10-Q 1 lsfp_10q.htm FORM 10-Q lsfp_10q.htm

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission file number 000-52102

 

LFTD PARTNERS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

87-0479286

(State or other jurisdiction of incorporation

or organization)

 

(I.R.S. Employer

Identification Number)

 

14155 Pine Island Drive, Jacksonville, FL 32224

(Address of principal executive offices)

 

(847) 915-2446

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12 of the Act:

 

Common Stock, $0.001 par value

 

LIFD

 

None

Title of each class

 

Trading symbol(s)

 

Name of exchange on which registered

 

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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.

 

 Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No ☒

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of May 13, 2024, there were 14,822,678 shares of the registrant’s common stock outstanding.

 

 

 

 

LFTD Partners Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2024

Table of Contents

 

 

PART I — FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

F-1

 

 

Consolidated Balance Sheets, March 31, 2024 (Unaudited) and December 31, 2023 (Audited)

 

F-1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

F-2

 

 

Consolidated Statements of Shareholders’ Equity (Deficit) for the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

F-3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (Unaudited)

 

F-4

 

 

Notes to the Consolidated Financial Statements (Unaudited)

 

F-5

 

Item 2.

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 

3

 

Item 3. 

Quantitative And Qualitative Disclosures About Market Risk

 

10

 

Item 4.

Controls And Procedures

 

10

 

 

PART II — OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

 

12

 

Item 1A.

Risk Factors

 

12

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

13

 

Item 3.

Defaults Upon Senior Securities

 

13

 

Item 4.

Mine Safety Disclosures

 

13

 

Item 5.

Other Information

 

13

 

Item 6.

Exhibits

 

14

 

 

Signatures

 

15

 

 

 
1

Table of Contents

 

Use of Names

 

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” “Corporation” or “LFTD Partners” refer to LFTD Partners Inc. together with its wholly owned subsidiary Lifted Liquids, Inc d/b/a Lifted Made (“Lifted”) and d/b/a Urb Finest Flowers (“Urb”).

 

Currency

 

Unless otherwise indicated, all references to “$” in this document refer to United States dollars.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains statements that are considered forward-looking statements. Forward-looking statements give the Company’s current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding the Company’s future financial position, performance, operations, business strategy, budgets, projected costs, capital spending, sources of liquidity and financing sources, and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company’s current plans, and the Company’s actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made herein. These risks and uncertainties include the “Risk Factors” included in this Quarterly Report on Form 10-Q. Risk factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q.

 

Any or all of the forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2024. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Certain information included herein contains statements that may be considered forward-looking statements, such as statements relating to our anticipated revenues and operating results, future performance and operations, plans for future expansion, capital spending, sources of liquidity and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include the “Risk Factors” included herein and in our Annual Report on Form 10-K filed with the SEC on March 29, 2024, that can be read at www.sec.gov.

 

 
2

Table of Contents

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31, 2024
(Unaudited)

 

 

December 31, 2023
(Audited)

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$4,376,185

 

 

$4,357,539

 

Prepaid Expenses

 

 

1,340,206

 

 

 

2,509,961

 

Accounts Receivable, net of allowance of $650,695 in 2024 and $375,417 in 2023

 

 

3,901,279

 

 

 

3,586,176

 

Inventory

 

 

7,659,443

 

 

 

10,174,667

 

Income Tax Receivable

 

 

680,367

 

 

 

659,376

 

Current Portion of Settlement Asset and Receivables

 

 

480,698

 

 

 

378,597

 

Other Current Assets

 

 

27,120

 

 

 

2,664

 

Total Current Assets

 

 

18,465,296

 

 

 

21,668,980

 

Restricted Cash

 

 

1,000,000

 

 

 

1,000,000

 

Goodwill

 

 

23,092,794

 

 

 

23,092,794

 

Investment in Ablis

 

 

399,200

 

 

 

399,200

 

Investment in Bendistillery and Bend Spirits

 

 

1,497,000

 

 

 

1,497,000

 

Net Deferred Tax Asset

 

 

375,466

 

 

 

-

 

Fixed Assets, less accumulated depreciation of $701,058 in 2024 and $593,531 in 2023

 

 

2,888,511

 

 

 

2,996,387

 

Security and State Licensing Deposits and Bonds

 

 

48,471

 

 

 

43,421

 

Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $307,678 in 2024 and $266,837 in 2023

 

 

586,027

 

 

 

626,869

 

Non-Current Portion of Settlement Asset and Receivables

 

 

17,000

 

 

 

22,000

 

Total Assets

 

$48,369,765

 

 

$51,346,651

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Operating Lease Liability

 

 

165,727

 

 

 

169,437

 

Deferred Revenue

 

 

853,202

 

 

 

235,891

 

Minimum Earnout Consideration to be paid pursuant to the Oculus Merger Agreement ($200,000 in cash, and $800,000 in the form of 160,000 shares of common stock valued at $5.00 per share)

 

 

1,000,000

 

 

 

1,000,000

 

Collab Commissions and Royalties Payable

 

 

38,227

 

 

 

572,838

 

Accounts Payable and Accrued Expenses

 

 

4,450,754

 

 

 

6,172,655

 

Accounts Payable - Related Party

 

 

1,804

 

 

 

3,938

 

Preferred Stock Dividends Payable

 

 

7,482

 

 

 

7,124

 

Notes Payable to Surety Bank

 

 

519,529

 

 

 

506,061

 

Interest Payable to Surety Bank

 

 

18,204

 

 

 

18,800

 

Total Current Liabilities

 

$7,054,927

 

 

$8,686,744

 

 

 

 

 

 

 

 

 

 

Non-Current Liabilities

 

 

 

 

 

 

 

 

Operating Lease Liability

 

 

428,246

 

 

 

463,623

 

Net Deferred Tax Liability

 

 

-

 

 

 

29,482

 

Notes Payable to Surety Bank

 

 

3,212,943

 

 

 

3,348,790

 

Total Non-Current Liabilities

 

$3,641,189

 

 

$3,841,896

 

Total Liabilities

 

$10,696,116

 

 

$12,528,640

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

-

 

 

 

-

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Preferred Stock, $0.001 par value; 10,000,000 total shares authorized; out of which two Series of Preferred Stock are authorized and outstanding, as follows:

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock: 400,000 shares authorized, and:

 

 

3

 

 

 

3

 

2,500 shares issued and outstanding at March 31, 2024

 

 

 

 

 

 

 

 

2,500 shares issued and outstanding at December 31, 2023

 

 

 

 

 

 

 

 

Series B Convertible Preferred Stock: 5,000,000 shares authorized, and:

 

 

40

 

 

 

40

 

40,000 shares issued and outstanding at March 31, 2024

 

 

 

 

 

 

 

 

40,000 shares issued and outstanding at December 31, 2023

 

 

 

 

 

 

 

 

Common Stock, $0.001 par value; 100,000,000 shares authorized, and:

 

 

14,806

 

 

 

14,806

 

14,805,678 shares issued and outstanding at March 31, 2024

 

 

 

 

 

 

 

 

14,805,678 shares issued and outstanding at December 31, 2023

 

 

 

 

 

 

 

 

Additional Paid-in Capital

 

 

40,429,213

 

 

 

40,429,213

 

142,000 shares of Deferred Contingent Stock issuable upon instruction by the respective Deferred Contingent Stock Recipients at March 31, 2024 and December 31, 2023

 

 

470,730

 

 

 

470,730

 

Accumulated Deficit

 

 

(3,241,142)

 

 

(2,096,780)
Total Shareholders' Equity

 

$

37,673,649

 

 

$

38,818,011

 

Total Liabilities and Shareholders' Equity

 

$48,369,765

 

 

$51,346,651

 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 
F-1

Table of Contents

 

LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net Sales

 

$10,666,649

 

 

$12,461,793

 

Cost of Goods Sold

 

 

7,282,609

 

 

 

6,813,348

 

Gross Profit

 

 

3,384,040

 

 

 

5,648,445

 

Operating Expenses

 

 

 

 

 

 

 

 

Payroll Expenses

 

 

1,602,078

 

 

 

1,874,498

 

Deferred Contingent Stock Expense

 

 

-

 

 

 

2,138,175

 

Company-Wide Management Bonus Pool

 

 

-

 

 

 

233,332

 

Professional Fees

 

 

389,338

 

 

 

348,816

 

Bank Charges and Merchant Fees

 

 

159,138

 

 

 

136,819

 

Advertising and Marketing

 

 

176,660

 

 

 

228,571

 

Bad Debt Expense

 

 

275,278

 

 

 

143,519

 

Depreciation and Amortization

 

 

48,798

 

 

 

38,133

 

Collab Commission and Royalty Expense

 

 

170,915

 

 

 

-

 

Other Operating Expenses

 

 

684,169

 

 

 

611,466

 

Total Operating Expenses

 

 

3,506,374

 

 

 

5,753,329

 

Income/(Loss) From Operations

 

 

(122,334

)

 

 

(104,884)

 

 

 

 

 

 

 

 

 

Other Income/(Expenses)

 

 

 

 

 

 

 

 

Interest Expense

 

 

(92,850)

 

 

(24,187)

Debt Financing Expenses

 

 

(2,773)

 

 

-

 

Dividend Income

 

 

1,193

 

 

 

-

 

Penalties

 

 

(133)

 

 

(261)
Loss on Disposal of Fixed Assets

 

 

(13,946)

 

 

-

 

Loss on Jeeter Collab

 

 

(1,349,467)

 

 

-

 

Interest Income

 

 

41,354

 

 

 

14,812

 

Total Other Expenses

 

 

(1,416,622)

 

 

(9,636)

Loss Before Provision for Income Taxes

 

 

(1,538,956)

 

 

(114,520)

Provision for Income Taxes

 

 

397,952

 

 

 

(27,222)

Net Loss Attributable to LFTD Partners Inc. common stockholders

 

$(1,141,004)

 

$(141,742)

 

 

 

 

 

 

 

 

 

Basic Net Loss per Common Share

 

$(0.08)

 

$(0.01)

Diluted Net Loss per Common Share

 

$(0.08)

 

$(0.01)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

14,805,678

 

 

 

14,246,745

 

Diluted

 

 

14,805,678

 

 

 

14,246,745

 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 
F-2

Table of Contents

 

LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Contingent

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Stock

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

to be Issued

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2022

 

 

44,500

 

 

$45

 

 

 

14,102,578

 

 

$14,103

 

 

$38,762,260

 

 

$-

 

 

$(4,238,735)

 

$34,537,671

 

Issuance of 410,000 of the total 645,000 shares of Deferred Contingent Stock related to the acquisition of Lifted, of which shares began being issued on February 24, 2023 upon direction by the Deferred Contingent Stock Recipients

 

 

 

 

 

 

 

 

 

 

410,000

 

 

 

410

 

 

1,358,740

 

 

779,025

 

 

 

 

 

 

 

2,138,175

 

Series A Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,329)

 

 

(3,329)
Series B Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,480)

 

 

(1,480)
Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(141,742)

 

 

(141,742)
Balance, March 31, 2023

 

 

44,500

 

 

$45

 

 

 

14,512,578

 

 

$14,513

 

 

$40,121,000

 

 

$779,025

 

 

$(4,385,286)

 

$36,529,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2023

 

 

42,500

 

 

$43

 

 

 

14,805,678

 

 

$14,806

 

 

$40,429,213

 

 

$470,730

 

 

$(2,096,780)

 

$38,818,011

 

Series A Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,862)

 

 

(1,862)
Series B Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,496)

 

 

(1,496)
Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,141,004)

 

 

(1,141,004)
Balance, March 31, 2024

 

 

42,500

 

 

$43

 

 

 

14,805,678

 

 

$14,806

 

 

$40,429,213

 

 

$470,730

 

 

$(3,241,142)

 

$37,673,649

 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 
F-3

Table of Contents

 

LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash Flows From Operating Activities

 

 

 

 

 

 

Net Loss

 

$(1,141,004)

 

$(141,742)

Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities

 

 

 

 

 

 

 

 

Deferred Contingent Stock Compensation Expense

 

 

-

 

 

 

2,138,175

 

Bad Debt Expense

 

 

275,278

 

 

 

143,519

 

Depreciation and Amortization

 

 

125,765

 

 

 

77,843

 

Debt Financing Expenses

 

 

2,773

 

 

 

-

 

Loss on Disposal of Fixed Assets

 

 

13,946

 

 

 

-

 

Loss on Jeeter Collab

 

 

1,349,467

 

 

 

-

 

Spoiled and Written Off Inventory

 

 

398,815

 

 

 

131,967

 

Sales Allowances

 

 

(290,284)

 

 

(94,751)

Deferred Income Taxes

 

 

(404,948)

 

 

(149,976)

Effect on Cash of Changes in Operating Assets and Liabilities

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(300,097)

 

 

22,190

 

Prepaid Expenses

 

 

942,995

 

 

 

303,903

 

Income Tax Receivable and Payable

 

 

(20,990)

 

 

167,317

 

Inventory

 

 

256,629

 

 

 

(1,671,501)

Other Current Assets

 

 

(29,506)

 

 

29,745

 

Collab Commissions and Royalties Payable

 

 

(110,138)

 

 

-

 

Trade Accounts Payable and Accrued Expenses

 

 

(1,722,498)

 

 

(589,531)

Accounts Payable and Interest Payable to Related Parties

 

 

(2,135)

 

 

(1,254)

Change in Settlement Asset and Receivables

 

 

215,499

 

 

 

46,256

 

Change in Right Of Use Asset

 

 

40,841

 

 

 

35,796

 

Change in Finance and Operating Lease Liabilities

 

 

(39,087)

 

 

(6,564)

Deferred Revenue

 

 

617,311

 

 

 

(112,187)

Net Cash Provided by Operating Activities

 

 

178,633

 

 

 

329,205

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Net Purchases of Fixed Assets

 

 

(31,835)

 

 

(368,785)

Net Cash Used in Investing Activities

 

 

(31,835)

 

 

(368,785)
Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Payments on Surety Bank Loans

 

 

(125,152)

 

 

-

 

Payments of Dividends to Preferred Stockholders

 

 

(3,000)

 

 

(3,000)

Payments on Finance Lease Liability

 

 

-

 

 

 

(17,918)

Net Cash Used In Financing Activities

 

 

(128,152)

 

 

(20,918)

Net Increase/(Decrease) in Cash

 

 

18,646

 

 

 

(60,498)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period

 

 

5,357,539

 

 

 

3,530,623

 

Cash, Cash Equivalents and Restricted Cash at End of Period

 

$5,376,185

 

 

$3,470,125

 

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Supplemental Cash Flow Information

 

 

 

 

 

 

Cash Paid For Interest

 

$93,446

 

 

$24,187

 

Cash Paid For Income Taxes

 

 

20,991

 

 

 

390

 

 

 

 

 

 

 

 

 

 

Non-Cash Activities

 

 

 

 

 

 

 

 

Right-of-Use assets acquired from inception of Operating Leases

 

 

-

 

 

 

180,639

 

 

 

 

 

 

 

 

 

 

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

 

4,376,185

 

 

 

3,470,125

 

Restricted Cash

 

 

1,000,000

 

 

 

-

 

Total Cash, Cash Equivalents and Restricted Cash at End of Period

 

$5,376,185

 

 

$3,470,125

 

 

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

 

 
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LFTD PARTNERS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – DESCRIPTION OF THE BUSINESS OF LFTD PARTNERS INC.

 

LFTD Partners Inc. (hereinafter sometimes referred to as “LFTD Partners”, the “Company”, “LIFD”, the “Company”, “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986. Shares of the Company’s common stock are traded on the OTCQB Venture Market under the trading symbol LIFD.

 

On May 18, 2021, the Company changed its name to LFTD Partners Inc. from Acquired Sales Corp. On March 15, 2022, the Company changed its stock trading symbol to LIFD.

 

After acquiring, operating and then selling businesses involved in the defense sector, our business is currently directly or indirectly involved in the development, manufacture and/or sale or re-sale of a wide variety of branded, hemp-derived, psychoactive and alternative lifestyle products, and of products involving, nicotine, tobacco and marijuana.

 

We are primarily interested in acquiring rapidly growing, profitable companies that are also involved in the manufacture and sale of branded, hemp-derived, psychoactive and alternative lifestyle products (a “Canna-Infused Products Company”). Management of the Company is open-minded to the concept of also acquiring operating businesses and/or assets directly or indirectly involving products containing nicotine, tobacco, marijuana, distilled spirits, beer, wine, and/or real estate. In addition, management of the Company is open-minded to the concept of diversifying, by acquiring all or a portion of one or more operating businesses and/or assets that are considered to be “essential” businesses that are outside our industry and that are unlikely to be shut down by the government during pandemics such as COVID-19, or that have less regulatory risk than a Canna-Infused Products Company.

 

Lifted Made

 

On February 24, 2020, we acquired 100% of the ownership interests in one Canna-Infused Products Company called Lifted Liquids, Inc. d/b/a Lifted Made and d/b/a Urb Finest Flowers (www.urb.shop), Kenosha, Wisconsin (“Lifted Made” or “Lifted”). Lifted manufactures and sells hemp-derived and psychoactive products under its award-winning Urb Finest Flowers (“Urb”) brand. Products currently sold by Lifted include, for example: disposable vapes and cartridges, gummies, joints, blunts, and products containing ingredients such as kanna, muscimol, ashwagandha and kava.

 

Lifted is the worldwide, exclusive manufacturer and seller of Diamond Supply Co. (www.DiamondSupplyCo.com) and Cali Sweets hemp-derived products.

 

Ablis, Bendistillery and Bend Spirits

 

On April 30, 2019, we also closed on the acquisition of 4.99% of the common stock of each of CBD-infused beverages maker Ablis Holding Company (“Ablis”) (www.Ablis.shop), and of distilled spirits manufacturers Bendistillery Inc. d/b/a Crater Lake Spirits (“Bendistillery”) (www.CraterLakeSpirits.com) and Bend Spirits, Inc. (“Bend Spirits”), all located in Bend, Oregon.

 

Ablis manufactures and sells flavored, lightly carbonated, canned, CBD-infused beverages, “functails” – a term coined by Ablis and which means a beverage crafted with high-quality functional ingredients, CBD-infused muscle rub, among other products.

 

Bendistillery manufactures and sells straight and flavored vodka and gin and various types of whiskey under its brand Crater Lake Spirits.

 

Bank Financing and Purchase of Headquarters Building

 

On December 14, 2023, LFTD Partners and Lifted (together the “Borrower”), jointly borrowed a total of $3,910,000 from Surety Bank, of DeLand, Florida (“Lender”).

 

 
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The Lender made two five-year loans to the Borrower, as joint borrowers: (1) a working capital loan of $3,000,000 at 9.5% fixed annual interest, and (2) a $910,000 loan at 10% fixed annual interest, the net proceeds of which were used by Lifted to pay a portion of the $1,375,000 purchase price of Lifted’s main operations building located at 5511 95th Avenue, Kenosha, Wisconsin (“5511 Building”). The two loans are cross collateralized by a first lien mortgage on the 5511 Building, and by a first lien security interest in all of the other assets owned by LIFD and Lifted, in favor of Surety Bank.

 

Purchase of the 5511 Building

 

Toward the end of 2020, our Vice Chairman and Chief Operating Officer Nicholas S. Warrender (“NWarrender”), through his assigned entity 95th Holdings, LLC (“Holdings”), purchased the 5511 Building, which was immediately leased to us to conduct our expanded operations. The 5511 Building includes office, laboratory and warehouse space. As part of the lease agreement with Holdings, the parties agreed that our wholly owned subsidiary Lifted would eventually purchase the 5511 Building. The purchase price for the 5511 Building was originally subject to valuation based on a formula agreed upon by the parties. Pursuant to an agreement with NWarrender on December 30, 2021, the parties agreed to set the purchase price for the 5511 Building at $1,375,000. Prior to the Acceleration Agreement, which was entered into by the Company with NWarrender on July 5, 2022, Lifted had an obligation to complete the purchase of the 5511 Building on or before December 31, 2022. Pursuant to the Acceleration Agreement, the deadline to purchase the 5511 Building was extended by one year to December 31, 2023. Lifted purchased the 5511 Building from Holdings on December 14, 2023 for the agreed upon purchase price of $1,375,000 in cash.

 

Improvements to and Potential Expansion of the 5511 Building

 

Due to an extreme need for additional employee parking spots at the 5511 Building, the Company in the fourth quarter of 2022 built a parking lot at the 5511 Building for $193,216, which is accounted for as a building improvement (a capitalized fixed asset). The investment in this necessary parking lot had no impact on the $1,375,000 purchase price that Lifted had committed to pay for, and did pay for, the 5511 Building on December 14, 2023.

 

The Company desires to have all of its operations under one roof at the 5511 Building in order to become more efficient. The Company has hired and paid an architectural and construction company (the “Construction Company”) which has created a preliminary design for expanding the 5511 Building by approximately 30,000 square feet. The Construction Company has provided a preliminary estimate that the potential expansion could cost the Company approximately $3,500,000. Neither the management nor the Board of Directors of the Company has committed to such potential expansion, but it is under active consideration.

 

$3,000,000 Working Capital Loan

 

Credit Agreement

 

Pursuant to the Credit Agreement dated as of December 14, 2023 (the “Credit Agreement”), among the Borrower and the Lender, the Lender agreed to loan to the Borrower $3,000,000 (“Working Capital Loan”). The interest rate for the Working Capital Loan is a fixed annual interest rate of 9.5%. The Credit Agreement requires a Promissory Note and Security Agreement. The Credit Agreement requires a prepayment fee if the Working Capital Loan is repaid to the Lender in less than three years, in the amount of 3% of the Working Capital Loan if the loan is repaid in Year-1, 2% of the Working Capital Loan if the Working Capital Loan is repaid in Year-2, and 1% if the Working Capital Loan is repaid in Year-3.

 

The Credit Agreement is also subject to certain negative covenants in which the Borrower agreed (subject to certain exceptions) not to, among other things:

 

 

·

Become subject to other liens or encumbrances;

 

·

Change ownership of Lifted without the consent of the Lender;

 

·

Enter into a merger, acquisition or divestiture;

 

·

Conduct stock buybacks;

 

·

Serve as a guarantor;

 

·

Wind up, liquidate or dissolve;

 

·

Enter into the purchase, sale, exchange or transfer of property;

 

·

Permit the outstanding principal balance of the Working Capital Loan to exceed 40% of the fair market value of the collateral securing the Working Capital Loan; or

 

·

Directly or indirectly issue, assume or create any additional indebtedness on the collateral.

 

 
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Promissory Note

 

Pursuant to the Promissory Note dated as of December 14, 2023 (the “WC Note”), among the Borrower and the Lender, the Lender agreed to loan to the Borrower the Working Capital Loan at a fixed annual interest rate of 9.5%. The WC Note also requires a 5% late fee on outstanding unpaid payments due under the WC Note where payments are not made within 10 days of the due date. The WC Note has cross-default cross-collateralized provisions with the $910,000 Business Loan described below.

 

Security Agreement

 

Pursuant to a Security Agreement dated as of December 14, 2023 (“Security Agreement”), the Borrower granted to the Lender a security interest in all the Borrower’s personal property relating to its business to secure the obligations of the Borrower under the Credit Agreement. The collateral that is secured by the Security Agreement includes all the Borrower’s accounts, general intangibles, inventory, equipment, goods, deposit accounts, contractual rights, fixtures, money, insurance and commercial tort claims.

 

If an event of default under the Credit Agreement occurs, then the Lender may exercise the Borrower’s rights in the collateral. In that event, the Lender will have all the rights of a secured party with respect to the collateral under the Uniform Commercial Code, including, among other things, the right to sell the collateral at public or private sale.

 

Collateral Assignment Agreement

 

Under the Collateral Assignment Agreement dated as of December 14, 2023, between the Borrower and the Lender, the Borrower assigned to the Lender, in connection with the terms of the Credit Agreement, all of Borrower’s “intellectual property”, including but not limited to, all patents, patent rights, trademarks and service marks, works, inventions, copyrights, trade names, software and computer programs, trade secrets, methods, processes, know how, drawings, and specifications. In the event of default under the Credit Agreement or WC Note, or other cross collateralized obligations, the Lender would be entitled to the foregoing intellectual property collateral to the detriment of the Borrower.

 

Pledge Agreement

 

Under the Pledge Agreement dated as of December 14, 2023, between the Borrower and the Lender, the Borrower, in connection with the terms of the Credit Agreement, pledges all equity holdings in Lifted, Bendistillery, Inc., Bend Spirits, Inc., and Ablis Holding Company. In the event of default under the Credit Agreement or WC Note, or other cross collateralized obligations, the Lender would be entitled to the foregoing equity collateral to the detriment of the Borrower.

 

$910,000 Loan

 

Business Loan Agreement

 

Pursuant to the Business Loan Agreement dated as of December 14, 2023 (the “Loan Agreement”), among the Borrower and the Lender, the Lender agreed to loan $910,000 (the “Business Loan”) to the Borrower. The Business Loan requires that Borrower shall maintain a minimum 1.50x Debt Service Coverage Ratio (DSCR) based on Borrower tax returns. The DSCR shall be tested annually, beginning with the 2023 return. The DSCR shall be calculated as EBIDA (earnings before interest, depreciation, and amortization) divided by contractual annual debt service payments. The Business Loan also requires Borrower to maintain its primary operating accounts with a $1,000,000.00 minimum deposit account balance with the Lender for the life of the Business Loan. The Business Loan also requires a Promissory Note, Mortgage and Assignment of Rents, Leases, and Security Deposits described below.

 

 
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Promissory Note

 

Pursuant to the Promissory Note dated as of December 14, 2023 (the “BL Note”), among the Borrower and the Lender, the Lender agreed to loan to the Borrower the Business Loan at a fixed annual interest rate of 10%. The BL Note also requires a 5% late fee on outstanding unpaid payments due under the BL Note. The BL Note requires a mortgage on the 5511 Building, along with a first priority security interest on: all furniture, equipment, inventory, and general intangibles (including but not limited to all software and all payment intangibles); all fixtures; and all attachments, accessions, accessories, fittings, increases, tools, parts, repairs, supplies, and commingled goods.

 

Mortgage

 

Pursuant to the Mortgage dated as of December 14, 2023 (the “Mortgage”), among Lifted in favor of the Lender, in connection with the terms of the Loan Agreement and BL Note, Lifted agreed to a first priority mortgage on the 5511 Building (Parcel Number 08-222-32-410-104). In the event of default under the Loan Agreement or BL Note, or other cross collateralized obligations, the Lender would be entitled to the foregoing equity collateral to the detriment of the Borrower.

 

Assignment of Rents, Leases, and Security Deposits

 

Pursuant to the Assignment of Rents, Leases, and Security Deposits dated as of December 14, 2023 (the “Lease Assignment”), among Lifted in favor of the Lender, in connection with the terms of the Loan Agreement and BL Note, Lifted agreed to assign its rights to leases and income from the 5511 Building to Lender. In the event of default under the Loan Agreement or BL Note, or other cross collateralized obligations, the Lender would be entitled to the foregoing equity collateral to the detriment of the Borrower.

 

Default under any of the agreements described above could have a highly detrimental, if not catastrophic impact on our company.

 

Consolidated Balance Sheet Presentation of the Working Capital and Business Loans and Maturity Analysis

 

The following presents the Working Capital and Business Loans in the Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

 

 

 

 

 

Working Capital Loan

 

$2,881,479

 

 

$3,000,000

 

Business Loan

 

 

903,370

 

 

 

910,000

 

Total principal amount

 

 

3,784,849

 

 

 

3,910,000

 

Less: Unamortized debt financing costs

 

 

(52,376 )

 

 

(55,149 )

Less: Current portion of Surety Bank notes

 

 

(519,529 )

 

 

(506,061 )

Non-Current portion of Surety Bank notes

 

$3,212,943

 

 

$3,348,790

 

 

 
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The following represents aggregate payments due on the Working Capital and Business Loans during each of the five years subsequent to March 31, 2024 and thereafter:

 

Maturity Analysis as of March 31, 2024:

 

 

 

 

 

 

 

2024

 

$657,704

 

2025

 

 

876,939

 

2026

 

 

876,939

 

2027

 

 

876,939

 

2028

 

 

1,618,429

 

Thereafter

 

 

-

 

Total

 

 

4,906,951

 

Less: Interest portion

 

 

(1,122,102 )

Total principal amount

 

$3,784,849

 

 

Manufacturing, Sales and Marketing Agreements

 

During the year ended December 31, 2023 Lifted entered into Manufacturing, Sales and Marketing Agreements with Cali Sweets, LLC (“Cali”), Diamond Supply Co. (“Diamond”), and DreamFields Brands Inc. d/b/a Jeeter (“Jeeter”) (collectively, “Agreements”). The terms of these Agreements are described below. The aggregate net revenue related to these Agreements for the quarter ended March 31, 2024 was $502,054.

 

Cali Sweets Agreement

 

On January 11, 2023, Lifted entered into a Manufacturing, Sales and Marketing Agreement (“Cali Agreement”) with Cali Sweets, LLC (“Cali”). Cali is headquartered in North Hollywood, California, and currently sells products under the brand name Koko Nuggz. The Cali Agreement entitles Lifted to be the exclusive worldwide manufacturer and distributor of Cali’s disposable vape products (under the brand name Koko Puffz) and gummy products (under the brand name Koko Yummiez) (“Cali Products”).

 

Pursuant to the Cali Agreement, Lifted manufactures, markets, and distributes certain Cali Products and brands worldwide. Lifted and Cali equally share certain production and marketing costs associated with such Cali Products on a dollar-for-dollar basis. Revenue from the sale of such Cali Products are divided on a 60/40 basis, net of any returns, discounts, or replacements, with 60% allocated to Lifted, and the remaining 40% to Cali.

 

Under the terms of the Cali Agreement, Lifted has the right, in its discretion, to add new Cali brands and Cali Products as they are developed. Lifted can also set prices for Cali Products it supplies or unilaterally discontinue the supply of any Cali product if it no longer makes business sense to Lifted. The parties also agreed that Cali will provide social media marketing services for both Cali Products and brands, and for Lifted’s Urb branded products.

 

The term of the Cali Agreement is five years and may be extended with the mutual consent of the parties. However, after the initial 24 months, the Cali Agreement may be terminated by either party, for any or no reason, upon providing the other party with 180 days written notice. Cali may become subject to early exit payments to Lifted if it early terminates. The exit fee formula is based on estimated profits that Lifted may have enjoyed had Cali not early terminated the relationship.

 

 
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Accounting for the Cali Agreement

 

Regarding the accounting for the Cali Agreement: the Company has evaluated the principal versus agent considerations in Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The Company has considered the following facts to assess whether Lifted has control of the Cali Products that are manufactured and distributed pursuant to the Cali Agreement:

 

 

·

Lifted is the exclusive worldwide manufacturer and distributor of the Cali Products. To fulfill its obligations pursuant to the Cali Agreement, Lifted sources raw goods, labor, and other resources to manufacture the Cali Products at Lifted’s facilities and holds these raw goods and Cali Products in its facilities until the Cali Products are sold and shipped to customers.

 

·

Customers’ orders of Cali Products are received through Lifted’s website www.urb.shop. Lifted processes these orders, prepares the Cali Products for shipment from Lifted’s inventories, and ships the Cali Products directly to the customers. Lifted is responsible for collecting payments from customers but does not guarantee collection.

 

·

Lifted has the right, in its discretion, to add new Cali brands and Cali Products as they are developed.

 

·

Lifted can set prices for Cali Products it supplies or unilaterally discontinue the supply of any Cali product if it no longer makes business sense to Lifted.

 

Based on these considerations, the Company concludes that Lifted is the principal relative to Cali in the Cali Agreement.

 

Therefore, sales of Cali Products are recognized and reported by the Company on a gross basis on the Consolidated Statements of Operations, and once payment is collected from a customer from the sale of Cali Products, the Commission Payable to Cali is reported as a current liability on the Company’s Consolidated Balance Sheets, and Commission Expense is reported in the Operating Expenses section of the Consolidated Statements of Operations.  

 

Manufacturing, Sales and Marketing Agreement With Diamond Supply Co.

 

On April 23, 2023, Lifted entered into a Manufacturing, Sales and Marketing Agreement (“Diamond Agreement”) with Diamond Supply Co. (“Diamond”), Calabasas, California. Founded in 1998, Diamond develops and sells a full range of skateboard hard and soft goods including bolts, bearings, t-shirts, hoodies, and other skateboarding and streetwear accessories. The Diamond Agreement entitles Lifted to be the exclusive worldwide manufacturer and distributor of Diamond’s disposable vapes, gummies, pre-rolled joints, and hard candies (“Diamond Products”). These Diamond Products may contain CBD, hemp, delta-8-THC, delta-10-THC, cannabis and/or cannabinoid derivatives and are to be branded under one or more of Diamond’s brands or marks.

 

Lifted shall pay Diamond a royalty of twenty percent (20%) of Adjusted Gross Revenue (defined below) on the initial manufacturing run of each Diamond Product manufactured and sold by Lifted under the Diamond Agreement. The Diamond Agreement defines Adjusted Gross Revenue as revenue on the Diamond Product “less any sales taxes, actual returns, pre-approved discounts, replacements, refunds and credits for returns.”

 

After the initial manufacturing run of a Diamond Product, Lifted shall pay Diamond a royalty of forty five percent (45%) of Adjusted Gross Revenue on subsequent manufacturing runs for that Diamond Product; however, under the terms of the Diamond Agreement, the parties will split manufacturing costs 50/50 for Diamond Products sold after each Diamond Product’s first manufacturing run. Alternatively, under the terms of the Diamond Agreement, Diamond is entitled to notify Lifted that it elects to be paid a flat 7% of Adjusted Gross Revenue on specific subsequent manufacturing runs without sharing in the manufacturing costs for that run. Diamond is also entitled to purchase Diamond Products produced under the Diamond Agreement from Lifted for direct sale on Diamond’s website and via certain other channels used by Diamond. Under the terms of the Diamond Agreement, Diamond’s cost for these Diamond Products acquired for direct sale is 30% below wholesale. 

 

Under the terms of the Diamond Agreement, the parties will work together to set prices for Diamond Products. The term of the Agreement is three years and may be extended with the mutual consent of the parties. However, the Diamond Agreement may be extended for one-year with notice by Diamond at least three months prior to the end of the 3-year term, or by mutual consent of the parties. If Lifted pays to Diamond aggregate annual royalty payments of at least $1,000,000 per year, then the Diamond Agreement shall automatically renew for an additional one-year term.

 

 
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Accounting for the Diamond Agreement

 

Regarding the accounting for the Diamond Agreement: the Company has evaluated the principal versus agent considerations in ASC 606, Revenue from Contracts with Customers. The Company has considered the following facts to assess whether Lifted has control of the Diamond products that are manufactured and distributed pursuant to the Diamond Agreement:

 

 

·

Lifted is the exclusive worldwide manufacturer and distributor of the Diamond Products. To fulfill its obligations pursuant to the agreement, Lifted sources raw goods, labor, and other resources to manufacture the Diamond Products at its own facilities and holds these raw goods and Diamond Products in its facilities until the Diamond Products are sold and shipped to customers.

 

·

Customers’ orders of Diamond Products are received through Lifted’s website www.urb.shop. Customers that attempt to purchase the Diamond Products from www.diamondsupplyco.com are redirected to www.urb.shop. Lifted processes these orders, prepares the Diamond Products for shipment from Lifted’s inventories, and ships the Diamond Products directly to customers.

 

·

Lifted and Diamond agree upon the retail sales prices for the Diamond Products, and both Lifted and Diamond are to make good faith efforts to collect all payments in connection with each party’s sales of Diamond Products to all of its customers.

 

Based on these considerations, the Company concludes that Lifted is the principal relative to Diamond in the Diamond Agreement.

 

Therefore, sales of Diamond Products are recognized and reported by the Company on a gross basis on the Consolidated Statements of Operations, and once payment is collected from a customer from the sale of Diamond Products, the Royalty Payable to Diamond is reported as a current liability on the Company’s Consolidated Balance Sheets, and Royalty Expense is reported in the Operating Expenses section of the Consolidated Statements of Operations.

 

Jeeter Agreement

 

On July 17, 2023, Lifted and DreamFields Brands Inc. d/b/a Jeeter (“Jeeter”) entered a Manufacturing, Sales and Marketing Agreement dated as of July 14, 2023 (the “Jeeter Agreement”). Pursuant to the Jeeter Agreement: (1) Jeeter appointed Lifted as its exclusive manufacturer, seller and distributor within the United States of vape, gummies and pre-rolled products containing hemp-derived cannabinoids sold under the Jeeter brand (“Jeeter Products”); (2) Jeeter and Lifted agreed upon the devices, formulation, design, packaging, run costs, and marketing of each of the Jeeter Products; (3) Jeeter and Lifted shared equally the costs of manufacturing, marketing, distributing and insuring the Jeeter Products (“Product Costs”); and (4) the revenue from all Product sales, minus applicable Product offsets and sales commissions (“Aggregate Product Revenue”), were allocated 60% to Jeeter and 40% to Lifted.

 

The Jeeter Agreement was for an Initial Term of two years, provided that if the completed Product sales during the first year of the Initial Term were a minimum of $48 million (the “Minimum Sales”), then the Initial Term was to automatically continue until the end of the second year of the Initial Term. Jeeter and Lifted could mutually agree in writing to extend the Jeeter Agreement for Renewal Terms of at least one year each, but if not so extended then the Jeeter Agreement was to automatically terminate.

 

Jeeter could terminate the Jeeter Agreement at any time upon written notice to Lifted upon any of the following: (1) if Lifted failed to achieve the Minimum Sales during any 12 month period; (2) if there was any material change in federal legislation regarding the manufacturing, sale, use or consumption of hemp-derived delta-8-THC that in Jeeter’s sole and absolute determination had an adverse impact upon the Jeeter Agreement; or (3) if Jeeter determined in its sole and absolute discretion that the sale of Jeeter Products under the Jeeter Agreement had or was reasonably likely to have an adverse impact on Jeeter’s delta-9-THC product business.

 

The Jeeter Agreement provided that if Aggregate Product Revenue achieves $1.5 million or more in a single month, then thereafter so long as Aggregate Product Revenue achieves $9 million or more in each six month period, Lifted was prohibited from directly or indirectly manufacturing, marketing, distributing, promoting or selling pre-rolled joints made from hemp or cannabis in the United States (except under the Jeeter Agreement) during the remaining term of the Jeeter Agreement.

 

 
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Accounting for the Jeeter Agreement

 

Regarding the accounting for the Jeeter Agreement: the Company evaluated the principal versus agent considerations in ASC 606, Revenue from Contracts with Customers. The Company considered the following facts to assess whether Lifted had control of the Jeeter Products that are manufactured and distributed pursuant to the Jeeter Agreement:

 

 

·

Lifted was the exclusive manufacturer, seller, and distributor of the applicable Jeeter branded products in the USA. To fulfill its obligations pursuant to the agreement, Lifted sourced raw goods, labor, and other resources to manufacture the Jeeter Products at its own facilities and held these raw goods and Jeeter Products in its facilities until the Jeeter Products were sold and shipped to customers. Initially, Lifted was manufacturing all of the Jeeter Products, but in the middle of Q3 2023 Jeeter also began manufacturing joints at its facility after being authorized by Lifted to do so. Nonetheless, Jeeter produced joints during Monday through Friday, and then shipped the finished joints to Lifted’s headquarters in Kenosha on Saturday. Lifted controlled the Jeeter Products until they were then sold and shipped to the customers.

 

 

 

 

·

Customers’ orders of Jeeter Products were received through Lifted’s website www.urb.shop. Lifted processed these orders, prepared the Jeeter Products for shipment from Lifted’s inventories, and shipped the Jeeter Products directly to the customers. Lifted was responsible for collecting payments from customers but did not guarantee collection, nor the timetable of such collection.

 

Based on these considerations, the Company concluded that Lifted was the principal relative to Jeeter in the Jeeter Agreement.

 

Therefore, sales of Jeeter Products were recognized and reported by the Company on a gross basis on the Consolidated Statements of Operations, and once payment was collected from a customer from the sale of Jeeter Products, the Commission Payable to Jeeter was reported as a current liability on the Company’s Consolidated Balance Sheets, and Commission Expense was reported in the Operating Expenses section of the Consolidated Statements of Operations.  

 

Termination of the Jeeter Agreement

 

The Jeeter Agreement was terminated effective January 1, 2024 pursuant to a Termination Agreement dated as of March 22, 2024 between Jeeter and Lifted. Pursuant to such Termination Agreement, among other things: Jeeter is obligated to pay Lifted $150,000 upon the signing of such Termination Agreement, and an additional $150,000 within 15 days following the signing of such Termination Agreement; and Jeeter shall arrange and pay for the shipment from Lifted to Jeeter of certain raw goods and finished goods associated with Jeeter branded products that are in Lifted's possession on the date of the signing of such Termination Agreement. As a result of the termination, Lifted transferred raw goods and finished goods inventories totaling $1,859,780 to Jeeter and recorded a loss on Jeeter collab in the Consolidated Statement of Operations of $1,349,467 for the three months ended March 31, 2024.

 

Mirsky Agreement

 

On July 11, 2023, Lifted and Florence Mirsky (“Mirsky”) entered into an Agreement (the “Mirsky Agreement”). Pursuant to the Mirsky Agreement, in consideration of Mirsky’s introduction of Jeeter to Lifted, Lifted shall pay to Mirsky finder’s fees equal to 6.5% of the amount, if any, by which Lifted’s share of the Aggregate Product Revenue under the Jeeter Agreement exceeds Lifted’s share of the Product Costs under the Jeeter Agreement.

 

Lifted Purchase of Assets of Oculus CRS, LLC, and Merger With Oculus CHS Management Corp.

 

Asset Purchase Agreement

 

On April 28, 2023, Lifted purchased nearly all of the assets (the “Purchased Assets”) of its hemp flower products supplier Oculus CRS, LLC, Aztec, New Mexico (“Oculus”) for $342,068, net of $26,420 cash acquired. The Purchased Assets include, but are not limited to, Oculus’ operational equipment, office equipment, raw materials, inventory, cash on hand, accounts receivable, and a contract (the “Machine Purchase Contract”) to purchase, for a total of $309,213 (the “Machine Purchase Price”), a new machine that is ready for delivery, and that when delivered and installed will be used to automate a substantial portion of the manufacturing of the hemp flower products. $99,910 of the Machine Purchase Price had already been paid by Oculus, leaving $209,303 as the remaining portion of the Machine Purchase Price (the “Machine Purchase Final Payment”).

 

 
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The gross Purchase Price of $368,488 purchase was paid by Lifted using cash on hand. At the closing, Oculus applied the entire Purchase Price to pay off all of Oculus’ liabilities as of the closing date (the “Oculus Liabilities”), including the Machine Purchase Final Payment. The only asset of Oculus that was not included in the Purchased Assets was Oculus’ rights as the plaintiff in a pending lawsuit filed by Oculus against a particular customer for an alleged breach of contract.

 

Agreement and Plan of Merger

 

Simultaneously with Lifted’s purchase of the Purchased Assets, Lifted executed an Agreement and Plan of Merger (“Oculus Merger Agreement”) with Oculus CHS Management Corp. (the “Management Corp.”), pursuant to which the Management Corp. was merged with and into Lifted, with Lifted being the surviving corporation in the merger (the “Merger”). The only assets of the Management Corp. were multi-year employment contracts with the owners/managers of Oculus, Chase and Hagan Sanchez (the “Employment Agreements”).

 

The Merger consideration (the “Merger Consideration”) will be paid by Lifted to Chase and Hagan Sanchez in two installments.

 

The first installment of the Merger Consideration was paid by Lifted to Chase and Hagan Sanchez at the closing of the Merger, and consisted of 100 shares of unregistered common stock of LIFD.

 

The second installment of the Merger Consideration will be paid by Lifted to Chase and Hagan Sanchez following the first anniversary of the closing of the Merger, which will be April 28, 2024. The second installment of the Oculus Merger Consideration will be calculated and paid out as follows:

 

(1) Lifted’s CEO NWarrender, in consultation with LIFD’s President and CFO WJacobs, will analyze and make a written determination (the “Determination”) of the incremental pre-tax cash flow that NWarrender estimates that the hemp flower products division is generating for Lifted above and beyond the annual profits that are currently being generated for Lifted due to Lifted’s current business relationship with Oculus (the “Incremental Pre-Tax Profits”), after taking into account all relevant financial factors including but not limited to the purchase price of the Purchased Assets, the Merger Consideration, and all items of income, expense and investment directly and indirectly associated with Lifted’s hemp flower products division, which Determination will be final and legally binding on all of the parties; and

 

(2) Within five days following delivery of the Determination, Lifted will pay Chase and Hagan Sanchez a second installment of Merger Consideration equal to five times the Incremental Pre-Tax Profits, provided that (a) 20% of such second installment of Merger Consideration shall be paid in the form of cash, (b) 80% of such second installment of Merger Consideration shall be paid in the form of unregistered shares of common stock of LIFD, which unregistered shares of common stock of LIFD shall be valued at $5 per share regardless of whether LIFD’s common stock is then trading at a price that is lower or higher than $5 per share, and (c) such second installment of Merger Consideration shall be subject to a minimum value of $1 million dollars (“Minimum Earnout Consideration”) and a maximum value of $6 million dollars (with the stock portion of the second installment of Merger Consideration being valued at $5 per share under all circumstances).

 

 
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As examples, for illustrative purposes only:

 

 

(a)

If, according to NWarrender’s Determination, the Incremental Pre-Tax Profits of Lifted being generated by the business is $500,000, then the second installment of the Merger Consideration would be calculated as $500,000 X 5 = $2,500,000, of which ($2,500,000 X .2) = $500,000 would be in the form of cash, and the remaining $2,000,000 would be paid in the form of ($2,000,000/$5) = 400,000 newly issued shares of unregistered LIFD Common Stock;

 

 

 

 

(b)

If, according to NWarrender’s Determination, the Incremental Pre-Tax Profits of Lifted being generated by the business is $25,000, then the second installment of the Merger Consideration would be the Minimum Earnout Consideration of $1,000,000, of which ($1,000,000 X .2) = $200,000 would be in the form of cash, and the remaining $800,000 would be paid in the form of ($800,000/$5) = 160,000 newly issued shares of unregistered LIFD Common Stock; and

 

 

 

 

(c)

If, according to NWarrender’s Determination, the Incremental Pre-Tax Profits of Lifted being generated by the business is $2,000,000, then the second installment of the Merger Consideration would be the maximum of $6,000,000, of which ($6,000,000 X .2) = $1,200,000 would be in the form of cash, and the remaining $4,800,000 would be paid in the form of ($4,800,000/$5) = 960,000 newly issued shares of unregistered LIFD Common Stock.

 

Accounting for Lifted’s Purchase of Assets of Oculus CRS, LLC, and Merger With Oculus CHS Management Corp.

 

Consideration Paid Pursuant to the Asset Purchase Agreement

 

 

 

 

 

 

 

Cash used to pay off Oculus' liabilities at the closing

 

$368,488

 

 

 

 

 

 

Consideration Paid Pursuant to the Oculus Merger Agreement

 

 

 

 

 

 

 

 

 

First Installment of Merger Consideration

 

 

 

 

100 shares of common stock of LIFD issued at the closing of the Merger to Chase and Hagan Sanchez

 

$209

 

 

 

 

 

 

Second Installment of Merger Consideration

 

 

 

 

Value of Minimum Earnout Consideration to be paid in cash

 

$200,000

 

Value of Minimum Earnout Consideration to be paid in shares of common stock of LIFD (160,000 shares of common stock valued at $5.00 per share)

 

$800,000

 

Total Consideration

 

$1,368,697

 

 

 

 

 

 

Assets Acquired:

 

 

 

 

 

 

 

 

 

Cash

 

$26,420

 

Accounts receivable

 

$60,528

 

Inventory

 

$147,431

 

Fixed Assets

 

$329,559

 

Security and Utility Deposits

 

$4,732

 

Goodwill

 

$800,027

 

Total Assets Acquired

 

$1,368,697

 

 

 

 

 

 

Total Liabilities Assumed

 

$-

 

 

 

 

 

 

Net Assets Acquired

 

$1,368,697

 

 

As described in NOTE 14 – SUBSEQUENT EVENTS, on May 8, 2024, NWarrender, in consultation with WJacobs, made the Determination that the Incremental Pre-Tax Profits were zero dollars ($0). Consequently, the second installment of Merger Consideration consists of:

(1) Two Hundred Thousand Dollars ($200,000) in cash; and

(2) One Hundred Sixty Thousand (160,000) newly issued shares of unregistered LIFD Common Stock.

 

On May 13, 2024, the cash component of the second installment of Merger Consideration was paid, and the stock component of the second installment of Merger Consideration was issued.

 

 
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Employment Agreements

 

Pursuant to the terms of the Oculus Merger Agreement, upon the closing of the Merger, all of the Management Corp.’s rights and obligations under the Employment Agreements have been assumed by Lifted. Chase and Hagan Sanchez are now the Vice President of Flower and General Manager of Flower of Lifted, respectively, and will continue to manage the hemp flower products business in Aztec, NM, which will operate as a hemp flower products division within Lifted, reporting to NWarrender, Lifted’s CEO. Pursuant to Chase Sanchez’s employment agreement, his salary is $150,000 per year. Hagan Sanchez’s salary is $100,000 per year. Both agreements are subject to termination with or without cause, non-solicitation, non-competition and non-disclosure clauses. 

 

At the time of the Merger, in addition to Chase and Hagan Sanchez, a total of 20 other people who had previously worked at Oculus became full-time employees of Lifted. Lifted agreed to, and did, pay employment bonuses to certain of these new people, in an aggregate amount totaling $50,000, pursuant to written instructions to Lifted from Chase and Hagan Sanchez.

 

Lease of Space Located at 16178 US Hwy 550, Aztec, New Mexico

 

Pursuant to the terms of the Oculus Merger Agreement, upon the closing of the Merger, Lifted assumed Oculus’ lease of office and operational space in Aztec, New Mexico. The leased premises include a shop building of approximately 4,800 square feet and adjacent fenced parking area located at 16178 US Hwy 550, Aztec, New Mexico. The term of this lease was one year, commencing on December 1, 2022 and ending on November 30, 2023, continuing month-to-month thereafter until terminated. The base lease payment is $3,850 per month. All monthly payments are due and payable in advance on the first day of each month. Lifted is also required to pay taxes, insurance and certain maintenance costs of the leased premises. The lease is accounted for as an operating lease. As described in NOTE 14 – SUBSEQUENT EVENTS, the lease of space located at 16178 US Hwy 550, Aztec, New Mexico, was terminated on May 7, 2024.

 

Extrax NM Agreement

 

On June 1, 2023, Lifted and Extrax NM, LLC (“ENM”) entered into an Agreement (the “ENM Agreement”). Pursuant to the ENM Agreement, (1) Lifted will sell certain devices/objects to ENM, and Lifted will loan certain amounts to ENM, and (2) ENM will manufacture and exclusively sell Urb-branded marijuana products to licensed marijuana dispensaries located in New Mexico. ENM shall pay over to Lifted one-half of the gross sales proceeds, excluding only governmentally-imposed taxes, received by ENM from product sales, which payments shall be allocated and applied as follows: firstly, to repay Lifted for its loans to ENM; secondly, to pay to Lifted mutually agreed upon amounts for said devices/objects sold by Lifted to ENM; and thirdly, to pay to Lifted a license fee.

 

The ENM Agreement is for an Initial Term of 60 months, provided that if the aggregate product sales during the Initial Term are $10,000,000 or more, then the term of the ENM agreement will automatically renew for a Renewal Term of 60 months (and similarly in regard to Renewal Terms).

 

Lifted and ENM each shall have the right to terminate the ENM Agreement in specified circumstances, including in the event that its CEO determines in good faith, and provides evidence to other party proving, that the business being conducted pursuant to the terms and conditions of the ENM Agreement is no longer profitable for such company.

 

Regarding the accounting for the ENM Agreement: the Company has evaluated the principal versus agent considerations in ASC 606, Revenue from Contracts with Customers. Management has considered the following facts to assess Lifted’s position relative to ENM under the ENM Agreement:

 

 

·

ENM has the right to use the Urb brand name on marijuana products sold within New Mexico in accordance with ENM’s license to manufacture marijuana products that can be sold to marijuana dispensaries in New Mexico. ENM sources raw goods, labor, and other resources to manufacture the Urb-branded products at its own facilities and holds these raw goods and Urb-branded products in its facilities until the Urb-branded products are sold and shipped to customers. ENM controls the Urb-branded products until they are then sold and shipped to the customers.

 

·

Customers’ orders of Urb-branded products are received by ENM. ENM processes these orders, prepares the Urb-branded products for shipment from ENM’s inventories, and ships the Urb-branded products directly to the customers. ENM is responsible for collecting payments from the customers, referred to in the ENM Agreement as the “Unit Sale Proceeds”.

 

·

ENM will source some of the raw goods, fixed assets and supplies from Lifted for manufacture of the Urb-branded products. The raw goods sourced from Lifted are referred to in the ENM Agreement as “Unit Components”. These Unit Components are maintained in Lifted’s inventories and shipped to ENM based on agreement between the CEOs of both Lifted and ENM. Lifted receives an agreed upon price, referred to in the ENM Agreement as the “Unit Component Price”, for each Unit Component shipped to ENM.

 

·

ENM shall pay over to Lifted one-half of the Unit Sale Proceeds, which payments shall be allocated and applied as follows: firstly, to repay Lifted for its loans to ENM; secondly, to pay to Lifted mutually agreed upon amounts for the Unit Components; and thirdly, to pay to Lifted a License Fee.

 

 
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Based on these considerations, the Company concludes that Lifted is a principal relative to ENM in the ENM Agreement in regards to Lifted’s sale of Unit Components to ENM. Therefore, Lifted recognizes sales of Unit Components to ENM on a gross basis on Lifted’s Consolidated Statements of Operations.

 

The Company concludes that Lifted is an agent relative to ENM in the ENM Agreement in regards to ENM’s sale of Urb-branded products to dispensary customers. When ENM pays over to Lifted one-half of the Unit Sale Proceeds, Lifted will first apply this money to the loans receivable from ENM, and then the money will be applied to the receivable(s) related Lifted’s sale of the Unit Components to ENM. Then, any of the excess/remaining money will be recognized and reported by Lifted as License Fee revenue on Lifted’s Consolidated Statements of Operations.

 

Manufacturing, Sales and Marketing Agreement With Subsidiary of a Large, Publicly Traded US Marijuana Company

 

On or about January 23, 2024, Lifted entered into a Manufacturing, Sales and Marketing Agreement effective as of January 20, 2024 (“Agreement”) with a wholly owned subsidiary of a large, publicly traded US marijuana company that designs and sells hemp-derived vape and gummy products. The Agreement is similar in many respects to the other manufacturing, sales and marketing agreements entered into by Lifted in 2023. Our management does not believe that any of the relationships with the other collaborating companies have had a significant impact on our revenues as no sales under any of the agreements have increased Lifted’s revenues by more than 5%. There is no assurance that this new Agreement, with this new counterparty, will have a greater impact on our revenues than the relationships with the others; however, it may.

 

Services to be Provided by Lifted Made

 

Under the terms of the new Agreement with this new counterparty, the parties (“Parties”) have agreed that Lifted will serve as the exclusive manufacturer and distributor of certain 2018 Farm Bill compliant hemp-derived vape products and gummy products in the formulations and to the specifications mutually agreed upon by the Parties (the “Products”). The territory for the sale of the Products is limited to the United States of America (“Territory”). In addition to serving as exclusive manufacturer and distributor of the Products, Lifted will be responsible to sell the Products to customers (“Customers”), and to collect all payments from such Customers for the Products in the Territory during the Term (the “Services”).

 

Lifted, in its capacity as the exclusive manufacturer and distributor of the Products in the Territory during the Term, shall be an independent contractor and not an agent, representative or employee of the other party. As part of the Services, Lifted shall create a distribution and sub-distribution network for the sale of Products to Customers within the Territory. Neither Party shall have any right or power to represent or bind the other Party with respect to any third party.

 

Term

 

The term of the Agreement is eighteen (18) months from the effective date, renewable upon mutual written agreement of the Parties.

 

Marketing

 

Under the terms of the Agreement, the other party shall be primarily responsible for marketing the Products and shall pay the costs of such marketing. Lifted shall reasonably cooperate in advertising and marketing programs for the Products and shall reasonably cooperate in implementing sales, promotional and merchandising programs for the Products. All promotional discounts shall be subject to the mutual agreement of the Parties.

 

 
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Quality

 

Under the terms of the Agreement, Lifted is required to use its best efforts to source materials for production of the Products at the lowest cost, provided such Products shall conform to quality standards consistent with industry standards for such products. Lifted is required to ensure the Products fall within certain predefined limits of heavy metals, microbial impurities, mycotoxins, residual pesticides, residual solvents and processing chemicals, as well as additional quality standards communicated to Lifted. Any Products failing such quality standards may be rejected. Lifted is also required to manufacture the Products and be responsible for all safety testing and approvals in conformity with the standards and legal requirements applicable to the manufacturing, distribution and sale of any Products and ensuring that all governmentally required reporting (including but not limited to PACT Act reporting) is accurately and timely made, and that all applicable excise taxes and sales taxes (collectively, “Excise and Sales Taxes”) are paid. In the event of any defects in the Products, Lifted shall, at its sole cost and expense, either (i) refund the cost of such Product or (ii) replace the Product, such election to be at the other party’s sole discretion.

 

Under the terms of the Agreement, all elements of the design, manufacturing, quality, advertising and promotion of the Products shall be mutually agreed upon and approved by the Parties, and Lifted shall submit to the other for approval: (i) any relevant schematic designs, (ii) pre-production samples, (iii) production samples, and (iv) such other specific items as are requested by the other party in its reasonable discretion from time to time for approval, and at all times prior to production and prior to being offered for sale. Products not approved by both Parties to the Agreement shall not go on to the next stage of production and shall not be offered for sale or sold by Lifted.

 

Prices

 

Under the terms of the Agreement, the Parties have agreed to work together in good faith to determine the sales prices to Customers for the Products and such prices shall be subject to the Parties’ mutual agreement. The Parties have agreed to work together to enact lawful and appropriate pricing strategies, including MSRP and maximum sale prices. Lifted shall make good faith efforts to collect all payments in connection with sales of all Products.

 

Customers

 

Under the terms of the Agreement, the Parties have agreed to work together in good faith to determine the Customers to which Lifted is selling the Products, subject to Lifted’s reasonable discretion, provided that the Parties shall regularly evaluate sales targets, accounts receivable, bad debt, and other reasonable factors to determine which Customers to direct Product to, and the other party shall have the right, in its reasonable discretion, to reject and direct Lifted to stop selling to a Customer in the event it deems necessary upon advanced notice to Lifted.

 

Forecasting

 

Under the terms of the Agreement, the Parties have agreed to meet monthly to review Products, discuss predicted order volumes, review pricing to Customers, plan marketing and sales efforts, discuss expansion into other states within the Territory, and evaluate additional potential Customers. The Parties shall also use such meetings to agree upon the quantities of raw materials, ingredients and supplies to produce the Products.

 

Purchase Orders

 

Under the terms of the Agreement, the other party shall initiate all Purchase Orders. Lifted has the right, in its sole discretion, to accept or reject any Purchase Order. Lifted may accept any Purchase Order by confirming the order via written confirmation and written invoice sent by an authorized agent of Lifted, including estimated completion date of the Products contemplated by such Purchase Order.

 

Excess Demand

 

Under the terms of the Agreement, in the event the Parties reasonably determine, after good faith discussions, that Lifted cannot accept the volume of Purchase Orders and anticipated demand for the future production of Products at any point during the Term of this Agreement (or in the event Lifted rejects a Purchase Order), the Agreement’s exclusivity shall be automatically waived by Lifted, but only to the extent of such excess demand as reasonably determined by the Parties after good faith discussions. In such a case, the other party shall have the right to work with any manufacturer, in its sole discretion, to meet such excess demand expectations.

 

 
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Costs of Purchase Order

 

Under the terms of the Agreement, upon Lifted’s acceptance of a Purchase Order, Lifted is entitled to invoice the other party for 50% of the costs of the Purchase Orders with net 15-day terms. Lifted may only use the 50% down payment for placing orders for materials and production costs, including lab testing, associated with the accepted Purchase Order and for no other purpose. Once the Products are completed and are ready for shipment to Customers, Lifted is entitled to invoice the other party for the remaining 50% of the costs of the Purchase Orders with net 15-day terms.

 

Cost Recovery and Royalty

 

Under the terms of the Agreement, once sales of the Products begin, Lifted is required to use all revenue from the sale of the Products (less returns, discounts, refunds, etc.) (“Adjusted Gross Revenue”) until the other party has been repaid the cost of the Purchase Order. Thereafter, the Parties shall divide the remaining Adjusted Gross Revenue 60/40, with 40% of that Adjusted Gross Revenue going to Lifted (the “Royalty”).

 

Warranty

 

Under the terms of the Agreement, Lifted represents and warrants (i) that the Products, packaging and labels to be used in the Territory shall comply with all applicable laws, rules and regulations in those US states where sales of such Products are legal; (ii) that the Products shall comply with all federal, state or local laws and regulations relating to the Products’ quality, dosage, labeling, identity, quantity, or packaging; (iii) that the Products will not be adulterated or misbranded within the meaning of any applicable federal or state law or regulation, and will contain all necessary warnings, disclosures or instructions, in each case, pursuant to all applicable laws, rules and regulations; (iv) all third parties Lifted engages in connection with the manufacturing, distribution and sale of the Product (e.g., sub-distributors) adhere to all applicable laws, rules and regulations, including without limitation those regarding the importation, child and/or oppressive labor, and the regulation of controlled substances and 2018 Farm Bill; and (v) all Products shall be free from defects in material and workmanship and fit for their intended purpose.

 

Indemnification

 

Under the terms of the Agreement, Lifted agreed to indemnify the other party for (i) harm, injury, damage or loss arising out of or in connection with the Services, production and manufacture, distribution and/or sale of the Products (including by any third parties engaged by Lifted (e.g., sub-distributors)); (ii) harm, injury, damage or loss arising out of or in connection with the use of the Products by any Customer or end-user, to the extent such harm, injury, damage or loss results from a defect in the Products; (iii) any uncured material breach by Lifted of any provision hereof; (iv) any violation of any applicable law or government regulation by Lifted or any third party engaged by Lifted in connection with the Products; and (v) any recall or withdrawal of a Product in accordance with this Agreement. Notwithstanding the forgoing, Lifted shall have no indemnification obligation hereunder pursuant to clauses (i), (ii) or (iii) above if such recall, withdrawal or defect arises out of or relates to any misuse, mishandling, or improper storage of, or damage caused to, the Products by anyone other than Lifted or its manufacturers/producers, Customers, or any third party engaged by Lifted in connection with the Products.

 

Insurance

 

During the Term of the Agreement, each Party, at its own expense, is required to procure and maintain in full force and effect its own insurance policy or policies against any loss, liability, product liability, personal injury, death, or property damage, and shall provide certificates of insurance evidencing such coverage to the other Party promptly upon request. Such coverage shall include (1) Comprehensive Commercial General Liability (“GL”) Insurance with limits of $1,000,000 per occurrence and $2,000,000 in aggregate; (2) Worker’s Compensation Insurance in limits required by applicable law; and (3) Product Liability Insurance with minimum limits of $1,000,000 per occurrence and $2,000,000 in aggregate. GL and Product Liability policies shall name the other Party as an additionally insured party.

 

 
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Termination

 

At any time during the Term of the Agreement, either party has the option, but not the obligation, to terminate this Agreement at any time, effective upon written notice, in the event the other Party has defaulted on any of its obligations under this Agreement and such default is not cured within thirty (30) days after receipt of written notice specifying the default.

 

Accounting for the Agreement

 

Regarding the accounting for the Agreement: the Company has evaluated the principal versus agent considerations in ASC 606, Revenue from Contracts with Customers. Management has considered the following facts to assess Lifted’s position relative to the other party under the Agreement:

 

An entity is a principal and therefore records revenue on a gross basis if it controls a promised good or service before transferring that good or service to the customer.  

 

An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services.   

 

Management has considered the following facts to assess whether Lifted has control of the Products that are manufactured and distributed pursuant to the Agreement: 

 

· Lifted is the exclusive nationwide manufacturer and distributor of the Products. To fulfill its obligations pursuant to the Agreement, Lifted sources raw goods, labor, and other resources to manufacture the Products at Lifted’s facilities and holds the Products in its facilities until the Products are sold and shipped to customers.  

 

· Customers’ orders of Products are received through Lifted’s website www.urb.shop. Lifted processes these orders, prepares the Products for shipment from Lifted’s warehouse, and ships the Products directly to the customers. Lifted is responsible for the collection of payments from customers, and is responsible for paying the other party 10% of any accounts receivable that are past due by more than 90 days.  

 

Lifted does not include in its inventory the value of the Products, because the other party pays for 100% of the costs of the Products.  

 

The Company concludes that Lifted is the principal relative to the other party in the Agreement.  

 

Sales of Products are recognized and reported by the Company on a gross basis on the Consolidated Statements of Operations, and until such time that the other party has received, in each instance with respect to an applicable Purchase Order, one-hundred percent (100%) of the Purchase Order Amount from Lifted, Lifted will report all of the money received from the other party as a current liability on the Company’s Consolidated Balance Sheets. This current liability account will become smaller as Lifted remits payments to the other party. 

 

After the other party has received 100% of the Purchase Order Amount from Lifted, any Adjusted Gross Revenue will be appropriately allocated and paid 60% to the other party and 40% to Lifted as royalty payments.

 

Capital Raise

 

We currently have several million dollars of cash on hand. Nevertheless, we may deem it necessary or desirable in the future to raise additional capital in order to build our available working capital, to close future acquisitions, to potentially expand the 5511 Building, or to pay other corporate obligations. No guarantee or assurance can be made that such capital can be raised on acceptable terms, if at all.

 

If we were ever to proceed forward with an equity raise, it may be in conjunction with a potential listing of our common stock on a stock exchange. However, there can be no guarantee or assurance that any such debt and/or equity capital raise or listing will be completed on acceptable terms, if at all.

 

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Consolidated Financial Statements – The accompanying unaudited interim consolidated financial statements include the accounts of LFTD Partners and have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and, accordingly, certain information, footnotes and disclosures normally included in the annual financial statements, prepared in accordance with US GAAP have been condensed or omitted in accordance with SEC rules and regulations. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented, and all adjustments necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements and consist of only normal recurring adjustments, except as disclosed herein. As part of the consolidation, all significant intercompany transactions are eliminated, and on the Consolidated Statements of Operations, certain expenses are consolidated into the Other Operating Expenses category. Certain previously reported amounts have been reclassified between line items to conform to the current period presentation. Results of interim periods should not be considered indicative of the results for the full year. These unaudited interim consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited consolidated financial statements. Actual results could differ from these estimates.

 

Use of Estimates – The preparation of financial statements in conformity with US GAAP typically requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. Key estimates in these financial statements include the allowance for doubtful accounts, sales allowance, estimated useful lives of property, plant and equipment, valuation allowance on deferred income tax assets, the earnout liability pursuant to the Oculus Merger Agreement, and the fair value of stock options and warrants. 

 

 
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Cash and Cash Equivalents – Cash and cash equivalents as of the reported period ends include cash on-hand. The Company considers all highly liquid investments with an original maturity date within 90 days to be cash equivalents. Cash equivalents are carried at cost. The Company maintains its cash balance at a credit-worthy financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. 

 

Restricted Cash – The Company considers cash balances that are legally restricted as to withdrawal or usage to be restricted cash. The Company’s Business Loan Agreement with Surety Bank requires the Company to maintain a $1,000,000 minimum deposit balance with the bank for the life of the Business Loan, which matures on December 14, 2028 (the “Minimum Deposit Balance”). Failure to maintain the Minimum Deposit Balance constitutes an event of default under the Business Loan Agreement. As of March 31, 2024 and December 31, 2023, the Company recognized $1,000,000, respectively, of its deposit account balance with Surety Bank as restricted cash, which is classified as a non-current asset in the Consolidated Balance Sheet.

 

Fair Value of Financial Instruments – The historical carrying amount of the financial instruments, which principally include cash, trade receivables, historical accounts payable and accrued expenses, approximates fair value due to the relative short maturity of such instruments.

 

ASC 820 defines fair value, establishes a framework for measuring fair value under US GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Accounting for Investments

 

The Company’s Investment in Lifted Made

 

The financial statements of LFTD Partners are consolidated with Lifted’s, since Lifted is a wholly owned subsidiary of LFTD Partners.

 

The Company’s Investments in Ablis, Bendistillery and Bend Spirits

 

The Company’s investments in Ablis Holding Company, Bendistillery Inc. and Bend Spirits, Inc. are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company owns less than 20% of the equity ownership of each of these entities and has no substantial influence over the management of the businesses. In accordance with US GAAP, the Company does not consolidate its financial statements with those of Ablis Holding Company, Bendistillery Inc. and Bend Spirits, Inc.

 

At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether its investments are impaired. Factors that the Company would consider indicators of impairment include: (1) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, (2) a significant adverse change in the regulatory, economic, or technological environment of the investee, (3) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, (4) a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment, and (5) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants, if any.

 

 
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The qualitative assessments at the end of first, second and third quarters are done via conference calls with the management teams of Ablis, Bendistillery and Bend Spirits. The qualitative assessment at the end of the fourth quarter relating to these entities also includes review of their respective financial statements that have been reviewed by a third-party accounting firm. At that time, the Company performs an annual impairment assessment. The reviewed financial statements of these companies are not audited, and the Company is not active in the management of these companies, and except for these companies’ quarterly meetings with the management of the Company, the Company’s assessment of these companies is inherently limited to infrequent and relatively brief conversations with officers of these companies and to reviews of those reviewed financial statements.

 

The Company’s Investment in SmplyLifted

 

On September 22, 2020, LFTD Partners Inc. and Lifted and privately held SMPLSTC, Costa Mesa, CA formed an equally-owned new entity called SmplyLifted LLC (“SmplyLifted”), which sold tobacco-free nicotine pouches under the brand name FR3SH.

 

Lifted had a 50% membership interest in SmplyLifted. The other 50% of SmplyLifted was owned by SMPLSTC and its principals. Under US GAAP, the Company used the equity method to account for its 50% membership interest in SmplyLifted. Under the equity method of accounting, the Company recorded its share (50%) of SmplyLifted’s earnings (or losses) as income (or losses) on the Consolidated Statements of Operations. The Company recorded its initial investment in SmplyLifted, which was $200,000, as an asset at historical cost. Under the equity method, the investment’s value was periodically adjusted to reflect the changes in value due to Lifted’s share in SmplyLifted’s income or losses.

 

Prepaid Expenses – Prepaid expenses relate primarily to advance payments made for purchases of inventory; prepaid inventory is transferred to inventory when the purchased items are received by the Company. Other expenses, such as prepaid commercial property and general liability insurance, and prepaid health and dental insurance, among others, are also recognized as prepaid expenses when advance payments are made for services that will be performed in periods subsequent to the balance sheet date. Prepaids for these other expenses are recognized as expenses ratably over the applicable service period. 

 

Accounts Receivable – Accounts receivable of $3,901,279, net of $650,695 allowance for doubtful accounts, were reported as of March 31, 2024. In comparison, accounts receivable of $3,586,176, net of $375,417 allowance for doubtful accounts, were reported at December 31, 2023.

 

The Company evaluates the collectability of its trade accounts receivable based on a number of factors. Management of the Company reviews and discusses all outstanding customer trade balances as of reporting period end. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded (the “Allowance for Doubtful Accounts”), which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. Management also considers industry-specific factors which may impact customers’ ability to meet their financial obligations to the Company.

 

In addition to specific customer identification of potential bad debts, management takes into consideration Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses, which is codified as Accounting Standards Codification Topic 326, adds to US GAAP the current expected credit loss model (“CECL Model”), which is a measurement model based on expected losses rather than incurred losses. Under the CECL Model, an entity recognizes its estimate of expected losses as an allowance. The Company has considered the applicable guidance in ASU 2016-13.  Key aspects of the CECL Model include the following:

 

1. The CECL Model applies to financing receivables measured at amortized cost, which includes trade accounts receivable.

2. An entity will recognize an allowance for credit losses that results in the financial statements reflecting the net amount expected to be collected from the financial asset.

3. The allowance represents the portion of the amortized cost basis that an entity does not expect to collect due to credit over the asset’s contractual life, considering past events, current conditions and reasonable and supportable forecasts of future economic conditions.

 

 
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In performing its CECL Model analysis, management calculates the ratio of write offs to sales made to wholesalers and distributors for the trailing three-year period (the “Bad Debt Loss Rate”). The Bad Debt Loss Rate is then multiplied by sales made to wholesalers and distributors during the trailing twelve months (the “Bad Debt Calc”). The Bad Debt Calc is compared to the total accounts receivable that is older than 90 days as of reported period end; for conservatism, whichever is larger is considered the Allowance for Doubtful Accounts as of reported period end. The Company’s position is that the Company’s conservative approach toward the treatment of Allowance for Doubtful Accounts provides sufficient coverage in relation to potential credit losses from outstanding invoice write-offs.  

 

Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at March 31, 2024 and December 31, 2023:

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Raw Goods

 

$4,443,581

 

 

$4,962,652

 

Finished Goods

 

$3,215,862

 

 

$5,212,015

 

Total Inventory

 

$7,659,443

 

 

$10,174,667

 

 

The process of determining obsolete or spoiled inventory involves: 

 

 

1)

Identifying raw goods that would no longer be used in the manufacture of finished goods;

 

2)

Identifying expired raw goods;

 

3)

Identifying finished goods that would no longer be sold or that are slow moving;

 

4)

Identifying finished goods that are expired; and

 

5)

Valuing and expensing raw and finished goods that would no longer be sold.

 

Monthly overhead costs such as payments for rent, utilities, insurance, and indirect labor are allocated to finished goods based on the estimated percentage cost toward the finished goods. Depreciation expense related to certain machinery and equipment is also allocated to finished goods.

 

At March 31, 2024, $337,181 of overhead costs incurred during the first quarter of 2024 were allocated to finished goods. In comparison, at December 31, 2023, $338,582 of overhead costs incurred during the fourth quarter were allocated to finished goods.

 

During the quarters ended March 31, 2024, and 2023, $398,815 and $131,967 of obsolete and spoiled inventory was written off, respectively.

 

On December 30, 2022, Lifted was able to reach an agreement for the forgiveness of $630,000 of payables owed to its third-party disposable vape device manufacturer. The agreement also includes credits to Lifted against future purchases from the device manufacturer totaling $370,047. The credit is to be provided by the manufacturer at the rate of $46,255.87 per quarter beginning with the first quarter of 2023 and continuing for the next six consecutive quarters, with a final quarterly credit of $46,255.91 for the fourth quarter of 2024. The agreement is a result of the vape manufacturer agreeing to share a portion of the Company’s prior $2,313,902 write-off of certain 2 mL disposable vapes that were written off due to clogging issues.

 

The payable forgiveness resulted in a net $485,496 improvement to the cost of goods sold and accrued liabilities sections of the Company’s consolidated statements of operations as of December 30, 2022. The $370,047 in credits had been booked as an asset as of December 30, 2022 and recognized as other income amortized quarterly at the rate of $46,256 per quarter beginning with the first quarter of 2023 and continuing for the next six consecutive quarters, with a final quarterly credit of $46,255 for the fourth quarter of 2024.

 

 
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However, based on the analysis of credits applied to the vape device manufacturer bills in 2023, Lifted received $33,427 more credits than was expected/agreed to per the agreement ($185,024 per year for 2023 and 2024); as such, Lifted’s revised credit going into 2024 was $151,597, and this is amortized quarterly at the rate of $37,899 per quarter.

 

Fixed Assets – Fixed assets are recorded and stated at cost. Fixed assets that cost less than $2,500 are expensed, and fixed assets that cost $2,500 or more are capitalized. Depreciation of machinery and equipment, furniture and fixtures, leasehold improvements, and computer equipment, is based on the asset’s estimated useful life and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.

 

Management regularly reviews property and equipment and other long-lived assets for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is an indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks.

 

Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.

 

Security Deposits – Prior to the Company’s acquisition of the 5511 Building on December 14, 2023, the Company had not paid a security deposit for its lease of the 5511 Building.

 

The Company has paid security deposits for its leased facilities located at 8920 58th Place, Suite 850, Kenosha, WI 53144, 8910 58th Place, Suites 100, 600 and 700, Kenosha, WI 53144, 9560 58th Place, Suite 360, Kenosha, WI 53144, 2701-09 West Fulton PH, Chicago, Illinois 60612, 5732 95th Avenue, Suites 100-300, Kenosha, WI 53144, and 789 Tech Center Drive, Unit C, Durango, Colorado 81301.

 

As part of Lifted’s acquisition of the assets of Oculus, Lifted has assumed Oculus’ lease of office and operational space located at 16178 US Hwy 550, Aztec, New Mexico, and the security deposit that had been previously paid by Oculus to the landlord of this leased space. As described in NOTE 14 – SUBSEQUENT EVENTS, the lease of space located at 16178 US Hwy 550, Aztec, New Mexico, was terminated on May 7, 2024.

 

The Company has paid security deposits for utilities to various vendors.

 

State Licensing Deposits – The Company is required to pay deposits for certain licenses in various states.

 

Revenue – The Company recognizes revenue in accordance with ASC 606. The majority of the Company’s sales are of branded products to distributors, wholesalers, and end consumers. A minority of the Company’s sales are of raw goods to manufacturers, distributors and wholesalers. The majority of the Company’s sales are to distributors, followed by the Company’s sales to wholesalers, and then the Company’s sales to end consumers. Distributors primarily sell Lifted’s products to vape and smoke shops, stores specializing in cannabinoid-infused products, convenience stores, health food stores, and other outlets.

 

Typically, the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. If the shipping terms on a sale are FOB destination, the revenue is deferred until the product reaches its destination.

 

The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers. Discounts and rebates provided to customers are recorded as a reduction to gross sales.

 

 
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An allowance for sales is recorded for estimated future discounts/refunds related to returns of products sold prior to the reporting period end. Described below are some of the reasons why a customer may want to return an ordered item, and how the Company responds in each situation:

 

 

1)

The ordered item breaks, melts, or separates in transit to the customer. In this case, the Company will replace the broken, melted or separated item at no cost to the customer.

 

2)

The Company sent the wrong item to the customer. In this case, the Company will allow the customer to keep, at no cost to the customer, the item that was mistakenly sent to the customer. The Company will also send the correct product to the customer, at no cost to the customer.

 

3)

The customer ordered the wrong product. In this case, the customer, at his/her own expense, must mail the mistakenly ordered product back to the Company, and the Company will mail the correct product to the customer.

 

4)

The ordered item is recalled. In a situation where product is recalled, the Company will offer a replacement, credit, or refund.

 

An allowance for sales reduces net sales on the Consolidated Statements of Operations, and also reduces accounts receivable on the Consolidated Balance Sheets. Sales allowances of $344,812 and $635,098 were reported at March 31, 2024 and December 31, 2023, respectively. Management believes that an adequate allowance for sales has been made for discounts/refunds as of period end.

 

Disaggregation of Revenue

 

The Company has considered providing disaggregation of revenue by information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments, such as type of good, geographical region, market or type of customer, type of contract, contract duration, timing of transfer of goods, and sales channels. Due to the rapidly evolving nature of our industry, the Company is constantly launching new products to stay ahead of trends, finding new sales channels, initiating new distribution networks and modifying the prices of its products.

 

Shown below are tables showing the approximate disaggregation of historical revenue:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

Location of Sale

 

2024

 

 

 

 

 

2023

 

 

 

 

Inside of USA

 

$10,666,649

 

 

 

100%

 

$12,449,331

 

 

 

99%

Outside of USA

 

$-

 

 

 

0%

 

$12,462

 

 

 

1%

Net Sales

 

$10,666,649

 

 

 

100%

 

$12,461,793

 

 

 

100%

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

Type of Sale

 

2024

 

 

 

 

 

2023

 

 

 

 

Net sales of raw materials to customers

 

$175,922

 

 

 

2%

 

$2,386

 

 

 

0%

Net sales of products to private label clients

 

 

1,608,479

 

 

 

15%

 

 

176,720

 

 

 

1%

Net sales of products to wholesalers

 

 

2,763,617

 

 

 

26%

 

 

2,439,521

 

 

 

20%

Net sales of products to distributors

 

 

5,348,891

 

 

 

50%

 

 

9,277,585

 

 

 

74%

Net sales of products to end consumers

 

 

769,740

 

 

 

7%

 

 

565,581

 

 

 

5%

Net Sales

 

$10,666,649

 

 

 

100%

 

$12,461,793

 

 

 

100%

 

 
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For the Three Months Ended

 

 

 

March 31,

 

Hemp vs Non-Hemp Product Sales

 

2024

 

 

 

 

 

2023

 

 

 

 

Net sales of hemp products

 

$10,579,759

 

 

 

99%

 

$11,464,850

 

 

 

92%

Net sales of non-hemp products

 

 

86,890

 

 

 

1%

 

 

996,943

 

 

 

8%

Net Sales

 

$10,666,649

 

 

 

100%

 

$12,461,793

 

 

 

100%

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

Product Type

 

2024

 

 

 

 

2023

 

 

 

Vapes

 

$5,467,103

 

 

 

51%

 

$5,981,661

 

 

 

48%

Edibles

 

$3,619,158

 

 

 

34%

 

$3,863,156

 

 

 

31%

Flower

 

$669,394

 

 

 

6%

 

$1,620,033

 

 

 

13%

Cartridges

 

$856,080

 

 

 

8%

 

$996,943

 

 

 

8%

Apparel and Accessories

 

$54,913

 

 

 

1%

 

$-

 

 

 

0%

Net Sales

 

$10,666,649

 

 

 

100%

 

$12,461,793

 

 

 

100%

 

Deferred Revenue

 

Amounts received from a customer before the purchased product is shipped to the customer are treated as deferred revenue. If cash is not received, an accounts receivable is recognized for the invoiced order, but revenue is not recognized until the order is fully shipped. Accounts receivable include amounts associated with partially shipped orders, for which the unshipped portion is a contract asset. Contract assets represent invoiced but unfulfilled performance obligations.

 

At March 31, 2024, total deferred revenue was $853,202, all of which is expected to be recognized as revenue in 2024. At December 31, 2023, total deferred revenue was $235,891, all of which was recognized as revenue in 2024.

 

The table shown below represents the composition of deferred revenue between contract assets (invoiced but unfulfilled performance obligations) and deposits from customers from unfulfilled orders as of March 31, 2024 and December 31, 2023.

 

 

 

March 31,

2024

 

 

December 31,

 2023

 

Contract Assets (invoiced but unfulfilled performance obligations)

 

$445,882

 

 

$131,304

 

 

 

 

 

 

 

 

 

 

Deposits from customers for unfulfilled orders

 

$407,320

 

 

$104,586

 

 

 

 

 

 

 

 

 

 

Total Deferred Revenue

 

$853,202

 

 

$235,891

 

 

Cost of Goods Sold – Cost of goods sold consists of the costs of raw materials utilized in the manufacture of products, direct labor, co-packing fees, repacking fees, freight and shipping charges, warehouse expenses incurred prior to the manufacture of Lifted’s finished products and certain quality control costs. Raw materials include ingredients, product components and packaging materials.

 

Cost of goods sold amounted to $7,282,609 and $6,813,348 during the quarters ended March 31, 2024 and 2023, respectively. $398,815 and $131,967 of cost of goods sold relates to spoiled and obsolete inventory written off during the quarters ended March 31, 2024 and 2023, respectively.

 

Operating Expenses – Operating expenses include accounts such as payroll expenses, deferred stock compensation expense, the company-wide management bonus pool, management bonuses, professional fees, bank charges and merchant fees, advertising and marketing, bad debt expense, depreciation and amortization, collaboration commission and royalty expenses, and other operating expenses.

 

 
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Total operating expenses decreased to $3,506,374 for the quarter ended March 31, 2024, down from $5,753,329 during the quarter ended March 31, 2023. The primary driver for this decrease in operating expenses was that during the first quarter of 2023, the Company recognized a net loss after ten straight quarters of profitability, solely because of the impact of a one-time, non-cash stock compensation expense of $2,138,175, which, for the quarter ended March 31, 2023, was $1,584,208 on an after-tax basis. At the closing of the acquisition of Lifted in February 2020, 645,000 shares of unregistered common stock of the Company were designated as contingent deferred compensation (the “Deferred Contingent Stock”) to certain persons specified by NWarrender in a schedule delivered by him to the Company (the “Deferred Contingent Stock Recipients”), as an employee retention incentive. Now that certain conditions and requirements have been met, the Deferred Contingent Stock vested on February 24, 2023, and on this date, in accordance with US GAAP, the Company expensed the value of the vested Deferred Contingent Stock. This one-time, non-cash charge swung our Company from a net income for the first quarter of 2023 of $1,442,466 to a net loss of $141,742. But for this charge, our Company would have reported first quarter 2023 basic and fully diluted EPS of $0.10 and $0.09, respectively.

 

Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred income taxes. Deferred income taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and on tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided against deferred income tax assets when it is not more likely than not that the deferred income tax assets will be realized.

 

Basic and Diluted Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by dividing earnings (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options and warrants are determined by the treasury stock method. The following table summarizes the calculations of basic and diluted earnings (loss) per common share for the quarters ended March 31, 2024 and 2023:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net Loss

 

$(1,141,004)

 

$(141,742)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

14,805,678

 

 

 

14,246,745

 

Diluted

 

 

14,805,678

 

 

 

14,246,745

 

 

 

 

 

 

 

 

 

 

Basic Net Loss per Common Share

 

$(0.08)

 

$(0.01)

Diluted Net Loss per Common Share

 

$(0.08)

 

$(0.01)

 

As of March 31, 2024, in addition to our outstanding common stock, we have issued (a) options to purchase 1,076,698 shares of common stock at $2.00 per share, (b) warrants to purchase 155,500 shares of common stock at $1.00 per share, (c) rights to purchase warrants to purchase 100,000 shares of common stock at $1.85 per share, and (d) warrants to purchase 2,280,000 shares of common stock at $5.00 per share, all of which are vested.

 

As of March 31, 2024, the Company had 2,500 shares of Series A Preferred Stock outstanding convertible into 250,000 shares of common stock; these are included in the diluted earnings calculation.

 

 
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As of March 31, 2024, the Company had 40,000 shares of Series B Preferred Stock outstanding convertible into 40,000 shares of common stock; these are not included in the diluted earnings calculation because the exercise price ($5.00/share) was higher than the stock closing price at March 31, 2024 ($2.00/share). There were also 142,000 shares of issuable Deferred Contingent Stock included in the March 31, 2024 diluted EPS calculation. Also included in the March 31, 2024 diluted EPS calculation was the minimum number of shares of common stock (160,000) that will eventually be issued pursuant to the Oculus Merger Agreement. As described in NOTE 14 – SUBSEQUENT EVENTS, on May 8, 2024, NWarrender, in consultation with WJacobs, made the Determination that the Incremental Pre-Tax Profits were zero dollars ($0). Consequently, the second installment of Merger Consideration consists of:

(1) Two Hundred Thousand Dollars ($200,000) in cash; and

(2) One Hundred Sixty Thousand (160,000) newly issued shares of unregistered LIFD Common Stock.

 

On May 13, 2024, the cash component of the second installment of Merger Consideration was paid, and the stock component of the second installment of Merger Consideration was issued.

 

As of March 31, 2023, in addition to our outstanding common stock, we had issued (a) options to purchase 1,076,698 shares of common stock at $2.00 per share, (b) warrants to purchase 155,500 shares of common stock at $1.00 per share, (c) rights to purchase warrants to purchase 100,000 shares of common stock at $1.85 per share, and (d) warrants to purchase 2,280,000 shares of common stock at $5.00 per share. Regarding the aforementioned warrants to purchase 2,280,000 shares of our common stock at an exercise price of $5.00 per share: of the total, warrants to purchase 2,255,000 shares of our common stock were vested as of March 31, 2023, while the remaining warrants to purchase 25,000 shares of our common stock were not vested and were subject to certain conditions and requirements as of March 31, 2023.

 

As of March 31, 2023, the Company had 4,500 shares of Series A Preferred Stock outstanding convertible into 450,000 shares of common stock; these are not included in the diluted earnings calculation because the effect of including them would have been anti-dilutive.

 

As of March 31, 2023, the Company had 40,000 shares of Series B Preferred Stock outstanding convertible into 40,000 shares of common stock; these are not included in the diluted earnings calculation because the exercise price ($5/share) was higher than the stock closing price at March 31, 2023 ($2.35/share).

 

Recent Accounting Pronouncements – On December 14, 2023, the FASB issued a final standard on improvements to income tax disclosures, ASU 2023-09, Improvements to Income Tax Disclosures. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact, if any, that the updated standard will have on the consolidated financial statements.

 

On November 27, 2023, the FASB issued ASU 2023-07-Segment Reporting. The new guidance was issued primarily to provide financial statement users with more disaggregated expense information about a public entity’s reportable segments. The guidance is effective for calendar year public entities in 2024 year-end financial statements, and should be adopted retrospectively unless impracticable. The Company is currently evaluating the impact, if any, that the updated standard will have on the consolidated financial statements.

 

The Company is researching what other pronouncements may be applicable to the Company’s accounting and whether or not any other pronouncements should be adopted.

 

Advertising and Marketing Expenses – Advertising and marketing costs are expensed as incurred. During the quarter ended March 31, 2024, the Company incurred $176,660 in advertising and marketing expenses, which primarily related to marketing campaigns, trade shows, and promotional products. In comparison, during the quarter ended March 31, 2023, the Company incurred $228,571 in advertising and marketing expenses, which primarily related to trade shows, marketing, and promotional products and public relations. 

 

 
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Off-Balance Sheet Arrangements – The Company has no off-balance sheet arrangements.

 

Reclassifications – Some items from the prior period have been reclassified within the financial statements to conform with the current presentation.

 

Business Combinations and Consolidated Results of Operations and Outlook The Company accounts for its acquisitions under ASC Topic 805, Business Combinations and Reorganizations (“ASC Topic 805”). ASC Topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. ASC Topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations. Acquisition costs are expensed as incurred. 

 

When the Company acquires a business, we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values. We record any premium over the fair value of net assets acquired as goodwill. The allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value. We use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.

 

Accounting for Operating and Finance Lease Right-of-Use Assets – In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”). The amended guidance, which was effective for the Company on January 1, 2019, requires the recognition of lease assets and lease liabilities on the balance sheet for those leases with terms in excess of 12 months and currently classified as operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet; lease expense for these types of leases are recognized on a straight-line basis over the lease term. Options to extend or terminate a lease are not included in the determination of the right-of-use asset or lease liability unless it is reasonably certain to be exercised. Lifted adopted ASU 2016-02 using the modified retrospective approach, electing the package of practical expedients.

 

Accounting for Goodwill – Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers.

 

Goodwill is not amortized but is subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by using the income approach. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows and other factors. For the discount rate, the Company considered the current market interest rates, including the interest rates on the Company’s recently closed loans from Surety Bank, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

 

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests.

 

 
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NOTE 3 - RISKS AND UNCERTAINTIES 

 

Going Concern – The Company currently has one revenue-generating subsidiary, Lifted. Prior to the acquisition of Lifted on February 24, 2020, the Company had no sources of revenue, and the Company had a history of recurring losses, which has resulted in an accumulated deficit of $3,241,142 as of March 31, 2024. Bankruptcy of the Company at some point in the future is a possibility. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. If and to the extent that the revenue generated by Lifted is not adequate to pay the Company’s operating expenses, the Company's financial obligations under its loan agreements with Surety Bank, and the dividends accruing on its preferred stock, then Company management plans to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (2) completing private placements of the Company’s common stock and/or preferred stock. Management believes that by taking these actions, the Company will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees whatsoever that the Company will be successful in consummating such actions on acceptable terms, if at all. Moreover, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company.

 

The Company’s investments in Ablis, Bendistillery and Bend Spirits made the Company a minority owner of these companies. As a minority owner, the Company is not able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements. The Company monitors its investments in Ablis, Bendistillery and Bend Spirits, and from time to time will evaluate whether there has been a potential impairment of value.

 

The regulatory risks and uncertainties associated with Lifted's cannabinoid-infused products, vaping and nicotine products industries, together with the other significant risks described in our 2023 Annual Report on Form 10-K filed with the SEC on March 29, 2024, have created significant adverse risks to the Company, which have caused substantial doubt about the Company’s ability to continue as a going concern.

 

The Company has significant financial obligations under its loan agreements with Surety Bank, and also the Company is accruing and paying 3% annual dividends on its outstanding Series A and Series B Convertible Preferred Stock.

 

In addition, factors that could materially affect future operating results include, but are not limited to, changes to laws and regulations, especially any future changes to the so-called “Farm Bill” at the federal level, any new rule proposed by the federal Drug Enforcement Administration that might attempt to classify certain hemp-derived products as controlled substances, and any other federal or state laws and regulations related to hemp-derived cannabinoids, nicotine or tobacco products, kratom, psychoactive products and/or vaping. The company is also subject to vendor concentration risk, customer concentration risk, customer credit risk, and counterparty risk.

 

The Company maintains levels of cash bank accounts that typically exceed federally insured limits. The Company has not experienced any losses in such accounts and it believes that it is not exposed to any significant credit risk on cash.

 

No assurance or guarantee whatsoever can be given that the net income of the Company’s wholly owned subsidiary Lifted will be sufficient to allow the Company to pay all of its operating expenses, its financial obligations under its loan agreements with Surety Bank, the dividends accruing and being paid on the Company’s preferred stock, future company-wide management bonus pool payments, and other obligations.

 

As a result of all of the foregoing described factors, there is substantial doubt that the Company will be able to continue as a going concern. Bankruptcy of the Company at some point in the future is a possibility. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 
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Customer Concentration Risk – During the quarter ended March 31, 2024, five customers made up approximately 27% of Lifted’s sales. In comparison, during the quarter ended March 31, 2023, five customers made up approximately 26% of Lifted’s sales.

 

Vendor Dependence – Regarding the purchases of raw goods and finished goods (“Inventory”), during the quarter ended March 31, 2024, approximately 71% of the Inventory that Lifted purchased was from five vendors. In comparison, during the quarter ended March 31, 2023, approximately 79% of the Inventory that Lifted purchased was from five vendors.

 

The loss of Lifted’s relationships with these customers and vendors could have a material adverse effect on Lifted’s business.

 

NOTE 4 – THE COMPANY’S INVESTMENTS

 

The Company’s Investment in Lifted

 

At December 31, 2023, the Company performed its annual goodwill impairment assessment on the goodwill recognized as part of the acquisition of Lifted, and determined that no impairment was necessary.

 

The Company’s Investments in Ablis, Bendistillery and Bend Spirits

 

On April 30, 2019, the Company purchased 4.99% of the common stock of each of Ablis Holding Company, Bendistillery Inc., and Bend Spirits, Inc. for an aggregate purchase price of $1,896,200.

 

On April 23, 2024, the management of LFTD Partners had a video conference with the officers of Ablis, Bendistillery and Bend Spirits. During this meeting, the management of those companies discussed the performance of Ablis, Bendistillery and Bend Spirits during the quarter ended March 31, 2024. Based upon the financial and non-financial information that was shared with LFTD Partners during that conference call, the management of LFTD Partners believes that no impairment of the value of Bendistillery, Bend Spirits or Ablis is warranted at this point in time.

 

The Company’s Investment in SmplyLifted LLC

 

During February 24, 2020 through December 31, 2020, the Company recognized a loss of $4,429 from its 50% membership interest in SmplyLifted, and wrote down the value of its investment in SmplyLifted to $195,571. During the year ended December 31, 2021, the Company recognized a loss of $195,571 from its 50% membership interest in SmplyLifted. At December 31, 2021, Lifted wrote off its receivables from SmplyLifted, and its loans to SmplyLifted, which totaled $388,727.

 

On February 9, 2022, Lifted signed an Agreement to sell its 50% membership interest in SmplyLifted to Corner Vapory LLC, an affiliate of NWarrender, CEO of Lifted, for $1, plus ninety-nine percent (99%) of any and all payments and other consideration received or owed to Corner Vapory LLC in regard to SmplyLifted’s existing inventory of tobacco-free nicotine pouches. Lifted had the option to re-purchase the 50% membership interest in SmplyLifted LLC from Corner Vapory LLC for $1,000 in cash at any time on or before December 31, 2032. However, Lifted never exercised this option, and SmplyLifted was dissolved on November 28, 2022, due to insolvency. 

 

 
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NOTE 5 – PROPERTY AND EQUIPMENT, NET

 

Property and Equipment consist of the following:

 

Asset Class

 

March 31, 2024

 

 

December 31,

2023

 

Building

 

$805,545

 

 

$805,545

 

Land

 

$430,754

 

 

$430,754

 

Machinery & Equipment

 

$1,441,425

 

 

$1,473,609

 

Furniture & Fixtures

 

$107,509

 

 

$107,509

 

Computer Equipment

 

$18,979

 

 

$18,979

 

Building & Leasehold Improvements

 

$613,229

 

 

$581,394

 

Vehicles

 

$117,047

 

 

$117,047

 

Trade Show Booths

 

$55,081

 

 

$55,081

 

Sub-total:

 

$3,589,569

 

 

$3,589,918

 

 

 

 

 

 

 

 

 

 

Less: accumulated depreciation

 

$(701,058 )

 

$(593,531 )

 

 

$2,888,511

 

 

$2,996,387

 

 

The useful lives of the Company’s property and equipment by asset class are as follows:

 

Asset Class

Estimated Useful Life

Building

39 years

Land

Indefinite

Machinery & Equipment

60 months

Building Improvements

60 months

Leasehold Improvements

The shorter of the length of the lease or 60 months

Trade Show Booths

36 months

Vehicles

60 months

Computer Equipment

60 months

Furniture & Fixtures

60 months

 

In the Consolidated Statements of Operations, depreciation expense is consolidated with amortization expense.

 

After allocating depreciation of machinery and equipment and 5511 Building of $76,966 for the quarter as overhead to finished goods, depreciation expense of $48,798 was recognized during the three months ended March 31, 2024.

 

In comparison, after allocating depreciation of machinery and equipment of $33,230 for the quarter as overhead to finished goods, depreciation expense of $33,813 was recognized during the three months ended March 31, 2023.

 

NOTE 6 – NOTES RECEIVABLE

 

The William Noyes Webster Foundation, Inc.

 

The Foundation, a non-profit Massachusetts corporation, has received a provisional registration from the Commonwealth of Massachusetts to own and operate a medical marijuana cultivation facility in Plymouth, Massachusetts, and a medical marijuana dispensary in Dennis, Massachusetts. Jane W. Heatley (“Heatley”) is the founder and a member of the board of directors of the Foundation.

 

 
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Teaming Agreement – The Company believes it is highly likely that the board of directors of the Foundation will only approve contracts that have been negotiated and approved by Heatley. Consequently, on July 8, 2014, the Company entered into a Teaming Agreement (the “Teaming Agreement”) with Heatley, in which, among other things: (1) the Company and Heatley agreed to use their respective best efforts, working exclusively together as a team, and not as a partnership or other entity, in order to consummate transactions, agreements, contracts or other arrangements pursuant to which the Company will provide capital and expertise to the Foundation; and (2) Heatley agreed that Heatley shall not, and shall not permit the Foundation to, discuss or negotiate for debt or equity financing, or consulting services or other expertise, from any third party. The Company claims that Heatley violated the Teaming Agreement by discussing and negotiating for debt or equity financing, or consulting services or other expertise, from at least one third party. Heatley claims that the Company violated the Teaming Agreement alleging that the Company failed to lend funds to the Foundation in accordance with the Teaming Agreement. The Company believes Heatley’s claim to be baseless. No assurances whatsoever can be made that Heatley will comply with the terms of the Teaming Agreement, nor that the Company will be able to adequately enforce the terms of the Teaming Agreement if it is ever the subject of litigation.

 

Promissory Note – On July 14, 2014, the Foundation signed and delivered to the Company a Secured Promissory Note (the “Note”) which is in the stated loan amount of $1,500,000, and is secured by a Security Agreement of even date therewith (the “Security Agreement”). The Note provides that the $1,500,000 loan may be advanced in one or more installments as the Foundation and the Company may mutually agree upon. The Foundation and the Company mutually agreed that the first installment of this loan would be $602,500. Pursuant to instructions from the Foundation, on July 14, 2014, the Company paid $2,500 owed by the Foundation to one of its consultants, and the Company advanced $600,000 directly to the Foundation. The amount and timing of subsequent loan installments under the Note, which could have totaled $897,500, had not yet been mutually agreed upon between the Foundation and the Company as of the date of the Note.

 

Between April and July 2015, the Company loaned an additional $135,350 to the Foundation, evidenced by the Note and secured by the Security Agreement. Following such additional loans, the principal of the loan from the Company to the Foundation, evidenced by the Note and secured by the Security Agreement, is now $737,850. The principal balance outstanding under the Note bore interest at the rate of 12.5% per annum, compounded monthly. It was contemplated that the first payment of accrued interest by the Foundation under the Note would be made as soon after the Foundation commences operations of the Plymouth Cultivation Facility and the Dennis Dispensary as the Foundation’s cash flows shall reasonably permit, but in any event no later than one year after the Foundation commences operations. The principal of the Note would be payable in eight consecutive equal quarterly installments, commencing on the last day of the calendar quarter in which the Foundation commences operations. Principal on the Note and related accrued interest would be considered past due if the aforementioned payments were not received by their due dates.

 

Uncollectable Note and Interest Receivable – The Company assessed the collectability of the Note based on the adequacy of the Foundation’s collateral and the Foundation’s capability of repaying the Note according to its terms. Based on this assessment, on September 1, 2015, the Company concluded that the Note and interest receivable would not be collectible. As such, the Company wrote off the Note totaling $737,850 and interest receivable totaling $97,427 as bad debt expense on September 1, 2015.

 

NOTE 7 – INTANGIBLE ASSETS, NET

 

Website

 

The cost of developing Lifted’s website, www.urb.shop, which was previously www.LiftedMade.com, was amortized over 32 months. No amortization related to the website was recognized during the three months ended March 31, 2024 and 2023, since the website intangible asset was fully amortized as of December 31, 2022.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

Sublease of Space Located at 2701-09 West Fulton PH, Chicago, Illinois 60612

 

On July 6, 2022, Lifted entered into a sublease for office space in Chicago, Illinois located at 2701-09 West Fulton PH, Chicago, Illinois 60612. The sublease costs $3,000 per month, plus supplemental lease related charges such as real estate taxes and common expenses of the property that we anticipate will be commercially typical costs. The sublease was retroactively effective as of June 1, 2022 and for a five-month term that ended on October 31, 2022. The purpose of the sublease is to make available office space for the members of Lifted’s sales team who live in Chicago. These salespeople were spending significant time in their cars commuting from Chicago to Kenosha.

 

 
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The sublessor is Lifted’s former Chief Strategy Officer. The sublease is structured so that the sublessor's lease payment obligations to the landlord are passed on to Lifted on a dollar-for-dollar basis, such that the sublessor does not realize a cashflow profit or loss from the sublease.

 

The sublease is currently operating on a month-to-month basis. Since the term is less than twelve months, this lease is not recorded on the Consolidated Balance Sheet, and lease expense is recognized on a straight-line basis over the lease term.

 

Robert T. Warrender II

 

In January 2022, Lifted hired Mr. Robert T. Warrender II, NWarrender’s father, as an employee. Mr. Warrender is also a Director of LFTD Partners Inc. During the quarters ended March 31, 2024 and 2023, $13,846 and $13,846, respectively, in wages were paid to Mr. Warrender. As of March 31, 2024 and 2023, $1,804 and $975 in expense reimbursements were owed to Mr. Warrender, respectively.

 

Robert T. Warrender III

 

Mr. Robert T. Warrender III is NWarrender’s brother, and Director Mr. Robert T. Warrender II’s son. From January 9, 2023 until July 1, 2023, Mr. Warrender worked for Lifted as an employee in sales; previously, Mr. Warrender operated as an independent contractor of Lifted. During the quarter ended March 31, 2023, $9,231 in compensation was paid to Mr. Warrender.

 

Outside Director Fees

 

Each of the Company’s outside directors, including Mr. Vincent J. Mesolella, Dr. Joshua A. Bloom, Mr. Richard E. Morrissy, Dr. James S. Jacobs, and Mr. Kevin J. Rocio, received quarterly director fees of $4,000 in each of the quarters ended March 31, 2024 and 2023.  Dr. Jacobs is the brother of CEO GJacobs and the uncle of President and CFO WJacobs.

 

William C. “Jake” Jacobs

 

At the closing of the acquisition of Lifted, 645,000 shares of unregistered common stock of the Company were designated as contingent deferred compensation (the “Deferred Contingent Stock”) to certain persons specified by NWarrender in a schedule delivered by him to the Company at the closing of the Merger (the “Deferred Contingent Stock Recipients”). Now that certain conditions and requirements have been met, starting on February 24, 2023, the Deferred Contingent Stock has begun to be issued to certain Deferred Contingent Stock Recipients who have instructed the Company to issue to them their respective, earned Deferred Contingent Stock. Through March 31, 2024, 503,000 shares of Deferred Contingent Stock have been issued to certain Deferred Contingent Stock Recipients, including 200,000 shares of Deferred Contingent Stock to WJacobs.

 

Nicholas S. Warrender

 

Purchase of 5511 95th Avenue, Kenosha, Wisconsin 53144

 

Toward the end of 2020, NWarrender, through his assigned entity 95th Holdings, LLC ("Holdings"), purchased a building located at 5511 95th Avenue, Kenosha, Wisconsin 53144 (“5511 Building”) that was immediately leased to us to conduct our expanded operations. The 5511 Building includes office, laboratory and warehouse space. As part of the lease agreement with Holdings, the parties agreed that our wholly owned subsidiary Lifted would eventually purchase the 5511 Building. The purchase price for the 5511 Building was originally subject to variation based on a formula agreed upon by the parties. Pursuant to the Omnibus Agreement with NWarrender on December 30, 2021, Lifted was obligated to purchase the 5511 Building from Holdings on or before December 31, 2022 for a fixed purchase price of $1,375,000.

 

 
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Prior to the Acceleration Agreement, Lifted had an obligation to complete the purchase of the 5511 Building on or before December 31, 2022. Pursuant to an Acceleration Agreement, the deadline to purchase the 5511 Building was extended by one year to December 31, 2023. In addition, the Acceleration Agreement contains a provision that if we raised $5,000,000 of debt or equity capital, then Lifted or our designee shall purchase the 5511 Building from Holdings at the agreed upon $1,375,000 purchase price within two days

 

On December 14, 2023, LFTD Partners and Lifted (together the “Borrower”), jointly borrowed a total of $3,910,000 from Surety Bank, of DeLand, Florida (“Lender”), and simultaneously Lifted purchased the 5511 Building from Holdings for $1,375,000 as previously agreed upon.

 

The Lender made two five-year loans to the Borrower, as joint borrowers: (1) a working capital loan of $3,000,000 at 9.5% fixed annual interest, and (2) a $910,000 loan at 10% fixed annual interest, the net proceeds of which were used by Lifted to pay a portion of the $1,375,000 purchase price of the 5511 Building. The two loans are cross collateralized by a first lien mortgage on the 5511 Building, and by a first lien security interest in all of the other assets owned by LIFD and Lifted, in favor of Surety Bank.

 

Prior to Lifted’s purchase of the 5511 Building, from June 1, 2018 through June 1, 2021, Lifted rented 3,300 square feet of space located in Zion, Illinois, for manufacturing, warehousing and office space. From June 1, 2021 through November 2021, Lifted leased such space on a month-to-month basis. From May 2020 until April 1, 2021, Lifted also temporarily used additional space located adjacent to its rented space in Zion, Illinois, and made payments in lieu of rent therefore.

 

Lifted’s rented space in Zion, Illinois, was not adequate in light of various issues including zoning uncertainties, lack of air conditioning, and small size. As such, on December 18, 2020, Lifted as tenant entered into a Lease Agreement (the “Lease) with Holdings (“Landlord”) for office, laboratory and warehouse space in the 5511 Building. The lease commencement date was January 1, 2021, and lease termination date was January 1, 2026

 

Lifted constructed improvements including a clean room, and gradually moved into the 5511 Building over the course of the first quarter of 2021. Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted leased approximately 11,238 square feet at the 5511 Building at $6.13 per square foot per year in base rent ($68,888.94 in 2021), which was subject to a 2% increase in base rent each year, plus certain operating expenses and taxes. The Lease was to continue until midnight on the fifth anniversary date of the commencement date of the Lease. Lifted was to have the right to extend the original five year term of the Lease for one extension period of two years, commencing upon the expiration of the original term. Lifted and Landlord were required to execute an “Amendment of Extension” prior to six months before the expiration of the original term. Prior to Lifted’s purchase of the 5511 Building, the rent schedule was as follows:

 

Rent Schedule

 

Date

 

Base Monthly

Rent

 

January 1, 2021 – December 31, 2021

 

$

5,740.75

 

January 1, 2022 – December 31, 2022

 

$

5,855.57

 

January 1, 2023 – December 31, 2023

 

$

5,972.68

 

January 1, 2024 – December 31, 2024

 

$

6,092.13

 

January 1, 2025 – December 31, 2025

 

$

6,213.97

 

 

Under the terms of the Lease, the tenant, Lifted, had the option to purchase the property at any time prior to December 31, 2025, and in any event, Lifted had been obligated to purchase the 5511 Building on or before that date. Pursuant to the Lease, in all cases Lifted’s purchase price for the 5511 Building was to be in an amount equal to the greater of: (1) the fair market value of the 5511 Building at the time Lifted purchases the 5511 Building; or (2) any remaining principal balance of any purchase-money mortgage for the 5511 Building existing at the time of the closing of Lifted’s purchase, plus the corresponding amount identified in the Additional Purchase Price Schedule attached as Exhibit B to the Lease, which was an additional amount ranging between $300,000 and $375,000 based on the number of years that had passed between the commencement of the Lease and the purchase of the 5511 Building by Lifted.

 

Landlord was an entity owned by NWarrender, who is the largest stockholder of the Company as beneficial owner of 3,900,455 shares of common stock. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Mr. Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, NWarrender was able to benefit through his entity Holdings by receiving rent and by eventually selling the 5511 Building to Lifted.

 

 
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Corner Vapory LLC

 

NWarrender is a 50% owner in Corner Vapory LLC. Corner Vapory LLC owned a vape shop (called Corner Vapory), and Canna Vita, a CBD shop, both of which were located in Kenosha, Wisconsin and were customers of Lifted. The other owners of Corner Vapory LLC consist of Lifted’s Director of Operations and his wife. In the past, Lifted sold products to Corner Vapory from time-to-time; however, Lifted did not sell any products to Corner Vapory LLC during the quarters ended March 31, 2024 and 2023.

 

NOTE 9 – SHAREHOLDERS’ EQUITY

 

Issuance of Series A Convertible Preferred Stock

 

The Company has authorized 400,000 shares of its Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock may be converted into 100 shares of common stock. The Series A Convertible Preferred Stock accrues and pays dividends at the rate of 3% annually. The accrued Series A Convertible Preferred Stock dividends are cumulative. The Series A Convertible Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $3.00 per share or higher for 20 consecutive trading days after the first date that the Series A Registration Statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series A Convertible Preferred Stock have no voting rights. The holders of the Series A Convertible Preferred Stock shall have voluntary conversion rights. Shares of Series A Convertible Preferred Stock are subject to mandatory conversion (in the discretion of the Company) at such time as the Company’s common stock has closed at $5.00 per share or higher for 20 consecutive trading days after the first date that the Series A Registration Statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.

 

Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Series A Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Series A Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Series A Preferred Stock will receive an annual 3% dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Preferred Stock. On August 2, 2019, the Company filed a Form S-1 Registration Statement covering the shares of newly issued common stock of the Company into which the Series A Convertible Preferred Stock can be converted. On July 6, 2020, the Company filed with the SEC an amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On December 10, 2020, the Company filed with the SEC a second amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On June 2, 2021, the Company filed with the SEC a third amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On July 2, 2021, the Company filed with the SEC a fourth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On July 26, 2021, the Company filed with the SEC a fifth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. On August 19, 2021, the Company filed with the SEC a sixth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted. The Registration Statement was approved and deemed effective by the SEC on August 26, 2021.

 

As of March 31, 2024, 63,650 shares of Series A Preferred Stock have been converted into a total of 6,365,000 shares of common stock of the Company, which leaves 2,500 shares of Series A Preferred Stock currently outstanding, convertible into 250,000 shares of common stock of the Company

 

 
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As of March 31, 2024 and December 31, 2023, the Company has accrued a liability of $4,190 and $5,328, respectively, as dividends payable to holders of the Series A Convertible Preferred Stock. The Company fully intends on paying the annual dividends to the holders of the Series A Convertible Preferred Stock. During the quarters ended March 31, 2024 and 2023, a total of $3,000 and $3,000, respectively, of cash dividends were paid to the Series A Convertible Preferred Stock holders.

 

All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. Each investor represented that they were accredited investors, as defined in Rule 501 of Regulation D and, there was no general solicitation or general advertising used to market the securities. We made available to each investor disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information. All securities issued were restricted with an appropriate restrictive legend on certificates for notes and warrants issued stating that the securities (and underlying shares) have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.

 

Issuance of Series B Convertible Preferred Stock

 

The Company has authorized 5,000,000 shares of its Series B Convertible Preferred Stock. Each share of Series B Convertible Preferred Stock may be converted into one share of common stock. The Series B Convertible Preferred Stock accrues and pays dividends at the rate of 3% annually. The accrued Series B Convertible Preferred Stock dividends are cumulative. The Series B Convertible Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $7.00 per share or higher for 20 consecutive trading days after the first date that the Series B Registration Statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Series B Convertible Preferred Stock have no voting rights. The holders of the Series B Convertible Preferred Stock shall have voluntary conversion rights. Shares of Series B Convertible Preferred Stock are subject to mandatory conversion (in the discretion of the Company) at such time as the Company’s common stock has closed at $9.00 per share or higher for 20 consecutive trading days after the first date that the Series B Registration Statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.

 

Between July 24, 2019 and December 5, 2019, the Company accepted subscriptions from accredited investors to purchase 100,000 shares of newly issued Series B Preferred Stock for an aggregate purchase price of $500,000 in cash. These 100,000 shares of Series B Preferred Stock are convertible at the option of the holder into 100,000 shares of newly issued common stock of the Company. The Series B Preferred Stock will receive an annual 3% dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series B Preferred Stock. On August 2, 2019, the Company filed a Form S-1 Registration Statement covering the shares of newly issued common stock of the Company into which the Series B Convertible Preferred Stock can be converted. On July 6, 2020, the Company filed with the SEC an amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On December 10, 2020, the Company filed with the SEC a second amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On June 2, 2021, the Company filed with the SEC a third amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On July 2, 2021, the Company filed with the SEC a fourth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On July 26, 2021, the Company filed with the SEC a fifth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. On August 19, 2021, the Company filed with the SEC a sixth amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B Preferred Stock may be converted. The Registration Statement was approved and deemed effective by the SEC on August 26, 2021.

 

As of March 31, 2024, 60,000 shares of Series B Preferred Stock have been converted into a total of 60,000 shares of common stock of the Company, which leaves 40,000 shares of Series B Preferred Stock currently outstanding, convertible into 40,000 shares of common stock of the Company.

 

 
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As of March 31, 2024 and December 31, 2023, the Company has accrued a liability of $3,292 and $1,796, respectively as dividends payable to holders of the Series B Convertible Preferred Stock. The Company fully intends on paying the annual dividends to the holders of the Series B Convertible Preferred Stock, and as such, the Company has accrued the liability on the Series B Convertible Preferred Stock. During the quarters ended March 31, 2024 and 2023, no cash dividends were paid to the Series B Convertible Preferred Stock holders.

 

All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. Each investor represented that they were accredited investors, as defined in Rule 501 of Regulation D and, there was no general solicitation or general advertising used to market the securities. We made available to each investor disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information. All securities issued were restricted with an appropriate restrictive legend on certificates for notes and warrants issued stating that the securities (and underlying shares) have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.

 

Share-Based Compensation

 

At the closing of acquisition of Lifted, 645,000 shares of unregistered common stock of the Company were designated as contingent deferred compensation (the “Deferred Contingent Stock”) to certain persons specified by NWarrender in a schedule delivered by him to the Company at the closing of the Merger (the “Deferred Contingent Stock Recipients”). Now that certain conditions and requirements have been met, starting on February 24, 2023, the Deferred Contingent stock has begun to be issued to certain Deferred Contingent Stock Recipients who have instructed the Company to issue to them their respective, earned Deferred Contingent Stock.

 

Due to the lack of marketability of the Company’s common stock, LFTD Partners hired a third-party valuation firm (the “Valuation Firm”) to calculate discount rates to apply to the value of the Deferred Contingent Stock for both financial reporting and tax purposes. The Valuation Firm used the Finnerty Protective Put Model to determine the discount rates to apply to the Deferred Contingent Stock in order to value it, for both financial reporting and tax reporting purposes. The Finnerty model is variant of the protective put method that estimates the discount based on the average price over the restriction period rather than based on the final price.

 

The Valuation Firm’s report indicated that, for financial reporting purposes, a 22% discount for lack of marketability should be used when valuing all 645,000 shares of Deferred Contingent Stock, as of February 24, 2023. Assumptions used in the model for financial reporting purposes include: that no dividends on common stock will be paid, that the expected volatility is based on the historical volatility of the trading of LIFD’s common stock, and that there is a 0.5 year term based on the six-month holding period due to Rule 144. As of February 24, 2023, total stock compensation expense of $2,138,175 related to the 645,000 shares of Deferred Contingent Stock was recognized.

 

The Valuation Firm’s report also indicated that, for tax reporting purposes, discounts ranging from 23% to 31% for lack of marketability and blockage should be used when valuing the 410,000 shares of Deferred Contingent Stock that were issued during the first quarter of 2023. In the Finnerty Protective Put model for each unique block of issued stock, the Valuation Firm has assumed a minimum term of six months, equal to the minimum time to sell the subject shares due to their restricted nature; and a maximum term equal to the amount of time it would take for the market to absorb the additional shares based upon an assumed additional volume of 7.5%. The Valuation Firm also assumed that no dividends on common stock will be paid, and that the expected volatility is based on the historical volatility of the trading of LIFD’s common stock.

 

Through March 31, 2024, 503,000 shares of Deferred Contingent Stock have been issued to certain Deferred Contingent Stock Recipients.

 

 
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The following is a summary of share-based compensation, stock option and warrant activity as of March 31, 2024 and changes during the quarter then ended:

 

 

 

 

 

 

Weighted-Average

 

 

Weighted-Average

Remaining Contractual

 

 

Aggregate

Intrinsic

 

 

 

Shares

 

 

Exercise Price

 

 

Term (Years)

 

 

Value

 

Exercisable Options, Warrants, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, December 31, 2023

 

 

3,612,198

 

 

$3.85

 

 

 

1.07

 

 

$357,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable Options, Warrants, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, March 31, 2024

 

 

3,612,198

 

 

$3.85

 

 

 

0.82

 

 

$170,500

 

Outstanding Options, Warrants, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, March 31, 2024

 

 

3,612,198

 

 

$3.85

 

 

 

0.82

 

 

$170,500

 

 

Cancellation of Warrants Issued in Connection with the Acquisition of Lifted Made

 

On February 24, 2023, warrants to purchase 15,000 shares of unregistered common stock of the Company were cancelled because the Warrant recipient was no longer continuously employed by Lifted or was no longer a contractor, consultant, paid advisor, or informal paid advisor of Lifted.

 

NOTE 10 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

 

Lease and Purchase of Building Located at 5511 95th Ave, Kenosha, Wisconsin 53144

 

On December 18, 2020, Lifted as tenant entered into a Lease Agreement (the “Lease) with 95th Holdings, LLC (“Landlord”) for office, laboratory and warehouse space in a building located at 5511 95th Avenue, in the City of Kenosha, State of Wisconsin (the “Premises”). The lease commencement date was January 1, 2021, and lease termination date was January 1, 2026. 

 

Landlord is an entity owned directly or indirectly by NWarrender, the Company’s Vice Chairman and COO, the CEO of Lifted, and the largest stockholder of the Company as the beneficial owner of 3,900,455 shares of common stock of the Company. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, NWarrender is able to benefit through his ownership of Landlord by Landlord’s receiving rent and eventually selling the Premises to Lifted.

 

Lifted constructed improvements to the Premises including a clean room, and gradually moved into the Premises over the course of the first quarter of 2021.

 

 
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Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted leased approximately 11,238 square feet at the Premises at $6.13 per square foot per year in base rent ($68,888.94 in 2021), which was subject to a 2% increase in base rent each year, plus certain operating expenses and taxes. The Lease was to continue until midnight on the fifth anniversary date of the commencement date of the Lease. Lifted was to have the right to extend the original five year term of the Lease for one extension period of two years, commencing upon the expiration of the original term. Lifted and Landlord were required to execute an “Amendment of Extension” prior to six months before the expiration of the original term. Prior to Lifted’s purchase of the Premises, the rent schedule was as follows:

 

Rent Schedule

 

Date

 

Base Monthly

Rent

 

January 1, 2021 – December 31, 2021

 

$

5,740.75

 

January 1, 2022 – December 31, 2022

 

$

5,855.57

 

January 1, 2023 – December 31, 2023

 

$

5,972.68

 

January 1, 2024 – December 31, 2024

 

$

6,092.13

 

January 1, 2025 – December 31, 2025

 

$

6,213.97

 

 

Under the terms of the Omnibus Agreement, Lifted was obligated to purchase the Premises from Landlord on or before December 31, 2022 for a fixed purchase price of $1,375,000. As a result, as of December 31, 2021, the Company modified its methodology for accounting of this finance lease (the “Modification Date”), such that the only liability recognized as of December 31, 2021 was a current (within one year) liability, and there was no long-term liability recognized. An immaterial loss on lease modification of $1,446 was also recognized as of the Modification Date. The Finance Lease Right-of-Use Asset value was reduced to reflect the fixed purchase price agreed to under the Omnibus Agreement.

 

Pursuant to the Acceleration Agreement, Lifted’s obligation to purchase the Premises from Landlord was delayed to on or before December 31, 2023.  

 

Prior to the signing of the Acceleration Agreement, the Finance Lease Right-of-Use Asset was to be amortized over its useful life (39 years) on a prospective basis from the Modification Date. That is, the Finance Lease Right-of-Use Asset was previously amortized over the lease term, but given mandatory purchase by December 31, 2022, the Finance Lease Right-of-Use Asset was to be amortized over 39 years starting on the Modification Date. As a result of the signing of the Acceleration Agreement, the accounting for the Finance Lease Right-of-Use Asset was adjusted accordingly.

 

Lifted purchased the Premises from Landlord on December 14, 2023, for $1,375,000 in cash as previously agreed upon, and as a result, the Company derecognized the Finance Lease Right-of-Use Asset and recognized the Premises as Land and Building on the Consolidated Balance Sheet. For more information, refer to the section “Bank Financing and Purchase of Headquarters Building” in NOTE 1 – DESCRIPTION OF THE BUSINESS OF LFTD PARTNERS INC., above.

  

Lease of Space Located at 8920 58th Place, Suite 850, Kenosha, Wisconsin 53144

 

On September 23, 2021, Lifted entered into a lease agreement with TI Investors of Kenosha LLC, (“TI”) for office and warehouse space located at 8920 58th Place, Suite 850, Kenosha, WI 53144 (the “58th Lease”). Subsequent to Lifted entering into the 58th Lease, the property was sold to Ladi Investments, LLC (“Ladi”); thus Ladi is the current landlord. The 58th Lease serves as sales offices, finished goods storage and outgoing shipping for Lifted.

 

The term of the 58th Lease commenced on October 1, 2021. The initial term of the 58th Lease was to be three years, unless earlier terminated in accordance with the terms and conditions of the 58th Lease. While extensions were not prohibited, Lifted did not have the right to unilaterally elect to extend the term of the 58th Lease for an additional term.

 

 
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Under the terms of the 58th Lease, Lifted leases approximately 5,000 square feet of space and pays a base square foot charge of $5.75 per square foot per annum, with a 3% increase in rent each year during the term. Lifted is also responsible for paying its proportionate share of real estate taxes and other operating costs. This lease is accounted for as an operating lease.

 

Rent Schedule

 

Date

 

Base Monthly

Rent

 

10/01/2021 – 09/30/2022

 

$

2,395.84

 

10/01/2022 – 09/30/2023

 

$

2,467.72

 

10/01/2023 – 09/30/2024

 

$

2,541.75

 

 

The 58th Lease was terminated as of midnight on March 31, 2024 in conjunction with Lifted entering into the Second Amendment to the Second 58th Lease (defined below) on March 25, 2024. The terms and conditions of the Second Amendment to the Second 58th Lease are described below in the section “Second Amendment to the Second 58th Lease” under “Lease of Space Located at 8910 58th Place, Suites 600 and 700, Kenosha, Wisconsin 53144”.

 

Lease of Space Located at 8910 58th Place, Suites 600 and 700, Kenosha, Wisconsin 53144

 

On November 17, 2021, Lifted entered into a lease agreement with TI for office and warehouse space located at 8910 58th Place, Suites 600 & 700, Kenosha, WI 53144 (the “Second 58th Lease”). Subsequent to Lifted entering into the Second 58th Lease, the property was sold to Ladi; thus Ladi is the current landlord. The Second 58th Lease space is used for raw goods storage.

 

The term of the Second 58th Lease commenced on January 1, 2022. The initial term of the Second 58th Lease was to be five years, unless extended or earlier terminated in accordance with the Second 58th Lease. While extensions were not prohibited, Lifted did not have the right to unilaterally elect to extend the term of the Second 58th Lease for an additional term.

 

Under the terms of the Second 58th Lease, Lifted leases approximately 8,000 square feet of space and pays a base square foot charge of $6.00 per square foot per annum, with increases in rent each year during the term as set out in the table titled “Rent Schedule” below. Lifted is also responsible for paying its proportionate share of real estate taxes and other operating costs. This lease is accounted for as an operating lease.

 

Rent Schedule

 

Date

 

Base Monthly

Rent

 

01/01/2022 – 12/31/2022

 

$

4,000.00

 

01/01/2023 – 12/31/2023

 

$

4,120.00

 

01/01/2024 – 12/31/2024

 

$

4,243.60

 

01/01/2025 – 12/31/2025

 

$

4,370.91

 

01/01/2026 – 12/31/2026

 

$

4,502.34

 

 

First Amendment to the Second 58th Lease

 

On February 23, 2022, the Second 58th Lease was amended (the “First Amendment to the Second 58th Lease”) to change the lease commencement date from January 1, 2022 to February 1, 2022, and to change the lease termination date from December 31, 2026 to January 31, 2027. The First Amendment to the Second 58th Lease did not change the base monthly rent amounts; it simply pushed them back one month.

 

Second Amendment to the Second 58th Lease

 

On March 25, 2024, the Second 58th Lease was amended for a second time (the “Second Amendment to the Second 58th Lease”).

 

 
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Effective as of April 1, 2024 (the “Expansion Date”), the Second 58th Lease has been expanded to include an additional 23,000 square feet of space, located at 8910 58th Place, Suite 100, Kenosha, Wisconsin 53144 (the “Expansion Area”), for a total revised Second 58th Lease area of approximately 31,000 square feet.

 

The Expansion Area will be used for office, manufacturing and warehouse space.

 

Under the Second Amendment to the Second 58th Lease, the term of the Second 58th Lease is extended through May 31, 2029.

 

Commencing on February 1, 2027, the base monthly rent for Suites 600 and 700 of the Second 58th Lease, exclusive of the Expansion Area (Suite 100), is extended as follows:

 

Suites 600 and 700

Date

 

Base Monthly Rent

 

February 1, 2027 – January 31, 2028

 

$

4,637.41

 

February 1, 2028 – January 31, 2029

 

$

4,776.53

 

February 1, 2029 – May 31, 2029

 

$

4,919.83

 

 

Commencing on the Expansion Date, the base monthly rent for the Expansion Area (Suite 100) is as follows:

 

Suite 100

Date

 

Base Monthly Rent

 

April 1, 2024 – May 31, 2024

 

$

0.00

 

June 1, 2024 – March 31, 2025

 

$

16,770.83

 

April 1, 2025 – March 31, 2026

 

$

17,273.96

 

April 1, 2026 – March 31, 2027

 

$

17,792.18

 

April 1, 2027 – March 31, 2028

 

$

18,325.94

 

April 1, 2028 – March 31, 2029

 

$

18,875.72

 

April 1, 2029 – May 31, 2029

 

$

19,441.99

 

 

Under the Second Amendment to the Second 58th Lease, Lifted is also responsible for paying its proportionate share of real estate taxes and other operating costs. Pursuant to the Second Amendment to the Second 58th Lease, Lifted is required to remit an additional security deposit of $27,741.51 to Ladi for the Second 58th Lease, bringing the total security deposit paid to Ladi for the Second 58th Lease to $34,141.51. The additional security deposit of $27,741.51 was paid on April 4, 2024.

 

The effectiveness of the Second Amendment to the Second 58th Lease was contingent upon the successful execution of all three of the following documents:

 

 

(i)

the Lease Termination Agreement dated March 18, 2024, by and between Ladi and Lifted for Lifted’s leased space located at 8920 58th Place, Suite 850, Kenosha, Wisconsin 53144 (the “8920 Suite 850 Termination Agreement”),

 

 

 

 

(ii)

the Lease Termination Agreement dated March 18, 2024, by and between Ladi and Lifted for Lifted’s leased space located at 9560 58th Place, Suite 360, Kenosha, Wisconsin 53144 (the “the 9560 Suite 360 Termination Agreement”), and

 

 

 

 

(iii)

the Lease Termination Agreement dated March 18, 2024, by and between Ladi and a third party that currently leases the space located at 8910 58th Place, Suite 100, Kenosha, Wisconsin 53144 (the “8910 Suite 100 Termination Agreement”).

 

 
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These contingencies were met on or about March 27, 2024.

 

Lease of Space Located at 9560 58th Place, Suite 360, Kenosha, Wisconsin 53144

 

On May 31, 2022, Lifted entered into another lease agreement with TI for office and warehouse space located at 9560 58th Place, Suite 360, Kenosha, WI 53144 (the “Third 58th Lease”). Subsequent to Lifted entering into the Third 58th Lease, the property was sold to Ladi; thus Ladi is the current landlord. The Third 58th Lease is used for manufacturing, as well as office space.

 

The term of the Third 58th Lease commenced on July 1, 2022 (the “Commencement Date”). The initial term of the Third 58th Lease was five years from the Commencement Date, ending on June 30, 2027, unless extended or earlier terminated in accordance with the Lease. While extensions were not prohibited, Lifted did not have the right to unilaterally elect to extend the term of the Third 58th Lease for an additional term.

 

Under the terms of the Third 58th Lease, Lifted leases approximately 6,132 square feet of space and pays an initial base square foot charge of $10.75 per square foot per annum, with increases in rent each year during the term as set out in the table titled “Rent Schedule” below. Lifted is also responsible for paying its proportionate share of real estate taxes and other operating costs. This lease is accounted for as an operating lease.

 

Rent Schedule

 

Date

 

Base Monthly

Rent

 

07/01/2022 – 06/30/2023

 

$

5,493.25

 

07/01/2023 – 06/30/2024

 

$

5,630.58

 

07/01/2024 – 06/30/2025

 

$

5,771.35

 

07/01/2025 – 06/30/2026

 

$

5,915.63

 

07/01/2026 – 06/30/2027

 

$

6,063.52

 

 

The Third 58th Lease was terminated as of midnight on March 31, 2024 in conjunction with Lifted entering into the Second Amendment to the Second 58th Lease (defined above) on March 25, 2024. The terms and conditions of the Second Amendment to the Second 58th Lease are described above in the section “Second Amendment to the Second 58th Lease” under “Lease of Space Located at 8910 58th Place, Suites 600 and 700, Kenosha, Wisconsin 53144”.

 

Sublease of Space Located at 2701-09 West Fulton PH, Chicago, Illinois 60612

 

On July 6, 2022, Lifted entered into a sublease for office space in Chicago, Illinois located at 2701-09 West Fulton PH, Chicago, Illinois 60612. The sublease costs $3,000 per month, plus supplemental lease related charges such as real estate taxes and common expenses of the property that we anticipate will be commercially typical costs. The sublease was retroactively effective as of June 1, 2022 and for a five-month term that ended on October 31, 2022. The purpose of the sublease is to make available office space for the members of Lifted’s sales team who live in Chicago.

 

The sublessor is Lifted’s former Chief Strategy Officer. The sublease is structured so that the sublessor's lease payment obligations to the landlord are passed on to Lifted on a dollar-for-dollar basis, such that the sublessor does not realize a cashflow profit or loss from the sublease.

 

The sublease is currently operating on a month-to-month basis. Since the term is less than twelve months, this lease is not recorded on the Consolidated Balance Sheet, and lease expense is recognized on a straight-line basis over the lease term.

 

 
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Lease of Space Located at 5732 95th Avenue, Suites 100, 200 and 300, Kenosha, Wisconsin 53144

 

On November 28, 2022, Lifted entered into a lease agreement with Ladi for commercial space located at 5732 95th Avenue, Suite 200 and 300, Kenosha, WI 53144 (the “5732 Lease”). The 5732 Lease is used for Lifted’s gummy manufacturing operations.

 

The 5732 Lease commenced on February 1, 2023. The initial term of the 5732 Lease extends approximately five years (sixty-one months) from February 1, 2023 to February 29, 2028, unless extended or earlier terminated in accordance with the 5732 Lease. While extensions are not prohibited, Lifted does not have the right to unilaterally elect to extend the term of the 5732 Lease for an additional term.

 

Under the terms of the 5732 Lease, Lifted leases approximately 4,657 square feet of space. Lifted was not required to pay any base square foot charge during February 2023. Lifted is responsible for paying its proportionate share of real estate taxes and other operating costs. Prior to the First Amendment to the 5732 Lease, as described below, the base monthly rent under the 5732 Lease was as follows:

 

Rent Schedule

 

Date

 

Base Monthly

Rent

 

February 1, 2023 – February 28, 2023

 

$

0.00

 

March 1, 2023 – February 29, 2024

 

$

3,395.73

 

March 1, 2024 – February 28, 2025

 

$

3,531.56

 

March 1, 2025 – February 28, 2026

 

$

3,672.82

 

March 1, 2026 – February 28, 2027

 

$

3,819.73

 

March 1, 2027 – February 29, 2028

 

$

3,972.52

 

 

First Amendment to the 5732 Lease

 

Effective April 1, 2023 (the “Expansion Date”), the 5732 Lease was amended (the "First Amendment to the 5732 Lease”) to expand the square footage of the leased space to include an additional 2,668 square feet of space located at 5732 95th Avenue, Suite 100, Kenosha, Wisconsin 53144 (the “Expansion Area”).

 

Commencing on the Expansion Date, the base monthly rent for the Expansion Area is:

 

Date

 

Base Monthly

Rent

 

April 1, 2023 – January 31, 2024

 

$1,945.42

 

February 1, 2024 – January 31, 2025

 

$2,023.23

 

February 1, 2025 – January 31, 2026

 

$2,104.16

 

February 1, 2026 – January 31, 2027

 

$2,188.33

 

February 1, 2027 – January 31, 2028

 

$2,275.86

 

February 1, 2028 – February 29, 2028

 

$2,366.90

 

 

Lifted is also responsible for paying its proportionate share of real estate taxes and other operating costs.

 

The 5732 Lease and the First Amendment to the 5732 Lease are accounted for as a single operating lease. 

 

 
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Lease of Space Located at 16178 US Hwy 550, Aztec, New Mexico

 

Pursuant to the terms of the Oculus Merger Agreement, upon the closing of the Merger, Lifted assumed Oculus’ lease of office and operational space in Aztec, New Mexico. The leased premises include a shop building of approximately 4,800 square feet and adjacent fenced parking area located at 16178 US Hwy 550, Aztec, New Mexico. The term of this lease was one year, commencing on December 1, 2022 and ending on November 30, 2023, continuing month-to-month thereafter until terminated. The base lease payment is $3,850 per month. All monthly payments are due and payable in advance on the first day of each month. Lifted is also required to pay taxes, insurance and certain maintenance costs of the leased premises. Since the term was less than twelve months, this lease was not recorded on the Consolidated Balance Sheet, and lease expense is being recognized on a straight-line basis over the lease term. As described in NOTE 14 – SUBSEQUENT EVENTS, the lease of space located at 16178 US Hwy 550, Aztec, New Mexico, was terminated on May 7, 2024.

 

Lease of Space Located at 789 Tech Center Drive, Unit C, Durango, Colorado 81301

 

On February 27, 2024, Lifted entered into a lease agreement with CR Properties, LLC, (“CR”) for office, manufacturing and warehouse space located at 789 Tech Center Drive, Unit C, Durango, Colorado 81301 (the “789 Tech Lease”).

 

The initial term of the 789 Tech Lease commenced on March 1, 2024, and will end on February 28, 2025 (“Initial Term”). After the Initial Term, Lifted and CR may renegotiate the lease.

 

Under the terms of the 789 Tech Lease, Lifted leases a total of approximately 2,205 square feet of space. During the Initial Term, Lifted shall pay CR base annual rent of $30,000, payable in equal monthly installments of $2,500. In addition, as part of the 789 Tech Lease, Lifted paid CR a $5,000 security deposit.

 

In addition to the base monthly rent, Lifted is also responsible for paying its proportionate share of real estate taxes and other operating costs.

 

Since the Initial Term is twelve months, this lease is not recorded on the Consolidated Balance Sheet, and lease expense is recognized on a straight-line basis over the lease term. 

 

Third Party Facilities

 

From time to time, the Company maintains inventory at third party facilities around the USA.

 

Balance Sheet Classification of Operating Lease Assets and Liabilities

 

Asset

 

Balance Sheet Line

 

March 31, 2024

 

Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $307,678 in 2024

 

Non-Current Assets

 

$586,027

 

 

 

 

 

 

 

 

Liability

 

Balance Sheet Line

 

March 31, 2024

 

Operating Lease Liabilities

 

Current Liabilities

 

$165,727

 

 

 

Non-Current Liabilities

 

 

428,246

 

 

Lease Costs

 

The table below summarizes the components of lease costs for the following periods: 

 

 

 

For the Three Months Ended

March 31,

 

Lease Cost:

 

2024

 

 

2023

 

Finance lease expense:

 

 

 

 

 

 

Amortization of Right-of-Use Assets

 

$-

 

 

$10,800

 

Interest on lease liabilities

 

 

-

 

 

 

24,162

 

Operating lease expense

 

 

55,314

 

 

$44,708

 

Total

 

$55,314

 

 

$79,670

 

 

 
F-44

Table of Contents

 

Weighted Average Discount Rate

 

In calculating the right-of-use assets and liabilities, the Company uses a discount rate based on a published range of conventional commercial mortgage interest rates corresponding to the life of each lease. The Company uses the higher end of the range due to the Company’s limited credit history. The Company’s weighted average discount rate for all its right-of-use liabilities as of the end of the reported period is 7.01%.

 

Maturity Analysis

 

The following table is the maturity analysis of the Company’s operating and finance leases as of the reported period end.

 

Maturity Analysis as of March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance

 

 

Operating

 

2024

 

$-

 

 

$154,956

 

2025

 

 

-

 

 

 

191,406

 

2026

 

 

-

 

 

 

197,490

 

2027

 

 

-

 

 

 

115,471