NOTE 9 – SHAREHOLDERS’ EQUITY AND STOCK BASED COMPENSATION

Issuance of Series A Convertible Preferred Stock

The Company has authorized 400,000 shares of its Series A Convertible Preferred Stock, each convertible into 100 shares of common stock. The Series A Preferred Stock accrues cumulative dividends at 3% annually and has no voting rights. The shares are voluntarily convertible by the holder and are subject to mandatory conversion at the Company’s option upon the satisfaction of specified trading price and volume thresholds. As of June 30, 2026 and December 31, 2025, 63,650 shares of Series A Preferred Stock had previously been converted into 6,365,000 shares of common stock. No conversions occurred during the three or six months ended June 30, 2026, or 2025. As of June 30, 2026 and December 31, 2025, 2,500 shares remain outstanding, convertible into 250,000 shares of common stock. Accrued dividends payable were $1,547 as of June 30, 2026, and $5,328 at December 31, 2025. Cash dividends paid totaled $4,500 and $7,500 during each of the three and six months ended June 30, 2026. In comparison, during the three and six months ended June 30, 2025, a total of $4,500 and $7,500, respectively, of cash dividends were paid to the Series A Convertible Preferred Stock holders.

Issuance of Series B Convertible Preferred Stock

The Company has authorized 5,000,000 shares of its Series B Convertible Preferred Stock, each convertible into one share of common stock. The Series B Preferred Stock accrues cumulative dividends at 3% annually and has no voting rights. The shares are voluntarily convertible by the holder and are subject to mandatory conversion at the Company’s option upon the satisfaction of specified trading price and volume thresholds. As of June 30, 2026 and December 31, 2025, 60,000 shares of Series B Preferred Stock had previously been converted into 60,000 shares of common stock. No conversions occurred during the three or six months ended June 30, 2026, or 2025. As of June 30, 2026 and December 31, 2025, 40,000 shares remain outstanding, convertible into 40,000 shares of common stock. Accrued dividends payable were $4,771 as of June 30, 2026, and $1,796 at December 31, 2025. During the three and six months ended June 30, 2026 and 2025, no cash dividends were paid to the Series B Convertible Preferred Stock holders.

Share-Based Compensation

In connection with the acquisition of Lifted, 645,000 shares of unregistered common stock were designated as contingent deferred compensation (the “Deferred Contingent Stock”) to individuals identified at closing. Beginning February 24, 2023, shares were issued to recipients as the applicable conditions were satisfied. Due to the restricted nature and limited marketability of the Company’s common stock, third-party valuation firms were engaged to determine appropriate discounts for financial reporting and tax purposes using the Finnerty Protective Put Model. For financial reporting purposes, a 22% discount for lack of marketability was applied to the 645,000 shares as of February 24, 2023, resulting in recognition of $2,138,175 of stock-based compensation expense. For tax reporting purposes, discounts ranging from 23% to 31% were applied to shares issued during 2023, and a 27% discount was applied to the 93,000 shares issued on September 21, 2023. As of June 30, 2026 and 2025, 142,000 shares of Deferred Contingent Stock remained issuable upon recipient instruction. 

Options and Warrants

As of June 30, 2026 and December 31, 2025, the Company did not have any options or warrants outstanding.

Other Agreements

In connection with the Company’s acquisition of Lifted (the “Lifted Merger”), pursuant to the Lifted Merger Agreement, the Company entered into several material agreements with CEO Gerard M. Jacobs (“GJacobs”), COO Nicholas S. Warrender (“NWarrender”) and President and CFO William Jacobs (“WJacobs”).

Registration Rights Agreement

Pursuant to a Registration Rights Agreement, NWarrender was granted demand and piggyback registration rights with respect to the 3,900,455 shares of the Company’s common stock received as stock consideration in connection with the Company’s acquisition of Lifted. Subject to certain limitations, NWarrender may request registration of all or a portion of such shares beginning on the 120th day following the merger closing. The Company is required to file a registration statement within ten days of receiving such a request but may defer the filing or effectiveness for up to 180 days under specified circumstances. The registration rights terminate when no registrable shares remain outstanding.

Stockholders Agreement

At the closing of the Lifted Merger, NWarrender, GJacobs, and WJacobs entered into a Stockholders Agreement under which they agreed to vote all shares of Company common stock now or hereafter held by them in accordance with unanimous agreement among the three on certain corporate matters, including the election and removal of directors, amendments to charter documents, compensation decisions, acquisitions and divestitures, and capital raising activities.

Executive Employment Agreements

Concurrent with the Lifted Merger closing, the Company entered into five-year, automatically renewing Executive Employment Agreements with NWarrender (Vice Chairman, Chief Operating Officer of the Company, and Chief Executive Officer of Lifted), GJacobs (Chairman, Chief Executive Officer, and Secretary), and WJacobs (President, Chief Financial Officer, and Treasurer).