10-Q: LFTD Partners Reports Q2 Loss, Shifts to Non-Hemp Products

LFTD Partners Inc. reported a reduced net loss for the six months ended June 30, 2025, driven by a strategic shift towards non-hemp products and lower operating expenses, despite a slight dip in overall net sales.

Summary

• Net sales for the six months ended June 30, 2025, decreased by 3.5% to $19,449,186 from $20,153,948 in the prior year period.
• Gross profit declined by 21.2% to $5,463,787 for the six months ended June 30, 2025, compared to $6,938,281 in the same period last year.
• Operating expenses significantly decreased by 22.8% to $5,901,813 for the six months ended June 30, 2025, down from $7,643,360 in the prior year.
• The net loss for the six months ended June 30, 2025, improved to $(571,992) from $(1,664,216) in the comparable period of 2024.
• Basic and diluted net loss per common share improved to $(0.04) for the six months ended June 30, 2025, from $(0.11) in the prior year.
• The company experienced a $350,000 theft of USD Coin from a digital wallet on April 1, 2025, which has been reported to the FBI.
• Deferred revenue increased significantly to $1,666,672 as of June 30, 2025, from $674,676 at December 31, 2024, primarily due to shipment delays.
• Sales of non-hemp products surged to $9,341,735 (48% of net sales) for the six months ended June 30, 2025, from $548,109 (3% of net sales) in the prior year, while hemp product sales decreased.
• The company continues to face substantial doubt about its ability to continue as a going concern due to recurring losses and regulatory risks in the hemp industry.
• Material weaknesses in internal control over financial reporting, including a lack of segregation of duties and independent oversight, persist as of June 30, 2025.

Sentiment

Score: 4

Explanation: While the company showed improved net loss and a strategic shift towards non-hemp products, significant concerns remain regarding its 'going concern' status, material weaknesses in internal controls, a $350,000 theft, and ongoing regulatory pressures in its core hemp market. The revenue decline and gross profit erosion also temper optimism.

Positives

• Net loss significantly improved for both the three and six months ended June 30, 2025, compared to the prior year periods, indicating better cost control and reduced one-time losses.
• Operating expenses decreased substantially by 22.8% for the six months ended June 30, 2025, reflecting successful cost-cutting initiatives like employee layoffs and operational consolidation.
• Bad debt expense decreased significantly to $245,768 for the six months ended June 30, 2025, from $1,440,553 in the prior year, suggesting improved collections or more conservative credit policies.
• The company successfully shifted its product mix, with non-hemp product sales increasing dramatically to 48% of total sales, diversifying revenue streams away from the highly regulated hemp market.
• Elimination of the $1,349,467 loss related to the Jeeter collaboration in the prior year contributed to the improved net loss.
• Settlement income increased to $177,500 for the six months ended June 30, 2025, from $10,000 in the prior year, providing a positive financial impact.
• Net cash used in investing and financing activities decreased, indicating more efficient capital allocation and reduced reliance on external funding for these areas compared to the prior year.

Negatives

• Net sales decreased by 3.5% for the six months ended June 30, 2025, indicating a contraction in overall revenue.
• Gross profit declined by 21.2% for the six months ended June 30, 2025, suggesting pressure on pricing, increased production costs, or changes in product mix with lower margins.
• A $350,000 theft of USD Coin occurred on April 1, 2025, resulting in a direct financial loss and raising concerns about digital asset security.
• Net cash provided by operating activities decreased to $86,143 for the six months ended June 30, 2025, from $244,945 in the prior year, indicating weaker operational cash generation.
• Accounts receivable, net, increased to $4,007,602 as of June 30, 2025, from $2,358,823 at December 31, 2024, potentially indicating slower customer payments.
• The company continues to operate with an accumulated deficit of $4,546,395 as of June 30, 2025, and faces substantial doubt about its ability to continue as a going concern.
• Deferred revenue increased significantly due to shipment delays, which could indicate operational bottlenecks or customer fulfillment issues.
• The company reported material weaknesses in internal control over financial reporting, including a lack of segregation of duties, which poses significant financial reporting risks.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses, significant financial obligations, and regulatory risks.
• Potential federal legislation, such as a Bill currently under consideration by U.S. House and Senate Committees, could render the vast majority or all hemp-derived products containing THC illegal, materially adversely affecting sales and stock price.
• New state-level regulations, such as Tennessee's House Bill 1376 (effective 2026) and Alabama's new regulations (effective July 1, 2025), could significantly restrict the production and sale of hemp-derived products, impacting sales in key markets.
• Ongoing lobbying efforts in Texas and other states to prohibit or restrict sales of hemp-derived products pose a material adverse risk to future sales and stock price.
• The company faces vendor concentration risk and customer concentration risk, where the loss of key relationships could materially adversely affect business.
• Customer credit risk is significant, with delays in payments from distributors impacting cash flow and liquidity, potentially necessitating further adjustments to working capital strategies.
• The company is exposed to the risk of needing to write off obsolete raw goods and slow-moving finished goods due to the rapidly evolving nature of the industry and customer preferences, increasing cost of goods sold.
• The theft of $350,000 in USD Coin highlights cybersecurity risks and the potential for unrecoverable losses from digital asset holdings.
• The company's low visibility and trading volume for its common stock, coupled with an inability to satisfy listing requirements for a recognized stock exchange, could materially adversely affect its trading price.
• Legal proceedings, including class action lawsuits alleging misrepresentation of product cannabinoid content, pose financial and reputational risks.

Future Outlook

Management plans to sustain the company as a going concern by continuing to operate Lifted, acquiring and/or developing profitable businesses outside the hemp/marijuana industries, and completing private placements of common and/or preferred stock. The company is actively working to increase net sales and decrease operating expenses through initiatives like restructuring its sales team, consolidating operations, and developing hemp-free brands. However, the company acknowledges significant regulatory uncertainties in the hemp-derived products market, which could materially adversely affect future sales and stock price.

Management Comments

• "Management of the Company is primarily interested in acquiring companies operating outside of the hemp or marijuana industries, which have many regulatory risks."
• "We plan to sustain the Company as a going concern by taking the following actions: (1) continuing to operate Lifted; (2) acquiring and/or developing profitable businesses that will create positive income from operations; and/or (3) completing private placements of our common stock and/or preferred stock."
• "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."
• "Lifted has launched several initiatives in order to attempt to increase net sales and decrease operating expenses, including: laying off certain employees and independent contractors in Kenosha and Durango; restructuring its sales team; consolidating operations; developing the marketing and distribution networks of hemp-free brands including Rebel Energy Gummy, Mielos, and other brands and products; and increasing spending on marketing and advertising, and digital marketing."
• "Lifted has been de-emphasizing its collaboration efforts with outside brands due to the collaborations lack of traction in sales."
• "The Company is actively engaged in a comprehensive effort to remediate its material weaknesses in our internal control over financial reporting, but additional work is required, and no guarantee or assurance can be given as to when such work will be completed."

Industry Context

The company operates in a rapidly evolving and highly regulated industry, particularly concerning hemp-derived and psychoactive products. Increased regulatory scrutiny and potential prohibitions at federal and state levels (e.g., Tennessee, Alabama, Texas) are driving the company to diversify its product portfolio towards non-hemp offerings like Mielos and Rebel Energy Gummy. The shift away from collaborations with outside brands reflects a challenging market for such partnerships and a focus on internal brand development. The industry also faces intense competition, with distributors increasingly creating their own brands and offering lower price points, impacting the company's sales and market share.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Hernandez v Lifted Liquids: Putative class action in U.S. District Court for the Northern District of Illinois alleging underreported delta-9-THC in vape cartridge products, fraudulent misrepresentation, breach of implied warranty, and unjust enrichment. The company contends the lawsuit is without merit and is vigorously defending the action.
• Jessie Hooks v. Lifted Made, URB Cannabis, Barry Hollingsworth, Gerard Jacobs, Nicholas Warrender, and Pharmlabs, LLC: Plaintiff filed a second amended complaint in U.S. District Court for the Eastern District of Wisconsin alleging misrepresentation of various products. Earlier RICO claims and claims against individual defendants were dismissed with prejudice. The company is vigorously defending against the meritless claims and has filed a motion to dismiss.
• Lifted Liquids, Inc. v. Asad Awawdeh and Habib Cash and Carry SD, Inc.: The company has filed an action in California seeking to recover approximately $98,000 in damages for defendants' failure to pay for ordered products.
• Dispute with former insurance carrier: Lifted is currently in a dispute with a former insurance carrier, which may result in a lawsuit to recover a portion of premiums paid.
• Settlement Agreement with Chris Hillseth Enterprises Corporation and Ameri-Kal LLC: Resolved on April 28, 2025, with the company to recoup $177,500 in installments for equipment that did not work as represented.
• Dismissal of Loree Perry, Individually and on Behalf of All Others Similarly Situated v. Sheikhani Group, et al.: Plaintiff voluntarily dismissed the complaint without prejudice on March 8, 2025, which had alleged underreported delta-9-THC in vape cartridge products and illegal sales.

Related Party Transactions

• Lifted sold $5,038 worth of finished goods to Ablis during the six months ended June 30, 2025. LFTD Partners Inc. owns 4.99% of Ablis.
• Laurie Warrender, NWarrender's mother, was hired as an employee on December 30, 2024, with a salary of $5,000 per month. As of June 30, 2025, $441 in expense reimbursements were payable to her.
• Lifted purchased $1,260 worth of food from Mystic Foods LLC, a company owned by NWarrender's brother, during the quarter ended June 30, 2025.
• The company borrowed $350,000 from Beachin Company, an affiliate of the CEO (Gerard M. Jacobs) and CFO (William C. Jake Jacobs), on April 22, 2025. This interest-free loan is being repaid by reducing salary or bonuses otherwise due to the CEO and CFO.

Stakeholder Impact

• Shareholders: Face substantial dilution risk from potential future equity raises to address going concern issues. The low visibility and trading volume of common stock, coupled with regulatory risks, could adversely affect share price.
• Employees: Experienced layoffs of certain employees and independent contractors as part of cost-cutting and restructuring initiatives. Management bonus pool payments are contingent on achieving EBITDA targets and unanimous agreement.
• Customers: May experience shipment delays, as indicated by the increase in deferred revenue. Regulatory changes in key markets could restrict access to certain hemp-derived products.
• Suppliers: The company's vendor concentration risk means that the loss of key suppliers could disrupt operations.
• Creditors (Surety Bank): The company has significant financial obligations under its loan agreements, secured by assets, and faces a minimum depository balance requirement and debt service coverage ratio. A default could lead to seizure of collateral.
• Regulatory Authorities: The company is subject to ongoing scrutiny and potential new legislation/regulations, particularly concerning hemp-derived products, which could impact its business model and product offerings.

Next Steps

• Continue efforts to acquire and/or develop profitable businesses outside the hemp or marijuana industries.
• Implement further initiatives to increase net sales and decrease operating expenses, including developing hemp-free brands and optimizing marketing.
• Actively work to remediate material weaknesses in internal control over financial reporting.
• Pursue legal action to recover $98,000 in damages from Asad Awawdeh and Habib Cash and Carry SD, Inc. for unpaid products.
• Monitor and respond to ongoing legal proceedings, including the second amended complaint in Jessie Hooks v. Lifted Made, et al.
• Evaluate the impact of new and proposed federal and state legislation on hemp-derived products, particularly in Tennessee, Alabama, and Texas.
• Explore private placements of common and/or preferred stock to secure additional financing and address going concern issues.
• Continue cooperation with the FBI in the investigation of the $350,000 USD Coin theft.

Key Dates

Recommendation

While LFTD Partners demonstrated an improved net loss and a strategic shift towards less regulated non-hemp products, which are positive developments, the company still faces significant headwinds. The 'going concern' warning, persistent material weaknesses in internal controls, a recent $350,000 theft, and the highly uncertain and restrictive regulatory environment for its core hemp-derived products create substantial risk. The decline in net sales and gross profit also indicates ongoing operational challenges. Given the mix of improved financial performance in some areas and severe underlying risks, a 'hold' recommendation is appropriate. Investors should monitor the company's progress in addressing its internal control deficiencies, its ability to navigate regulatory changes, and its success in diversifying its product portfolio and achieving sustained profitability before considering further investment.

Keywords

Hemp-derived products, Cannabis industry, Psychoactive products, Vapes, Edibles, SEC filing, 10-Q, Financial results, Net loss, Operating expenses, Regulatory risk, Going concern, Internal controls, Theft, Related party transaction, Product diversification