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Item 9A. Controls and Procedures

2026-03-10 compared with 2025-03-14 · 1430 added, 1220 removed, 1925 unchanged (58% of the section changed)

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chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31,

Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because

of the material weaknesses described below, our disclosure controls and procedures were not effective.

Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that our disclosure

controls and procedures were effective.

Management’s Annual Report on Internal

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Based on our evaluation, we determined

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 lacked formal documentation over internal control procedures and environment.

We lacked proper segregation of duties and multiple level of reviews.

We lacked sufficient process, systems and access to technical accounting resources to enable appropriate accounting for and reporting on complex and/or non-routine debt and equity financing transactions including accounting for derivatives, convertible debt, preferred stock.

In order to cure the foregoing material weakness,

we have begun to take the following remediation measures:

We are making necessary changes by 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

weaknesses discussed above as soon as practicable but we can give no assurance that we will be able to do so.

Designing and implementing

an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business

that, as of December 31, 2025, our internal control over financial reporting was effective.

We reinforce both the importance of effective

controls through ongoing communication with staff across the organization and compensating controls and oversight controls to improve

the design of the current process with limited human resources on an ongoing basis to ensure a culture of awareness towards a strengthened

internal control environment.

We believe designing and implementing effective

disclosure controls and procedures is a continuous ongoing effort that requires us to anticipate and react to changes in our business

and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately

satisfies our reporting obligations.

The remedial measures that we have taken and intend to take may not fully address the material weaknesses

that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future.

discover such conditions, we intend to remediate them as soon as practicable.

We are committed to taking appropriate steps for remediation,

All internal control systems, no matter how well

designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable assurance with

respect to financial statement preparation and presentation.

Also, projections of any evaluation of effectiveness to future periods are

subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies

or procedures may deteriorate.

As such, there can be no assurance a material weakness in our disclosure controls and procedures

may be identified in the future.

Should we discover such conditions, we intend to remediate them as soon as practicable.

We are committed

to taking appropriate steps for remediation, as needed when needed.

Changes in Internal Controls over Financial

In connection with the preparation of our financial

statements for the quarter ended June 30, 2025, management identified a classification error in the presentation of noncash interest expense

within the consolidated statements of cash flows, which resulted in the restatement of certain prior-period financial statements presented

in this report.

While this classification error did not result in a material weakness in internal control over financial reporting, we

have further enhanced our review procedures for the statement of cash flows, including additional cross-checks between the disclosure

checklist, supporting schedules, and the general ledger.

We regularly review our system of internal control

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consolidating activities, and migrating processes.

Remediation of Previously Reported Material

Weakness in Internal Control over Financial Reporting

As originally described in our Annual Report on

Form 10-K for the year ended December 31, 2024, we identified material weakness in internal control over financial reporting and have

devoted substantial resources to the implementation of remediation efforts as described below.

During the fourth quarter of 2025, we successfully

completed our assessment and evaluation to conclude that, as of December 31, 2025, the previously identified material weaknesses noted

below have been remediated.

Remediated material weakness:

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.

In order to cure this material weakness, we have

completed the implementation of significant new and enhanced processes, policies and procedures to our control environment, which we believe

address both the identified material weakness and strengthens our overall financial control environment, including the following completed

remediation measures:

We made strategic

hiring decisions and provided, and will continue to provide, technical training to our financial team, and other relevant operations

personnel, on appropriate GAAP accounting guidelines applicable to financial reporting requirements and internal controls and operating

We implemented consistent application of new and existing policies and procedures across the organization that address technical, financial

and operational controls and the forgoing weaknesses identified.

We have developed and formally approved accounting policies and procedures

aligned with applicable standards and clearly define roles, responsibilities, and standardized workflows.

These policies and procedures

have been communicated to all relevant staff and shared ongoing, and have been embedded into daily operation, system-based controls, and

month-end checklists.

Compliance is monitored through periodic and multiple level reviews, with deviations corrected immediately through

root cause analysis, targeted retraining and process updates, ensuring consistent accounting practices and a strengthened internal control

We implemented high quality proper documentation procedures for key functional areas, control objectives and workflows.

We significantly

improved and continuously enhance processes, routine and non-routine, debt and equity financing transactions including accounting for

derivatives, convertible debt, preferred stock, and on occasion management has hired external experts to augment technical and valuation

work in order to ensure technical accuracy and timeliness.

On an ongoing basis we assess processes to ensure workflows encompass segregation

of duties as well as oversight of secondary independent reviews.

We reinforce both the importance of effective

controls through ongoing communication with staff across the organization and compensating controls and oversight controls in order to

improve the design of the current process with limited human resources on an ongoing basis to ensure a culture of awareness towards a

strengthened internal control environment.

Based on the results of our assessment and evaluation

of these new and enhanced controls, we have determined that the updated controls and procedures are effective as of December 31, 2025.

As a result, we believe these material weaknesses have been remediated.

We believe designing and implementing an effective disclosure

controls and procedures is a continuous ongoing effort that requires us to anticipate and react to changes in our business and the economic

and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our

reporting obligations.

As such, however, there can be no assurance a material weakness in our disclosure controls and procedures may be

identified in the future.

Should we discover such conditions, we intend to remediate them as soon as practicable.

We are committed to

taking appropriate steps for remediation, as needed when needed.

The remedial measures that we have taken have addressed the material

weaknesses that were identified.

Except for the matters described above, there

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OTHER INFORMATION.

We have no information to disclose that was required

to be in a report on Form 8-K during the fourth quarter of fiscal year 2024 but was not reported.

None of our directors or executive officers

adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation

S-K) during the fourth quarter of fiscal year 2024.

On December 21, 2025, in connection with bonuses

earned by certain employees, we issued promissory notes in the aggregate principal amount of $1,085,703 (representing bonuses earned of

$593,450 and $492,253 for the years ended December 31, 2025 and 2024, respectively), in lieu of cash payment, including a promissory note

in the principal amount of $460,000 to Alex Cunningham, our Chairman and Chief Executive Officer, a promissory note in the principal amount

of $122,550 to Matthew T.

Shafer, our Chief Financial Officer, and a promissory note in the principal amount of $460,000 to Daniel Thompson,

our Chairman at such time.

These notes bear interest of 5% per annum and mature on June 30, 2026.

Except for the foregoing, we have no information

to disclose that was required to be in a report on Form 8-K during the fourth quarter of fiscal year 2025 but was not reported.

None of our directors or executive

officers adopted

or terminated

a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the

fourth quarter of fiscal year 2025.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

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directors and executive officers as of the date of this report.

Daniel Thompson

Chairman of the Board of Directors

Alex Cunningham

Chief Executive Officer, President and Director

Chairman, Chief Executive Officer and President

Senior Vice President and Chief Financial Officer

Cathy Pennington

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

Prior to serving as Chairman, Mr.

served as Chief Executive Officer from February 2005 to May 2014 and also served as a consultant from January 2001 to February 2005.

to joining us, Mr.

Thompson was founder, president and chief executive officer of Creative Entertainment Services, a full-service entertainment

company specializing in Feature Film, Television, Closed Captioning and Game Show fulfilment, from 1982 to December 2001.

also founded CableRep USA, a media sales firm specializing in local market cable advertising, which he sold to Cox Cable in 1981.

Thompson attended Wayne State University, Bellevue College, and College of Continuing Studies at University of Nebraska at Omaha.

Thompson is well suited to serve as a director because of his previous business management and merger and acquisition experience.

Cunningham has been our Chief Executive Officer and President and has served on our board of directors since June

2015 and was appointed as Chairman in December 2025.

Prior to joining us, Mr.

Cunningham founded Francnsult, Inc., a business development company representing franchise operations,

where he was in charge of identifying prospects for franchising, mergers, and acquisitions, and was the managing partner at AH Cunningham

& Associates, LLC, a firm which provided financial and operational consulting services to owners of small and medium-sized businesses,

EB-5 immigrant investors, passive investment, franchise owners, and franchisors.

Prior to his employment at Francnsult, Inc.

and AH Cunningham

& Associates, Mr.

Cunningham was the president and chief executive officer of Profit Management Consulting, a management consulting

company that assisted in the management of private and closely held middle-market companies, from 1996 to 2005.

Cunningham founded Francnsult, Inc., a business development

company representing franchise operations, where he was in charge of identifying prospects for franchising, mergers, and acquisitions,

and was the managing partner at AH Cunningham & Associates, LLC, a firm which provided financial and operational consulting services

to owners of small and medium-sized businesses, EB-5 immigrant investors, passive investment, franchise owners, and franchisors.

to his employment at Francnsult, Inc.

and AH Cunningham & Associates, Mr.

Cunningham was the president and chief executive officer

of Profit Management Consulting, a management consulting company that assisted in the management of private and closely held middle-market

companies, from 1996 to 2005.

From 1991 to 1996, Mr.

Cunningham was a partner at London Capital Corporation, a company which provides merger and acquisition services to small and medium-sized

Cunningham received a BBA-Finance and Administration at the University of Kentucky and an MBA from Rollins College.

believe Cunningham is well suited to serve as a director because of his previous business management, financial, and merger and acquisition

Cunningham was a partner at London Capital Corporation, a company which provides

merger and acquisition services to small and medium-sized businesses.

Cunningham received a BBA-Finance and Administration at the

University of Kentucky and an MBA from Rollins College.

We believe Cunningham is well suited to serve as a director because of his previous

business management, financial, and merger and acquisition experience.

been our Senior Vice President and Chief Financial Officer since January 2024.

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Governance Structure

We chose to appoint a separate Chairman of the

Board who is not our Chief Executive Officer.

Our board of directors has made this decision based on their belief that a separate Chairman

of the Board can act as a balance to the Chief Executive Officer, who also serves as a non-independent director.

Currently, our Chief Executive Officer is also

our Chairman of the Board.

Our board believes that, at this time, having a combined Chief Executive Officer and Chairman is the appropriate

leadership structure for our company.

In making this determination, the board considered, among other matters, Mr.

experience and tenure with our company and believed that Mr.

Cunningham is highly qualified to act as both Chairman and Chief

Executive Officer due to his experience, knowledge, and personality.

Among the benefits of a combined Chairman/Chief Executive Officer

considered by the board is that such structure promotes clearer leadership and direction for us and allows for a single, focused chain

of command to execute our strategic initiatives and business plans.

The Board’s Role in Risk Oversight

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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.

of our directors, other than Mr.

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

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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.

by the board, which are available on our website at www.cardifflexington.com.

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

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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.

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

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on our website.

Section 16(a) Beneficial Ownership Reporting

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our

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Alex Cunningham, Chief Executive Officer (2)

Daniel Thompson, Chairman of the Board

Daniel Thompson, former Chairman of the Board (3)

Shafer, Chief Financial Officer (4)

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

For the year ended December 31, 2025, Mr.

Cunningham was paid salary of $737,500, with the remaining salary and bonus amounts accrued, and for the year ended December 31, 2024, Mr.

Cunningham was paid salary of $360,000, with the remaining salary and bonus amounts accrued.

As of December 31, 2025, the total outstanding accrued compensation owed to Mr.

Cunningham was $2,163,000.

See also Item 7 “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Related Party Loans ” and Item 7 “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Conversion of Deferred Compensation .”

Thompson served as our Chairman from May 2024 to December 2025.

For the year ended December 31, 2025, Mr.

Thompson was paid salary of $583,333, with the remaining salary and bonus amounts accrued, and for the year ended December 31, 2024, Mr.

Thompson was paid salary of $240,000, with the remaining salary and bonus amounts accrued.

As of December 31, 2025, the total outstanding accrued compensation owed to Mr.

Thompson was $2,237,167.

See also Item 7 “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Related Party Loans .”

For the year ended December 31, 2025, Mr.

Shafer was paid salary of $250,800, with the bonus amounts accrued, and for the year ended December 31, 2024, Mr.

Shafer was paid salary of $228,000, with the bonus amounts accrued.

As of December 31, 2025, the total outstanding accrued bonus and stock compensation owed to Mr.

Shafer was $406,767.

See also Item 7 “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Related Party Loans .”

Employment Agreements

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above, Messrs.

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

Cunningham 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.

The following table includes certain information

with respect to the value of all unexercised options and unvested shares of restricted stock previously awarded to the executive officers

named above at the fiscal year ended December 31, 2025.

Number of shares or units of stock that have not vested

Market value of shares of units of stock that have not vested

shares, units or other rights that have not vested

Market or payout value of

shares, units or other rights that have not vested

(1) On December 11, 2025, Mr.

Shafer was granted a restricted stock award for 8,334 shares of common stock,

which shall vest in full on December 11, 2026.

Director Compensation

The table below sets forth the compensation paid

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

to our independent directors during the fiscal years ended December 31, 2025.

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.

On September 26, 2025, we granted to each independent director (i) a restricted stock award for 1,667 shares of common stock, which vested in full on the date of grant (as compensation for service in 2024) and (ii) a restricted stock award for 1,667 shares of common stock, with 556 shares vesting immediately and the remaining shares vesting in three (3) quarterly installments commencing on October 1, 2025.

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

On December 11, 2025, we granted to each independent director a stock option for the purchase of 16,667 shares of common stock at an exercise price of $5.187, which vests quarterly over one year commencing on January 1, 2026.

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 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

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 increased

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 3,334 shares

of common stock to each independent director and we have also agreed to grant to each independent director 1,667 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

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On January 31, 2024, our board of directors and

stockholders adopted the Cardiff Lexington Corporation 2024 Equity Incentive Plan, or Plan.

stockholders adopted the Cardiff Lexington Corporation 2024 Equity Incentive Plan, or the Plan.

The following is a summary which describes

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31, 2025, 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.

921,675 (subject to adjustment for certain corporate changes affecting the common stock, such as stock splits);

provided 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, 2026, the number of shares increased to 1,606,718.

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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.

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, 710

East Main Street, Lexington, KY 40502.

Name and Address of Beneficial Owner

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Amount and Nature of Beneficial Ownership (1)

Percent of Voting Stock (2)

Daniel Thompson, Chairman of the Board (3)

Alex Cunningham, Chief Executive Officer and Director (4)

Voting Stock (2)

Alex Cunningham, Chairman Chief Executive Officer (3)

Shafer, Chief Financial Officer

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All executive officers and directors (5 persons above)

Daniel Thompson (7)

* Less than 1%

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.

(1) 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

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 9, 2026 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 and series L preferred stock, voting

as a single class.

As of March 9, 2026, there were 15,159,403 shares of common stock, 2 shares of series A preferred stock and 319,493

shares of series L preferred stock issued and outstanding.

Each share of common stock and series L preferred stock is entitled to

one (1) vote per share.

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 3,869,725 votes

as of March 9, 2026).

For each beneficial owner above, any options, warrants or other convertible securities exercisable within 60

days have been included in the denominator.

Includes (i) 3,914,230 shares of common stock held directly, (ii) 889,398 shares of common stock held by Alexander Hunt Cunningham, Sr.

Revocable Trust and (iii) 1 share of series A preferred stock held directly.

Cunningham is the Trustee of Alexander Hunt Cunningham, Sr.

Revocable Trust and has voting and dispositive power over the shares held by it.

Includes 6,668 shares of common stock and 4,167 shares of common stock which Mr.

Johnson has the right to acquire within 60 days through the exercise of vested stock options.

Includes 6,668 shares of common stock and 4,167 shares of common stock which Ms.

Pennington has the right to acquire within 60 days through the exercise of vested stock options.

Includes 6,668 shares of common stock and 4,167 shares of common stock which Mr.

Staley has the right to acquire within 60 days through the exercise of vested stock options.

Includes (i) 4,477,063 shares of common stock held directly, (ii) 69,166 shares of common stock held by the 2007 Thompson Family Trust and (iii) 1 share of series A preferred stock held directly.

Thompson is the Trustee of the 2007 Thompson Family Trust and has voting and dispositive power over the shares held by it.

Changes in Control

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would be paid or received, as applicable, in arm’s-length transactions.

On December 21, 2025, we issued promissory notes

to certain employees in settlement of bonuses earned for services rendered, including a promissory note in the principal amount of $460,000

to Alex Cunningham, our Chairman and Chief Executive Officer, a promissory note in the principal amount of $122,550 to Matthew T.

our Chief Financial Officer, and a promissory note in the principal amount of $460,000 to Daniel Thompson, our Chairman at such time.

These notes accrue interest at a rate of 5.00% per year and mature on June 30, 2026.

We have obtained short-term advances from Daniel

Thompson, the Chairman of the Board, that are non-interest bearing and due on demand.

Thompson, the former Chairman of the Board, that are non-interest bearing and due on demand.

As of December 31, 2023, we owed the Chairman

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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.

of our directors, other than Mr.

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

PRINCIPAL ACCOUNTING FEES AND SERVICES.

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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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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 Balance Sheets as of December 31, 2025 and 2024

Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024

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

Consolidated Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2025 and 2024

Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 (Restated)

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See exhibits listed under Part (b) below.

(b) Exhibits:

Amended and Restated Articles of Incorporation Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.1 to Amendment No.

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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 Amendment to Amended and Restated Articles of Incorporation

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 January 20, 2026)

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 (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 (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 (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 (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.

of Designation of Series F-1 Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.6 to Amendment

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.

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)

of Designation of Series L Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.9 to Amendment

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)

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)

Certificate of Amendment to Certificate of Designation of Series N

Senior Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.2 to the Current Report

on Form 8-K filed on February 3, 2026)

Certificate of Designation of Series X Senior Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.12 to Amendment No.

2 unchanged sentences

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)

Certificate of Amendment to Certificate of Designation of Series Y

Senior Convertible Preferred Stock of Cardiff Lexington Corporation (incorporated by reference to Exhibit 3.24 to Quarterly Report on

Form 10-Q filed on November 12, 2025)

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 L&H, Inc.

on January 14, 2026 (incorporated by reference to Exhibit 4.2 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Common Stock Purchase Warrant issued by Cardiff Lexington Corporation to Greentree Financial Group, Inc.

on December 29, 2025 (incorporated by reference to Exhibit 4.3 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Common Stock Purchase Warrant issued by Cardiff Lexington Corporation to James F.

Sullivan on December 23, 2025 (incorporated by reference to Exhibit 4.4 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Common Stock Purchase Warrant issued by Cardiff Lexington Corporation to Odile Viviane Kaye on December 22, 2025 (incorporated by reference to Exhibit 4.5 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Common Stock Purchase Warrant issued by Cardiff Lexington Corporation to Greentree Financial Group, Inc.

on October 31, 2025 (incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed on November 12, 2025)

Common Stock Purchase

Warrant issued by Cardiff Lexington Corporation to SILAC Insurance Company on May 21, 2021 (incorporated by reference to Exhibit 4.2

to the Annual Report on Form 10-K filed on June 6, 2023)

Common Stock Purchase

Warrant issued by Cardiff Lexington Corporation to Leonite Capital LLC on July 10, 2018 (incorporated by reference to Exhibit

4.3 to Quarterly Report on Form 10-Q filed on November 12, 2025)

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

1 unchanged sentence

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

Lock-Up and Compensation Resolution Agreement, dated March 6, 2026, between Cardiff Lexington Corporation and Daniel Thompson

Loan Agreement, dated January 14, 2026, between Cardiff Lexington Corporation

and L&H, Inc.

(incorporated by reference to Exhibit 10.2 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January

Convertible Promissory Note issued by Cardiff Lexington Corporation to L&H, Inc.

on January 14, 2026 (incorporated by reference to Exhibit 10.3 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Loan Agreement, dated December 29, 2025, between Cardiff Lexington Corporation and Greentree Financial Group, Inc.

(incorporated by reference to Exhibit 10.4 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

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

on December 29, 2025 (incorporated by reference to Exhibit 10.5 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Loan Agreement, dated

December 23, 2025, between Cardiff Lexington Corporation and James F.

Sullivan (incorporated by reference to Exhibit 10.6 to

Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Convertible Promissory Note issued by Cardiff Lexington Corporation to James F.

Sullivan on December 23, 2025 (incorporated by reference to Exhibit 10.7 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Loan Agreement, dated December 22, 2025, between Cardiff Lexington Corporation and Odile Viviane Kaye on December 22, 2025 (incorporated by reference to Exhibit 10.8 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Convertible Promissory Note issued by Cardiff Lexington Corporation to Odile Viviane Kaye on December 22, 2025 (incorporated by reference to Exhibit 10.9 to Amendment No.

1 to the Registration Statement on Form S-1/A filed on January 20, 2026)

Promissory Note issued by Cardiff Lexington Corporation to Alex Cunningham on December 21, 2025 (2024 Bonus)

Promissory Note issued by Cardiff Lexington Corporation to Alex Cunningham on December 21, 2025 (2025 Bonus)

Promissory Note issued by Cardiff Lexington Corporation to Matthew T.

Shafer on December 21, 2025 (2024 Bonus)

Promissory Note issued by Cardiff Lexington Corporation to Matthew T.

Shafer on December 21, 2025 (2025 Bonus)

Promissory Note issued by Cardiff Lexington Corporation to Daniel Thompson on December 21, 2025 (2024 Bonus)

Promissory Note issued by Cardiff Lexington Corporation to Daniel Thompson on December 21, 2025 (2025 Bonus)

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)

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on January 24, 2017 (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed on June 6, 2023)

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

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

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 1, 2025, between the Cardiff Lexington

Corporation and Alex Cunningham (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K filed on March 14, 2025)

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

12 unchanged sentences

Consent of GBQ Partners, LLC

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

Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

3 unchanged sentences

Clawback Policy

(incorporated by reference to Exhibit 97.1 to the Annual Report on Form 10-K filed on March 14, 2025)

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

6 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, 2024 and 2023

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

Balance Sheets as of December 31, 2025 and 2024

Statements of Operations for the Years Ended December 31, 2025 and 2024

Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2025 and 2024

Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 (Restated)

Notes to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

Stockholders and Board of Directors

Cardiff Lexington Corporation

Las Vegas, Nevada

Lexington, Kentucky

Opinion on the Consolidated

1 unchanged sentence

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.

consolidated balance sheets of Cardiff Lexington Corporation (the “Company”) as of December 31, 2025 and 2024, the related

consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years 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, 2025 and 2024, and the results of its

operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States

Continuation as a Going Concern

11 unchanged sentences

Our responsibility is to express an opinion on the Company’s

consolidated financial statements based on our audit.

consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight

1 unchanged sentence

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

We conducted our audits in accordance with the

standards of the PCAOB.

3 unchanged sentences

engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

1 unchanged sentence

Accordingly, we express no such opinion.

Our audit included performing procedures to assess

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

2 unchanged sentences

consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides

We believe that our audits provide

a reasonable basis for our opinion.

42 unchanged sentences

March 10, 2026

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

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

As discussed in Note 2 to the consolidated financial

statements, the Company’s consolidated financial statements as of and for the year ended December 31, 2023 have been restated to

correct certain misstatements.

Substantial Doubt Regarding the Company’s

Ability to Continue as a Going Concern

The accompanying consolidated financial statements

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

As described in Note 1 to the consolidated financial statements,

the Company has sustained an accumulated deficit and negative cash flows from operations, which raise substantial doubt about its ability

to continue as a going concern.

Management’s plans in regard to these matters are described in Note 1.

The consolidated financial

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

Our opinion is not modified with respect

to this matter.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and

the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

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

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

Jericho, New York

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

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

8 unchanged sentences

Due from related party

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' (DEFICIT)/EQUITY

Current liabilities

2 unchanged sentences

Accrued interest

Right of use – lease liabilities

Due to director and officer

Right of use – operating lease liabilities

Notes payable – current portion

Notes payable related parties

Line of credit

7 unchanged sentences

Mezzanine equity

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 N Senior Convertible Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 1,037,311 and 921,636 shares issued and outstanding at December 31, 2025 and 2024, respectively

Redeemable Series X Senior Convertible Preferred Stock - 5,000,000 shares authorized, $0.001 par value, stated value of $ 4.00 par value;

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

438,388 and 397,464 shares issued and outstanding at December 31, 2025 and 2024, respectively

Total Mezzanine Equity

Stockholders' equity

Stockholders' (deficit)/equity

Series B Preferred Stock - 3,000,000 shares authorized, $0.001 par value, stated value of $ 4.00 , 0 and 1,279,867 shares issued and outstanding at December 31, 2025 and 2024, respectively

1 unchanged sentence

Series E Preferred Stock - 1,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 0 and 175,375 shares issued and outstanding at December 31, 2025 and 2024, respectively

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 F-1 Preferred Stock - 50,000 shares authorized, $0.001 par value, stated value $ 4.00 , 3,875 shares issued and outstanding at December 31, 2025 and 2024

Series I Preferred Stock - 15,000,000 shares authorized, $0.001 par value, stated value $ 4.00 , 0 and 10,469,092 issued and outstanding at December 31, 2025 and 2024, 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, 2025 and 2024

4 unchanged sentences

Additional paid-in capital

( 7,581,212 )

Unearned stock-based compensation

Accumulated deficit

1 unchanged sentence

( 72,949,085 )

Total stockholders' equity

Total liabilities, mezzanine equity and stockholders' equity

Total stockholders' (deficit)/equity

( 2,469,661 )

Total liabilities, mezzanine equity and stockholders' (deficit)/equity

The accompanying notes are an integral part of

1 unchanged sentence

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

2 unchanged sentences

Depreciation expense

Loss on disposal of fixed assets

Share based compensation

1 unchanged sentence

Total operating expenses

(LOSS) INCOME FROM CONTINUING OPERATIONS

INCOME (LOSS) FROM CONTINUING OPERATIONS

OTHER (EXPENSE) INCOME

9 unchanged sentences

( 2,998,183 )

NET (LOSS) INCOME BEFORE DISCONTINUED OPERATIONS

NET LOSS BEFORE DISCONTINUED OPERATIONS

( 5,745,877 )

LOSS FROM DISCONTINUED OPERATIONS

NET (LOSS) INCOME FOR THE YEAR

( 3,191,687 )

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

NET LOSS FOR THE YEAR

$ ( 5,507,592 )

$ ( 3,302,999 )

PREFERRED STOCK DIVIDENDS

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

( 1,034,303 )

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

$ ( 6,541,895 )

$ ( 4,265,168 )

BASIC (LOSS) EARNINGS PER SHARE

6 unchanged sentences

WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED *

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

Shares outstanding have been restated for the 1-for-3 reverse stock split

effective January 12, 2026.

Summary of Significant Accounting Policies .

The accompanying notes are an integral part of

these consolidated financial statements

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIENCY)

(DEFICIT) EQUITY *

FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

2023 (RESTATED)

Preferred Stock

3 unchanged sentences

Preferred Stock Series C

Additional Paid-In

Total Stockholders’

Balance, December 31, 2023 (restated)

Conversion of convertible notes payable

Conversion of series B preferred stock

( 1,609,611 )

( 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 )

Issuance of preferred stock series B

Issuance of preferred stock series E

Conversion of convertible notes payable

Preferred stock Dividends

Balance, December 31, 2023 (restated)

( 14,108,000 )

Conversion of series J preferred stock

( 1,713,584 )

( 6,854,336 )

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

Balance, December 31, 2024

Conversion of convertible notes payable

4 unchanged sentences

Conversion of series E preferred stock

Conversion of series F-1 preferred stock

Conversion of series I preferred stock

1 unchanged sentence

( 40,310,368 )

Conversion of series J preferred stock

Issuance of series Y preferred stock

Issuance of B, C and E preferred stock in exchange for series I preferred stock

( 1,566,000 )

Issuance of common stock to correct series I surrender

Issuance of common shares related to bridge loans

Common stock issued for services

Common stock cancelled for legal settlement

Stock compensation expense

Preferred stock dividends

Balance, December 31, 2025

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(DEFICIT) EQUITY *

FOR THE YEARS ENDED DECEMBER 31, 2025 AND

2024 (Continued)

Additional Paid-In

Unearned Stock-Based

Total Stockholders’

Balance, December 31, 2023 (restated)

$ ( 7,581,196 )

$ ( 68,684,115 )

Conversion of convertible notes payable

Conversion of series B preferred stock

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

Conversion of series J preferred stock

Issuance of series I preferred stock to officers

1 unchanged sentence

Exchange of series I for series B, C and E

( 1,021,408 )

( 4,085,632 )

Cancellation of series C preferred stock

8 unchanged sentences

$ ( 72,949,085 )

Conversion of convertible notes payable

Conversion of series B preferred stock

Conversion of series C preferred stock

Conversion of series E preferred stock

Conversion of series I preferred stock

Issuance of series Y preferred stock

Issuance of B, C and E preferred stock in exchange for series I preferred stock

Issuance of common stock to correct series I surrender

Issuance of common shares related to bridge loans

Common stock issued for services

Common stock cancelled for legal settlement

Stock compensation expense

Preferred stock dividends

( 1,034,303 )

( 5,507,592 )

Balance, December 31, 2025

$ ( 579,215 )

$ ( 79,490,980 )

$ ( 2,469,661 )

*Shares outstanding have been restated for the 1-for-3 reverse stock

split effective January 12, 2026.

Summary of Significant Accounting Policies .

The accompanying notes are an integral part of

4 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income from continuing operations

Net loss from operations

$ ( 5,507,592 )

Adjustments to reconcile net (loss)

income to net cash used in operating activities:

$ ( 3,302,999 )

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

Credit losses

Change in estimate for settlement realization rate

Amortization of notes payable discount

Amortization of debt discount

Gain on resolution and disposition of discontinued operations claims

Conversion and note issuance cost

Share issuance for compensation to directors and officers

Share issuance for service rendered

Loss on disposal of assets

Interest included in line of credit

Share issuance and compensation expense

Bonus expense settled with promissory notes

Gain on settlement or forgiveness of debt

13 unchanged sentences

( 2,765,797 )

Net cash used in Discontinued Operations – Operating

Net cash provided by Discontinued Operations – Operating

FINANCING ACTIVITIES

Repayments to directors and officers

Payments to director

Proceeds from convertible notes payable

Payments of convertible notes payable

Repayment of SBA loans

Payments of notes payable

Payments on convertible notes payable

Repayment on SBA loans

Payments on note payable

Net proceeds from line of credit

Payment of dividend on preferred

Payment of dividends on preferred stock

Net cash provided by financing activities

NET INCREASE IN CASH

NET (DECREASE) INCREASE IN CASH

CASH, BEGINNING OF YEAR

1 unchanged sentence

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for

Cash paid during the year for interest

NON-CASH INVESTING AND FINANCING ACTIVITIES*:

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

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

Dividends on preferred stock, including accrued dividends on preferred stock

Promissory note payable issued in settlement agreement

Promissory notes payable issued in settlement of bonuses

Discount on convertible notes payable

Unearned compensation on restricted common stock grant

*For the year ended December 31, 2025 and 2024, lease modifications

recorded increased right of use assets and right of use liabilities by $83,669 and $139,232, respectively.

For the year ended December

31, 2024, two new leases recorded during the period increased right of use assets and right of use liabilities by a total of $224,179.

The accompanying notes are an integral part of

20 unchanged sentences

(“Edge View”), which was acquired on July 16, 2014.

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

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, 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.

All outstanding shares of common stock and warrant to purchase common stock were adjusted

to reflect the 1-for-75,000 reverse split, with respective exercise prices of the warrants proportionately increased.

The conversion prices

of the outstanding convertible notes and certain series of preferred stock were adjusted to reflect a proportional decrease in the number

of shares of common stock to be issued upon conversion.

All share and per share data throughout these

consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.

The total number of authorized

shares of common stock did not change.

As a result of the reverse stock split, an amount equal to the decreased value of the common stock

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

Revised Financial Statements.

Use of Estimates

The preparation of financial statements in conformity

with United States generally accepted accounting principles (“U.S.

GAAP”) requires management to make estimates and assumptions

that affect certain reported amounts and disclosures.

Management uses its historical records and knowledge of its business in making estimates.

Accordingly, actual results could differ from those estimates.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been

prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and include

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

All significant

intercompany accounts and transactions are eliminated in consolidation.

The income from discontinued operations presented in the consolidated

statement of operations for the year ended December 31, 2025 is the release of residual obligations which were reported as net liabilities

from discontinued operations on the consolidated balance sheet as of December 31, 2024, related to the sale of Platinum Tax Defenders

(“Platinum Tax”), a business previously owned by the Company, which was sold in November 2023.

The loss from discontinued

operations presented in the consolidated statement of operations for year ended December 31, 2024 is a part of the execution of a settlement

that was previously reached in July 2022 with six previous owners of Red Rock Travel Group, LLC (“Red Rock”), an entity that

was discontinued by the Company in May 2019.

Please refer to Note 11.

Discontinued Operations for further detail.

Reverse Stock Splits

On January 12, 2026, we implemented a 1-for-3 reverse

split of our outstanding shares of common stock.

All share and per share data throughout these consolidated financial statements have

been retroactively adjusted to reflect the reverse stock split.

The total number of authorized shares of common stock did not change.

As a result of the reverse stock split, an amount equal to the decreased value of the common stock was reclassified from “common

stock” to “additional paid-in capital.” In addition, the conversion prices of the outstanding convertible notes and

certain series of preferred stock were adjusted to reflect a proportional decrease in the number of shares of common stock to be issued

upon conversion.

All fractional shares were rounded up.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

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DECEMBER 31, 2025 AND 2024

Use of Estimates

The preparation of financial statements in conformity

GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures.

uses its historical records and knowledge of its business in making estimates.

Accordingly, actual results could differ from those estimates.

Accounts Receivable

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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

Company typically collects on its accounts receivable between twelve 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,

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.

As of December 31, 2025 and 2024, the Company’s allowance for credit losses was

$ 400,000 and $ 255,215 ,

respectively.

The Company recognized $ 262,928

and $ 266,000 of credit loss expense

during the years ended December 31, 2025 and 2024, respectively, which is included in selling, general and administrative expenses in

the consolidated statement of operations.

The balance of accounts receivable, net as of January 1, 2024 was $ 13,305,254 .

The balance of the allowance for credit losses

was $ 0 as of January 1, 2023.

The balance of the allowance for credit losses was $ 122,190

as of January 1, 2024.

Schedule of allowance for credit

losses activity

The following table shows the allowance for credit losses activity:

Balance at January 1

$ ( 255,215 )

$ ( 122,190 )

Current period provision

Write off charged against the allowance

Balance at December 31

$ ( 400,000 )

$ ( 255,215 )

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Property and Equipment

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10 years or lease term, if shorter

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Goodwill is not amortized but is evaluated for

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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.

For the years ended December 31, 2025 and 2024, the Company determined there to be no impairment and

noted no triggering events.

The 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

In accordance with the provisions of Accounting

Standards Codification (“ASC”) Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets

such as plant and equipment and construction in progress held and used by the Company are reviewed for impairment whenever events or changes

in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is

evaluated by a comparison of the carrying amount of assets to estimated cash flows expected to be generated by the assets.

If such assets

are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed

the fair value of the assets.

Standards Codification (“ASC”) Topic 360-10-35, “Impairment or Disposal of Long-Lived Assets”, all long-lived

assets such as plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances

indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is evaluated by a comparison

of the carrying amount of assets to estimated cash flows expected to be generated by the assets.

If such assets are considered to be impaired,

the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

Revenue Recognition

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Identification of a contract with a customer

Identification of the performance obligations in the contact

Identification of the performance obligations in the contract

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Determination of the transaction price

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are generally fixed-price, and the transaction price is in the contract.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

In determining net revenue to record under ASC

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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.

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

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

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Settlement rates of 49% or higher based on gross

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facility and anesthesia services are considered part of one integrated performance obligation.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

The Company satisfies performance obligations

2 unchanged sentences

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.

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

Once the personal injury case is finalized with the insurance company, the attorney pays the outstanding medical bills from

the settlement.

Settlement Rates

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of its accounts receivable to generate cash flow for operations.

The Company did this by shortening its settlement negotiations with insurance

The Company did this by shortening 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.

Additionally, during 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 the updated analysis.

Based upon this review,

it was determined that a 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, and establishing a periodic lookback analysis, 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 revenue at 49% of gross billings.

The Company continues to periodically evaluate this estimated settlement realization rate

in accordance with ASC 606.

This includes a monthly review of historical data and settlement realization rates, along with estimates of

current and pending settlements through ongoing discussions with attorneys, doctors and third-party medical billing company in order to

determine the variable consideration under ASC 606 and the net transaction price.

During 2025, the Company continued expanding the historical

lookback period to 36 months based on the ongoing expanding data history and the timeframe in which collections have recently been occurring.

The Company updates the settlement realization rate estimate used in determining revenue periodically based on these reviews.

As of December

31, 2025, the settlement realization rate at which revenue is recorded was at 41%.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Contract Fees (Non-PIP)

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other expenses on the consolidated statement of operations.

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

As a result of the Company’s twelve 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

3 unchanged sentences

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

5 unchanged sentences

marketing expense of $ 370,330 and $ 366,637 for the years ended December 31, 2025 and 2024, respectively.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Fair Value Measurements

15 unchanged sentences

The Company accounts for its series N senior convertible

preferred stock, series R convertible preferred stock, and series X senior convertible preferred stock subject to possible redemption

in accordance with ASC 480, “Distinguishing Liabilities from Equity”.

Conditionally redeemable preferred shares are classified

as temporary equity within the Company’s consolidated balance sheet.

preferred stock and series X senior convertible preferred stock subject to possible redemption in accordance with ASC 480, “Distinguishing

Liabilities from Equity”.

Conditionally redeemable preferred shares are classified as temporary equity within the Company’s

consolidated balance sheet.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Stock-Based Compensation

The Company accounts for its stock-based compensation

in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of

the fair value recognition provisions of section 718-10-30 of the FASB ASC.

Pursuant to paragraph 718-10-30-6 of the FASB ASC, all transactions

in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value

of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

in which the Company obtains employee/non-employee services in share-based payment transactions under the recognition and measurement

principles of the fair value recognition provisions of section 718-10-30 of the FASB ASC.

Pursuant to paragraph 718-10-30-6 of the FASB

ASC, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for

based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

The measurement date used to determine the fair

value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable

that performance will occur.

Generally, all forms of share-based payments,

including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on

the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.

value of equity-classified awards is the grant date, which is the date on which the Company and the grantee reach a mutual understanding

of the award’s key terms and conditions.

Generally, all forms of share-based payments, including stock option grants, warrants,

restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated

number of awards that are ultimately expected to vest.

The Company has elected to account for forfeitures as they occur and expense is

recognized over the requisite service period.

The expense resulting from share-based payments

8 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

The Company evaluates both positive and negative

evidence in assessing the realizability of its net deferred tax assets and records a valuation allowance when it is more likely than not

that some or all of the deferred tax assets will not be realized.

The One Big Beautiful Bill Act (the “OBBBA”), which was

enacted on July 4, 2025, makes numerous tax changes.

The tax provisions of the OBBBA did not have a material impact on the Company’s

effective tax rate and it also did not impact the Company’s net deferred tax assets, as the Company continues to maintain a full

valuation allowance against that balance.

ASC 740 prescribes a comprehensive model for how

27 unchanged sentences

the if converted method.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Going Concern

3 unchanged sentences

The Company had previously sustained operating losses since its inception

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

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.

and has an accumulated deficit of $ 79,490,980 and $ 72,949,085 as of December 31, 2025 and 2024, respectively.

The Company has a stockholders’

deficit of $ 2,469,661 and stockholders’ equity of $ 2,685,169 as of December 31, 2025 and 2024, respectively.

The Company had negative

cash flow from operations of $ 2,853,274 and $ 2,765,797 during the years ended December 31, 2025 and 2024, respectively.

These factors

raise a substantial doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements

13 unchanged sentences

funds, it may cause cessation of operations.

Recently Adopted Accounting Standards

Recently Issued 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.” There were no

material impacts on the consolidated financial statements at adoption.

2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses” in November 2024.

The amendments are effective for annual reporting periods beginning

after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The amendments

require disclosure in the notes to financial statements of specified information about certain costs and expenses related to selling expenses

and in annual reporting periods, an entity’s definition of selling expenses, among other qualitative descriptions of relevant expense

captions that are not separately disaggregated quantitatively.

The Company is analyzing the impact that ASU 2024-03 will have on the Company’s

required disclosures but does not expect any material impacts.

The FASB issued ASU 2025-11, “Interim Reporting

Narrow Scope Improvements” in December 2025.

The amendments are effective for interim reporting periods within annual

reporting periods beginning after December 15, 2027, for public business entities.

The amendments can be applied either prospectively

or retrospectively to any or all prior periods presented in the financial statements.

The amendments in this update clarify interim disclosure

requirements and the applicability of Topic 270 and result in a comprehensive list of interim disclosures that are required by GAAP.

amendments in this update also include a disclosure principle that requires entities to disclose events since the end of the last annual

reporting period that have a material impact on the entity.

The Company will review the clarifications in the update around the Topic

270 disclosures but do not expect this update to have a material impact on our financial statements.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2025 AND 2024

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

Preferred stock

Recently Adopted Accounting Standards

The FASB issued ASU 2025-05, “Financial

Instruments – Credit Losses (Topic 326);

Measurement of Credit Losses for Accounts Receivable and Contract Assets” in July

The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual

reporting periods, with early adoption permitted.

The amendments will be applied prospectively.

The amendments in this update provide

(1) all entities with a practical expedient wherein as part of developing reasonable and supportable forecasts when estimating expected

credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change

for the remaining life of the asset, and (2) entities other than public business entities are now allowed an accounting policy election

when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted

for under Topic 606 to consider collection activity after the balance sheet date when estimating expected credit losses.

The were no material

impacts to the Company’s consolidated financial statements at adoption.

The FASB issued ASU 2023-09, “Income Taxes

Improvements to Income Tax Disclosures” in December 2023.

The amendments are effective for annual periods beginning

after December 15, 2024 with early adoption permitted for annual financial statements that have not yet been issued or made available

for issuance.

The amendments in this update require that public business entities on an annual basis (1) disclose specific categories

in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect

of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the

applicable statutory income tax rate).

The amendments in this update also require that all entities disclose on an annual basis certain

information about income taxes paid as well as information related to domestic and foreign income.

The Company adopted this standard prospectively.

The adoption did not have any impact on the consolidated financial statements or results of operations, focusing instead on enhanced disclosures.

REVISED AND RESTATED FINANCIAL STATEMENTS

During the second quarter of 2025, as part of

the Company’s ongoing enhancements to internal controls over financial reporting, a detailed review of its interest expense-related

cash flow classification was performed.

As a result, the Company restated certain amounts within the condensed consolidated statement

of cash flows for the year ended December 31, 2024.

This reclassification corrects the presentation of $ 3,092,350 of non-cash interest

accrual adjustments related to the Company’s line of credit as of December 31, 2024.

These amounts, previously presented within

net proceeds from the line of credit in financing activities, are now presented within operating activities.

This change in presentation

has no impact on the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations, or total

cash flows for any related period.

The following table summarizes the impact of

the correction on the Company’s condensed consolidated statement of cash flows for the period ending December 31, 2024.

Schedule of restated financial information

Impact of correction of error

Twelve months ended December 31, 2024

As previously

Net cash used in operating activities of continuing operations

$ ( 5,858,147 )

Additional paid-in-capital

$ ( 2,765,797 )

Net cash provided by financing activities of continuing operations

$ ( 3,092,350 )

Total stockholders' equity

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.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9 unchanged sentences

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

Accrued expense - other

PLANT AND EQUIPMENT, NET

10 unchanged sentences

depreciation expense was $ 5,652 and $ 13,461 , respectively.

During the first quarter of 2025, the Company identified assets that were no

longer functional in its medical facilities.

As such, the Company has recorded a reduction in medical equipment and the related depreciation

which resulted in a loss from the disposal of $ 12,593 in the condensed consolidated statement of operations for year ended December 31,

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

As of December 31, 2025 and 2024, the Company

had 27 acres of land of approximately $ 540,000 .

The land is currently vacant and is expected to be developed into a residential community.

The land is currently vacant and management does not currently have any plans to develop

this property and expects to eventually sell the property.

RELATED PARTY TRANSACTIONS

On December 21, 2025, in connection with bonuses

earned by certain employees, the Company issued promissory notes in the aggregate principal amount of $ 1,085,703 (representing bonuses

earned of $ 593,450 and $ 492,253 for the years ended December 31, 2025 and 2024, respectively), in lieu of cash payment, including a promissory

note in the principal amount of $ 460,000 to Alex Cunningham, the Company’s Chairman and Chief Executive Officer, a promissory note

in the principal amount of $ 122,550 to Matthew T.

Shafer, the Company’s Chief Financial Officer, and a promissory note in the principal

amount of $ 460,000 to Daniel Thompson, the Company’s Chairman at such time.

These notes bear interest of 5 % per annum and mature

on June 30, 2026 .

The bonus expense was recognized in the period earned, and the issuance of the notes was accounted for as a non-cash

financing activity.

See also Note 8.

Convertible Notes Payable

and the disclosure regarding Note 41.

and the disclosure regarding the note issued to the Chief Executive Officer on August 25, 2023.

See also Note 9.

Capital Stock .

During the year ending December 31, 2023, the Company received net proceeds of $ 421,375 from convertible notes, repaid $ 175,000 and wrote

off $ 12,406 to convertible noteholders.

There are debt discounts associated with the convertible debt of $ 0 and $ 24,821 at December 31,

2024 and 2023, respectively.

For the years ended December 31, 2024 and 2023, the Company recorded amortization of debt discounts of $ 24,821

3 with DML which further increased the maximum

advance amount to $ 15,000,000 .

On October 1, 2025, the Company and Nova entered into amendment No.

4 with DML which further increased

the maximum advance amount to $ 23,000,000 .

Under the terms of the facility, collections from

these receivables are used to repay advances outstanding, which are recognized as secured borrowings totaling $ 17,209,908 and $ 8,645,991

as of December 31, 2025 and December 31, 2024, respectively.

The unused line of credit balance as of December 31, 2025 and 2024 was $ 5,790,092

and $ 6,354,009 , respectively.

During the year ended December 31, 2024, the Company

converted $ 680 in accrued interest and $ 1,000 in conversion cost into 1,222 shares of common stock.

The Company recognized $ 1,679 of additional

paid-in capital to adjust fair value for the debt settlement during the year ended December 31, 2024.

During the year ended December 31,

2023, the Company converted $ 87,460 of convertible debt, $ 112,429 in accrued interest and $ 3,000 in conversion cost into 13,068 shares

of the Company’s common stock.

The Company recognized $ 777,217 of additional paid-in capital to adjust fair value for the debt settlement

during the year ended December 31, 2023.

The accrued interest related to the line of credit was $ 673,267 and $ 315,031 as of December 31, 2025 and

December 31, 2024, respectively.

The revolving purchase and security agreement includes discounts recorded as interest expense on each

funding and matures on September 28, 2028.

The facility is subject to customary recourse and repurchase provisions, and includes certain

covenants and restrictions on further pledge or sale of receivables.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

1 unchanged sentence

DECEMBER 31, 2025 AND 2024

CONVERTIBLE NOTES PAYABLE

As of December 31, 2025 and December 31, 2024,

the Company had convertible debt outstanding, net of amortized debt discount, of $ 118,295 and $ 105,000 , respectively.

Debt discounts associated

with the convertible debt at December 31, 2025 were $ 131,705 and there was no debt discounts associated with the convertible debt at December

Due to the short time period between issuance and December 31, 2025, $ 0 amortization of debt discounts was recorded for the

year ended December 31, 2025.

For the year ended December 31, 2024, the Company recorded amortization of debt discounts of $ 24,821 .

the year ended December 31, 2025, the Company received $ 200,000 in proceeds from convertible notes and no interest was repaid.

the year ended December 31, 2025, the Company converted $ 154,049 in principal and accrued interest and $ 1,500 in conversion cost into

64,165 shares of common stock.

The Company recognized $ 145,871 of additional paid-in capital to adjust the fair value for the debt settlement

during the year ended December 31, 2025.

During the year ended December 31, 2024, the Company

made payments on outstanding principal and interest of $ 105,080 and $ 122,780 , respectively.

During the year ended December 31, 2024, the

Company converted $ 680 in accrued interest and $ 1,000 in conversion cost into 1,222 shares of common stock.

The Company recognized $ 1,679

of additional paid-in capital to adjust fair value for the debt settlement during the year ended December 31, 2024.

On June 11, 2024, the Company entered into a settlement

agreement and release of claims with the holder of certain notes (see below and also Note 7.

Notes and Loans Payable for further

Pursuant to the settlement agreement and release of claims, the holder agreed to cancel these notes in exchange for a new fixed

amount settlement promissory note in the principal amount of $ 535,000 .

Additionally, during the year ended December 31, 2024, the Company

exchanged certain notes for the issuance of 938,908 shares of series Y senior convertible preferred stock to the noteholder.

Capital Stock .

Convertible notes as of December 31, 2025 and

6 unchanged sentences

Long-term portion

The following is a schedule of convertible notes

payable as of and for the year ended December 31, 2024.

Schedule of convertible notes

Principal Balance 12/31/23

Settlements and/or Principal Conversions

New Loans or (Cash Paydown)

Shares Issued Upon Conversion or Exchange

Principal Balance 12/31/24

Accrued Interest on Convertible Debt at 12/31/23

Interest On Convertible Debt For the Period Ended 12/31/24

Accrued Interest on Convertible Debt at 12/31/24

Unamortized Debt Discount At 12/31/24

( 2,600,000 )

$ ( 3,621,770 )

$ ( 105,080 )

$ ( 507,158 )

938,908 Series Y Senior Convertible Preferred Shares issued in exchange for full value of the outstanding principal and interest on Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7, 40-8, 40-9 and 40-10.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

On September 12, 2016, the Company issued a convertible

promissory note in the principal of $80,000 for services rendered, which matured on September 12, 2017.

Note 9 was in default and accrued

at a default interest rate of 20% per annum.

In May of 2024, the $ 58,846 total outstanding principal and interest was paid in full.

Note 10, 10-1, 10-2 and 10-3

In May of 2024, the $ 58,846 total

outstanding principal and interest was paid in full.

On January 24, 2017, the Company issued a convertible

promissory note in the principal amount of $80,000 for services rendered, which matured on January 24, 2018.

Note 10 is currently in default

and accrues interest at a default interest rate of 20% per annum.

On February 10, 2023, the Company executed a second tranche under this

note in the principal amount of $50,000 (Note 10-1).

On March 30, 2023, the Company executed a third tranche under this note in the principal

amount of $25,000 (Note 10-2).

On August 11, 2023, the Company executed a fourth tranche under this note in the principal amount of $25,000

In May of 2024, the $ 63,513 total outstanding principal and interest on Note 10-1 was paid in full.

Notes 10-2 and 10-3 are

currently in default and accrue interest at a default interest rate of 20% per annum.

Notes 29-2, 37-1, 37-2 and 37-3

On August 26, 2025, the total

outstanding principal and accrued interest of $154,049 of this tranche was converted into 64,165 shares of the Company’s common

On February 10, 2023, the Company executed a second tranche under this note in the principal amount of $50,000.

In May of 2024,

$ 63,513 of outstanding principal and interest on this tranche was paid in full.

On March 30, 2023, the Company executed a third tranche

under this note in the principal amount of $25,000.

On August 11, 2023, the Company executed a fourth tranche under this note in the principal

amount of $25,000.

As of December 31, 2025, the outstanding principal amount is $ 50,000 and accrued interest is $ 23,370 .

currently in default and accrues interest at a default interest rate of 20% per annum.

At the sole option of the holder, the holder may

convert the outstanding principal amount, or any portion of the principal amount, and any accrued interest, in whole or in part, into

shares of the Company’s common stock.

The conversion price is $ 0.25 per share or 50% of the lowest closing price on the primary

trading market on which the Company’s common stock is quoted for the last ten trading days immediately prior to but not including

the conversion date, whichever is lower.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

On May 10, 2019, the Company issued a convertible

promissory note in the principal amount of $150,000.

On November 8, 2019, this note (Note 29) was purchased by and assigned to an unrelated

The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,918, which was issued as Note 29-1,

plus a new convertible promissory note in the principal amount of $62,367, which was issued as Note 29-2.

On September 3, 2020, the Company issued a convertible

promissory note in the principal amount of $200,000, with an original issue discount of $50,000, which could be drawn in several tranches.

On September 3, 2020, the Company executed the first tranche in the principal amount of $67,000, less an original issue discount of $17,000,

which matured on June 30, 2021 (Note 37-1).

On November 8, 2019, this note was purchased by and assigned to an unrelated party.

The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,918, which was issued as a new note, plus

a new convertible promissory note in the principal amount of $62,367.

On September 3, 2020, the Company issued a convertible promissory

note in the principal amount of $200,000 to the same holder, with an original issue discount of $50,000, which could be drawn in several

On September 3, 2020, the Company executed the first tranche in the principal amount of $67,000, less an original issue discount

of $17,000, which matured on June 30, 2021.

On November 2, 2020, the Company executed the second tranche in the principal amount of $66,500,

less an original issue discount of $16,500, which matured on August 31, 2021 (Note 37-2).

On December 29, 2020, the Company executed the

third tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021 (Note

On June 11, 2024, the Company entered into a settlement

agreement and release of claims with the holder of Notes 29-2, 37-1, 37-2 and 37-3 (see Note 7.

Notes and Loans Payable for further

Pursuant to the settlement agreement and release of claims, the holder agreed to cancel these notes, along with the cancellation

of their holding in the series R preferred stock, in exchange for a new fixed amount settlement promissory note in the principal amount

of $ 535,000 .

Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7, 40-8, 40-9 and 40-10

less an original issue discount of $16,500, which matured on August 31, 2021.

On December 29, 2020, the Company executed the third tranche

in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021.

On June 11, 2024,

the Company entered into a settlement agreement and release of claims with the holder.

Pursuant to the settlement agreement and release

of claims, the holder agreed to cancel these notes, along with the cancellation of their shares of series R preferred stock, in exchange

for a new fixed amount settlement promissory note in the principal amount of $ 535,000 .

Notes and Loans Payable for

further details.

On September 22, 2022, the Company issued a convertible

promissory note in the principal amount of $2,600,000 in exchange for total of $4,791,099 of defaulted promissory notes balances (Note

On November 4, 2022, the Company executed a second tranche under this note in the principal amount of $68,667, less an original

issue discount and fee of $18,667 (Note 40-2).

On November 28, 2022, the Company executed the third tranche under this note in the principal

amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-3).

On December 21, 2022, the Company executed a fourth

tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-4).

24, 2023, the Company executed a fifth tranche under this note in the principal amount of $90,166, less an original issue discount and

fee of $25,166 (Note 40-5).

On March 21, 2023, the Company executed a sixth tranche under this note in the principal amount of $136,666,

less an original issue discount and fee of $39,166 (Note 40-6).

On June 5, 2023, the Company executed a seventh tranche under this note

in the principal amount of $136,667, less original issue discount and fee of $39,167 (Note 40-7).

On June 13, 2023, the Company executed

an eighth tranche under this note in the principal amount of $21,167, less original issue discount and fee of $5,167 (Note 40-8).

19, 2023, the Company executed a ninth tranche under this note in the principal amount of $35,500, less an original issue discount and

fee of $8,875 (Note 40-9).

On July 24, 2023, the Company executed a tenth tranche under this note in the principal amount of $14,000,

less an original issue discount and fee of $3,500 (Note 40-10).

On December 1, 2023, the Company executed amendment on Notes series 40

consolidated senior secured convertible promissory note to extend the expired tranche note 40-1 through 40-5’ due date to September

All of the Note 40 tranches mature in one year from the note issuance date and accrue interest at a rate of 10% per annum.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

On April 11, 2024, the Company issued 938,908

shares of series Y senior convertible preferred stock in exchange for the settlement of the principal and interest in full on Notes 40-1,

40-2, 40-3, 40-4, 40-5, 4-6, 40-7, 40-8, 40-9 and 40-10.

promissory note in the principal amount of $2,600,000 in exchange for a total of $4,791,099 of defaulted promissory notes balances.

November 4, 2022, the Company executed a second tranche under this note in the principal amount of $68,667, less an original issue discount

and fee of $18,667.

On November 28, 2022, the Company executed the third tranche under this note in the principal amount of $68,667, less

an original issue discount and fee of $18,667.

On December 21, 2022, the Company executed a fourth tranche under this note in the principal

amount of $68,667, less an original issue discount and fee of $18,667.

On January 24, 2023, the Company executed a fifth tranche under

this note in the principal amount of $90,166, less an original issue discount and fee of $25,166.

On March 21, 2023, the Company executed

a sixth tranche under this note in the principal amount of $136,666, less an original issue discount and fee of $39,166.

On June 5, 2023,

the Company executed a seventh tranche under this note in the principal amount of $136,667, less original issue discount and fee of $39,167.

On June 13, 2023, the Company executed an eighth tranche under this note in the principal amount of $21,167, less original issue discount

and fee of $5,167.

On July 19, 2023, the Company executed a ninth tranche under this note in the principal amount of $35,500, less an

original issue discount and fee of $8,875.

On July 24, 2023, the Company executed a tenth tranche under this note in the principal amount

of $14,000, less an original issue discount and fee of $3,500.

On December 1, 2023, the Company executed an amendment to extend the maturity

date to September 20, 2024.

All of the tranches matured in one year from the note issuance date and accrued interest at a rate of 10%

On April 11, 2024, the Company issued 938,908 shares of series Y senior convertible preferred stock in exchange for the settlement

of the principal and interest in full on these notes.

See also Note 9.

1 unchanged sentence

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 was 10% per annum.

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

convertible promissory note in the principal amount of $ 5,000 to the Company’s Chief Executive Officer for the Company’s operating

The rate of interest is 10 % per annum.

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

In December 2025, the Company entered into loan

agreements with two accredited investors, pursuant to which the Company issued to such investors (i) convertible promissory notes in the

aggregate principal amount of $ 200,000 , (ii) warrants for the purchase of an aggregate of 66,667 shares of common stock and (iii) 6,667

shares of common stock for total gross and net proceeds of $ 200,000 .

The Company concluded that the notes, warrants and common shares

represent freestanding financial instruments issued as a single financing unit and, accordingly, allocated the total transaction proceeds

to each instrument based on their relative fair values.

The fair value of the warrants was estimated using the Black-Scholes option pricing

model, and the fair value of the common shares was based on the quoted market price on the issuance date.

The aggregate amount allocated

to the warrants and common shares was recorded as a debt discount and is being amortized to interest expense over the contractual term

of the notes.

These notes accrue interest at a rate of twelve percent ( 12 %) per annum, payable in shares of common stock, cash or a combination

thereof at our option quarterly commencing on April 1, 2026, with all principal and accrued interest being due and payable one (1) year

after issuance.

The Company may prepay the principal and accrued interest at any time without penalty upon fifteen (15) days’ notice.

These notes are unsecured and contain customary events of default for a loan of this type.

These notes are convertible into shares of

common stock at a conversion price of $ 3.00 (subject to standard adjustments in the event of any stock splits, stock combinations, dividends

paid in common stock, stock reclassifications or similar transactions).

As of December 31, 2025, the outstanding balance of these notes

is $ 200,000 and they have accrued interest of $ 499 .

See also Note 9.

Capital Stock and Note 10.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

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.

The Company is authorized to issue 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

9 unchanged sentences

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

with ASC 480, “Distinguishing Liabilities from Equity”.

preferred stock and series X senior convertible preferred stock as mezzanine equity in accordance with ASC 480, “Distinguishing

Liabilities from Equity”.

Series N Senior Convertible Preferred Stock

As of December 31, 2025 and 2024, there were 1,037,311

and 921,636 shares of series N senior convertible preferred stock issued and outstanding, respectively.

The series N senior convertible

17 unchanged sentences

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.

At December 31, 2025 and 2024, cumulative dividends earned on the series N senior convertible preferred stock were

$ 1,783,571 and $ 1,320,879 , respectively.

During the year ended December 31, 2025, $ 462,693 of the cumulative accrued dividends were paid

by Company via the issuance of 115,675 shares of series N senior convertible preferred stock.

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 common stock and $ 214,317

of the cumulative accrued dividends were paid by the Company via the issuance of 53,580 shares of series N senior convertible preferred

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

43 unchanged sentences

provided, however, that such redemption right shall only be

exercisable if the Company raises at least $5,000,000 or the common stock is trading on the Nasdaq Stock Market or the New York Stock

Series R Convertible Preferred Stock

The series R convertible preferred

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

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

series R convertible preferred stock;

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

exercisable if the Company raises at least $5,000,000 or the common stock is trading on the Nasdaq Stock Market (“Nasdaq”)

or the New York Stock Exchange.

Series R Convertible Preferred Stock

and (iii) junior to the series N senior convertible preferred stock, series X senior convertible

preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series R convertible

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

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 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 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 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 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,

preferences or rights given to the series R convertible preferred stock or alter or amend the certificate of designation, (ii) authorize

or create any class of stock ranking as to redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu

with, the series R convertible preferred stock, or authorize or create any class of stock ranking as to dividends senior to, or otherwise

pari passu with, the series R convertible preferred stock, (iii) amend its articles of incorporation or other charter documents

in any manner that adversely affects any rights of the holders of the series R convertible preferred stock, (iv) increase the number of

authorized shares of series R convertible preferred stock, or (v) enter into any agreement with respect to any of the foregoing.

Conversion Rights .

Each 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.

Notwithstanding the foregoing, the Company shall not effect any conversion of the series R convertible preferred stock,

and a holder shall not have the right to convert any portion of the series R convertible preferred stock, to the extent that, after giving

effect to the conversion, such holder (together with such holder’s affiliates, and any persons acting as a group together with such

holder or any of such holder’s affiliates) would beneficially own in excess of 4.99% of the then outstanding common stock.

The conversion

price 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 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 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

and price provided for in the Subsequent Financing.

Company Redemption Rights .

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

by (ii) the sum of (x) the stated value ($1,200), (y) all accrued but unpaid dividends, and (z) all other amounts due to the holder.

Rate” means (a) 1.1 if all of the series R convertible preferred stock is redeemed within ninety (90) calendar days from the issuance

date thereof;

(b) 1.2 if all of the series R convertible preferred stock is redeemed after ninety (90) calendar days and within one hundred

twenty (120) calendar days from the issuance date thereof;

one hundred twenty (120) calendar days and within one hundred eighty (180) calendar days from the issuance date thereof;

if all of the series R convertible preferred stock is redeemed after one hundred eighty (180) calendar days.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

Redemption Upon Triggering Events .

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);

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).

As of December 31, 2025 and December 31, 2024,

there were no shares of series R convertible preferred issued and outstanding.

The series R convertible preferred stock was cancelled

as part of the June 2024 promissory note and settlement agreement.

See also Note 8.

Convertible Notes Payable and Note 10.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

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 12,370 shares of common stock to six previous owners.

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The Company recognized the fair value for the issuance of the 2,500 shares at $4.65 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

On March 26, 2024, the Company issued an aggregate of 10,002 shares of common stock to three board members.

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The Company issued 408 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.

Share-based compensation

On January 31, 2024, the Company’s board

of directors and stockholders adopted the Cardiff Lexington Corporation 2024 Equity Incentive Plan (the “Plan”).

may be granted include incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance

share awards, and performance compensation awards.

As of December 31, 2025, pursuant to the Plan, the maximum number of shares of common

stock that could be issued to participants under the Plan was 921,675 (subject to adjustment for certain corporate changes affecting the

common stock, such as stock splits);

provided 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, 2026, the number of shares increased

to 1,606,718 .

Share-based compensation expense is attributable

to restricted common stock awards, stock option awards and preferred stock granted to non-employee independent directors, employees and

service providers for services rendered.

The Company recognizes expense using a straight-line amortization method as reflected in general

and administrative expense in the consolidated statement of operations.

Share-based compensation expense for the year ended December 31,

2025 and 2024 was $ 754,475 and $ 544,725 , respectively.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Generally, all forms of share-based payments,

including stock option grants, warrants and restricted stock grants are measured at their fair value on the awards’ grant date,

based on the estimated number of awards that are ultimately expected to vest.

The Company has elected to account for forfeitures as they

occur and expense is recognized over the requisite service period.

Grant date fair value of restricted common stock and common stock awards

is determined using the Company’s closing share price on the grant date and the grant date fair value of stock options awarded is

determined using a Black-Scholes valuation model.

Grant date fair value of any preferred stock awards is determined utilizing a third-party

Non-Vested Common Stock

On September 26, 2025, the Company issued an aggregate

of 5,001 shares of restricted common stock under the Plan to three board members for their annual retainer grants for the fiscal year

2024, which vested in full on the date of grant.

The Company recognized the fair value for the issuance of the shares at $4.59 per share

based on the closing market price on the grant date.

Share-based compensation expense of $ 22,950 was recorded in the consolidated statement

of operations.

There is no unearned compensation as of December 31, 2025 related to this award.

Also on September 26, 2025, the Company issued

an aggregate of 5,001 shares of restricted common stock under the Plan to three board members for their annual retainer grants for the

fiscal year 2025, with 1,250 shares vesting on the date of grant and the remaining shares vesting in equal parts over the course of three

quarters on October 1, 2025, January 1, 2026 and April 1, 2026.

As of December 31, 2025, the Company recognized the fair value for the

issuance of the vested shares at $4.59 per share based on the closing market price on the grant date.

Share-based compensation expense

of $ 17,213 was recorded in the consolidated statement of operations for the year ended December 31, 2025.

As of December 31, 2025, the

remaining unearned compensation related to this award is $ 5,738 with a weighted average amortization period remaining of 0.25 years.

costs will be charged to expense and amortized on a straight-line basis in the first quarter of 2026.

On December 11, 2025, the Company administratively

issued an aggregate of 111,674 shares of restricted common stock for restricted stock awards to certain employees for services rendered

under the Plan.

Although the shares were issued on December 11, 2025, in accordance with ASC 718, the Company determined that a grant-date

did not occur until January 2026.

As a result, the Company recorded the issued shares in equity on December 11, 2025, with a corresponding

contra-equity unearned compensation balance.

As of December 31, 2025, unearned stock-based compensation related to this award was $ 579,215

with a weighted average amortization period remaining of 0.96 years.

These costs will be charged to expense and amortized on a straight-line

basis from its determined grant date in January 2026 through the remaining vesting periods in 2026.

A summary of non-vested restricted stock activity for the year ended

December 31, 2025 is presented as follows:

Schedule of non-vested restricted stock activity

Non-vested Restricted Common Shares

Grant Date Fair Value

Balance at January 1, 2025

Balance at December 31, 2025

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Stock Options

On December 11, 2025, the Company granted stock

options to purchase 90,002 shares of its common stock to certain employees and directors under the Plan.

The options have an exercise

price equal to the fair market value of the Company’s common stock on the grant date of $5.187 per share, vest in equal parts over

the course of four quarters beginning January 1, 2026, and expire six years from the grant date.

The Company estimated the grant-date fair value

of the options using the Black-Scholes option-pricing model.

The weighted-average assumptions used in the valuation were as follows:

interest rate:

Expected volatility was estimated using a blended

approach that incorporates both the Company’s historical volatility and the historical volatilities of a peer group of publicly

traded healthcare companies with similar size, stage, and operating characteristics.

The Company utilized the simplified method to estimate

expected term due to limited historical exercise data.

The weighted-average grant-date fair value of

options granted during the period was $ 5.15 per option, resulting in total grant date fair value of $ 463,251 .

Share-based compensation

expense is recognized on a straight-line basis over the requisite service period.

Total unrecognized compensation cost at December 31,

2025 was $ 347,439 and the weighted-average remaining amortization period is 0.75 years.

Intrinsic value is $ 0 at grant and will remain

$0 until the stock trades above the exercise price.

The table below sets forth the option activity

during the year ended December 31, 2025:

Schedule of option activity

Outstanding at January 1, 2025

Expired/Forfeited

Outstanding at December 31, 2025

Options Vested and Exercisable at December 31, 2025

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

On October 31, 2025, the Company issued a three-year

warrant to purchase 100,000 shares of common stock at $ 3.00 per share with an investor relations firm as part of a service agreement.

The warrant will vest and become exercisable 30 days prior to the Company’s successful uplisting of its common stock to a national

securities exchange.

As of December 31, 2025, the uplisting event had not occurred and was not considered probable yet based on the status

of the Company’s application and the remaining substantive listing requirements.

Accordingly, no fair value has been calculated

and no liability or equity instrument has been recognized related to the warrant as of December 31, 2025.

If the uplisting occurs in a

future period, the Company will recognize the warrant at its fair value on the date the uplist contingency becomes probable or is satisfied

with the corresponding impact recorded in equity.

See also Note 9.

Capital Stock .

On December 22, 2025, the Company entered into

a financing arrangement pursuant to which it issued a twelve-month convertible promissory note with a principal amount of $ 50,000 , together

with a warrant to purchase 16,667 shares of common stock at $ 9.00 per share and 1,667 shares of common stock.

The Company concluded that

the note, warrant and common shares represent freestanding financial instruments issued as a single financing unit and, accordingly, allocated

the total transaction proceeds to each instrument based on their relative fair values.

The $1.72 per share fair value of the warrant was

estimated using a Black-Scholes option pricing model, and the fair value of the common shares was based on the quoted market price on

the issuance date.

The aggregate amount allocated to the warrant and common shares was recorded as a debt discount and is being amortized

to interest expense over the contractual term of the note.

See also Note 8.

Convertible Notes Payable and Note 9.

Capital Stock .

On December 23, 2025, the Company entered into

a financing arrangement pursuant to which it issued a twelve-month convertible promissory note with a principal amount of $ 150,000 , together

with a warrant to purchase 50,000 shares of common stock at $ 9.00 per share and 5,000 shares of common stock.

The Company concluded that

the note, warrant and common shares represent freestanding financial instruments issued as a single financing unit and, accordingly, allocated

the total transaction proceeds to each instrument based on their relative fair values.

The $1.76 per share fair value of the warrant was

estimated using a Black-Scholes option pricing model, and the fair value of the common shares was based on the quoted market price on

the issuance date.

The aggregate amount allocated to the warrant and common shares was recorded as a debt discount and is being amortized

to interest expense over the contractual term of the note.

See also Note 8.

Convertible Notes Payable and Note 9.

Capital Stock .

On December 29, 2025, the Company issued a three-year

warrant to purchase 33,334 shares of common stock at $ 9.00 per share with an investor relations firm in connection with a financing transaction

that also included the issuance of a convertible promissory note and restricted common shares.

The related promissory note did not fund

as of December 31, 2025 and as such, there is no consideration for the transaction in its entirety.

In accordance with ASC 405 and ASC

470, there is no debt liability and no warrant value recorded as of December 31, 2025 because no cash was received in 2025.

The tables below set forth warrant activity during

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Warrants Exercisable at December 31, 2025

Balance at January 1, 2023

Balance at December 31, 2023

Warrants Exercisable at December 31, 2023

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

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DECEMBER 31, 2025 AND 2024

Balance at January 1, 2024

Balance at December 31, 2024

Warrants Exercisable at December 31, 2024

DISCONTINUED OPERATIONS

On November 10, 2023, the Company sold Platinum

Tax, which was a full-service tax resolution firm located in Los Angeles, California.

Through this subsidiary the Company provided fee-based

tax resolution services to individuals and companies that have federal and state tax liabilities by assisting clients to settle outstanding

As part of the Asset Purchase Agreement between the Company and the purchaser, the assets that were purchased included substantially

all assets, rights, interests, and licenses except for banks accounts in place prior to the sale for the purchase consideration of 15%

of cash collected by the purchaser within one year following the sale date.

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.

The income from discontinued operations presented

in the consolidated statement of operations for the year ended December 31, 2025 represents obligations which were reported as net liabilities

from discontinued operations on the consolidated balance sheet as of December 31, 2024, related to the sale of Platinum Tax, a business

previously owned by the Company, which was sold in November 2023, that have been subsequently determined no longer due and payable, due

to the final resolution and dismissal of liabilities and legal claim, and therefore have been released.

In accordance with ASC 205-20,

this adjustment has been reflected within income (loss) from discontinued operations in the accompanying consolidated statements of operations

for the year ended December 31, 2025.

The adjustment did not impact income from continuing operations.

The $ 111,312 loss from discontinued operations

presented in the consolidated statement of operations for the year ended December 31, 2024 is a part of the execution of a settlement

reached in July 2022 with six previous owners of Red Rock, an entity that was discontinued by the Company in May 2019.

As a result, the

Company recognized the fair value for the issuance of 12,370 shares at $9 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.

Schedule of discontinued operations

Net liabilities of discontinued operations

Accounts receivable

Accounts payable and accrued expenses

1 unchanged sentence

$ ( 238,285 )

$ ( 237,643 )

Year Ended December 31,

Gain (Loss) from discontinued operations

Cost of sales

Selling, general and administrative expenses

Interest expense

Loss on settlement

Loss from discontinued operations

Gain (loss) on settlement

$ ( 111,312 )

Gain (loss) from discontinued operations

$ ( 111,312 )

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

The Company reviews goodwill for impairment on

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whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

The Company also made the accounting policy decision

not to recognize lease assets and liabilities for leases with a term of 12 months or less.

The Company leases twelve medical facilities and

The Company leases eleven medical facilities and

one vehicle as operating leases as of December 31, 2025.

2 unchanged sentences

The Company has operating leases with future commitments

Schedule of operating leases

Schedule of operating leases with future commitments

Total Future Undiscounted Lease Payments

1 unchanged sentence

Total lease obligations

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

The following table summarizes supplemental information

about the Company’s leases:

Schedule of supplemental information about leases

Schedule of supplemental information

Weighted-average remaining lease term

Weighted-average discount rate

As of December 31, 2024, the Company agreed to

pay $360,000 per year and $250,000 of targeted annual incentives to the Chief Executive Officer based on his employment agreement and

its related amendments since July 1, 2020, of which 75% was paid in cash and 25% was accrued.

As of December 31, 2023, the Company agreed

to pay $360,000 per year and $200,000 of targeted annual incentives to the Chief Executive Officer based on his employment agreement since

July 1, 2020, of which 50% was paid in cash and 50% was accrued.

The total outstanding accrued compensation as of December 31, 2024 and

2023 were $ 2,215,500 and $ 2,365,500 , respectively.

As of December 31, 2024, the Company agreed to

pay $360,000 per year and $250,000 of targeted annual incentives to the Chairman of the Board based on his employment agreement and its

related amendments since July 1, 2020, of which 56% was paid in cash and 44% was accrued.

As of December 31, 2023, the Company agreed

to pay $360,000 per year and $200,000 of targeted annual incentives to the Chairman of the Board based on his employment agreement since

July 1, 2020, of which 50% was paid in cash and 50% was accrued.

The total outstanding accrued compensation as of December 31, 2024 and

December 31, 2023 was $ 2,320,500 and $ 2,350,500 , respectively.

The Company agreed to pay $ 156,000 per year to

the previous Chief Financial Officer based on his amended employment agreement executed on May 15, 2021.

The total outstanding accrued

compensation as of December 31, 2024 and 2023 was $ 17,057 .

The Company entered into a management agreement

effective May 31, 2021 for compensation to the principals of Nova in the form of an annual base salaries of $ 372,000 to one of the three

doctors, $ 450,000 to the second, and $ 372,000 to the third doctor.

Collectively, as a group, such principals will receive an annual cash

bonus and stock equity set forth below, which will be conditioned upon the Company achieving 100% of the annual objectives of financial

performance goals as set forth below.

For the years ended December 31, 2024 and 2023 the Company

recorded $0 in annual cash bonus as financial performance objectives were not achieved.

The Company did not record an accrual for the

bonus for the years ended December 31, 2024 and 2023 as the financial performance objectives were not expected to be met.

Schedule of annual objectives of financial performance

Minimum Annual Nova EBITDA

Cash Annual Bonus

Series J Preferred Stock

120,000 Shares

135,000 Shares

150,000 Shares

180,000 Shares

210,000 Shares

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 AND 2023

In connection with separate employment agreements

and related addendums with Alex Cunningham, the Company’s Chairman, President and Chief Executive Officer, and Daniel Thompson,

the Company’s former Chairman, from time to time the Company accrued each of their respective compensation elements at their election

rather than pay them in cash to Accrued expenses - related parties in the Company’s consolidated balance sheet.

The total outstanding

accrued compensation as of December 31, 2025 and 2024 for Alex Cunningham was $ 2,163,000 and $ 2,215,500 , respectively, and for Daniel

Thompson was $ 2,237,167 and $ 2,320,500 , respectively, all of which is included in Accrued expenses – related parties in the consolidated

balance sheets as of December 31, 2025 and 2024, respectively.

The total interest accrued as of December 31, 2025 was $ 111,588 for Alex

Cunningham, and $ 117,014 for Daniel Thompson.

See also Note 8.

Convertible Notes Payable ,

Capital Stock and Note 10.

Conversion of Deferred Compensation

On January 29, 2026, the Company entered into

a conversion agreement with Alex Cunningham, the Company’s Chief Executive Officer, pursuant to which deferred compensation in the

amount of $2,365,242 owed to Mr.

Cunningham was cancelled in exchange for 556,528 shares of common stock.

The number of shares issued

was determined based on the closing market price of the Company’s common stock of $4.25 on January 28, 2026.

Because the underlying

compensation was fully earned and the fair value of equity issued equals the amount accrued, the settlement will be accounted for as an

equity issuance with no impact on the Company’s consolidated statements of operations.

The Company will record a reduction to accrued

compensation and a corresponding increase to stockholders’ equity upon issuance of the shares.

On March 6, 2026, the Company entered into a conversion

agreement with Daniel Thompson, the Company’s former Chairman of the Board, pursuant to which deferred compensation in the amount

of $2,352,994 owed to Mr.

Thompson was cancelled in exchange for 588,249 shares of common stock.

The number of shares issued was determined

based on the closing market price of the Company’s common stock of $4.00 on March 4, 2026.

Because the underlying compensation was

fully earned and the fair value of equity issued equals the amount accrued, the settlement will be accounted for as an equity issuance

with no impact on the Company’s consolidated statements of operations.

The Company will record a reduction to accrued compensation

and a corresponding increase to stockholders’ equity upon issuance of the shares.

Compensation Resolution Agreement

On March 6, 2026, the Company entered into a lock-up

and compensation resolution agreement with Daniel Thompson, the Company’s former Chairman of the Board, to resolve outstanding accrued

compensation obligations.

Under the agreement, the Company issued an unsecured promissory note in the principal amount of $116,666.66

bearing interest at 10% annually, payable interest-only in year one and 50% principal in each of years two and three, with all amounts

due within three years.

The agreement also required Mr.

Thompson to execute a lock-up agreement in connection with the Company’s

planned public offering.

CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2025 AND 2024

Amendment to Series N Certificate of Designation

On January 29, 2026, the Company filed a certificate

of amendment to the certificate of designation for its series N senior convertible preferred stock with the Nevada Secretary of State’s

Office to amend the certificate of designation to remove the redemption provisions, which previously provided for an optional redemption

by the Company and a mandatory redemption at the option of the holder in certain circumstances.

As a result of this modification, the

preferred stock no longer meets the criteria for classification outside of permanent equity.

The $3,802,010 carrying value will be reclassified

from mezzanine equity to permanent equity prospectively on the Company’s consolidated balance sheet.

Additional Stock Issuances

As described above, on November 25, 2025, the

Company issued 100,000 shares of common stock to a consulting service provider.

The service agreement included a provision that entitles

the provider to receive additional shares in the event of a reverse stock split.

The reverse stock split noted above became effective

on January 12, 2026, and as a result, the Company issued 200,000 shares of common stock on January 13, 2026.

The Company will recognize

the incremental expense related to these shares based upon the fair value at the grant date.

See also Note 9.

Capital Stock .

On January 13, 2026, the Company issued a restricted

stock award for 62,500 shares of common stock, of which 31,250 shares vested on the date of grant and 15,625 shares will vest on each

of January 2, 2027 and January 2, 2028.

On January 14, 2026, the Company issued 13,761

to a service provider.

Pursuant to the requirements of Section 13 or

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/s/ Alex Cunningham

Chief Executive Officer and Director (principal executive officer)

Chairman of the Board, President and Chief Executive Officer (principal executive officer)

March 10, 2026

4 unchanged sentences

Matthew Shafer

/s/ Daniel Thompson

Chairman of the Board

March 14, 2025

Daniel Thompson

/s/ Gillard B.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures