UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the fiscal year ended
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Securities registered under Section 12(g) of the Exchange Act:
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Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐
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Indicate by check mark whether the Registrant (1) has 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.
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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. ☐
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $
As of March 21, 2022, there were
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PART I
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Form 10-K”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections about future events only as of the date of this Form 10-K, and are not statements of historical fact. We make such forward-looking statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements and forward-looking information are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements or forward-looking information. Factors that could cause or contribute to such differences include, but are not limited to, those identified in this Form 10-K, and in our other SEC public filings. Therefore, these forward-looking statements are not guarantees or promises of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. As a result, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to further update any such statement, or the risk factors described in Item 1A under the heading “Risk Factors,” to reflect new information, the occurrence of future events or circumstances or otherwise.
SUMMARY OF RISK FACTORS
The principal factors that make an investment in LFTD Partners speculative or risky include the following:
| · | The Company’s stock is not traded on a national stock exchange and as a result a stockholder’s ability to sell shares of stock owned by a stockholder could be difficult. |
| · | The Company primarily sells hemp-derived products, including products containing delta-8-THC, delta-9-THC, delta-10-THC, HHC, THCO, THCV, CBD, CBG, CBN and other cannabinoids, and products that contain nicotine. All of these are, or may become, subject to significant government regulation, enforcement of which could be a threat to the survival of our Company. |
| · | The market for the products we sell is a fairly new and developing market that is subject to significant disruptions as it develops, including entry of large competitors in the space. |
| · | The Company is controlled by a small number of people who are important to the business. The loss of any of these people could have a detrimental effect on our Company. Such a small number of close people also can skew the direction of the Company in a manner in which stockholders do not agree. |
| · | Due to the fact that we sell consumer products and in particular due to the nature of the products, the Company could be subject to product liability lawsuits, including class action lawsuits. |
ITEM 1. BUSINESS
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.
Our business is primarily focused upon acquiring rapidly growing companies that manufacture and sell branded, products containing hemp-derived cannabinoids (e.g. delta-8-THC, delta-9-THC, delta-10-THC, THCV, HHC, THCO, CBDA, CBC, CBG, CBN, and CBD), nicotine, kratom, kava and 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.
To date, we have acquired 100% of the ownership interests in one Canna-Infused Products Company called Lifted Liquids, Inc. d/b/a Lifted Made (formerly Warrender Enterprise Inc. d/b/a Lifted Liquids) (www.LiftedMade.com), Kenosha, Wisconsin (“Lifted Made” or “Lifted”).
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On April 30, 2019, we also closed on the acquisition of 4.99% of the common stock of each of CBD-infused beverages maker Ablis Holding Company (“Ablis”) (www.AblisCBD.com), and of distilled spirits manufacturers Bendistillery Inc. (“Bendistillery”)and Bend Spirits, Inc. (“Bend Spirits”), all located in Bend, Oregon.
Prior to February 9, 2022, Lifted Made had a 50% membership interest in SmplyLifted LLC, which sells tobacco-free nicotine pouches under the brand name FR3SH (www.GETFR3SH.com). On February 9, 2022, Lifted Made sold its 50% membership interest in SmplyLifted LLC to Corner Vapory LLC. For more information, please refer to NOTE 15 – SUBSEQUENT EVENTS.
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 Nicholas S. Warrender (“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. As a result, no acquisition of Savage, Premier Greens or MKRC by the Company will occur.
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. As a result, no acquisition of Fresh Farms by the Company will occur.
Capital Raise
Cash on hand is currently limited, so in order to close future acquisitions, it likely will 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.
With the assistance of an investment bank, we are currently exploring the possibility of raising $5 million or more through some combination of debt and equity offerings in order to pay off the remaining $2.75 million owed in connection with our acquisition of Lifted, to purchase for $1.375 million the building located at 5511 95th Avenue, Kenosha, Wisconsin, that is currently being rented by Lifted, to pay off all other liabilities of the Company and Lifted including certain bonuses and our company-wide bonus pool, and to pay transactional fees and expenses. If we proceed forward with an equity raise, it may be in conjunction with a potential listing of our common stock on a Canadian stock exchange. However, there can be no guarantee or assurance that any such debt and/or equity capital raise or listing will be completed on acceptable terms, if at all.
Corporate Information
The Company is a Nevada corporation incorporated on January 2, 1986 that is focused upon acquiring rapidly growing companies that manufacture and sell branded, products containing hemp-derived cannabinoids (e.g. delta-8-THC, delta-9-THC, delta-10-THC, THCV, HHC, THCO, CBDA, CBC, CBG, CBN, and CBD), nicotine, kratom, kava and psychedelic products (a “Canna-Infused Products Company”).
Our principal headquarters are located at 4227 Habana Ave., Jacksonville, Florida 32217. Our telephone number is (847) 915-2446. Our corporate website address is www.LFTDPartners.com.
LIFD’s wholly-owned subsidiary is award-winning hemp-derived products maker Lifted Made (www.LiftedMade.com), Kenosha, Wisconsin.
LIFD also owns 4.99% of CBD-infused beverage and products maker Ablis (www.AblisBev.com), and of distillers Bendistillery Inc. d/b/a Crater Lake Spirits (www.CraterLakeSpirits.com) and Bend Spirits, Inc., all located in Bend, Oregon.
We, or our target acquisitions, have proprietary rights to a number of trademarks, service marks and trade names used in this Form 10-K which are, or may become, important to our business. Solely for convenience, the trademarks, service marks and trade names in this Form 10-K are referred to without the ® and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this Form 10-K are the property of their respective owners.
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The Lifted Made Business
History
Lifted was originally incorporated in the state of Wisconsin on September 19, 2014. Lifted was created with a passion to build a culture-based organization focused upon quality products and a healthier lifestyle.
Products
Under its flagship brands Urb Finest Flowers and Silly Shruum, Lifted manufactures and sells hemp-derived products and other psychedelic products.
Lifted also manufactures and sells similar hemp-derived products to private label clients. Lifted sells its Urb Finest Flowers brand of products and its private label clients’ products online primarily through www.LiftedMade.com. During 2020, our business also involved selling and distributing hand sanitizer, but it is unlikely that this hand sanitizer business will continue going forward.
Officers and Employees
The executives of Lifted have backgrounds in the vaping industry, sales, graphic design, distribution, marketing, accounting, and supply chain management, skills that have helped Lifted distinguish itself from the competition. Prior to and following the worst months of the COVID-19 pandemic, the Lifted team has occasionally attended trade shows throughout the USA to promote Lifted’s products. In recent months, Lifted has begun attending more hemp industry trade shows throughout the USA. The Company holds an option to purchase NWarrender’s interests in certain vape and CBD shops that are located in Wisconsin and Illinois, for a nominal price.
As of March 24, 2022, Lifted has approximately 125 full time and part time employees and independent contractors who are engaged in product formulation, design and branding, website development, private label client management, sales, strategy, distribution, supply chain management, new business development, warehouse management and order fulfillment, operations management, accounting, new product development, trade shows and evaluation of potential acquisitions and joint ventures. Most of Lifted’s employees and independent contractors are based in Kenosha, Wisconsin, and the rest are located in Florida, Louisiana and California.
Joint Ventures
SmplyLifted LLC
Prior to February 9, 2022, Lifted Made had a 50% membership interest in SmplyLifted LLC (“SmplyLifted”), which sells tobacco-free nicotine pouches under the brand name FR3SH (www.GETFR3SH.com).
As background: on October 16, 2020, Lifted Made had entered into a joint venture called SmplyLifted. Lifted owns 50% of SmplyLifted. The other 50% of SmplyLifted is owned by SMPLSTC LLC and its principals, who are located in Costa Mesa, California.
On February 9, 2022, Lifted Made sold its 50% membership interest in SmplyLifted LLC to Corner Vapory LLC, an affiliate of Nicholas S. Warrender, CEO of Lifted. Lifted has the option to re-purchase the 50% membership interest in SmplyLifted LLC from Corner Vapory LLC for $1,000 in cash at any time on or before December 31, 2032. For more information, please refer to NOTE 15 – SUBSEQUENT EVENTS.
SmplyLifted conducts its business at Lifted’s and SMPLSTC LLC’s offices, currently without any rent or other charges being payable by SmplyLifted. Prior to the sale of Lifted Made’s 50% interest in SmplyLifted to Corner Vapory LLC, on a quarterly basis, SmplyLifted LLC reimbursed Lifted for WJacobs’ time as the Chief Financial Officer at WJacobs’ hourly rate. Under US GAAP, the Company uses the equity method to account for its 50% membership interest in SmplyLifted. Under the equity method of accounting, the Company records its share (50%) of SmplyLifted’s earnings (or losses) as income (or losses) on the Consolidated Statements of Operations. The Company recorded its initial investment in SmplyLifted, which was $200,000, as an asset at historical cost. Under the equity method, the investment’s value is periodically adjusted to reflect the changes in value due to Lifted’s share in SmplyLifted’s income or losses. At December 31, 2021, Lifted Made wrote off its remaining investment in SmplyLifted, its receivables from SmplyLifted, and its loans to SmplyLifted.
LftdXSvg LLC
On April 22, 2021, Lifted Made and privately-held Savage Enterprises, Irvine, California, partnered to create an equally-owned new entity called LftdXSvg LLC to make and sell products containing hemp-derived THCV (tetrahydrocannabivarin). LftdXSvg LLC was never funded and the managers of LftdXSvg LLC unanimously decided to dissolve LftdXSvg LLC on June 23, 2021. However, both entities are making and selling products containing hemp-derived THCV under a collaborative brand called “Urb Extrax”. The name Urb Extrax is a combination of Lifted’s Urb Finest Flowers brand, and Savage Enterprises’ Delta Extrax brand.
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Sources of Supply
Lifted sources its raw goods from many different suppliers. Lifted’s hemp and hemp-derived raw goods are third-party lab tested, and Lifted’s finished goods are also third also third-party lab tested. Lifted does not grow its own hemp or extract cannabinoids from the raw goods. However, many of Lifted’s finished goods are made in house using the raw goods purchased from third party vendors. Some finished goods are purchased from third party vendors, which make products for Lifted in accordance with Lifted’s specifications. Lifted designs the majority of its packaging in-house, and hires third party firms to produce it. In the past, Lifted also sourced gel and liquid sanitizer from various third parties.
Lifted currently believes that it would be able to find replacement manufacturers with minimal negative impact on its business. However, Lifted’s vape pens and cartridges are sourced exclusively from China. COVID-19, Chinese holidays, backups at U.S. ports, and tariffs imposed on products sourced from China could make it difficult or impossible to source these products cost effectively, or at all, from China. COVID-19, Chinese holidays, backups at U.S. ports, and/or tariffs could make it difficult or impossible for Lifted to manufacture needed quantities of its products, if at all, and could drastically increase Lifted’s product costs, all of which could have a serious detrimental impact on Lifted’s sales and profit margins.
SmplyLifted sources its inventory, packaging and marketing materials from independent suppliers.
Product Risks
Some of Lifted’s and SmplyLifted’s products currently contain hemp-derived delta-8-THC, delta-9-THC, delta-10-THC, HHC, THCO, THCV, CBD and other cannabinoids, and synthetic nicotine. There is a risk that Lifted could be targeted by regulators or consumers with claims that its products are illegal and/or unsafe.
The market for cannabinoid-infused vapes and cartridges is currently subjected to prohibitions of certain products in certain jurisdictions in response to deaths and illnesses that have occurred and that are apparently associated with vaping. In addition, certain jurisdictions have prohibited the sale of smokable hemp and hemp-derived products, including delta-8-THC. These various prohibitions and regulations may have a material adverse effect on Lifted’s financial condition, operating results, liquidity, cash flow and operational performance.
Intellectual Property
Lifted maintains proprietary formulations, other trade secrets, and a custom mold for its disposable vape. However, Lifted owns no registered patents and has no patent applications pending.
Trademarks
Lifted has filed a trademark application for its “Off-Spectrum” line of products. Lifted is in the process of applying for other trademarks, as well.
R&D expenditures
Lifted’s research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products. Lifted spent less than $10,000 on research and development efforts over the past three years. Research and development costs are expensed as they are incurred.
Marketing
Lifted markets itself by networking throughout the industry through word of mouth, its website, and by attending trade shows. In the past, Lifted has also engaged a public relations and search engine optimization firm to improve its public relations and search engine optimization efforts. There can be no guarantee or assurance that Lifted’s marketing efforts will be successful or result in any additional sales or profits for Lifted.
SmplyLifted markets itself by networking throughout the industry through word of mouth, its website and by attending trade shows.
Distribution
Lifted’s distribution is done internally and through third party distributors who distribute throughout the U.S. Lifted and these distributors distribute Lifted’s products to vape and smoke shops, convenience stores, grocery stores, gyms, natural food stores, wellness stores, and other locations. Lifted believes but cannot guarantee that in the event that Lifted lost its relationship with one or more of its current distributors, that other replacement distributors could be found without significant disruption to Lifted’s business. However, the COVID-19 pandemic seriously disrupted Lifted’s distribution channels, although such disruption has generally decreased since the third quarter of 2020.
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Costs and effects of compliance with environmental laws
To Lifted’s knowledge, Lifted does not currently use or generate any hazardous materials in its operations.
OLCC Review of New Directors of the Company
Due to our minority ownership interest in Bendistillery and Bend Spirits, the Oregon Liquor Control Commission (“OLCC”) has jurisdiction over our directors, officers and significant shareholders. If the OLCC were to refuse to approve any of our directors, officers or significant shareholders, it could disrupt our management and corporate governance, which could materially adversely affect our Company and the trading price of our common stock.
Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement
Registration Rights Agreement
In connection with the Merger, the Company signed a Registration Rights Agreement granting NWarrender, or his assigns, “piggyback” and “demand” registration rights in regard to any and all Company registration statements filed with the SEC on or prior to a termination date set out in the agreement, in order to permit the registration of all 3,900,455 shares of Common Stock issued to NWarrender as Stock Consideration in the Merger (“Registrable Shares”). The Registration Rights Agreement can be summarized as follows:
Subject to certain limitations, NWarrender, or his assigns, may demand registration of all or any portion of the Registrable Shares at any time beginning on the 120th day following the closing of the Merger Agreement. The Company must then file a registration statement within ten days. The Company may postpone for up to 180 days the filing or effectiveness of a registration statement for a demand registration if the board of directors determines in its reasonable good faith judgment that such demand registration would (i) materially interfere with a significant acquisition, corporate organization, financing, securities offering or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act. The Company may delay a demand registration hereunder only once in any period of 12 consecutive months.
No demand registration shall be required where in the judgment of the Company, its legal counsel, and/or SEC guidance and comments the registration would be deemed a primary offering pursuant to Securities Act Rule 415, which is interpreted by the SEC staff to prohibit registrations of stock for resale where the seller is deemed to be engaged in a primary offering of behalf of the issuer. The registration rights agreement shall terminate when no Registrable Shares remain outstanding.
The $3.75M Promissory Note
At the closing of the Merger, the Company executed a secured promissory note of $3,750,000 payable to NWarrender (the “$3.75M Promissory Note”) which can be summarized as follows:
Interest on the $3.75M Promissory Note shall be 2% per year. The maturity date of the $3.75M Promissory Note is the earlier of (a) the date which is 30 days after the last day of the calendar quarter during which Lifted’s aggregate EBITDA (aggregate earnings before interest, taxes, depreciation and amortization ) since the Closing Date of the Merger exceeds $7.5 million, or (b) the date which is the fifth anniversary of the closing date of the Merger.
The $3.75M Promissory Note shall have mandatory prepayments, subject to certain limitations, within five business days following the closing of any equity or debt capital raise by the Company or Lifted following the date of the Merger Agreement wherein NWarrender is entitled to be paid at least 50% of the net proceeds of such capital raise toward a prepayment of the principal and accrued interest on the Promissory Note, excluding only the capital raise for the potential Wisconsin Acquisitions referred to in Section 5.23(a) of the Merger Agreement. See “Obligation to Pursue Two Opportunities” below. Lifted did not use any of the loan or grant money that Lifted has received from the SBA to make any payments on the Promissory Note payable jointly by the Company and Lifted to NWarrender.
The $3.75M Promissory Note is secured by (a) a first lien security interest in all of the assets of the Company and Lifted; and (b) a pledge of: (i) all of the capital stock of Lifted; (ii) all of the common stock of Bendistillery, Bend Spirits and Ablis that is owned by the Company; and (iii) all of the capital stock of any other entity owned by the Company, Lifted or any of their subsidiaries, pursuant to a Collateral Stock Pledge Agreement between NWarrender, as Secured Party, and the Company and Lifted, as Pledgors.
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Repayment of $3.75M Promissory Note dated February 24, 2020 Payable by the Company to NWarrender
On December 30, 2021, the Company repaid all principal and interest due under the $3.75M Promissory Note dated February 24, 2020 payable by the Company to NWarrender that was a portion of the Merger Consideration paid by the Company to NWarrender under the Merger Agreement. Pursuant to the terms of the $3.75M Promissory Note, the unpaid balance of the note accrued interest at the rate of 2% per annum.
NWarrender kept $1,000,000 of the repayment of the $3.75M Promissory Note, plus accrued interest, and on January 3, 2022, reloaned $2,750,000 back to the Company at the rate of 2.5%. See “Liquidity and Capital Resources” below for more information.
Stockholders Agreement
At the closing of the Merger Agreement, our Vice Chairman and COO NWarrender, our Chairman and CEO GJacobs, and our President and CFO WJacobs entered into a Stockholders Agreement which can be summarized as follows: each of them will vote all shares of our common stock now or hereafter owned or controlled by him as unanimously agreed upon by all three of them, including as to the following matters: election, removal and filling vacancies on our board of directors; our charter and bylaws; employment agreements, consulting agreements, fee agreements, base salaries, bonuses, management bonus pools amounts and calculations, management bonus pool allocations and payments, future stock options or warrants issuances, and any other direct or indirect compensation or benefits of any nature whatsoever; acquisitions; divestitures; and capital raises.
Executive Employment Agreements
At the closing of the Merger, the Company entered into employment agreements with NWarrender to serve as Co-Founder, Vice Chairman and Chief Operating Officer of the Company and as Chief Executive Officer of Lifted, with GJacobs, J.D., to serve as Chairman, Chief Executive Officer and Secretary of the Company, and with WJacobs, CPA to serve as President, Chief Financial Officer and Treasurer of the Company (collectively the “Executive Employment Agreements”), which can be summarized as follows:
Each of the Executive Employment Agreements is a “rolling” five year employment agreement wherein the executive’s employment is effective and shall continue until the fifth anniversary of the commencement of such Executive Employment Agreement, unless terminated. Each of the Executive Employment Agreements shall be deemed to be automatically extended, upon the same terms and conditions, for additional periods of one year (extending the term of such Executive Employment Agreement to five years after each such extension date), unless either party provides written notice of such party’s intention not to extend the term of such Executive Employment Agreement at least 90 days’ prior to the applicable extension date.
During the employment term, each executive shall devote substantially all of his business time and attention to the performance of his duties under his Executive Employment Agreement and shall not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the board of directors of the Company; provided, that such executive shall be permitted to continue to participate as an officer of any corporation that owns real estate as of the date of his Executive Employment Agreement with the Company and that is owned by a family trust of which such executive is a grantor or beneficiary, and provided further that such executive, with the prior written consent of the board of directors of the Company shall be permitted to act as a director, trustee, committee member or principal of any type of business, civic or charitable organization and to purchase or own less than 5% of the publicly traded securities of any corporation provided, however, that such ownership represents a passive investment and that such executive is not a controlling person of, or a member of a group that controls, such corporation, and that such activities do not interfere with the performance of such executive’s duties and responsibilities to the Company.
As described above, pursuant to the Omnibus Agreement, commencing January 1, 2022, the Base Salary under each of the Executive Employment Agreements to be paid to Gerard M. Jacobs, William C. Jacobs and Nicholas S. Warrender is $250,000 per year. Prior to entering into the Omnibus Agreement, the annual rate of each executive’s base salary under his Executive Employment Agreement was $100,000.
Each executive shall participate in the Company’s annual company-wide management bonus pool, which can be generally described as a cash set-aside for management bonuses of an amount equal to 33% of the amount (if any) by which the Company’s actual annual consolidated EBITDA exceeds an annual consolidated EBITDA target amount that is mutually agreed upon between the Chairman of the Compensation Committee of the board of directors, on the one hand, and NWarrender, GJacobs and WJacobs, on the other hand, with the allocation of such management bonus pool to be determined by unanimous written agreement of such three executives.
Please read the below section “Allocation and Payment of Bonus Pool” for more information about the company-wide Bonus Pools for 2021 and 2022.
The Company provides to each executive an employee benefits package including fully paid Blue Cross/Blue Shield or equivalent family health, vision and dental insurance. The Company also provides to each executive prompt reimbursement for all documented business-related expenses paid or incurred by such executive in connection with the Company, including but not limited to airfare, rail, taxi, rental cars, parking, tolls, gasoline for business trips, meals, entertainment, hotel, office supplies, mobile phone, internet, hotspot, and postage expenses.
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Each executive’s employment may be terminated by either the Company or such executive at any time and for any reason, provided that any termination of such executive’s employment by the Company without cause will trigger significant payment obligations by the Company to such executive.
Impact of the Merger on GJacobs’ and WJacobs’ Compensation Agreement
The Company entered into a Compensation Agreement dated as of June 19, 2019, with our CEO GJacobs and our President and CFO WJacobs. The material terms of the Compensation Agreement, as amended on December 1, 2020, but prior to the Omnibus Agreement and the Amended Omnibus Agreement described below, can be summarized as follows:
(1) Starting during June 2019 until the closing of the Lifted Merger on February 24, 2020, we paid GJacobs and WJacobs consulting fees of $7,500 and $5,000 per month, respectively. Upon the closing of the Lifted Merger, we entered into Executive Employment Agreements with GJacobs and WJacobs as described in the section above entitled “Executive Employment Agreements”;
(2) The closing of the Lifted Merger triggered obligations of the Company to pay cash bonuses to the Company’s CEO GJacobs and to the Company’s President and CFO WJacobs of $250,000 and $100,000, respectively, of which as of December 31, 2021 only $50,000 had been paid to GJacobs, and which accrued 2% annual interest on and after January 1, 2021, and of which $8,439 of the bonuses due and payable by the Company to GJacobs were allocated and applied to pay for the aggregate cost of GJacobs’ purchasing and exercising certain warrants on August 30, 2021 (see section below titled “Exercise of Warrants by Gerard M. Jacobs”);
(3) Upon demand by GJacobs and WJacobs on or after January 1, 2021, or the first date when we have raised a total of at least $15 million after January 1, 2019, we were obligated to pay GJacobs and WJacobs cash bonuses of $250,000 and $100,000, respectively, plus 2% annual interest accruing on and after January 1, 2021;
(4) Upon the earlier of December 1, 2021, or the first date when we have raised a total of at least $25 million after January 1, 2019, we were obligated to pay GJacobs and WJacobs cash bonuses of $250,000 and $100,000, respectively;
(5) The terms of GJacobs’ stock options granted by us to purchase shares of common stock of the Company which were set to expire (unless previously exercised) during November 2020 or during September 2021, respectively, have been extended so that all of such stock options may be exercised by GJacobs at any time on or before December 31, 2024;
(6) We granted to GJacobs and to WJacobs so-called “tag along” registration rights for all of our shares owned by GJacobs, by WJacobs, or by any of their respective affiliates, and for all of our shares issuable to GJacobs, to WJacobs, or to any of their respective affiliates upon the exercise of his or their options or warrants to purchase shares of common stock of the Company; and
(7) We issued to GJacobs and WJacobs five-year warrants containing a “cashless exercise” feature giving GJacobs and WJacobs (or his designee(s)) the right to purchase 250,000 and 225,000 shares, respectively, of common stock of the Company exercisable at $5.00 per share.
Obligation to Pursue Two Acquisitions in Wisconsin
The Merger Agreement imposes a legally binding obligation upon us to use good faith efforts to acquire two companies located in Wisconsin. These two companies are completely unrelated to, and are not affiliated in any way with, NWarrender. Since the Merger Agreement was entered into, we and NWarrender have mutually agreed to abandon all efforts to acquire the two companies located in Wisconsin, and no further time, efforts, or expense are being incurred in relation to these two companies located in Wisconsin.
Obligation to Pursue a Hemp Processing System Deal
The Merger Agreement imposes a legally binding obligation upon us to use good faith efforts to pursue an opportunity in the cannabinoid industry. Warrender’s father, Board member Robert T. Warrender II, has introduced us to a potential business opportunity to process CBD from hemp using a system that is currently undergoing proof of concept operational testing and that incorporates particular filtration and pump equipment and technology identified by Robert T. Warrender II. Robert T. Warrender II believes that this advanced hemp processing system has the potential to allow significantly higher throughput, and lower per unit costs of production. We have agreed to analyze the results of the proof of concept’s construction, operating costs, and operating results. If such analysis is favorable and is approved by our Board in its discretion, then we will use good faith efforts to attempt to proceed forward, in a joint venture or other arrangement involving Robert T. Warrender II, with a project(s) consisting of one or more of such hemp processing systems, subject to various conditions including a capital raise associated therewith, and any equity compensation received by Robert T. Warrender II from the financing, construction, operation, leasing and/or sale of such project(s) shall be structured in the form of shares of common stock of the Company valued at the then-current trading price per share of common stock of the Company but in no event at higher than $5.00 per share of common stock of the Company.
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Since the Company’s acquisition of Lifted in February 2020, there have been no material discussions among the Company, Lifted and Robert T. Warrender II regarding the development or financing of any hemp processing system and to date no such project has proceeded forward. If the project proceeds, and there is no assurance that it will proceed, a company owned by Robert T. Warrender II could potentially supply certain pumps and other equipment for that project.
Liquidity and Capital Resources
Currently, the Company’s only wholly-owned subsidiary, Lifted, is generating enough free cash flow to allow the Company and Lifted to fund their operations at their current levels and to grow Lifted’s business in a conservative, capital-constrained fashion. However, no guarantee or assurance can be given that Lifted’s current level of free cash flow will continue in the future, especially in light of the continuing COVID-19 pandemic, and U.S. federal, state and local laws, regulations and executive orders that are associated with the pandemic or that otherwise negatively impact the sales of hemp-derived products and nicotine products.
The Company and Lifted have aspirations to grow significantly faster than at their current levels, both organically and via acquisitions. But, to do so likely would require the Company to raise many millions of dollars of additional capital.
The $2,750,000 Promissory Note payable jointly by the Company and Lifted to NWarrender is secured by a perfected first lien security interest (the “Security Interest”) that encumbers all of the assets of the Company and Lifted.
The existence of the $2,750,000 Promissory Note and the Security Interest make it extremely difficult for the Company and Lifted to raise capital via borrowing, since few if any potential lenders are interested in making loans to the Company and/or to Lifted that would be unsecured or that would be secured by a second lien that is subordinate to the $2,750,000 Promissory Note and the Security Interest, except perhaps on terms that would be extremely expensive or otherwise unattractive to the Company.
And currently, management of the Company is reluctant to raise capital by selling equity securities of the Company (common stock and/or convertible preferred stock) at the current trading price per share of the Company’s common stock or any lower price per share.
Even if the Company is able to raise additional capital via borrowing or the sale of equity securities of the Company: (1) the Company will be obligated to prepay all remaining principal and all accrued interest on the $2,750,000 Promissory Note to NWarrender within two business days following the closing of any debt or equity capital raise by Payors following the date of the $2,750,000 Promissory Note in the amount of $8,000,000 or more; (2) the Company will be obligated to pay an aggregate of $500,000 in bonuses to GJacobs, WJacobs and NWarrender on or before December 31, 2022, provided that GJacobs, WJacobs and NWarrender have not resigned on or before December 31, 2021; (3) Lifted will be obligated to purchase the building leased by Lifted from Holdings, an affiliate of NWarrender, on or before December 31, 2022, for a fixed purchase price equal to $1,375,000; and (4) the Company is accruing 3% annual dividends on its Series A and Series B Convertible Preferred Stock. Additional capital raised by the Company that is used to pay down the $2,750,000 Promissory Note, or that is used to pay the aforedescribed bonuses, or that is used to buy the building leased by Lifted from Holdings, or that is used to pay dividends on our outstanding Series A and Series B Convertible Preferred Stock, is collectively referred to as the “Allocated Capital”.
If, notwithstanding these impediments, the Company and/or Lifted is able to raise debt or equity capital that is in addition to the Allocated Capital (the “Growth Capital”), then the Growth Capital would likely be used first to assist Lifted’s organic growth.
Any additional Growth Capital available would likely be used in connection with potential acquisitions. While the Company would prefer to engage in 100% stock-for-stock acquisitions, potential acquisition candidates frequently prefer that a significant portion of the acquisition consideration be in cash. Also, the process of conducting a due diligence investigation and audit of potential acquisition candidates can be very expensive and requires cash. Also, some potential acquisitions may only make sense if the Company is in a position to inject cash into the potential acquisition candidates simultaneously with the closing of the acquisitions, in order to pay off accrued liabilities or to provide needed growth capital.
There is no assurance that the Company and Lifted will be able to obtain the additional Growth Capital needed to accelerate our growth beyond current levels. Our ability to obtain Growth Capital will depend on the level of pandemic-related stress on Lifted’s distributors and customers, governmental prohibitions and regulations of hemp-derived cannabinoids such as delta-8-THC, delta-9-THC, delta-10-THC, investor demand, our performance and reputation, the price of the Company’s common stock, and other factors beyond our control.
Our inability to raise additional Growth Capital could result in the delay or indefinite postponement of our growth objectives.
There can be no assurance or guarantee that any additional Growth Capital will be available on acceptable terms and conditions, if at all. The lack of availability of additional Growth Capital could have a material adverse effect on our Company and the trading price of our common stock.
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The Market
Delta-8-THC, delta-9-THC, delta-10-THC, HHC, THCO, THCV, CBD, CBG, CBN and other cannabinoids can be derived from hemp. On December 20, 2018, President Donald J. Trump signed the Agricultural Improvement Act of 2018, which is more commonly known as the “2018 Farm Bill”. The 2018 Farm Bill legalizes hemp cultivation and declassifies hemp as a Schedule I controlled substance. The US Food and Drug Administration (“FDA”) has stated that although hemp is no longer an illegal substance under federal law, the FDA continues to regulate cannabis products under the Food, Drug, and Cosmetic Act (“FD&C Act”) and Section 351 of the Public Health Service Act. In addition, several states have enacted laws and regulations that negatively impact the sale of hemp and hemp-derived products, especially hemp-derived products containing delta-8-THC.
Lifted’s product sales of hemp-derived products are typically made through distributors, with a limited but growing number of sales online or direct to retail outlets.
While Lifted is optimistic regarding the future of its business selling hemp-derived products, the manufacture and sale of Canna-Infused Products involve significant risks that have the potential to bankrupt Lifted and the Company.
Government Laws and Regulations
Lifted primarily sells hemp-derived products, including products containing delta-8-THC, delta-9-THC, delta-10-THC, HHC, THCO, THCV, CBD, CBG, CBN and other cannabinoids, and products that contain nicotine. Lifted’s sales are typically made through distributors, with a limited but growing number of sales online or direct to retail outlets. Lifted is attempting to only conduct business related to manufacturing and commercializing hemp-derived products to the extent permitted in jurisdictions where it may operate.
While Lifted is optimistic regarding the future of its business selling hemp-derived products and products that contain nicotine, the manufacture and sale of hemp-derived products and products that contain nicotine involves significant risks associated with federal, state and local laws and regulations, and regulatory agencies, that have the potential to bankrupt Lifted and the Company, or at least to negatively impact the trading price of our common stock.
In regard to the sale of hemp-derived products in the United States, despite cannabis having been legalized at the state level for medical use in many states and for adult recreational use in a number of states, cannabis, other than plants of the same genus that meet the definition of industrial hemp, continues to be categorized as a Schedule I controlled substance under the federal Controlled Substances Act (“CSA”), and subject to the Controlled Substances Import and Export Act (“CSIEA”). As of December 20, 2018, the 2018 Farm Bill, formally known as the Agriculture Improvement Act of 2018 (the “Farm Bill”), has reclassified hemp for commercial use by removing it from its Schedule I Status under the CSA, and Lifted seeks to operate in compliance with the legislation. However:
(a) FDA: The US Food and Drug Administration (“FDA”) has stated that although hemp is no longer an illegal substance under the Farm Bill, the FDA continues to regulate cannabis products under the Food, Drug, and Cosmetic Act (“FD&C Act”) and Section 351 of the Public Health Service Act. The health and safety impacts of delta-8-THC, delta-10-THC, CBD, CBG, CBN and other cannabinoids have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that CBD, delta-8-THC and other hemp-derived cannabinoids may or could have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. Furthermore, the FDA sometimes appears to believe that certain cannabinoids are drugs, and that the sale of certain cannabinoid-infused products without FDA approval is illegal. In deference to the FDA’s position, various states and municipalities have similarly declared that the sale of certain hemp-derived cannabinoid-infused products such as delta-8-THC is illegal, or have imposed restrictions or prohibitions upon the sale of certain hemp-derived products. The FDA may in the future impose significant licensing or other requirements, regulations, restrictions and/or prohibitions on the sale of hemp-derived products, which could have a material adverse effect upon Lifted’s business and the trading price of our common stock;
(b) DEA: The US Drug Enforcement Agency (“DEA”) has stated that although hemp is no longer an illegal substance under the Farm Bill, the FDA continues to pursue Schedule I controlled substances as well as certain synthetic substances. In particular:
(i) Hemp and hemp-derived cannabinoid-infused products which exceed a delta-9-THC concentration of 0.3% are illegal under the Farm Bill. Any failure to keep the delta-9-THC concentration in Lifted’s hemp-derived or cannabinoid-infused products below 0.3% could subject us to action by the DEA or other regulatory authorities and/or to lawsuits by consumers, which could have a material adverse effect upon our Company’s business and the trading price of our common stock. In addition, certain hemp-derived products may, over time, gradually increase their delta-9-THC concentration, and this may ultimately cause such products to exceed the 0.3% delta-9-THC concentration level, making such products illegal in certain jurisdictions. If this happens, we could be subject to regulatory action that could have a material adverse effect upon our Company and the trading price of our common stock. In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the THC levels reflected in consumers’ blood tests are the result of legal hemp-derived products or marijuana-infused products. This may result in regulatory actions or lawsuits against the Company; and
(ii) The DEA has issued a statement that some have interpreted as making hemp-derived delta-8-THC illegal. In deference to the DEA, certain state and local governments have imposed restrictions or prohibitions upon the sale of certain products containing delta-8-THC. Lifted sells significant quantities of products containing hemp-derived delta-8-THC, and any crackdown by the DEA or other regulatory authorities on products containing delta-8-THC could have a material adverse effect upon Lifted’s business and the trading price of our common stock; and
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(c) Amended PACT act: The recently amended federal PACT act makes the online sale of certain of Lifted’s products to end users difficult or impossible. The amended federal PACT act could have a material adverse effect upon Lifted’s business and the trading price of our common stock.
In regard to the sale of products containing nicotine, products containing nicotine are addictive and are subject to heavy regulation by U.S. federal, state and local governments. The legislative and regulatory landscape surrounding nicotine-containing products has created risks for Lifted’s business. Laws and regulations have been adopted that can impose significant liabilities upon companies operating in the nicotine industry, especially in regard to sales to minors. Existing and future laws and regulations affecting nicotine products could have a material adverse effect upon Lifted’s business and the trading price of our common stock.
Furthermore, the regulation of nicotine, hemp, hemp-derived cannabinoids, and cannabinoid-infused products is evolving. Lifted may become subject to new laws, rules, regulations, moratoriums, prohibitions, or other restrictions or impediments upon nicotine and Canna-Infused Products Companies imposed by the U.S. President pursuant to executive orders, by the U.S. Congress in laws, by U.S. federal agencies such as the FDA and/or the DEA, and/or by state and local governments. Without limiting the generality of the foregoing, governmental laws, rules and regulations may impose significant new rules, restrictions, limitations, prohibitions and/or taxes on when, where, how and to whom Lifted may sell its products, and these new rules, restrictions, limitations, prohibitions and/or taxes could have a material adverse effect on Lifted’s business and the trading price of our common stock.
Competition
Lifted faces intense competition in the cannabinoid industry and in the nicotine products industry from both existing and emerging companies that offer similar products to Lifted. Some of Lifted’s current and potential competitors may have longer operating histories, more innovative or popular products, greater financial, marketing and other resources and larger customer bases. Given the rapid changes affecting the cannabinoid industry nationally and locally, Lifted may not be able to create and maintain a competitive advantage in the marketplace. Lifted’s success will depend on its ability to keep pace with any changes in local and national markets, especially in light of legal and regulatory changes. Competition is also based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing and promotional activity, the ability to identify and satisfy consumer preferences, as well as convenience and service. Lifted’s success will depend on its ability to respond to, among other things, changes in the economy, market conditions and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material adverse effect on Lifted’s financial condition, operating results, liquidity, cash flow and operational performance.
Receipt of Loans under the Economic Injury Disaster Loan Program and the Paycheck Protection Program
In response to the coronavirus (COVID-19) pandemic, the U.S. Small Business Administration (the “SBA”) made small business owners eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000 under its Economic Injury Disaster Loan program (the “EIDL”). This advance provided economic relief to businesses experiencing a temporary loss of revenue due to the pandemic. This loan advance will not have to be repaid. Lifted applied for and received a $10,000 loan advance under the EIDL (“EIDL Advance”) on April 20, 2020. Lifted recognized a $10,000 gain on the forgiveness of the EIDL Advance on April 21, 2020.
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 $149,622.50 and evidenced by a promissory note (the “Note”), dated April 14, 2020 issued by Lifted to the Lender. The Note matures on April 14, 2022. The Note bears interest at a rate of 1.00% per annum, payable monthly commencing on November 14, 2020, following an initial deferral period as specified under the PPP. As of December 31, 2020, Lifted had an accrual of $1,074 for the interest on the PPP Loan. The Note may be prepaid by Lifted at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loan will be available to Lifted to fund designated expenses, including certain payroll costs and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest of the PPP Loan may be forgiven to the extent that at least 75% of the PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the SBA under the PPP. The Company believes that Lifted has used at least 75% of the PPP Loan amount for designated qualifying expenses and Lifted applied for forgiveness of the PPP Loan in accordance with the terms of the PPP. On April 20, 2021, the entire PPP Loan ($149,622) and the interest payable on the PPP Loan ($1,525) was forgiven by the SBA.
Acquisition Process
The structure of the Company’s participation in business opportunities and ventures will continue to be situational.
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The Company is likely to structure future acquisitions as a purchase of 19.99% or less, or 100%, of a target company’s equity ownership interest, or as a so-called tax-free reorganization. However, in particular situations, the Company is willing to consider alternative deal structures including joint ventures. For example, during 2020, Lifted entered into a 50-50 joint venture called SmplyLifted LLC, with the other 50% of SmplyLifted LLC being owned by SMPLSTC LLC and its principals; Lifted has sold its 50% interest in SmplyLifted LLC. And during 2021, the Company’s Lifted Made subsidiary entered into a 50-50 joint venture called LftdXSvg LLC, with the other 50% of LftdXSvg LLC being owned by Savage Enterprises; LftdXSvg LLC was dissolved prior to conducting any business.
In deals that are structured as tax-free reorganizations, it is expected that the Company will issue a relatively large number of newly issued shares of the Company, and, as a result, substantial additional dilution to the percentage ownership of our current stockholders.
The Company’s present management and shareholders may not have control of a majority of our voting shares following a merger or purchase of stock. It is possible that the shareholders of the acquired entity or the persons who provide the capital to the Company to finance a merger or purchase of stock will gain control of the Company’s voting stock and the Company’s directors may resign and new directors may be appointed without any vote by the shareholders. Those directors are entitled to replace the Company’s officers without stockholder vote.
Closing such purchases of stock or so-called tax-free reorganizations will likely require the Company to raise millions of dollars of capital, in order to pay the cash portion of the transaction consideration. The Company can provide no assurance or guaranty whatsoever that it will be able to raise such millions of dollars of capital on acceptable terms and conditions, if at all.
An Investment Committee appointed by the Company’s Board of Directors, currently consisting of our CEO GJacobs, JD, our Chief Operating Officer NWarrender, and our President and CFO WJacobs, CPA, will review material furnished to it and will vote whether or not the Investment Committee believes a potential acquisition is in the Company’s best interests and the interests of the Company’s shareholders. If the Investment Committee votes unanimously to approve a potential acquisition, then such acquisition will be presented to the Board of Directors of the Company for their review and a vote. The Company does not intend to proceed forward with a potential acquisition without the unanimous approval of the Investment Committee and approval by a majority of the Company’s Board of Directors.
The Company intends to source acquisition opportunities through GJacobs, NWarrender, WJacobs, and directors and their contacts, and in some cases through finders. These contacts include professional advisors such as attorneys and accountants, securities broker dealers, other members of the financial community, other businesses and others who may present solicited and unsolicited proposals. Management believes that business opportunities may become available to us due to a number of factors, including, among others: (1) the Company’s ownership of shares in Lifted and other Canna-Infused Products Companies; (2) management’s historical experience building large public companies; (3) management’s contacts and acquaintances; and (4) the Company’s flexibility with respect to the manner in which the Company may be able to structure, finance, merge with or acquire any business opportunity.
The analysis of new business opportunities will be undertaken by or under the supervision of the Investment Committee appointed by our Board of Directors. Inasmuch as the Company will have limited funds available to search for business opportunities, the Company will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. The Company will, however, investigate, to the extent believed reasonable by the Investment Committee, such potential business opportunities by conducting a so-called “due diligence investigation”.
In a due diligence investigation, the Company intends to obtain and review materials regarding the business opportunity. Typically, such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, the Company intends to cause the Investment Committee to meet personally with management and key personnel of target businesses, ask questions regarding the target businesses’ prospects, tour facilities, and conduct other reasonable investigation of the target businesses to the extent of the Company’s limited financial resources and management and technical expertise.
There is no guarantee that the Company can obtain or maintain the funding needed for its operations, including the funds necessary to search for and investigate acquisition candidates, and to close an acquisition including paying the substantial costs of legal, accounting and other relevant professional services.
As of March 23, 2022, the consolidated cash on hand of the Company was a total of $4,253,591. To date, Lifted has also invested cash of $587,500 into a company called SmplyLifted LLC, which SmplyLifted LLC has primarily used to purchase inventory of tobacco-free nicotine pouches. Lifted has sold its 50% interest in SmplyLifted LLC, and Lifted does not expect to invest additional cash into SmplyLifted LLC. Lifted has a 50% membership interest in SmplyLifted LLC. At December 31, 2021, Lifted Made wrote off its remaining investment in SmplyLifted, its receivables from SmplyLifted, and its loans to SmplyLifted.
In prior years, the Company’s payables have been greater than its cash on hand. Historically, the Company has had inconsistent income generating ability and is therefore has been reliant on raising money from loans or stock sales.
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Employees
GJacobs, our Chairman, Chief Executive Officer and Secretary, manages the Company’s operations with the assistance of WJacobs, our President, Chief Financial Officer and Treasurer, and NWarrender, our Vice Chairman and Chief Operating Officer, under the Executive Employment Agreements described above.
We expect to continue to use consultants, attorneys, accountants, other professionals and independent contractors as necessary.
Reports to Security Holders
LFTD Partners Inc. is subject to reporting obligations under the Exchange Act. These obligations include an annual report under cover of Form 10-K, with audited financial statements, unaudited quarterly reports under cover of Form 10-Q, occasional reports under cover of Form 8-K, and other required filings. The public may read and copy any materials LFTD Partners Inc. files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information of the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
ITEM 1A. RISK FACTORS
Our business is subject to numerous risks and uncertainties (“Risk Factors”). In the following Risk Factors, the terms “us”, “we”, “Company,” “LFTD Partners” and “Lifted” are meant to include references to LFTD Partners, Lifted, SmplyLifted, Ablis, Bendistillery and Bend Spirits, as appropriate in the context of particular Risk Factors. These Risks Factors may cause our operations to vary materially from those contemplated by our forward-looking statements. These Risk Factors include:
RISK FACTORS RELATING TO OUR COMPANY AND OUR STOCK
Because we have a limited operating history, we may not be able to successfully manage our business or achieve profitability
We have a limited operating history with respect to our cannabinoid-related operations upon which you can evaluate our prospects and our potential value. Prior to that, we have not been profitable during most of our years of operation. We face many risks that could prevent us from achieving profits in future years. We cannot assure you that we will be profitable in the future.
Our acquisition of Lifted and our prior acquisitions of 4.99% of the outstanding equity of each of Ablis, Bend Spirits and Bendistillery d/b/a Crater Lake Spirits, involve significant risk, and there can be no assurance that the business of Lifted, or 4.99% of the common stock of each of Ablis, Bend Spirits and Bendistillery d/b/a Crater Lake Spirits, will be successful or generate any profit or other financial benefit for our Company. An inability by LFTD Partners to achieve financial benefit from Lifted, Ablis, Bend Spirits or Bendistillery could materially adversely affect our Company and the trading price of our Stock.
We have incurred substantial losses in the past
We have a history of losses and we may incur additional losses in the future. For the years ended December 31, 2020, and December 2019, we had net losses of $1,534,589 and $1,236,105, respectively. As of December 31, 2021, December 31, 2020 and December 31, 2019, we had accumulated deficits of $11,414,602, $17,141,175 and $15,392,552, respectively. We may incur significant losses in the future for a number of reasons, including the other risks described in this section, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.
Our balance sheet is weak and we have substantial payment obligations
Our balance sheet is weak and we have substantial payment obligations, including the following: (1) We owe NWarrender $2,750,000 under the $2,750,000 Promissory Note, which is accruing interest at 2.5% per annum, and which was executed on January 3, 2022. We are obligated to pay off the principal of the $2,750,000 Promissory Note in five semi-annual payments to NWarrender of $458,333 and a sixth and final semi-annual payment to NWarrender of $458,335, in each case plus accrued interest, starting on June 30, 2022; (2) Pursuant to the Omnibus Agreement and the Amended Omnibus Agreement, provided that GJacobs, WJacobs and NWarrender have not resigned as officers of the Company, on or before December 31, 2022 we are obligated to pay them an aggregate of $500,000 in bonuses; (3) Under the Omnibus Agreement, Lifted is obligated to purchase a building leased by Lifted from an affiliate of our Vice Chairman and COO NWarrender on or before December 31, 2022, for a fixed purchase price equal to $1,375,000; and (4) We are accruing 3% annual dividends on our Series A and Series B Convertible Preferred Stock. A failure to pay our financial obligations when they become due and payable could materially adversely affect our Company and the trading price of our common stock.
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We may need to raise substantial amounts of additional capital to pay our substantial existing obligations and to pay for our operations
There is no guarantee that Lifted’s operations will generate sufficient free cash flow to allow us to pay our substantial existing obligations described in the preceding risk factor, and to pay for our operations. We may need to raise millions of dollars of additional capital just to pay our substantial existing obligations, and to pay for our operations. There is no guarantee that we can obtain the funding needed to pay these substantial financial obligations and to pay for our operations on acceptable terms, if at all, and neither our directors, officers, nor any third party is obligated to provide any financing. Failure to raise substantial amounts of additional capital could materially adversely affect our Company and the trading price of our common stock.
We may not be profitable in the future
We have not been profitable during most of our years of operation. We face many risks that could prevent us from achieving profits in future years. We cannot assure you that we will be profitable. Failure to achieve profitability will materially adversely affect our Company and the trading price of our common stock.
Also, our efforts to grow our business may be more costly than we expect and we may not be able to increase our revenue enough to offset higher operating expenses. We may incur significant losses in the future for a number of reasons, including as a result of unforeseen laws, regulations, restrictions, taxes, expenses, difficulties, complications and delays, the other risks described herein and other unknown events. The amount of future net losses will depend, in part, on the growth of our future expenses and our ability to generate revenue. If we continue to incur losses in the future, the net losses and negative cash flows incurred to date, together with any such future losses, will have an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with producing and selling hemp-derived and nicotine products, as outlined herein, we are unable to accurately predict when, or if, we will be able to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease and our ability to raise capital, expand our business or continue our operations may be impaired.
Our future profitability may be significantly reduced by our annual management bonus pools
Our future profitability may be significantly reduced by our annual management bonus pools. Pursuant to the terms of the employment agreements that we have entered into with our senior executives, we have agreed to pay to our senior executives and their designees (who may include employees, contractors, consultants, and directors of our Company) an annual management bonus pool, which will be an aggregate annual amount that is equal to 33% of the amount, if any, by which our earnings before interest, taxes, depreciation and amortization (“EBITDA”) in a given calendar year exceeds our EBITDA during the prior calendar year, or 33% of the amount by which our EBITDA in a given calendar year exceeds a target amount that has been mutually agreed upon by the Chairman of our Compensation Committee of our Board of Directors and our senior executives. Depending upon the trajectory of our future growth, if any, in our EBITDA, such annual management bonus pools may turn out to be extremely large amounts of money. The obligation to pay such annual management bonus pools could materially adversely affect our Company and the trading price of our common stock.
We are adversely affected by many significant economic, health, safety and financial issues
Businesses are materially adversely affected by periods of significant economic slowdown or recession, tariff wars, pandemics, fears of inflation or deflation, rising interest rates, or a public perception that any of these events are occurring or may occur, which could adversely affect our revenues, results of operations, and cash flow. In addition, as they relate to our proposed acquisitions, the capital and credit markets have experienced volatility and disruption. National and global political, trade, financial and business conditions have experienced difficulties. Access to financing often is negatively impacted. Credit is often limited. In many cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers. Prominent risks include issues involving interest rate fluctuations, the COVID-19 and its variants, questions about the legality and health risks of nicotine, hemp-derived delta-8-THC products and other hemp-derived products, vaping, trade disputes with China and other countries, turmoil in the Middle East and around the world, oil prices, rising health care costs, social and political unrest, and many other issues. These factors could materially adversely affect our Company and the trading price of our common stock.
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Our payroll, benefits, sales commissions, rent and other operational costs are significant and growing
Our operational costs are growing significantly. We now employ a total of over 120 people as employees and independent contractors. Our payroll and benefits costs, including recently obtained medical insurance for employees, are substantial. We have expanded into three rented spaces. Our costs for accountants, lawyers and other consultants is substantial. Our costs of raw materials, packaging, fulfillment and sales is growing. We have compensation arrangements for our salespeople that include significant commissions that are percentages of their sales, and a compensation arrangement for Lifted’s Chief Strategy Officer that includes a significant bonus equal to 5% of total net sales for Lifted in excess of $6,000,000 per quarter. These and other significant operational costs could materially adversely affect our Company and the trading price of our common stock.
Growth capital may be unavailable or only available on dilutive, expensive, or otherwise unattractive or risky terms
The continued expansion of our business will require growth capital. For example, from time to time, we may enter into transactions to acquire assets or the capital stock or other equity interests of other entities, and it is likely that closing such transactions will require a significant amount of cash.
There can be no assurance that Lifted or any other acquisition that we may make will be profitable or will generate the growth capital we need in the future.
There can be no assurance that we will obtain growth capital from third party equity investors. Our ability to obtain growth capital from third party equity investors will depend on investor demand, our performance and reputation, market conditions and other factors. Our inability to obtain growth capital from third party equity investors could result in the delay or indefinite postponement of our current business objectives or in our inability to continue to carry on our business. Even if growth capital is available from third party equity investors, it may only be available on highly dilutive or otherwise unattractive terms and conditions.
There can be no assurance that we will obtain growth capital from debt providers. Even if debt financing is available, it may only be available on very expensive or otherwise unattractive terms and conditions. For example, any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Debt financings may also contain provisions that, if breached, may entitle lenders or their agents to accelerate the repayment of loans or realize upon security over our assets, and there is no assurance that we would be able to repay such loans in such an event or prevent the enforcement of security granted pursuant to any such debt financing. Debt agreements may also contain covenant restrictions that limit our ability to operate our business, including restrictions on our ability to invest in our existing facilities, incur additional debt or issue guarantees, create additional liens, repurchase stock or make other restricted payments. As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing and pursue business opportunities, may be restricted.
In summary, we cannot assure you that we will be able to raise needed equity or debt capital on commercially acceptable terms, or at all. Delay, disruption, or failure to obtain sufficient financing may result in the delay or failure of our business plans. Our inability to raise sufficient capital on commercially acceptable terms, or at all, could have a material adverse effect on our Company and the trading price of our common stock.
Our future capital requirements are uncertain
Our aggregate future capital requirements are uncertain. The amount of capital that we will need in the future will depend on many factors that we cannot predict with any certainty, including: the market acceptance of Lifted’s products and services; the amounts of packaging, inventory, employees and equipment that will be needed to operate our business and to be able to increase our production to meet consumer demand for our products in the future; the levels of promotion and advertising that will be required to launch Lifted’s new products and services and to achieve and maintain a competitive position in the marketplace; our business, product, capital expenditures and technology plans, and product and technology roadmaps; technological advances; our competitors’ responses to our products and services; our pursuit of mergers and acquisitions; our relationships with our customers; and our need to attract and retain talented employees. The terms and conditions, amounts and timing of our capital raises may not be in sync with our capital needs, all of which could materially adversely affect our Company and the trading price of our common stock.
Our common stock lacks a meaningful public market
At present no active market exists for our common stock and there is no assurance that a regular trading market will develop and if developed, that it will be sustained. A potential investor may choose not to invest because of the low trading volume in our common stock, and an existing owner of our common stock may be unable to sell our common stock should he or she desire to do so. Or, if an existing owner of our common stock decides to sell our common stock, such sales could drive the price of our common stock significantly lower. Furthermore, it is unlikely that a lending institution will accept our common stock as pledged collateral for loans. This lack of liquidity could materially adversely affect our Company and the trading price of our common stock.
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Our common stock may never be listed on an exchange
Our common stock trades on the OTCQB Venture Market. You should not assume that an effort to further upgrade the trading of our common stock to an exchange would be successful, or if successful, that such listing requirements will be maintained, including but not limited to requirements associated with maintenance of a minimum net worth, minimum stock price, and ability to establish a sufficient number of market makers. A failure or inability to upgrade the trading of our common stock to an exchange could materially adversely affect our Company and the trading price of our common stock.
Our common stock may be considered a “penny stock” and may be difficult to trade
The U.S. Securities and Exchange Commission (the “SEC”) has adopted regulations which generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock may be less than $5.00 per share and, therefore, may be designated as a penny stock according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, to obtain a written agreement from the purchaser, and to determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may adversely affect the ability of investors to sell our common stock, and may materially adversely affect our business and the trading price of our common stock.
Our common stock lacks institutional or analyst support
Our Company lacks institutional support. In addition, investment banks with research capabilities do not currently follow our common stock. This lack of institutional or analyst support lessens the trading volume and general market interest in our common stock, and may adversely affect an investor’s ability to trade a significant amount of our common stock. This lack of institutional or analyst support could materially adversely affect our Company and the trading price of our common stock. Moreover, in the event that we obtain securities or industry analyst coverage, if one or more of the analysts who cover us or our business downgrade our securities or publish inaccurate or unfavorable research about us or our business, our Company and the trading price of our common stock could be materially adversely affected.
The public float of our common stock is small
The public float of our common stock is small, which may limit the willingness or ability of some individuals, funds and institutions to invest in our common stock. This lack of liquidity could materially adversely affect our Company and the trading price of our common stock.
The trading price of our common stock may be volatile and could drop quickly and unexpectedly
The stocks of micro-cap and small-cap companies have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macro-economic developments in North America and globally, financial crises, pandemics, trade wars, military conflicts, and market perceptions of the attractiveness of particular industries. This volatility could materially adversely affect our Company by making it more difficult to raise capital or complete acquisitions. In addition, securities class-action litigation often has been brought against companies following periods of volatility in the market price of their securities. Our Company may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert our management’s attention and resources away from our business. For these reasons and others, quick and unexpected drops in the trading price of our common stock are likely from time to time. Volatility in our common stock price could materially adversely affect our Company and the trading price of our common stock.
Our assets are pledged as collateral for repayment of the $2,750,000 Promissory Note
All of our assets are pledged to NWarrender as collateral for the repayment of the $2,750,000 Promissory Note. These assets include all of the common stock of Lifted, and the common stock that we own of Ablis, Bendistillery and Bend Spirits. If we fail to repay such $2,750,000 Promissory Note, we could lose all of our assets or go bankrupt. In addition, all remaining principal and all accrued interest on the $2,750,000 Promissory Note shall be subject to mandatory prepayment by Payors to NWarrender within two business days following the closing of any debt or equity capital raise by Payors following the date of the $2,750,000 Promissory Note in the amount of $8,000,000 or more. Such requirement may make it difficult or more costly for us to raise additional capital. Such $2,750,000 Promissory Note, the pledge of all of our assets as collateral for such $2,750,000 Promissory Note, and the requirement that all remaining principal and all accrued interest on the $2,750,000 Promissory Note shall be subject to mandatory prepayment by Payors to NWarrender within two business days following the closing of any debt or equity capital raise by Payors following the date of this $2,750,000 Promissory Note in the amount of $8,000,000 or more, could have a material adverse effect on our Company and the trading price of our common stock.
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Sales of shares of our common stock, or the perception in the public markets that these sales may occur in the future, may cause the trading price of our common stock to fall
Since the trading volume of our common stock is very low and the amount of our common stock in the public float is very small, any sales or attempts to sell our common stock, or the perception that sales or attempts to sell our common stock could occur, could adversely affect the trading price of our common stock. The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition, if any of our significant stockholders sells a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Any issuance of additional common stock or common stock equivalents by us would result in dilution to our existing shareholders. Such issuances could be made at a price that reflects a discount to the then-current trading price of our common stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of common stock could depress the market for our shares and make it more difficult for us to sell equity securities in the future at any time, if at all. These factors could have a material adverse effect on our Company and the trading price of our common stock.
We may issue additional shares of common stock, and options and warrants to purchase additional shares of common stock, without stockholder approval, which would dilute the current holders of our common stock.
Our Board of Directors has authority, without action or vote of our shareholders, to issue shares of common stock, and/or options and warrants to purchase shares of common stock. We may issue shares of our common stock, or options or warrants to purchase shares of our common stock, to complete a business combination or to raise capital, or to incentivize our directors, officers and employees. Such stock issuances, and such issuances of options and warrants, could be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances could dilute our stockholders’ ownership interests significantly. These issuances also would have the effect of reducing our stockholders’ influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of currently outstanding stock options and warrants exercise those options or warrants to purchase shares of our common stock. This dilution could materially adversely affect the trading price of our common stock.
The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock
Our certificate of incorporation gives our Board of Directors the right to create one or more new series of preferred stock. As a result, the Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be used to discourage, delay or prevent a change of control of our Company, which could materially adversely affect the price of our common stock.
Our common stock may be subject to significant dilution
Our capital raising may include the sale of significant numbers of shares of our common stock or other securities convertible into our common stock, and may also include the issuance of significant numbers of options, warrants or other securities convertible into shares of our common stock. We also may issue significant numbers of shares of our common stock, or options, warrants, or other securities convertible into shares of our common stock, as a portion of the consideration for acquisitions. We are also likely to issue significant numbers of shares of common stock, options and/or warrants, or rights to purchase warrants, to our officers, directors, employees and/or independent contractors, and to investment bankers and finders, especially in connection with the closing of capital raises and acquisitions, or as incentives to attract and retain talented personnel. Such transactions may significantly increase the number of outstanding shares of our common stock, and may be highly dilutive to our existing stockholders. In addition, the securities that we issue may have rights, preferences or privileges senior to those of the holders of our outstanding common stock. This dilution could have a material adverse effect on our Company and the trading price of our common stock. In addition, we have options, warrants, and rights to purchase warrants, outstanding covering several million shares of our common stock. If all of these millions of options and warrants were to be exercised, the number of outstanding shares of our common stock would increase significantly. Moreover, additional shares may be issued in connection with future acquisition and business operations. This dilution could have a material adverse effect on our Company and the trading price of our common stock.
Raising capital by selling our common stock or convertible preferred stock is difficult to accomplish
Selling equity is difficult to accomplish in the current market, especially because the prices of stocks of many publicly traded cannabis companies have experienced significant declines. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. This could materially adversely affect our Company and the trading price of our common stock.
Raising capital by selling our common stock or convertible preferred stock could be expensive
If we were to raise capital by selling common stock or securities convertible into common stock, it could be expensive. Many potential purchasers of equity securities in micro-cap and small-cap publicly traded companies with extremely low trading volumes are only willing to purchase at a significant discount to the trading price of the common stock of such companies. In addition, we may be required to pay cash fees and/or fees in the form of warrants equal to 7% or more of the gross sales proceeds raised, in addition to legal, accounting and other fees and expenses. In addition, when it becomes known within the investment community that an issuer is seeking to raise equity capital, it is common for the common stock of that issuer to be sold off in the market, lowering the trading price of the issuer’s common stock in advance of the pricing of the issue. This could make our raising capital by selling equity securities significantly more expensive and materially adversely affect the trading price of our common stock.
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Debt financing is difficult to obtain and could be expensive
Debt financing is difficult to obtain in the current credit markets, especially for companies involved in the hemp-derived and nicotine industries. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. Providers of debt may also be issued options, warrants, or rights to purchase warrants, to purchase shares of our common stock. This could materially adversely affect our Company and the trading price of our common stock.
Raising capital by borrowing could be risky
On January 3, 2022, we issued a $2,750,000 Promissory Note payable to NWarrender. As discussed above, this entails risk. If we were to raise capital by borrowing amounts to fund our operations or for additional acquisitions, that would also be risky. Cash is required to service the debt, ongoing covenants are typically employed which can restrict the way in which we operate our business, and if the debt comes due either upon maturity or an event of default, we may lack the resources at that time to either pay off or refinance the debt, or if we are able to refinance, the refinancing may be on terms that are less favorable than those originally in place, and may require additional equity or quasi-equity accommodations. These risks could materially adversely affect our Company and the trading price of our common stock.
Failure to pay the $2,75,000 Note payable to NWarrender that is secured by all of the Company’s assets would be catastrophic
The $2,750,000 Promissory Note is secured in favor of NWarrender, the Company’s Chief Operating Officer, with of the Company’s assets. These assets include all of the common stock of Lifted, and the common stock that we own of Ablis, Bendistillery and Bend Spirits. If we fail to repay the $2,750,000 Promissory Note, NWarrender would be entitled to commence proceedings likely to result in seizure and sale of our assets. The result would be catastrophic for the Company and would likely result in a total loss of the value of our stock and would be detrimental to the Company’s ability to survive.
Our financing decisions may be made without stockholder approval
Our financing decisions and related decisions regarding levels of debt, capitalization, distributions, acquisitions and other key operating parameters are determined by our Board of Directors in its discretion, in many cases without any notice to or vote by our stockholders. This could materially adversely affect our Company and the trading price of our common stock.
We lack investor relations, public relations and advertising resources
We lack the resources to properly support investor relations, public relations, and advertising efforts. This puts us at a disadvantage with potential acquisition candidates, investors, research analysts, customers, and job applicants. These disadvantages could materially adversely affect our Company and the trading price of our common stock.
An increase in interest rates may have an adverse effect on the trading price of our common stock
An increase in market interest rates may tend to make our common stock less attractive relative to other investments, which could adversely affect the trading price of our common stock.
Increases in taxes and regulatory compliance costs may reduce our margins
Costs resulting from changes in or new income taxes, value added taxes, service taxes, sales and use taxes, or other taxes may adversely affect our margins. These costs could materially adversely affect our Company and the trading price of our common stock.
Tax interpretations and changes in tax regulations and legislation could adversely affect us
Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or recovery, and deferred income tax assets or liabilities. Tax rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by us that may be challenged by the applicable taxation authorities upon audit. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.
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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 requires complex computations to be performed that were not previously required by U.S. tax law, significant judgments to be made in interpretation of the provisions of the U.S. Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. 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 100% federal dividends received deduction prospectively. In addition, the Tax Act required a one-time transitional tax on foreign cash equivalents and previously unremitted earnings. Several of the new provisions enacted as part of the Tax Act require clarification and guidance from the U.S. Internal Revenue Service (“IRS”) and Treasury Department. The Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered. As future guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made. Additionally, further guidance may be forthcoming from the Financial Accounting Standards Board and SEC, as well as regulations, interpretations and rulings from state tax agencies, which could result in additional impacts, possibly with retroactive effect. Any such changes or potential additional impacts could adversely affect our business and financial condition. These or other changes in U.S. tax laws could impact our profits, effective tax rate, and cash flows.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Further it provides for increased deductibility of interest expense in 2019 and 2020. We are currently evaluating the impact of the CARES Act.
In prior years, we accumulated net operating losses (“NOLs”) arising from our operations; these NOLs were exhausted as of December 31, 2021, and at December 31, 2021, we recognized an income tax provision of $1,367,362 for the first time. We have recognized a valuation allowance for stock compensation expense, which reduces our deferred tax assets.
In addition, we may periodically restructure our legal entities and if taxing authorities were to disagree with our tax positions in connection with any such restructurings, our effective tax rate could be materially affected. In connection with such restructurings we could also incur additional charges associated with consulting fees and other charges.
In addition, changes in tax interpretations and changes in tax regulations and legislation could impose significant burdens upon our management’s time and resources, and may require us to expend significant additional amounts on accounting, tax, legal and other matters.
All of the foregoing could materially adversely affect our Company and the trading price of our common stock.
We are adversely affected by regulatory uncertainties
Regulatory uncertainties regarding potential adverse changes in federal and state laws and governmental regulations materially adversely affect our business and the trading price of our common stock. This risk is especially important relative to the hemp-derived products and nicotine products industries, which are controversial socially, scientifically and legally.
A small number of stockholders have significant influence over us
A small number of our stockholders and members of our board of directors and management acting together would be able to exert significant influence over us through their ability to influence the election of directors and all other matters that require action by our stockholders. The voting power of these individuals could have the effect of preventing or delaying a change in control of our Company which they oppose even if our other stockholders believe it is in their best interests.
In addition, our shareholders have authorized our Chairman and Chief Executive Officer, GJacobs, to seek shareholders agreements and/or proxies from other parties, including potential future capital sources and the owners of potential future acquisition candidates. Pursuant to this authorization, GJacobs has signed a Stockholders Agreement with our largest stockholder, our Vice Chairman and Chief Operating Officer NWarrender, and with our President and Chief Financial Officer WJacobs, that will ensure that all 3,900,455 shares of our common stock issued to NWarrender in the Lifted Merger, and the many shares of our common stock owned and controlled by GJacobs and WJacobs, will be voted in concert on the election of directors, compensation matters, acquisitions and divestitures, capital raises, and other significant matters.
Accordingly, our officers GJacobs, WJacobs and NWarrender, voting together, have substantial influence over our policies and management. We may take actions supported by the three of them that may not be viewed by some stockholders to be in our best interest, or the three of them could prevent or delay a change in our control which they oppose even if our other stockholders believe it is in their best interests. This could materially adversely affect our Company and the trading price of our common stock.
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State law and our articles of incorporation and bylaws help preserve insiders’ control over us
Provisions of Nevada state law, our articles of incorporation and bylaws may discourage, delay or prevent a change in our management team that stockholders may consider favorable. These provisions may include: (1) authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; (2) permitting stockholder action by written consent; and (3) establishing advance notice requirements for nominations for election to the board of directors, or for proposing matters that can be acted on by stockholders at stockholder meetings. These provisions, if included in our articles of incorporation or by-laws, could allow our board of directors to affect an investor’s rights as a stockholder since our board of directors could make it more difficult for preferred stockholders or common stockholders to replace members of the board of directors. Because the board of directors is responsible for appointing the members of the management team, these provisions could in turn affect any attempt to replace the current or future management team. These factors could adversely affect our Company or the trading price of our Stock.
Retaining and attracting directors and officers may be expensive
We cannot make any assurances regarding the retention of our current directors and officers. We do not currently have any director and officer liability insurance, which is a disincentive to serving as a director or officer of our Company. Some of our directors and officers may resign upon our raising money, upon our consummation of a business combination, or otherwise. Attracting new directors and officers, and retaining our current directors and officers, may be expensive. Other publicly traded companies pay their directors and officers significantly more than we do. The costs of future cash, bonus and equity incentives to retain and attract directors and officers could materially adversely affect our Company and the trading price of our common stock.
We indemnify our directors and officers, and certain other parties
Our bylaws specifically limit the liability of our officers and directors to the fullest extent permitted by law. As a result, aggrieved parties may have a more limited right to action than they would have had if such provisions were not present. The bylaws also provide for indemnification of our officers and directors for any losses or liabilities they may incur as a result of the manner in which they operated our business or conducted internal affairs, provided that in connection with these activities they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest. In the ordinary course of business, we also may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, independent contractors and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third-parties. We may also agree to indemnify former officers, directors, employees and independent contractors of acquired companies in connection with the acquisition of such companies. Such indemnification agreements may not be subject to maximum loss clauses. It is not possible to determine the maximum potential amount of exposure in regard to these obligations to indemnify, due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation. Use of our capital or assets for such indemnification would reduce amounts available for Company operations or for other purposes, which could materially adversely affect our Company and the trading price of our common stock.
We do not expect to pay dividends to holders of our common stock
For the foreseeable future, it is anticipated that earnings, if any, which may be generated from our operations will be used to finance our growth and that dividends may not be paid to the holders of our common stock, which may have a material adverse effect on our Company and the trading price of our common stock.
Our cost of being a publicly traded company will increase as our business operations expand
As we grow, our management expenses, legal and accounting fees, and other costs associated with being a publicly traded company will continue to increase. We have been hiring additional employees and professionals in order to have appropriate internal financial controls and accurate financial reporting, and otherwise to comply with the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). 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 the Sarbanes-Oxley Act; we expect the services of this consulting firm to be costly. While we cannot state with certainty what all of these costs will be, we believe that our management expenses, legal and accounting fees, and other costs associated with being a publicly traded company will eventually increase to at least $750,000 per year, which may have a material adverse effect on our Company and the trading price of our common stock.
Decreased effectiveness of stock options could adversely affect our ability to attract and retain employees
We expect to use stock options, warrants, and/or rights to purchase warrants to purchase common stock as key components of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and to provide competitive compensation packages. Volatility or lack of positive performance in our common stock price may adversely affect our ability to retain key employees or to attract additional highly-qualified personnel. At any given time, a portion of our outstanding employee stock options, warrants, and/or rights to purchase warrants to purchase common stock may have exercise prices in excess of our then-current common stock trading price, or may have expired worthless. To the extent these circumstances occur, our ability to retain employees may be adversely affected. As a result, we may have to incur increased compensation costs, change our equity compensation strategy, or find it difficult to attract, retain and motivate employees. Any of these situations could materially adversely affect our Company and the trading price of our common stock.
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RISK FACTORS RELATING TO ACCOUNTING AND INTERNAL FINANCIAL CONTROLS
We incur increased costs as a result of operating as a public company and our management is required to devote substantial time to new compliance initiatives
As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, and rules implemented by the SEC, impose various requirements on public companies, including requirements to file annual, quarterly and event-driven reports with respect to our business and financial condition and operations and to establish and maintain effective disclosure and financial controls and corporate governance practices. Our management and other personnel may fail to improve or maintain effective internal controls over financial reporting (“ICFR”) and disclosure controls and procedures (“DCP”) necessary to ensure timely and accurate reporting of operational and financial results. Our management team has to devote a substantial amount of time to these compliance initiatives, and we may need to hire additional personnel to assist us with complying with these requirements. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. As mentioned above, the Company has engaged a third party consulting firm that specializes in the implementation of the Sarbanes-Oxley Act, to assist management with the implementation of the Sarbanes-Oxley Act; we expect the services of this consulting firm to be costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our ICFR, which, after we have met certain requirements, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that we will not be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This could result in one or more material weaknesses in our ICFR, which could cause an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which may have a material adverse effect on our Company and the trading price of our common stock.
Tax and accounting requirements may change in ways that are unforeseen to us and we may face difficulty or be unable to implement or comply with any such changes
We are subject to numerous tax and accounting requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of current rules or practices, could have a significant adverse effect on our financial results, the manner in which we conduct our business or the marketability of any of our products. We plan to expand our operations in the future. These operations, and any expansion thereto, will require us to comply with the tax laws and regulations of multiple jurisdictions, which may vary substantially. Complying with the tax laws of these jurisdictions can be time consuming and expensive and could potentially subject us to penalties and fees in the future if we fail to comply. These factors could materially adversely affect our Company and the trading price of our common stock.
We may have exposure to greater than anticipated tax liabilities, which could harm our business
We may be subject to tax audits by federal, state, and local tax authorities. Any adverse outcome from a tax audit could seriously harm our business. In addition, determining our tax liabilities requires significant judgment by management, and there may be transactions where the ultimate tax determination is uncertain. Although we believe that the tax liabilities recorded in our financial statements are reasonable, the ultimate tax outcome relating to such amounts may differ for such period or periods and may seriously harm our business. Furthermore, due to shifting economic and political conditions, tax policies, laws, or rates in various jurisdictions, we may be subject to significant changes in ways that impair our financial results. Our results of operations and cash flows could be adversely affected by additional taxes imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations or failure to provide information for tax reporting purposes to various government agencies. These factors could materially adversely affect our Company and the trading price of our common stock.
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Management may not be able to successfully implement adequate internal controls over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) and 15d(f) under the Exchange Act, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with United States Generally Accepted Accounting Principles (“GAAP”). Proper systems of internal controls over financial reporting (“ICFR”) and disclosure are critical to the operation of a public company. However, management may not be able to successfully establish and maintain effective internal controls over financial reporting, and our disclosure controls and procedures (“DCP”) or ICFR may not prevent all errors and all fraud. Due to complications associated with organic growth and acquisitions, and with modifications to internal control over financial reporting and other policies and procedures associated with many factors, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our efforts to remediate material weaknesses may not be effective or prevent future material weaknesses or significant deficiencies in our internal control over financial reporting. It is not expected that our disclosure controls and procedures and internal controls over financial reporting will prevent all error or fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. The inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two or more people or by management override of the controls. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected in a timely manner or at all. We cannot guarantee that we will not have a material weakness in our internal controls in the future. If we experience any material weakness in our internal controls in the future, our financial statements may contain misstatements and we could be required to restate our financial statements. If we cannot provide reliable financial reports or prevent fraud, or if we are required to restate our financial statements, our reputation and operating results could be materially and adversely affected, which could materially adversely affect our Company and the trading price of our common stock.
RISK FACTORS RELATING TO LIFTED AND SMPLYLIFTED LLC (COLLECTIVELY, “LIFTED”) AND FUTURE ACQUISITIONS
The FDA has not approved Lifted’s hemp-derived products for any medical purpose, and Lifted could face cease and desist letters, lawsuits or other enforcement actions by the FDA or DEA
Lifted has not applied to the FDA for any approvals of any of Lifted’s products, and may never do so. The FDA has not approved any of Lifted’s products for any medical purpose, and may never do so. Lifted may be subject to cease and desist letters, lawsuits or other enforcement actions by the FDA or the DEA for failure to obtain FDA or DEA approval of its products, or for Lifted’s packaging, labeling, advertisements and promotions of its products without any FDA or DEA approvals. For example, the FDA might take action against Lifted alleging that Lifted has engaged in the promotion of an unapproved drug. Historically, the FDA has issued cease and desist letters, filed lawsuits and taken enforcement actions against Lifted and other companies selling cannabinoid products that are similar to Lifted’s products. Defending cease and desist letters, lawsuits or other enforcement actions by the FDA or DEA may cause Lifted and LFTD Partners to expend a great deal of management time and legal fees. Any cease and desist letters, lawsuits or other enforcement actions by the FDA or DEA could have a material adverse effect on our company and the trading price of our common stock.
Investors may file litigation including class action lawsuits against Lifted and/or LFTD Partners because the FDA has not approved Lifted’s hemp-derived products for any medical purpose, or because the FDA or DEA has issued cease and desist letters, or brought lawsuits or other enforcement actions against Lifted, or for other reasons associated with the packaging, labeling, advertising, promotion, medical claims, ineffectiveness, or other characteristics of Lifted’s products
Investors may file litigation including class action lawsuits against Lifted and/or LFTD Partners for many different reasons, such as: (1) Lifted has not applied to the FDA for any approvals of any of Lifted’s products, and may never do so; (2) The FDA has not approved any of Lifted’s products for any medical purpose, and may never do so; (3) Lifted may be subject to cease and desist letters, lawsuits or other enforcement actions by the FDA for failure to obtain FDA approval of its products, or for Lifted’s packaging, labeling, advertisements and promotions of its products without any FDA approvals. For example, the FDA might take action against Lifted alleging that Lifted has engaged in the promotion of an unapproved drug. The FDA has issued cease and desist letters, filed lawsuits and taken enforcement actions against Lifted and other companies selling cannabinoid products that are similar to Lifted’s products; (4) Lifted may be subject to cease and desist letters, lawsuits or other enforcement actions by the DEA alleging that Lifted’s products are illegal; and (5) Investors may file litigation including class action lawsuits against Lifted and/or LFTD Partners for other reasons associated with the packaging, labeling, advertising, promotion, medical claims, ineffectiveness, or other characteristics of Lifted’s products. Defending lawsuits by investors may cause Lifted and LFTD Partners to expend a great deal of management time and legal fees. Any lawsuits by investors could have a material adverse effect on our company and the trading price of our common stock.
Investors may file litigation including class action lawsuits against Lifted and/or LFTD Partners due to drops in the trading price of LFTD Partners’ common stock triggered by FDA or DEA cease and desist letters, lawsuits or enforcement actions against Lifted
Our common stock has relatively low trading volume, and the trading price is volatile. FDA or DEA cease and desist letters, lawsuits or enforcement actions against Lifted could cause drops in the trading price of LFTD Partners’ common stock. Defending lawsuits by investors may cause Lifted and LFTD Partners to expend a great deal of management time and legal fees. Any lawsuits by investors could have a material adverse effect on our Company and the trading price of our common stock.
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The Preventing Online Sales of E-Cigarettes to Children Act may have a material adverse effect on certain portions of Lifted’s online sales
The “Consolidated Appropriations Act, 2021” signed into law on December 27, 2020, includes the Preventing Online Sales of E-Cigarettes to Children Act, which extends the Jenkins Act and Prevent All Cigarette Trafficking Act (“PACT”) to cover all electronic nicotine delivery system (“ENDS”) products, including related accessories that do not contain nicotine (collectively, the “Amended PACT Act”). Under the Amended PACT Act, the United States Postal Service (“USPS”) is required to impose new restrictions that prohibit the shipping of ENDS products through USPS no later than April 2021. The Amended PACT Act also imposes a number of stringent requirements for online sales. By March 27, 2021, online vape retailers will be required to: (1) engage in third party identity verification for all sales; (2) use a shipping service that verifies age at delivery; (3) follow all Amended PACT Act shipping requirements; (4) register with the US Attorney General; (5) register with the tobacco tax administrator of any state in which products are sold; (6) collect all applicable local taxes; (7) share all transactions for a state with that state’s tax administrator following that state’s reporting rules; and (8) maintain records of any delivery interruptions or incomplete deliveries due to failure to confirm identity for five years.
These requirements are applicable to certain portions of Lifted’s online sales, and cause the online sale and delivery of certain of Lifted’s products to be restricted. The state-by-state reporting requirements of the Amended PACT Act are time-consuming. No assurance or guarantee whatsoever can be provided that the Amended Pact Act will not have a material adverse impact on a portion of Lifted’s future online sales. The Amended Pact Act may have a material adverse effect on Lifted and LFTD Partners and on the trading price of our common stock.
Pandemics or disease outbreaks, such as the novel coronavirus, may disrupt consumption and trade patterns, supply chains, and production processes, which could materially affect Lifted’s and target companies’ operations and results of operations
Pandemics or disease outbreaks such as the novel coronavirus known as COVID-19 may depress demand for hemp-derived and nicotine products manufactured by Lifted and target companies for many reasons. Governmentally imposed restrictions on public gatherings or interactions may limit Lifted’s and target companies’ ability to manufacture, sell and distribute their products, and may also restrict Lifted’s and target companies’ customers’ and consumers’ ability or willingness to purchase Lifted’s and target companies’ products.
The spread of pandemics or disease outbreaks such as COVID-19 may also disrupt logistics necessary to import, export, and deliver products to Lifted, target companies and their customers. Ports and other channels of entry may be closed or operate at only a portion of capacity, as workers may be prohibited or otherwise unable to report to work, and means of transporting products within regions or countries may be limited for the same reason.
Lifted’s and target companies’ operations may become limited in their ability to procure, deliver, produce or distribute their cannabinoid-infused and nicotine products because of transport restrictions related to quarantines or travel bans.
Workforce limitations and travel restrictions resulting from pandemics or disease outbreaks and related government actions may impact many aspects of Lifted’s and target companies’ businesses. If a significant percentage of Lifted’s or target companies’ workforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, Lifted’s and target companies’ operations may be negatively impacted. In addition, pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect customers’ demand for Lifted’s and target companies’ products, all of which could materially adversely affect our Company and the trading price of our common stock.
Lifted and target companies, or the hemp-derived and nicotine industries more generally, may receive unfavorable publicity or become subject to negative consumer or investor perception
The hemp-derived and nicotine industries are highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy and quality of the hemp-derived and nicotine products sold to consumers. The perception of the hemp-derived and nicotine products industries, and hemp and nicotine products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) relating to the consumption of hemp-derived or nicotine products, including unexpected safety or efficacy concerns arising with respect to hemp-derived or nicotine products or the activities of industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the hemp-derived or nicotine markets or any particular hemp-derived or nicotine product or delivery system or will be consistent with earlier publicity. Adverse future scientific research reports, findings and regulatory proceedings that are, or litigation, media attention or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for Lifted’s and target companies’ products. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of hemp-derived or nicotine products, or of Lifted’s and target companies’ products specifically, or associating the consumption of hemp-derived or nicotine products with illness or other negative effects or events, could adversely affect Lifted and target companies. This adverse publicity could arise even if the adverse effects associated with hemp-derived or nicotine products resulted from consumers’ failure to use such products legally, appropriately or as directed, and could materially adversely affect our Company and the trading price of our common stock.
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Nicotine is an addictive chemical and governmental health authorities want to curb its use
Nicotine is a highly addictive chemical, and governmental health authorities want to curb its use, especially by minors. Lifted’s and target companies’ tobacco-free nicotine pouches contain nicotine, and it is highly likely that these pouches will be subject to extensive scrutiny, regulations, restrictions and/or prohibition by governmental health authorities in order to curb nicotine use. Such governmental action could materially adversely affect our Company and the trading price of our common stock.
Many nicotine-containing products have been linked to cancer
Many nicotine-containing products such as cigarettes and cigars have been linked to lung, mouth, throat and other cancers. If Lifted’s and target companies’ nicotine-containing products or pouches are perceived by government health authorities, or proven by scientific studies, as being carcinogenic, then such products and pouches could be subject to regulations, restrictions and/or prohibitions by governmental health authorities in order to prevent cancer. Governmental regulations may already prohibit or require warning labels to be displayed on such products and pouches in certain jurisdictions. Lawsuits related to the use of such products and pouches may also occur. Such governmental regulations, restrictions and/or prohibitions by governmental health authorities, and such lawsuits, could materially adversely affect our Company and the trading price of our common stock.
Some vaping products may have been linked to deaths and illnesses
Federal, state and local authorities are investigating deaths and illnesses apparently related to vaping. We can provide no guarantees or assurances that nicotine pouches, vaping, e-liquids and electronic cigarettes will not be prohibited, banned and/or heavily regulated in response to these deaths and illnesses, nor that Lifted and target companies will not be sued by customers who use Lifted’s and target companies’ nicotine pouches, vaping, e-liquids and electronic cigarette products. Prohibition, banning or regulation of such products, or lawsuits related to the use of Lifted’s products, could have a material adverse effect on our Company and the trading price of our common stock.
If Lifted and target companies are not able to comply with all safety, health and environmental regulations applicable to their operations and industry, they may be held liable for any breaches of those regulations
Safety, health and environmental laws and regulations may affect aspects of Lifted’s and target companies’ operations, including product development, working conditions, waste disposal, emission controls, the maintenance of air and water quality standards and land reclamation, and, with respect to environmental laws and regulations, impose limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Lifted and target companies may also follow other standards for the conduct of their operations and may be subject to ongoing compliance inspections in respect of these standards. Compliance with safety, health and environmental laws and regulations may require significant expenditures, and failure to comply with such safety, health and environmental laws and regulations may result in the imposition of fines and penalties, the temporary or permanent suspension of operations, the imposition of clean-up costs resulting from contaminated properties, the imposition of damages and the loss of or refusal of governmental authorities to issue permits or licenses to Lifted or the target companies or to certify Lifted’s or target companies’ compliance with good manufacturing practices (“GMP”) standards. Exposure to these liabilities may arise in connection with Lifted’s or target companies’ existing operations, their historical operations and operations that they may undertake in the future. They could also be held liable for worker exposure to hazardous substances and for accidents causing injury or death. There can be no assurance that Lifted or target companies will at all times be in compliance with all safety, health and environmental laws and regulations notwithstanding Lifted’s or target companies’ attempts to comply with such laws and regulations.
Changes in applicable safety, health and environmental standards may impose stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for Lifted and target companies and their officers, directors and employees. Lifted and target companies may not be able to determine the specific impact that future changes in safety, health and environmental laws and regulations may have on their industry, operations and/or activities and our resulting financial position; however, Lifted and target companies may anticipate that capital expenditures and operating expenses may increase in the future as a result of the implementation of new and increasingly stringent safety, health and environmental laws and regulations. Further changes in safety, health and environmental laws and regulations, new information on existing safety, health and environmental conditions or other events, including legal proceedings based upon such conditions or an inability to obtain necessary permits in relation thereto, may require increased compliance expenditures by Lifted and target companies. This could have a material adverse effect on Lifted and the trading price of our common stock.
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Lifted and target companies may lose profits or become subject to liability arising from any breach of contract or fraudulent or illegal activity by our suppliers, testing labs, employees, independent contractors, consultants and others
Lifted and target companies are exposed to the risk that their suppliers, testing labs, employees, independent contractors, consultants, service providers and licensors may engage in breach of contract or fraudulent or other illegal activity. Misconduct by these parties could include intentional undertakings of unauthorized activities, or reckless or negligent undertakings of authorized activities, in each case on Lifted’s or target companies’ behalf or in Lifted’s or target companies’ service that violate: (i) confidentiality agreements; (ii) other contracts; (iii) government regulations; (iv) manufacturing standards; (v) laws that require the true, complete and accurate reporting of financial information or data; or (vi) Lifted’s or target companies’ agreements with insurers. In particular, the target companies could be exposed to loss of sales, revenue and profits, class action and other litigation, increased governmental inspections and related sanctions, the loss of any compliance certifications or the inability to obtain future compliance certifications, or reputational damage as a result of prohibited activities that are undertaken without Lifted’s or target companies’ knowledge or permission and contrary to Lifted’s and target companies’ confidentiality agreements, contracts, internal policies, procedures and operating requirements.
Lifted and target companies may be required to expend substantial time, effort and legal fees in order to address such situations.
Lifted and target companies may not always identify and prevent misconduct by their suppliers, testing labs, employees, independent contractors and other third parties, including service providers and licensors, and the precautions taken by Lifted and target companies to detect and prevent this activity may not be effective in controlling unknown, unanticipated or unmanaged risks or losses or in protecting Lifted and target companies from governmental investigations or other actions or lawsuits stemming from such misconduct. If any such actions are instituted against Lifted and target companies, and Lifted and target companies are not successful in defending themselves or asserting their rights, those actions could have a significant impact on their businesses, including the imposition of civil, criminal or administrative penalties, damages, monetary fines and contractual damages, reputational harm, diminished profits and future earnings or curtailment of their operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted, Lifted’s co-packers and target companies may experience breaches of security at their facilities or loss as a result of the theft of their products
Because of the concentration of inventory at Lifted’s, Lifted’s co-packers, and target companies’ facilities, Lifted, Lifted’s co-packers, and target companies are subject to the risk of theft of their products and other security breaches. A security breach at Lifted’s, Lifted’s co-packers, or a target company’s facility could result in a significant loss of available products, expose Lifted or the target company to additional liability under applicable regulations and to potentially costly litigation or increased expenses relating to the resolution and future prevention of similar thefts, any of which could have an adverse effect on Lifted’s and the target company’s business, financial condition and results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to risks related to their information technology systems, including the risk that they may be the subject of a cyber-attack and the risk that they may be in non-compliance with applicable privacy laws
Lifted and target companies may have entered into agreements with third parties for web services, hardware, software, telecommunications and other information technology (“IT”), services in connection with their operations. Their operations may depend, in part, on how well they and their vendors protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, disruptions in Internet and mobile commerce, hacking, computer viruses, vandalism, theft, malware, ransomware and phishing attacks. Any of these and other events could result in IT system failures, delays, increases in capital expenses, or potential costs and business disruption that may result if Lifted’s or target companies’ customers complain or assert claims regarding Lifted’s or target companies’ technology. Lifted’s and target companies’ operations may also depend on the timely maintenance, upgrade and replacement of networks, equipment and IT systems and software, as well as preemptive expenses to mitigate the risks of failures. The failure of IT systems or a component of IT systems could, depending on the nature of any such failure, adversely impact Lifted’s and target companies’ reputations and results of operations.
There are a number of laws protecting the confidentiality of customer personal information, and restricting the use and disclosure of that protected information. Lifted and target companies may collect and store personal information about their customers and are responsible for protecting that information from privacy breaches. A privacy breach may occur through a procedural or process failure, an IT malfunction or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly customer lists and preferences, is an ongoing risk whether perpetrated through employee collusion or negligence or through deliberate cyber-attack. Moreover, if Lifted or target companies are found to be in violation of the privacy or security rules under laws protecting the confidentiality of customer information, including as a result of data theft and privacy breaches, Lifted and target companies could be subject to sanctions and civil or criminal penalties, which could increase their liabilities and harm their reputations.
As cyber threats continue to evolve, Lifted and target companies may be required to expand significant additional resources to continue to modify or enhance their protective measures or to investigate and remediate any information security vulnerabilities. While Lifted and target companies may have implemented security resources to protect their data security and information technology systems, such measures may not prevent such events. Significant disruption to their information technology system or breaches of data security could have a material adverse effect on their business financial condition and results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
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Lifted’s and target companies’ production and shipping facilities are integral to their businesses and adverse changes or developments affecting our facilities may have an adverse impact on our business
Lifted and target companies’ production and shipping facilities are integral to their businesses. Adverse changes or developments affecting these facilities, including, but not limited to, the spoiling of our raw goods, a fire, an explosion, a power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require Lifted and target companies to entirely suspend operations at the affected facilities. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be unable to grow
Lifted and target companies’ businesses are subject to a variety of business risks generally associated with developing companies. Lifted’s and target companies’ ability to grow, and to expand and maintain market acceptance for their products, will depend on a number of factors, many of which may be beyond their control. Future development and expansion could place significant strain on Lifted’s and target companies’ management personnel and likely will require them to recruit additional management personnel, and there is no assurance that they will be able to do so. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s and target companies may be unable to expand their operations quickly enough to meet demand or manage their operations beyond their current scale
There can be no assurance that Lifted and target companies will be able to manage their expanding operations effectively, that they will be able to sustain or accelerate their growth, or that such growth, if achieved, will result in profitable operations, or that Lifted and target companies will be able to attract and retain sufficient management personnel necessary for continued growth.
Demand for hemp-derived products is dependent on a number of social, political and economic factors that are beyond Lifted’s and target companies’ control. There is no assurance that an increase in existing demand will occur, that Lifted and target companies will benefit from any such demand increase or that their businesses will remain profitable even in the event of such an increase in demand. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may experience significant fluctuations in their operating results and growth rate
Lifted and target companies may not be able to accurately forecast their growth rate. Lifted’s and target companies’ revenue growth may not be sustainable, and their percentage growth rates may decrease. Lifted’s and target companies’ revenue and operating profit growth may depend on the continued growth of demand for their products and services, and their businesses may be affected by general economic and business conditions worldwide. A softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.
Lifted’s and target companies’ sales and operating results may also fluctuate for many other reasons, including due to risks described elsewhere in this section and due to risks and uncertainties associated with the following topics and issues:
| · | Issues associated with the legality or safety of Lifted’s products containing nicotine, delta-8-THC, delta-9-THC, delta-10-THC, HHC, CBD and other hemp-derived cannabinoids; |
| · | Labor unavailability, supply chain disruptions, and other issues and problems associated with pandemics and other force majeure-type events and conditions; |
| · | Lifted’s and target companies’ ability to retain and increase sales to existing customers, attract new customers, satisfy their customers’ demands, and maintain profit margins; |
| · | Lifted’s and target companies’ ability to retain and expand their network of wholesalers and distributors; |
| · | Lifted’s and target companies’ ability to expand their online sales; |
| · | Competition from substantially larger and financially stronger competitors; |
| · | Continued access to raw materials and suppliers, some of whom may be acquired by competitors or otherwise become unavailable to Lifted and target companies; |
| · | Lifted’s and target companies’ ability to offer products on favorable terms, manage inventory, and fulfill orders; |
| · | The introduction of competitive stores, websites, products, services, price decreases, or improvements, and changes in consumer preferences and trends; |
| · | Changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside the U.S.; |
| · | Timing, effectiveness, and costs of expansion and upgrades of Lifted’s and target companies’ systems and infrastructure; |
| · | The success of Lifted’s and target companies’ geographic, service, and product line expansions; |
| · | The extent to which Lifted and target companies finance, and the terms of any such financing for, Lifted’s and target companies’ current operations and future growth; |
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| · | The outcomes of legal proceedings and claims, which may include significant settlement costs, monetary damages or injunctive relief and could have a material adverse impact on Lifted’s and target companies’ operating results; |
| · | Variations in the mix of products and services Lifted and target companies sell; |
| · | Variations in Lifted’s and target companies’ level of merchandise and vendor returns; |
| · | The extent to which Lifted and target companies offer favorable shipping terms, reduce prices, and provide additional benefits to their customers; |
| · | Factors affecting Lifted’s and target companies’ reputations or brand images; |
| · | The extent to which Lifted and target companies invest in technology and content, fulfillment, and other expense categories; |
| · | Increases in the prices of energy products and commodities like paper and packing supplies; |
| · | The ability to collect amounts owed to Lifted and target companies when they become due; |
| · | The extent to which Lifted and target companies’ are affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events; and |
| · | Terrorist attacks and armed hostilities. |
Lifted and target companies may be subject to risks related to the protection and enforcement of their intellectual property rights, or intellectual property they license from others, and may become subject to allegations that they or their licensors are in violation of intellectual property rights of third parties
The ownership, licensing and protection of trademarks, patents and intellectual property rights may be significant aspects of Lifted’s and target companies’ future success. Unauthorized parties may attempt to replicate or otherwise obtain and use Lifted’s and target companies’ look and feel, packaging, products and technology. Policing the unauthorized use of Lifted’s and target companies’ current or future trademarks, patents or other intellectual property rights now or in the future could be difficult, expensive, time consuming and unpredictable, as may be enforcing these rights against the unauthorized use by others. Identifying the unauthorized use of intellectual property rights is difficult as Lifted and target companies may be unable to effectively monitor and evaluate the products being distributed by their competitors, and the processes used to produce such products.
In addition, in any infringement proceeding, some or all of Lifted’s and target companies’ trademarks, patents or other intellectual property rights or other proprietary know-how, and that which they may license from others, or arrangements or agreements seeking to protect the same for Lifted’s and target companies’ benefit, may be found invalid, unenforceable, anticompetitive or not infringed or may be interpreted narrowly and such proceeding could put existing intellectual property applications at risk of not being issued. In addition, other parties may claim that Lifted’s and target companies’ products, or those that they license from others, infringe on their proprietary, copyright or patent protected rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources and legal fees, result in injunctions or temporary restraining orders or require the payment of damages. As well, Lifted and target companies may need to obtain licenses from third parties who allege that Lifted and target companies have infringed on their lawful rights. Such licenses may not be available on terms acceptable to Lifted and target companies, or at all. In addition, Lifted and target companies may not be able to obtain or utilize on terms that are favorable to them, or at all, licenses or other rights with respect to intellectual property that they do not own.
Lifted and target companies may also rely on certain trade secrets, technical know-how and proprietary information that are not protected by patents to maintain their competitive position. Lifted’s and target companies’ trade secrets, technical know-how and proprietary information, which are not protected by patents, may become known to or be independently developed by competitors, which could adversely affect Lifted and target companies. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be exposed to risks relating to the laws of various countries as a result of its expanding international sales and distribution
Lifted’s products are currently sold and distributed in multiple countries, and Lifted plans to expand these international sales and distribution. As a result, we are exposed to various levels of political, economic, legal and other risks and uncertainties associated with selling, distributing and exporting to these jurisdictions. These risks and uncertainties include, but are not limited to, changes in the laws, regulations and policies governing the production, sale and use of Lifted’s products, political instability, instability at the United Nations level, currency controls, fluctuations in currency exchange rates and rates of inflation, labor unrest, changes in taxation laws, regulations and policies, restrictions on foreign exchange and repatriation and changing political conditions and governmental regulations relating to foreign investment and the hemp-derived products industry more generally.
Changes, if any, in the laws, regulations and policies relating to the advertising, production, sale and use of Lifted’s products or in the general economic policies in these jurisdictions, or shifts in political attitude related thereto, may adversely affect the profitability of our sales and distribution in these countries. As we explore novel business models, international regulations will become increasingly challenging to manage. Specifically, our operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on advertising, production, price controls, controls on currency remittance, and increased income taxes. Failure to comply strictly with applicable laws, regulations and local practices could result in additional taxes, costs, civil or criminal fines or penalties or other expenses being levied on our international operations, as well as other potential adverse consequences such as the loss of necessary permits or governmental approvals.
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Furthermore, there is no assurance that we will be able to secure any requisite import and export approvals, licenses or permits that are necessary or desirable for the international sale and distribution of our products. Countries may also impose restrictions or limitations on imports. As a result, we may be required to establish facilities in one or more countries in the EU (or elsewhere) where we wish to distribute our products in order to take advantage of the favorable legislation offered to producers located in these countries. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
Lifted faces risks associated with its expansion into new markets outside of the current jurisdictions where we conduct business
We plan in the future to expand our operations and business into jurisdictions outside of the jurisdictions where we currently carry on business. There can be no assurance that any market for our products will develop in any such foreign jurisdiction. We may face new or unexpected risks or significantly increase our exposure to one or more existing risk factors, including economic instability, new competition, changes in laws and regulations, the possibility that we could be in violation of these laws and regulations as a result of such changes, taxes, and potential litigation. These factors may limit our capability to successfully expand our sales, distribution or export of our products to such jurisdictions. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
We may be unable to sustain our revenue growth and development, and may be forced to adjust our operations accordingly
Lifted’s revenue has grown in recent years. Lifted’s ability to sustain this growth will depend on a number of factors, many of which are beyond our control, including, but not limited to, the availability of sufficient capital on suitable terms, changes in laws and regulations respecting the production and distribution of hemp-derived products, competition from others, the size of the illicit market, and our ability to produce sufficient volumes of our hemp-derived products to meet demand. Regulatory changes, particularly in the primary jurisdictions where we operate, may continue to attract new market entrants and could dilute our potential opportunity and early-mover advantage. In addition, we are subject to a variety of business risks generally associated with developing companies. Future development and expansion could place significant strain on our management personnel and likely will require us to recruit additional management personnel, and there is no assurance that we will be able to do so. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
We depend on a limited number of customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly
Our business is dependent on a limited number of customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to obtain or afford insurance coverage in respect of the risks our business faces, or there may be coverage limitations and other exclusions which may result in such insurance not being sufficient to cover potential liabilities that we face
We may not be able to obtain or afford insurance coverage in respect of certain risks that our business faces, including product liability insurance, protecting our assets, and operations. Even if insurance is obtained, our insurance coverage may be subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities, including potential product liability claims, or will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, we may be exposed to material uninsured liabilities that could impede our liquidity, profitability or solvency, all of which could materially adversely affect our Company and the trading price of our common stock.
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Increased labor costs, potential organization of our workforce, employee strikes, and other labor-related disruption may adversely affect our operations
It is sometimes difficult for Lifted to identify and hire new employees when the labor market is tight. None of our employees are represented by a labor union or subject to a collective bargaining agreement. We cannot assure that our labor costs going forward will remain competitive based on various factors, such as: (i) labor costs may increase when the labor supply is tight; (ii) our workforce may organize in the future and labor agreements may be put in place that have significantly higher labor rates and company obligations; (iii) our competitors may maintain significantly lower labor costs, putting us at a competitive disadvantage; and (iv) our labor costs may increase in connection with our growth. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
Significant interruptions in our access to certain supply chains for key inputs such as raw materials, supplies, electricity, water and other utilities may impair our operations
Our business is dependent on a number of key inputs and their related costs, including raw materials, supplies and equipment related to our operations, co-packers, as well as electricity, water and other utilities. Our suppliers, co-packers and customers are dispersed. Governments may regulate or restrict the flow of labor or products, and the Company’s operations, suppliers, customers and distribution channels could be severely impacted. For examples: China could regulate or restrict the flow of raw materials and products to the United States; the shipment of raw materials and products by sea and/or air from China and other locations to Wisconsin may be disrupted, delayed or increased in cost; the Chinese New Year celebrations may disrupt or delay shipments of raw materials and products; and the State of Wisconsin could impose prohibitions or restrictions on the operation of “non-essential” businesses, and might characterize Lifted as a “non-essential” business. Any significant future governmental-mandated or market-related delay, interruption, price increase or negative change in the availability or economics of the supply chain for key inputs and, in particular, rising or volatile shipping and energy costs, could curtail or preclude our ability to continue production. In addition, our operations would be significantly affected by a prolonged power outage.
Our ability to compete is dependent on us having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that we will be successful in maintaining our required supply of labor, equipment, parts and components. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
We face risks associated with the transportation of our products to consumers in a safe and efficient manner
We depend on fast, cost-effective, and efficient transportation services to distribute our products to distributers, wholesalers and end users. Any prolonged disruption of third-party transportation services could have a material adverse effect on our sales volumes or satisfaction with our services. Rising costs associated with third-party transportation services used by us to ship our products may also adversely impact our profitability, and more generally our business, financial condition and results of operations. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
Our products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources
Manufacturers and distributors of hemp-derived products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, adulteration, unintended harmful side effects or interactions with other substances, packaging safety, and inadequate or inaccurate labeling disclosure. There can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits, whether frivolous or otherwise. If any of the products produced by us are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. As a result of any such recall, we may lose a significant amount of sales and may not be able to replace those sales at an acceptable gross profit or at all. In addition, a product recall may require significant management attention or damage our reputation and goodwill or that of our products or brands.
Additionally, product recalls may lead to increased scrutiny of our operations by the U.S. Food and Drug Administration or by state regulatory agencies, requiring further management attention, increased compliance costs and potential legal fees, fines, penalties and other expenses. Any product recall affecting the hemp-derived products industry more broadly, whether or not involving us, could also lead consumers to lose confidence in the safety and security of cannabis products generally, including products sold by us. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
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Companies and regulators in the marijuana industry are often hostile to the hemp-derived products industry, and sometimes use their political strength to seek prohibition, regulation and/or taxation of hemp-derived products including products containing delta-8-THC and delta-9-THC
Companies and regulators in the marijuana industry are often hostile to the hemp-derived products industry, as they witness the growing popularity of hemp-derived products taking sales away from licensed marijuana dispensaries. They sometimes use their political strength to seek prohibition, regulation and/or taxation of hemp-derived products including products containing delta-8-THC and delta-9-THC. Prohibitions, restrictions and taxes are now imposed on the shipment and/or sale of certain hemp-derived products in many states, and are being considered by other states. These restrictions, prohibitions and taxes could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to product liability claims or regulatory action if their products are alleged to have caused significant loss or injury
Lifted and target companies, as manufacturers and distributors of products which in some cases are ingested by humans, face the risk of exposure to product liability claims, regulatory action and litigation if their products are alleged to have caused loss or injury. Lifted and target companies may be subject to these types of claims due to allegations that their products caused or contributed to injury or illness, failed to include adequate instructions for use, or failed to include adequate warnings concerning possible side effects or interactions with other substances. Previously unknown adverse reactions resulting from human consumption of nicotine, hemp-derived ingredients, delta-8-THC, CBD, HHC, CBG, CBN and other cannabinoids, and other cannabis products alone or in combination with other medications or substances could also occur. In addition, the manufacture and sale of any such products, like the manufacture and sale of any ingested product, involves a risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Lifted and target companies may in the future have to recall certain of their products as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against Lifted or a target company could result in increased costs and could adversely affect Lifted’s or such target company’s reputation and goodwill with its customers. There can be no assurance that Lifted and target companies will be able to obtain product liability insurance on acceptable terms or with adequate coverage against potential liabilities, if at all. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured and also could adversely affect Lifted’s and target companies’ commercial arrangements with third parties. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to product liability claims or regulatory action if their products are alleged to have caused significant loss or injury
Lifted and target companies, as manufacturers and distributors of products which in some cases are ingested by humans, face the risk of exposure to product liability claims, regulatory action and litigation if their products are alleged to have caused loss or injury. Lifted and target companies may be subject to these types of claims due to allegations that their products caused or contributed to injury or illness, failed to include adequate instructions for use, or failed to include adequate warnings concerning possible side effects or interactions with other substances. Previously unknown adverse reactions resulting from human consumption of nicotine, hemp-derived ingredients, delta-8-THC, CBD, CBG, CBN and other cannabinoids, and other cannabis products alone or in combination with other medications or substances could also occur. In addition, the manufacture and sale of any such products, like the manufacture and sale of any ingested product, involves a risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Lifted and target companies may in the future have to recall certain of their products as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against Lifted or a target company could result in increased costs and could adversely affect Lifted’s or such target company’s reputation and goodwill with its customers. There can be no assurance that Lifted and target companies will be able to obtain product liability insurance on acceptable terms or with adequate coverage against potential liabilities, if at all. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured and also could adversely affect Lifted’s and target companies’ commercial arrangements with third parties. This could have a material adverse effect on our Company and the trading price of our common stock.
We rely on third-party distributors to distribute our products, and those distributors may not perform their obligations
We rely on third-party distributors to distribute our products. If these distributors do not successfully sell our products, if there is a delay or interruption in the distribution of our products, or if these third parties damage our products, it could negatively impact our revenue from product sales. Any damage to our products, such as product spoilage, could expose us to potential product liability, damage our reputation and the reputation of our brands or otherwise harm our business. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
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We rely on co-packers to manufacture some of our products, and those co-packers may not perform their obligations
We rely on third-party co-packers to manufacture some of our products. If these co-packers do not successfully carry out their contractual duties, if there is a delay or interruption in the manufacture of our products, or if these co-packers produce defective products, it could negatively impact our revenue from product sales. Any negative impact to the production of our products by the co-packers could expose us to potential product liability, damage our reputation and the reputation of our brands or otherwise harm our business. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
Certain events or developments in the cannabis industry more generally may impact our reputation
Damage to our reputation can result from the actual or perceived occurrence of any number of events, including any negative publicity, whether true or not. As a producer and distributor of hemp-derived products, there is a risk that our business might attract negative publicity. There is also a risk that the actions of other companies and service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively impact our reputation. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share negative opinions and views in regards to our activities and the cannabis industry in general, whether true or not. We do not ultimately have direct control over how we or the cannabis industry is perceived by others. Reputational issues may result in decreased investor confidence, increased challenges in developing and maintaining community relations and present an impediment to our overall ability to advance our business strategy and realize on our growth prospects. This could also impact our ability to attract and/or maintain business partners that are not primarily engaged in the cannabis business, such as major convenience stores. All of these factors could have a material adverse effect on our Company and the trading price of our common stock.
Some companies in the cannabis industry are owned or controlled by people with criminal backgrounds or by people with little regard for compliance with applicable laws, rules and regulations
The cannabis industry includes people with criminal backgrounds or who operated their cannabis businesses illegally for many years. In addition, the cannabis industry includes people who seems to have little regard for compliance with all applicable laws, rules and regulations. This has sometimes resulted in a competitive environment in which publicly traded companies are at a relative disadvantage to certain privately held companies. This “unlevel playing field” could have a material adverse effect on our Company and the trading price of our common stock.
The seasonality of Lifted’s and target companies’ businesses may place increased strain on their operations
Lifted and target companies may expect a disproportionate amount of their net sales to occur during a particular quarter. If Lifted and target companies do not stock or restock popular products in sufficient amounts such that they fail to meet customer demand, it could significantly affect Lifted’s and target companies’ revenue and their future growth. If Lifted and target companies overstock products, they may be required to take significant inventory markdowns or write-offs and incur commitment costs, which could reduce profitability. If too many customers access Lifted’s and target companies’ websites within a short period of time due to increased demand, Lifted and target companies may experience system interruptions that make their websites unavailable or prevent Lifted and target companies from efficiently fulfilling orders, which may reduce the volume of goods they sell and the attractiveness of their products and services. In addition, Lifted and target companies may be unable to adequately staff their fulfillment network and customer service centers during these peak periods and may be unable to meet the seasonal demand. All of these situations could have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to identify, audit, negotiate, finance or close future acquisitions
A significant component of our growth strategy focuses on acquiring minority or majority equity ownership interests in Canna-Infused Products Companies. We may not, however, be able to identify, audit, or acquire such equity ownership interests on acceptable terms, if at all. Additionally, we may need to finance all or a portion of the purchase price for an acquisition by incurring indebtedness or by selling shares of our common or convertible preferred stock. There can be no assurance that we will be able to obtain financing on terms that are favorable, if at all, which will limit our ability to acquire such equity ownership interests in the future. Target companies may not decide to proceed forward with mergers that are the subject of letters of intent. Failure to acquire such equity ownership interests on acceptable terms, if at all, would have a material adverse effect on our ability to increase assets, revenues and net income and on the trading price of our common stock.
Canna-Infused Products Companies and nicotine industry companies are subject to regulatory risks, both nationally and internationally
Lifted, Ablis and other Canna-Infused Products Companies are subject to risks associated with the federal government’s and state and local governments’ evolving regulation of hemp, hemp oil, hemp-derived ingredients, delta-8-THC, delta-9-THC, CBD, CBG, CBN and other cannabinoids, tobacco, nicotine, and other products. We can provide no assurance that one or more federal agencies, such as the US Food and Drug Administration (the “FDA”), the US Drug Enforcement Administration (“DEA”), or state and local governments will not attempt to impose rules, regulations, moratoriums, prohibitions, or other restrictions or impediments upon Canna-Infused Products Companies and nicotine industry companies.
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For example, the US federal government has recently enacted a law that may make it more difficult to sell online and ship nicotine, vape and other products. In addition, several states have enacted laws and regulations that prohibit or otherwise negatively impact the sale of certain cannabinoid-infused and nicotine products.
Moreover, if Canna-Infused Products Companies and nicotine industry companies expand internationally (of which there is no guarantee that they ever would), we can provide no guarantee or assurance that Canna-Infused Products Companies or nicotine industry companies will be able to comply with all applicable governmental laws and regulations. Such regulatory action could have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s sales are dependent upon the sale of delta-8-THC products, which may be restricted or prohibited by the DEA or other governmental laws or regulations
Lifted’s sales are significantly dependent upon the sale of products containing hemp-derived delta-8-THC. The DEA and other federal, state and local governments and agencies may impose laws, rules, regulations and executive orders that effectively prohibit Lifted from selling delta-8-THC products. Consequently, Lifted’s and LFTD Partners’ future financial prospects are uncertain, and no guarantee or assurance whatsoever can be made that Lifted and LFTD Partners will be able to continue to pay their financial obligations when they become due and payable in the future. This risk could have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on our operations
We may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on our operations. Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring additional indebtedness or stock dilution; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; and (vi) the loss or reduction of control over certain of our assets. Material acquisitions have been and may continue to be material to our business strategy. There is no guarantee that any acquisition will be accretive. The existence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition could result in our incurring those liabilities. A strategic transaction may result in a significant change in the nature of our business, operations and strategy, and we may encounter unforeseen obstacles or costs in closing or implementing a strategic transaction or integrating any acquired business into our operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may seek to enter into marketing relationships, affiliations, strategic alliances, or expand the scope of currently existing relationships, with third parties that Lifted and target companies believe will have a beneficial impact on them, and there are risks that such strategic alliances or expansions of Lifted’s and target companies’ currently existing relationships may not enhance their businesses in the desired manner
Lifted and target companies may expand the scope of, and may in the future enter into, strategic alliances with third parties that they believe will complement or augment their existing businesses. Their ability to complete further strategic alliances is dependent upon, and may be limited by, among other things, the availability of suitable candidates and capital. In addition, strategic alliances could present unforeseen integration obstacles or costs, may not enhance their businesses, and may involve risks that could adversely affect them, including the investment of significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances. Lifted and target companies may become dependent on their strategic partners and actions by such partners could harm their businesses. Future strategic alliances could result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will be developed, maintained or achieve the expected benefits to their businesses or that they will be able to consummate future strategic alliances on satisfactory terms, or at all. This could have a material adverse effect on our Company and the trading price of our common stock.
Third parties with whom we do business may perceive themselves as being exposed to reputational risk as a result of their relationship with us
The parties with whom we do business, or would like to do business, may perceive that they are exposed to reputational risk as a result of our business activities relating to hemp and nicotine, which could hinder our ability to establish or maintain business relationships. These perceptions relating to the hemp and nicotine industries may interfere with our relationship with service providers, particularly in the financial services industry in the United States and jurisdictions where cannabis is not legal. This could have a material adverse effect on our Company and the trading price of our common stock.
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Lifted and target companies rely on third-party distributors to distribute a portion of their products, and those distributors may not perform their obligations or may have allegiances to their own or other competitors’ products
Lifted and target companies rely on third-party distributors to distribute a portion of their products. If these distributors do not successfully carry out their contractual duties, if these distributors have allegiances to their own or other competitors’ products, if there is a delay or interruption in the distribution of Lifted’s or target companies’ products, or if these third parties damage Lifted’s or target companies’ products in transit, it could negatively impact Lifted’s and target companies’ revenue from product sales. Any damage to Lifted’s and target companies’ products could expose Lifted and target companies to potential product liability, damage the reputation of Lifted’s and target companies’ brands or otherwise harm Lifted’s and target companies’ businesses. The foregoing factors and issues associated with third-party distributors could have a material adverse effect on our Company and the trading price of our common stock.
The US FDA appears to be hostile to many cannabinoid-infused products
The FDA appears to be hostile to many cannabinoid-infused products. The FDA appears to believe that certain cannabinoids like CBD are drugs, and therefore that the sale of certain cannabinoid-infused products without FDA approval is illegal. In deference to the FDA, various states and municipalities have declared that the sale of certain cannabinoid-infused products are illegal. There can be no guarantee or assurance whatsoever that this regulatory hostility to cannabinoids will be resolved favorably to the cannabinoid products industry. Aggressive law enforcement against the cannabinoid industry by federal, state or local authorities and agencies could have a material adverse effect upon Lifted and the trading price of our common stock.
Hemp-derived cannabinoid-infused products may be shown to have negative health and/or safety impacts upon consumers
The health and safety impacts of cannabinoids have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that certain cannabinoids may have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. If the FDA, scientific research and/or clinical studies ultimately demonstrate negative health and/or safety impacts of cannabinoids upon consumers, then Lifted’s business and the trading price of our common stock could be materially adversely affected.
Hemp and hemp-derived cannabinoid-infused products are federally illegal if they exceed 0.3% delta-9-THC
Hemp and hemp-derived cannabinoid-infused products which exceed a delta-9-THC concentration of 0.3% are federally illegal. Certain states may consider hemp and cannabinoid infused products which exceed 0.3% total THC to be illegal.
Any failure to keep the delta-9-THC or total THC concentration in hemp or cannabinoid-infused products below the applicable legal standard could subject Lifted and target companies to action by regulatory authorities and/or to lawsuits by consumers, which could have a material adverse effect upon Lifted’s business and the trading price of our common stock.
In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the delta-9-THC levels reflected in consumers’ blood tests are the result of cannabinoid-infused products or delta-9-THC-infused products. This may result in regulatory actions or lawsuits that could have a material adverse effect upon Lifted’s business and the trading price of our common stock.
Also, certain hemp and hemp-derived products may, over time, gradually increase their delta-9-THC or total THC concentration, and this may ultimately cause such products to exceed the applicable concentration level, making such products illegal in certain jurisdictions. If this happens, we could be subject to regulatory action that could have a material adverse effect upon Lifted and the trading price of our common stock.
Also, federal and state authorities may seek to classify other cannabinoids that naturally occur in hemp, such as delta-8-THC, as illegal. If this happens, we could be subject to regulatory action that could have a material adverse effect upon Lifted and the trading price of our common stock.
The price of cannabinoid raw materials could spike as demand for cannabinoid-infused products increases
Although considerable hemp acreage has been and reportedly is being developed around the country, which is expected to increase the supply of hemp-derived CBD, delta-8-THC and other cannabinoids, the demand for these raw materials reportedly is also growing, and any spike in the price of these raw materials could materially adversely affect Lifted and the trading price of our common stock.
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Target companies may not be of the same caliber company as previous acquisitions, or target companies’ management may not fit well into our corporate culture
If we acquire a company that is not of the same caliber company as Lifted, or if we acquire a company that does not have management that is as talented and high energy as Lifted’s management, or for whatever reason the management of the acquired company does not fit in well with the rest of our team, we may become less attractive for potential investors, future acquisition targets may be uninterested in merging into our Company, and the overall camaraderie among the players in our Company may disappear, which could materially adversely affect our Company and the price of our stock.
Lifted and target companies may be unable to keep pace with rapid industry, technological and market changes
Lifted and target companies may be unable to keep pace with rapid industry, technological and market changes that could affect Lifted’s and target companies’ services, products and businesses, or so keeping pace may require a substantial amount of Lifted’s management time and substantial fees being paid to outside legal counsel and consultants, all of which could materially adversely affect our Company and the trading price of our common stock.
Large competitors are expected to enter the nicotine pouch and cannabinoid-infused product industries
We expect that over the next few years major chain stores, manufacturers, retailers, beverage and other consumer products companies, and distributors, with tremendous financial resources and marketing expertise will emerge to compete against Lifted and target companies in the nicotine pouch and cannabinoid-infused products industries. Lifted and target companies may not have the personnel, products, marketing and distribution capabilities, and/or financial resources to compete effectively against such larger companies, which could materially adversely affect our Company and the trading price of our common stock.
Increases in labor costs could harm Lifted’s and target companies’ businesses
The U.S. in general, and Bend, Oregon in particular, have experienced very low unemployment, and higher minimum wages, which generally results in rising labor costs. Such rising labor costs are adversely affecting the expenses of Ablis, Bendistillery and Bend Spirits, and may adversely affect the expenses of Lifted and target companies’ businesses, which could materially adversely affect our Company and the trading price of our common stock.
We cannot predict the effect of inquiries from and/or actions by the DEA, the FDA, state attorneys general, other government agencies and/or quasi-government agencies into the production, advertising, marketing, promotion, labeling, ingredients, usage and/or sale of Lifted’s and target companies’ products
Lifted and target companies are subject to the risks of investigations and/or enforcement actions by the DEA, the FDA, state attorneys general and/or other government and/or quasi-governmental agencies relating to the advertising, marketing, promotion, ingredients, usage and/or sale of their products. If an inquiry by the DEA, the FDA, a state attorney general or other government or quasi-government agency finds that Lifted’s or target companies’ products and/or the advertising, marketing, promotion, ingredients, usage and/or sale of such products are not in compliance with applicable laws or regulations, Lifted or target companies may become subject to fines, product reformulations, container changes, changes in the usage or sale of Lifted’s or target companies’ products, changes in their advertising, marketing and promotion practices, and/or injunctions on the sale of the products, each of which could have a material adverse effect on our business, financial condition or results of operations and on the trading price of our common stock.
We may be required to obtain state, DEA and/or FDA permits, certifications and/or approvals in order to conduct business
Lifted and target companies may be required to obtain and maintain state, DEA and/or FDA permits, certifications and/or approvals in order to conduct business involving nicotine, delta-8-THC, delta-9-THC, HHC, CBD, CBG, CBN and other hemp-derived cannabinoids, food, other edibles, and non-prescription cannabinoid formulations. These permits, certifications and/or approvals may not be obtainable, or obtaining and maintaining them may involve enormous expenditures of time and money for consultants, studies, facilities, compliance, purchases, acquisitions and other matters. Failure to obtain and maintain all necessary permits, certifications and approvals, or the enormous expenditures of time and money associated with obtaining and maintaining all necessary permits, certifications and approvals, could have a material adverse effect on our business, financial condition or results of operations and on the trading price of our common stock.
Litigation regarding Lifted’s and target companies’ business and products, and related unfavorable media attention, could expose Lifted and target companies to significant liabilities and reduce demand for their products
From time to time third parties may claim that certain statements made in Lifted’s and target companies’ advertisements, certificates of analysis and/or on the labels of their products were false and/or misleading or otherwise not in compliance with standards applicable to food, other edibles, or non-prescription cannabinoid formulations under local, state or federal law, and/or that their products are not safe. Pending or threatened business-related and product-related litigation could consume significant financial and managerial resources and result in decreased demand for Lifted’s and target companies’ products, significant monetary awards against Lifted and target companies, and injury to Lifted’s and target companies’ and their respective management’s reputations. This could have a material adverse effect on our Company and the trading price of our common stock.
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Criticism of Lifted’s and target companies’ products and/or criticism or a negative perception of Lifted’s and target companies’ industries, could adversely affect Lifted and target companies
Unfavorable reports on the health effects or pricing of Lifted’s and target companies’ products, including product safety concerns, whether generated by scientists, government regulators, industry groups, or on social media could have an adverse effect on Lifted’s and target companies’ businesses, financial conditions and results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Vape, e-liquid, e-cigarette, and nicotine pouch product risks
Some of Lifted’s and target companies’ inhalable products may contain nicotine. There is a risk that Lifted and target companies could be targeted by regulators or consumers with claims that their products are unsafe. The market for vapes, e-liquid, e-cigarettes, nicotine pouches, and associated cartridges and paraphernalia is currently subjected to regulations and prohibitions of certain products in certain jurisdictions in response to deaths and illnesses that have occurred and that are apparently associated with vaping, and also in response to other health concerns of various types. These various prohibitions and regulations may have a material adverse effect on Lifted’s and target companies’ financial condition, operating results, liquidity, cash flow and operational performance. This could have a material adverse effect on our Company and the trading price of our common stock.
Sales of Lifted’s and target companies’ vape products are subject to uncertainty in the evolving vape market due to negative public sentiment and regulatory scrutiny
Vaping and electronic cigarettes were recently developed and therefore the scientific community has not yet had a sufficient period of time to study the long-term health effects of their use. Currently, there is no way of knowing whether these products are safe for their intended use and the medical community is still studying these products’ health effects. If the scientific community were to determine conclusively that use of any or all of these products poses long-term health risks, then market demand for these products and their use could materially decline. Such a determination could also lead to litigation and significant regulation. Loss of demand for vape products, product liability claims and increased regulation stemming from unfavorable scientific studies on cannabis vaping products could have a material adverse effect on Lifted’s and target companies’ businesses, results of operations and financial condition. This could have a material adverse effect on our Company and the trading price of our common stock.
Research regarding the health effects of hemp-derived products is in relatively early stages and subject to further study which could impact demand for hemp-derived products
Research and clinical trials on the potential benefits and the short-term and long-term effects of cannabis use on human health remains in relatively early stages and there is limited standardization. As such, there are inherent risks associated with using hemp-derived products. Moreover, future research and clinical trials may reach different or negative conclusions regarding the benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabis, which could adversely affect social acceptance of cannabis and the demand for Lifted’s and target companies’ products.
Lifted’s and target companies’ inability to innovate successfully and to provide new cutting edge products could adversely affect Lifted’s and target companies’ businesses and financial results
Lifted’s and target companies’ ability to compete in their highly competitive industries and to achieve their business growth objectives depends, in part, on their ability to develop new products and packaging. The success of their innovation, in turn, depends on their ability to identify consumer trends and cater to consumer preferences. If they are not successful in their innovation activities, then their businesses, financial conditions and results of operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
Changes in consumer preferences may reduce demand for some of Lifted’s and target companies’ products
Lifted’s and target companies’ industries are subject to changing consumer preferences and shifts in consumer preferences may adversely affect Lifted and target companies. Lifted’s and target companies’ future success will depend, in part, upon their continued ability to develop and introduce different and innovative products that appeal to consumers. In order to retain and expand their market share, Lifted and target companies must continue to develop and introduce different and innovative products, although there can be no assurance of Lifted’s and target companies’ ability to do so. There is no assurance that consumers will continue to purchase Lifted’s and target companies’ products in the future. Product lifecycles for some brands, products and/or packages may be limited to a few years before consumers’ preferences change. The products Lifted and target companies currently market are in varying stages of their product lifecycles, and there can be no assurance that such products will become or remain profitable for Lifted and target companies. Lifted and target companies may be unable to achieve volume growth through product and packaging initiatives. Lifted and target companies may also be unable to penetrate new markets. Additionally, as shopping patterns are being affected by the digital evolution and pandemics, with customers embracing shopping by way of mobile device applications, e-commerce retailers and e-commerce websites or platforms, Lifted and target companies may be unable to address or anticipate changes in consumer shopping preferences. If Lifted’s and target companies’ revenues decline, their businesses, financial conditions and results of operations could be adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
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Any expansion of Lifted and target companies outside of the United States exposes Lifted and target companies to uncertain conditions and other risks in international markets
As Lifted’s and target companies’ growth strategy includes expanding internationally, if Lifted and target companies are unable to expand distribution of their products outside the United States, their growth rate could be adversely affected. In many international markets, Lifted and target companies have limited operating experience and in some areas they have no operating experience. It is costly to establish, develop and maintain international operations and to develop and promote brands in international markets. Their percentage gross profit margins in many international markets are expected to be less than the comparable percentage gross profit margins obtained in the United States. Lifted and target companies face and will continue to face substantial risks associated with having foreign operations, including: economic and/or political instability in their international markets; unfavorable foreign currency exchange rates; restrictions on or costs relating to the repatriation of foreign profits to the United States, including possible taxes and/or withholding obligations on any repatriations; and tariffs and/or trade restrictions. These risks could have a significant impact on their ability to sell their products on a competitive basis in international markets and could have a material adverse effect on their businesses, financial conditions and results of operations. Also, their operations outside of the United States are subject to risks relating to appropriate compliance with legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations, higher product damages, particularly when products are shipped long distances, potentially higher incidence of fraud and/or corruption, credit risk of local customers and distributors and potentially adverse tax consequences. This could have a material adverse effect on our Company and the trading price of our common stock.
Global or regional catastrophic events could impact Lifted’s and target companies’ operations and affect their ability to grow their businesses
Lifted’s and target companies’ businesses could be affected by unstable political conditions, civil unrest, large-scale terrorist acts, especially those directed against the United States or other major industrialized countries where their products are distributed, the outbreak or escalation of armed hostilities, major natural disasters or widespread outbreaks of infectious diseases such as COVID-19 and its mutations. Such events could impact the production and/or distribution of their products. In addition, such events could disrupt global or regional economic activity, which could affect consumer purchasing power, thereby reducing demand for their products. If they are unable to grow their businesses internationally as a result of these factors, their growth rate could decline. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may rely on laboratories, private label manufacturers, bottlers and other contract packers to manufacture their products
Lifted and target companies may not manufacture finished goods, but instead outsource manufacturing of their finished goods to laboratories, private label manufacturers, bottlers and other contract packers. As a result, in the event of a disruption and/or delay, Lifted and target companies may be unable to procure alternative packing facilities at commercially reasonable rates and/or within a reasonably short time period. If Lifted and target companies are unable to maintain good relationships with their largest co-packers, or if their costs of co-packing increase, their businesses, financial conditions and results of operations could be adversely affected.
Lifted does not have exclusive contracts with some of their contract manufacturers, which subjects Lifted to the risk that those contract manufacturers could sell the same products to Lifted’s competitors. In some cases, Lifted’s and target companies’ contract manufacturers may be affiliated with and manufacture other cannabinoid-infused product brand products or tobacco-free nicotine pouch brands. In such cases, such products compete directly with Lifted’s, and target companies’ products.
Lifted’s contract manufacturers may make products that sometimes fail to meet Lifted’s standards. This subjects Lifted to the risk that distributors, retail locations and consumers may be dissatisfied with Lifted’s products and demand a refund or a credit, and/or may refuse in the future to purchase Lifted’s products. In addition, Lifted’s contract manufacturers may not deliver their products to Lifted on schedule. Delays in scheduled product deliveries may cause distributors, retail locations and consumers to not purchase Lifted’s products, damaging Lifted’s brand reputation.
These risks could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may rely upon third parties to carry and market their products
Unilateral decisions could be taken by Lifted’s and target companies’ bottlers, distributors and white label manufacturers, and by convenience and gas chains, grocery chains, specialty chain stores, club stores and other customers, to discontinue carrying certain or all of Lifted’s and target companies’ products that they are carrying at any time, which could cause Lifted’s and target companies’ businesses to suffer.
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The marketing efforts of Lifted’s and target companies’ distributors are important for Lifted’s and target companies’ success. If Lifted’s and target companies’ brands prove to be less attractive to Lifted’s and target companies’ existing bottlers, distributors and white label manufacturers, or if Lifted and target companies fail to attract additional bottlers, distributors and white label manufacturers, and/or if Lifted’s and target companies’ bottlers, distributors and white label manufacturers do not market, promote and distribute Lifted’s and target companies’ products effectively, their businesses, financial conditions and results of operations could be adversely affected.
These risks could have a material adverse effect on our Company and the trading price of our common stock.
Increases in costs and/or shortages of raw materials and/or ingredients and/or fuel and/or costs of co-packing could harm Lifted’s and target companies’ businesses
The costs and availability of the raw materials used by Lifted and target companies are subject to fluctuations. For certain terpenes, flavors, formulas and other products purchased from third-party suppliers, these suppliers own the proprietary rights to certain of their products. Lifted and target companies do not have possession of the list of the ingredients or formulas used in the production of certain of their products and certain of their blended concentrates, and Lifted and target companies may be unable to obtain comparable products from alternative suppliers on short notice. Industry-wide shortages of certain products have been, and could from time to time in the future be, encountered, which could interfere with and/or delay production of certain of Lifted’s and target companies’ products. In addition, certain of Lifted’s and target companies’ co-packing arrangements may allow such co-packers to increase their fees based on certain of their own cost increases. The prices of any of the above or any other raw materials or ingredients may continue to rise or may rise in the future. Lifted and target companies may or may not be able to pass any of such increases on to their customers. In recent years, the United States has imposed tariffs on many products and goods imported from China and certain other countries. Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs. In addition, some of these raw materials, including certain sizes of cans, are available from limited suppliers. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s and target companies’ failure to accurately estimate demand for their products could adversely affect their businesses and financial results
Lifted and target companies may not correctly estimate demand for their existing products and/or new products. Their ability to estimate demand for their products is imprecise, particularly with regard to new products, and may be less precise during periods of rapid growth, particularly in new markets. If Lifted and target companies materially underestimate demand for their products or are unable to secure sufficient ingredients or raw materials or experience difficulties with their co-packing arrangements, including production shortages or quality issues, they might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain raw materials and products have been and could, from time to time in the future, be experienced, resulting in production fluctuations and/or product shortages. Such shortages could interfere with and/or delay production of certain of their products and could have a material adverse effect on their business and financial results. This could have a material adverse effect on our Company and the trading price of our common stock.
If Lifted and target companies do not maintain sufficient inventory levels, if Lifted and target companies are unable to deliver their products to their customers in sufficient quantities, and/or if Lifted and target companies’ customers’ or retailers’ inventory levels are too high, Lifted and target companies’ operating results could be adversely affected
If Lifted and target companies do not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, their inventory levels may be inadequate and their results of operations may be negatively impacted. If Lifted and target companies fail to meet their shipping schedules, Lifted and target companies could damage their relationships with distributors and/or retailers, increase their distribution costs and/or cause sales opportunities to be delayed or lost. In order to be able to deliver their products on a timely basis, Lifted and target companies need to maintain adequate inventory levels of the desired products. If the inventory of their products held by their distributors and/or retailers is too high, they will not place orders for additional products, which could unfavorably impact Lifted’s and target companies’ future sales and adversely affect their operating results. This could have a material adverse effect on our Company and the trading price of our common stock.
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The costs of packaging supplies are subject to price increases from time to time, and Lifted and target companies may be unable to pass all or some of such increased costs on to their customers
Lifted’s and target companies’ packaging suppliers may increase the costs they charge Lifted and target companies for packaging supplies based on changes in the costs of the underlying commodities that are used to produce those packaging supplies. If the costs of these packaging supplies increase, Lifted and target companies may be unable to pass these costs along to their customers through corresponding adjustments to the prices they charge, which could have a material adverse effect on their results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
If Lifted and target companies encounter product recalls, their businesses may suffer and they may incur material losses
Lifted and target companies may be required from time to time to recall products entirely or from specific co-packers, markets or batches if such products become contaminated, damaged, mislabeled, cause fires, explode or otherwise become materially non-compliant with applicable regulatory requirements. Material product recalls could adversely affect Lifted’s and target companies’ profitability and their brand images. Lifted and target companies may not maintain recall insurance. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s and target companies’ working capital may be inadequate or strained, and the issue may be exacerbated by account receivable collection issues
The COVID-19 pandemic has imposed significant financial stress on the industries in which Lifted participates. This stress, in certain cases, has caused distributors to refuse to make up-front payments, or to refuse to make timely payments on purchases, from suppliers such as Lifted. Some distributors are apparently so cash-strapped that they are demanding that products be supplied to them on consignment, or be subject to shelf-stocking fees. This difficult financial environment has strained Lifted’s working capital balance, and has made it increasingly difficult for Lifted to aggressively purchase the larger quantities of raw materials and inventory that are needed to fuel Lifted’s growth. Lifted’s inadequate or strained working capital, which is exacerbated by account receivable collection issues, could have a material adverse effect on our Company and on the trading price of our common stock.
Lifted and target companies may be subject to payments-related risks and costs
Lifted and target companies may accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. For existing and future payment options Lifted and target companies offer to their customers, Lifted and target companies may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in significant costs and reduce the ease of use of their payments products), as well as fraud. For certain payment methods, including credit and debit cards, Lifted and target companies pay interchange and other fees, which may increase over time and raise their operating costs and lower profitability. Lifted and target companies may rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing. In each case, it could disrupt Lifted’s and target companies’ businesses if these companies become unwilling or unable to provide these services to Lifted and target companies. Lifted and target companies may also be subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for Lifted and target companies to comply. If Lifted and target companies fail to comply with these rules or requirements, or if Lifted and target companies’ data security systems are breached, compromised, or otherwise unable to detect or prevent fraudulent activity, Lifted and target companies may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and may lose their ability to accept credit and debit card payments from their customers, process electronic funds transfers, or facilitate other types of online payments, and Lifted’s and target companies’ businesses and operating results could be adversely affected. Lifted and target companies may also be subject to or voluntarily comply with a number of other laws and regulations relating to payments, money laundering, international money transfers, privacy and information security, and electronic fund transfers. If Lifted and target companies were found to be in violation of applicable laws or regulations, Lifted and target companies could be subject to additional requirements and civil and criminal penalties, or forced to cease providing certain services. All of these risks could have a material adverse effect on our Company and the trading price of our common stock.
If Lifted and target companies are not able to retain the full-time services of senior management, there may be an adverse effect on their operations and/or their operating performance until Lifted and target companies find suitable replacements
Lifted and target companies’ businesses are dependent, to a large extent, upon the services of their senior management. Lifted and target companies may not maintain key person life insurance on any members of their senior management. The loss of services of Lifted’s and target companies’ senior management could adversely affect their businesses until suitable replacements can be found. There may be a limited number of personnel with the requisite skills to serve in these positions, and Lifted and target companies may be unable to locate or employ such qualified personnel on acceptable terms. The loss of the services of Lifted’s CEO NWarrender would be especially damaging to Lifted’s business. This could have a material adverse effect on our Company and the trading price of our common stock.
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Lifted and target companies may have limited access to financial and insurance services and products
Some financial institutions and insurance companies refuse to provide a full range of financial and insurance services and products to Lifted because its business involves CBD, delta-8-THC, delta-9-THC and other hemp-derived cannabinoids, vaping products, and nicotine products. This could have a material adverse effect on our Company and the trading price of our common stock.
Climate change may negatively affect Lifted’s and target companies’ businesses
There is concern that a gradual increase in global average temperatures due to increased carbon dioxide and other greenhouse gases in the atmosphere could cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Changing weather patterns could result in decreased agricultural productivity in certain regions, which may limit availability and/or increase the cost of cannabinoids and other ingredients used in Lifted’s and target companies’ products and could impact the food security of communities around the world. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt Lifted’s and target companies’ supply chains (including, without limitation, the availability of, and/or result in higher prices for raw goods and finished goods) and/or impact demand for Lifted’s and target companies’ products. Natural disasters and extreme weather conditions, such as hurricanes, wildfires, earthquakes or floods, may affect Lifted’s and target companies’ operations and the operation of Lifted’s and target companies’ supply chains and unfavorably impact the demand for, or Lifted’s and target companies’ consumers’ ability to purchase, Lifted’s and target companies’ products. The predicted effects of climate change may also result in challenges regarding availability and quality of water, or less favorable pricing for water, which could adversely impact Lifted’s and target companies’ businesses and results of operations. In addition, public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs, and may require Lifted and target companies to make additional investments in facilities and equipment. As a result, the effects of climate change could have a long-term adverse impact on Lifted’s and target companies’ businesses and results of operations. Sales of Lifted’s and target companies’ products may also be influenced to some extent by weather conditions in the markets in which Lifted’s and target companies operate. Weather conditions may influence consumer demand for certain of Lifted’s and target companies’ products, which could have an effect on Lifted’s and target companies’ operations, either positively or negatively. This could have a material adverse effect on our Company and the trading price of our common stock.
Potential changes in accounting standards or practices and/or taxation or new accounting standards may adversely affect Lifted’s and target companies’ financial results
From time to time, the Financial Accounting Standards Board, the SEC and other regulatory bodies may issue new and revised standards, interpretations and other guidance that change Generally Accepted Accounting Principles in the United States (“GAAP”). Future changes in accounting standards or practices may have an impact on Lifted’s and target companies’ financial results. New accounting standards could be issued that change the way Lifted and target companies record revenues, expenses, assets and liabilities. The effects of such changes may include prescribing an accounting method where none had been previously specified, prescribing a single acceptable method of accounting from among several acceptable methods that currently exist, or revoking the acceptability of a current method and replacing it with an entirely different method, among others. These changes in accounting standards could adversely affect Lifted and target companies’ reported earnings or results of operations, financial condition and other financial measurers. Increases in direct and indirect income tax rates could affect after-tax income. Equally, increases in indirect taxes (including environmental taxes pertaining to the disposal of beverage containers and/or indirect taxes on beverages) could affect Lifted’s and target companies’ products’ affordability and reduce Lifted’s and target companies’ sales. This could have a material adverse effect on our Company and the trading price of our common stock.
Fluctuations in Lifted’s and target companies’ effective tax rates could adversely affect their financial conditions and results of operations
Lifted and target companies may be subject to income and other taxes in both the U.S. and certain foreign jurisdictions. Therefore, Lifted and target companies may be subjected to audits for multiple tax years in various jurisdictions at once. At any given time, events may occur which change Lifted’s and target companies’ expectations about how any such tax audits will be resolved and thus, there could be variability in Lifted’s and target companies’ quarterly and/or annual tax rates, because these events may change Lifted’s and target companies’ plans for uncertain tax positions. On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act, which imposes broad and complex changes to the U.S. tax code and may have tax implications for Lifted and target companies. This could have a material adverse effect on our Company and the trading price of our common stock.
Growth of operations will depend on the acceptance of Lifted’s and target companies’ products and consumer discretionary spending
The acceptance of Lifted’s and target companies’ hemp-derived products and nicotine pouches by both retailers and by consumers is critically important to their success. Shifts in retailer priorities and shifts in user preferences away from Lifted’s and target companies’ products, Lifted’s and target companies’ inability to develop products that appeal to both retailers and consumers, or changes in Lifted’s and target companies’ products that eliminate items popular with some consumers could harm their business. Also, their success will depend to a significant extent on discretionary user spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, Lifted and target companies may experience an inability to generate revenue during economic downturns or during periods of uncertainty, such as during pandemics, when users may decide to purchase products that are cheaper or to forego purchasing any type of Lifted’s and target companies’ products, due to a lack of available capital. Any material decline in the amount of discretionary spending could have a material adverse effect on Lifted’s and target companies’ sales, results of operations, business and financial condition. This could have a material adverse effect on our Company and the trading price of our common stock.
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We cannot be certain that the products that Lifted and target companies offer will become, or continue to be, appealing and as a result there may not be any demand for these products and Lifted’s and target companies’ sales could decrease, which would result in a loss of revenue. Additionally, there is no guarantee that interest in Lifted’s and target companies’ products will continue, which could adversely affect Lifted’s and target companies’ business and revenues
Demand for cannabinoid-infused products and nicotine pouches that Lifted and target companies sell depends on many factors, including the number of customers that Lifted and target companies are able to attract and retain over time, and the competitive environments in Lifted’s and target companies’ industries. This may force Lifted and target companies to reduce prices below their desired pricing levels or increase promotional spending. Inability to anticipate changes in user preferences and to meet consumer’s needs in a timely and cost-effective manner all could result in immediate and longer term declines in the demand for the products Lifted and target companies plan to offer, which could adversely affect Lifted’s and target companies’ sales, cash flows and overall financial conditions. This could have a material adverse effect on our Company and the trading price of our common stock.
Competition that Lifted and target companies face is varied and strong
Lifted’s and target companies’ products and industries are subject to intense competition. There is no guarantee that Lifted and target companies can develop or sustain a market position or expand their businesses. We anticipate that the intensity of competition in the future will increase.
Lifted and target companies compete with a number of entities in providing products to their customers. Such competitor entities include: (1) a variety of large multinational corporations, including but not limited to companies that have established loyal customer bases over several decades; (2) companies that have an established customer base, and have the same or a similar business plan as Lifted and target companies do and may be looking to expand nationwide; and (3) a variety of other local and national companies with which Lifted and target companies either currently or may, in the future, compete.
Many of Lifted’s and target companies’ current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources, and greater name and brand recognition than Lifted and target companies have. As a result, these competitors may have greater credibility with both existing and potential customers. They also may be able to offer more products and more aggressively promote and sell their products. Lifted’s and target companies’ competitors may also be able to support more aggressive pricing than Lifted and target companies will be able to, which could adversely affect sales, cause Lifted and target companies to decrease their prices to remain competitive, or otherwise reduce the overall gross profit earned on Lifted’s and target companies’ products. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s and target companies’ industries require the attraction and retention of talented employees
Success in Lifted’s and target companies’ industries does and will continue to require the acquisition and retention of highly talented and experienced individuals. Due to the growth in the cannabinoid industry, such individuals and the talent and experience they possess is in high demand. There is no guarantee that Lifted and target companies will be able to attract and maintain access to such individuals. The attraction and retention of such individuals may require the Company to offer stock, warrants and/or bonuses as incentives. If Lifted and target companies fail to attract, train, motivate and retain talented personnel, Lifted’s and target companies’ businesses, financial conditions, and operating results may be materially and adversely impacted. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies depend on a limited number of suppliers of raw and packaging materials
Lifted and target companies rely upon a limited number of suppliers for raw and packaging materials used to make and package their products. Lifted’s and target companies’ success will depend in part upon their ability to successfully secure such materials from suppliers that are delivered with consistency and at a quality that meets their requirements. The price and availability of these materials are subject to market conditions. Increases in the price of Lifted’s and target companies’ products due to the increase in the cost of raw materials could have a negative effect on their business.
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If Lifted and target companies are unable to obtain sufficient quantities of raw and packaging materials, delays or reductions in product shipments could occur which would have a material adverse effect on Lifted’s and target companies’ businesses, financial conditions and results of operations. If Lifted and target companies’ packaging suppliers replicate and sell Lifted’s or target companies’ proprietary or custom packaging designs to competitors, or disclose to competitors Lifted’s or target companies’ future products, there could be material adverse effects on Lifted’s and target companies’ businesses, financial conditions and results of operations. The supply and price of raw materials used to produce Lifted’s and target companies’ products can be affected by a number of factors beyond Lifted’s and target companies’ control, such as political tensions between the US and China, tariffs, freight- and port-related backups and other logistical problems, wildfires, frosts, droughts, other weather conditions, economic factors affecting growing decisions, and various plant diseases and pests. If any of the foregoing were to occur, no assurance can be given that such condition would not have a material adverse effect on Lifted’s and target companies’ businesses, financial conditions and results of operations. In addition, Lifted’s and target companies’ results of operations are dependent upon their ability to accurately forecast their requirements of raw materials. Any failure by Lifted and target companies to accurately forecast their demand for raw materials could result in an inability to meet higher than anticipated demand for products or producing excess inventory, either of which may adversely affect their results of operations. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies depend on a small number of retailers for a significant portion of their sales
Retailers across all channels in the U.S. and other markets have been consolidating, increasing margin demands of brand suppliers, and increasing their own private brand offerings, resulting in large, sophisticated retailers with increased buying power. They are in a better position to resist Lifted’s and target companies’ price increases and demand lower prices. They also have leverage to require Lifted and target companies to provide larger, more tailored promotional and product delivery programs. If Lifted and target companies and their distributor partners do not successfully provide appropriate marketing, product, packaging, pricing and service to these retailers, Lifted’s and target companies’ product availability, sales and margins could suffer. Certain retailers make up an important percentage of Lifted’s and target companies’ products’ retail volume, including volume sold by Lifted’s and target companies’ distributor partners. Some retailers also offer their own private label products that compete with some of Lifted’s and target companies’ brands. The loss of sales of any of Lifted’s products by a major retailer could have a material adverse effect on our business and financial performance. This could have a material adverse effect on our Company and the trading price of our common stock.
Third party manufacturers could make decisions adverse to Lifted’s and target companies’ best interests
A portion of Lifted’s and target companies’ sales revenue is dependent on third party manufacturers that Lifted and target companies do not control. The majority of these manufacturers’ business comes from producing and/or selling either their own products or competitors’ products. As independent companies, these manufacturers make their own business decisions. They may have the right to determine whether, and to what extent, they manufacture Lifted’s and target companies’ products, Lifted’s and target companies’ competitors’ products and their own products. They may devote more resources to other products or take other actions detrimental to Lifted’s and target companies’ brands. In many cases, they are able to terminate their manufacturing arrangements with Lifted and target companies without cause. Lifted and target companies may need to increase support for their brands in their territories and may not be able to pass on price increases to them. Their financial condition could also be adversely affected by conditions beyond Lifted’s and target companies’ control, and Lifted’s and target companies’ business could suffer as a result. Deteriorating economic conditions could negatively impact the financial viability of third party manufacturers. Any of these factors could negatively affect Lifted’s and target companies’ business and financial performance. This could have a material adverse effect on our Company and the trading price of our common stock.
Failure of third-party distributors upon which Lifted and target companies rely could adversely affect their businesses
Lifted and target companies rely heavily on third party distributors for the sale of a portion of their products to retailers. The loss of a significant distributor could have a material adverse effect on Lifted’s and target companies’ businesses, financial conditions and results of operations. Lifted’s and target companies’ distributors may also provide distribution services to competing brands, as well as larger, national or international brands, and may be to varying degrees influenced by their continued business relationships with other larger companies. Lifted’s and target companies’ independent distributors may be influenced by a large competitor if they rely on that competitor for a significant portion of their sales. There can be no assurance that Lifted’s and target companies’ distributors will continue to effectively market and distribute Lifted’s and target companies’ products. The loss of any distributor or the inability to replace a poorly performing distributor in a timely fashion could have a material adverse effect on Lifted’s and target companies’ businesses, financial conditions and results of operations. Furthermore, no assurance can be given that Lifted and target companies will successfully attract new distributors as they increase their presence in their existing markets or expand into new markets. This could have a material adverse effect on our Company and the trading price of our common stock.
Disruptions to production at Lifted’s and target companies’ manufacturing and distribution facilities could occur
Disruptions in production at Lifted’s and target companies’ manufacturing facilities could have material adverse effects on their businesses. In addition, disruptions could occur at any of Lifted’s and target companies’ other facilities or those of Lifted’s and target companies’ suppliers or distributors. The disruptions could occur for many reasons, including pandemics, fire, natural disaster, weather, water scarcity, manufacturing problems, disease, strikes, transportation or supply interruption, government regulation, cybersecurity attacks or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect Lifted’s and target companies’ business and financial performance. This could have a material adverse effect on our Company and the trading price of our common stock.
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Lifted and target companies may be subject to seasonality related to sales of their products
Lifted’s and target companies’ businesses may be subject to substantial seasonal fluctuations. Lifted’s and target companies’ operating results for any particular quarter may not necessarily be indicative of any other results. If for any reason Lifted and target companies’ sales were to be substantially below seasonal norms, then Lifted’s and target companies’ annual revenues and earnings could be materially and adversely affected. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may fail to comply with applicable government laws and regulations
Lifted and target companies are subject to a variety of federal, state and local laws and regulations in the U.S. These laws and regulations apply to many aspects of their businesses including the manufacture, safety, labeling, transportation, advertising and sale of their products. Some of these laws (including tax laws and regulations such as excise and sales tax) and regulations are complex, ambiguous, subject to multiple interpretations, and/or subject to frequent changes. Violations of these laws or regulations in regard to the manufacture, safety, labeling, transportation and advertising of their products could damage their reputation and/or result in regulatory actions with substantial penalties. In addition, any significant change in such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations, could result in increased compliance costs or capital expenditures. For example, changes in recycling and bottle deposit laws or special taxes on Lifted’s and target companies’ beverages and their ingredients could increase their costs. In particular, regulatory focus on the health, safety and marketing of smokable, edible/ingestible, and beverage products is increasing. Certain federal or state regulations or laws affecting the labeling of Lifted’s and target companies’ products, such as California’s “Prop 65,” which requires warnings on any product with substances that the state lists as potentially causing cancer or birth defects, are or could become applicable to Lifted’s and target companies’ products. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies face various operating hazards that could result in the reduction of their operations
Lifted and target companies’ operations are subject to certain hazards and liability risks faced by beverage, food and edibles companies that manufacture and distribute drink products, food and other edibles, such as defective products, contaminated products and damaged products. The occurrence of such problems could result in a costly product recall and serious damage to Lifted’s and target companies’ reputations for product quality, as well as potential lawsuits. No assurance can be given that insurance (if any) will be adequate to fully cover any incidents of product contamination or injuries resulting from their operations and their products. Lifted and target companies may not be able to continue to maintain insurance (if any) with adequate coverage for liabilities or risks arising from their business operations on acceptable terms. Even if insurance (if any) is adequate, insurance premiums could increase significantly which could result in higher costs for Lifted and target companies. This could have a material adverse effect on our Company and the trading price of our common stock.
Litigation and publicity concerning product safety or quality, health, human and workplace rights, and other issues could damage Lifted’s and target companies’ brand image and corporate reputation, and may adversely affect Lifted’s and target companies’ results of operations, business and financial conditions
Lifted’s and target companies’ success depends on their ability to build and maintain the brand images for their existing products, new products and brand extensions and maintain their corporate reputations. There can be no assurance that their advertising, marketing and promotional programs and their commitments to product safety and quality and human rights will have the desired impact on their products’ brand image and on consumer preference and demand. Product safety, quality and/or ingredient content issues, efficacy or lack thereof (real or imagined), or allegations of product contamination, even if false or unfounded, could tarnish the image of the affected brands and may cause consumers to choose other products. Furthermore, Lifted’s and target companies’ brand images or perceived product quality could be adversely affected by litigation, unfavorable reports in the media (internet or elsewhere), studies in general and regulatory or other governmental inquiries (in each case whether involving their products or those of their competitors) and proposed or new legislation affecting their industries. In addition, from time to time, there may be public policy endeavors that are either directly related to Lifted’s and target companies’ products and packaging or to their businesses. These public policy debates can occasionally be the subject of backlash from advocacy groups that have a differing point of view and could result in adverse media and consumer reaction, including product boycotts.
Similarly, Lifted’s and target companies’ sponsorship relationships could subject Lifted and target companies to negative publicity as a result of actual or alleged misconduct by individuals or entities associated with organizations or individuals Lifted and target companies sponsor or support. Likewise, campaigns by activists connecting Lifted and target companies, or their supply chains, with human and workplace rights issues could adversely impact Lifted’s and target companies’ corporate images and reputations. Allegations, even if untrue, that Lifted and target companies are not respecting one or more of the human rights found in the United Nations Universal Declaration of Human Rights; actual or perceived failure by Lifted’s and target companies’ suppliers or other business partners to comply with applicable labor and workplace rights laws, including child labor laws, or their actual or perceived abuse or misuse of migrant workers; and adverse publicity surrounding obesity and health concerns related to Lifted’s and target companies’ products, water usage, environmental impact, labor relations or the like could negatively affect Lifted’s and target companies’ overall reputations and brand images, which in turn could have negative impacts on Lifted’s and target companies’ products’ acceptance by consumers.
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Lifted and target companies could also incur significant liabilities, if lawsuits or claims result in decisions against them, or litigation costs, regardless of the result. Further, any litigation may cause Lifted’s and target companies’ key employees to expend resources and time normally devoted to the operations of their businesses. This could have a material adverse effect on our Company and the trading price of our common stock.
It is difficult and costly for Lifted and target companies to protect their proprietary rights
Lifted’s and target companies’ commercial success will depend in part on obtaining and maintaining trademark protection, patent protection, and trade secret protection of their products and brands, as well as successfully defending that intellectual property against third-party challenges, which they might not be able to do. Lifted and target companies will only be able to protect their intellectual property related to their trademarks, patents and brands (if any) to the extent that they have rights under valid and enforceable trademarks, patents or trade secrets that cover their products and brands, which they might not have. Changes in either the trademark and patent laws or in interpretations of trademark and patent laws in the U.S. and other countries may diminish the value of their intellectual property (if any). Accordingly, Lifted and target companies cannot predict the breadth of claims that may be allowed or enforced in their issued trademarks or their issued patents (if any). The degree of future protection for their proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect their rights or permit them to gain or keep their competitive advantage. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may face intellectual property infringement claims that could be time-consuming and costly to defend, and could result in their loss of significant rights and the assessment of treble damages
From time to time Lifted and target companies may face intellectual property infringement, misappropriation, or invalidity/non-infringement claims from third parties. Some of these claims may lead to litigation. The outcome of any such litigation can never be guaranteed, and an adverse outcome could affect Lifted and target companies negatively. For example, were a third party to succeed on an infringement claim against Lifted and target companies, Lifted and target companies may be required to pay substantial damages (including up to treble damages if such infringement were found to be willful). In addition, Lifted and target companies could face an injunction, barring them from conducting the allegedly infringing activity. The outcome of the litigation could require Lifted and target companies to enter into a license agreement which may not be under acceptable, commercially reasonable, or practical terms or Lifted and target companies may be precluded from obtaining a license at all. It is also possible that an adverse finding of infringement against Lifted and target companies may require them to dedicate substantial resources and time in developing non-infringing alternatives, which may or may not be possible. In the case of diagnostic tests, Lifted and target companies would also need to include non-infringing technologies which would require Lifted and target companies to re-validate their tests. Any such re-validation, in addition to being costly and time consuming, may be unsuccessful.
Finally, Lifted and target companies may initiate claims to assert or defend their own intellectual property against third parties. Any intellectual property litigation, irrespective of whether Lifted and target companies are the plaintiff or the defendant, and regardless of the outcome, is expensive and time-consuming, and could divert Lifted’s and target companies’ management’s attention from their businesses and negatively affect their operating results or financial condition. This could have a material adverse effect on our Company and the trading price of our common stock.
Lifted and target companies may be subject to claims by third parties asserting that Lifted’s and target companies’ employees or Lifted and target companies have misappropriated the third parties’ intellectual property, or claiming ownership of what Lifted and target companies regard as their own intellectual property
Although Lifted and target companies try to ensure that they, their employees, and independent contractors do not use the proprietary information or know-how of others in their work for Lifted and target companies, they may be subject to claims that they, their employees, or independent contractors have used or disclosed intellectual property in violation of others’ rights. These claims may cover a range of matters, such as challenges to Lifted’s and target companies’ trademarks, as well as claims that their employees or independent contractors are using trade secrets or other proprietary information of any such employee’s former employer or independent contractors. As a result, Lifted and target companies may be forced to bring claims against third parties, or defend claims they may bring against Lifted and target companies, to determine the ownership of what Lifted and target companies regard as their intellectual property. If Lifted and target companies fail in prosecuting or defending any such claims, in addition to paying monetary damages, Lifted and target companies may lose valuable intellectual property rights or personnel. Even if Lifted and target companies are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management. This could have a material adverse effect on our Company and the trading price of our common stock.
We will not control businesses in which we own a minority equity ownership interest
We will not control any business in which we own a minority equity ownership interest, such as Ablis, Bendistillery and Bend Spirits. We can provide no assurance that the owner of the majority equity ownership interest of such business will be able to manage such business successfully. A failure by the controlling owner of a company in which we own a minority equity ownership interest could materially adversely affect our Company and the trading price of our common stock.
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Under US generally accepted accounting principles (US GAAP), we will not be able to consolidate our financial statements with the financial statements of companies in which we own minority equity ownership interests
Under US GAAP, we use the cost method to account for our minority equity ownership interests in businesses in which we own less than 20% of equity ownership, and have no substantial influence over the management of the businesses. Under the cost method of accounting, we report the historical costs of the investments as assets on our balance sheet. However, US GAAP does not permit the consolidation of our financial statements with the financial statements of companies in which we own minority equity ownership interests. US GAAP also requires us 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, we will not be allowed to consolidate into our financial statements any portion of the revenues, earnings or assets of companies in which we own 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.
Also, under US GAAP, we use the equity method to account for our 50% membership interest in SmplyLifted prior to the Lifted’s sale of that interest. Under the equity method of accounting, we record our share (50%) of SmplyLifted’s earnings (or losses) as income (or losses) on the Consolidated Statements of Operations. We recorded our initial investment in SmplyLifted, which was $200,000, as an asset at historical cost. Under the equity method, the investment’s value is periodically adjusted to reflect the changes in value due to Lifted’s share in SmplyLifted’s income or losses.
As a result of these effects of US GAAP, potential buyers of our stock may be confused because they may not be able to immediately understand the financial results and the values of the minority ownership interests that we have in certain businesses such as Ablis, Bendistillery and Bend Spirits, or because they may not be able to immediately understand the financial results and the values of Lifted’s interest in SmplyLifted. These situations could materially adversely affect our Company and the trading price of our common stock.
We may not be able to exit from minority equity ownership interests
We may not be able to exit from minority equity ownership interests in companies such as Ablis, Bendistillery and Bend Spirits on acceptable terms, if at all. Because our equity ownership interests in these companies will not allow us to clearly control the management, operations, and direction of the businesses, a potential sale or other exit from such investment may be extremely difficult or impossible to achieve on acceptable terms, if at all. The other owners of equity ownership interests in such businesses may refuse to cooperate with such a sale or exit, or may engage in business practices including but not limited to inflated salaries, stock dilution, obstructionist or delaying tactics, or other behavior that would result in our equity ownership interests having an extremely limited or non-existent market. Such a situation could materially negatively affect our Company and the trading price of our common stock.
We may not be able to properly brand our Company
In September 2021, we changed the name of our company to “LFTD Partners Inc.” from “Acquired Sales Corp.”, and we changed our ticker symbol to “LSFP” from “AQSP”. On March 15, 2022 we changed our ticker symbol to “LIFD”.
Because we intend to acquire equity ownership interests in many different Canna-Infused Products Companies, with a range of products, packaging, names and cultures, we may not be able to properly brand our Company or properly represent all of the companies in which we are invested. Potential acquisition candidates, consumers, and potential investors may have difficulty assimilating all of our diverse business interests, and consequently may not give our common stock a proper valuations. Even if we change the name of our Company to a name that more properly reflects our focus on acquiring equity ownership interests in Canna-Infused Products Companies, such a name change may not be embraced by consumers or potential investors. This situation could materially negatively affect our Company and the trading price of our common stock.
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We may not be able to properly market our cannabinoid-infused and nicotine products
Marketing our cannabinoid-infused and nicotine products properly will require a great deal of marketing expertise, an extensive and trained staff, and large amounts of marketing dollars. Our marketing expertise and experience is limited, our staff size and training is limited, and we lack large amounts of marketing dollars. A failure or inability to properly market our cannabinoid-infused and nicotine products could materially adversely affect our Company and the trading price of our common stock.
We may not be able to properly manage multiple businesses
We may not be able to properly manage multiple businesses in the cannabinoid-infused and nicotine products industries. Managing multiple businesses would be more complicated than managing a single line of business, and would require that we hire and manage executives with experience and expertise in different fields. We can provide no assurance that we will be able to do so successfully. A failure to properly manage multiple businesses could materially adversely affect our Company and the trading price of our common stock.
We may not be able to successfully integrate new acquisitions
Even if we are able to acquire additional companies or assets, we may not be able to successfully integrate or achieve synergies among those companies or assets. For example, we may need to integrate or coordinate widely dispersed operations with different corporate cultures, operating margins, competitive environments, computer systems, accounting software, compensation schemes, business plans and growth potential requiring significant management time and attention. In addition, the successful integration or coordination of any companies we acquire will depend in large part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, finance, accounting, engineering, sales, customer support, and operations personnel that are critical to the success of the integrated Company, resulting in disruption of operations, loss of key information, expertise or know-how, unanticipated additional recruitment and training costs, and otherwise diminishing anticipated benefits of these acquisitions, including loss of revenue and profitability. Failure to successfully integrate acquired businesses could have a material adverse effect on our Company and the trading price of our common stock.
Our acquisitions of businesses may be extremely risky and we could lose all of our investments
We may invest in the nicotine, delta-8-THC, delta-9-THC, HHC, CBD, CBG, CBN and other hemp-derived and psychedelic products industries or other risky industries. An investment in these companies may be extremely risky because, among other things, the companies we are likely to focus on: (i) may be viewed as being dangerous or illegal by the DEA or FDA, by state governments, or by other governmental or regulatory bodies and agencies; (ii) typically have limited operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; (iii) tend to be privately-owned and generally have little publicly available information and, as a result, we may not learn all of the material information we need to know regarding these businesses; (iv) are more likely to depend on the management talents and efforts of a small group of people; and, as a result, the death, disability, resignation or termination of one or more of these people could have an adverse impact on the operations of any business that we may acquire; (v) may have less predictable operating results; (vi) may from time to time be parties to litigation; (vii) may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence; (viii) may require substantial additional capital to support their working capital, operations, expansion, marketing, research, or maintain their competitive position; and (ix) their financial statements may be unaudited, improperly prepared, and/or their internal financial controls may be inadequate or non-existent. Our failure to make acquisitions efficiently and profitably could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.
Future acquisitions may fail to perform as expected
Future acquisitions may fail to perform as expected, for many reasons, many of which may be unforeseen. For examples: information supplied to us regarding future acquisitions may be incomplete, inaccurate or misleading; we may overestimate future acquisitions’ cash flow, underestimate their costs, or fail to understand their risks; the management of future acquisitions may clash with our management or our board of directors, or may resign to pursue other interests; or future acquisitions may be crushed by larger and more experienced and financially stronger competitors. These risks could materially adversely affect our Company and the trading price of our common stock.
Competition may result in overpaying for acquisitions
Other investors with significant capital may compete with us for attractive investment opportunities. These competitors may include publicly traded companies, private equity firms, privately held buyers, individual investors, and other types of investors. Such competition may increase the price of acquisitions, or otherwise adversely affect the terms and conditions of acquisitions. This could materially adversely affect our Company and the trading price of our common stock.
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We may have insufficient resources to cover our debts, operating expenses, dividends owed on our preferred stock, and the expenses of raising money and consummating acquisitions
We have limited cash to cover our debts, business operating expenses, dividends owed on our preferred stock, and the expenses incurred in connection with money raising, performing due diligence and acquiring businesses, and the SEC filings and audit responsibilities associated with being a publicly traded company. If we do not have sufficient proceeds available to cover our expenses, we may be forced to attempt to obtain additional financing, either from our management or third parties. We may not be able to obtain additional financing on acceptable terms, if at all, and neither our management nor any third party is obligated to provide any financing. This could have a material adverse impact on our Company and on the trading price of our common stock.
We may not be able to identify good acquisitions in the future
There can be no assurance that we will be successful in locating acquisition candidates meeting our criteria in the future. In the event that we complete a future merger or acquisition transaction, of which there can be no assurance, our success, if any, will be dependent upon the operations, financial condition and management of the target company, and upon numerous other factors beyond our control. If the operations, profitability, financial condition or management of the target company were to be disrupted or otherwise negatively impacted following a transaction, our Company and our common stock price would be negatively impacted.
We may carry out actions that will not require our stockholders’ approval
The terms and conditions of any acquisition could require us to take actions that would not require our stockholders’ approval. In order to acquire certain companies or assets, we may issue additional shares of common or convertible preferred stock, or borrow money or issue debt instruments including debt convertible into capital stock. Not all of these actions would require our stockholders’ approval even if these actions dilute our stockholders’ economic or voting interests as shareholders.
Our investigation of potential acquisitions will be limited
Our analysis of new business opportunities will be undertaken by or under the supervision of our Investment Committee. Inasmuch as we will have limited funds available to search for business opportunities and ventures, we will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. We will, however, investigate, to the extent believed reasonable by our Investment Committee, such potential business opportunities or ventures by conducting a “due diligence investigation”. In a due diligence investigation, we intend to obtain and review materials regarding the business opportunity. Typically, such materials will include information regarding a target company’s products, services, contracts, management, ownership, and financial information. In addition, we intend to cause our Investment Committee to personally meet with management and key personnel of target companies, ask questions regarding the target companies’ prospects, tour facilities, and conduct other reasonable investigation of the target companies to the extent of our limited financial resources and management and technical expertise. Any failure of our typical due diligence investigation to uncover issues and problems relating to target companies could materially adversely affect our Company and the trading price of our common stock.
We will have only a limited ability to evaluate the directors and management of potential acquisitions
We may make a determination that our current directors and officers should not remain, or should change or reduce their roles, following money raising or a business combination, based on an assessment of the experience and skill sets of new directors and officers and the management of target companies. We cannot assure you that our assessment of these individuals will prove to be correct. This could have a material adverse effect on our Company and the trading price of our common stock.
We will be dependent on outside advisors to assist us
In order to supplement the business experience of management, we may employ investment bankers, accountants, technical experts, appraisers, attorneys, independent contractors or other consultants or advisors. The selection of any such advisors will be made by management and without any control from shareholders. Additionally, it is anticipated that such persons may be engaged by us on an independent basis without a continuing fiduciary or other obligation to us. This could have a material adverse effect on our Company and the trading price of our common stock.
We may fail to manage our growth effectively
Future growth through acquisitions and organic expansion would place a significant strain on our managerial, operational, technical, training, systems and financial resources. We can give you no assurance that we will be able to manage our expanding operations properly or cost effectively. A failure to properly and cost-effectively manage our expansion could materially adversely affect our Company and the trading price of our common stock.
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The management of companies we acquire may lose their enthusiasm or entrepreneurship after the sale of their businesses
We can give no assurance that the management of future companies we acquire will have the same level of enthusiasm for operating their businesses following their acquisition by us; or, if they cease performing services for the acquired businesses, that we will be able to install replacement management with the same skill sets and determination. There also is always a risk that management of companies we acquire will attempt to reenter the market and possibly seek to recruit some of our employees. This could materially adversely affect our business and the trading price of our common stock.
RISK FACTORS RELATING TO THE BEVERAGE ALCOHOL BUSINESS
We purchased 4.99% of CBD-infused beverage maker Ablis, and of craft distillers Bendistillery and Bend Spirits. Two of those companies produce and sell alcohol. Federal, state, local, and foreign authorities regulate how companies produce, store, transport, distribute, and sell products containing alcohol and distilled spirits. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part. In the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and wine industry with respect to the production, blending, bottling, labeling, sales, advertising, and transportation of beverage alcohol. Similar regulatory regimes exist at the state level and in any non-U.S. jurisdictions where craft distillers Bendistillery and Bend Spirits sell their products. In addition, beverage alcohol products are subject to customs duties or excise taxation in many countries, including taxation at the federal, state, and local level in the United States. Laws of each nation define distilling and maturation requirements; for example, under U.S. federal and state regulations, bourbon and Tennessee whiskeys must be aged in new charred oak barrels. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state are required in connection with the lawful selling of liquor. As 4.99% owner of craft distillers Bendistillery and Bend Spirits, we are impacted by the regulatory risks relating to the production and sale of alcohol which is subject to extensive regulatory requirements regarding production, exportation, importation, marketing and promotion, labeling, distribution, pricing, and trade practices, among others. Changes in laws, regulatory measures, or governmental policies, or the manner in which current ones are interpreted, could cause Bendistillery, Bend Spirits and target companies to incur material additional costs or liabilities, and jeopardize the growth of their businesses in any affected market. For instance, federal, state, or local governments may prohibit, impose, or increase limitations on advertising and promotional activities, or times or locations where beverage alcohol may be sold or consumed, or adopt other measures that could limit Bendistillery’s, Bend Spirits’ and target companies’ opportunities to reach consumers or sell products. It is conceivable that television, newspaper, magazine, and/or internet advertising for beverage alcohol products could be limited or banned completely. Increases in regulation of this nature could substantially reduce consumer awareness of the products of Bendistillery, Bend Spirits and target companies in the affected markets and make the introduction of new products more challenging. The impact of increased taxation on alcohol and distilled spirits may have additional negative financial impacts on Bendistillery, Bend Spirits and target companies. All of these factors could materially adversely affect our Company and the trading price of our common stock.
Changes in consumer preferences or public attitudes about alcohol could decrease demand for our beverage alcohol products
If general consumer trends lead to a decrease in the demand for Bendistillery’s and Bend Spirits’ products or liquor in general, our sales and results of operations in the beverage alcohol segment may be adversely affected. There is no assurance that the liquor segment will experience growth in future periods.
Further, the alcoholic beverage industry is subject to public concern and political attention over alcohol-related social problems, including drunk driving, underage drinking and health consequences from the misuse of alcohol. In reaction to these concerns, steps may be taken to restrict advertising, to impose additional cautionary labeling or packaging requirements, or to increase excise or other taxes on beverage alcohol products. Any such developments may have an adverse impact on the financial condition, operating results and cash flows for Bendistillery and Bend Spirits. All of these factors could materially adversely affect our Company and the trading price of our common stock.
Developments affecting production at Bendistillery’s and Bend Spirits’ distilleries could negatively impact Bendistillery’s and Bend Spirits’ financial results
Adverse changes or developments affecting Bendistillery’s and Bend Spirits’ distilleries in Bend, Oregon, including, fire, power failure, natural disaster, public health crisis, or a material failure of our security infrastructure, could reduce or require Bendistillery and Bend Spirits to entirely suspend operations. Additionally, due to many factors, including seasonality and production schedules of Bendistillery’s and Bend Spirits’ various products and packaging, actual production capacity may fluctuate throughout the year and may not reach full working capacity. If Bendistillery and Bend Spirits experience contraction in their sales and distilling volumes, the excess capacity and unabsorbed overhead may have an adverse effect on gross margins, operating cash flows and overall financial performance of Bendistillery and Bend Spirits. All of these factors could materially adversely affect our Company and the trading price of our common stock.
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Bendistillery and Bend Spirits face substantial competition in the liquor industry and the broader market for alcoholic beverage products which could impact its business and financial results
The market for alcoholic beverage products within the United States is highly competitive due to the increasing number of domestic and international beverage companies with similar pricing and target drinkers, the introduction and expansion of hard seltzers, gains in market share achieved by domestic specialty beers and imported beers, and the acquisition of craft distillers and brewers by larger distillers and brewers. We anticipate competition among domestic craft distillers and brewers will also remain strong as existing distillers and breweries build more capacity, expand geographically and add more products, flavors and styles. The continued growth in the sales of hard seltzers, craft-brewed domestic beers and imported beers is expected to increase competition in the market for alcoholic beverages within the United States and, as a result, prices and market share of Bendistillery’s and Bend Spirits’ products may fluctuate and possibly decline.
The liquor and beer industry has seen continued consolidation among brewers in order to take advantage of cost savings opportunities for supplies, distribution and operations. Due to the increased leverage that these combined operations have in distribution and sales and marketing expenses, the costs to Bendistillery and Bend Spirits of competing could increase. The potential also exists for these large competitors to increase their influence with their distributors, making it difficult for smaller distillers and brewers to maintain their market presence or enter new markets. The increase in the number and availability of competing products and brands, the costs to compete and potential decrease in distribution support and opportunities may adversely affect Bendistillery’s and Bend Spirits’ business and financial results. All of these factors could materially adversely affect our Company and the trading price of our common stock.
Alcoholic beverage sales are subject to slowdowns and are seasonal
Bendistillery, Bend Spirits and target companies are involved in the sale of a variety of distilled alcoholic beverages including vodka, whiskey and gin, and their sales of such beverages are subject to occasional slowdowns and are seasonal. Also, some health-conscious consumers are reducing or eliminating their alcohol consumption entirely. These factors could adversely affect the value of our ownership interest in those companies, which could materially adversely affect our Company and the trading price of our common stock.
Alcoholic beverage distributors are powerful and control much of the marketplace
Bendistillery, Bend Spirits and target companies distribute their distilled alcoholic beverages through a limited number of powerful distributors that control much of the marketplace for alcoholic beverages. In order for Bendistillery and Bend Spirits to grow, they will be required to maintain such relationships with their distributors and to enter into agreements with additional distributors. No assurance can be given that Bendistillery and Bend Spirits will be able to maintain their current distribution network or secure additional distributors on terms favorable to Bendistillery and Bend Spirits. If Bendistillery’s and Bend Spirits’ existing distribution agreements are terminated, they may not be able to enter into new distribution agreements on substantially similar terms, which may result in an increase in the costs of distribution. The loss of such distributors, or disruptions to the operations of such distributors, could adversely affect the value of our ownership interest in those companies, which could materially adversely affect our Company and the trading price of our common stock.
The Oregon Liquor Control Commission has jurisdiction over our directors, officers and significant shareholders
Due to our minority ownership interest in Bendistillery and Bend Spirits, the Oregon Liquor Control Commission (“OLCC”) has jurisdiction over our directors, officers and significant shareholders. If the OLCC were to refuse to approve any of our directors, officers or significant shareholders, it could disrupt our management and corporate governance, which could materially adversely affect our Company and the trading price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Description of Property
LFTD Partners’ CEO GJacobs and its President and CFO WJacobs live in Florida, and LFTD Partners’ COO Warrender lives in Wisconsin. The Company currently does not have a dedicated corporate office for LFTD Partners other than in the home office spaces provided by the Company’s CEO and President in Florida. The future location of LFTD Partners’ corporate office will depend upon a number of factors including where our CEO is living at the time.
Lifted does not own any physical properties.
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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.
Landlord is an entity owned directly or indirectly by NWarrender, the Company’s Vice Chairman and COO, the CEO of Lifted, and the largest stockholder of the Company as the beneficial owner of 3,900,455 shares of common stock of the Company. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, NWarrender is able to benefit through his ownership of Landlord by Landlord’s receiving rent and eventually selling the Premises to Lifted.
Lifted constructed improvements to the Premises including a clean room, and gradually moved into the Premises over the course of the first quarter of 2021.
Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted leased approximately 11,238 square feet at the Premises at $6.13 per square foot per year in base rent ($68,888.94 in 2021), which is subject to a 2% increase in base rent each year, plus certain operating expenses and taxes. The Lease will continue until midnight on the fifth anniversary date of the commencement date of the Lease. Lifted shall have the right to extend the original five year term of the Lease for one extension period of two years, commencing upon the expiration of the original term. Lifted and Landlord are required to execute an “Amendment of Extension” prior to six months before the expiration of the original term.
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. As a result, as of December 31, 2021, the Company modified its methodology for accounting of this finance lease (the “Modification Date”), such that the only liability recognized as of December 31, 2021 was a current (within one year) liability, and there was no long-term liability recognized. An immaterial loss on lease modification of $1,446 was also recognized as of the Modification Date. The Finance Lease Right-of-Use Asset value was reduced to reflect the fixed purchase price agreed to under the Omnibus Agreement.
The Finance Lease Right-of-Use Asset will 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.
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 5,000 square feet of the 58th Suite 850 and pay a base square foot charge of $5.75 per square foot per annum, with a 3% increase in rent each year during the term. Lifted will also be responsible for paying its proportionate share of real estate taxes and other operating costs. This lease is accounted for as an operating lease.
Rent Schedule
Date |
| Base Monthly Rent |
| |
10/01/2021 – 09/30/2022 |
| $ | 2,395.84 |
|
10/01/2022 – 09/30/2023 |
| $ | 2,467.72 |
|
10/01/2023 – 09/30/2024 |
| $ | 2,541.75 |
|
Lease of Space Located at 8910 58th Place, Suites 600 and 700, Kenosha, Wisconsin
On November 17, 2021, Lifted entered into a Lease Agreement (the “Second 58th Lease”) with TI for office and warehouse space (the 58th Suites 600 & 700”) located at 8910 58th Place, Suites 600 & 700, Kenosha, WI 53144. The 58th Suites 600 & 700 are 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.
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Under the terms of the Second 58th Lease, Lifted will lease the approximately 8,000 square feet of the 58th Suites 600 and 700 and pay a base square foot charge of $6.00 per square foot per annum, with increases in rent each year during the term as set out in the table titled “Rent Schedule” below. This lease is accounted for as an operating lease.
Rent Schedule
Date |
| Base Monthly Rent |
| |
01/01/2022 – 12/31/2022 |
| $ | 4,000.00 |
|
01/01/2023 – 12/31/2023 |
| $ | 4,120.00 |
|
01/01/2024 – 12/31/2024 |
| $ | 4,243.60 |
|
01/01/2025 – 12/31/2025 |
| $ | 4,370.91 |
|
01/01/2026 – 12/31/2026 |
| $ | 4,502.34 |
|
Lifted will also be responsible for paying its proportionate share of real estate taxes and other operating costs.
Lease of Space in Zion, Illinois
From June 1, 2018 through June 1, 2021, Lifted rented 3,300 square feet of space located in Zion, Illinois, for manufacturing, warehousing and office space. From June 1, 2021 through November 2021, Lifted leased such space on a month-to-month basis. From May 2020 until April 1, 2021, Lifted also temporarily used additional space located adjacent to its rented space in Zion, Illinois, and made payments in lieu of rent therefor.
Third Party Facilities
From time to time, the Company maintains inventory at third party facilities around the United States.
Phone, Internet, Travel and Other Business Expenses; Medical Expenses
Pursuant to their employment agreements with LFTD Partners and Lifted: LFTD Partners pays or reimburses the phone, internet, travel and other business expenses of our Chief Executive Officer GJacobs, and of our President and Chief Financial Officer, WJacobs, who is the son of GJacobs; Lifted pays or reimburses the phone, internet, travel and other business expenses of LFTD Partners’ Chief Operating Officer NWarrender; and LFTD Partners and Lifted also pay or reimburse the medical, vision and dental expenses of GJacobs, WJacobs and NWarrender.
ITEM 3. LEGAL PROCEEDINGS |
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Please see the Notes to Financial Statements on page F-40 under the heading “NOTE 12 – LEGAL PROCEEDINGS” for a description of legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted under the symbol LIFD on the OTCQB Venture Market. Our shares trade infrequently and the trading price of our shares is not necessarily indicative of the existence of a trading market for our securities or indicative of our value. The following table sets forth, for the periods indicated, the high and low closing sales prices per share of our common stock.
Closing Sales Prices (1) | ||||||||
|
| High |
|
| Low |
| ||
Year Ended December 31, 2021 |
|
|
|
|
|
| ||
4th Quarter |
| $ | 6.00 |
|
| $ | |$3.76 |
|
3rd Quarter |
| $ | 5.70 |
|
| $ | $3.72 |
|
2nd Quarter |
| $ | 8.00 |
|
| $ | $3.15 |
|
1st Quarter |
| $ | 9.60 |
|
| $ | $2.25 |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020 |
|
|
|
|
|
|
|
|
4th Quarter |
| $ | 4.04 |
|
| $ | 1.25 |
|
3rd Quarter |
| $ | 2.80 |
|
| $ | 1.51 |
|
2nd Quarter |
| $ | 2.85 |
|
| $ | 1.28 |
|
1st Quarter |
| $ | 4.15 |
|
| $ | 2.25 |
|
___________
(1) The above table sets forth the range of high and low closing sales prices per share of our common stock as reported by Yahoo! Finance for the periods indicated.
Approximate Number of Holders of Our Common Stock
As of March 21, 2022, a total of 13,977,578 shares of LFTD Partners’ common stock were outstanding and there were 255 holders of record of LFTD Partners’ common stock.
There are 645,000 shares of common stock of the Company designated as contingent deferred stock that will be issued on February 24, 2023 subject to certain conditions and requirements.
Recent Sales of Unregistered Securities
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 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.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Annual Report on Form 10-K, 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 $11,414,602 as of December 31, 2021. LFTD Partners Inc. has Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year. These matters raise substantial doubt about our ability to continue as a going concern.
This Management’s Discussion and Analysis (“MD&A”) section discusses our results of operations, liquidity and financial condition and certain factors that may affect our future results. You should read this MD&A in conjunction with our financial statements and accompanying notes included elsewhere in this report.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our risk factors, financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. In addition to historical 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. Risk factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K.
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INTRODUCTION
Management’s Discussion and Analysis (“MD&A”) of our financial condition and results of operations is provided as a supplement to the accompanying financial statements and related notes to help provide an understanding of our financial condition, the changes in our financial condition and the results of operations.
Basis of Presentation
Overview
Please refer to “Description of the Business of LFTD Partners Inc.” under “ITEM 1. BUSINESS” for information.
Liquidity and Capital Resources
The following table summarizes our Company’s current assets, current liabilities and working capital as of December 31, 2021 and December 31, 2020, as well as our Company’s cash flows for the years ended December 31, 2021, 2020 and 2019:
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Current Assets |
| $ | 13,152,696 |
|
| $ | 3,264,777 |
|
Current Liabilities |
|
| 11,906,270 |
|
|
| 2,308,722 |
|
Working Capital |
|
| 1,246,426 |
|
|
| 956,055 |
|
|
| For the Year Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Net Cash Provided by (Used in) Operating Activities |
| $ | 5,622,612 |
|
| $ | (338,036 | ) |
| $ | (611,502 | ) |
Net Cash Used in Investing Activities |
| $ | (446,655 | ) |
| $ | (3,509,811 | ) |
| $ | (2,096,200 | ) |
Net Cash (Used In) Provided By Financing Activities |
| $ | (4,012,306 | ) |
| $ | (98,002 | ) |
| $ | 7,092,631 |
|
Comparison of the balance sheet at December 31, 2021 and December 31, 2020
At December 31, 2021, we had cash and cash equivalents of $1,602,731; in comparison, at December 31, 2020, we had cash and cash equivalents of $439,080.
At December 31, 2021, we had a dividend receivable from Bendistillery in the amount of $2,495; similarly, at December 31, 2020, we also had a dividend receivable from Bendistillery in the amount of $2,495.
At December 31, 2021, we had prepaid expenses of $4,262,237 primarily related to prepaid inventory and prepaid health and dental insurance; in comparison, at December 31, 2020, we had prepaid expenses of $455,061 primarily related to prepaid inventory, prepaid payroll, prepaid workers compensation insurance and the prepayment of the OTCQX annual fee.
At December 31, 2020, we had an outstanding loan receivable from SmplyLifted LLC in the amount of $293,750; this money had been used by SmplyLifted to purchase inventory. This loan receivable was written off at December 31, 2021.
At December 31, 2020, we had a note receivable from CBD Lion for $15,318. There was no note receivable from CBD Lion at December 31, 2021.
Accounts receivable of $3,461,499, net of $239,101 allowance, were outstanding at December 31, 2021; this is compared to accounts receivable of $1,413,051, net of $5,743 allowance, outstanding at December 31, 2020.
At December 31, 2021, we had inventory of $3,809,944; in comparison, at December 31, 2020, we had inventory of $641,195.
Total current assets at December 31, 2021 of $13,152,696 were adequate for us to fund current operations. In comparison, at December 31, 2020, we had total current assets of $3,264,777.
At December 31, 2021 and December 31, 2020, our other assets primarily included goodwill of $22,292,767 related to the acquisition of Lifted on February 24, 2020. Also, at both December 31, 2021 and December 31, 2020, our other assets included our investments in Ablis, Bendistillery and Bend Spirits, which total $1,896,200. At December 31, 2021, we also reported a net finance lease right-of-use asset of $1,227,532, a net operating lease right-of-use asset of $76,412, net fixed assets of $433,213, net intangible assets of $1,386 and security and state licensing deposits of $6,900. In 2021, Lifted wrote off its $30,000 deposit at a law firm that was required by Lifted’s exclusive Girish GPO distribution agreement; such $30,000 was previously recorded as an other asset as of December 31, 2020. At December 31, 2021, Lifted wrote off its investment in SmplyLifted LLC, which was previously valued at $84,451. At December 31, 2020, Lifted’s investment in SmplyLifted was reported at $195,571. Lifted’s initial capital contribution to SmplyLifted LLC was $200,000 for a 50% membership interest.
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In comparison, at December 31, 2020, our other assets included net intangible assets of $3,054 and a security and state licensing deposit of $1,600 at December 31, 2020. At December 31, 2020, we recognized a net operating lease right-of-use asset of $7,705.
At December 31, 2021, current liabilities of $11,906,270 primarily consisted of accounts payable and accrued expenses of $4,671,382, accounts payable to an affiliate of NWarrender of $4,607, deferred revenue of $2,174,393, a company-wide management bonus pool accrual of $1,556,055, income tax payable of $1,242,974, management bonuses payable of $941,562, interest payable to related parties WJacobs and GJacobs of $13,269, $11,926 in Series A convertible preferred stock dividends payable to preferred stockholders, and $1,796 in Series B convertible preferred stock dividends payable to preferred stockholders.
In comparison, at December 31, 2020, current liabilities of $2,308,722 primarily consisted of deferred revenue of $1,096,120, management bonuses payable of $350,000, accounts payable and accrued expenses of $639,479, interest payable to NWarrender of $64,110, $145,561 in Series A convertible preferred stock dividends payable to preferred stockholders, and $5,782 in Series B convertible preferred stock dividends payable to preferred stockholders.
The Company had an accumulated deficit of $11,414,602 and $17,141,175 as of December 31, 2021 and 2020, respectively.
Comparison of operations for the year ended December 31, 2021 to the year ended December 31, 2020
During the year ended December 31, 2021, the Company recognized net sales of $31,656,932. From the period February 24, 2020 (closing on Lifted) through December 31, 2020, the Company recognized net sales of $5,344,320. The Company did not generate revenue from continuing operations during the year ended December 31, 2019.
During the year ended December 31, 2021, hemp-derived, nicotine and sanitizer products made up approximately 99%, 1% and 0% of Lifted’s sales, respectively. During the year ended December 31, 2020, hemp-derived, nicotine and sanitizer products made up approximately 60%, 20% and 20% of Lifted’s sales, respectively. LIFD did not generate any revenue in 2019.
No stock compensation expense of was recognized during the year ended December 31, 2021. In comparison, stock compensation expense of $1,393,648 was recognized during the year ended December 31, 2020. Of this, $733,499 related to the value of warrants issued to GJacobs upon the execution of his employment agreement on February 24, 2020, pursuant to the June 19, 2019 compensation agreement. The difference, $660,149, related to the value of warrants issued to WJacobs upon the execution of his employment agreement on February 24, 2020, pursuant to the June 19, 2019 compensation agreement.
Stock compensation expense of $874,154 was recognized during the year ended December 31, 2019. Of this, $833,446 related to the value of 402,900 warrants to purchase unregistered shares of common stock of the Company issued to brokers for the capital raised for the Company by the brokers. The difference, $40,708, was the value of a total of 14,042 warrants to purchase unregistered shares of common stock of the Company, issued to two finders (7,021 warrants were issued to each finder) in regard to the purchase of 4.99% of the stock of Ablis. In comparison, stock compensation expense of $72,500 was recognized during the year ended December 31, 2018. As background: on April 1, 2018, we issued to director James S. Jacobs and to WJacobs, then an independent contractor and now our President and Chief Financial Officer, rights to purchase warrants, for an aggregate purchase price of $2.00, an aggregate of 250,000 shares of common stock of the Company (40,000 to James S. Jacobs, and 210,000 to WJacobs), at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. We recorded total stock compensation expense of $72,500 related to these rights to purchase warrants; this consists of $11,600 of stock compensation for the rights to purchase warrants issued to James S. Jacobs, and $60,900 of stock compensation for the rights to purchase warrants issued to WJacobs.
During the year ended December 31, 2021, the Company expensed $3,621,624 related to payroll, consulting and independent contractor expenses; this is up from $809,966 in payroll, consulting and independent contractor expenses during the year ended December 31, 2020; and up from $112,500 in payroll, consulting and independent contractor expenses during the year ended December 31, 2019. 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 December 31, 2021, the bonus payable to this Lifted employee totaled $339,510.
During the year ended December 31, 2021, the Company expensed $1,559,334 related to the company-wide management bonus pool. There was no company-wide management bonus pool accrued for during the years ended December 31, 2020 and December 31, 2019.
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Driven by increased sales, bank charges and merchant fees increased to $392,757 during the year ended December 31, 2021, from $48,814 during the year ended December 31, 2020, from $130 during the year ended December 31, 2019.
During the year ended December 31, 2021, the Company incurred $337,044 in advertising and marketing expenses, which primarily related to trade shows, marketing displays, public relations and digital marketing. In comparison, during the year ended December 31, 2020, the Company incurred $115,102 in advertising and marketing expenses, which primarily related to public relations and digital marketing.
Bad debt expense increased to $380,621 during the year ended December 31, 2021, from $124,802 during the year ended December 31, 2020, from $0 during the year ended December 31, 2019.
Depreciation and amortization expense increased to $90,147 during the year ended December 31, 2021, from $16,385 during the year ended December 31, 2020, from $0 during the year ended December 31, 2019.
Other operating expenses increased to $629,012 during the year ended December 31, 2021, from $222,052 during the year ended December 31, 2020, from $58,478 during the year ended December 31, 2019. Other operating expenses include, for example, lab supplies, dues and subscriptions, meals and entertainment, insurance expenses, repairs and maintenance, and state license & filing fees.
Total, non-operating Other Expenses in 2021 of $613,539 primarily consisted of $388,727 in impairment of Lifted’s investment in SmplyLifted, $195,571 in loss from Lifted’s 50% membership interest in SmplyLifted, and interest expense of $142,427. In comparison, total non-operating Other Expenses in 2020 of $16,221 primarily consisted of gain of forgiveness of debt of $91,272, interest expense of $65,186, settlement costs of $97,000, refund of merchant account fees of $34,429, settlement income of $12,500, and interest income of $8,098. During the year ended December 31, 2019, Total Other Income consisted of interest expense of $27,998, settlement income of $29,196, and interest income of $25,628.
During the year ended December 31, 2021, the Company recognized net income of $5,799,982. In comparison, during the year ended December 31, 2020, the Company incurred a net loss of $1,534,589. In comparison, during the year ended December 31, 2019, the Company incurred a net loss of $1,236,105.
Net cash provided by operating activities was $5,622,613 for the year ended December 31, 2021, compared to net cash used in operating activities was $338,036 for the year ended December 31, 2020, compared to $611,502 net cash used in operating activities for the year ended December 31, 2019. Net cash provided by operating activities was primarily generated from net income of $5,799,982. Net cash used in operating activities in 2021 was primarily for prepaid expenses and for the purchase of inventory. Offsetting the used cash were increases in accounts payable and accrued expenses and deferred revenue. Net cash used in operating activities in 2020 of $338,036 was also primarily for the purchase of inventory and prepaid expenses. Offsetting the used cash were increases in accounts payable and accrued expenses of $255,908 and deferred revenue of $1,031,424. Net cash used in operating activities in 2019 was primarily for professional fees and independent contractor and consulting fees.
Net cash used in investing activities was $446,655, $3,509,811 and $2,096,200 during the years ended December 31, 2021, 2020 and 2019, respectively. Net cash used in investing activities in 2021 primarily related to the net purchase of fixed assets and loans to SmplyLifted, offset by the reduction of the CBD Lion note receivable. Net cash used in investing activities in 2020 primarily related to the net cash paid to NWarrender as part of the acquisition of Lifted, purchases of fixed assets, and a reduction of the CBD Lion note receivable as we received payments from CBD Lion. We also invested $200,000 into SmplyLifted LLC; this investment amount was reduced by SmplyLifted’s net loss in 2020. We also made loans totaling $293,750 to SmplyLifted LLC for the purchase of inventory. Net cash used in investing activities in 2019 related to our $399,200 investment in Ablis, our $1,497,000 investment in Bendistillery and Bend Spirits, and our $300,000 loan to CBD Lion LLC, of which $200,000 was outstanding at December 31, 2019.
During the year ended December 31, 2021, net cash used in financing activities was $4,012,306, primarily driven by the repayment of the $3,750,000 promissory note payable to NWarrender. Net cash used in financing activities was $98,002 during the year ended December 31, 2020, primarily driven by the payments of dividends to Series A convertible preferred stockholders. In comparison, during the year ended December 31, 2019, net cash provided by financing activities was $7,092,631, primarily driven by the raise of $6,615,000 in exchange for Series A convertible preferred stock.
During the year ended December 31, 2021, net cash increased by $1,163,651. In comparison, during the year ended December 31, 2020, net cash decreased by $3,945,849, and net cash increased by $4,384,929 during the year ended December 31, 2019.
The Company has a history of losses as evidenced by the accumulated deficit at December 31, 2021 of $11,414,602. 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.
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Selected Quarterly Financial Information
LFTD PARTNERS INC. (FORMERLY KNOWN AS ACQUIRED SALES CORP.) AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||
|
| For the Three Months Ended December 31, 2021 |
|
| For the Three Months Ended September 30, 2021 |
|
| For the Three Months Ended June 30, 2021 |
|
| For the Three Months Ended March 31, 2021 |
|
| For the Three Months Ended December 31, 2020 |
|
| For the Three Months Ended September 30, 2020 |
| ||||||
Net Sales |
| $ | 12,787,566 |
|
| $ | 8,820,952 |
|
| $ | 6,695,144 |
|
| $ | 3,353,270 |
|
| $ | 2,196,518 |
|
| $ | 1,509,437 |
|
Cost of Goods Sold |
|
| 6,252,549 |
|
|
| 4,720,057 |
|
|
| 3,035,630 |
|
|
| 1,707,523 |
|
|
| 1,312,946 |
|
|
| 878,327 |
|
Gross Profit |
|
| 6,535,017 |
|
|
| 4,100,895 |
|
|
| 3,659,515 |
|
|
| 1,645,747 |
|
|
| 883,572 |
|
|
| 631,110 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll, Consulting and Independent Contractor Expenses |
|
| 1,719,305 |
|
|
| 803,796 |
|
|
| 791,000 |
|
|
| 307,524 |
|
|
| 211,851 |
|
|
| 275,149 |
|
Accrual for Company-Wide Management Bonus Pool |
|
| - |
|
|
| 400,000 |
|
|
| 816,388 |
|
|
| 342,947 |
|
|
| - |
|
|
| - |
|
Management Bonuses |
|
| 650,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Professional Fees |
|
| 133,300 |
|
|
| 139,526 |
|
|
| 133,892 |
|
|
| 93,033 |
|
|
| 80,810 |
|
|
| 50,235 |
|
Bank Charges and Merchant Fees |
|
| 103,647 |
|
|
| 104,485 |
|
|
| 118,055 |
|
|
| 66,570 |
|
|
| 27,824 |
|
|
| 14,702 |
|
Advertising and Marketing |
|
| 100,446 |
|
|
| 86,438 |
|
|
| 98,133 |
|
|
| 52,027 |
|
|
| 22,384 |
|
|
| 26,670 |
|
Bad Debt Expense |
|
| 299,000 |
|
|
| 61,448 |
|
|
| 19,196 |
|
|
| 977 |
|
|
| 2,915 |
|
|
| 94,251 |
|
Depreciation and Amortization |
|
| 5,805 |
|
|
| 16,344 |
|
|
| 26,215 |
|
|
| 41,783 |
|
|
| 5,245 |
|
|
| 5,092 |
|
Other Operating Expenses |
|
| 278,024 |
|
|
| 170,821 |
|
|
| 99,773 |
|
|
| 80,394 |
|
|
| 56,902 |
|
|
| 51,289 |
|
Total Operating Expenses |
|
| 3,289,526 |
|
|
| 1,782,858 |
|
|
| 2,102,652 |
|
|
| 985,254 |
|
|
| 407,931 |
|
|
| 517,388 |
|
Income/(Loss) From Operations |
|
| 3,245,491 |
|
|
| 2,318,037 |
|
|
| 1,556,863 |
|
|
| 660,493 |
|
|
| 475,641 |
|
|
| 113,722 |
|
Other Income/(Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) From 50% membership interest in SmplyLifted LLC (FR3SH) |
|
| (100,172 | ) |
|
| (44,858 | ) |
|
| (43,330 | ) |
|
| (7,211 | ) |
|
| (4,429 | ) |
|
| - |
|
Impairment of Investment in SmplyLifted |
|
| (388,727 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Income from SmplyLifted for WCJ Labor |
|
| 144 |
|
|
| 313 |
|
|
| 769 |
|
|
| 1,072 |
|
|
| - |
|
|
| - |
|
Loss on Lease Modification |
|
| (1,445 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Interest Expense |
|
| (35,314 | ) |
|
| (35,368 | ) |
|
| (35,398 | ) |
|
| (36,347 | ) |
|
| (19,281 | ) |
|
| (19,281 | ) |
Dividend Income |
|
| 2,495 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,495 |
|
|
| - |
|
Warehouse Buildout Credits |
|
| - |
|
|
| - |
|
|
| 600 |
|
|
| 600 |
|
|
| 600 |
|
|
| 600 |
|
Penalties |
|
| (5,434 | ) |
|
| (2,162 | ) |
|
| - |
|
|
| (450 | ) |
|
| - |
|
|
| - |
|
Gain on Forgiveness of Debt |
|
| 521 |
|
|
| - |
|
|
| 151,147 |
|
|
| - |
|
|
| 81,272 |
|
|
| - |
|
Settlement Income/Gain on Settlement |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,500 |
|
|
| - |
|
Gain(Loss) on Disposal of Fixed Assets |
|
| - |
|
|
| - |
|
|
| (4,750 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Loss on Deposits |
|
| (1,600 | ) |
|
| - |
|
|
| (30,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Interest Income |
|
| 694 |
|
|
| 217 |
|
|
| 253 |
|
|
| 202 |
|
|
| 733 |
|
|
| 782 |
|
Total Other Income/(Expenses) |
|
| (528,837 | ) |
|
| (81,858 | ) |
|
| 39,292 |
|
|
| (42,134 | ) |
|
| 73,890 |
|
|
| (17,899 | ) |
Income/(Loss) Before Provision for Income Taxes |
|
| 2,716,654 |
|
|
| 2,236,179 |
|
|
| 1,596,154 |
|
|
| 618,359 |
|
|
| 549,531 |
|
|
| 95,823 |
|
Provision for Income Taxes |
|
| (1,367,362 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Net Income/(Loss) Attributable to LFTD Partners Inc. common stockholders |
| $ | 1,349,292 |
|
| $ | 2,236,179 |
|
| $ | 1,596,154 |
|
| $ | 618,359 |
|
| $ | 549,531 |
|
| $ | 95,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss) Per Common Share Attributable to LFTD Partners Inc. common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.10 |
|
| $ | 0.17 |
|
| $ | 0.14 |
|
| $ | 0.08 |
|
| $ | 0.06 |
|
| $ | 0.01 |
|
Diluted |
| $ | 0.08 |
|
| $ | 0.14 |
|
| $ | 0.11 |
|
| $ | 0.04 |
|
| $ | 0.02 |
|
| $ | 0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 14,005,567 |
|
|
| 13,015,717 |
|
|
| 11,042,657 |
|
|
| 7,456,925 |
|
|
| 6,463,301 |
|
|
| 6,460,236 |
|
Diluted |
|
| 15,962,765 |
|
|
| 16,257,915 |
|
|
| 14,381,105 |
|
|
| 16,084,794 |
|
|
| 16,040,170 |
|
|
| 6,460,236 |
|
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.
Critical Accounting Policies
Critical accounting policies are discussed in Note 1 of the financial statements accompanying this annual report.
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 12 – 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.
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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 months ended December 31, 2021 were not materially impacted by COVID-19, we believe 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.
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 7A. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The full text of our audited financial statements as of December 31, 2021 and December 31, 2020 begins on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 December 31, 2021.
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(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. |
During December 2021, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 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 December 31, 2021 was not effective. Management identified the following material weaknesses as of December 31, 2021:
| (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 the Sarbanes-Oxley Act.
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 annual report 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 annual report.
Management is unaware of any material inaccuracies or errors in the Company’s financial statements as of December 31, 2021.
(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.
ITEM 9B. OTHER INFORMATION
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Board of Directors and Committees of the Board
The following table sets forth certain information regarding our current Directors and Executive Officers as of March 24, 2022:
Name |
| Age |
| Position |
Gerard M. Jacobs, JD |
| 66 |
| Chairman of the Board, Chief Executive Officer and Secretary |
Nicholas S. Warrender |
| 32 |
| Vice Chairman of the Board and Chief Operating Officer |
Vincent J. Mesolella |
| 72 |
| Lead Outside Director |
Joshua A. Bloom, MD |
| 66 |
| Director |
James S. Jacobs, MD |
| 68 |
| Director |
William C. “Jake” Jacobs, CPA |
| 33 |
| President, Chief Financial Officer and Treasurer |
Richard E. Morrissy |
| 67 |
| Director |
Kevin J. Rocio |
| 58 |
| Director |
Robert T. Warrender II |
| 69 |
| Director |
Our Directors serve in such capacity until the next annual meeting of our shareholders and until their successors have been elected and qualified.
Gerard M. Jacobs, J.D., age 66, is Chairman of our Board of Directors, Chief Executive Officer and Secretary of the Company. Mr. Jacobs has been a private investor since 2006. In 2001, Mr. Jacobs took control of CGI Holding Corporation, and served as its Chief Executive Officer and member of its board of directors until 2006. Under Mr. Jacobs’ guidance, CGI Holding Corporation changed its name to Think Partnership Inc., made 15 acquisitions primarily of businesses involved in online marketing and advertising, and succeeded in having its common stock listed on the American Stock Exchange. Previously, in 1995, Mr. Jacobs took control of General Parametrics Corporation, a NASDAQ company, and served as its Chief Executive Officer and member of its board of directors until 1999. Under Mr. Jacobs’ guidance, General Parametrics changed its name to Metal Management Inc., made 37 acquisitions primarily of businesses involved in scrap metal recycling, and succeeded in building one of the largest scrap metal recycling companies in the world. Mr. Jacobs has also served as the lead outside director for America’s Car-Mart, Inc. (NASDAQ: CRMT) and Patient Home Monitoring Corp. (Toronto: PHM). We believe that Mr. Jacobs’ experience serving as the Chief Executive Officer of three publicly traded companies and as a director of two other publicly traded companies, his work as an investment banker and as an attorney, and his intelligence and educational background, qualifies him to serve as a director of the Corporation.
Mr. Jacobs received a law degree from the University of Chicago Law School, which he attended as a Weymouth Kirkland Law Scholar, in 1978; and an A.B from Harvard College, in 1976, where he was elected to Phi Beta Kappa. Mr. Jacobs’ brother, James S. Jacobs, M.D., is also a member of our board of directors and William C. Jacobs, our President and Chief Financial Officer and Treasurer, is Gerard M. Jacobs’ son.
Nicholas S. Warrender, age 32, is Vice Chairman of our Board of Directors and Chief Operating Officer of the Company. Nicholas S. Warrender founded Lifted Made in 2015 and has served as CEO since. Nicholas S. Warrender is an expert in brand design and development and has a degree in Communications with a focus on Business and Cinematography from Carthage College. Previously, Nicholas S. Warrender was a recruited high school basketball player and successful rapper, performing music shows at prestigious clubs, such as the Viper Room. Nicholas S. Warrender’s father, Robert T. Warrender II, is also a member of our board of directors and an employee of Lifted.
Vincent J. Mesolella, age 72, has been a member of our board of directors since October 2010. He has served for many years as the Chairman of the Narragansett Bay Commission, Providence, Rhode Island, one of the largest wastewater treatment utilities in the U.S. Mr. Mesolella also served for over twenty years as a member of the Rhode Island House of Representatives, including serving as the Majority Whip. Mr. Mesolella is the founder, President and Chief Executive Officer of MVJ Realty, LLC, a diversified real estate investment firm. Mr. Mesolella has served on the board of directors of Think Partnership Inc., an American Stock Exchange company. Mr. Mesolella has raised a great deal of money for charities including the Make-A-Wish Foundation. Mr. Mesolella resides in Rhode Island. We believe that Vincent J. Mesolella’s experience serving as a director of two publicly traded companies including service as Chairman of the Audit Committee of both, his work as a developer and business owner, his experience as an elected public official, his Chairmanship of a major wastewater treatment organization that has been nationally recognized for its excellence, his intelligence and educational background, and his familiarity with the real estate industry which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.
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Joshua A. Bloom, M.D., age 66, has been a member of our board of directors since July 2007. He has been a practicing physician in Kenosha, Wisconsin since completion of his training in 1988. He is board Certified in Internal Medicine, Pulmonary Diseases, Critical Care Medicine and in Hospice and Palliative Care. He has been employed by Froedtert South (formerly known as United Hospital System) in the Clinical Practice Division from 1995 to present. He had been in private practice at the same address from 1988 to 1995. Dr. Bloom served on the board of directors of Kenosha Health Services Corporation from 1993 to approximately 2010 and the board of Hospice Alliance, Inc. since 1994 and Medical Director there since 1998. He also served on the board of the Beth Israel Sinai Congregation 1998 to 2014, where he served as the President from 2004 until 2010. We believe that Dr. Bloom’s experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.
Dr. Bloom received a medical degree from the University of Illinois in 1982 and completed his residency in internal medicine in 1985 and fellowship in Respiratory & Critical Care Medicine in 1988; both at the University of Illinois. He received an MS in Organic Chemistry from the University of Chicago in 1978 and a BS in Chemistry from Yale College in 1977.
James S. Jacobs, M.D., age 68, has been a member of our board of directors since July 2007. He is a Physician in the Department of Radiation Oncology, at St. Joseph Hospital in Denver, Colorado. He was previously the Resident Physician in Radiation Oncology at Rush Medical Center in Chicago, Illinois. We believe that Dr. Jacobs’ experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation.
Dr. Jacobs did a residency in Radiation Oncology at Rush Medical Center in Chicago, Illinois and an internal medicine internship and residency at the University of Colorado Medical Center in Denver, Colorado. Dr. Jacobs received a BA in Neuroscience from Amherst College in Amherst, Massachusetts in 1976.
William C. “Jake” Jacobs, CPA, age 33, is President, Chief Financial Officer and Treasurer of the Company. Effective as of February 27, 2019, the Board appointed Mr. Jacobs, the son of our Company’s Chief Executive Officer Gerard M. Jacobs, to serve as the President, Chief Financial Officer and Treasurer of the Company. Prior to becoming President, Chief Financial Officer and Treasurer of the Company, Mr. Jacobs served as an independent contractor for the Company for the past several years. Previously, Mr. Jacobs worked in the Assurance Division of Ernst & Young (doing business as EY), auditing both publicly traded and privately held companies. Mr. Jacobs graduated from the University of Southern California, with a double major in Accounting and Business Administration with a concentration in Finance. In 2015, Mr. Jacobs won a Gold Medal at the United States of America Snowboard and Freeski Association (USASA) National Championships in the Boardercross Snowboard Senior (23-29) Men’s division.
Richard E. Morrissy, age 67, has been a member of our board of directors since July 2007. Since August 2016, Mr. Morrissy has been working at the UIC Department of Medicine’s Section of Infectious Disease in a research clinic called Project WISH as Clinical Coordinator in Regulatory Affairs. Previously, Mr. Morrissy was the Senior Research Specialist at the Department of Surgery – CS within the UIC College of Medicine. Mr. Morrissy was a project coordinator for the School of Pharmacy. His duties included serving as project coordinator on four clinical trial research projects funded by the National Institutes of Health’s National Cancer Institute. The School of Pharmacy projects have involved multiple research projects utilizing Lycopene in restoring DNA damage in men’s prostates. The project at UIC’s internationally acclaimed Occupational Therapy School involved the setup and running of focus groups with impaired individuals to create a movement and activity computer survey for the World Health Organization. During his tenure, Mr. Morrissy managed clinical research trials including the submission of institutional review board documents and grant proposals, recruitment of subjects and data management and storage. He also designed and led focus groups, designed and critiqued research surveys, and edited manuscripts and scientific journals. We believe that Mr. Morrissy’s experience serving as a director of the Corporation since 2007, his intelligence and educational background, and his familiarity with the medical research field which has in the past and is currently providing candidates for potential acquisitions by the Corporation, qualifies him to serve as a director of the Corporation. He received a B.A. in History from Western Illinois University in 1976.
Kevin J. Rocio, age 58, has been a member of our board of directors since February 2020. Mr. Rocio is a seasoned award-winning real estate professional, including commercial, residential, finance and development. Mr. Rocio is a graduate of Elmhurst College and an immediate past board member of the Albany Park Community Center. In 2014, Mr. Rocio was accepted into the CCIM (Certified Commercial Investment Member) Institute, a recognized group of experts in the commercial and investment real estate industry. Most recent accolades received by Mr. Rocio include: the Chicago Defenders “Men of Excellence Award”, the Chicago Association of REALTORS Commercial Award, and the National Association of Realtors “National Commercial Award.” We believe that Mr. Rocio’s experience as a business owner qualifies him to serve as a director of the Corporation.
Robert T. Warrender II, age 69, has been a member of our board of directors since September 2020. Since January 2022, Mr. Warrender has also been an employee of Lifted. is the owner and founder of American Process Equipment, Inc. in Zion, IL. In 1993, Mr. Warrender founded American Process Equipment, Inc., which specializes in specialty pumps and related systems. Mr. Warrender has authored industry publications and technical papers for the pump industry and has served as a consultant to companies in related industries. Mr. Warrender attended the University of Wisconsin-Parkside. Mr. Warrender coached junior high school basketball for 20 years. Mr. Warrender is the father of Nicholas S. Warrender who currently serves as the Company’s Vice Chairman of the Board and Chief Operating Officer, and as the CEO of Lifted. We believe that Mr. Warrender’s experience as a business owner qualifies him to serve as a director of the Corporation.
There are no agreements or understandings for our officers or directors to resign at the request of another person, and neither our officers nor directors are acting on behalf of nor will any of them act at the direction of any other person. Directors are elected until their successors are duly elected and qualified.
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Family Relationships
President and CFO William C. “Jake” Jacobs is the son of Chairman and CEO Gerard M. Jacobs. Gerard M. Jacobs and director James S. Jacobs are brothers. One of Lifted’s part-time employees is Christopher Moore, who is the brother-in-law of William C. Jacobs.
Director Robert T. Warrender II is the father of Nicholas S. Warrender, Vice Chairman of the Board and Chief Operating Officer, and the CEO of the Company’s wholly-owned subsidiary Lifted Made. Robert T. Warrender II is also an employee of Lifted. One of Lifted’s independent contractors is Robert T. Warrender III, the brother of Nicholas S. Warrender, and the son of director Robert T. Warrender II.
There are no other family relationships among any of our officers or directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers have been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or have been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in Item 13, “Certain Relationships and Related Transactions, and Director Independence,” none of our directors or executive officers have been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Board Composition and Committees
Our board of directors is currently composed of eight members: Messrs. Gerard M. Jacobs, J.D. (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead Outside Director), Joshua A. Bloom, M.D., James S. Jacobs, M.D., Richard E. Morrissy, Kevin J. Rocio and Robert T. Warrender II. Our board of directors has determined that Joshua A. Bloom, M.D., Richard E. Morrissy, Vincent J. Mesolella and Kevin J. Rocio are independent directors at this time because they do not currently own a significant percentage our shares, are not currently employed by the Company, have not been actively involved in the management of the Company and do not fall into any of the enumerated categories of people who cannot be considered independent directors.
Audit Committee and Audit Committee Financial Expert
We have an audit committee consisting of Joshua A. Bloom, M.D., Vincent J. Mesolella, Richard E. Morrissy and Kevin J. Rocio as members. We have not adopted an Audit Committee charter. Vincent J. Mesolella serves as our audit committee chairman and financial expert. Our audit committee performs the following functions including: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; and (3) engaging outside advisors. Our Board of Directors has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member’s financial sophistication. Accordingly, the Board of Directors believes that each of its members has the sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee member should have for a business such as the Company.
Board Meetings
Due to the current size and scope of our operations and size and geographic diversity of our Board of Directors, much of the Board’s decision making is made through telephone calls and intermittent informal meetings; when formalization is necessary, the Board conducts formal meetings or acts by written consent. In the year ended December 31, 2021, we held only telephonic Board Meetings and there were no in-person Board Meetings attended by all directors.
Nominating Committee
We have a nominating committee consisting of the following members: Joshua A. Bloom, M.D., Vincent J. Mesolella, Richard E. Morrissy and Kevin J. Rocio. Richard E. Morrissy is the nominating committee Chairman.
Investment Committee
Our board of directors has appointed an Investment Committee currently consisting of our Chief Executive Officer Gerard M. Jacobs, J.D., our President and Chief Financial Officer William C. Jacobs, CPA, and our Chief Operating Officer Nicholas S. Warrender.
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Compensation Committee
We have a compensation committee consisting of Joshua A. Bloom, M.D., Vincent J. Mesolella, Richard E. Morrissy, and Kevin J. Rocio as members. Joshua A. Bloom, M.D. serves as the committee’s chairman.
Code of Ethics
We currently have not adopted a code of ethics due to our limited size and operations. We have considered adopting a Code of Business Conduct and Ethics (“Code”) in the past. We expect to adopt a Code or something similar in the future. The purpose of a Code is to assist the Company and its employees, officers and directors with the Company’s goals of conducting its business and affairs in accordance with applicable laws, rules and regulations and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. The Company expects that any consultants or other service providers it retains will adhere to a Code.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executives
Historically, the Company’s CEO GJacobs ran the Company’s operations on a part-time basis and was compensated with equity. GJacobs had not historically received cash compensation, and, historically, the Company’s President and CFO WJacobs had worked for $5,000 per month. Effective as of June 19, 2019 through the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) on February 24, 2020, the Company paid GJacobs and WJacobs consulting fees of $7,500 and $5,000 per month, respectively, in addition to reimbursing GJacobs and WJacobs for business-related expenses. Beginning February 24, 2020, upon the closing of the acquisition of Lifted, GJacobs, WJacobs and NWarrender have been compensated pursuant to the terms of their Executive Employment Agreements with the Company.
Starting January 1, 2022, NWarrender, WJacobs, and GJacobs are each entitled to $250,000 in base salary and an annual bonus stemming from the Company’s cash management bonus pool. Previously, during the year ended December 31, 2021, each of them was entitled to $100,000 in base salary and an annual bonus stemming from the Company’s cash management bonus pool. See “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements” above. In addition, GJacobs and WJacobs are entitled to compensation pursuant to the Omnibus Agreement and their compensation agreement with the Company. See “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Impact of the Merger on Gerard M. Jacobs’ and William C. “Jake” Jacobs’ Compensation Agreement” above.
GJacobs, WJacobs, and NWarrender are all also entitled to reimbursement for all of their business-related expenses. GJacobs and Jacobs are all also entitled to certain bonuses and warrants pursuant to the Omnibus Agreement and their Compensation Agreement with the Company.
As of December 31, 2021, we did experience cash flow events as a result of cash payments to our CEO, GJacobs, to our President and CFO WJacobs, and to our COO NWarrender.
As of December 31, 2020, we did experience cash flow events as a result of cash payments to our CEO, GJacobs, to our President and CFO WJacobs, and to our COO NWarrender.
To date, we have not provided retirement benefits or severance or change of control benefits to GJacobs, WJacobs, or NWarrender.
Historically, funding for the Company was sourced from management affiliates and their contacts, who collectively loaned several hundred thousands of dollars in the past many years. The Company believes that, given the extensive experience of GJacobs, and the rest of the board of directors, and the current opportunity cost factor for each of them, that the amount of historical compensation provided in the form of options and rights to purchase warrants to purchase shares of common stock is fair and reasonable for the Company.
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Omnibus Agreement and Amended Omnibus Agreement
On December 30, 2021, the Company, NWarrender, 95th Holdings, LLC, an affiliate of NWarrender (“Holdings”), GJacobs and WJacobs, entered into an agreement effective as of December 30, 2021 (“Omnibus Agreement”) that, as further described in the sections below, (i) amends certain parts of the Agreement and Plan of Merger by and among the Company, Lifted, GJacobs, WJacobs, Warrender Enterprise Inc. and NWarrender dated February 24, 2020 (the “Merger Agreement”); (ii) amends that certain Compensation Agreement between the Company, GJacobs and WJacobs dated as of June 19, 2019 (the “Compensation Agreement”), and that certain Amendment No. 1 to Compensation Agreement between the Company, GJacobs and WJacobs dated as of December 1, 2020 (the “Amendment No. 1”) (together the “Amended Compensation Agreement”); (iii) amends those certain Executive Employment Agreements dated February 24, 2020 between the Company and GJacobs, WJacobs and NWarrender, respectively (collectively the “Executive Employment Agreements”); (iv) creates quarterly board compensation; and, (v) requires Lifted to purchase a building leased by Lifted from Holdings on or before December 31, 2022, for a fixed purchase price equal to $1,375,000. On February 14, 2022, the Company, NWarrender, GJacobs and WJacobs entered into an agreement effective as of February 14, 2022 (“Amended Omnibus Agreement”) that, as further described in the sections below, amended certain provisions of the Omnibus Agreement.
Payment of Deferred Compensation pursuant to the Amended Compensation Agreement
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 $350,000 being paid by the Company to GJacobs and WJacobs upon December 1, 2020, but such payments were not timely made, and pursuant to the Amendment No. 1 such aggregate of $700,000 of compensation was deferred and made due and payable by the Company to GJacobs and WJacobs together with interest accrued at the rate of 2% annually commencing January 1, 2021, upon demand by GJacobs and WJacobs, and through the date of the Omnibus Agreement only $58,439 of such deferred compensation had been paid to GJacobs (the remaining unpaid deferred compensation together with accrued interest is hereby referred to as the “Deferred Compensation”). Pursuant to the Omnibus Agreement, the Deferred Compensation shall be paid by the Company to GJacobs and WJacobs on or before January 6, 2022.
Payment of $300,000 Bonus to WJacobs
Pursuant to the Omnibus Agreement and simultaneously with such payment of the Deferred Compensation as set out above, the Company shall pay WJacobs a bonus of $300,000.
Payment of an Aggregate of $500,000 in Bonuses to GJacobs, WJacobs and NWarrender
The Amended Compensation Agreement provides that an aggregate of $350,000 shall be paid by the Company to GJacobs and WJacobs on December 1, 2021, but has not yet been paid (the “December 1, 2021 Compensation”). Pursuant to the Omnibus Agreement, the December 1, 2021 Compensation was terminated, but provided that GJacobs and WJacobs have not resigned as officers of the Company on or before December 31, 2022, an aggregate of $500,000 in bonuses shall be paid by the Company to GJacobs and WJacobs. This aggregate of $500,000 in bonuses to GJacobs and WJacobs is in addition to the $300,000 bonus payable to WJacobs described in the preceding section. On February 14, 2022, pursuant to the Amended Omnibus Agreement, this $500,000 was recharacterized as a retention bonus and allocated among NWarrender, GJacobs and WJacobs wherein each is to receive $166,666, respectively, so long as they continue to work with the Company through December 31, 2022.
Increase of Base Salaries of Executives GJacobs, WJacobs and NWarrender
Pursuant to the Omnibus Agreement, commencing January 1, 2022, the Base Salary under each of the Executive Employment Agreements to be paid to GJacobs, WJacobs and NWarrender shall be increased from $100,000 to $250,000 per year.
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Allocation and Payment of Bonus Pool
The company-wide Bonus Pool for 2021 shall be $1,559,334 (the “Modified 2021 Bonus Pool Amount”), which is the aggregate amount that has already been accrued for in the Company’s financial statements covering the period from January 1, 2021 through September 30, 2021, and such Modified 2021 Bonus Pool Amount shall be paid by the Company, and allocated and distributed in accordance with unanimous written instructions from GJacobs, WJacobs and NWarrender, on or before March 15, 2022.
Pursuant to the Amended Omnibus Agreement , there is a cap on the 2022 Bonus Pool such that none of GJacobs, WJacobs or NWarrender shall be entitled to receive any portion of the 2022 Bonus Pool that would cause LFTD Partners Inc.’s 2022 diluted earnings per share of common stock to fall below $0.56 per share.
Name |
| Year |
| Gross Fees Earned or Paid in Cash ($) |
|
| Note Consideration ($) |
|
| Interest on Note Consideration ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| Warrant Awards ($) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) |
|
| Non-Qualified Deferred Compensation Earnings ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||||||||
Gerard M. Jacobs, JD, CEO (1) |
| 2021 |
| $ | 162,001 | (A) |
|
|
|
|
|
|
| $ | 50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 212,001 |
| ||||||||
|
| 2020 |
| $ | 99,226 | (B) |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
| $ | 1,280,768 | (J) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 1,379,994 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
William C. "Jake" Jacobs, CPA, |
| 2021 |
| $ | 103,562 | (C) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 103,562 |
| |
President and CFO (2) |
| 2020 |
| $ | 94,226 | (D) |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
|
| $ | 1,275,827 | (K) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 1,370,053 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Nicholas S. Warrender, COO (3) |
| 2021 |
| $ | 103,562 | (E) |
| $ | 2,750,000 | (G) |
| $ | 138,904 | (I) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,992,466 |
|
|
| 2020 |
| $ | 89,333 | (F) |
| $ | 3,750,000 | (G) |
|
|
|
|
|
| - |
|
| $ | 10,726,251 | (H) |
| $ | 547,269 | (H) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 15,112,853 |
|
Notes
| (A) | In 2021, GJacobs was paid $103,562 in cash, which included a payroll payment in the beginning of 2021 related to 2020. In addition, 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. 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 allocated and applied such $8,439 to pay for the aggregate cost of purchasing and exercising the above warrants. The $8,349 is included in the total “Gross Fees Earned or Paid in Cash ($)”of $162,001. |
| (B) | In 2020, GJacobs earned $15,000 in consulting fees prior to signing his employment agreement dated February 24, 2020. Then, under his employment agreement from February 24, 2020 through December 31, 2020, GJacobs earned gross fees of $84,226. |
| (C) | In 2021, WJacobs was paid $103,562 in cash, which included a payroll payment in the beginning of 2021 related to 2020. |
| (D) | In 2020, WJacobs earned $10,000 in consulting fees prior to signing his employment agreement dated February 24, 2020. Then, under his employment agreement from February 24, 2020 through December 31, 2020, WJacobs earned gross fees of $84,226. As of December 31, 2020, WJacobs, a Florida resident, was owed $2,475 from the State of Illinois for money mistakenly taken out of his paychecks and paid to the State of Illinois for Illinois income tax. WJacobs was refunded this money from the State of Illinois in 2021. |
| (E) | In 2021, NWarrender was paid $103,562 in cash, which included a payroll payment in the beginning of 2021 related to 2020. |
| (F) | Under his employment agreement from February 24, 2020 through December 31, 2020, NWarrender earned gross fees of $89,333. |
| (G) | On December 30, 2021, LIFD repaid all principal and interest due under the $3,750,000 promissory note (the “$3.75M Promissory Note”) between NWarrender and LIFD dated February 24, 2020 that was a portion of the Merger Consideration paid by LIFD to NWarrender under the Merger Agreement. Pursuant to the terms of the $3.75M Promissory Note, the unpaid balance of the note accrued interest at the rate of 2% per annum. |
|
|
|
|
| On December 30, 2021, NWarrender kept $1,000,000 of the repayment, plus accrued interest, and on January 3, 2022, reloaned $2,750,000 back to LIFD at the rate of 2.5%. |
|
|
|
|
| Specifically: on January 3, 2022, NWarrender loaned $2,750,000 to LIFD and Lifted (collectively “Payors”). The $2,750,000 loan is governed by the terms of a promissory note which sets out annual interest at the rate of 2.5% (“the $2,750,000 Promissory Note”). The principal of the $2,750,000 Promissory Note shall be paid off by Payors in five semi-annual payments to NWarrender of $458,333 and a sixth and final semi-annual payment to NWarrender of $458,335, in each case plus accrued interest, starting on June 30, 2022. All remaining principal and all accrued interest on the $2,750,000 Promissory Note shall be subject to mandatory prepayment by Payors to NWarrender within two business days following the closing of any debt or equity capital raise by Payors following the date of this $2,750,000 Promissory Note in the amount of $8,000,000 or more. The $2,750,000 Promissory Note is secured by stock pursuant to a Collateral Stock Pledge Agreement described below. |
|
|
|
|
| Collateral Stock Pledge Agreement |
|
|
|
|
| On January 3, 2022, LIFD, Lifted, and NWarrender entered into a Collateral Stock Pledge Agreement that provides the following collateral to NWarrender in connection with the $2,750,000 Promissory Note: (i) a first lien security interest in all of the assets of LIFD and Lifted (“Pledgors”); (ii) all of the common stock of Lifted, Bendistillery, Bend Spirits, and Ablis that is owned by Pledgors; and (iii) all of the capital stock of any other entity owned by any Pledgor or any of its subsidiaries. |
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| Table of Contents |
| (H) | The Company acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration (the “$3.75M Promissory Note”) of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the “Stock Consideration”), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by NWarrender in a schedule delivered by Warrender to the Company at the closing of the Merger (the “Deferred Contingent Stock”), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by NWarrender in a schedule delivered by NWarrender to the Corporation at the closing of the Merger (the “Warrants”). Of the Warrants, a warrant to purchase 200,000 shares of common stock were issued to NWarrender. This warrant was valued at $547,269. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
|
|
|
|
| The 3,900,455 shares of unregistered common stock of the Company issued to NWarrender were valued as of January 7, 2020 (date of entering into the Agreement and Plan of Merger). These 3,900,455 shares of unregistered common stock of the Company were valued at $10,726,251.
The $3.75M Promissory Note was payable jointly by the Company and Lifted to NWarrender in the principal amount of $3,750,000. The $3.75M Promissory Note was secured by all of the assets of the Company and Lifted, and by a pledge of all of the common stock of Lifted, Ablis, Bendistillery and Bend Spirits that are owned by the Company. The $3.75M Promissory Note accrued interest at the rate of 2% annually, and had a term of five years, subject to mandatory partial prepayment using 50% of all capital raised by the Company other than capital raised in connection with two potential acquisitions in Wisconsin, and subject to mandatory full prepayment if and when Lifted achieved an aggregate post-Closing EBITDA of $7,500,000. Lifted did not use any of the loan or grant money that Lifted received from the SBA to make any payments on the $3.75M Promissory Note payable jointly by the Company and Lifted to NWarrender.
On December 30, 2021, LIFD repaid all principal and interest ($138,904) due under the $3.75M Promissory Note between NWarrender and LIFD. |
|
|
|
| (I) | On December 30, 2021, LIFD repaid all principal and interest ($138,904) due under the $3.75M Promissory Note between NWarrender and LIFD. |
|
|
|
| (J) | In 2020, GJacobs’ Warrant Awards consisted of: |
| 1. | Five-year warrants to purchase 250,000 shares of common stock of LIFD exercisable at $5.00 per share, worth $733,499, issued to GJacobs upon the execution of an employment agreement on 2/24/2020 (pursuant to the Compensation Agreement). We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.21%, estimated future volatility of 361.49%, and an estimated life of 2.5 years. |
|
|
|
| 2. | A warrant to purchase 200,000 shares of common stock, exercisable at $5 per share, issued to GJacobs as part of the consideration of the Lifted acquisition, valued at $547,269. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
| (K) | In 2020, WJacobs’ Warrant Awards consisted of: |
| (1) | The expensing of five-year warrants to purchase 225,000 shares of common stock exercisable at $5.00 per share, worth $660,149 issued to WJacobs upon the execution of an employment agreement on 2/24/2020 (pursuant to the Compensation Agreement). We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.21%, estimated future volatility of 361.49%, and an estimated life of 2.5 years. |
|
|
|
| (2) | A warrant to purchase 225,000 shares of common stock, exercisable at $5 per share, issued to WJacobs as part of the consideration of the Lifted acquisition, valued at $615,678. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
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| Table of Contents |
Compensation of Directors
Name |
| Year |
| Gross Fees Earned or Paid in Cash ($) |
|
| Note Consideration ($) |
|
| Interest on Note Consideration ($) |
|
| Bonus ($) |
|
| Stock awards ($) |
|
| Warrant Awards ($) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) |
|
| Non-Qualified Deferred Compensation Earnings ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||||||||
Gerard M. Jacobs, JD, Chairman |
| 2021 |
| $ | 162,001 | (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 162,001 | (A) | |||||||||
|
| 2020 |
| $ | 99,226 | (A) |
|
|
|
|
|
|
|
|
|
|
| - |
|
| $ | 1,280,768 | (A) |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,379,994 | (A) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Nicholas S. Warrender, Vice Chairman |
| 2021 |
| $ | 103,562 | (B) |
| $ | 2,750,000 | (B) |
| $ | 138,904 | (B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,992,466 | (B) | |||||
|
| 2020 |
| $ | 89,333 | (B) |
| $ | 3,750,000 | (B) |
|
|
|
|
|
|
|
| $ | 10,726,251 | (B) |
| $ | 547,269 | (B) |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 15,112,853 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Vincent J. Mesolella, Lead Outside Director |
| 2021 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | - |
| |||||
|
| 2020 |
| $ | 172 | (C) |
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| $ | 273,635 | (D) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 273,807 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Joshua A. Bloom, MD, Director |
| 2021 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | - |
| |
|
| 2020 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 136,817 | (E) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 136,817 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
James S. Jacobs, MD, Director |
| 2021 |
| $ | - |
|
| $ | - |
|
|
|
|
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | - |
|
|
| 2020 |
| $ | - |
|
| $ | - |
|
|
|
|
|
| $ | - |
|
| $ | - |
|
| $ | 136,817 | (F) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 136,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard E. Morrissy, Director |
| 2021 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | - |
|
|
| 2020 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| $ | 136,817 | (G) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 136,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin J. Rocio, Director |
| 2021 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | - |
|
|
| 2020 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| $ | 136,817 | (H) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 136,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert T. Warrender II, Director |
| 2021 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | - |
|
|
| 2020 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
| $ | 273,635 | (I) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 273,635 |
|
Notes
| (A) | Please refer to the section above “Compensation of Executives” for information about GJacobs’ compensation in 2021 and 2020. Note: this compensation is compensation in connection with the merger and for serving as an executive officer of the company. None of this compensation is considered compensation for serving as a director. |
| (B) | Please refer to the section above “Compensation of Executives” for information about NWarrender’s compensation in 2021 and 2020. This compensation is compensation in connection with the merger and for serving as an executive officer of the company. None of this compensation is considered compensation for serving as a director. |
| (C) | During the year ended December 31, 2020, $172 in commissions were paid to Vincent J. Mesolella, the Company’s lead outside director. |
| (D) | The Company acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration (the “$3.75M Promissory Note”) of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the “Stock Consideration”), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by NWarrender in a schedule delivered by NWarrender to the Company at the closing of the Merger (the “Deferred Contingent Stock”), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by NWarrender in a schedule delivered by NWarrender to the Corporation at the closing of the Merger (the “NWarrender Specified Warrants”). Of the Warrants, a warrant to purchase 100,000 shares of common stock were issued to Vincent J. Mesolella. This warrant was valued at $273,635. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
| (E) | NWarrender Specified Warrants to purchase 50,000 shares of common stock were issued to Joshua A. Bloom. This warrant was valued at $136,817. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
| (F) | NWarrender Specified Warrants to purchase 50,000 shares of common stock were issued to James S. Jacobs. This warrant was valued at $136,817. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
| (G) | NWarrender Specified Warrants to purchase 50,000 shares of common stock were issued to Richard E. Morrissy. This warrant was valued at $136,817. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
| (H) | NWarrender Specified Warrants to purchase 50,000 shares of common stock were issued to Kevin J. Rocio. This warrant was valued at $136,817. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
| (I) | NWarrender Specified Warrants to purchase 100,000 shares of common stock were issued to Robert T. Warrender II. This warrant was valued at $273,635. We used the Black-Scholes valuation model to value these warrants, incorporating into the model an interest rate of 1.55%, estimated future volatility of 361.49%, and an estimated life of 2.57 years. |
Director Bonus Compensation
Pursuant to the Omnibus Agreement, commencing on March 31, 2022, each of the non-officer members of the board of directors of the Company shall receive a quarterly fee of $4,000 from the Company.
Two of our directors, Chief Executive Officer Jacobs GJacobs and Chief Operating Officer NWarrender, and our President and CFO WJacobs, have entered into employment agreements with the Company. During 2022, director Robert T. Warrender II began work as an employee of Lifted. In the future, it is possible that other directors may serve us in another capacity and may receive compensation from us in connection with that service.
| 66 |
| Table of Contents |
Aggregate Option Exercise of Last Fiscal year and Fiscal Year-End Option Values
The table below sets forth unexercised options, stock that has not yet vested and equity incentive plan awards for our Chairman and CEO Gerard M. Jacobs, our President and CFO William C. Jacobs, and our Vice Chairman and COO Nicholas S. Warrender outstanding as of December 31, 2021.
Outstanding Equity Awards At Fiscal Year End |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
(see "Description of Columns (a) Through (j):", below) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(a) |
| (b) |
|
| (c) |
|
| (e) |
|
| (f) |
| (g) |
|
| (h) |
|
| (i) |
|
| (j) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Gerard M. Jacobs, Chairman and CEO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
| 471,698 |
|
|
|
|
| $ | 2.00 |
|
| 12/31/2024 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
| 605,000 |
|
|
|
|
| $ | 2.00 |
|
| 12/31/2024 |
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
| 750,000 | (k) |
| $ | 1.85 |
|
| 12/31/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| 250,000 |
|
|
|
|
|
| $ | 5.00 |
|
| 2/24/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| 200,000 |
|
|
|
|
|
| $ | 5.00 |
|
| 2/24/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
William C. Jacobs, President and CFO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 200,000 |
|
| $ | 874,000 |
|
|
|
|
|
|
| ||
|
|
| 225,000 |
|
|
|
|
|
| $ | 5.00 |
|
| 2/24/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 225,000 |
|
|
|
|
|
| $ | 5.00 |
|
| 2/24/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas S. Warrender, Vice Chairman and COO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 200,000 |
|
|
|
|
|
| $ | 5.00 |
|
| 2/24/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Columns (a) Through (j):
(a) | The name of the named executive officer; |
(b) | On an award-by-award basis, the number of securities underlying unexercised options and warrants, including awards that have been transferred other than for value, that are exercisable and that are not reported in column (d); |
(c) | On an award-by-award basis, the number of securities underlying unexercised options and warrants, including awards that have been transferred other than for value, that are unexercisable and that are not reported in column (d); |
(d) | On an award-by-award basis, the total number of shares underlying unexercised options and warrants awarded under any equity incentive plan that have not been earned; |
(e) | For each instrument reported in columns (b), (c) and (d), as applicable, the exercise or base price; |
(f) | For each instrument reported in columns (b), (c) and (d), as applicable, the expiration date; |
(g) | The total number of shares of stock that have not vested and that are not reported in column (i); |
(h) | The aggregate market value of shares of stock that have not vested and that are not reported in column (j) (note: LFTD Partners’ common stock closed at $4.37 on December 31, 2021, according to Yahoo! Finance); |
(i) | The total number of shares of stock, units or other rights awarded under any equity incentive plan that have not vested and that have not been earned, and, if applicable the number of shares underlying any such unit or right; and |
(j) | The aggregate market or payout value of shares of stock, units or other rights awarded under any equity incentive plan that have not vested and that have not been earned. |
(k) | During December 2014, the Company’s stock closed at not less than $3.50 per share on at least ten consecutive trading days on which shares of LFTD Partners stock traded (a condition to vesting); however these warrants will vest only after the Company has acquired at least one of the Four Mesolella Properties as defined in the PPV Letter of Intent, and LFTD Partners has stated in its SEC filings that it has no intention to acquire any of the Four Mesolella Properties. |
| 67 |
| Table of Contents |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of common stock of the Company by (i) each person who, to the Company’s knowledge, owns more than 5% of its common stock, (ii) each of the Company’s named executive officers and directors, and (iii) all of the Company’s named executive officers and directors as a group. Shares of the Company’s Common Stock subject to options, warrants, or other rights currently exercisable, or exercisable within 60 days of the date hereof, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. As of March 21, 2022, the Company has 13,977,578 shares of common stock issued and outstanding, and 20,144,776 shares outstanding on a fully diluted basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares outstanding as of 3/21/2022 |
|
| 13,977,578 |
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fully Diluted Shares Outstanding as of 3/21/2022 |
|
| 20,114,776 |
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Name |
| Number of Series A Preferred Stock Shares Owned |
|
| Beneficial Ownership Percentage |
|
| Number of Series B Preferred Stock Shares Owned |
|
| Beneficial Ownership Percentage |
|
| Number of Common Stock Shares Owned or Controlled |
|
| Beneficial Ownership Percentage |
|
| Options/ Warrants Owned |
|
| Overall Voting Power |
|
| Overall Voting Power (%) out of Fully Diluted Shares as of March 21, 2022 |
|
| Overall Voting Power (%) out of Share Outstanding As of March 21, 2022 |
| ||||||||||
Nicholas S. Warrender (1) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,900,455 |
|
|
| 43.76 | % |
|
| 200,000 |
|
|
| 4,100,455 |
|
|
| 20.39 | % |
|
| 27.91 | % |
Gerard M. Jacobs (2) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,233,073 |
|
|
| 13.83 | % |
|
| 1,526,698 |
|
|
| 2,759,771 |
|
|
| 13.72 | % |
|
| 8.82 | % |
ZIE Partners LLC (3) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,500,000 |
|
|
| 28.05 | % |
|
| - |
|
|
| 2,500,000 |
|
|
| 12.43 | % |
|
| 17.89 | % |
William C. “Jake” Jacobs, CPA (4) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 400,000 |
|
|
| 4.49 | % |
|
| 450,000 |
|
|
| 850,000 |
|
|
| 4.23 | % |
|
| 2.86 | % |
Vincent J. Mesolella (5) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 537,862 |
|
|
| 6.03 | % |
|
| 100,000 |
|
|
| 637,862 |
|
|
| 3.17 | % |
|
| 3.85 | % |
Roberti Jacobs Family Trust (6) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 181,623 |
|
|
| 2.04 | % |
|
| - |
|
|
| 181,623 |
|
|
| 0.90 | % |
|
| 1.30 | % |
James S. Jacobs, M.D. (7) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 75,000 |
|
|
| 0.84 | % |
|
| 75,000 |
|
|
| 150,000 |
|
|
| 0.75 | % |
|
| 0.54 | % |
Joshua A. Bloom, M.D. (8) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 55,000 |
|
|
| 0.62 | % |
|
| 75,000 |
|
|
| 130,000 |
|
|
| 0.65 | % |
|
| 0.39 | % |
Richard E. Morrissy (9) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,000 |
|
|
| 0.34 | % |
|
| 75,000 |
|
|
| 105,000 |
|
|
| 0.52 | % |
|
| 0.21 | % |
Kevin J. Rocio (10) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.00 | % |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 0.25 | % |
|
| 0.00 | % |
Robert T.Warrender II (11) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 0.00 | % |
|
| 100,000 |
|
|
| 100,000 |
|
|
| 0.50 | % |
|
| 0.00 | % |
Total of All Officers, Directors, and Affiliates as a group (11 persons and/or entities) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,913,013 |
|
|
| 100.00 | % |
|
| 2,651,698 |
|
|
| 11,564,711 |
|
|
| 57.49 | % |
|
|
|
|
Total of All Officers and Directors as a group (9 persons and 1 entity) (12) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 6,413,013 |
|
|
|
|
|
|
| 2,651,698 |
|
|
| 9,064,711 |
|
|
| 45 | % |
|
|
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(1) | Nicholas S. Warrender serves as Vice Chairman and Chief Operating Officer, and he owns 3,900,455 shares of LFTD Partners’ common stock. The address for Nicholas S. Warrender is 5511 95th Avenue, Kenosha, WI 53144. Mr. Warrender also owns a five year warrant to purchase 200,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. At the closing of the Lifted Merger, 645,000 shares of unregistered common stock of the Corporation were designated as contingent deferred compensation (the “Deferred Contingent Stock”) to certain persons specified by Mr. Warrender in a schedule delivered by him to the Corporation at the closing of the Merger (the “Deferred Contingent Stock Recipients”); Mr. Warrender was not one of the specified Deferred Contingent Stock Recipients, but subject to certain conditions and contingencies, some or all of such Deferred Contingent Stock may be forfeited by the Deferred Contingent Stock Recipients, and in such case such forfeited Deferred Contingent Stock will be issued to Mr. Warrender as additional Merger consideration. |
(2) | The address for Mr. Gerard M. Jacobs is 4227 Habana Avenue, Jacksonville, FL 32217. Mr. Gerard M. Jacobs, our Chairman, Chief Executive Officer, and Secretary, has voting control over the following: (a) 781,250 shares of unregistered common stock; (b) 181,623 Company shares owned by the Roberti Jacobs Family Trust, over which Mr. Gerard M. Jacobs has voting control via a 2007 shareholders agreement; (c) 100,000 Company shares owned by his affiliate Miss Mimi Corporation; (d) 170,000 Company shares owned by unrelated shareholders of the Company, over which Mr. Gerard M. Jacobs has voting control via a 2007 shareholders agreement; (e) 200 shares owned by his wife; (f) 605,000 options at $2.00 per share, the vesting of which occurred upon the closing of the merger with Cogility; (g) 471,698 options at $2.00 per share (originating from Cogility). Also, simultaneously with the execution of an employment agreement, LFTD Partners issued to Gerard M. Jacobs or his designee(s) five-year warrants giving Gerard M. Jacobs or his designee(s) the right to purchase 250,000 shares of common stock of LFTD Partners exercisable at $5.00 per share, vesting upon the closing of LFTD Partners’ acquisition of Warrender Enterprise Inc. d/b/a Lifted Liquids. The Company has issued to Mr. Jacobs rights to purchase 750,000 warrants at $1.85 per share, which Mr. Jacobs or his designee have the right to purchase from the Company for an aggregate purchase price of $1.00 subject to the condition that the Company shall have acquired at least one of certain real estate properties owned by entities controlled by Vincent J. Mesolella, a Director of the Company; the Company has no intention to acquire any of such real estate properties, so these warrants are not included in the table above. Gerard M. Jacobs was also one of the specified Warrant Recipients, and received a five year warrant to purchase 200,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(3) | Christian Zann is the Manager of ZIE Partners LLC. The address for ZIE Partners LLC is 4227 Habana Avenue, Jacksonville, FL 32217. ZIE Partners LLC owns 2,500,000 shares of LFTD Partners' common stock. |
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(4) | The address of William C. “Jake” Jacobs, CPA, is 4227 Habana Avenue, Jacksonville, FL 32217. Mr. Jacobs owns 200,000 shares of common stock of the Company. Also, simultaneously with the execution of an employment agreement, LFTD Partners issued to William C. Jacobs or his designee(s) five-year warrants giving William C. Jacobs or his designee(s) the right to purchase 225,000 shares of common stock of LFTD Partners exercisable at $5.00 per share, vesting upon the closing of LFTD Partners’ acquisition of Warrender Enterprise Inc. d/b/a Lifted Liquids. William C. Jacobs was one of the specified Deferred Contingent Stock Recipients and received 200,000 shares of Deferred Contingent Stock. William C. Jacobs was also one of the specified Warrant Recipients, and received a five year warrant to purchase 225,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(5) | The address for Mr. Vincent J. Mesolella is 4227 Habana Avenue, Jacksonville, FL 32217. Mr. Mesolella has voting control over the following: 537,862 shares of our common stock. The Company has issued to Mr. Mesolella rights to purchase 500,000 warrants at $1.85 per share, which Mr. Mesolella or his designee have the right to purchase from the Company for an aggregate purchase price of $1.00 subject to the condition that the Company shall have acquired at least one of certain real estate properties owned by entities controlled by Mr. Mesolella; the Company has no intention to acquire any of such real estate properties, so these warrants are not included in the table above. Vincent J. Mesolella was also one of the specified Warrant Recipients, and received a five year warrant to purchase 100,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(6) | The address for the Roberti Jacobs Family Trust is 4227 Habana Avenue, Jacksonville, FL 32217. The Roberti Jacobs Family Trust irrevocably conveyed all of its voting power to Mr. Gerard M. Jacobs pursuant to the 2007 shareholder agreement described above. Mr. Gerard M. Jacobs is one of the grantors of the trust corpus, William C. “Jake” Jacobs currently is the trustee, and Gerard M. Jacobs’ children are the beneficiaries. The trust is irrevocable. The Trust owns 181,623 shares. |
(7) | The address for Dr. James S. Jacobs is 4227 Habana Avenue, Jacksonville, FL 32217. Dr. James S. Jacobs owns 75,000 shares of stock. He or his designee has the right to purchase from the Company 25,000 warrants at $1.85 per share for a purchase price of $1.00. Dr. James S. Jacobs was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(8) | The address for Dr. Joshua A. Bloom is 4227 Habana Avenue, Jacksonville, FL 32217. Dr. Joshua A. Bloom owns 55,000 shares of stock. He or his designee has the right to purchase from the Company 25,000 warrants at $1.85 per share for a purchase price of $1.00. Dr. Joshua A. Bloom was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(9) | The address for Mr. Richard E. Morrissy is 4227 Habana Avenue, Jacksonville, FL 32217. Mr. Richard E. Morrissy owns 30,000 shares of stock. He or his designee has the right to purchase from the Company 25,000 warrants at $1.85 per share for a purchase price of $1.00. Mr. Richard E. Morrissy was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(10) | The address for Mr. Kevin J. Rocio is 4227 Habana Avenue, Jacksonville, FL 32217. Mr. Kevin J. Rocio was also one of the specified Warrant Recipients, and received a five year warrant to purchase 50,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(11) | The address for board member Mr. Robert T. Warrender II is 4227 Habana Avenue, Jacksonville, FL 32217. Mr. Robert T. Warrender II was one of the specified Warrant Recipients, and received a five year warrant to purchase 100,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share. |
(12) | Due to the combination of proxies and a shareholder agreement, all of the shares of the Roberti Jacobs Family Trust and Mr. Gerard M. Jacobs and his affiliate Miss Mimi Corporation, and his spouse, collectively total 2,759,771 shares (which total includes unexercised options, warrants and the right to purchase warrants to purchase shares of our common stock, all of which may be exercised at any time in the discretion of the holder or his designee; but which total excludes the right to purchase warrants to purchase an aggregate of 750,000 shares of our common stock, which may not be exercised until a required performance contingency is met, which the Corporation does not expect will occur) which may be voted together (without any double counting). The other directors hold a total of 6,304,940 shares (which total includes unexercised options, warrants and rights to purchase warrants to purchase shares of our common stock which may be exercised at any time in the discretion of the holder or his designee; but which total excludes the right to purchase warrants to purchase an aggregate of 500,000 shares of our common stock, which may not be exercised until a required performance contingency is met, and which the Corporation does not expect will occur) which may be voted together (without any double counting). |
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COMPENSATION PLANS
Equity Compensation Plans
None.
Option Plans
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The following describes transactions since January 1, 2019 to which we have been a party and, in which:
| · | the amounts involved exceeded or will exceed $120,000; and |
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| · | any of our directors, executive officer, or beneficial holders of more than 5% of our voting securities, or their affiliates or immediate family members, had or will have a direct or indirect material interest. |
We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, from unrelated third parties. Compensation arrangements for our directors and named executive officers are described in “Compensation of Executive” and “Compensation of Directors”.
Lease and Obligation to buy a Building Owned by an Affiliate
On December 18, 2020, Lifted entered into a Lease Agreement (the “Lease) with 95th Holdings, LLC (“Landlord”) for office, laboratory and warehouse space located in a building at 5511 95th Avenue, in the City of Kenosha, State of Wisconsin (the “Premises”). The Landlord is an entity directly or indirectly owned by NWarrender, the Company’s COO and the CEO of Lifted and the largest stockholder of the Company as beneficial owner of 3,900,455 common stock shares. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, NWarrender is able to benefit through his entity 95th Holdings, LLC by receiving rent and by eventually selling the Premises to Lifted.
The purpose of the Lease was to replace Lifted’s current 3,300 square foot leased manufacturing facility and warehouse located in Zion, Illinois, as well as the space that Lifted has been temporarily using located adjacent to that rented space. Lifted built out the newly-leased space in Kenosha, and moved into that space during the first quarter of 2021.
Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted has leased approximately 11,238 square feet at the Premises at $6.13 per square foot per year in base rent ($68,888.94 in 2021), which is subject to a 2% increase in base rent each year, plus certain operating expenses and taxes.
On December 30, 2021, LIFD, NWarrender, 95th Holdings, LLC (“Holdings”), GJacobs, our Chairman and CEO, and WJacobs our President and CFO, entered into an agreement effective as of December 30, 2021 (“Omnibus Agreement”) that, among other things described below, requires Lifted to purchase a building leased by Lifted from an affiliate of our Vice Chairman and COO NWarrender on or before December 31, 2022, for a fixed purchase price equal to $1,375,000. Please read the section below “Agreement to Purchase Property from Affiliate” for more information.
Omnibus Agreement and Amended Omnibus Agreement
Also, the Omnibus Agreement and the Amended Omnibus Agreement (i) amend certain parts of the Agreement and Plan of Merger by and among LIFD, Lifted, GJacobs, WJacobs, Warrender Enterprise Inc. and NWarrender dated February 24, 2020 (the “Merger Agreement”); (ii) amend that certain Compensation Agreement dated as of June 19, 2019 (the “Compensation Agreement”), and that certain Amendment No. 1 to Compensation Agreement dated as of December 1, 2020 (the “Amendment No. 1”) (together the “Amended Compensation Agreement”); (iii) amend those certain Executive Employment Agreements dated February 24, 2020 between LIFD and GJacobs, WJacobs and NWarrender, respectively (collectively the “Executive Employment Agreements”); and, (iv) create quarterly board compensation:
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Payment of Deferred Compensation pursuant to the Amended Compensation Agreement
The Compensation Agreement contemplated an aggregate of $350,000 being paid by LIFD to GJacobs and WJacobs upon the closing of LIFD’s acquisition of Lifted and an aggregate of $350,000 being paid by LIFD to GJacobs and WJacobs upon December 1, 2020, but such payments were not timely made, and pursuant to the Amendment No. 1 such aggregate of $700,000 of compensation was deferred and made due and payable by LIFD to GJacobs and WJacobs together with interest accrued at the rate of 2% annually commencing January 1, 2021, upon demand by GJacobs and WJacobs, and to date only $58,439 of such deferred compensation has been paid to date to GJacobs (the remaining unpaid deferred compensation together with accrued interest is hereby referred to as the “Deferred Compensation”). Pursuant to the Omnibus Agreement, the Deferred Compensation shall be paid by LIFD to GJacobs and WJacobs on or before January 6, 2022.
Payment of $300,000 Bonus to WJacobs
Pursuant to the Omnibus Agreement and simultaneously with such payment of the Deferred Compensation as set out above, LIFD shall pay WJacobs a bonus of $300,000 on or before January 6, 2022.
Payment of on Aggregate $500,000 in Bonuses to GJacobs, WJacobs and NWarrender
The Amended Compensation Agreement provides that an aggregate of $350,000 shall be paid by LIFD to GJacobs and WJacobs on December 1, 2021, but has not yet been paid (the “December 1, 2021 Compensation”). The December 1, 2021 Compensation was terminated.
Pursuant to the Omnibus Agreement and the Amended Omnibus Agreement, if GJacobs, WJacobs and NWarrender have not resigned as officers of LIFD, on or before December 31, 2022, a retention bonus of $166,666 shall be paid by the Company to each of NWarrender, GJacobs and WJacobs.
Increase of Base Salaries of Executives GJacobs, WJacobs and NWarrender
Pursuant to the Omnibus Agreement, commencing January 1, 2022, the Base Salary under each of the Executive Employment Agreements to be paid to GJacobs, WJacobs and NWarrender shall be increased from $100,000 to $250,000 per year.
Allocation and Payment of Bonus Pool
The company-wide Bonus Pool for 2021 shall be $1,559,334 (the “Modified 2021 Bonus Pool Amount”), which is the aggregate amount that has already been accrued for in LIFD’s financial statements covering the period from January 1, 2021 through September 30, 2021, and such Modified 2021 Bonus Pool Amount shall be paid by LIFD, and allocated and distributed in accordance with unanimous written instructions from GJacobs, WJacobs and NWarrender, on or before March 15, 2022.
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 $0.56 per share.
Agreement to Purchase Property from Affiliate
Our Vice Chairman and COO NWarrender directly or indirectly controls 95th Holdings, LLC which owns approximately 11,238 square feet of office, laboratory and warehouse space in a building located at 5511 95th Avenue, in the City of Kenosha, State of Wisconsin (the “Premises”). On December 18, 2020, Lifted as tenant entered into a Lease Agreement (the “Lease) with 95th Holdings, LLC (“Landlord”) for 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 Omnibus Agreement, Lifted is obligated to purchase the Property from Landlord on or before December 31, 2022, for a fixed purchase price equal to $1,375,000.
Director Fees
Pursuant to the Omnibus Agreement, commencing on March 31, 2022, each of the non-officer members of the board of directors of LIFD shall receive a quarterly fee of $4,000 from LIFD.
Status of Agreements
Excepting only as expressly modified or amended pursuant to the Omnibus Agreement, all other terms and conditions of the Merger Agreement, the Amended Compensation Agreement, the Executive Employment Agreements, the Lease, and all other agreements among any of the Parties remain in full force and effect following the execution and delivery of the Omnibus Agreement.
Negotiations of Agreements
In the negotiation and execution of the Omnibus Agreement, LIFD was represented by the Compensation Committee of the board of directors of LIFD, which consists of LIFD’s four independent board members (the “Compensation Committee”). The Compensation Committee has indicated to management that it believes that the terms and conditions of the Omnibus Agreement are in the best interests of LIFD.
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Repayment of $3,750,000 promissory note between Nicholas S. Warrender and LIFD dated February 24, 2020
On December 30, 2021, LIFD repaid all principal and interest due under the $3,750,000 promissory note (the “$3.75M Promissory Note”) between NWarrender and LIFD dated February 24, 2020 that was a portion of the Merger Consideration paid by LIFD to NWarrender under the Merger Agreement. Pursuant to the terms of the $3.75M Promissory Note, the unpaid balance of the note accrued interest at the rate of 2% per annum.
On December 30, 2021, NWarrender kept $1,000,000 of the repayment, plus accrued interest, and on January 3, 2022, reloaned $2,750,000 back to LIFD at the rate of 2.5%. See “$2,750,000 Promissory Note between LFTD Partners, Lifted and NWarrender” above.
Purchase of Warrants and Exercise of Such Warrants
On April 1, 2018, we issued to director Dr. James S. Jacobs, brother of Chief Executive Officer GJacobs, rights to purchase warrants, for a purchase price of $1.00, an aggregate of 40,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. Dr. James S. Jacobs purchased such warrants and immediately exercised such warrants on September 23, 2019.
On November 28, 2014, we granted director Dr. James S. Jacobs the right to purchase warrants, for a purchase price of $1.00, an aggregate of 25,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be fully exercisable on or prior to December 31, 2024. Dr. James S. Jacobs purchased such warrants and immediately exercised such warrants on September 23, 2019.
On November 28, 2014, we granted director Richard E. Morrissy the right to purchase warrants, for a purchase price of $1.00, an aggregate of 25,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be fully exercisable on or prior to December 31, 2024. Richard E. Morrissy purchased such warrants and immediately exercised such warrants on September 23, 2019.
On November 28, 2014, we granted director Dr. Joshua A. Bloom the right to purchase warrants, for a purchase price of $1.00, an aggregate of 25,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be fully exercisable on or prior to December 31, 2024. Dr. Joshua A. Bloom purchased such warrants and immediately exercised such warrants on September 23, 2019.
On April 1, 2018, we issued to then independent contractor and now our President and Chief Financial Officer WJacobs, son of Chief Executive Officer GJacobs, rights to purchase warrants, for a purchase price of $1.00, an aggregate of 210,000 shares of common stock of the Company, at an exercise price of $0.01 per share, such warrants to be fully vested and to be exercisable on or prior to December 31, 2024. On March 13, 2019, WJacobs exercised these warrants to purchase 200,000 shares of common stock of the Company, and assigned the remaining 10,000 warrants to a third party.
Operating Loans 2018
On July 16, 2018 and November 12, 2018, Dr. Joshua A. Bloom, a member of our Board of Directors, loaned the Company $10,025 and $10,000, respectively, for working capital needs. The loans bear interest at 15% per annum. The loans are payable on demand by lender. There is a default rate of 18% interest in the event that the loans are not paid on demand. The loans are secured by all of the assets of the Company. These loans were fully repaid by the Company on March 13, 2019. In addition, the loan terms grant Dr. Bloom a total of 25,000 financing warrants to purchase shares of common stock of the Company, exercisable at $0.03 per share at any time through July 16, 2023. Dr. Bloom exercised such financing warrants on September 23, 2019.
On July 18, 2018 and November 8, 2018, GJacobs, our Chief Executive Officer and a member of our Board of Directors, loaned the Company $4,766 and $6,000, respectively, for working capital needs. The loans bear interest at 15% per annum. The loans are payable on demand by lender. There is a default rate of 18% interest in the event that the loans are not paid on demand. The loans are secured by all of the assets of the Company. Such loans were fully repaid by the Company on March 13, 2019. In addition, the loan terms grant GJacobs a total of 12,500 financing warrants to purchase shares of common stock of the Company, exercisable at $0.03 per share at any time through July 16, 2023. GJacobs exercised such financing warrants on August 30, 2021.
Operating Loans 2019
On January 7, 2019, January 21, 2019 and February 6, 2019, GJacobs, our Chief Executive Officer and a member of our board of directors, loaned the Company $5,968, $804, and $8,000, respectively, for working capital needs. The loans bear interest at 15% per annum. The loans are payable on demand by lender. There is a default rate of 18% interest in the event that the loans are not paid on demand. The loans are secured by all of the assets of the Company. Such loans were fully repaid by the Company on March 13, 2019. In addition, the loan terms grant GJacobs a total of 18,750 financing warrants to purchase shares of common stock of the Company, exercisable at $0.03 per share at any time through July 16, 2023. GJacobs exercised such financing warrants on August 30, 2021.
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Compensation Agreement and Executive Employment Agreements of Gerard M. Jacobs and William C. “Jake” Jacobs
Historically, our Chief Executive Officer GJacobs did not receive cash compensation. Historically, WJacobs was an independent contractor of the Company from May 2014 until February 4, 2019, when he was promoted to President, CFO and Treasurer of the Company. As an independent contractor, WJacobs earned fees of $5,000 per month, plus reimbursement for all of his business-related expenses. However, from May 2016 through 2018, WJacobs was not paid the independent contractor fees that he had earned, and he was not reimbursed for any of his business-related expenses, because the Company did not have the cash to pay him. All of the independent contractor fees that were owed to WJacobs but were not paid because the Company did not have the cash to pay him, plus reimbursement for all of his business related expenses, were fully paid to him during 2019 out of the proceeds of the sale of the Company’s Series A convertible preferred stock. These independent contractor fees totaled $40,000 for May 2016 through December 2016, $60,000 for 2017, $60,000 for 2018 and $60,000 for 2019, for a grand total of $220,000.
Effective as of June 19, 2019 through the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) on February 24, 2020, the Company paid GJacobs and WJacobs consulting fees of $7,500 and $5,000 per month, respectively.
Effective February 24, 2020, GJacobs runs the Company’s operations on a full time basis as the Company’s Chief Executive Officer pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. Effective February 24, 2020, WJacobs serves as the Company’s President and CFO on a full time basis pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. See “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements” above.
GJacobs and WJacobs are also entitled to certain warrants and bonuses pursuant to their compensation agreement with the Company. See “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Impact of the Merger on Gerard M. Jacobs’ and William C. “Jake” Jacobs’ Compensation Agreement” above.
Effective February 24, 2020, NWarrender serves as the Company’s COO on a full time basis pursuant to his multi-year Executive Employment Agreement which pays him an annual base salary of $100,000, and entitles him to participate in a Company-wide management bonus pool. See “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement - Executive Employment Agreements” above.
Pursuant to the Omnibus Agreement, the annual base salary of each of NWarrender, WJacobs and GJacobs has been increased to $250,000 commencing on January 1, 2022.
Acquisition of Real Estate in Rhode Island
As discussed in our prior public filings, we have attempted to acquire one or more parcels of real estate in Rhode Island, referred to as the Mesolella/Jacobs Properties that are owned by entities affiliated with Vincent J. Mesolella and his son Derek V. Mesolella, formerly an independent contractor to the Company. One of the Mesolella/Jacobs Properties at one time was also partly owned by an affiliate of our Chief Executive Officer, GJacobs. Discussions among Messrs. Mesolella and GJacobs and our independent directors have made it highly likely that we will never purchase any of the Mesolella/Jacobs Properties.
Exercise of Options and Warrants by Directors and Non-Affiliate Shareholders
Please refer to “NOTE 10 – SHAREHOLDERS’ EQUITY” to read about the exercise of options and warrants by directors and non-affiliate shareholders of the Company.
Stock Buy-back Transactions with a Non-Affiliate Stockholder
Please refer to “NOTE 10 – SHAREHOLDERS’ EQUITY” to read about stock-buy transactions with a non-affiliate stockholder of the Company.
Indemnification of Officers and Directors
Our bylaws specifically limit the liability of our officers and directors to the fullest extent permitted by law. As a result, aggrieved parties may have a more limited right to action than they would have had if such provisions were not present. The bylaws also provide for indemnification of our officers and directors for any losses or liabilities they may incur as a result of the manner in which they operated our business or conducted internal affairs, provided that in connection with these activities they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest. In the ordinary course of business, we also may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, independent contractors and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third-parties. We may also agree to indemnify former officers, directors, employees and independent contractors of acquired companies in connection with the acquisition of such companies.
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Director Independence
We are not listed on a national exchange, such as NASDAQ, at this time. As such, we are not required to have independent directors. Our management believes that, consistent with Rule 5605(a)(2) of the NASDAQ Listing Rules that a director will only qualify as an “independent director” if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our management has reviewed the composition of our Board of Directors and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined that each of our directors, with the exceptions of Gerard M. Jacobs, J.D., Dr. James S. Jacobs, Nicholas S. Warrender, and Robert T. Warrender II, is an “independent director”.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
On July 16, 2018, the Company engaged Fruci & Associates II, PLLC (“Fruci”) as the Company’s independent registered public accounting firm.
The head of the Company’s Audit Committee and the Company’s CEO sign engagement letters with Fruci before Fruci does any audit or tax-related work for the Company. Fruci was approved to provide audit and tax services for the Company for the years ended December 31, 2021 and 2020.
The following describes the audit fees, audit-related fees, tax fees, and all other fees for professional services provided by Fruci:
For the year ended December 31, 2021: | For the year ended December 31, 2020: | |
Audit Fees: $89,600 | Audit Fees: $45,500 | |
Audit-Related Fees: $14,813 | Audit-Related Fees: $2,500 | |
Tax Fees: $18,350 | Tax Fees: $3,250 | |
All Other Fees: $0 | All Other Fees: None |
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Schedules
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
Exhibit List
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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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase* |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase* |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase* |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase* |
101.SCH |
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*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.
ITEM 16. FORM 10–K SUMMARY
This Item is optional. We may provide summaries in future Form 10-K filings.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LFTD Partners Inc.
By: /s/ Gerard M. Jacobs
Gerard M. Jacobs, Chief Executive Officer and Director
(Chief Executive Officer)
Date: March 31, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Gerard M. Jacobs
Gerard M. Jacobs, Chief Executive Officer and Director
Principal Executive Officer
Date: March 31, 2022
By: /s/ William C. “Jake” Jacobs, CPA
William C. “Jake” Jacobs, CPA, President, Chief Financial Officer and Treasurer
Principal Financial Officer
Date: March 31, 2022
/s/ Nicholas S. Warrender
Nicholas S. Warrender
Chief Operating Officer and Director
Date: March 31, 2022
/s/ Vincent J. Mesolella
Vincent J. Mesolella
Director
Date: March 31, 2022
/s/ Joshua A. Bloom, M.D.
Joshua A. Bloom, M.D.
Director
Date: March 31, 2022
/s/ James S. Jacobs, M.D.
James S. Jacobs, M.D.
Director
Date: March 31, 2022
/s/ Richard E. Morrissy
Richard E. Morrissy
Director
Date: March 31, 2022
/s/ Kevin J. Rocio
Kevin J. Rocio
Director
Date: March 31, 2022
/s/ Robert T. Warrender II
Robert T. Warrender II
Director
Date: March 31, 2022
| 76 |
| Table of Contents |
LFTD PARTNERS INC. AND SUBSIDIARY LIFTED LIQUIDS, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
| 77 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of LFTD Partners Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of LFTD Partners Inc. and subsidiary (“the Company”) (f/k/a “Acquired Sales Corp.”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has a history of losses and has significant outstanding liabilities. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Investments
Description of the Critical Audit Matter
As discussed in Note 4 to the consolidated financial statements, the Company has investments in several entities which require the Company to periodically evaluate potential impairment by assessing whether the carrying value of the investments exceeds their fair value. Auditing management’s analysis includes tests that are complex and highly judgmental due to the estimation required to determine the fair value of each of the underlying investees. In particular, fair value estimates are sensitive to significant assumptions and factors such as expectations about future market and economic conditions, revenue growth rates, strategic plans, and historical operating results, among others.
| F-1 |
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures to evaluate management’s valuation of investments consisted of the following, among others:
| 1. | Obtain and test management assumptions and analysis. |
| 2. | Obtain and review the financial position and operating result data of the investee entities. |
| 3. | Assess management’s key indicators regarding operating results, including analysis of revenue growth rates, profit growth, and future strategic plans. |
We have served as the Company’s auditor since 2018.
| |
March 31, 2022 |
|
| F-2 |
| Table of Contents |
LFTD PARTNERS INC. (FORMERLY KNOWN AS ACQUIRED SALES CORP.) AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
| ||||||||
|
| December 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
ASSETS |
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| ||
Current Assets |
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| ||
Cash and Cash Equivalents |
| $ |
|
| $ |
| ||
Dividend Receivable from Bendistillery, Inc. |
|
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| ||
Prepaid Expenses |
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| ||
Loan to SmplyLifted LLC |
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Interest Receivable |
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Note Receivable from CBD LION |
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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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Deposit for Girish GPO Distribution Agreement |
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Investment in SmplyLifted LLC |
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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 |
| $ |
|
| $ |
| ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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|
Current Liabilities |
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Finance Lease Liability |
| $ |
|
| $ |
| ||
Operating Lease Liability |
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| ||
Deferred Revenue |
|
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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 to Nicholas S. Warrender |
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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 |
|
|
|
|
|
| ||
Total Current Liabilities |
| $ |
|
| $ |
| ||
Non-Current Liabilities |
|
|
|
|
|
|
|
|
Paycheck Protection Program Loan |
|
|
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|
| ||
Operating Lease Liability |
|
|
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|
| |
Notes Payable - Related Party |
|
|
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|
|
|
|
|
Notes Payable - Payable to Nicholas S. Warrender |
|
|
|
|
|
| ||
Total Non-Current Liabilities |
| $ |
|
| $ |
| ||
Total Liabilities |
| $ |
|
| $ |
| ||
Commitments and Contingencies |
|
|
|
|
|
| ||
Shareholders’ Equity |
|
|
|
|
|
|
|
|
Preferred Stock, $ |
|
|
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|
|
| ||
Common Stock, $ |
|
|
|
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|
| ||
Treasury Stock (Purchase of |
|
|
|
|
| ) | ||
Additional Paid-in Capital |
|
|
|
|
|
| ||
Accumulated Deficit |
|
| ( | ) |
|
| ( | ) |
Total Shareholders’ Equity (Deficit) |
|
|
|
|
|
| ||
Total Liabilities and Shareholders’ Equity |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
| Table of Contents |
LFTD PARTNERS INC. (FORMERLY KNOWN AS ACQUIRED SALES CORP.) AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||
|
|
|
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|
| |||
|
| For the Years Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Net Sales |
| $ |
|
| $ |
|
| $ |
| |||
Cost of Goods Sold |
|
|
|
|
|
|
|
|
| |||
Gross Profit |
|
|
|
|
|
|
|
|
| |||
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Payroll, Consulting and Independent Contractor Expenses |
|
|
|
|
|
|
|
|
| |||
Stock Compensation Expense |
|
|
|
|
|
|
|
|
| |||
Accrual for Company-Wide Management Bonus Pool |
|
|
|
|
|
|
|
|
| |||
Management Bonuses |
|
|
|
|
|
|
|
|
| |||
Professional Fees |
|
|
|
|
|
|
|
|
| |||
Bank Charges and Merchant Fees |
|
|
|
|
|
|
|
|
| |||
Advertising and Marketing |
|
|
|
|
|
|
|
|
| |||
Bad Debt Expense |
|
|
|
|
|
|
|
|
| |||
Depreciation and Amortization |
|
|
|
|
|
|
|
|
| |||
Other Operating Expenses |
|
|
|
|
|
|
|
|
| |||
Total Operating Expenses |
|
|
|
|
|
|
|
|
| |||
Income/(Loss) From Operations |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Other Income/(Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) From |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Impairment of Investment in SmplyLifted |
|
| ( | ) |
|
|
|
|
|
| ||
Income from SmplyLifted for WCJ Labor |
|
|
|
|
|
|
|
|
| |||
Loss on Lease Modification |
|
| (1,445) |
|
|
| - |
|
|
| - |
|
Interest Expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Dividend Income |
|
|
|
|
|
|
|
|
| |||
Warehouse Buildout Credits |
|
|
|
|
|
|
|
|
| |||
Penalties |
|
| ( | ) |
|
|
|
|
|
| ||
Gain on Forgiveness of Debt |
|
|
|
|
|
|
|
|
| |||
Refund of Merchant Account Fees |
|
|
|
|
|
|
|
|
| |||
Settlement Income/Gain on Settlement |
|
|
|
|
|
|
|
|
| |||
Settlement Costs |
|
|
|
|
| ( | ) |
|
|
| ||
Gain(Loss) on Disposal of Fixed Assets |
|
| ( | ) |
|
|
|
|
|
| ||
Loss on Deposits |
|
| ( | ) |
|
|
|
|
|
| ||
Interest Income |
|
|
|
|
|
|
|
|
| |||
Total Other Income/(Expenses) |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Income/(Loss) Before Provision for Income Taxes |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Provision for Income Taxes |
|
| ( | ) |
|
|
|
|
|
| ||
Net Income/(Loss) Attributable to LFTD Partners Inc. common stockholders |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) per Common Share |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Diluted Net Income (Loss) per Common Share |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
| |||
Diluted |
|
|
|
|
|
|
|
|
| |||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| Table of Contents |
LFTD PARTNERS INC. (FORMERLY KNOWN AS ACQUIRED SALES CORP.) AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
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|
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|
|
| Additional |
|
|
|
| Total |
| ||||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Paid-in |
|
| Accumulated |
|
| Shareholders’ |
| ||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||||||
Balance, December 31, 2019 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
Issuance of warrants to Gerard M. Jacobs upon execution of employment agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
| $ |
| ||
Issuance of warrants to William C. Jacobs upon execution of employment agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
| $ |
| ||
Issuance of common stock consideration as part of the acquisition of Lifted Liquids, Inc. |
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
| $ |
| ||||
Issuance of warrants to purchase shares of common stock as part of the acquisition of Lifted Liquids, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
| $ |
| ||
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Net Loss |
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) | |
Balance, March 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Cancellation of shares of common stock |
|
|
|
|
|
|
|
|
|
| ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
| $ |
| ||
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Balance, June 30, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
Balance, September 30, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ | - |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
Exercise of Option |
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( |
|
|
| ( |
|
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( |
|
|
| ( |
|
LIFD's November 24, 2020 purchase of 36,000 shares of common stock at $0.95 per share, for a total of $34,200, from an unrelated shareholder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ( | ) |
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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| |
|
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| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
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 |
|
| ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
| |||
Conversions of Series B Convertible Preferred Stock to Common Stock |
|
| ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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| $ |
| |||
Net Income |
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
Balance, March 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Exercise of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Conversions of Series A Convertible Preferred Stock to Common Stock |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
| |||
Net Income |
|
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|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
| ||
Balance, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Cancellation of Common Stock held in treasury |
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
| $ |
|
|
| ( | ) |
|
|
|
|
|
|
| ||
Exercise of warrants and options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
| ||||
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance, September 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
Series A Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Series B Preferred Stock dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Issuance of Common Stock |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Exercise of warrants and options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
| |
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
| ||
Balance, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
|
|
|
|
| - |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| Table of Contents |
LFTD PARTNERS INC. (FORMERLY KNOWN AS ACQUIRED SALES CORP.) AND SUBSIDIARY LIFTED LIQUIDS, INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
| ||||||||||||
|
| For the Years Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Cash Flows From Operating Activities |
|
|
|
|
|
|
|
|
| |||
Net Income/(Loss) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Lifted Made’s Portion of SmplyLifted’s Net Loss |
|
|
|
|
|
|
|
| - |
| ||
Impairment of Investment in SmplyLifted |
|
|
|
|
|
|
|
|
| |||
Stock Compensation Expense |
|
|
|
|
|
|
|
|
| |||
Bad Debt Expense |
|
|
|
|
|
|
|
|
| |||
Depreciation and Amortization |
|
|
|
|
|
|
|
|
| |||
Gain on Forgiveness of Debt |
|
| ( | ) |
|
|
|
|
|
| ||
Loss on Disposal of Fixed Assets |
|
|
|
|
|
|
|
|
| |||
Loss on Deposits |
|
|
|
|
|
|
|
|
| |||
Financing Cost - Issuance of Warrants to Purchase Common Stock |
|
|
|
|
|
|
|
|
| |||
Spoiled and Written Off Inventory |
|
|
|
|
|
|
|
|
| |||
Deferred Income Taxes |
|
| ( | ) |
|
|
|
|
|
| ||
Effect on Cash of Changes in Operating Assets and Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Prepaid Expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Dividend Receivable from Bendistillery, Inc. |
|
|
|
|
| ( | ) |
|
|
| ||
Income Tax Payable |
|
|
|
|
|
|
|
|
| |||
Management Bonuses Payable |
|
|
|
|
|
|
|
|
| |||
Company-wide Management Bonus Pool |
|
|
|
|
|
|
|
|
| |||
Interest Receivable |
|
|
|
|
| ( | ) |
|
|
| ||
Inventory |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Deposit for Girish GPO Distribution Agreement |
|
|
|
|
| ( | ) |
|
|
| ||
Other Current Assets |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Loan to Shareholder |
|
|
|
|
|
|
|
|
| |||
Trade Accounts Payable and Accrued Expenses |
|
|
|
|
|
|
|
| ( | ) | ||
Accounts Payable and Interest Payable to Related Parties |
|
|
|
|
|
|
|
| ( | ) | ||
Change in ROU Asset |
|
|
|
|
|
|
|
|
| |||
Change in Finance & Operating Lease Liabilities |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Deferred Revenue |
|
|
|
|
|
|
|
|
| |||
Net Cash Provided by (Used in) Operating Activities |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Cash Flows From Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Paid as Part of Lifted Liquids, Inc. Acquisition |
|
|
|
|
| ( | ) |
|
|
| ||
Reduction of CBD Lion Note Receivable |
|
|
|
|
|
|
|
|
| |||
Issuance of Note to CBD Lion |
|
|
|
|
|
|
|
| ( | ) | ||
Net Purchase of Fixed Assets |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Investment in Ablis |
|
|
|
|
|
|
|
| ( | ) | ||
Investment in Bendistillery and Bend Spirits |
|
|
|
|
|
|
|
| ( | ) | ||
Loans to SmplyLifted LLC |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Investment in SmplyLifted LLC |
|
|
|
|
| ( | ) |
|
|
| ||
Net Cash Used in Investing Activities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Paycheck Protection Program Loan |
|
|
|
|
|
|
|
|
| |||
Proceeds from Exercise of Warrants |
|
|
|
|
|
|
|
|
| |||
Proceeds from Exercise of Options |
|
|
|
|
|
|
|
|
| |||
Issuance of Series A Convertible Preferred Stock |
|
|
|
|
|
|
|
|
| |||
Issuance of Series B Convertible Preferred Stock |
|
|
|
|
|
|
|
|
| |||
Issuance of Common Stock |
|
|
|
|
|
|
|
|
|
|
| |
Payments of Dividends to Series A Convertible Preferred Stockholders |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Payments of Dividends to Series B Convertible Preferred Stockholders |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Financing Cost - Proceeds from Borrowings Under Notes Payable to Related Parties |
|
|
|
|
|
|
|
|
| |||
Financing Cost - Repayment of Borrowings Under Notes Payable to Related Parties |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Financing Cost - Repayment of Interest Payable to Related Parties |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Purchase of Shares Held in Treasury |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Repayment of Finance Lease Liability |
|
| ( | ) |
|
|
|
|
|
| ||
Net Cash (Used In) Provided By Financing Activities |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Net Increase/(Decrease) in Cash |
|
|
|
|
| ) |
|
|
| |||
Cash and Cash Equivalents at Beginning of Period |
|
| 439,080 |
|
|
|
|
|
| - |
| |
Cash and Cash Equivalents at End of Period |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Year Ended |
| |||||||||
|
| December 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid For Interest |
| $ |
|
| $ |
|
| $ |
| |||
Cash Paid For Income Taxes |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-Use assets acquired from inception of Finance Leases |
| $ |
|
| $ |
|
| $ |
| |||
Right-of-Use assets acquired from inception of Operating Leases |
| $ |
|
| $ |
|
| $ |
| |||
Conversion of Series A and Series B Preferred Stock to Common Stock |
| $ |
|
| $ |
|
| $ |
| |||
Cashless exercise of Warrants |
| $ |
|
| $ | - |
|
| $ | - |
| |
Cancellation of Common Stock held in Treasury |
| $ |
|
| $ |
|
| $ |
| |||
Reduction in bonus payable to Gerard M. Jacobs by the cost of exercising warrants |
| $ |
|
| $ | - |
|
| $ | - |
| |
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
| Table of Contents |
LFTD PARTNERS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – 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, we changed our stock trading symbol to LIFD.
Our business is primarily focused upon acquiring rapidly growing companies that manufacture and sell branded, products containing hemp-derived cannabinoids (e.g. delta-8-THC, delta-9-THC, delta-10-THC, THCV, HHC, THCO, CBDA, CBC, CBG, CBN, and CBD), nicotine, kratom, kava and legal 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.
To date, we have acquired 100% of the ownership interests in one Canna-Infused Products Company called Lifted Liquids, Inc. d/b/a Lifted Made (formerly Warrender Enterprise Inc. d/b/a Lifted Liquids) (www.LiftedMade.com), Kenosha, Wisconsin (“Lifted Made” or “Lifted”).
On April 30, 2019, we also closed on the acquisition of
Prior to February 9, 2022, Lifted Made had a
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 Nicholas S. Warrender (“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. As a result, no acquisition of Savage, Premier Greens or MKRC by the Company will occur.
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. As a result, no acquisition of Fresh Farms by the Company will occur.
| F-7 |
| Table of Contents |
Capital Raise
Cash on hand is currently limited, so in order to close future acquisitions, it likely will 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.
With the assistance of an investment bank, we are currently exploring the possibility of raising $5 million or more through some combination of debt and equity offerings in order to pay off the remaining $2.75 million owed in connection with our acquisition of Lifted, to purchase for $1.375 million the building located at 5511 95th Avenue, Kenosha, Wisconsin, that is currently being rented by Lifted, to pay off all other liabilities of the Company and Lifted including certain bonuses and our company-wide bonus pool, and to pay transactional fees and expenses. If we proceed forward with an equity raise, it may be in conjunction with a potential listing of our common stock on a Canadian stock exchange. However, there can be no guarantee or assurance that any such debt and/or equity capital raise or listing will be completed on acceptable terms, if at all.
For more information, please read the information in the section “ITEM 1. BUSINESS” above.
Consolidated Financial Statements – 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, 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 December 31, 2021 and December 31, 2020 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 $
Notes Receivable – Notes receivable are classified on the balance sheet based on their maturity date.
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.
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.
SmplyLifted LLC, 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.
| F-8 |
| Table of Contents |
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.
An Allowance for Doubtful Accounts of $
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.
As described in “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement”, the $
Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at December 31, 2021 and December 31, 2020:
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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 December 31, 2021, $
As described in “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement”, the Promissory Note is secured by (a) a first lien security interest in all of the assets of the Company and Lifted; and (b) a pledge of: (i) all of the capital stock of Lifted; (ii) all of the common stock of Bendistillery, Bend Spirits and Ablis that is owned by the Company; and (iii) all of the capital stock of any other entity owned by the Company, Lifted or any of their subsidiaries, pursuant to a Collateral Stock Pledge Agreement between Mr. Warrender, as Secured Party, and the Company and Lifted, as Pledgors.
During the years ended December 31, 2021 and December 31, 2020, $
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.
Fixed Assets – Fixed assets are recorded and stated at cost. Fixed assets that cost less than $2,500 are expensed, and fixed assets that cost $
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.
| F-9 |
| Table of Contents |
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 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.
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.
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, CBD stores, convenience stores, health food stores, and other outlets.
Typically, the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. If the shipping terms on a sale are FOB destination, the revenue is deferred until the product reaches its destination.
The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.
Discounts and rebates 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.
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.
Historically, the scenarios described above have occurred infrequently, and occurrences have been immaterial. However, during the third quarter of 2020, the Company provided many replacements, and issued refunds or credits to many customers who purchased delta-8-THC gummies that melted in transit, and delta-8-THC nano drops that had separation issues.
| F-10 |
| Table of Contents |
Disaggregation of Revenue
During the quarter and year ended December 31, 2021, approximately 99.9% of the Company’s sales occurred inside of the United States of America. During the year ended December 31, 2020, all of the Company’s sales occurred inside of the United States of America.
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 |
| February 24, 2020 (Closing on Lifted)-December 31, 2020 |
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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 invoiced orders, but revenue is not recognized until an 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.
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.
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Deferred revenue of $
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 $
| F-11 |
| Table of Contents |
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 years ended December 31, 2021 and 2020 and 2019:
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Basic Net Income (Loss) per Common Share |
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As of December 31, 2021, in addition to our outstanding common stock, we have issued (a) options to purchase
Regarding the aforementioned rights to purchase warrants to purchase 1,350,000 shares of common stock at $1.85 per share: of these, rights to purchase warrants to purchase 1.25 million shares of our common stock are not vested and are not exercisable until a performance contingency is met.
Regarding the aforementioned warrants to purchase 2,295,000 shares of our common stock at an exercise price of $5.00 per share: of the total, warrants to purchase
In comparison, as of December 31, 2020, in addition to our outstanding common stock, we have issued (a) options to purchase
At December 31, 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.
| F-12 |
| Table of Contents |
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for internal-use software. The accounting for any hosting contract is unchanged. ASU 2018-15 is effective on January 1, 2020 with early adoption permitted, including adoption in any interim period. Because the Company does not currently have any cloud computing arrangements that include a software license, fees associated with any hosting element are expensed as incurred.
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.
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 year ended December 31, 2021, the Company incurred $
Compensated Absences – During the years ended December 31, 2021, December 31, 2020 and December 31, 2019, paid time off (“PTO”) was provided to employees who obtained approval for it from Nicholas S. Warrender, CEO of Lifted. Any approved PTO was granted at Mr. Warrender’s discretion, and mandatory PTO was zero days, thus no accrual was necessary at December 31, 2021, December 31, 2020 or December 31, 2019.
Effective January 1, 2022, certain PTO policies have been adopted by Lifted.
Off Balance Sheet Arrangements – The Company has no off balance sheet arrangements.
Reclassifications – Some items from the prior period have been reclassified within the financial statements to conform with the current presentation.
Business Combinations and Consolidated Results of Operations and Outlook – The Company accounts for its acquisitions under ASC Topic 805, Business Combinations and Reorganizations (“ASC Topic 805”). ASC Topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. ASC Topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations. Acquisition costs are expensed as incurred.
When the Company acquires a business, we allocate the purchase price to the assets acquired and liabilities assumed in the transaction at their respective estimated fair values. We record any premium over the fair value of net assets acquired as goodwill. The allocation of the purchase price involves judgments and estimates both in characterizing the assets and in determining their fair value. We use all available information to make these fair value determinations and engage independent valuation specialists to assist in the fair value determination of the acquired long-lived assets.
| F-13 |
| Table of Contents |
During 2020, the acquisition of Lifted added approximately $4,444 in purchased intangible assets and $22,292,767 in goodwill to the consolidated balance sheet.
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| January 1, 2019 - February 24, 2020 (Acquisition Date) (1) |
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| February 24, 2020 (Acquisition Date) - December 31, 2020 (2) |
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Shown above are Lifted’s net sales and net earnings for the following two periods:
(1) January 1, 2019 through February 24, 2020 (acquisition date) (2) February 24, 2020 (acquisition date) to December 31, 2020 |
The foregoing disclosures of net sales and net earnings during those periods solely reflects Lifted’s financial results. Prior to its acquisition of Lifted on February 24, 2020, LFTD Partners had no sources of revenue, so the acquisition of Lifted was significant for LFTD Partners.
NOTE 2 – RECEIPT OF LOANS UNDER THE ECONOMIC INJURY DISASTER LOAN PROGRAM AND THE PAYCHECK PROTECTION PROGRAM
In response to the coronavirus (COVID-19) pandemic, the U.S. Small Business Administration (the “SBA”) is making small business owners eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000 under its Economic Injury Disaster Loan program (the “EIDL”). This advance provides economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. Lifted applied for and received a $
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 3 - RISKS AND UNCERTAINTIES
Going Concern – The Company has a history of recurring losses which have resulted in an accumulated deficit of $11,414,602 as of December 31, 2021. 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. Management plans to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (2) completing private placements of the Company’s common stock and/or preferred stock. Management believes that by taking these actions, the Company will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees whatsoever that the Company will be successful in consummating such actions on acceptable terms, if at all. Moreover, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company.
| F-14 |
| Table of Contents |
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.
Moreover, the Company’s balance sheet is weak. Among other financial obligations, the Company owes Nicholas S. Warrender $
LIFD also has a company-wide bonus pool accrued for at December 31, 2021 totaling $
Under the Omnibus Agreement, Lifted is also obligated to purchase a building leased by Lifted from an affiliate of our Vice Chairman and COO Nicholas S. Warrender on or before December 31, 2022, for a fixed purchase price equal to $
Also, pursuant to the Amended Omnibus Agreement, on December 30, 2022, LFTD Partners shall pay a retention bonus of $
Also, pursuant to the Amended Omnibus Agreement, the 2022 company-wide bonus pool shall continue to be calculated pursuant to Section 4.2 of the Executive Employment Agreements, provided, however, that notwithstanding anything to the contrary set forth in the Executive Employment Agreements, the 2022 company-wide bonus pool not be allowed to be accrued or paid by LFTD Partners if and to the extent that doing so would decrease LFTD Partners’ 2022 diluted earnings per share of common stock below $0.56 per share.
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 CBD, CBG, CBN, delta-8-THC, delta-9-THC, delta-10-THC and other cannabinoids, nicotine 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.
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.
| F-15 |
| Table of Contents |
Concentration of Credit Risks – During the year ended December 31, 2021, five customers made up approximately
Regarding the purchases of raw goods and finished goods (“Supplies”), during the year ended December 31, 2021, approximately
NOTE 4 – 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-K, 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 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 January 28, 2022, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during the quarter and year ended December 31, 2021. 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: increased net profit of Bendistillery and Bend Spirits from 2020 to 2021, the recent successful launch of Bendistillery’s Rock & Rye in cans, increased revenue and cash flow of Ablis from 2020 to 2021, new Ablis products in development, a continued focus in Ablis’ improved direct-to-consumer sales, and the fact that management of Bendistillery is actively working an investment bank to explore capital raising options to facilitate growth initiatives.
On October 20, 2021, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during quarter ended September 30, 2021. 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: Bendistillery’s two-year annual sales average is up 8.36% per year with net profit nearly tripling; Ablis’ sales during the third quarter of 2021 are up 14% over sales during the second quarter of 2021, and up 20% over sales during the third quarter of 2020; and Ablis’ third quarter net income is up, compared to a loss in the third quarter of 2020.
On July 15, 2021, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during quarter ended June 30, 2021. 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: sales of Ablis are up from the second half of 2020 to the first half of 2021; Ablis “on premise” sales (in restaurants and bars) are improving as restaurants have re-opened; Ablis distributors are ordering again (and more frequently); and Ablis online sales in the first half of 2021 are up compared to in the first half of 2020. The information that was shared by the management of Bendistillery and Bend Spirits included, among other things: combined revenue for the first half of 2021 is down just 2.3% from the first half of 2020 (when there was lots of panic buying), but the two year annualized sales average is up 12.7%, with a five year annualized average growth of 9.1%. Also: Bendistillery is closer to the release of a new “Ready-to-Drink” beverage; Bend Spirits has new clients in the pipeline; direct-to-consumer channels are gaining traction; and Bendistillery’s sales team is making gains in key markets.
On February 17, 2021, a telephonic meeting of the board of directors of Ablis, Bendistillery and Bend Spirits was held. During this meeting, the management of those companies reviewed the performance of Ablis, Bendistillery and Bend Spirits during calendar year 2020. 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, Bendistillery and Bend Spirits included, among other things: a 17% increase in sales in 2020 compared to 2019 at Bendistillery, expansion of Bendistillery’s business from restaurants and bars to liquor stores, positive employee morale since none of Bendistillery’s sales team was laid off during the pandemic, new clients of Bend Spirits expected to come online in 2021, and positive sales trends during recent months at Ablis including more direct-to-consumer sales. Moreover, in Oregon, bars and restaurants opened up to 25% capacity on February 12, 2021; historically, most of Ablis’ sales have come from bars and restaurants. Also, a new 17,000 square foot building is being built at Bendistillery’s headquarters, and pasteurization, canning and packaging are expected to be brought in house once the building is operational later in 2021; by bringing pasteurization, canning and packaging in house, management expects to save manufacturing time and costs and to internalize the profits from those functions. Also, Ablis’ management finished re-branding the brand this year, has cut operational costs, is in the process of launching new functional beverages, and is in discussions with some multi-state distributors to distribute Ablis beverages.
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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.
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 assessments at December 31, 2021 and December 31, 2020 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. Lifted has also been limited in its production capacity due to the size of its facility in Zion, Illinois. With Lifted’s recent move into a much larger facility located in Kenosha, Wisconsin, Lifted should be able to produce a greater quantity of products to meet demand.
The Company’s Investment in SmplyLifted LLC
LFTD Partners Inc. and Lifted Made and privately-held SMPLSTC, Costa Mesa, CA (www.SMPLSTCBD.com) have created an equally-owned new entity called SmplyLifted LLC, which has begun selling tobacco-free nicotine pouches in several flavors and nicotine strengths under the brand name FR3SH (www.GETFR3SH.com).
On September 22, 2020, SmplyLifted LLC was formed. Lifted has a
During the year ended December 31, 2020, the Company recognized a loss of $4,429 from its 50% membership interest in SmplyLifted, and wrote down the value of its investment in SmplyLifted to $195,571. During the year ended December 31, 2021, the Company recognized a loss of $195,571 from its 50% membership interest in SmplyLifted. At December 31, 2021, Lifted Made wrote off its receivables from SmplyLifted, and its loans to SmplyLifted, which totaled $388,727.
On February 9, 2022, Lifted Made sold its 50% membership interest in SmplyLifted LLC to Corner Vapory LLC, an affiliate of NWarrender. For more information, please refer to NOTE 15 – SUBSEQUENT EVENTS.
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NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and Equipment consist of the following:
Asset Class |
| December 31, 2021 |
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| December 31, 2020 |
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Machinery & Equipment |
| $ |
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| $ |
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Leasehold Improvements |
| $ |
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| $ |
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Trade Show Booths |
| $ |
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| $ |
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Vehicles |
| $ |
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| $ |
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Computer Equipment |
| $ |
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Furniture & Fixtures |
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| $ |
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Less: accumulated depreciation |
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| $ | ( | ) |
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| $ |
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Estimated useful lives per asset class are:
Asset Class | Estimated Useful Life | |
Machinery & Equipment | ||
Leasehold Improvements | ||
Trade Show Booth | ||
Vehicles | ||
Computer Equipment | ||
Furniture & Fixtures |
Depreciation expense of $
As described in “Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement”, the Promissory Note is secured by (a) a first lien security interest in all of the assets of the Company and Lifted; and (b) a pledge of: (i) all of the capital stock of Lifted; (ii) all of the common stock of Bendistillery, Bend Spirits and Ablis that is owned by the Company; and (iii) all of the capital stock of any other entity owned by the Company, Lifted or any of their subsidiaries, pursuant to a Collateral Stock Pledge Agreement between Mr. Warrender, as Secured Party, and the Company and Lifted, as Pledgors.
NOTE 6 – NOTES RECEIVABLE
SmplyLifted LLC
At December 31, 2021, the Company had made interest-free loans to SmplyLifted LLC totaling $
CBD Lion LLC
On August 8, 2019, the Company made an unsecured $
Due to termination of the Merger Agreement, and per Section 5.15(b) of the Merger Agreement, as of December 31, 2019 the Company owed CBD Lion $
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This left Lion with a net balance owed to the Company of $
The William Noyes Webster Foundation, Inc.
The Foundation, a non-profit Massachusetts corporation, has received a provisional registration from the Commonwealth of Massachusetts to own and operate a medical marijuana cultivation facility in Plymouth, Massachusetts, and a medical marijuana dispensary in Dennis, Massachusetts. Jane W. Heatley (“Heatley”) is the founder and a member of the board of directors of the Foundation.
Teaming Agreement – The Company believes it is highly likely that the board of directors of the Foundation will only approve contracts that have been negotiated and approved by Heatley. Consequently, on July 8, 2014, the Company entered into a Teaming Agreement (the “Teaming Agreement”) with Heatley, in which, among other things: (1) the Company and Heatley agreed to use their respective best efforts, working exclusively together as a team, and not as a partnership or other entity, in order to consummate transactions, agreements, contracts or other arrangements pursuant to which the Company will provide capital and expertise to the Foundation; and (2) Heatley agreed that Heatley shall not, and shall not permit the Foundation to, discuss or negotiate for debt or equity financing, or consulting services or other expertise, from any third party. The Company claims that Heatley violated the Teaming Agreement by discussing and negotiating for debt or equity financing, or consulting services or other expertise, from at least one third party. Heatley claims that the Company violated the Teaming Agreement alleging that the Company failed to lend funds to the Foundation in accordance with the Teaming Agreement. The Company believes Heatley’s claim to be baseless. No assurances whatsoever can be made that Heatley will comply with the terms of the Teaming Agreement, nor that the Company will be able to adequately enforce the terms of the Teaming Agreement if it is ever the subject of litigation.
Promissory Note – On July 14, 2014, the Foundation signed and delivered to the Company a Secured Promissory Note (the “Note”) which is in the stated loan amount of $1,500,000, and is secured by a Security Agreement of even date therewith (the “Security Agreement”). The Note provides that the $
Between April and July 2015, the Company loaned an additional $
Uncollectable Note and Interest Receivable – The Company assessed the collectability of the Note based on the adequacy of the Foundation’s collateral and the Foundation’s capability of repaying the Note according to its terms. Based on this assessment, on September 1, 2015, the Company concluded that Note and interest receivable would not be collectible. As such, the Company wrote off the Note totaling $
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NOTE 7 – INTANGIBLE ASSETS, NET
www.LiftedMade.com Website
The cost of developing Lifted’s website, www.LiftedMade.com, is being amortized over
NOTE 8 – RELATED PARTY TRANSACTIONS
Commissions Paid
Vincent J. Mesolella
During the year ended December 31, 2021, Vincent J. Mesolella, LFTD Partners’ lead outside director, was not paid any commissions. During the year ended December 31, 2020, Vincent J. Mesolella was paid commissions totaling $
Robert T. Warrender III
During the year ended December 31, 2021, $
Shipping Costs
During 2020 and 2021, Lifted shared a shipping account with a company operated by Nicholas S. Warrender’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 year ended December 31, 2021, Lifted reimbursed Robert T. Warrender II $
Amounts Owed to Related Parties
Amounts Owed to Lifted
On a quarterly basis, SmplyLifted LLC reimburses Lifted for William C. Jacobs’ time as the Chief Financial Officer at William C. Jacobs’ hourly rate. As of December 31, 2021, SmplyLifted LLC owed $
Amounts Owed to Gerard M. Jacobs
The Compensation Agreement contemplated an aggregate of $
As of December 31, 2021, there was also total interest of $
In comparison, at December 31, 2020, there was a management bonus payable of $
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Amounts Owed to William C. “Jake” Jacobs
As described above, the Compensation Agreement contemplated an aggregate of $
As of December 31, 2021, there was also total interest of $
In comparison, at December 31, 2020, there was a management bonus payable of $
Amounts Owed to 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, Nicholas S. Warrender kept $
Amount Owed to Warrender Enterprise Inc.
As of December 31, 2021, $
Transactions with Related Parties
Transactions with Corner Vapory LLC
Nicholas S. Warrender 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 year ended December 31, 2021, Corner Vapory LLC purchased $
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Transactions with 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 $375,000 based on the number of years that have passed between the commencement of the Lease and the purchase of the Premises by Lifted.
Landlord is an entity owned by Nicholas S. Warrender, the Company’s Vice Chairman and COO, the CEO of Lifted, and the largest stockholder of the Company as beneficial owner of 3,900,455 common stock shares. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, Mr. Warrender is able to benefit through his entity 95th Holdings, LLC by receiving rent and by eventually selling the Premises to Lifted.
During the year ended December 31, 2021, 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 $
Transactions with 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 year ended December 31, 2021, Lifted paid $118,258 to Liquid Event Marketing, and Lifted recognized a payable to Liquid Event Marketing for $21,599 at December 31, 2021. Payments to Liquid Event Marketing primarily related to the purchase of fixed assets, installation of fixed assets, and other services.
Financing Warrants – On July 13, 2018, the Audit Committee, Compensation Committee, and full Board of Directors of LIFD approved by unanimous written consent borrowings by LIFD on the following terms:
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As of December 31, 2018, a total of $
The warrants to purchase common stock that were issued to Joshua A. Bloom and Gerard M. Jacobs on July 16, 2018 and July 18, 2018 were valued using the Black-Scholes valuation model as of the date they were issued. The values of these warrants were fully expensed because the notes were payable upon demand. The expense recognized related to the issuance of the warrants to Joshua A. Bloom on July 16, 2018 was $
The warrants to purchase common stock that were issued to Gerard M. Jacobs on November 8, 2018, and to Joshua A. Bloom on November 12, 2018, were valued using the Black-Scholes valuation model, which incorporated the following assumptions: expected future stock volatility 465%; risk-free interest rates of
On January 7, 2019, Gerard M. Jacobs loaned to the Company $
On January 21, 2019, Gerard M. Jacobs loaned to the Company $
On February 6, 2019, Gerard M. Jacobs loaned to the Company $
On March 13, 2019, all of these borrowings and the related interest payable to Joshua A. Bloom and Gerard M. Jacobs was repaid. In total, $
On August 30, 2021, CEO Gerard M. Jacobs exercised, for an aggregate purchase price of $
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NOTE 9 – DISTRIBUTIONS TO NICHOLAS S. WARRENDER
Distributions to Nicholas S. Warrender to Cover the Income Taxes Owed by Nicholas S. Warrender in Regard to the Net Income of Lifted Prior to February 24, 2020
Pursuant to Section 5.11 of the Agreement and Plan of Merger by and among the Company, Lifted, Gerard M. Jacobs, William C. Jacobs, Warrender Enterprise Inc. and Nicholas S. Warrender dated January 7, 2020, certain Estimated Tax Distributions were to be made to Nicholas S. Warrender to cover estimated income tax obligations of Nicholas S. Warrender in regard to the net income of Warrender Enterprise Inc. during 2019 and during the short taxable year commencing on January 1, 2020 and ending on February 23, 2020, the date before the closing date of the Merger. The parties orally agreed that these Estimated Tax Distributions would be made to Nicholas S. Warrender as promptly as feasible following the closing date. On March 6, 2020, Lifted distributed a total of $
NOTE 10 – SHAREHOLDERS’ EQUITY
Cancellation of Shares of Common Stock – Several years ago, pursuant to a fully signed settlement agreement (the “Settlement Agreement”), the Company purchased for $
Prior to the closing of the Purchase, Ghourdjian and the Ghourdjian Trust orally expressed uncertainty as to whether or not certain of the Shares totaling
At the closing of the Purchase, the Company paid $
The 166,888 Shares continued to be shown on the books of Colonial Stock Transfer as being owned by Ghourdjian and the Ghourdjian Trust. On April 2, 2020 the
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
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As of December 31, 2021 and December 31, 2020, 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
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As of December 31, 2021 and December 31, 2020, 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 stock compensation expense of was recognized during the year ended December 31, 2021. In comparison, during the year ended December 31, 2020, the Company recognized $
The following is a summary of share-based compensation, stock option and warrant activity as of December 31, 2021 and changes during the year then ended:
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Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, April 1, 2021 |
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Warrants Exercised During Q2 2021 |
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Warrants Forfeited During Q2 2021 |
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Warrants Exercised During Q3 2021 |
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Options Exercised During Q3 2021 |
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Options Expired During Q3 2021 |
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Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, December 31, 2021 |
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Outstanding Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, December 31, 2021 |
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Upon the execution of Gerard M. Jacobs’ employment agreement on
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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 Warrants by Gerard M. Jacobs
On August 30, 2021, CEO Gerard M. Jacobs exercised, for an aggregate purchase price of $
Exercise of Warrants by Vincent J. Mesolella
On September 13, 2021, lead outside director Vincent J. Mesolella exercised, for an aggregate purchase price of $
Exercise of Option by Joshua A. Bloom
On September 22, 2021, director Joshua A. Bloom exercised an option to purchase
Exercise of Option by Richard E. Morrissy
On September 15, 2021, director Richard E. Morrissy exercised an option to purchase
Exercise of Option by a Non-Affiliated Shareholder
On September 26, 2021, a non-affiliated shareholder of the Company exercised an option to purchase
Exercise of Option by a Non-Affiliated Shareholder
On December 7, 2021, a non-affiliated shareholder of the Company exercised a warrant to purchase
NOTE 11 – 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.
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Landlord is an entity owned directly or indirectly by NWarrender, the Company’s Vice Chairman and COO, the CEO of Lifted, and the largest stockholder of the Company as the beneficial owner of 3,900,455 shares of common stock of the Company. Due to the potential conflict of interest, the terms and conditions of the Lease were negotiated on behalf of Lifted by Vincent J. Mesolella, the Lead Outside Director of the Company. Landlord and Lifted were represented by their own independent legal counsel in connection with the Lease. Under the terms of the Lease, NWarrender is able to benefit through his ownership of Landlord by Landlord’s receiving rent and eventually selling the Premises to Lifted.
Lifted constructed improvements to the Premises including a clean room, and gradually moved into the Premises over the course of the first quarter of 2021.
Under the terms of the “triple-net” Lease, starting on January 1, 2021, Lifted leased approximately 11,238 square feet at the Premises at $6.13 per square foot per year in base rent ($68,888.94 in 2021), which is subject to a 2% increase in base rent each year, plus certain operating expenses and taxes. The Lease will continue until midnight on the fifth anniversary date of the commencement date of the Lease. Lifted shall have the right to extend the original five year term of the Lease for one extension period of two years, commencing upon the expiration of the original term. Lifted and Landlord are required to execute an “Amendment of Extension” prior to six months before the expiration of the original term.
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. As a result, as of December 31, 2021, the Company modified its methodology for accounting of this finance lease (the "Modification Date"), such that the only liability recognized as of December 31, 2021 was a current (within one year) liability, and there was no long-term liability recognized. An immaterial loss on lease modification of $1,446 was also recognized as of the Modification Date. The Finance Lease Right-of-Use Asset value was reduced to reflect the fixed purchase price agreed to under the Omnibus Agreement.
The Finance Lease Right-of-Use Asset will be amortized over its useful life (
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 5,000 square feet of the 58th Suite 850 and pay a base square foot charge of $5.75 per square foot per annum, with a 3% increase in rent each year during the term. Lifted will also be responsible for paying its proportionate share of real estate taxes and other operating costs. This lease is accounted for as an operating lease.
Rent Schedule
Date |
| Base Monthly Rent |
| |
10/01/2021 – 09/30/2022 |
| $ |
| |
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 (the “Second 58th Lease”) with TI for office and warehouse space (the 58th Suites 600 & 700”) located at 8910 58th Place, Suites 600 & 700, Kenosha, WI 53144. The 58th Suites 600 & 700 are 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.
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| Table of Contents |
Under the terms of the Second 58th Lease, Lifted will lease the approximately 8,000 square feet of the 58th Suites 600 and 700 and pay a base square foot charge of $6.00 per square foot per annum, with increases in rent each year during the term as set out in the table titled “Rent Schedule” below. This lease is accounted for as an operating lease.
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 |
| $ |
| |
Lifted will also be responsible for paying its proportionate share of real estate taxes and other operating costs.
Lease of Space in Zion, Illinois
From June 1, 2018 through June 1, 2021, Lifted rented 3,300 square feet of space located in Zion, Illinois, for manufacturing, warehousing and office space. From June 1, 2021 through November 2021, Lifted leased such space on a month-to-month basis. From May 2020 until April 1, 2021, Lifted also temporarily used additional space located adjacent to its rented space in Zion, Illinois, and made payments in lieu of rent therefor.
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 |
| December 31, 2021 |
| |
Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $6,807 in 2021 and $35,650 in 2020 |
| Non-Current Assets |
| $ |
| |
|
|
|
|
|
|
|
Liability |
| Balance Sheet Line |
| December 31, 2021 |
| |
Operating Lease Liabilities |
| Current Liabilities |
| $ |
| |
|
| Non-Current Liabilities |
| $ |
| |
Balance Sheet Classification of Finance Lease Assets and Liabilities
Asset |
| Balance Sheet Line |
| December 31, 2021 |
| |
Finance Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $252,876 in 2021 and $0 in 2020 |
| Non-Current Assets |
| $ |
| |
|
|
|
|
|
|
|
Liability |
| Balance Sheet Line |
| December 31, 2021 |
| |
Finance Lease Liabilities |
| Current Liabilities |
| $ |
| |
| F-30 |
| Table of Contents |
Lease Costs
The table below summarizes the components of lease costs for the following periods:
Lease Cost: |
| Three Months Ended Dec. 31, 2021 |
|
| Year Ended Dec. 31, 2021 |
|
| Year Ended Dec. 31, 2020 |
| |||
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.
Maturity Analysis as of December 31, 2021
Maturity Analysis as of December 31, 2021 |
| Finance |
|
| Operating |
| ||
2022 |
| $ |
|
| $ |
| ||
2023 |
|
|
|
|
|
| ||
2024 |
|
|
|
|
|
| ||
2025 |
|
|
|
|
|
| ||
2026 |
|
|
|
|
|
| ||
Thereafter |
|
|
|
|
|
| ||
Total |
|
|
|
|
|
| ||
Less: Present value discount |
|
| ( | ) |
|
| ( | ) |
Lease liability |
| $ |
|
| $ |
| ||
Payment of Finders’ Fees Related to Ablis
The Company has agreed to pay finders’ fees to two finders in regard to the potential purchase of an additional
Previously, on April 30, 2019, the Company issued warrants to purchase
Payment of Brokers’ Fees Related to the Sale of Preferred Stock
The Company has committed to pay brokers’ fees in regard to the capital being raised for the Company by such brokers in the Company’s private placements of preferred stock, such fee to consist of warrants to purchase unregistered shares of common stock of the Company at an exercise price equal to the conversion price per share of such preferred stock, exercisable at any time during a five year period; the number of such shares will be calculated as six percent of the aggregate capital raised by such brokers in the private placement of preferred stock divided by the conversion price per share of such preferred stock.
In 2019, warrants to purchase
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.
| F-31 |
| Table of Contents |
Amounts Payable to Gerard M. Jacobs and William C. Jacobs
Please refer to the section “Impact of the Merger on Gerard M. Jacobs’ and William C. “Jake” Jacobs’ Compensation Agreement” under “ITEM 1. BUSINESS” and “Amounts Owed to Gerard M. Jacobs” and “Amounts Owed to William C. “Jake” Jacobs” under “NOTE 8 – RELATED PARTY TRANSACTIONS” for more information.
Amount Payable to Warrender Enterprise Inc.
Please refer to the section “Amount Owed to Warrender Enterprise Inc.” under “NOTE 8 – RELATED PARTY TRANSACTIONS” for more information.
Commissions on Sales
Lifted has agreed to pay up to 7% commissions to certain individuals, some of whom are affiliated with the Company and some of whom are relatives of affiliates of the Company, in connection with certain sales of Lifted’s products. Commissions are based upon the total purchase prices paid by the referrers’ customers, excluding shipping costs and any governmentally imposed taxes and fees, all of which must be paid by the referrers’ customers. Some of these agreements extend through December 31, 2040, and one extends through December 31, 2025. Commissions are paid on each purchase order of Lifted products received from and paid for by the referrers’ customers. In the Consolidated Statements of Operations, these commissions are included in the “Payroll, Consulting and Independent Contractor” totals.
As mentioned in NOTE 8 – RELATED PARTY TRANSACTIONS, during the year ended December 31, 2021, $
As mentioned in NOTE 8 – RELATED PARTY TRANSACTIONS, during the twelve months ended December 31, 2020, $
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
NOTE 12 – 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 one pending lawsuit, 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 $
| F-32 |
| Table of Contents |
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).
Preparing a Complaint
Lifted is in the process of preparing a complaint against a distributor for the non-payment of certain product.
During 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following four lawsuits:
(1) Mile High Labs, Inc., Plaintiff, v. Warrender Enterprise, Inc. d/b/a Lifted Liquids, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW); and
(2) Accelerated Analytical, Inc., et al. v. Lifted Liquids, Inc. d/b/a Lifted Made, et al., Case No. 3:20-cv-442-wmc (United States District Court for the Western District of Wisconsin).
(3) Lifted Liquids, Inc., Plaintiff, v. Luxvoni LLC d/b/a Luxvoni Marketing Solutions; Does I through X, inclusive; and Roe Business Entities I through X, inclusive, Defendants (United States District Court for Clark County, Nevada; Civil Case No. A-20-817416-C)
(4) Warrender Enterprise, Inc. d/b/a Lifted Liquids, a Wisconsin corporation, Plaintiff, v. Merkabah Labs, LLC, a Colorado limited liability company; Merkabah Technologies, LLC, a Colorado limited liability company; Ryan Puddy, an individual; and Ralph L. Taylor III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC)
As a result of the settlement agreements, the Company incurred aggregate settlement costs of $
NOTE 13 – COMPANY-WIDE MANAGEMENT BONUS POOL
Pursuant to the employment agreements entered into between the Company and its three principal executives Gerard M. Jacobs, William C. “Jake” Jacobs, and Nicholas S. Warrender (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: Gerard M. Jacobs, William C. Jacobs, and Nicholas S. Warrender (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.
| F-33 |
| Table of Contents |
The company-wide Bonus Pool for 2021 shall be $
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 $
NOTE 14 – 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 100% federal dividends received deduction prospectively. In addition, the Tax Act required a one-time transitional tax on foreign cash equivalents and previously unremitted earnings. Several of the new provisions enacted as part of the Tax Act require clarification and guidance from the U.S. Internal Revenue Service (“IRS”) and Treasury Department. These or other changes in U.S. tax laws could impact our profits, effective tax rate, and cash flows.
Significant components on the Company’s income tax provision (benefit) for continuing operations is as follows:
|
| For the Years Ended | ||||||
|
| December 31, | ||||||
|
| 2021 |
|
| 2020 | |||
Current |
|
|
|
|
| |||
Domestic-Federal |
| $ |
|
| $ |
| ||
Domestic-State |
|
|
|
|
|
| ||
Foreign |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Deferred |
|
|
|
|
|
|
|
|
Domestic-Federal |
|
| ( | ) |
|
|
| |
Domestic-State |
|
| ( | ) |
|
|
| |
Foreign |
|
|
|
|
|
| ||
|
|
| ( | ) |
|
|
| |
Total Provision (Benefit) for Income Taxes |
| $ |
|
| $ |
| ||
| F-34 |
| Table of Contents |
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:
|
| For the Years Ended | ||||||
|
| December 31, | ||||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Domestic-Federal |
| $ |
|
| $ | ( | ) | |
State tax benefit, net of federal benefit |
|
|
|
|
|
| ||
Non-deductible expenses |
|
|
|
|
|
| ||
Revision of prior years’ deferred tax assets |
|
| ( | ) |
|
| ( | ) |
Change in estimated future income tax rates |
|
| ( | ) |
|
|
| |
Change in valuation allowance |
|
|
|
|
|
| ||
Total Provision (Benefit) for Income Taxes |
| $ |
|
| $ |
| ||
During the year ended December 31, 2021, net deferred tax assets increased by $
Deferred tax assets and liabilities as of December 31, 2021 and December 31, 2020 were as follows:
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Deferred Tax Assets: |
|
|
|
|
|
| ||
Stock-based compensation |
| $ |
|
| $ |
| ||
Operating loss carry forwards |
|
|
|
|
|
| ||
Accrued Related Party Expenses |
|
|
|
|
|
| ||
Impairment of SmplyLifted Note and Other Receivables |
|
|
|
|
|
| ||
Allowance for Doubtful Accounts |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
Less: Valuation allowance |
|
| ( | ) |
|
| ( | ) |
Total Deferred Tax Assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Depreciation & Amortization |
|
| ( | ) |
|
|
| |
Other |
|
| ( | ) |
|
|
| |
Total Deferred Tax Liabilities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets |
| $ |
|
| $ |
| ||
NOTE 15 – SUBSEQUENT EVENTS
$2,750,000 Promissory Note
On December 30, 2021, the Company repaid all principal and interest due under the $
NWarrender kept $
| F-35 |
| Table of Contents |
If the Company is able to raise additional capital via borrowing or the sale of equity securities of the Company the Company will be obligated to prepay all remaining principal and all accrued interest on the $2,750,000 Promissory Note to NWarrender within two business days following the closing of any debt or equity capital raise by Payors following the date of the $2,750,000 Promissory Note in the amount of $
Payment of Deferred Compensation pursuant to the Amended Compensation Agreement
The Compensation Agreement contemplated an aggregate of $
Payment of $300,000 Bonus to William C. Jacobs
Pursuant to the Omnibus Agreement and simultaneously with such payment of the Deferred Compensation as set out above, LIFD paid William C. Jacobs a bonus of $
Lifted’s Hiring of Robert T. Warrender II
In January 2022, Lifted hired Robert T. Warrender II, NWarrender’s father, as an employee.
Settlement
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).
Preparing a Complaint
Lifted is in the process of preparing a complaint against a distributor for the non-payment of certain product.
SmplyLifted LLC
Prior to February 9, 2022, Lifted Made had a 50% membership interest in SmplyLifted LLC, which sells tobacco-free nicotine pouches under the brand name FR3SH (www.GETFR3SH.com). On February 9, 2022, Lifted Made signed an Agreement to sell its 50% membership interest in SmplyLifted LLC to Corner Vapory LLC, an affiliate of NWarrender, CEO of Lifted, for $1, plus ninety-nine percent (99%) of any and all payments and other consideration received or owed to Corner Vapory LLC in regard to SmplyLifted’s existing inventory of FR3SH brand tobacco-free nicotine pouches. Lifted has the option to re-purchase the 50% membership interest in SmplyLifted LLC from Corner Vapory LLC for $
| F-36 |
| Table of Contents |
Entry into a Material Definitive Agreement
On February 14, 2022, Nicholas S. Warrender, our Vice Chairman and COO, Gerard M. Jacobs, our Chief Executive Officer, William C. Jacobs, our Chief Financial Officer (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 $1,556,055 set out in the Omnibus Agreement; (2) places a cap on the 2022 company-wide bonus pool such that 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 $
In the negotiation and execution of the Omnibus Agreement and the Amended Omnibus Agreement, LFTD Partners has been represented by the Compensation Committee of the board of directors of LFTD Partners, which consists of LFTD’s four independent board members (the “Compensation Committee”). The Compensation Committee has indicated to management that it believes that the terms and conditions of the Omnibus Agreement and the Amended Omnibus Agreement are in the best interests of LFTD Partners.
Exercise of Warrant by a Non-Affiliated Entity
On February 19, 2022, an entity non-affiliated with the Company exercised an option to purchase
Stock Buy-back Transactions with a Non-Affiliate Stockholder
On March 1, 2022, LFTD Partners signed an agreement to purchase a total of
March 16, 2022 |
| $ |
| |
March 30, 2022 |
| $ |
| |
April 13, 2022 |
| $ |
| |
Total |
| $ |
|
| F-37 |