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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 of the Act:
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| 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.
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).
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 | ☐ |
| ☒ | 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
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 3, 2022, there were
LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC.
TABLE OF CONTENTS
2 |
| Table of Contents |
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
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| June 30, |
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| December 31, |
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| 2022 (Unaudited) |
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| 2021 |
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ASSETS |
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Current Assets |
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Cash and Cash Equivalents |
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Dividend Receivable from Bendistillery, Inc. |
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Prepaid Expenses |
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Accounts Receivable, net of allowance of $ |
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Inventory |
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Other Current Assets |
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Total Current Assets |
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Goodwill |
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Investment in Ablis |
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Investment in Bendistillery and Bend Spirits |
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Net Deferred Tax Asset |
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Fixed Assets, less accumulated depreciation of $ |
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Intangible Assets, less accumulated amortization of $ |
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Security and State Licensing Deposits |
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Finance Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $ |
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Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $ |
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Total Assets |
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| $ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current Liabilities |
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Finance Lease Liability |
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Operating Lease Liability |
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Deferred Revenue |
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Note Payable to Related Party Nicholas S. Warrender |
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Income Tax Payable |
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Management Bonuses Payable - Related Party |
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Management Bonus Payable - Related Party - Payable to William C. Jacobs |
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Management Bonus Payable - Related Party - Payable to Gerard M. Jacobs |
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Management Bonuses Payable - Related Party |
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Company-Wide Management Bonus Pool |
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Accounts Payable and Accrued Expenses |
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Accounts Payable - Related Party |
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Interest Payable - Related Party |
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Interest - Payable to William C. Jacobs |
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Interest - Payable to Gerard M. Jacobs |
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Interest Payable - Related Party |
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Preferred Stock Dividends Payable |
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Series A Convertible Preferred Stock Dividends Payable |
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Series B Convertible Preferred Stock Dividends Payable |
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Preferred Stock Dividends Payable |
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Total Current Liabilities |
| $ |
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| $ |
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Non-Current Liabilities |
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Finance Lease Liability |
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Operating Lease Liability |
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Net Deferred Tax Liability |
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Notes Payable - Related Party |
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Notes Payable - Payable to Nicholas S. Warrender |
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Total Non-Current Liabilities |
| $ |
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| $ |
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Total Liabilities |
| $ |
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| $ |
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Commitments and Contingencies |
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Shareholders' Equity |
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Preferred Stock, $ |
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Common Stock, $ |
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Additional Paid-in Capital |
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Accumulated Deficit |
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Total Shareholders' Equity |
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Total Liabilities and Shareholders' Equity |
| $ |
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| $ |
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Please see the accompanying notes to the consolidated financial statements for more information.
| F-1 |
| Table of Contents |
LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(UNAUDITED) | ||||||||||||||||
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| For the Three Months Ended |
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| For the Six Months Ended |
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| June 30, |
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| 2022 |
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| 2021 |
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| 2021 |
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Net Sales |
| $ |
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Cost of Goods Sold |
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Gross Profit |
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Operating Expenses: |
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Payroll, Consulting and Independent Contractor Expenses |
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Accrual for Company-Wide Management Bonus Pool |
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Professional Fees |
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Bank Charges and Merchant Fees |
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Advertising and Marketing |
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Bad Debt Expense |
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Depreciation and Amortization |
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Other Operating Expenses |
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Total Operating Expenses |
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Income From Operations |
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Other Income/(Expenses) |
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Income/(Loss) From 50% membership interest in SmplyLifted LLC (FR3SH) |
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Income from SmplyLifted for WCJ Labor |
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Interest Expense |
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Warehouse Buildout Credits |
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Penalties |
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Gain on Forgiveness of Debt |
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Settlement Income/Gain on Settlement |
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Gain(Loss) on Disposal of Fixed Assets |
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Loss on Deposits |
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Interest Income |
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Total Other Income/(Expenses) |
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Income Before Provision for Income Taxes |
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Provision for Income Taxes |
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Net Income Attributable to LFTD Partners Inc. common stockholders |
| $ |
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| $ |
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| $ |
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Basic Net Income per Common Share |
| $ |
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| $ |
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Diluted Net Income per Common Share |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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Please see the accompanying notes to the consolidated financial statements for more information.
| F-2 |
| Table of Contents |
LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||||||||||||
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| Additional |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Treasury Stock |
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| Paid-in |
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| Accumulated |
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| Shareholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Equity |
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Balance, December 31, 2020 |
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| $ |
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| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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Series A Preferred Stock dividend payable |
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| $ | ( | ) |
| $ | ( | ) |
Series B Preferred Stock dividend payable |
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| $ | ( | ) |
| $ | ( | ) |
LIFD's January 8, 2021 purchase of 36,000 shares of common stock at $0.95 per share, for a total of $34,200, from an unrelated shareholder |
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| $ | ( | ) |
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Conversions of Series A Convertible Preferred Stock to Common Stock |
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Conversions of Series B Convertible Preferred Stock to Common Stock |
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Net Income |
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Balance, March 31, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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Series A Preferred Stock dividend payable |
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Series B Preferred Stock dividend payable |
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Exercise of warrants |
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Conversions of Series A Convertible Preferred Stock to Common Stock |
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Net Income |
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Balance, June 30, 2021 |
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| $ |
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Balance, December 31, 2021 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Series A Preferred Stock dividend payable |
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Series B Preferred Stock dividend payable |
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Issuance of Common Stock |
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Repurchase and cancellation of Common Stock |
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Net Income |
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Balance, March 31, 2022 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Series A Preferred Stock dividend payable |
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Series B Preferred Stock dividend payable |
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Conversions of Series A Convertible Preferred Stock to Common Stock |
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Issuance of Common Stock |
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Repurchase and cancellation of Common Stock |
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Net Income |
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Balance, June 30, 2022 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
| |||||||
Please see the accompanying notes to the consolidated financial statements for more information
| F-3 |
| Table of Contents |
LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
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Cash Flows From Operating Activities |
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Net Income |
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Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: |
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Lifted Made's Portion of SmplyLifted's Net Loss |
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Bad Debt Expense |
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Depreciation and Amortization |
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Gain on Forgiveness of Debt |
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Loss (Gain) on Disposal of Fixed Assets |
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Loss on Deposits |
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Spoiled and Written Off Inventory |
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Deferred Income Taxes |
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Effect on Cash of Changes in Operating Assets and Liabilities |
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Accounts Receivable |
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Prepaid Expenses |
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Dividend Receivable from Bendistillery, Inc. |
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Income Tax Receivable |
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Income Tax Payable |
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Management Bonuses Payable |
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Company-wide Management Bonus Pool |
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Interest Receivable |
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Inventory |
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Other Current Assets |
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Trade Accounts Payable and Accrued Expenses |
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Accounts Payable and Interest Payable to Related Parties |
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Change in Finance Operating Lease Liabilities |
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Deferred Revenue |
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Net Cash Provided by (Used in) Operating Activities |
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Cash Flows From Investing Activities |
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Reduction of CBD Lion Note Receivable |
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Net Purchase of Fixed Assets |
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Loans to SmplyLifted LLC |
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Net Cash Used in Investing Activities |
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Cash Flows From Financing Activities |
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Proceeds from Exercise of Warrants |
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Issuance of Common Stock |
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Payments of Dividends to Series A Convertible Preferred Stockholders |
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Payments of Dividends to Series B Convertible Preferred Stockholders |
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Financing Cost - Net Proceeds from Borrowing Under Notes Payable to Related Party - Nick Warrender |
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Purchase of Shares of Common Stock |
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Repayment of Finance Lease Liability |
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Net Cash Provided By (Used In) Financing Activities |
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Net Increase/(Decrease) in Cash |
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Cash and Cash Equivalents at Beginning of Period |
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Cash and Cash Equivalents at End of Period |
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Supplemental Cash Flow Information |
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Cash Paid For Interest |
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Cash Paid For Income Taxes |
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Non-Cash Activities: |
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Right-of-Use assets acquired from inception of Finance Leases |
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Right-of-Use assets acquired from inception of Operating Leases |
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Conversion of Series A and Series B Preferred Stock to Common Stock |
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Cashless exercise of Warrants |
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Please see the accompanying notes to the consolidated financial statements for more information.
| F-4 |
| Table of Contents |
LFTD Partners Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 – DESCRIPTION OF THE BUSINESS OF LFTD PARTNERS INC.
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 amended its articles of incorporation with the State of Nevada to change its name to LFTD Partners Inc. from Acquired Sales Corp. In connection with the name change to LFTD Partners Inc., the Company filed a required notification with the Financial Industry Regulatory Authority, Inc. (“FINRA”), a self-regulatory organization that is involved with the coordination of the clearing, settling and processing of transactions in equity securities, including our common stock. The Company’s name change notification to FINRA included a request for a new stock trading symbol, LSFP, from AQSP, which was granted. 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 involved in developing, manufacturing and selling a wide variety of branded products containing hemp-derived cannabinoids (e.g. delta-8-THC, delta-9-THC, delta-10-THC, THCV, HHC, HHCO, THCO, CBDA, CBC, CBG, CBN, and CBD), and non-hemp-derived psychedelic products. We are interested in acquiring rapidly growing, profitable companies that are also involved in manufacturing and selling branded products containing hemp-derived cannabinoids, and in acquiring companies that manufacture and sell branded products containing kratom, kava and non-hemp-derived psychedelic products (a “Canna-Infused Products Company”).
Management of the Company is open-minded to the concept of also acquiring operating businesses and/or assets involving products containing marijuana, distilled spirits, beer, wine, and real estate. In addition, management of the Company is open-minded to the concept of acquiring all or a portion of one or more operating businesses and/or assets that are considered to be “essential” businesses which are unlikely to be shut down by the government during pandemics such as COVID-19. From time to time, we engage in discussions with potential acquisition targets.
On February 24, 2020, we acquired
On April 30, 2019, we also closed on the acquisition of
Merger Related Promissory Note
On February 24, 2020, we acquired Lifted as a wholly-owned subsidiary for cash and stock paid to Lifted’s then owner NWarrender. The $
| F-5 |
| Table of Contents |
On December 30, 2021, the Company repaid all principal and interest due under the $
NWarrender kept $
On June 7, 2022, LFTD Partners prepaid $916,666 of the principal of the $
Obligation to Purchase Headquarters Building
Toward the end of 2020, NWarrender, through his assigned entity 95th Holdings, LLC, purchased a building located at 5511 95th Avenue in Kenosha, Wisconsin (“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 95th Holdings, LLC, 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 an agreement with Warrender on December 30, 2021, the parties agreed to set the purchase price for the 5511 Building at $
Sublease For Commuter Employees
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 $
The sublessor is one of our affiliates, Bill McLaughlin, Lifted’s Chief Strategy Officer. The sublease is structured so that Mr. McLaughlin's lease payment obligations to the landlord are passed on to Lifted on a dollar-for-dollar basis, such that Mr. McLaughlin does not realize a cashflow profit or loss from the sublease.
| F-6 |
| Table of Contents |
Termination of Letter of Intent relating to the proposed acquisition by the Company of Savage Enterprises, Premier Greens LLC and MKRC Holdings, LLC
On December 15, 2021, the Company, our Chairman and CEO Gerard M. Jacobs (“GJacobs”), our President and CFO William C. “Jake” Jacobs (“WJacobs”), and our Vice Chairman and COO NWarrender, Savage Enterprises, a Wyoming corporation (“Savage”), Premier Greens LLC, a California limited liability company (“Premier Greens”), MKRC Holdings, LLC, a Wyoming limited liability company (“MKRC”), Christopher G. Wheeler (“Wheeler”), and Matt Winters (“Winters”), mutually stipulated to terminate the Letter of Intent dated June 15, 2021 that set out the Company’s possible acquisition of Savage, Premier Greens and MKRC.
Termination of Letter of Intent relating to the proposed acquisition by the Company of Fresh Farms E-Liquid, LLC
On December 16, 2021, the Company, Fresh Farms E-Liquid, LLC, a California limited liability company (“Fresh Farms”), Anthony J. Devincentis (“Devincentis”), Jakob M. Audino (“Audino”), Forrest F. Town (“Town”), John Z. Petti (“Petti”), GJacobs, NWarrender, WJacobs, Wheeler and Winters mutually stipulated to terminate the Letter of Intent dated September 1, 2021 that set out the Company’s possible acquisition of Fresh Farms.
Capital Raise
Cash on hand is currently limited, so in order to close future acquisitions, and potentially also in order to pay other corporate obligations such as certain bonuses, our company-wide bonus pool, and/or income taxes, it may be necessary for us to raise substantial additional capital, and no guarantee or assurance can be made that such capital can be raised on acceptable terms, if at all.
We are currently exploring the possibility of raising $
NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements – The consolidated financial statements of the Company should be read in conjunction with the Company’s consolidated financial statements and related notes that appear in the annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 31, 2022. In the opinion of management, 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.
Use of Estimates – The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“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 and the fair value of stock options and warrants.
Cash and Cash Equivalents – Cash and cash equivalents as of June 30, 2022 and December 31, 2021 included 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 $
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.
| F-7 |
| Table of Contents |
Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under 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.
Ablis Holding Company, Bendistillery Inc. and Bend Spirits, Inc. are not publicly traded, and as such their financial instruments are 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.
Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. 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. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. As of December 31, 2021, the Company implemented a new policy regarding allowances for doubtful accounts, which is that all accounts receivable older than 90 days at quarter end are accrued for in allowances for doubtful accounts. Allowances for doubtful accounts of $
Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at June 30, 2022 and December 31, 2021:
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Raw Goods |
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Finished Goods |
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Total Inventory |
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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 June 30, 2022, $
During the quarter ended June 30, 2022, $
The process of determining obsolete inventory during the quarter involved:
| 1) | Identifying raw goods that would no longer be used in the manufacture of finished goods; |
| 2) | Identifying finished goods that would no longer be sold or that are slow moving; and |
| 3) | Valuing and expensing raw and finished goods that would no longer be sold. |
| F-8 |
| Table of Contents |
Fixed Assets– Fixed assets are recorded and stated at cost. Fixed assets that cost less than $
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 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 – The Company has not paid a security deposit for its leased facility located at 5511 95th Avenue, Kenosha, WI 53144 for the Company’s current office, manufacturing and warehouse space.
The Company has paid security deposits for its leased facilities located at 8920 58th Place, Suite 850, Kenosha, WI 53144, and 8910 58th Place, Suites 600 and 700, Kenosha, WI 53144. The Company has accrued for the payment of a security deposit for its leased facility located at 9560 58th Place, Suite 360, Kenosha, WI 53144.
The Company has also paid a security deposit for office space located at 2701-09 West Fulton PH, Chicago, Illinois 60612.
The Company had paid a security deposit to its lessor for the Company’s former office, manufacturing and warehouse space in Zion, IL, that was rented on a month-to-month basis from June 1, 2021 through November 2021. The security deposit was written off at December 31, 2021.
State Licensing Deposits – The Company is required to pay deposits for certain licenses in various states.
Revenue – The Company recognizes revenue in accordance with Accounting Standards Codification 606.
The majority of the Company’s sales are of branded products goods 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, gas stations, 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 are to customers are recorded as a reduction to gross sales.
Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
| F-9 |
| Table of Contents |
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. |
As of June 30, 2022, the Company recorded a sales allowance of $
Disaggregation of Revenue
During the quarter ended June 30, 2022, approximately 99.9% of the Company’s sales occurred inside of the United States of America. During the quarter ended June 30, 2021, nearly all of the Company’s sales occurred inside of the United States of America as well.
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 is a table showing the approximate disaggregation of historical revenue:
Type of Sale |
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Net sales of raw materials to customers |
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Net Sales |
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Deferred Revenue
Amounts received from a customer before the purchased product is shipped to the customer is 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 includes amounts associated with partially shipped orders, for which the unshipped portion is a contract asset. Contract assets represent invoiced but unfulfilled performance obligations.
| F-10 |
| Table of Contents |
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 June 30, 2022 and December 31, 2021.
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Contract Assets (invoiced but unfulfilled performance obligations) |
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Deposits from customers for unfulfilled orders |
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Total Deferred Revenue |
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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. Finished goods that are sold account for the largest portion of cost of sales. Raw materials include ingredients, product components and packaging materials. $
Operating Expenses – Operating expenses include payroll, consulting and independent contractor expenses, the accrual for the company-wide management bonus pool, professional fees, bank charges and merchant fees, advertising and marketing, bad debt expense, and depreciation and amortization. Total operating expenses increased to $
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 three and six months ended June 30, 2022 and June 30, 2021:
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Net Income/(Loss) |
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Weighted average number of common shares outstanding: |
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Diluted |
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Basic Net Income (Loss) per Common Share |
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Diluted Net Income (Loss) per Common Share |
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As of June 30, 2022, in addition to our outstanding common stock, we have issued (a) options to purchase
| F-11 |
| Table of Contents |
Regarding the aforementioned warrants to purchase
At June 30, 2022, the Company had Series A Preferred Stock outstanding convertible into
In comparison, as of June 30, 2021, in addition to our outstanding common stock, there were (a) options to purchase
Regarding the aforementioned rights to purchase warrants to purchase
Regarding the aforementioned warrants to purchase
Also outstanding at June 30, 2021, the Company had Series A Preferred Stock outstanding convertible into
Recent Accounting Pronouncements – In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (codified as Accounting Standards Codification (“ASC”) Topic 326). ASC 326 adds to US GAAP the current expected credit loss model, a measurement model based on expected losses rather than incurred losses. Under this new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022, though early adoption is permitted. The Company believes the adoption will modify the way the Company analyzes financial instruments. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements.
On August 5, 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is effective for public business entities that meet the definition of a SEC filer, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The FASB noted that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.
| F-12 |
| Table of Contents |
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 three and six months ended June 30, 2022, the Company incurred $
Compensated Absences – During the year ended December 31, 2021, paid time off (“PTO”) was provided to employees who obtained approval for it from NWarrender. Any approved PTO was granted at NWarrender’s discretion, and mandatory PTO was zero days, thus no accrual was necessary at June 30, 2021. Effective January 1, 2022, certain PTO policies have been adopted by Lifted, and a PTO accrual of $
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.
NOTE 3 – SELECTED QUARTERLY FINANCIAL INFORMATION
LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||||||||||
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| For the Three Months Ended June 30, 2022 |
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| For the Three Months Ended December 31, 2021 |
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| For the Three Months Ended June 30, 2021 |
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Net Sales |
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Cost of Goods Sold |
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| 3,035,630 |
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Gross Profit |
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Operating Expenses: |
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Payroll, Consulting and Independent Contractor Expenses |
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Accrual for Company-Wide Management Bonus Pool |
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Management Bonuses |
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Professional Fees |
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Bank Charges and Merchant Fees |
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Advertising and Marketing |
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Bad Debt Expense |
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Depreciation and Amortization |
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Other Operating Expenses |
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Total Operating Expenses |
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Income From Operations |
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Other Income/(Expenses) |
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Income/(Loss) From 50% membership interest in SmplyLifted LLC (FR3SH) |
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Impairment of Investment in SimplyLifted |
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Income from SmplyLifted for WCJ Labor |
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Loss on Lease Modification |
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Interest Expense |
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Dividend Income |
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Warehouse Buildout Credits |
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Penalties |
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Gain on Forgiveness of Debt |
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Settlement Income/Gain on Settlement |
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Gain/(Loss) on Disposal of Fixed Assets |
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Loss on Deposits |
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Interest Income |
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Total Other Income/(Expenses) |
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Income Before Provision for Income Taxes |
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Provision for Income Taxes |
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Net Income Attributable to LFTD Partners Inc. common stockholders |
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Earnings Per Common Share Attributable to LFTD Partners Inc. common shareholders: |
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Basic |
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Diluted |
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Weighted average number of common shares outstanding |
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Basic |
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Diluted |
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| F-13 |
| Table of Contents |
NOTE 4 – RECEIPT OF LOANS UNDER THE ECONOMIC INJURY DISASTER LOAN PROGRAM AND THE PAYCHECK PROTECTION PROGRAM
Lifted also applied for and received a loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. The PPP Loan was issued by BMO Harris Bank (the “Lender”) in the aggregate principal amount of $
NOTE 5 - RISKS AND UNCERTAINTIES
Going Concern – 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 $
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 and will evaluate whether there has been a potential impairment of value.
The COVID-19 pandemic and its ramifications, combined with the expenses and potential liabilities associated with litigation involving Lifted, combined with the regulatory risks and uncertainties associated with the cannabinoid-infused products, vaping and nicotine products industries, combined with the risks associated with internet hacking or sabotage, combined with the risks of employee and/or independent contractor disloyalty or theft of Company information and opportunities, have created significant adverse risks to the Company, which have caused substantial doubt about the Company’s ability to continue as a going concern.
| F-14 |
| Table of Contents |
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 the Acceleration Agreement, the deadline to purchase the 5511 Building has been extended by one year to December 31, 2023. In addition, the Acceleration Agreement contains a provision that if we raise $
The Company is also accruing
Also, on February 14, 2022, NWarrender, GJacobs and WJacobs (together the “Parties”) and LFTD Partners, entered into an agreement (the “Amended Omnibus Agreement”) that amends in part the Agreement dated as of December 30, 2021 entered into by and among LFTD Partners Inc., the Parties, Lifted Liquids, Inc. d/b/a Lifted Made and 95th Holdings, LLC (the “Omnibus Agreement”). The Amended Omnibus Agreement (1) terminates the right for the Parties to receive bonus compensation in regard to 2021 that is in excess of the Modified 2021 Bonus Pool Amount of $
Moreover, LFTD Partners agrees and covenants that the Chairman of the Compensation Committee is authorized to negotiate and agree on behalf of LFTD Partners in regard to a 2023 supplemental retention bonus for NWarrender, GJacobs and WJacobs (in addition to the company-wide Bonus Pool), and if and only if the amount of such 2023 supplemental retention bonus is mutually agreed upon in writing among the Chairman of the Compensation Committee, NWarrender, GJacobs and WJacobs, then one-third of such 2023 supplemental retention bonus shall be paid by LFTD Partners to each of NWarrender, GJacobs and WJacobs on or before March 15, 2024, provided that such officer shall not have earlier resigned as an officer of LFTD Partners.
During 2022, Lifted for the first time hired an outside laboratory to conduct research and development on a potential new, non-hemp-derived psychedelic product (the “New Psychedelic Product”) for a total of $
In addition, factors that could materially affect future operating results include, but are not limited to, changes to laws and regulations, especially those related to hemp-derived delta-8-THC, delta-9-THC, delta-10-THC, THCV, HHC, HHCO, THCO, CBDA, CBC, CBG, CBN, CBD, other hemp-derived cannabinoids, nicotine products, kratom, psychedelic products, vaping, vendor concentration risk, customer concentration risk, customer credit risk, and counterparty risk.
The Company maintains levels of cash in a bank deposit account that, at times, may exceed federally insured limits. The Company has not experienced any losses in such account and it believes 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 and the dividends accruing on the Company’s preferred stock. As a result, 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 or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| F-15 |
| Table of Contents |
The Company currently has one revenue-generating subsidiary, Lifted. If and to the extent that the revenue generated by Lifted is not adequate to pay the Company’s operating expenses 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 additional 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.
Customer Concentration Risk – During the quarter ended June 30, 2022, twelve customers made up approximately
Vendor Dependence – Regarding the purchases of raw goods and finished goods (“Inventory”), during the quarter ended June 30, 2022, approximately
The loss of Lifted’s relationships with these customers and vendors could have a material adverse effect on Lifted’s business.
NOTE 6 – THE COMPANY’S INVESTMENTS
The Company’s Investments in Ablis, Bendistillery and Bend Spirits
On April 30, 2019, the Company purchased
Under US Generally Accepted Accounting Principles (“GAAP”), the Company uses the cost method to account for our minority equity ownership interests in businesses in which the Company owns less than 20% of equity ownership, and have no substantial influence over the management of the businesses. Under the cost method of accounting, the Company reports the historical costs of the investments as assets on its balance sheet. However, US GAAP does not permit the consolidation of its financial statements with the financial statements of companies in which the Company owns minority equity ownership interests.
As such, 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 will not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements. US GAAP also requires the Company to record these types of investments 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. As such, the Company will not be allowed to consolidate into its financial statements any portion of the revenues, earnings or assets of companies in which it owns minority equity ownership interests such as Ablis, Bendistillery and Bend Spirits. Moreover, even if there is evidence that the fair market values of the investments have increased above their historical costs, US GAAP does not allow increasing the recorded values of the investments. Under US GAAP, the only adjustments that may be made to the historical costs of the investments are write downs of the values of the investments, which must be made if there is evidence that the fair market values of the investments have declined to below the recorded historical costs.
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. Up to the date of this report on Form 10-Q, none of the above the above factors have been applicable to the Company’s investments.
| F-16 |
| Table of Contents |
The qualitative assessments at the end of quarters one, two and three are done via conference or video calls with the management teams of Ablis, Bendistillery and Bend Spirits. The qualitative assessment at the end of quarter four 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.
On July 21, 2022, a video conference meeting of the board of directors and management of Ablis, Bendistillery and Bend Spirits, and GJacobs and WJacobs was held. During this meeting, the management of Ablis, Bendistillery and Bend Spirits discussed the performance of Ablis, Bendistillery and Bend Spirits during the three months ended June 30, 2022. 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 information that was shared by the management of Ablis included, among other things: positive cash flow, positive growth in sales, net profit and new product launches. The information that was shared by the management of Bendistillery and Bend Spirits included, among other things: increased revenue of Bendistillery from the second quarter of 2021 to the second quarter of 2022, and existing markets and new markets opening up, and the building up of inventory.
The Company’s Investment in Lifted Made
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 considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. 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. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, 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. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. 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.
| F-17 |
| Table of Contents |
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.
The Company performed its annual fair value assessment at December 31, 2021 on the goodwill recognized as part of the acquisition of Lifted, and determined that no impairment was necessary. The factors that led the Company to this conclusion include, among other things: continued growth in sales and profitability year-over-year, the launch of first-to-market, ground-breaking new products, the addition of more and more wholesalers and distributors nationwide, increased sales to wholesalers and end consumers, the continued growth of Lifted’s flagship brand Urb Finest Flowers, and continued positive publicity of Lifted.
The Company’s Investment in SmplyLifted LLC
On September 22, 2020, LFTD Partners Inc. and Lifted Made and privately-held SMPLSTC, Costa Mesa, CA (www.SMPLSTCBD.com) formed an equally-owned new entity called SmplyLifted LLC, which sold tobacco-free nicotine pouches in several flavors and nicotine strengths under the brand name FR3SH (www.GETFR3SH.com).
Lifted had a
During the year ended December 31, 2020, the Company recognized a loss of $
On February 9, 2022, Lifted Made signed an Agreement to sell its
NOTE 7 – PROPERTY AND EQUIPMENT, NET
Property and Equipment consist of the following:
Asset Class |
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Machinery Equipment |
| $ |
|
| $ |
| ||
Leasehold Improvements |
| $ |
|
| $ |
| ||
Trade Show Booths |
| $ |
|
| $ |
| ||
Vehicles |
| $ |
|
| $ |
| ||
Computer Equipment |
| $ |
|
| $ |
| ||
Furniture Fixtures |
| $ |
|
| $ |
| ||
Sub-total: |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
| $ | ( | ) |
| $ | ( | ) |
|
| $ |
|
| $ |
| ||
| F-18 |
| Table of Contents |
The useful lives of the Company’s fixed assets by asset class are as follows:
Asset Class | Estimated Useful Life | |
Machinery Equipment |
| |
Leasehold Improvements |
| |
Trade Show Booths |
| |
Vehicles |
| |
Computer Equipment |
| |
Furniture Fixtures |
|
Depreciation expense of $
NOTE 8 – NOTES RECEIVABLE
SmplyLifted LLC
At March 31, 2021, the Company had made shortfall loans to SmplyLifted LLC totaling $
At December 31, 2021, the Company had made interest-free loans to SmplyLifted LLC totaling $
| F-19 |
| Table of Contents |
NOTE 9 – INTANGIBLE ASSETS, NET
www.LiftedMade.com Website
The cost of developing Lifted’s website, www.LiftedMade.com, is being amortized over
NOTE 10 – RELATED PARTY TRANSACTIONS
Sublease For Commuter Employees
On July 6, 2022, our wholly owned subsidiary Lifted entered into a sublease for office space in Chicago, Illinois located at 2701-09 West Fulton PH, Chicago, Illinois 60612. The sublease costs $
The sublessor is one of our affiliates, Bill McLaughlin, Lifted’s Chief Strategy Officer. The sublease is structured so that Mr. McLaughlin's lease payment obligations to the landlord are passed on to Lifted on a dollar-for-dollar basis, such that Mr. McLaughlin does not realize a cashflow profit or loss from the sublease.
Shipping Costs
Lifted has shared a shipping account with a company operated by NWarrender’s father, Robert T. Warrender II, who is also an employee of Lifted and a member of the board of directors of LFTD Partners Inc. Lifted did this in an effort to reduce shipping costs, as the shipper gave a price discount based on volume. Lifted reimbursed Robert T. Warrender II’s company for the cost of shipping. During the six months ended June 30, 2022, Robert T. Warrender II’s company refunded Lifted a net amount of $
Robert T. Warrender II
In January 2022, Lifted hired Robert T. Warrender II, NWarrender’s father, as an employee. Robert T. Warrender II is also a Director of LFTD Partners Inc. During the three and six months ended June 30, 2022, $
Robert T. Warrender III
During the three and six months ended June 30, 2022, $
In comparison, during the three and six months ended June 30, 2021, $
Vincent J. Mesolella
During the quarter ended March 31, 2022, Lead Outside Director Vincent J. Mesolella was paid $
During each of the first and second quarters of 2022, Mr. Mesolella also received his $
Joshua A. Bloom
During the quarter ended March 31, 2022, Dr. Joshua A. Bloom, Director, was paid $
During each of the first and second quarters of 2022, Dr. Bloom also received his $
| F-20 |
| Table of Contents |
Richard E. Morrissy
During each of the first and second quarters of 2022, Richard E. Morrissy, Director, received his $
James S. Jacobs
During each of the first and second quarters of 2022, Dr. James S. Jacobs, Director, received his $
Kevin J. Rocio
During each of the first and second quarters of 2022, Kevin J. Rocio, Director, received his $
Gerard M. Jacobs
The Compensation Agreement contemplated an aggregate of $
On April 29, 2021, the Company paid Gerard M. Jacobs a portion ($50,000) of the bonus payable to Gerard M. Jacobs in regard to the closing of the acquisition of Lifted.
As of June 30, 2021, there was total interest of $
William C. “Jake” Jacobs
As described above, the Compensation Agreement contemplated an aggregate of $350,000 being paid by the Company to GJacobs and WJacobs upon the closing of the Company’s acquisition of Lifted and an aggregate of $
As of June 30, 2021, there was total interest of $
At March 31, 2021, $2,681 in income tax previously erroneously paid by William C. Jacobs to the Illinois Department of Revenue during the year ended December 31, 2021, and refunded back to Lifted by the Illinois Department of Revenue in January 2021, was payable by Lifted to William C. Jacobs. This amount was repaid during the quarter ended June 30, 2021.
| F-21 |
| Table of Contents |
Nicholas S. Warrender
On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for consideration of (1) $
On December 30, 2021, LIFD repaid all principal and interest due under the $
On December 30, 2021, NWarrender kept $1,000,000 of the repayment, plus accrued interest, and on January 3, 2022, reloaned $
Prior to July 25, 2022 the $
On June 7, 2022, LFTD Partners prepaid $
In comparison, as of June 30, 2021, in addition to the $
Bonus
During the quarter ended March 31, 2022, NWarrender was also paid $
Obligation to Purchase Headquarters Building
Toward the end of 2020, NWarrender, through his assigned entity 95th Holdings, LLC, purchased a building located at 5511 95th Avenue in Kenosha, Wisconsin (“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 95th Holdings, LLC, 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 an agreement with Warrender 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, 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 has been extended by one year to December 31, 2023. In addition, the Acceleration Agreement contains a provision that if we raise $
| F-22 |
| Table of Contents |
SmplyLifted LLC
On a quarterly basis, SmplyLifted LLC reimbursed Lifted for WJacobs’ time as the Chief Financial Officer at WJacobs’ hourly rate. As of June 30, 2021, SmplyLifted LLC owed $
On February 2, 2021, Lifted owed SmplyLifted $
As of March 31, 2021, Lifted owed SmplyLifted $
Corner Vapory LLC
NWarrender is a 50% owner in Corner Vapory LLC. Corner Vapory LLC owns a vape shop (called Corner Vapory), and Canna Vita, a CBD shop, both located in Kenosha, Wisconsin. The other owners of Corner Vapory LLC consist of Lifted’s Director of Operations and his wife. During the three and six months ended June 30, 2022, Corner Vapory LLC purchased $
In comparison, during the three and six months ended June 30, 2021, Corner Vapory LLC purchased $
95th Holdings, LLC
From June 1, 2018 through June 1, 2021, Lifted rented
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 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 is January 1, 2026.
Lifted constructed improvements including a clean room, and gradually moved into the Kenosha Premises 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
Under the terms of the lease, the tenant, Lifted, has the option to purchase the property at any time prior to December 31, 2025, and in any event, Lifted is obligated to purchase the property on or before that date. Pursuant to the Lease, in all cases Lifted’s purchase price for the Premises shall be in an amount equal to the greater of: (1) the fair market value of the Premises at the time Lifted purchases the Premises; or (2) any remaining principal balance of any purchase-money mortgage for the Premises 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 is an additional amount ranging between $300,000 and $
| F-23 |
| Table of Contents |
Landlord is an entity owned by NWarrender, the Company’s Vice Chairman and COO, the CEO of Lifted, and the largest stockholder of the Company as beneficial owner of
During the quarter ended June 30, 2022, Lifted paid $
Under the terms of the Omnibus Agreement, Lifted is obligated to purchase the Premises from Landlord on or before December 31, 2022 for a fixed purchase price of $1,375,000. Pursuant to the terms of the Acceleration Agreement, the purchase date has been delayed until on or before December 31, 2023.
Liquid Event Marketing
Liquid Event Marketing is a company owned by Lifted’s Director of Operations, who was hired by Lifted on March 29, 2021. During the quarter and six months ended June 30, 2022, Lifted purchased $
In comparison, during the quarter ended June 30, 2021, Lifted paid Liquid Event Marketing $
NOTE 11 – SHAREHOLDERS’ EQUITY
Issuance of Series A Convertible Preferred Stock
The Company has authorized
Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase
| F-24 |
| Table of Contents |
As of June 30, 2022 and December 31, 2021, the Company has accrued a liability of $
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
Between July 24, 2019 and December 5, 2019, the Company accepted subscriptions from accredited investors to purchase
| F-25 |
| Table of Contents |
As of June 30, 2022 and December 31, 2021, the Company has accrued a liability of $
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
No share-based compensation expense was recognized during the three or six months ended June 30, 2022 or June 30, 2021.
The following is a summary of share-based compensation, stock option and warrant activity as of June 30, 2022 and changes during the quarter then ended:
|
|
|
| Weighted-Average |
|
| Weighted-Average Remaining Contractual |
|
| Aggregate Intrinsic |
| |||||
|
| Shares |
|
| Exercise Price |
|
| Term (Years) |
|
| Value |
| ||||
Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, April 1, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Outstanding Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
| F-26 |
| Table of Contents |
Stock Buy-back Transactions with a Non-Affiliate Stockholder and Retirement of 72,000 Shares of Common Stock Held in Treasury
On November 24, 2020, LFTD Partners purchased
On January 8, 2021, LFTD Partners Inc. purchased
Exercise of Warrant by a Non-Affiliated Entity
On February 19, 2022, an entity non-affiliated with the Company exercised an option to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $
Stock Buy-back Transactions with a Non-Affiliate Stockholder Stock and Retirement of 100,000 Shares of Common Stock
On March 1, 2022, LFTD Partners signed an agreement to purchase a total of
Conversion of Series A Preferred Stock by a Non-Affiliated Shareholder
On April 1, 2022, a non-affiliated shareholder of the Company converted his 1,000 shares of Series A Preferred Stock into
Conversion of Series A Preferred Stock by a Non-Affiliated Shareholder
On April 14, 2022, a non-affiliated shareholder of the Company converted 250 shares of his Series A Preferred Stock into 25,000 shares of unregistered common stock of the Company.
NOTE 12 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Operating and Finance Lease Right-of-Use Assets – In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”). The amended guidance, which is 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.
Lifted does not own any physical properties.
Lease of Building Located at 5511 95th Ave, Kenosha, Wisconsin
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 is January 1, 2026.
| F-27 |
| Table of Contents |
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
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.
Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted leased approximately
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 $
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 will 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 will be adjusted accordingly.
Lease of Space Located at 8920 58th Place, Suite 850, Kenosha, Wisconsin
On September 23, 2021, Lifted entered into a Lease Agreement (the “58th Lease”) with TI Investors of Kenosha LLC, (“TI”) for office and warehouse space (the “58th Suite 850”) located at 8920 58th Place, Suite 850, Kenosha, WI 53144. The 58th Suite 850 serve as sales offices and finished goods storage for Lifted.
The term of the 58th Lease commenced on October 1, 2021. The initial term of the Lease will extend approximately three year, unless earlier terminated in accordance with the terms and conditions of the 58th Lease. While extensions are not prohibited, Lifted does not have the right to unilaterally elect to extend the term of the 58th Lease for an additional term.
Under the terms of the 58th Lease, Lifted will lease the approximately
| F-28 |
| Table of Contents |
Rent Schedule
Date |
| Base Monthly Rent |
| |
10/01/2021 – 09/30/2022 |
| $ |
| |
10/01/2022 – 09/30/2023 |
| $ |
| |
10/01/2023 – 09/30/2024 |
| $ |
| |
Lease of Space Located at 8910 58th Place, Suites 600 and 700, Kenosha, Wisconsin
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”). The Second 58th Lease 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 will extend approximately five years, unless extended or earlier terminated in accordance with the Second 58th Lease. While extensions are not prohibited, Lifted does 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 will lease the approximately
Rent Schedule
Date |
| Base Monthly Rent |
| |
01/01/2022 – 12/31/2022 |
| $ |
| |
01/01/2023 – 12/31/2023 |
| $ |
| |
01/01/2024 – 12/31/2024 |
| $ |
| |
01/01/2025 – 12/31/2025 |
| $ |
| |
01/01/2026 – 12/31/2026 |
| $ |
| |
Lease of Space Located at 9560 58th Place Suite 360, Kenosha, Wisconsin
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”). The Third 58th Lease is expected to facilitate the internalization of certain packing functions, as well as provide additional needed office space.
The term of the Third 58th Lease will commence on July 1, 2022 (the “Commencement Date”). The initial term of the Third 58th Lease will extend approximately five years from the Commencement Date and ending June 30, 2027, unless extended or earlier terminated in accordance with the Lease. While extensions are not prohibited, Lifted does 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 will lease approximately
| F-29 |
| Table of Contents |
Rent Schedule
Date |
| Base Monthly Rent |
| |
07/01/2022 – 06/30/2023 |
| $ |
| |
07/01/2023 – 06/30/2024 |
| $ |
| |
07/01/2024 – 06/30/2025 |
| $ |
| |
07/01/2025 – 06/30/2026 |
| $ |
| |
07/01/2026 – 06/30/2027 |
| $ |
| |
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 $
The sublessor is one of our affiliates, Bill McLaughlin, Lifted’s Chief Strategy Officer. The sublease is structured so that Mr. McLaughlin's lease payment obligations to the landlord are passed on to Lifted on a dollar-for-dollar basis, such that Mr. McLaughlin does not realize a cashflow profit or loss from the sublease.
Lease of Space in Zion, Illinois
From June 1, 2018 through June 1, 2021, Lifted rented
Third Party Facilities
From time to time, the Company maintains inventory at third party copacker facilities around the USA.
Balance Sheet Classification of Operating Lease Assets and Liabilities
Asset |
| Balance Sheet Line |
| June 30, 2022 |
| |
Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $40,857 |
| Non-Current Assets |
| $ |
| |
|
|
|
|
|
|
|
Liability |
| Balance Sheet Line |
| June 30, 2022 |
| |
Operating Lease Liabilities |
| Current Liabilities |
| $ |
| |
|
| Non-Current Liabilities |
| $ |
| |
| F-30 |
| Table of Contents |
Balance Sheet Classification of Finance Lease Assets and Liabilities
Asset |
| Balance Sheet Line |
| June 30, 2022 |
| |
Finance Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $277,549 |
| Non-Current Assets |
| $ |
| |
|
|
|
|
|
|
|
Liability |
| Balance Sheet Line |
| March 31, 2022 |
| |
Finance Lease Liabilities |
| Current Liabilities |
| $ | ( | ) |
|
| Non-Current Liabilities |
| $ |
| |
Lease Costs
The table below summarizes the components of lease costs for the following periods:
Lease Cost: |
| Three Months Ended June 30, 2022 |
|
| Three Months Ended June 30, 2021 |
| ||
Finance lease expense: |
|
|
|
|
|
| ||
Amortization of Right-of-Use Assets |
| $ |
|
| $ |
| ||
Interest on lease liabilities |
|
|
|
| $ |
| ||
Operating lease expense |
|
|
|
| $ |
| ||
Total |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Lease Cost: |
| Six Months Ended June 30, 2022 |
|
| Six Months Ended June 30, 2021 |
| ||
Finance lease expense: |
|
|
|
|
|
|
|
|
Amortization of Right-of-Use Assets |
| $ |
|
| $ |
| ||
Interest on lease liabilities |
|
|
|
| $ |
| ||
Operating lease expense |
|
|
|
| $ |
| ||
Total |
| $ |
|
| $ |
| ||
As described in Note 1, a portion of monthly overhead costs such as lease expense are allocated to finished goods. For example, 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.
Maturity Analysis as of June 30, 2022:
|
| Finance |
|
| Operating |
| ||
2022 |
| $ |
|
| $ |
| ||
2023 |
|
|
|
|
|
| ||
2024 |
|
|
|
|
|
| ||
2025 |
|
|
|
|
|
| ||
2026 |
|
|
|
|
|
| ||
Thereafter |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
Less: Present value discount |
|
| ( | ) |
|
| ( | ) |
Lease liability |
| $ |
|
| $ |
| ||
| F-31 |
| Table of Contents |
Potential Issuance of Warrants to Purchase Shares of Common Stock of the Company
The Compensation Committee of the Company’s Board of Directors may, from time to time, recommend that certain warrants to purchase shares of common stock of the Company should be issued to new or current members of the Company’s Board of Directors, to officers and employees of the Company and its subsidiaries, or to members of any advisory board or consultants to the Company.
Bonus to Lifted’s Chief Strategy Officer
Lifted’s Chief Strategy Officer hired on July 1, 2021 has developed and implemented certain important strategies which have assisted Lifted’s efforts to increase its production, fulfillment and sales capabilities. This employee’s two-year agreement with Lifted entitles such Chief Strategy Officer to be paid an annual salary of $
At June 30, 2022, the bonus payable to the Chief Strategy Officer totaled $
NOTE 13 – LEGAL PROCEEDINGS
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Except for income tax contingencies, the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Except for income tax contingencies, the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
Lifted currently is involved in two pending lawsuits, as the plaintiff:
| (1) | Lifted Liquids, Inc. v. Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe – The Company has filed an action in a case styled “Lifted Liquids, Inc. v. Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe” seeking to recover $ |
| (2) | Lifted Liquids, Inc. v. Asad Awawdeh and Habib Cash and Carry SD, Inc. – The Company has filed an action seeking to recover approximately $ |
Lifted currently is involved in one pending lawsuit, as the defendant:
| (1) | Martha, Edgar v. Lifted Liquids – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $ |
On February 1, 2022, Lifted entered into a settlement agreement that was mutually acceptable to the parties which has resolved the following lawsuit:
| (1) | Lifted Liquids, Inc. v. Monkey Bones Distribution LLC (United States Circuit Court for Kenosha County of the State of Wisconsin; Civil Case No. 2021 CV 001196). |
| F-32 |
| Table of Contents |
In December 2021, our wholly-owned subsidiary Lifted sued distributor Monkey Bones Distribution, LLC for breach of contract for its failure to pay funds due under the agreement between the parties. In February 2022, the parties settled the litigation and agreed to mutual releases and dismissal of the lawsuit in exchange for $
NOTE 14 – COMPANY-WIDE MANAGEMENT BONUS POOL
Pursuant to the employment agreements entered into between the Company and its three principal executives GJacobs, WJacobs and NWarrender (individually, “Executive”), the Company is obligated to compensate management of the Company via a management bonus pool.
For each fiscal year during the Employment Term, the Executive shall be eligible to be considered for an annual bonus (the “Annual Bonus”) as part of a Company-wide management bonus pool arrangement. During the fourth quarter of each year, the Chairman of the Compensation Committee of the Board (the “Compensation Committee”) shall recommend in writing a consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) target (each, a “Target”) for the following year (the “Target Year”), which Target must be approved in writing by each of the following for as long as he remains employed by the Company: GJacobs, WJacobs, and NWarrender (collectively, and with respect to each for only as long as he is an employee of the Company, the “Executive Management Group”). If the Chairman of the Compensation Committee does not recommend in writing a Target for a Target Year that is approved in writing by all of the members of the Executive Management Group prior to the commencement of the Target Year, then the Target for the Target Year shall be equal to the actual consolidated EBITDA of the Company and its subsidiaries during the then-current year (i.e., the year preceding the Target Year) as certified in writing by the Company’s outside firm of independent certified public accountants. If the actual consolidated EBITDA of the Company and its subsidiaries during the Target Year as certified in writing by the Company’s outside firm of independent certified public accountants exceeds the Target (the amount by which the actual consolidated EBITDA of the Company and its subsidiaries during the Target Year as certified in writing by the Company’s outside firm of independent certified public accountants exceeds the Target, the “Excess Amount”), then cash equal to 33% of the Excess Amount shall be set aside by the Company as a cash management bonus pool (the “Bonus Pool”), and the amount of the Bonus Pool shall be allocated and paid out by the Company as bonuses or fees to the officers of the Company and its subsidiaries (and potentially, to directors or third parties who have significantly helped the Company and its subsidiaries during the Target Year), with the amount to be paid to each payee, including the amount of any Annual Bonus to be paid to the Executive, to be determined by unanimous written agreement of the Executive Management Group, in their sole discretion. The Executive expressly agrees and acknowledges that the amount of the Annual Bonus (if any) allocated and paid to the Executive as so determined by unanimous written agreement of the Executive Management Group shall be final, non-appealable, and binding upon the Executive, regardless of whether the Executive receives any Annual Bonus, and regardless of whether any Annual Bonus received by the Executive is higher or lower than any other person’s bonus, under any and all circumstances whatsoever. The Company shall pay the Executive the Annual Bonus, if any, no later than March 15th of the year following the applicable Target Year.) In the event that there is funding for the Bonus Pool but the Executive Management Group does not reach a unanimous decision on Bonus allocations, then no annual bonus shall be paid. The Annual Bonus Pool would then be placed in escrow and the Executive Management Group would mediate.
The company-wide Bonus Pool for 2021 was $
Pursuant to the Amended Omnibus Agreement, the 2022 company-wide bonus pool shall not be allowed to be accrued or paid by LIFD if and to the extent that doing so would decrease LIFD’s 2022 diluted earnings per share of common stock below $
| F-33 |
| Table of Contents |
NOTE 15 – INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act reduced the U.S. federal statutory tax rate, broadened the corporate tax base through the elimination or reduction of deductions, exclusions, and credits, limited the ability of U.S. corporations to deduct interest expense, and transitioned to a territorial tax system which allows for the repatriation of foreign earnings to the U.S. with a
Significant components on the Company’s income tax provision (benefit) for continuing operations is as follows:
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The Company currently believes that all significant filing positions are highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company has no significant reserves for uncertain tax positions and no adjustments to such reserves were required by generally accepted accounting principles. The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company’s tax returns are subject to examination for the years ended December 31, 2016 through 2021. A reconciliation of the amount of tax provision (benefit) computed using the U.S. federal statutory income tax rate to the provision (benefit) for income taxes on continuing operations is as follows:
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| Table of Contents |
Deferred tax assets and liabilities as of June 30, 2022 and December 31, 2021 were as follows:
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NOTE 16 – SUBSEQUENT EVENTS
Management of the Company has evaluated the events that have occurred through the date of the filing of this quarterly report on Form 10-Q and has noted the following subsequent events for disclosure purposes:
Acceleration Agreement
Prepayment of Remaining Secured Debt
On July 5, 2022, we entered into an agreement (“Acceleration Agreement”) with NWarrender. Under the terms of the Acceleration Agreement, we were obligated to repay the remaining principal balance as follows: $
F-35 |
| Table of Contents |
Obligation to Purchase Headquarters Building
Toward the end of 2020, NWarrender, through his assigned entity 95th Holdings, LLC, purchased a building located at 5511 95th Avenue in Kenosha, Wisconsin (“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 95th Holdings, LLC, 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 an agreement with Warrender on December 30, 2021, the parties agreed to set the purchase price for the 5511 Building at $
Lease of Space Located at 9560 58th Place Suite 360, Kenosha, Wisconsin
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”). The Third 58th Lease is expected to facilitate the internalization of certain packing functions, as well as provide additional needed office space.
The term of the Third 58th Lease will commence on July 1, 2022 (the “Commencement Date”). The initial term of the Third 58th Lease will extend approximately five years from the Commencement Date and ending June 30, 2027, unless extended or earlier terminated in accordance with the Lease. While extensions are not prohibited, Lifted does 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 will lease approximately 6,132 square feet at 9560 58th Place, Suite 360, Kenosha, WI 53144 and pay 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 will also be responsible for paying its proportionate share of real estate taxes and other operating cost. This lease is accounted for as an operating lease.
Rent Schedule
Date |
| Base Monthly Rent |
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07/01/2022 – 06/30/2023 |
| $ |
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07/01/2023 – 06/30/2024 |
| $ |
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07/01/2024 – 06/30/2025 |
| $ |
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07/01/2025 – 06/30/2026 |
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07/01/2026 – 06/30/2027 |
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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 $
The sublessor is one of our affiliates, Bill McLaughlin, Lifted’s Chief Strategy Officer. The sublease is structured so that Mr. McLaughlin's lease payment obligations to the landlord are passed on to Lifted on a dollar-for-dollar basis, such that Mr. McLaughlin does not realize a cashflow profit or loss from the sublease.
| F-36 |
| Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Form 10-Q, references to the “Company,” “LFTD Partners,” “LIFD,” “we,” “our” or “us” refer to LFTD Partners Inc. and Lifted, unless the context otherwise indicates.
Prior to the acquisition of Lifted on February 24, 2020, LFTD Partners Inc., formerly known as Acquired Sales Corp., had no sources of revenue, and LFTD Partners Inc. had a history of recurring losses, which has resulted in an accumulated deficit of $5,260,977 as of June 30, 2022. LFTD Partners Inc. has Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year, and has certain bonuses and our company-wide bonus pool being accrued. These matters raise substantial doubt about our ability to continue as a going concern.
This Management’s Discussion and Analysis (“MDA”) section discusses our results of operations, liquidity and financial condition and certain factors that may affect our future results. You should read this MDA in conjunction with our financial statements and accompanying notes included elsewhere in this report.
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, including statements regarding the Company’s future financial position, business strategy, budgets, projected costs 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. Any or all of the forward-looking statements in this annual report 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.
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 31, 2022. 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 31, 2022, that can be read at www.sec.gov.
Overview
Please refer to “NOTE 1 – DESCRIPTION OF THE BUSINESS OF LFTD PARTNERS INC.” for information.
Liquidity and Capital Resources
The following table summarizes our current assets, current liabilities and working capital as of June 30, 2022 and December 31, 2021, as well as cash flows for the six months ended June 30, 2022 and 2021.
|
| June 30, 2022 |
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| December 31, 2021 |
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Current Assets |
| $ | 19,678,947 |
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| $ | 13,152,696 |
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Current Liabilities |
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| 9,394,627 |
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| 11,906,270 |
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Working Capital |
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| 10,284,320 |
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| 1,246,426 |
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| For the Six Months Ended |
| |||||
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| June 30, |
| |||||
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| 2022 |
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| 2021 |
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Net Cash Provided by (Used in) Operating Activities |
| $ | 529,492 |
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| $ | 2,340,724 |
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Net Cash Used in Investing Activities |
| $ | (85,297 | ) |
| $ | (306,175 | ) |
Net Cash Provided By (Used In) Financing Activities |
| $ | 1,704,217 |
|
| $ | (244,573 | ) |
| 3 |
| Table of Contents |
Comparison of the balance sheet at June 30, 2022 to December 31, 2021
Total current assets at June 30, 2022 of $19,678,947 were adequate for us to fund current operations; total current assets primarily consisted of inventory of $10,049,245, cash on hand of $3,751,144, net accounts receivable of $3,029,258, and prepaid expenses of $2,842,047. In comparison, consolidated current assets of $13,152,696 at December 31, 2021 primarily consisted of prepaid expenses of $4,262,237, inventory of $3,809,944, net accounts receivable of $3,461,499, and cash on hand of $1,602,731.
The buildup of our inventory to the level of $10,049,245 at June 30, 2022, reflects our strategy to have enough of our current product lineup on hand to meet anticipated customer demand, but also to try to schedule our production so that a significant portion of our lab and production staff could be allocated toward the production of certain new products that have been under research and development for months. However, this research and development took longer than expected. In addition, we have experienced delays in the supply of certain raw materials from China. Also, we have experienced slower sales in the second quarter and in the first half of the third quarter of 2022, which we believe is attributable, at least in part, to the seasonality of certain products. As a result of all these factors, as of the date of this report, Lifted Made has decided to furlough 69 of its lab and production workers for three weeks in August and early September 2022, to allow our supply chain to catch up. It is currently unclear what if any impact these furloughs will have on our financial results for the third and fourth quarters of 2022, other than temporarily reducing our labor costs.
At June 30, 2022 and December 31, 2021, our other assets primarily included goodwill of $22,292,767 related to the acquisition of Lifted on February 24, 2020. Also, at both June 30, 2022 and December 31, 2021, our other assets included our investments in Ablis, Bendistillery and Bend Spirits, which total $1,896,200. At June 30, 2022, we also reported a net finance lease right-of-use asset of $1,296,000, net fixed assets of $460,808, and a net operating lease right-of-use asset of $266,625. In comparison, at December 31, 2021, we reported a net finance lease right-of-use asset of $1,227,532, net fixed assets of $433,213, and a net operating lease right-of-use asset of $76,412.
At June 30, 2022, current liabilities of $9,394,627 primarily consisted of accounts payable and accrued expenses of $5,138,910, income tax payable of $985,932, deferred revenue of $633,729, the current portion of the note payable to NWarrender of $458,335, and a company-wide management bonus pool accrual of $2,121,532. In comparison, current liabilities as of December 31, 2021 of $11,906,270 primarily consisted of accounts payable and accrued expenses of $4,671,382, deferred revenue of $2,174,393, a company-wide bonus accrual of $1,556,055, current finance lease liability of $1,262,260, income tax payable of $1,242,974 and $941,562 in accrued management bonuses payable to GJacobs and WJacobs.
The Company had an accumulated deficit of $5,260,977 and $11,414,602 as of June 30, 2022 and December 31, 2021, respectively.
Comparison of operations for the three and six months ended June 30, 2022 to June 30, 2021
On February 24, 2020, we acquired 100% of the ownership interests of Lifted. All of our sales are generated by our wholly-owned subsidiary Lifted; LFTD Partners as an entity by itself generates no sales. We also do not recognize any revenue or earnings from our investments in Bendistillery, Ablis or Bend Spirits.
During the three and six months ended June 30, 2022, net sales increased to $16,776,502 and $34,865,379, respectively. In comparison, during the three and six months ended June 30, 2021, Lifted recognized net sales of $6,695,144 and $10,048,414, respectively. Gross profit for the three and six months ended June 30, 2022 was $8,062,912 and $16,047,896, respectively. In comparison, gross profit for the three and six months ended June 30, 2021 was $3,659,515 and $5,305,262, respectively.
During the three and six months ended June 30, 2022, hemp-derived products and non-hemp-derived psychedelic products made up 98% and 97% of Lifted’s sales, respectively. In comparison, during the three months ended June 30, 2021, approximately 95% of sales were generated from the sale of hemp and hemp-derived products, and 5% of sales were generated from the sale of e-liquid and disposable e-cigarettes.
During the three and six months ended June 30, 2022, the Company expensed $1,811,678 and $3,665,829, respectively, related to payroll, consulting and independent contractor expenses; this is up from $791,000 and $1,098,524, respectively, in payroll, consulting and independent contractor expenses during the three and six months ended June 30, 2021. Lifted has been dramatically increasing the size of its workforce, including production, fulfillment and sales people, and in conjunction with these increases, Lifted’s payroll, consulting and independent contractor expenses have increased significantly. In addition, Lifted’s Chief Strategy Officer, who was hired on July 1, 2021, has developed and implemented certain important strategies which have assisted Lifted’s efforts to increase its production, fulfillment and sales capabilities. The Chief Strategy Officer’s two-year agreement with Lifted entitles such employee to be paid an annual salary of $180,000 plus a bonus equal to 5% of total net sales for Lifted in excess of $6,000,000 per quarter. At June 30, 2022, the bonus payable to the Chief Strategy Officer totaled $538,825.
During the three and six months ended June 30, 2022, the Company expensed $1,152,162 and $2,121,532, respectively, related to the company-wide management bonus pool. In comparison, the Company recognized a company-wide management bonus pool expense of $816,388 and $1,159,335 for the three months and six months ended June 30, 2021, respectively.
| 4 |
| Table of Contents |
Driven by increased sales, bank charges and merchant fees increased to $132,470 and $265,507 during the three and six months ended June 30, 2022, respectively, up from $118,055 and $184,625 during the three and six months ended June 30, 2021, respectively.
During the three and six months ended June 30, 2022, the Company incurred $110,797 and $216,397, respectively, in advertising and marketing expenses, which primarily related to trade shows, marketing, and the cost of promotional items. In comparison, during the three and six months ended June 30, 2021, the Company incurred $98,133 and $150,160 in advertising and marketing expenses, which primarily related to marketing displays, public relations, and search engine optimization.
Bad debt expense reflects a net benefit of $311,209 and $63,209 during the three and six months ended June 30, 2022, respectively, compared to a net expense of $19,196 and $20,173 during the three and six months ended June 30, 2021, respectively.
Other operating expenses increased to $528,608 and $911,070 during the three and six months ended June 30, 2022, respectively, from $99,773 and $180,167 during the three and six months ended June 30, 2021, respectively. Other operating expenses include, for example, lab supplies, dues and subscriptions, meals and entertainment, insurance expenses, repairs and maintenance, and state license filing fees.
During the quarter ended June 30, 2022, total, non-operating net Other Income of $82,385 primarily consisted of interest expense of $26,928 offset by a settlement income of $108,570. In comparison, during the quarter ended June 30, 2021, total, non-operating net Other Income of $39,291 primarily consisted of gain on forgiveness of debt of $151,147 offset by the loss from Lifted Made’s 50% membership interest in SmplyLifted of $43,330, interest expense of $35,398, and loss on deposit of $30,000.
During the six months ended June 30, 2022, total, non-operating net Other Income of $54,220 primarily consisted of interest expense of $58,658 offset by settlement income of $108,570. In comparison, during the six months ended June 30, 2021, total, non-operating net Other Expenses of $2,843 primarily consisted of gain on forgiveness of debt of $151,147 offset by the loss from Lifted Made’s 50% membership interest in SmplyLifted of $50,541, interest expense of $71,745, and loss on deposit of $30,000.
During the quarter ended June 30, 2022, the Company recognized net income of $3,219,460. In comparison, during the quarter ended June 30, 2021, the Company recognized net income of $1,596,154.
During the six months ended June 30, 2022, the Company recognized net income of $6,164,253. In comparison, during the six months ended June 30, 2021, the Company recognized net income of $2,214,512.
Net cash provided by operating activities was $529,492 and $2,340,724 for the six months ended June 30, 2022, and June 30, 2021, respectively. During the six months ended June 30, 2022, net cash provided by operating activities was primarily generated from net income of $6,164,253; cash was primarily used for the purchase of inventory. Net cash provided by operating activities during the six months ended June 30, 2021 was primarily generated from net income of $2,214,512.
Net cash used in investing activities was $85,297 and $306,175 during the six months ended June 30, 2022 and June 30, 2021, respectively. Net cash used in investing activities during the six months ended June 30, 2022 related to the net purchase of fixed assets. Net cash used in investing activities during the six months ended June 30, 2021 primarily related to primarily to $227,743 for purchases of fixed assets and $93,750 of loans extended to SmplyLifted LLC.
During the six months ended June 30, 2022, net cash provided by financing activities was $1,704,217, primarily driven by the proceeds of the $2.75M Note, which was primarily offset by the purchase of common stock and a total $916,666 early repayment of the $2.75M Note. Net cash used in financing activities was $244,573 during the six months ended June 30, 2021; this cash was used primarily to make dividend payments of $199,186 and $5,844 to holders of the Series A Convertible Preferred Stock and Series B Convertible Preferred Stock, respectively; also, $34,200 was used to purchase 36,000 shares of common stock.
| 5 |
| Table of Contents |
During the six months ended June 30, 2022, net cash increased by $2,148,413, and we had $3,751,144 in unrestricted cash at June 30, 2022. In comparison, during the six months ended June 30, 2021, cash increased by $1,789,976, and we had $2,229,056 in unrestricted cash at June 30, 2021.
Prior to the acquisition of Lifted on February 24, 2020, the Company had a history of losses as evidenced by the accumulated deficit at June 30, 2022 of $5,260,977. We plan to sustain the Company as a going concern by taking the following actions: (1) continuing to operate Lifted; (2) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (3) completing private placements of our common stock and/or preferred stock. We believe that by taking these actions, we will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurance that we will be successful in consummating such actions on acceptable terms, if at all. Moreover, many of such actions can be expected to result in substantial dilution to the existing shareholders of the Company.
Critical Accounting Policies
Critical accounting policies are discussed in “NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES.”
SmplyLifted LLC
Please refer to “NOTE 8 – NOTES RECEIVABLE”.
Tax Provision
Please refer to “NOTE 15 – INCOME TAXES” for more information about the Company’s quarterly tax provision.
Other Matters
We may be subject to other legal proceedings, claims, and litigation arising in the ordinary course of business in addition to the matters discussed above in “NOTE 13 – LEGAL PROCEEDINGS”. We intend to vigorously pursue and defend such litigation. Although the outcome of these other matters is currently not determinable, our management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our Company’s financial position, results of operations, or cash flows.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption despite progress made in recent months in the development and distribution of vaccines. It has already disrupted Lifted’s operations, global travel and supply chains, and adversely impacted global commercial activity. Considerable uncertainty still surrounds COVID-19, the evolution and future impact of its variants, its potential long-term economic effects, as well as the effectiveness of any responses taken by government authorities and businesses and of various efforts to inoculate the global population. The travel restrictions, limits on hours of operations and/or closures of non-essential businesses, and other efforts to curb the spread of COVID-19 have significantly disrupted business activity globally and there is uncertainty as to if and when these disruptions will fully subside.
Significant uncertainty continues to exist concerning the impact of the COVID-19 pandemic on Lifted’s, our customers’ and target companies’ business and operations in future periods. Although our total revenues for the three and six months ended June 30, 2022 were not materially impacted by COVID-19, we believe that our revenues may be negatively impacted in future periods until the effects of the pandemic have fully subsided and the current macroeconomic environment has substantially recovered. The uncertainty related to COVID-19 may also result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements. We have made some efforts to try to adapt our operations to meet the challenges of this uncertain and rapidly evolving situation, including expanding operations in areas where we perceive government restrictions on business operations are relatively less burdensome, and focusing some of our new product development in areas where we perceive government restrictions and prohibitions on hemp-derived cannabinoid products are relatively less likely. The COVID-19 pandemic and its ramifications, including Illinois Governor Pritzker’s Executive Order in response to the pandemic, materially damaged Lifted’s business, among other things by disrupting Lifted’s access to its employees, suppliers, packaging, distributors and customers. That is why Lifted applied for and received funding under the federal Economic Injury Disaster Loan program and the federal Paycheck Protection Program.
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Effects of the COVID-19 pandemic that may negatively impact our business in future periods include, but are not limited to: disruptions of Lifted’s workforce; limitations on the ability of our customers to conduct their business, purchase our products, and make timely payments; curtailed consumer spending; deferred purchasing decisions; supply chain problems and delays, and changes in demand from retail customers. We will continue to actively monitor the nature and extent of the impact to our business, operating results, and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Financial Officer, WJacobs, evaluated the effectiveness of the Company’s disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, WJacobs concluded that because of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2022.
(b) Management’s annual report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. “Internal Control Over Financial Reporting” is defined in Exchange Act Rules 13a -15(f) and 15d - 5(f) as a process designed by, or under the supervision of, an issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by an issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It includes those policies and procedures that:
| (1) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of an issuer; |
| (2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and |
| (3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material adverse effect on the financial statements. |
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During June 2022, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2022 based on the framework set forth in the report entitled Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management concluded that our internal control over financial reporting as of June 30, 2022 was not effective. Management identified the following material weaknesses as of June 30, 2022:
| (1) | There existed a lack of segregation of duties in regard to the Company’s financial reporting, procedures for depositing of funds, procedures for cash disbursements, procedures for checkbook entries, period close procedures, and procedures for financial statement preparation. |
Management has determined that the Company should seek to enhance its internal controls over financial reporting by maintaining the following steps first commenced in 2010:
| (1) | During November 2010, the Company increased its Board of Directors to six members by adding another independent member, Vincent J. Mesolella. Mr. Mesolella is the Chairman of the Narragansett Bay Commission, Providence, Rhode Island. Mr. Mesolella is also the Founder, President and Chief Executive Officer of MVJ Realty, LLC, a real estate development company. Mr. Mesolella has previously served as the Chairman of the Audit Committee of the Board of Directors of a publicly traded company. |
Beginning in March 2010, the Company began emailing or mailing to Vincent J. Mesolella a copy of each monthly statement from its bank summarizing all activity in the Company’s checking account, for review and questioning as appropriate. The purpose of Mr. Mesolella’s involvement is to provide monitoring, oversight and assistance to GJacobs, Chief Executive Officer, in the preparation and reporting of the Company’s financial statements.
In December 2021, the Company engaged a third party consulting firm that specializes in the implementation of the Sarbanes-Oxley Act, to assist management with the implementation of internal controls and procedures pursuant to the Sarbanes-Oxley Act. This implementation is progressing, but it has not yet been completed, and additional work is required. This implementation is imposing and will, on an on-going basis, impose substantial costs on the Company.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
This quarterly report on Form 10-Q does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this quarterly report on Form 10-Q.
Management is unaware of any material inaccuracies or errors in the Company’s financial statements as of June 30, 2022.
(c) Changes in internal control over financial reporting
Our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Description of Legal Proceedings
Lifted currently is involved in two pending lawsuits, as the plaintiff:
| (1) | Lifted Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe – The Company has filed an action in a case styled “Lifted Liquids, Inc. v Girish GPO, Inc., Girish Ray, and the Law Offices of Saul Roffe” seeking to recover $30,000 that was to be held in escrow. The Company is also requesting approximately $14,569 in damages resulting from Girish GPO’s failure to pay for product it ordered and that the Company delivered. The matter was recently filed and the Company intends to pursue the action and recover its damages. |
| (2) | Lifted Liquids, Inc. v. Asad Awawdeh and Habib Cash and Carry SD, Inc. – The Company has filed an action seeking to recover approximately $98,000 in damages resulting from Defendants’ failure to pay for product they ordered. The matter has been filed in California and the Company intends to pursue the action and recover its damages. |
Lifted currently is involved in one pending lawsuit, as the defendant:
| (1) | Martha, Edgar v. Lifted Liquids – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage. |
On February 1, 2022, Lifted entered into a settlement agreement that was mutually acceptable to the parties which has resolved the following lawsuit:
| (1) | Lifted Liquids, Inc. v. Monkey Bones Distribution LLC (United States Circuit Court for Kenosha County of the State of Wisconsin; Civil Case No. 2021 CV 001196). |
In December 2021, our wholly-owned subsidiary Lifted sued distributor Monkey Bones Distribution, LLC for breach of contract for its failure to pay funds due under the agreement between the parties. In February 2022, the parties settled the litigation and agreed to mutual releases and dismissal of the lawsuit in exchange for $36,100.28 paid by Monkey Bones to Lifted Liquids and 15,000 custom gray scale empty disposable devices delivered to Monkey Bones by Lifted Liquids. The parties performed the settlement agreement and the matter was dismissed on February 3, 2022.
ITEM 1A. RISK FACTORS.
The Risk Factors identified in our Annual Report on Form 10-K for the year ended December 31, 2021 continue to represent the most significant risks to the Company’s future results of operations and financial conditions, without further modification or amendment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We claimed exemption from registration under the Securities Act for the sales and issuances of securities in the following transactions under Section 4(a)(2) of the Securities Act and/or Regulations D and S promulgated thereunder, in that such sales and issuances (i) did not involve a public offering, or (ii) were made to non-U.S. Persons and otherwise complied with Rule 903 promulgated under the Securities Act, or (iii) were made pursuant to Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701. All of the purchasers of unregistered securities for which we relied on Section 4(a)(2) and/or Regulation D represented that they were accredited investors as defined under the Securities Act. We claimed such exemption on the basis that (a) the purchasers in each case represented that they intended to acquire the securities for investment only and not with a view to the distribution thereof and that they either received adequate information about the registrant or had access, through employment or other relationships, to such information and (b) appropriate legends were affixed to the stock certificates issued in such transactions.
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Stock Buy-back Transactions with a Non-Affiliate Stockholder and Retirement of 72,000 Shares of Common Stock Held in Treasury
On November 24, 2020, LFTD Partners purchased 36,000 shares of common stock of the Company from a non-affiliate stockholder in a private transaction for $0.95 per share for a total of $34,200. These shares were held in treasury until August 31, 2021, which is when the Company retired them. The retirement of these shares was accounted for under the cost method of accounting.
On January 8, 2021, LFTD Partners Inc. purchased 36,000 shares of common stock of the Company from a non-affiliate stockholder in a private transaction for $0.95 per share for a total of $34,200. These shares were held in treasury until August 31, 2021, which is when the Company retired them. The retirement of these shares was accounted for under the cost method of accounting.
Exercise of Warrant by a Non-Affiliated Entity
On February 19, 2022, an entity non-affiliated with the Company exercised an option to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $1.00 per share, which the entity paid.
Stock Buy-back Transaction with a Non-Affiliate Stockholder and Retirement of 100,000 Shares of Common Stock
On March 1, 2022, LFTD Partners signed an agreement to purchase a total of 100,000 shares of common stock of the Company from a non-affiliate stockholder in a private transaction for $1.50 per share for a total purchase price of $150,000. On March 8, 2022, all 100,000 shares were transferred to the Company and immediately cancelled.
Exercise of Warrants by Gerard M. Jacobs
On August 30, 2021, CEO Gerard M. Jacobs exercised, for an aggregate purchase price of $1, his right to purchase a warrant to purchase an aggregate of 750,000 shares of unregistered common stock of the Company at an exercise price of $0.01 per share, which warrant he immediately exercised. Gerard M. Jacobs also exercised his right to purchase an aggregate of 31,250 shares of unregistered common stock of the Company at an exercise price of $0.03 per share under separate warrants. Gerard M. Jacobs also demanded immediate payment of $8,439 of the bonuses which are currently due and payable by the Company to Gerard M. Jacobs, and Gerard M. Jacobs hereby allocated and applied such $8,439 to pay for the aggregate cost of purchasing and exercising the above warrants.
Exercise of Warrants by Vincent J. Mesolella
On September 13, 2021, lead outside director Vincent J. Mesolella exercised, for an aggregate purchase price of $1.00, his right to purchase a warrant to purchase an aggregate of 500,000 shares of unregistered common stock of the Company at an exercise price of $0.01 per share, which warrant he immediately exercised and paid for, and he also exercised an option to purchase 5,000 shares of unregistered common stock of the Company at an exercise price of $2.00 per share, which he paid.
Exercise of Option by Joshua A. Bloom
On September 22, 2021, director Joshua A. Bloom exercised an option to purchase 5,000 shares of unregistered common stock of the Company at an exercise price of $2.00 per share, which he paid.
Exercise of Option by Richard E. Morrissy
On September 15, 2021, director Richard E. Morrissy exercised an option to purchase 5,000 shares of unregistered common stock of the Company at an exercise price of $2.00 per share, which he paid.
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Exercise of Option by a Non-Affiliated Shareholder
On September 26, 2021, a non-affiliated shareholder of the Company exercised an option to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $2.00 per share, which she paid.
Exercise of Option by a Non-Affiliated Shareholder
On December 7, 2021, a non-affiliated shareholder of the Company exercised a warrant to purchase 25,000 shares of unregistered common stock of the Company at an exercise price of $0.01 per share, which he paid.
Conversion of Series A Preferred Stock by a Non-Affiliated Shareholder
On April 1, 2022, a non-affiliated shareholder of the Company converted his 1,000 shares of Series A Preferred Stock into 100,000 shares of unregistered common stock of the Company.
Conversion of Series A Preferred Stock by a Non-Affiliated Shareholder
On April 14, 2022, a non-affiliated shareholder of the Company converted 250 shares of his Series A Preferred Stock into 25,000 shares of unregistered common stock of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None; not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
None; not applicable.
ITEM 5. OTHER INFORMATION.
Trading Symbol Change
On March 15, 2021, our stock trading symbol was changed to LIFD from LSFP.
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ITEM 6. EXHIBITS.
The following Exhibits have been previously filed in the below referenced filings or have been attached hereto, and in any case, as is stated on the cover of this Report, all of the below Exhibits are incorporated herein by reference.
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This Form 10-Q
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101.INS |
| XBRL Instance Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document. |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document. |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document. |
101.SCH |
| XBRL Taxonomy Extension Schema Document. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LFTD Partners Inc. |
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Dated: August 11, 2022 | By: | /s/ Gerard M. Jacobs |
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| Gerard M. Jacobs |
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| Chief Executive Officer |
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