CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

12 Months Ended

Dec. 31, 2022

CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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 53144

On December 18, 2020, Lifted as tenant entered into a Lease Agreement (the “Lease) with 95th Holdings, LLC (“Landlord”) for office, laboratory and warehouse space in a building located at 5511 95^th 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.

Rent Schedule

Date	Base Monthly Rent
January 1, 2021 – December 31, 2021	$	5,740.75
January 1, 2022 – December 31, 2022	$	5,855.57
January 1, 2023 – December 31, 2023	$	5,972.68
January 1, 2024 – December 31, 2024	$	6,092.13
January 1, 2025 – December 31, 2025	$	6,213.97

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

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

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

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

On September 23, 2021, Lifted entered into a Lease Agreement (the “58^th Lease”) with TI Investors of Kenosha LLC, (“TI”) for office and warehouse space (the “58^th Suite 850”) located at 8920 58th Place, Suite 850, Kenosha, WI 53144. The 58^th Suite 850 serve as sales offices and finished goods storage for Lifted.

The term of the 58^th 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 58^th Lease. While extensions are not prohibited, Lifted does not have the right to unilaterally elect to extend the term of the 58^th Lease for an additional term.

Under the terms of the 58^th Lease, Lifted leases approximately 5,000 square feet of the 58^th Suite 850 and pays a base square foot charge of $5.75 per square foot per annum, with a 3% increase in rent each year during the term. Lifted is also 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 53144

On November 17, 2021, Lifted entered into a lease agreement with TI for office and warehouse space located at 8910 58th Place, Suites 600 & 700, Kenosha, WI 53144 (the “Second 58^th Lease”). The Second 58^th Lease is used for raw goods storage.

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

Under the terms of the Second 58^th Lease, Lifted leases approximately 8,000 square feet at 8910 58th Place, Suites 600 & 700, Kenosha, WI 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. Lifted is also responsible for paying its proportionate share of real estate taxes and other operating costs. This lease is accounted for as an operating lease.

Rent Schedule

Date	Base Monthly Rent
01/01/2022 – 12/31/2022	$	4,000.00
01/01/2023 – 12/31/2023	$	4,120.00
01/01/2024 – 12/31/2024	$	4,243.60
01/01/2025 – 12/31/2025	$	4,370.91
01/01/2026 – 12/31/2026	$	4,502.34

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

On May 31, 2022, Lifted entered into another lease agreement with TI for office and warehouse space located at 9560 58th Place, Suite 360, Kenosha, WI 53144 (the “Third 58^th Lease”). The Third 58^th Lease is expected to be used for gummy manufacturing, as well as provide additional needed office space.

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

Under the terms of the Third 58^th Lease, Lifted leases approximately 6,132 square feet at 9560 58th Place, Suite 360, Kenosha, WI 53144 and pay an initial base square foot charge of $10.75 per square foot per annum, with increases in rent each year during the term as set out in the table titled “Rent Schedule” below. Lifted is also responsible for paying its proportionate share of real estate taxes and other operating cost. This lease is accounted for as an operating lease.

Rent Schedule

Date	Base Monthly Rent
07/01/2022 – 06/30/2023	$	5,493.25
07/01/2023 – 06/30/2024	$	5,630.58
07/01/2024 – 06/30/2025	$	5,771.35
07/01/2025 – 06/30/2026	$	5,915.63
07/01/2026 – 06/30/2027	$	6,063.52

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

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

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

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

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

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

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

Under the terms of the 5732 Lease, Lifted will lease approximately 4,657 square feet. Lifted will not pay any base square foot charge during February 2023. During the next twelve months, Lifted will pay a base square foot charge of $0.73 per square foot per annum, with a 4% increase in rent each twelve months thereafter 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
February 1, 2023 – February 28, 2023	$	0.00
March 1, 2023 – February 29, 2024	$	3,395.73
March 1, 2024 – February 28, 2025	$	3,531.56
March 1, 2025 – February 28, 2026	$	3,672.82
March 1, 2026 – February 28, 2027	$	3,819.73
March 1, 2027 – February 29, 2028	$	3,972.52

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 manufacturer or copacker facilities around the USA.

Balance Sheet Classification of Operating Lease Assets and Liabilities

Asset	Balance Sheet Line	December 31, 2022
Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $100,892 in 2022 and $6,807 in 2021	Non-Current Assets	$	496,604
Liability	Balance Sheet Line	December 31, 2022
Operating Lease Liabilities	Current Liabilities	$	117,719
	Non-Current Liabilities	$	384,417

Balance Sheet Classification of Finance Lease Assets and Liabilities

Asset	Balance Sheet Line	December 31, 2022
Finance Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $206,008 in 2022 and $252,876 in 2021	Non-Current Assets	$	1,274,400
Liability	Balance Sheet Line	December 31, 2022
Finance Lease Liabilities	Current Liabilities	$	1,357,524

Lease Costs

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

Lease Cost:	Year Ended Dec. 31, 2022		Year Ended Dec. 31, 2021		Year Ended Dec. 31, 2020
Finance lease expense:
Amortization of Right-of-Use Assets	$	46,273	$	49,347	$	-
Interest on lease liabilities		70,507		52,825		-
Operating lease expense		115,239		15,405		19,200
Total	$	232,019	$	117,577	$	19,200

As described in NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, a portion of monthly overhead costs such as lease expense are allocated to finished goods. For example, monthly overhead costs such as payments for rent, utilities, insurance, and indirect labor are allocated to finished goods based on the estimated percentage cost toward the finished goods. Depreciation expense related to certain machinery and equipment is also allocated to finished goods.

Maturity Analysis of Finance and Operating Leases as of December 31, 2022	Finance			Operating
2023	$	1,446,672		$	179,975
2024		-			184,318
2025		-			166,364
2026		-			171,446
2027		-			83,746
Thereafter		-			7,945
Total		1,446,672			793,794
Less: Present value discount		(89,148	)		(111,019	)
Lease liability	$	1,357,524		$	682,775

The Maturity Analysis of Operating Leases as of December 31, 2022 includes the payment obligations for the lease of the space located at 5732 95th Avenue, Suites 200 and 300, Kenosha, WI 53144 because even though this lease term commences on February 1, 2023, the lease had been executed on November 28, 2022.

Potential Issuance of Warrants to Purchase Shares of Common Stock of the Company

The Compensation Committee of the Company’s Board of Directors may, from time to time, recommend that certain warrants to purchase shares of common stock of the Company should be issued to new or current members of the Company’s Board of Directors, to officers and employees of the Company and its subsidiaries, or to members of any advisory board or consultants to the Company.

Bonus to Lifted’s Chief Strategy Officer

Lifted’s Chief Strategy Officer hired on July 1, 2021 has developed and implemented certain important strategies which have assisted Lifted’s efforts to increase its production, fulfillment and sales capabilities. This employee’s two-year agreement with Lifted entitles such Chief Strategy Officer to be paid an annual salary of $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, 2022, the bonus payable to the Chief Strategy Officer totaled $265,694. In comparison, at December 31, 2021, the bonus payable to the Chief Strategy Officer totaled $339,510. This bonus is accrued for in the Accounts Payable and Accrued Expenses liability account on the Consolidated Balance Sheets.

Company-Wide Management Bonus Pool

Please refer to NOTE 13 – COMPANY-WIDE MANAGEMENT BONUS POOL for more information about the company-wide management bonus pool.

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. 

Other Contingent Contractual Obligations and Commercial Commitments

For other contingent contractual obligations and commercial commitments, please refer to NOTE 8 – RELATED PARTY TRANSACTIONS.