As used in this Form 10-Q, references to the "Company," "LFTD Partners," "LIFD,"
"we," "our" or "us" refer to LFTD Partners Inc. and Lifted, unless the context
otherwise indicates.
Prior to the acquisition of Lifted on February 24, 2020, LFTD Partners Inc.,
formerly known as Acquired Sales Corp., had no sources of revenue, and LFTD
Partners Inc. had a history of recurring losses, which has resulted in an
accumulated deficit of $5,260,977 as of June 30, 2022. LFTD Partners Inc. has
Preferred Stock outstanding that is currently accruing dividends at the rate of
3% per year, and has certain bonuses and our company-wide bonus pool being
accrued. These matters raise substantial doubt about our ability to continue as
a going concern.
This Management's Discussion and Analysis ("MD&A") section discusses our results
of operations, liquidity and financial condition and certain factors that may
affect our future results. You should read this MD&A in conjunction with our
financial statements and accompanying notes included elsewhere in this report.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are considered
forward-looking statements. Forward-looking statements give the Company's
current expectations and forecasts of future events. All statements other than
statements of current or historical fact contained in this quarterly report,
including statements regarding the Company's future financial position, business
strategy, budgets, projected costs and plans and objectives of management for
future operations, are forward-looking statements. The words "anticipate,"
"believe," "continue," "estimate," "expect," "intend," "may," "plan," and
similar expressions, as they relate to the Company, are intended to identify
forward-looking statements. These statements are based on the Company's current
plans, and the Company's actual future activities and results of operations may
be materially different from those set forth in the forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from the statements made. Any or
all of the forward-looking statements in this annual report may turn out to be
inaccurate. The Company has based these forward-looking statements largely on
its current expectations and projections about future events and financial
trends that it believes may affect its financial condition, results of
operations, business strategy and financial needs. The forward-looking
statements can be affected by inaccurate assumptions or by known or unknown
risks, uncertainties and assumptions. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events occurring
after the date hereof. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements contained in
this quarterly report.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes that appear in our annual report on Form 10-K filed
with the U.S. Securities and Exchange Commission ("SEC") on March 31, 2022. In
addition to historical consolidated financial information, the following
discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Certain information included herein contains
statements that may be considered forward-looking statements, such as statements
relating to our anticipated revenues and operating results, future performance
and operations, plans for future expansion, capital spending, sources of
liquidity and financing sources. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future, and accordingly, such results may differ from those
expressed in any forward-looking statements made herein. These risks and
uncertainties include the "Risk Factors" included herein and in our annual
report on Form 10-K filed with the SEC on March 31, 2022, that can be read at
www.sec.gov.
Overview
Please refer to "NOTE 1 - DESCRIPTION OF THE BUSINESS OF LFTD PARTNERS INC." for
information.
Liquidity and Capital Resources
The following table summarizes our current assets, current liabilities and
working capital as of June 30, 2022 and December 31, 2021, as well as cash flows
for the six months ended June 30, 2022 and 2021.
June 30, 2022 December 31, 2021
Current Assets $ 19,678,947 $ 13,152,696
Current Liabilities 9,394,627 11,906,270
Working Capital 10,284,320 1,246,426
For the Six Months Ended
June 30,
2022 2021
Net Cash Provided by (Used in) Operating Activities $ 529,492 $ 2,340,724
Net Cash Used in Investing Activities $ (85,297 ) $ (306,175 )Net Cash Provided By (Used In) Financing Activities $ 1,704,217 $ (244,573 )
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Comparison of the balance sheet at June 30, 2022 to December 31, 2021
Total current assets at June 30, 2022 of $19,678,947 were adequate for us to
fund current operations; total current assets primarily consisted of inventory
of $10,049,245, cash on hand of $3,751,144, net accounts receivable of
$3,029,258, and prepaid expenses of $2,842,047. In comparison, consolidated
current assets of $13,152,696 at December 31, 2021 primarily consisted of
prepaid expenses of $4,262,237, inventory of $3,809,944, net accounts receivable
of $3,461,499, and cash on hand of $1,602,731.
The buildup of our inventory to the level of $10,049,245 at June 30, 2022,
reflects our strategy to have enough of our current product lineup on hand to
meet anticipated customer demand, but also to try to schedule our production so
that a significant portion of our lab and production staff could be allocated
toward the production of certain new products that have been under research and
development for months. However, this research and development took longer than
expected. In addition, we have experienced delays in the supply of certain raw
materials from China. Also, we have experienced slower sales in the second
quarter and in the first half of the third quarter of 2022, which we believe is
attributable, at least in part, to the seasonality of certain products. As a
result of all these factors, as of the date of this report, Lifted Made has
decided to furlough 69 of its lab and production workers for three weeks in
August and early September 2022, to allow our supply chain to catch up. It is
currently unclear what if any impact these furloughs will have on our financial
results for the third and fourth quarters of 2022, other than temporarily
reducing our labor costs.
At June 30, 2022 and December 31, 2021, our other assets primarily included
goodwill of $22,292,767 related to the acquisition of Lifted on February 24,
2020. Also, at both June 30, 2022 and December 31, 2021, our other assets
included our investments in Ablis, Bendistillery and Bend Spirits, which total
$1,896,200. At June 30, 2022, we also reported a net finance lease right-of-use
asset of $1,296,000, net fixed assets of $460,808, and a net operating lease
right-of-use asset of $266,625. In comparison, at December 31, 2021, we reported
a net finance lease right-of-use asset of $1,227,532, net fixed assets of
$433,213, and a net operating lease right-of-use asset of $76,412.
At June 30, 2022, current liabilities of $9,394,627 primarily consisted of
accounts payable and accrued expenses of $5,138,910, income tax payable of
$985,932, deferred revenue of $633,729, the current portion of the note payable
to NWarrender of $458,335, and a company-wide management bonus pool accrual of
$2,121,532. In comparison, current liabilities as of December 31, 2021 of
$11,906,270 primarily consisted of accounts payable and accrued expenses of
$4,671,382, deferred revenue of $2,174,393, a company-wide bonus accrual of
$1,556,055, current finance lease liability of $1,262,260, income tax payable of
$1,242,974 and $941,562 in accrued management bonuses payable to GJacobs and
WJacobs.
The Company had an accumulated deficit of $5,260,977 and $11,414,602 as of June
30, 2022 and December 31, 2021, respectively.
Comparison of operations for the three and six months ended June 30, 2022 to
June 30, 2021
On February 24, 2020, we acquired 100% of the ownership interests of Lifted. All
of our sales are generated by our wholly-owned subsidiary Lifted; LFTD Partners
as an entity by itself generates no sales. We also do not recognize any revenue
or earnings from our investments in Bendistillery, Ablis or Bend Spirits.
During the three and six months ended June 30, 2022, net sales increased to
$16,776,502 and $34,865,379, respectively. In comparison, during the three and
six months ended June 30, 2021, Lifted recognized net sales of $6,695,144 and
$10,048,414, respectively. Gross profit for the three and six months ended June
30, 2022 was $8,062,912 and $16,047,896, respectively. In comparison, gross
profit for the three and six months ended June 30, 2021 was $3,659,515 and
$5,305,262, respectively.
During the three and six months ended June 30, 2022, hemp-derived products and
non-hemp-derived psychedelic products made up 98% and 97% of Lifted's sales,
respectively. In comparison, during the three months ended June 30, 2021,
approximately 95% of sales were generated from the sale of hemp and hemp-derived
products, and 5% of sales were generated from the sale of e-liquid and
disposable e-cigarettes.
During the three and six months ended June 30, 2022, the Company expensed
$1,811,678 and $3,665,829, respectively, related to payroll, consulting and
independent contractor expenses; this is up from $791,000 and $1,098,524,
respectively, in payroll, consulting and independent contractor expenses during
the three and six months ended June 30, 2021. Lifted has been dramatically
increasing the size of its workforce, including production, fulfillment and
sales people, and in conjunction with these increases, Lifted's payroll,
consulting and independent contractor expenses have increased significantly. In
addition, Lifted's Chief Strategy Officer, who was hired on July 1, 2021, has
developed and implemented certain important strategies which have assisted
Lifted's efforts to increase its production, fulfillment and sales capabilities.
The Chief Strategy Officer's two-year agreement with Lifted entitles such
employee to be paid an annual salary of $180,000 plus a bonus equal to 5% of
total net sales for Lifted in excess of $6,000,000 per quarter. At June 30,
2022, the bonus payable to the Chief Strategy Officer totaled $538,825.
During the three and six months ended June 30, 2022, the Company expensed
$1,152,162 and $2,121,532, respectively, related to the company-wide management
bonus pool. In comparison, the Company recognized a company-wide management
bonus pool expense of $816,388 and $1,159,335 for the three months and six
months ended June 30, 2021, respectively.
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Driven by increased sales, bank charges and merchant fees increased to $132,470
and $265,507 during the three and six months ended June 30, 2022, respectively,
up from $118,055 and $184,625 during the three and six months ended June 30,
2021, respectively.
During the three and six months ended June 30, 2022, the Company incurred
$110,797 and $216,397, respectively, in advertising and marketing expenses,
which primarily related to trade shows, marketing, and the cost of promotional
items. In comparison, during the three and six months ended June 30, 2021, the
Company incurred $98,133 and $150,160 in advertising and marketing expenses,
which primarily related to marketing displays, public relations, and search
engine optimization.
Bad debt expense reflects a net benefit of $311,209 and $63,209 during the three
and six months ended June 30, 2022, respectively, compared to a net expense of
$19,196 and $20,173 during the three and six months ended June 30, 2021,
respectively.
Other operating expenses increased to $528,608 and $911,070 during the three and
six months ended June 30, 2022, respectively, from $99,773 and $180,167 during
the three and six months ended June 30, 2021, respectively. Other operating
expenses include, for example, lab supplies, dues and subscriptions, meals and
entertainment, insurance expenses, repairs and maintenance, and state license &
filing fees.
During the quarter ended June 30, 2022, total, non-operating net Other Income of
$82,385 primarily consisted of interest expense of $26,928 offset by a
settlement income of $108,570. In comparison, during the quarter ended June 30,
2021, total, non-operating net Other Income of $39,291 primarily consisted of
gain on forgiveness of debt of $151,147 offset by the loss from Lifted Made's
50% membership interest in SmplyLifted of $43,330, interest expense of $35,398,
and loss on deposit of $30,000.
During the six months ended June 30, 2022, total, non-operating net Other Income
of $54,220 primarily consisted of interest expense of $58,658 offset by
settlement income of $108,570. In comparison, during the six months ended June
30, 2021, total, non-operating net Other Expenses of $2,843 primarily consisted
of gain on forgiveness of debt of $151,147 offset by the loss from Lifted Made's
50% membership interest in SmplyLifted of $50,541, interest expense of $71,745,
and loss on deposit of $30,000.
During the quarter ended June 30, 2022, the Company recognized net income of
$3,219,460. In comparison, during the quarter ended June 30, 2021, the Company
recognized net income of $1,596,154.
During the six months ended June 30, 2022, the Company recognized net income of
$6,164,253. In comparison, during the six months ended June 30, 2021, the
Company recognized net income of $2,214,512.
Net cash provided by operating activities was $529,492 and $2,340,724 for the
six months ended June 30, 2022, and June 30, 2021, respectively. During the six
months ended June 30, 2022, net cash provided by operating activities was
primarily generated from net income of $6,164,253; cash was primarily used for
the purchase of inventory. Net cash provided by operating activities during the
six months ended June 30, 2021 was primarily generated from net income of
$2,214,512.
Net cash used in investing activities was $85,297 and $306,175 during the six
months ended June 30, 2022 and June 30, 2021, respectively. Net cash used in
investing activities during the six months ended June 30, 2022 related to the
net purchase of fixed assets. Net cash used in investing activities during the
six months ended June 30, 2021 primarily related to primarily to $227,743 for
purchases of fixed assets and $93,750 of loans extended to SmplyLifted LLC.
During the six months ended June 30, 2022, net cash provided by financing
activities was $1,704,217, primarily driven by the proceeds of the $2.75M Note,
which was primarily offset by the purchase of common stock and a total $916,666
early repayment of the $2.75M Note. Net cash used in financing activities was
$244,573 during the six months ended June 30, 2021; this cash was used primarily
to make dividend payments of $199,186 and $5,844 to holders of the Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock,
respectively; also, $34,200 was used to purchase 36,000 shares of common stock.
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During the six months ended June 30, 2022, net cash increased by $2,148,413, and
we had $3,751,144 in unrestricted cash at June 30, 2022. In comparison, during
the six months ended June 30, 2021, cash increased by $1,789,976, and we had
$2,229,056 in unrestricted cash at June 30, 2021.
Prior to the acquisition of Lifted on February 24, 2020, the Company had a
history of losses as evidenced by the accumulated deficit at June 30, 2022 of
$5,260,977. 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. We believe that by taking these actions, we will be provided
with sufficient future operations and cash flow to continue as a going concern.
However, there can be no assurance that we will be successful in consummating
such actions on acceptable terms, if at all. Moreover, many of such actions can
be expected to result in substantial dilution to the existing shareholders of
the Company.
Critical Accounting Policies
Critical accounting policies are discussed in "NOTE 2 - BASIS OF PRESENTATION
AND SIGNIFICANT ACCOUNTING POLICIES."
SmplyLifted LLC
Please refer to "NOTE 8 - NOTES RECEIVABLE".
Tax Provision
Please refer to "NOTE 15 - INCOME TAXES" for more information about the
Company's quarterly tax provision.
Other Matters
We may be subject to other legal proceedings, claims, and litigation arising in
the ordinary course of business in addition to the matters discussed above in
"NOTE 13 - LEGAL PROCEEDINGS". We intend to vigorously pursue and defend such
litigation. Although the outcome of these other matters is currently not
determinable, our management does not expect that the ultimate costs to resolve
these matters will have a material adverse effect on our Company's financial
position, results of operations, or cash flows.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted, and may continue to result, in significant
economic disruption despite progress made in recent months in the development
and distribution of vaccines. It has already disrupted Lifted's operations,
global travel and supply chains, and adversely impacted global commercial
activity. Considerable uncertainty still surrounds COVID-19, the evolution and
future impact of its variants, its potential long-term economic effects, as well
as the effectiveness of any responses taken by government authorities and
businesses and of various efforts to inoculate the global population. The travel
restrictions, limits on hours of operations and/or closures of non-essential
businesses, and other efforts to curb the spread of COVID-19 have significantly
disrupted business activity globally and there is uncertainty as to if and when
these disruptions will fully subside.
Significant uncertainty continues to exist concerning the impact of the COVID-19
pandemic on Lifted's, our customers' and target companies' business and
operations in future periods. Although our total revenues for the three and six
months ended June 30, 2022 were not materially impacted by COVID-19, we believe
that our revenues may be negatively impacted in future periods until the effects
of the pandemic have fully subsided and the current macroeconomic environment
has substantially recovered. The uncertainty related to COVID-19 may also result
in increased volatility in the financial projections we use as the basis for
estimates and assumptions used in our financial statements. We have made some
efforts to try to adapt our operations to meet the challenges of this uncertain
and rapidly evolving situation, including expanding operations in areas where we
perceive government restrictions on business operations are relatively less
burdensome, and focusing some of our new product development in areas where we
perceive government restrictions and prohibitions on hemp-derived cannabinoid
products are relatively less likely. The COVID-19 pandemic and its
ramifications, including Illinois Governor Pritzker's Executive Order in
response to the pandemic, materially damaged Lifted's business, among other
things by disrupting Lifted's access to its employees, suppliers, packaging,
distributors and customers. That is why Lifted applied for and received funding
under the federal Economic Injury Disaster Loan program and the federal Paycheck
Protection Program.
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Effects of the COVID-19 pandemic that may negatively impact our business in
future periods include, but are not limited to: disruptions of Lifted's
workforce; limitations on the ability of our customers to conduct their
business, purchase our products, and make timely payments? curtailed consumer
spending? deferred purchasing decisions? supply chain problems and delays, and
changes in demand from retail customers. We will continue to actively monitor
the nature and extent of the impact to our business, operating results, and
financial condition.
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LFTD PARTNERS INC. 
