BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2024

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Consolidated Financial Statements – The accompanying audited consolidated financial statements include the accounts of LFTD Partners and have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for financial information and in accordance with the rules and regulations of the SEC. 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. Certain previously reported amounts have been reclassified between line items to conform to the current period presentation.

Use of Estimates

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

Cash and Cash Equivalents

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

Restricted Cash

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

Fair Value of Financial Instruments

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

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

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

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

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

Accounting for Investments

The Company’s Investment in Lifted

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

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

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

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

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

The Company’s Investment in SmplyLifted

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

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

Prepaid Expenses

Prepaid Expenses – 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 insurance and prepaid health and dental insurance, among others, are also recognized as prepaid expenses when advance payments are made for services that will be performed in periods subsequent to the balance sheet date. Prepaids for these other expenses are recognized as expenses ratably over the applicable service period.

Accounts Receivable

Accounts Receivable – Accounts receivable of $2,358,823, net of $853,329 allowance for doubtful accounts, were outstanding at December 31, 2024. In comparison, accounts receivable of $3,586,176, net of $375,417 allowance for doubtful accounts, were outstanding at December 31, 2023.

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

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

	1.	The CECL Model applies to financing receivables measured at amortized cost, which includes trade accounts receivable.
	2.	An entity will recognize an allowance for credit losses that results in the financial statements reflecting the net amount expected to be collected from the financial asset.
	3.	The allowance represents the portion of the amortized cost basis that an entity does not expect to collect due to credit over the asset’s contractual life, considering past events, current conditions and reasonable and supportable forecasts of future economic conditions.

In performing its CECL Model Analysis, management calculates the ratio of write offs to sales made to wholesalers and distributors for the trailing three-year period (the “Bad Debt Loss Rate”). The Bad Debt Loss Rate is then multiplied by sales made to wholesalers and distributors during the trailing twelve months (the “Bad Debt Calc”). The Bad Debt Calc is compared to the total accounts receivable that is older than 90 days as of reported period end; for conservatism, whichever is larger is considered the Allowance for Doubtful Accounts as of reported period end. The Company’s position is that the Company’s conservative approach toward the treatment of Allowance for Doubtful Accounts provides sufficient coverage in relation to potential credit losses from outstanding invoice write-offs. As of December 31, 2024, the Allowance for Doubtful Accounts is $853,329, which is the total of the invoices older than 90 days as of December 31, 2024, because this figure is larger than the Bad Debt Calc. Management believes that Lifted’s Allowance for Doubtful Accounts has been conservatively analyzed and prepared and is appropriate as of reporting period end.

Impact of Delayed Customer Payments on Cash Flow

Impact of Delayed Customer Payments on Cash Flow – The Company’s ability to generate sufficient operating cash flow is directly affected by the timing and collectability of its accounts receivable. A significant portion of the Company’s revenue comes from wholesale and distributor sales, which often involve extended payment terms. As a result, delays in customer payments can have a material impact on cash flow, liquidity, and working capital availability. Fluctuations in cash collections can impact the Company’s ability to meet short-term obligations, fund inventory purchases, and invest in growth initiatives. Prolonged delays in accounts receivable collection could necessitate further adjustments to working capital management strategies, including modifications to vendor payment schedules, securing additional financing, or reevaluating sales terms to improve cash flow predictability. Management assesses the impact of delayed customer payments on overall liquidity and considers credit risk and allowance for doubtful accounts, in an effort to provide some safeguard against potential cash flow disruptions. However, if economic conditions deteriorate or customer creditworthiness declines further, additional measures may be required to preserve liquidity and operational stability.

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

	December 31, 2024		December 31, 2023
Raw Goods	$	5,867,526	$	4,962,652
Finished Goods		3,448,765		5,212,015
Total Inventory	$	9,316,291	$	10,174,667

The process of determining obsolete or spoiled inventory involves:

	1)	Identifying raw goods that would no longer be used in the manufacture of finished goods;
	2)	Identifying expired raw goods;
	3)	Identifying finished goods that would no longer be sold or that are slow moving;
	4)	Identifying finished goods that are expired; and
	5)	Valuing and expensing raw and finished goods that would no longer be sold.

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

As of December 31, 2024, $383,646 of overhead costs incurred during the fourth quarter of 2024 were allocated to finished goods. In comparison, as of December 31, 2023, $338,582 of overhead costs incurred during the fourth quarter were allocated to finished goods.

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

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

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

Based on another analysis of credits applied to vape device manufacturer bills through September 30, 2024, Lifted recognized credit amortization of $53,140 for the third quarter of 2024, and Lifted’s revised credit balance as of September 30, 2024 was $50,707; this credit balance was amortized completely by December 31, 2024.

Fixed Assets

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

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

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

Security and State Licensing Deposits and Bonds

Security and State Licensing Deposits and Bonds – The Company has paid security deposits for its leased facilities located at 8910 58^th Place, Suites 100, 600 and 700, Kenosha, WI 53144, 5732 95^th Avenue, Suites 100-300, Kenosha, WI 53144, and 789 Tech Center Drive, Unit C, Durango, Colorado 81301. The Company had also paid a security deposit for its former sublease of the space located at 2701-09 West Fulton PH, Chicago, Illinois 60612, which had not been returned as of December 31, 2024.

As part of Lifted’s acquisition of the assets of Oculus, Lifted had assumed the Aztec Lease, and the security deposit that had been previously paid by Oculus to the landlord of the Aztec Lease. The Aztec Lease was terminated on May 7, 2024, and the security deposit was not returned to Lifted.

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

The Company is required to, and has, paid bonds and deposits to various state departments and vendors for licenses and utilities, respectively.

Revenue

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

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

License Fee

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

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

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

	1)	The ordered item breaks, melts, or separates in transit to the customer. In this case, the Company will replace the broken, melted or separated item at no cost to the customer.
	2)	The Company sent the wrong item to the customer. In this case, the Company will allow the customer to keep, at no cost to the customer, the item that was mistakenly sent to the customer. The Company will also send the correct product to the customer, at no cost to the customer.
	3)	The customer ordered the wrong product. In this case, the customer, at his/her own expense, must mail the mistakenly ordered product back to the Company, and the Company will mail the correct product to the customer.
	4)	The ordered item is recalled. In a situation where product is recalled, the Company will offer a replacement, credit, or refund.

An allowance for sales reduces net sales on the Consolidated Statements of Operations, and also reduces accounts receivable on the Consolidated Balance Sheets. Sales allowances of $304,018 and $635,098 were reported at December 31, 2024 and December 31, 2023, respectively. Management believes that an adequate allowance for sales has been made as of period end.

Segment Disclosures

The financial statements of LFTD Partners are consolidated with Lifted’s, since Lifted is a wholly owned subsidiary of LFTD Partners. All of the Company’s sales are generated by the Company’s wholly owned subsidiary Lifted; LFTD Partners as an entity by itself generates no sales.

Pursuant to Accounting Standards Codification (“ASC”) 280-10-50-1: “an operating segment is a component of a public entity that has all of the following characteristics:

	a.	It engages in business activities from which it may recognize revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity).
	b.	Its operating results are regularly reviewed by the public entity’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance.
	c.	Its discrete financial information is available.”

Pursuant to ASC 280-10-50-10: “a public entity shall report separately information about each operating segment that meets both of the following criteria:

	a.	Has been identified in accordance with ASC 280-10-50-1 and ASC 280-10-50-3 through 50-9 or results from aggregating two or more of those segments in accordance with the following paragraph.
	b.	Exceeds the quantitative thresholds in ASC 280-10-50-12.

ASC 280-10-50-13 through 50-18 specify other situations in which separate information about an operating segment shall be reported. ASC 280-10-55-26 and Examples 1 and 2 (see ASC 280-10-55-27 through 55-45) illustrate how to apply the main provisions in this Subtopic for identifying reportable operating segments.”

Based on the similarities and shared resources of our production and related product portfolio, the Company views its operations and manages its business as one operating and one reporting segment. The Company’s CODM is NWarrender. Due to the rapidly evolving nature of the Company’s industry, NWarrender leads the Company’s efforts to launch new products to stay ahead of trends, find new sales channels, and modify sales strategies. Consumer demands, changes to regulations, proposed legislation, resource needs for Lifted’s collaborations with third parties, and new product opportunities with novel cannabinoids or other active ingredients, are some of the factors that are considered by NWarrender when determining how to allocate the Company’s resources for operations and business development.

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

	For the Years Ended
	December 31,
Type of Sale	2024				2023				2022
Raw goods	$	1,004,939	3	%	$	180,743	0	%	$	40,518	0	%
Private label clients		3,219,428	9	%		1,500,344	3	%		975,199	2	%
Wholesalers		9,548,862	26	%		10,730,095	21	%		7,503,530	13	%
Distributors		19,929,802	53	%		36,724,597	71	%		45,522,229	79	%
End consumers		3,622,197	10	%		2,474,784	5	%		3,375,059	6	%
Net Sales	$	37,325,228	100	%	$	51,610,562	100	%	$	57,416,535	100	%

	For the Year Ended
	December 31,
Product Type	2024				2023				2022
Vapes	$	16,364,961	44	%	$	27,048,471	52	%	$	29,143,143	51	%
Edibles		15,890,826	43	%		15,125,799	29	%		15,810,094	28	%
Flower		1,572,919	4	%		5,193,884	10	%		4,865,629	8	%
Cartridges		3,263,221	9	%		4,135,941	8	%		7,471,666	13	%
Other		233,302	1	%		106,467	0	%		126,003	0	%
Net Sales	$	37,325,228	100	%	$	51,610,562	100	%	$	57,416,535	100	%

	For the Year Ended
	December 31,
Hemp vs Non-Hemp Product Sales	2024				2023				2022
Net sales of hemp products	$	35,049,148	94	%	$	48,064,790	93	%	$	55,694,039	97	%
Net sales of non-hemp products		2,276,080	6	%		3,545,772	7	%		1,722,496	3	%
Net Sales	$	37,325,228	100	%	$	51,610,562	100	%	$	57,416,535	100	%

	For the Year Ended
	December 31,
Geographic Market	2024				2023				2022
United States	$	37,325,228	100	%	$	51,610,562	100	%	$	57,414,822	100	%
International		-	0	%		-	0	%		1,713	0	%
Net Sales	$	37,325,228	100	%	$	51,610,562	100	%	$	57,416,535	100	%

Deferred Revenue

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

At December 31, 2024, total deferred revenue was $674,676, all of which is expected to be recognized as revenue in 2025. At December 31, 2023, total deferred revenue was $235,891, all of which was recognized as revenue in 2024. At December 31, 2022, total deferred revenue was $594,086, all of which was recognized as revenue in 2023.

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, 2024 and December 31, 2023.

	December 31, 2024		December 31, 2023
Contract Assets (invoiced but unfulfilled performance obligations)	$	340,585	$	131,304

Deposits from customers for unfulfilled orders		334,091		104,586

Total Deferred Revenue	$	674,676	$	235,891

Cost of Goods Sold

Cost of Goods Sold – Cost of goods sold primarily consist of the costs of raw goods utilized in the manufacture of products, direct labor, co-packing fees, freight and shipping charges, and certain quality control costs, such as lab testing costs. Cost of goods sold amounted to $24,570,399, $31,906,278 and $36,423,246 during the years ended December 31, 2024, 2023, and 2022, respectively. $1,550,599, $2,056,603 and $4,418,922 of cost of goods sold relates to spoiled and obsolete inventory written off during the years ended December 31, 2024, 2023 and 2022, respectively.

Operating Expenses

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

Total operating expenses increased to $13,528,293 for the year ended December 31, 2024, up from $17,294,095 for the year ended December 31, 2023, and up from $11,180,562 for the year ended December 31, 2022.

The primary driver for this increase in operating expenses from 2023 to 2024 was $1,469,078 of bad debt expense, which stems from the Company’s CECL Model analysis, which is described above, in the Accounts Receivable section. As described in ITEM 1A. RISK FACTORS, the delay in Lifted’s receipt of payments from certain customers—primarily distributors—have increasingly become an issue for Lifted. Certain customers have become slower to pay Lifted for purchased product (“Slow Paying Customers”), and the Slow Paying Customers disregard payment terms. Management speculates that some Slow Paying Customers may be slow-paying Lifted because of their own sales collection issues, which may in part be caused by the regulatory uncertainty over our industry. As described in the Accounts Receivable section above, the Company has an accounting protocol which effectively causes the Company to recognize an allowance for doubtful accounts for all invoices older than 90 days. Consequently, the delay in Lifted’s receipt of payments from certain customers has a direct impact on the Company’s net receivables, net income, and earnings per share.

The primary driver for the increase in operating expenses from 2022 to 2023 was that during the first quarter of 2023, the Company recognized a net loss after ten straight quarters of profitability, solely because of the impact of a one-time, non-cash stock compensation expense of $2,138,175, which, for the year ended December 31, 2023, was $1,666,155 on an after-tax basis. At the closing of the acquisition of Lifted in February 2020, 645,000 shares of unregistered common stock of the Company were designated as contingent deferred compensation (the “Deferred Contingent Stock”) to certain persons specified by NWarrender in a schedule delivered by him to the Company (the “Deferred Contingent Stock Recipients”), as an employee retention incentive. Now that certain conditions and requirements have been met, the Deferred Contingent Stock vested on February 24, 2023, and on this date, in accordance with US GAAP, the Company expensed the value of the vested Deferred Contingent Stock. This one-time, non-cash charge reduced net income for the year ended December 31, 2023 from $3,825,162 to $2,159,007. But for this charge, our Company would have reported a basic and fully diluted EPS of $0.26 and $0.23, respectively, for the year ended December 31, 2023.

Also driving the increase in operating expenses from 2022 to 2023 was the reporting of commissions and royalties expenses related to the collaborations with third parties, which amounted to $1,733,800 in 2023. These collaborations were not in place in 2022.

Income Taxes

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 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, 2024, 2023 and 2022:

	For the Years Ended
	December 31,
	2024			2023		2022
Net Income/(Loss)	$	(1,857,429	)	$	2,159,007	$	7,196,327

Weighted average number of common shares outstanding:
Basic		14,802,689			14,555,279		14,080,729
Diluted		14,802,689			16,439,477		15,862,927

Basic Net Income/(Loss) per Common Share	$	(0.13	)	$	0.15	$	0.51
Diluted Net Income/(Loss) per Common Share	$	(0.13	)	$	0.13	$	0.45

As of December 31, 2024, in addition to our outstanding common stock, we have issued warrants to purchase 2,280,000 shares of common stock at $5.00 per share, all of which are vested.

As of December 31, 2024, the Company had 2,500 shares of Series A Preferred Stock outstanding convertible into 250,000 shares of common stock.

As of December 31, 2024, the Company had 40,000 shares of Series B Preferred Stock outstanding convertible into 40,000 shares of common stock. There were also 142,000 shares of issuable Deferred Contingent Stock, issuable upon instruction by the respective Deferred Contingent Stock Recipients.

In comparison, as of December 31, 2023, in addition to our outstanding common stock, we have issued (a) options to purchase 1,076,698 shares of common stock at $2.00 per share, (b) warrants to purchase 155,500 shares of common stock at $1.00 per share, (c) rights to purchase warrants to purchase 100,000 shares of common stock at $1.85 per share, and (d) warrants to purchase 2,280,000 shares of common stock at $5.00 per share, all of which are vested.

At December 31, 2023, the Company had 2,500 shares of Series A Preferred Stock outstanding convertible into 250,000 shares of common stock.

At December 31, 2023, the Company had 40,000 shares of Series B Preferred Stock outstanding convertible into 40,000 shares of common stock. There were also 142,000 shares of issuable Deferred Contingent Stock, issuable upon instruction by the respective Deferred Contingent Stock Recipients. Reported as a current liability was the minimum number of shares of common stock (160,000) that would eventually be issued pursuant to the Oculus Merger Agreement.

Stock Buyback Transactions and Cancellations

On April 2, 2024, LFTD Partners signed a Stock Buyback Agreement to purchase 25,000 shares of common stock of the Company from a Lifted employee for $1.68 per share, for a total purchase price of $42,000. On April 3, 2024, all such 25,000 shares were purchased by the Company and immediately cancelled.

On April 8, 2024, LFTD Partners signed a Stock Buyback Agreement to purchase 18,000 shares of common stock of the Company from a Lifted employee for $1.68 per share, for a total purchase price of $30,240. On April 10, 2024, all such 18,000 shares were purchased by the Company and immediately cancelled.

On April 9, 2024, LFTD Partners signed a Stock Buyback Agreement to purchase 100,000 shares of common stock of the Company from a Lifted employee for $1.68 per share, for a total purchase price of $168,000. On April 10, 2024, all such 100,000 shares were purchased and immediately cancelled.

Recent Accounting Pronouncements

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

In addition, in November 2024, the FASB issued “ASU 2024-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40); Disaggregation of Income Statement Expenses”. ASU 2024-03 is effective for public business entities for annual periods beginning after December 15, 2026. The Company is currently evaluating the impact, if any, that the updated standard will have on the consolidated financial statements.

On November 27, 2023, the FASB issued ASU 2023-07-Segment Reporting. The new guidance was issued primarily to provide financial statement users with more disaggregated expense information about a public entity’s reportable segments. The guidance is effective for calendar year public entities in 2024 year-end financial statements, and as such was adopted by the Company in its 2024 year-end financial statements. Refer to the section Segment Disclosures above.

Advertising and Marketing Expenses

Advertising and Marketing Expenses – Advertising and marketing costs are expensed as incurred. During the year ended December 31, 2024, the Company incurred $1,155,067 in advertising and marketing expenses, which primarily related to trade shows, marketing campaigns, and promotional products. During the year ended December 31, 2023, the Company incurred $951,266 in advertising and marketing expenses, which primarily related to trade shows, marketing campaigns, and promotional products. 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.

Off Balance Sheet Arrangements

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

Reclassifications

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

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

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

Accounting for Operating and Finance Lease Right-of-Use Assets

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

Accounting for Goodwill

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

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

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

LFTD PARTNERS INC. 10-K