As used in this Annual Report on Form 10-K, 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. had
no sources of revenue, and LFTD Partners Inc. had a history of recurring losses,
which has resulted in an accumulated deficit of $4,238,735 as of December 31,
2022. LFTD Partners Inc. is currently also accruing and paying dividends on
outstanding Preferred Stock at the rate of 3% per year, and has certain bonuses
being accrued, among other ongoing financial obligations. In addition, as
extensively discussed earlier in this Annual Report on Form 10-K, we are subject
to a wide variety of Risk Factors including substantial legal and regulatory
risks. These matters cumulatively 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.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our risk factors, financial
statements and related notes that appear elsewhere in this Annual Report on Form
10-K. In addition to historical 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. Risk factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Annual Report on
Form 10-K.
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INTRODUCTION
Management's Discussion and Analysis ("MD&A") of our financial condition and
results of operations is provided as a supplement to the accompanying financial
statements and related notes to help provide an understanding of our financial
condition, the changes in our financial condition and the results of operations.
Basis of Presentation
Overview
Please refer to "Description of the Business of LFTD Partners Inc." under "ITEM
1. BUSINESS" for information.
Liquidity and Capital Resources
The following table summarizes our Company's current assets, current liabilities
and working capital as of December 31, 2022 and December 31, 2021, as well as
our Company's cash flows for the years ended December 31, 2022, 2021 and 2020:
December 31, 2022 December 31, 2021
Current Assets $ 13,853,949 $ 13,152,696
Current Liabilities $ 6,210,133 $ 11,906,270
Working Capital $ 7,643,816 $ 1,246,426
For the Years Ended
December 31,
2022 2021 2020
Net Cash Provided By/(Used In) Operating
Activities $ 3,037,426 $ 5,622,612 $ (338,036 )Net Cash Used In Investing Activities $ (916,119 ) $ (446,655 ) $ (3,509,811 )
Net Cash Used In Financing Activities $ (193,416 ) $ (4,012,306 ) $ (98,002 )
Comparison of the balance sheet at December 31, 2022 and December 31, 2021
At December 31, 2022, we had cash and cash equivalents of $3,530,623; in
comparison, at December 31, 2021, we had cash and cash equivalents of
$1,602,731.
At December 31, 2022, we did not report a dividend receivable from
Bendistillery; in comparison, at December 31, 2021, we did report a dividend
receivable from Bendistillery in the amount of $2,495.
At December 31, 2022, we reported prepaid expenses of $1,668,961 primarily
consisting of prepaid inventory of $1,527,920, prepaid commercial and general
liability insurance of $44,708, and prepaid health and dental insurance of
$38,055. In comparison, at December 31, 2021, we had prepaid expenses of
$4,262,237 primarily consisting of prepaid inventory of $4,231,167 and prepaid
health and dental insurance of $26,847. The current portion of the settlement
asset, related to the Company's settlement with its vape manufacturer in the
fourth quarter of 2022, totaled $185,024.
Accounts receivable of $2,410,327, net of $281,762 allowance for doubtful
accounts, and net of a credit note reserve of $935,881 (primarily related to the
sales allowance of $939,496), were outstanding at December 31, 2022; this is
compared to accounts receivable of $3,461,499, net of $239,101 allowance for
doubtful accounts, that were outstanding at December 31, 2021.
At December 31, 2022, we had inventory of $6,023,967; in comparison, at December
31, 2021, we had inventory of $3,809,944.
Total current assets at December 31, 2022 of $13,853,949 were adequate for us to
fund current operations. In comparison, at December 31, 2021, we had total
current assets of $13,152,696.
At December 31, 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 December 31, 2022 and December 31, 2021, our other assets
included our investments in Ablis, Bendistillery and Bend Spirits, which total
$1,896,200. At December 31, 2022, we also reported a net finance lease
right-of-use asset of $1,274,400, a net operating lease right-of-use asset of
$496,604, net fixed assets of $1,020,255, the non-current portion of the
settlement asset at $185,024, and security and state licensing deposits of
$25,600.
In comparison, at December 31, 2021, we also reported a net finance lease
right-of-use asset of $1,227,532, a net operating lease right-of-use asset of
$76,412, net fixed assets of $433,213, net intangible assets of $1,386 and
security and state licensing deposits of $6,900. At December 31, 2021, Lifted
wrote off its investment in SmplyLifted LLC, which was previously valued at
$84,451.
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At December 31, 2022, current liabilities of $6,210,133 primarily consisted of
accounts payable and accrued expenses of $4,049,897, finance lease liability of
$1,357,524, and deferred revenue of $594,086. In prior years, the Company's
payables have been greater than its cash on hand. Prior to the Company's
acquisition of Lifted, the Company had inconsistent income-generating ability
and was therefore reliant on raising money from loans or stock sales.
In comparison, at December 31, 2021, current liabilities of $11,906,270
primarily consisted of accounts payable and accrued expenses of $4,671,382,
accounts payable to an affiliate of NWarrender of $4,607, deferred revenue of
$2,174,393, a company-wide management bonus pool accrual of $1,556,055, income
tax payable of $1,242,974, management bonuses payable of $941,562, interest
payable to related parties of $13,269, and total preferred stock dividends
payable of $13,722.
The Company had an accumulated deficit of $4,238,735 and $11,414,602 as of
December 31, 2022 and 2021, respectively.
Comparison of operations for the year ended December 31, 2022 to the year ended
December 31, 2021, and the 2020 Stub Year
During the year ended December 31, 2022, the Company recognized net sales of
$57,416,535. In comparison, during the year ended December 31, 2021, the Company
recognized net sales of $31,656,932. During the 2020 Stub Year, the Company
recognized net sales of $5,344,320.
During the year ended December 31, 2022, hemp-derived products made up
approximately 97% of sales, and psychoactive, non-hemp-derived products made up
approximately 3% of sales. During the year ended December 31, 2021, hemp-derived
products made up 99% of sales, and nicotine products made up 1% of sales. During
the 2020 Stub Year, hemp-derived, nicotine and sanitizer products made up
approximately 60%, 20% and 20% of Lifted's sales, respectively.
No stock compensation expense was recognized during the years ended December 31,
2022 and December 31, 2021. In comparison, stock compensation expense of
$1,393,648 was recognized during the 2020 Stub Year. Of this, $733,499 related
to the value of warrants issued to GJacobs upon the execution of his employment
agreement on February 24, 2020, pursuant to the Compensation Agreement. The
difference, $660,149, related to the value of warrants issued to WJacobs upon
the execution of his employment agreement on February 24, 2020, pursuant to the
Compensation Agreement.
During the year ended December 31, 2022, the Company expensed $6,423,584 related
to payroll, consulting and independent contractor expenses. In August 2022, with
the assistance of a third party firm, Lifted applied for Employee Retention Tax
Credits ("ERC") for certain quarters of 2020 and 2021. In the fourth quarter of
2022, gross credits of $233,534 were recovered, and Lifted paid the third party
firm a commission of $58,384. The $233,534 ERC is accounted for as a reduction
in payroll expenses in the fourth quarter of 2022, and the commission of $58,384
was categorized as Professional Fees. As of December 31, 2022, the Company also
accrued $49,042 for federal income taxes estimated to be payable after filing
amended 2020 and 2021 federal income tax returns, as is required for receiving
the ERC. In comparison, during the year ended December 31, 2021, the Company
expensed $3,621,624 related to payroll, consulting and independent contractor
expenses; this is up from $809,966 in payroll, consulting and independent
contractor expenses during the 2020 Stub Year. 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 December 31,
2022, the bonus payable to this Lifted employee totaled $265,694. This bonus
payable is consolidated into the Accounts Payable and Accrued Expenses line item
in the Consolidated Balance Sheets.
During the year ended December 31, 2022, the Company expensed and paid bonuses
totaling $233,336 to certain members of the management team of Lifted; however,
none of this $233,336 went to GJacobs, WJacobs or NWarrender, and it is
accounted for as Company-Wide Management Bonus Pool expense on the Consolidated
Statements of Operations. This $223,336 will be deducted from the anticipated
2023 company-wide bonus pool on a dollar-for-dollar basis. During the year ended
December 31, 2021, the Company expensed $1,559,334 related to the company-wide
management bonus pool; this was paid in the first quarter of 2022. There was no
company-wide management bonus pool accrued for during the 2020 Stub Year.
During the year ended December, 31, 2022, $500,000 in management bonuses were
expensed. The Amended Compensation Agreement provides that an aggregate of
$350,000 shall be paid by the Company to GJacobs and WJacobs on December 1,
2021, but has not yet been paid (the "December 1, 2021 Compensation"). Pursuant
to the Omnibus Agreement, the December 1, 2021 Compensation was terminated, but
provided that GJacobs and WJacobs have not resigned as officers of the Company
on or before December 31, 2022, an aggregate of $500,000 in bonuses shall be
paid by the Company to GJacobs and WJacobs. On February 14, 2022, pursuant to
the Amended Omnibus Agreement, this $500,000 was recharacterized as a retention
bonus and allocated among NWarrender, GJacobs and WJacobs wherein each received
$166,666, respectively, on December 30, 2022. In comparison, during the year
ended December 31, 2021, $650,000 in management bonuses were expensed, and
during the 2020 Stub Year, $350,000 in management bonuses were expensed.
During the year ended December, 31, 2022, professional fees of $888,609 were
expensed. In comparison, during the year ended December 31, 2021, $499,752 in
professional fees were expensed, and during the 2020 Stub Year, $374,489 in
professional fees were expensed.
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Driven by increased sales, bank charges and merchant fees increased to $477,718
during the year ended December 31, 2022, from $392,757 during the year ended
December 31, 2021, from $48,814 during the 2020 Stub Year.
During the years ended December 31, 2022 and 2021, the Company incurred $662,494
and $337,044, respectively, in advertising and marketing expenses, which
primarily related to trade shows, marketing displays, public relations and
digital marketing. In comparison, during the 2020 Stub Year, the Company
incurred $115,102 in advertising and marketing expenses, which primarily related
to public relations and digital marketing.
Bad debt expense of $78,457 was recognized during the year ended December 31,
2022, compared to $380,621 during the year ended December 31, 2021, and $124,802
during the 2020 Stub Year.
Depreciation and amortization expense of $32,155 was recognized during the year
ended December 31, 2022, compared to $90,147 during the year ended December 31,
2021, and $16,385 during the 2020 Stub Year.
Other operating expenses increased to $1,884,209 during the year ended December
31, 2022, from $629,012 during the year ended December 31, 2021, from $222,052
during the 2020 Stub Year. Other operating expenses include, for example,
insurance expenses, rent expenses, repairs and maintenance, state license and
filing fees, excise taxes, health and dental expenses, and warehouse and lab
expenses below the Company's capitalization threshold ($2,500), and other
expenses.
Total Other Income of $181,255 in 2022 consisted primarily of settlement income
of $478,617, offset by interest expense of $120,197 and loss on the disposal of
fixed assets of $185,195. Total Other Expenses in 2021 of $613,539 primarily
consisted of $388,726 in impairment of Lifted's investment in SmplyLifted,
$195,571 in loss from Lifted's 50% membership interest in SmplyLifted, and
interest expense of $142,427. In comparison, total Other Expenses during the
2020 Stub Year of $16,221 primarily consisted of gain on forgiveness of debt of
$91,272, interest expense of $65,186, settlement costs of $97,000, refund of
merchant account fees of $34,429, settlement income of $12,500, and interest
income of $8,098.
During the year ended December 31, 2022, the Company recognized net income of
$7,196,327; this is compared to net income of $5,799,982 recognized during the
year ended December 31, 2021, and net loss recognized during the 2020 Stub Year
of $1,534,589.
Net cash provided by operating activities was $3,037,426 for the year ended
December 31, 2022. Net cash provided by operating activities in 2022 was
generated from net income of $7,196,327, which includes non-cash charges for
inventory write-downs of $4,418,922 and sales allowances of $939,496, offset by
cash used for working capital, primarily inventory, payment of the company-wide
Bonus Pool for 2021 (the "Modified 2021 Bonus Pool Amount"), the Deferred
Compensation, and income taxes. Net cash provided by operating activities was
$5,622,612 for the year ended December 31, 2021, compared to net cash used in
operating activities was $338,036 for the 2020 Stub Year. During the year ended
December 31, 2021, net cash provided by operating activities was primarily
generated from net income of $5,799,982. Net cash used in operating activities
in 2021 was primarily for prepaid expenses and for the purchase of inventory.
Offsetting the used cash were increases in accounts payable and accrued expenses
and deferred revenue. Net cash used in operating activities during the 2020 Stub
Year of $338,036 was also primarily for the purchase of inventory and prepaid
expenses. Offsetting the used cash were increases in accounts payable and
accrued expenses of $255,908 and deferred revenue of $1,031,424.
Net cash used in investing activities was $916,119 and $446,655, during the
years ended December 31, 2022 and 2021, respectively. Net cash used in investing
activities was $3,509,811 during the 2020 Stub Year. Net cash used in investing
activities in 2022 related to net purchases of fixed assets. Net cash used in
investing activities in 2021 primarily related to the net purchase of fixed
assets and loans to SmplyLifted, offset by the reduction of the CBD Lion note
receivable. Net cash used in investing activities during the 2020 Stub Year
primarily related to the net cash paid to NWarrender as part of the acquisition
of Lifted, purchases of fixed assets, and a reduction of the CBD Lion note
receivable as we received payments from CBD Lion. We also invested $200,000 into
SmplyLifted LLC; this investment amount was reduced by SmplyLifted's net loss in
2020. We also made loans totaling $293,750 to SmplyLifted LLC for the purchase
of inventory.
During the year ended December 31, 2022, net cash used in financing activities
was $193,416. 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.
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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 impacting the net cash used in financing activities during the year ended
December 31, 2022 was the repurchase of $150,000 of Company common stock,
repayment of the finance lease liability of $70,267, and payments of dividends
to the Company's Series A and Series B Convertible Preferred stockholders
totaling $23,149, offset by proceeds of $50,000 from the exercise of warrants
and options.
In comparison, during the year ended December 31, 2021, net cash used in
financing activities was $4,012,306, primarily driven by the repayment of the
$3,750,000 promissory note payable to NWarrender and payments of dividends to
the Company's Series A and Series B Convertible Preferred stockholders totaling
$211,033, offset by proceeds of $142,023 from the exercise of warrants and
options.
Net cash used in financing activities was $98,002 during the 2020 Stub Year,
primarily driven by payments of dividends to the Company's Series A and Series B
Convertible Preferred stockholders totaling $213,450, offset by proceeds of
$149,623 from a Paycheck Protection Program Loan.
During the year ended December 31, 2022, net cash increased by $1,927,892. In
comparison, during the year ended December 31, 2021, net cash increased by
$1,163,651, and during the 2020 Stub Year, net cash decreased by $3,945,849.
On February 24, 2020, the Company acquired 100% of the ownership interests of
Lifted. All of the Company's sales are generated by the Company's 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.
The Company has a history of losses as evidenced by the accumulated deficit at
December 31, 2022 of $4,238,735. 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 1 - BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES of the consolidated financial statements
accompanying this Annual Report on Form 10-K.
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 12 - 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.
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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 and its variants
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 year ended
December 31, 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.
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. 