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CAPITAL STOCK
 6 Months Ended
Jun. 30, 2026
Equity [Abstract]  
CAPITAL STOCK

 

10. CAPITAL STOCK

 

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

 

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, 400,000 shares of series L preferred stock, 3,000,000 shares of series N senior convertible preferred stock, 5,000,000 shares of series X senior convertible preferred stock and 1,500,000 shares of series Y senior convertible preferred stock.

 

The Company’s Annual Report on Form 10-K for the year ended December 31, 2025 contains a description of the rights and preferences of each series of preferred stock.

 

Redeemable Preferred Stock

 

The Company recognizes the series X senior convertible preferred stock as mezzanine equity in accordance with ASC 480, “Distinguishing Liabilities from Equity”.

 

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 was reclassified from mezzanine equity to permanent equity on the Company’s condensed consolidated balance sheet as of March 31, 2026, prospectively.

 

Series X Senior Convertible Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were 460,233 and 438,388 shares of series X senior convertible preferred stock issued and outstanding, respectively. For the six months ended June 30, 2026, cumulative dividends earned on the series X senior convertible preferred stock were $87,379. The cumulative accrued dividends for the six months ended June 30, 2026 were paid by the Company via the issuance of 21,845 shares of series X senior convertible preferred stock.

 

Non-redeemable Preferred Stock

 

Series A Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were 2 shares of series A preferred stock issued and outstanding.

 

Series B Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were no shares of series B preferred stock issued and outstanding. During the year ended December 31, 2025, all outstanding shares of series B preferred stock were converted into common stock.

 

Series C Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were no shares of series C preferred stock issued and outstanding. During the year ended December 31, 2025, all outstanding shares of series C preferred stock were converted into common stock.

 

Series E Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were no shares of series E preferred stock issued and outstanding, respectively. During the year ended December 31, 2025, all outstanding shares of series E preferred stock were converted into common stock.

 

Series F-1 Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were 3,875 shares of series F-1 preferred stock issued and outstanding.

 

Series I Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were no shares of series I preferred stock issued and outstanding. During the year ended December 31, 2025, all outstanding shares of series I preferred stock were converted into common stock.

 

Series L Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were 319,493 shares of series L preferred stock issued and outstanding.

 

Series N Senior Convertible Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were 1,099,957 and 1,037,311 shares of series N senior convertible preferred stock issued and outstanding, respectively. For the six months ended June 30, 2026, cumulative dividends earned on the series N senior convertible preferred stock were $250,581. The cumulative accrued dividends for the six months ended June 30, 2026 were paid by the Company via the issuance of 62,646 shares of series N senior convertible preferred stock.

 

Series Y Senior Convertible Preferred Stock

 

As of June 30, 2026 and December 31, 2025, there were 1,122,091 and 1,067,878 shares of series Y senior convertible preferred stock issued and outstanding, respectively. For the six months ended June 30, 2026, cumulative dividends earned on the series Y senior convertible preferred stock were $217,400. $216,848 in cumulative accrued dividends for the period December 2, 2025 through June 1, 2026 were paid by the Company via the issuance of 54,213 shares of series Y senior convertible preferred stock. At June 30, 2026, the total dividend payable was $35,661 (for the period June 2, 2026 through June 30, 2026).

 

Preferred Stock Transactions

 

During the six months ended June 30, 2026, the Company executed the following transactions:

 

  · An aggregate of 54,213 shares of series Y senior convertible preferred stock were issued with an aggregate value of $216,848.
     
  · An aggregate of 62,646 shares of series N senior convertible preferred stock were issued with an aggregate value of $250,581.
     
  · An aggregate of 21,845 shares of series X senior convertible preferred stock were issued with an aggregate value of $87,379.

 

During the six months ended June 30, 2025, the Company executed the following transactions:

 

  · An aggregate of 300,000 shares of series B preferred stock, 6 shares of series C preferred stock and 54,000 shares of series E preferred stock were issued in exchange for the cancellation of an aggregate of 391,500 shares of series I preferred stock.
     
  · An aggregate of 1,579,867 shares of series B preferred stock were converted into an aggregate of 1,053,248 shares of common stock.
     
  · An aggregate of 80 shares of series C preferred stock were converted into an aggregate of 266,668 shares of common stock.
     
  · An aggregate of 229,375 shares of series E preferred stock were converted into an aggregate of 152,917 shares of common stock.
     
  · An aggregate of 2,500 shares of series I preferred stock were converted into an aggregate of 1,667 shares of common stock.
     
  · An aggregate of 36,890 shares of series Y senior convertible preferred stock were issued with an aggregate value of $147,560.
     
  · An aggregate of 55,661 shares of series N senior convertible preferred stock were issued with an aggregate value of $222,638.
     
  · An aggregate of 19,791 shares of series X senior convertible preferred stock were issued with an aggregate value of $79,161.

 

Common Stock

 

Common Stock Purchase Agreement

 

On June 5, 2026, the Company entered into a Common Stock Purchase agreement (the “Purchase Agreement”) and a Registration Rights Agreement with an institutional investor (the “Investor”) pursuant to which the Investor has committed to purchase up to $25,000,000 of shares of the Company’s common stock; provided that such amount may be increased to $75,000,000 in the Company’s sole discretion (the “Total Purchase Commitment”). In consideration for the Investor’s commitment to purchase shares of common stock under the Purchase Agreement, the Company has agreed to issue to the Investor a number of shares of common stock equal to $250,000 (or $750,000 if the Total Purchase Commitment is increased to $75,000,000) equal to the closing price of the Company’s common stock on the effective date of the Registration Statement (as defined below) (the “Commitment Shares”), upon written demand by the Investor.

 

Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to the Investor, and the Investor is obligated to purchase, shares of common stock in an amount of up to the Total Purchase Commitment. Sales under the Purchase Agreement will not commence until all of the conditions set forth in the Purchase Agreement have been satisfied, including that a registration statement on Form S-1 (the “Registration Statement”) is declared effective by the SEC and a final prospectus in connection therewith is filed (such conditions were satisfied effective as of July 7, 2026). Thereafter, the Company may, subject to the satisfaction of certain additional conditions set forth in the Purchase Agreement, from time to time and at its sole discretion, for a period of thirty-six (36) months, on any trading day that it selects, provided that the Closing Sale Price (as defined below) of the common stock is equal to or greater than $0.20 (unless such requirement is waived by the Investor) and that all shares of common stock subject to all prior purchases have been properly delivered to the Investor in accordance with the Purchase Agreement, direct the Investor to purchase up to a number of shares of common stock equal to the lesser of (i) 40% of the lowest Daily Value Traded (as defined below) of the common stock on the five (5) trading days immediately preceding the purchase date, (ii) 250,000 shares of common stock, or (iii) $250,000. For purposes of the Purchase Agreement, “Closing Sale Price” means the greater of (i) the then current book value of the common stock and (ii) the last closing trade price for the common stock on its principal trading market, as reported by Bloomberg L.P., and “Daily Value Traded” means the product obtained by multiplying the daily trading volume of the common stock during regular trading hours as reported by Bloomberg L.P. by the dollar volume-weighted average price for the common stock, as reported by Bloomberg L.P. through its “AQR” function, for such trading day.

 

The Company will control the timing and amount of any sales of common stock to the Investor. The purchase price of the shares that may be sold to the Investor under the Purchase Agreement will be equal to 97% of the lowest daily volume weighted average price of the common stock for the five (5) trading days immediately preceding the applicable purchase date; provided, however, that if the Investor waives the requirement that the Closing Sale Price is equal to or greater than $0.20 and purchases are made at less than $0.20, then the discount shall be adjusted to 90%, and the Company must reimburse the Investor for any incremental increase in trading commissions and clearing costs incurred in connection therewith. Pursuant to the Purchase Agreement, if the lowest trade price of the Company’s common stock on the trading day on which the shares are delivered via DWAC is lower than the price at which the shares were initially issued, the Company is required to issue additional shares, not to exceed 10% of the original purchase amount, to ensure the Investor receives the intended economic value of the purchase. These additional shares represent a post-settlement operational true-up and are recorded in equity when issued. The purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction occurring after the date of the Purchase Agreement.

 

During the three months ended June 30, 2026, the Company did not issue any shares or receive any proceeds under the Purchase Agreement. Please also refer to Note 17. Subsequent Events.

 

The purchases are indexed to the Company’s own stock and meets the equity classification requirements of ASC 815-40. Accordingly, no derivative liability is recorded for this feature.

 

Common Stock Transactions

 

During the six months ended June 30, 2026, in addition to the conversions of preferred stock noted above, the Company issued common stock as part of the following transactions:

 

  · On January 6, 2026, the Company issued an aggregate of 16,667 shares of common stock in connection with a financing transaction that also included the issuance of convertible promissory notes and warrants. As the shares of common stock were freestanding equity instruments issued as part of a single financing unit, the fair value recognized by the Company was measured at its grant date fair value based on the closing market price as of January 6, 2026 of $5.10 per share and then allocated along with the fair values of the promissory note and the warrants to each instrument in the financing units. The allocated fair value of the shares was then recorded to additional paid-in-capital with a corresponding debt discount recognized in connection with the related promissory note. See also Note 8. Convertible Notes Payable and Note 11. Warrants.
     
  · On January 13, 2026, in accordance with an agreement effective November 24, 2025, which included a provision that entitles a consultant service provider to receive additional common shares in the event of a reverse stock split, the Company issued 200,000 shares of common stock to the provider subsequent to the reverse stock split which was effected by the Company on January 12, 2026. The Company recognized the fair value for the issuance of the 200,000 shares at the November 24, 2025 grant-date fair value of $2.55 per share, and recorded selling, general and administrative expense of $357,000 in the consolidated statement of operations.
     
  · On January 13, 2026, the Company issued 62,500 shares of common stock to an employee for services in settlement of a bonus payable totaling $228,000, 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 shares of common stock to a legal service provider. The Company recognized the fair value for the issuance of the 13,761 shares of $60,000 per the service agreement, and recorded selling, general and administrative expense in the consolidated statement of operations.
     
  · On January 16, 2026, the Company issued an aggregate of 20,000 shares of common stock in connection with a financing transaction that also included the issuance of convertible promissory notes and warrants. As the shares of common stock were freestanding equity instruments issued as part of a single financing unit, the fair value recognized by the Company was measured at its grant date fair value based on the closing market price as of January 20, 2026 (date funds received by the Company) of $4.00 per share and then allocated along with the fair values of the promissory note and the warrants to each instrument in the financing unit. The allocated fair value of the shares was then recorded to additional paid-in-capital with a corresponding debt discount recognized in connection with the related promissory note. See also Note 8. Convertible Notes Payable and Note 11. Warrants.

 

  · On January 31, 2026, the Company cancelled 6,667 shares of common stock following the forfeiture of the underlying award. The cancelled shares were returned to the status of authorized and unissued common stock and the $29,667 value of the award was removed from unearned compensation. Stock Compensation expense had not yet been recorded for this award at the time of cancellation.
     
  · On February 3, 2026, the Company issued 556,528 shares of common stock pursuant to a conversion agreement with Alex Cunningham, the Company’s Chief Executive Officer, for which deferred compensation in the amount of $2,365,242 owed to Mr. Cunningham was cancelled. 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 was accounted for as an equity issuance with no impact on the Company’s consolidated statements of operations. The Company recorded a reduction to accrued compensation and a corresponding increase to stockholders’ equity upon issuance of the shares. See also Note 5. Related Party Transactions.
     
  · On February 28, 2026, the Company cancelled 5,000 shares of common stock following the forfeiture of the underlying award. The cancelled shares were returned to the status of authorized and unissued common stock and the $22,250 value of the award was removed from unearned compensation. In accordance with ASC 718, previously recorded stock compensation expense of $1,854 was removed from the consolidated statement of operations at the time of cancellation.
     
  · On March 6, 2026, the Company issued 588,249 shares of common stock pursuant to a conversion agreement with Daniel Thompson, the Company’s former Chairman of the Board, for which deferred compensation in the amount of $2,352,994 owed to Mr. Thompson was cancelled. 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 was accounted for as an equity issuance with no impact on the Company’s consolidated statements of operations. The Company recorded a reduction to accrued compensation and a corresponding increase to stockholders’ equity upon issuance of the shares. See also Note 5. Related Party Transactions.
     
  · On March 19, 2026, the Company issued 19,614 shares of common stock to an investor relations service provider. The Company recognized the fair value for the issuance of the 19,614 shares of $30,000 per the service agreement in settlement of stock compensation payable.
     
  · On April 1, 2026, the Company issued an aggregate of 15,000 shares of restricted common stock under the Company’s 2024 Equity Incentive Plan to three board members for their annual retainer grants for the fiscal year 2026, with shares vesting in equal parts over the course of four quarters on July 1, 2026, October 1, 2026, January 1, 2027, and April 1, 2027. As of April 1, 2026, the Company recognized the fair value for the issuance of the vested shares at $2.42 per share based on the closing market price on the grant date. Share-based compensation expense of $9,064 was recorded in the consolidated statement of operations for the three months ended June 30, 2026. Unearned compensation for this award was $27,191 at June 30, 2026.
     
  · On April 1, 2026, the Company issued an aggregate of 4,175 shares of common stock to various holders of our convertible notes as payment of quarterly accrued interest.
     
  · On April 17, 2026, the Company issued 100,000 shares of common stock to a consulting service provider per the terms of an extension of a service agreement for services to be provided through July 2026. The shares were issued related to the extension period, and as such, the measurement date is the issuance date with the fair value of the issuance measured at $1.45 per share based on the closing market price on April 17, 2026. As the shares are payment for future services, the fair value was initially recorded as a prepaid expense on the condensed consolidated balance sheet and will be expensed to share-based compensation expense over the term of the agreement. As of June 30, 2026, share-based compensation expense of $120,833 was recorded in the consolidated statement of operations.
     
  · On April 30, 2026, the Company cancelled 3,334 shares of common stock following the forfeiture of the underlying award. The cancelled shares were returned to the status of authorized and unissued common stock and the $14,833 value of the award was removed from unearned compensation. In accordance with ASC 718, previously recorded stock compensation expense of $3,708 was removed from the consolidated statement of operations at the time of cancellation.

 

During the six months ended June 30, 2025, in addition to the conversions of preferred stock noted above, the Company issued common stock as part of the following transactions:

 

  · In June 2025, as part of a legal settlement, the Company retired 19,750 shares of common stock.
  · On June 30, 2025, the Company issued 5,000 shares of common stock to an investor relation service provider. The Company recognized the fair value for the issuance of the 5,000 shares at $19.50 per share on the closing market price of June 30, 2025 and recorded selling, general and administrative expense of $97,500 in the consolidated statement of operations.

 

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”). Awards that may be granted include incentive stock options, non-qualified stock options, stock appreciation rights, restricted awards, performance share awards, and performance compensation awards. In accordance with the annual evergreen provision of the Plan, the number of shares available for issuance increased on January 1, 2026 to 1,606,718.

 

Share-based compensation expense is attributable to the issuance of the Company’s common stock, 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. Total share-based compensation expense in the consolidated statement of operations for the three months ended June 30, 2026, and 2025 was $366,939 and $97,500, respectively. Total share-based compensation expense for the three months ended June 30, 2026, includes $228,106 of employee related expense for the issuance of restricted stock grants and stock options that were recorded to stock compensation expense and $138,833 related to the issuance of the Company’s common stock to external service providers that were recorded to professional fees. Total share-based compensation expense for the three months ended June 30, 2025, included $97,500 related to the issuance of the Company’s common stock to external service providers that were recorded to professional fees.

 

Total share-based compensation expense in the consolidated statement of operations for the six months ended June 30, 2026, and 2025 was $1,031,135 and $97,500, respectively. Total share-based compensation expense for the six months ended June 30, 2026, includes $460,302 related to the issuance of restricted stock grants and stock options to employees that were recorded to stock compensation expense, as well as $570,833 related to the issuance of the Company’s common stock to external service providers that were recorded to professional fees. Total share-based compensation for the six months ended June 30, 2025, includes $97,500 related to the issuance of the Company’s common stock to external service providers that were recorded to professional fees.

 

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 valuation.

 

Non-Vested Common Stock

 

Share-based compensation expense related to non-vested common stock of $112,293 and $0 was recorded in the consolidated statement of operations for the three months ended June 30, 2026 and 2025, respectively. Share-based compensation expense related to non-vested common stock of $228,676 and $0 was recorded in the consolidated statement of operations for the six months ended June 30, 2026 and 2025, respectively. Total unrecognized compensation cost related to unvested awards was $241,066 and $0 as of June 30, 2026 and 2025, respectively, which is expected to be recognized over a weighted-average period of 0.63 of a year.

 

On April 1, 2026, the Company issued an aggregate of 15,000 shares of the Company’s restricted common stock for the annual Director’s share grant award. The award will vest in equal parts over the course of four (4) quarters (i.e., January 1, April 1, July 1 and October 1) commencing on July 1, 2026. On April 17, 2026, in accordance with an extension of an agreement effective November 24, 2025, the Company issued 100,000 shares of common stock to a consulting service provider for services to be rendered. The award vests in equal parts over the course of April 2026 through July 2026. On January 13, 2026, the Company issued a restricted stock award for 62,500 shares of common stock.

 

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. Share-based compensation expense is recognized on a straight-line basis over the requisite service period. During the three and six months ended June 30, 2026, the Company recognized $115,813 and $231,626 in share-based compensation expense related to these options, respectively. Total unrecognized compensation cost at June 30, 2026 is $115,813 and the weighted-average remaining amortization period is 0.25 of a year.