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 $4,842,407 as of September 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 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 September 30, 2022 and December 31, 2021, as well as cash
flows for the nine months ended September 30, 2022 and 2021.
September 30, 2022 December 31, 2021
Current Assets $ 14,616,599 $ 13,152,696
Current Liabilities 6,573,881 11,906,270
Working Capital 8,042,718 1,246,426
For the Nine Months Ended
September 30,
2022 2021
Net Cash Provided by Operating Activities $ 3,536,595 $ 4,350,358
Net Cash Used in Investing Activities $ (656,381 ) $ (366,764 )
Net Cash Used In Financing Activities $ (131,987 ) $ (118,094 )
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Comparison of the balance sheet at September 30, 2022 to December 31, 2021
Total current assets at September 30, 2022 of $14,616,599 were adequate for us
to fund current operations; total current assets primarily consisted of
inventory of $6,344,677, cash on hand of $4,350,959, net accounts receivable of
$1,967,391, and prepaid expenses of $1,946,318. 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 as of June 30, 2022
reflected 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, then in the third
quarter, could be allocated toward the production of certain new products that
were under research and development for months. However, this research and
development took longer than expected. In addition, we experienced delays in the
supply of certain raw materials from China. Also, we experienced slower sales in
the second and third quarters of 2022, which we believe is attributable, at
least in part, to the seasonality of certain products.
As a result of all these factors, Lifted Made furloughed 69 of its lab and
production workers from August 15 through September 2, 2022, to allow our supply
chain to catch up. Following the completion of this furlough, certain of Lifted
Made's employees did not return to employment by Lifted Made, and certain of
Lifted Made's employees were terminated for cause during the third quarter of
2022. As of September 30, 2022, Lifted Made's employee and independent
contractor headcount was approximately 117.
As of September 30, 2022, inventory was valued at $6,344,677; this is after the
write off of $2,313,902 of certain Clogged Vapes which were determined to be
obsolete after random sampling of our inventory convinced us that the vast
majority of the Clogged Vapes were clogged and unsellable. Please refer to the
description in "Inventory" under NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES for more information regarding the Clogged Vapes. In
comparison, as of December 31, 2021, inventory was valued at $3,809,944.
At September 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 September 30, 2022 and December 31, 2021, our other assets
included our investments in Ablis, Bendistillery and Bend Spirits, which total
$1,896,200. At September 30, 2022, we also reported a net finance lease
right-of-use asset of $1,285,200, net fixed assets of $989,688, and a net
operating lease right-of-use asset of $525,942. 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 September 30, 2022, current liabilities of $6,573,881 primarily consisted of
accounts payable and accrued expenses of $5,168,054, deferred revenue of
$784,047 and income tax payable of $509,127. 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 $4,842,407 and $11,414,602 as of
September 30, 2022 and December 31, 2021, respectively.
Comparison of operations for the three and nine months ended September 30, 2022
to September 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 nine months ended September 30, 2022, net sales increased
to $11,237,277 and $46,102,656, respectively. As described above in the section
"Inventory" under NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES, during the quarter ended September 30, 2022, some of Lifted's
customers returned certain Clogged Vapes. In total for the quarter ended
September 30, 2022, the Company recorded a sales allowance of $841,269 for
estimated future discounts/refunds and product returns, primarily associated
with the Clogged Vapes. Please refer to the description in "Inventory" for more
information regarding the Clogged Vapes.
In comparison, during the three and nine months ended September 30, 2021, Lifted
recognized net sales of $8,820,952 and $18,869,366, respectively. Gross profit
for the three and nine months ended September 30, 2022 was $813,744 and
$16,861,640, respectively. In comparison, gross profit for the three and nine
months ended September 30, 2021 was $4,100,895 and $9,406,156, respectively.
During the three months ended September 30, 2022, hemp-derived products and
non-hemp-derived psychedelic products made up approximately 98% and 2% of
Lifted's sales, respectively. Similarly, during the nine months ended September
30, 2022, hemp-derived products and non-hemp-derived psychedelic products made
up approximately 98% and 2% of Lifted's sales, respectively. In comparison,
during the three months ended September 30, 2021, approximately 99% and 1% of
sales were generated from the sale of hemp and hemp-derived products and
e-liquid and disposable e-cigarettes, respectively. During the nine months ended
September 30, 2021, approximately 96% and 4% of sales were generated from the
sale of hemp and hemp-derived products and e-liquid and disposable e-cigarettes,
respectively.
During the three and nine months ended September 30, 2022, the Company expensed
$1,482,455 and $5,148,284, respectively, related to payroll, consulting and
independent contractor expenses; this is up from $803,796 and $1,902,320,
respectively, in payroll, consulting and independent contractor expenses during
the three and nine months ended September 30, 2021. Year-over-year, Lifted has
increased 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 September 30, 2022, the
bonus payable to the Chief Strategy Officer totaled $261,864.
Pursuant to the Amended Omnibus Agreement, the 2022 company-wide bonus pool
shall not be allowed to be accrued or paid by the Company if and to the extent
that doing so would decrease LIFD's 2022 diluted earnings per share of common
stock below $0.56 per share. As of September 30, 2022, the Company did not meet
the diluted earnings per share of common stock requirement of $0.42 per share
($0.56 x 3/4), and as a result, the Company eliminated the company-wide bonus
pool accrual of $2,121,532, which had been accrued through June 30, 2022.
Moreover, no company-wide management bonus pool accrual was booked for the
quarter ended September 30, 2022.
In comparison, the Company recognized a company-wide management bonus pool
expense of $400,000 and $1,559,335 for the three months and nine months ended
September 30, 2021, respectively.
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Driven by increased sales, bank charges and merchant fees increased to $106,845
and $372,351 during the three and nine months ended September 30, 2022,
respectively, up from $104,485 and $289,111 during the three and nine months
ended September 30, 2021, respectively.
During the three and nine months ended September 30, 2022, the Company incurred
$334,215 and $550,612, respectively, in advertising and marketing expenses,
which related to trade shows, marketing, promotional products and public
relations. In comparison, during the three and nine months ended September 30,
2021, the Company incurred $86,438 and $236,598 in advertising and marketing
expenses, of which were related to trade shows, public relations and digital
marketing.
Bad debt expense reflects a net benefit of $11,898 and $75,107 during the three
and nine months ended September 30, 2022, respectively, compared to a net
expense of $61,449 and $81,621 during the three and nine months ended September
30, 2021, respectively. As of December 31, 2021, the Company implemented a new,
conservative accounting policy regarding allowances for doubtful accounts, which
is that all accounts receivable older than 90 days at quarter end are accrued
for in allowances for doubtful accounts. The benefit recognized for bad debt
expense in the third quarter of 2022 of $11,898 is due to improved collections
in the quarter and an improved receivables aging at the end of the quarter.
Other operating expenses increased to $377,416 and $1,288,486 during the three
and nine months ended September 30, 2022, respectively, from $170,820 and
$350,985 during the three and nine months ended September 30, 2021,
respectively. Other operating expenses include, for example, lease expenses,
office expenses, insurance expenses, health expenses, software expenses, excise
taxes, lobbying, lab testing, lab supplies, dues and subscriptions, meals and
entertainment, repairs and maintenance, and state license & filing fees.
During the quarter ended September 30, 2022, total, non-operating net Other
Expenses of $47,758 primarily consisted of interest expense of $37,181, loss on
disposal of fixed assets of $8,243 and penalties of $4,461. In comparison,
during the quarter ended September 30, 2021, total, non-operating net Other
Expenses of $81,859 primarily consisted of the loss from Lifted Made's 50%
membership interest in SmplyLifted of $44,858 and interest expense of $35,368.
During the nine months ended September 30, 2022, total, non-operating net Other
Income of $6,462 primarily consisted of interest expense of $95,839 offset by
settlement income of $108,570. In comparison, during the nine months ended
September 30, 2021, total, non-operating net Other Expenses of $84,702 primarily
consisted of interest of $107,113, the loss from Lifted Made's 50% membership
interest in SmplyLifted of $95,399 and loss on deposits of $30,000, offset by
gain on forgiveness of debt of $151,147.
During the quarter ended September 30, 2022, the Company recognized net income
of $423,486. In comparison, during the quarter ended September 30, 2021, the
Company recognized net income of $2,236,178.
During the nine months ended September 30, 2022, the Company recognized net
income of $6,587,739. In comparison, during the nine months ended September 30,
2021, the Company recognized net income of $4,450,690.
Net cash provided by operating activities was $3,536,595 and $4,350,358 for the
nine months ended September 30, 2022, and September 30, 2021, respectively.
During the nine months ended September 30, 2022, net cash provided by operating
activities was primarily generated from net income of $6,587,739; cash was
primarily used for the purchase of inventory. Net cash provided by operating
activities during the nine months ended September 30, 2021 was primarily
generated from net income of $4,450,690; cash during this period was also
primarily used for the purchase of inventory.
Net cash used in investing activities was $656,381 and $366,764 during the nine
months ended September 30, 2022 and September 30, 2021, respectively. Net cash
used in investing activities during the nine months ended September 30, 2022
related to the net purchase of fixed assets. Net cash used in investing
activities during the nine months ended September 30, 2021 also primarily
related to the purchases of fixed assets.
During the nine months ended September 30, 2022, net cash used in financing
activities was $131,987. On December 30, 2021, the Company repaid all principal
and interest due under the $3.75M Note.
NWarrender kept $1,000,000 of the repayment of the $3.75M Note, plus accrued
interest, and on January 3, 2022, reloaned $2,750,000 to LIFD and Lifted
(collectively "Payors") at the rate of 2.5% (the "$2.75M Note"). The $2.75M Note
payable jointly by the Company and Lifted to NWarrender was secured by a
perfected first lien security interest (the "Security Interest") that encumbers
all of the assets of the Company and Lifted. The Company was obligated to pay
off the principal of the $2.75M Note in five semi-annual payments to NWarrender
of $458,333 and a sixth and final semi-annual payment to NWarrender of $458,335,
in each case plus accrued interest, starting on June 30, 2022.
On June 7, 2022, LFTD Partners prepaid $916,666 of the principal of the $2.75M
Note, and $29,384 of related accrued interest through that date, which left
$1,833,334 remaining principal on the $2.75M Note. On July 5, 2022, we entered
into an agreement ("Acceleration Agreement") with NWarrender. Under the terms of
the Acceleration Agreement, we were obligated to repay the remaining principal
balance as follows: $1,374,999 on or before December 31, 2022, and $458,335 on
or before December 31, 2024. Then, on July 8, 2022, we prepaid $916,666, along
with accrued interest, and then, on July 25, 2022, we prepaid the remaining
principal balance of $916,668 and accrued interest in full, and all collateral
securing the $2.75M Note was released.
Also, net cash used in financing activities was driven by the purchase of
$150,000 worth of common stock, and payments of dividends to the holders of the
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock
totaling $21,647, offset by $50,000 received from the exercise of a warrant. In
comparison, during the nine months ended September 30, 2021, $118,094 net cash
was used in financing activities, primarily to make dividend payments totaling
$209,532 to holders of the Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock, and to purchase $34,200 worth of shares of common
stock, offset by $142,024 in proceeds from the exercise of warrants.
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During the nine months ended September 30, 2022, net cash increased by
$2,748,228, and we had $4,350,959 in unrestricted cash at September 30, 2022. In
comparison, during the nine months ended September 30, 2021, cash increased by
$3,865,500, and we had $4,304,580 in unrestricted cash at September 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 September 30, 2022
of $4,842,407. 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 nine
months ended September 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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