Cardiff Lexington Corp - Quarter Report: 2016 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

Commission File Number 000-49709

CARDIFF INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

401 Las Olas Blvd., Unit 1400, Ft. Lauderdale, FL 33301

(Address of principal executive offices)

(844) 628-2100

(Registrant's telephone no., including area code)

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

Securities registered pursuant to Section 12(g) of the Exchange Act: Par Value $0.001 Common Stock

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [  ]          No [x]

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

Yes [  ]          No [x]

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

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

Yes [  ]          No [x]

Common Stock outstanding at June 30, 2016, 13,251,477 shares of $0.001 par value Common Stock.

FORM 10-Q

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

CARDIFF INTERNATIONAL, INC.

For the Quarter ending June 30, 2016

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

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2016 and DECEMBER 31, 2015

(UNAUDITED)

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015 (UNAUDITED)

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015 (UNAUDITED)

The accompanying notes are an integral part of these financial statements

CARDIFF INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the years ended December 31, 2015 and 2014 thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2015.

Organization and Nature of Operations

Legacy Card Company (“Legacy”) was formed as a Limited Liability Company on August 29, 2001. On April 18, 2005, Legacy converted from a California Limited Liability Company to a Nevada Corporation. On November 10, 2005, Legacy merged with Cardiff International, Inc. (“Cardiff”, the “Company”), a publicly held corporation. In the first quarter of 2013, it was decided to restructure Cardiff into a holding company that adopted a new business model known as "Collaborative Governance," a form of governance enabling businesses to take advantage of the power of a public company. Cardiff began targeting the acquisition of undervalued, niche companies with high growth potential, income-producing commercial real estate properties, and high return investments, all designed to pay a dividend to the Company’s shareholders. The reason for this strategy was to protect the Company’s shareholders by acquiring profitable small- to minimum-sized businesses with little to no debt, seeking support with both financing and management that had the ability to offer a return to investors. The plan is to establish new classes of preferred stock to streamline voting rights, negate debt, and acquire new businesses. By December of 2013, the Company had negated more than 90% of all its debt; by July of 2014, the Company had completed the acquisition of three businesses: We Three, LLC; Romeo’s NY Pizza; and Edge View Properties, Inc. The Company delayed the filing of its Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2015 due to difficulty obtaining information from another acquisition, which was subsequently unwound.

Description of Business

Cardiff is a holding company that adopted a new business model known as "Collaborative Governance.” To date, the Company is not aware of any other domestic holding company using the same business philosophy or governing policies. The Company’s business footprint is to acquire strong companies that meet the following criteria: (1) in business for a minimum of two years; (2) profitable; (3) good management team; (4) little to no debt; and (5) assets of a minimum of $1,000,000. Cardiff continues to practice all business ethics under the Securities Exchange Act of 1934 (“1934 Act”) and acknowledges that there are more than 43 successful Business Development Companies subject to the Investment Company Act of 1940 (“1940 Act”), all of which may be considered competition to Cardiff and that are established and available to the public for investment. These companies offer experienced management, dividends and financial security.

To date, Cardiff consists of the following whole-owned subsidiaries:

We Three, LLC (Affordable Housing Initiative) acquired on May 15, 2014;

Romeo’s NY Pizza acquired on June 30, 2014;

Edge View Properties, Inc acquired on July 16, 2014;

FDR Enterprises, Inc. acquired on August 10, 2016;

Repicci’s Franchise Group, LLC acquired on August 10, 2016;

Refreshment Concepts, LLC acquired on August 10, 2016.

Going Concern

The accompanying consolidated financial statements have been prepared using the 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. As of June 30, 2016, the Company had shareholders’ deficit of $1,001,385. The accompanying consolidated 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. As a result, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2015 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern and the appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusions. Management has prospective investors and believes the raising of capital will allow the Company to pursue new acquisitions. There can be no assurance that the Company 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 it. Should the Company be unable to raise sufficient funds, it may be required to curtail its operating plans. In addition, increases in expenses may require cost reductions. No assurance can be given that the Company will be able to operate profitably on a consistent basis, or at all, in the future. Should the Company not be able to raise sufficient funds, it may cause cessation of operations.

Recently Issued Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements up to ASU 2016-13, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.

2. PLANT AND EQUIPMENT, NET

Plant and equipment, net as of June 30, 2016 and December 31, 2015 was $471,438 and $540,024, respectively, consisting of the following:

During the six months ended June 30, 2016 and 2015, depreciation expense was $35,772 and $33,622, respectively.

During the six months ended June 30, 2016, the Company disposed fixed asset for cash payment of $31,637, resulting in loss of $5,151 from disposal of fixed assets. And the Company purchases a Vehicle for $3,974.

During the six months ended June 30, 2015, the Company disposed 2 smart cars for cash payment of $30,902, resulting in gain of $12,007 from disposal of fixed assets.

3. LAND

As of June 30, 2016 and December 31, 2015, the Company had land of $603,000 located in Salmon, Idaho with area of approximately 30 acres, which was in connection with the acquisition of Edge View Properties, Inc. in July 2014. The Company issued 241,199 shares of Series E Preferred Stock as consideration for this acquisition. Based on the price of $2.50 per share, the acquisition consideration represents a $603,000 valuation. The land is currently vacant and is expected to be developed into residential community. The value of the land is not subject to be depreciated.

4. ACCRUED EXPENSES

As of June 30, 2016 and December 31, 2015, the Company had accrued expenses of $1,375,759 and $1,087,304, respectively, consisted of the following:

5. RELATED PARTY TRANSACTIONS

Due to Officers and Officer Compensation

The Company borrows funds from Daniel Thompson, who is a Shareholder and Officer of the Company. The terms of repayment stipulate the loans are due 24 months after the launch of the Legacy Tuition Card (or prior to such date) at an annual interest rate of six percent. As of June 30, 2016 and December 31, 2015, the Company had $110,815 and $81,905 due to related party.

In addition, the Company has an employment agreement, renewed May 15, 2014, with Daniel Thompson whereby the Company changed Daniel Thompson’s compensation to $20,000 per month from $25,000. Accordingly, a total salary of $120,000 and $240,000 were accrued and reflected as an expense to Daniel Thompson during the period ended June 30, 2016 and December 31, 2015, respectively. The accrued salaries payable to Daniel Thompson was $594,255 and $502,500 as of June 30, 2016 and December 31, 2015, respectively.

The Company had an employment agreement with a former Chief Operating Officer, Mr. Levy, whereby the Company provided for compensation of $15,000 per month. A total salary of $90,000 and $180,000 were accrued and reflected as an expense during period ended June 30, 2016 and the year ended December 31, 2015. The total balance due to Mr. Levy for accrued salaries at June 30, 2016 and December 31, 2015 were $270,000 and $180,000.

The Company had an employment agreement with the Chief Executive Officer, Mr. Cunningham, whereby the Company provided for compensation of $15,000 per month. A total salary of $90,000 and $180,000 were accrued and reflected as an expense during the year ended December 31, 2015. The total balance due to Mr. Cunningham for accrued salaries at June 30, 2016 and December 31, 2015 were $270,000 and $180,000.

Notes Payable – Related Party

The Company has entered into several loan agreements with related parties (see above; Footnote 6, Notes Payable – Related Party; and Footnote 7, Convertible Notes Payable – Related Party).

6. NOTES PAYABLE

Notes payable at June 30, 2016 and December 31, 2015 are summarized as follows:

Notes Payable – Unrelated Party

On March 12, 2009, the Company entered into a preferred debenture agreement with a shareholder for $20,000. The note bore 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 $0.10 per share and expired on March 12, 2014. As a result of the warrants issued, the Company recorded a $20,000 debt discount during 2009 which has been fully amortized. 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 was due to pay annual principal payments of $5,000 plus accrued interest beginning March 12, 2012. On July 20, 2011, the Company repaid $5,000 of the note. As of December 31, 2012, the warrants had not been exercised. As of June 30, 2016, the Company is in default on this debenture. The balance of the note was $10,989 and $10,989 at June 30, 2016 and December 31, 2015, respectively.

The balance of $50,859 in notes payable to unrelated party was due to the auto loan for the vehicles used in the Pizza restaurants.

Notes Payable – Related Party

On September 7, 2011, the Company entered into a Promissory Note agreement (“Note 1”) with a related party for $50,000. Note 1 bears interest at 8% per year and matures on September 7, 2016. Interest is payable annually on the anniversary of Note 1, and the principal and any unpaid interest will be due upon maturity. In conjunction with Note 1, the Company issued 2,500,000 shares of its Common Stock to the lender. As a result of the shares issued in conjunction with Note 1, the Company recorded a $50,000 debt discount during 2011. The balance of Note 1, net of debt discount, was $50,000 and $50,000 at June 30, 2016 and December 31, 2015, respectively.

On November 17, 2011, the Company entered into a Promissory Note agreement (“Note 2”) with a related party for $50,000. Note 2 bears interest at 8% per year and matures on November 17, 2016. Interest is payable annually on the anniversary of Note 2, and the principal and any unpaid interest will be due upon maturity. In conjunction with Note 2, the Company issued 2,500,000 shares of its Common Stock to the lender. As a result of the shares issued in conjunction with Note 2, the Company recorded a $50,000 debt discount during 2011. The balance of Note 2, net of debt discount, was $50,000 and $50,000 at June 30, 2016 and December 31, 2015, respectively.

During the first quarter of 2016, the Company entered into a Promissory Note agreement (“Note 3”) with a related party for $9,000. Note 3 bears interest at 0% and is due on demand. The balance of Note 3, was $9,000 and $0 at June 30, 2016 and December 31, 2015, respectively.

The following is a schedule showing the future minimum loan payments in the future 5 years.

7. CONVERTIBLE NOTES PAYABLE

Some of the Convertible Notes issued as described below included an anti-dilution provision that allowed for the adjustment of the conversion price. The Company considered the guidance provided by the FASB in “Determining Whether an Instrument Indexed to an Entity’s Own Stock,” the result of which indicates that the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that, as the conversion price of the Notes issued in connection therewith could fluctuate based future events, such prices were not fixed amounts. As a result, the Company determined that the conversion features of the Notes issued in connection therewith are not considered indexed to the Company’s stock and characterized the value of the conversion feature of such notes as derivative liabilities upon issuance.

Convertible notes at June 30, 2016 and December 31, 2015 are summarized as follows:

Convertible Notes Payable – Unrelated Party

On April 17, 2014, the Company entered into an unsecured Convertible Note (“Note 4”) in the amount of $9,000. Note 4 was convertible into Common Shares of the Company at $0.005 per share at the option of the holder. Note 4 bore interest at eight percent per year, matured on June 17, 2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. The Company is currently in default on Note 4. On August 17, 2015, a portion of principal of $1,500 was converted into 300,000 shares of Common Stock of the Company upon the request of the holder. During the period ended June 30, 2016, the note holder converted $1,216 principal and $1,084 accrued interest payable into 460,000 shares of common stock at a conversion price of $0.005 per share. And $3,000 of principal is forgiven by the note holder. The balance of the note was $3,284 and $9,000 at June 30, 2016 and December 31, 2015, respectively.

On May 6, 2015, the Company entered into a 10% convertible promissory note (“Note 5”) with an unrelated entity in the amount of $12,200. Note 5 bore interest at ten percent per year, matured on September 3, 2015, and was unsecured. Note 5 was convertible into Common Shares of the Company at the conversion ratio of 50% discount to market at the lowest traded price within 20 business days prior to “Notice of Conversion”. This gives rise to derivative liability accounting related to this Note since the conversion ratio is considered floorless.

Accordingly, Note 5 has been evaluated with respect to the terms and conditions of the conversion features contained in Note 5 to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in Note 5 for $12,200 carrying value represents a freestanding derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using the Black-Scholes valuation model at the inception date of Note 5 and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.

The table below sets forth the assumptions for Black-Scholes valuation model on May 6, 2015 (inception) and December 31, 2015, March 8, 2016, respectively. For the period ended June 30, 2016, December 31, 2015, and the Company had initial loss of $10,295 due to derivative liabilities, and decreased the derivative liability of $22,495 by $8,547, resulting in a derivative liability of $12,217 and $13,948 at March 8, 2016 and December 31, 2015. On March 8, 2016, the converted note agreement was amended and therefore the conversion price becomes $0.005. And the derivative liabilities of $12,217 was reclassified as additional capital as a result of the addendum.

The Company is currently in default on Note 5. During the period ended June 30, 2016, the note holders converted $10,200 unpaid principal and $840 accrued interest payable into 2,208,000 shares of common stock at a conversion price of $0.005 per share. As of June 30, 2016 and December 31, 2015, the carrying values of Note 5 were $2,000 and $12,200 and the debt discount was $0 and $0, respectively. The Company recorded interest expense related to Note 5 in amount of $355 and $0 during the period ended June 30, 2016 and 2015, respectively. The accrued interest of Note 5 was $314 and $799 as of June 30, 2016 and December 31, 2015, respectively.

On July 29, 2015, the Company entered into an 8% convertible promissory note (“Note 6”) with an unrelated entity in the amount of $10,000. Note 6 bore interest at eight percent per year, matured on November 26, 2015, and was unsecured. Note 6 was convertible into Common Shares of the Company at the conversion ratio of 50% discount to market at the conversion date. However, if the closing bid price of the Company’s Common Shares falls below $0.10 per share, the conversion price will be changed to $0.01 per share and remain intact from that point forward. Since the Company’s common stock was $0.075 per share at December 31, 2015, the conversion feature contained in Note 6 no longer meets the requirements for liability classification under ASC 815. As a result, the embedded derivative liability of $10,008 at December 31, 2015 was reclassified as additional paid-in capital.

The table below sets forth the assumptions for Black-Scholes valuation model on July 29, 2015 (inception) and December 31, 2015, respectively. For the period ended December 31, 2015, the Company had initial loss of $8,041 due to derivative liabilities, and decreased the derivative liability of $18,041 by $8,033, resulting in a derivative liability of $10,008 at December 31, 2015. The derivative liabilities is reclassified as additional paid in capital due to the conversion price become fixed price as of January 1, 2016.

The Company is currently in default on Note 6 and bears default interest at ten percent per year. As of December 31, 2015, the carrying values of Note 6 were $10,000 and the debt discount was $0. The Company recorded interest expense related to Note 6 in amount of $500 and $0 during the three months ended June 30, 2016 and 2016, respectively. The accrued interest of Note 6 was $809 and $359 as of June 30, 2016 and December 31, 2015, respectively.

On February 3, 2016, the Company entered into a 15% convertible line of credit (“Note 7”) with an unrelated entity in the amount up to $50,000. On February 9, 2016, the Company received $17,500 cash for the line of credit, matured on February 9, 2017, and was unsecured. This note was convertible into Common Shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing price on the primary trading market on which Company's Common stock is quoted for the last five trading days prior to the conversion date. However, the note is not converted after 6 months of the effective date of this note. And therefore, no derivative liability is generated as of June 30, 2016.

On March 8, 2016, the Company entered into a 15% convertible line of credit (“Note 8”) with an unrelated entity in the amount of $50,000, matured on March 8, 2018, and was unsecured. This note was convertible into Common Shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing price on the primary trading market on which Company's Common stock is quoted for the last five trading days prior to the conversion date. However, the note is not converted after 6 months of the effective date of this note. And therefore, no derivative liabilities is generated as of June 30, 2016.

Convertible Notes Payable – Related Party

On April 21, 2008, the Company entered into an unsecured Convertible Debenture (“Debenture 1”) with a shareholder in the amount of $150,000. Debenture 1 was convertible into Common Shares of the Company at $0.03 per share at the option of the holder no earlier than August 21, 2008. Debenture 1 bore interest at 12% per year, matured in August 2009, and was unsecured. All principal and unpaid accrued interest was due at maturity. In conjunction with the Debenture 1, the Company also issued warrants to purchase 5,000,000 shares of the Company’s Common Stock at $0.03 per share. The warrants expired on April 20, 2013. As a result of issued warrants, the Company recorded a $150,000 debt discount during 2008 which has been fully amortized. The Company is in default on Debenture 1, and the warrants have not been exercised. The balance of Debenture 1 was $150,000 and $150,000 at June 30, 2016 and December 31, 2015, respectively.

On March 11, 2009, the Company entered into an unsecured Convertible Debenture (“Debenture 2”) with a shareholder in the amount of $15,000. Debenture 2 was convertible into Common Shares of the Company at $0.03 per share at the option of the holder. Debenture 2 bore interest at 12% per year, matured on March 11, 2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. The Company is in default on Debenture 2. The balance of Debenture 2 was $15,000 and $15,000 at June 30, 2016 and December 31, 2015, respectively.

The following is a schedule showing the future minimum loan payments in the future 5 years.

8. PAYROLL TAXES

The Company previously reported that it has failed to remit payroll tax payments since 2006, as required by various taxing authorities. Payroll taxes and estimated penalties were accrued in recognition of accrued salaries subsequently settled via stock issue and other agreements that did not result in reportable or taxable payroll transactions. These accruals were reversed for prior years, and a similar estimated accrual established for the 2015. As of June 30, 2016 and December 31, 2015, the Company estimated the amount of taxes, interest, and penalties that the Company could incur as a result of payroll related taxes and penalties to be $38,641 and $38,902, respectively.

9. NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of common shares outstanding during the periods. There were no dilutive earnings per share for the three months ended June 30, 2016 and 2015, and the six months ended June 30, 2016 and 2015, due to net loss during the periods.  

The following table sets forth the computation of basic net loss per share for the periods indicated:

10. CAPITAL STOCK

Series B Preferred Stock

During the six months ended June 30, 2016 72,718 shares of Series “B” Preferred Stock were converted into 363,589 shares of Common Stock of the Company per the preferred shareholder’s instruction.

Series F Preferred Stock

During the period ended June 30, 2016, 10,000 shares of Series “F” Preferred Stock were converted into 50,000 shares of Common Stock of the Company per the preferred shareholder’s instruction.

Common Stock

During the six months ended June 30, 2016, the Company issued total 415,000 shares of Common Stock to investors for total cash payment of $24,000, or $0.05 per share, pursuant to the executed subscription agreements.

During the six months ended June 30, 2016, the Company issued 2,920,000 shares of common stock for the conversion of $14,600 of unpaid convertible notes principal and accrued interest payable at a price of $0.005 per share.

11. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company had operating leases of $72,120 and $66,266 for the three months ended June 30, 2016 and 2015, respectively, consisting of the followings.

The Company had operating leases of $148,620 and $131,969 for the six months ended June 30, 2016 and 2015, respectively, consisting of the followings. 

12. SEGMENT REPORTING

The Company has two reportable operating segments as determined by management using the “management approach” as defined by the authoritative guidance on Disclosures about Segments of an Enterprise and Related Information:  (1) Mobile home lease (We Three), and (2) Company-owned Pizza Restaurants (Romeo’s NY Pizza).  These segments are a result of differences in the nature of the products and services sold.  Corporate administration costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially allocated to the two operating segments. Other revenue consists of nonrecurring items.

The mobile home lease segment establishes mobile home business as an option for a homeowner wishing to avoid large down payments, expensive maintenance costs, monthly mortgage payments and high property taxes. If bad credit is an issue preventing people from purchasing a traditional house, the Company will provide a financial leasing option with "0" interest on the lease providing a "lease to own" option for their family home.

The Company-owned Pizza Restaurant segment includes sales and operating results for all Company-owned restaurants. Assets for this segment include equipment, furniture and fixtures for the Company-owned restaurants.

Corporate administration and other assets primarily include the deferred tax asset, cash and short-term investments, as well as furniture and fixtures located at the corporate office and trademarks and other intangible assets. All assets are located within the United States.

13. MATERIAL ACQUISITION

As previously disclosed on June 30, 2016, the Company completed the acquisition of Titancare, LLC. The acquisition became effective (the “Effective day”) on June 27, 2016, a Pennsylvania At Home Care franchise. The acquisition is subject to Franchisor approval and the completion of an independent audit.

In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of Titan, par value $0.17 per share ("Titan Preferred Class Stock"), was converted into $0.17 preferred shares (the "Stock Consideration") of the Company’s Preferred Class “G” Stock, par value $0.001 per share ("CDIF Preferred “G” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred Titan stockholders at $0.17 per share with a conversion rate of 1 to 1.3 Common Stock payable to Titan shareholders of record as of the close of business on June 27, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of Titan to certain parties designated the Company, which closed on June 27, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.

Pending Franchisor approval and the completion of the independent audit, CDIF will issue approximately 977,247 shares of CDIF Preferred “G” Shares to Titancare shareholders as Stock Consideration in the Acquisition. Based on the price of CDIF’s Common stock as of June 27 and 29, 2016 at $0.17 per share, the acquisition consideration represents an approximate value of $166,132. The LLC has filed to convert to a Pennsylvania Corporation.

As of June 30, 2016, the shares are not issued.

As previously disclosed on June 29, 2016, the Company completed the acquisition of York County In Home Care, Inc. The acquisition became effective (the “Effective day”) on June 27, 2016, a Pennsylvania At Home Care franchise. The acquisition is subject to Franchisor approval and the completion of an independent audit.

In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of York, par value $0.17 per share ("York Preferred Class Stock"), was converted into $0.17 preferred shares (the "Stock Consideration") of the Company’s Preferred Class “G” Stock, par value $0.001 per share ("CDIF Preferred “G” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred York stockholders at $0.17 per share with a conversion rate of 1 to 1.3 Common Stock payable to York shareholders of record as of the close of business on June 29, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of York to certain parties designated by the Company, which closed on June 29, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.

Pending Franchisor approval and the completion of the independent audit, CDIF will issued approximately 8,235,294 shares of CDIF Preferred “G” Shares as Stock Consideration in the Acquisition. Based on the price of the Company’s Preferred “G” Class of stock on June 29, 2016. The acquisition consideration (based on the value of $0.17 in CDIF Preferred Stock, represents approximately $1,400,000.00.

As of June 30, 2016, the shares are not issued.

14. SUBSEQUENT EVENTS

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to June 30, 2016 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than those specified below:

Stock issuance:

After June 30, the Company issued 753,000 shares of common stock for conversion, 1,000,000 shares of common stock for compensation, and 1,360,783 shares of common stock for cash.

Notes payable:

On October 25, 2016, the Company received $25,000 from the unrelated third party

First Acquisition:

On August 10^th, 2016, Cardiff International, Inc. (CDIF) completed the acquisition of Refreshment Concepts, LLC. The acquisition became effective (the "Effective day") on August 10^th, 2016.

In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of Refreshment Concepts, par value $0.20 per share ("Refreshment Concepts Preferred Class Stock"), was converted into $0.20 preferred shares (the "Stock Consideration") of CDIF’s Preferred Class “H” Stock, par value $0.001 per share ("CDIF Preferred “H” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred Refreshment Concepts stockholders at $0.20 per share with a conversion rate of 1 to 1.25 Common Stock payable to Refreshment Concepts shareholders of record as of the close of business on July 22, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of Refreshment Concepts to certain parties designated by CDIF, which closed on July 22, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition. 

CDIF issued approximately 1,440,000 shares of CDIF Preferred “H” Shares as Stock Consideration in the Acquisition. Based on the price of CDIF’s Preferred “H” Class of stock on July 1^st, 2016. The acquisition consideration (based on the value of $0.20 in CDIF Preferred Stock, represents approximately $288,000.00. The LLC has filed to convert to a Georgia Corporation. An amended 8K will be filed with audited financials by December 15, 2016.

Second Acquisition:

On August 10^th, 2016, Cardiff International, Inc. (CDIF) completed the acquisition of F.D.R. Enterprises. The acquisition became effective (the "Effective day") on August 10th, 2016.

In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of F.D.R. Enterprises par value $0.20 per share ("F.D.R. Enterprises Preferred Class Stock"), was converted into $0.20 preferred shares (the "Stock Consideration") of CDIF’s Preferred Class “H” Stock, par value $0.001 per share ("CDIF Preferred “H” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred F.D.R. Enterprises stockholders at $0.20 per share with a conversion rate of 1 to 1.25 Common Stock payable to F.D.R. Enterprises shareholders of record as of the close of business on July 22, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of F.D.R. Enterprises to certain parties designated by CDIF, which closed on July 22, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.

CDIF issued approximately 1,206,870 shares of CDIF Preferred “H” Shares as Stock Consideration in the Acquisition. Based on the price of CDIF’s Preferred “H” Class of stock on July 1^st, 2016. The acquisition consideration (based on the value of $0.20 in CDIF Preferred Stock, represents approximately $241,374.00. The LLC has filed to convert to a Tennessee Corporation. An amended 8K will be filed with audited financials by December 15, 2016.

Third Acquisition:

On August 10^th, 2016, Cardiff International, Inc. (CDIF) completed the acquisition of Repicci’s Franchise Group. The acquisition became effective (the "Effective day") on August 10^th, 2016.

In connection with the closing of the acquisition, at the Effective Time, each outstanding class of preferred shares of Repicci’s Franchise Group par value $0.20 per share ("Repicci’s Franchise Group Preferred Class Stock"), was converted into $0.20 preferred shares (the "Stock Consideration") of CDIF’s Preferred Class “H” Stock, par value $0.001 per share ("CDIF Preferred “H” Stock"). The preferred share Consideration was adjusted as a result of the authorization and declaration of a special distribution to the preferred Repicci’s Franchise Group stockholders at $0.20 per share with a conversion rate of 1 to 1.25 Common Stock payable to Repicci’s Franchise Group shareholders of record as of the close of business on July 22, 2016 (the "Special Conversion"). The Special Conversion right is granted as a result of the closing of the sale of certain interests in assets of Repicci’s Franchise Group to certain parties designated by CDIF, which closed on July 22, 2016 (the "Asset Sale"). Pursuant to the terms of the Acquisition.

CDIF issued approximately 1,770,000 shares of CDIF Preferred “H” Shares as Stock Consideration in the Acquisition. Based on the price of CDIF’s Preferred “H” Class of stock on July 1^st, 2016. The acquisition consideration (based on the value of $0.20 in CDIF Preferred Stock, represents approximately $354,000.00. The LLC has filed to convert to a Tennessee Corporation. An amended 8K will be filed with audited financials by December 15, 2016.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements including the related notes, and the other financial information included in this report. For ease of reference, “we,” “us” or “our” refer to Cardiff International, Inc., and Legacy Card Company, Inc. (d/b/a: Mission Tuition) unless otherwise stated.

Cautionary Statement Concerning Forward-Looking Information

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of Cardiff International, Inc. and other matters. Statements in this report that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenue and income of Cardiff International, Inc., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of Cardiff International, Inc. on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), that may affect the operations, performance, development and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company assumes no obligation and does not intend to update these forward looking statements, except as required by law.

Operating History. We commenced active business operations during 2015. Potential investors should be aware that there is only a limited basis upon which to evaluate our prospects for achieving our intended business objectives. We have limited resources and have had limited revenues since our formation.

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

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

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

Auditor’s Opinion has a Going Concern Qualification. Our auditor’s report dated October 28, 2016, for the years ended December 31, 2015 and 2014 includes a going concern qualification which states that our significant recurring operating losses and negative working capital raise substantial doubt about our ability to continue as a going concern.

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

We Operate in a Limited Market. The Educational Rewards program is one of three national programs available to families. We cannot guarantee that we will compete successfully against our potential competitors, especially those with significantly greater financial resources or brand name recognition.

Overview

We are a holding company that adopted a new business model known as "Collaborative Governance.” To date, we are not aware of any other domestic holding company using the same business philosophy or governing policies. Our business footprint is to acquire strong companies that meet the following criteria: (1) in business for a minimum of two years; (2) profitable; (3) good management team; (4) little to no debt; and (5) assets of a minimum of $1,000,000. We continue to practice all business ethics under the Securities Exchange Act of 1934 (“1934 Act”) and acknowledges that there are more than 43 successful business development companies subject to the Investment Company Act of 1940 (“1940 Act”), all of which may be considered competition to us and that are established and available to the public for investment. These companies offer experienced management, dividends and financial security.

To date, Cardiff consists of the following whole-owned subsidiaries:

We Three, LLC (Affordable Housing Initiative) acquired on May 15, 2014;

Romeo’s NY Pizza acquired on June 30, 2014;

Edge View Properties, Inc acquired on July 16, 2014;

FDR Enterprises, Inc. acquired on August 10, 2016;

Repicci’s Franchise Group, LLC acquired on August 10, 2016;

Refreshment Concepts, LLC acquired on August 10, 2016.

Critical Accounting Estimates

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

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

Derivative Liability

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the probability weighted average Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the June 30, 2015 reporting date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Share-based compensation expense

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

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

Recent Accounting Pronouncements

In July 2015, FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

In August 2015, FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our net results of operations, financial position, or cash flows.

Results of Operations

We had revenues in the amount of $209,283 and $482,579 for the three and six months ended June 30, 2016, respectively, compared to revenues of $329,536 and $758,504 for the three and six months ended June 30, 2015, respectively. The revenue for the three months ended June 30, 2016 is attributable to Romeo’s NY Pizza - $168,923, We Three, LLC – $40,360. The revenue for the six months ended June 30, 2016 is attributable to Romeo’s NY Pizza - $383,516, We Three, LLC – $80,973 and Other - $18,090. The revenue for the three months ended June 30, 2015 is attributable to Romeo’s NY Pizza - $286,793, We Three, LLC – $42,743. The revenue for the six months ended June 30, 2015 is attributable to Romeo’s NY Pizza - $663,913, We Three, LLC – $84,491 and Other - $10,100. Our revenues from rental income during the three and six months ended June 30, 2016 were about the same as the comparable periods in 2015. The decrease in revenues from sales of pizza during this reporting period were attributable to the decrease in number of stores. We have one pizza store open in 2016.

We had costs of sales in the amount of $147,254 and $284,127 for the three and six months ended June 30, 2016, respectively. Comparatively, we had costs of sales in the amount of $243,194 and $544,592 for the three and six months ended June 30, 2015, respectively. The costs for the three months ended June 30, 2016 are attributable to Romeo’s NY Pizza – $96,254 and We Three, LLC – $51,000. The costs for the six months ended June 30, 2016 are attributable to Romeo’s NY Pizza – $203,157 and We Three, LLC – $80,970. The costs for the three months ended June 30, 2015 are attributable to Romeo’s NY Pizza – $200,888 and We Three, LLC – $42,306. The costs for the six months ended June 30, 2015 are attributable to Romeo’s NY Pizza – $473,293 and We Three, LLC – $71,299. Our cost related to the rental business during the three and six months ended June 30, 2016 were about the same as the comparable periods in 2015. The decrease in cost of pizza sales during this reporting period were attributable to the decrease in number of stores. We have one pizza store open in 2016.

We had operating expenses of $292,794 and $623,627 for the three and six months ended June 30, 2016, respectively, compared to operating expenses of $3,143,204 and $3,398,209 for the three and six months ended June 30, 2015, respectively. The significant decrease in operating expenses in 2016 was primarily due to no stock issuance for services in this reporting period. Comparatively, there was issuance of 1,650,000 shares of common stock in 2015 to 4 consultants for marketing, management and financial strategies, resulting in non-cash stock based compensation of $2,796,000 during the six months ended June 30, 2015.

We had a net loss of $242,351 and $446,213 for the three and six months ended June 30, 2016, respectively, compared to a net loss of $2,879,657 and $3,004,148 for the three and six months ended June 30, 2015, respectively, representing a decrease by $2,637,306 and $2,557,935, respectively, in 2016.

Inflation

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

Liquidity and Capital Resources

Since inception, the principal sources of cash have been funds raised from the sale of common stock, advances from shareholders, and loans in the form of debentures and convertible notes. At June 30, 2016, we had $62,366 in cash and cash equivalents and total assets amounted to $1,171,612. At December 31, 2015 we had $31,559 of cash and cash equivalents, and total assets amounted to $1,212,479, which include other assets.

Net cash used in operating activities was $63,274 and $48,128 for the six months ended June 30, 2016 and 2015, respectively. The negative cash flow from operating activities during the six months ended June 30, 2016 was attributable to the net loss of $446,213, partially offset by non-cash expenses of $50,000 in lieu of convertible promissory note, and the increase in accrued expenses by $196,699 in the current period. The negative cash flow from operating activities during the six months ended June 30, 2015 was attributable to the net loss offset by non-cash stock compensation of $2,796,000 and the increase in accrued expenses by $220,421 in 2015.

Net cash provided by investing activities was $27,663 for the six months ended June 30, 2016, compared to net cash of $26,287 used in investing activities for the six months ended June 30, 2015. We had cash of $31,637 from disposal of fixed assets in 2016, which was $30,902 during the same period in 2015. We purchased fixed assets of $3,974 in this reporting period, which was $57,189 during the same period in 2015 for mobile home lease business.

Net cash provided by financing activities was $66,418 and $90,163 for six months ended June 30, 2016 and 2015, respectively. The cash flows from financing activities during the six months ended June 30, 2016 were attributable to proceeds of $24,000 from sales of stock and proceeds of $20,684 from convertible notes payable, which was $132,500 and $12,200, respectively, in 2015. Additionally, we had cash of $31,197 due to related party in this reporting period, which was $11,759 in 2015.

There can be no assurance that we will be able to obtain sufficient capital from debt or equity transactions or from operations in the necessary time frame or on terms acceptable to us. Should we be unable to raise sufficient funds, we may be required to curtail our operating plans and possibly relinquish rights to portions of our technology or products. In addition, increases in expenses or delays in product development may adversely impact our cash position and may require cost reductions. No assurance can be given that we will be able to operate profitably on a consistent basis, or at all, in the future.

In order to continue our operations, development of our products, and implementation of our business plan, we need additional financing. We are currently attempting to obtain additional working capital in a term loan transaction.

Plan of Operation

Our current business plan is described in “Item 1 - Description of Business” of Form 10-K for the year ended December 31, 2015.

Off Balance Sheet Arrangements

As of June 30, 2016, we had no off balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable

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

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,+ summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. 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 has concluded that these disclosure controls and procedures are ineffective. There have been no changes to our disclosure controls and procedures during the three and six months ended June 30, 2016.

There has been no change in our internal control over financial reporting during the quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Since the most recent evaluation date, there have been no significant changes in our internal control structure, policies, and procedures or in other areas that could significantly affect our internal control over financial reporting.

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

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

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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

SIGNATURE

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