BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2022

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

After acquiring, operating and then selling businesses involved in the defense sector, our business is currently involved in the development, manufacture and sale of a wide variety of branded, hemp-derived, psychoactive and alternative lifestyle products. We are interested in acquiring rapidly growing, profitable companies that are also involved in the manufacture and sale of branded, hemp-derived, psychoactive and alternative lifestyle products (a “Canna-Infused Products Company”).

Management of the Company is open-minded to the concept of also acquiring operating businesses and/or assets 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.

On February 24, 2020, we acquired 100% of the ownership interests in one Canna-Infused Products Company called Lifted Liquids, Inc. d/b/a Lifted Made (formerly Warrender Enterprise Inc. d/b/a Lifted Liquids) (www.Urb.Shop), Kenosha, Wisconsin (“Lifted Made” or “Lifted”).

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.

Obligation to Purchase Headquarters Building

Toward the end of 2020, our Vice Chairman and Chief Operating Officer Nicholas S. Warrender (“NWarrender”), through his assigned entity 95th Holdings, LLC (“Holdings”), purchased a building located at 5511 95th Avenue in Kenosha, Wisconsin (“5511 Building”) that was immediately leased to us to conduct our expanded operations. The 5511 Building includes office, laboratory and warehouse space. As part of the lease agreement with Holdings, the parties agreed that our wholly owned subsidiary Lifted would eventually purchase the 5511 Building. The purchase price for the 5511 Building was originally subject to valuation based on a formula agreed upon by the parties. Pursuant to an agreement with NWarrender on December 30, 2021, the parties agreed to set the purchase price for the 5511 Building at $1,375,000. Prior to the Acceleration Agreement, Lifted had an obligation to complete the purchase of the 5511 Building on or before December 31, 2022. Pursuant to the Acceleration Agreement, the deadline to purchase the 5511 Building has been extended by one year to December 31, 2023. In addition, the Acceleration Agreement contains a provision that if we raise $5,000,000 of debt or equity capital, then Lifted or our designee shall purchase the 5511 Building from Holdings at the agreed upon $1,375,000 purchase price within two days.

Termination of Letter of Intent Relating to the Proposed Acquisition by the Company of Savage Enterprises, Premier Greens LLC and MKRC Holdings, LLC

On December 15, 2021, the Company, our Chairman and CEO Gerard M. Jacobs (“GJacobs”), our President and CFO William C. “Jake” Jacobs (“WJacobs”), and our Vice Chairman and COO NWarrender, Savage Enterprises, a Wyoming corporation (“Savage”), Premier Greens LLC, a California limited liability company (“Premier Greens”), MKRC Holdings, LLC, a Wyoming limited liability company (“MKRC”), Christopher G. Wheeler (“Wheeler”), and Matt Winters (“Winters”), mutually stipulated to terminate the Letter of Intent dated June 15, 2021 that set out the Company’s possible acquisition of Savage, Premier Greens and MKRC.

Termination of Letter of Intent Relating to the Proposed Acquisition by the Company of Fresh Farms E-Liquid, LLC

On December 16, 2021, the Company, Fresh Farms E-Liquid, LLC, a California limited liability company (“Fresh Farms”), Anthony J. Devincentis (“Devincentis”), Jakob M. Audino (“Audino”), Forrest F. Town (“Town”), John Z. Petti (“Petti”), GJacobs, NWarrender, WJacobs, Wheeler and Winters mutually stipulated to terminate the Letter of Intent dated September 1, 2021 that set out the Company’s possible acquisition of Fresh Farms.

Capital Raise

Cash on hand is currently limited, so in order to close future acquisitions, and potentially also in order to pay other corporate obligations such as certain bonuses, our company-wide bonus pool, and/or income taxes, it may be necessary for us to raise substantial additional capital, and no guarantee or assurance can be made that such capital can be raised on acceptable terms, if at all.

We are currently exploring the possibility of raising $5 million or more through some combination of debt and equity offerings in order to purchase for $1.375 million the building located at 5511 95^th Avenue, Kenosha, Wisconsin, that is currently being rented by Lifted, to pay off other liabilities of the Company and Lifted such as certain bonuses, our company-wide bonus pool, and/or income taxes, 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 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 audited consolidated financial statements and consist of only normal recurring adjustments, except as disclosed herein. As part of the consolidation, all significant intercompany transactions are eliminated, and on the Consolidated Statements of Operations, certain expenses are consolidated into the Other Operating Expenses category.

Use of Estimates – The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) typically requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. Key estimates in these financial statements include the allowance for doubtful accounts, sales allowance, estimated useful lives of property, plant and equipment, valuation allowance on deferred income tax assets and the fair value of stock options and warrants.

Cash and Cash Equivalents – Cash and cash equivalents as of December 31, 2022 and December 31, 2021 included cash on-hand. The Company considers all highly liquid investments with an original maturity date within 90 days to be cash equivalents. Cash equivalents are carried at cost. The Company maintains its cash balance at a credit-worthy financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.  

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.

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. During the periods reported, there were no changes in the unobservable inputs associated with these investments, and there no other investments of the Company that had Level 3 unobservable inputs.

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

Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded (the “Allowance for Doubtful Accounts”), which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. As of December 31, 2021, the Company implemented a new policy regarding allowances for doubtful accounts, which is that all accounts receivable older than 90 days at quarter end are accrued for in Allowance for Doubtful Accounts. Allowance for Doubtful Accounts of $281,762 and $239,101 were recorded at December 31, 2022 and December 31, 2021, respectively. A credit note reserve of $935,881, primarily related to the sales allowance of $939,496, was also netted against accounts receivable as of December 31, 2022; there was no credit note reserve netted against accounts receivable as of December 31, 2021.

Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at December 31, 2022 and December 31, 2021:

	December 31, 2022		December 31, 2021
Raw Goods	$	3,407,196	$	2,927,727
Finished Goods	$	2,616,771	$	882,217
Total Inventory	$	6,023,967	$	3,809,944

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, 2022, $127,485 of overhead costs were allocated to finished goods. In comparison, at December 31, 2021, $76,277 of overhead costs were allocated to finished goods.

During the year ended December 31, 2022, $4,418,922 of obsolete and spoiled inventory was written off; this is compared to $338,799 of obsolete and spoiled inventory that was written off during the year ended December 31, 2021. During the 2020 Stub Year, $147,413 of obsolete and spoiled inventory was written off.

Of the $4,418,922 of obsolete and spoiled inventory that was written off during the year ended December 31, 2022, $2,313,902 of it related to certain 2 mL disposable vapes written off during the third quarter of 2022 due to clogging issues (the “Clogged Vapes”). Management believes that the clogging was caused by the summer heat wave (the third hottest summer on record in the USA). The heat caused the oil in the Clogged Vapes to lose viscosity, so more oil solidified in the coils as they were brought to room temperature. Because these Clogged Vapes did not have preheat or variable voltage settings, the oil could not be unclogged from the coils. Management discontinued the sale of the Clogged Vapes during the third quarter. Lifted’s 2 mL disposable vapes have been superseded by 3 mL disposable vapes that do have preheat and variable voltage settings, so management expects that this write off of Clogged Vapes should be a one-time occurrence.

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

The payable forgiveness resulted in a net $485,496 improvement to the cost of goods sold and accrued liabilities sections of the Company’s consolidated statements of operations as of December 30, 2022. The $370,047 in credits are booked as an asset as of December 30, 2022 and recognized as other income amortized quarterly at the rate of $46,255.87 per quarter beginning with the first quarter of 2023 and continuing for the next six consecutive quarters, with a final quarterly credit of $46,255.91 for the fourth quarter of 2024. The 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 $2,500 or more are capitalized. Depreciation of machinery and equipment, furniture and fixtures, leasehold improvements, and computer equipment, is based on the asset’s estimated useful life and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.

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

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

Security Deposits – The Company has not paid a security deposit for its leased facility located at 5511 95^th 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 58^th Place, Suite 850, Kenosha, WI 53144, 8910 58^th Place, Suites 600 and 700, Kenosha, WI 53144, 9560 58^th Place, Suite 360, Kenosha, WI 53144,2701-09 West Fulton PH, Chicago, Illinois 60612 and 5732 95th Avenue, Suite 200 and 300, Kenosha, WI 53144.

The Company had paid a security deposit to its lessor for the Company’s former office, manufacturing and warehouse space in Zion, IL, that was rented on a month-to-month basis from June 1, 2021 through November 2021. The security deposit was written off at December 31, 2021.

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

Revenue

The Company recognizes revenue in accordance with Accounting Standards Codification 606.

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

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

The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.

Discounts and rebates 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, clogs, leaks 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.

At December 31, 2022, the Company recorded a sales allowance of $939,496 for estimated future discounts/refunds and product returns.

Disaggregation of Revenue

During the year ended December 31, 2022, approximately 99% of the Company’s sales occurred inside of the United States of America. During the year ended December 31, 2021, approximately 99.9% of the Company’s sales occurred inside of the United States of America.  During the 2020 Stub Year, 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	For the year ended December 31, 2022		% of Net Sales During the year ended December 31, 2022			For the year ended December 31, 2021		% of Net Sales During the Year ended December 31, 2021			February 24, 2020 (Closing on Lifted)-December 31, 2020		% of Net Sales During February 24, 2020 (Closing on Lifted)-December 31, 2020
Net sales of raw goods to customers	$	40,518		0	%	$	476,211		2	%	$	694,707		13	%
Net sales of products to private label clients	$	975,199		2	%	$	3,246,420		10	%	$	1,443,687		27	%
Net sales of products to wholesalers	$	7,503,530		13	%	$	4,586,306		15	%	$	1,096,199		21	%
Net sales of products to distributors	$	45,522,229		79	%	$	21,661,464		68	%	$	1,982,810		37	%
Net sales of products to end consumers	$	3,375,059		6	%	$	1,686,531		5	%	$	126,917		2	%
Net Sales	$	57,416,535		100	%	$	31,656,932		100	%	$	5,344,320		100	%

Deferred Revenue

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

The table shown below represents the composition of deferred revenue between contract assets (invoiced but unfulfilled performance obligations) and deposits from customers from unfulfilled orders as of December 31, 2022 and December 31, 2021.

	December 31, 2022		December 31, 2021
Contract Assets (invoiced but unfulfilled performance obligations)	$	594,086	$	1,650,258
Deposits from customers for unfulfilled orders	$	-	$	524,135
Total Deferred Revenue	$	594,086	$	2,174,393

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. Cost of goods sold amounted to $36,423,246 during the year ended December 31, 2022, compared to $15,715,759 during the year ended December 31, 2021, compared to $3,407,430 during the 2020 Stub Year. $4,418,922 and $338,799 of cost of goods sold relates to spoiled and obsolete inventory written off during the years ended December 31, 2022 and 2021. $147,413 of cost of goods sold relates to spoiled and obsolete inventory written off during the 2020 Stub Year.

Operating Expenses – Operating expenses include accounts such as payroll and independent contractor expenses, stock compensation expense, the company-wide management bonus pool, management bonuses, professional fees, bank charges and merchant fees, advertising and marketing, bad debt expense, depreciation and amortization, and other operating expenses. Total operating expenses increased to $11,180,562 for the year ended December 31, 2022, up from $8,160,290 for the year ended December 31, 2021, and $3,455,258 for the 2020 Stub Year. The primary driver of the increases, year-over-year, was increased payroll and independent contractor expenses, due to the hiring of more employees and independent contractors. Moreover, the Company reported company-wide bonus pool expense of $233,336 and $1,559,334 during the years ended December 31, 2022 and 2021, respectively. The Company did not report company-wide bonus pool expense for the 2020 Stub Year.

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

Basic and Diluted Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by dividing earnings (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options and warrants are determined by the treasury stock method. The following table summarizes the calculations of basic and diluted earnings (loss) per common share for the years ended December 31, 2022, 2021 and 2020:

	For the Year Ended
	December 31,
	2022		2021		2020
Net Income/(Loss)	$	7,196,327	$	5,799,982	$	(1,534,589	)
Weighted average number of common shares outstanding:
Basic		14,080,729		11,402,639		5,927,480
Diluted		15,862,927		13,359,837		5,927,480
Basic Net Income (Loss) per Common Share	$	0.51	$	0.50	$	(0.29	)
Diluted Net Income (Loss) per Common Share	$	0.45	$	0.43	$	(0.29	)

As of December 31, 2022, in addition to our outstanding common stock, we have issued (a) options to purchase 1,076,698 shares of common stock at $2.00 per share, (b) warrants to purchase 155,500 shares of common stock at $1.00 per share, (c) rights to purchase warrants to purchase 100,000 shares of common stock at $1.85 per share, and (d) warrants to purchase 2,295,000 shares of common stock at $5.00 per share.

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 1,550,000 shares of our common stock are vested, while the remaining warrants to purchase 745,000 shares of our common stock are not vested and are subject to certain conditions and requirements.

At December 31, 2022, the Company had Series A Preferred Stock outstanding convertible into 450,000 shares of common stock; these are included in the diluted earnings calculation. Also at December 31, 2022, the Company had Series B Preferred Stock outstanding convertible into 40,000 shares of common stock; these are not included in the diluted earnings calculation because the exercise price ($5.00/share) was higher than the stock closing price at December 31, 2022 ($2.15/share).

In comparison, as of December 31, 2021, in addition to our outstanding common stock, we have issued (a) options to purchase 1,076,698 shares of common stock at $2.00 per share, (b) warrants to purchase 205,500 shares of common stock at $1 per share, (d) rights to purchase warrants to purchase 1,350,000 shares of common stock at $1.85 per share, and (e) warrants to purchase 2,295,000 shares of common stock at $5.00 per share.

Regarding the aforementioned rights to purchase warrants to purchase 1,350,000 shares of common stock at $1.85 per share as of December 31, 2021: exercise rights to purchase warrants to purchase 1.25 million shares of our common stock by exercise of the foregoing warrants 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 as of December 31, 2021: of the total, warrants to purchase 1,650,000 shares of our common stock are vested, while the remaining warrants to purchase 645,000 shares of our common stock are not vested and are subject to certain conditions and requirements.

Also outstanding as of December 31, 2021, the Company had Series A Preferred Stock outstanding convertible into 575,000 shares of common stock; these are included in the diluted earnings calculation. At December 31, 2021, the Company had Series B Preferred Stock outstanding convertible into 40,000 shares of common stock; these are not included in the diluted earnings calculation because the exercise price ($5.00/share) was higher than the stock closing price at December 31, 2021 ($4.37/share).

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.

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, 2022, the Company incurred $662,494 in advertising and marketing expenses, which primarily related to trade shows, marketing, promotional products and public relations. 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. During the 2020 Stub Year, the Company incurred $115,102 in advertising and marketing expenses, which primarily related to public relations and digital marketing.

Compensated Absences – During the year ended December 31, 2021 and the 2020 Stub Year, 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 or December 31, 2020.

Effective January 1, 2022, certain PTO policies have been adopted by Lifted, and a PTO accrual of $11,323 was recognized at December 31, 2022.

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.

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.

	January 1, 2019 - February 24, 2020 (Acquisition Date) (1)		February 24, 2020 (Acquisition Date) - December 31, 2020 (2)
Net Sales	$	4,450,339	$	5,344,320
Net Earnings	$	549,999	$	461,913

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.