Cardiff Lexington Corp 10-K/A

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. 48 As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2023. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described below, our disclosure controls and procedures were not effective. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial and accounting officer, and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this evaluation, management used the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our evaluation, we determined that, as of December 31, 2023, our internal control over financial reporting was not effective due to the following material weaknesses. · We had not developed and effectively communicated to our employees our accounting policies and procedure, which had resulted in inconsistent practices. · We lacked formal documentation over internal control procedures and environment. · We lacked proper segregation of duties and multiple level of reviews. · We lacked sufficient process, systems and access to technical accounting resources to enable appropriate accounting for and reporting on complex and/or non-routine debt and equity financing transactions including accounting for derivatives, convertible debt, preferred stock. In order to cure the foregoing material weakness, we have begun to take the following remediation measures: · We are making necessary changes by providing training to our financial team and our other relevant personnel on the GAAP accounting guidelines applicable to financial reporting requirements. 49 · We plan to implement proper documentation procedures for key functional areas, control objectives and our workflows. · We plan to reinforce effective compensating controls can improve the design of the current process with limited human resources. We intend to complete the remediation of the material weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weaknesses that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes in Internal Controls over Financial Reporting We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. Except for the matters described above, there have been no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. We have no information to disclose that was required to be in a report on Form 8-K during the fourth quarter of fiscal year 2023 but was not reported. None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fourth quarter of fiscal year 2023. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 50 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Directors and Executive Officers The following sets forth information about our directors and executive officers as of the date of this report. Name Age Position Daniel Thompson 74 Chairman of the Board Directors Alex Cunningham 68 Chief Executive Officer, President, and Director Matthew T. Shafer 53 Senior Vice President and Chief Financial Officer Zia Choe 42 Chief Accounting Officer Daniel Thompson . Mr. Thompson has been Chairman of our board of directors since May 2014. Prior to serving as Chairman, Mr. Thompson served as Chief Executive Officer from February 2005 to May 2014 and also served as a consultant from January 2001 to February 2005. Prior to joining us, Mr. Thompson was founder, president and chief executive officer of Creative Entertainment Services, a full-service entertainment company specializing in Feature Film, Television, Closed Captioning and Game Show fulfilment, from 1982 to December 2001. 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. We believe Mr. Thompson is well suited to serve as a director because of his previous business management and merger and acquisition experience. Alex Cunningham . Mr. Cunningham has been our Chief Executive Officer and President and has served on our board of directors since June 2015. Prior to joining us, Mr. Cunningham founded Francnsult, Inc., a business development company representing franchise operations, where he was in charge of identifying prospects for franchising, mergers, and acquisitions, and was the managing partner at AH Cunningham & Associates, LLC, a firm which provided financial and operational consulting services to owners of small and medium-sized businesses, EB-5 immigrant investors, passive investment, franchise owners, and franchisors. Prior to his employment at Francnsult, Inc. and AH Cunningham & Associates, Mr. Cunningham was the president and chief executive officer of Profit Management Consulting, a management consulting company that assisted in the management of private and closely held middle-market companies, from 1996 to 2005. From 1991 to 1996, Mr. Cunningham was a partner at London Capital Corporation, a company which provides merger and acquisition services to small and medium-sized businesses. Mr. Cunningham received a BBA-Finance and Administration at the University of Kentucky and an MBA from Rollins College. We believe Cunningham is well suited to serve as a director because of his previous business management, financial, and merger and acquisition experience. Matthew T. Shafer . Mr. Shafer has been our Senior Vice President and Chief Financial Officer since January 2024. Prior to joining us, Mr. Shafer served as strategic executive engagement consultant and advisor for the chief financial officer and chief accounting officer capacities during rapid growth, change and transitions at Proterra, a publicly traded manufacturer of electric vehicles and provider of related SaaS services, since March 2023. Prior to that, he served as vice president of finance at Aspire Technology Partners, a privately owned technology provider delivering custom digital infrastructures, SaaS solutions and professional services, from May 2022 to February 2023. From October 2021 to April 2022, he served as a strategic chief financial officer of Tatum, an interim executive consultancy practice of Randstad USA, and from September 2016 to September 2021, he held the positions of senior vice president, chief financial officer and treasurer of Ocean Power Technologies, Inc., a publicly traded green technology company providing cost-effective renewable ocean energy solutions. Earlier in his career, Mr. Shafer held senior finance positions at numerous privately owned and publicly traded companies, including, among others, business unit chief financial officer – for the Dentistry (OraPharma) division at Bauch Health Companies, a global publicly traded pharmaceutical company, and numerous executive level positions at Johnson Controls International plc (formerly Tyco International), a large publicly traded multinational manufacturing company. Mr. Shafer is a certified public accountant with a foundation in Big Four public accounting, beginning his career at Arthur Andersen LLP. He received his Bachelor of Science degree in accounting from W. Paul Stillman School of Business at Seton Hall University and has an MBA in finance from The Rutgers Business School at Rutgers University. 51 Zia Choe . Ms. Choe has been our Chief Accounting Officer since January 2024. Prior to that, Ms. Choe served as Interim Chief Financial Officer from March 2023 to January 2024 and served as an outside accountant from March 2017 to March 2023. Ms. Choe founded STK FINANCIAL P.C., a California-licensed accounting firm, in June 2021. As a managing partner, Ms. Choe has provided financial attestation, managerial consulting, preparation of 10-Ks and 10-Qs and other high level accounting and financial services to privately and publicly held companies in the U.S. and internationally. Prior to her founding of STK FINANCIAL P.C., she was an audit team leader in the accounting and audit division at JNK Accountancy Group, LLP from September 2014 until June 2021, where she was in charge of financial attestation and due diligence projects for acquisition deals in various industries for seven years. Ms. Choe also had seven years of operational experience in accounting, sales and marketing at Hyundai Mobis Parts America, LLC, a subsidiary of Hyundai Motors, from March 2006 to March 2013. Ms. Choe received a B.S. in Hospitality Management at Florida International University, and she also has higher education in accounting at Ajou University Graduate School in South Korea. Our directors currently have terms which will end at our next annual meeting of the stockholders or until their successors are elected and qualify, subject to their prior death, resignation, or removal. Officers serve at the discretion of the board of directors. There is no arrangement or understanding between any director or executive officer and any other person pursuant to which he was or is to be selected as a director, nominee, or officer. Family Relationships There are no family relationships among any of our officers or directors. Involvement in Certain Legal Proceedings To the best of our knowledge, except as described below, none of our directors or executive officers has, during the past ten years: • been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences); • had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation, or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; • been subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; • been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; • been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or • been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. 52 Governance Structure We chose to appoint a separate Chairman of the Board who is not our Chief Executive Officer. Our board of directors has made this decision based on their belief that a separate Chairman of the Board can act as a balance to the Chief Executive Officer, who also serves as a non-independent director. The Board’s Role in Risk Oversight The board of directors oversees that the assets of our company are properly safeguarded, that the appropriate financial and other controls are maintained, and that our business is conducted wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities is the board’s oversight of the various risks facing our company. In this regard, our board seeks to understand and oversee critical business risks. Our board does not view risk in isolation. Risks are considered in virtually every business decision and as part of our business strategy. Our board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful, and appropriate risk-taking is essential for our company to be competitive on a global basis and to achieve its objectives. While the board oversees risk management, company management is charged with managing risk. Management communicates routinely with the board and individual directors on the significant risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management. Our board administers its risk oversight function as a whole by making risk oversight a matter of collective consideration; however, much of the work will be delegated to committees, which will meet regularly and report back to the full board. We plan to establish a standing audit committee, compensation committee and nominating and corporate governance committee of our board of directors. We anticipate that the audit committee will oversee risks related to our financial statements, the financial reporting process, accounting and legal matters, the compensation committee will evaluate the risks and rewards associated with our compensation philosophy and programs, and the nominating and corporate governance committee will evaluate risk associated with management decisions and strategic direction. Material Changes to Director Nomination Procedures There have been no material changes to the procedures by which stockholders may recommend nominees to our board of directors since such procedures were last disclosed. Code of Ethics We have adopted a code of ethics that applies to all of our directors, officers, and employees, including our principal executive officer, principal financial officer and principal accounting officer. Such code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations, and policies, including disclosure requirements under the federal securities laws, and reporting of violations of the code. We are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within four (4) business days following the date of any such amendment to, or waiver from, a provision of our code of ethics. 53 Insider Trading Policy We have adopted an insider trading policy which prohibits our directors, officers, and employees from engaging in transactions in our common stock while in the possession of material non-public information; engaging in transactions in the stock of other companies while in possession of material non-public information that they become aware of in performing their duties; and disclosing material non-public information to unauthorized persons outside our company. Our insider trading policy restricts trading by directors, officers, and certain key employees during blackout periods, which generally begin 15 calendar days before the end of each fiscal quarter and end two business days after the issuance of our earnings release for the quarter. Additional blackout periods may be imposed with or without notice, as the circumstances require. Our insider trading policy also prohibits our directors, officers, and employees from purchasing financial instruments (such as prepaid variable forward contracts, equity swaps, collars and exchange funds) designed to hedge or offset any decrease in the market value of our common stock they hold, directly or indirectly. In addition, directors, officers, and employees are expressly prohibited from pledging our common stock to secure personal loans or other obligations, including by holding their common stock in a margin account, unless such arrangement is specifically approved in advance by the administrator of our insider trading policy, or making short-sale transactions in our common stock. A copy of the insider trading policy may be found on our website. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors and executive officers and beneficial holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our equity securities. We believe, based solely on a review of the copies of such reports furnished to us and representations of these persons, that none of the reports were timely filed for the year ended December 31, 2023. All of the delinquent reports were recently filed. ITEM 11. EXECUTIVE COMPENSATION. Summary Compensation Table - Years Ended December 31, 2023 and 2022 The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by, or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000. Name and Principal Position Year Salary ($) Bonus ($) Other Compensation ($) Total ($) Alex Cunningham, Chief Executive Officer 2023 360,000 250,000 – 560,000 2022 360,000 200,000 – 560,000 Daniel Thompson, Chairman of the Board 2023 360,000 250,000 – 560,000 2022 360,000 200,000 – 560,000 Zia Choe, former Interim Chief Financial Officer (1) 2023 145,048 – – 145,048 2022 – – 67,500 67,500 (1) Ms. Choe served as our Interim Chief Financial Officer from March 2023 to January 2024. Prior to that, she served as our outside accountant from January 2022 to February 2023. Other Compensation includes consulting fees that Ms. Choe received prior to her appointment as our Interim Chief Financial Officer. 54 Employment Agreements Effective July 15, 2020, we entered into an employment agreement with Alex Cunningham, pursuant to which Mr. Cunningham agreed to serve as President and Chief Executive Officer. Pursuant to the employment agreement, Mr. Cunningham will earn $360,000 per year as his base salary. Mr. Cunningham is eligible for an annual bonus with respect to each fiscal year ending during his employment. Mr. Cunningham is also eligible to receive compensation in shares of preferred stock in the event that we are unable to pay his base salary in dollars. The term of employment agreement is from July 15, 2020 to December 31, 2025 with automatic extensions for additional successive one (1) year renewals terms unless terminated by notice of at least three (3) months from us or Mr. Cunningham of the termination. The employment agreement may be terminated immediately for cause (as such term is defined in the employment agreement), which would cause no severance payment obligations to Mr. Cunningham. In the event of termination without cause or for good reason, we must provide Mr. Cunningham with thirty (30) days prior written notice and would be required to pay all accrued payments, base salary and $200,000, Mr. Cunningham’s maximum target bonus amount for the twelve months after the termination. In the event of termination of employment without cause or for good reason following a change-in-control of our company, Mr. Cunningham would be entitled to all accrued payments, a lump sum separation allowance equal to two times the sum of his then base salary and then target bonus, any annual incentive bonuses, payment of benefits until the earlier of twenty-four months after termination or receipt of comparable benefits from subsequent employment and all then-outstanding equity awards under any equity plan will vest in full. The employment agreement also provides that Mr. Cunningham may not compete against us for a period of twelve (12) months after termination of his employment for any reason or solicit employees or customers from us for a period of twenty-four (24) months after termination of his employment for any reason. Effective July 15, 2020, we entered into an employment agreement with Daniel Thompson, pursuant to which Mr. Thompson agreed to serve as Chairman of the Board. Pursuant to the employment agreement, Mr. Thompson will earn $360,000 per year as his base salary. Mr. Thompson is eligible for an annual bonus with respect to each fiscal year ending during his directorship. Mr. Thompson is also eligible to receive compensation in shares of preferred stock in the event that we are unable to pay his base salary in dollars. The term of agreement is from July 15, 2020 to December 31, 2025 with automatic extensions for additional successive one (1) year renewals terms unless terminated by notice of at least three (3) months from us or Mr. Thompson of the termination. The employment agreement may be terminated immediately for cause (as such term is defined in the employment agreement), which would cause no severance payment obligations to Mr. Thompson. In the event of termination without cause or for good reason, we must provide Mr. Thompson with thirty (30) days prior written notice and would be required to pay all accrued payments, base salary and $200,000, Mr. Thompson’s maximum target bonus amount for the twelve months after the termination. In the event of termination of employment without cause or for good reason following a change-in-control of our company, Mr. Thompson would be entitled to all accrued payments, a lump sum separation allowance equal to two times the sum of his then base salary and then target bonus, any annual incentive bonuses, payment of benefits until the earlier of twenty-four months after termination or receipt of comparable benefits from subsequent employment and all then-outstanding equity awards under any equity plan will vest in full. The employment agreement also provides that Mr. Thompson may not compete against us for a period of twelve (12) months after termination of his employment for any reason or solicit employees or customers from us for a period of twenty-four (24) months after termination of his employment for any reason. On January 2, 2024, we entered into an employment agreement with Mr. Shafer setting forth the terms of his employment as Chief Financial Officer. Pursuant to the employment agreement, Mr. Shafer is entitled to an annual base salary of $228,000 and a signing bonus of 5,000 shares of our series I preferred stock. He is also eligible for consideration for a one-time achievement bonus equal to 35% of base salary within sixty (60) days upon our company uplisting to a national securities exchange. In addition, he is also eligible for an annual target bonus equal to 25% of base salary based on the achievement of certain performance goals and annual stock option grants. Mr. Shafer is also eligible to participate in all employee benefit plans, including health insurance, commensurate with his position. The term of the employment agreement is for one (1) year with automatic extensions for additional successive one (1) year renewal terms unless terminated by either party no later than thirty (30) days prior to the renewal date. The employment agreement may be terminated immediately by us with or without cause (as such term is defined in the employment agreement) or in the event of Mr. Shafer’s death or disability and may be terminated immediately by Mr. Shafer upon his voluntary resignation or other voluntary termination of employment. In the event of termination by us without cause, Mr. Shafer is entitled to the compensation and benefits described above for a period of three (3) months following termination. In the event of termination by Mr. Shafer for good reason (as defined in the employment agreement) or because Mr. Shafer cannot perform his services as result of physical or mental incapacitation, he will be eligible to receive three (3) months of base salary and medical and dental benefits under our medical and dental plans then in effect. Mr. Shafer is not entitled to receive any additional compensation upon termination by us for cause or upon a voluntary termination by Mr. Shafer. The employment agreement also contains customary confidentiality provisions and restrictive covenants prohibiting Mr. Shafer from owning or operating a business that competes with our company or soliciting our employees during the term of his employment and for a period of twelve months following the termination of his employment. 55 On January 2, 2024, we entered into an employment agreement with Ms. Choe setting forth the terms of her employment as Chief Accounting Officer. Pursuant to the employment agreement, Ms. Choe is entitled to an annual base salary of $210,000 and a signing bonus of 2,500 shares of our series I preferred stock. She is also eligible for an annual bonus and annual stock option grants. Ms. Choe is also eligible to participate in all employee benefit plans, including health insurance, commensurate with her position. The term of the employment agreement is for one (1) year with automatic extensions for additional successive one (1) year renewal terms unless terminated by either party no later than thirty (30) days prior to the renewal date. The employment agreement may be terminated immediately by us with or without cause (as such term is defined in the employment agreement) or in the event of Ms. Choe’s death or disability and may be terminated immediately by Ms. Choe upon her voluntary resignation or other voluntary termination of employment. In the event of termination by us without cause, Ms. Choe is entitled to the compensation and benefits described above for a period of one (1) month following termination. In the event of termination by Ms. Choe for good reason (as defined in the employment agreement) or because Ms. Choe cannot perform her services as result of physical or mental incapacitation, she will be eligible to receive three (3) months of base salary and medical and dental benefits under our medical and dental plans then in effect. Ms. Choe is not entitled to receive any additional compensation upon termination by us for cause or upon voluntary termination by Ms. Choe. The employment agreement also contains customary confidentiality provisions and restrictive covenants prohibiting Ms. Choe from owning or operating a business that competes with the Company or soliciting our employees during the term of her employment and for a period of twelve months following the termination of her employment. Outstanding Equity Awards at Fiscal Year-End No executive officer named above had any unexercised options, stock that has not vested or equity incentive plan awards outstanding as of December 31, 2023. Additional Narrative Disclosure Retirement Benefits We have not maintained, and do not currently maintain, a defined benefit pension plan, nonqualified deferred compensation plan or 401(k) plan. Potential Payments Upon Termination or Change in Control As described under “—Employment Agreements” above, Mr. Cunningham, Mr. Thompson, Mr. Shafer, and Ms. Choe are entitled severance if their employment is terminated without cause. Director Compensation Except for our Chairman, no member of our board of directors received any compensation for services as a director during the fiscal year ended December 31, 2023. 2024 Equity Incentive Plan On January 31, 2024, our board of directors and stockholders adopted the Cardiff Lexington Corporation 2024 Equity Incentive Plan, or Plan. The following is a summary which describes the principal features of the Plan, but it is qualified in its entirety by reference to the full text of the Plan. Purposes . The purpose of this Plan is to provide a means whereby employees, directors, consultants of our company and its affiliates develop a sense of proprietorship and personal involvement in the development and financial success of our company, and to encourage them to devote their best efforts to the business of our company, thereby advancing the interests of our company and its stockholders. A further purpose of this Plan is to provide a means through which we may attract able individuals to provide services to or for the benefit of our company and to provide a means for such individuals to acquire and maintain share ownership in our company, thereby strengthening their concern for the welfare of our company. 56 Types of Awards . Awards that may be granted include incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards, and performance compensation awards. These awards offer our officers, employees, consultants, and directors the possibility of future value, depending on the long-term price appreciation of our common stock and the award holder’s continuing service with our company. Eligible Recipients . Persons eligible to receive awards under the Plan will be those officers, employees, directors and consultants of our company and its subsidiaries who are selected by the administrator. Administration . The Plan is administered by our board of directors; provided that if and when we establish a compensation committee, the compensation committee will administer the Plan. Among other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, performance criteria, restrictions, and other provisions of awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the Plan. Shares Available . The maximum number of shares of our common stock that may be delivered to participants under the Plan is 2,000,000, subject to adjustment for certain corporate changes affecting the common stock, such as stock splits. In addition, the number of shares of common stock available for issuance under the Plan will automatically increase on January 1 of each calendar year during the term of the Plan by an amount equal five percent (5%) of the total number of shares of common stock issued and outstanding on December 31 of the immediately preceding calendar year. Shares subject to an award under the Plan for which the award is canceled, forfeited or expires again become available for grants under the Plan. Shares subject to an award that is settled in cash will not again be made available for grants under the Plan. Stock Options . General . Share options give the option holder the right to acquire from us a designated number of common stock at a purchase price that is fixed upon the grant of the option. Stock options granted may be either tax-qualified stock options (so-called “incentive stock options”) or non-qualified stock options. Subject to the provisions of the Plan, the administrator has the authority to determine all grants of stock options. That determination will include: the number of stock subject to any option; the exercise price per stock; the expiration date of the option; the manner, time, and date of permitted exercise; other restrictions, if any, on the option or the stock underlying the option; and any other terms and conditions as the administrator may determine. Option Price . The exercise price for stock options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date of grant. As a matter of tax law, the exercise price for any incentive share option awarded may not be less than the fair market value of the shares on the date of grant. However, incentive stock option grants to any person owning more than 10% of our voting power must have an exercise price of not less than 110% of the fair market value on the grant date. Exercise of Options . An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made either: (i) in cash or its equivalent; (ii) by tendering (either by actual delivery or attestation) previously acquired stock having an aggregate fair market value at the time of exercise equal to the exercise price; (iii) a cashless exercise (broker-assisted exercise) through a “same day sale” commitment; (iv) by a combination of (i), (ii), and (iii); or (v) any other method approved or accepted by the administrator in its sole discretion. Expiration or Termination . Options, if not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting power, such term cannot exceed five years. Options will terminate before their expiration date if the holder’s service with our company or a subsidiary terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment, including terminations as a result of death, disability, or retirement, with the precise period during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award. 57 Incentive and Non-Qualified Options . As described elsewhere in this summary, an incentive share option is an option that is intended to qualify under certain provisions of the U.S. Internal Revenue Code of 1986, as amended, or the Code, for more favorable tax treatment than applies to non-qualified share options. Any option that does not qualify as an incentive share option will be a non-qualified share option. Under the Code, certain restrictions apply to incentive stock options. For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or the laws of descent and distribution and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate fair market value in excess of $100,000, measured at the grant date. Stock Appreciation Rights . Stock appreciation rights, or SARs, which may be granted alone or in tandem with options, have an economic value similar to that of options. When an SAR for a particular number of stock is exercised, the holder receives a payment equal to the difference between the market price of the stock on the date of exercise and the exercise price of the stock under the SAR. Again, the exercise price for SARs normally is the market price of the shares on the date the SAR is granted. Under the Plan, holders of SARs may receive this payment - the appreciation value - either in cash or shares valued at the fair market value on the date of exercise. The form of payment will be determined by us. Restricted Awards . Restricted awards are shares awarded to participants at no cost. Restricted awards can take the form of awards of restricted stock, which represent issued and outstanding shares subject to vesting criteria, or restricted share units, which represent the right to receive shares subject to satisfaction of the vesting criteria. Restricted stock awards are forfeitable and non-transferable until the shares vest. The vesting date or dates and other conditions for vesting are established when the shares are awarded. These awards will be subject to such conditions, restrictions and contingencies as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement of specified performance goals. Performance Criteria . Under the Plan, one or more performance criteria will be used by the administrator in establishing performance goals. Any one or more of the performance criteria may be used on an absolute or relative basis to measure the performance of our company, as the administrator may deem appropriate, or as compared to the performance of a group of comparable companies, or published or special index that the administrator deems appropriate. Other Material Provisions . Awards will be evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the capitalization of our company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of our company, including acceleration of vesting. Except as otherwise determined by the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board also has the authority, at any time, to discontinue the granting of awards. The board also has the authority to alter or amend the Plan or any outstanding award or may terminate the Plan as to further grants, provided that no amendment will, without the approval of our stockholders, to the extent that such approval is required by law or the rules of an applicable exchange, increase the number of shares available under the Plan, change the persons eligible for awards under the Plan, extend the time within which awards may be made, or amend the provisions of the Plan related to amendments. No amendment that would adversely affect any outstanding award made under the Plan can be made without the consent of the holder of such award. 58 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information regarding beneficial ownership of our voting stock as of March 22, 2024 by (i) each of our executive officers and directors; (ii) all of our executive officers and directors as a group; and (iii) each person who is known by us to beneficially own more than 5% of our common stock. Unless otherwise specified, the address of each of the persons set forth below is in care of our company, 3753 Howard Hughes Parkway, Suite 200, Las Vegas, NV 89169. Name and Address of Beneficial Owner Title of Class Amount and Nature of Beneficial Ownership (1) Percent of Voting Stock (2) Daniel Thompson, Chairman of the Board (3) Common Stock 46,591,457 40.93% Alex Cunningham, Chief Executive Officer and Director (4) Common Stock 48,780,330 42.85% Matthew T. Shafer, Chief Financial Officer (5) Common Stock 25,000 * Zia Choe, Chief Accounting Officer (6) Common Stock 18,800 * All executive officers and directors (4 persons) Common Stock 95,415,586 83.73% * Less than 1% (1) Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock. (2) Percentage of total voting stock represents total ownership with respect to all shares of our voting stock, which includes the common stock, series A preferred stock, series B preferred stock, series C preferred stock, series E preferred stock, series I preferred stock, series J preferred stock, series L preferred stock and series R convertible preferred stock, voting as a single class. As of March 22, 2024, there were 8,664,495 shares of common stock, 2 shares of series A preferred stock, 1,451,929 shares of series B preferred stock, 103 shares of series C preferred stock, 155,750 shares of series E preferred stock, 12,999,000 shares of series I preferred stock, 171,359 shares of series J preferred stock, 319,493 shares of series L preferred stock and 165 shares of series R convertible preferred stock issued and outstanding. Each share of series A preferred stock is entitled to a number of votes at any time equal to 25% of the number of votes then held or entitled to be made by all other equity securities of our company, plus one (equivalent to 18,952,492 votes as of March 22, 2024). Each share of series B preferred stock, series C preferred stock, series E preferred stock, series J preferred stock and series L preferred stock is entitled to one (1) vote per share. Each share of series I preferred stock is entitled to five (5) votes per share. Each share of series R convertible preferred stock is entitled to a number of votes equal to the number of shares into which the series R convertible preferred stock is convertible (estimated to be 51,833 votes per share as of March 22, 2024). For each beneficial owner above, any options, warrants or other convertible securities exercisable within 60 days have been included in the denominator. (3) Includes (i) 1,000,337 shares of common stock held directly, (ii) 4 shares of common stock held by the 2007 Thompson Family Trust, (iii) 1 share of series A preferred stock held directly, (iv) 26,124 shares of common stock issuable upon the conversion of 13,062 shares of series B preferred stock held by the 2007 Thompson Family Trust, (v) 100,000 shares of common stock issuable upon the conversion of 1 share of series C preferred stock held directly and (vi) 5,302,500 shares of series I preferred stock. Mr. Thompson is the Trustee of the 2007 Thompson Family Trust and has voting and dispositive power over the shares held by it. (4) Includes (i) 1,000,338 shares of common stock, (ii) 1 share of series A preferred stock, (iii) 12,500 shares of common stock issuable upon the conversion of 6,250 shares of series B preferred stock, (iv) 100,000 shares of common stock issuable upon the conversion of 1 share of series C preferred stock and (v) 5,743,000 shares of series I preferred stock. (5) Represents 5,000 shares of series I preferred stock. (6) Includes 6,300 shares of common stock issuable upon the conversion of 3,150 shares of series B preferred stock and 2,500 shares of series I preferred stock. We do not currently have any arrangements which if consummated may result in a change of control of our company. 59 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Transactions with Related Persons The following includes a summary of transactions since the beginning of our 2022 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under Item 11 “ Executive Compensation ” above). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions. We have obtained short-term advances from Daniel Thompson, the Chairman of the Board, that are non-interest bearing and due on demand. As of December 31, 2023 and 2022, we owed the Chairman $120,997 and $123,192, respectively. Director Independence We do not have any independent directors within the meaning of the rules of the Nasdaq Stock Market. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Independent Auditors’ Fees The following is a summary of the fees billed to us for professional services rendered for the fiscal years ended December 31, 2023 and 2022. Fees include those paid to Grassi & Co., CPAs, P.C. for audit fees. Year Ended December 31, 2023 2022 Audit Fees $ 125,869 $ 155,805 Audit-Related Fees 12,844 – Tax Fees 6,850 – All Other Audit Fees – – TOTAL $ 145,563 $ 155,805 “Audit Fees” consisted of fees billed for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-K and 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. “Audit-Related Fees” consisted of fees billed for assurance and related services by the principal accountant that were reasonably related to the performance of the audit or review of our financial statements and are not reported under the paragraph captioned “Audit Fees” above. “Tax Fees” consisted of fees billed for professional services rendered by the principal accountant for tax returns preparation. “All Other Fees” consisted of fees billed for products and services provided by the principal accountant, other than the services reported above under other captions of this Item 14. Pre-Approval Policies and Procedures Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our board of directors to assure that such services do not impair the auditors’ independence from us. In accordance with its policies and procedures, our board of directors pre-approved the audit service performed by Grassi & Co., CPAs, P.C. for our financial statements as of and for the year ended December 31, 2023. 60 PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES. (a) List of Documents Filed as a Part of This Report: (1) Index to Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID 606) Consolidated Balance Sheets as of December 31, 2023 and 2022 (restated) Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 (restated) Consolidated Statements of Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2023 and 2022 (restated) Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 (restated) Notes to Consolidated Financial Statements (2) Index to Financial Statement Schedules: All schedules have been omitted because the required information is included in the financial statements or the notes thereto, or because it is not required. (3) Index to Exhibits: See exhibits listed under Part (b) below. (b) Exhibits: Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.2 Certificate of Designation of Series A Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.3 Certificate of Designation of Series B Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.4 Certificate of Correction of Certificate of Designation of Series B Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K filed on March 27, 2024) 3.5 Certificate of Designation of Series C Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.6 Certificate of Correction of Certificate of Designation of Series C Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.6 to the Annual Report on Form 10-K filed on March 27, 2024) 3.7 Certificate of Designation of Series E Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.5 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.8 Certificate of Correction of Certificate of Designation of Series E Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.8 to the Annual Report on Form 10-K filed on March 27, 2024) 3.9 Certificate of Designation of Series F-1 Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.6 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.10 Certificate of Correction of Certificate of Designation of Series F-1 Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.10 to the Annual Report on Form 10-K filed on March 27, 2024) 3.11 Certificate of Designation of Series I Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.7 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.12 Certificate of Correction of Certificate of Designation of Series I Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.12 to the Annual Report on Form 10-K filed on March 27, 2024) 61 3.13 Certificate of Designation of Series J Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.8 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.14 Certificate of Correction of Certificate of Designation of Series J Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.14 to the Annual Report on Form 10-K filed on March 27, 2024) 3.15 Certificate of Designation of Series L Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.9 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.16 Certificate of Correction of Certificate of Designation of Series L Preferred Stock of Cardiff Lexington Corporation 3.17 Certificate of Designation of Series N Senior Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed on June 6, 2023) 3.18 Amended and Restated Certificate of Designation of Series R Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.18 to the Annual Report on Form 10-K filed on March 27, 2024) 3.19 Certificate of Designation of Series X Senior Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.12 to Amendment No. 1 to the Registration Statement on Form S-1/A filed on August 3, 2023) 3.20 Amended and Restated Bylaws of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed on June 6, 2023) 4.1 Description of Securities of Cardiff Lexington Corporation (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed on March 27, 2024) 4.2 Common Stock Purchase Warrant issued by Cardiff Lexington Corporation to SILAC Insurance Company on May 21, 2021 (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K filed on June 6, 2023) 10.1 Management Agreement, dated June 4, 2021, among by Cardiff Lexington Corporation, Nova Ortho and Spine, LLC and Dr. Marc D Brodsky, Michael Wycoki, Jr., PA and Dr. Kevin Fitzgerald (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on June 7, 2021) 10.2 Revolving Purchase and Security Agreement, dated September 29, 2023, among Cardiff Lexington Corporation, Nova Ortho and Spine, LLC, Platinum Tax Defenders, Edge View Properties, Inc. and DML HC Series, LLC Series 308 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on November 14, 2023) 10.3 Guaranty and Security Agreement, dated September 29, 2023, among Cardiff Lexington Corporation, Nova Ortho and Spine, LLC and DML HC Series, LLC Series 308 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on November 14, 2023) 10.4 Securities Exchange and Purchase Agreement, dated September 22, 2022, among Cardiff Lexington Corporation, We Three, LLC, d/b/a Affordable Housing Initiative, Edge View Properties, Inc., Platinum Tax Defenders, Nova Ortho and Spine, LLC and Leonite Capital LLC (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed on June 6, 2023) 10.5 Consolidated Senior Secured Convertible Promissory Note issued by Cardiff Lexington Corporation to Leonite Capital LLC on September 22, 2022, as amended (incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K filed on June 6, 2023) 10.6 Pledge and Security Agreement, dated September 22, 2022, among Cardiff Lexington Corporation, We Three, LLC, d/b/a Affordable Housing Initiative, Edge View Properties, Inc., Platinum Tax Defenders, Nova Ortho and Spine, LLC and Leonite Fund I, LP (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed on June 6, 2023) 10.7 Securities Purchase Agreement, dated June 1, 2021, between Cardiff Lexington Corporation and SILAC Insurance Company (incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K filed on June 6, 2023) 10.8 Guaranty, dated June 1, 2021, by Nova Ortho and Spine, LLC in favor of SILAC Insurance Company (incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed on June 6, 2023) 10.9 Security Agreement, dated June 1, 2021, between Nova Ortho and Spine, LLC and SILAC Insurance Company (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K filed on June 6, 2023) 10.10 Security and Stock Pledge Agreement, dated June 1, 2021, between Cardiff Lexington Corporation and SILAC Insurance Company (incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K filed on June 6, 2023) 10.11 Securities Purchase Agreement, dated September 3, 2020, between Cardiff Lexington Corporation and GHS Investments, LLC (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K filed on June 6, 2023) 10.12 Senior Secured Convertible Promissory Note issued by Cardiff Lexington Corporation to GHS Investments, LLC on September 3, 2020 (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed on June 6, 2023) 62 10.13 Security and Pledge Agreement, dated September 3, 2020, between Cardiff Lexington Corporation and GHS Investments, LLC (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed on June 6, 2023) 10.14 8% Convertible Secured Redeemable Note issued by Cardiff Lexington Corporation to GHS Investments, LLC on November 8, 2019 (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 filed on July 19, 2023) 10.15 Convertible Promissory Note issued by Cardiff Lexington Corporation to Greentree Financial Group, Inc. on January 24, 2017 (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed on June 6, 2023) 10.16 Convertible Promissory Note issued by Cardiff Lexington Corporation to Greentree Financial Group, Inc. on September 12, 2016 (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed on June 6, 2023) 10.17† Employment Agreement, dated July 15, 2020, between the Cardiff Lexington Corporation and Alex Cunningham (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed on March 31, 2021) 10.18† Employment Agreement, dated July 15, 2020, between Cardiff Lexington Corporation and Daniel Thompson (incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed on March 31, 2021) 10.19† Employment Agreement, dated January 2, 2024, between the Cardiff Lexington Corporation and Matthew T. Shafer (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K filed on March 27, 2024) 10.20† Employment Agreement, dated January 2, 2024, between the Cardiff Lexington Corporation and Zia Choe (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K filed on March 27, 2024) 10.21† 2024 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed on February 6, 2024) 10.22† Form of Stock Option Agreement relating to 2024 Equity Incentive Plan (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed on March 27, 2024) 10.23† Form of Restricted Stock Award Agreement relating to 2024 Equity Incentive Plan (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K filed on March 27, 2024) 10.24† Form of Restricted Stock Unit Award Agreement relating to 2024 Equity Incentive Plan (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K filed on March 27, 2024) 14.1 Code of Business Ethics and Conduct (incorporated by reference to Exhibit 14.1 to the Annual Report on Form 10-K filed on June 6, 2023) 19.1 Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Annual Report on Form 10-K filed on March 27, 2024) 21.1 List of Subsidiaries of the registrant (incorporated by reference to Exhibit 21.1 to the Annual Report on Form 10-K filed on March 27, 2024) 23.1 Consent of Grassi & Co., CPAs, P.C. (incorporated by reference to Exhibit 23.1 to the Annual Report on Form 10-K filed on March 27, 2024) 31.1* Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certifications of Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certifications of Principal Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) __________ * Filed herewith ** Furnished herewith † Executive compensation plan or arrangement ITEM 16. FORM 10-K SUMMARY. None. 63 FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 606 ) F-2 Consolidated Balance Sheets as of December 31, 2023 and 2022 (Restated) F-3 Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 (Restated) F-4 Consolidated Statements of Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2023 and 2022 (Restated) F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F-7 Notes to Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Cardiff Lexington Corp and Subsidiaries Opinion on the Financial Statements We have audited the accompanying balance sheets of Cardiff of Lexington Corporation and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity (deficiency), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Restatement of Financial Statements As discussed in Note 2 to the consolidated financial statements, the Company’s consolidated financial statements as of and for the year ended December 31, 2022 have been restated to correct certain misstatements. Substantial Doubt Regarding the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, the Company has sustained an accumulated deficit and negative cash flows from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Goodwill Critical Audit Matter Description As of December 31, 2023, the Company had approximately $5.7 million of goodwill. As discussed in Note 1 and Note 12 to the consolidated financial statements, goodwill is tested annually for impairment at the reporting unit level, or more frequently if impairment indicators arise. The principal consideration for our determination that this was a critical audit matter resulted from the material balance of goodwill at year end and the Company’s goodwill impairment analyses requiring a high degree of management judgement. There was a high degree of subjective auditor judgment associated with the evaluation of management’s assertion with respect to the realizability of goodwill. How we addressed the matter: We obtained an understanding of the Company’s goodwill impairment evaluation process, including controls over management’s review of the significant assumptions. We considered the material weakness relating to management’s internal controls in determining the nature, timing and extent of audit tests applied in our audit. Our primary substantive audit procedures to test the Company’s goodwill impairment analyses included evaluating the completeness and reasonableness of management’s qualitative assessment. We obtained management’s qualitative goodwill analysis and compared certain significant assumptions to existing market conditions and information. We also compared significant assumptions, where relevant, to the plans of the Company, including management’s expectations regarding the Company’s business model, customer base and other relevant factors. Finally, we assessed the adequacy of the disclosures in the consolidated financial statements. GRASSI & CO., CPAs, PC We have served as the Company’s auditor since 2022. Jericho, New York March 27, 2024 F- 2 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND 2022 December 31, 2023 2022 (Restated) ASSETS Current assets Cash $ 866,943 $ 219,085 Accounts receivable-net 13,305,254 6,603,920 Prepaid and other current assets 5,000 5,000 Total current assets 14,177,197 6,828,005 Property and equipment, net 34,661 55,439 Land 540,000 540,000 Goodwill 5,666,608 5,666,608 Right of use - assets 289,062 218,926 Due from related party 4,979 4,979 Other assets 33,304 30,823 Total assets $ 20,745,811 $ 13,344,780 LIABILITIES, MEZZANINE EQUITY AND DEFICIENCY IN STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expense $ 2,047,131 $ 1,915,920 Accrued expenses - related parties 4,733,057 3,750,557 Accrued interest 620,963 350,267 Right of use - liabilities 157,669 142,307 Due to director and officer 120,997 123,192 Notes payable 2,136,077 15,809 Convertible notes payable, net of debt discounts of $ 24,820 and $ 46,797 , respectively 3,807,030 3,515,752 Net liabilities of discontinued operations 237,643 151,123 Total current liabilities 13,860,567 9,964,927 Other liabilities Notes payable 144,666 139,789 Operating lease liability – long term 119,056 84,871 Total liabilities 14,124,289 10,189,587 Mezzanine equity Redeemable Series N Senior Convertible Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 868,056 shares issued and outstanding at December 31, 2023 and 2022 3,891,439 3,125,002 Redeemable Series R Senior Convertible Preferred Stock - 5,000 shares authorized, $0.001 par value, stated value of $ 1,200 , 165 shares issued and outstanding at December 31, 2023 and 2022 307,980 274,982 Redeemable Series X Senior Convertible Preferred Stock - 5,000,000 shares authorized, $0.001 par value, stated value of $ 4.00 par value; 375,000 shares issued and outstanding at December 31, 2023 and 2022 1,690,685 1,500,000 Total Mezzanine Equity 5,890,104 4,899,984 Stockholders' equity (deficit) Series B Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value of $ 4.00 , 2,139,478 and 2,131,328 shares issued and outstanding at December 31, 2023 and 2022, respectively 8,537,912 8,525,312 Series C Preferred Stock - 500 shares authorized, $0.001 par value, stated value of $ 4.00 , 123 shares issued and outstanding at December 31, 2023 and 2022 488 488 Series E Preferred Stock - 1,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 155,750 and 150,750 shares issued and outstanding at December 31, 2023 and 2022, respectively 623,000 603,000 Series F-1 Preferred Stock - 50,000 shares authorized, $0.001 par value, stated value $ 4.00 , 35,752 shares issued and outstanding at December 31, 2023 and 2022 143,008 143,008 Series I Preferred Stock - 15,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 14,885,000 issued and outstanding at December 31, 2023 and 2022 59,540,000 59,540,000 Series J Preferred Stock - 2,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 1,713,584 shares issued and outstanding at December 31, 2023 and 2022 6,854,336 6,854,336 Series L Preferred Stock - 400,000 shares authorized, $0.001 par value, stated value $ 4.00 , 319,493 shares issued and outstanding at December 31, 2023 and 2022 1,277,972 1,277,972 Common Stock; 7,500,000,000 shares authorized, $ 0.001 par value; 24,065 and 10,997 shares issued and outstanding at December 31, 2023 and 2022, respectively 1,804,799 824,793 Additional paid-in capital ( 9,365,982 ) ( 8,581,265 ) Accumulated deficit ( 68,684,115 ) ( 70,932,435 ) Total stockholders' equity (deficit) 731,418 ( 1,744,791 ) Total liabilities, mezzanine equity and stockholders' equity $ 20,745,811 $ 13,344,780 The accompanying notes are an integral part of these consolidated financial statements F- 3 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 December 31, 2023 2022 (Restated) REVENUE Healthcare $ 11,853,266 $ 10,693,196 Total revenue 11,853,266 10,693,196 COST OF SALES Healthcare 3,560,624 4,060,034 Total cost of sales 3,560,624 4,060,034 GROSS PROFIT 8,292,642 6,633,162 OPERATING EXPENSES Depreciation expense 20,777 23,132 Selling, general and administrative 3,076,820 2,703,141 Total operating expenses 3,097,597 2,726,273 INCOME FROM CONTINUING OPERATIONS 5,195,045 3,906,889 OTHER INCOME (EXPENSE) Other (expense) income ( 49,795 ) 150,250 Gain on debt refinance and forgiveness 115,448 1,397,271 Penalties and fees ( 53,000 ) ( 2,063,916 ) Interest expense ( 1,956,266 ) ( 6,387,309 ) Amortization of debt discounts ( 136,518 ) ( 253,823 ) Total other expenses ( 2,080,131 ) ( 7,157,527 ) NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 3,114,914 ( 3,250,638 ) LOSS FROM DISCONTINUED OPERATIONS – ( 2,178,883 ) LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS ( 86,520 ) – LOSS FROM DISCONTINUED OPERATIONS ( 86,520 ) ( 2,178,883 ) NET INCOME (LOSS) FOR THE YEAR $ 3,028,394 $ ( 5,429,521 ) PREFERRED STOCK DIVIDENDS ( 780,074 ) ( 384,170 ) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 2,248,320 $ ( 5,813,691 ) BASIC EARNINGS (LOSS) PER SHARE CONTINUING OPERATIONS $ 156 $ ( 999 ) DISCONTINUED OPERATIONS $ ( 6 ) $ ( 374 ) DILUTED EARNINGS (LOSS) PER SHARE CONTINUING OPERATIONS $ 232 $ ( 999 ) DISCONTINUED OPERATIONS $ ( 6 ) $ ( 374 ) WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC 14,444 5,822 WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED 15,001 5,822 The accompanying notes are an integral part of these consolidated financial statements F- 4 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Preferred Stock Series A, K and I Preferred Stock Series B, E, F-1,J, and L Preferred Stock Series C Treasury Stock Shares Amount Shares Amount Shares Amount Shares Amount Balance December 31, 2021 (Restated) 23,085,563 $ 59,548,201 3,595,952 $ 14,383,808 123 $ 488 ( 619,345 ) $ ( 4,967,686 ) Issuance of series B preferred stock for contribution – – 25,000 100,000 – – – – Issuance of series B preferred stock in exchange of series D preferred stock and series H preferred stock – – 75,000 300,000 – – – – Cancellation of common stock – – – – – – – – Cancellation of series D preferred stock – – ( 37,500 ) ( 150,000 ) – – – – Cancellation of series H preferred stock – – ( 37,500 ) ( 150,000 ) – – – – Cancellation of series K preferred stock ( 8,200,562 ) ( 8,201 ) – – – – – – Issuance of series B preferred stock for settlement of employment – – 18,750 75,000 – – – – Issuance of series B preferred stock in exchange for series F – – 67,500 270,000 – – – – Cancellation of series F preferred stock – – ( 175,045 ) ( 700,180 ) – – – – Issuance of series J preferred stock – – 818,750 3,275,000 – – – – Issuance of common stock for settlement of Red Rock Travel – – – – – – – – Reclassification for cancelled shares – – – – – – 619,345 4,967,686 Accrued preferred stock dividends – – – – – – – – Net loss – – – – – – – – Balance, December 31, 2022 (Restated) 14,885,001 $ 59,540,000 4,350,907 $ 17,403,628 123 $ 488 – $ – Conversion of convertible notes payable – – – – – – – – Accrued preferred stock dividends – – – – – – – – Issuance of series B preferred stock – – 8,150 12,600 – – – – Issuance of series E preferred stock – – 5,000 20,000 – – – – Net income – – – – – – – – Balance, December 31, 2023 14,885,001 $ 59,540,000 4,364,057 $ 17,436,228 123 $ 488 – $ – The accompanying notes are an integral part of these consolidated financial statements F- 5 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY) (continued) FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Deficit Balance December 31, 2021 (Restated) 2,215 $ 167,421 $ ( 3,479,128 ) $ ( 65,166,264 ) $ 486,840 Issuance of series B preferred stock for contribution – – ( 75,000 ) – 25,000 Issuance of series B preferred stock in exchange of series D preferred stock and series H preferred stock – – – – 300,000 Cancellation of common stock – 35,097 ( 35,097 ) – – Cancellation of series D preferred stock – – – – ( 150,000 ) Cancellation of series H preferred stock – – – – ( 150,000 ) Cancellation of series K preferred stock – – 8,201 – – Issuance of series B preferred stock for settlement of employment – – ( 56,250 ) – 18,750 Issuance of series B preferred stock in exchange for series F – – – 270,000 Cancellation of series F preferred stock – – 430,180 – ( 270,000 ) Issuance of series J preferred stock – – – – 3,275,000 Issuance of common stock for settlement of Red Rock Travel 8,782 622,275 ( 406,485 ) – 215,790 Reclassification for cancelled shares – – ( 4,967,686 ) – – Accrued preferred stock dividends – – – ( 336,650 ) ( 336,650 ) Net loss – – – ( 5,429,521 ) ( 5,429,521 ) Balance, December 31, 2022 (Restated) 10,997 $ 824,793 $ ( 8,581,265 ) $ ( 70,932,435 ) $ ( 1,744,791 ) Conversion of convertible notes payable 13,068 980,006 ( 777,117 ) – 202,889 Accrued preferred stock dividends – – – ( 780,074 ) ( 780,074 ) Issuance of series B preferred stock – – 12,400 – 25,000 Issuance of series E preferred stock – – ( 20,000 ) – – Net income – – – 3,028,394 3,028,394 Balance, December 31, 2023 24,065 $ 1,804,799 $ ( 9,365,982 ) $ ( 68,684,115 ) $ 731,418 The accompanying notes are an integral part of these consolidated financial statements F- 6 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 December 31, 2023 Restated 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) from continuing operations $ 3,028,394 $ ( 5,429,521 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 20,777 23,132 Bad debt 132,281 – Amortization of debt discount 136,518 253,823 Conversion and note issuance cost 11,250 – Share issuance for service rendered 25,000 – Other (income) or loss – ( 150,250 ) Goodwill impairment – 2,092,048 Loss on finance penalties and fees – 2,063,916 Gain on refinance of debt – ( 1,397,271 ) Gain on forgiveness of debt ( 115,448 ) – (Increase) decrease in: Accounts receivable ( 6,833,615 ) ( 597,521 ) Right of use - assets ( 70,136 ) 64,696 Prepaids and other current assets ( 2,481 ) 8,058 Increase (decrease) in: Accounts payable and accrued expense 341,261 750,878 Due to related party – 36,988 Accrued officers compensation 982,500 873,506 Accrued interest 486,165 379,428 Right of use - liabilities 49,547 ( 71,371 ) Net cash used in operating activities ( 1,807,987 ) ( 1,099,461 ) Net cash used in Discontinued Operations – Operating 86,520 ( 51,216 ) Net cash used in operating activities ( 1,721,467 ) ( 1,150,677 ) FINANCING ACTIVITIES Repayments to directors and officers ( 2,195 ) ( 3,573 ) Proceeds from convertible notes payable 421,375 879,083 Repayment of SBA loans – ( 3,068 ) Proceeds from line of credit 2,164,438 – Repayment of line of credit ( 39,293 ) – Repayment to convertible notes payable ( 175,000 ) ( 5,908 ) Dividend on preferred stock – ( 102,740 ) Issuance of preferred stock – 25,000 Net cash provided by financing activities 2,369,325 788,794 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 647,858 ( 361,883 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 219,085 580,968 CASH AND CASH EQUIVALENTS, END OF YEAR $ 866,943 $ 219,085 SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for Interest $ 239,296 $ – NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued upon conversion of notes payable $ 199,889 $ – Preferred stock issued for business acquisition $ – $ 3,275,000 Preferred stock issued upon exchange of defaulted convertible notes payable $ – $ 1,500,000 The accompanying notes are an integral part of these consolidated financial statements F- 7 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operations Cardiff Lexington Corporation (“Cardiff”) was originally incorporated on September 3, 1986 in Colorado as Cardiff International Inc. On November 10, 2005, Cardiff merged with Legacy Card Company, LLC and changed its name to Cardiff Lexington Corporation. On August 27, 2014, Cardiff redomiciled and became a corporation under the laws of Florida. On April 13, 2021, Cardiff redomiciled and became a corporation under the laws of Nevada. Cardiff is an acquisition holding company focused on locating undervalued and undercapitalized companies, primarily in the healthcare industry, and providing them capitalization and leadership to maximize the value and potential of their private enterprises while also providing diversification and risk mitigation for stockholders. All of Cardiff’s operations are conducted through, and its income derived from, its various subsidiaries, which includes: · We Three, LLC dba Affordable Housing Initiative (“AHI”), which was acquired on May 15, 2014 and sold on October 31, 2022; · Edge View Properties, Inc. (“Edge View”), which was acquired on July 16, 2014; · Platinum Tax Defenders (“Platinum Tax”), which was acquired on July 31, 2018 and sold on November 10, 2023; and · Nova Ortho and Spine, LLC (“Nova”), which was acquired on May 31, 2021. Principles of Consolidation The consolidated financial statements include the accounts of Cardiff and its wholly owned subsidiaries, AHI, Edge View, Platinum Tax and Nova (collectively, the “Company”). Subsidiaries shown as discontinued operations include AHI and Platinum Tax. All significant intercompany accounts and transactions are eliminated in consolidation. Subsidiaries discontinued are shown as discontinued operations. Reverse Stock Split On January 9, 2024, the Company effected a 1-for-75,000 reverse split of its outstanding common stock. All outstanding shares of common stock and warrant to purchase common stock were adjusted to reflect the 1-for-75,000 reverse split, with respective exercise prices of the warrants proportionately increased. The conversion prices of the outstanding convertible notes and certain series of preferred stock were adjusted to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. All share and per share data throughout these consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. The total number of authorized shares of common stock did not change. As a result of the reverse stock split, an amount equal to the decreased value of the common stock was reclassified from “common stock” to “additional paid-in capital.” F- 8 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Use of Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”) 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. Accounts Receivable In the normal course of business, the Company is in the lien based medical industry providing orthopedic healthcare servicing an uninsured market insulated by a letter of protection which insulates the Company and insures payment in full from insurance settlements. A letter of protection is a legally binding contract between the patient (i.e., the Company’s customer), the patient’s law firm and the Company, as a medical provider. It serves as a critical legal agreement between an experienced personal injury attorney and the Company, as a medical provider, allowing an injured victim to receive vital medical treatment needed after an accident without paying exorbitant out-of-pocket medical expenses prior to settlement. For medical professionals, letters of protection provide guaranteed payment out of settlement proceeds for services rendered as the provider does not have to attempt collection from an uninsured or underinsured injured patient. The medical provider knows that payment will come directly from the law firm out of the settlement. This legally binding contract offers crucial protection when someone is hurt due to another party’s negligence but lacks sufficient health insurance or faces denial of claim payments from insurance companies. Medical bills may not be paid for six months to two or more years until case resolution. Providers must be willing to wait for payment. Some complex cases settle in increments over several years instead of one lump payment at the end. A letter of protection enables injured clients to obtain essential care, avoid collections, restore their credit, and focus wholly on recovery. Attorneys utilize letters of protection to construct stronger injury claims, while medical professionals gain guaranteed payment out of settlement proceeds even if treatment is lengthy or ongoing. In a personal injury case, the at-fault party is responsible for paying the medical bills of the injured person. However, insurance companies will often refuse to pay these medical expenses until liability has been determined. This can leave an injured person unable to get the medical treatment needed, especially if they do not have health insurance. A letter of protection allows an accident victim to receive medical care while the personal injury case is being resolved. An attorney sends a letter of protection to the Company, as a medical provider, on behalf of the client patient. This letter states that the attorney is responsible for paying the client’s medical bills when the case is fully developed and settles. The medical professional agrees to provide treatment to the injured person and refrain from attempting to collect payment as it is developing and until the case is resolved. Once the personal injury case is finalized with the insurance company, the attorney pays the outstanding medical bills from the settlement. The letter of protection is fulfilled. If no settlement is reached with the defendant’s insurance company and the plaintiff (the patient) loses the case at trial, or the case is abandoned, then the Company will not be able to collect on its letter of protection and its receivable will not be collected. In the case of a partial settlement or award at trial, the Company might only be able to collect a portion of its receivable. The Company has a 99% collection rate based on net settlements recorded to its accounts receivable and revenue. Collection rates are estimated considering the Company’s 48-month historical collections with primary emphasis to the most current prior 12-month trailing payment and collection percentage rates. The method the Company uses to measure expected credit losses is the loss rate method, and in addition the Company qualitatively evaluates on an ongoing basis various factors, which include market conditions in which the Company operates, and the status of claims being settled. The Company has established billing rates, which are not the same as actual amounts recovered. These rates generally do not reflect what is ultimately paid by the customer, insurance carriers, law firms and other payors, which is typically received eighteen to twenty-four months later, and are not reported in the consolidated financial statements at those established billing rates. The Company’s customers, its patients, typically pay amounts based on established charges per procedure with guidance from the annually updated Current Procedural Terminology (“CPT”) guidelines (a code set maintained by the American Medical Association through the CPT Editorial Panel), that designates relative value units and a suggested range of charges for each procedure which is then assigned a CPT code. This fee is discounted to reflect the percentage paid to the Company “using a modifier” recognized by each insurance carrier for services, less deductible, co-pay, and contractual adjustments which are deducted from the calculated fee. The net revenue is recorded at the time the services are rendered. Collection of that revenue typically occurs eighteen to twenty-four months later and after the patient claim develops and settles. Historical collection rates are estimated using the most current prior 12-month historical payment and collection percentages. F- 9 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 The Company had adopted ASU 2016-13, “Financial Instruments – Credit Losses.” In accordance with this standard, the Company recognizes an allowance for credit losses for its trade receivables to present the net amount expected to be collected as of the balance sheet date. This allowance is based on the credit losses expected to arise over the life of the asset and are based on current expected credit losses. Accounts receivable is reported on the balance sheet at the net amounts expected to be collected by the Company. Management closely monitors outstanding accounts receivable and recognized an additional allowance for credit losses in the amount of $ 122,190 and $ 0 as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company had net accounts receivable of $ 13,305,254 and $ 6,603,920 , respectively. Accounts receivables are primarily generated from its healthcare subsidiary in its normal course of business. The Company calculates a forward-looking collectability rate which it then applies to its gross billings. The amount recorded in accounts receivables approximates the amount expected to actually be collected. The allowance for credit losses represents any adjustments deemed necessary to the collectability rate based upon an annual review of both actual collections, as well as any changes in industry billing and collection, and/or legal practices. The following table is the rollforward of allowance for credit losses. Schedule of credit losses Beginning Balance January 1, 2023 $ – Current period provision (270,000 ) Write off charged against allowance 147,810 Balance at December 31, 2023 $ (122,190 ) Property and Equipment Property and equipment are carried at cost. Expenditures for renewals and betterments that extend the useful lives of property, equipment or leasehold improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method for financial reporting purposes based on the following estimated useful lives: Schedule of estimated useful lives Classification Useful Life Equipment, furniture, and fixtures 5 - 7 years Medical equipment 10 years Leasehold improvements 10 years or lease term, if shorter Goodwill and Other Intangible Assets Goodwill and indefinite-lived assets are not amortized but are evaluated for impairment annually or when indicators of a potential impairment are present. The Company’s impairment testing of goodwill is performed separately from its impairment testing of indefinite-lived intangibles. The Company reviews goodwill for impairment on a reporting unit basis annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Goodwill is tested first for impairment based on qualitative factors on an annual basis or in between if an event occurs or circumstances change that indicate the fair value may be below its carrying amount, otherwise known as a ‘triggering event’. An assessment is made of these qualitative factors as such to determine whether it is more likely than not the fair value is less than the carry amount, including goodwill. The annual evaluation for impairment of indefinite-lived intangibles and, if then needed after the first step, Goodwill, is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. For the year ended December 31, 2023, the Company determined there to be no impairment. For the year ended December 31, 2022, the Company recognized goodwill impairment in the amount of $ 2,092,048 in its former financial services segment, which is now reflected in discontinued operations. The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors. F- 10 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Valuation of Long-lived Assets In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Revenue Recognition The Company’s primary source of revenue is its healthcare subsidiary, which records revenues from providing licensed and/or certified orthopedic procedures. Revenue is recognized at a point in time in accordance with ASC 606. The Company’s healthcare subsidiary does not have contract liabilities or deferred revenue as there are no amounts prepaid for services. The Company applies the following five-step ASC 606 model to determine revenue recognition: · Identification of a contract with a customer · Identification of the performance obligations in the contact · Determination of the transaction price · Allocation of the transaction price to the separate performance obligations · Recognition of revenue when performance obligations are satisfied. The Company applies the five-step model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses services promised within each contract and determines those that are a performance obligation and assesses whether each promised service is distinct. The Company’s contracts for both its contract and service fees each contain a single performance obligation (providing orthopedic services), as the promise to transfer the individual services is not separately identifiable from other promises in the contracts and, therefore, not distinct, as a result, the entire transaction price is allocated to this single performance obligation. Accordingly, the Company recognizes revenues (net) when the patient receives orthopedic care services. The Company’s patient service contracts generally have performance obligations which are satisfied at a point in time. The performance obligation is for onsite or off-site care provided. Patient service contracts are generally fixed-price, and the transaction price is in the contract. Revenue is recognized when obligations under the terms of the contract with our patients are satisfied; generally, at the time of patient care. F- 11 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Established billing rates are not the same as actual amounts recovered for the Company’s healthcare subsidiary. They generally do not reflect what the Company is ultimately paid by the customer, insurance carriers and other payors, and therefore are not reported in the consolidated financial statements at that rate. The Company is typically paid amounts based on established charges per procedure with guidance from the annually updated CPT guidelines that designates relative value units and a suggested range of charges for each procedure which is then assigned a CPT code. This fee is discounted to reflect the percentage paid to the Company “using a modifier” recognized by each insurance carrier for services, less deductible, co-pay, and contractual adjustments which are deducted from the calculated fee. The net revenue is recorded at the time the services are rendered. Contract Fees (Non-PIP) The Company has contract fees for amounts earned from its Non-Personal Injury Protection (“PIP”) related procedures, typically car accidents, and are collected on a contingency basis. Historically, these cases were sold to a factor who bears the risk of economic benefit or loss. After selling patient cases to the factor, any additional funds collected by the Company were remitted to the factor. Service Fees – Net (PIP) The Company generates services fees from performing various procedures on the date the services are performed. These services primarily include slip and falls as well as smaller nominal Non-PIP services. Fees are collected primarily from third party insurance providers. These revenues are based on established insurance billing rates, less allowances for contractual adjustments and uncollectible amounts. These contractual adjustments vary by insurance company and self-pay patients. The Company computes these contractual adjustments and collection allowances based on its historical collection experience. Completing the paperwork for each case and preparing it for billing takes approximately ten business days after a procedure is performed. The majority of claims are then filed electronically except for those remaining insurance carriers requiring paper filing. An initial response is usually received within four weeks from electronic filing and up to six weeks from paper filing. Responses may be a payment, a denial, or a request for additional information. The Company’s healthcare revenues are generated from professional medical billings including facility and anesthesia services. With respect to facility and anesthesia services, the Company is the primary obligor as the facility and anesthesia services are considered part of one integrated performance obligation. Historically the Company receives 49% of collections from total gross billed. Accordingly, the Company recognized net healthcare service revenue as 49% of gross billed amounts. Historical collection rates are estimated using the most current prior 12-month historical payment and collection percentages. Historically through April 2023, the Company’s healthcare subsidiary has had contractual medical receivable sales and purchase agreements with third party factors which result in approximately 54% reduction from the accounts receivables amounts when a receivable is sold to the factors. The Company evaluated the factored adjustments considering the actual factored amounts per patient on a quarterly interval, and the reductions from accounts receivable that were factored were recorded in finance charges as other expenses on the consolidated statement of operations. F- 12 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Advertising Costs Advertising costs are expensed as incurred. Advertising costs are included as a component of cost of sales in the consolidated statements of operations and changes in stockholders’ equity. The Company recognized advertising and marketing expense of $ 126,670 and $ 233,798 for the years ended December 31, 2023 and 2022, respectively. 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 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 1, which 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. Distinguishing Liabilities from Equity The Company accounts for its series N senior convertible preferred stock, series R convertible preferred stock, and series X senior convertible preferred stock subject to possible redemption in accordance with ASC 480, “Distinguishing Liabilities from Equity”. Conditionally redeemable preferred shares are classified as temporary equity within the Company’s consolidated balance sheet. Stock-Based Compensation The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB ASC. Pursuant to paragraph 718-10-30-6 of the FASB ASC, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. F- 13 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. The expense resulting from share-based payments is recorded in general and administrative expense in the consolidated statements of operations. Income Taxes Income taxes are determined in accordance with ASC Topic 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. For the years ended December 31, 2023 and 2022, the Company did not have any interest and penalties associated with tax positions and did no t have any significant unrecognized uncertain tax positions. Income (Loss) per Share FASB ASC Subtopic 260, Earnings Per Share , provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, warrants, and debts convertible into common stock. The dilutive effect of stock options and warrants are reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. The diluted effect of debt convertibles is reflected utilizing the if converted method. 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 had previously sustained operating losses since its inception, has an accumulated deficit of $ 68,684,115 and $ 70,932,435 , respectively, as of December 31, 2023 and 2022. We had negative cash flow from operations of $ 1,807,987 and $ 1,099,461 during the years ended December 31, 2023 and 2022. These factors raise a substantial doubt about the Company’s ability to continue as a going concern. 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. F- 14 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 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 fund its cash flow shortfalls and 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. Recent Accounting Standards The FASB issued ASU 2023-07 on November 27, 2023. The amendments “improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.” In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable “investors to better understand an entity’s overall performance” and assess “potential future cash flows.” The Management is evaluating the impact of ASU 2023-07 on the consolidated financial statements and does not expect there to be any changes or impact to the financial statements. 2. RESTATEMENT AND REVISION OF FINANCIAL STATEMENTS Restatement of Previously Issued Financial Statements During a review of the year ended December 31, 2023 financial statements, the Company identified and corrected its classification of bad debt expense in its consolidated statements of cash flows. Bad debt expense was previously included as part of the change in accounts receivable in the consolidated statements of cash flows. Bad debt expense is now disclosed as a separate line on the consolidated statements of cash flows. During the preparation of the year ended December 31, 2023 financial statements, the Company identified and corrected its classification and accounting treatment for its series R convertible preferred stock and the related dividend accrual in its balance sheet as of December 31, 2022 and 2021. Pursuant to ASC 250, “Accounting changes and error corrections” issued by FASB and SAB 99 “Materiality” issued by Securities and Exchange Commission, the Company determined the impact of the error was immaterial. The impact of the error correction is reflected in a $198,000 increase to the mezzanine equity and offsetting decrease to the series R convertible preferred stock and subject to possible redemption mezzanine equity line item on the consolidated balance sheet as of December 31, 2021. In addition, the impact of the unpaid dividend accrual is reflected in $29,462 and $47,520 increase to mezzanine equity and offsetting decrease to the accumulated deficits as of December 31, 2022 and 2021, respectively. The impact of the error correction is also reflected in $29,462 and $47,520 increase of preferred share dividends and $28 and $5 decrease of earnings (loss) per share on the consolidated statement of operations for the years ended December 31, 2022 and 2021, respectively. The following table summarizes the impacts of the error corrections on the Company's financial statements for each of the periods presented below: i. Consolidated balance sheet Schedule of restated financial information Impact of correction of error December 31, 2021 As previously reported Adjustments As restated Total assets $ 15,297,039 $ – $ 15,297,039 Total liabilities 11,439,675 – 11,439,675 Mezzanine equity 3,125,004 245,520 3,370,524 Total stockholders' equity $ 732,360 $ ( 245,520 ) $ 486,840 F- 15 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Impact of correction of error December 31, 2022 As previously reported Adjustments As restated Total assets $ 13,344,780 $ – $ 13,344,780 Total liabilities 10,189,585 – 10,189,585 Mezzanine equity 4,625,002 274,982 4,899,984 Total stockholders' equity $ ( 1,469,809 ) $ ( 274,982 ) $ ( 1,744,791 ) Impact of correction of error March 31, 2023 As previously reported Adjustments As restated Total assets $ 14,284,585 $ – $ 14,284,585 Total liabilities 10,745,097 – 10,745,097 Mezzanine equity 5,171,861 283,118 5,454,979 Total stockholders' equity $ ( 1,632,373 ) $ ( 283,118 ) $ ( 1,915,491 ) Impact of correction of error June 30, 2023 As previously reported Adjustments As restated Total assets $ 16,053,519 $ – $ 16,053,519 Total liabilities 11,672,952 – 11,672,952 Mezzanine equity 5,297,605 291,345 5,588,950 Total stockholders' equity $ ( 917,038 ) $ ( 291,345 ) $ ( 1,208,383 ) F- 16 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Impact of correction of error September 30, 2023 As previously reported Adjustments As restated Total assets $ 18,518,727 $ – $ 18,518,727 Total liabilities 12,102,942 – 12,102,942 Mezzanine equity 5,440,434 299,662 5,740,096 Total stockholders' equity $ 975,351 $ ( 299,662 ) $ 675,689 ii. Consolidated statement of operations Impact of correction of error Year ended December 31, 2021 As previously reported Adjustments As restated Net income for the year $ 666,293 $ – $ 666,293 Preferred stock dividends $ ( 201,782 ) $ ( 47,520 ) $ ( 249,302 ) Net income attributable to common shareholders $ 464,511 $ ( 47,520 ) $ 416,991 Basic and diluted earnings (loss) per share for continuing operations $ 272 $ ( 28 ) $ 244 Impact of correction of error Year ended December 31, 2022 As previously reported Adjustments As restated Net loss for the year $ ( 5,429,521 ) $ – $ ( 5,429,521 ) Preferred stock dividends $ ( 307,188 ) $ ( 76,982 ) $ ( 384,170 ) Net loss attributable to common shareholders $ ( 5,736,709 ) $ ( 76,982 ) $ ( 5,813,691 ) Basic and diluted earnings (loss) per share for continuing operations $ ( 994 ) $ ( 5 ) $ ( 999 ) F- 17 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Impact of correction of error Three months ended March 31, 2023 As previously reported Adjustments As restated Net loss for the period $ ( 15,991 ) $ – $ ( 15,991 ) Preferred stock dividends $ ( 336,811 ) $ ( 8,136 ) $ ( 344,947 ) Net loss attributable to common shareholders $ ( 352,802 ) $ ( 8,136 ) $ ( 360,938 ) Basic and diluted earnings (loss) per share for continuing operations $ ( 30 ) $ ( 1 ) $ ( 31 ) Impact of correction of error Three months ended June 30, 2023 As previously reported Adjustments As restated Net income for the period $ 816,078 $ – $ 816,078 Preferred stock dividends $ ( 125,744 ) $ ( 8,227 ) $ ( 133,971 ) Net income attributable to common shareholders $ 690,334 $ ( 8,227 ) $ 682,107 Basic earnings per share for continuing operations $ 56 $ ( 1 ) $ 55 Diluted earnings per share for continuing operations $ ( 21 ) $ 26 $ 5 Impact of correction of error Six months ended June 30, 2023 As previously reported Adjustments As restated Net income for the period $ 800,087 $ – $ 800,087 Preferred stock dividends $ ( 462,555 ) $ ( 16,363 ) $ ( 478,918 ) Net income attributable to common shareholders $ 337,532 $ ( 16,363 ) $ 321,169 Basic earnings per share for continuing operations $ 28 $ ( 1 ) $ 27 Diluted earnings per share for continuing operations $ ( 16 ) $ 20 $ 4 F- 18 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Impact of correction of error Three months ended September 30, 2023 As previously reported Adjustments As restated Net income for the period $ 1,981,520 $ – $ 1,981,520 Preferred stock dividends $ ( 142,829 ) $ ( 8,317 ) $ ( 151,146 ) Net income attributable to common shareholders $ 1,838,691 $ ( 8,317 ) $ 1,830,374 Basic earnings per share for continuing operations $ 137 $ ( 1 ) $ 136 Diluted earnings per share for continuing operations $ 1 $ 1 $ 2 Impact of correction of error Nine months ended September 30, 2023 As previously reported Adjustments As restated Net income for the year $ 2,781,608 $ – $ 2,781,608 Preferred stock dividends $ ( 605,384 ) $ ( 24,681 ) $ ( 630,065 ) Net income attributable to common shareholders $ 2,176,224 $ ( 24,681 ) $ 2,151,543 Basic earnings per share for continuing operations $ 167 $ ( 2 ) $ 165 Diluted earnings per share for continuing operations $ 2 $ 1 $ 3 Revision of Financial Statements During the preparation of the financial statements for the year ended December 31, 2023, the Company found that the results of the settlement agreement with Red Rock Travel Group (“Red Rock”) were incorrectly reflected on the consolidated statement of stockholders’ equity (deficiency) as of December 31, 2022. The Company determined that these errors were immaterial to the previously issued consolidated financial statements, and as such no restatement was necessary. The revisions discussed below were made to the December 31, 2022 balance sheet and statement of stockholders’ equity (deficiency). As a result of the settlement agreement with Red Rock on July 29, 2022, the Company reduced 35,000,000 shares of common shares on the consolidated financial statements as of December 31, 2022. The certificate of the common stock for 35,000,000 shares (0.047 shares after 10,000:1 and 75,000:1 reverse split) which were originally issued on February 24, 2020 was returned as part of the 2022 agreement with Red Rock and 0.047 common shares were cancelled, which were equivalent to 35,000,000 shares before the 10,000:1 and 75,000:1 reverse split on May 12, 2020 and January 9, 2024, respectively. Consequently, the December 31, 2022 financial statements as originally reported were understated by 34,996,500 common shares. The impact of the correction is reflected in the $35,097 increase to common stock and decrease the same amount to additional paid-in-capital on the consolidated statement of stockholders’ equity. The adjustment had no impact on earnings per share for any 2022 period. F- 19 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 On July 31, 2018, the Company issued 8,200,562 shares of series K preferred stock to the prior owners of Red Rock for the consideration of the acquisition of Red Rock. The acquisition was not completed, and Red Rock returned the 8,200,562 shares of series K preferred stock during the year ended December 31, 2018. A total of 8,200,562 shares of series K preferred stock were cancelled. The impact of the correction is reflected in the $8,201 decrease to series K preferred stock and increase the same amount to additional paid-in-capital on the consolidated statement of stockholders’ equity (deficiency). 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Schedule of accounts payable and accrued expenses December 31, 2023 2022 Accounts payable $ 720,774 $ 342,331 Accrued credit cards 26,645 6,994 Accrued liability for collections of previously factored receivables 1,247,772 776,414 Accrued property taxes 5,346 6,732 Accrued professional fees 29,122 573,040 Accrued payroll 17,472 – Accrue expense - other – 363 Accrued expense - dividend payable – 210,046 Total $ 2,047,131 $ 1,915,920 The Company is delinquent paying certain property taxes. As of December 31, 2023 and 2022, the balance for these property taxes, was $ 5,346 and $ 6,732 , respectively. 4. PLANT AND EQUIPMENT, NET Property and equipment as of December 31, 2023 and 2022 is as follows: Schedule of property and equipment December 31, 2023 2022 Medical equipment $ 96,532 $ 96,532 Computer Equipment 9,189 9,189 Furniture, fixtures and equipment 15,079 20,212 Leasehold Improvement 15,950 15,950 Total 136,750 141,883 Less: accumulated depreciation ( 102,089 ) ( 86,444 ) Property and equipment, net $ 34,661 $ 55,439 For the years ended December 31, 2023 and 2022, depreciation expense was $ 20,777 and $ 23,132 , respectively. F- 20 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 5. LAND As of December 31, 2023 and 2022, the Company had 27 acres of land of approximately $ 540,000 . The land is currently vacant and is expected to be developed into a residential community. 6. RELATED PARTY TRANSACTIONS In connection with the acquisition of Edge View on July 16, 2014, the Company assumed amounts due to previous owners who are current managers of Edge View. These amounts are due on demand and do not bear interest. The balance of these amounts are $ 4,979 due from the previous owners as of December 31, 2023 and 2022. The Company obtained short-term advances from the Chairman of the Board that are non-interest bearing and due on demand. As of December 31, 2023 and 2022, the Company owed the Chairman $ 120,997 and $ 123,192 , respectively. See also Note 8 and the disclosure regarding Note 41. See also Note 13 for compensation paid to employees of the Company. 7. NOTES AND LOANS PAYABLE Notes payable at December 31, 2023 and 2022, respectively, are summarized as follows: Schedule of notes payable December 31, 2023 2022 Notes and loans payable $ 2,280,743 $ 155,598 Less current portion ( 2,136,077 ) ( 15,809 ) Long-term portion $ 144,666 $ 139,789 Long-term debt matures as follows: Schedule of maturities of long-term debt Amount 2024 $ 2,136,077 2025 4,989 2026 4,989 2027 4,989 2028 4,989 Thereafter 124,710 Total $ 2,280,743 F- 21 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Loans and Notes Payable – Unrelated Party On March 12, 2009, the Company issued a debenture in the principal amount of $20,000. The debenture bore interest at 12% per year and matured on September 12, 2009. The balance of the debenture was $ 10,989 at December 31, 2023 and 2022. The accrued interest of the debenture was $ 7,547 and $ 6,229 at December 31, 2023 and 2022, respectively. The Company assigned all of its receivables from consumer activations of the rewards program as collateral on this debenture. Small Business Administration (“SBA”) Loans On June 2, 2020, the Company obtained an SBA loan in the principal amount of $ 150,000 with an interest rate of 3.75 % and a maturity date of June 2, 2050. The principal balance and accrued interest at December 31, 2023 was $ 149,655 and $ 956 , respectively, and principal and accrued interest at December 31, 2022 was $ 144,609 and $ 5,723 , respectively. Line of Credit On September 29, 2023, the Company and Nova entered into a two-year revolving purchase and security agreement with DML HC Series, LLC to sell, with recourse, Nova’s accounts receivables for a revolving financing up to a maximum advance amount of $ 4.5 million. As of December 31, 2023, the Company had $ 2,120,100 outstanding balance against the revolving receivable line of credit. The revolving purchase and security agreement includes discounts recorded as interest expense on each funding and matures on September 29, 2025 . 8. CONVERTIBLE NOTES PAYABLE As of December 31, 2023 and 2022, the Company had convertible debt outstanding net of amortized debt discount of $ 3,807,030 and $ 3,515,752 , respectively. During the year ending December 31, 2023, the Company received net proceeds of $ 421,375 from convertible notes, repaid $ 175,000 and wrote off $ 12,406 to convertible noteholders. During the year ending December 31, 2022, the Company received proceeds of $ 1,490,706 from convertible notes and repaid $ 5,908 to convertible noteholders. There are debt discounts associated with the convertible debt of $ 24,820 and $ 46,797 at December 31, 2023 and 2022, respectively. For the years ended December 31, 2023 and 2022, the Company recorded amortization of debt discounts of $ 136,518 and $ 253,823 , respectively. During the year ended December 31, 2023, the Company converted $ 87,460 of convertible debt, $ 112,429 in accrued interest and $ 3,000 in conversion cost into 13,068 shares of the Company’s common stock. The Company recognized $ 777,217 of additional paid-in capital to adjust fair value for the debt settlement during the year ended December 31, 2023. The Company had no convertible debt conversions during the year ended December 31, 2022. On September 22, 2022, the Company entered into a security exchange and purchase agreement with its largest lender to consolidate all promissory notes held by them and related accrued interest in exchange for (1) one consolidated senior secured convertible promissory note (“New Promissory Note”) in the amount of $ 2,600,000 and (2) 375,000 shares of series X senior convertible preferred stock totaling $ 1,500,000 with a par value of $0.001, stated value of $4.00, convertible into common shares at a 1:1 conversion rate, non-dilutive and non-voting shares. Prior to conversion, all promissory notes with this lender totaled to $ 4,791,099 consisting of principal of $ 3,840,448 and accrued interest of $ 950,651 resulting in a gain on debt consolidation of $ 1,397,271 . F- 22 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Convertible notes as of December 31, 2023 and 2022 are summarized as follows: Schedule of convertible notes December 31, 2023 2022 Convertible notes payable $ 3,831,850 $ 3,562,550 Discounts on convertible notes payable ( 24,820 ) ( 46,797 ) Total convertible debt less debt discount 3,807,030 3,515,752 Current portion 3,807,030 3,515,752 Long-term portion $ – $ – The following is a schedule of convertible notes payable as of and for the year ended December 31, 2023. Schedule of convertible notes payable Note # Issuance Maturity Principal Balance 12/31/22 New Loan Principal Conversions Cash Paydown Shares Issued Upon Conversion Principal Balance 12/31/23 Accrued Interest on Convertible Debt at 12/31/22 Interest Expense On Convertible Debt For the Period Ended 12/31/23 Accrued Interest on Convertible Debt at 12/31/23 Unamortized Debt Discount At 12/31/23 7-1 10/28/2016 10/28/2017 10,000 $ – $ ( 10,000 ) $ – 312 $ – $ 2,263 $ – $ – $ – 9 09/12/2016 09/12/2017 50,080 – – – 1,672 50,080 14,157 9,181 5,581 – 10 01/24/2017 01/24/2018 55,000 – – – – 55,000 69,876 11,000 80,875 – 10-1 02/10/2023 02/10/2024 – 50,000 – – – 50,000 – 6,658 6,658 – 10-2 03/30/2023 03/30/2024 – 25,000 – – – 25,000 – 2,836 2,836 – 10-3 08/11/2023 08/11/2024 – 25,000 – – – 25,000 – 1,469 1,469 – 29-2 11/08/2019 11/08/2020 36,604 – – – 2,867 36,604 20,160 2,849 10,109 – 31 08/28/2019 08/28/2020 – – – – – – 8,385 – 8,385 – 37-1 09/03/2020 06/30/2021 113,667 – – – – 113,667 28,756 19,507 64,929 – 37-2 11/02/2020 08/31/2021 113,167 – – – – 113,167 27,510 19,417 63,594 – 37-3 12/29/2020 09/30/2021 113,166 – – – – 113,166 26,474 19,417 62,558 – 38 02/09/2021 02/09/2022 96,000 – ( 77,460 ) ( 18,540 ) 2,950 – 27,939 7,242 – – 39 04/26/2021 04/26/2022 168,866 – – ( 168,866 ) – – 39,684 27,787 – – 40-1 09/22/2022 09/22/2024 2,600,000 – – – 5,267 2,600,000 71,233 261,333 252,665 – 40-2 11/04/2022 09/22/2024 68,666 – – – – 68,667 1,072 6,867 7,939 – 40-3 11/28/2022 09/22/2024 68,667 – – – – 68,667 620 6,886 7,506 – 40-4 12/21/2022 09/22/2024 68,667 – – – – 68,667 187 6,867 7,054 – 40-5 01/24/2023 03/21/2024 – 90,166 – – – 90,166 – 8,284 8,284 – 40-6 03/21/2023 09/22/2024 – 139,166 – – – 139,166 – 10,671 10,671 – 40-7 06/05/2023 06/05/2024 – 139,166 – – – 139,166 – 7,826 7,826 15,671 40-8 06/13/2023 06/13/2024 – 21,167 – – – 21,167 – 1,127 1,127 2,321 40-9 07/19/2023 07/19/2024 – 35,500 – – – 35,500 – 1,605 1,605 4,863 40-10 07/24/2023 07/24/2024 – 14,000 – – – 14,000 – 614 614 1,965 41 08/25/2023 08/25/2024 – 5,000 – – – 5,000 – 175 175 – 3,562,550 $ 544,165 $ ( 87,460 ) $ ( 187,406 ) 13,068 $ 3,831,850 $ 338,316 $ 439,618 $ 612,460 $ 24,820 F- 23 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Note 7-1 On October 28, 2016, the Company issued a convertible promissory note in the principal amount of $50,000, which matured on October 28, 2017. Note 7-1 was fully converted into common shares and there was no outstanding balance as of December 31, 2023. Note 9 On September 12, 2016, the Company issued a convertible promissory note in the principal of $80,000 for services rendered, which matured on September 12, 2017. Note 9 is currently in default and accrues at a default interest rate of 20% per annum. Note 10, 10-1, 10-2 and 10-3 On January 24, 2017, the Company issued a convertible promissory note in the principal amount of $80,000 for services rendered, which matured on January 24, 2018. Note 10 is currently in default and accrues interest at a default interest rate of 20% per annum. On February 10, 2023, the Company executed a second tranche under this note in the principal amount of $50,000 (Note 10-1). On March 30, 2023, the Company executed a third tranche under this note in the principal amount of $25,000 (Note 10-2). On August 11, 2023, the Company executed a fourth tranche under this note in the principal amount of $25,000 (Note 10-3). Notes 10-1, 10-2 and 10-3 accrue interest at a rate of 15% per annum. Note 29-2 On May 10, 2019, the Company issued a convertible promissory note in the principal amount of $150,000. On November 8, 2019, this note (Note 29) was purchased by and assigned to an unrelated party. The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,918, which was issued as Note 29-1, plus a new convertible promissory note in the principal amount of $62,367, which was issued as Note 29-2. Note 29-2 is currently in default and accrues interest at a default interest rate of 24% per annum. Note 31 On August 28, 2019, the Company issued a convertible promissory note in the principal amount of $120,000, which matured on August 28, 2020. Note 31 is currently in default and accrues interest at a default interest rate of 24% per annum. There was no outstanding principal balance as of December 31, 2023. Notes 37-1, 37-2 and 37-3 On September 3, 2020, the Company issued a convertible promissory note in the principal amount of $200,000, with an original issue discount of $50,000, which could be drawn in several tranches. On September 3, 2020, the Company executed the first tranche in the principal amount of $67,000, less an original issue discount of $17,000, which matured on June 30, 2021 (Note 37-1). On November 2, 2020, the Company executed the second tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on August 31, 2021 (Note 37-2). On December 29, 2020, the Company executed the third tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021 (Note 37-3). Notes 37-1, 37-2 and 27-3 are currently in default and accrue interest at a default interest rate of 18% per annum. F- 24 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Note 38 On February 9, 2021, the Company issued a convertible promissory note in the principal amount $103,500, which matured on February 9, 2022. Note 38 was converted into common shares and the remaining balance was paid in cash. There was no outstanding balance on Note 38 as of December 31, 2023. Note 39 On April 26, 2021, the Company issued a convertible promissory note in the principal amount $153,500, which matured on May 10, 2022. Note 39 was paid in cash and there was no outstanding balance as of December 31, 2023. Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7, 40-8, 40-9 and 40-10 On September 22, 2022, the Company issued a convertible promissory note in the principal amount of $2,600,000 in exchange for total of $4,791,099 of defaulted promissory notes balances (Note 40-1). On November 4, 2022, the Company executed a second tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-2). On November 28, 2022, the Company executed the third tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-3). On December 21, 2022, the Company executed a fourth tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-4). On January 24, 2023, the Company executed a fifth tranche under this note in the principal amount of $90,166, less an original issue discount and fee of $25,166 (Note 40-5). On March 21, 2023, the Company executed a sixth tranche under this note in the principal amount of $136,666, less an original issue discount and fee of $39,166 (Note 40-6). On June 5, 2023, the Company executed a seventh tranche under this note in the principal amount of $136,667, less original issue discount and fee of $39,167 (Note 40-7). On June 13, 2023, the Company executed an eighth tranche under this note in the principal amount of $21,167, less original issue discount and fee of $5,167 (Note 40-8). On July 19, 2023, the Company executed a ninth tranche under this note in the principal amount of $35,500, less an original issue discount and fee of $8,875 (Note 40-9). On July 24, 2023, the Company executed a tenth tranche under this note in the principal amount of $14,000, less an original issue discount and fee of $3,500 (Note 40-10). On December 1, 2023, the Company executed amendment on Notes series 40 consolidated senior secured convertible promissory note to extend the expired tranche note 40-1 through 40-5’ due date to September 20, 2024. All of the Note 40 tranches mature in one year from the note issuance date and accrue interest at a rate of 10% per annum. Note 41 On August 25, 2023, the Company issued a twelve-month convertible promissory note in the principal amount of $5,000 to the Company’s CEO for the Company’s operating expenses. The rate of interest is 10% per annum. 9. CAPITAL STOCK Preferred Stock The Company has designated multiple series of preferred stock, including 2 shares of series A preferred stock, 3,000,000 shares of series B preferred stock, 500 shares of series C preferred stock, 1,000,000 shares of series E preferred stock, 50,000 shares of series F-1 preferred stock, 15,000,000 shares of series I preferred stock, 2,000,000 shares of series J preferred stock, 400,000 shares of series L preferred stock, 3,000,000 shares of series N senior convertible preferred stock, 5,000 shares of series R convertible preferred stock and 5,000,000 shares of series X senior convertible preferred stock. F- 25 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 The following is a description of the rights and preferences of each series of preferred stock. Redeemable Preferred Stock The Company recognized the series N senior convertible preferred stock, series R convertible preferred stock and series X senior convertible preferred stock as mezzanine equity in accordance with ASC 480, “Distinguishing Liabilities from Equity”. Series N Senior Convertible Preferred Stock Ranking. The series N senior convertible preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not expressly made senior to or on parity with the series N senior convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series N senior convertible preferred stock; and (iii) junior to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each class or series that is expressly made senior to the series N senior convertible preferred stock. Dividend Rights. Holders of series N senior convertible preferred stock are entitled to dividends at a rate per annum of 12.0% of the stated value ($4.00 per share); provided that upon an event of default (as defined in the certificate of designation for the series N senior convertible preferred stock), such rate shall increase by 8% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date in cash or common stock at the Company’s discretion. Dividends payable in common stock shall be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common stock on the Company’s principal trading market (the “VWAP”) during the five (5) trading days immediately prior to the applicable dividend payment date. At December 31, 2023, cumulative dividends on Series N Preferred Stock were $ 766,437 . Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities or parity securities (in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash equal to 115% of the stated value of $4.00 per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders. Voting Rights . Holders of series N senior convertible preferred stock do not have any voting rights; provided that, so long as any shares of series N senior convertible preferred stock are outstanding, the affirmative vote of holders of a majority of the series N senior convertible preferred stock, which majority must include SILAC Insurance Company so long as it holds any shares of series N senior convertible preferred stock, voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate of designation or prior to the Company’s (or Nova’s) creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series N senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of 66% of the series N senior convertible preferred stock, voting as a separate class, is required prior to the Company’s (or Nova’s) creation or issuance of any senior securities. F- 26 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each shares of series N senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price of $900 per share (subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers, consolidations or similar transactions); provided that in no event shall the holder of any series N senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock issuable upon the conversion of the series N senior convertible preferred stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to the Company. Redemption Rights . The Company may redeem the series N senior convertible preferred stock at any time by paying in cash therefore a sum equal to 115% of the stated value of $4.00 per share, plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the certificate of designation. In addition, any holder may require the Company to redeem some or all of its shares of series N senior convertible preferred stock on the same terms after a period of twelve months from the date of issuance; provided, however, that such redemption right shall only be exercisable if the Company raises at least $5,000,000 or the common stock is trading on the Nasdaq Stock Market or the New York Stock Exchange. Series R Convertible Preferred Stock Ranking. The series R convertible preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock, series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series I preferred stock, series J preferred stock, series L preferred stock and to each other class or series that is not expressly made senior to or on parity with the series R convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series R convertible preferred stock; and (iii) junior to the series N senior convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series R convertible preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series R convertible preferred stock are entitled to receive cumulative dividends in the amount of twelve percent (12%) per annum, payable quarterly. In addition, holders of series R convertible preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. Any dividends that are not paid when due shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which shall accrue and compound daily from the missed payment date through and including the date of actual payment in full. At December 31, 2023, cumulative dividends on Series R Preferred Stock were $ 109,980 . Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series R convertible preferred stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the stated value ($1,200), plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing, for each share of series R convertible preferred stock before any distribution or payment shall be made to the holders of any junior securities. F- 27 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Voting Rights . The holders of series R convertible preferred stock will vote together with the common stock on an as-converted basis. However, as long as any shares of series R convertible preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the series R convertible preferred stock, directly and/or indirectly (i) alter or change adversely the powers, preferences or rights given to the series R convertible preferred stock or alter or amend the certificate of designation, (ii) authorize or create any class of stock ranking as to redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the series R convertible preferred stock, or authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the series R convertible preferred stock, (iii) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of the series R convertible preferred stock, (iv) increase the number of authorized shares of series R convertible preferred stock, or (v) enter into any agreement with respect to any of the foregoing. Conversion Rights . Each shares of series R convertible preferred stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($1,200 per share) by a conversion price equal to the lower of (i) $75.0 and (ii) the lowest daily VWAP during the twenty (20) trading days immediately prior to the applicable conversion date. Notwithstanding the foregoing, the Company shall not effect any conversion of the series R convertible preferred stock, and a holder shall not have the right to convert any portion of the series R convertible preferred stock, to the extent that, after giving effect to the conversion, such holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own in excess of 4.99% of the then outstanding common stock. The conversion price is subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the common stock, as well as for mergers, business combinations and certain other fundamental transactions. In addition, subject to certain exceptions, upon any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the holder may elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of series R convertible preferred stock then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis. Participation Rights . Subject to certain exceptions, upon a Subsequent Financing, a holder of at least 100 shares of series R convertible preferred stock shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing. Company Redemption Rights . The Company has the right to redeem all (but not less than all), shares of the series R convertible preferred stock issued and outstanding at any time upon three (3) business days’ notice, at a redemption price per share equal to the product of (i) the Premium Rate multiplied by (ii) the sum of (x) the stated value ($1,200), (y) all accrued but unpaid dividends, and (z) all other amounts due to the holder. “Premium Rate” means (a) 1.1 if all of the series R convertible preferred stock is redeemed within ninety (90) calendar days from the issuance date thereof; (b) 1.2 if all of the series R convertible preferred stock is redeemed after ninety (90) calendar days and within one hundred twenty (120) calendar days from the issuance date thereof; (c) 1.3 if all of the series R convertible preferred stock is redeemed after one hundred twenty (120) calendar days and within one hundred eighty (180) calendar days from the issuance date thereof; and (iv) 1.0 if all of the series R convertible preferred stock is redeemed after one hundred eighty (180) calendar days. F- 28 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Redemption Upon Triggering Events . Upon the occurrence of a Triggering Event (as defined below), each holder of series R convertible preferred stock shall (in addition to all other rights it may have) have the right, exercisable at the sole option of such holder, to require the Company to (A) redeem all of the series R convertible preferred stock then held by such holder for a redemption price, in cash, equal to the Triggering Redemption Amount (as defined below), or (B) at the option of each holder either (i) redeem all of the series R convertible preferred stock then held by such holder though the issuance to such holder of such number of shares of common stock equal to the quotient of (x) the Triggering Redemption Amount, divided by (y) the lowest of (1) the conversion price, and (2) 75% of the average of the 10 VWAPs immediately prior to the date of election, or (ii) increase the dividend rate on all of the outstanding series R convertible preferred stock held by such holder retroactively to the initial issuance date to 18% per annum thereafter. “Triggering Redemption Amount” means, for each share of series R convertible preferred stock, the sum of (a) the greater of (i) 130% of the stated value and (ii) the product of (y) the VWAP on the trading day immediately preceding the date of the Triggering Event, multiplied by (z) the stated value divided by the then applicable conversion price, (b) all accrued but unpaid dividends thereon and (c) all liquidated damages, late fees and other costs, expenses or amounts due in respect of the series R convertible preferred stock including, but not limited to legal fees and expenses of legal counsel to the holder in connection with, related to and/or arising out of a Triggering Event. A “Triggering Event” means any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body): · the Company shall fail to deliver the shares of common stock issuable upon a conversion prior to the fifth (5 th ) trading day after such shares are required to be delivered, or the Company shall provide written notice to any holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of series R convertible preferred stock in accordance with the terms of the certificate of designation; · the Company shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In (as defined in the certificate of designation) within five (5) trading days after notice therefor is delivered; · the Company shall fail to have available a sufficient number of authorized and unreserved shares of common stock to issue to such holder upon a conversion; · unless specifically addressed elsewhere in the certificate of designation as a Triggering Event, the Company shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents (as defined in the certificate of designation), and such failure or breach shall not, if subject to the possibility of a cure by the Company, have been cured within five (5) calendar days after the date on which written notice of such failure or breach shall have been delivered; · the Company shall redeem junior securities or pari passu securities; · the Company shall be party to a Change of Control Transaction (as defined in the certificate of designation); · there shall have occurred a Bankruptcy Event (as defined in the certificate of designation); F- 29 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 · any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000 (provided that amounts covered by the Company’s insurance policies are not counted toward this $50,000 threshold), and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of thirty (30) trading days; · the electronic transfer by the Company of shares of common stock through the Depository Trust Company or another established clearing corporation once established subsequent to the date of the certificate of designation is no longer available or is subject to a ‘freeze” and/or “chill;” or · any “Event of Default,” as defined in the Purchase Agreement (as defined in the certificate of designation). Series X Senior Convertible Preferred Stock Ranking. The series X senior convertible preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not expressly made senior to or on parity with the series X senior convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series X senior convertible preferred stock; and (iii) junior to the series N senior convertible preferred stock, all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company and each class or series that is expressly made senior to the series X senior convertible preferred stock. Dividend Rights. Holders of series X senior convertible preferred stock are entitled to dividends at a rate per annum of 10.0% of the stated value ($4.00 per share); provided that upon an event of default (as defined in the certificate of designation for the series X senior convertible preferred stock), such rate shall increase by 5% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall be payable quarterly in arrears on each dividend payment date. At December 31, 2023, cumulative dividends on Series X Preferred Stock were $ 190,685 . Liquidation Rights. Subject to the rights of creditors and the holders of any senior securities, including the series N senior convertible preferred stock, or parity securities (in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash equal to 100% of the stated value of $4.00 per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution to such holders. Voting Rights . Holders of series X senior convertible preferred stock do not have any voting rights; provided that, so long as any shares of series X senior convertible preferred stock are outstanding, the affirmative vote of holders of a majority of the series X senior convertible preferred stock, which majority must include Leonite Capital LLC so long as it holds any shares of series X senior convertible preferred stock, voting as a separate class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate of designation or prior to the creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series X senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of 66% of the series X senior convertible preferred stock, voting as a separate class, is required prior to the creation or issuance of any senior securities. F- 30 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each shares of series X senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price equal to the lower of (i) the lowest VWAP during the five (5) trading days immediately prior to the applicable conversion date and (ii) the price per share paid in any subsequent financing (the “Fixed Price”). The Fixed Price is subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers, consolidations or similar transactions, as well as a price based antidilution adjustment, pursuant to which, subject to certain exceptions, if the Company issues common stock at a price lower than the Fixed Price, the Fixed Price shall decrease to such lower price. Notwithstanding the foregoing, in no event shall the holder of any series X senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock issuable upon the conversion of the series X senior convertible preferred stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’ prior notice to the Company. Redemption Rights . Commencing on September 22, 2023, any holder may require the Company to redeem its shares by the payment in cash therefore of a sum equal to 100% of the stated value of $4.00 per share, plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the certificate of designation; provided however, that in the event that the Company completes a public offering prior to the redemption date, then any holder may only cause the Company to redeem any outstanding series X senior convertible preferred stock by paying such redemption price in twelve (12) equal monthly installments with the first such payment due on the date that is six (6) months following the date that the Company completes such public offering. Non-redeemable Preferred Stock Series A Preferred Stock Ranking. The series A preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not expressly made senior to or on parity with the series A preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series A preferred stock; and (iii) junior to the series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series I preferred stock, series J preferred stock, series L preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and each other series of preferred stock and each class or series that is expressly made senior to the series A preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The series A preferred stock is not entitled to participate in any distributions or payments to the holders of common stock or any other class of stock and shall have no economic interest in the Company. Liquidation Rights . In the event of any liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation of our company wherein the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, the holders of each share of series A preferred stock shall be entitled to receive from any distribution of any of the assets or surplus funds of the Company, before and in preference of any holder of shares of common stock, an amount equal to the stated value of $250. Once the holders receive the foregoing from any such liquidation, dissolution or winding up, the holders shall not participate with the common stock or any other class of stock. F- 31 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Voting Rights . Each share of series A preferred stock shall have a number of votes at any time equal to (i) 25% of the number of votes then held or entitled to be made by all other equity securities of the Company, including, without limitation, the common stock, plus (ii) one (1). The series A preferred stock shall vote on any matter submitted to the holders of the common stock, or any other class of voting securities, for a vote, and shall vote together with the common stock, or any class of voting securities, as applicable, on such matter for as long as the shares of series A preferred stock are issued and outstanding. Notwithstanding the foregoing, the series A preferred stock shall not have the right to vote on any matter as to which solely another series of preferred stock is entitled to vote pursuant to the Company’s amended and restated articles of incorporation or a certificate of designation of such other series of preferred stock. Transfer . Upon transfer of any share of series A preferred stock, except for a transfer by the holder to an affiliate, whether such transfer is voluntary or involuntary, such share of series A preferred stock shall automatically, and without any action being required by the Company or the holder, be converted into one (1) share of common stock. Other Rights . Holders of series A preferred stock do not have any conversion (except as set forth above) or redemption rights. Series B Preferred Stock Ranking. The series B preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series B preferred stock; (ii) on parity with the series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series B preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series B preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series B preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series B preferred stock. Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series B preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series B preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series B preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities. Voting Rights . On any matter presented to stockholders for their action or consideration, each holder of series B preferred stock shall be entitled to cast one (1) vote per share of series B preferred stock held. Except as provided by law, the holders of series B preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series B preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series B preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series B preferred stock or alter or amend the certificate of designation for the series B preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series B preferred stock. F- 32 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each share of series B preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which the common stock is then traded or quoted is less than $4.00 per share, then each share of series B preferred stock shall be convertible into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series B preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series B preferred stock, voting together as a single class, each share of series B preferred stock shall be automatically converted into such number of shares of common stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits). Redemption Rights . Holders of series B preferred stock do not have any redemption rights. Series C Preferred Stock Ranking. The series C preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series C preferred stock; (ii) on parity with the series B preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series C preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series C preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series C preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series C preferred stock. Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series C preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series C preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series C preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities. Voting Rights . On any matter presented to stockholders for their action or consideration, each holder of series C preferred stock shall be entitled to cast one (1) vote per share of series C preferred stock held. Except as provided by law, the holders of series C preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series C preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series C preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series C preferred stock or alter or amend the certificate of designation for the series C preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series C preferred stock. F- 33 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each share of series C preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $0.00004. In addition, on the date on which the shares of common stock are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier) (a “Listing Event”), all outstanding shares of series C preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing $50,000 by the highest traded or closing price on such date, which such shares of common stock shall be issued pro rata among the holders of the outstanding series C preferred stock. Finally, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series C preferred stock, voting together as a single class, each share of series C preferred stock shall be automatically converted into such number of shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $0.00004. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits). Redemption Rights . If there is a Listing Event, the Company shall have the right (but not the obligation) to redeem shares of series C preferred stock at a price per share of $50,000. Series E Preferred Stock Ranking. The series E preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series E preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series E preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series E preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series E preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series E preferred stock. Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series E preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series E preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series E preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities. Voting Rights . On any matter presented to stockholders for their action or consideration, each holder of series E preferred stock shall be entitled to cast one (1) vote per share of series E preferred stock held. Except as provided by law, the holders of series E preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series E preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series E preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series E preferred stock or alter or amend the certificate of designation for the series E preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series E preferred stock. F- 34 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each share of series E preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which the common stock is then traded or quoted is less than $4.00 per share, then each share of series E preferred stock shall be convertible into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series E preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series E preferred stock, voting together as a single class, each share of series E preferred stock shall be automatically converted into such number of shares of common stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits). Series F-1 Preferred Stock Ranking. The series F-1 preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series F-1 preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series E preferred stock, series J preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series F-1 preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series F-1 preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series F-1 preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series F-1 preferred stock. Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series F-1 preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series F-1 preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series F-1 preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities. Voting Rights . Except as provided by law, the holders of series F-1 preferred stock shall have no voting rights. However, as long as any shares of series F-1 preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series F-1 preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series F-1 preferred stock or alter or amend the certificate of designation for the series F-1 preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series F-1 preferred stock. F- 35 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each share of series F-1 preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which the common stock is then traded or quoted is less than $4.00 per share, then each share of series F-1 preferred stock shall be convertible into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series F-1 preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series F-1 preferred stock, voting together as a single class, each share of series F-1 preferred stock shall be automatically converted into such number of shares of common stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits). Redemption Rights . Holders of series F-1 preferred stock do not have any redemption rights. Series I Preferred Stock Ranking. The series I preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock, series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and to each other class or series that is not expressly made senior to or on parity with the series I preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series I preferred stock; and (iii) junior to the series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series I preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series I preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series I preferred stock. Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series I preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series I preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series I preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities. Voting Rights . On any matter presented to stockholders for their action or consideration, each holder of series I preferred stock shall be entitled to cast five (5) votes per share of series I preferred stock held. Except as provided by law, the holders of series I preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series I preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series I preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series I preferred stock or alter or amend the certificate of designation for the series I preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series I preferred stock. F- 36 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each share of series I preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which the common stock is then traded or quoted is less than $4.00 per share, then each share of series I preferred stock shall be convertible into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series I preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $10,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series I preferred stock, voting together as a single class, each share of series I preferred stock shall be automatically converted into such number of shares of common stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits). Redemption Rights . Holders of series I preferred stock do not have any redemption rights. Series J Preferred Stock Ranking. The series J preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series J preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series L preferred stock and each other class or series that is not expressly subordinated or made senior to the series J preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series J preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series J preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series J preferred stock. Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series J preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series J preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series J preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities. Voting Rights . On any matter presented to stockholders for their action or consideration, each holder of series J preferred stock shall be entitled to cast one (1) vote per share of series J preferred stock held. Except as provided by law, the holders of series J preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series J preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series J preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series J preferred stock or alter or amend the certificate of designation for the series J preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series J preferred stock. F- 37 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each share of series J preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which the common stock is then traded or quoted is less than $4.00 per share, then each share of series J preferred stock shall be convertible into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series J preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series J preferred stock, voting together as a single class, each share of series J preferred stock shall be automatically converted into such number of shares of common stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits). Redemption Rights . Holders of series J preferred stock do not have any redemption rights. Series L Preferred Stock Ranking. The series L preferred stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other class or series that is not expressly made senior to or on parity with the series L preferred stock; (ii) on parity with the series B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock and each other class or series that is not expressly subordinated or made senior to the series L preferred stock; and (iii) junior to the series I preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series L preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company. Dividend Rights. The holders of series L preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be paid on shares of series L preferred stock. Liquidation Rights . Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series L preferred stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series L preferred stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series L preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities. Voting Rights . On any matter presented to stockholders for their action or consideration, each holder of series L preferred stock shall be entitled to cast one (1) vote per share of series L preferred stock held. Except as provided by law, the holders of series L preferred stock shall vote together with the holders of shares of common stock as a single class. However, as long as any shares of series L preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series L preferred stock, (a) alter or change adversely the powers, preferences or rights given to the series J preferred stock or alter or amend the certificate of designation for the series L preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of series L preferred stock. F- 38 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Conversion Rights . Each share of series L preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which the common stock is then traded or quoted is less than $4.00 per share, then each share of series L preferred stock shall be convertible into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series L preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company, (b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series L preferred stock, voting together as a single class, each share of series L preferred stock shall be automatically converted into such number of shares of common stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits). Redemption Rights . Holders of series L preferred stock do not have any redemption rights. Preferred Stock Transactions During the year ended December 31, 2023, the Company executed the following transactions: · On May 25, 2023, the Company issued 3,150 shares of series B preferred stock to Zia Choe, Chief Accounting Officer, for $ 25,000 . · On July 24, 2023, the Company issued 5,000 shares of series E preferred stock as compensation for the property manager of Edge View in exchange for a bonus of $ 5,000 . During the year ended December 31, 2022, the Company executed the following transactions: · In the second quarter of 2022, 37,500 shares of series D preferred stock were cancelled and exchanged for 37,500 shares of series B preferred stock and 37,500 shares of series H preferred stock were cancelled and exchanged for 37,500 shares of series B preferred stock. · On September 7, 2022, the Company issued 818,750 shares of series J preferred stock in connection with the acquisition of Nova. · On September 12, 2022, the Company issued 375,000 shares of series X senior convertible preferred stock for $ 1,500,000 . See Note 9 for further discussion. · On October 10, 2022, the Chief Operating Officer received 18,750 shares of series B preferred stock in exchange for the settlement of employment at the fair value of $1 per share. · On October 31, 2022, the Company entered into a buyback agreement, pursuant to which the managers of AHI purchased back AHI and returned 175,045 shares of series F preferred stock issued to them, which were remitted to treasury, in exchange for 67,500 shares of series B preferred stock. There was a loss on disposal in the amount of $ 217,769 which represented net assets and liabilities at the time of sale back. F- 39 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 · On November 11, 2022, the Company issued 15,000 shares of series B preferred stock to a third party in exchange for $ 15,000 at the fair value of $1 per share. · On December 15, 2022, the Company issued 10,000 shares of series B preferred stock to a third party in exchange for $ 10,000 at the fair value of $1 per share. Common Stock During the year ended December 31, 2023, the Company issued 13,068 shares of common stock upon the conversion of certain convertible notes. During the year ended December 31, 2022, as part of the Red Rock settlement, the Company issued 8,782 shares of common stock. The settlement also required the previous owners to relinquish 3,500 shares of common stock before a 1 for 75,000 reverse split resulting in a gain to the Company of $35,097. The Red Rock settlement also required the previous owners to relinquish warrants for 25,000 shares of common stock. See also Note 10. 10. WARRANTS The table below sets forth warrant activity during the years ended December 31, 2023 and 2022: Schedule of warrant activity Number of Warrants Weighted Average Exercise Price Balance at January 1, 2023 3,141 $ 0.015 Granted – – Exercised – – Expired ( 1 ) 0.0146 Balance at December 31, 2023 3,140 0.015 Warrants Exercisable at December 31, 2023 3,140 $ 0.015 Number of Warrants Weighted Average Exercise Price Balance at January 1, 2022 3,259 $ 0.02 Granted – – Exercised – – Expired ( 118 ) 0.146 Balance at December 31, 2022 3,141 0.015 Warrants Exercisable at December 31, 2022 3,141 $ 0.015 As a result of the settlement agreement with Red Rock on July 29, 2022, the Company required the previous owners to relinquish warrants for 25,000 shares of common stock. The warrants were returned and cancelled during the second quarter of 2023. There was no impact on the consolidated financial statements as of December 31, 2022. F- 40 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 11. DISCONTINUED OPERATIONS Platinum Tax On November 10, 2023, the Company sold Platinum Tax, which was a full-service tax resolution firm located in Los Angeles, California. Through this subsidiary the Company provided fee-based tax resolution services to individuals and companies that have federal and state tax liabilities by assisting clients to settle outstanding tax debts. As part of the Asset Purchase Agreement between us and the purchaser, the assets that were purchased included substantially all assets, rights, interests, and licenses except for banks accounts in place prior to the sale for the purchase consideration of 15% of cash collected by the purchaser within one year following the sale date. The Company and the managers of AHI entered into a resignation, release and buyback agreement and addendum, effective October 31, 2022, pursuant to which the managers purchased AHI in exchange for returning 175,045 shares of series F preferred stock. There was a loss on disposal in the amount of $ 217,769 on October 31, 2022, which represented net assets and liabilities at the time of sale back. Schedule of discontinued operations December 31, Net liabilities of discontinued operations 2023 2022 Cash $ 342 $ 7,717 Accounts receivable 300 860 Accounts payable and accrued expenses 238,285 159,700 Net liabilities of discontinued operations $ ( 237,643 ) $ ( 151,123 ) Year Ended December 31, Gain (Loss) from discontinued operations 2023 2022 Revenue $ 307,366 $ 1,438,294 Cost of sales ( 59,453 ) ( 462,556 ) Selling, general and administrative expenses ( 332,005 ) ( 1,094,121 ) Interest expense ( 2,428 ) ( 44,027 ) Impairment of Goodwill – ( 2,092,048 ) Loss on divestiture of subsidiary – ( 217,769 ) Gain no change in estimate – ( 4,474 ) Gain on reversal of Red Rock liability – 510,418 Loss on settlement – ( 212,600 ) Loss from discontinued operations $ ( 86,520 ) $ ( 2,178,883 ) F- 41 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 12. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET The Company reviews goodwill for impairment on a reporting unit basis annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. During the year ended December 31, 2023, the Company determined there to be no impairment, and during the year ended December 31, 2022, the Company recognized goodwill impairment in the amount of $ 2,092,048 , which was recorded to its former financial services segment now reflected in discontinued operations. The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors. 13. COMMITMENTS AND CONTINGENCIES Leases ASC 842, “Leases”, requires that a lessee recognize the assets and liabilities that arise from operating leases, A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transaction, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified retrospective approach. Under the effective date method, the Company’s comparative period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted ASC 842, January 1, 2020, using the effective date method and elected certain practical expedients allowing the Company not to reassess: · whether expired or existing contracts contain leases under the new definition of a lease; · lease classification for expired or existing leases; and · whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. The Company also made the accounting policy decision not to recognize lease assets and liabilities for leases with a term of 12 months or less. The Company leases ten medical facilities and one vehicle as operating leases as of December 31, 2023. The Company recorded operating lease expenses of $ 291,040 and $ 301,321 for the years ended December 31, 2023 and 2022, respectively. The Company has operating leases with future commitments as follows: Schedule of operating leases Amount 2024 $ 157,669 2025 95,774 2026 23,282 Total $ 276,725 F- 42 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 The following table summarizes supplemental information about the Company’s leases: Schedule of supplemental information about leases Weighted-average remaining lease term 1.9 years Weighted-average discount rate 4.73 % Employees The Company agreed to pay $360,000 per year and $200,000 of targeted annual incentives to the Chief Executive Officer based on his employment agreement since July 1, 2020, of which currently 50% is paid in cash and 50% is accrued. The total outstanding accrued compensation as of December 31, 2023 and 2022 were $ 2,365,500 and $ 1,870,500 , respectively. The Company agreed to pay $360,000 per year and $200,000 of targeted annual incentives to the Chairman of the Board based on his employment agreement since July 1, 2020, of which currently 50% is paid in cash and 50% is accrued. The total outstanding accrued compensation as of December 31, 2023 and December 31, 2022 were $ 2,350,500 and $ 1,863,000 , respectively. The Company agreed to pay $ 156,000 per year to the previous Chief Financial Officer based on his amended employment agreement executed on May 15, 2021. The total outstanding accrued compensation as of December 31, 2023 and December 31, 2022 was $ 17,057 and $ 17,057 , respectively. The Company entered into a management agreement effective May 31, 2021 for compensation to the principals of Nova in the form of an annual base salaries of $ 372,000 to one of the three doctors, $ 450,000 to the second, and $ 372,000 to the third doctor. Collectively, as a group, such principals will receive an annual cash bonus and stock equity set forth below, which will be conditioned upon the Company achieving 100% of the annual objectives of financial performance goals as set forth below. For the year ended December 31, 2023 the Company recorded $0 in annual cash bonus as financial performance objectives were not achieved. Schedule of annual objectives of financial performance Year Minimum Annual Nova EBITDA Cash Annual Bonus Series J Preferred Stock 2021 $ 2 .0M $ 120,000 120,000 Shares 2022 $ 2.4 M $ 150,000 135,000 Shares 2023 $ 3.7 M $ 210,000 150,000 Shares 2024 $ 5.5 M $ 300,000 180,000 Shares 2025 $ 8 .0M $ 420,000 210,000 Shares 14. LEGAL PROCEEDINGS From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. Management is not currently aware of any such legal proceedings or claims that it believes will have a material adverse effect on the Company’s business, financial condition, or operating results. F- 43 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 15. INCOME TAXES At December 31, 2023, the Company had federal and state net operating loss carry forwards of approximately $24 million that expire in various years through the year 2039. Due to carryforwards of past net operating losses, there is no provision for current federal or state income taxes for the years ended December 31, 2023 and 2022. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes. The Company’s deferred tax asset at December 31, 2023 and 2022 consists of net operating loss carry forwards calculated using federal and state effective tax rates equating to approximately $ 5,291,000 and $ 5,991,000 , respectively, less a valuation allowance in the amount of approximately $ 5,291,000 and $ 5,991,000 , respectively. Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance in both 2023 and 2022. The valuation allowance decreased by approximately $ 0.7 million from the year ended December 31, 2022. The Company’s total deferred tax asset as of December 31, 2023 and 2022 is as follows: Schedule of deferred tax assets 2023 2022 Deferred tax assets $ 5,291,000 $ 5,991,000 Valuation allowance ( 5,291,000 ) ( 5,991,000 ) Net deferred tax asset $ – $ – 16. SEGMENT REPORTING As of December 31, 2023, the Company had 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) Healthcare (Nova) (2) Real Estate (Edge View) 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 three operating segments. Other revenue consists of nonrecurring items. The healthcare segment provides a full range of diagnostic and surgical services for injuries and disorders of the skeletal system and associated bones, joints, tendons, muscles, ligaments, and nerves. The real estate segment consists of Edge View, a real estate company that owns five (5) acres zoned medium density residential (MDR) with 12 lots already platted, six (6) acres zoned high-density residential (HDR) that can be platted in various configurations to meet current housing needs, and twelve (12) acres zoned in Lemhi County as Agriculture that is available for further annexation into the City of Salmon for development, as well as a common area for landowners to view wildlife, provide access to the Salmon River and fishing in a two (2) acre pond. F- 44 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 Management uses numerous tools and methods to evaluate and measure of its subsidiaries’ success. To help succeed, management retains the prior owners of the subsidiaries and allow them to do what they do best is run the business. Additionally, management monitors key metrics primarily revenues and net income from operations. Schedule of segment reporting As of December 31, Asset: 2023 2022 Healthcare $ 18,955,991 $ 12,692,531 Real Estate 587,456 592,557 Others 1,202,364 59,691 Consolidated assets $ 20,745,811 $ 13,344,780 Years Ended December 31, 2023 2022 Revenues: Healthcare $ 11,853,266 $ 10,693,196 Real Estate – – Consolidated revenues $ 11,853,266 $ 10,693,196 Cost of Sales: Healthcare $ 3,560,624 $ 4,060,034 Real Estate – – Consolidated cost of sales $ 3,560,624 $ 4,060,034 Income from operations from subsidiaries Healthcare $ 7,300,849 $ 5,845,052 Real Estate ( 3,716 ) ( 19,345 ) Income from operations from subsidiaries $ 7,297,133 $ 5,825,707 Loss from operations from Cardiff Lexington $ ( 2,102,088 ) $ ( 1,918,818 ) Total income (loss) from operations $ 5,195,045 $ 3,906,889 Income (Loss) before taxes Healthcare $ 5,973,233 $ 74,880 Real Estate ( 3,716 ) ( 19,345 ) Corporate, administration and other non-operating expenses ( 2,941,123 ) ( 5,485,056 ) Consolidated income (loss) before taxes $ 3,028,394 $ ( 5,429,521 ) F- 45 CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 AND 2022 17. SUBSEQUENT EVENTS The Company has evaluated its operations subsequent to December 31, 2023 to the date these consolidated financial statements were available to be issued and determined the following subsequent events and transactions required disclosure in these consolidated financial statements. On January 11, 2024, the Company issued 1,222 shares of common stock upon the conversion of a convertible note in the amount of $1,680. On January 31, 2024, the Company issued 7,500 shares of series I preferred stock to the Company’ executives. On March 5, 2024, the Company issued 7,500 shares of common stock to John Nesbett for professional services provided. On March 13, 2024, the Company paid $50,000 to the noteholder for the accrued interest on Notes 40-1. On May 13, 2024, the Company entered into a securities exchange agreement (the “Exchange Agreement”) with Leonite Capital LLC (“Leonite”), pursuant to which Leonite exchanged a consolidated senior secured convertible promissory note issued to Leonite on September 22, 2022 (see notes 40 described above in Note 8) with a balance of $3,755,632 as of such date (the “Note”) for 938,908 shares of the Company’s newly designated series Y senior convertible preferred stock. The Exchange Agreement contains customary representations and warranties and covenants for a transaction of this type. In addition, pursuant to the Exchange Agreement, so long as the shares of series Y senior convertible preferred stock are outstanding, the Company agreed that it will not, without Leonite’s prior written consent: (i) change the nature of its business; (ii) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business; (iii) enter into any Variable Rate Transactions (as defined in the Exchange Agreement) or solicit any offers for, respond to any unsolicited offers for, or conduct any negotiations with any other person or entity in respect of any Variable Rate Transactions; or (iv) accept a merchant-cash-advance in which the Company sells future receivables at a discount or any other factoring transactions, or similar financing instruments or financing transactions. Pursuant to the Exchange Agreement, the Company also granted Leonite with piggy-back registration rights to register the shares of common stock underlying the series Y senior convertible preferred stock. On June 11, 2024, the Company entered into a settlement agreement and release of claims (the “Settlement Agreement”) with GHS Investments, LLC (“GHS”), the holder of 165 shares of series R convertible preferred stock and certain convertible promissory notes (see notes 29-2, 37-1 and 37-2 described above in Note 8). Pursuant to the Settlement Agreement, GHS agreed to cancel its shares of series R convertible preferred stock and convertible promissory notes in exchange for a new fixed amount settlement promissory note in the principal amount of $535,000 (the “New Note”). The New Note does not bear interest and requires fixed payments as follows: (i) if the Company raises at least $5 million but less than $6 million in its planned underwritten public offering (the “Offering”), then it must pay $250,000 on the closing date of the Offering, with payments of $125,000, $125,000 and $35,000 to follow on the 90 th , 180 th , and 240 th days following the closing of the Offering, respectively; (ii) if the Company raises at least $6 million but less than $7 million in the Offering, then it must pay $390,000 on the closing date of the Offering and $145,000 on the 90 th day following the closing of the Offering; and (iii) if the Company raises at least $7 million in the Offering, then it must repay the entire principal amount on the closing date of the Offering. If the Offering is not completed by August 15, 2024, then the Company is required to pay $25,000 on such date and to continue making payments of $25,000 on each monthly anniversary thereof until the entire principal amount is repaid in full. If the Offering is completed after August 15, 2024, then the Company is required to make payments as described in the schedule above. Notwithstanding the foregoing, if the Company abandons the Offering and conducts a new public offering thereafter, then the Company is required to make a payment of $100,000 on the closing date of such other public offering, a second payment of $100,000 on the 90 th day following the closing of such offering and $35,000 each month thereafter until the entire principal amount is repaid in full. If any portion of the principal amount remains unpaid on the second (2 nd ) anniversary of the date of the New Note, it shall become immediately due and payable on such date. The Company may prepay the entire principal amount at any time without penalty. The New Note is unsecured and contains customary events of default for a loan of this type. Upon an event of default, interest shall automatically begin to accrue at a simple interest rate of ten percent (10%) per annum. F- 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: July 24, 2024 CARDIFF LEXINGTON CORPORATION /s/ Alex Cunningham Name: Alex Cunningham Title: Chief Executive Officer (Principal Executive Officer) /s/ Matthew Shafer Name: Matthew Shafer Title: Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Alex Cunningham Chief Executive Officer and Director (principal executive officer) July 24, 2024 Alex Cunningham /s/ Matthew Shafer Chief Financial Officer (principal financial officer) July 24, 2024 Matthew Shafer /s/ Zia Cho Chief Accounting Officer (principal accounting officer) July 24, 2024 Zia Choe /s/ Daniel Thompson Chairman of the Board July 24, 2024 Daniel Thompson