Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Cardiff Lexington Corporation (the “Company”)
is filing this Amendment No 1 on Form 10-Q (“Amendment”) to amend its Quarterly Report on Form 10-Q for
the three months ended March 31, 2024, which was originally filed with the Securities and Exchange Commission on May 10, 2024 (the “Form
10-Q”).
This Amendment is being filed to correct an
error in the Form 10-Q as a result of a change in classification of credit loss expense to net revenue. Additionally, the Company filed
this Amendment to respond to certain comments received from the staff of the Securities and Exchange Commission. The Form 10-Q, as amended
by this Amendment, continues to be as of May 10, 2024 and does not reflect events occurring after May 10, 2024.
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
The accompanying notes are an integral part of
these condensed consolidated financial statements
| 8. | CONVERTIBLE NOTES PAYABLE |
As of March 31, 2024 and December 31, 2023,
the Company had convertible debt outstanding net of amortized debt discount of $3,820,545
and $3,807,030,
respectively. During the three months ended March 31, 2024, the Company did not receive any proceeds from convertible notes and
repaid $50,000
of accrued interest to convertible noteholder. During the three months ended March 31, 2023, the Company received net proceeds of
$240,000
from convertible notes. There are debt discounts associated with the convertible debt of $11,305
and $24,820
at March 31, 2024 and December 31, 2023, respectively. For the three months ended March 31, 2024 and 2023, the Company recorded
amortization of debt discounts of $13,515
and $17,983,
respectively.
During the three months ended March 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 three months ended March 31, 2024. During
the three months ended March 31, 2023, the Company converted $58,800 of convertible debt, $5,873 in accrued interest and $2,000 in penalties
and fees into 1,583 shares of common stock.
Convertible notes as of March 31, 2024 and December
31, 2023 are summarized as follows:
Schedule of convertible notes | |
| | |
| |
| |
March 31, 2024 | | |
December 31, 2023 | |
Convertible notes payable | |
$ | 3,831,850 | | |
$ | 3,831,850 | |
Discounts on convertible notes payable | |
| (11,305 | ) | |
| (24,820 | ) |
Total convertible debt less debt discount | |
| 3,820,545 | | |
| 3,807,030 | |
Current portion | |
| 3,820,545 | | |
| 3,807,030 | |
Long-term portion | |
$ | – | | |
$ | – | |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
The following is a schedule of convertible notes
payable as of and for the three months ended March 31, 2024.
Schedule of convertible notes
payable | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Note # | |
Issuance | |
Maturity | |
Principal
Balance 12/31/23 | | |
New Loan | | |
Principal
Conversions | | |
Cash
Paydown | | |
Shares
Issued Upon Conversion | | |
Principal
Balance 03/31/24 | | |
Accrued
Interest on Convertible Debt at 12/31/23 | | |
Interest
Expense On Convertible Debt For the Period Ended 03/31/24 | | |
Accrued
Interest on Convertible Debt at 03/31/24 | | |
Unamortized
Debt Discount At 03/31/24 | |
9 | |
09/12/2016 | |
09/12/2017 | |
$ | 50,080 | | |
| – | | |
| – | | |
| – | | |
| 1,222 | | |
$ | 50,080 | | |
$ | 5,581 | | |
$ | 2,496 | | |
| 7,399 | | |
| – | |
10 | |
01/24/2017 | |
01/24/2018 | |
| 55,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 55,000 | | |
| 80,875 | | |
| 2,742 | | |
| 83,618 | | |
| – | |
10-1 | |
02/10/2023 | |
02/10/2024 | |
| 50,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 50,000 | | |
| 6,658 | | |
| 1,870 | | |
| 8,527 | | |
| – | |
10-2 | |
03/30/2023 | |
03/30/2024 | |
| 25,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 25,000 | | |
| 2,836 | | |
| 935 | | |
| 3,771 | | |
| – | |
10-3 | |
08/11/2023 | |
08/11/2024 | |
| 25,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 25,000 | | |
| 1,469 | | |
| 935 | | |
| 2,404 | | |
| – | |
29-2 | |
11/08/2019 | |
11/08/2020 | |
| 36,604 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 36,604 | | |
| 10,109 | | |
| 2,190 | | |
| 12,299 | | |
| – | |
31 | |
08/28/2019 | |
08/28/2020 | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 8,385 | | |
| – | | |
| – | | |
| – | |
37-1 | |
09/03/2020 | |
06/30/2021 | |
| 113,667 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 113,667 | | |
| 64,929 | | |
| 5,101 | | |
| 70,030 | | |
| – | |
37-2 | |
11/02/2020 | |
08/31/2021 | |
| 113,167 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 113,167 | | |
| 63,594 | | |
| 5,079 | | |
| 68,673 | | |
| – | |
37-3 | |
12/29/2020 | |
09/30/2021 | |
| 113,166 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 113,166 | | |
| 62,558 | | |
| 5,079 | | |
| 67,637 | | |
| – | |
40-1 | |
09/22/2022 | |
09/22/2024 | |
| 2,600,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 2,600,000 | | |
| 252,665 | | |
| 64,821 | | |
| 267,488 | | |
| – | |
40-2 | |
11/04/2022 | |
09/22/2024 | |
| 68,667 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 68,667 | | |
| 7,939 | | |
| 1,712 | | |
| 9,651 | | |
| – | |
40-3 | |
11/28/2022 | |
09/22/2024 | |
| 68,667 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 68,667 | | |
| 7,506 | | |
| 1,712 | | |
| 9,217 | | |
| – | |
40-4 | |
12/21/2022 | |
09/22/2024 | |
| 68,667 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 68,667 | | |
| 7,054 | | |
| 1,712 | | |
| 8,766 | | |
| – | |
40-5 | |
01/24/2023 | |
03/21/2024 | |
| 90,166 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 90,166 | | |
| 8,284 | | |
| 2,248 | | |
| 10,531 | | |
| – | |
40-6 | |
03/21/2023 | |
09/22/2024 | |
| 139,166 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 139,166 | | |
| 10,671 | | |
| 3,470 | | |
| 14,141 | | |
| – | |
40-7 | |
06/05/2023 | |
06/05/2024 | |
| 139,166 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 139,166 | | |
| 7,826 | | |
| 3,470 | | |
| 11,295 | | |
| 6,530 | |
40-8 | |
06/13/2023 | |
06/13/2024 | |
| 21,167 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 21,167 | | |
| 1,127 | | |
| 528 | | |
| 1,654 | | |
| 1,032 | |
40-9 | |
07/19/2023 | |
07/19/2024 | |
| 35,500 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 35,500 | | |
| 1,605 | | |
| 885 | | |
| 2,490 | | |
| 2,650 | |
40-10 | |
07/24/2023 | |
07/24/2024 | |
| 14,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 14,000 | | |
| 614 | | |
| 349 | | |
| 963 | | |
| 1,093 | |
41 | |
08/25/2023 | |
08/25/2024 | |
| 5,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 5,000 | | |
| 175 | | |
| 125 | | |
| 300 | | |
| | |
| |
| |
| |
$ | 3,831,850 | | |
$ | – | | |
$ | – | | |
$ | – | | |
| 1,222 | | |
$ | 3,831,850 | | |
$ | 612,460 | | |
$ | 107,459 | | |
$ | 660,854 | | |
$ | 11,305 | |
Note 9
On September 12, 2016, the Company issued a convertible
promissory note in the principal of $80,000 for services rendered, which matured on September 12, 2017. Note 9 is currently in default
and accrues at a default interest rate of 20% per annum.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Note 10, 10-1, 10-2 and 10-3
On January 24, 2017, the Company issued a convertible
promissory note in the principal amount of $80,000 for services rendered, which matured on January 24, 2018. Note 10 is currently in default
and accrues interest at a default interest rate of 20% per annum. On February 10, 2023, the Company executed a second tranche under this
note in the principal amount of $50,000 (Note 10-1). On March 30, 2023, the Company executed a third tranche under this note in the principal
amount of $25,000 (Note 10-2). On August 11, 2023, the Company executed a fourth tranche under this note in the principal amount of $25,000
(Note 10-3). Notes 10-1 and 10-2 are currently in default and accrue interest at a default interest rate of 20% per annum. Note 10-3
accrues interest at a rate of 15% per annum.
Note 29-2
On May 10, 2019, the Company issued a convertible
promissory note in the principal amount of $150,000. On November 8, 2019, this note (Note 29) was purchased by and assigned to an unrelated
party. The amount assigned was the existing principal amount of $150,000 and accrued interest of $5,918, which was issued as Note 29-1,
plus a new convertible promissory note in the principal amount of $62,367, which was issued as Note 29-2. Note 29-2 is currently in default
and accrues interest at a default interest rate of 24% per annum.
Notes 37-1, 37-2 and 37-3
On September 3, 2020, the Company issued a convertible
promissory note in the principal amount of $200,000, with an original issue discount of $50,000, which could be drawn in several tranches.
On September 3, 2020, the Company executed the first tranche in the principal amount of $67,000, less an original issue discount of $17,000,
which matured on June 30, 2021 (Note 37-1). On November 2, 2020, the Company executed the second tranche in the principal amount of $66,500,
less an original issue discount of $16,500, which matured on August 31, 2021 (Note 37-2). On December 29, 2020, the Company executed the
third tranche in the principal amount of $66,500, less an original issue discount of $16,500, which matured on September 30, 2021 (Note
37-3). Notes 37-1, 37-2 and 27-3 are currently in default and accrue interest at a default interest rate of 18% per annum.
Notes 40-1, 40-2, 40-3, 40-4, 40-5, 40-6, 40-7, 40-8, 40-9 and 40-10
On September 22, 2022, the Company issued a convertible
promissory note in the principal amount of $2,600,000 in exchange for total of $4,791,099 of defaulted promissory notes balances (Note
40-1). On November 4, 2022, the Company executed a second tranche under this note in the principal amount of $68,667, less an original
issue discount and fee of $18,667 (Note 40-2). On November 28, 2022, the Company executed the third tranche under this note in the principal
amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-3). On December 21, 2022, the Company executed a fourth
tranche under this note in the principal amount of $68,667, less an original issue discount and fee of $18,667 (Note 40-4). On January
24, 2023, the Company executed a fifth tranche under this note in the principal amount of $90,166, less an original issue discount and
fee of $25,166 (Note 40-5). On March 21, 2023, the Company executed a sixth tranche under this note in the principal amount of $136,666,
less an original issue discount and fee of $39,166 (Note 40-6). On June 5, 2023, the Company executed a seventh tranche under this note
in the principal amount of $136,667, less original issue discount and fee of $39,167 (Note 40-7). On June 13, 2023, the Company executed
an eighth tranche under this note in the principal amount of $21,167, less original issue discount and fee of $5,167 (Note 40-8). On July
19, 2023, the Company executed a ninth tranche under this note in the principal amount of $35,500, less an original issue discount and
fee of $8,875 (Note 40-9). On July 24, 2023, the Company executed a tenth tranche under this note in the principal amount of $14,000,
less an original issue discount and fee of $3,500 (Note 40-10). On December 1, 2023, the Company executed amendment on Notes series 40
consolidated senior secured convertible promissory note to extend the expired tranche note 40-1 through 40-5’ due date to September
20, 2024. All of the Note 40 tranches mature in one year from the note issuance date and accrue interest at a rate of 10% per annum.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Note 41
On August 25, 2023, the Company issued a twelve-month
convertible promissory note in the principal amount of $5,000 to the Company’s CEO for the Company’s operating expenses. The
rate of interest is 10% per annum.
Preferred Stock
The Company has designated multiple series of
preferred stock, including 2 shares of series A preferred stock, 3,000,000 shares of series B preferred stock, 500 shares of series C
preferred stock, 1,000,000 shares of series E preferred stock, 50,000 shares of series F-1 preferred stock, 15,000,000 shares of series
I preferred stock, 2,000,000 shares of series J preferred stock, 400,000 shares of series L preferred stock, 3,000,000 shares of series
N senior convertible preferred stock, 5,000 shares of series R convertible preferred stock and 5,000,000 shares of series X senior convertible
preferred stock.
The following is a description of the rights and
preferences of each series of preferred stock.
Redeemable Preferred Stock
The Company recognized the series N senior convertible
preferred stock, series R convertible preferred stock and series X senior convertible preferred stock as mezzanine equity in accordance
with ASC 480, “Distinguishing Liabilities from Equity”.
Series N Senior Convertible Preferred Stock
Ranking. The series N senior convertible
preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common
stock and each other class or series that is not expressly made senior to or on parity with the series N senior convertible preferred
stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series N senior convertible preferred
stock; and (iii) junior to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company
and each class or series that is expressly made senior to the series N senior convertible preferred stock.
Dividend Rights. Holders of series N senior
convertible preferred stock are entitled to dividends at a rate per annum of 12.0% of the stated value ($4.00 per share); provided that
upon an event of default (as defined in the certificate of designation for the series N senior convertible preferred stock), such rate
shall increase by 8% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall
be payable quarterly in arrears on each dividend payment date in cash or common stock at the Company’s discretion. Dividends payable
in common stock shall be calculated based on a price equal to eighty percent (80%) of the volume weighted average price for the common
stock on the Company’s principal trading market (the “VWAP”) during the five (5) trading days immediately prior to the
applicable dividend payment date. At March 31, 2024 and December 31, 2023, cumulative dividends on Series N Preferred Stock were $871,462
and $766,437, respectively.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Liquidation Rights. Subject to the rights
of creditors and the holders of any senior securities or parity securities (in each case, as defined in the certificate of designation),
upon any liquidation of the Company or its subsidiaries, before any payment or distribution of the assets of the Company (whether capital
or surplus) shall be made to or set apart for the holders of junior securities (as defined in the certificate of designation), including
the common stock, each holder of outstanding series N senior convertible preferred stock shall be entitled to receive an amount of cash
equal to 115% of the stated value of $4.00 per share, plus an amount of cash equal to all accumulated accrued and unpaid dividends thereon
(whether or not declared) to, but not including the date of final distribution to such holders.
Voting Rights. Holders of series N senior
convertible preferred stock do not have any voting rights; provided that, so long as any shares of series N senior convertible preferred
stock are outstanding, the affirmative vote of holders of a majority of the series N senior convertible preferred stock, which majority
must include SILAC Insurance Company so long as it holds any shares of series N senior convertible preferred stock, voting as a separate
class, shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate
of designation or prior to the Company’s (or Nova’s) creation or issuance of any parity securities or new indebtedness (as
defined in the certificate of designation); provided that the foregoing shall not apply to any financing transaction the use of proceeds
of which will be used to redeem the series N senior convertible preferred stock and the warrants issued in connection therewith. In addition,
the affirmative vote of holders of 66% of the series N senior convertible preferred stock, voting as a separate class, is required prior
to the Company’s (or Nova’s) creation or issuance of any senior securities.
Conversion Rights. Each shares of series
N senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder
thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing
the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price of $900 per share
(subject to standard adjustments in the event of any stock splits, stock combinations, stock reclassifications, dividends paid in common
stock, sales of substantially all assets, mergers, consolidations or similar transactions); provided that in no event shall the holder
of any series N senior convertible preferred stock be entitled to convert any number of shares that upon conversion the sum of (i) the
number of shares of common stock beneficially owned by the holder and its affiliates and (ii) the number of shares of common stock issuable
upon the conversion of the series N senior convertible preferred stock with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the then outstanding common stock. This
limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion, upon not less than sixty-one (61) days’
prior notice to the Company.
Redemption Rights. The Company may redeem
the series N senior convertible preferred stock at any time by paying in cash therefore a sum equal to 115% of the stated value of $4.00
per share, plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the certificate of designation.
In addition, any holder may require the Company to redeem some or all of its shares of series N senior convertible preferred stock on
the same terms after a period of twelve months from the date of issuance; provided, however, that such redemption right shall only be
exercisable if the Company raises at least $5,000,000 or the common stock is trading on the Nasdaq Stock Market or the New York Stock
Exchange.
Series R Convertible Preferred Stock
Ranking. The series R convertible preferred
stock ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock, series
B preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series I preferred stock, series J
preferred stock, series L preferred stock and to each other class or series that is not expressly made senior to or on parity with the
series R convertible preferred stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the
series R convertible preferred stock; and (iii) junior to the series N senior convertible preferred stock, series X senior convertible
preferred stock and to each other series of preferred stock and each class or series that is expressly made senior to the series R convertible
preferred stock, as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Dividend Rights. The holders of series
R convertible preferred stock are entitled to receive cumulative dividends in the amount of twelve percent (12%) per annum, payable quarterly.
In addition, holders of series R convertible preferred stock are entitled to receive dividends equal (on an as converted to common stock
basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares
of common stock. Any dividends that are not paid when due shall continue to accrue and shall entail a late fee, which must be paid in
cash, at the rate of 18% per annum or the lesser rate permitted by applicable law which shall accrue and compound daily from the missed
payment date through and including the date of actual payment in full. At March 31, 2024 and December 31, 2023, cumulative dividends on
Series R Preferred Stock were $119,194 and $109,980, respectively.
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series R convertible preferred stock shall
be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the stated value ($1,200), plus
any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing, for each share of series R convertible
preferred stock before any distribution or payment shall be made to the holders of any junior securities.
Voting Rights. The holders of series R
convertible preferred stock will vote together with the common stock on an as-converted basis. However, as long as any shares of series
R convertible preferred stock are outstanding, the Company shall not, without the affirmative vote of the holders of a majority of the
then outstanding shares of the series R convertible preferred stock, directly and/or indirectly (i) alter or change adversely the powers,
preferences or rights given to the series R convertible preferred stock or alter or amend the certificate of designation, (ii) authorize
or create any class of stock ranking as to redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu
with, the series R convertible preferred stock, or authorize or create any class of stock ranking as to dividends senior to, or otherwise
pari passu with, the series R convertible preferred stock, (iii) amend its articles of incorporation or other charter documents
in any manner that adversely affects any rights of the holders of the series R convertible preferred stock, (iv) increase the number of
authorized shares of series R convertible preferred stock, or (v) enter into any agreement with respect to any of the foregoing.
Conversion Rights. Each shares of series
R convertible preferred stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such
number of fully paid and nonassessable shares of common stock determined by dividing the stated value ($1,200 per share) by a conversion
price equal to the lower of (i) $75.0 and (ii) the lowest daily VWAP during the twenty (20) trading days immediately prior to the applicable
conversion date. Notwithstanding the foregoing, the Company shall not effect any conversion of the series R convertible preferred stock,
and a holder shall not have the right to convert any portion of the series R convertible preferred stock, to the extent that, after giving
effect to the conversion, such holder (together with such holder’s affiliates, and any persons acting as a group together with such
holder or any of such holder’s affiliates) would beneficially own in excess of 4.99% of the then outstanding common stock. The conversion
price is subject to adjustment for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately
decreases or increases the common stock, as well as for mergers, business combinations and certain other fundamental transactions. In
addition, subject to certain exceptions, upon any issuance by the Company or any of its subsidiaries of common stock or common stock equivalents
for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the holder may elect, in
its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of series R convertible preferred stock
then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis.
Participation Rights. Subject to certain
exceptions, upon a Subsequent Financing, a holder of at least 100 shares of series R convertible preferred stock shall have the right
to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing on the same terms, conditions
and price provided for in the Subsequent Financing.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Company Redemption Rights. The Company
has the right to redeem all (but not less than all), shares of the series R convertible preferred stock issued and outstanding at any
time upon three (3) business days’ notice, at a redemption price per share equal to the product of (i) the Premium Rate multiplied
by (ii) the sum of (x) the stated value ($1,200), (y) all accrued but unpaid dividends, and (z) all other amounts due to the holder. “Premium
Rate” means (a) 1.1 if all of the series R convertible preferred stock is redeemed within ninety (90) calendar days from the issuance
date thereof; (b) 1.2 if all of the series R convertible preferred stock is redeemed after ninety (90) calendar days and within one hundred
twenty (120) calendar days from the issuance date thereof; (c) 1.3 if all of the series R convertible preferred stock is redeemed after
one hundred twenty (120) calendar days and within one hundred eighty (180) calendar days from the issuance date thereof; and (iv) 1.0
if all of the series R convertible preferred stock is redeemed after one hundred eighty (180) calendar days.
Redemption Upon Triggering Events. Upon
the occurrence of a Triggering Event (as defined below), each holder of series R convertible preferred stock shall (in addition to all
other rights it may have) have the right, exercisable at the sole option of such holder, to require the Company to (A) redeem all of the
series R convertible preferred stock then held by such holder for a redemption price, in cash, equal to the Triggering Redemption Amount
(as defined below), or (B) at the option of each holder either (i) redeem all of the series R convertible preferred stock then held by
such holder though the issuance to such holder of such number of shares of common stock equal to the quotient of (x) the Triggering Redemption
Amount, divided by (y) the lowest of (1) the conversion price, and (2) 75% of the average of the 10 VWAPs immediately prior to the date
of election, or (ii) increase the dividend rate on all of the outstanding series R convertible preferred stock held by such holder retroactively
to the initial issuance date to 18% per annum thereafter. “Triggering Redemption Amount” means, for each share of series R
convertible preferred stock, the sum of (a) the greater of (i) 130% of the stated value and (ii) the product of (y) the VWAP on the trading
day immediately preceding the date of the Triggering Event, multiplied by (z) the stated value divided by the then applicable conversion
price, (b) all accrued but unpaid dividends thereon and (c) all liquidated damages, late fees and other costs, expenses or amounts due
in respect of the series R convertible preferred stock including, but not limited to legal fees and expenses of legal counsel to the holder
in connection with, related to and/or arising out of a Triggering Event. A “Triggering Event” means any of the following events
(whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
| · | the Company shall fail to deliver the shares of common stock issuable upon a conversion prior to the fifth
(5th) 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; |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
| · | 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). |
Series X Senior Convertible Preferred Stock
Ranking. The series X senior convertible
preferred stock ranks, with respect to the payment of dividends and the distribution of assets upon liquidation, (i) senior to all common
stock and each other class or series that is not expressly made senior to or on parity with the series X senior convertible preferred
stock; (ii) on parity with each class or series that is not expressly subordinated or made senior to the series X senior convertible preferred
stock; and (iii) junior to the series N senior convertible preferred stock, all indebtedness and other liabilities with respect to assets
available to satisfy claims against the Company and each class or series that is expressly made senior to the series X senior convertible
preferred stock.
Dividend Rights. Holders of series X senior
convertible preferred stock are entitled to dividends at a rate per annum of 10.0% of the stated value ($4.00 per share); provided that
upon an event of default (as defined in the certificate of designation for the series X senior convertible preferred stock), such rate
shall increase by 5% per annum. Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Dividends shall
be payable quarterly in arrears on each dividend payment date. At March 31, 2024 and December 31, 2023, cumulative dividends on Series
X Preferred Stock were $228,082 and $190,685, respectively.
Liquidation Rights. Subject to the rights
of creditors and the holders of any senior securities, including the series N senior convertible preferred stock, or parity securities
(in each case, as defined in the certificate of designation), upon any liquidation of the Company or its subsidiaries, before any payment
or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of junior securities
(as defined in the certificate of designation), including the common stock, each holder of outstanding series N senior convertible preferred
stock shall be entitled to receive an amount of cash equal to 100% of the stated value of $4.00 per share, plus an amount of cash equal
to all accumulated accrued and unpaid dividends thereon (whether or not declared) to, but not including the date of final distribution
to such holders.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Voting Rights. Holders of series X senior
convertible preferred stock do not have any voting rights; provided that, so long as any shares of series X senior convertible preferred
stock are outstanding, the affirmative vote of holders of a majority of the series X senior convertible preferred stock, which majority
must include Leonite Capital LLC so long as it holds any shares of series X senior convertible preferred stock, voting as a separate class,
shall be necessary for approving, effecting or validating any amendment, alteration or repeal of any of the provisions of the certificate
of designation or prior to the creation or issuance of any parity securities or new indebtedness (as defined in the certificate of designation);
provided that the foregoing shall not apply to any financing transaction the use of proceeds of which will be used to redeem the series
X senior convertible preferred stock and the warrants issued in connection therewith. In addition, the affirmative vote of holders of
66% of the series X senior convertible preferred stock, voting as a separate class, is required prior to the creation or issuance of any
senior securities.
Conversion Rights. Each shares of series
X senior convertible preferred stock, plus all accrued and unpaid dividends thereon, shall be convertible, at the option of the holder
thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of common stock determined by dividing
the stated value ($4.00 per share), plus the value of the accrued, but unpaid, dividends thereon, by a conversion price equal to the lower
of (i) the lowest VWAP during the five (5) trading days immediately prior to the applicable conversion date and (ii) the price per share
paid in any subsequent financing (the “Fixed Price”). The Fixed Price is subject to standard adjustments in the event of any
stock splits, stock combinations, stock reclassifications, dividends paid in common stock, sales of substantially all assets, mergers,
consolidations or similar transactions, as well as a price based antidilution adjustment, pursuant to which, subject to certain exceptions,
if the Company issues common stock at a price lower than the Fixed Price, the Fixed Price shall decrease to such lower price. Notwithstanding
the foregoing, in no event shall the holder of any series X senior convertible preferred stock be entitled to convert any number of shares
that upon conversion the sum of (i) the number of shares of common stock beneficially owned by the holder and its affiliates and (ii)
the number of shares of common stock issuable upon the conversion of the series X senior convertible preferred stock with respect to which
the determination of this proviso is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99%
of the then outstanding common stock. This limitation may be waived (up to a maximum of 9.99%) by the holder and in its sole discretion,
upon not less than sixty-one (61) days’ prior notice to the Company.
Redemption Rights. Commencing on September
22, 2023, any holder may require the Company to redeem its shares by the payment in cash therefore of a sum equal to 100% of the stated
value of $4.00 per share, plus the amount of accrued and unpaid dividends and any other amounts due pursuant to the terms of the certificate
of designation; provided however, that in the event that the Company completes a public offering prior to the redemption date, then any
holder may only cause the Company to redeem any outstanding series X senior convertible preferred stock by paying such redemption price
in twelve (12) equal monthly installments with the first such payment due on the date that is six (6) months following the date that the
Company completes such public offering.
Non-redeemable Preferred Stock
Series A Preferred Stock
Ranking. The series A preferred stock ranks,
with respect to the distribution of assets upon liquidation, (i) senior to all common stock and each other class or series that is not
expressly made senior to or on parity with the series A preferred stock; (ii) on parity with each class or series that is not expressly
subordinated or made senior to the series A preferred stock; and (iii) junior to the series B preferred stock, series C preferred stock,
series E preferred stock, series F-1 preferred stock, series I preferred stock, series J preferred stock, series L preferred stock, series
N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and each other
series of preferred stock and each class or series that is expressly made senior to the series A preferred stock, as well as to all indebtedness
and other liabilities with respect to assets available to satisfy claims against the Company.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Dividend Rights. The series A preferred
stock is not entitled to participate in any distributions or payments to the holders of common stock or any other class of stock and shall
have no economic interest in the Company.
Liquidation Rights. In the event of any
liquidation, dissolution or winding up of the Company, either voluntarily or involuntarily, a merger or consolidation of the Company wherein
the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company, the holders of each share
of series A preferred stock shall be entitled to receive from any distribution of any of the assets or surplus funds of the Company, before
and in preference of any holder of shares of common stock, an amount equal to the stated value of $250. Once the holders receive the foregoing
from any such liquidation, dissolution or winding up, the holders shall not participate with the common stock or any other class of stock.
Voting Rights. Each share of series A preferred
stock shall have a number of votes at any time equal to (i) 25% of the number of votes then held or entitled to be made by all other equity
securities of the Company, including, without limitation, the common stock, plus (ii) one (1). The series A preferred stock shall vote
on any matter submitted to the holders of the common stock, or any other class of voting securities, for a vote, and shall vote together
with the common stock, or any class of voting securities, as applicable, on such matter for as long as the shares of series A preferred
stock are issued and outstanding. Notwithstanding the foregoing, the series A preferred stock shall not have the right to vote on any
matter as to which solely another series of preferred stock is entitled to vote pursuant to the Company’s amended and restated articles
of incorporation or a certificate of designation of such other series of preferred stock.
Transfer. Upon transfer of any share of
series A preferred stock, except for a transfer by the holder to an affiliate, whether such transfer is voluntary or involuntary, such
share of series A preferred stock shall automatically, and without any action being required by the Company or the holder, be converted
into one (1) share of common stock.
Other Rights. Holders of series A preferred
stock do not have any conversion (except as set forth above) or redemption rights.
Series B Preferred Stock
Ranking. The series B preferred stock ranks,
with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other
class or series that is not expressly made senior to or on parity with the series B preferred stock; (ii) on parity with the series C
preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other
class or series that is not expressly subordinated or made senior to the series B preferred stock; and (iii) junior to the series I preferred
stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock
and to each other series of preferred stock and each class or series that is expressly made senior to the series B preferred stock, as
well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.
Dividend Rights. The holders of series
B preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be
paid on shares of series B preferred stock.
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series B preferred stock shall be entitled
to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series B preferred
stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series
B preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Voting Rights. On any matter presented
to stockholders for their action or consideration, each holder of series B preferred stock shall be entitled to cast one (1) vote per
share of series B preferred stock held. Except as provided by law, the holders of series B preferred stock shall vote together with the
holders of shares of common stock as a single class. However, as long as any shares of series B preferred stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of outstanding series B preferred stock, (a) alter or change adversely
the powers, preferences or rights given to the series B preferred stock or alter or amend the certificate of designation for the series
B preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner
that adversely affects any rights of the holders of series B preferred stock.
Conversion Rights. Each share of series
B preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of
common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which
the common stock is then traded or quoted is less than $4.00 per share, then each share of series B preferred stock shall be convertible
into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price
on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series
B preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing
of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective
registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company,
(b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation
the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event,
specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series B preferred stock, voting
together as a single class, each share of series B preferred stock shall be automatically converted into such number of shares of common
stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event
of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits).
Redemption Rights. Holders of series B
preferred stock do not have any redemption rights.
Series C Preferred Stock
Ranking. The series C preferred stock ranks,
with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other
class or series that is not expressly made senior to or on parity with the series C preferred stock; (ii) on parity with the series B
preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other
class or series that is not expressly subordinated or made senior to the series C preferred stock; and (iii) junior to the series I preferred
stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock
and to each other series of preferred stock and each class or series that is expressly made senior to the series C preferred stock, as
well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.
Dividend Rights. The holders of series
C preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be
paid on shares of series C preferred stock.
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series C preferred stock shall be entitled
to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series C preferred
stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series
C preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Voting Rights. On any matter presented
to stockholders for their action or consideration, each holder of series C preferred stock shall be entitled to cast one (1) vote per
share of series C preferred stock held. Except as provided by law, the holders of series C preferred stock shall vote together with the
holders of shares of common stock as a single class. However, as long as any shares of series C preferred stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of outstanding series C preferred stock, (a) alter or change adversely
the powers, preferences or rights given to the series C preferred stock or alter or amend the certificate of designation for the series
C preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner
that adversely affects any rights of the holders of series C preferred stock.
Conversion Rights. Each share of series
C preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of
common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $0.00004. In addition, on the date
on which the shares of common stock are listed on a national stock exchange, including without limitation the New York Stock Exchange,
NYSE American or the Nasdaq Stock Market (any tier) (a “Listing Event”), all outstanding shares of series C preferred stock
shall be automatically converted into such number of shares of common stock as is determined by dividing $50,000 by the highest traded
or closing price on such date, which such shares of common stock shall be issued pro rata among the holders of the outstanding series
C preferred stock. Finally, upon the earlier to occur of: (a) the closing of the sale of shares of common stock to the public at a price
of at least $3.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar
recapitalization with respect to the common stock) in a public offering pursuant to an effective registration statement or offering statement
under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company or (b) the date and time, or the occurrence
of an event, specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series C preferred
stock, voting together as a single class, each share of series C preferred stock shall be automatically converted into such number of
shares of common stock as is determined by dividing the stated value ($4.00 per share) by a conversion price of $0.00004. Such conversion
price is subject to standard adjustments in the event of any stock dividends, stock reclassifications and similar events (but not for
reverse stock splits).
Redemption Rights. If there is a Listing
Event, the Company shall have the right (but not the obligation) to redeem shares of series C preferred stock at a price per share of
$50,000.
Series E Preferred Stock
Ranking. The series E preferred stock ranks,
with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other
class or series that is not expressly made senior to or on parity with the series E preferred stock; (ii) on parity with the series B
preferred stock, series C preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock and each other
class or series that is not expressly subordinated or made senior to the series E preferred stock; and (iii) junior to the series I preferred
stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock
and to each other series of preferred stock and each class or series that is expressly made senior to the series E preferred stock, as
well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.
Dividend Rights. The holders of series
E preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be
paid on shares of series E preferred stock.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series E preferred stock shall be entitled
to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series E preferred
stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series
E preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.
Voting Rights. On any matter presented
to stockholders for their action or consideration, each holder of series E preferred stock shall be entitled to cast one (1) vote per
share of series E preferred stock held. Except as provided by law, the holders of series E preferred stock shall vote together with the
holders of shares of common stock as a single class. However, as long as any shares of series E preferred stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of outstanding series E preferred stock, (a) alter or change adversely
the powers, preferences or rights given to the series E preferred stock or alter or amend the certificate of designation for the series
E preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner
that adversely affects any rights of the holders of series E preferred stock.
Conversion Rights. Each share of series
E preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of
common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which
the common stock is then traded or quoted is less than $4.00 per share, then each share of series E preferred stock shall be convertible
into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price
on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series
E preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing
of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective
registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company,
(b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation
the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event,
specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series E preferred stock, voting
together as a single class, each share of series E preferred stock shall be automatically converted into such number of shares of common
stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event
of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits).
Series F-1 Preferred Stock
Ranking. The series F-1 preferred stock
ranks, with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each
other class or series that is not expressly made senior to or on parity with the series F-1 preferred stock; (ii) on parity with the series
B preferred stock, series C preferred stock, series E preferred stock, series J preferred stock, series L preferred stock and each other
class or series that is not expressly subordinated or made senior to the series F-1 preferred stock; and (iii) junior to the series I
preferred stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred
stock and to each other series of preferred stock and each class or series that is expressly made senior to the series F-1 preferred stock,
as well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.
Dividend Rights. The holders of series
F-1 preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be
paid on shares of series F-1 preferred stock.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series F-1 preferred stock shall be entitled
to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series F-1 preferred
stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series
F-1 preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.
Voting Rights. Except as provided by law,
the holders of series F-1 preferred stock shall have no voting rights. However, as long as any shares of series F-1 preferred stock are
outstanding, the Company shall not, without the affirmative vote of the holders of a majority of outstanding series F-1 preferred stock,
(a) alter or change adversely the powers, preferences or rights given to the series F-1 preferred stock or alter or amend the certificate
of designation for the series F-1 preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or
other charter documents in any manner that adversely affects any rights of the holders of series F-1 preferred stock.
Conversion Rights. Each share of series
F-1 preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares
of common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which
the common stock is then traded or quoted is less than $4.00 per share, then each share of series F-1 preferred stock shall be convertible
into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price
on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series
F-1 preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing
of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective
registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company,
(b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation
the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event,
specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series F-1 preferred stock, voting
together as a single class, each share of series F-1 preferred stock shall be automatically converted into such number of shares of common
stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event
of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits).
Redemption Rights. Holders of series F-1
preferred stock do not have any redemption rights.
Series I Preferred Stock
Ranking. The series I preferred stock ranks,
with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock, series B preferred
stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock, series L preferred stock
and to each other class or series that is not expressly made senior to or on parity with the series I preferred stock; (ii) on parity
with each class or series that is not expressly subordinated or made senior to the series I preferred stock; and (iii) junior to the series
N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock and to each other
series of preferred stock and each class or series that is expressly made senior to the series I preferred stock, as well as to all indebtedness
and other liabilities with respect to assets available to satisfy claims against the Company.
Dividend Rights. The holders of series
I preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be
paid on shares of series I preferred stock.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series I preferred stock shall be entitled
to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series I preferred
stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series
I preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.
Voting Rights. On any matter presented
to stockholders for their action or consideration, each holder of series I preferred stock shall be entitled to cast five (5) votes per
share of series I preferred stock held. Except as provided by law, the holders of series I preferred stock shall vote together with the
holders of shares of common stock as a single class. However, as long as any shares of series I preferred stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of outstanding series I preferred stock, (a) alter or change adversely
the powers, preferences or rights given to the series I preferred stock or alter or amend the certificate of designation for the series
I preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner
that adversely affects any rights of the holders of series I preferred stock.
Conversion Rights. Each share of series
I preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of
common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which
the common stock is then traded or quoted is less than $4.00 per share, then each share of series I preferred stock shall be convertible
into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price
on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series
I preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing
of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective
registration statement or offering statement under the Securities Act resulting in at least $10,000,000 of gross proceeds to the Company,
(b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation
the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event,
specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series I preferred stock, voting
together as a single class, each share of series I preferred stock shall be automatically converted into such number of shares of common
stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event
of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits).
Redemption Rights. Holders of series I
preferred stock do not have any redemption rights.
Series J Preferred Stock
Ranking. The series J preferred stock ranks,
with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other
class or series that is not expressly made senior to or on parity with the series J preferred stock; (ii) on parity with the series B
preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series L preferred stock and each other
class or series that is not expressly subordinated or made senior to the series J preferred stock; and (iii) junior to the series I preferred
stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock
and to each other series of preferred stock and each class or series that is expressly made senior to the series J preferred stock, as
well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.
Dividend Rights. The holders of series
J preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be
paid on shares of series J preferred stock.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series J preferred stock shall be entitled
to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series J preferred
stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series
J preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.
Voting Rights. On any matter presented
to stockholders for their action or consideration, each holder of series J preferred stock shall be entitled to cast one (1) vote per
share of series J preferred stock held. Except as provided by law, the holders of series J preferred stock shall vote together with the
holders of shares of common stock as a single class. However, as long as any shares of series J preferred stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of outstanding series J preferred stock, (a) alter or change adversely
the powers, preferences or rights given to the series J preferred stock or alter or amend the certificate of designation for the series
J preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner
that adversely affects any rights of the holders of series J preferred stock.
Conversion Rights. Each share of series
J preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of
common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which
the common stock is then traded or quoted is less than $4.00 per share, then each share of series J preferred stock shall be convertible
into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price
on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series
J preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing
of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective
registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company,
(b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation
the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event,
specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series J preferred stock, voting
together as a single class, each share of series J preferred stock shall be automatically converted into such number of shares of common
stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event
of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits).
Redemption Rights. Holders of series J
preferred stock do not have any redemption rights.
Series L Preferred Stock
Ranking. The series L preferred stock ranks,
with respect to the distribution of assets upon liquidation, (i) senior to all common stock, series A preferred stock and to each other
class or series that is not expressly made senior to or on parity with the series L preferred stock; (ii) on parity with the series B
preferred stock, series C preferred stock, series E preferred stock, series F-1 preferred stock, series J preferred stock and each other
class or series that is not expressly subordinated or made senior to the series L preferred stock; and (iii) junior to the series I preferred
stock, series N senior convertible preferred stock, series R convertible preferred stock, series X senior convertible preferred stock
and to each other series of preferred stock and each class or series that is expressly made senior to the series L preferred stock, as
well as to all indebtedness and other liabilities with respect to assets available to satisfy claims against the Company.
Dividend Rights. The holders of series
L preferred stock are entitled to receive dividends equal (on an as converted to common stock basis) to and in the same form as dividends
actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. No other dividends shall be
paid on shares of series L preferred stock.
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)
Liquidation Rights. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of series L preferred stock shall be entitled
to receive out of the assets of the Company the same amount that a holder of common stock would receive if the shares of series L preferred
stock were fully converted to common stock immediately prior to such liquidation, which amount shall be paid to the holders of series
L preferred stock pari passu with all holders of parity securities and in preference to the holders of junior securities.
Voting Rights. On any matter presented
to stockholders for their action or consideration, each holder of series L preferred stock shall be entitled to cast one (1) vote per
share of series L preferred stock held. Except as provided by law, the holders of series L preferred stock shall vote together with the
holders of shares of common stock as a single class. However, as long as any shares of series L preferred stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of outstanding series L preferred stock, (a) alter or change adversely
the powers, preferences or rights given to the series J preferred stock or alter or amend the certificate of designation for the series
L preferred stock, or (b) amend the Company’s amended and restated articles of incorporation or other charter documents in any manner
that adversely affects any rights of the holders of series L preferred stock.
Conversion Rights. Each share of series
L preferred stock is convertible, at any time and from time to time at the option of the holder thereof, into such number of shares of
common stock as is determined as follows: (i) if the closing market price of the common stock on the principal trading market on which
the common stock is then traded or quoted is less than $4.00 per share, then each share of series L preferred stock shall be convertible
into a number of shares of common stock equal to two (2) times the stated value ($4.00 per share), divided by such closing market price
on the date of conversion; or (ii) if such closing market price is equal to or greater than $4.00 per share, then each share of series
L preferred stock shall be convertible into two (2) shares of common stock. In addition, upon the earlier to occur of: (a) the closing
of the sale of shares of common stock to the public at a price of at least $3.00 per share in a public offering pursuant to an effective
registration statement or offering statement under the Securities Act resulting in at least $3,000,000 of gross proceeds to the Company,
(b) the date on which the shares of common stock of the Company are listed on a national stock exchange, including without limitation
the New York Stock Exchange, NYSE American or the Nasdaq Stock Market (any tier), or (c) the date and time, or the occurrence of an event,
specified by vote or written consent of the holders of at least 67% of the then outstanding shares of series L preferred stock, voting
together as a single class, each share of series L preferred stock shall be automatically converted into such number of shares of common
stock as is determined in accordance with the provisions above. Such conversion price is subject to standard adjustments in the event
of any stock dividends, stock reclassifications and similar events (but not for reverse stock splits).
Redemption Rights. Holders of series L
preferred stock do not have any redemption rights.
Preferred Stock Transactions
During the three months ended March 31, 2024,
the Company executed the following transactions:
| · | On January 19, 2024, the Company issued 62,500 shares of series I preferred stock to each of Daniel R.
Thompson, the Chairman of the Board, and Alex Cunningham, the Company’s Chief Executive Officer, for $250,000 bonus compensation
for the fiscal year of 2023, at the fair value of $4.48 per share. |
| | |
| · | On January 31, 2024, the Company issued 5,000 shares of series I preferred stock to Matthrew Shafer, the
Company’s Chief Financial Officer, for $20,000, at the fair value of $4.48 per share. |
| | |
| · | On January 31, 2024, the Company issued 2,500 shares of series I preferred stock to Zia Choe, the Company’s
Chief Accounting Officer, for $10,000, at the fair value of $4.48 per share. |
CARDIFF LEXINGTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024 AND 2023
(UNAUDITED)