What changed in this filing

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Item 9A. Controls and Procedures

2025-03-14 compared with 2024-03-27 · 1451 added, 1144 removed, 1694 unchanged (61% of the section changed)

22 unchanged sentences

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;

(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.

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

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;

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

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that, as of December 31, 2024, 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 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.

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.

· 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 are making necessary changes by making strategic hiring decisions and providing training to our financial team, and other relevant personnel, on the GAAP accounting guidelines applicable to financial reporting requirements.

We are implementing proper documentation procedures for key functional areas, control objectives and our workflows.

We are enhancing our processes, routine and non-routine, to encompass segregation of duties as well as oversight of secondary independent reviews.

We plan to reinforce effective compensating controls to improve the design of the current process with limited human resources.

We hired external consultants to assist with our assessment and accounting for variable consideration as accounted for under ASC 606 and our credit loss expense as accounted for under ASC 326.

We intend to complete the remediation of the material

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Daniel Thompson

Chairman of the Board Directors

Chairman of the Board of Directors

Alex Cunningham

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Senior Vice President and Chief Financial Officer

Chief Accounting Officer

Cathy Pennington

Thompson has been Chairman of our board of directors since May 2014.

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School of Business at Seton Hall University and has an MBA in finance from The Rutgers Business School at Rutgers University.

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.

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

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.

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.

Choe received

in Hospitality Management at Florida International University, and she also has higher education in accounting at Ajou University

Graduate School in South Korea.

Johnson, III.

Johnson has served as a member of our board of directors since April 2024 .

Johnson has more than 47 years of experience in experience in public financings as a bond counsel, underwriter’s counsel, issuer’s

counsel, and trustee’s counsel, as well as mergers, acquisitions, tax-free reorganizations, commercial/corporate litigation.

Johnson has practiced law as a member of several firms.

Since 2007, he has been the managing member and owner of GBJ & Associates,

PLLC, where he provides legal services to Kentucky’s counties, cities, taxing districts, and not-for-profit organizations in public

and private financing of public and economic development projects.

He previously worked at McBrayer, McGinnis, Leslie & Kirkland,

Bowling, Johnson & Lycan (where he was Managing Member), Steptoe & Johnson PLLC and McNair Law Firm PA.

Johnson was a law

clerk for Chief Judge William Drennon from 1972 to 1973 with U.S.

Tax Court and served as tax attorney with Ashland Oil, Inc.

Johnson is a licensed member of the Kentucky Bar Association, Supreme Court of United States of America, U.S.

Second, Sixth,

and Ninth Circuit Court of Appeal, U.S.

District Court for the Eastern and Western Districts of Kentucky, U.S.

Bankruptcy Court for the

Eastern District of Kentucky, U.S.

Tax Court, and a Member National Association of Bond Lawyers.

Johnson is a graduate of Western

Kentucky University, where he is a former member of the Board of Regents from 2013-2019, serving as the Board’s Chair, Vice-Chair,

and Chair of the University’s Finance and Budget Committee.

Johnson is a graduate of the University of Louisville Brandis School

of Law earning a J.D., cum laude degree.

We believe Mr.

Johnson is well suited to serve as a director because of his extensive experience

working with public companies and assisting with their financings.

Pennington has served as a member of our board of directors since April 2024 .

Pennington has more than 30 years of experience in human resources, sales and executive management, mergers and acquisitions, and

team leadership for both national and international based public companies.

Since February 2019, she has been the HR leader at Hyster-Yale

Group, which designs, engineers, manufactures, sells, and services a comprehensive line of lift trucks and aftermarket parts marketed

From March of 2013 to June 2018, Ms.

Pennington served as senior director at Galls, LLC the largest public safety uniform and

equipment distributor in the United States, where she led a national team responsible for development and execution of all human resource,

training, and payroll services.

She has also served as vice president of human resources for Verst Group Logistics from 2008 to 2015.

Pennington served as global business manager in sales management for Lexmark International from 1999 to 2006.

She also previously

served in human resource management for Valvoline Corporate and Valvoline Instant Oil Change for Ashland, Inc.

and worked for the Marathon-Ashland

joint venture.

Pennington received her BA Degree concentration in Human Resource Management from the University of Kentucky.

Pennington is well suited to serve as a director because of her global business management experience and experience in human resources

and acquisitions.

Jack Staley .

Staley has served as a member of our board of directors since April 2024 .

Staley has more than 35 years of experience in the banking, financial services, and investment banking industries, leveraging extensive

global experience with banking regulators in international companies.

Since May 2020, he has been the board chairman and capital acquisition

advisor at AlgiSys, LLC, an ESG company working on the production of fish oil without using fish.

He also serves as an independent consultant

to the chief executive officers of ClearIt, an early-stage medical device company in Boston, and Tolomeo Bank, a bank located in Puerto

Rico focused exclusively on private banking for international clients.

Since January 2020, Mr.

Staley has also consulted with Axial Family

Advisors and Maclendon Wealth Management regarding potential acquisitions.

He serves as a board member of Tufts Medical Center, Prescribers

Choice, vice chairman of The Children’s Diagnostic and Treatment Center, a private equity board member of two companies, and other

charity boards.

Prior to his current corporate roles, Mr.

Staley served as chairman of SGS AG Wealth Management Company, Zurich, a financial

planning and wealth management group comprised of professional financial consultants.

Staley has also served as executive director

of Prudential Financial and Dryden Wealth Management, Zurich and London and Asia, general manager of Bankers Trust New York Corporation,

Zurich, The Boston Company in Boston and London and Chase-Lincoln First Bank.

Staley holds an MBA in Finance from Wharton School,

University of Pennsylvania and a BA in Economics and Political Science from Gettysburg College.

Staley holds professional including

US securities licenses 3, 7, 63, 7,8, (now the 24).

We believe Mr.

Staley is well suited to serve as a director because of his previous

experience as business executive and a board member and in banking, financial services, investment banking and medical industries.

Our directors currently have terms which will

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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:

convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

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

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;

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;

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;

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.

To the best of our knowledge, 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;

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.

Corporate Governance

Governance Structure

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as a whole by making risk oversight a matter of collective consideration;

however, much of the work will be delegated to committees, which

however, much of the work is 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

We have established 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.

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 risks associated with

management decisions and strategic direction.

Independent Directors

Our board of directors has determined that all

of our directors, other than Messrs.

Thompson and Cunningham, qualify as “independent” directors in accordance with the rules

and regulations of The Nasdaq Stock Market, or Nasdaq.

Committees of the Board of Directors

We have established a standing audit committee,

compensation committee and nominating and corporate governance committee of our board of directors, each with its own charter approved

by the board.

In addition, our board of directors may, from time to time, designate one or more additional committees, which shall have

the duties and powers granted to it by our board of directors.

Audit Committee

Johnson, III, Cathy Pennington and

Jack Staley, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act, have been

appointed to serve on our audit committee, with Mr.

Johnson serving as the chair.

Johnson qualifies as “audit committee financial

expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements

of our company.

The audit committee is responsible for, among

other things:

(i) retaining and overseeing our independent accountants;

(ii) assisting the board in its oversight of the integrity of

our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and

regulatory requirements;

(iii) reviewing and approving the plan and scope of the internal and external audit;

(iv) pre-approving any audit

and non-audit services provided by our independent auditors;

(v) approving the fees to be paid to our independent auditors;

(vi) reviewing

with our chief executive officer and chief financial officer and independent auditors the adequacy and effectiveness of our internal controls;

(vii) reviewing hedging transactions;

(viii) reviewing and approving related party transactions;

(ix) evaluating enterprise risk issues,

including those related to cybersecurity, and (x) reviewing and assessing annually the audit committee’s performance and the adequacy

of its charter.

Compensation Committee

Johnson, III, Cathy Pennington and

Jack Staley, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act, have been

appointed to serve on our compensation committee, with Mr.

Staley serving as the chair.

The members of the compensation committee will

also be “non-employee directors” within the meaning of Section 16 of the Exchange Act.

The compensation committee assists

the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive

The compensation committee is responsible for,

among other things:

(i) reviewing and approving the remuneration of our executive officers;

(ii) determining the compensation of our independent

(iii) making recommendations to the board regarding equity-based and incentive compensation plans, policies and programs;

(iv) reviewing and assessing annually the compensation committee’s performance and the adequacy of its charter.

Nominating and Corporate Governance Committee

Johnson, III, Cathy Pennington and

Jack Staley, each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act, have been

appointed to serve on our nominating and corporate governance committee, with Ms.

Pennington serving as the chair.

The nominating and

corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining

the composition of the board and its committees.

The nominating and corporate governance committee

is responsible for, among other things:

(i) recommending the number of directors to comprise our board;

(ii) identifying and evaluating

individuals qualified to become members of the board and soliciting recommendations for director nominees from our Chief Executive Officer

and Board Chair;

(iii) recommending to the board the director nominees for each annual stockholders’ meeting;

(iv) recommending

to the board the candidates for filling vacancies that may occur between annual stockholders’ meetings;

(v) reviewing independent

director compensation and board processes, self-evaluations and policies;

(vi) overseeing compliance with our code of ethics;

monitoring developments in the law and practice of corporate governance.

The nominating and corporate governance committee’s

methods for identifying candidates for election to our board of directors (other than those proposed by our stockholders, as discussed

below) include the solicitation of ideas for possible candidates from a number of sources - members of our board of directors, our executives,

individuals personally known to the members of our board of directors, and other research.

The nominating and corporate governance committee

may also, from time-to-time, retain one or more third-party search firms to identify suitable candidates.

In making director recommendations, the nominating

and corporate governance committee may consider some or all of the following factors:

(i) the candidate’s judgment, skill, experience

with other organizations of comparable purpose, complexity and size, and subject to similar legal restrictions and oversight;

interplay of the candidate’s experience with the experience of other board members;

(iii) the extent to which the candidate would

be a desirable addition to the board and any committee thereof;

(iv) whether or not the person has any relationships that might impair

his or her independence;

and (v) the candidate’s ability to contribute to the effective management of our company, taking into account

the needs of our company and such factors as the individual’s experience, perspective, skills and knowledge of the industry in which

A stockholder may nominate one or more persons

for election as a director at an annual meeting of stockholders if the stockholder complies with the notice and information provisions

contained in our amended and restated bylaws.

Such notice must be in writing to our company not less than 90 days and not more than

120 days prior to the anniversary date of the preceding year’s annual meeting of stockholders or as otherwise required by requirements

of the Exchange Act.

In addition, stockholders furnishing such notice must be a holder of record on both (i) the date of delivering

such notice and (ii) the record date for the determination of stockholders entitled to vote at such meeting.

Code of Ethics

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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.

delinquent reports were recently filed.

to us and representations of these persons, that most of the reports were not timely filed for the year ended December 31, 2024.

the delinquent reports were recently filed.

EXECUTIVE COMPENSATION.

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the noted periods.

No other executive officers received total annual salary and bonus compensation in excess of $100,000.

Name and Principal Position

Other Compensation

Alex Cunningham,

Chief Executive Officer

Daniel Thompson,

Chairman of the Board

former Interim Chief Financial Officer (1)

Choe served as our Interim Chief Financial Officer from March 2023 to January 2024.

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.

Alex Cunningham, Chief Executive Officer

Daniel Thompson, Chairman of the Board

Shafer, Chief Financial Officer

The amount is equal to the aggregate grant-date fair value with respect to the awards, computed in accordance with ASC Topic 718.

Employment Agreements

Effective July 15, 2020, we entered into an employment

agreement with Alex Cunningham, pursuant to which Mr.

Effective January 1, 2025, we entered into an

employment agreement with Alex Cunningham, pursuant to which Mr.

Cunningham agreed to serve as President and Chief Executive Officer.

the employment agreement, Mr.

Cunningham will earn $360,000 per year as his base salary.

Cunningham is eligible for an annual bonus

with respect to each fiscal year ending during his employment.

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.

Pursuant to the employment agreement, Mr.

Cunningham is entitled to an initial base salary of $885,000 per year and is eligible for an

annual bonus.

The base salary shall be increased by a minimum of 10% per year beginning on January 1, 2026.

Cunningham’s base

salary shall be automatically and permanently increased by $100,000 upon the successful acquisition of certain companies in 2025.

base salary will also be automatically and permanently increased by $100,000 following our successful listing on Nasdaq and a corresponding

$4 million dollar capital raise beginning the month after the uplisting and commensurate close of the equity raise.

Cunningham is

entitled to a one-time performance bonus of $100,000 following our successful listing on Nasdaq with a corresponding $4 million dollar

capital raise.

Cunningham shall also earn a one-time performance bonus of $100,000 following each future successful acquisition.

the event that we are unable to pay his base salary or bonus in dollars, a portion of, or all compensation due to Mr.

Cunningham, may

be converted to a promissory note bearing an annual interest rate of 5.00% with interest to be paid quarterly.

In addition, effective

as of January 1, 2025, all past due amounts owed to Mr.

Cunningham shall earn interest at a rate of 5% with interest paid quarterly.

Cunningham is eligible to participate in and receive equity incentive compensation as may be granted by the board pursuant to our equity

incentive plans.

The term of the employment agreement is from January 1, 2025 to December 31, 2029 with automatic extensions for additional

successive one (1) year renewals terms unless terminated by us or Mr.

Cunningham upon at least three (3) months’ notice.

The employment

agreement may be terminated by us immediately for cause (as such term is defined in the employment agreement), in which case Mr.

would be entitled to receive payment of any accrued payments due and outstanding.

The employment agreement may also be terminated by us

without cause or by Mr.

Cunningham for good reason (as defined in the employment agreement) upon ninety (90) days’ notice, in which

Cunningham would be entitled to (i) all accrued payments outstanding, (ii) a separation allowance equal to three (3) times the

sum of the base salary and the target bonus (as defined in the employment agreement), payable in equal installments over a twelve (12)

month period, (iii) any annual incentive bonuses earned but not yet paid for any completed full fiscal year immediately preceding the

termination date, (iv) a pro rata annual incentive bonus if termination occurs prior to the end of any fiscal year, (v) payment of benefits

until the earlier of twelve (12) months after termination or receipt of comparable benefits from subsequent employment, and (vi) all then-outstanding

equity awards in any equity incentive plans.

Cunningham will also be entitled to the compensation described in the preceding sentence

in the event of termination of employment without cause or for good reason following a change-in-control of our company (as defined in

the employment agreement);

provided that the payment of benefits in this case shall be until the earlier of twenty-four (24) months after

termination or receipt of comparable benefits from subsequent employment.

The employment agreement contains customary confidentiality

provisions and 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, which was amended January 1, 2025, pursuant to which Mr.

Thompson agreed to serve as Chairman of the Board.

Pursuant to the employment agreement, Mr.

Thompson is entitled to a base salary of $360,000 per year through 2024 and $700,000 for calendar

Thompson is eligible for an incentive annual bonus, for a one-time performance bonus of $200,000 following our successful

listing on Nasdaq with a corresponding $4 million dollar capital raise and for a one-time performance bonus of $250,000 upon the successful

closing of any acquisition in 2025.

Through calendar year 2024, Mr.

Thompson was also eligible to receive compensation in shares of preferred

stock in the event that we were unable to pay his base salary in dollars.

For calendar year 2025, in the event that we are unable to pay

his base salary or bonus in dollars, a portion of, or all compensation due to Mr.

Thompson may be converted to a promissory note bearing

an annual interest rate of 5.00% with interest to be paid quarterly.

In addition, effective as of January 1, 2025, all past due amounts

Thompson shall earn interest at a rate of 5% with interest paid quarterly.

The term of the employment agreement is from July

15, 2020 to December 31, 2025, which is the expected retirement date for Mr.

Following his retirement Mr.

Thompson is eligible

to receive annual compensation to be paid in accordance with our normal payroll practices over a three (3) year term as follows:

$400,000 for 2024;

and $250,000 for 2028.

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.

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

Thompson 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.

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.

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

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,

Thompson will earn $360,000 per year as his base salary.

Thompson is eligible for an annual bonus with respect to each fiscal

year ending during his directorship.

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.

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.

In the event of termination without cause or for good reason, we must

Thompson with thirty (30) days prior written notice and would be required to pay all accrued payments, base salary and $200,000,

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.

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.

target bonus, any annual incentive bonuses, payment of benefits until the earlier of twenty-four (24) 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.

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.

is also eligible to participate in all employee benefit plans, including health insurance, commensurate with his position.

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.

Pursuant to the employment agreement,

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.

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.

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.

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.

Shafer is not entitled to receive any additional compensation upon termination by us for cause or

upon a voluntary termination by Mr.

The employment agreement also contains customary confidentiality provisions and

restrictive covenants prohibiting Mr.

is entitled to the compensation and benefits described above for a period of three (3) months following termination.

In the event of termination

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.

Shafer is not entitled to receive any additional compensation upon termination by us

for cause or upon a voluntary termination by Mr.

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.

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,

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.

also eligible for an annual bonus and annual stock option grants.

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.

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.

Choe is not entitled to receive any additional compensation upon termination by us for cause or upon

voluntary termination by Ms.

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

Retirement and Healthcare Benefits

We have not maintained, and do not currently maintain,

a defined benefit pension plan, nonqualified deferred compensation plan or 401(k) plan.

a defined benefit pension plan or a nonqualified deferred compensation plan.

During 2024 we established a tax qualified 401(k) plan for

our employees, including the named executive officers.

We currently do not contribute to this plan.

Our named executive officers are eligible to participate

in the same medical, life and disability insurance programs and other welfare plans as the rest of our employees.

Potential Payments Upon Termination or Change

As described under “—Employment Agreements”

Cunningham, Mr.

Thompson, Mr.

Shafer, and Ms.

Choe are entitled severance if their employment is terminated without cause.

above, Messrs.

Cunningham, Thompson, and Shafer, are entitled severance if their employment is terminated without cause or for good reason.

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, 2024.

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.

The table below sets forth the compensation paid

to our independent directors during the fiscal year ended December 31, 2024.

Fees Earned or Paid in Cash

Cathy Pennington

(1) The amount is equal to the aggregate grant-date fair value with respect to the awards, computed in accordance

with ASC Topic 718.

Effective as of April 1, 2024, we have entered

into independent director agreements with each of our independent directors, Gillard B.

Johnson, III, Cathy Pennington and L.

pursuant to which we agreed to pay to each independent director (i) an annual fee of $20,000 for the first year of service, which will

increase to $40,000 commencing in the second year of service, which annual fee will be paid quarterly, and (ii) an attendance fee of $2,500

for each in person board meeting attended and $1,000 for each virtual board meeting attended.

Upon appointment, we also issued 10,000

shares of common stock to each independent director and we have also agreed to grant to each independent director 5,000 shares of restricted

stock under our 2024 Equity Incentive Plan for the first year of service and each subsequent year of service, which shares will vest in

four (4) quarterly installments, subject to the director’s continuing service on the board.

To the extent services require out-of-town

travel, we have agreed to reimburse each independent director up to $1,000 per trip.

We also agreed to reimburse each independent director

for pre-approved reasonable business-related expenses incurred in good faith in connection with the performance of the director’s

2024 Equity Incentive Plan

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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.

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.

As of December

31, 2024, pursuant to the Plan, the maximum number of shares of our common stock that could be issued to participants under the Plan was

originally 2,000,000 (subject to adjustment for certain corporate changes affecting the common stock, such as stock splits);

that 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.

On January 1, 2025, the number of shares increased to 2,765,023.

Stock Options .

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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.

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.

Security Ownership of Certain Beneficial Owners

and Management

The following table sets forth certain information

regarding beneficial ownership of our voting stock as of March 12, 2025 by (i) each of our executive officers and directors;

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 outstanding

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

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Shafer, Chief Financial Officer (5)

Zia Choe, Chief Accounting Officer (6)

All executive officers and directors (4 persons)

Johnson, III, Director

Cathy Pennington, Director

Jack Staley, Director

All executive officers and directors (6 persons above)

* 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.

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.

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities.

For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares that such person or any member of such group has the right to acquire within sixty (60) days.

For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within sixty (60) days of March 12, 2025 are deemed to be outstanding for such person, but not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership by any person.

Percentage of total voting stock represents total ownership with respect to all shares of our voting stock, which includes our common stock, series A preferred stock, series B preferred stock, series C preferred stock, series E preferred stock, series I preferred stock and series L preferred stock, voting as a single class.

As of March 12, 2025, there were 15,325,775 shares of common stock, 2 shares of series A preferred stock, 1,269,717 shares of series B preferred stock, 74 shares of series C preferred stock, 175,375 shares of series E preferred stock, 10,466,592 shares of series I preferred stock and 319,493 shares of series L 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 17,355,850 votes as of March 12, 2025).

Each share of series B preferred stock, series C preferred stock, series E 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.

Includes (i) 1,000,337 shares of common stock held directly, (ii) 36,128 shares of common stock held by the 2007 Thompson Family Trust, (iii) 1 share of series A preferred stock held directly, (iv) 375,000 shares of series B preferred stock held directly, (v) 24 shares of series C preferred stock held directly, (vi) 50,000 shares of series E preferred stock held directly and (vii) 4,791,796 shares of series I preferred stock held directly.

Includes (i) 1,022,838 shares of common stock, (ii) 1 share of series A preferred stock, (iii) 375,000 shares of series B preferred stock, (iv) 24 shares of series C preferred stock, (v) 50,000 shares of series E preferred stock and (vi) 5,232,296 shares of series I preferred stock.

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.

Changes in Control

We do not currently have any arrangements which

if consummated may result in a change of control of our company.

Securities Authorized for Issuance Under Equity

Compensation Plans

The following table sets forth certain information

about the securities authorized for issuance under our incentive plans as of December 31, 2024.

Plan Category

Number of securities to be issued upon exercise

of outstanding options, warrants and rights

Weighted-average exercise price of outstanding

options, warrants and rights

Number of securities remaining available for

future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

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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.

As of December 31, 2023, we owed the Chairman $120,997,

which was repaid in full during the year ended December 31, 2024.

Director Independence

We do not have any independent directors within

the meaning of the rules of the Nasdaq Stock Market.

Our board of directors has determined that all

of our directors, other than Messrs.

Thompson and Cunningham, qualify as “independent” directors in accordance with the rules

and regulations of Nasdaq.

PRINCIPAL ACCOUNTING FEES AND SERVICES.

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to us for professional services rendered for the fiscal years ended December 31, 2024 and 2023.

Fees include those paid to Grassi

& Co., CPAs, P.C.

Fees include those paid to GBQ Partners,

LLC and Grassi & Co., CPAs, P.C.

for audit fees.

2 unchanged sentences

All Other Audit Fees

*Certain amounts have been recategorized from

2024 into 2023 in order to reflect the period they relate to.

“Audit Fees” consisted of fees billed

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“Tax Fees” consisted of fees billed

for professional services rendered by the principal accountant for tax returns preparation.

for professional services rendered by our external tax accountant for tax returns preparation.

“All Other Fees” consisted of fees

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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.

Our audit committee charter provides that the

audit committee must pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting

These services may include audit services, audit-related services, tax services and other services.

Pre-approval would generally

be requested annually, with any pre-approval detailed as to the particular service, which must be classified in one of the four categories

of services listed above.

The audit committee may also, on a case-by-case basis, pre-approve particular services that are not contained

in the annual pre-approval request.

In connection with this pre-approval policy, the audit committee also considers whether the categories

of pre-approved services are consistent with the rules on accountant independence of the SEC and the Public Company Accounting Oversight

The audit committee has pre-approved all services performed since our policy on pre-approval of audit and non-audit services was

adopted and pre-approved the audit service performed by GBQ Partners, LLC for our financial statements as of and for the year ended December

EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.

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Report of Independent Registered Public Accounting Firm (PCAOB ID 1808)

Report of Independent Registered Public Accounting Firm (PCAOB ID 606)

Consolidated Balance Sheets as of December 31, 2024 and 2023 (Restated)

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 (restated)

Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023

Consolidated Statements of Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2024 and 2023 (Restated)

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(b) Exhibits:

and Restated Articles of Incorporation Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.1 to

Amendment No.

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)

of Designation of Series A Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.2 to

Amendment No.

Certificate of Amendment to Amended and Restated Articles of Incorporation Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed on May 10, 2024)

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)

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)

Certificate of Correction of Certificate of Designation of Series B Preferred Stock of Cardiff Lexington Corporation

1 to the Registration Statement on Form S-1/A filed on August 3, 2023)

Certificate of Correction of Certificate of Designation of Series B Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.4 to Annual Report on Form 10-K filed on March 27, 2024)

Certificate of Amendment to Certificate of Designation of Series B Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K filed on December 4, 2024)

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)

Certificate of Correction of Certificate of Designation of Series C Preferred Stock of Cardiff Lexington Corporation

1 to the Registration Statement on Form S-1/A filed on August 3, 2023)

Certificate of Correction of Certificate of Designation of Series C Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.6 to Annual Report on Form 10-K filed on March 27, 2024)

Certificate of Amendment to Certificate of Designation of Series C Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.2 to Annual Report on Form 10-K filed on December 4, 2024)

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)

Certificate of Correction of Certificate of Designation of Series E Preferred Stock of Cardiff Lexington Corporation

1 to the Registration Statement on Form S-1/A filed on August 3, 2023)

Certificate of Correction of Certificate of Designation of Series E Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.8 to Annual Report on Form 10-K filed on March 27, 2024)

Certificate of Amendment to Certificate of Designation of Series E Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.3 to Annual Report on Form 10-K filed on December 4, 2024)

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)

Certificate of Correction of Certificate of Designation of Series F-1 Preferred Stock of Cardiff Lexington Corporation

1 to the Registration Statement on Form S-1/A filed on August 3, 2023)

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 Annual Report on Form 10-K filed on March 27, 2024)

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)

Certificate of Correction of Certificate of Designation of Series I Preferred Stock of Cardiff Lexington Corporation

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)

Certificate of Correction of Certificate of Designation of Series J Preferred Stock of Cardiff Lexington Corporation

1 to the Registration Statement on Form S-1/A filed on August 3, 2023)

Certificate of Correction of Certificate of Designation of Series I Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.12 to Annual Report on Form 10-K filed on March 27, 2024)

Certificate of Amendment to Certificate of Designation of Series I Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.4 to Annual Report on Form 10-K filed on December 4, 2024)

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)

Certificate of Correction of Certificate of Designation of Series L Preferred Stock of Cardiff Lexington Corporation

1 to the Registration Statement on Form S-1/A filed on August 3, 2023)

Certificate of Correction of Certificate of Designation of Series L Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.16 to Annual Report on Form 10-K filed on March 27, 2024)

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)

Amended and Restated Certificate of Designation of Series R Convertible Preferred Stock of Cardiff Lexington Corporation

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)

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)

1 to the Registration Statement on Form S-1/A filed on August 3, 2023)

Certificate of Designation of Series Y Senior Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on May 14, 2024)

Certificate of Amendment to Certificate of Designation of Series Y Senior Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.5 to Annual Report on Form 10-K filed on December 4, 2024)

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)

Description of Securities of Cardiff Lexington Corporation

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

Management Agreement, dated June 4, 2021, among by Cardiff Lexington Corporation, Nova Ortho and Spine, LLC and Dr.

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Kevin Fitzgerald (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on June 7, 2021)

Fixed Amount Settlement Promissory Note issued by Cardiff Lexington Corporation to GHS Investments, LLC on June 11, 2024 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on June 11, 2024)

Securities Exchange Agreement, dated May 13, 2024, between Cardiff Lexington Corporation and Leonite Capital LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 14, 2024)

Security and Pledge Agreement, dated May 13, 2024, among Cardiff Lexington Corporation, Nova Ortho and Spine, LLC, Edge View Properties, Inc.

and Leonite Capital LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on May 14, 2024)

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.

1 unchanged sentence

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)

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)

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)

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)

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)

2 unchanged sentences

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)

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)

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)

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)

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)

Convertible Promissory Note issued by Cardiff Lexington Corporation to Greentree Financial Group, Inc.

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on September 12, 2016 (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed on June 6, 2023)

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)

Employment Agreement, dated January 1, 2025, between the Cardiff Lexington Corporation and Alex Cunningham

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)

Addendum to Employment Agreement, dated January 1, 2025, between Cardiff Lexington Corporation and Daniel Thompson

Employment Agreement, dated January 2, 2024, between the Cardiff Lexington Corporation and Matthew T.

Employment Agreement, dated January 2, 2024, between the Cardiff Lexington Corporation and Zia Choe

Shafer (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K filed on March 27, 2024)

Form of Independent Director Agreement between Cardiff Lexington Corporation independent directors (incorporated by reference to Exhibit 10.21 to Amendment No.

3 to the Registration Statement on Form S-1/A filed on April 5, 2024)

Form of Indemnification Agreement between Cardiff Lexington Corporation directors and officers (incorporated by reference to Exhibit 10.22 to Amendment No.

3 to the Registration Statement on Form S-1/A filed on April 5, 2024)

2024 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed on February 6, 2024)

Form of Stock Option Agreement relating to 2024 Equity Incentive Plan

Form of Restricted Stock Award Agreement relating to 2024 Equity Incentive Plan

Form of Restricted Stock Unit Award Agreement relating to 2024 Equity Incentive Plan

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)

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)

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)

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)

Insider Trading Policy

List of Subsidiaries of the registrant

Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Annual Report on Form 10-K filed on March 27, 2024)

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)

Consent of GBQ Partners, LLC

Consent of Grassi & Co., CPAs, P.C.

3 unchanged sentences

Certifications of Principal Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Clawback Policy

Inline XBRL Document Set for the consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K

Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set

Filed herewith

4 unchanged sentences

Report of Independent Registered Public Accounting Firm (PCAOB ID 1808 )

Report of Independent Registered Public Accounting Firm (PCAOB ID 606 )

Consolidated Balance Sheets as of December 31, 2024 and 2023 (Restated)

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 (Restated)

Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023

Consolidated Statements of Stockholders’ Equity (Deficiency) for the Years Ended December 31, 2024 and 2023 (Restated)

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 (Restated)

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

Cardiff Lexington Corporation

Las Vegas, Nevada

Opinion on the Consolidated

Financial Statements

We have audited the accompanying

consolidated balance sheet of Cardiff Lexington Corporation (the “Company”) as of December 31, 2024, the related consolidated

statements of operations, stockholders’ equity (deficiency), and cash flows for the year then ended, 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 at December 31, 2024, and the results of its operations and its cash flows

for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments

to the 2023 information in Note 16 to retrospectively apply the change in accounting (resulting from the adoption of Accounting Standards

Update (ASU) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ), as described in Note 1.

our opinion, such adjustments are appropriate and have been properly applied.

We were not engaged to audit, review, or apply any procedures

to the 2023 consolidated financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express

an opinion or any other form of assurance on the 2023 consolidated financial statements taken as a whole.

Continuation as a Going Concern

The accompanying consolidated

financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in the notes to the consolidated

financial statements, the Company has experienced recurring losses from operations and negative cash flows from operations that raise

substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described

in the notes.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 audit.

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 audit 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 audit 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 audit 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 audit 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 audit provides

a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is

a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated

to the audit committee and that:

(1) relates 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

matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Estimates of Variable Consideration Related to Healthcare Revenue

Description of the Matter

As described in the notes to the consolidated

financial statements, the Company recognizes revenue, net that includes estimates of variable consideration.

For the year ended December

31, 2024, the Company recorded healthcare revenue, net of $8.3 million.

The components of variable consideration include (a) settlement

discounts relative to gross billings for procedures performed, and (b) price concessions to generate settlements and cash inflows.

estimates take into consideration established billing rates (gross charges);

historical collection rates, including established charges

per procedure with guidance from the annually updated Current Procedural Terminology (“CPT”) guidelines that designates relative

value units and a suggested range of charges for each procedure which is then assigned a CPT code, modifiers recognized by each insurance

carrier for services, less deductible, co-pay, and contractual adjustments, as well as current settlement realization rates with payors

based on discussions with doctors and attorneys and the third-party medical billing company vendor.

Auditing management's estimates for variable consideration

required subjective auditor judgment and evaluation of the reasonableness of significant assumptions used in developing the estimates

as detailed above, as well as the inputs and related calculations related to current contracts.

How We Addressed the Matter in Our Audit

We obtained an understanding and evaluated the

design of internal controls over the Company's calculations to estimate variable consideration, including management's assessment of the

assumptions and data underlying the reserve calculation.

Our substantive audit procedures included, among

others, (i) testing management’s process for developing the estimates of variable consideration, (ii) testing the completeness and

accuracy of underlying data used in the method on a sample basis, and (iii) evaluating the reasonableness of management’s significant

assumption related to the period of historical experience.

Evaluating the reasonableness of the assumption related to the period of historical

experience involved considering the historical relationships of revenue recognized and subsequently collected, and whether this assumption

was consistent with evidence obtained in other areas of the audit.

Further, we evaluated the appropriateness of classification and disclosure

of the Company’s reserves for variable consideration in the consolidated financial statements.

/s/ GBQ Partners, LLC

We have served as the Company's auditor since

Columbus, Ohio

March 14, 2025

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Cardiff Lexington Corp and Subsidiaries

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.

Stockholders of Cardiff Lexington Corporation and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying balance sheet

of Cardiff of Lexington Corporation and Subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated

statements of operations, stockholders’ equity (deficiency), and cash flows for the year 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 the results of its operations and

its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States

We were not engaged to audit, review, or apply

any procedures to the adjustments to retrospectively apply the change in accounting due to the adoption of ASU No.

2023-07, Segment

Reporting discussed in Note 16 to the financial statements, and accordingly, we do not express an opinion or any form of assurance

about whether such adjustments are appropriate or properly applied.

The adjustments were audited by other auditors.

Restatement of Financial Statements

42 unchanged sentences

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

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.

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.

/s/ Grassi & Co., CPAs, P.C.

We have served as the Company’s auditor from 2022 until 2024.

Jericho, New York

March 27, 2024

March 27, 2024, except for Notes 1, 2 and 17, as to which date is July

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

6 unchanged sentences

Property and equipment, net

Right of use - assets

Right of use – assets, net

Due from related party

LIABILITIES, MEZZANINE EQUITY AND DEFICIENCY IN STOCKHOLDERS' EQUITY

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

Current liabilities

2 unchanged sentences

Accrued interest

Right of use - liabilities

Right of use – lease liabilities

Due to director and officer

Notes payable

Notes payable – current portion

Line of credit

Convertible notes payable, net of debt discounts of $ 0 and $ 24,821 , respectively

6 unchanged sentences

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

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

Redeemable Series N Senior Convertible Preferred Stock - 3,000,000

shares authorized, $0.001 par value, stated value $ 4.00 , 921,636

shares issued and outstanding at December 31, 2024 and 2023, respectively

Redeemable Series R Senior Convertible Preferred Stock - 5,000 shares authorized, $0.001 par value, stated value of $ 1,200 , 0 and 165 shares issued and outstanding at December 31, 2024 and 2023, respectively

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

397,464 and 375,000 shares issued and outstanding at December 31, 2024 and 2023

Total Mezzanine Equity

Stockholders' equity (deficit)

Stockholders' equity

Series B Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value of $ 4.00 , 1,279,867 and 2,139,478 shares issued and outstanding at December 31, 2024 and 2023, respectively

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

Series C Preferred Stock - 500 shares authorized, $0.001 par value, stated value of $ 4.00 , 74 and 123 shares issued and outstanding at December 31, 2024 and 2023, respectively

Series E Preferred Stock - 1,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 175,375 and 155,750 shares issued and outstanding at December 31, 2024 and 2023, respectively

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

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

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

Series F-1 Preferred Stock - 50,000 shares authorized, $0.001 par value, stated value $ 4.00 , 3,875 and 35,752 shares issued and outstanding at December 31, 2024 and 2023, respectively

Series I Preferred Stock - 15,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 10,469,092 and 14,885,000 issued and outstanding at December 31, 2024 and 2023, respectively

Series J Preferred Stock - 2,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 0 and 1,713,584 shares issued and outstanding at December 31, 2024 and 2023, respectively

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, 2024 and 2023

Series Y Senior Convertible Preferred Stock – 1,250,000 shares authorized, $0.001 par value, stated value $ 4.00 , 979,125 and 0 shares issued and outstanding at December 31, 2024 and 2023, respectively

Common Stock;

3 unchanged sentences

( 7,581,212 )

( 8,581,265 )

Accumulated deficit

1 unchanged sentence

( 68,684,115 )

Total stockholders' equity (deficit)

( 1,744,791 )

Total stockholders' equity

Total liabilities, mezzanine equity and stockholders' equity

4 unchanged sentences

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Total revenue

COST OF SALES

Total cost of sales

OPERATING EXPENSES

Depreciation expense

Share based compensation

Selling, general and administrative

Total operating expenses

INCOME FROM CONTINUING OPERATIONS

OTHER INCOME (EXPENSE)

(LOSS) INCOME FROM CONTINUING OPERATIONS

OTHER (EXPENSE) INCOME

Other expense

Gain on debt refinance and forgiveness

Penalties and fees

( 2,063,916 )

Interest expense

1 unchanged sentence

( 1,956,266 )

Amortization of debt discounts

Amortization of notes payable discount

Total other expenses

1 unchanged sentence

( 2,080,131 )

NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS

( 3,250,638 )

LOSS FROM DISCONTINUED OPERATIONS

NET (LOSS) INCOME BEFORE DISCONTINUED OPERATIONS

( 3,191,687 )

LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS

LOSS FROM DISCONTINUED OPERATIONS

( 2,178,883 )

NET INCOME (LOSS) FOR THE YEAR

NET (LOSS) INCOME FOR THE YEAR

$ ( 3,302,999 )

PREFERRED STOCK DIVIDENDS

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

$ ( 4,265,168 )

BASIC EARNINGS (LOSS) PER SHARE

BASIC (LOSS) EARNINGS PER SHARE

CONTINUING OPERATIONS

DISCONTINUED OPERATIONS

DILUTED EARNINGS (LOSS) PER SHARE

DILUTED (LOSS) EARNINGS PER SHARE

CONTINUING OPERATIONS

2 unchanged sentences

WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED

The accompanying notes are an integral part of

these consolidated financial statements

Shares outstanding for prior periods have been restated for the

1-for-75,000 reverse stock split effective January 9, 2024.

The accompanying notes are an integral part

of these consolidated financial statement

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

2 unchanged sentences

FOR THE YEARS ENDED DECEMBER 31, 2024 AND

Preferred Stock Series

B, E, F-1,J, and L

2023 (RESTATED)

Preferred Stock

Treasury Stock

Series A, I and Y

Preferred Stock

Series B, E, F-1, J and L

Preferred Stock Series C

Additional Paid-In

Total Stockholders’

Balance, December 31, 2022 (Restated)

$ ( 7,756,488 )

Issuance of series B preferred stock for contribution

Issuance of series B preferred stock in exchange of series D preferred stock and series H preferred stock

Cancellation of common stock

Cancellation of series D preferred stock

Cancellation of series H preferred stock

Cancellation of series K preferred stock

$ ( 70,932,435 )

Issuance of series B preferred stock for settlement of employment

Issuance of series B preferred stock in exchange for series F

Cancellation of series F preferred stock

Issuance of series J preferred stock

Issuance of common stock for settlement of Red Rock Travel

Reclassification for cancelled shares

Accrued preferred stock dividends

Balance, December 31, 2022 (Restated)

$ ( 1,744,791 )

Issuance of preferred stock series B

Issuance of preferred stock series E

Conversion of convertible notes payable

Accrued preferred stock dividends

Issuance of series B preferred stock

Issuance of series E preferred stock

Balance, December 31, 2023

The accompanying notes are an integral part of

these consolidated financial statements

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIENCY) (continued)

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Additional Paid-in

Total Stockholders’

Preferred stock Dividends

Balance, December 31, 2023 (restated)

1 unchanged sentence

$ ( 68,684,115 )

Issuance of series B preferred stock for contribution

Issuance of series B preferred stock in exchange of series D preferred stock and series H preferred stock

Cancellation of common stock

Cancellation of series D preferred stock

Cancellation of series H preferred stock

Cancellation of series K preferred stock

Issuance of series B preferred stock for settlement of employment

Issuance of series B preferred stock in exchange for series F

Cancellation of series F preferred stock

Issuance of series J preferred stock

Issuance of common stock for settlement of Red Rock Travel

Reclassification for cancelled shares

Conversion of convertible notes payable

Conversion of series B preferred stock

( 1,609,611 )

Accrued preferred stock dividends

( 6,438,444 )

Conversion of series C preferred stock

Conversion of series E preferred stock

Conversion of series F-1 preferred stock

Conversion of series I preferred stock

( 3,527,000 )

Balance, December 31, 2022 (Restated)

( 14,108,000 )

Conversion of series J preferred stock

( 1,713,584 )

( 6,854,336 )

Conversion of convertible notes payable

Accrued preferred stock dividends

Issuance of series B preferred stock

Issuance of series E preferred stock

Balance, December 31, 2023

Issuance of series I preferred stock to officers

Issuance of series Y preferred stock

Exchange of series I for series B, C and E

( 1,021,408 )

( 4,085,632 )

Cancellation of series C preferred stock

Common stock issued for services

Common stock issued to board members

Common stock issued in Red Rock settlement

Common stock issued in legal settlement

Preferred stock Dividends

( 3,302,999 )

Balance, December 31, 2024

$ ( 72,949,085 )

The accompanying notes are an integral part of

4 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss) from continuing operations

Net (loss) income from continuing operations

$ ( 3,302,999 )

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of debt discount

Adjustments to reconcile net (loss)

income to net cash used in operating activities:

Change in estimate for settlement realization rate

Amortization of notes payable discount

Conversion and note issuance cost

Share issuance for compensation to directors and officers

Share issuance for service rendered

Other (income) or loss

Goodwill impairment

Loss on finance penalties and fees

Gain on refinance of debt

( 1,397,271 )

Gain on forgiveness of debt

Gain on settlement or forgiveness of debt

(Increase) decrease in:

1 unchanged sentence

( 4,545,068 )

( 6,833,615 )

Right of use – assets

2 unchanged sentences

Accounts payable and accrued expense

Due to related party

Accrued officers compensation

5 unchanged sentences

Net cash used in Discontinued Operations – Operating

Net cash used in operating activities

( 1,721,467 )

( 1,150,677 )

FINANCING ACTIVITIES

1 unchanged sentence

Proceeds from convertible notes payable

Payments of convertible notes payable

Repayment of SBA loans

Proceeds from line of credit

Repayment of line of credit

Repayment to convertible notes payable

Dividend on preferred stock

Issuance of preferred stock

Payments of notes payable

Net proceeds from line of credit

Payment of dividend on preferred

Net cash provided by financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS, END OF YEAR

NET INCREASE IN CASH

CASH, BEGINNING OF YEAR

CASH, END OF YEAR

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for Interest

Cash paid during the year for

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Common stock issued upon conversion of notes payable

Preferred stock issued for business acquisition

Preferred stock issued upon exchange of defaulted convertible notes payable

Common stock issued upon conversion

of notes payable

Common stock issued upon conversion

of preferred stock

Series Y preferred stock issued

in exchange of convertible notes payable

Accrued dividends on series

Y preferred stock

Promissory note payable issued

in settlement agreement

Right of use assets acquired

The accompanying notes are an integral part of

15 unchanged sentences

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;

All of Cardiff’s operations are predominantly conducted through, and its income derived from, its Nova Ortho and Spine, LLC (“Nova”)

Its subsidiaries include:

Nova, which was acquired on May 31, 2021;

Edge View Properties, Inc.

1 unchanged sentence

Platinum Tax Defenders (“Platinum Tax”), which was acquired on July 31, 2018 and sold on November 10, 2023.

· Nova Ortho and Spine, LLC (“Nova”), which was acquired on May 31, 2021.

As a result, Platinum Tax is presented as a discontinued operation.

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.

the accounts of Cardiff and its wholly owned subsidiaries, Nova, Edge View, and Platinum Tax (collectively, the “Company”).

Subsidiaries shown as discontinued operations include Platinum Tax.

All significant intercompany accounts and transactions are eliminated

in consolidation.

Certain amounts and items have been reclassified in the prior year presentation in the consolidated financial statements

to conform to the current presentation in these financial statements.

Reverse Stock Split

On January 9, 2024, the Company effected a 1-for-75,000

reverse split of its outstanding common stock.

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

8 unchanged sentences

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.”

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

was reclassified from “common stock” to “additional paid-in capital.” See Note 2.

Revised Financial Statements.

Use of Estimates

5 unchanged sentences

Accordingly, actual results could differ from those estimates.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Accounts Receivable

The Company 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 subsidiaries in their normal course of business.

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.

Accounts receivable consists of amounts due from attorneys

and insurance providers for services provided to patients under the letter of protection.

Accounts receivable are recorded at the expected

settlement realization amount, which is less contractual adjustments and an allowance for credit losses.

The Company recognizes an allowance

for credit losses for its accounts receivable to present the net amount expected to be collected as of the balance sheet date.

This allowance

is determined based on the history of net settlements received, where the net settlement amount is not collected.

No collection can happen

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.

The Company monitors outstanding cases as they develop through ongoing discussions with attorneys, doctors and third-party medical billing

company and additionally monitors settlement realization rates over time.

Additionally, the Company considers economic factors and events

or trends expected to affect future collections experience.

The no collection history of the Company’s customers is considered in

future assessments of collectability as these patterns are established over a longer period.

The Company uses the term collection and

collection rate in its disclosures to describe the historical less than 1% occurrence of not collecting under a contract, which aligns

with the Company’s credit loss accounting under ASC 326.

The Company does not have a significant exposure

to credit losses as it has historically had a less than 1.0% loss rate where the Company received no settlement amount for its outstanding

accounts receivable.

Although possible, claims resulting in zero collection upon settlement are rare based on the Company’s historical

experience and has historically been less than 1.0% of its outstanding accounts receivable, thereby resulting in a collection rate of

The Company uses the loss rate method to record its allowance for credit losses.

The Company applies the loss rate method by reviewing

its zero collection history on a quarterly basis and updating its estimates of credit losses to adjust for changes in loss data.

typically collects on its accounts receivable between eighteen and twenty-four months after recording.

The Company does not record an

allowance for credit losses based on an aging of its accounts receivable as the aging of the Company’s receivables do not influence

the credit loss rate due to the nature of its business and the letter of protection.

The Company does not adjust its receivables for the

effects of a significant financing component at contract inception as the timing of variable consideration is determined by the settlement,

which is outside of the Company’s control.

As of December 31, 2024 and 2023, the Company’s allowance for credit losses

was $ 255,215 and $ 122,190 , respectively.

The Company recognized $ 266,000 and $ 132,281 of credit loss expense during the years ended December

31, 2024 and 2023, respectively, which is included in selling, general and administrative expenses in the condensed consolidated statement

of operations.

The balance of accounts receivable, net as of January 1, 2023 was $ 6,603,920 .

The balance of the allowance for credit losses

was $ 0 as of January 1, 2023.

Property and Equipment

10 unchanged sentences

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

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

The Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value

and other factors.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2024 AND 2023

Goodwill is not amortized but is evaluated for

impairment annually or when indicators of a potential impairment are present.

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.

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 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 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 years ended December 31, 2024 and 2023, the Company determined there to be no impairment.

Company based this decision on impairment testing of the underlying assets, expected cash flows, decreased asset value and other factors.

Valuation of Long-lived Assets

12 unchanged sentences

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:

at a point in time in accordance with ASC 606 and at an estimated net settlement realization rate based on gross billed charges.

The Company’s

healthcare subsidiary does not have contract liabilities or deferred revenue as there are no amounts prepaid for services.

applies the following five-step ASC 606 model to determine revenue recognition:

Identification of a contract with a customer

3 unchanged sentences

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)

At contract inception, 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 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 net revenue

when the patient receives orthopedic care services.

4 unchanged sentences

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.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2024 AND 2023

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

The Company is typically paid 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

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

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.

In determining net revenue to record under ASC

606, the Company must estimate the transaction price, including estimates of variable consideration in the contract at inception.

to estimate variable consideration, the Company uses established billings rates (also described as “gross charges”) for the

procedures being performed, however, the billing rates are not the same as actual amounts recovered for the Company’s healthcare

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 Current Procedural Terminology (“CPT”) guidelines that designates

relative value units and a suggested range of charges for each procedure which is then assigned a CPT code.

This gross charge 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.

These adjustments are considered variable consideration under

ASC 606 and are deducted from the calculated fee to arrive at the net transaction price.

The Company also estimates changes in the contract

price as a result of price concessions, changes to deductibles, co-pays and other contractual adjustments to determine the eventual settlement

amount the Company expects to receive.

The Company uses the term settlement realization in its disclosures to describe the amount of cash

the Company expects to receive based on its estimate of the transaction price under the expected value method of ASC 606.

Where appropriate, the Company utilizes the expected

value method to determine the appropriate amount for estimates of variable consideration, which has been based on a historical 24-month

lookback of its actual settlement realization rates.

The estimates of reserves established for variable consideration reflect current

contractual requirements, the Company’s historical experience, specific known market events and trends, industry data and forecasted

patient data and settlement patterns.

Settlement realization patterns are assessed based on actual settlements and based on expected settlement

realization trends obtained from discussions with attorneys, doctors and our third-party medical billing company.

Settlement amounts are

negotiated, and prolonged settlement negotiations are not indicative of a greater likelihood of reduced settlement realization or zero

The Company may accept a lower settlement realization

rate in order to receive faster payment.

The Company obtains information about expected settlement realization trends from discussions

with doctors and attorneys and its third-party medical billing company vendor, which handles settlement claims and negotiations.

amounts are presented to the Company’s third-party medical billing company vendor.

Settlement rates of 49% or higher based on gross

billed amounts are typically accepted without further negotiation.

Proposed settlement rates below 49% are negotiated when possible and

longer negotiations typically result in higher settlement rates.

If the Company accepts a lower settlement realization rate in order to

receive payments more quickly, the Company considers that a price concession and estimates these concessions at contract inception.

various forms of variable consideration described above included in the transaction price may be constrained and are included in net revenue

only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in

a future period.

The Company has not constrained any of its estimates of variable consideration for any of the periods presented.

Service Fees – Net (PIP)

2 unchanged sentences

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

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.

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

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.

Non Personal Injury Protection (“PIP”) services.

As described above, 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 and other adjustments based on its historical settlement realization 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.

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.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2024 AND 2023

The Company satisfies performance obligations

as services are performed and then billed to the patient.

Payment in most cases is made by an attorney for such services to our patients

which are due upon final settlement of patients claims.

During the claims process, legal counsel warranties such claim through the letter

of protection, which is sent 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.

Settlement Rates

Prior to fiscal year 2024, the Company historically

realized a 49% settlement rate from total gross billed charges.

Accordingly, the Company had historically recognized net healthcare service

revenue as 49% of gross billed amounts.

During the year ended December 31, 2024, the Company underwent efforts to accelerate cash settlement

of its accounts receivable to generate cash flow for operations.

The Company did this by shortening its settlement negotiations with insurance

companies and accepting lower settlement amounts.

Additionally, during the third quarter of 2024, the Company completed a thorough review

of its third-party billing data, including reviewing historical reports and new reporting methods as a part of its updated analysis.

upon this review, it was determined that a 24-month lookback period should be used in the analysis of the Company’s historical settlement

realization rates.

As a result of the new efforts to accelerate cash settlement during the year ended December 31, 2024, the Company realized

a 44% average settlement rate of its gross billed charges during this time frame, which were historically recorded in accounts receivable

and revenue at 49% of gross billings.

Accordingly, the Company recorded reductions to net revenue of $ 1,005,764 for the year ended December

Additionally, with the reduction in the Company’s estimate of its settlement realization rate from 49% to 44%, a $ 1,650,474

change in accounting estimate was taken during the third quarter of 2024 in the Company’s accounts receivable and revenue.

will continue to evaluate its estimate of its settlement realization rates in the future, which will include a monthly review of the Company’s

trailing 24-month historical settlement realization rate, along with estimates of current and pending settlements through ongoing discussions

with attorneys, doctors and the Company’s third-party medical billing company in order to determine its variable consideration under

ASC 606 and the net transaction price.

The Company will update its settlement realization rate estimate used in determining its accounts

receivable and revenue each quarter based on this review.

Contract Fees (Non-PIP)

The Company has contract fees for amounts earned

from its Non PIP related procedures, typically car accidents, and are settled on a contingency basis.

Prior to April 2023, these cases

were sold to a factor who bears the risk of economic benefit or loss.

Generally, the sale of these cases to a third-party factor resulted

in an approximate 54% reduction from the accounts receivables amounts.

After selling patient cases to the factor, any additional funds

settled by the Company were remitted to the factor.

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.

As a result of the Company’s eighteen to twenty-four month settlement

realization timeframe, the Company has an accrued liability resulting from the settlement of receivables sold to the third-party factors

which fluctuates as settlements are made and remitted to those third-party factors.

These accounts receivables sold to these third-party

factors are not included in the Company’s financial statements accounts receivable balance once sold and therefore are not part

of the assessment of the net realizable value of accounts receivable.

For the year ended December 31, 2023, the Company factored a total

of $ 544,196 of its accounts receivable in exchange for cash of $ 253,750 .

The Company ceased factoring of accounts receivable in the first

quarter of 2023.

Advertising Costs

Advertising costs are expensed as incurred.

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.

costs are included as a component of cost of sales in the consolidated statements of operations.

The Company recognized advertising and

marketing expense of $ 366,637 and $ 126,670 for the years ended December 31, 2024 and 2023, respectively.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Fair Value Measurements

11 unchanged sentences

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

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.

inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement

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.

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

14 unchanged sentences

that performance will occur.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Generally, all forms of share-based payments,

11 unchanged sentences

in tax rates is recognized in income in the period that includes the enactment date.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

ASC 740 prescribes a comprehensive model for how

7 unchanged sentences

For the years ended December 31, 2024 and 2023,

the Company did not have any interest and penalties associated with tax positions and did no t have any significant unrecognized uncertain

the Company did no t have any interest and penalties associated with tax positions and did not have any significant unrecognized uncertain

tax positions.

7 unchanged sentences

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.

Income available to common stockholders consists of net (loss) income

less any preferred stock dividends.

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

4 unchanged sentences

has an accumulated deficit of $ 72,949,085 and $ 68,684,115 , respectively, as of December 31, 2024 and 2023.

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.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

The Company had negative cash

flow from operations of $ 5,858,147 and $ 1,807,987 during the years ended December 31, 2024 and 2023, respectively.

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.

The ability of the Company to continue as a going

10 unchanged sentences

funds, it may cause cessation of operations.

Recent Accounting Standards

The FASB issued ASU 2023-07 on November

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

Recently Adopted Accounting Standards

The FASB issued Accounting Standards Update (“ASU”)

2023-07, “Segment Reporting:

Improvements to Reportable Segment Disclosures” (“Topic 280”) in November 2023.

amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December

15, 2024, with early adoption permitted.

Topic 280 improves “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.

RESTATEMENT AND REVISION OF FINANCIAL STATEMENTS

Restatement of Previously Issued Financial Statements

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:

Consolidated balance sheet

Schedule of restated financial information

Impact of correction of error

December 31, 2021

As previously reported

Total liabilities

Mezzanine equity

Total stockholders' equity

$ ( 245,520 )

The purpose of the amendments is to enable “investors

to better understand an entity’s overall performance” and assess “potential future cash flows.” There were no

material impacts on the consolidated financial statements at adoption.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2024 AND 2023

Impact of correction of error

The FASB issued ASU 2020-06, “Debt—Debt

with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic

81540).” The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity.

amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within that period.

The FASB also specified

that an entity must adopt the guidance as of the beginning of its annual fiscal year and is not permitted to adopt the guidance in an

interim period, other than the first interim period of their fiscal year.

ASU 2020-06 reduces the number of accounting models for convertible

debt and convertible preferred stock instruments and makes certain disclosure amendments to improve the information provided to users.

There was no impact to the consolidated financial statements at adoption.

RESTATED PAST FINANCIAL STATEMENTS

During the preparation of the financial statements

for the three months ended March 31, 2024, the Company identified and revised its classification for all its outstanding common stock

amount per par value of $ 0.001 with additional paid-in-capital related with a 1-for-75,000 reverse split executed on January 9, 2024.

The impact of this adjustment decreased $ 1,804,774 to common stock and offsetting increase to additional paid-in-capital as of December

Additionally, the Company identified and revised its series B and series C preferred stock values which increased its preferred

stock by $ 20,004 and decreased additional paid-in-capital by the same amount as of December 31, 2023.

The following tables summarize the impact of the

corrections on the Company’s condensed consolidated balance sheet as of December 31, 2023:

Consolidated balance sheet

Schedule of consolidated balance sheet

Impact of revision

December 31, 2023

As previously reported

Total liabilities

Mezzanine equity

Total stockholders' equity

$ ( 1,469,809 )

$ ( 274,982 )

$ ( 1,744,791 )

Impact of correction of error

March 31, 2023

As previously reported

Total liabilities

Mezzanine equity

Total stockholders' equity

$ ( 1,632,373 )

$ ( 283,118 )

$ ( 1,915,491 )

Impact of correction of error

June 30, 2023

As previously reported

Total liabilities

Mezzanine equity

Total stockholders' equity

Preferred stock

( 1,804,774 )

Additional paid-in-capital

( 9,365,982 )

( 7,581,212 )

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

Total liabilities

Mezzanine equity

Total stockholders' equity

$ ( 299,662 )

Consolidated statement of operations

Impact of correction of error

Year ended December 31, 2021

As previously reported

Net income for the year

Preferred stock dividends

$ ( 201,782 )

$ ( 249,302 )

Net income attributable to common shareholders

Basic and diluted earnings (loss) per share for continuing operations

Impact of correction of error

Year ended December 31, 2022

As previously reported

Net loss for the year

$ ( 5,429,521 )

Preferred stock dividends

$ ( 307,188 )

$ ( 384,170 )

Net loss attributable to common shareholders

$ ( 5,736,709 )

$ ( 5,813,691 )

Basic and diluted earnings (loss) per share for continuing operations

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

Net loss for the period

Preferred stock dividends

$ ( 336,811 )

$ ( 344,947 )

Net loss attributable to common shareholders

$ ( 352,802 )

$ ( 360,938 )

Basic and diluted earnings (loss) per share for continuing operations

Impact of correction of error

Three months ended June 30, 2023

As previously reported

Net income for the period

Preferred stock dividends

$ ( 125,744 )

$ ( 133,971 )

Net income attributable to common shareholders

Basic earnings per share for continuing operations

Diluted earnings per share for continuing operations

Impact of correction of error

Six months ended June 30, 2023

As previously reported

Net income for the period

Preferred stock dividends

$ ( 462,555 )

$ ( 478,918 )

Net income attributable to common shareholders

Basic earnings per share for continuing operations

Diluted earnings per share for continuing operations

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

Net income for the period

Preferred stock dividends

$ ( 142,829 )

$ ( 151,146 )

Net income attributable to common shareholders

Basic earnings per share for continuing operations

Diluted earnings per share for continuing operations

Impact of correction of error

Nine months ended September 30, 2023

As previously reported

Net income for the year

Preferred stock dividends

$ ( 605,384 )

$ ( 630,065 )

Net income attributable to common shareholders

Basic earnings per share for continuing operations

Diluted earnings per share for continuing operations

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

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.

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.

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.

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).

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

Bad debt expense is now disclosed as a separate line on the consolidated statements of cash flows.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

2 unchanged sentences

Accrued credit cards

Accrued liability for collections of previously factored receivables

Accrued property taxes

Accrued liability for settlement of previously factored receivables

Accrued income and property taxes

Accrued professional fees

Accrued payroll

Accrue expense - other

Accrued board fees

Accrued expense - dividend payable

The Company is delinquent paying certain property

As of December 31, 2023 and 2022, the balance for these property taxes, was $ 5,346 and $ 6,732 , respectively.

Accrued public company fees

Accrued payroll and bonuses

Accrue expense - other

At December 31, 2023, the Company was delinquent

in paying $ 1,659 in certain property taxes.

As of December 31, 2024, these property taxes have been paid.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

PLANT AND EQUIPMENT, NET

10 unchanged sentences

depreciation expense was $ 13,461 and $ 20,777 , respectively.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

As of December 31, 2024 and 2023, the Company

11 unchanged sentences

$ 0 and $ 120,997 , respectively.

See also Note 8 and the disclosure regarding Note

See also Note 13 for compensation paid to employees

of the Company.

See also Note 9.

Capital Stock .

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.

rate of interest is 10% per annum.

rate of interest was 10% per annum.

In August of 2024, the remaining outstanding principal and interest of $ 5,501 was paid in full.

CAPITAL STOCK

On May 8, 2024, the Company amended its Articles

of Incorporation to increase its authorized stock.

The total amended authorized shares are 350,000,000 shares of capital stock, consisting

of 300,000,000 shares of common stock, $ 0.001 par value, and 50,000,000 shares of preferred stock, $ 0.001 par value per share.

Preferred Stock

3 unchanged sentences

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.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

N senior convertible preferred stock, 5,000 shares of series R convertible preferred stock, 5,000,000 shares of series X senior convertible

preferred stock and 1,250,000 shares of series Y senior convertible preferred stock.

The following is a description of the rights and

1 unchanged sentence

Redeemable Preferred Stock

The Company recognized the series N senior convertible

The Company recognizes the series N senior convertible

preferred stock, series R convertible preferred stock and series X senior convertible preferred stock as mezzanine equity in accordance

12 unchanged sentences

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 .

would increase by 8% per annum.

Dividends accrued from day to day, whether or not declared, and are cumulative.

Dividends are payable

quarterly in arrears on each dividend payment date in cash or common stock at the Company’s discretion.

Dividends payable in common

stock are to 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, 2024 and December 31, 2023, cumulative dividends earned on the series N senior convertible preferred

stock were $ 1,320,879 and $ 766,437 , respectively.

During the year ended December 31, 2024, $ 1,106,562 of the cumulative accrued dividends

were paid by the Company via the issuance of 197,601 shares of the Company’s common stock and $ 214,317 of the cumulative accrued

dividends were paid by the Company via the issuance of 53,580 shares of the Company’s series N senior convertible preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Liquidation Rights.

2 unchanged sentences

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.

or surplus) are to 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 is 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 .

4 unchanged sentences

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

class, is 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.

provided that the foregoing does not apply to any financing transaction the use of proceeds

of which would be used to redeem the series N senior convertible preferred stock and the warrants issued in connection therewith.

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.

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

Each share of series

N senior convertible preferred stock, plus all accrued and unpaid dividends thereon, are 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

5 unchanged sentences

made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock.

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’

limitation can 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.

9 unchanged sentences

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

stock ranked, 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

6 unchanged sentences

preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

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

R convertible preferred stock were 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 were 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 .

Any dividends that were not paid when due were to continue to accrue and entailed 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 was to accrue and compound daily from the missed payment

date through and including the date of actual payment in full.

At December 31, 2024 and December 31, 2023, cumulative dividends on Series

R Preferred Stock were $ 0 and $ 109,980 , respectively.

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.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series R convertible preferred stock were 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.

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

convertible preferred stock voted together with the common stock on an as-converted basis.

However, as long as any shares of series R

convertible preferred stock were 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,

6 unchanged sentences

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

Each share of series

R convertible preferred stock was 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.

4 unchanged sentences

The conversion

price is subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately

price was 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.

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.

for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the holder could have elected,

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

exceptions, upon a Subsequent Financing, a holder of at least 100 shares of series R convertible preferred stock were to 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

1 unchanged sentence

Company Redemption Rights .

has the right to redeem all (but not less than all), shares of the series R convertible preferred stock issued and outstanding at any

had 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

11 unchanged sentences

Redemption Upon Triggering Events .

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 occurrence of a Triggering Event (as defined below), each holder of series R convertible preferred stock had (in addition to all other

rights it may 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);

there shall have occurred a Bankruptcy Event (as defined in the certificate of designation);

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).

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2024 AND 2023

· 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

11 unchanged sentences

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 .

was to increase by 5% per annum.

Dividends accrue from day to day, whether or not declared, and are cumulative.

Dividends are payable

quarterly in arrears on each dividend payment date.

At December 31, 2024 and December 31, 2023, cumulative dividends earned on the series

X senior convertible preferred stock were $ 273,058 and $ 190,685 , respectively.

During the year ended December 31, 2024, $ 183,210 of the

cumulative accrued dividends were paid by the Company via the issuance of 25,173 shares of the Company’s common stock, $ 76,788 of

the cumulative accrued dividends were paid by the Company via the issuance of 22,464 shares of the Company’s series X senior convertible

preferred stock.

Liquidation Rights.

2 unchanged sentences

(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

or distribution of the assets of the Company (whether capital or surplus) are to 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.

stock is 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

Voting Rights .

4 unchanged sentences

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

is 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 does not apply to any financing transaction the use of proceeds of which were to be used to redeem the series

X senior convertible preferred stock and the warrants issued in connection therewith.

2 unchanged sentences

senior securities.

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

Each share of series

X senior convertible preferred stock, plus all accrued and unpaid dividends thereon, are 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

12 unchanged sentences

upon not less than sixty-one (61) days’ prior notice to the Company.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Redemption Rights .

31 unchanged sentences

from any such liquidation, dissolution or winding up, the holders shall not participate with the common stock or any other class of stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Voting Rights .

16 unchanged sentences

stock do not have any conversion (except as set forth above) or redemption rights.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Series B Preferred Stock

32 unchanged sentences

that adversely affects any rights of the holders of series B preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Conversion Rights .

18 unchanged sentences

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).

of any stock splits, stock combinations, stock dividends, stock reclassifications and similar events.

Redemption Rights .

1 unchanged sentence

preferred stock do not have any redemption rights.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Series C Preferred Stock

32 unchanged sentences

that adversely affects any rights of the holders of series C preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Conversion Rights .

17 unchanged sentences

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).

price is subject to standard adjustments in the event of any stock splits, stock combinations, stock dividends, stock reclassifications

and similar events.

Redemption Rights .

1 unchanged sentence

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

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Series E Preferred Stock

32 unchanged sentences

that adversely affects any rights of the holders of series E preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Conversion Rights .

18 unchanged sentences

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).

of any stock splits, stock combinations, stock dividends, stock reclassifications and similar events.

Series F-1 Preferred Stock

9 unchanged sentences

as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Dividend Rights.

18 unchanged sentences

other charter documents in any manner that adversely affects any rights of the holders of series F-1 preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Conversion Rights .

39 unchanged sentences

paid on shares of series I preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Liquidation Rights .

15 unchanged sentences

that adversely affects any rights of the holders of series I preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Conversion Rights .

18 unchanged sentences

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).

of any stock splits, stock combinations, stock dividends, stock reclassifications and similar events.

Redemption Rights .

24 unchanged sentences

J preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Voting Rights .

9 unchanged sentences

that adversely affects any rights of the holders of series J preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Conversion Rights .

45 unchanged sentences

L preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Voting Rights .

9 unchanged sentences

that adversely affects any rights of the holders of series L preferred stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Conversion Rights .

22 unchanged sentences

preferred stock do not have any redemption rights.

Series Y Senior Preferred Stock

The series Y 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 series of preferred stock, and to each other class or series that is not expressly made senior to or on parity with the

series Y senior convertible preferred stock;

(ii) on parity with each class or series that is not expressly subordinated or made senior

to the series Y senior convertible preferred stock;

and (iii) junior to each class or series that is expressly made senior to the series

Y senior convertible preferred stock.

Dividend Rights.

Holders of series Y 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 Y 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 and may be paid in cash or common stock at our discretion;

provided that

the Company may only pay dividends in common stock if such common stock is free-trading, freely transferable, and does not contain a legend

(or be subject to stop transfer or similar instructions) restricting the resale or transferability thereof.

Dividends payable in common

stock shall be calculated based on a price equal to eighty percent (80%) of the VWAP during the five (5) trading days immediately prior

to the applicable payment date.

At December 31, 2024, cumulative dividends earned on the series Y senior convertible preferred stock were

During the year ended December 31, 2024, $ 147,555 of the cumulative accrued dividends was paid by the Company via the issuance

of 12,135 shares of the Company’s common stock and 40,217 shares of the Company’s series Y senior convertible preferred stock.

At December 31, 2024, the total dividends payable was $ 32,190 .

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

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 event (as defined in the certificate of designation), 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 Y senior convertible preferred stock shall be entitled to receive an amount

of cash equal to the greater of (i) 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 or (ii) such

amount per share as would have been payable had all shares of series Y senior convertible preferred stock been converted into common stock

immediately prior to such liquidation event.

Voting Rights .

Holders of series Y senior

convertible preferred stock do not have any voting rights;

provided that, so long as any shares of series Y senior convertible preferred

stock are outstanding, the affirmative vote of holders of a majority of the series Y senior convertible preferred stock, which majority

must include Leonite Capital LLC so long as it holds any shares of series Y 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, prior to the Company’s issuance of additional shares of series Y senior convertible preferred stock or prior to

the creation or issuance of any securities that are not subordinate to the series Y senior convertible preferred stock 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 Y senior convertible preferred stock in full.

Conversion Rights .

Commencing on the first

anniversary of the date on which the Company’s common stock begins trading on the Nasdaq Stock Market, each share of series Y 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 lowest

VWAP during the five (5) trading days immediately prior to the applicable conversion date.

Such conversion price is subject to adjustment

if the Company issues common stock at a price lower than such conversion price, subject to certain exceptions.

Notwithstanding the foregoing,

in no event shall the holder of any series Y 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 Y 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.

Preferred Stock Transactions

1 unchanged sentence

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 .

On January 19, 2024, the Company issued 62,500 shares of series I preferred stock to each of Daniel R.

Thompson, the Chairman of the Board, and Alex Cunningham, the Company’s Chief Executive Officer, for $ 250,000 bonus compensation for the fiscal year of 2023, at the fair value of $4.48 per share.

On January 31, 2024, the Company issued 5,000 shares of series I preferred stock to Matthew Shafer, the Company’s Chief Financial Officer, for $ 20,000 , at the fair value of $4.48 per share.

On January 31, 2024, the Company issued 2,500 shares of series I preferred stock to Zia Choe, the Company’s Chief Accounting Officer, for $ 10,000 , at the fair value of $4.48 per share.

On May 15, 2024, in conjunction with the exchange of certain senior secured convertible promissory notes, 938,908 shares of series Y senior convertible preferred stock were issued with an aggregate value of $ 3,755,632 .

An aggregate of 1,609,611 shares of series B preferred stock were converted into an aggregate of 3,219,222 shares of common stock.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

An aggregate of 96 shares of series C preferred stock were converted into an aggregate of 960,000 shares of common stock.

An aggregate of 80,375 shares of series E preferred stock were converted into an aggregate of 160,750 shares of common stock.

An aggregate of 31,877 shares of series F-1 preferred stock were converted into an aggregate of 63,754 shares of common stock.

An aggregate of 3,527,000 shares of series I preferred stock were converted into an aggregate of 7,054,000 shares of common stock.

An aggregate of 1,713,584 shares of series J preferred stock were converted into an aggregate of 3,427,168 shares of common stock.

An aggregate of 1,021,408 shares of series I preferred stock were exchanged into an aggregate of 750,000 shares of series B preferred stock, 49 shares of series C preferred stock and 100,000 shares of series E preferred stock.

An aggregate 53,580 shares of series N senior convertible preferred stock were issued with an aggregate value of $ 214,317 as payment of accrued dividends.

An aggregate 22,464 shares of series X senior convertible preferred stock were issued with an aggregate value of $ 89,852 as payment of accrued dividends.

An aggregate of 979,125 shares of series Y senior convertible preferred stock were issued with an aggregate value of $ 3,916,500 .

2 shares of series C preferred stock were cancelled, which were issued erroneously.

165 shares of series R preferred stock were cancelled as part of the settlement agreement described in Note 7.

Notes and Loans Payable.

In connection with the aforementioned shares issuances

on January 19, 2024 and January 31, 2024, the Company engaged a valuation specialist to perform a business valuation Monte Carlo simulation

for the series I preferred stock resulting in those indicated fair values.

During the year ended December 31, 2023, 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.

On May 25, 2023, the Company issued 3,150 shares of series B preferred stock to Zia Choe, Interim Chief Financial 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 .

In addition to the issuance of common stock from

the conversions of preferred stock noted above, during the year ended December 31, 2024, the Company executed the following transactions:

In February 2024, as part of the Red Rock settlement executed in July 2022, the Company issued an aggregate of 37,104 shares of common stock to six previous owners.

The Company recognized the fair value for the issuance of 37,104 shares at $ 3 per share on the closing market price of February 4 through February 6, 2024, and recorded share loss from discontinued operations of $ 111,312 in the consolidated statement of operations.

This loss was also reflected as an addback to net income in the consolidated statement of cash flows.

On March 5, 2024, the Company issued 7,500 shares of common stock to an investor relation service provider.

The Company recognized the fair value for the issuance of the 7,500 shares at $ 1.55 per share on the closing market price of March 5, 2024 and recorded selling, general and administrative expense of $ 11,617 in the consolidated statement of operations.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2024 AND 2023

· 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.

On March 26, 2024, the Company issued an aggregate of 30,000 shares of common stock to three board members.

The Company recognized the fair value for the issuance of 30,000 shares at $ 6.50 per share on the closing market price of March 26, 2024 and recorded share-based compensation expense of $ 195,000 in the consolidated statement of operations.

In September 2024, the Company issued an aggregate of 74,225 shares of common stock as part of a legal settlement.

In December 2024, the Company issued 5,500 shares of common stock for services rendered by an employee.

The Company recognized the fair value for the issuance of the 5,500 shares at $ 3.00 per share closing market price of December 5, 2024 and recorded share-based compensation expense of $ 16,500 in the consolidated statement of operations.

The Company issued an aggregate of 234,909 shares of common stock in payment of various accrued dividends on the series N, series X and series Y preferred stock.

The Company issued 1,222 shares of common stock upon conversion of certain convertible notes.

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.

What changed 10-K

Item 9A. Controls and Procedures