonus of 2% pre-tax profits, (iii) five year term; (iv) medical and health benefits; (v) termination without cause results in compensation paid for four years, (vi) the sale of the Company results in compensation paid for three years. Mr. Teel and Mr. Thompson each waived their salary since the inception of Legacy through September 30, 2009. On September 1, 2010 the company entered into a Separation and Release Agreement with Mr. Teel. As a result of this agreement, Mr. Teel is no longer the Company’s Chairman.

On October 8, 2009 we entered into an employment agreement with Joseph DiLeonardo as President of Mission Tuition. Terms of this agreement include the following: (i) annual salary of $180,000, (ii) five year term, (iii) eligible for quarterly bonuses (TBD), (iv) medical and health benefits, and (v) granted 2,500,000 options to purchase to Company’s common stock.

Stock Options Granted in the Last Fiscal Year

For the years ended December 31, 2011 and 2010, there were 0 and 3,000,000 stock options granted to an officer and a director of Cardiff, respectively. There have been no options exercised during 2010 and 2011.

Aggregated Option Exercise in Last Fiscal Year and Fiscal Year-end Option Values

No officer/ director of Cardiff exercised any options during 2010 and 2011.

Equity Compensation Plan Information

We have not adopted any equity compensation plans as of the date of this Form 10-K. It is likely that one or more equity compensation plans may be adopted in the near future.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The following table sets forth information regarding shares of our Common Stock beneficially owned as of December 31, 2011 by: (i) each of our officers and directors; (ii) all officers and directors as a group; and (iii) each person known by us to beneficially own five percent or more of the outstanding shares of its common stock.

Shareholder	Common Stock (1)			Percentage

Gary R. Teel (2)		6,334,848	(3)		11.7%
Daniel Thompson (2)		3,078,528	(4)		5.7%
Joseph DiLeonardo (2)		2,500,000			4.6%

All officers and directors as a group 3 persons		11,913,376			22.0%

TOTAL		54,194,408			100%

(1)

For purposes of this table “beneficial ownership” is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any common shares that such person or group has the right to acquire within 60 days after July 6, 2011. For purposes of computing the percentage of outstanding common shares held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days after July 6, 2011 are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group.

(2)	These are the officers and directors of the Company.

(3)	Includes 3,934,848 shares issued in the name of Mr. Teel, 2,400,000 shares owned by the Teel Family Trust.

(4)	Includes 1,478,528 shares issued in the name of Mr. Thompson, 1,600,000 shares owned by the Thompson Family Trust.

Outstanding Options and Warrants

Information about outstanding options and warrants are included in footnote 7 of the financial statements included as Item 8 to this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In connection with the Merger transaction described in Item 1 of this Form 10-K, our officers and directors exchanged their shares of Legacy for shares of Cardiff. The number of shares issued are described in Item 5 of Form 10-K.

During the years ended December 31, 2011 and 2010, we received loans from an officer / director, Daniel Thompson, in the amount of $1,350 and $24,300, respectively. During the years ended December 31, 2011 and 2010, we repaid loans to an officer / director, Daniel Thompson, in the amount of $140,080 and $258,616, respectively.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Auditors

Rose, Snyder & Jacobs LLP have been appointed to audit the consolidated financial statements of Cardiff for the years ended December 31, 2011 and 2010 and to report the results of their audit to the Board of Directors.

Fees billed to Cardiff by Rose, Snyder & Jacobs LLP

		2011		2010
(1)	Audit fees	$	96,985	$	31,970
(2)	Tax fees	$	0	$	0
(3)	Other fees	$	95,360	$	0

(1)	Audit fees billed to Cardiff by Rose, Snyder & Jacobs LLP were for professional services performed in connection with the audits of Cardiff's annual financial statements.

(2)	Tax services generally include fees for services performed related to tax compliance.

(3)	Other fees billed to Cardiff by Rose, Snyder & Jacobs LLP were for professional services performed in connection with the quarterly reviews of Cardiff's financial statements.

Audit Committee – Pre-Approval

All services provided to the Company by Rose, Snyder & Jacobs LLP as detailed above, were pre-approved by the Board of Directors and all work of said firm was performed solely by their permanent employees.

The Securities and Exchange Commission adopted rules that require that before Rose Snyder & Jacobs LLP is engaged by us to render any auditing or permitted non-audit related services, the engagement must be:

	●	approved by our Audit Committee (our entire Board serves as our audit committee); or
	●	entered into pursuant to pre-approval policies and procedures established by the Audit Committee, provided the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service, and such policies and procedures do not include delegation of the Audit Committee’s responsibilities to management.

Under the direction of our Chairman, Daniel Thompson, our Board of Directors, acting as our audit committee, pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the Board of Directors either before or after the respective services were rendered. The Board of Directors has considered the nature and amount of fees billed by Rose Snyder & Jacobs LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining the firm’s independence.

ITEM 15. EXHIBITS

Exhibits

Exhibit Number	Exhibit
3.1	Article of Incorporation (1)
3.2	Bylaws (1)
10.1	Form Convertible Note (1)
10.2	Form Warrant (1)
10.3	Employee Agreement Herschend (1)
10.4	Employment Agreement Fisher (1)
14.1	Code of Ethics (1)
21.1	Subsidiaries of Registrant – Legacy Card Company, Inc. (1)
31.1	Certification of President in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
32.1	Certification of President in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Executive Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

(1)

Previously filed

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Cardiff International, Inc.

Dated: March 30, 2012	By:	/s/ Daniel Thompson
		Chairman/Chief Executive Officer

In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Signature	Capacity	Date


/s/ Daniel Thompson	Chairman/CEO	March 30, 2012
Daniel Thompson

/s/ Joseph DiLeonardo	President	March 30, 2012
Joseph DiLeonardo