The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2021. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See "Cautionary Statement Regarding Forward Looking Information'' elsewhere in this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.





Overview

We own and operate CNP Operating, a leading CBD manufacturer vertically integrated with a 360 degree approach to the processing of high quality CBD products designed for growers, pharmaceutical, wellness providers, and retailers' needs, and a cannabis industry focused sponsored content and marketing business, or the CFN Business. Our ongoing operations currently consist primarily of CNP Operating and the CFN Business and we will continue to pursue strategic transactions and opportunities. We are currently in the process of launching an e-commerce network focused on the sale of general wellness CBD products.

CNP Operating provides toll processing services which includes extraction, distillation, remediation, isolation and chromatography. CNP Operating has a professional, organized and dedicated team with 30 years of combined experience. CNP Operating's state of the art facility has 30,000 square feet filled with proprietary technology distillation equipment, in house lab testing, distribution warehouse and white labelling product formulation and design.

The CFN Business generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis industry, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.

The CFN Business' primary expenses come from advertising on platforms like Twitter and Facebook and from employee salaries and contractor fees. The CFN Business' content is primarily produced by a team of freelance writers and video content is produced through various vendors. The CFN Business also incurs hosting and development costs associated with maintaining and improving its website, web applications, and mobile applications. The CFN Business operates several media platforms, including CannabisFN.com, the CannabisFN iOS app, the CFN Media YouTube channel, the CFN Media podcast, and other venues. These properties are designed to educate and inform investors interested in the cannabis industry, as well as provide a platform for the clients of the CFN Business to reach investors. The CFN Business distributes content across numerous online platforms, including the CannabisFN.com website, press releases, financial news syndicates, search engines, YouTube, iTunes, Twitter, Instagram, Facebook, LinkedIn, and others.

The CFN Business targets the legal cannabis industry. According to Grand View Research, the global cannabis industry is expected to reach $146.4 billion by 2025, driven by the legalization of medical and adult-use cannabis across a growing number of jurisdictions. According to the Marijuana Index, there are approximately 400 public companies involved in the cannabis industry, which represents the primary target market of the CFN Business. The CFN Business' services are designed to help private companies prepare to go public and public companies grow their shareholder base through sponsored content and marketing outreach. The success of the CFN Business depends on the legal status of cannabis, investor demand for cannabis investments, and numerous other external factors.

The CFN Business competes with other public relations firms for clients, as well as online publishers for investors. Public relations competition includes investor awareness firms like Stockhouse Publishing, Catalyst Xchange, Stonebridge Partners and Midan Ventures. Online publisher competition includes firms like New Cannabis Ventures, Leafly and High Times. The CFN Business is regulated by rules established by the SEC, FINRA, and certain federal and state cannabis regulations

Our corporate website is: www.cfnenterprisesinc.com, the contents of which are not part of this quarterly report.

Our Common Stock is quoted on the OTCQB Marketplace under the symbol "CNFN."

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Results of Operations for the Three Months Ended June 30, 2022 and 2021

The following are the results of our operations for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021:





                                                 Three Months Ended
                                                      June 30,
                                                 2022            2021           Change

Net revenues                                $1,468,373       $291,126       $1,177,247
Cost of revenue                             2,117,165        90,519         2,026,646
           Gross profit (loss)              (648,792)        200,607        (849,399)

Operating expenses:

Selling, general and administrative 784,174 340,495 443,679


           Total operating expenses         784,174          340,495        443,679

Loss from operations                        (1,432,966)      (139,888)      (1,293,078)

Other income (expense):


    Loss on extinguishment of debt          -                (120,000)      120,000
    Gain on property and equipment          87,933           -              87,933
    Unrealized loss on marketable
    securities                              (19,494)         8,420          (27,914)
    Interest expense                        (106,071)        (16,478)       (89,593)
    Interest income                         7                5              2
    Other income                            3,772            -              3,772
           Total other income (expense),
           net                              (33,853)         (128,053)      94,200

Provision for income taxes                  -                -              -
Net loss                                    $(1,466,819)     $(267,941)     $(1,198,878)




Net Revenues

The Company's revenues are generated from the sale of promotional service packages to customers ranging from 3 to 6 months. The Company offers different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity.

During the three months ended June 30, 2022, the Company realized $77,420 of campaign revenue compared to $278,328 in 2021. The decrease was primarily due to a shift in efforts in 2022 to the CNP Operating business.

During the three months ended June 30, 2022, the Company's subsidiary CNP Operating generated revenue of $1.4 million from the sale of products produced from hemp material and manufactured into CBD distillate.





Cost of Revenue

The costs of revenue consist primarily of labor, fees paid for production of content for clients and the costs of placement of the content on various platforms. In 2022, the contracts required less production services and related labor than the contracts in 2021. As a result, the cost of revenue in 2022 was lower as a percentage of the revenue recognized during the quarter.

The Company's cost of revenue for the three months ended June 30, 2022 were higher than those in the corresponding year in 2021 due largely to the acquisition of CNP Operating which represented approximately $2.2 million of cost of revenue which primarily represents the cost of hemp material, manufacturing material such as solvent, fuel and equipment depreciation.





Operating Expenses

The Company's operating expenses for the three months ended June 30, 2022 were higher than those in the corresponding three months in 2021 due largely to the acquisition of CNP Operating in August 2021.

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Other Income/Expense

Other expenses during the first three months of 2022 were primarily due to interest expense related to notes payable and amortization of debt discount. In 2022, the Company recorded a $87,933 gain on the sale of property and equipment.

The Company also recorded a $19,494 unrealized loss on marketable securities in 2022 an unrealized gain of $8,420 in 2021.

Results of Operations for the Six Months Ended June 30, 2022 and 2021

The following are the results of our operations for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021:





                                                             Six Months Ended
                                                                 June 30,
                                                           2022            2021           Change

Net revenues                                          $2,987,664       $502,976        $2,484,688
Cost of revenue                                       4,400,848        218,984         4,181,864
           Gross profit (loss)                        (1,413,184)      283,992         (1,697,176)

Operating expenses:


    Selling, general and administrative               1,275,672        703,902         571,770
           Total operating expenses                   1,275,672        703,902         571,770

Loss from operations                                  (2,688,856)      (419,910)       (2,268,946)

Other income (expense):


    Loss on extinguishment of debt                    -                (172,500)       172,500
    Gain on property and equipment                    87,933           -               87,933
    Unrealized loss on marketable securities          (19,494)         8,420           (27,914)
    Interest expense                                  (152,387)        (30,668)        (121,719)
    Interest income                                   9                7               2
    Other income                                      3,772            -               3,772
           Total other income (expense), net          (80,167)         (194,741)       114,574

Provision for income taxes                            -                -               -
Net loss                                              $(2,769,023)     $(614,651)      $(2,154,372)




Net Revenues

During the six months ended June 30, 2022, the Company realized $179,646 of campaign revenue compared to $490,178 in 2021. The decrease was primarily due to a shift in efforts in 2022 to the CNP Operating Business.

During the six months ended June 30, 2022, the Company's subsidiary CNP Operating generated revenue of $2.8 million from the sale of products produced from hemp material and manufactured into CBD distillate.





Cost of Revenue

The costs of revenue consist primarily of labor, fees paid for production of content for clients and the costs of placement of the content on various platforms. In 2022, the contracts required less production services and related labor than the contracts in 2021. As a result, the cost of revenue in 2022 was lower as a percentage of the revenue recognized during the quarter.

The Company's cost of revenue for the six months ended June 30, 2022 were higher than those in the corresponding year in 2021 due largely to the acquisition of CNP Operating which represented approximately $4.3 million of cost of revenue which primarily represents the cost of hemp material, manufacturing material such as solvent, fuel and equipment depreciation.





Operating Expenses

The Company's operating expenses for the six months ended June 30, 2022 were higher than those in the corresponding six months in 2021 due largely to the acquisition of CNP Operating in August 2021.

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Other Income/Expense

Other expenses during the first six months of 2022 were primarily due to interest expense related to notes payable and amortization of debt discount. In 2022, the Company recorded a $87,933 gain on the sale of property and equipment.

The Company also recorded a $19,494 unrealized loss on marketable securities in 2022 an unrealized gain of $8,420 in 2021.

Liquidity, Capital Resources and Going Concern

Our plan to continue as a going concern includes raising additional capital in the form of debt or equity, growing the CNP Operating business and the business acquired under the Emerging Growth Agreement and managing and reducing operating and overhead costs. We cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for us to raise additional capital on an immediate basis.

These matters, among others, raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

The following is a summary of our cash flows from operating, investing and financing activities for the six months ended June 30, 2022 and 2021.





                                                   Six Months Ended
                                                       June 30,
                                                  2022           2021

Cash flows used in operating activities $(1,305,560) $(416,871) Cash flows used in investing activities $(172,588) $- Cash flows provided by financing activities $1,433,237 $323,000

As of June 30, 2022, we had unrestricted cash of $125,095.

Net cash used in operating activities was $1.3 million during the six months ended June 30, 2022, compared to cash used in operating activities of $0.4 million during the same period in 2021. The increase in cash used in operating activities was primarily driven by the Company's higher net loss in 2022, partially offset by non-cash charges.

Net cash used in investing activities during the six months ended June 30, 2022 primarily consisted of the purchase of property and equipment.

Net cash provided by financing activities during the six months ended June 30, 2022 was $1.4 million, including $1.2 million in proceeds from promissory notes, proceeds from common stock of $210,000, partially offset by note repayments of $15,206. Net cash provided by financing activities during the six months ended June 30, 2021 of $323,000 was the result of proceeds from a second PPP loan of $263,000, the sale of common stock for $10,000 and the exercise of $50,000 of warrants. In 2020 net cash provided from investing activities related of $368,000 was the result of proceeds from notes payable of $413,000, offset by the payment of preferred stock interest of $45,000.





Description of Indebtedness

On September 10, 2019, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 8% per annum. Interest on the note is payable quarterly on the first business day of December, March, June and September commencing December 1, 2019. In May 2021, the Company and the holder of the promissory note reached an agreement to extend the maturity date of the note from September 30, 2022 to September 30, 2024. In connection with the extension, the Company issued 133,333 shares of its common stock to the noteholder in lieu of $40,000 of interest accrued and accruing on the promissory note through December 31, 2021.

In connection with the promissory note on September 10, 2019, the Company issued warrants to purchase 33,333 shares of the Company's common stock at an exercise price of $0.10 per share. The warrants were exercised on June 30, 2021 and the Company received $50,000.

The note was discounted by $17,624 allocated from the valuation of the warrants issued. The discount recorded on the note is being amortized as interest expense through the maturity date, which amounted to $1,479 and $1,468 for the three months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the net book value of the promissory note amounted to $497,456 including the principal amount outstanding of $500,000 net of the remaining discount of $2,544.

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On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $150,000 and issued to the SBA a note and security agreement for the amount borrowed. Outstanding borrowings accrue interest at a rate of 3.75% per annum, and installment payments, including principal and interest, of $731 are due monthly and begin 12 months from the date of the loan agreement. The balance of any remaining principal and interest is due 30 years from the date of the loan agreement. As collateral for the borrowing, the Company granted the SBA a security interest in substantially all assets of the Company.

On October 28, 2019, the Company's subsidiary CNP Operating entered into a promissory note payable with Complete Business Solutions Group, Inc ("CBSG") whereby the Company borrowed $3,050,000. The outstanding balance of the note was $1,802,125 at June 30, 2022.

On September 30, 2019, the Company's subsidiary CNP Operating entered into a promissory note payable with Eagle Six Consultants, Inc. ("Eagle") whereby the Company borrowed $550,000 bearing interest at 16% per annum. The outstanding balance of the note was $302,489 at June 30, 2022.

On June 6, 2020, the Company's subsidiary CNP Operating entered into a second promissory note payable with Eagle whereby the Company borrowed $300,000 bearing interest at 18% per annum. The outstanding balance of the note was $20,000 December 31, 2021.

On May 12, 2021 the Company's subsidiary CNP Operating restructured the CSBG note payable of $2,957,000, the Eagle #1 note payable of $550,000 and the Eagle #2 note payable of $300,000 by entering into a payment and indemnification agreement with the receivers/trustee of CBSG and Eagle. The receiver has agreed that the balance of the outstanding amounts will be paid over the course of 24 months in equal payments of $158,625. Further, the Company shall pay $20,000 per month toward the balance and Anthony Zingarelli ("Zingarelli") and Colorado Sky Industrial Supply LLC ("CSIS"), agree to personally pay the sum of $138,625 per month. Zingarelli is the only prior member of CNP Operating that signed a personal guarantee on the loans and Zingarelli is the sole member of CSIS. Zingarelli and CSIS has agreed to indemnify and hold the Company harmless from any and all losses, liabilities and claims. If a loss is incurred by the Company with respect to any claims, Zingarelli shall reimburse the Company for the amount of any such loss. The Company has recorded the Zingarelli payments during the period as contributions to additional paid in capital.

On January 10, 2020 the Company's subsidiary CNP Operating purchased a distillation machine for $248,000. The company paid $108,000 and entered into a promissory note with company owned by one of the partners. The original value of the note was $140,000 and has no terms such as interest rate, maturity or monthly payments. Imputed interested was not material. The outstanding balance of the note was $25,806 at June 30, 2022.

On Nov 19, 2020 the Company's subsidiary CNP Operating purchased equipment for $58,095 which was financed at zero interest rate. The monthly payments of $968 will be made for the next 60 months and mature on Nov 19, 2025. Imputed interested was not material. The outstanding balance of the note was $42,603 at June 30, 2022.

The Company's subsidiary CNP Operating also entered into a note payable during 2020 with the landlord for additional improvements to the facility in Centennial, Colorado. The outstanding balance of this note was $11,708 at December 31, 2020 and $42,603 as of June 30, 2022 because additional improvements were completed during the period.

On October 19, 2021, the Company borrowed $250,000 from a lender and issued a promissory note for the repayment of the amount borrowed. The promissory note is unsecured, has a maturity date of December 31, 2024 and all principal is due upon maturity. The amount borrowed accrues interest at 12% per annum and accrued interest is payable monthly commencing on December 1, 2021. The promissory note contains customary events of default permitting acceleration of repayment for nonpayment of amounts due, a bankruptcy related proceeding, breach of representations or covenants, sale of substantially all assets, and change of control.

On April 8, 2022, the Company entered into two promissory notes for aggregate proceeds of $726,000. The promissory note is unsecured, has a maturity date of April 30, 2024 and all principal is due upon maturity. The notes bear interest at 18% per annum and accrued interest is payable monthly commencing on August 1, 2022.

On May 11, 2022, the Company's subsidiary, CFN Real Estate II, LLC, entered into a promissory note with a lender for the repayment of $500,000 in connection with the $500,000 refinancing of the Company's property located in Wray, Colorado. The company received the proceeds from the refinancing on May 16, 2022. Accrued interest at the rate of 12% is payable monthly commencing on June 15, 2022, and the principal of the promissory note is payable upon maturity on June 15, 2024. The lender received a security interest in the property and equipment contained therein as collateral for the promissory note. The promissory note contains customary events of default and other conditions.

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Future scheduled maturities of long-term debt are as follows:





            Year Ended
           December 31,
2022       $1,752,010
2023       224,235
2024       1,249,650
2025       504,480
2026       3,153
Thereafter 140,173
           $3,873,701

The aggregate current portion of long-term debt as of June 30, 2022 amounted to $1,976,245, which represents the contractual principal payments due during the remainder of 2022.

Obligations Under Preferred Stock

On June 20, 2019, existing debtholders were issued an aggregate of 500 shares of Series A Preferred Stock, each with a stated value per share of $1,000, as conversion of $500,000 worth of outstanding promissory notes. The Series A Preferred Stock bears interest at 12% per annum, and is convertible into our common stock at the election of the holder at a conversion price per share to be mutually agreed between us and the holder in the future, and be redeemable at our option following the third year after issuance, without voting rights or a liquidation preference.

On June 20, 2019, we issued 3,000 shares of Series B Preferred Stock, each with a stated value of $1,000 per share, to Emerging Growth, LLC as part of the Emerging Growth Agreement. The aggregate fair value of $687,000 was recorded as part of the acquisition price of the net assets acquired from Emerging Growth, LLC. The Series B Preferred Stock bears interest at 6% per annum and is convertible into our common stock at the election of Emerging Growth, LLC at a conversion price per share to be mutually agreed between us and Emerging Growth, LLC in the future, without voting rights or a liquidation preference, except with respect to accrued penalty interest.

Other Outstanding Obligations at June 30, 2022





Warrants

As of June 30, 2022, 988,500 shares of our common stock are issuable pursuant to the exercise of warrants.





Options

As of June 30, 2022, 4,000 shares of our common stock are issuable pursuant to the exercise of options.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.





COVID-19

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including each of the areas in which we operate. While to date we have not been required to stop operating, COVID-19 has had and is expected to continue to have an adverse effect on the financial condition of us and our customers. The outbreak of COVID-19 in the U.S. has had an unfavorable impact on our business operations. Our main customer market suffered its worst decline, decreasing our revenue. Mandatory closures of businesses imposed by the federal, state and local governments to control the spread of the virus is disrupting the operations of our management, business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in a long-term economic downturn that could negatively affect future performance. We took steps to diversify our revenue model by creating our CBD ecommerce business which has higher margins during the second half of 2020 and to acquire CNP Operating in August 2021 and reduce our costs. The extent to which COVID-19 will impact our business and our consolidated financial results further will depend on future developments which are highly uncertain and cannot be predicted at this time, but may result in a material adverse impact on our business, results of operations and financial condition.

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